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Regulatory framework
What national authorities regulate the provision of financial products and services?
Provisions of financial products and services in Indonesia are regulated by two independent government bodies: the Financial Services Authority (OJK) and Indonesia’s central bank (BI). The OJK focuses on micro-prudential policy and oversees all financial services institutions, while BI concentrates on macro-prudential policy with the prime objective of achieving and maintaining stability of the rupiah. In pursuing this objective, BI undertakes three sectoral tasks: formulating and implementing monetary policy, regulating and maintaining payment system availability, and maintaining financial system stability.
What activities does each national financial services authority regulate?
The OJK regulates activities in the field of (1) banking, (2) capital markets (which include securities companies, securities brokers, and asset management companies), and (3) financial services in the fields of insurance, pension funds, financial institutions and other financial services. Fintech activities, to the extent that they do not relate to payment systems, are also under the supervision of the OJK. Peer-to-peer lending and equity crowdfunding are also regulated by the OJK. The scope of OJK regulation (https://www.ojk.go.id/en/regulasi/otoritas-jasa-keuangan/undang-undang/Pages/Law-of-the-Republic-of-Indonesia-Number-21-of-2011-on-Financial-Services-Authority.aspx) includes the organisation of financial institutions (such as licensing requirements, type of products, and activities that can be performed by financial institutions), level of soundness, and the application of prudential principles. The OJK also has the authority to investigate financial institutions.
BI regulates and supervises payment systems in Indonesia such as card-based payment activities, payment gateways, issuance of electronic money, foreign exchange activities, rupiah currency handling services and remittance businesses. A business that intends to engage with any of these payment system activities requires a licence from BI.
What products does each national financial services authority regulate?
The OJK has comprehensive supervisory roles over the activities of financial services institutions; thus all products issued by each type of financial services institution will need to be approved or reported to the OJK. For the banking sector, all products or services issued by banks must obtain prior approval from the OJK. This also includes deposit and loan products. Banks that act as an agent of offshore financial products must also obtain prior approval from the OJK before engaging in such activity.
In the capital markets sector, under the Indonesian Capital Market Law, securities include promissory notes, commercial paper, shares, bonds, evidence of indebtedness, participation units of collective investment contracts, futures contracts related to securities and all securities derivatives. The OJK supervises all securities transactions, in the primary and secondary market (through over-the-counter transactions).
Securities transactions include the following: the offering of securities by securities issuers; outright sales and purchases; grants or bequeathed grants; gifts, donations, gratuities and equivalent transactions; waqf; exchanges; transfers relating to court rulings; transfers relating to mergers, consolidations, acquisitions and splits; repurchase agreement transactions; buybacks and so on. These are carried out, either directly or indirectly, via Indonesian registered or licensed securities companies, which include securities underwriters and brokers, investment managers and other parties, as determined by the OJK.
Products regulated by BI relate to payment systems, which include credit, ATM, and debit cards, electronic money and wallets, payment gateways, forex trading platforms, structured products and certificates of deposit transacted in the money market.
What is the registration or authorisation regime applicable to financial services firms and authorised individuals associated with those firms? When is registration or authorisation necessary, and how is it effected?
Each financial services entity must obtain the appropriate licences from either the OJK or BI (depending on their activities) before starting operations. An application for these licences can be made immediately upon establishment of the company. One noteworthy feature is the restrictions on foreign ownership in the financial services sector. Some financial services sector activities are closed to foreign investment, such as microfinance institutions, while others are permitted a specified foreign ownership percentage, such as multi-finance (85 per cent), the insurance sector (80 per cent) and banking (99 per cent).
The controlling shareholder of a financial services company must also pass a fit and proper test carried out by the OJK before acquiring ownership in the company concerned, to demonstrate it has the capability, qualifications, and financial standing to assume this role. The same requirement also applies to board members of the company. BI also applies the same requirement, even though it is not always explicitly stated in the regulation concerned. For instance, in the remittance business, the fit and proper test it is not an explicit requirement; however, case by case, BI might interview controlling shareholders or board members in connection with an application for a remittance licence.
Licences are also required for individuals that represent securities companies in performing their services; this includes representatives of broker dealers, underwriters and investment managers. All of these licences are issued by the OJK. An individual who intends to sell mutual funds or other investment products must also obtain beforehand a mutual fund agent sales representative licence. To support a licence application, the individual must provide evidence of certification by a professional body recognised by the OJK.
A separate regime applies for fintech, under both OJK and BI supervision. Due to the absence of specific regulation for each fintech area, the authorisation for a company engaged in fintech is recordation. Unlike general licences, which must be obtained before the commencement of operations, a fintech company may start to operate even before being recorded with OJK or BI. Once so recorded, the company will be subject to a regulatory ‘sandbox’ process, the outcome of which would then determine whether the company may continue to operate with ‘recorded’ status, without a specific licence from OJK or BI. Alternatively, it may be required to apply for a specific business licence from the OJK or BI, or be asked to cease operating if deemed not to be in compliance with the prevailing laws and regulations in Indonesia.
What statute or other legal basis is the source of each regulatory authority’s jurisdiction?
BI was established as Indonesia’s central bank on 1 July 1953. At that time, BI’s main role was to act as a circulation bank as well as a commercial bank that provided loan facilities. BI was not involved in monetary policy, as the Monetary Board held that role. In 1965, BI’s status as a central bank was removed, and BI then acted as a full commercial bank. BI’s central bank role was reinstated in 1968 under Law No. 13 of 1968. BI also had new roles as a development agent and administrator of the state treasury: thus, since 1968 BI has no longer acted as a commercial bank.
The prime objectives of BI are to attain and maintain Rupiah (IDR) stability; the removal of BI’s role as a development agent was stipulated in Law No. 23 of 1999 (as amended) (BI Law https://www.ojk.go.id/en/kanal/perbankan/regulasi/undang-undang/Pages/Act-of-the-Republic-of-Indonesia-Number-7-of-1992-concerning-Banking-as-Amended-by-Act-Number-10-of-1998.aspx). Since that time, BI has incorporated the control of inflation within its monetary policy regime.
The establishment of the OJK was mandated by the BI Law, under which a new government body was established, whose main purpose was to oversee the banking sector. This task later expanded to include all financial institutions. From 1999 until the establishment of OJK, all financial institutions (including banks) were supervised by BI. The OJK was established in 2011 under Law No. 21 of 2011 (Law 21/2011). Previously, non-bank financial services institutions fell under the authority of the capital market and financial institution supervisory agency (Bapepam-LK) and BI, and Bapepam-LK then transferred its supervisory responsibilities to OJK.
What principal laws and financial service authority rules apply to the activities of financial services firms and their associated persons?
Financial services in banking, capital market, multi-finance, insurance, microfinance and pension funds have their own set of laws. However, details of their business operation, such as capitalisation structure, corporate governance, licensing requirements (including licensing of their associated personnel), reporting obligations, anti-money laundering rules and risk management, are stipulated in OJK regulations.
Other financial services are subject to regulations established by either the OJK or BI and are broadly similar in scope to those applicable to banking, capital markets, insurance, microfinance, and pension funds.
Financial services in the capital market sector must also follow the rules and regulations set out by the Indonesian stock exchange, the Indonesian Clearing and Guarantee Corporation and the Indonesian Clearing and Guarantee Institution.
What are the main areas of regulation for each type of regulated financial services provider and product?
The main areas of regulation for financial institutions, both under the supervision of OJK and BI, include:
What additional requirements apply to financial services firms and authorised persons, such as those imposed by self-regulatory bodies, designated professional bodies or other financial services organisations?
Each financial firm and its authorised personnel may be subject to rules and regulations of the professional association concerned. For example, a peer-to-peer lending company would need to comply with the code of conduct of the Indonesian Joint Funding Fintech Association, the focus of which includes the maximum interest that can be charged to customers and periods for repayment or collection. These requirements are not stipulated in the OJK regulation on peer-to-peer lending.
For the capital market sector, securities trading follows the policies, rules and procedures of the Indonesian stock exchange, the Indonesian Clearing and Guarantee Corporation and the Indonesian Clearing and Guarantee Institution. They include:
Law stated date
Give the date on which the information above is accurate.
21 January 2021.
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