On 20 September 2022, Indonesia’s People’s Representative Council (Dewan Perwakilan Rakyat / (“DPR”)) has approved to continue the Draft Bill on Development and Strengthening of the Financial Sector (Rancangan Undang-Undang tentang Pengembangan dan Penguatan Sektor Keuangan / (“RUU PPSK”)[1] by proposing the RUU PPSK in the 5th Plenary Meeting of the DPR RI for Session I Year 2022-2023. This draft is also known as the Omnibus Law of the financial sector, as it integrates the amendment for several regulations altogether in a single law.
This RUU PPSK is expected to encompass and regulate developments in the financial services industry, ensuring legal certainty for players conducting new financial service concepts, as well as providing protection to the consumers. This RUU PPSK is drafted as a response to cope issues in the financial sector in Indonesia caused by the COVID-19 pandemic.
The RUU PPSK will integrate the amendment of over 15 laws and regulations in the financial sector, as well as integrating several existing provisions, acting as an “umbrella law” for the financial sector. In general, the RUU PPSK will provide significant changes in the financial sector by updating the current provisions to be more aligned with the prevailing conditions in the financial sector. For example, the RUU PPSK is intended to increase the nominal value of administrative sanctions in certain regulations, ensuring that sanctions for incompliance to laws and regulations is relevant with the current financial conditions. Despite notable significant changes in certain prevailing laws and regulations, the changes for certain specific sectors, such as social security and micro finances are not as significant.
This article aims to highlight the notable plan changes in certain sectors stipulated the in RUU PPSK which was circulated lastly on 20 September 2022. Below is the summary of significant changes in certain key sectors, provided in the RUU PPSK, among others:
- Crypto Assets
The bill expands the activities of the financial services sector definition by now including the crypto assets having risk character. As such, the authority over such crypto assets would be under OJK pursuant to the bill.
- Capital Market
The provisions under Law No. 8 of 1995 on Capital Market (“Capital Market Law”) are significantly affected by RUU PPSK. Among other major changes, the RUU PPSK broadens the definition of securities under Article 1 (5) of Capital Market Law. Currently, the scope is restricted to only promissory notes, commercial paper, shares, bonds, debt instrument, Participation Units of collective investment contracts, futures contracts related to Securities, and all derivatives of Securities. However, in the RUU PPSK, the definition of securities encompasses securities which provide direct or indirect economic benefits to the holder or other party based on agreement and each derivative of Securities, that be transferred and/or traded in the Capital Market.
This RUU PPSK also provides several provisions regarding (i) securities crowdfunding, which is currently regulated under Financial Services Authority (Otoritas Jasa Keuangan / “OJK”) Regulation No. 57/POJK.04/2020 of 2020 on Securities Offering Trough Information Technology Based Crowdfunding Services, as amended by OJK Regulation No. 16/POJK.04/2021 and (ii) secondary carbon trading on the carbon exchange, which is currently regulate in Presidential Regulation No. 98 of 2021 on Implementation of Carbon Economic Value for Achieving Nationally Determined Contribution Targets and Control of Greenhouse Gas Emissions in National Development. Therefore, this RUU PPSK will provides the general legal basis for such sectors.
Mutual Funds (Reksa Dana)
Currently, mutual funds are merely allowed to directly receive and/or provide loans for debt securities and deposit in banks. The RUU PPSK will provide the possibility for mutual funds to receive and/or provide loans aside from debt securities, however this provision is subject to certain provisions will be regulated under an OJK Regulation which currently have not been regulated by the OJK. This is further confirmed under the elucidation under the RUU PPSK which stipulates that in generally mutual funds are permitted to receive and/or provide loan. However, in certain conditions, the OJK may restrict mutual funds to receive and/or provide loans. Hence, the explanation reflects that the essence of mutual funds has shifted from prohibited into permitted to receive and/or directly provide loan.
Public Offering Process
Under the RUU PPSK, the process of conducting public offering is also shortened. Under the RUU PSSK, the Public Offering Registration Statement (Pernyataan Pendaftaran Penawaran Umum) will become automatically effective on the 20th day after the registration statement is deemed complete by the OJK. This is a significant change, as currently, the statement is deemed automatically effective on the on the 45th day as of registration statement is deemed complete by the OJK.
This RUU PPSK also shortens certain reporting deadlines, such as reporting of Directors and Commissioners of issuers or public companies for ownerships in the company, any changes of ownership, reporting on the parties owning at least 5% of shares in issuers or public companies, and others, from 10 days to 5 days.
3. Insurance
RUU PPSK presented a legal basis as well as integrating provisions related to joint venture insurance which had previously been regulated and implemented under Government Regulation No. 87 of 2019. Another significant change in the insurance sector under the RUU PPSK derives from the amendment of Law No. 24 of 2004 on the Indonesian Deposit Insurance Corporation (Lembaga Penjamin Simpanan / “LPS”). Under the RUU PPSK, the LPS is now has additional functions to guarantee insurance policies and conduct resolution of Banks and Insurance Companies. This provision will provide a sigh of relief for consumers of insurance and sharia insurance companies, as the general public’s funds in insurance companies may now be guaranteed and the stricter regulation to the insurance sector will be applicable, noting how currently there are numerous issues in the insurance sector which may jeopardize public.
Consequently, several provisions under Law No. 40 of 2014 on Insurance are also amended, notably related to the coverage. Under the bill, the coverage of insurance protection is valid since the premium payment is received by another party who cooperates with conventional and/or sharia insurance companies. Previously, the coverage of insurance protection is deemed effective from the time the premium payment is given to the insurance agent. The RUU PPSK will update several provisions by now requiring conventional and syariah insurance companies to become a member of policy insurance programs (for insurance policies). The policy insurance programs itself will be organized by the LPS. This policy guarantee program is intended to protect consumers from conventional and sharia insurance companies whose business licenses are revoked due to financial difficulties. Hence, this program provides legal protection for the consumers of conventional and sharia insurance.
4. Cooperative (Koperasi)
The changes to Law No. 25 of 1992 on Cooperative, as lastly amended by Law No. 11 of 2020 on Job Creation (“Cooperative Law”), is specifically regarding the relevant authority that has the authority to issue or grant the approval on the Saving and Loan Cooperatives license.
The RUU PPSK now requires Saving and Loan Cooperatives (Koperasi Simpan Pinjam) to obtain approval from The Financial Services Authority prior conducting business activities. This is a significant change as currently, Saving and Loan Cooperatives are solely supervised under the auspices of the Ministry of Cooperatives and Small and Medium Enterprises (Kementerian Koperasi dan Usaha Kecil dan Menengah).
The RUU PPSK stipulates the authority of the OJK to only medium and large scales Saving and Loan Cooperatives. Other additional authorities of the OJK provided by the RUU PPSK includes fit and proper assessment for management and supervisors of Saving and Loan Cooperatives, as well as conducting inspections. It is also stipulated that declaration of bankruptcy of medium and large scale Saving and Loans Cooperatives may only by submitted by the OJK. However further provisions regarding the authority of the OJK with respect to Saving and Loan Cooperatives will be further regulated specifically under an OJK Regulation.
5. Banking
The RUU PPSK provides certain significant changes to Law No. 7 of 1992 on Banking, as lastly amended by Law No. 11 of 2020 on Job Creation (“Banking Law”), among others, The RUU PPSK narrows down the legal entity form for commercial banks and rural banks, which may only be in the form of limited liability companies (Perseroan Terbatas), whereas the current provision allows commercial banks and rural credits banks to also be in the form of Cooperatives.
However, the most notable change in this sector is the broadening of scope of rural banks. The RUU PPSK also amend the nomenclature from Bank Perkreditan Rakyat Syariah into Bank Perekonomian Rakyat Syariah. In addition to the changes of the nomenclature, RUU PPSK will also expands the general scope, among others, allowing rural banks to conduct trade of foreign exchange and conduct transfer of funds.
The RUU PPSK plans to transfer certain scope of authorities from Bank Indonesia to OJK, among others with regards to bank examination authority, receive bank activities related information, and documents examination. The transfer significantly affects the general regulatory and compliance obligations of banking companies, aside from having to deliver data, information, documents, and other information regarding its business to the OJK instead of Bank Indonesia.
6. Sharia Banking
In the Sharia Banking sector, several provisions under Law No. 21 of 2008 on Sharia Banking (Bank Syariah) are also updated by the RUU PPSK. Among others are the shifting of several scopes of authority from Bank Indonesia to the OJK. The RUU PPSK stipulates that the authority of granting business licenses to conduct business activities and the opening of a Sharia Bank branch offices is now under the auspices of the OJK. Further, the Sharia Banks will have the obligation to submit audited financial reports to OJK.
Under the RUU PPSK, the Sharia Rural Bank (Bank Perkreditan Rakyat Syariah / “Sharia BPR”) may now conduct mergers with other Microfinance Institutions, noting that the surviving entity of such merger must be the Sharia BPR. The legal entity of Microfinance Institutions may be in the form of limited liability companies and Cooperatives. The current prevailing POJK No. 21/POJK.03/2019 stipulates that a merger is a legal act carried out only by fellow Sharia BPRs. The requirement to spin off the syariah unit business by a commercial bank is also revised thus the deadline by end of June 2023 is now taken out by the bill.
7. Financing Services Provider
The RUU PPSK also altered several provisions in financing services that previously existed in laws and regulations such as POJK No. 29/POJK.05/2014. The RUU PPSK will amend the provisions regarding the form of legal entity providing financing services business to be in the form of a limited liability company, as the previous provisions the form of legal entity can be in the form of other legal entity and other business entities such as cooperatives. Further, the RUU PPSK will require the providers of financing services to become members of associations to obtain approval from the OJK.
8. Venture Capital
The RUU PPSK regulates venture capital which was previously has been regulated in several laws and regulation such as the Minister of Finance Regulation No. 18/PMK.010/2012 and POJK 35/POJK.05/2015. The formulation contained under the RUU PPSK does not differ much from what has been previously regulated under the prevailing laws and regulations. The RUU PPSK Bill requires the directors, commissioners, and controlling shareholders to pass the fit and proper test of venture capital. In addition, the RUU PPSK introduces certain criterion for the revocation of venture capital business licenses once they do not carry out business activities no later than 3 months from the date of the business license issuance. The RUU PPSK also strengthens the authority of OJK to request venture capital to increase capital, replace directors and/or commissioners, write-off non-performing financing, sell shares to buyers, and other actions in the event of difficulties that endanger the continuity of venture capital business.
9. Pension Funds
RUU PPSK amends several provisions regarding pension funds that have previously been regulated through Law No. 11 of 1992 concerning Pension Funds (“Law 11/1992“). RUU PPSK transfers the authority to regulate and supervise pension funds, from the Ministry of Finance to the OJK. Further, RUU PPSK prohibit Pension Funds to only have a participant contributions (iuran peserta) without employers’ contribution (iuran pemberi kerja).
10. Microfinance Institutions
The Bill discusses new provisions related to mitigating and coping financial difficulties by giving the OJK the authority to ask microfinance institutions to do several things, such as increase of capital, replacing the board of commissioners and/or directors, writing off bad debts, merging or consolidating with other MFIs, as well as other actions to be decided by OJK.
11. Financial Conglomerate
The bill introduces provisions related to financial conglomerates that have previously been covered in POJK No. 45/POJK.03/2020. A financial conglomerate is defined as a financial service institution that is significant and is in one group because of its ownership and/or control relationship. Under the POJK No. 45/POJK.03/2020 regulation, it has been regulated that the criterion for financial conglomeration is if the total group assets are at least Rp 100,000,000,000,000 (one hundred trillion rupiah) and conducting business activities in more than one type of financial service institution. However, the POJK stipulates that OJK can designate a group as a financial conglomerate even if it does not meet these criteria.
The presence of this provision in the RUU PPSK requires each party controlling a financial conglomerate to form a Financial Holding Company (Perusahaan Induk Konglomerasi Keuangan / (“PIKK“)) which is owned by the controlling shareholder or ultimate shareholder. PIKK must be responsible for all financial conglomerate activities. This Financial Holding Company is regulated and supervised by OJK and Bank Indonesia, however, the appointment of PIKK only needs approval from OJK. With regards to this provision, OJK has the authority to request for data and information from parties related to financial conglomerates. Although this new provision seems to restrict the financial conglomerates activity, nonetheless the RUU PPSK stipulates that tax incentives can be provided for the process of PIKK formation.
12. Financial Sector Technology Innovation
The bill also supports the digitization of the financial sector in Indonesia through regulations related to Financial Sector Technology Innovation (Inovasi Teknologi Sektor Keuangan / (“ITSK“)) which can be utilized for conventional and sharia financial activities. The presence of ITSK is regulated and supervised by Bank Indonesia and OJK, which also includes the provision of technological innovation trial facilities (sandbox). Further, RUU PPSK stipulates that ITSK must submit periodic and incidental data, information, reports to Bank Indonesia and OJK. The new clause also requires ITSK to be registered as members of the ITSK organizer association which has been approved by Bank Indonesia and OJK. The purpose of this ITSK association is to provide guidance and supervision to ITSK provider.
13. Consumers’ Data Protection
As part of the effort to provide consumers’ protection, the RUU PPSK further stipulates regarding the protection of consumer data in the midst of digitizing the financial sector by requiring financial sector business actors (Pelaku Usaha Sektor Keuangan / (“PUSK”)) to in comply to the principles of personal data protection and conduct business activities in accordance with the laws and regulations regarding personal data protection. The Bill stipulates that the principle of protecting personal data which now includes the obligation to collect and manage personal data in a limited, specific, transparent, and lawful manner. PUSK business activities which related to consumers’ personal data shall be subject to the prevailing provisions concerning personal data protection.
The PUSK is required to have a mechanism for resolving consumer complaints. If the complaint mechanism is unable to resolve consumer problems, consumers may submit complaints to the dispute resolution agency or OJK based on default, unlawful acts, or other actions as regulated in the provisions of laws and regulations. This provision contains the obligation to prove the element in claim for compensation in the case of unlawful acts done by PUSK.
14. Establishment of New Oversight Agencies
Aside from changes to prevailing laws and regulations, the bill also introduces new supervisory bodies to increase the performance, accountability, independence, transparency, and credibility of financial regulatory bodies. The promulgation of the RUU PPSK will also produce the establishment the LPS Supervisory Body, OJK Supervisory Body, and Bank Indonesia Supervisory Body. The establishment of such supervisory bodies is expected ensure proper oversight to the regulatory bodies, which is currently non-existent.
15. Bankruptcy and Suspension of Payment
Under the bill, the party which may file the application of bankruptcy and/or suspension of payment of a Debtor are:
- OJK if the Debtor is a bank, securities company, stock exchange, alternative market operator, clearing and guarantee institutions, depository and settlement institutions, organizers of investor protection funds, insurance companies, pension funds, financial institutions, microfinance institution, crowdfunding service providers, and other financial service institutions under the supervision of OJK.
- Bank Indonesia if the Debtor is payment system infrastructure providers, payment service provider, electronic trading platform providers, central counterparty, and other institutions under the supervision of Bank Indonesia.
Authors Comment
The proposed amendments under the RUU PPSK updates regulations in the financial sector, by broadening and aligning it with current and new developments of financial sector of Indonesia. This “Omnibus Law” for the financial sector is expected to not only provide significant changes in the financial sector, update and harmonize regulatory concepts which are no longer applicable in the present but also boost the contribution of financial services sector in national economic growth which is sustainable and inclusive
Several significant changes are introduced such as simplification of the IPO Process and centralize authority several regulatory and supervision authorities (such as from Bank Indonesia to the OJK in the banking industry and from the Ministry of Cooperatives and Small Medium Enterprises to the OJK in regulating medium and large Loan and Savings Cooperatives). In the insurance sector, the RUU PPSK will provide a consumer protection over insurance policies which will be subject to insurance programs under the LPS. In the Sharia Banking sector, the RUU PPSK will open the possibility for Micro Financial Institutions to conduct mergers with Sharia Rural Banks. Lastly, the promulgation of RUU PPSK will introduce several new supervision bodies for the OJK, LPS, and Bank Indonesia, in which to ensure proper oversight for the respective regulatory bodies.
For Further Information, Please Contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
- Draft Bill on Developing and Strengthening of the Financial Sector (Rancangan Undang-Undang tentang Pengembangan dan Penguatan Sektor Keuangan / (“RUU PPSK”) version 20 September 2022.
