27 January 2021
To catch up with the digital development and innovation, Bank Indonesia issued a new regulation on 29 December 2020, i.e. Bank Indonesia Regulation Number 22/23/PBI/2020 on Payment System (Reg 22). Even though it was issued in 2020, Reg 22 will only be effective on 1 July 2021. One of the most important regulations in Reg 22 is the restriction of foreign direct investment for companies who carry out activities in the payment system. Bank Indonesia states that one of the reasons for this restriction is to strengthen the institutional aspects of payment system providers. Other than this, Reg 22 also regulates other matters relating to among others licensing, corporate actions, corporate governance.
This article will set out the key highlights of Reg 22.
Classification of Payment System Providers
Reg 22 classified payment system providers into:
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Payment Services Provider (PJP)
PJP are banks or non-bank institutions which provide services in facilitating payment transaction to users. The PJP carries out activities of account information services, payment initiation and/or acquiring services, account issuance services, and/or remittance services.
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Payment System Infrastructure Provider (PIP)
PIP are parties that provide infrastructure for transferring funds. The PIP carries out activities of clearing and/or final settlement.
Foreign Direct Investment Restriction
Reg 22 introduces Foreign Direct Investment (FDI) restriction for PJP and PIP business. For PJP business, it is open to 85% foreign shareholding participation, provided that 51% voting rights and control of the PJP company must be hold by the Indonesian shareholders. On the other hand, for PIP business, it is only open to 20% foreign shareholding participation, provided that 51% voting rights and control of the PJP company must be hold by the Indonesian shareholders. The calculation of the shareholding participation will be traced until the ultimate beneficiary of the shareholders.
By the distinction of maximum participation in the economic and voting right, it can be assumed that the regulator intends to put the control of PJP and PIP business in the hand of Indonesian shareholders. This is more apparent by the additional provisions which regulate that only the Indonesian shareholders of PJP and PIP who will be allowed to (i) nominate members of the board of directors and board of commissioners and (ii) have veto rights on certain reserved matters.
The regulation does not regulate specifically how the shareholding composition should be arranged to achieve the permitted amount of economic and voting rights as described above. Nonetheless, in practice, parties usually differentiate the economic and voting rights of shareholders by having classes (series) of shares, in which, one of the class will have no voting rights.
Grandfather Rule
Reg 22 adopts a grandfather rule concept for the introduction of FDI restriction. This means that the new FDI restriction will not be applicable for companies who have obtained a license and operated before this regulation becomes effective unless there is a change in the composition of foreign shareholding and/or control in such companies. This means that once the companies conduct any change in the composition of foreign shareholding and/or control, then it must comply with the FDI restriction as set out in this regulation.
Nevertheless, if the change in the composition of foreign shareholding and/or control occurs due to compliance with Bank Indonesia’s order – because of its monitoring, the regulation states that the grandfather rule will still be applicable.
Licensing
Reg 22 differentiates the licensing mechanism for PJP and PIP business actors. Companies that carry out PJP activities must obtain a license from Bank Indonesia while companies that carry out PIP activities must obtain the so-called determination (penetapan) from Bank Indonesia. Companies can only obtain either license or determination from Bank Indonesia, they cannot obtain both. The license/determination cannot be assigned to other parties/companies.
PJP business’ license is classified into three categories based on the activities carried out by the PJP:
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First Category License: activities of account information services, payment initiation and/or acquiring services, account issuance services, and/or remittance services
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Second Category License: activities of account information services, payment initiation, and/or acquiring services
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Third Category License: remittance services and/or other services to be stipulated by Bank Indonesia.
Further, Bank Indonesia can determine the classification of the PJP/PIP business actors based on the criteria of size, interconnection, complexity and/or interchangeability of the business actors. The classifications are Systemic Payment System Provider (Penyelenggara Sistem Pembayaran Sistemik), Critical Payment System Provider (Penyelenggara Sistem Pembayaran Kritikal), and General Payment System Provider (Penyelenggara Sistem Pembayaran Umum). Based on this classification, Bank Indonesia will further determine certain obligation requirements relating to capitalization, risk management, and other aspects. Bank Indonesia will conduct a periodic evaluation to determine the classification of the PJP/PIP business actors.
Corporate Actions and Governance
Similar to other Bank Indonesia’s regulations for businesses that fall under the jurisdiction, Bank of Indonesia also regulates certain requirements for corporate actions and corporate governance of PJP and PIP companies.
Corporate Actions
To be able to conduct merger, consolidation, spin-off, and/or acquisition transactions, PJP/PIP companies must obtain approval from Bank Indonesia first. This obligation is only exempted if the PJP/PIP companies are banks. In this case, they only need to report the transaction to Bank Indonesia.
Further, if the surviving entity in the merger or consolidation transaction does not have a PJP license or PIP determination (as applicable), this surviving entity needs to apply for the license or determination first before the completion of the merger or consolidation transaction.
Corporate Governance
Reg 22 requires PJP and PIP companies to comply with aspects of governance, risk management (including prudence principle), information standard security system, interconnection and interoperability, and laws and regulations of the Republic of Indonesia. Specific for PIP companies, the regulation also adds requirements for the availability of facilities and infrastructure for providing their services and participation in infrastructure.
Further, Reg 22 also prohibits PJP/PIP companies from:
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owning and/or managing a value equivalent to the value of money or other value aside of Rupiah currency, which can be widely used outside of the scope of the PJP companies; and
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receiving, using, linking, and/or processing payment transactions by using virtual currency.
Miscellaneous
Sources of Fund
Reg 22 regulates that sources of fund which is used for payment transaction must meet the following element:
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has a value in Rupiah;
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used for the purpose of payment and/or fulfillment of economic activities;
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the money value in the source of fund is based on the fund deposited to parties who carry out account issuance services or in the form of credit facility provided by the parties who carry out account issuance services;
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stored in electronic media or other media;
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can be used for payment other than to the parties who carry out account issuance services or can only be used for payment to the parties who carry out account issuance services within a limit set out by Bank Indonesia; and
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represents the rights of the user and/or claim against the issuer except for sources of fund which are based on credit facilities.
Transitional Provisions
Bank Indonesia will assess payment system providers who have obtained a license or operated before to the issuance of this regulation to reclassify the activities of such payment system providers, whether as PJP or PIP companies. Based on the result of the assessment, the licenses of these payment system providers will be exchanged into PJP license or PIP determination.
If the result of the assessment requires the payment system providers to make certain changes or commitments to comply with the requirement under Reg 22, two options that can be chosen by the payment system providers:
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Accept the commitment
If the payment system providers accept the commitment, Bank Indonesia will give the payment system providers maximum of two years to fulfill the commitment. During this period, the payment system providers can only carry out activities as approved by Bank Indonesia.
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Reject the commitment
If the payment system providers reject the commitment, Bank Indonesia will give the payment system providers maximum of two years to settle its rights and obligations as payment system providers. After the settlement, Bank Indonesia will revoke the license of the payment system providers.
For further information, please contact:
Freddy Karyadi, Partner, ABNR
+62 818 103 949
fkaryadi@abnrlaw.com
Anastasia Irawati, Senior Associate, ABNR
airawati@abnrlaw.com
