In the dynamic landscape of finance, regulations play crucial role in ensuring the integrity and stability of the financial services sector. In 2024, the Indonesian Financial Services Authority (“OJK”) issued 9 OJK regulation as part of its ongoing efforts to develop and strengthen the supervision on PVML Company (as defined below). Among there is the issuance of OJK Regulation No. 48 of 2024 on Good Governance for Financing Institutions, Venture Capital Companies, Microfinance Institutions and Other Financial Services Institutions (“POJK 48/2024”). This regulation aims to address the evolving challenges faced by financial institutions.
POJK 48/2024 was enacted on 31 December 2024 and it has revoked among others: (i) OJK Regulation No. 30/POJK.05/2014 on Good Corporate Governance for Financing Company, as amended by OJK Regulation No. 29/POJK.05/2020 (“POJK 30/2014”) and OJK Regulation No. 36/POJK.05/2015 on Good Corporate Governance for Venture Capital Company (“POJK 36/2015”). Any implementing regulations of POJK 30/2014 and POJK 36/2015 remain valid, provided they do not conflict with POJK 48/2024. POJK 30/2014 and POJK 36/2015 collectively shall be referred to as “Previous OJK Regulation”.
With a focus on enhancing governance, compliance, and risk management, POJK 48/2024 represents a significant step toward fostering a more resilient financial environment. This article will specifically discuss POJK 48/2024, exploring its implications, key provisions, and anticipated impact on various stakeholders. Additionally, POJK 48/2024 encourages that PVML Company to implement the principles of good governance across all their business activities at every tier or level of the organization.
The implementation must be, at least, realized in: (i) the implementation of the duties and authorities of the shareholders and general meeting of the shareholders, (ii) the fulfilment of the duties, responsibilities and authorities of the Board of Directors (“BOD”), Board of Commissioners (“BOC”) and Sharia Supervisory Board (“DPS” or Dewan Pengawas Syariah), (iii) the establishment and execution of duties of the committee, (iv) implementation of effective risk management, (v) adaptation of antifraud strategies, (vi) execution of compliance functions, (vii) application of internal audit and external audit functions, (viii) management of conflicts of interest, (ix) adoption of appropriate remuneration policies; (x) assurance of transparency in information; (xi) adherence to business ethics; (xii) formulation of sound financing policies; (xiii) implement of sustainable finance principles, including social and environmental responsibility; and (xiv) development of well-structured business plans.
General Amendment
In general, POJK 48/2024 expands the scope of companies that are required to comply with the good governance provisions, now encompassing microfinance institutions and other financial services institutions. Under Article 1 (1) POJK 48/2024, Financing Institutions, Venture Capital Companies, Microfinance Institutions and Other Financial Services Institutions include financing companies, infrastructure financing companies, venture capital companies, microfinance institutions, pawnshop companies, and organizers of information technology based crowdfunding services (together shall be referred to as “PVML Company”). The regulation is designed to ensure that PVML Company adhere to high standards of corporate governance, thereby promoting trust and stability in the financial system.
Shareholders and General Meetings of the Shareholders
Previously, the Previous OJK Regulation required the shareholders of Financing Company/venture capital company to ensure that the company operates based on fair financing business practices and the shareholders were obligated to demonstrate a commitment to the Company’s operational development.
Currently, POJK 48/2024 expands these provisions by requiring that the general meeting of the shareholders also take into account the interest of all parties involved. This includes, but is not limited to, the interest of debtors, fund recipients, consumers, business partners, depositors, creditors, fund providers, venture fund investors and/or minority shareholders.
Further, POJK 48/2024 mandates that PVML Company (excluding microfinance institutions) ensure that all parties intending to become their controlling shareholders obtain approval from the OJK through the implementation of a fit and proper assessment. While POJK 30/2014 did not govern this specific requirement, it previously stipulated that financing company’s controlling shareholders must fulfil the fit and proper test.
Both the Previous OJK Regulation and POJK 48/2024 prohibit the shareholders of PVML Company, financing company and venture capital company from interfering in the operational activities of the related entities, except when exercising their rights and obligations during the general meeting of the shareholders. However, POJK 48/2024 introduces an additional requirement: PVML Company must ensure that the release of their shares – owned by members of the BOD, members of the BOC, members of the PVML Company’s committee, DPS, executive officers, and/or PVML employees through the management share ownership program take into account: (i) the principles of good governance and (ii) the conditions of PVML Company.
BOD and BOC
There have been several notable amendments to key provisions related to the BOD and BOC within PVML Company under the POJK 48/2024. The key highlights include the following:
| BOD | Number of Members Composition | If the total assets owned by the PVML Company exceeds IDR 250 billion, there shall be at least 3 members; If the total assets are below this threshold, there shall be at least 2 members; For (i) Microfinance Institution who does not collect public’s fund and (ii) Pawnshop Company (whose business coverage is within district or city) with total assets less than IDR 10 billion, then the minimum membership provision does not apply. |
| Nationality Requirements | If there is at least 25% foreign ownership, foreigners are permitted to be appointed as director.The PVML Company shall ensure that at least 50% of the total members are Indonesian citizen. | |
| Concurrent Position | Under certain circumstances, a BOD member is prohibited from concurrently acting as a DPS, director or executive in other companies/institutions; OJK staff, as well as former OJK staffs who have not separated from the organization for at least 6 months, shall not be appointed as a director. | |
| Fit and Proper Test | Fit and Proper Tests shall be mandatory; however,, Microfinance Institutions operating on a small or medium business scale are exempted from this requirement. | |
| Meetings | BOD shall convene periodic meetings at least once a month, and every director is required to attend at least 50% of the total meetings within a 1 (one) year period | |
| Domicile Requirement | The PVML Company must ensure that all member of the board of directors reside in Indonesia. | |
| BOC | Number of Members Composition | If the PVML Company’s total assets exceeds IDR 250 billion, there must be a minimum of 2 members;If the total assets does not exceed this threshold, there must be at least 1 member;The PVML must ensure that the total members of the board of commissioners is equal with the total members of the board of directors. |
| Nationality Requirements | If there is at least 25% foreign ownership, foreigners are permitted to be appointed as commissioner;The PVML Company must ensure that at least 50% of the total members are Indonesian nationality and domiciled in Indonesia. | |
| Concurrent Positions | Under certain circumstances, a BOC member is prohibited from concurrently serving as a director/executive in other companies;OJK staff, as well as former OJK staffs who have not separated from the organization for at least 6 months, shall not be appointed as a commissioner. | |
| Fit and Proper Test | Fit and Proper Tests shall be mandatory; however, Microfinance Institutions operating on a small or medium business scale are exempted from this requirement. | |
| Independent Commissioner | If the PVML Company’s total asset exceeds IDR 250 billion, they are required to appoint at least one independent commissioner who meets certain criteria, holds Indonesian nationality and is domiciled in Indonesia. | |
| Meetings | If there is more than 1 commissioner, the BOC shall hold a meeting at least once every three months;A joint meeting between the BOC and BOD shall also take place at least once every 3 months. |
Sharia Supervisory Board
PVML Company (excluding microfinance institutions), sharia business units and microfinance institutions operating based on sharia principles are required to have a DPS. Such DPS is prohibited from holding multiple concurrent position. Additionally, the PVML Company are generally prohibited from employing DPS members who are current or former employees or officials of the OJK.
Conflict of Interest
Generally, previous OJK Regulation governs that the BOD, BOC and DPS of a financing company/venture capital company must not conduct conflict of interest transaction. However, POJK 48/2024 has specifically provided provision governing conflict of interest, which now include executive officers and PVML Company’s employee, in addition to the BOC, BOD and DPS (“PVML Company’s Key Employees”). Under POJK 48/2024, PVML Company’s Key Employees are required to: (i) avoid any form of conflict of interest in carrying out their management and supervision duties of the PVML Company; (ii) disclose any conflict of interest in every decision that meets the conditions for a conflict of interest, and PVML Company’s Key Employees are prohibited from taking actions could potentially harm the PVML Company or reduce its profit; and (iii) have a conflict of interest policy.
Secrecy of PVML Company
In conducting its business activities, there are several provisions worth noting regarding secrecy. To fulfil the implementation of good governance, PVML Company is required to disclose certain information within the good governance implementation report, including: (i) share ownership of any members of the BOD and BOC reaching 5% or more in the PVML Company where the members of the BOD and BOC serve and/or in other companies domiciled in Indonesia and abroad; (ii) financial relations of and within the BOD, BOC, shareholders, and employees; (iii) family relationship among the BOD, BOC, shareholders, and employees up to the second degree, both horizontally and vertically; and (iv) remuneration and facilities received by the BOD and BOC.
In addition to the above, other matters that must be disclosed by the PVML Company to OJK in the good governance implementation report, include: (i) the resignation or dismissal of the external auditor; (ii) material transactions with affiliated parties; (iii) ongoing and/or potential conflicts of interest; and (iv) other material information regarding PVML Company.
Remuneration and Nomination for the BOD, BOC, DPS, and Employees
POJK 48/2024 establishes the obligation for PVML Company to apply good governance in their remuneration for the BOD, BOC, DPS, and employees. Policies and procedures for conducting remuneration must be stipulated in the articles of association of the PVML Company in accordance with applicable law. Further, several factors must be considered, including: (i) the PVML Company’s financial performance and fulfilment; (ii) individual work performance; (iii) fairness within PVML Company and/or equivalent position levels (peer groups); and (iv) alignment with PVML Company’s long-term goals and strategies.
In the event that PVML Company forms a remuneration and nomination committee, it is mandatory to consider the committee’s recommendations in any proposal for the appointment and/or replacement of the BOD. PVML Companies with total assets exceeding IDR 250 billion are required to establish a remuneration committee.
The remuneration framework outlined above also applies to nomination matters. This includes the presence of a remuneration committee that also functions as a nomination committee. The requirements to establish nomination policies and procedures are reflected in the article of association of the PVML Company, which include consideration of the committee’s recommendations if the PVML Company establishes a remuneration and nomination committee. This committee is responsible for evaluating and providing recommendations regarding remuneration and nomination policies. Furthermore, the remuneration and nomination committee must, at a minimum, consist of, (i) an independent commissioners who serves as the chairman, (ii) a member of the BOC, and (iii) an executive officer in charge of human resource management.
Certain exemptions apply, however. For PVML Company conducting business activities based on Sharia principles, or those operating conventionally while maintaining a Sharia business unit, a DPS may be included as a member of the remuneration and nomination committee. Nevertheless, members of the BOD are prohibited from serving as members of the remuneration and nomination committee. If remuneration and nomination committee consists of more than 3 members, POJK 48/2024 mandates that at least of 2 independent commissioners must be included.
Specific regulations on remuneration may also vary by sector or industry. For instance, remuneration for commercial banks is regulated under the OJK Regulation No. 45/POJK.03/2015 of 2015 on the Implementation of Governance in the Provision of Remuneration for Commercial Banks (“POJK 45/2015”). Under POJK 45/2015, there are specific policies on remuneration within commercial banks, such as, the disclosure of remuneration and the composition of the committee.
Audit Committee
PVML Company having a total asset of more than IDR 250 billion must establish an audit committee. The audit committee must comprise of at least: (i) an independent commissioner who serves as the chairman of the committee; and (ii) an independent party with expertise in one or more of the following fields: (a) audit; (b) accounting; and/or (c) finance, serving as the member of the committee. Similar to remuneration and nomination committee, for PVML Company conducting business activities based on Sharia principles, or those maintaining a Sharia business unit, a DPS may serve as a committee member. However, members of the BOD are prohibited from serving as members of the audit committee.
The audit committee is responsible for monitoring and evaluating audit planning and implementation, while ensuring proper follow-up on audit results. This oversight helps maintain adequate internal control and ensures the reliability of the financial reporting process. Additionally, the audit committee is also tasked with ensuring compliance with the OJK regulation regarding the utilization of public accountants and public accounting firms in financial services activities. This is currently governed under OJK Regulation No. 9 of 2023 on Utilization of Public Accountants and Public Accounting Firms in Financial Services Activities.
Sustainability of the PVML Company
POJK 48/2024 regulates how the PVML Company should conduct its business activities. To complement the scope of this regulation, POJK 48/2024 establishes several sustainability obligations for PVML Company. As a guideline for all the PVML organs and employees, PVML Company is obligated to prepare ethical behaviour guidelines that include ethical business value. These guidelines serve as a foundation for PVML Company to meet its other obligations, such as creating a business plan. While the business plan must be prepared realistically, an exemption is provided for small-scale Microfinance Institutions. Additionally, PVML Company must periodically assess the implementation of good governance, which will form integral part of the governance implementation report.
Further, PVML Company with total asset of up to IDR 250 billion are required to maintain a function responsible for implementing compliance and internal audit work. Once the threshold is exceeded, however, the PVML Company must establish a dedicated compliance and internal audit work units. Beyond compliance and internal audit work units, the same threshold framework also applies to audit, risk monitoring, and the remuneration and nomination committee which must be established by and held accountable to the BOC of the PVML Company. Additionally, PVML Company must develop guidelines and work procedures for this committees, which should include, at a minimum: (i) the purpose of forming the committee; (ii) the committee’s duties, responsibilities and authorities of the committee; (iii) it structure and membership; (iv) meetings procedures, quorum requirements, and decision making processes; (v) the term of office for independent committee members; (vi) performance evaluation mechanisms; and (vii) the periodic review of the committee’s guidelines and work procedures.
All of the aforementioned provisions pertain to risk management and antifraud strategy. PVML Company must implement effective risk management using the three lines risk governance model, as follows: (i) the first line consists of the risk owner unit, which directly identifies and manages risks within business processes; (ii) the second line involves the risk management and compliance functions, which measure, monitor, and address risks in aggregate, while developing PVML Company’s risk management and compliance methodologies and policies; and (iii) the third line is the internal audit function, ensuring that governance and risk control are effectively implemented by PVML Company.
Additionally, PVML Company is required to apply antifraud strategy in accordance with the OJK Regulation No. 12 of 2024 on the Application of Anti-Fraud Strategies for Financial Services Institutions. This obligation covers several key elements: (i) prevention; (ii) detection; (iii) investigation, reporting, and sanctions; and (iv) monitoring, evaluation, and follow-up. Beyond these measures, PVML Company must also implement programs to prevent money laundering, terrorism funding, and financing of proliferation of weapons of mass destruction programs while carrying out business activities.
Transitional Provisions
As POJK 48/2024 has been recently enacted, OJK provides a transitional period for all PVML Company to adapt, with the details as follows:
- Venture Capital Companies, Pawnshop Companies and Organizers of Information Technology Based Crowdfunding Services that have obtained a business license and have total assets of more than IDR 250 billion before the promulgation of the POJK 48/2024, must comply with the provision of the minimum numbers of BOD members within 2 years from the enactment date of POJK 48/2024.
- Microfinance Institutions that have obtained a business license and have total assets of more than IDR 250 billion before the promulgation of the POJK 48/2024, must comply with the provision of the minimum numbers of BOD members within 3 years from the enactment date of POJK 48/2024.
- Pawnshop companies that have obtained a business license, operate at a national and provincial level, and have total assets of up to IDR 250 billion, or operate at a regency/city level with total assets ranging from IDR 10 billion to IDR 250 billion before the promulgation of the POJK 48/2024, must comply with the provision of the minimum numbers of BOD members within 2 years from the enactment date of POJK 48/2024.
- Microfinance Institutions that have obtained a business license, collect public funds, and have total assets of up to IDR 250 billion, or does not collect public funds and have total assets ranging from IDR 10 billion to IDR 250 billion before the promulgation of POJK 48/2024, must comply with the provision regarding minimum numbers of BOD members within 3 years from the enactment date of POJK 48/2024.
A failure to adapt to the change as stipulated above will result in administrative sanction in accordance with the POJK 48/2024. These sanctions may take form of: a written warning, restriction on the company’s business activities, or the dismissal of the company’s BOD.
Sanction
In addition, the OJK may also impose further sanctions, such as: (i) the reduction of PVML Company’s health level assessment results; (ii) conducting a re-assessment of the main parties responsible for the violation of POJK 48/2024; and (iii) recording the responsible parties that caused the PVML Company to violate POJK 48/2024. However, OJK will revoke the administrative sanction if the PVML Company rectifies their violations.
Conclusion
In conclusion, POJK 48/2024 marks a pivotal moment in the evolution of Indonesia’s financial services regulatory framework. By enhancing governance, compliance, and risk management practices, the regulation aims to foster a more stable and trustworthy financial environment. While challenges may arise during implementation, the potential long-term benefits for financial institutions and consumers are substantial. As the OJK and stakeholders navigate this evolving landscape, it is essential to prioritize adaptation, collaboration, and continuous improvement. Doing so will ensure that POJK 48/2024 achieves its objectives and strengthens Indonesia’s financial sector for the future.
For further information, please contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
