Revisiting Crypto-Asset And CFDs Regulation In Indonesia.

 

21 June 2021

 

 

In the past few years, a number of digital financial platforms have been launched in Indonesia’s financial services sector. The public has now become more aware of digital assets as an alternative instrument for investment and fundraising. Given the heavily regulated nature of financial services, it is therefore no surprise that the regulators and legislators around the world have put in great effort to regulate the rapidly developing financial industry. 

 

This article will focus to highlight the regulation of crypto-asset and CFDs trading under Indonesian law. 

 

1. CRYPTO-ASSET

 

The offering and selling of crypto-asset previously was not a regulated activity in Indonesia. In the end of 2018, the Government of Indonesia has finally taken its first legislative initiative to legally recognize and define crypto-asset as a futures commodity that is eligible to be the subject of futures or other derivative contracts, through the issuance of Ministry of Trade Regulation No. 99 of 2018 on General Policy on Crypto-Asset Trading (“MOT Regulation”). While the MOT Regulation would represent a big shift in the legal status of crypto-asset in Indonesia, it is important to note that the use of crypto-asset as a means of payment in the country is still prohibited. 

 

In 2019, the Commodity Futures Trading Regulatory Agency (Badan Pengawas Perdagangan Berjangka Komoditi or “Bappebti”) issued Bappebti Regulation No. 5 of 2019 on Technical Provisions on Implementation of Crypto-Asset Physical Market in Futures Exchange which lastly amended based on Bappebti Regulation No. 3 of 2020 (“Bappebti Regulation 5/2019”) containing implementing provisions of crypto-asset trading in Indonesia. From its effective date (8 February 2019), any undertaking who intends to conduct any activity regarding the offering and selling of crypto-asset must take into account the provisions of the regulation. 

 

What activity is regulated? 

 

The Bappebti Regulation 5/2019 introduced new wide-ranging licensing regime for parties involving in crypto-asset trading activity. The licensing requirements will apply to any undertaking who carry out the regulated crypto-asset activity in Indonesia. The new regulated activities will cover: 

 

1. organization and provision of system and/or facility for crypto-asset trading carried out by futures exchange;

2. organization and provisions of system and/or facility for clearing and settlement conducted  by futures clearing institute;

3. performance of crypto-asset transactions for own account and/or for the account of clients conducted by crypto-asset physical traders;

4. storage, maintenance, supervision and/or delivery of crypto-asset performed by depository house.

 

Crypto-asset is traded in the physical market using electronic facilities provided by the futures exchange or owned by the crypto-asset physical trader. Generally, crypto-asset trading can only be facilitated by a licensed futures exchange. However, the relevant futures exchange may appoint a crypto-asset physical trader to facilitate the transaction in the physical market.  

 

Crypto-Asset Physical Trader 

 

The Bappebti Regulation 5/2019 opens a possibility for market participants to become a crypto-asset physical trader applicant instead of directly registered as a licensed crypto-asset physical trader. This option is offered to accommodate the interest of the market participants as the crypto-asset physical trader applicant requires a lower capital requirement (minimum paid-up capital of Rp 25 billion) compared to the licensed crypto-asset physical trader (minimum paid-up capital of Rp 50 billion). As of February 2021, there are at least 13 crypto-asset physical trader applicants registered in Bappebti. 

 

Licensing requirements

 

To obtain Bappebti’s license as a crypto-asset physical trader, the following requirements must be fulfilled, among others: 

 

1. minimum paid-up capital of Rp 50 billion; 

2. maintaining minimum equity of Rp 40 billion;

3. have at least one person who passes Bappebti’s fit and proper test. The said person can either be a director, commissioner, shareholder, or beneficial owner; 

4. have at least one employee who possess certification as Certified Information System Security Professional; 

5. evidence of registration of electronic system in Ministry of Communication and IT; and

6. the system used must be audited by Certified Information System Auditor.

 

2. CONTRACT FOR DIFFERENCES (CFDs)   

 

Contract for differences (CFDs) in Indonesia are regulated and supervised by Bappebti. As of the date of this article, there is no specific regulation under Indonesian law governing the trading of CFDs in digital platform, although some offshore operated websites (with no legal presence in Indonesia) have launched and offered CFDs to local investors, including retail investors. 

 

What activity is regulated? 

 

In general, CFDs are regulated under the Bappebti Regulation No. 109/Bappebti/PER/01/2014 on Derivative Contracts in Alternative Trading System (“Bappebti Regulation No. 109/2014”). CFDs are classified as derivative contracts traded in the Alternative Trading System (“ATS”) which consist of 3 (three) types, as follows:

 

1. CFDs of shares index;

2. CFDs of foreign exchange; and 

3. CFDs of commodity. 

 

ATS is term used by the regulation to refer to bilateral trading carried out outside the futures exchange. The sale and purchase of CFDs in the ATS is specifically governed by Bappebti Regulation No. 5 of 2017 on the Alternative Trading System (“Bappebti Regulation No. 5/2017”). Pursuant to the regulation, CFDs trading in the ATS shall only be carried out by ATS organizer and ATS participant that have obtained a license from Bappebti. 

 

ATS Organizer and ATS Participant

 

ATS organizer is defined as a futures trader who is a member of the futures clearing institute, which is engaged in the sale and purchase of derivative contracts other than futures contracts and sharia derivative contracts, for and on behalf of itself in the ATS. Whereas ATS participant is defined as a futures broker who is a member of the futures clearing institute, which is engaged in the sale and purchase of derivative contracts other than futures and sharia derivative contracts, for and on behalf of a client in the ATS. Thus, any undertaking who offers CFDs to investors in Indonesia must obtain a license as a futures trader or futures broker in the ATS, depending on whether the trading is carried out for and on behalf of itself or a client.

 

Promotion and advertisement

 

In relation to the promotion and advertisement of CFDs in online platform, it is subject to Bappebti Regulation No. 83/BAPPEBTI/Per/06/2010 on Procedures for the Promotion or Advertisement, Training and Meeting of Commodity Futures Trading (“Bappebti Regulation No.  83/2010”). According to the regulation, the materials for promotion and advertisement of the commodity futures must obtain an approval from Bappebti and is strictly limited to a licensed futures exchange, futures and/or derivatives broker who is registered at Bappebti. In other words, any party (either foreign or local) that has not yet been licensed by Bappebti is prohibited from promoting and advertising the commodity futures (including CFDs) in Indonesia. 

 

For further information, please contact:

 

Freddy Karyadi, Partner, ABNR

+62 818 103 949

fkaryadi@abnrlaw.com

 

Sevril Renishanti, ABNR

srenishanti@abnrlaw.com