Compliance and Regulatory Issues in Fintech in Indonesia: A Growing Concern

Indonesia’s push for financial inclusion has led to a surge in fintech companies operating in the country, with over 167 firms reporting significant growth. The government’s efforts to digitize the economy and transition to a cashless society have also contributed to the rise of fintech companies.

Characteristics of the Indonesian Fintech Landscape

High level of investments, with deal value increasing significantly since 2018
Pandemic has accelerated growth, with over 77 new deals worth USD 329 million reported in recent times
Mergers and acquisitions have also been on the rise, giving birth to successful unicorns

However, as fintech companies continue to grow, so do compliance and regulatory issues. The industry is regulated by two key entities:

Regulators

Bank Indonesia: regulates payments-related activities
Otoritas Jasa Keuangan (OJK): handles regulations for digital banking, crowdfunding, P2P lending, and other services

Fintech companies operating in Indonesia must comply with the OJK Regulation No. 13/POJK.02/2018, which serves as a legal umbrella for all fintech companies. In addition to this regulation, several others govern specific sectors and products available in the country.

Risks Involved

Data protection: fintech companies often possess large amounts of customer data, making compliance with data protection laws crucial
Use of distributed ledger technology (DLT): can operate across multiple jurisdictions and be subject to conflicting regulations, leading to high legal uncertainty
Rise of Robo-advisors and automated portfolio management services: presents legal challenges, as it can be difficult to identify liability between parties involved
Entrusting cloud service providers with large amounts of data: poses security risks if the provider fails to provide transparency

Mitigating Risks

Institutions must assess and verify compliance with minimum standards of transparency required by regulations
Fintech companies should conduct legal consultations with experts before establishing operations in Indonesia to ensure effective legal risk management