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Commercial Banks Must Comply with Governance Requirements

Jakarta, Indonesia - Commercial banks are required to adhere to strict governance requirements, as stipulated in their articles of association.

Board Structure

  • The term of office for board of directors (BOD) members is limited to a maximum of five years.
  • A minimum requirement of at least five years’ experience in the banking industry is necessary.
  • Managing directors must come from an independent party, unrelated to the controlling shareholder.
  • BOD members are prohibited from holding concurrent positions in other organizations that may create conflicts of interest.

Board of Commissioners (BOC)

  • The BOC is responsible for overseeing the bank’s operations and ensuring compliance with regulatory requirements.
  • Unlike the BOD, BOC members do not require a minimum of five years’ experience in the banking industry, nor are they required to be domiciled in Indonesia.
  • The term of office for BOC members is also limited to a maximum of five years.

Remuneration

  • Commercial banks are required to implement fair and just remuneration policies for their employees, including the board of directors and board of commissioners.
  • OJK has set guidelines for remuneration, which include provisions for bonuses, benefits, and stock options.

Risk Management

  • The banking industry is subject to various risks, including market risk, credit risk, and operational risk.
  • Commercial banks are required to have robust risk management systems in place to mitigate these risks and ensure the stability of their operations.

Customer Protection

  • Commercial banks are responsible for protecting their customers’ assets, privacy, and data.
  • The bank must provide adequate education to customers about financial products and services, as well as ensure openness and transparency in all transactions.
  • Commercial banks must establish a 24-hour customer complaint service, which includes receiving complaints, handling complaints, and resolving disputes effectively and efficiently.

Regulatory Updates

  • OJK has issued several regulations aimed at strengthening the banking industry’s risk management practices and customer protection measures.
  • These regulations include OJK Regulation No. 22 of 2023 concerning Consumer and Public Protection in the Financial Services Sector, which requires commercial banks to provide fair and just treatment to their customers.
  • Basel III: Finalising post-crisis reforms has been introduced, which mandates the calculation of market risk-weighted assets for all banks, effective January 1, 2024.

Conclusion

Commercial banks are subject to strict governance requirements, including the need to implement fair and just remuneration policies, robust risk management systems, and customer protection measures. OJK has introduced several regulations aimed at strengthening the banking industry’s risk management practices and customer protection measures. Commercial banks must comply with these regulations to ensure the stability of their operations and maintain public trust.