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Indonesia’s Financial Sector: A Comprehensive Overview

Indonesia’s financial sector is regulated by two key authorities - Bank Indonesia (BI) and Otoritas Jasa Keuangan (OJK). Both institutions play a crucial role in maintaining stability and promoting growth in the country’s financial market. This article provides an overview of the regulatory framework governing financial services firms, their associated persons, and the products they offer.

Licensing Requirements

To operate in Indonesia’s financial sector, companies must obtain necessary licenses from BI or OJK. For instance, a company seeking to sell mutual funds or other investment products must first obtain a mutual fund agent sales representative license. To support this application, the individual must provide evidence of certification by a professional body recognized by OJK.

Fintech Regime

Indonesia’s fintech sector is under the supervision of both BI and OJK. Due to the absence of specific regulations for each fintech area, authorization for fintech companies involves recordation. This means that a fintech company may start operating before being recorded with OJK or BI. Once recorded, the company will be subject to a regulatory sandbox process, which determines whether it can continue operating without a specific license from BI or OJK.

Legislation

BI was established as Indonesia’s central bank in 1953, initially focusing on acting as a circulation bank and commercial bank. In 1968, BI’s central bank role was reinstated under Law No. 13 of 1968. The prime objectives of BI are to maintain rupiah stability.

OJK was established in 2011 under Law No. 21 of 2011 (as amended). Previously, non-bank financial services institutions fell under the authority of Bapepam-LK and BI. OJK’s establishment aimed to oversee the banking sector and later expanded to include all financial institutions.

Principal Laws and Financial Service Authority Rules

Financial services in various sectors, including banking, capital markets, multi-finance, insurance, microfinance, and pension funds, have their own set of laws. However, details on business operations, such as capitalization structure, corporate governance, licensing requirements, reporting obligations, anti-money laundering rules, and risk management, are stipulated in OJK regulations.

Scope of Regulation

The main areas of regulation for financial institutions under the supervision of BI and OJK include:

  • Scope of Business Activities: Type of products offered
  • Capitalization and Shareholding Requirements: Minimum capital requirements and shareholding structure
  • Licensing and Registration: Obtaining necessary licenses from BI or OJK
  • Good Corporate Governance: Board composition, risk management, and internal controls
  • Level of Soundness: Capital adequacy, liquidity, and operational risk management
  • Fit and Proper Test Requirements: Background checks on key personnel
  • Data Privacy and Data Protection: Compliance with data protection regulations
  • Risk Management: Identification, assessment, and mitigation of risks
  • Consumer Protection: Protection of consumers from unfair or deceptive practices
  • Anti-Money Laundering and Combating the Financing of Terrorism: Prevention of money laundering and terrorist financing

Additional Requirements

Financial services firms and authorized persons may be subject to rules and regulations of professional associations, such as codes of conduct. For example, a peer-to-peer lending company must comply with the code of conduct of the Indonesian Joint Funding Fintech Association.

In the capital markets sector, securities trading follows policies, rules, and procedures set by the Indonesian stock exchange, Indonesian Clearing and Guarantee Corporation, and Indonesian Clearing and Guarantee Institution.

Conclusion

Indonesia’s financial sector is a complex landscape governed by various regulations and laws. Companies operating in this sector must obtain necessary licenses, comply with regulations, and adhere to industry standards. Understanding these requirements is crucial for firms seeking to do business in Indonesia’s growing financial market.