Financial Crime World

Indonesia’s Financial Regulatory Landscape: Compliance, Enforcement, and Cross-Border Issues

Indonesia’s financial services regulatory environment is overseen by the Financial Services Authority (OJK) and the central bank (BI). This quick reference guide provides an overview of the regulatory framework, enforcement mechanisms, compliance programs, cross-border regulation, and current trends in Indonesia.

Regulatory Framework

The OJK and BI are the primary national authorities responsible for regulating financial services in Indonesia.

  • OJK: Focuses on micro-prudential policy and oversees all financial services institutions. Regulates banking, capital markets, insurance, pension funds, and fintech.
  • BI: Concentrates on macro-prudential policy to ensure rupiah stability. Supervises payment systems and related activities.

Regulatory Framework

Registration and Authorization Regimes

Each financial services entity must obtain the necessary licenses from either the OJK or BI before starting operations. Foreign ownership restrictions apply to some financial services sectors.

  • Controlling shareholders and board members must pass a fit and proper test to acquire ownership or become board members.
  • Different financial sectors have specific laws and regulations covering their business operation.

Registration and Authorization Regimes

Enforcement

OJK and BI have the authority to investigate and enforce compliance with financial services regulations.

  • Administrative sanctions, such as warnings, fines, and revocation of business permits, can be imposed for non-compliance.
  • Criminal infractions and disputes are handled by the judiciary system, with civil infractions resolved through administrative sanctions or the State Administrative Court.

Enforcement

Compliance Programs

Indonesian financial institutions are required to have compliance programs in place to ensure adherence to regulations and maintain transparency, accountability, responsibility, independence, and fairness.

  • Gatekeepers, such as internal auditors and compliance officers, play an essential role in supervision and oversight.
  • Directors and commissioners must act in good faith and uphold ethical standards.
  • Private rights of action can be taken against violations, leading to imprisonment and fines for individuals and financial institutions.

Compliance Programs

Cross-Border Issues

OJK regulations do not apply to entities established outside Indonesia, but OJK can cooperate with and provide assistance to foreign financial institutions.

  • Indonesia’s central bank coordinates with local and international partners to exchange data and information.
  • Indonesia complies with international standards, including those adopted in G20 forums and the Basel Committee on Banking Supervision (BCBS).

Cross-Border Issues

Recent key developments in Indonesia’s financial services sector include regulatory clarification on crypto assets and fintech, as well as ongoing efforts to strengthen compliance programs and prevent financial crimes.

Update and Trends

Regulatory Framework

The OJK and BI are the primary authorities responsible for regulating financial services in Indonesia.

OJK’s Role

  • Micro-prudential policy
  • Regulates banking, capital markets, insurance, pension funds, and fintech

BI’s Role

  • Macro-prudential policy
  • Oversees payment systems and related activities

Registration and Authorization Regimes

Each financial services entity must obtain licenses from the OJK or BI to operate.

Licensing Requirements

  • Pass a fit and proper test
  • Meet specific financial requirements

Foreign Ownership

  • Some financial services sectors have ownership restrictions

Enforcement

OJK and BI have the authority to investigate and enforce regulations.

Administrative Sanctions

  • Warnings
  • Fines
  • Revocation of business permits

Judiciary System

  • Civil infractions resolved through administrative sanctions or the State Administrative Court
  • Criminal infractions handled by the judiciary system

Compliance Programs

Indonesian financial institutions must maintain compliance programs.

Gatekeepers

  • Internal auditors
  • Compliance officers

Board Members and Directors

  • Must act in good faith
  • Must uphold ethical standards

Cross-Border Issues

OJK regulations don’t apply to foreign entities, but OJK and BI can cooperate with them.

Data Exchange

  • Central bank coordinates with local and international partners to exchange data and information

International Compliance

  • Indonesia complies with international standards

Recent developments in Indonesia’s financial services sector include regulatory clarification on crypto assets and fintech.

Regulatory Clarification

  • Crypto assets and fintech clarification

Strengthening Compliance Programs

  • Ongoing efforts to strengthen compliance programs and prevent financial crimes

Staying Informed

  • Financial institutions must stay informed of regulatory updates and trends to effectively operate and expand in Indonesia.