Indonesia’s Fintech Sector Faces Compliance and Regulatory Hurdles: Experts Warn of Uneven Playing Field and Legal Uncertainty

As Indonesia’s fintech industry continues to grow at a rapid pace, regulators are grappling with the challenges of keeping up with innovation while ensuring compliance and regulatory oversight. The country’s financial authorities have opted for a regulatory sandbox mechanism to test new products and services, but experts warn that this approach can be risky if not properly managed.

Challenges to the Sandbox Framework

A recent study assessing the digital financial innovation (DFI) sector in Indonesia has identified several challenges to the effectiveness of the sandbox framework. These include:

• An uneven playing field for DFI operators
• Lack of clarity on desired outcomes and exit mechanisms
• Insufficient resources for the sandbox to operate as intended

These issues can create legal uncertainty, impose burdensome costs, and fail to prevent consumer harm.

Policy Recommendations

The study made four policy recommendations aimed at addressing these challenges:

• Using the Law on Finance: Use the newly passed Law on Finance to support the OJK sandbox framework
• Strengthening Inter-Agency Coordination: Strengthen inter-agency coordination through leadership from authority figures and implementation of the Law on Finance
• Co-Regulatory Approach: Strengthen the co-regulatory approach between regulators, relevant ministries, and AFTECH to improve collaboration regarding roles of data protection officers, risk assessments, sandbox exit mechanisms, and setting and evaluating sandbox goals
• Sufficient Resources Allocation: Allocate sufficient resources to the sandbox process, including committees and representatives of operators applying to the sandbox, to ensure OJK can fulfill its supervisory obligations in the fintech space

Warning to Regulators and Industry Players

The study’s findings come as a warning to regulators and industry players alike that compliance and regulatory issues in Indonesia’s fintech sector are far from being fully addressed. As the industry continues to evolve, it is crucial that authorities prioritize effective governance and risk management to ensure a level playing field for all stakeholders.

Conclusion

In conclusion, Indonesia’s fintech sector faces significant compliance and regulatory hurdles. To address these challenges, regulators must prioritize effective governance and risk management, while industry players must adapt to changing regulations and ensure transparency in their operations. Only through collaborative efforts can we ensure the growth of a healthy and sustainable fintech ecosystem in Indonesia.