Banking Security Regulations Tightened in Indonesia

The Indonesian government has recently enacted Law No. 4 on Financial Sector Development and Reinforcement, also known as the P2SK Law, aimed at strengthening and streamlining the financial sector by expanding supervisory authority over the industry.

Key Changes

• Expansion of Supervisory Authority: The Financial Services Authority (OJK) will now have the power to monitor and regulate all aspects of banking activity, including lending practices, capital adequacy, and risk management.
• Personal Liability for Directors and Shareholders: Members of the board of directors, board of commissioners, shareholders, or affiliated parties of a party/company that conducts business on the stock market will be held responsible for any losses incurred as a result of their actions.

New Regulations

• Prohibition of Insider Trading: Internal persons of an issuer or public company are prohibited from carrying out security transactions based on insider information.
• Mutual Funds and Investment Managers: Mutual funds are now allowed to obtain or grant loans, but all assets must still be kept in a custodian bank. Investment managers are prohibited from having relationships with custodian banks unless there is government ownership or equity participation.
• Publicly Listed Companies’ Shareholders: In the event of liquidation, public shareholders will now have a pre-emptive right over controlling shareholders, subsequent to creditors’ debt settlement.

Securities Crowdfunding

The P2SK Law merges securities crowdfunding into the Capital Market Law, expanding access to micro, small, and medium-sized enterprises seeking to raise capital through electronic system provider services.

Impact on Banks, Investors, and Consumers

The P2SK Law is seen as a major step forward in strengthening Indonesia’s financial sector and ensuring consumer protection. The law aims to promote stability, transparency, and efficiency in the financial industry, and will likely have significant implications for banks, investors, and consumers alike.