Financial Crime World

Indonesia Introduces Risk-Based Approach to Compliance for Businesses

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Indonesia has introduced a risk-based approach to compliance through Government Regulation No. 5 of 2021 on the Implementation of Risk-Based Licensing Service (GR 5/2021). This new regulation aims to simplify the licensing process for businesses, reduce bureaucracy, and increase efficiency.

Key Features of the New System

Categorization of Businesses

The government has divided businesses into four categories based on their level of risk: low risk, medium-low risk, medium-high risk, and high risk. Each category has different licensing requirements.

  • Low Risk: Businesses in this category can commence activities immediately after obtaining a Business Identification Number (NIB), without any additional requirements.
  • Medium-Low Risk: Medium-low risk businesses only need to self-declare their completion of requirements.
  • Medium-High Risk: Medium-high risk businesses must have their fulfillment verified by relevant government institutions.
  • High Risk: High-risk businesses require both NIB and business licenses.

Standard Certificate

The new system introduces a standard certificate, which is a checklist of fulfillment of requirements for relevant businesses determined by the government. The type of certification required depends on the risk level of each business.

Environmental Approval Requirements

Environmental approval requirements have also been modified based on the risk level of each business. There are three types of environmental approvals:

  • Environmental Impact Analysis (AMDAL): Required for high-risk businesses.
  • Environmental Management and Monitoring Efforts (UKL-UPPL): Required for medium-high and high-risk businesses.
  • Environmental Management and Monitoring Willingness Statement Letter (SPPL): Required for low-risk businesses.

Impact on Businesses

The new system is expected to reduce the time-consuming process of obtaining licenses, making it easier for investors to do business in Indonesia. However, rapid changes to the investment system can cause confusion among investors, who must adjust to the new system to conduct their businesses.

Transition Period

The old online single submission (OSS) system will be effective until May 31, 2021, and on June 1, 2021, it will start migrating to the new OSS Risk-Based Approach (RBA) system. All licensing activities for companies established after June 2, 2021, or those with business licenses yet to become effective by May 31, 2021, will be processed based on the new RBA system.

Conclusion

The implementation of the new risk-based approach is expected to have a significant impact on businesses in Indonesia. While it may cause some short-term disruption, it is hoped that the new system will ultimately simplify and streamline the licensing process, making it easier for investors to do business in the country.