Factbox: Details of the new Indonesian Financial Sector Law

DEC 15 (Reuters) – Indonesia’s parliament on Thursday passed a finance law revising more than a dozen existing regulations, including an addition to the central bank’s mandate to support economic growth and formalize its direct purchases of government bonds.

Here are some of the changes introduced in the new law, which is over 500 pages long:

CHANGES FOR THE CENTRAL BANK

• Bank Indonesia’s (BI) objective includes maintaining the stability of the financial system to support sustained economic growth compared to maintaining the value of the rupiah currency under previous legislation.
• A new provision underscores that BI will be able to issue cash flow regulations that involve the repatriation and/or exchange of foreign exchange.
• A new requirement states that candidates running for BI’s board of directors must not be a member and/or official of any political party at the time of nomination.
• The law provides for a stricter timeframe for the nomination and hearing of board members by Parliament.

CRISIS RESPONSE

• BI is allowed to buy bonds directly from the government when the president declares a crisis situation. So far, in response to the pandemic, this is only allowed between 2020 and 2022.
• Also, BI is allowed to buy corporate bonds held by banks in times of crisis, which is currently prohibited.
• The new law aims to strengthen the crisis response mechanism, including by allowing the government to lend to the Indonesia Deposit Insurance Corporation (LPS) and the LPS to return their holdings of government bonds to the central bank when they raise funds got to.

CENTRAL BANK DIGITAL CURRENCY AND CRYPTO ASSETS

• The law recognizes the digital rupiah to be issued by BI as an additional form of national currency alongside coins and banknotes.
• Supervision and regulation of trading in digital assets such as crypto assets will come under the purview of the Financial Services Authority (OJK). There will be a gradual transition of these roles from the commodity regulator.

CONSUMER PROTECTION

• Financial regulators are mandated to form a national committee to improve financial literacy and widespread access to financial products.
• The law provides for penalties, including criminal sanctions, for companies that fail to meet customer protection requirements, such as failing to inform customers about investment risks.

BULLION BANKING, CARBON EXCHANGE

• The law introduces the establishment of a bullion bank or bank to deposit, trade and lend gold.
• It also allows the establishment of carbon exchanges, with the approval of the OJK, to facilitate carbon trading.
• The OJK will oversee and regulate precious metals banks and carbon exchanges.

OTHER CHANGES

• BI and OJK will jointly oversee and regulate fintechs.
• The law requires the formation of oversight bodies for OJK and LPS and the strengthening of the oversight body for BI.
• Banks are required to publish their interest rates transparently to promote efficiency.
• The LPS assumes responsibility for the insurance policies.
• In order to be able to do this, LPS charges a fee from the insurance companies.
• The law provides for jail terms for a controlling party of an insurance company that fails to perform its duties.

Reporting by Stefanno Sulaiman; Edited by Gayatri Suroyo and Ed Davies

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