OJK Re-Introduces Rules to Accommodate Rising M&A Trends in Banking Sector
On December 26, 2019, the Indonesian Financial Services Authority (“OJK”) issued and enacted OJK Regulation No. 41/POJK.03/2019 of 2019 on Mergers, Consolidations, Acquisitions, Integrations and Conversions of Banks (“OJK Reg. 41/2019”). OJK Reg. 41/2019 combines and revives the rules concerning mergers, consolidations, and acquisitions (“MCAs”) of commercial banks (the “Bank”). With these new rules, OJK Reg. 41/2019 replaces Bank Indonesia (“BI”) Board of Directors Decrees No. 32/50/KEP/DIR on Requirements and Procedures to Purchase Shares of Banks, and No. 32/51/KEP/DIR on Requirements and Procedures for Mergers, Consolidations, and Acquisitions of Banks (collectively, the “BI Decrees”). OJK Reg. 41/2019 also introduces several other new concepts to add and make relevant rising trends in relation to corporate restructuring arrangement in the financial service business, particularly banking.
New Framework for Bank’s Integration and Conversion
OJK Reg. 41/2019 now enables and makes clear procedure for “Integration” and “Conversion”.
Integration is defined as legal action conducted by foreign bank branch office (kantor cabang dari bank yang berkedudukan di luar negeri/”KCBLN”) and a Bank by transferring the assets and liabilities of the KCBLN to a Bank, followed by revocation of the KCBLN’s license.
Conversion is defined as legal action conducted by KCBLN to convert its license into a commercial banking license, followed by revocation of the said KCBLN’s license.
Introduction of New Concept for Controller and Acquisition
OJK Reg. 41/2019 adds provision stating that a transfer of control occurs when: (1) an acquisition of shares causes the acquirer’s share-ownership to be the largest in the Bank, or (2) ownership of shares that does not constitute the largest in the Bank, but is able to determine, directly or indirectly, management in a Bank.
Recognition of More OJK’s Involvement
OJK Reg. 41/2019 now makes clear requirement to obtain OJK’s blessing in conducting MCAs, Integration, and Conversion, before the Bank’s shareholders approve the corporate actions are conducted. Previously, the BI Decrees require OJK’s approval only after obtaining shareholders’ approval from the merging/consolidating Banks or the target Bank (for acquisition). However, in practice, parties will have always conducted discussion with OJK in order to gauge OJK’s preliminary view on the proposed MCAs. With the issuance of OJK Reg. 41/2019, preliminary discussion with OJK is now explicitly required.
Similar with MCAs, proposed Integration and Conversion must also be initiated by preparing an integration plan and submitting preparatory documents to be submitted to OJK.
Following OJK’s blessing, MCAs, Integration, and Conversion must then be announced in national newspaper and similar procedures as in the BI Decrees must be undertaken.
Acknowledgement for Acquisition through Rights Issue
OJK Reg. 41/2019 stipulates that Bank acquisitions are carried out by taking over shares that have been issued and/or will be issued by the Bank, which results in the transfer of control in the Bank to the acquiring party. With this provision, it is now expressly allowed for acquisition to be conducted through rights issue.
Rules over Listed Banks
Similar to Controlling shareholders of the Bank owning shares that are not through the stock exchange, OJK Reg. 41/2019 stipulates that any shareholders of the Bank owning shares through the stock exchange and meeting the criteria of a Controller must undergo a fit and proper test. OJK Reg. 41/2019 also requires any party to divest its shares in the Bank if such party, when prohibited by laws from owning shares in the Bank, is proven to own shares in the Bank in the stock exchange. This provision seems to address possible scenarios where a party holds a Bank's shares in the stock exchange by skipping the fit and proper test procedures or bypassing the shareholding restriction requirement for the Bank.
February 17, 2020
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Updated List of Restricted Positions for Expatriates
On December 31, 2019, the Minister of Manpower (“MOM”) enacted Decree No. 349 of 2019 on Certain Positions Restricted for Expatriates (“Decree 349”). Decree 349 revokes and replaces Decree No. 40 of 2012 dated February 29, 2012 concerning the same matter (“Decree 40”). Decree 349 sets out 18 positions restricted for expatriates while Decree 40 listed 19 positions. The single difference between both decrees is that Decree 349 removes the Chief Executive Officer position from the restricted positions list. Therefore, 18 positions listed under Decree 349 is the same as the remaining positions listed under Decree 40.
Note that Decree 349 is not the implementation of Article 42(5) of Law No. 13 of 2003 dated March 25, 2003 on Manpower that provides positions that are available for expatriates. The compilation of the positions available for expatriates are set out under Decree No. 228 of 2019 dated August 27, 2019 on Certain Positions Available to Expatriates (“Decree 228”).
In addition to reference to the International Standard Classification of Occupations (“ISCO”), Decree 349 refers to the Indonesian Standard Classification of Occupations (Klasifikasi Baku Jabatan Indonesia or “KBJI”). The updated list of restricted positions for expatriates set out in Decree 349 is as follows:
| No. | ISCO/KBJI Code | Position |
| 1 | 1210 | Personnel Director |
| 2 | 1232 | Industrial Relations Manager |
| 3 | 1232 | Human Resources Manager |
| 4 | 1232 | Personnel Development Supervisor |
| 5 | 1232 | Personnel Recruitment Supervisor |
| 6 | 1232 | Personnel Placement Supervisor |
| 7 | 1232 | Employee Career Development Administrator |
| 8 | 4190 | Personnel Declare Administrator |
| 9 | 2412 | Personnel and Careers Specialist |
| 10 | 2412 | Personnel Specialist |
| 11 | 2412 | Career Advisor |
| 12 | 2412 | Job Advisor |
| 13 | 2412 | Job Advisor and Counseling |
| 14 | 2412 | Employee Mediator |
| 15 | 4190 | Job Training Administrator |
| 16 | 2412 | Job Interviewer |
| 17 | 2412 | Job Analyst |
| 18 | 2412 | Occupational Safety Specialist |
February 17, 2020
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OJK Improved Regulation on Quality Assessment of Asset for Commercial Banks
To maintain the soundness level of banks through the protection of banks’ quality of asset and loan-loss provisions, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan - “OJK”) enacted OJK Regulation No. 40/POJK.03/2019 on Quality Assessment of Asset for Commercial Banks that came into effect on January 1, 2020 (“POJK 40/2019”). This POJK 40/2019 replaces and synchronizes (i) Bank Indonesia (“BI”) Regulation No. 14/15/PBI/2012 on Asset Quality Assessment of Conventional Bank, (ii) POJK No. 14/POJK.03/2018 on Quality Assessment of Conventional Bank to for the Improvement of Growth in Real Estate Sector and Foreign Exchange, (iii) Bank Indonesia Directors’ Decision Letter No. 23/68/KEP/DIR on Productive Assets Quality and Reserves Structure, (iv) BI Circular Letter No. 15/28/DPNP on Quality Assessment of Conventional Bank, and (v) BI Circular Letter No. 4/241/UPPK/PK on Overdrafts due to Interest/Stamp Duty on Loans (collectively, the “Previous Regulations”).
Continuing the Previous Regulations, POJK 40/2019 governs the procedure for banks’ quality assessment of asset, loan-loss provisions and credit restructuring. Adopting the previous concept in assessing the quality of their assets, banks are required to make an evaluation based on two categories of assets namely:
- productive asset which includes, among others, credit, placements, securities and derivative receivables; and
- non-productive asset which includes acquired collateral (Aset Yang Diambil Alih), dormant property and inter-office accounts and suspense accounts.
Similar to the Previous Regulations, in terms of collectability, the new POJK 40/2019 maintains the 1 (one) to 5 (five) classification with 1 (one) being Current (Lancar) to 5 (five) being Loss (Macet). The same rule of loan-loss provisions is also restated. Essentially, banks are required to maintain loan-loss provisions over their productive and non-productive asset in order to prevent potential losses arising from their assets. The calculating procedure for loan-loss provisions is as follows.
- For productive assets classified as Current, banks shall set aside 1% (one percent) to be accounted for their general loan-loss provisions. This excludes outstanding credit facility which is part of Administrative Account Transaction, government issued securities and productive assets backed by cash collateral.
- As for the calculation for loan-loss provisions of non-productive assets and productive assets classified other than Current, banks shall apply the following:
- 5% (five percent) for assets classified as Special Mention (Dalam Perhatian Khusus),
- 15% (fifteen percent) for assets classified as Sub-Standard (Kurang Lancar),
- 50% (fifty percent) for assets classified as Doubtful (Diragukan); and
- 100% for assets classified as Loss.
- Bonds and/or sharia bonds which are not issued through public offering and securities and/or shares securitized by or subject to shares as its underlying asset classified as Loss and shall be calculated based on Loss classification.
The above calculation shall be made after the subtraction of assets’ collateral.
- Key Changes from the Previous Regulations
Aside from reinstating the Previous Regulations as set out above, the new POJK 40/2019 now gives room for securities listed in off-shore stock exchange to be considered as productive asset, includes apartment unit with fiduciary security as asset collateral that can be subtracted for loan-loss provisions, provides more detailed reporting guideline for credit restructuring and implements two-stages approach in sanction enforcement that will be elaborated below.
Productive Asset: Room for Securities Listed in Off-Shore Stock Exchange
POJK 40/2019 explicitly allows securities that are being actively traded in off-shore stock exchange as productive asset with Current classification provided that such off-shore stock exchange is among the top 25 (twenty-five) biggest capitalization capital market value in the world.
Loan-Loss Provisions: Apartment Unit with Fiduciary Security as An Additional Asset Collateral Subtraction
POJK 40/2019 adds the list of asset collateral that can be subtracted in calculating loan-loss provisions set out in the Previous Regulations by including apartment unit securitized by fiduciary security.
Credit Restructuring: A More Detailed Guideline
OJK now provides a detailed form of credit restructuring report which was not stipulated in the Previous Regulations. The form requires banks to report the type of credit restructuring as well as debtors’ credit condition before and after the restructuring. Further the reporting procedure for credit restructuring also refers to the sanctions set out in OJK Regulation No. 12/POJK.03/2019 on Conventional Bank Report Through OJK Reporting System dated April 5, 2019, where incompliance is subject to additional sanctions in the form of fines.
Sanction: Two-Stages Enforcement Approach
Unlike the Previous Regulations, POJK 40/2019 now imposes sanction for non-compliance in two stages namely (i) written warning, before (ii) additional sanctions in the form of suspension of business activities and/or prohibition of banks to participate as primary parties within financial institutions. Banks will only be subjected to additional sanctions if they have received written warning and remain to ignore such written warning.
February 12, 2020
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Supervisory Board of KPK – Implementing Regulations
Last year, the Parliament and the Government amended Law No. 30 of 2002 dated December 27, 2002 on Corruption Eradication Commission (“KPK”) with Law No. 19 of 2019 dated October 17, 2019 (collectively, the “KPK Law”). Such amendment to the KPK Law created public backlash due to the fear of attempts to weaken KPK. One of the provisions is the establishment of a Supervisory Board of KPK. As regulated in the KPK Law, the Supervisory Board serves as a body to oversee the work of KPK. The Board members will be appointed by the President of Indonesia.
Following the establishment of the Supervisory Board of KPK, the President of Indonesia issued Presidential Regulation No. 91 of 2019 dated December 31, 2019 on the Implementing Body of the Supervisory Board of KPK (“PR 91/2019”). The summary of key stipulations in PR 91/2019 is as follows:
| Issue | PR 91/2019 |
| Duties and responsibilities
|
In carrying out its duties, the Supervisory Board creates an implementing body called the Secretariat of the Supervisory Board. The Secretariat would be led by the Head of the Secretariat and the body will be directly under the responsibility of the Head of the Supervisory Board.
The Secretariat caries out the function of, among others: a. receiving and administering any permission to wiretap, search, and/or confiscate; b. facilitating the preparation of drafting the code of ethics for KPK chairman and employees; c. facilitating any public report on a alleged code of ethics violation by KPK chairman and employees; d. facilitating the enactment of the Supervisory Board’s hearing; and e. facilitating the work evaluation for KPK chairman and employees. |
| Appointment | The Head of Secretariat shall be appointed by the Secretary General of KPK based on a recommendation from the Supervisory Board. |
In addition to PR 91/2019, the Government issued Government Regulation No. 4 of 2020 dated January 16, 2020 on the Procedures to Appoint the Head and Members of the Supervisory Board of KPK (“GR 4/2020”). The summary of key stipulations in GR 4/2020 is as follows:
| Issue | GR 4/2020 |
| Membership | The Supervisory Board consists of five members, one of which is assigned as the Head of Supervisory Board. The term of office of the members is four years and may be extended for another period of four years. |
| Appointment and termination of appointment | The Head and the members of the Supervisory Board are appointed by the President. In appointing the Head and members of the Supervisory Board, the President is assisted by a Selection Panel.
The Selection Panel consists of nine members, five of whom are from the Central Government and the remaining four are from the public. One member from the Central Government acts as the head of the Selection Panel and another member serves as the deputy. Members of the Selection Panel are determined based on a Presidential Decree. The Selection Panel will conduct a series of tests to the candidate members of the Supervisory Board, which candidacy will be open for the public. When the panel selection determines the selected candidates, the Selection Panel will deliver these names to the President. The President will further deliver these names to the House of Representatives for consultation. Upon consultation, the President would have fourteen working days to determine the Head and members of the Supervisory Board. The Head and members of the Supervisory Board can resign or be terminated if: a. they pass away; b. the period of office has ended; c. they committed inappropriate conduct; d. they are sentenced to imprisonment because of a criminal act based on a court decision that is final and binding; e. they resign voluntarily in writing; and/or f. they are unable to carry out the work for three consecutive months. Termination of the appointment of the Head and members of the Supervisory Board will be based on a Presidential Decree. |
- Recent Development: Issuance of other Presidential Regulations
Other than PR 91/2019 and GR 4/2020, the President and the Government plan to issue certain regulations relating to the new provisions in the KPK Law. The new regulations include:
- Government Regulations on:
- Results of Search and Confiscation in respect of Corruption; and
- Transfer of KPK Employees as State Civil Apparatus.
- Presidential Regulations on:
- Supervision on the Eradication of Corruption;
- Salaries and Allowances for KPK Employees;
- Financial and Facility Rights for the Supervisory Board of KPK; and
- Organization and Work Procedures for the Chairman and Implementing Body of KPK.
To date, these regulations have not been issued by the President or the Government.
February 11, 2020
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Minister of State-Owned Enterprises Bolsters Use of Local Products in Procurement of Goods and Services
On December 12, 2019, the Minister of State-Owned Enterprises (Badan Usaha Milik Negara or “BUMN”) issued Regulation No. PER-08/MBU/12/2019 on General Guideline for the Implementation of the Procurement of Goods and Services by State-Owned Enterprises (the “New Regulation”). This New Regulation aims to increase the use of local products and to enhance the role of national business actors.
The New Regulation replaces the Minister of BUMN Regulation No. PER-05/MBU/2008 dated September 3, 2008 which bore the same title and which was amended through the issuance of Minister of BUMN Regulation No. PER-15/MBU/2012 dated September 25, 2012 (collectively, the “Previous Regulation”).
We set out below the key points of the New Regulation.
- Utilization and Monitoring of Local Product
Under the New Regulation, any BUMN that intends to procure goods and/or services (a “User”) is required to prioritize the utilization of domestic goods and services, national designs and engineering, as well as to participate in the expansion of opportunities for small-scale businesses. Furthermore, the board of directors (“BoD”) of a User will be required to establish an internal Local Component Level (Tingkat Komponen Dalam Negeri or “TKDN”) Team in order to monitor and ensure the utilization of local components during the procurement process. These rules were not addressed under the Previous Regulation.
- Price Preferences for Local Component
Previously, the rules on price preferences were not addressed under the Previous Regulation. Under the New Regulation, a User may set price preferences for domestic products with the TKDN value of 25% or above. The price preferences for said products are to be determined as follows:
- up to 25% for local products; and
- up to 7.5% for construction services offered by local companies.
- Qualifications and Options for BUMN Subsidiaries or BUMN-affiliated Companies
The New Regulation allows BUMN subsidiaries or BUMN-affiliated companies to directly appoint any other BUMN, BUMN subsidiaries, or BUMN-affiliated companies in procuring goods and services. However, the New Regulation relaxes the share percentage requirement for a BUMN subsidiary or a BUMN-affiliated company. Previously, the Previous Regulation required a minimum of 90% ownership by one or more BUMN before a company qualified as a BUMN subsidiary or a BUMN-affiliated company. Now, the New Regulation only requires more than 50% ownership by one or more BUMN.
Further, the New Regulation stipulates that the application of the New Regulation is optional for BUMN subsidiaries and BUMN-affiliated companies. As such, these companies can choose whether or not to adopt the requirements under the New Regulation through their general meeting of shareholders.
- Procurement Procedures
The New Regulation uses different terms than those of the Previous Regulation on the procedure for the procurement of goods/services. However, the procedures are still similar with the Previous Regulation, as follows:
- a tender/general selection (previously, an “open tender”), where a User announces its procurement plans publicly through the mass media in order to provide a fair opportunity for all qualified providers of goods/services to participate in the selection process (auction);
- a limited tender/limited selection (previously, a “direct tender”), where a User only informs a limited number of parties of the relevant procurement plans. This process must result in at least two bids;
- a direct appointment, where a User directly appoints a single party to be the provider of goods/services or makes an appointment through “beauty contests” once they have satisfied at least one of the requirements set under Article 13 (2) of the New Regulation; and
- a direct procurement, which refers to purchases of goods that are currently available in the marketplace so that the price follows the market price. This procedure includes e-purchasing.
Further, the New Regulation stipulates that BUMN may set a bid bond as a requirement in a tender, a general selection, a limited tender, or a limited selection process unless the supplier of the goods/service is a BUMN or ex-BUMN parties.
- Long Term Procurement
The New Regulation clarifies the details of the requirements for the long-term procurements, which are as follows:
- work that requires more than 12 months or one fiscal year to complete;
- work that will provide an added value if the contract lasts for a period of one to three fiscal years;
- work that requires a long-term investment; and
- routine work that must be completed at the beginning of a given year.
The BoD of BUMN is allowed to formulate the price adjustment for multi-year contracts based on market conditions and prevailing best practices.
- Deadline to File an Objection
Previously, a User could file an objection within 4 business days as of the date of announcement of the winning bidder or the date of the contract award (whichever is earlier), and the BUMN will have 14 calendar days to respond.
Now, the New Regulation shortens the period in which a bidder can file an objection against a BUMN's determination of the winning bid or contract award. A User may file an objection against the announced tender winners within 2 days as of the date of announcement of the winning bidder or the date of the contract award (whichever is earlier), and the relevant User must then respond to the objections within 7 calendar days of receiving them.
- Procurement Contract
Unlike the Previous Regulation, the New Regulation only requires the procurement contract to provide, at least, clear rules on the rights and obligations between the parties. Such procurement contract must also heed the provisions of the applicable laws and regulations, good corporate governance as well as the precautionary principle on the business judgment rule.
February 11, 2019
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New Insurance Regulations on Foreign Ownership and Compliance Director Requirement
There are 2 (two) regulations issued concerning insurance business sector–which are:
- Government Regulation Number 3 of 2020 (“GR 3/2020”) to amend the previously issued Government Regulation Number 14 of 2018 on Foreign Ownership in Insurance Business Companies (“GR 14/2018”). GR 3/2020 has been in force since January 20, 2020. GR 3/2020 introduces new provisions on restriction on foreign ownership threshold for both conventional and shariah-based insurance business companies; and
- Financial Services Authority (“OJK”) Regulation Number 43/POJK.05/2019 (“POJK 43/2019”), which amends the previously issued OJK Regulation Number 73/POJK.05/2016 (“POJK 73/2016”) regarding Good Corporate Governance for Insurance Companies. POJK 43/2019 has been in force since December 31, 2019. POJK 43/2019 introduces a requirement for insurance business companies to appoint compliance director.
We set out below notable provisions under GR 3/2020 and POJK 43/2019.
- GR 3/2020
Foreign Ownership Threshold
With respect to joint investment between Indonesian individuals and/or legal entities with foreign parties (“JV Insurance Business Companies”), GR 3/2020 reaffirms the previous provision on GR 14/2018 which allows JV Insurance Business Companies to maintain its foreign capital participation that exceeds 80% prior to the enactment of GR 14/2018.
The old provision under GR 14/2018 required, in the event of an increase of paid-up capital, at least 20% of the newly issued shares shall be subscribed by Indonesian individuals or legal entities. Consequently, each action will cause the foreign shareholding proportion in the said JV insurance Business Company to be diluted.
Such provision is amended by GR 3/2020. In case of increase of paid-up capital in JV Insurance Business Companies which foreign capital participation already exceeds 80%, GR 3/2020 only prohibits the foreign shareholder to further increase their shares ownership that already exceeds 80% - but allowing such foreign shareholder to maintain their shareholding composition in case of increase of capital.
As an illustration: a JV Insurance Business Company, with shareholding composition of: (i) 10% of issued shares hold by an Indonesian individual and (ii) 90% of issued shares hold by a foreign party, intends to increase its issued and paid up capital.
Under GR 14/2018, the said Indonesian shareholder must subscribe at least 20% of the newly issued shares – which means that the foreign shareholder may only subscribe 80% at the most. As the result, the foreign shareholder, which previously hold 90% of shares, will end up holding less than 90% as it cannot subscribe in accordance with its shareholding composition.
Now, GR 3/2020 only prohibits the said foreign shareholder to hold more than 90% as the result of increase of capital. Therefore, if the said foreign shareholder intends to maintain its 90% shareholding composition in case of an increase of capital, it may subscribe 90% of the newly issued shares, while the Indonesian individual must subscribe the remaining 10%.
Further, when the Indonesian shareholder cannot subscribe to the newly issued shares in accordance with their shareholding composition, which would result in the increase of foreign shareholding composition, then the increase of capital must be conducted through an IPO.
Addition of Scope of Foreign Ownership in Insurance Business Companies
GR 14/2018 is applicable for insurance companies, including insurance companies that operate based on conventional or sharia principles, reinsurance companies, insurance/reinsurance brokerage companies, and insurance loss adjusting companies. GR 3/2020 adds the scope to also cover sharia-based insurance/reinsurance companies resulting from spin-off of sharia-based business units of conventional insurance/reinsurance companies (“Sharia-based Insurance Companies Through Spin-Off”).
Under GR 3/2020, Sharia-based Insurance Companies established through Spin-Off shall also be subjected to the same foreign ownership restriction as conventional insurance-business companies (as discussed in the previous section). Sharia-based insurance companies are subjected to the same sanctions with conventional insurance-business companies for any violation of GR 3/2020 and GR 14/2018.
- POJK 43/2019
POJK 43/2019 requires insurance companies to appoint at least 1 (one) compliance director in its Board of Directors. The compliance director should not hold dual positions as a director handling matters concerning technical insurance, financial, or marketing matters. Based on the complexity and business line, OJK may request certain insurance companies to appoint a compliance director solely for attaining to compliance matters.
February 5, 2020
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OJK Launched New Regulation on the Implementation of Anti-Fraud Strategy for Commercial Banks
The Indonesian Financial Services Authority (“OJK”) issued OJK Regulation No. 39/POJK.03/2019 of 2019 on the Implementation of Anti-Fraud Strategies for Commercial Banks that comes into effect on January 1, 2020 (“POJK No. 39/2019”) to revoke Bank Indonesia Circular Letter No. 13/28/DPNP of 2011 on the Implementation of Anti-Fraud Strategies for Commercial Banks (“SEBI No. 13/2011”).
Essentially, the new POJK No. 39/2019 now provides more comprehensive implementation of anti-fraud strategy and reporting obligation provisions for Banks. POJK No. 39/2019 was enacted as an attempt of OJK to strengthen internal controlling system of a Bank for minimizing Fraud, as well as a form of support to implement risk management in a bank. To improve accuracy and expedite submission of data reporting, POJK No. 39/2019 complements the form and procedures of reporting to OJK to be more comprehensive, including the new form of report for Fraud perpetrator which requires Bank to fill in the details of perpetrator involved whether an internal or external party of the bank. To minimize the risk of Fraud, POJK No. 39/2019 has included the monitoring of external parties as a part of implementing anti-Fraud strategy.
Nevertheless, POJK No. 39/2019 still requires commercial banks (“Bank”) to implement the same anti-fraud strategy through four pillars namely (a) prevention (b) detection (c) investigation, reporting and sanction, and (d) monitoring, evaluation and follow-up as previously determined in SEBI No. 13/2011.
POJK No. 39/2019 affirms the type of conducts that are considered as ‘Fraud’ which was previously not stipulated under SEBI No. 13/2011, consisting of: deception, fraudulence, asset embezzlement, information leaks, criminal banking offence, and other conducts similar to fraud stipulated under the applicable laws and regulations.
The key changes as stipulated in POJK No. 39/2019, among others, are (i) the preparation of policy and procedures for the implementation of risk management system, (ii) the obligation for the head of anti-Fraud working unit to hold a certification of expertise in the field of anti-Fraud or adequate banking and sharia banking expertise, (iii) the requirement to report the perpetrator of Fraud in a more detailed manner, (iv) online and offline reporting submission, and (v) the sanction which can be imposed to Directors and/or Board of Commissioners’ of Bank.
- Implementation of Risk Management to Strengthen Internal Controlling System of a Bank
To minimize the risk of Fraud, POJK No. 39/2019 obliges Bank to have anti-Fraud strategy that serves as part of the implementation of risk management in strengthening internal controlling system. Anti-fraud strategy means Bank’s strategy to control fraud that is designed, implement and improve anti-fraud compliance program in a Bank.
For implementing risk management system, POJK No. 39/2019 now obliges Bank to do preparation of policy and procedures which previously unregulated under SEBI No. 13/2011. The preparation and application of policy and procedures should cover at least: (a) directors and Board of Commissioners’ commitment, (b) determining comprehensive internal control systems and risk assessment procedures (c), due diligence of Bank’s related third parties, (d) remuneration system subsequent to the relevant task and responsibilities, (e) implementation of Bank’s good corporate governance, (f) financial control and implementation of accounting in accordance with the applicable accounting and financial standard, (g) prevention of conflict of interest in decision making, delegation of authorization and separation of function, (h) Fraud reporting mechanism that includes procedure for whistleblowing system (i) enforcement of disciplinary and sanction against breach of anti-fraud regulation, (j) communication and training over policy and procedure of Fraud prevention, (k) periodical monitoring and evaluation of policy and procedure of Fraud prevention, and (l) other matters that are seen as necessary.
Further, in addition to the establishment of anti-Fraud working unit, POJK No. 39/2019 also requires such working unit to be led by a head who holds a certificate of expertise in the field of anti-Fraud and or have adequate experience in the field of banking or sharia banking.
- Comprehensive Form and Procedures of anti-Fraud Report
POJK No. 39/2019 complements the form and procedures of reporting to OJK more comprehensive, including the incorporation of form of report specifically for the perpetrators of Fraud. Unlike SEBI No. 13/2019 that only provides form for incidents of Fraud and the follow up, the new POJK No. 39/2019 also sets out specific form to report the detailed identification of the perpetrators of Fraud that may come from internal and/or external parties, consist of; (a) name, (b) type of identity, (c) identity number, (d) gender, (e) address, (f) date and place of birth. Moreover, POJK No. 39/2019 divides the reporting submission for the anti-fraud strategy, namely: (i) offline reporting to OJK office for anti-fraud strategy report, and (ii) online reporting through OJK system for anti-fraud strategy implementation report and (if any) its correction. In the case that online reporting is not available yet, Banks shall conduct the report on offline basis.
- Sanctions
Under new POJK No. 39/2019, sanctions may not only be imposed to Banks but also its directors and/or Board of Commissioner. Set out below are the summary of sanctions stipulated under POJK No. 39/2019:
- Bank that fails to prepare and implement anti-Fraud strategy is subject to administrative sanction in the form of written warning. In the case that bank, its directors and/or its Board of Commissioner remains fail to prepare and implement the anti-Fraud strategy after receiving the written warning, then Bank will be subject to additional sanction in the form of (i) reduction of Banks’ soundness level, (ii) prohibition on the introduction of any new products or to conduct any new activities, (iii) suspension of certain business activities, and/or (iv) prohibition on acting as the main parties of financial services institutions, which should be carried out in accordance with the Regulation of OJK.
- Directors and/or Board of Commissioner that fails to prepare and implement anti-Fraud strategy is subject to administrative sanction in the form of written warning.
- Bank that fails and/or is late in submitting the anti-Fraud strategy related report is subject to administrative in the form of written warning and fines amounting to IDR 1 million per business day, up to a total of IDR 30 million for each type of required document.
- Bank that submits false data or information of the report is subject to written warning and fines amounting to IDR 100,000 per piece of false information, up to a total of IDR 10 million per report.
February 5, 2020
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Indonesian Constitutional Court Reviewed Fiduciary Security Law
On January 6, 2020, the Indonesian Constitutional Court (Mahkamah Konstitusi) rendered its decision number 18/PUU-XVII/2019 (“Decision No. 18/2019”) in relation to the judicial review of Article 15 paragraphs (2) and (3) of Law Number 42 of 1999 dated September 30, 1999, on Fiduciary Security (the “Fiduciary Security Law”). Briefly, the petition for the review was submitted by Apriliani Dewi and Suri Agung Prabowo, a married couple whose fiduciary security over their car was enforced by a multi-finance company, PT Astra Sedaya Finance. The petitioner claimed that certain provisions in the Fiduciary Security Law were unjustifiable and unfair, and against their constitutional rights.
Decision No. 18/2019 declares that interpretations of certain provisions in the Fiduciary Security Law are unconstitutional and do not have legal effect if not interpreted according to Decision No. 18/2019. Those phrases are the ‘enforcement power’ (kekuatan eksekutorial) phrase and the ‘similar to a final and binding decision’ (sama dengan putusan pengadilan yang berkekuatan hukum tetap) phrase contained in Article 15 paragraph (2) of the Fiduciary Security Law and the ‘event of default’ (cidera janji) phrase contained in Article 15 paragraph (3) of the Fiduciary Security Law.
Decision No. 18/2019 stipulates that Article 15 paragraph (2) of Fiduciary Security Law must be interpreted that if the parties do not agree on an event of default and the debtor does not voluntarily surrender the object of the fiduciary security, the enforcement of the fiduciary security must then be conducted in the manner and mechanism for the enforcement of a final and binding court decision (i.e., through court enforcement procedures).
Further, Decision No. 18/2019 stipulates that in interpreting Article 15 paragraph (3) of the Fiduciary Security Law, an event of default should not be decided unilaterally by a creditor, but by an agreement of the parties or through a legal measure determining such event of default.
Given this, financing documents should be carefully drafted to expressly set out the events of default provisions. Failing which, creditors may have to go through a lengthy dispute resolution mechanism merely to determine an event of default before seeking repayment of the loan or enforcement of security interest. This should not be an issue for sophisticated financing transactions as, we are certain, the documents for these transactions will set out detailed and comprehensive provisions regarding events of default and the consequences thereof.
January 24, 2020
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Government Introduces Regulatory Framework on Rooftop Solar Panel for Captive Use
On November 16, 2018, the Minister of Energy and Mineral Resources of the Republic of Indonesia (the “MEMR”) enacted MEMR Regulation No. 49 of 2018 on the Utilization of Rooftop Solar Power Generation System by the Customer of PT Perusahaan Listrik Negara (Persero) (“MEMR 49/2018”).
MEMR 49/2018 was enacted as an attempt of the government to increase energy efficiency for captive power usage through the utilization of rooftop solar power generation system to be installed by the customers of PLN. The regulation also aims to enhance the usage of solar as part of renewable energy.
As of its issuance on November 2018, MEMR 49/2018 has been amended twice by MEMR Regulation No. 13 of 2019 dated September 6, 2019 (“MEMR 13/2019”) and MEMR Regulation No. 16 of 2019 dated October 14, 2019 (“MEMR 16/2019”).
- Criteria of Rooftop Solar Panel
A Rooftop Solar Power Generation System (Sistem Pembangkit Listrik Tenaga Surya Atap) is defined as a power generation process which utilizes photovoltaic module that will be installed and placed on the roof, walls or other parts of the building owned by the customer of PLN which transmits the electricity generated through the customer’s electricity installation (hereinafter, the “Rooftop Solar Panel”).
The objective of installation and use of Rooftop Solar Panel is to reduce customers electricity usage from PLN and reduce the customers’ electricity bill.
Rooftop Solar Panel itself consists of solar module, inverter, electricity interconnection, secure system as well as the kWh meter for export and import.
For safety reasons, Indonesia’s National Standard (known as “SNI”), International Standard and/or PLN’s standard will be applicable to the installation of a Rooftop Solar Panel.
- Permits and Licenses
Customers of PLN intending to install Rooftop Solar Panel shall submit an application for its construction and installation to the General Manager of the relevant PLN Distribution Office.
PLN will evaluate and verify the application within 15 (fifteen) business days as of the receipt of a correct and complete application before issuing its approval.
Customers intending to construct and install Rooftop Solar Panel shall also obtain an Operational License (Izin Operasi) which allows power generation for captive use in accordance with the prevailing electricity regulations.
Further, such Rooftop Solar Panel installation shall have an Operational Feasibility Certificate (Sertifikat Laik Operasi or “SLO”).
SLO involves a series of assessment, examination, and verification performed by a Technical Inspection Institution accredited by MEMR to ensure that the electrical installation functions in accordance with necessary requirements and can be declared ready to operate.
Please note that the Rooftop Solar Panel itself may only be constructed by a construction service provided holding an Electricity Supporting Services Business License (Izin Usaha Jasa Penunjang Tenaga Listrik).
- Other Requirements and Restrictions
To utilize Rooftop Solar Panel, pre-paid customers of PLN must first become post-paid customers. The application to switch to post-paid customer shall be submitted by the applicant along with the application for Rooftop Solar Panel construction and installation to the General Manager of the relevant PLN Distribution Office.
The capacity of the customer’s Rooftop Solar Panel is limited to 100% (one hundred percent) of the connected capacity of such customer to PLN as determined through the total capacity of the inverter.
PLN will also install an electricity export-import meter (meter kWh ekspor-impor energi listrik) for the customers after the Rooftop Solar Panel has obtained an SLO the cost of the consumer.
In the event the electricity exported by the customer to PLN is higher than the electricity imported from PLN in a proceeding month, such difference will be accumulated and accounted as a reduction of the customer’s electricity billing for the subsequent month. The electricity of PLN’s customer exported to PLN shall be multiplied by 65% of the electricity imported.
- Installation of Rooftop Solar Panel for Industrial Purpose
Industrial customers of PLN may install Rooftop Solar Panel either in as on-grid (connected to PLN’s grid) or off-grid (separated from PLN’s grid).
In the event the Rooftop Solar Panel is installed in as on-grid, the industrial customers will be subject to capacity charges to be paid every month. The customer shall also report the operational plan of the on-grid Rooftop Solar Panel to PLN.
For off-grid Rooftop Solar Panel, no capacity charge nor emergency energy charge will be charged by PLN.
- Installation of Rooftop Solar Panel by Non-Customer of PLN
Entities who are not customer of PLN are theoretically allowed to install Rooftop Solar Panel for captive use by reporting to the Directorate General of New and Renewable Energy and Energy Conservation (“DJ EBTKE”).
The regulations appear to be well-accepted by the relevant industries, from manufacturing, utilities, constructions, electricity supporting services, solar panel manufacturing and/or trading, and other companies.
January 17, 2020
Copyright © 2020 AKSET. All rights reserved.
Acceleration of Electric Vehicle Industry in Indonesia (Updated)
On August 12, 2019, the Government of Indonesia enacted Presidential Regulation No. 55 of 2019 dated August 12, 2019 on the Acceleration of Battery Electric Vehicle Program for Road Transportation (“PR 55/2019”).
PR 55/2019 was enacted as an attempt of the Indonesian Government to increase energy efficiency and energy conservation in the field of transportation, to improve the quality of air and reduce greenhouse emission in the country.
The regulation also aims to provide the long-overdue legal framework and legal certainty for the Battery-Based Electric Vehicle (“EV”) industry in Indonesia.
- EV Criteria
Based on PR 55/2019, an EV is defined as a vehicle moved by an electric motor using electricity power from battery directly in the vehicle or from outside the vehicle.
Electric motor itself is defined as an electromechanics equipment which consumes electricity to produce mechanical energy as its driving force. Whereas, Battery is defined as the source of electricity used to supply electricity in an electric motor.
PR 55/2019 divides EV into 2 (two) main categories:
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- two wheeled and/or three wheeled EV; and
- four wheeled and/or more EV.
The presidential regulation further provides that the Minister of Industry may provide further provision on the specifications of a EV.
- EV Manufacturers
There are 2 (types) of EV manufacturers acknowledged under PR 55/2019, as follows:
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- EV Manufacturing Company (EV Industry); and
- EV Components Manufacturing Company (EV Components Industry).
EV Industry and EV Components Industry may only be conducted by a company established and operated based on Indonesian law which has a Manufacturing Business License (“IUI”) to assemble and produce EV (collectively, the “Domestic EV Producers”).
The Domestic EV Producers are required to build a domestic manufacturing facility by itself or by cooperating with another manufacturing company. In the event the EV Components Manufacturing Company are not yet able to produce the main and/or the supporting components of the EV, the EV Producers may import the EV components in a Completely Knocked-Down (“CKD”) or Incompletely Knocked-Down (“IKD”) state.
Such import shall be performed by improving the gradual local content requirement by considering the ability of the domestic production.
- Scope of Charging Facilities
The development of EV industry also depends on its supporting facilities, especially the charging facilities.
Based on the regulation, EV charging facilities consist of Charging Stations having electric power supply, control facilities for current, voltage and communication, and safety and protection system (the “Charging Stations”) and/or Battery Exchange Stations (the “BEX”).
Charging activity through Charging Stations may be done through private electricity installation or through Public Charging Stations (or SPKLU).
Electricity tariff imposed by the Charging Stations shall be determined by the Minister of Energy and Mineral Resources (“MEMR”).
A company selling electricity through Charging Station shall hold an Electricity Supply Business License (Izin Usaha Penyediaan Tenaga Listrik or “IUPTL”) and shall own an Electricity Working Area (Wilayah Usaha Penyediaan Tenaga Listrik or “WUPTL”).
Alternatively, an IUPTL holder may also cooperate with a State-Owned Company in the field of energy or other business entities to manage the Charging Stations.
As an initial attempt to start the supply of the Charging Stations, the Indonesian Government appoints PT PLN (Persero) (“PLN”) as the State-Owned Electricity Company holding an IUPTL and possessing a WUPTL in most areas in Indonesia to provide and operate the Charging Stations by cooperating with other state-owned companies or other private business entities in accordance with the prevailing regulations.
- Local Content
Considering the current domestic capability for EV production, the Indonesian Government obliges local content requirement (Tingkat Komponen Dalam Negeri or “Local Content”) fulfillment for EV Industry and EV Components Industry gradually, based on the following schedule:
For two and/or three-wheeled EVs:
| Year | Local Content |
| 2019-2023 | Minimum 40% |
| 2024-2025 | Minimum 60% |
| 2026 and further | Minimum 80% |
For four-wheeled and/or more EVs:
| Year | Local Content |
| 2019-2021 | Minimum 35% |
| 2022-2023 | Minimum 40% |
| 2024-2029 | Minimum 60% |
| 2030 and further | Minimum 80% |
- Subject of Fiscal and Non-Fiscal Incentives
In general, PR 55/2019 stipulates that the entities eligible to obtain Fiscal and Non-Fiscal Incentives are (i) the EV Manufacturing Companies, (ii) the EV Components Manufacturing Companies, (iii) Universities providing vocation programs on EV, (iv) Research and Development Institutions focusing on EV, (v) Battery-Exchange Stations Companies, (vi) Battery Waste Management Companies, (vii) EV Charging Stations Companies, (viii) Manufacturing Companies accelerating the production and preparation of EV facilities and supporting facilities, (ix) EV Public Transportation Companies, and/or (x) individuals using EVs.
- Types of Fiscal and Non-Fiscal Incentives
The Fiscal Incentives eligible for the abovementioned entities / individuals include, among others:
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- Exemption of customs duty for import of EV in a CKD or IKD state and for import of main components of EV for certain amount and for certain period of time;
- Reduction or exemption of Sale Tax on Luxurious Goods (Pajak Penjualan atas Barang Mewah or PPnBM);
- reduction or exemption of taxes imposed by the regional or central government, which covers the reduction or exemption of Motor Vehicle Tax and Transfer of Title Tax of Motor Vehicle;
- exemption of customs duty for (import of) machines, capital goods and equipment for EV investments;
- incentives for the production of equipment for Charging Stations;
- incentives for parking tariffs determined by the regional government.
In addition, the Government also provides Non-Fiscal Incentives for entities and individuals, such as (1) the exemption on the restriction to use certain roads in Indonesia, (2) the delegation of production authority for certain EV technology whose patent is possessed by the central and/or the regional government, and (3) the supervision on safety and/or operational manufacturing activity to preserve the logistic and/or production for relevant manufacturing companies considered as vital national object.
As from December 2019, the Indonesian government has issued various regulations related to EV industry and industrial and services sectors, such as the fiscal and non-fiscal incentives mentioned above, including the reduction and exemption of corporate income tax for certain period, reduction or exemption of luxurious goods tax, exemption of fees for electricity installation for charging stations, exemptions of parking fee charges for EVs, and others.
January 17, 2020
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