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BANK INDONESIA ISSUES REGULATIONS ON THE IMPLEMENTATION OF FINANCIAL TECHNOLOGY

On November 30, 2017, the Central Bank of Indonesia (Bank Indonesia - “BI”) issued BI Regulation No. 19/12/PBI/2017 on the Implementation of Financial Technology (the “BI Regulation”) in order to promote innovation in the financial sector; implement consumer protection, risk management and prudential principles; and maintain monetary and financial system stability and an efficient and safe payment system. The BI Regulation was further implemented through BI Board of Governors’ Regulation No. 19/14/PADG/2017 on Financial Technology Regulatory Sandbox and BI Board of Governors’ Regulation No. 19/15/PADG/2017 on Procedures for Registration, Delivery of Information and Supervision of Financial Technology Organizers.

♦  Scope of Financial Technology

Financial Technology under the BI Regulation is classified into the following:

1. payment systems;
2. market support;
3. investment management and risk management;
4. lending, financing, and capital raising; and
5. other financial services.

A Financial Technology Operator (an “FTO”) shall be subject to the BI Regulation if it provides Financial Technology with the following criteria: innovative; may impact existing products, services, technology and/or financial business models; provides benefit to society; is widely used; and other criteria which may be stipulated by Bank Indonesia (a “Qualified FTO”).

♦  Registration Requirement

A Qualified FTO that has or will be carrying out activities under the BI Regulation shall be in the form of a business entity and must register itself with BI. FTOs providing Payment System Services shall be in the form of an Indonesian legal entity.

Payment System Service Organizers that have obtained a license from BI are excluded from the registration requirement, but are still obligated to inform BI of any new products, services, technology, and/or business models fulfilling the criteria of Financial Technology. An FTO that is under the authority of another institution is also excluded from the registration requirement; however if the FTO conducts Financial Technology in the payment system sector, it must register with BI.

♦  Obligations and Restrictions

In the spirit of protecting the interests of key stakeholders, FTOs are expected to observe consumer protection principles, maintain the confidentiality of consumer and transaction data, and implement risk management and prudential principles, including anti-money laundering and prevention of terrorism funding.

The BI Regulation also obliges FTOs to use Rupiah in every transaction within the Republic of Indonesia and prohibits any payment system activities using virtual currency.

In addition, the BI Regulation requires prior approval from BI for any cooperation between Payment System Service Providers and registered FTOs. Payment System Service Providers are prohibited from cooperating with FTOs that are not registered and/or licensed with BI.

♦  Regulatory Sandbox

BI has created the Regulatory Sandbox to provide FTOs the opportunity to ensure that their products, services, technologies, and business models fulfill the criteria stipulated under the BI Regulation. Registered FTOs will use the Sandbox to present their business models and risk management plans, required documents and trial scenarios for their products, services, technologies and business models.

The Regulatory Sandbox trial program will run for six months, which may be extended once upon written request from the relevant FTO. After such period, BI will determine the success of the trial.

Specifically for FTOs conducting payment system services, if the Regulatory Sandbox trial is successful, the relevant FTO shall first apply for a license as a Payment System Service Organizer before being able to carry out their business operations. For FTOS in categories other than payment system services, Bank Indonesia may convey the result of the Regulatory Sandbox trial to the relevant institutions.

♦  Non Payment Systems FTOs

The scope of financial technology under the BI Regulation also covers non payment systems FTOs. This means that FTOs (other than ones who are involved in the payment systems services) fulfilling the criterias as set out in the regulation  may also register with BI, although not all of them will be selected by BI to join this regulatory sandbox program.

Based on the foregoing, for FTOs that may not fall under the straightforward payment systems or lending services that are currently regulated under the prevailing laws and regulations, this BI Regulation could be an opportunity for them to be recognized by BI to carry out their operation.

December 15, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

BI SETS OUT ARRANGEMENT FOR COMMERCIAL PAPER ISSUANCE AND TRANSACTIONS

In order to deepen the financial market and support the issuance of short-term debt securities by Indonesian companies, on July 20, 2017 the central bank of Indonesia (Bank Indonesia - ”BI”) issued BI Regulation No. 19/9/PBI/2017 regarding Commercial Paper Issuance and Transactions in the Financial Market (the "BI Regulation"), replacing Decree Letter of the Board of Directors of Bank Indonesia No. 28/52/KEP/DIR on the Requirements for the Issuance and Trade of Commercial Papers through Commercial Banks in Indonesia. 

♦  Commercial Paper under the BI Regulation

Under the BI Regulation, commercial paper (“CP”) is defined as a marketable financial instrument issued by a non-bank corporation in the form of a promissory note, which shall be registered with BI and have a maturity date of less than one year.

Companies that can issue CP must meet the following criteria:

• Listed Companies – shares listed on the Indonesian Stock Exchange, including companies that have issued bonds and/or sukuk in the 5 years prior to the date of application to issue CP.
• Private Companies – the company must have been operating for at least 3 years, or less than 3 years with a covered guarantee, have at least IDR 50 billion of equity, and generating net income for the last 1 year.

The CP will be issued in electronic form, scriptless, with a discount, in Rupiah or foreign currency denominations. The CP must have a minimum nominal value of IDR 10 billion or its equivalent, with a maturity period of 1 month, 3 months, 6 months, 9 months, or 12 months, and must to be rated by a rating agency registered in BI.

Prior to issuing CP, companies are required to register at, and obtain approval from, BI. Companies also must disclose certain information about the corporation and the CP to be issued (e.g., summary of the structure of the CP, plan for using the funds, and summary of the company’s financial performance). After the issuance, the company is required to disclose any changes in information or material facts that might impact the value of the CP, the ability of the company to pay its obligations under the CP, or investor decision making.

Investors looking to invest in CP must purchase at least IDR 500 million or its equivalent per transaction. CP transactions may be performed directly or through licensed intermediaries registered at BI.

♦  Supporting Institutions

The BI Regulation provides for certain parties to be involved in the issuance and transactions of CP, subject to mandatory registration and approval from BI, namely supporting institutions, with the following classifications:

• Supporting institutions for the issuance of CP comprise commercial banks or securities companies as arrangers of CP issuance, rating institutions, legal consultants, public accountants, notaries, and other institutions as stipulated by BI.
• Supporting institutions for CP transactions comprise securities companies and brokerage companies.
• Supporting institutions for CP administration and transaction settlement comprise custodian banks or securities companies.

BI may revoke the registered status of CP supporting institutions based on regulatory violations or based on information or request from the relevant authority, professional institution, or concerned parties.

♦  Reporting

The BI Regulation requires parties involved in CP issuance and transactions to report to BI, as follows:

• Companies issuing CP are required to submit reports on CP issuance, material information, and material changes.
• Supporting institutions are required to submit reports on competence improvement and data changes related to institutional capacity building.
• CP traders and supporting institutions providing transaction brokering services are required to submit detail reports on CP transactions.

♦  BI supervision

BI has powers of indirect supervision and examination with respect to CP issuance and transactions. The scope of the supervision covers the issuance process, transaction process, settlement process, administration of the CP, and supervision of information disclosure.

♦  Entry into force

The BI Regulation came into force on September 4, 2017, while rules concerning CP registration will come into force on January 2, 2018 and certain mandatory reporting in relation to CP transactions submitted by securities companies, brokerage companies, and commercial banks will come into force on July 1, 2018.

A grace period for enforcement of the new rules will allow time for banks, securities companies, and other eligible supporting institutions and professions to register with BI as CP supporting institutions.

December 1, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

BI SETS OUT ARRANGEMENT FOR NATIONAL PAYMENT GATEWAY (“NPG”)

On June 22, 2017, the central bank of Indonesia (Bank Indonesia - “BI”) issued BI Regulation No. 19/8/PBI/2017 regarding the National Payment Gateway (the “BI Regulation”), which aims to create a secure, efficient, and reliable domestic payment system by facilitating non-cash transactions through the establishment of a National Payment Gateway (“NPG”). The NPG was further regulated on September 20, 2017, by BI Board of Governors’ Regulation No. 19/10/PADG/2017 regarding National Payment Gateway (the “Governors’ Regulation”), which sets out more detailed arrangements for certain aspects of the NPG.

♦ Scope of the NPG

The NPG covers any domestic electronic transaction involving a payment instrument issued by an Indonesian Issuer, namely by regulating:

1. interconnections between switching networks;
2. the interconnection and interoperability of payment channels, such as ATM networks, electronic data capture (EDC), agents, payment gateways, and other payment channels; and
3. the interoperability of payment instruments, such as ATM/debit cards, credit cards, electronic money, and other payment instruments.

♦ Parties

In general, the NPG involves NPG Organizers and NPG Connected Parties. NPG Organizers comprise (i) standards institutions, (ii) switching institutions, and (iii) services institutions. NPG Connected Parties comprise (i) card issuers, (ii) acquirers, (iii) payment gateway organizers, and (iv) other parties as determined by BI.

♦ Implementation

Domestic processing and final settlement in BI

Currently, the vast majority of card-based transactions are processed offshore. In order to ensure that more transactions are processed inside Indonesia, all domestic electronic transactions required to be processed through the NPG, and switching institutions and services institutions will be required to process final settlement using the Bank Indonesia-Real Time Gross Settlement (BI-RTGS) system—a system for electronic transfer of Rupiah among banks, in real time on an individual transaction basis.

National branding and universal acceptance

National branding will be established, which includes national logos to be featured on all payment instruments issued by NPG Connected Parties as of January 1, 2018. NPG Connected Parties must accept all payment instruments that feature the national logo.

Pricing schemes

NPG Organizers must abide by the pricing scheme determined by BI, which is based on several principles, including cost recovery, a reasonable margin, risks, convenience, etc. The pricing scheme for NPG Organizers, switching organizers which that cooperate with other switching institutions, and NPG Connected Parties consists of sharing infrastructure (“SI”), terminal usage fees (“TUF”), and merchant discount rates (“MDR”), each of which are described in detail in the Governors’ Regulation.

♦ Reporting obligation

Every NPG Organizer is required to submit periodic and incidental reports to BI. The periodic reports must be submitted quarterly and annually, while incidental reports are required for reporting (i) change of capital, shareholder composition, or management of standards institutions, (ii) change of data and information in the documents submitted when submitting the application for determination to BI, and (iii) other events as required by BI.

October 26, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

MOCI Announces 2.1 GHz and 2.3 GHz Frequency Band Auction Rules

On September 26, 2017, the Minister of Communications and Informatics (the “MOCI”) issued Regulation No. 26 of 2017 (the “Regulation”), which sets out procedures for 2.1 GHz and 2.3 GHz band spectrum auctions as part of the government’s goal of achieving broadband nationwide and to enable mobile operators to strengthen network capacity in order to enhance services to mobile users across the country.

The MOCI has allocated three blocks of frequency to be auctioned. For the 2.1 GHz band, the spectrums to be sold are 2 x 5 MHz (Frequency Division Duplexing) in the range of 1970 - 1975 MHz paired with 2160 - 2165 MHz (Block 11) and the range of 1975 - 1980 MHz paired with 2165 - 2170 MHz (Block 12). For 2.3 GHz, one block of 1 x 30 MHz (Time Division Duplexing) in the range of 2300 - 2330 MHz will be offered at auction. The Regulation does not specify the eligible technologies (technology neutral), but these spectrums are suitable for mobile operators to provide additional capacity for 3G or 4G services.

Under the Regulation, the MOCI will not impose any restrictions on potential bidders (all existing mobile operators are eligible); however, mobile operators can only win one of the three blocks. This is to promote competition in the mobile market and to ensure that these frequency bands, which are considered scarce resources, are distributed equally among the operators.

The auction is expected will generate minimum revenue for the government of IDR663.4 billion. Each winner will be granted a ten-year frequency band license (Izin Pita Frekuensi Radio).

The MOCI has invited potential bidders to participate in the auction process. The auction documents are available offline and may be collected at the auction committee secretariat as of October 2, 2017.

October 3, 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar

Procedures for Land Freeze and Land Seizure

On August 9, 2017, the Minister of Agrarian Affairs and Spatial Planning (“Minister”)/Head of the National Land Agency (“Head of BPN”) issued Regulation No. 13 of 2017 on Procedures for Land Freezes and Land Seizures to administer and record Land Freeze or Land Seizure during disputes affecting land title.

♦ Land Freeze

Land Freeze is a temporary action performed by the Head of BPN to stay legal action involving land title  during criminal or civil dispute. No change to land title can be conducted during the Land Freeze period. Details on Land Freeze are outlined in the table below.

♦ Land Freeze Procedure

The procedure for initiating Land Freeze is outlined in the chart below:

♦  Land Seizure

Land Seizure is an action performed by the Head of BPN to record seizures that are authorized by investigators, judicial bodies and other authorities. Land Seizure cannot be applied upon state/regional assets. During Land Seizure, the title to the land cannot be mortgaged or transferred, although title can be amended, extended or become the subject of a mortgage discharge application. Details on Land Seizure are outlined in the table below.

♦ Land Seizure Procedure

The procedure for initiating Land Seizure is outlined in the chart below:

September 2017

Copyright © 2017 AKSET. All rights reserved.

by Bonar