Indonesia’s parliament has appointed Bank Indonesia Deputy Governor Muliaman D. Hadad to head the Board of Comissioners of its new financial services authority, the Otoritas Jasa Keuangan (OJK). Here’s how the OJK will alter Indonesia’s regulatory environment.
The passage of the OJK Law last summer reflected the reform efforts that started in 1998. Indonesia now has a complex system in which Bank Indonesia supervises banks and Capital Markets and Financial Institution Supervisory Board (Bapepam) regulates the capital markets and other financial institutions.
Tuti Hadiputranto, senior partner at Hadiputranto, Hadinoto & Partners said she interpreted the considerations of the OJK Law to indicate that the Indonesian government would like to have a fully independent regulatory and supervisory body for all the financial services.
But Michael Horn, partner at Clyde & Co and former chief risk officer at Indonesia Infrastructure Finance, was sceptial of the OJK’s goals. He said that while the Bapepam is arguably not independent, as it is part of the executive branch, it has been very professional. He noted that financial regulators in most countries generally fall under the executive branch and reflect the policy decisions of the party in power.
Horn was also concerned about parliamentary power in the OJK. He commented that he would not be surprised if regulation-making by the OJK reflects Parliament’s policy direction and its continuing role in OJK affairs. “I would venture that where we are likely to see greatest evidence of independence is the OJK’s daily business of supervising and sanctioning financial institutions,” he added.
However, practitioners believe that investors should expect continuity, not change. The OJK represents a merger between the supervisory functions of Bank Indonesia and Bapepam, and significant change is unlikely.
Six of the nine-member OJK board of commissioners were announced along with the appointment of Bank Indonesia’s Deputy Governor Hadad as Chairman. All have long backgrounds at the Ministry of Finance, Bank Indonesia or Bapepam.
Iwan Setiawan, partner at Makes & Partners stressed that the OJK’s Board of Commissioners would act as a board, and would support the policies of the OJK. “Even though the chairman is from Bank Indonesia, the board’s decisions will reflect the interests of both parties,” he said.
Though the OJK will be coordinating banking and capital markets regulations, the current regime will not change quickly.
Hadiputranto said that the OJK will make amendments bit by bit, as the Board of Commissioners needs to read through and review all regulations. She added that the new regulations, once issued, will be the result of full coordination of the Board of Commissioners.
She expected stability, especially in the banking sector. She said that banks are important and drastic changes could surprise or shock market players, and that changes will have to be made slowly and will have to be fully integrated, which may not be easy.
Horn agreed with the continuity. He said that with so many favourable factors driving Indonesian growth across the economy, a disruption due to regulatory confusion would be unfortunate.