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
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
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
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