This content is from: Local Insights

New FSA

Indonesia has created a financial services authority (the FSA), a one-roof supervisory body whose purpose is to develop and maintain a competitive, stable and secure financial services sector. In creating the FSA, the government had followed the principles of:

  • Independence – in the management and supervision of the financial services sector.
  • Consistency – creating a neutral management that is fair to every financial services institution without discrimination.
  • Transparency – in conducting any financial activity, in decision-making and in its implementation.

The FSA will supervise the financial services sector, both banks and other financial institutions such as insurance, pension fund, venture capital and financing companies. FSA also has the authority to regulate capital market activities.

The Compiler Team of the FSA draft, which consists of the Department of Finance, Department of Industry, Department of Trade, Department of Law and Human Rights, and the State Secretariat, coordinating with the Central Bank, is responsible for the FSA's formation. The Team must decide the structure, budget and internal infrastructure necessary for the FSA's duties and authority, and the process of institutional transition, transfer of assets, documents and information from the old authorities to the FSA.

In the first step of the FSA's establishment, the government will merge the Financial Institution Directorate General (DJLK) with the Capital Market Supervisory Agency (Bapepam). Until now, the DJLK has been the cultivator and supervisor of non-bank financial institutions (such as insurance, pension fund, venture capital and financing companies) while Bapepam controlled and supervised capital market activities. Upon this merger, the entire level II unit of DJLK will be merged with Bapepam, except the function of accountant and appraiser services' supervision, which will be transferred to the Secretariat General. The merger of Bapepam and the DJLK is expected early in 2007.

Based on Article 34(2) of Law 23 of 1999 concerning the Central Bank, the FSA should have been established by December 31 2002. However, Law 3 of 2004 extended the deadline for the FSA's formation until December 31 2010. The government had planned to introduce legislation establishing the FSA and harmonizing the stipulations of the previous authorities with the new entity by the end of 2006. The FSA is estimated to start operating at least by 2010.

The authority to supervise the activities of banking, capital market, and other financial institutions is currently held by the Central Bank, Bapepam and the Financial Institution Directorate General. According to the governing laws and regulations, these three institutions have the authority to impose sanctions in the case of violation. So if the FSA assumes the authority of these three institutions over the financial service sector, presumably the FSA will also be able to impose sanctions for violations.

There is no law covering non-bank financial institutions generally, but the law regarding insurance, pension fund, venture capital and financing companies has been set out in separate regulations, such as Law 2 of 1992 concerning Insurance Affairs Business, Law 11 of 1992 concerning Pension Funds, Presidential Decree 61 of 1988 concerning Financing Institutions, Ministerial Decree of Finance 1251/KMK.013/1988 concerning Guidelines and Procedures of a Financing Institution's Implementation, and Ministerial Decree 448/KMK.017/2000 concerning Financing Companies. These regulations cover non-bank financial institutions specifically, so a law that generally covers non-bank financial institutions is considerably not needed.

The regulations that form the legal basis for the FSA are Law 3 of 2004 concerning Amendments to Law 23 of 1999 concerning the Indonesian Central Bank (Bank Indonesia) (in particular Article 6) and Law 23 of 1999 concerning the Central Bank (in particular Article 34). Simultaneously with the submission of the draft of the FSA law, the government has also suggested amendments to four laws affecting the FSA: the Amended Draft of Law 7 of 1992 concerning Banking System, Amended Draft of Law 11 of 1992 concerning Pension Fund, Amended Draft of Law 8 of 1995 concerning Capital Market and Amended Draft of Law 2 of 1992 concerning Insurance Affairs Business.

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