Indonesia: Banking Regulation in Indonesia: Ownership, Capitalization and Management of Commercial Banks based on OJK Regulation No. 12/POJK.03/2021
The most popular: Article Indonesia, December 2021
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The Indonesian banking market has grown rapidly along with the use of information technology and digital transactions. According to recent data, at least five digital banks are competing in the Indonesian market, including DigiBank, TMRW and Bank Jago which were established in the past two years. In addition, several commercial banks are currently processing the establishment of their digital banks at the Financial Services Authority/ Otoritas Jasa Keuangan(“OJK“).
In view of the considerable growth of the Indonesian banking sector, the OJK has issued OJK Regulation No. 12/POJK.03/2021 concerning commercial banks (“OJK Regulation 12/2021“) which sets out provisions for the supervision and operation of commercial and digital banks.
In our previous publication, we discussed the set-up and reporting obligations of commercial and digital banks. Thus, we will now focus our analysis on the shareholding, the capitalization requirement and the exemption for the use of foreign labour.
Shares Property of banks: Banks of Indonesian entities (Bank Berbadan Hukum Indonesia Where “BHI“) are required to comply with the following requirements regarding controlling shareholders:
- The shares held by the controlling shareholders cannot be guaranteed in favor of any other party, unless the competent institutions with such power authorize it for the rescue and processing of certain issues (Art. 35 of OJK Regulation 12/2021);
- Controlling shareholders must meet the relevant requirements established by OJK by passing the fit and proper test conducted by OJK (Art. 36 and 37 of OJK Regulation 12/2021);
- Controlling shareholders are prohibited from involving themselves in any decision-making related to the operations of BHI, unless such controlling shareholders are also directors, commissioners or employees of the bank;
In addition, Article 39 of OJK Regulation 12/2021 stipulates that any changes, replacements and/or additions to controlling shareholders must be made in accordance with the provisions and requirements set forth by OJK.
Failure to comply with OJK requirements will result in escalating sanctions ranging from: (i) written notices, (ii) fines, (iii) prohibition to expand business activities and/or freezing of certain activities commercial activities, to (iv) the ban on commercial activities applied to controlling shareholders, directors, commissioners and/or senior executives of the main player in digital banking.
Capitalization Changes: OJK requires a BHI to send notification and/or information regarding capitalization changes, including:
- variations in the amount of paid-up capital due to the payment of the dividend made by the distribution of shares; and
- changes in the shareholding structure affecting or not the position of control;
In this regard, the bank concerned must submit the notification to the OJK together with: (i) the minutes of the meeting of shareholders; and (ii) notarial deed confirming this modification within 10 working days at the latest.
Failure to comply with this obligation will result in progressive sanctions ranging from (i) written notifications, (ii) administrative fines, (iii) prohibition to expand business activities and/or suspension of certain business activities, to (iv) Prohibition of bank executives from becoming the main party (Pihak Utama) in accordance with the relevant OJK regulations.
Employment of foreign workers by digital banks: OJK Regulation 12/2021 allows digital banks to employ foreign workers as directors, managers and/or experts or consultants, regardless of their current shareholding composition, as stipulated in OJK Regulation No. 37 /POJK.03/2017 on the employment of foreigners. Workers and transfer ofBanking Knowledge Program (“OJK Regulation 37/2017“) (Art. 28 (1) of OJK Regulation 12/2021).
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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