In brief

This is the fourth in a series of client alerts in relation to Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector ("P2SK Law"), dated 12 January 2023. You may access our previous client alerts in relation to the impact of the P2SK Law on the financial technology sector here, financing service businesses here and securitization and other financial innovations here.

Aside from asserting the provisions that has been stipulated by the Financial Service Authority ("OJK"), P2SK Law sets out several new provisions that open a new chapter in the financial conglomeration and banking industry. P2SK Law now requires a financial conglomeration to establish a financial holding company (perusahaan induk konglomerasi keuangan - "PIKK"), a legal entity that is projected to control, consolidate and be responsible of all financial conglomeration's activities. P2SK Law also affirms OJK's authority to give written order to financial services companies to push for financial consolidation.


The concept of financial conglomeration in Indonesia was first introduced in 2014 to allow OJK to have integrated supervision over financial institutions that are affiliated through common ownership or control. Such integrated supervision covers areas of risk management, governance and minimum capital requirement. Prior to the enactment of P2SK Law, a controlling shareholder must appoint one of its financial institutions to be the main entity (entitas utama), who is tasked to perform financial conglomeration compliances. P2SK Law now obliges the controller of a financial conglomeration to establish or appoint a PIKK to consolidate ownership and control over companies under a financial conglomeration and be responsible for the activities of the financial conglomeration. This is to enable vertical supervision over financial institutions by a holding company, which is expected to be more effective and efficient than horizontal and mixed supervision. PIKK as the holding company is owned by the controlling shareholder or ultimate controlling shareholder. Subject to the issuance of the implementing regulations, PIKK may obtain tax incentives during its establishment and consolidation process.

To keep up with the financial businesses that are getting more complex, P2SK Law expands the scope of financial conglomeration to encompass all types of financial institutions. At its discretion, OJK may also appoint non-financial institutions that support the function and business of the financial conglomeration to be a part of the financial conglomeration.

P2SK Law also affirms OJK's authorities in regulating and performing integrated supervision over financial conglomeration. For instance, OJK may issue a written order to any financial institutions to perform merger, consolidation, acquisition, integration or conversion.

The concept of this policy is not new and was initially introduced by OJK in 2020 to address to commercial banks (bank umum) to enforce the banking consolidation policy, a policy aimed to strengthen and grow the scale of Indonesia banking industry. Indonesia has imposed a series of banking consolidation policy in the form of minimum capital requirement, foreign ownership limitation and single presence policy. As the result, the number of banks in Indonesia has decreased from 131 in 2006 to be 107 in 2022. The capital of banks in Indonesia has also significantly increased due to the minimum capital requirement set out under OJK Regulation No. 12/POJK.03/2020 on Consolidation of Commercial Banks. In the P2SK Law, the policy is expanded to cover all financial institutions (not only for banks).


The implementing regulations of P2SK Law are mandated to be issued within two years after the enactment of the P2SK Law (i.e., January 2025) save for the implementing regulations for spin-off of conventional banks' sharia business unit, which is mandated to be issued by July 2023. In its essence, P2SK Law strengthens the supervisory authority of OJK over financial conglomerations and financial institutions. This is expected to strengthen the resilience of Indonesia's financial system, especially to anticipate the risk of global recession in 2023.