On November 21, 2013, Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) issued a new regulation on Fit and Proper Tests for Key Parties at Insurance Companies, Pension Funds, Financing Companies and Securities Companies (OJK Regulation No. 4/POJK.05/2013, or POJK No. 4). The new regulation codifies the existing rules on fit and proper tests for insurance companies, pension funds, financing companies and securities companies that were previously scattered across various other regulations.
POJK No. 4 requires all "Key Parties" at insurance companies, pension funds, financing companies and securities companies to pass the fit and proper test before performing their respective roles and duties. "Key Parties" are defined as members of the Board of Directors (BOD), Board of Commissioners (BOC), Sharia Supervisory Board and Member Representative Board, as well as Controlling Shareholders, Experts and Expatriates.
While the requirement for insurance company directors, commissioners and shareholders to take a fit and proper test has been in place since 2003, the new regulation expands the scope of the test to include members of the Sharia Supervisory Board, Member Representative Board, Experts and Expatriates.
The fit and proper test must be taken when a person is first nominated by a Key Party or when their current test expires or requires re-evaluation. When a candidate passes the fit and proper test, the result is valid for five years (except in the case of a Controlling Shareholder), and an application for extension must be made three months before the term expires. An exemption applies for any BOD and BOC members who are reappointed to their previous position at the same insurance company.
If the Controlling Shareholder is a legal entity, the fit and proper test will involve an evaluation of the legal entity, as represented by its President Director or equivalent position. A Controlling Shareholder that fails the test cannot take any further acts as a Controlling Shareholder, and has two years to transfer its shares so that it is no longer a Controlling Shareholder.
Where a Key Party passed the fit and proper test before the issuance of POJK No. 4, its test results are still valid. Further, incumbent members of Sharia Supervisory Boards and Member Representative Boards, Controlling Shareholders, Experts and Expatriates that have not yet taken the fit and proper test are deemed to have passed the test. Following the effectiveness of POJK No. 4, the BOD of an insurance company has three months to apply to the OJK for such a stipulation, accompanied by the minutes of shareholders meeting and related letters of appointment. The OJK then has 60 days to issue the stipulation.
Fit and proper test results are confidential, and a Key Party that informs other parties of the test results will be liable for any legal consequences arising.
POJK No. 4 was stipulated on November 21, 2013 and came into effect on December 23, 2013. All existing rules on fit and proper tests for Key Parties at Insurance Companies, Pension Funds, Financing Companies and Securities Companies are subject to POJK No. 4, and all applications for fit and proper tests currently pending with the OJK must now comply with this new regulation.
This article was first published in the Asia Insurance Review.