Financial Services Jakarta Client Alert August 2019 For More Information: Mark Innis Foreign Legal Consultant +62 21 2960 8618 mark.innis @bakermckenzie.com Mita Djajadiredja Senior Partner +62 21 2960 8689 mita.djajadiredja @bakermckenzie.com Abimata Putra Senior Associate +62 21 2960 8549 abimata.putra @bakermckenzie.com Insurance Regulatory Update We set out below several key insurance regulatory updates: The Financial Services Authority ("OJK") issues a regulation on fit and proper test reassessment On 22 July 2019, the OJK issued OJK Circular Letter No. 15/SEOJK.05/2019 on Fit and Proper Test Reassessments for Primary Parties of Financial Services Institutions ("OJK Circular Letter No. 15"). OJK Circular Letter 15 became effective on 22 July 2019. OJK Circular Letter No. 15 is the implementing regulation of OJK Regulation No. 34/POJK.03/2018 on Fit and Proper Test Reassessments for Primary Parties of Financial Services Institutions ("OJK Regulation 34/2018"). OJK Circular Letter No. 15 provides several real life examples of actions that would trigger the reassessment of the integrity, reputation, competency and financial capability of a primary party. Some of the examples set out under OJK Circular Letter No. 15 are as follows: A controller of an insurance company ordering the insurance company's actuary to use an unreasonable actuarial assumption in calculating the insurance company's actuarial calculation A finance director of an insurance company reporting a fictitious transaction in the insurance company's books Insurance companies and their controllers should review current practices and operations in the light of OJK Circular Letter No. 15. The OJK issues a regulation on committees on insurance companies On 22 July 2019, the OJK issued OJK Circular Letter No. 14/SEOJK.05/2019 on Establishment and Membership of Committees of Insurance Companies' Board of Commissioners ("OJK Circular Letter No. 14"). OJK Circular Letter No. 14 became effective on 22 July 2019. OJK Circular Letter No. 14 is the implementing regulation of OJK Regulation No. 73 of 2016 on Good Corporate Governance of Insurance Companies ("OJK Regulation No. 73"). 2 Insurance Regulatory Update August 2019 OJK Circular Letter No. 14 sets out the following key provisions: Members of audit and risk supervisory committees must have sufficient working experience to be appointed as members of the committees, i.e., minimum three years of working experience in a relevant sector. Insurance companies may establish good corporate governance committees and remuneration committees. If an insurance company does so, those committees will be subject to the provisions under OJK Circular Letter No. 14, e.g., the minimum working experience requirement. Audit committees and risk supervisory committees must hold meetings at least once every three months. The above provisions are new requirements, which were not set out under OJK Regulation No. 73. Likewise, insurance companies should review current practices and operations in the light of OJK Circular Letter No. 14. Reminders We would also like to remind you of the following matters: Compliance director Under OJK Regulation No. 73, insurance companies must appoint a compliance director (being a member of the insurance companies' board of directors) by 28 December 2019. OJK Regulation No. 73 provides that the compliance director must not attend to or supervise underwriting, finance or marketing activities. Indonesian shareholding requirement Under the Insurance Law, all joint venture insurance companies must have at least one direct Indonesian shareholder (either an Indonesian citizen or a wholly Indonesian owned entity) by 17 October 2019. This is to meet the criteria of a joint venture insurance company under Article 7 of the Insurance Law. Deadline to submit annual business plans for financial year 2020 Insurance companies must submit their annual business plans to the OJK for the financial year 2020 by 31 October 2019. Sharia spin-off action plan due in 2020 The Insurance Law requires insurance companies to spin off their sharia businesses by the earlier of (i) when the value of the 'tabarru' funds and participant investment funds have already reached 50% of the aggregate amount of all insurance funds, 'tabarru' funds and participant investment funds ("Funds Threshold"), and (ii) 10 years after the enactment of the Insurance Law, i.e., October 2024. 3 Insurance Regulatory Update August 2019 All insurance companies must submit a sharia spin off plan to the OJK by 17 October 2020 even if they have not met the Funds Threshold at that time. According to Ministry of Finance Regulation No. 52/PMK.010/2017 as amended by Ministry of Finance Regulation No. 205/PMK.010/2018, a mandatory spin-off, like a sharia spin-off under the Insurance Law, can be implemented on a book value basis. As the process could be quite complex, including having a shareholder entity that has a sharia business, foreign investment limitations, the limited number of grandfathered sharia companies, insurance companies should consider early a sharia spin off plan. ©2019 Hadiputranto, Hadinoto & Partners is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In a ccordance with the common terminology used in www.hhp.co.id HHP Law Firm Pacific Century Place, Level 35 Sudirman Central Business District Lot. 10 Jl. Jenderal Sudirman Kav. 52-53 Jakarta 12190 Indonesia Tel : +62 21 2960 8888 Fax: +62 21 2960 8999 ©2019. 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