Financial regulation

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

In Indonesia, there are two bodies that regulate the provision of fintech products and services: the OJK and BI. The OJK regulates provision of fintech products and services other than those related to payment services, while BI regulates all fintech products and services related to payment services.

Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

The Indonesian financial services sector is primarily under the authority of both the OJK and BI. The following are the main activities that trigger licensing requirements in Indonesia:

Extending loans

Generally, entities wanting to provide a platform for lending require a licence. Lending (in various forms) is typically carried out by banking institutions, multi-finance companies, venture capital companies and microfinance institutions, subject to different licences from the OJK. Savings and loan cooperatives may also engage in lending under licence from the Ministry of Cooperatives and Small Business Enterprises (MOCSBE). P2P lending companies, which use an off-balance sheet lending system, are regulated by the OJK and are subject to certain registration and licensing requirements.

Deposit-taking

Acceptance of deposits from the public in the form of demand deposits, time deposits, deposit certificates, savings or any other equivalent forms may only be conducted by banking and microfinance institutions licensed by the OJK. Savings and lending cooperatives may also engage in deposit-taking, based on a licence issued by the MOCSBE.

Factoring

Factoring may be carried out by banks and licensed multi-finance companies, with or without recourse. A factoring platform may trigger an OJK licensing requirement.

Payment and transaction processing services

Banks may perform certain fund transfer and payment services. However, non-bank entities may also provide payment and transaction processing services, such as e-money, card-based payment instruments, e-wallet, payment gateways, fund transfer and switching operations, subject to relevant licences from BI.

Dealing in investments or advising on investments (in the framework of financial services)

These activities fall mainly within the scope of capital markets. Securities companies operating as securities underwriters, securities trading brokers, or investment managers are required to hold a licence from the OJK. Individuals representing securities companies must also be licensed by the OJK. Parties that provide advisory services on the sale or purchase of securities must obtain a licence from the OJK as an investment adviser. General investment advisory services, such as financial advisory services for M&A transactions, do not fall under this licensing requirement.

Other financial services by non-bank institutions

Platforms providing other financial services, such as equity crowdfunding, insurance and reinsurance companies and intermediaries, and pension fund institutions, also require specific licences from the OJK.

Consumer lending

Is consumer lending regulated in your jurisdiction?

Yes, consumer lending is a regulated activity in Indonesia. Consumer lending can be provided by banking institutions and multi-finance companies and is generally regulated under the prevailing laws and regulations on the relevant sectors.

Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

Under Indonesian law, loans are generally transferable unless agreed otherwise by the parties. Notification to, or acknowledgment from, the borrower is required in transferring the loan. However, depending on the structure of the loan being traded, it may fall under the scope of securities subject to Law No. 8 of 1995 on Capital Market (the Capital Market Law) or commercial paper supervised by BI.

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

The Capital Market Law and its implementing regulations recognise several categories of collective investment schemes, such as mutual funds, limited participation collective investments, asset-backed securities, and real estate investment trusts. Companies managing collective investment schemes must hold a licence from the OJK.

P2P lending and equity crowdfunding schemes are not within the scope of the regulatory regime for collective investment schemes, as they are subject to the respective OJK regulations on P2P lending and equity crowdfunding.

Alternative investment funds

Are managers of alternative investment funds regulated?

Yes, investment managers are generally regulated under the Decree of the Head of the Capital Market and Financial Institutions Supervisory Board (Bapepam-LK) No. KEP-479/BL/2009 as amended by Decree KEP-26/BL/2010 on Licensing of Securities Companies Conducting Business as Investment Managers.

A party wishing to operate as an investment manager needs to obtain a business licence from the OJK. Upon issuance of the business licence, the investment manager may carry out the following activities:

  • management of securities portfolios for the interest of a particular investor, based on an individual or bilateral fund management agreement;
  • management of collective investment portfolios through vehicles or products regulated by the OJK, such as mutual funds, limited participation collective investments, asset-backed securities, and real estate investment trusts; and
  • other activities in accordance with provisions set by the OJK.
Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

The OJK issued OJK Regulation No. 77/POJK.01/2016 on Information Technology-Based Lending Services (POJK 77/2016), which came into force on 29 December 2016. Parties wanting to offer P2P lending services must be in the form of a limited liability company (PT) or a cooperative. Foreign shareholders can only hold shares in operators formed as a PT, with direct or indirect foreign shareholding limited to 85 per cent. The operator must register with the OJK and apply for a licence within one year after being registered. At the time of registration, the minimum capital requirement (issued and paid-up capital for PTs, or owner’s equity for cooperatives) for an operator shall be 1 billion rupiah, which must be increased to 2.5 billion rupiah by the time of the licence application.

In offering P2P lending services, operators are prohibited from:

  • conducting any activities other than P2P lending services as governed in POJK 77/2016;
  • acting as a lender or borrower in their P2P lending platform;
  • giving any forms of assurance;
  • issuing bonds;
  • giving recommendations (eg, recommending certain loans, investments or investors);
  • publicising false information;
  • giving offers through personal communication without the consent of the user; and
  • imposing any fees on users for complaints.

In P2P lending, the borrower must be an Indonesian individual or legal entity, while the lender may be domestic or domiciled abroad.

P2P lending is off balance sheet, meaning that an operator may only provide an online platform that matches and passes third-party lenders to potential borrowers.

In addition to POJK 77/2016, the Indonesia Fintech Lending Association (AFPI) has issued a Code of Conduct in which P2P lending companies are, among other matters, prohibited from imposing interest higher than 0.8 per cent per day and from imposing total fees, late fees and other fees that are higher than 100 per cent of the principal amount of loan as well as misusing consumers’ data for debt collection purposes.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

OJK Regulation No. 37/POJK.04/2018 dated 31 December 2018 on Information Technology-Based Crowdfunding Services Via Public Offerings (Equity Crowdfunding) defines equity crowdfunding as a share-issue service that is conducted by issuers to sell shares directly to investors via an open electronic system network.

In principle, there are three parties involved in an equity crowdfunding scheme: the issuer, the operator and the investor. An issuer shall be a limited liability company issuing shares via an operator. An issuer shall not be under either direct or indirect control of a business group or conglomerate, a publicly listed company, or a subsidiary of a publicly listed company, and shall not have assets of more than 10 billion rupiah, not including land and building. However, the OJK may have discretion with regard to the requirements to qualify as an issuer.

An operator is a legal entity (either a limited liability company or a service cooperative) that provides, manages and operates equity crowdfunding. In order for an operator to obtain a business licence from the OJK, an operator must fulfil, among other matters, a minimum paid-up capital of at least 2.5 billion rupiah and have sufficient personnel who have capability or background in information technology as well as the expertise to conduct a review on the operator. An operator shall refrain from doing the following:

  • performing business activities other than those stipulated in OJK Regulation 37/2018 except for activities as underwriters, broker-dealers or investment managers if such operators are securities companies, and licensed and registered operators of information-technology-based services;
  • providing any financial assistance to investors to invest in the shares of any issuer;
  • providing any investment advice or recommendation to investors or prospective investors;
  • receiving or holding funds from any investor; treating any issuers and investors in a different manner;
  • publishing any incorrect information regarding any equity crowdfunding activity;
  • offering any equity crowdfunding service to any issuer, investor or the public via private communication means without consent of the relevant issuers and investors; or
  • charging a fee to any investor and issuer for any complaint submitted.

An investor is defined as a party that purchases shares of an issuer via an operator. An investor having an annual turnover of at least 500 million rupiah may purchase shares via equity crowdfunding at not more than 5 per cent of its annual turnover. Meanwhile, an investor that has annual turnover of more than 500 billion rupiah may purchase shares via equity crowdfunding at not more than 10 per cent of its annual turnover. However, these requirements do not apply if an investor is a legal entity and has investment experience in the capital market, as proven by owning a securities account for at least two years prior to the share issue.

It must be noted that share issuance via equity crowdfunding is different from share issuance via an IPO.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

There is no specific regulation on invoice trading, although it may be recognised as a transfer of receivables pursuant to the Indonesian Civil Code (ICC), which does not specifically trigger a licensing requirement. Nevertheless, depending on the business structure, companies carrying out sale and purchase of receivables (eg, factoring businesses) may fall under a regulated activity that requires a specific licence.

Payment services

Are payment services regulated in your jurisdiction?

Yes. Payment services are primarily regulated under PBI (Bank Indonesia Regulation) No. 18/40/PBI/2016 on the Operation of Payment Transaction Processing (PBI on Payment Processing), and the recently introduced PBI No. 20/6/PBI/2018 on Electronic Money (PBI on E-Money), and PBI No. 14/23/PBI/2012 on Transfer of Funds. The scope of regulated activities covers pre-transaction, authorisation, clearing, settlement, and post-transaction activities.

The following payment service providers are generally required to obtain a licence from BI:

  • principals;
  • switching operators;
  • card-based payment instruments and e-money issuers;
  • acquirers;
  • payment gateway operators;
  • clearing operators;
  • final settlement operators;
  • fund transfer operators;
  • e-wallet operators; and
  • other payment service providers as determined by BI.

In providing payment services, the above-listed providers may cooperate with supporting operators (eg, companies that engage in payment personalisation, providing data centres or disaster recovery centres, terminal provision, technology support for contactless transactions and card printing).

Open banking

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

No, currently, there is no specific law or regulation that requires financial institutions to make customer or product data available to third parties such as via API. However, on 27 May 2019, Bank Indonesia introduced its Indonesia Payment System 2025 Visions, in which one of the visions is to assure the interlink between fintech and banks to contain the escalation of shadow banking risk through regulation of the use of digital technology (eg, API) business relationships and business ownership. Thus it can be seen that BI is aware of the importance that API has and it is expected that BI will issue a regulation sooner or later to regulate the use of API.

Insurance products

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

Marketing of insurance products is generally regulated under OJK Regulation No. 23/POJK.05/2015 on Insurance Products and Marketing of Insurance Products, which allows insurance companies to sell and market insurance products through insurance agents, banks or non-bank institutions. Currently, there is no specific regulation governing the selling or marketing of insurance products specifically through fintech companies. Depending on the services offered, the licensing treatment may be the same as for non-fintech companies. Micro insurance products, however, are allowed to be marketed and sold using information technology (eg, through websites).

Credit references

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

Based on OJK Regulation No. 18/POJK.03/2017 on Reporting and Requesting of Debtor Information through the Financial Information Services System (SLIK), credit information services are currently managed by the OJK through the SLIK, which fully replaced Bank Indonesia’s Debtor Information System as of January 2018. The SLIK collects and records credit or loan facility data submitted to the OJK in order to generate the credit information status of a person. The scope of reporting companies covers not only banks and other financial services institutions (FSIs), but also non-FSIs subject to approval from the OJK. Fintech companies, specifically P2P lending companies, may become reporting companies upon obtaining approval from the OJK.