Innovation and digitalisation in the financial sector have provided investors with easier access to various investment products (including offshore issued securities). The recent appearance of certain market players providing access to various types of offshore issued securities and other investment products to Indonesian investors has resulted in greater attention from a consumer protection perspective.
Considering the large number of securities and other investment products offered to the public, and to improve consumer protection for the public, Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) has now announced through a press release that Indonesian financial services companies in the capital markets sector, including licensed Indonesian securities companies, among others, are prohibited from marketing, promoting and advertising any non-OJK licensed investment products (including offshore issued securities) with limited exceptions including permitted mutual funds whose portfolio contains qualified offshore issued securities products.
Key Messages from the OJK Press Release
On 9 July 2022, OJK published a press release containing a prohibition on all Indonesian financial services companies in the capital markets sector from marketing, promoting, and advertising any non-OJK licensed products and services, including offshore issued securities.
Although the press release does not itself have regulatory force, it appears to specifically target Indonesian financial services companies in the capital markets sector and might be seen as suggesting a general policy guideline on how OJK views offshore issued securities, offshore investment products and other investment products that have not yet been regulated by OJK.
As the Executive Head of Capital Markets Supervisory of OJK explained, “Investment products that are supervised by the OJK include securities that are issued by Indonesian legal entities and have been declared effective by OJK to be offered to the public. Other investment products such as securities issued by offshore entities, crypto assets and gold are not products that are granted licences and supervised by OJK”. It was further added that the marketing of offshore issued securities in Indonesia is not yet permitted since these securities are not products licensed by OJK and can pose a considerable risk to the public.
This press release is intended to prevent misunderstandings by the public in relation to unregistered investment products and also responds to the emergence of certain integrated super application platforms which also offer the purchase of offshore issued securities and other investment products with potential considerable risk to the public.
Further, the press release also prohibits any platform belonging to or related to a financial services company in the capital markets sector that offers any non-OJK licensed products and services from including any OJK logo or statement that the offered products or services are licensed and supervised by OJK.
The press release prohibits Indonesian financial services companies in the capital markets sector from marketing, promoting, and advertising any non-OJK licensed products and services. However, it does not specifically prohibit Indonesian investors from purchasing such securities. Also, OJK has no jurisdiction to regulate the conduct of offshore financial services companies outside Indonesia, although careful conduct should be taken in dealings with investors in Indonesia and Indonesian investors outside Indonesia. We note that the prohibitions are expressed to apply to any marketing, promotion and advertising of unlicensed products, and not just public offerings, so private placements of (and potentially one-off transactions involving) relevant offshore issued securities would appear to be subject to the prohibition. This could be interpreted as covering structures under which Indonesian parties are offered investment in offshore bonds of various kinds.
OJK Surveillance Measures
Any violation of the above prohibitions may subject the relevant financial services company to an order requiring, among others, immediate discontinuation of the relevant services and/or product offerings. Further, since in general it may also be considered a regulatory/licence violation, such financial services company may also be subject to other OJK sanctions such as fines and licence suspension and ultimately revocation. At this stage, OJK seems more focused on instructing the relevant financial services companies to immediately cease any marketing, promotion and advertising of non-OJK licensed products and services. Parties should also closely monitor how far OJK is willing to impose any sanction in relation to the above.
Given that OJK has confirmed any non-OJK licensed investment products (including offshore issued securities) are prohibited to be offered, marketed, and advertised by Indonesian securities companies, this may affect certain business models (e.g., cross reference business and cross-border marketing) that are related to foreign affiliated entities. Such business models may need to be re-assessed. It will be interesting to see if OJK converts the policy into a more detailed rule and the extent to which OJK actively monitors such activities, noting that such conduct is often undertaken on a private basis.