Earlier this year, the Commodity Futures Trading Supervisory Authority (“Bappebti”) blocked a number of both Indonesia- and overseas-based robot-trading platforms offering automated commodity trading services (in foreign exchange, cryptocurrency or gold) to Indonesian customers. After Bappebti shut down the platforms due to their being unlicensed, many customers experienced significant difficulties accessing their funds and accounts.
Following a public outcry, Bappebti signaled that it would prepare a regulation to outlaw rogue robot trading but would permit and indeed facilitate the provision of online advisory services to help retail investors make informed choices.
The promised regulation has now been issued as Bappebti Regulation 12 of 2022 on the Provision of Information Technology-based Expert Advisory Services in Commodity Futures Trading (“New Regulation”), which entered into force on 2 September 2022.
Key features of the New Regulation are as follows:
1. IT-based Expert Advisory Services
The New Regulation legalizes the provision of IT-based advisory services (“AS”), which are defined as automated services related to market monitoring, calculating market entry and exit opportunities, placing of reasonable transactions, and managing risk as appropriate to client needs.
These differ from the robot trading services closed by Bappebti earlier this year, as those services involved actual automated trading on behalf of customers, not just the provision of advice.
Thus, in the AS envisaged by the New Regulation, it is ultimately the customer that makes the final decision on whether or not to invest, and the AS that are provided only form one part of a whole range of services available to the customer when making their decision. By contrast, in full-blown robot trading, it is the system that makes the investment decision rather than the customer.
2. Who May Provide AS?
AS may only be provided by licensed futures advisors (“FA”) approved by Bappebti (the approval process is conducted online, via the Bappebti website).
FA applicants must comply with a number of requirements, including: (i) a positive recommendation from a futures exchange in respect of the application, system or program they propose to operate, and (ii) additional issued and paid-up capital of at least IDR 1 billion (USD 67,000), on top of the existing requirement of net assets worth a minimum of IDR 500 million, per Bappebti Regulation 6 of 2020.
While the New Regulation states that an FA may be an individual person or a legal entity, it is unclear whether individual FAs will actually be capable of obtaining AS licenses from Bappepti due to the minimum capital requirement, which can obviously only be applied to a corporate FA.
3. Other Key Features
FAs must assess customer knowledge, financial ability, and risk profile, appetite and objectives before providing services. In addition, FAs are prohibited from: (i) representing that the provision of AS will necessarily result in a steady profit or is risk-free, (ii) conducting transactions on behalf of customers, (iii) promoting profit-sharing to customers, and (iv) engaging in multi-level marketing to promote AS.
In addition, FAs must enter into customer agreements that make it expressly clear to customers that they will not be liable for risks or losses experienced by customers as a result of trading.
However, the New Regulation provides that FAs will be liable if Bappebti finds that an FA has violated the New Regulation’s requirements when either providing AS or as regards their program/application setup.
The scheme envisaged by Bappebti under the New Regulation differs from old-style robot trading in a fundamental way: erstwhile robot trading companies operated directly on the customer’s behalf, frequently made unrealistic promises on profits, and were promoted through multi-level marketing schemes. Crucially, they did not meaningfully assess the actual preparedness or capacity of customers for high-stakes, automated commodities trading.
This is now all outlawed by the New Regulation, which attempts to ensure more responsible use of the opportunities presented by technology and greater protection for retail investors by requiring the licensing of futures advisors and greater selectivity when accepting customers. Above all, the New Regulation makes it crystal clear that full-blown robot trading is now prohibited in Indonesia.