New Fees Requirements for the Financial Services Industry
Under the new Government Regulation No.11 of 2014 on Fees Imposed by the Indonesian Financial Services Authority/Otoritas Jasa Keuangan ("OJK") ("GR 11/2014"), the financial services industry participants will have to pay fees to OJK on, among other things, their corporate actions and various business license applications and approvals ("Fees").
GR 11/2014, effective as of the date of its issuance, sets out the general rules for the Fees and the amount of each Fee. An OJK regulation will be issued to provide further payment guidelines.
While waiting for the OJK regulation to be issued, we have highlighted below some key provisions in GR 11/2014 to answer the "what", "who" and "when" questions related to the Fees and other important stipulations in the regulation. We also describe some potential risks that the introduction of the Fees may pose for capital market participants.
What are the Fees? Who Pays? When Should They be Paid?
Generally, parties that engage in financial services sector activities (related to banking, capital markets, insurance, pension funds, and financial institutions and) ("Financial Services Participants") will be subject to GR 11/2014, which among others are as follows:
a. stock exchange, clearing and underwriting institutions, depository and settlement institutions, commercial banks, life insurance companies, general insurance companies, and fund managers;
b. rating agencies, underwriters, multifinance company venture capital companies, and other financial services institutions;
c. broker-dealers that administers client’s securities account;
d. broker-dealers that does not administer client’s securities account investment advisors, and securities administration bureau and securities appraisal institutions;
e. custodian banks and rating institutions;
f. securities issuers and public companies;
g. investment advisors, fund managers, underwriters and broker-dealer representatives and mutual fund selling Agents; and
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h. accountants, legal consultants, appraisers and public notaries.
What to Pay
GR 11/2014 sets out two categories of Fees applicable to Financial Services
a. Activities-based Fees
Generally, applications to OJK for business licenses, approvals,
registrations, legalizations and review of corporate action plans will be
subject to certain Fees. These activities-based Fees include:
(i) Fees for applications for business licenses
• licenses for financial services institutions, such as a stock
exchange, banks, financial institutions (non-bank), custodian
banks, trustees and pension funds; and
• licenses for individuals, such as licenses for investment
manager representatives, banking supporting professionals,
and capital market supporting professionals.
(ii) Registration Fees
• registration statements in relation to public offerings (Securities
• registration statements for public companies; and
• registration statements in relation to voluntary tender offers.
(iii) Reviewing Fees
fees to be paid for OJK's review of a corporate action plan for
mergers, or consolidations of public companies, voluntary go
private, takeovers of public companies, and certain capital
increases without pre-emptive rights.
The above activities-based Fees must be paid by the relevant Financial
Services Participant to OJK prior to the submission of the application.
b. Annual Fees
Financial Services Participants are obliged to pay Annual Fees
calculated based on certain criteria and using certain calculation
methods as set out in GR 11/2014. Generally, the Annual Fees are
divided into two categories:
(i) Annual Fees
Applicable to public companies (IDR 15 million per company) and
supporting professionals in banking and capital market sectors (IDR
5 million per person).
(ii) Percentage-based Annual Fees
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For other Financial Services Participants (such as stock exchange, banks, insurance companies, and other financial institutions), the Annual Fees are calculated based on a certain percentage. The various bases of the calculations are given in GR 11/2014, such as (i) the value of assets (applicable to banks, insurance companies and other financial institutions), (ii) value of offerings (applicable to securities issuers), or (iii) bussiness income (applicable to, among others, underwritters) ("Calculation Basis").
The amount or value of the Calculation Basis is determined by the correspond figures provided in the audited financial statements, non audited financial statements (that has been submitted to OJK), or other relevant financial records (as applicable). For the calculation using financial statements, the Calculation Basis shall refer to the figures provided in the previous year's financial statements. Therefore, to calculate the 2014 Annual Fees, the paying Financial Service Participant shall refer to the figures in its 2013 financial statements.
Further, GR 11/2014 also introduces the method of re-calculation for the Percentage-based Annual Fees. Under this provision, the Annual Fees calculated based on the 2013 financial statements will be compared with the calculation based on the 2014 financial statements. The discrepancies between the two calculations (negative or positive discrepancies) will be applied to the 2015's Annual Fees.
We provide below an example of the Percentage-based Annual Fees' calculation.
PT ABC Tbk, a commercial bank, has its total assets of IDR1 trillion based on the 2013 audited financial statements. The calculation of its 2014 Annual Fees would be as follow:
If, by next year (2015), in accordance with its 2014 audited financial statements, its assets value changes, the 2014 Annual Fees shall be re-calculated to determine whether PT ABC Tbk has a shortfall or excess payment. Such amount of shortfall or excess (as applicable) will be used either to reduce (in case of excess) or to increase (in case of shortfall) the 2015 Annual Fees.
The payment for the above Annual Fees (which are calculated based on the financial statements' figures) are to be made in 4 stages as follows:
i. 1st payment, 25% of the Annual Fees, to be paid at the latest on 15 April of the relevant fiscal year;
ii. 2nd payment, 25% of the Annual Fees, to be paid at the latest on 15 July of the relevant fiscal year;
iii. 3rd payment, 25% of the Annual Fees, to be paid at the latest on 15 October of the relevant fiscal year; and
0.045% (percentage determined under GR 11/2014) x IDR1 trillion = IDR450 million
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iv. 4th payment, 25% of the Annual Fees, to be paid at the latest on 15 December of the relevant fiscal year.
If a Financial Service Participant runs more than one bussiness activities in which each of those business activities is subject to a separate Annual Fees requirement, such Party shall only be obliged to pay the Annual Fees of the business activity having the highest rate.
Verification by OJK against the self-assessed Annual Fees
The calculation of Percentage-based Annual Fees uses a self-assessment method, whereas GR 11/2014 grants OJK the right to conduct verification against the result of such self-assessed Annual Fees. The verification can be done to any Annual Fees duly paid by the Financial Service Participant up to 10 years prior to the verification process. The relevant Financial Service Participant has the right to request for clarification on the results of such verification however, if there is discrepancy between the self-assessed Annual Fees paid by the Financial Service Participant and the results of the verification, the results of the verification shall prevail.
Any difference (shortfall or excess payment) will be used to adjust the Annual Fees due to be paid by the Financial Service Participant at the verification's year.
Adjustment to the Required Fees
The Fees (Annual Fees and Activities Fees) to be paid by the relevant Financial Service Participant can be adjusted and reduced, by OJK's discretion, in the event that the relevant Financial Service Participant is in a financial distress or in the process of financial recovery. In such case(s), the required Fees can be reduced up to 0%.
Sanctions for Non-compliance
For any non-payment or late payment of the Annual Fees that is due and payable in accordance with GR 11/2014, the incompliant Financial Service Participant will be subject to a penalty in the amount of 2% of the said Annual Fees per month, provided that the maximum penalty is 48% of the due and payable Annual Fees. Aside from this penalty, OJK can also impose other administrative sanctions among other things, the cancellation of registration and revocation of business licenses.
Even though OJK's authority to impose certain fees on Financial Services Participants is mandated by Law No. 21 of 2011 on the Indonesian Financial Services Authority ("OJK Law"), the issuance of GR 11/2014 has instigated complaints from various parties who consider that the fees requirements are too burdensome.
Further to this, certain parties recently filed submission for a constitutional review against the OJK Law to the Constitutional Court. That submission and the review process would not legally impact the validity of GR 11/2014 but if the Constitutional Court decides in favor of the applicant, the applicability of GR 11/2014 will also be affected.
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