The Law on the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) was passed by the House of Representatives on 27 October 2011 and has been ratified by the President.
The Law establishes the OJK as a new independent financial institution, which will take over several regulatory and supervisory authorities presently held by Bank Indonesia and the Capital Market and Financial Institution Supervisory Body (Bapepam-LK). The functions and authorities of the Ministry of Finance that are performed by Bapepam-LK will be transferred to the OJK on 31 December 2012, while Bank Indonesia’s authority over the banking industry will be transferred on 31 December 2013.
The OJK will serve to regulate and supervise activities in the financial sector including: banking, financial markets, insurance and re-insurance, pension funds, financing institutions, and other types of financial service institutions.
The OJK will have the authority to (i) issue a permit for the establishment of a bank and supervise all bank activities (bank business plans, mergers, consolidations and acquisitions, and articles of association), (ii) regulate and supervise a bank’s financial health (capital ratio, liquidity, reserves, reports, and accounting standards), and (iii) assess prudence such as risk management, bank governance, and know your customer principles in order to prevent money laundering and terrorism and banking crimes. These authorities will no longer be held by Bank Indonesia although the OJK can coordinate with Bank Indonesia and other financial institutions in deciding issues. The OJK can also impose sanctions on parties in the financial sector.
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