Indonesian FSA strengthens oversight of financial companies
The Financial Services Authority (“JOK “) issued Regulation No. 47 / POJK.05 / 2020 of 2020 on Business Licensing and Institutional Aspects of Sharia Finance Companies and Finance Companies (the “New regulation”) in November 2020. This aims to increase the competitiveness of the industry and support the development of conventional and Sharia finance companies (“Finance companies”) In order to strengthen their role and contribution to the national economy and the country’s development. The new regulation repeals and replaces the OJK regulation n ° 28 / POJK.05 / 2014 of 2014 (“Reg. 28/2014“).
2. Guidelines for establishment and funding requirements
Unlike Reg. 28/2014, which allowed finance companies to be incorporated as cooperatives rather than limited liability companies, the new regulation requires finance companies to be incorporated as limited liability companies. In addition, a finance company must register as a member of the relevant industry association in Indonesia no later than 6 (six) months after the date of issuance of its business license.
Regarding capitalization, a finance company is now required to have a minimum paid-up capital of IDR 250 billion (USD 18 million) at the time of its creation (compared to IDR 100 billion previously under Regulation 28/2014).
Although the new regulation preserves the status of an existing finance company with paid-up capital of less than IDR 250 billion at the time of the publication of the new regulation, this does not apply to a company acquired by a new investor after the publication. of the new regulations.
3. Foreign ownership
As with Reg. 28/2014, foreign ownership (direct or indirect) is limited to 85% of the paid-up capital of the company. However, there are exemptions in the following cases:
- A public company whose shares are traded on the Indonesian Stock Exchange;
- A company that needs additional capital from foreign shareholders due to minimum capital requirements and equity ratios or liquidity issues that may interfere with the continuity of its activities; Where
- A company licensed to trade at the time of the entry into force of the new regulation and which is not a state-owned company whose shares are traded on the Indonesian Stock Exchange or which previously exceeded the foreign ownership limit, to provided that the ownership of the business has not changed.
The New Regulations also stipulate that in the event of a violation of the limitation on foreign ownership, the Financing Company must make the necessary adjustments in order to bring it into conformity with what has been approved by the OJK within a period of 3 years. from the date of declaration of the change of ownership to the OJK.
In addition, the New Regulations require that any change in ownership by acquisition be approved by the General Meeting of Shareholders of the Société Financière (“GMS“) after receiving OJK approval.
4. Mergers and consolidations
Finance companies can carry out mergers or consolidations, but these must be approved by the OJK. In order to obtain such approval, the proposal must be included in the business plan of the company, must not diminish the rights of creditors and must not interfere with the financial health of the Financing Company. Post merger or consolidation, the Financing Company must have a minimum assessed composite rating of 2.
5. Sharia Business Units
New regulation increases working capital requirement for a Sharia business unit to at least IDR 100 billion (USD 7.2 million) against 25 billion IDR previously. Working capital should be set aside in a term deposit in the name of the finance company with a Sharia commercial bank or a business unit of an Indonesian commercial bank.
6. Expatriate employees
The new provisions relating to the employment of expatriates under the new regulations include:
- A Finance Company whose shares are held at least 25% by foreign nationals or foreign legal persons, directly or indirectly, may employ expatriates;
- A finance company that employs an expatriate as a director or commissioner is required to ensure that Indonesian citizens occupy at least 50% of the seats on boards of directors or commissioners;
- An expatriate can only be employed as an expert or consultant in the areas of information technology, risk management and certain other matters for OJK’s approval.
7. Cessation of business activities, suspension of debt payment obligations, bankruptcy and dissolution
A finance company considering going out of business must obtain approval from the OJK by submitting:
- the reasons for the cessation of commercial activities;
- a draft constitution containing the new business plan;
- a description of the financial position of the Financing Company, including data on the amount of financing, the number of accounts receivable and the total liabilities of the Company or accounts receivable;
- the plan for settling rights and obligations related to the Company’s financing operations; and
- proof of payment of OJK direct debits and administrative fines.
If a Finance Company is in the process of voluntary or involuntary suspension of debt payment obligations (moratorium), it must report this to the OJK following the moratorium request. The report must be submitted by the board of directors and contain, at a minimum, the name of the party filing the moratorium request, a summary of the moratorium request and a company action plan to be applied to the with regard to the moratorium.
If a finance company is involved in voluntary or involuntary bankruptcy proceedings, it is required to submit a report to the OJK within 5 working days of filing the bankruptcy application. The report must be submitted by the board of directors and contain, at a minimum, the name of the party filing the bankruptcy claim, a summary of the bankruptcy claim and a business plan of action to be taken on the bankruptcy. regard to the bankruptcy deal.
8. Comment from the ABNR
The new regulation helps to strengthen the hold of the OJK over finance companies, in particular with regard to changes in ownership: not only acquisitions, but also changes in the structure of shareholding and paid-up capital, as well as the entry of new shareholders, now require the approval of the OJK.
In a positive move, the new regulation offers greater flexibility in a number of areas, for example, the removal of (i) the requirement that 15% of a finance company’s shares be non-negotiable; and (ii) the mandatory requirements for splitting a sharia-based business unit.
Although not discussed above, it should also be mentioned in passing that the new regulation contains more detailed provisions on what the OJK expects with regard to (i) combating money laundering and terrorist financing, (ii) information management systems, (iii) complaints, (iv) fraud control, and (v) financial education and inclusion.
Amid the current stagnation of the Indonesian economy induced by Covid, the new regulations aim to promote the growth of the finance industry while providing greater legal certainty for finance companies, borrowers and investors. While not all of the changes it introduces are welcomed by everyone, overall we see it as a step forward.