By Stefanno Sulaiman
(Reuters) – Indonesia’s parliament on Thursday approved a financial law revising more than a dozen existing regulations, including an addition to the central bank’s mandate to support economic growth and formalise its direct purchases of government bonds.
Here are some of the changes introduced in the new law, which has over 500 pages:
CHANGES AFFECTING THE CENTRAL BANK
* Bank Indonesia (BI)’s objective to include maintainingfinancial system stability in order to support sustainableeconomic growth, compared with only maintaining the rupiahcurrency’s value under previous laws. * A new provision underlines that BI will be able to issuecapital flow regulations that include repatriation and/orconversion of foreign exchange. * A new requirement states candidates running for BI’s board must not be a member and/or a functionary of a political partyat the time of nomination. * The law brings in a stricter timeframe for nomination andconfirmation hearings of board members by parliament.
CRISIS RESPONSE
* BI is allowed to buy bonds directly from the government ifthe president declares a crisis situation. Up to now, this hasonly been allowed between 2020 to 2022 in response to thepandemic. * BI will also be allowed to buy corporate bonds held bybanks in times of crisis, which is currently prohibited. * The new law aims to strengthen the crisis responsemechanism, including by giving the government permission to lendto the Indonesia Deposit Insurance Corporation (LPS) and for LPSto repo its government bond holdings to the central bank if itneeds to raise funds.
CENTRAL BANK DIGITAL CURRENCY AND CRYPTO ASSETS
* The law recognises the digital rupiah, to be issued by BI,as an additional form of the national currency, on top of coinsand banknotes. * Supervision and regulation for trading of digital assetssuch as crypto assets will be placed under the remit of theFinancial Services Authority (OJK). There will be a gradualtransition of these roles from the commodity regulator.
CONSUMER PROTECTION
* Financial regulators are mandated to form a nationalcommittee to improve financial literacy and widespread access tofinancial products. * The law brings in penalties, including criminal sanctions,for companies that do not meet the requirements for customerprotection, such as failing to inform clients of investmentrisks.
BULLION BANKING, CARBON EXCHANGE
* The law introduces the establishment of a bullion bank, orbank to deposit, trade and lend gold. * It also allows for the set up of carbon exchanges, withthe OJK’s permission, to facilitate carbon trading. * The OJK will supervise and regulate bullion banks andcarbon exchanges.
OTHER CHANGES
* BI and OJK will jointly supervise and regulate fintechs. * The law calls for the formation of supervisory bodies forOJK and LPS and the strengthening of the supervisory body forBI. * Banks are obliged to publish their interest rates in atransparent way in order to promote efficiency. * The LPS will be in charge of guaranteeing insurancepolicies. * To be able to do that, LPS will collect a fee frominsurance companies. * The law introduces jail punishments for a controllingparty of an insurance firm who fails to conduct theirresponsibilities.
(Reporting by Stefanno Sulaiman; Editing by Gayatri Suroyo and Ed Davies)
