In brief

On 15 December 2022, the House of Representatives (DPR) passed the draft omnibus law on the financial sector which is referred to as the “Financial Sector Development and Reinforcement (Pengembangan dan Penguatan Sektor Keuangan) Law” (“P2SK Law“). The draft law is currently under an enactment process with its effective date to be further announced. The P2SK Law, among other things, stipulates the reconfiguration of supervisory powers among the different regulators over a number of sectors (including the financial technology and digital financial assets sectors) that had been overlapping and led to regulatory gaps.

Under the P2SK Law, the supervisory authorities over digital financial assets (including crypto assets) and securities-related financial derivatives will shift from Badan Pengawas Perdagangan Berjangka Komoditi (“Bappebti“) to Otoritas Jasa Keuangan (“OJK“). Financial derivatives that are related to the money market and foreign currencies market will now shift from Bappebti to Bank Indonesia. The supervisory authority over financial technology in the financial sector (inovasi teknologi sektor keuangan  – “ITSK“) will continue to be coordinated between Bank Indonesia and OJK. Bank Indonesia will continue to exercise supervisory duties and authorities over the payment systems. The P2SK Law also introduces Rupiah currency in a digital form as legal tender to support financial inclusion, the digital economy, and Bank Indonesia’s agenda to achieve interoperability and interconnection in domestic and cross-border payment systems.

Highlights

The P2SK Law, among other things, mandates that the transfer of supervisory duties and authorities over digital financial assets (including crypto assets) and securities-related financial derivatives from Bappepti to OJK will be completed within 24 months. This is still subject to the enactment of a government regulation that is mandated to be completed within six months after the enactment of the P2SK Law.

With this shift, the previous treatment of crypto asset as a form of commodity to one that will be explicitly brought under the jurisdiction of the OJK connotes that crypto asset may, among other things, be deemed as securities and bring about the application of the whole array of securities-related requirements and restrictions in their offering, sales and/or marketing. In connection with this, the P2SK Law, which also will amend Law No. 8 of 1995 on Capital Market, which governs the regime of securities and capital market, has expanded the definition of “securities” to include investment contracts in a conventional or a digital form that confer rights on their owners to obtain economic benefits directly or indirectly from the issuers or certain parties based on the contracts and every securities-related derivative. We expect to see a more robust regulatory framework in the crypto asset space that goes beyond regulating its trading in the physical market.

Through the P2SK Law, the structure of the OJK Commissioner Board will expand from 9 to 11 members. Amongst the new commissioner positions, there is a new position of Chief Executive of ITSK, Digital Financial Assets and Crypto Assets Supervisory. During the transitional period and while that position is still vacant, the supervisory duties and authorities in the digital financial assets and crypto assets sector will be covered by the Chief Executive of Insurance, Pension Fund, Financing Institutions, and Other Financial Services Institutions Supervisory – which upon the enactment of P2SK Law will be retitled as the Chief Executive of Insurance, Guarantee and Pension Fund Supervisory.

Digital Rupiah will be managed by Bank Indonesia, the central bank of Indonesia, in coordination with the government of Indonesia. Bank Indonesia will work with the government to determine the use cases for digital Rupiah, as well as its method of issuance and distribution. The P2SK Law stipulates that the details of digital Rupiah issuance will be governed under regulation(s) to be issued by Bank Indonesia. The P2SK Law solidifies Bank Indonesia’s progress to date, including the recent publishing of a whitepaper that serves as a framework of how Bank Indonesia intends to issue digital Rupiah.

We expect the issuance of digital Rupiah to further boost the government’s overarching agenda to strengthen the value of Rupiah, decouple Rupiah from foreign currencies and achieve overseas acceptance of Rupiah in order to benefit Indonesian businesses and consumers. 

Closing

As one of the biggest markets globally with a fast-growing financial technology industry and as a crown jewel in the Southeast Asian market, Indonesia is equipping itself with the foundational tools needed to keep up with the high pace of, and developments in, this space. The structural shifts in supervisory duties and authorities over the digital financial assets and crypto assets sectors are indicative of the government’s realignment of priorities in sectors that are ripe with innovation but are prone to misconduct and lack of consumer protection. Players in these sectors should gear up to swiftly adjust to the shifts between authorities and expect to see a transitional phase that may be patchy at first but will hopefully lead to a more resilient industry. Watch out for more client alerts covering the potential impacts of the P2SK Law on other sectors in the financial services space.

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