19 Aug 2022
Bank Indonesia Issues New Regulations to Consolidate Forex Rules and Relax Underlying Transaction Requirements

A. Introduction

As the shadow of Covid dissipates and the volume of cross-border transactions continues to rise, Bank Indonesia has issued two new regulations to consolidate the foreign-exchange (forex) market rules that were previously contained in a large number of disparate regulations. Importantly, the new regulations also relax the underlying-transaction requirements for access to foreign exchange.

Coming into force on 4 July 2022, the new regulations are Regulation No. 24/7/PBI/2022 on Transactions on the Foreign Exchange Market (“PBI 24”)[i] and Board of Governors Regulation No. 24/10/PADG/2022 on Implementing Regulations for Transactions on the Foreign Exchange Market (“PADG 24”).[ii]

Bank Indonesia is also hopeful that PBI 24 and PADG 24 will help boost the derivatives market by replacing the previously fragmented forex regime with a holistic, principles-based set of rules.

B. Key Features of PBI 24 and PADG 24

1. Participants

Forex transactions are conducted by “Participants”, which consist of:

• Residents (persons domiciled, or planning to domicile, in Indonesia for at least a year, including Indonesian diplomatic representatives and staff abroad); and
• Non-residents (persons not domiciled in Indonesia, or domiciled in Indonesia for less than a year, including other countries’ diplomatic representatives and staff in Indonesia).

The term “Participants” also includes banks and money market supporting institutions (including brokers and electronic trading platform providers).

2. Types of Transactions

Under PBI 24 and PADG 24, transactions on the forex market consist of (i) forex transactions against IDR (i.e., using foreign currency to buy Rupiah), and (ii) forex transactions against foreign currency (using Rupiah to buy foreign currency). Transactions may be conducted by way of:

• Cash transactions: today, tomorrow, and spot transactions;
• Exchange rate derivative transactions: plain vanilla (standard) and structured product transactions; and
• Hedging transactions based on sharia principles: ordinary hedging transactions or aqd al-tahawwuth al-basith and complex hedging transactions or aqd al-tahawwuth al-murakkab.

In addition, forex transactions are permitted against IDR for the purpose of fund-transfer, e-commerce, and portfolio investment transactions, to be carried out through a third party.

3. Underlying Transactions

The following types of forex transactions against IDR must be based on an underlying transaction:

• cash transactions (either today, tomorrow or spot) in the amount of or more than USD 100,000 (or equivalent) per month per party. Under the previous regulations, the threshold for spot transactions was USD 25,000 (or equivalent) per month per party. So, PBI 24 and PADG 24 significantly increase the threshold for triggering the underlying transaction requirement in the case of spot transactions;
• forward-purchase transactions in the amount of or more than USD 100,000 (or equivalent) per month per party. This is the same as under the previous regulations. However, PBI 24 and PADG 24 also establish standalone thresholds for the following 3 other types of derivative transaction:
  • non-forward purchase transactions: in the amount of or more than USD 100,000 (or equivalent) per month;
  • forward sale transactions: in the amount of or more than USD 5,000,000 (or equivalent) per transaction;
  • for non-forward sale transactions: in the amount of or more than USD 1,000,000 (or equivalent) per transaction; and

• An underlying transaction is required for all hedging transactions that are based on sharia principles.

An underlying transaction may take the form of a current account, financial account, capital account or credit transaction, or funding by an Indonesian bank to a resident for trade and investment purposes, or a transaction arising from the domestic trading of goods and services:

The underlying transaction requirements outlined above do not apply to interbank forex transactions against IDR. However, such transactions may only be conducted within Bank Indonesia’s open-market operation window, which is from 08.00 to 16.00 WIB, or at such other times as may be determined by Bank Indonesia in particular cases.[iii]

4. Prohibition of IDR Transfer and IDR Financing to Non-residents

As was the case under the previous regulations, IDR may not be transferred abroad and cannot be used for extending credit or financing to a non-resident. However, as before, it may be transferred to a non-resident’s account at an Indonesian bank. It should be noted that there appears to be an unwritten policy applied by Indonesian banks to the effect that a non-resident is not permitted to open an IDR account. However, non-residents are free to open accounts denominated in other currencies (such as USD), albeit subject to tight requirements, such as the need to register with the Tax Office and obtain a tax registration number (NPWP). When an IDR transfer is made to a non-IDR account, the funds are converted into the relevant currency before being paid into the account. In addition, for a transfer of IDR in an amount that is equivalent to USD 1,000,000 or more per transaction, the receiving bank must request the underlying transaction document(s) from the non-resident.

5. Reporting

Banks must submit reports on forex transactions through Bank Indonesia’s reporting system. Such reports should be submitted daily and must include (i) a statement of financial position; (ii) administrative account statement; (iii) information on inter-bank money market transactions, inter-bank money market transactions based on sharia principles, and deposits on call; (iv) information on spot and derivative transactions; and (v) information on securities transactions and certificates of deposit in the secondary market.[iv]

6. Sanctions

The administrative sanctions that may be imposed on banks which fail to comply with PBI 24 and PADG 24 are the same as under the previous regulations. These sanctions take the form of written warnings, and a penalty amounting to 1% of the nominal transaction value for each violation, subject to a minimum penalty of IDR 10,000,000 and a maximum of IDR 1,000,000,000.

C. ABNR Commentary

PBI 24 and PADG 24 are primarily codifying regulations that aim to provide an integrated set of forex rules. Other than the changes in the underlying transaction thresholds, PBI 24 and PADG 24 contain little that was not already provided for in the previous regulations. The regulatory burden of ensuring compliance with the forex rules continues to be firmly placed on the banks as it is they who are responsible for performing most of the obligations, and liable to most of the sanctions for non-compliance, under the new regulations.

Should you have any queries or require legal advice on how you can best protect your interests, please email us at info@abnrlaw.com.

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.