28 Jan 2013
INDONESIAN BANKS TO PROVIDE BROADER TRUST SERVICES
Although Indonesian banking law No. 7/1992 (as amended, “Law No. 7/1992”) allows Indonesian banks to provide trust services, Indonesian banks have generally only provided limited trust services. As a result, the Indonesians rich and companies operating in Indonesia would usually opt for the services of foreign banks.
Bank Indonesia expects to change the above condition through its recently enacted Regulation No. 14/17/PBI/2012 regarding Banks’ Business Activity in the Form of Trust (the “Regulation”). This new regulation requires exporters in Indonesia to place their foreign exchange holdings in local Indonesian banks, and provides Indonesian banks with legal foundation and guidance for their domestic trust management activities. The Regulation contains the implementation provisions for Articles 6 (i) and 9 of Law No. 7/1992 and Article 19 (1) (L) of Law No. 21 of 2008 on Shariah Banking, reflecting policies that are aiming at creating a more predictable and sustainable supply of foreign exchange and preventing sudden outflows of the country’s foreign reserve.
Article 5 of the Regulation stipulates that in its business activities as trustee, a bank can act as (i) paying agent; (ii) investment agent; and/or (iii) borrowing agent. The Regulation specifically stipulates that a bank’s activity as trustee for its client (the settler) must be conducted on the basis of a written instruction from the client/settler.
The Regulation’s intention to ensure the “bankruptcy remote” of the assets entrusted is shown in the following trust management requirements:
All Indonesian banks and branch offices of foreign banks may act as trustee as long as they meet the requirements. The Regulation’s definition of “Indonesian banks” include foreign banks operating in Indonesia. An Indonesian bank wishing to act as trustee must, among others, meet the following requirements:
The Regulation also regulates the requirements for the trust agreement. Among the requirements are that it must be in writing and that it is written in Indonesian. If it is accompanied by a foreign language version, the Indonesian version will be the prevailing version in the event of discrepancies in the interpretation.
The Regulation has been in force since its issue on 23 November 2012. (by: Hamud M. Balfas)