11 Feb 2022
OJK Provides Greater Clarity on Discharge of its Capital-Market Supervisory Functions

The Financial Services Authority (“OJK”) has faced criticism by stakeholders and the public in the wake of a spate of recent financial scandals involving capital-market participants and products. In response, the OJK has issued regulation No. 23/POJK.04/2021 on Further Measures for Capital-market Supervision (“Reg. 23”),[1] which entered into effect on 3 December 2021.

All capital market participants and stakeholders, including the self-regulating capital-market organizations, are subject to Reg. 23, which aims to provide greater legal certainty as regards OJK’s supervisory actions.

This article highlights and analyses some of the key provisions of Reg. 23.

A. Capital-Market Supervision

The OJK is provided with extensive supervisory authority by Law No. 21 of 2011 on the Financial Services Authority (the “OJK Law”).[2] However, while its supervisory powers are wide-ranging, there has been a lack of a clear framework that would allow the OJK to fulfil its supervisory role effectively. Reg. 23 aims to plug that gap.

Reg. 23 provides for, among other things, the following supervisory measures:

1. offsite supervision;

2. technical inspection;

3. inspection of compliance; and/or

4. other supervisory measures.

B. Responsibilities of Capital-Market Participants

Reg. 23 also affirms that a wide range of capital-market participants, including securities companies, and other interested parties (company directors, commissioners, shareholders, controlling shareholders, or controllers of these parties), must abide by the prevailing capital-market regulations, and must carry out their activities in accordance with the following principles:

1. integrity;

2. good faith;

3. prudence, through the application of risk management and good governance;

4. professionalism; and

5. provision of access to information.

C. Sanctions for Non-compliance

Reg. 23 establishes that those who infringe the prevailing regulations or the principles referred to in part B above may be liable to the following sanctions:

1. issuance of an Order for Specific Measures (“OSM”);

2. issuance of a Written Order (“WO”); and/or

3. law enforcement measures.

An OSM is the OJK’s first response to breaches by capital-market participants. However, if considered necessary by a supervisor,[3] the OJK may issue a WO or implement law enforcement measures without first issuing an OSM.

As an example, the OJK may issue an OSM to require (i) adjustments, compliance, or improvements in accordance with the provisions of the applicable regulations or (ii) the replacement of a director, commissioner, shareholder, controlling shareholder, or controller of a capital-market participant. An OSM may be issued upon consideration of:

1. the extent of the material non-conformity or violation;
2. the frequency of the non-compliance or violations;
3. the impact on business continuity or obligations that must be settled;
4. impact on the capital markets or financial services industry; and/or
5. such other matters as may be determined by the OJK.

Failure to comply with an OSM may leave a non-compliant party liable to: (i) inspection under Article 100 of the Capital Markets Law; or (ii) the issuance of a WO by OJK.

The characteristics of an OSM and WO (collectively, “Orders”) are essentially quite similar. They both contain the same type of instruction: A WO would normally be issued after a non-compliant party failed to heed an OSM, while a WO may be issued without the need for a prior OSM, if considered necessary by a supervisor.

The essential differences between the two Orders may be summarized as follows:

The nuts and bolts of the Orders will be spelled out more fully in further OJK regulations, which have yet to be issued.

D. ABNR Commentary

The issuance of Reg. 23 is to be commended as it should help clarify how the OJK will implement its capital-market supervisory functions going ahead. There is, however, one potential area of uncertainty concerning the precise meaning and scope of “such other matters as may be determined by the OJK,” which is one of the considerations that should be taken into account by the OJK in determining whether to serve an OSM (see section C above). Given the importance of legal and investment certainty in the capital markets, it is to be hoped that further guidance will be provided on this by the OJK so that capital-market participants can get a better idea of when and in what circumstances they might be issued with an OSM.

By partnerMr. Ayik Candrawulan Gunadi(agunadi@abnrlaw.com) and senior associateMr. Novario Hutagalung (nhutagalung@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.