On 27th December 2018, the Financial Services Authority ("OJK") issued OJK Regulation No. 34/POJK.03/2018 on Fit and Proper Test Reassessment for Primary Parties of Financial Services Institutions ("OJK Regulation 34/2018"), which will become effective on 28th January 2019.

The term "primary parties" refers to controlling shareholders, directors, commissioners, executive officers, sharia supervisory board members, internal auditors, pension fund managers and actuaries (as relevant) of banks, investment managers, securities houses, insurance companies, pension funds, multi-finance companies and fiduciary companies (pegadaian), including those that have ceased to hold office at the time the reassessment is conducted by the OJK.

Under OJK Regulation 34/2018:

1. The OJK will have the authority to reassess the fulfillment of the integrity, reputation, competence and financial capability criteria of a primary party after that primary party has obtained fit and proper test approval from the OJK. The reassessment exercise will be initiated by the OJK if there is any indication of non-compliance or non-fulfillment of one of the relevant criteria. While the regulation is silent, as to when reassessments will be done, this may be as a result of whistle-blowers or audits undertaken by the OJK.

2. The regulation also gives the OJK the right to perform reassessments of primary parties that have ceased to hold office against their past conduct in the financial services sector, regardless of whether or not those ex-primary parties are still assuming other roles in the financial services sector. This is an unclear point as the OJK may not have the authority to reassess these parties if they are no longer active in the financial services sector at the time of the reassessment.

3. However, this would have an impact if, for example, a director in Company A, who previously served as a director in Company B, could be reassessed by the OJK for any actions of the director when he was in Company B. The result of the reassessment could affect the director's fit and proper test approval as a director in Company A.

4. Actions that might be seen as non-compliance or non-fulfillment of the relevant criteria would include:

   • a primary party providing knowingly misleading information to the OJK

   • a primary party providing an unreasonable benefit to other primary parties of a financial services institution, including to a senior management officer and an employee that result in losses to the company or lessen the company's revenues

   • a primary party breaching prudential principles

   • a primary party not performing commitments given previously to the OJK

5. If a primary party is declared "unfit" by the OJK, the OJK may:

• revoke that party's current fit and proper test approval

• ban that party from being a primary party in the relevant financial services sector in Indonesia for a certain period
  
  

  If an "unfit" primary party is a shareholder of a financial services institution, other than a sharia bank:

• The shareholder will lose its voting rights in a shareholders' meeting

• The OJK will order it to transfer or otherwise dispose of its shareholding in the company to a non-affiliated party, no later than one year after the OJK declares the shareholder as an "unfit" primary party
  
  

  If an "unfit" primary party is a shareholder of a sharia bank, the OJK will order it to transfer or otherwise dispose of a part of its shareholding in the company so that its shareholding will not exceed 10% (no later than six months after the OJK declares the shareholder as an "unfit" primary party)

6. If the shareholder of a sharia bank fails to decrease its shareholding to a maximum of 10% before the deadline:

• The shareholder will be banned from being a primary party for an additional 20 years on top of the original ban period determined by the OJK (the divestment obligation would still apply)

• The shareholder will lose its voting rights in a shareholders' meetings

• The shareholder will only be able to receive a maximum of 10% of the dividends declared and paid by the company

• The name of the shareholder will be published in mass media

It is unclear what authority the OJK has to impose certain of the above requirements or sanctions that are contrary to the rights of shareholders under the Company Law (for example voting rights, rights to dividends etc).

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 16th January 2019

Tweet

digg

Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

Related Topics

Indonesia's 2019 Economic Outlook: Challenging Times amid Political Turbulence

Minimum Capital Requirements for Foreign Investment in Indonesia

Useful Documents

OJK regulation No. 34 of 2018