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by Hamud M. Balfas
On 22 November 2011, Indonesian
President Susilo Bambang Yudoyono finally signed the Financial Services
Authority bill (Otoritas Jasa Keuangan, or the OJK), enacting Law No.
21/2011 (Law 21). Law 21 was enacted to implement Law No. 23/1999 (as amended)
(Law 23), regarding the central bank, Bank Indonesia. Law 23 granted the
government a mandate to establish an agency for the supervision of the
country's financial industry.
The "Super-Body's" Role
The establishment of the OJK agency was delayed several times from its initial
scheduled date of 31 December 2002. Those delays were due to various reasons,
including Bank Indonesia's reluctance to give up its banking supervisory and
regulating power. The OJK will not only establish this new
"super-body" with financial supervisory and regulatory power, but
will also change the financial product regulatory landscape in Indonesia. As
such, the new law materially reduces Bank Indonesia's powers, leaving it only
with only the task of "achieving and maintaining a stable value of the
The new institution that Law 21 will create regulates and supervises the assets
of the financial industry. These currently stand at more than 7000 trillion
Rupiah (about 750 billion USD), comprising banking assets, market
capitalization of the companies listed in the Indonesian Stock Exchange (IDX),
and assets of the mutual fund industry. These further include other assets
managed by insurance and finance companies, pension funds, and by more than one
hundred securities companies and investors. This enormous amount of assets
under the OJK's supervision has made experts refer to the OJK as a
"super-body." This super-body is responsible for the most important
Indonesian industry in an era of worldwide financial turbulence and increasing
financial product complexity.
Law 21's elucidation states that "the financial system globalization
outbreak and rapid advances in information technology and financial innovations
have contributed to the complex and dynamic financial system that is
interrelated among the financial subsectors in terms of the products as well as
the entities. In addition, the existence of financial services institutions
with a proprietary relationship in various financial subsectors
(conglomeration) has contributed to the complexity of the transactions and
interactions amongst the financial institutions within the financial
system." [footnote omitted]
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Hamud M. Balfas is
a lawyer with Ali Budiardjo Nugroho Reksodiputro. Mr. Balfas writes in both
English and Indonesian on various legal topics, including his book titled Indonesian
Capital Market (Hukum Pasar Modal Indonesia), now in its second edition.