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W&P Newsletter – A Glimpse at Fintech/P2P Regulations in Indonesia

The Indonesian Financial Services Authority (OJK) enacted a regulation on peer to peer (P2P) lending services on 29 December 2016 (OJK Regulation No. 77/POJK.01/2016 on information technology-based loan arrangement (layanan pinjam meminjam uang berbasis teknologi informasi) (“OJKR 77”)), which constitutes the first regulation issued by the authority on platform administration and loan arrangement on internet basis (P2P lending).

OJKR 77 lays down certain requirements which apply to all platform administrators/ intermediary companies or P2P companies, including, among others:

  • registering with the OJK and subsequently within 1 year after the registration obtaining the P2P license;
  • limiting its foreign ownership to a maximum of 85% (either directly or indirectly);
  • having a minimum issued and paid-up capital of IDR 1 billion upon registration, and a minimum of IDR 2.5 billion upon application for the P2P license;
  • maintaining a secure and reliable electronic system and ensuring confidential information and personal data protection;
  • maintaining its server in Indonesia; and
  • filing periodical reports with the OJK (on monthly and annual basis).

OJKR 77 stipulates that only Indonesian citizens domiciled in Indonesia qualify as debtors. The maximum loan amount to be extended to each debtor is capped at IDR 2 billion (or approximately USD 160,000). In addition, the regulation requires two separate agreements to be entered into between the parties: (a) an agreement between the lender and the P2P Company; and (b) an agreement between the lender and the debtor. Both agreements must be made in the manner as stipulated in OJKR 77, such as: (i) expressly setting out the loan amount (including the penalty), interest rate, rights and obligations of each party, and dispute settlement mechanism (ii) made in electronic form and signed electronically.

It should be noted that OJKR 77 strictly prohibits a P2P Company from providing any guarantee (although it allows the debtor to provide guarantee), and at the same time, the regulation also expressly requires a P2P Company to be liable for any loss caused by the fault or negligence of its directors or employees.

The following restrictions are also imposed upon a P2P Company:

  • conducting any activities other than those within its scope of business;
  • acting as a P2P lender or debtor;
  • issuing promissory notes (surat utang);
  • recommending any lender or debtor;
  • publishing misleading and/or false information; and
  • collecting fees from P2P lenders and debtor for filing complaints.

When acquiring a P2P company, any potential investor should take into account the timing issue, for OJKR 77 requires that a prior consent from the OJK be obtained for any change in a P2P company’s shareholding.

In addition to the above requirements, OJKR 77 also sets down certain administrative requirements, which apply to all P2P Companies, namely:

  • having at least 1 Director and 1 Commissioner with at least 1 year’s experience in the financial services industry/sector;
  • employing human resources having expertise and/or background in information technology;
  • using (establishing and/or providing – as relevant) virtual accounts and escrow accounts for payment of P2P lending activities;
  • having a standard operating procedure in the form of electronic document;
  • implementing the basic principles of user protection, e.,: transparency, fairness, competency, data confidentiality and security, as well as simple, easy and affordable dispute settlement;
  • implementing anti money laundering program and anti-terrorism funding;
  • providing its debtors and lenders with information access to the loan positions;
  • using the simplest terms, phrases and/or languages in readable and understandable Indonesian language (or bilingual) in each of its electronic documents; and
  • being registered as a member of the association as designated by the OJK.

The sanctions under OJKR 77 are administrative in nature, ranging from warning letters to having its P2P business license revoked.

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