The Indonesia Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) recently issued Circular Letters No. 5/SEOJK.07/2024 (“OJK CL 5”) and No. 6/SEOJK.07/2024 (“OJK CL 6”), of which detail the new sandbox and registration procedures applicable for Financial Technology Innovation (“ITSK”) operators. Following the rapid growth of ITSK’s business models, the circular letters have primarily implemented OJK Regulation No. 3 of 2024 on ITSK (“OJKR 3”) and Law No. 4 of 2023 on the Development and Strengthening of Financial Sector (“Omnibus Finance”). With the administering of OJKR 3, OJK CL 5, and OJK CL 6, former OJK Regulation No. 13/POJK.02/2018 and its implementing regulations are no longer valid (“OJKR 13”).
Key highlights of OJKR 3, OJK CL 5, and OJK CL 6 include changes in ITSK’s business models and its corresponding licensing procedures, of which are explicated below.
- Scope of Business Models
In contrast to its predecessor, OJKR 3 now includes risk management and crypto assets activities as part of ITSK-recognized business models. The inclusion of crypto assets aligns with the shift of regulatory and supervisory authorities of crypto assets from Commodity Futures Trading Regulatory Agency (Badan Pengawas Perdagangan Berjangka Komoditi – Bappebti) to OJK, as mandated by Omnibus Finance. Worth bearing in mind is OJKR 3’s explicit omittance of “insurance-related activities” from the recognized ITSK business model despite the term’s concurrent inclusion in the “risk management” category.The table below notes each difference between OJKR 13 and OJKR 3.Coverage of OJKR 13 Coverage of OJKR 3 a. transaction settlement; a. securities transaction settlement; b. fundraising; b. fundraising; c. investment management; c. investment management; d. fund deposits and/or channelling; d. fund deposits and/or channelling; e. insurance; e. risk management (interpreted to include “insurance”); f. market support; f. market supports; g. other supporting activities; and g. activities relating to digital financial assets, including crypto assets; and h. other financial services activities. h. other digital financial activities. - Sandbox Process and Licensing Requirements
The new sandbox process is currently shortened and more definitive compared to its preceding regulation under OJKR 13. Conversely, the pre-requisites of becoming a sandbox participant now appear more rigorous, stipulating that each ITSK operator is now expected to bring significant distinguishing elements and add value to the Indonesian market. Furthermore, the current approval process grants ITSK operators a more expeditious timeline in the attainment of OJK’s decision. This works jointly with OJKR 3’s enabling of ITSK operators to compose an exit plan in anticipation of OJK’s rejection.
A comparison of the licensing procedures between the former regulation and its newer counterparts is demonstrated in the table below.No. Matters OJKR 13
(and its implementing regulation)OJKR 3, OJK CL 5, and OJK CL 6 1. Sandbox timeframe A maximum of 1,5 years to complete. A maximum of 1 year to complete. 2. Required criteria to become a sandbox participant 1. recorded (tercatat) under OJK; 2. introduces a new business model;
3. possesses wide market presence;
4. registered with the appointed association overseeing the ITSK activities; and
5. other criteria as stipulated by OJK.
1. no mandatory recordation with OJK; 2. introduces novel and/or significant distinguishing elements (compared to other existing business) within the financial sector;
3. provides benefits or added value to the Indonesian market;
4. ready for testing and development;
5. requires trial and development support; and
6. other criteria as stipulated by OJK.
3. Approval process 1. Apply for recordation; 2. Sandbox process;
3. Result, of which include:
– Recommended: must apply for registration under OJK;
– Denied: may not proceed and will be prohibited to apply for the same type of ITSK business activities; or
– Requiring Improvement: will be given a maximum extension of 6 months for a business model adjustment.
1. No mandatory recordation; 2. Sandbox process;
3. Result, either of which include:
– Approved: must apply business license within 6 months (and, if required*, apply for registration with OJK); or
– Denied: must cease operation, settle outstanding obligations to customers, and carry out exit plan (as submitted to OJK as part of the sandbox requirements).
*The registration requirement applies only to those:
1. instructed by OJK;
2. under OJKR 13’s “recommended”; or
3. implementing a business model equivalent to that of the prior “approved” or “recommended” sandbox participants.
- Transitional Provisions
For existing ITSK operators undergoing recordation or the sandbox process based on OJKR 13, OJK has until August 2024 to exercise its sole discretionary power to:- grant a “recommended” status; or
- deny the applications.
In contrast, applications that have not yet begun processing by OJK must undergo the sandbox process in accordance with OJKR 3, OJK CL 5, and OJK CL 6.