RUU PPSK Officially Becomes Law, Strengthens Financial Sector in Indonesia

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- The Rancangan Undang-Undang tentang Pengembangan dan Penguatan Sektor Keuangan (RUU PPSK) was officially passed into law by the DPR and government during a plenary meeting at the parliamentary complex on Thursday (15/12). 

During the final government statement, Minister of Finance Sri Mulyani Indrawati stated that there are at least twelve provisions for each industry in the financial sector and its supporting infrastructure, including human resources.

First, for the banking industry, the government agreed with the DPR that good governance of the banking industry is an important prerequisite for achieving the goals of the RUU P2SK. One important and necessary strategy for this sector is to increase efficiency in the industry. Efficiency is crucial in providing cheaper credit or financing for all economic actors, especially Micro, Small, and Medium Enterprises (MSMEs).

To increase efficiency, various strategies are needed such as a consolidation mechanism for banks, regulations on the separation of obligations (spin-off) for Islamic business units in the banking, insurance, and guarantee industries in order to support the development and strengthening of the Islamic financial industry, and the acceleration of the transmission of reduced bank loan interest rates.

The government also agrees with the DPR that the Islamic banking industry also needs further regulation and improvement of the ecosystem in the future, including the authority of institutions that issue fatwas so that Indonesia can become one of the global centers of Islamic finance.

The RUU P2SK also strengthens the function of the People's Credit Bank (BPR) by expanding its current business operations to include foreign exchange and fund transfers, and changing its name to the People's Economic Bank.

This is done so that BPR can play a greater role in supporting the MSMEs that support the Indonesian economy. The government also notes that in the future, the role of BPR can be even more vital with the strengthening of capital, increased efficiency and profitability, and the strengthening of good corporate governance by opening the possibility of BPK entering the capital market.

Crypto Assets

Second, for the reform of the capital market, money market, foreign exchange market, and crypto assets, the RUU P2SK, among other things, strengthens the legal basis for Special Purpose Vehicles in order to encourage the creation of variations of financial market instruments through securitization. It also regulates Trustees for Asset Management or Trustees to provide more alternatives for asset and wealth management for market players. 

On the other hand, the strategic function of market infrastructure is also strengthened, one of which is the role of interoperability of infrastructure through the development of carbon exchanges and demutualization options.

Regarding crypto transactions, it was agreed to transfer the authority to regulate and oversee crypto assets from the Commodity Futures Trading Regulatory Agency (Bappebti) to the Financial Services Authority (OJK). This is in line with the direction of international practice and the development of fintech and digital economy.

In addition, the RUU P2SK also strengthens the function of the Indonesia Deposit Insurance Corporation (LPS) as the main guarantor of depositors' funds in commercial banks, and regulates the establishment of the Indonesia Shariah Securities Regulatory Agency (BAS) as an independent institution for regulating and supervising the Shariah capital market.

Protect Consumers

Third, the government and DPR agreed to enhance the supervision of the financial services sector in order to maintain financial stability and protect consumers. This includes the establishment of a Single Risk Management Supervisory Agency (BPK), which will have the authority to supervise and regulate all financial services providers, including banks, non-bank financial institutions, and fintech companies.

Fourth, the government and DPR also agreed to strengthen the regulation of fintech companies in order to promote fair competition and protect consumers. This includes the establishment of clear licensing requirements and the implementation of a risk-based supervision framework for fintech companies.

Fifth, the government appreciated the DPR's attention to strengthening oversight of the rapidly growing and potentially systemic-risk-increasing conglomerate financial services sector. The phenomenon of conglomerate financial services requires clearer regulation; including the setting of criteria, scope, materiality aspects, and thresholds that consider its impact on financial system stability. Conglomerates will be linked to healthy business practices to prevent monopolies and oligopolies in financial services.

Sixth, in relation to other risks such as climate change, the government and DPR agreed to regulate the financial sector so that it can also successfully mitigate and adapt to climate change by preparing various ecosystems for green financing such as carbon markets.

Nonbank Financial Industries 

Seventh, in relation to nonbank financial industries such as insurance and pension funds, the government agrees with the DPR that their management should be improved in order for the industries to grow more quickly but cautiously. In particular, for the insurance industry, the government appreciates the DPR's view on strengthening the protection of the public in this industry through the creation of a policy guarantee program.

To accelerate the creation of strong and stable long-term funding sources, the P2SK Bill improves regulations on both mandatory and voluntary pension programs. This regulation is very urgent in the context of increasing public protection against potential economic shocks that may be experienced during working years or in old age. In the long term, as in other countries, mandatory pension contributions will also make the national financial system more stable, deep, and inclusive.

Ninth, in relation to credit unions, the government agrees with the DPR's view that credit unions should be placed in their proper role and proportion, namely from members to members, so that they can contribute as the national economic soko guru. Meanwhile, credit unions that carry out activities within the financial services sector are regulated and supervised by the Financial Services Authority (OJK).

"This provision will provide legal certainty oriented towards protecting the public," said Sri Mulyani.

Tenth, in relation to P2P lending service providers, the P2SK Bill will introduce principles-based and activity-based regulation to anticipate the emergence of new financing institutions in the future. This regulation shows the support of the government and DPR for the speed and ease of access to financing for the public, but is still carried out prudently.

Overall, the RUU PPSK is expected to significantly contribute to the development and strengthening of the financial sector in Indonesia, including improving the efficiency and accessibility of financial services, as well as supporting the growth of MSMEs and the national economy.

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