With the object to monitor and direct the operation of financial technology (hereinafter referred to as “fintech”) in Indonesia and respectively to mitigate any potential establishment of a shadow economy, the Indonesian central bank, Bank Indonesia, has given its response in relation to the development of fintech by issuing Bank Indonesia Regulation Number 19/12/PBI/2017 concerning the Operation of Financial Technology on the 29th of November 2017, which has become effective as of the 30th of November 2017.
The operation of fintech under this new regulation is categorized into the operation of: (a) payment systems, (b) market support, (c) investment and risk management, (d) lending, financing, and capital raising, and (e) other financial services.
The scope that is being stipulated hereunder includes certain rules on (a) registration, (b) regulatory sandbox, (c) licensing and approval, (d) monitoring and supervision, and (e) cooperation.
This regulation stipulates the obligation of fintech operators, that carry on activities which contain technology that is (a) innovative, (b) may have certain impact to existing financial products, services, technologies, and/or business models, (c) may have certain benefit to the public, and (d) may be used widely, and (e) other criteria that Bank Indonesia may determine from time to time (the so-called “fintech characteristics”), to register themselves with Bank Indonesia.
Any breach by any fintech operator to the registration obligation may subject it to administrative sanctions which may be in the form of (a) written warnings, (b) suspension of its business activities, (c) certain actions in relation to the operation of payment systems, and/or (d) recommendation to the relevant competent authorities to revoke the business license that is provided by such competent authorities.
The said registration obligation does not apply to (a) payment system services operators who have obtained the required license(s) from Bank Indonesia and/or (b) fintech operators who are supervised by other competent authorities. However, this regulation stipulates the obligation of such payment system services operators to provide certain information to Bank Indonesia regarding its product, service, technology, and/or another new business model that meet the fintech characteristics. In addition, this regulation also stipulates the obligation of such fintech operators, who undertake fintech activities in the field of payment systems, to register themselves with Bank Indonesia.
Fintech operators, who are registered with Bank Indonesia, have respectively the obligations to apply the principle of consumer protection, maintain the confidentiality of consumer’s data and information including data and/or information on transactions, and apply certain risk management and prudential principles. Moreover, this regulation also stipulates the obligations of any such fintech operator to use the Rupiah currency in every transaction that is conducted within the territory of the Republic of Indonesia. Fintech operators are also prohibited from using any virtual currency in its payment system.
(b) Regulatory Sandbox
In determining whether a product, service, technology and/or business model complies with the fintech characteristics, Bank Indonesia has created a test case called the “Regulatory Sandbox” whereupon any registered fintech operator including its product, service, technology, and/or business model could be tested to ensure its profile before they are launched into the market. Within and during the Regulatory Sandbox, Bank Indonesia together with the fintech operator will monitor and evaluate the test to ensure that the new product, service, technology, and/or business model complies with the regulations.
(c) Licensing and Approval
This regulation stipulates the obligation of fintech operators, which is categorized as a payment system services operator, to obtain a payment system services operator license from Bank Indonesia.
In addition, this regulation also stipulates that each payment system services operator that produce any new product, service, technology, and/or business models which constitutes (a) any development of a payment system service activity and/or (b) any development of a product and/or payment system service activity, but which do not meet the fintech characteristics, shall obtain Bank Indonesia’s approval in relation to the operation of payment transaction processing before resuming its marketing activity of its product and/or service or using its technology or business model.
(d) Monitoring and Supervision
Bank Indonesia conducts the monitoring of fintech operators that are registered with Bank Indonesia. In conducting such duty, Bank Indonesia requires any fintech operator to submit any data and/or information that is requested by Bank Indonesia. In addition, Bank Indonesia also conducts the supervision of fintech operators that are payment system services operators that have obtained a license and/or approval from Bank Indonesia.
Any cooperation between a payment system services operator and a registered fintech operator shall obtain the prior approval from Bank Indonesia in relation to the operation of payment transaction processing. In addition, any cooperation between a payment system services operator and an unregistered fintech operator and/or unlicensed fintech operator is prohibited.
Any breach by any payment system services operator to this obligation and prohibition may subject it to administrative sanctions which may be in the form of (a) written warnings, (b) administrative fines, (c) temporary suspension of its payment system activities, and/or (d) revocation of its business license. In addition to the said administrative sanctions, the relevant payment system services operator can be ordered to cease the cooperation.