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INDONESIA: An Introduction to Indonesia

Contributors:

Anastasia Irawati

Ivander F. Irawan

ABNR Counsellors at Law Logo
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AN OVERVIEW OF FINTECH IN INDONESIA 

FinTech has been growing rapidly in Indonesia and the government has issued several regulations to underpin the industry’s development. Sectors recognised, and their related legal instruments, include:

• Securities crowdfunding: Financial Services Authority (“OJK”) Regulation No. 57 on securities crowdfunding (“POJK 57”), as amended by OJK Regulation No. 16/POJK.04/2021, as will be further amended by the New Law.

• Peer-to-peer (“P2P”) lending: OJK Regulation No. 10/POJK.05/2022 (“POJK 10”).

• Payment systems: those involved in the operation of payment systems are categorised as: payment services providers (“PSP”): banks or non-bank institutions that facilitate payment transactions to users, such as account information, payment initiation or acquisition, funds administration, or remittance services; and payment system infrastructure providers (“PIP”): parties that provide infrastructure for funds transfer and clearing or final settlement.

The latest regulation on payment system providers is Bank Indonesia (“BI”) Regulation No. 22/23/PBI/2020.

• Crypto assets: Initially acknowledged in 2018 via a regulation issued by the Ministry of Trade, a crypto asset is categorised as a commodity that can be traded on the market but not used as a payment method in Indonesia (as the prevailing law and regulations allow only the use of Rupiah as currency and for payments for transactions within Indonesia).

Tradable crypto assets in the physical market must be approved by and registered with the Commodity Futures Trading Regulatory Agency (“Bappebti”). The latest crypto asset regulation in Indonesia is Bappebti Regulation No. 8 in 2021, as amended by Bappebti Regulation No. 13 in 2022 (“Reg 13”). Bappebti also recently issued a list of recognised crypto assets tradable in Indonesia. To date, around 383 crypto-assets fall into this category. However, further amendments to these regulations are expected as the authority of Bappebti were repositioned to fall within the OJK’s control. The change was made under the new law on Development and Strengthening of the Financial Sector that was approved by the House of Representatives on 15 December 2020 (“New Law”).

• Digital Gold: first legalised via Ministry of Trade Regulation No.119 of 2018, the trading of digital gold was further provided for by Bappebti Regulation No. 4 of 2019, as amended by Bappebti Regulation No. 13 of 2019 (“Reg 4”).

• Digital Currency The New Law introduces the concept of digital Rupiah, which will be managed under the sole authority of Bank Indonesia (“BI”).

• Bullion The New Law describes bullion activities as those related to the deposit, financing, trading, and safekeeping of gold. These activities will be under the supervision of the OJK.

• ITSK The New Law defines ITSK as technology-based innovation that impacts products, activities, services and business models in the digital financial ecosystem. ITSK includes payment systems, settlement of securities transactions, risk management, market support, and activities related to digital financial assets, including crypto assets.

• IT-based Expert Advisory Services: Due to controversy over illegal robot-trading platforms (subsequently blocked by the regulators), Bappebti issued a regulation to outlaw rogue robot trading but still permit and indeed facilitate the provision of online advisory services to help retail investors make informed choices (see Bappebti Regulation 12 of 2022 on the Provision of Information Technology-based Expert Advisory Services in Commodity Futures Trading). Under this regulation, licensed future advisers are permitted to provide IT-based advisory services to assist customers with their investments.

In addition to the above, the government has also issued sandbox regulations for uncategorised FinTech businesses:

• Fintech related to payments systems: governed by BI Regulation No. 23/6/PBI/2021 on Payment Services Providers, which authorises BI to determine that a particular product, activity, service, or business model may be ‘sandboxed’ for testing purposes. This is to: (i) encourage technological innovation, and (ii) monitor/detect opportunities and risks regarding technological innovation, development of the digital economy and financial ecosystem, and the operation of payments systems.

• Fintech related to lending and other aspects: governed by OJK Regulation No. 13/POJK.02/2018 of 2018 on Digital Financial Innovation (“DFI”) in the Financial Services Sector, which established a tripartite regime: recordation, regulatory sandboxing, and registration. Initially, a prospective DFI provider must be recorded as such with the OJK, which then assesses whether they are suitable to participate in the regulatory sandbox process. If the provider receives a post-assessment recommendation for registration, it must register with the OJK within six months of the recommendation’s issuance.

Lately, the government has issued regulations to tax FinTech and Crypto transactions in order to minimise potential revenue losses. These regulations cover:

a. The FinTech market, including peer-to-peer (“P2P”) lending and payment services providers. The regulation requires a FinTech operator to register as a taxable undertaking and collect VAT (at 11% on transaction fees, commissions, merchant discounts or other forms of consideration payable to a service operator).

b. The Crypto market, by imposing VAT on: (i) intangible taxable goods that are crypto assets, on crypto asset sellers; (ii) taxable services in the form of the provision of electronic facilities for crypto asset trading by the trade organiser through an electronic system; and (iii) taxable services that verify crypto asset transactions, or management services for the mining pool of crypto assets. The regulation also imposes tax on income received by crypto market players. Crypto asset traders are subject to final income tax at 0.1% of transaction value (if the electronic system used is registered with the authority) or 0.2% (if unregistered).

Authors’ Commentary: As technology develops, so does the number and complexity of FinTech subsectors. The government needs to keep abreast of developments by issuing new regulations to avoid grey or unregulated financial technology areas.

FinTech is a high-risk business as huge sums of private investors’ money are involved. Recently, many unlicensed businesses have offered technology-based investment opportunities to the public in Indonesia, the most notorious of which involved a raft of illegal P2P operations and robot-trading platforms. Rogue P2P outfits were guilty of many abuses, including the charging of excessively high interest rates, use of threats and violence in debt collection, and unauthorised access and use of customers’ personal data.

So great was the OJK’s concern that it issued a moratorium on applications for new P2P operators’ licences in February 2020 in order to give it some breathing space to establish more effective and wide-ranging P2P monitoring infrastructure to protect the public.

The most notorious FinTech scandals of the year involved robot-trading platforms. These promised customers that they could make quick profits by allowing “robots” to undertake day-to-day trading for them. It subsequently became apparent that these platforms were nothing more than Ponzi schemes that inflicted cumulative losses of almost IDR5 trillion (approx. USD319 million) on unsuspecting individual investors.

In response, the government established an Investment Alertness Task Force, comprising officials from the OJK, Bappebti, and the Ministry of Communications and Information Technology, to actively monitor illegal FinTech businesses. Should a business be deemed a danger to the public: (i) its website will be blocked so it cannot be accessed in Indonesia; and (ii) it will be blacklisted. The Government also stipulates sanctions for an undertaking not licensed for Indonesia but operating ITSK activities. It is liable to five-ten years’ imprisonment and fines of up to Rp1 trillion (approx. USD64 million). These sanctions are aimed at shutting down the operation of unlicensed (illegal) financial technology companies.