Derivative Transactions - Bank Indonesia Regulation

Bank Indonesia (BI) has issued Regulation No. 10/38/PBI/2008 as an amendment to Regulation No. 7/31/PBI/2005 with a view to enhancing stability in the value of the Rupiah and minimizing risk in the conduct of derivative transactions. The minimizing of risk is to be through the application of risk management principles as they relate to the operations of sound banks who practice due care and diligence.

Article 6 of the 2005 Regulation has been repealed.

Article 7 has been amended to state that banks may only conduct derivative transactions that constitute a value exchange, interest, or a combination of the two. Furthermore, the article states that transactions in this provision as long as they do not include structured products.

Article 11 has also been amended and now covers matters related to sanctions for failure to comply with the relevant provisions. The sanctions generally deal with the application of risk management principles and matters related to risk management. For example, among others, the provision of minimum capital requirements, the provision of transparent information on bank products, and the use of customer data.

Article 11 also sets out the applicable sanctions and includes the black-listing of bank executives, staff, and shareholders as those prohibited from the banking sector. The article also permits the dismissal and temporary appointment of replacements of the bank executive until such time as the next general meeting of shareholders is held.

The Regulation has been in force since 16 December 2008.