The Capital Market and Financial Institution Supervisory Board (‘Bapepam-LK’) will reportedly be releasing regulation in the near future to distinguish banks that operate as mutual fund custodians from the more general category of financial asset custodians. Whereas 16 banks in Indonesia serve as ‘custodians’ in general, with responsibilities ranging from bond and investment protection to coordinating with investment managers, 5 also serve as custodians for mutual funds.
Approval to act as a mutual fund custodian is given by Bapepam-LK, but the governing regulation on the matter - Head of Bapepam-LK Decision No. Kep-34/PM/1996 on Approval for Banks to Act as Custodians - neither differentiates between banks acting as custodians for different financial assets, nor between banks and other investment-related institutions in general. The definition of ‘custodian’ is referred to that provided in Law No. 8 of 1995 on Capital Markets, which is wide-ranging and basically vague.
Among other things, the regulatory broadness causes two problems. First, it is difficult for Bapepam-LK to adequately supervise banks and their investment activities without any regulatory distinctions between their financial custodial activities (which are wide-ranging). Second, customer services in the mutual fund area suffer, due to lacking regulatory requirements for banks to maintain at least a modicum standard of custodial responsibilities to mutual fund customers; even the day-to-day quality of basic customer service can suffer from a bank’s lacking formal specialization in mutual funds.
Ahmad Fuad Rahmany, the Head of Bapepam-LK, told Bisnis Indonesia on 22 March 2010 that Bapepam-LK is currently reviewing various criteria for defining ‘mutual fund custodians’ and the specialized aspects of regulation that will apply to that category.
This ILB is based upon research conducted by the hukumonline team.
The Capital Market and Financial Institution Supervisory Board (‘Bapepam-LK’) will reportedly be releasing regulation in the near future to distinguish banks that operate as mutual fund custodians from the more general category of financial asset custodians. Whereas 16 banks in Indonesia serve as ‘custodians’ in general, with responsibilities ranging from bond and investment protection to coordinating with investment managers, 5 also serve as custodians for mutual funds.
Approval to act as a mutual fund custodian is given by Bapepam-LK, but the governing regulation on the matter - Head of Bapepam-LK Decision No. Kep-34/PM/1996 on Approval for Banks to Act as Custodians - neither differentiates between banks acting as custodians for different financial assets, nor between banks and other investment-related institutions in general. The definition of ‘custodian’ is referred to that provided in Law No. 8 of 1995 on Capital Markets, which is wide-ranging and basically vague.
Among other things, the regulatory broadness causes two problems. First, it is difficult for Bapepam-LK to adequately supervise banks and their investment activities without any regulatory distinctions between their financial custodial activities (which are wide-ranging). Second, customer services in the mutual fund area suffer, due to lacking regulatory requirements for banks to maintain at least a modicum standard of custodial responsibilities to mutual fund customers; even the day-to-day quality of basic customer service can suffer from a bank’s lacking formal specialization in mutual funds.
Ahmad Fuad Rahmany, the Head of Bapepam-LK, told Bisnis Indonesia on 22 March 2010 that Bapepam-LK is currently reviewing various criteria for defining ‘mutual fund custodians’ and the specialized aspects of regulation that will apply to that category.
This ILB is based upon research conducted by the hukumonline team.
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