Bank Indonesia Regulation No. 12/9/PBI/2010 was recently issued, tightening regulation on investment in offshore financial products by obligating Indonesian commercial banks to apply 'Prudential Banking Principles' when promoting foreign investments to their customers. Among other things, the regulation (a) elaborates principles to be used by commercial banks that endorse offshore financial products, (b) sets out requirements that offshore financial products and their issuing institutions must meet, (c) sets out requirements on Indonesian commercial banks promoting such products, and (d) classifies which types of customer can be promoted offered offshore financial products.
Offshore financial products must first fulfill two conditions before they can be promoted to consumers by commercial banks: (1) have been previously registered with, and approved by the relevant authorities in the country of origin, and; (2) be reported to Bank Indonesia (Article 3 (1)).
The Regulation requires the issuing institution of the offshore products to be licensed by the authorities in the issuing institution's country of origin, and be under supervision by those authorities.
Before endorsing offshore financial products, Indonesian commercial banks must indeed confirm that all the aforementioned requirements have been met (Article 14 (1)).
When promoting such products, commercial banks are obliged to fully disclose information and risks about the investment, covering at a minimum the information listed in Article 14 (3) of the regulation. Principally, the bank must communicate that the financial products are not those of the bank's, and that the financial return on such products cannot be guaranteed, or insured (e.g., with the state-funded Indonesian Deposit Insurance Corporation, or 'LPS').
The list of prerequisites for Indonesian commercial banks to promote offshore financial products is listed in Article 2 of the regulation, which includes obtaining Bank Indonesia approval - a process elaborated in Chapter VI.
The risk of engaging in offshore financial products was highlighted by a global financial crisis. Perhaps to mitigate the risks taken on by inexperienced and less solvent (i.e., 'average') Indonesian banking customers, Article 5 of the Regulation classifies customers who are approved to engage with offshore financial products as 'Non-Retail Customers': (a) companies with capital of at least IDR 20 billion, and 36 consistent years of experience in business, or (b) single individuals with over IDR 5 billion in assets.
The Regulation has been in force since 29 June 2010.
For further review of the Regulation, see ILD No. 164 9/7/2010.
Bank Indonesia Regulation No. 12/9/PBI/2010 was recently issued, tightening regulation on investment in offshore financial products by obligating Indonesian commercial banks to apply 'Prudential Banking Principles' when promoting foreign investments to their customers. Among other things, the regulation (a) elaborates principles to be used by commercial banks that endorse offshore financial products, (b) sets out requirements that offshore financial products and their issuing institutions must meet, (c) sets out requirements on Indonesian commercial banks promoting such products, and (d) classifies which types of customer can be promoted offered offshore financial products.
Offshore financial products must first fulfill two conditions before they can be promoted to consumers by commercial banks: (1) have been previously registered with, and approved by the relevant authorities in the country of origin, and; (2) be reported to Bank Indonesia (Article 3 (1)).
The Regulation requires the issuing institution of the offshore products to be licensed by the authorities in the issuing institution's country of origin, and be under supervision by those authorities.
Before endorsing offshore financial products, Indonesian commercial banks must indeed confirm that all the aforementioned requirements have been met (Article 14 (1)).
When promoting such products, commercial banks are obliged to fully disclose information and risks about the investment, covering at a minimum the information listed in Article 14 (3) of the regulation. Principally, the bank must communicate that the financial products are not those of the bank's, and that the financial return on such products cannot be guaranteed, or insured (e.g., with the state-funded Indonesian Deposit Insurance Corporation, or 'LPS').
The list of prerequisites for Indonesian commercial banks to promote offshore financial products is listed in Article 2 of the regulation, which includes obtaining Bank Indonesia approval - a process elaborated in Chapter VI.
The risk of engaging in offshore financial products was highlighted by a global financial crisis. Perhaps to mitigate the risks taken on by inexperienced and less solvent (i.e., 'average') Indonesian banking customers, Article 5 of the Regulation classifies customers who are approved to engage with offshore financial products as 'Non-Retail Customers': (a) companies with capital of at least IDR 20 billion, and 36 consistent years of experience in business, or (b) single individuals with over IDR 5 billion in assets.
The Regulation has been in force since 29 June 2010.
For further review of the Regulation, see ILD No. 164 9/7/2010.
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