Bank Indonesia Regulation on Commercial Bank Compliance

Bank Indonesia Regulation No. 13/2/PBI/2011 on the Implementation of Commercial Bank Compliance (“Regulation”) has been issued to reduce and minimize the risk of commercial bank businesses. The Regulation aims to mitigate such risks in both a preventative and a curative manner.

Pursuant to Article 1 (5), Compliance Culture is defined as the values, behaviours, and actions that support compliance with Bank Indonesia regulations as well as the prevailing laws and regulations, including Sharia Principles for Commercial Sharia Banks and Sharia Business Units.

Additionally, under Article 1 (6), Compliance Functions are defined as the preventive actions that are taken to ensure that every policy, provision, system, and procedure, of the commercial bank are in accordance with Bank Indonesia regulations.

The Board of Directors of a commercial bank, under Article 2 (1), has the obligation to encourage and create the Compliance Culture on every organization and business level of the commercial bank.

Article 4 obliges every commercial bank to designate a Director who will be in charge of the Compliance Functions and who will establish a compliance work unit.

Pursuant to Article 6, the Board of Commissioners has to evaluate the implementation of the Bank Compliance Functions at a minimum twice a year.

Article 7 prohibits the President Director and/or Deputy President Director from also holding the position of the Director of Compliance Functions.

The Director of Compliance Functions, pursuant to Article 16, has to submit a report to Bank Indonesia which includes: a compliance work plan, compliance report, and a special report on the commercial bank’s policies that have violated Bank Indonesia regulations

Pursuant to Article 17, the report must be submitted to Bank Indonesia every six months, within 1 month of the end of the reporting period.

Administrative sanctions are set out in Article 19, and include: written warnings, ratings downgrades, prohibitions on the involvement in clearing, as well as suspension of certain business activities. Article 20 sets out the fines that have to be paid by commercial banks that delay or fail to submit a report to Bank Indonesia.

The Regulation was issued on 5 January 2011, and comes into force on 1 September 2011.