2014?s Controversial Regulations: Tough Year for Financial Service Providers

 
Robert Sidauruk, Fathan Qorib
 
Year 2014 was as a busy year for financial service providers. Following the commencement of the operations of the Financial Services Authority (OJK) at the end of 2013, businesses were required to make major adjustments to their businesses and regulatory compliance as the OJK relentlessly redefined significant aspects of the financial service industry. These businesses also had to increase their workloads when Bank Indonesia (BI) tightened its monetary policies and regulation of payment systems.
 
While both the OJK and BI are aiming to establish a better financial industry environment, criticisms and complaints surfaced from various financial sector stakeholders in response to several regulations issued by both institutions during 2014. Some complaints even went as far as judicial review petitions being lodged with the Supreme Court and the Constitutional Court.
 
The list of controversial regulations started with OJK Circular Letter No. 06/D.05/2-13, which regulates the standard premium fee applicable to motor vehicle and property insurance businesses. The OJK believed that determining upper and lower thresholds for insurance premiums would prevent unfair competition between insurance companies.
 
OJK’s stance, however, was rejected by the Commission for the Supervision of Business Competition (KPPU). The antitrust institution was of the view that almost all insurance companies set their premiums at the lowest threshold, which leads to unfair business practices.
 
Further controversy arose in response to Government Regulation No. 11 of 2014 on Levies by the Financial Services Authority (ILB No. 2348), arguably the most controversial regulation for financial service providers in 2014. This regulation basically provides a legal basis for the OJK to collect levies from financial service institutions and related professionals, such as notaries.
 
As anticipated, there was widespread rejection of this government regulation, resulting in some of the parties subject to fee paying obligations filling judicial review petitions with the Supreme Court and the Constitutional Court. In response, the OJK has requested the government through the Ministry of Finance to amend the regulation.
 
Another controversial policy was BI Regulation No. 16/8/PBI/2014 on the Amendment of BI Regulation No. 11/12/PBI/2009 on Electronic Money (ILB No. 2388). This amendment was considered a ground breaking move by BI to prohibit exclusivity in cooperation for e-money.
 
Under this regulation, e-money issuers may not enter into exclusive cooperation with third parties in organizing e-money specifically if it relates to public services for transportation, electricity, health, education, and some other similar services.
 
Issues regarding consumer protection in the financial services sector also stepped into the limelight in 2014, especially OJK Circular Letter No. 1/SEOJK.07/2014 and Circular Letter No. 2/SEOJK.07/2014 (ILB No. 2357 and No. 2363)
 
Through these circular letters, the OJK aims to strengthen consumer protection in the financial services sector. This is achieved by requiring financial service providers to arrange financial literacy programs for the public and design internal dispute resolution mechanisms. Specific to internal dispute resolution, the circular letter mandates financial service providers to settle all complaints from customers within 20 days after a complaint is received.
 
A final controversial regulation was BI Circular Letter No. 15/40/DKMP (ILB No. 2249), which aims to reduce financial risks that may arise due to the current high level of loans and financing to consumers in the property and motor vehicle sectors.
 
In essence, the circular letter changes Loan to Value (“LTV”) ratios for commercial banks and Financing to Value (“FTV”) ratios for sharia banks. Many commentators believe that these new LTV and FTV ratios will hamper efforts to deal with the housing shortage.
 
(hot/kc)