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Financial Services Authority (OJK) Regulates Digital Banks
Under POJK 12/2021, a digital bank is defined as an Indonesian legal entity bank (“Bank”) which provides services and engages in its business activities mainly through electronic channels without a physical office other than a head office or using a limited physical office.
The following are the main aspects of POJK 12/2021 which a Bank which intends to engage in the digital banking business must consider.
Operational Requirements
A digital bank engages in its activities electronically and must have one physical office as its head office. A digital bank must satisfy the following requirements (“Operational Requirements”) as long as it remains a digital bank:- it must have a business model which uses innovative and secure technologies in order to meet the needs of its customers;
- it must be able to manage a prudent and sustainable digital-banking business model;
- it must have sufficient risk management;
- it must meet various governance conditions, including having a Board of Directors which is sufficiently competent in the field of information technology and other fields to comply with the OJK requirements regarding the fit and proper test for financial services institutions;
- it must protect its customers’ data; and
- it must contribute actively to the development of the digital financial ecosystem and/or financial inclusion.
The Establishment of a Digital Bank
A digital bank can operate through either of the following actions:- The establishment of a new Bank as a digital bank;
For the establishment of a Bank, it must complete the general establishment procedures and satisfy the requirements for a Bank. These requirements include (amongst others) applying to the OJK for in-principle approval (persetujuan prinsip) by submitting the following required documents:
- (a) the draft Deed of Establishment;
- (b) the proposed share ownership (foreign investors can only hold up to 99% of the paid-up capital of the Bank) and organizational structure;
- (c) a written statement signed by the prospective shareholders that the proposed paid-up capital is not derived from loans, or the result of or for the purpose of money laundering activities;
- (d) feasibility studies of the establishment prepared by an independent party;
- (e) a business plan; and
- (f) evidence of the deposit of some of its paid-up capital (at least IDR10 trillion).
- The conversion of an existing Bank into a digital bank. An existing Bank can be converted into a digital bank if it complies with the Operational Requirements listed above. For this, the Bank must submit a business plan to the OJK which explains how it will meet the Operational Requirements. The Bank may choose to (1) retain, (2) close (either simultaneously or gradually), or (3) increase the number of its network offices or electronic banking terminals (terminal perbankan elektronik (TPE))).
The Controlling Shareholders and Management of a Digital Bank
As a digital bank is also subject to the regulations which apply to Banks, some points to be highlighted related to a controlling shareholder are the following:- except in certain circumstances, the shares of a controlling shareholder of a Bank may not be secured in favour of other parties;
- a controlling shareholder must pass a fit and proper test conducted by the OJK; and
- a controlling shareholder may not be involved in decision making related to the operation of the Bank, unless the controlling shareholder is a director, commissioner or employee of the Bank.