On 17 June 2026, the President of the Republic of Indonesia enacted Law No. 4 of 2026 on the Amendment of Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (“Law 4/2026“), which amends Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector, commonly known as the P2SK Law (Undang-Undang Pengembangan dan Penguatan Sektor Keuangan, “P2SK Law“). Law 4/2026 is a wide-ranging omnibus amendment, with institutional, prudential, and market-structure changes across the Deposit Insurance Corporation (Lembaga Penjamin Simpanan, “LPS“), the Financial Services Authority (Otoritas Jasa Keuangan, “OJK“), Bank of Indonesia (“BI“), and the underlying sectoral laws on banking, sharia banking, capital markets, and insurance.
Background
The elucidation to Law 4/2026 explains that the amendment responds to two Constitutional Court rulings concerning the P2SK Law – Constitutional Court Decision No. 59/PUU-XXI/2023 (concerning investigation of criminal offenses in the financial services sector) and Constitutional Court Decision No. 85/PUU-XXII/2024 (concerning the determination of LPS’s annual work plan and budget) – and broader legal needs in optimizing the role of the financial sector. Law 4/2026 amends numerous provisions of the P2SK Law and, through it, the underlying sectoral laws: Law No. 24 of 2004 on LPS, Law No. 21 of 2011 on OJK, Law No. 23 of 1999 on BI, Law No. 7 of 1992 on Banking as amended by Law No. 10 of 1998, Law No. 21 of 2008 on Sharia Banking, Law No. 8 of 1995 on Capital Markets, Law No. 40 of 2014 on Insurance, and Law No. 34 of 1964 on the Compulsory Road Traffic Accident Insurance Fund.
Key Areas of Change
- Institutional Strengthening of LPS
Article 1(3) and (4) of Law 4/2026, which amend Article 7(2) and (4) of the P2SK Law, reinforce LPS’s status as both a legal entity and an independent state institution, confirming that LPS functions to guarantee depositor funds, guarantee insurance policies, maintain financial system stability, resolve failing banks, and resolve failing insurance and sharia insurance companies. The amendment also refines the composition, qualification requirements, selection process, and dismissal/replacement mechanism for members of LPS’s Board of Commissioners, and strengthens the budgeting mechanism for LPS’s annual work plan and budget, distinguishing between the operational budget (subject to House of Representatives (Dewan Perwakilan Rakyat or “DPR“) approval) and the budget for guarantee, resolution, and placement activities (Article 1(19), (23), (24), (25), and (26) of Law 4/2026). The annual work plan and budget for LPS’s operational activities is submitted to and approved by the DPR, while the annual work plan and budget for guarantee, policyholder protection, placement of funds, and resolution activities is determined by the LPS Board of Commissioners.
- New Regime for Insurance Company Resolution for LPS
Law 4/2026 introduces a new Chapter IVA through Article 1(8), concerning the handling of banks and insurance companies in resolution prior to a decision on the method of handling, and a revised Chapter V (Article 1(9) of Law 4/2026), giving LPS the express choice, once an insurance or sharia insurance company is designated as being “in resolution”, either to rescue or not to rescue that company, based on a comparison of the estimated cost of rescue against the estimated cost of non-rescue and other factors such as economic and industry conditions, time required, and investor availability. The estimated cost of rescue includes the capital required for the company to satisfy applicable solvency and liquidity requirements, while the estimated cost of non-rescue includes, among other matters, guaranteed policyholder claims, salary and severance advances, and estimated recoveries from asset sales.
This establishes a decision-making framework for whether an insurance or sharia insurance company in resolution will be rescued, while retaining the separate policyholder protection framework applicable to policyholder claims.
- Expanded OJK Mandate
Article 1(29) of Law 4/2026 adds new regulatory and supervisory tasks for OJK covering the mineral and strategic commodity exchange and the management of other public funds to Article 6 of the P2SK Law, with the latter subject to further regulation by Government Regulation with DPR approval. It also introduces a new Article 8C empowering OJK to set further policy on financial industry activities that carry direct implications for consumer risk, industry risk levels, or financial system stability, with the implementing provisions to be set out in an OJK regulation following consultation with the DPR (Article 1(31) of Law 4/2026). The composition of OJK’s Board of Commissioners is also revised, expanding it to 11 members and restructuring the executive head positions, including a new Chief Executive for the Mineral and Strategic Commodity Exchange and Chief Executive for Financial Technology Innovation, Digital Financial Assets, and Crypto Assets (Article 1(32) of Law 4/2026).
- Bank Indonesia’s Mandate and Accountability
Article 1(45) of Law 4/2026, which amends Article 7 within Article 9(2) of the P2SK Law, refines BI’s statutory objective, confirming that BI aims to achieve rupiah value stability, maintain payment system stability, and help safeguard financial system stability, in each case in support of sustainable economic growth, and provides that BI’s policies and policy mix should contribute to an economic environment conducive to real sector growth and job creation. The amendment also refines the governance and accountability of BI’s annual budget, distinguishing operational budget items (subject to DPR approval) from budget items relating to monetary policy, the payment system, and macroprudential policy (which must be specially reported to the DPR) (Article 1(50) of Law 4/2026, which amends Article 60 within Article 9(32) of the P2SK Law).
- Public Accountability: DPR Performance Evaluation
A new Article 9A (Article 1(53) of Law 4/2026) introduces a mechanism for the DPR to evaluate the institutional performance of LPS, OJK, and BI based on their respective performance reports, with the evaluation conducted by the relevant DPR committee and submitted to the DPR leadership in the form of recommendations. The results of the evaluation and recommendations are then communicated by the DPR leadership to the relevant institution and the Government for follow-up and are binding.
- Banking and Sharia Banking: Expanded Business Scope and Consolidation Roadmap
Article 1(56) of Law 4/2026 broadens the permitted scope of business activities for commercial banks and sharia commercial banks, including provisions on cooperation with other financial services institutions and non-financial services institutions in delivering services to customers, subject to phased implementation to be regulated by OJK with DPR approval. It also introduces new Articles 28B and 17B, requiring OJK to prepare a consolidation roadmap for commercial banks and sharia commercial banks, aimed at strengthening the structure, competitiveness, and resilience of the national banking industry.
- Capital Markets: Stock Exchange Demutualization and New Instruments
Article 1(65) of Law 4/2026 adds item 4a between items 4 and 5 of Article 22 of the P2SK Law, revising the ownership structure of the Indonesia Stock Exchange to allow the Ministry of Finance, Bank Indonesia, and the Daya Anagata Nusantara Investment Management Agency (Danantara) to become shareholders while preserving the Exchange’s independence.
A new legal framework for margin transfer in financial market transactions (through title transfer of margin rather than a security interest) excludes the transferred margin, in general, from the bankruptcy estate and liquidation estate of a defaulting party where the statutory requirements are satisfied. Law 4/2026 also establishes a framework for the issuance of special debt instruments including Patriot Bonds and Merah Putih Bonds, with specific legal protections concerning the acquisition and holding of such instruments, including in respect of certain civil and criminal claims, subject to the statutory requirements (Article 1(72) of Law 4/2026).
- Insurance: Policyholder Protection Program and Traffic Accident Fund
Article 1(74) of Law 4/2026 also revises the Guarantee Fund (Dana Jaminan) provisions applicable to insurance, sharia insurance, reinsurance, and sharia reinsurance companies, including a mechanism allowing LPS to disburse the Guarantee Fund in specified circumstances following the designation of an insurance or sharia insurance company as being in resolution and the determination that the company will not be rescued. It further revises Law No. 34 of 1964 on the Compulsory Road Traffic Accident Insurance Fund to amend the rules governing compensation from the fund, including provisions concerning circumstances in which compensation may or may not be paid where compensation has already been received under the mandatory passenger accident insurance regime.
- Other Notable Additions
Law 4/2026 also adds: statutory legal protection for officials and staff of LPS, OJK, and BI acting in good faith in the exercise of their duties; refined provisions on OJK’s sole authority to file for bankruptcy or suspension of payment against regulated financial institutions, extended expressly to various entities operating in the digital financial asset and crypto-asset sectors; a strengthened task force mandate to prevent and address unlicensed financial activity, licensed activity suspected of violating consumer protection rules, and misuse of financial technology innovation for gambling-related activity; additional education and community and environmental empowerment functions for LPS, OJK, and BI; and the establishment of an Indonesia International Financial Center.
Concluding Remarks
Law 4/2026 goes well beyond the two Constitutional Court rulings that prompted it. It reshapes the governance and accountability of LPS, OJK, and BI, expands OJK’s supervisory perimeter to strategic commodity exchanges and other public fund management, introduces a new framework for determining whether an insurance company in resolution will be rescued, and introduces structural reforms across the banking, insurance, and capital markets sectors, including changes to business scope and consolidation, Stock Exchange ownership, and new financial instruments.
These changes may affect governance, licensing, permitted business activities, regulatory compliance, and resolution and risk-management frameworks for financial services institutions, capital markets participants, crypto-asset and other digital financial asset service providers, and insurance and sharia insurance companies. Businesses in these sectors should review the implementing regulations that OJK, BI, and LPS are expected to issue under the numerous delegated rulemaking mandates in Law 4/2026, as well as any regulations already issued under those mandates, and reassess their governance, licensing, business activities, compliance, and risk management frameworks in light of the expanded institutional mandates and the revised resolution and policyholder protection mechanisms. The strengthened mandate to address unlicensed financial activities, consumer protection violations, and misuse of financial technology for gambling-related activities means businesses operating in or adjacent to the digital financial services sector should expect closer regulatory scrutiny.
Disclaimer: The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their circumstances.
