COVID-19 Pandemic: Updates on the Provisions for Non-Bank Financial Services in Indonesia

On 18 June 2020, the Indonesia Financial Service Authority/Otoritas Jasa Keuangan (“OJK”) has issued a new regulation that specifically addresses; (a) insurance companies, (b) reinsurance company, and (c) financing companies (collectively referred to as Non-Bank Financial Services Institutions/Lembaga Jasa Keuangan Non-Bank (“LJKNB”). The said regulation has a purpose to overcome the threats that harm the national economy and to maintain the stability of the national financial system during the COVID-19 pandemic period. (Note: Please find another article related to LJKNB here.)

Legal Frameworks: Our below executive summary refers to OJK Regulation No. 40/POJK.05/2020 of 2020 regarding Written Orders for The Handling of Non-Bank Financial Institutions Issues (“POJK 40/2020”).

Main Keys on the POJK 40/2020: We provide the following main keys on the POJK 40/2020.

OJK Authority With an Aim to Solve LJKNB Issues amidst COVID-19: We note that Art. 2 of POJK 40/2020 mandates a full authority to OJK to issue written orders/perintah tertulis (“Order”) to (a) participate in a merger, acquisition, consolidation, and/or integration; or (b) received a merger, acquisition, consolidation, and/or integration (collectively referred to as “Corporate Action”). In this instance, OJK is authorized to require an ‘healthy’ LJKNB to acquire or be merged with a distressed LJKNB.

Qualifications of Distressed LJKNB: We note that the Art. 5 (1) of POJK 40/2020 sets forth the following criteria of distressed LJKNB:

  1. Solvency ratio or capital ratio less than the minimum statutory threshold; or
  2. Has fulfilled the statutory solvency ratio or capital ratio, but based on the OJK's assessment such LJKNB is likely unable to endure the impact of the pandemic; and/or
  3. Its controlling shareholder is inadequate to inject more capital to its company to resist the impact of COVID-19 on such LJKNB.

Please note that OJK is authorized to order distressed LJKNB that fulfills the above criteria to participate in a merger, acquisition, or consolidation with other LJKNB.

Valuation and Conversion of Shares: We note that the valuation and conversion of shares in the merger, consolidation, acquisition, and/or integration process is determined by the LJKNB involved. Otherwise, provide that involved parties fail to agree on the valuation, the Corporate Action shall be conducted on a fair market value basis. (Art. 10 of POJK 40/2020)

Administrative Sanction: We note that LJKNB that fails to comply with OJK’s Order will be subject to following administrative sanctions: (a) Written reprimand; (b) Limitation on parts or overall company’s business activity(ies); and/or (c) Revocation of business license (Art. 13 of POJK 40/2020).

The article above was prepared by Marshall S. Situmorang (Partner) and Aniendita Rahmawati (Associate). 

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 particular circumstances. For more information, please contact us at mail@nusantaralegal.com.