Indonesia introduces new regulations for fintech startups
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Indonesia’s financial services authority (OJK) has issued its first regulations relating to financial technology, or fintech, companies running peer to peer (P2P) lending services, Deal Street Asia has reported.06 Jan 2017
The regulation lays out minimum capital requirements, interest rate provision and education and consumer protection rules.
Every fintech P2P lending firm must now register and secure a business licence from the authority, the report said.
A company must have Rp1 billion (£61,000) in capital to register, and a further Rp2.5 billion to apply for a business licence. These figures are approximately half those that had been proposed in draft regulations, the news site said.
Foreign ownership is limited to 85%, Deal Street Asia said.
No maximum interest rate has been set, which again contradicts previous drafts of the regulations which set a cap of seven times Bank Indonesia’s seven-day reverse purchase rate per annum, the news site said.
Muliaman Hadad, chair of OJK, told that the regulation was only an initial step in the authorities’ efforts to regulate and supervise the business.
“What’s important is they get onto our radar because we don’t want to regulate the prudential aspects hastily. We want to provide business transparency guidelines first,” Hadad said.
The OJK also has implemented a regulatory sandbox for firms to test services for consumers, the newspaper said.
“Every fintech P2P lending firm must now register and secure a business licence from the authority, the report said.”
Bryan Tan of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, the law firm behind Out-Law.com said: “The Indonesian fintech market is one which has huge potential for its large consumer base and the unbanked, which is different from the financial service hub role that Singapore, Hong Kong and London play.”
“This means that fintech regulations on payments and digital banking would be more keenly looked at, as opposed to fund-raising type activity,” Tan said.
“A large potential customer base that is largely unbanked is a huge attraction for banks looking to expand and technology may be an enabler to that. The Indonesian regulation is clearly an evolving one and picking a leaf from the markets around it,” he said.
Bank Indonesia set up a dedicated office and regulatory sandbox in November 2016 to help fintech developers.
It will also provide services to help developers to understand Indonesia’s regulatory policies on fintech, gather and disseminate information on developments, and hold regular meetings with authorities and international bodies interested in the use of technology in finance, Bank Indonesia said.
Indonesia’s launch of a regulatory sandbox for fintech follows similar announcements from Singapore and Hong Kong, with both countries following the lead taken by the UK’s Financial Conduct Authority (FCA) in developing a regulatory sandbox initiative.
Singapore launched a sandbox in June, and released updated guidelines for the service this month.
Questions & Answers
Q.What are the initial capital requirements for a fintech P2P lending firm in Indonesia?
What are the initial capital requirements for a fintech P2P lending firm in Indonesia?
A company needs Rp1 billion to register and a further Rp2.5 billion to apply for a business licence. These figures are approximately half what had been proposed in earlier draft regulations.
Q.What is the OJK's immediate priority for regulating P2P lending firms?
What is the OJK's immediate priority for regulating P2P lending firms?
The OJK primarily wants P2P lending firms to be on their radar to ensure business transparency guidelines are established. They are not rushing to regulate prudential aspects immediately.
Q.Has Indonesia set a maximum interest rate for P2P lending services?
Has Indonesia set a maximum interest rate for P2P lending services?
No, a maximum interest rate has not been set by the new regulations. This contradicts previous draft regulations that suggested a cap based on Bank Indonesia’s reverse purchase rate.
Q.How do Indonesia's new regulations compare to those in other regional financial centres?
How do Indonesia's new regulations compare to those in other regional financial centres?
Indonesia's approach focuses on its large unbanked consumer base, differing from the financial service hub roles of Singapore, Hong Kong and London. The country has also followed their lead in implementing a regulatory sandbox.