Financial regulations in Indonesia

Country Overview

Indonesia, home to Southeast Asia’s largest economy and the 10th-largest global economy per purchasing power parity (PPP),¹ has been decimated by the COVID-19 pandemic. The health crisis has exacerbated poverty, strained the healthcare system² and driven a 2.07% contraction in the 2020 economy, Indonesia’s first recession since the 1997 Asian Financial Crisis.³ 

Despite this grim outlook, Indonesia is on the brink of incredible digital transformation. Its economy has rapidly digitalized, and the value of the digital economy is projected to reach USD $124 billion by 2025, a 65% increase from USD $44 billion in 2020.⁴ A young and tech-savvy population, alongside a rising middle class, has bolstered the growth of e-commerce, and the country has a robust tech startup landscape.⁵ Government regulations are sparse, however, and regulators must provide more support to small and medium-sized enterprises (SMEs) in order to further aid the development and adoption of innovative solutions. 

Indonesia’s 2021 digital agenda focuses on the development of artificial intelligence, a risk-based approach to the payment licensing framework, regulating crypto assets and combatting money laundering and terrorist financing in the payments sector. Central bank Governor Perry Warjiyo announced on 25 May 2021 that the bank is planning to introduce a digital rupiah, but he did not offer a timeline.⁶ A key challenge will be ensuring that digitalization does not further aggravate socioeconomic disparities, especially as the developing country emerges from the pandemic.

Financial Regulatory Authorities

Bank Indonesia is the central bank of Indonesia.

The Financial Services Authority of Indonesia (Otoritas Jasa Keuangan or OJK) regulates and oversees the financial sector. 

Policy, Laws and Regulations

Regulation on Payments System in Effect, 01 July 2021

Bank Indonesia Regulation No. 22/23/PBI/2020 on Payment System went into effect. The regulation aims to support the bank’s 2025 Indonesia Payment System Blueprint, launched in 2019, and makes major changes to the payment licensing framework. The updated licensing framework takes a risk-based approach in classifying payment sector companies, which will be placed into one of two categories and a further sub-category. Payment service providers—which shall include e-wallet, e-money, payment gateway, funds transfer and merchant acquiring services⁷—must obtain a license from the central bank. Payment system infrastructure operators, which includes clearing and settlement services, must obtain an appointment from the central bank.⁸ Both classifications are further divided into sub-categories: systemic payment companies, critical payment categories and general payment categories. In designating a classification, the central bank will consider numerous factors, including the companies’ market share, value of transactions processed and interconnectivity of systems with other infrastructure participants.⁹ Bank Indonesia will evaluate payment companies that already have a license and convert their licenses if needed.

Central Bank Bans Use of Cryptocurrency in Payments, 15 June 2021

The Governor of Bank Indonesia, Perry Warjiyo, announced that the bank would ban the use of cryptocurrencies in payments and “other financial services tools.” According to Governor Warjiyo, cryptocurrency is not a legitimate payment instrument per the Constitution, Bank Indonesia law and currency law.¹⁰ The move follows a recent crackdown on three crypto trading platforms, which were forced to shut down operations for failure to have a license. The central bank is currently working on a cryptocurrency framework, and a discussion on a cryptocurrency tax is underway. The proposed tax would be .05%.¹¹

Memorandum of Understanding on Money Laundering in Payments, June 2021

Governor Warjiyo and Managing Director of Brunei Darussalam Central Bank (BDCB), Rokiah Badar, signed a memorandum of understanding (MoU) on cooperation in combatting money laundering and terrorist financing in the payments system. According to a statement by Governor Warjiyo, the regulators would engage in policy dialogue, data and information exchange, and human resources capacity building.¹²

National Artificial Intelligence Strategy, August 2020

The government unveiled a national artificial intelligence strategy, which outlines guidelines for the development and adoption of AI solutions between 2020 and 2045. The strategy focuses on AI in education and research, mobility, smart cities, food security, bureaucratic reform and health services.¹³ 

“We are all determined to create an independent, advanced and prosperous Indonesia. Let us successfully reform Indonesia from being a natural resource-based country to an innovation-based country,” said Research and Technology Minister and National Research and Innovation Agency (BRIN) head Bambang Brodjonegoro.¹⁴

Legislation

Personal Data Protection Bill, June 2021

The Indonesian House of Representatives is considering a Personal Data Protection Bill (“The Privacy Bill”), which grants data subjects several rights to control and manage their data and imposes requirements on companies to demonstrate compliance. Data rights may be suspended in cases of national defense and security, law enforcement, supervision of the financial or monetary sector, state administration and financial system stability.¹⁵ 

Per new requirements on the cross-border transfer of personal data, personal data may be transferred if: 

• The recipient jurisdiction adheres to data protection standards that are equivalent to, or greater than, that provided by the Privacy Bill 
• An international treaty between Indonesia and the recipient jurisdiction allows for the transfer of data 
• The data subject has granted consent; or 
• There is an agreement such that the data transferor can impose data protection requirements on the recipient that are equivalent to or greater than that provided by the Privacy Bill. 

The bill, developed by the Ministry of Communication and Informatics (MOCI), would be instrumental in shaping the digital economy, as Indonesia currently lacks a national personal data protection framework.

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Reference:

^{1. “Indonesia Overview.” The World Bank. https://www.worldbank.org/en/country/indonesia/overview.}

^{2. “Indonesia imports oxygen as hospitals battered by Covid-19.” The Jakarta Post, 06 July 2021. https://www.thejakartapost.com/news/2021/07/06/indonesia-imports-oxygen-as-hospitals-battered-by-covid-19-.html.}

^{3. “COVID slammed Indonesia’s economy hard in 2020, data shows.” Al Jazeera, 05 February 2021. https://www.aljazeera.com/economy/2021/2/5/covid-slammed-indonesias-economy-hard-in-2020-data-show.}

^{4. Kramadibrata, Ridzki. “Digital policy in Indonesia: the missing public sector link.” World Economic Forum, 09 March 2021. https://www.weforum.org/agenda/2021/03/digital-policy-in-indonesia-the-missing-public-sector-link/.}

^{5. “Realising the potential of Indonesia’s digital economy.” Deloitte, February 2021. https://www2.deloitte.com/content/dam/Deloitte/id/Documents/about-deloitte/id-about-dip-edition-2-chapter-4-en-feb2021.pdf.}

^{6. “Bank Indonesia joins global c.bank push for digital currencies.” Reuters, 25 May 2021. https://www.reuters.com/article/indonesia-cenbank-cryptocurrency-idUSL2N2NC0NX.}

^{7. “Major overhaul of Indonesian payment system is coming.” Herbert Smith Freehills, 03 February 2021. https://hsfnotes.com/indonesia/2021/02/03/major-overhaul-of-indonesian-payment-system-is-coming/.}

^{8. “Evolution of fintech regulation in Indonesia.” Asia Business Law Journal, 23 June 2021. https://law.asia/evolution-fintech-regulation-indonesia/.}

^{9. “Major overhaul of Indonesian payment system is coming.” Herbert Smith Freehills, 03 February 2021. https://hsfnotes.com/indonesia/2021/02/03/major-overhaul-of-indonesian-payment-system-is-coming/.}

^{10. Arkyasa, Mahinda. “Bank Indonesia Prohibits Cryptocurrency as Payment Tool.” Tempo.co, 15 June 2021. https://en.tempo.co/read/1472956/bank-indonesia-prohibits-cryptocurrency-as-payment-tool.}

^{11. Fortis, Savannah. “Indonesia Mulls Tax on Crypto Trading.” Be in Crypto, 11 May 2021. https://beincrypto.com/indonesia-mulls-tax-crypto-trading/.}

^{12. “RI-Brunei Kerja Sama Anti Pencucian Uang di Sistem Pembayaran.” CNN Indonesia, 01 July 2021. https://www.cnnindonesia.com/ekonomi/20210630202444-78-661527/ri-brunei-kerja-sama-anti-pencucian-uang-di-sistem-pembayaran.}

^{13. Fletcher, Sam. “Indonesia sets sights on AI with new national strategy.” Tech Wire Asia, 21 August 2020. https://techwireasia.com/2020/08/indonesia-sets-sights-on-ai-with-new-national-strategy/.}

^{14. “Indonesia sets sights on artificial intelligence in new national strategy.” The Jakarta Post, 14 August 2020. https://www.thejakartapost.com/news/2020/08/13/indonesia-sets-sights-on-artificial-intelligence-in-new-national-strategy.html.}

^{15. Riyadi, Gliddheo Algifariyano. “Policy Brief | Data Privacy in the Indonesian Personal Data Protection Legislation.” Center for Indonesian Policy Studies, 21 March 2021. https://www.cips-indonesia.org/post/policy-brief-data-privacy-in-the-indonesianpersonal-data-protection-legislation.}

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^{*DISCLAIMER: This information is OneSpan's interpretation of the compliance requirements as of the date of publication. Please note that not all interpretations or requirements of the applicable laws are well-settled and its application is fact- and context-specific. The information contained in this document should not be relied upon as legal advice or to determine how the law applies to your business or organization. We encourage you to seek guidance from your legal counsel with regard to law applying specifically to your business or organization and how to ensure compliance. This information is provided “as-is” and may be updated or changed without notice. OneSpan does not accept liability for the contents of these materials.}

Last updated: November 2021