How To Regulate Financial Services In Indonesia

Transcription

1 Draft of Multi-Finance Law DISCLAIMER This document is made possible by the support of the American people through the United States Agency for International Development (USAID). Its contents are the sole responsibility of the author or authors and do not necessarily reflect the views of USAID or the United States government.

2 Acknowledgements This draft was prepared for Bapepam-LK by the SEADI Project. The paper was written by a team led by John Biggs and Kukuh Komandoko Hadiwidjojo. Comments were provided by Bapepam-LK Finance and Guarantee Bureau and J. Hambric

3 CHAPTER 1: GENERAL PROVISIONS Article 1. Definitions The following terms, when used in this Act, shall mean the following: a. Business Customer shall mean any person who uses the product from a Licensed Institution as part of their business. b. Clients shall be companies selling their trade receivables to finance companies; c. Credit Cards is a Card-Based Payment Instrument that may be used to execute payment of an obligation incurred in an economic activity, including purchase transaction and/or cash withdrawal in which the payment obligation of the Cardholder is settled in advance by the Issuer of Acquirer and the Cardholder is required to pay the payment obligation at an agreed term in a single payment or in installments. d. Prepaid Card is a Card-Based Payment Instrument that may be used to execute payment of an obligation incurred in an economic activity, including purchase transaction, cash withdrawal, and/or funds transfer, in which the Cardholder has paid a certain amount of funds in advance to the Issuer and the obligation of the Cardholder is settled in real time by immediate deduction from the value of these funds. e. Consumer means a party who sets up a fund and/or uses the benefit of services available in the Financial Services Institutions, inter alia, customers in Banking, investors in Capital Markets, policyholders in Insurance, and participants of Pension Funds under the laws and regulation in the financial services sector. f. Factoring shall be financing activities in the form the purchase of short-term trade receivables of a company as well as their settlement and can be with our without recourse; g. Finance shall be financing activities to procure goods on the basis of the customer need by installment payments; h. Infrastructure Lending shall mean [ ] 1 i. Multifinance Companies shall be Licensed Institutions other than Banks that engage in the activities listed in Article 2 hereof. j. Multifinance Services are the activities listed in Article 2 hereof. k. Leasing shall be financing activities in the form of the provision of capital goods by either operating lease or finance lease. An operating lease is a term lease where the lessor intends to retain title. A finance lease is a form of financing, where the imputed purchase price and imputed interest is structured as monthly payments over the life of the lease. Leasing may include Sale/Leasebacks whereby the Lessor purchases the capital good from the Lessee. l. Lessees shall be companies or individuals using capital good with the financing of lessors; m. Licensed Institution shall mean any entity regulated under this Act. n. Liquidation shall mean the ordinary process of resolving a failed business under existing Indonesian insolvency laws. 1 I m not sure Infrastructure Lending is uniquely different from other forms of lending. For that reason, we omitted it as a separate category

4 o. [OJK] shall mean [OJK] or the competent regulatory authority. p. Small Business shall mean the economic activities that are small-scale and meets the criteria of net worth or sale proceeds as well as annual ownership. q. Statutory Manager shall have the meaning and procedures contained in the Law 21/2011 on the OJK. Article 2.Multifinance Services: a. Multifinance Companies may engage in the following types of business (Multifinance Services): 1. Leasing a. Leasing may be performed with Consumers or Businesses. b. Leasing may in the form of Syariah, Operating Leases or Finance Leases. c. Leases may include an optional right or mandatory obligation for the Lessee to purchase the goods at a predetermined price at the end of the lease. 2. Factoring a. Factoring may be performed with Consumers or Businesses b. Factoring may with or without recourse to the seller of the receivables, and may be in Syariah Form. c. Receivables sold may be performing or nonperforming, and may be sold with any collateral or guarantee rights provided to the seller by the obligor under the receivable. d. The maximum term for receivables shall be (one?? years.) Credit Card a. Credit Cards may be issued to Consumers or Businesses. Both Consumers and Businesses (including Small Businesses) may be Credit Card Holders. b. Credit Cards may structure payment obligations in the form of a revolving credit line or may require payment in full at the end of each billing cycle. c. Credit Cards may be in Syariah form. d. Credit Card issuers using Indonesia s payment system shall abide by the applicable provisions of the [Payment System Regulation] of Bank Indonesia. 4. Prepaid Card. a. Prepaid Cards may be issued to Consumers or Businesses. Both Consumers and Businesses (including Small Businesses) may subscribe to and be a Prepaid Card Holders. b. Prepaid Card issuers using Indonesia s payment system shall abide by the applicable provisions of the [Payment System Regulation] of Bank Indonesia. c. Prepaid Cards issuers are authorized to accept payments from the public pursuant to the legal provisions governing those Non Bank Institutions as regulated by Bank Indonesia [or OJK]. 5. Finance: 2 Many countries use the Receivables law to trade distressed debt. The MOF Regulation restricts to one year. We recommend not placing a restriction on what constitutes a trade receivable and letting the market determine an appropriate length

5 a. Finance may be with Consumers or Businesses b. Finance may be for the provision of goods and services, or a combination. c. Finance may be in Syariah form. d. Finance requires some level of down payment. e. Finance assumes repayment in installments by the consumer 6. Other Business: From time to time, the [OJK] shall define terms and conditions of other businesses that Multifinance companies may engage in. b. Prohibited Operations: No Licensed Institution may: 1. take deposits guarantee the debt of unaffiliated third parties. Article 3.Types of Customers: a. Multifinance Companies may provide Multifinance Services to: i. Consumers ii. Small Businesses iii. Businesses Article 4. Disclosure and Fair and Transparent Treatment a. Licensed Institutions shall fully disclose the terms and conditions of all transactions to Customers. In addition to the disclosure requirements of in the Law 21/2011 on the OJK, disclosure must include: i. Interest rates and their calculation, when and how an interest rate may change ii. The term of payment, the calculation of monthly payments, when and how monthly payments may change. iii. The terms and conditions of default, including any increase in interest rate. iv. Dispute resolution v. The terms and conditions of forfeiture of pledged collateral and the treatment of any equity interest that the customer may have in such collateral in the event of foreclosure. vi. Other items that a reasonable customer may deem relevant. b. The [OJK] shall set forth, via regulation, what constitutes full disclosure. Any Licensed Institution complying with such regulation shall be treated as meeting this requirement. The [OJK] may set forth different regulatory requirements for Consumers, Small Business and Business. c. Licensed Institutions shall deal with Customers in a fair and transparent manner. d. The [OJK] shall set forth, via regulation, what constitutes fair and transparent. Any Licensed Institution complying with such regulation shall be treated as meeting this requirement. The [OJK] may set forth different regulatory requirements for Consumers, Small Business and Business. 3 For the purposes of prepaid cards, we assume these are not deposits

6 Article 5: Regulatory Purpose [OJK] shall regulate all Licensed Institutions considering the following goals: a. Use of Multifinance to promote economic growth b. Protection of Customers c. Stability of the Financial System Article 6: License Issuance/establishment a. Except for Banks licensed by the [OJK], no person may engage in the businesses set forth in Article 2 without a Multifinance license from [OJK]. 4 b. A license may be limited or full, and OJK may specify what lines of business the licensee may engage in. c. OJK may issue licenses limited to certain types of customers (consumers, small business or business) if appropriate. d. OJK shall set for the terms and conditions for license applications, as well as their content. Article 7: Form a. An applicant for a Multifinance license must be either a limited liability company or cooperative. b. Applicants must be domestic, but may be established by Indonesian citizens or statutory bodies or foreign citizens or statutory bodies, or any combination thereof (joint venture company). Article 8: Approval of Licenses a. The [OJK] shall consider license applications against its licensing requirements and approve or reject such applications no later than 30 days since complete submission of that application. If a license application is rejected, [OJK] shall clearly state the reasons for rejection at the time of license rejection. b. Together with approval, the [OJK] shall state what lines of business and types of customers the Licensed Institution is permitted. c. The application for license addressed to OJK by enclosing: i. The deed of establishment ii. Name of directors and commissioners or name of executive and commissioner management iii. List of the founder 4 We should consider what other business may be excluded from this requirement. Should other regulated institutions also be excluded from licensing requirements (such as insurance companies etc.) or should they get licenses if they are to engage in these businesses? - 4 -

7 iv. The last audited Financial statement v. The working system and procedure vi. Business plan vii. The joint venture agreement (for venture company) viii. Taxpayer number identification d. The OJK may approve a license subject to the licensee s further compliance with the terms and conditions prescribed by OJK. Part II: Internal Operations of Licensed Institutions. 5 Article 9: Capital 6 a. A Licensed Institution shall maintain the prescribed amount of capital for the purpose of stable and safe operations and the fulfillment of obligations to creditors. b. The [OJK] shall prescribe the method of calculation of capital and capital adequacy, as well as the terms and conditions of obtaining consent to the calculation of capital and capital adequacy. c. Licensed Institutions shall maintain their capital at no less than: i. Private National Enterprises /Joint Venture: Rp ,00 ii. Cooperatives: Rp ,00 Article 10: Risk Management: d. Licensed Institutions shall maintain an adequate ratio of capital to risk weighted assets, as prescribed by the [OJK]. The [OJK] may require a higher capital adequacy ratio if such is necessary for the Licensed Institution s stable and safe operations and the fulfillment of obligations to creditors. e. The [OJK] shall prescribe the criteria for determining any capital adequacy ratio. f. Foreign shareholding are set [do we want to limit? MOF should determine]. g. Branches: need approval from OJK, and minimum equity? a. Licensed Institutions shall maintain adequate policies of risk management. These risk management policies shall consider: i. Liquidity Risk: A Licensed Institution shall manage its assets and liabilities in such a way that it can settle its obligations as they come due, and service any debt on an ongoing basis. 5 I remain unconvinced that this is necessary. While these things are good for any entity, I don t see a regulatory imperative that makes Multifinance Companies any different than, say, textile mills. Please consider whether this is really appropriate. 6 Again, we should consider whether we want to get into measuring capital. A starting capital level may be good to limit entry into the multifinance business to well-financed participants, but even a minimum capital level requires pretty deep intervention into the firm s operations

8 ii. Credit and Counterparty risk: Licensed Institutions shall identify, measure and assess credit risk according to the creditworthiness of Customers, the timeliness of Customers in meeting their obligations, and the adequacy of security backing the Customer s obligation to pay. Licensed Institutions shall calculate and establish reserves for estimated losses, whether on or off the balance sheet. iii. Interest Rate, Foreign Exchange and Other Market Risks: Licensed Institutions shall prescribe policies and procedures for the identification and management of market risks. iv. Maximum Exposures: Licensed Institutions shall limit their exposure to: 1. Any single large exposure to [x]% of capital 2. Any related group to [x]% of capital 3. Any single party related to the Licensed Institution shall not exceed [x]% of capital 4. All parties related to the Licensed Institution shall not exceed [x]% of capital. v. Operational Risk: Licensed institutions shall identify and take steps to mitigate potential negative impacts caused by employee mistakes, inadequate internal procedures and processes (including MIS), and unforeseen external events. vi. Data management: Licensed Institutions shall maintain relevant, up to date and accurate data, for both supervisory and audit purposes. b. By regulation, the [OJK] shall determine criteria for compliance with the areas of risk management described above. Article 11: Relationships with Customers: a. All Licensed Institutions must: 1. Comply with the duties of disclosure and fair treatment as outlined in Article 4 and in the Law 21/2011 on the OJK. 2. Make available the general terms and conditions under which they offer Multifinance Services. 3. Preserve and hold client information as secret. 4. Develop and publish client complaint and dispute resolution procedures. 5. Comply with such other consumer protection regulation as may be developed from time to time. 6. Comply with applicable KYC regulation b. By regulation, the [OJK] shall determine criteria for compliance with the Customer relationship areas described above. Article 12: Financial Records. a. All Licensed Institutions shall maintain business books and accounting records, and prepare annual financial statements which truthfully and objectively reflect operations and financial condition, with contents and in the form prescribed by applicable Indonesian laws on accounting and audit and by this Law

9 b. By regulation, the [OJK] shall determine criteria for compliance with this Article 12. Article 13: Reporting to [OJK]. a. A Licensed Institution shall prepare and submit to the [OJK] reports relating to its management, operations of its organizational units, planned business activities, liquidity, solvency, and profitability of the Licensed Institution and its subsidiary or affiliated companies, for the purpose of assessment of the financial condition of the Licensed Institution and its subsidiary or affiliated companies, on an individual and consolidated basis. These reports shall include risk management strategies and policies, determination of capital, capital adequacy, and other data as may be required by the [OJK]. b. By regulation, the [OJK] shall prescribe the contents and forms of the reports referred to above, as well as the manner and timeframe for submission. Article 14: External Audit. 7 a. All Licensed Institutions shall engage an annual audit of their financial statements, both on an individual basis with the Licensed Institution itself and on a consolidated basis if the Licensed Institution has subsidiaries or affiliates. By regulation, the OJK shall determine whether additional audits may be required. 8 b. External Audits must be conducted by a licensed Public Accounting firm in accordance with Indonesian Generally Accepted Accounting Practices. 9 c. If the Licensed Institution is a subsidiary of a [Bank or bank holding company], the annual audit shall be performed by the auditor chosen by the ultimate parent company. 10 d. The [OJK] shall establish, by regulation, detailed terms and conditions of the audit (including the date for submission) and detailed terms and conditions of the eligibility of individual auditors to perform audits. 11 e. The external auditor shall prepare a report and give opinions on whether the Licensed Institution s annual financial statements are prepared in accordance with Indonesian Generally Accepted Accounting Practices, guidance from the [OJK] and applicable law. The 7 This is important if we care what s going on inside the box of the Regulated Institution. Offsite supervision depends upon the integrity of the financial statements, and External Audit increases the chances that such financial statements will be reliable. If we are not worried about inside the box, then this is much less important from a regulatory perspective. Investors will want to know, but they can likely protect themselves with existing corporate and securities law. 8 For example, after merger or other significant event. 9 What is the equivalent of a licensed Public Accounting firm? Has IFRS been fully adopted in Indonesia? How has IFRS adopted the concept of general reserve for use in financial institutions? 10 The Banking Law should provide for the same auditor to examine both parents and subsidiaries. This is to make sure that there are no conflicts or gaps between different auditors. 11 For example, should auditors be changed every few years? What degree of affiliation (officers, directors) would disqualify an auditor? Should auditors be able to offer consulting services? What percentage of revenue can an auditor earn from audits of Licensed Institutions? - 7 -

10 external auditor shall provide the auditor s opinion as to whether the annual financial statements truthfully and objectively present the Licensed Institution s financial position, business results and cash flow for the business year in respect of all items of material importance. These opinions shall be delivered to the Licensed Institution s managing and executive boards and the [OJK]. f. The external auditor shall provide its opinion on the effectiveness of functioning of any internal audit, risk management system and internal control system to the Licensed Institution s managing and executive boards and the [OJK]. g. The [OJK] may request additional information from the external auditor regard the audit provided. h. The external auditor has an affirmative duty to promptly notify the OJK after becoming aware of any fact which represents: 1. A breach of law or regulation of the [OJK]; 2. Material important change in the financial result carried in any unaudited statements; 3. Breach of internal procedures of the Licensed Institution or the group to which it belongs; 4. Any circumstances that could result in a material loss for the Licensed Institution or that could jeopardize the continuity of its operation. 5. Any such notification shall not be considered a breach of the external auditor s duty of secrecy and the external auditor shall not bear responsibility therefore. i. The External Auditor shall promptly notify the [OJK] as to its resignation as external auditor, and the reasons therefor. Article 15: Special Audit: a. The [OJK] may require special audit of the Licensed Institution if it concludes that any reports by the Licensed Institution are inaccurate or if transactions were concluded that may result in or have resulted in material damage to the Licensed Institution. b. The scope of special audit may include a financial or legal audit. The [OJK] may appoint a special auditor. Licensed Institutions shall promptly and without restrictions submit all needed data and documents to the special auditor and provide all necessary assistance. c. The cost of the special audit shall be borne by the Licensed Institution. d. The [OJK] may prescribe by regulation detailed terms and conditions of concerning special audits

11 [OMITTED Descriptions of the internal operations of the Licensed Institution such as the shareholder s assembly, roles of managing and executive boards and officers, audit committee and the like. These should all be handled under existing corporate law. If there is a deficiency that this law needs to address, let s identify it.] SUPERVISORY FUNCTION: Licensed Institution Ownership: 12 Article 16: Change in Control a. No person may exceed a 25% direct or indirect ownership in a Licensed Institution without 13 prior notice to the OJK. b. A change in control also occurs when an existing controller: i. increasing control of the Licensed Institution. ii. decreasing control of the Licensed Institution. iii. Ceasing to have control. c. Persons presumed to be a single acquirer shall be the following: 1. A legal person and persons participating in management of such legal person or its subordinated company; 2. A legal person and persons directly appointed and removed by a management body of such legal person or its subordinated company; 3. A legal person and representatives and liquidation administrators of such legal person or of its subordinated company; 4. Family members; 5. Legal persons in which the persons specified in item 4) of this paragraph participate in management or hold controlling participation; 6. Legal persons members of the same group of companies; 7. Persons participating in management of the same legal person; 8. Persons holding controlling participation in the same legal person; 9. Lender and recipient of a loan for purchase of shares of the Licensed Institution ; 10. Person that is instrumental in obtaining financing for the other person to purchase shares of Licensed Institutions; 11. Any authorizer and the proxy; and 12. Other persons otherwise acting in concert or with common purpose. d. The notification to OJK must be: i. in writing 12 If we require prior consent, then we will need to build in an approval process. These sections do that. We may want to omit if we are not as concerned about change in control. 13 We used as guidance PBI No. 14/9/PBI/2012 : 25 % and Bapepam Regulation No. IX.H.1 : 50 %

12 ii. made at the latest 2 (two) working days after the change of control occurred. e. A Licensed Institution shall, on an annual basis and when requested by [OJK], inform the [OJK] of the identities of all persons holding a participation in the Licensed Institution. If a Licensed Institution is publicly traded, OJK shall develop a minimum threshold for reporting changes in publicly traded shares. f. A Licensed Institution shall inform the [OJK] of any change in ownership within thirty days of learning of such change. If a Licensed Institution is publicly traded, OJK shall develop a minimum threshold for reporting changes in publicly traded shares. g. The [OJK] shall prescribe detailed terms and conditions as to the content and submission of ownership information, including the timing of annual reporting. Article 17: Supervision. a. Supervision of the safety and soundness and legality of the operations of Licensed Institutions shall be exercised by the [OJK] in accordance with this law and the [OJK Law]. b. Supervision may performed offsite (by examining reports and other documentation submitted by the Licensed Institution and other operational data available) and onsite (by inspecting business books and other documentation of the Licensed Institution. c. The [OJK] shall have the right to inspect business books and other documents of persons which are related to the Licensed Institution, and may request data from such persons. d. All persons undergoing supervision shall reasonably enable unimpeded performance of supervision, and shall cooperate with them accordingly. e. The [OJK] may prescribe detailed terms and conditions of the exercise of supervision. Article 18: Onsite Supervision a. Licensed Institutions shall enable authorized persons of the [OJK] to conduct supervision at such Licensed Institution s head office and all organizational parts. Authorized persons shall have access to all business books, other documentation and information technology for the purpose of examining compliance with regulation. The Licensed Institution shall present all such business books, other documentation and information technology in hard copy or electronic form. This may include the examination of computer programs and database systems for purposes of examining their operation. The Licensed Institution shall provide technical support to authorized persons for examination. b. Onsite supervision may be conducted during regular working hours or outside working hours of the Licensed Institution

13 c. Authorized Persons may: 1. Enter all premises of the Licensed Institution subject to its security procedures; 2. Request use of a separate room for supervision. 3. Request copies of documents. 4. Communicate directly with managers and employees to receive necessary clarifications. Article 19: Supervision Report a. Authorized persons who perform supervision shall prepare a report on supervision. This report on supervision shall be delivered to the Licensed Institution, which may file its objections within [xx?] days from receipt of the report on supervision. b. Objections shall be addressed by the authorized persons, who will respond to the Licensed Institution within [xx] days of submission of objections to the report on supervision. c. The Licensed Institution may file any remaining objections with the [OJK] within [xx] days of the [OJK] response. Article 20: Conclusion of Supervision. a. The [OJK] shall render a conclusion on termination of the supervisory procedure if no irregularities have been established in the report on supervision, or if less important irregularities have been established, or if the Licensed Institution has successfully and in a timely fashion disputed all findings in the report on supervision or has successfully disputed some of the findings so that the remaining irregularities are not material. b. The conclusion specified in paragraph 1 hereof shall be delivered to the Licensed Institution. Article 21: Failure to Address Supervisory Issues a. If a Licensed Institution fails to submit, within the timeframe prescribed by this Law, its objections to the report on supervision or fails to successfully dispute the findings contained in such report, by which it is established that the Licensed Institution acted in breach of regulations or in the manner which jeopardizes its safety and soundness, the [OJK] shall take one of the measures specified in Article 22 of this Law. b. If the [OJK] establishes, during onsite supervision or based on the reports obtained through off-site supervision, that the Licensed Institution has committed serious irregularities, and/or that its financial condition has deteriorated significantly, or that there is a possibility of significant deterioration in its financial condition or liquidity, it shall order the Licensed Institution, to undertake one or more activities from Article 24 of this Law. Article 22: Special Supervision a. If during supervision under Article 17 of this Law it is established that a Licensed Institution acted in breach of provisions of this Law, regulations of the [OJK] and other regulations, as well as standards of prudent operations, and/or that the Licensed Institution acted in any other way which jeopardizes its safety and soundness, the [OJK] shall take one of the following measures ( special supervision ):

14 1) Send a letter of warning; 2) Ordering Letter 3) Declare orders and specify measures for eliminating the established irregularities; 4) Introduce receivership; 5) Revoke the Licensed Institution s operating license. b. Once it is determined whether and to what extent the measures from paragraph (a) hereof have been complied with by the Licensed Institution, the [OJK] shall either terminate the special supervision of the licensed institution or impose another measure. Article 23:Letter of warning a. A letter of warning shall be issued to a Licensed Institution in whose operations irregularities were established that did not have a significant and direct impact on its financial condition, but might have such impact if not eliminated. b. A letter of warning shall also state the deadline for eliminating the irregularities specified in paragraph (a) hereof. Article 23: Ordering letter a. The ordering letter shall be sent to the Licensed Institution where supervision established actions and/or failure to act, in breach of regulations or standards of safe and sound activities, and which might jeopardize its financial condition. b. The ordering letter shall contain: 1) Overview of actions and/or failure to act specified in paragraph (a) hereof that have jeopardized the Licensed Institution s safety and soundness or created other unsatisfactory situation, as determined by the [OJK]. 2) The Licensed Institution s obligation to submit within the specified deadline an action plan to the [OJK] for elimination of established irregularities, with a view to obtaining its consent to the plan; 3) The timeframe within which the action plan must be carried out; 4) The manner and deadlines for informing the [OJK] on implementation of the action plan and for submitting evidence of implementation of the action plan. Article 24: Declaration of Orders and Measures a. The Declaration of orders and measures for eliminating the established irregularities in operations shall be sent to: 1) A Licensed Institution to which the ordering letter was sent and which, within the timeframe set, failed to request consent of the [OJK] for the action plan specified in Article 23,paragraph b, item 2) of this Law, or the [OJK] does not grant consent to the plan, or in the supervision of the Licensed Institution, it is established that its financial condition deteriorated during the implementation of such plan; 2) A Licensed Institution in whose operations the supervision establishes actions and/or failure to act, in breach of regulations or standards of safe and sound activities, which may jeopardize its financial condition. b. By the Declaration specified in paragraph (a) hereof, the Licensed Institution shall be ordered to carry out one or more of the following activities within the specified timeframe: 1) Harmonize its operations with regulations; 2) Increase the amount of capital; 3) Adjust capital adequacy ratio;

15 4) Increase special reserves to cover potential losses; 5) Discontinue accruing interest on assets of a certain level of collectability; 6) Discontinue transactions with shareholders and other persons; 7) Discontinue placements of funds for a certain period of time; 8) Temporarily discontinue or limit new borrowing; 9) Remove a member of the managing and/or executive board, or another person holding a managing position; 10) Discontinue distribution of capital, return on capital or profits to some or to all shareholders; 11) Close one or more of its organizational units, and/or discontinue or limit the expansion of its organizational network or lines of business, including the sale of risky assets; 12) Discontinue payments from its accounts, other than with the prior approval of the [OJK]; 13) Discontinue payments abroad, other than with the prior approval of the [OJK]; 14) Rationalize its internal organization; 15) Increase transparency of the structure of the group to which it belongs; 16) Undertake and/or discontinue other activities. c. The Declaration specified in paragraph (a) hereof shall determine the manner and timeframe in which the Licensed Institution must eliminate the established irregularities and inform the [OJK] thereof. [RECEIVERSHIP AND LIQUIDATION SHOULD BE DOVETAILED WITH EXISTING PROVISIONS IN COMPANIES OR RELATED ACTS WE VE ATTEMPTED TO MATCH TO OJK LAW, BUT PLEASE CONFIRM SO WE DON T INTRODUCE AN INCONSISTENT SCHEME] Article 25: Handling of failing Licensed Institution/Statutory Manager a. OJK shall exercise its authorities relating to Statutory Managers under Law 21/2011 on the OJK with respect to Licensed Institutions. b. In the process of handling of failing Licensed Institution, OJK shall undertake the following course of actions: i. Take over the General Meeting of Shareholder of Licensed Institution; and ii. Change the BOD and/or BOC; or iii. Appoint Statutory Manager (regulated in separately); or iv. Revoke the license and decide to dissolve the Licensed Institution, appoint a liquidation team, and c. As of the date of take over by OJK, the functions of the members of the Licensed Institution s managing and the executive board shall cease and be transferred to Statutory Manager. Article 26: License Revocation and Liquidation a. The Licensed Institution may be disbanded because of: i. the decision of its shareholder/founder/owner ii. The establishment period is expired and not renewed iii. Court decision iv. OJK decision

16 b. If the Statutory Manager described in paragraphs 25 cannot be successfully concluded, [OJK] shall revoke the Licensed Institution s license and initiate Liquidation. c. Liquidation shall be conducted in accordance with the liquidation regulation [should be regulated separately and specifically] d. The [OJK] shall issue regulation on the License Revocation process and initiation of Liquidation on the part of the Licensed Institution Article 27: Removal and suspension of members of Licensed Institution s managing or executive board a. The [OJK]may order removal of a member of the Licensed Institution s managing or executive board, if it determines that such person does not meet the requirements set forth in this Law or acts in breach of provisions of this Law, and/or is responsible for irregularities in Licensed Institution s operations, and if the Licensed Institution fails to enable the [OJK s] conduct of supervision of safety and soundness and legality of the Licensed Institution s operations. b. In the case specified in paragraph (a) hereof, the OJK must consider the severity of established irregularities, as well as whether such person s remaining on the Licensed Institution s managing or executive board could further adversely affect interests of customers and creditors of the Licensed Institution. c. By the order specified in paragraph (a) hereof, the [OJK] may: 1) Prohibit or limit such person s conduct of any activity in the Licensed Institution; 2) Prohibit that person to directly or indirectly exercise voting rights in the Licensed Institution; 3) Request the person specified in that paragraph to alienate direct or indirect ownership he/she has in the Licensed Institution, within the deadline set by the [OJK]; 4) Prohibit that person to perform any function or to participate in performing activities of any Licensed Institution or any member of the business group without prior consent of the [OJK]. Article 28: Responsibility for the damage arising from the execution of duties established by this Law a. The [OJK] and its employees, the persons that the [OJK] appoints as official receivers in line with Articles 25, 26 and 27 of this Law, as well as the person executing duties upon the order of the [OJK] in compliance with this Law, shall not beheld responsible for the damage arising from the execution of such duty, unless proven that such damage has been inflicted deliberately or by gross negligence. b. The persons specified in paragraph (a) hereof shall not be held responsible for the damage specified in that paragraph even after termination of employment in the [OJK],and/or termination of execution of duties. c. The [OJK] shall reimburse the costs of representation of its employees in court and administrative proceedings initiated in relation to duties that such employees exercise pursuant to this Law

17 d. The [OJK] shall also reimburse the costs specified in paragraph c hereof to the persons whose employment with the [OJK] ceased. Article 31: Merger and Consolidation a. The Licensed Institutions which shall be merged or consolidated, shall have obtained a prior approval from OJK. b. The requirements: 1) shall not minimizing the right of the customers/consumers 2) financial conditions shall meet the requirements on solvency margin. [SANCTIONS AND FINES OMITTED TO BE ADDRESSED BY OJK COUNSEL] [TRANSITION PROVISIONS OMITTED] Article 32: Sanction a. Any Licensed Institution which is not in compliance with this Law and its implementing regulation concerning financial, business operation, report, risk management, audit, etc, is subject to the following sanction: written warning, business restriction, license revocation/cancelation. b. Any Licensed Institution which fails to maintain its assets/liquidity/solvency is subject to [ business restriction?] [need to be discussed]. c. Any Licensed Institution which fails to report [types of report or submission] to OJK [doesn t meet certain period determined by OJK] is subject to [ fine?] [need to be discussed]. d. The administrative fine [need to be discussed]. e. OJK shall have the option to revoke the license