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In December 2022, the Indonesian parliament approved an omnibus law that consolidates the existing 17 laws regulating the financial sector into a single act. This new law – known in Indonesia as P2SK – covers all segments of financial services, including financial innovations ranging from fintech to digital banks.
As part of major changes, P2SK also expands the scope of financial sector activities that will be regulated to cryptoassets with risk characteristics. This means that the regulation and oversight of Indonesia’s crypto-asset industry – currently under the jurisdiction of the Commodity Futures Trading Supervisory Agency (Bappebti) – will eventually be taken over by the Financial Services Authority (FSA).
This is an interesting development to say the least, given that the OJK has traditionally lagged behind crypto-assets and related activities. For example, in January 2022, it banned financial institutions from using, marketing and/or facilitating the trading of cryptoassets and issued a warning to potential investors about alleged Ponzi schemes involving investments in cryptoassets. Later that year in July, the OJK banned capital market firms from marketing, promoting and advertising financial products and services that did not receive regulatory approval, including cryptoassets.
Increased focus on investor protection
Indonesian Finance Minister Sri Mulyani Indrawati addressed investor protection during a parliamentary debate on P2SK in November last year. She said that the country needs to “build an investor supervision and protection mechanism that is quite strong and reliable, especially for high-risk investment instruments.”
In his speech, Sri Mulyani highlighted the turbulence facing the crypto-asset industry – no doubt referring to TerraLuna, Three Arrows Capital and FTX – as a factor in empowering the OJK to regulate and supervise “digital asset activities, including crypto-assets and technological innovation in the financial sector”.
Although the P2SK was adopted by the Parliament, it is currently in the process of adoption, and the date of entry into force will be announced later. However, it is predicted that the transfer of the regulatory and supervisory scope of cryptoassets from Bappebti to OJK will be completed within 24 to 30 months after the adoption of P2SK.
Given the OJK’s reputation as a strict regulator and its early wariness of crypto-assets, there are concerns that this development could be a harbinger of tighter regulation and oversight of the industry. This is especially the case if cryptoassets are no longer considered commodities, but are considered securities that will attract a whole range of requirements and restrictions related to securities in their offering, sale and/or marketing. It is important to note that Indonesia has not consolidated its position in any way. However, doomsayers may be missing the forest for the trees.
More regulation as an overall positive
The implementation of a more robust regulatory framework led by a reputable regulator will alleviate investor concerns stemming from significant headwinds facing the crypto industry in 2022. countering the financing of terrorism (AML/CFT), and corporate governance will be eradicated for the benefit of the entire industry in Indonesia.
With greater investor confidence and recognition of cryptoassets as securities or financial instruments, remaining companies may find themselves in a stronger position to grow their businesses and offer innovative products, including cryptoasset derivatives, to more investors.
Even as the details of P2SK are being ironed out, the development of cryptoassets in Indonesia continues unabated. Last November, Bank Indonesia released a white paper on central bank digital currencies (CBDC) and discussed its plans for a digital rupiah. In January 2023, the Commodity Futures Trading Supervisory Agency (Bappebti) stated that the long-awaited crypto-asset exchange should be established this year ahead of the transition of supervision to OJK, and as part of financial sector reforms culminating in P2SK in December. .
Regardless of how the regulatory transition unfolds, Indonesia is definitely a country to watch in 2023. Crypto companies will do well to stay ahead of any regulatory changes and ensure their AML/CFT controls, including blockchain analytics, are robust to avoid any any disruption in their work.
If you operate a crypto asset exchange in Indonesia, contact us to speak with one of Elliptic’s experts and discuss in more detail how we can help your business adapt to new regulatory developments.
Financial Services Regulation APAC
