Implementation of Risk Management for Financing Institutions, Venture Capital Companies, Microfinance Institutions, and Other Financial Service Institutions

The Financial Services Authority (OJK) issued Regulation No. 42 of 2024 to mandate the effective implementation of risk management across all PVML industries based on four pillars to minimize regulatory arbitrage. This regulation requires institutions to establish risk management organizations, maintain written policies for new or expanded activities, and conduct self-assessments of risk levels. It supersedes previous risk management rules for financing companies while maintaining the validity of other existing regulations that do not conflict with this new framework.

Indonesia

Otoritas Jasa Keuangan (Financial Services Authority)

Financial Services Authority Regulation No. 42 of 2024 Implementation of Risk Management for Financing Institutions, Venture Capital Companies, Microfinance Institutions, and Other Financial Service Institutions

Abstract: This POJK is a mandate of Article 122 paragraph (3) and Article 269 of Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector. This POJK regulates the obligation to implement risk management effectively based on four pillars across the entire PVML industry in an integrated manner to minimize the potential for regulatory arbitrage. The scope of this POJK covers financing service businesses, Microfinance Institutions, LPEI, Secondary Housing Financing Companies, PT PNM, BP Tapera, and PT SMI (Persero). Financing service businesses include Financing Companies, Infrastructure Financing Companies, Venture Capital Companies, Pawnshop Companies, LPBBTI Providers, and other financing activity schemes regulated by the Financial Services Authority.

Legal Basis: The legal basis for this Financial Services Authority Regulation (POJK) is: Law No. 21 of 2011 as amended by Law No. 4 of 2023; and Law No. 4 of 2023.

This POJK regulates the obligation to implement risk management effectively based on four pillars, namely: a) active supervision by the Board of Directors, Board of Commissioners, Sharia Supervisory Board, and managers; b) adequacy of risk management policies and procedures; c) adequacy of risk identification, measurement, monitoring, and control processes, as well as risk management information systems; and d) internal control systems.

The types of risks applied to each PVML are adjusted according to their size and business activities. PVML may determine other types of risks outside those regulated, arising from the implementation of business activities. PVML is also required to form a risk management organization and functions adjusted to the size and complexity of the business. PVML is required to have written policies and procedures to manage risks arising from the development or expansion of business activities that have never been conducted before or are currently conducted but have the potential to change or increase certain risk exposures. PVML is required to conduct a self-assessment of the risk level and submit it in the risk profile report. The Financial Services Authority has the authority to conduct assessments of the implementation of risk management in financial service institutions in the PVML field.

Notes: This Financial Services Authority Regulation takes effect on the date of its promulgation. This Financial Services Authority Regulation was promulgated on December 27, 2024, and established on December 24, 2024.

At the time this Financial Services Authority Regulation takes effect: a) Financial Services Authority Regulation of the Republic of Indonesia Number 4/POJK.05/2018 concerning Secondary Housing Financing Companies as amended by Financial Services Authority Regulation of the Republic of Indonesia Number 12/POJK.05/2022 concerning Amendments to Financial Services Authority Regulation of the Republic of Indonesia Number 4/POJK.05/2018 concerning Secondary Housing Financing Companies; b) Financial Services Authority Regulation of the Republic of Indonesia Number 16/POJK.05/2019 concerning Supervision of PT Permodalan Nasional Madani (Persero); c) Financial Services Authority Regulation of the Republic of Indonesia Number 46/POJK.05/2020 concerning Infrastructure Financing Companies; d) Financial Services Authority Regulation of the Republic of Indonesia Number 9/POJK.05/2022 concerning Supervision of the Indonesia Export Financing Institution; e) Financial Services Authority Regulation of the Republic of Indonesia Number 10/POJK.05/2022 concerning Information Technology-Based Crowdfunding Services; f) Financial Services Authority Regulation of the Republic of Indonesia Number 20 of 2022 concerning Supervision of the Housing Savings Management Agency by the Financial Services Authority; and g) Financial Services Authority Regulation of the Republic of Indonesia Number 25 of 2023 concerning the Conduct of VC and VCS Business, are declared to remain in force insofar as they do not conflict with the provisions in this Financial Services Authority Regulation.

At the time this POJK takes effect, provisions regarding the implementation of Risk Management in Financial Services Authority Regulation Number 44/POJK.05/2020 concerning the Implementation of Risk Management for Non-Bank Financial Service Institutions are declared not to apply to Financing Companies. Implementation regulations of Financial Services Authority Regulation Number 44/POJK.05/2020 concerning the Implementation of Risk Management for Non-Bank Financial Service Institutions are declared to remain in force for Financing Companies insofar as they do not conflict with this Financial Services Authority Regulation.