Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units

Sector: Banking

Sub-Sector: Commercial Banks; Islamic Banking

Regulation Type: OJK Circular Letter

Regulation Number: 25/SEOJK.03/2023

Effective Date: 1/1/2024

Attachment 1 SEOJK 25-SEOJK.03-2023 Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units.pdf

Abstract SEOJK 25-SEOJK.03-2023 Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units.pdf FAQ SEOJK 25-SEOJK.03-2023. Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units.pdf

Page Content

Circular Letter of the Financial Services Authority Number 25/SEOJK.03/2023 concerning the Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units

ABSTRACT: In order to manage and mitigate risks at Islamic Commercial Banks and Islamic Business Units through a process of risk identification, measurement, monitoring, and control that is appropriate for Islamic banking business activities and considers compliance with Sharia principles, the Financial Services Authority has issued Circular Letter Number 25/SEOJK.03/2023 concerning the Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units. This Circular Letter constitutes the implementation provisions of Financial Services Authority Regulation Number 65/POJK.03/2016 concerning the Implementation of Risk Management for Islamic Commercial Banks and Business Units.

The legal basis for this Circular Letter is: Law No. 21 of 2008 as amended several times, most recently by Law No. 4 of 2023, and POJK Number 65/POJK.03/2016.

This Circular Letter regulates the general implementation of risk management, the implementation of risk management for each type of risk, risk profile assessment, and reporting.

Banks (BUS and UUS) apply Risk Management both individually for the Bank and on a consolidated basis with subsidiaries for BUS, in accordance with the bank's objectives, business policies, size and complexity of business, and the Bank's capabilities.

The implementation of Risk Management includes carrying out banking synergy for BUS in accordance with Financial Services Authority Regulations regarding Islamic commercial banks.

The standards for implementing Risk Management for Banks must at least include the implementation of general risk management, the implementation of risk management for each type of risk, and the assessment of risk profiles against 10 (ten) types of risks, namely Credit Risk, Market Risk, Liquidity Risk, Operational Risk, Legal Risk, Reputational Risk, Strategic Risk, Compliance Risk, Yield Risk, and Investment Risk.

The implementation of general Risk Management includes: 1) active supervision by the Board of Directors, Board of Commissioners, and Sharia Supervisory Board; 2) adequacy of Risk Management policies and procedures and the establishment of Risk limits; 3) adequacy of the risk identification, measurement, monitoring, and control processes, as well as the Risk Management information system; and 4) a comprehensive internal control system.

To support the active supervision of the Sharia Supervisory Board, the Bank provides functions that support the implementation of Risk Management related to the fulfillment of Sharia Principles. These functions may include Sharia compliance functions, Sharia risk management functions, and Sharia internal audit functions.

In implementing Risk Management, the Bank forms a Risk Management Committee and a Risk Management work unit. The Risk Management Committee and Risk Management work unit for UUS may be formed separately or combined with the parent Islamic Commercial Bank (BUK) that owns the UUS, in accordance with the size and complexity of the UUS's business, as well as the Risks inherent in the UUS.

The implementation of Risk Management is in accordance with the Standard Guidelines for the Implementation of Risk Management contained in the Attachment, which is an integral part of this Financial Services Authority Circular Letter.

The Bank may expand and deepen the Standard Guidelines for the Implementation of Risk Management as contained in the Attachment, which is an integral part of this Financial Services Authority Circular Letter, in accordance with the bank's objectives, business policies, size and complexity of business, and the Bank's capabilities.

In the implementation of Risk Management, the Bank submits reports: 1) Risk Profile Report, submitted both individually and on a consolidated basis to the Financial Services Authority quarterly for the positions in March, June, September, and December; 2) Other Reports, consisting of Reports in the event of conditions that have the potential to cause significant losses to the Bank's financial condition and Other Reports related to the Implementation of Risk Management.

NOTE: This Circular Letter takes effect on January 1, 2024.

At the time this Financial Services Authority Circular Letter takes effect, Bank Indonesia Circular Letter Number 5/21/DPNP dated September 29, 2003 concerning the Implementation of Risk Management for Commercial Banks is revoked and declared invalid.

Attachment I: 92 PAGES. Attachment II: 7 PAGES