Guidelines for Securities Portfolio Management for Individual Clients

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 21 /POJK.04/2017
CONCERNING
GUIDELINES FOR SECURITIES PORTFOLIO MANAGEMENT FOR INDIVIDUAL CLIENTS BY THE GRACE OF THE ALMIGHTY GOD THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that securities portfolio management for individual clients plays an important role in enhancing the competitiveness of the capital market industry; b. that in order to provide more freedom for investment managers in managing securities portfolios for individual clients and to enhance legal protection for clients, it is necessary to perfect regulations regarding securities portfolio management for individual clients;
c. that based on the considerations referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation concerning Guidelines for Securities Portfolio Management for Individual Clients;
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA

Considering:

1. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);
2. Law Number 8 of 1995 concerning the Capital Market (State Gazette of the Republic of Indonesia Year 1995 Number 64, Supplement to the State Gazette of the Republic of Indonesia Number 3608);
   DECIDING:
   Establishing: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING GUIDELINES FOR SECURITIES PORTFOLIO MANAGEMENT FOR INDIVIDUAL CLIENTS.

CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation, the following terms are defined as:

1. Securities Portfolio Management for Individual Clients, hereinafter referred to as Individual Client Portfolio Management, is the management of securities portfolios and/or funds conducted by an investment manager for a specific client, where based on an agreement regarding the management of securities portfolios and/or funds for the benefit of the client individually, the investment manager is granted full authority by the client to manage the securities portfolio and/or funds.
2. Securities are securities instruments, namely debt acknowledgment instruments, commercial paper, stocks, bonds, debt certificates, Unit Participation in collective investment contracts, forward contracts over Securities, and any derivatives of Securities.
3. Securities Portfolio is a collection of Securities owned by the Parties.
4. Unit Participation is a unit of measurement indicating the interest portion of each Party in a collective investment portfolio.
5. Fair Market Value of Securities is the value that can be obtained from the transaction of Securities conducted between free parties, not due to coercion or liquidation.
6. Investment Manager is a Party whose business activities manage Securities Portfolios for clients or manage collective investment portfolios for a group of clients, except insurance companies, pension funds, and banks that conduct their own business activities based on regulatory provisions.
7. Custodian Bank is a general bank that has received approval from the Financial Services Authority as a Custodian Bank.
8. Foreign Custodian is a custodian that is registered or has a license as a custodian from a foreign regulator.
9. Securities Pricing Agency is a party that has received a business license from the Financial Services Authority to conduct securities pricing in order to determine fair market prices.
10. Foreign Investment Manager is an investment manager or investment manager that is registered or has a license to conduct investment management from a foreign regulator.
11. Foreign Regulator is an institution or authority authorized to supervise financial institutions and/or capital markets, from a full signatory country of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information of the International Organization of Securities Commissions.
12. Client is a party that invests Securities Portfolios and/or funds to be managed by an Investment Manager in the form of Securities Portfolio Management for the benefit of the concerned party individually.
13. Party is an individual, company, joint venture, association, or organized group.

CHAPTER II
GUIDELINES FOR INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT AGREEMENTS
Article 2
(1) Investment Managers are required to:
a. create a written Individual Client Portfolio Management Agreement with each Client; and b. ensure the existence of a securities portfolio and/or client asset custody agreement with a Custodian Bank between the Client and the Custodian Bank, before providing Individual Client Portfolio Management services. (2) The Individual Client Portfolio Management Agreement as referred to in paragraph (1) letter a may be made in the form of a notarial deed. (3) Investment Managers are required to ensure that each Client signing the Individual Client Portfolio Management Agreement as referred to in paragraph (1) letter a has the authority and capacity to sign the aforementioned agreement.

Article 3
(1) The Individual Client Portfolio Management Agreement must be signed by the Investment Manager and the Client.
(2) The agreement as referred to in paragraph (1) may involve a Custodian Bank as a Party that also signs the Individual Client Portfolio Management Agreement.

Article 4
The Individual Client Portfolio Management Agreement must at least contain:
a. the identity of the Investment Manager, Custodian Bank, and Clients involved in Individual Client Portfolio Management; b. the duties and responsibilities of the Investment Manager;
c. the Investment Manager's obligation to store Client Securities Portfolios and/or funds with a Custodian Bank;
d. Client rights; e. investment objectives; f. investment policies; g. costs; h. the method of valuing Securities applied;
i. the date of signing the Individual Client Portfolio Management Agreement;
j. the duration of the Individual Client Portfolio Management Agreement; k. the designation of a court, the Indonesia Capital Market Arbitration Body, or other alternative dispute resolution institutions as the institution to resolve civil disputes and conflicts among the Parties; and
l. provisions for the termination of the Individual Client Portfolio Management Agreement.

Article 5
The duties and responsibilities of the Investment Manager as referred to in Article 4 letter b must at least include:
a. managing Client Securities Portfolios and/or funds in accordance with the Individual Client Portfolio Management Agreement; b. ensuring the separation of custody accounts for Securities Portfolios and/or funds for each Client from the Investment Manager's accounts or other accounts;
c. determining the Fair Market Value of Client Securities;
d. maintaining separate accounting and records for each Client; e. maintaining separate accounting and records between accounts in the Client's name and accounts in the Investment Manager's name; and f. providing an overview of investment risks to the Client.

Article 6
(1) The Custodian Bank where Client Securities Portfolios and/or funds are stored has duties and responsibilities including at least:
a. ensuring that the Client's asset account at the Custodian Bank is in the Client's name using Individual Client Portfolio Management services; b. registering and administering Client assets using Individual Client Portfolio Management services;
c. storing and maintaining Client records, including all changes in Individual Client Portfolio Management, separate from other Client records;
d. executing transactions related to Individual Client Portfolio Management; and e. making or receiving payments for transactions of Client Securities in accordance with the Individual Client Portfolio Management Agreement. (2) Other duties and responsibilities of the Custodian Bank may include:
a. calculating the Net Asset Value of Individual Client Portfolio Management as agreed in the Individual Client Portfolio Management Agreement; b. monitoring the implementation of investments by the Investment Manager based on the investment policies stated in the agreement;
c. notifying the Investment Manager and/or Client of any changes or replacement of responsible persons from the Custodian Bank; and/or
d. providing data and/or information related to the Custodian Bank's obligations regarding Individual Client Portfolio Management based on the agreement when requested by the Investment Manager and/or Client.

Article 7
(1) The Individual Client Portfolio Management Agreement becomes invalid or terminates in the event:
a. the termination requirements of the Individual Client Portfolio Management Agreement are met; and/or b. ordered by the Financial Services Authority in the event of violations of capital market regulatory provisions. (2) In the event that the Individual Client Portfolio Management Agreement becomes invalid or terminates as referred to in paragraph (1), the Investment Manager is responsible for settling the Client's rights in accordance with the Individual Client Portfolio Management Agreement. (3) In the event that the Individual Client Portfolio Management Agreement becomes invalid or terminates as referred to in paragraph (1), the Investment Manager is required to report this to the Financial Services Authority no later than 10 (ten) working days since the Individual Client Portfolio Management Agreement became invalid or terminated. (4) The report as referred to in paragraph (3) must at least contain:
a. the reasons for the termination of the Individual Client Portfolio Management Agreement; and b. the settlement of rights and obligations of each party in accordance with Individual Client Portfolio Management, accompanied by supporting documents.

CHAPTER III
GUIDELINES FOR INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT
Article 8
(1) The initial management fund amount for each Client in Individual Client Portfolio Management must be at least IDR 5,000,000,000.00 (five billion rupiah) or an equivalent value in foreign currency using the Bank Indonesia middle exchange rate. (2) The initial deposit of Client funds for Individual Client Portfolio Management may consist of Securities Portfolios and/or funds. (3) In the event that the initial Client deposit is in the form of Securities, the initial investment value of Securities in Individual Client Portfolio Management must be valued using the valuation method for Securities as referred to in this Financial Services Authority Regulation, with a value of at least equivalent to IDR 5,000,000,000.00 (five billion rupiah). (4) The management fund amount for each Client in Individual Client Portfolio Management may decrease to less than IDR 5,000,000,000.00 (five billion rupiah) provided that such decrease occurs due to market price movements of the managed Client portfolio.

Article 9
The management fund and/or Securities value in Individual Client Portfolio Management for each Client is prohibited from being owned and/or agreed to be owned jointly by more than 1 (one) Party.

Article 10
Client Securities Portfolios and/or funds must be stored in the Client's asset account in the name of each Client at a Custodian Bank.

Article 11
(1) Investment Managers are prohibited from having an affiliation with a Custodian Bank, except for affiliations arising from government ownership or capital participation.
(2) The designation of a Custodian Bank must be done by the Client while still observing the provisions as referred to in paragraph (1).

Article 12
(1) Investment portfolios in Individual Client Portfolio Management may only consist of:
a. Securities issued domestically; b. money market instruments;
c. other financial instruments designated by the Financial Services Authority as Securities; and/or
d. Securities issued abroad provided that:

1. The Securities have obtained an effective statement, license, approval, registration, or legality statement from the Foreign Regulator where the Securities were issued; and/or
2. The Securities are traded on a Stock Exchange abroad, the information of which can be accessed through media, both print and electronic.
   (2) In the event that an Investment Manager manages Individual Client Securities Portfolios with Securities issued abroad as referred to in paragraph (1) letter d, the Investment Manager may delegate the authority for Individual Client Securities Portfolio Management to a Foreign Investment Manager based on a delegation agreement.

CHAPTER IV
FAIR MARKET VALUE IN INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT
Article 13
The value of Securities in Individual Client Portfolio Management must be valued based on fair market value calculated using methods referring to regulatory provisions in the capital market sector governing Fair Market Value of Securities in Mutual Fund Portfolios.

Article 14
(1) In the event that an Investment Manager calculates the Fair Market Value of Securities in Individual Client Portfolio Management using fair market prices issued by a Securities Pricing Agency, the Investment Manager may access Securities prices issued by the Securities Pricing Agency without being charged fees. (2) In the event that the Securities Pricing Agency does not issue fair market prices for Securities in Individual Client Portfolio Management, the Investment Manager is required to calculate the Fair Market Value of such Securities based on generally accepted accounting principles in good faith and full responsibility.

Article 15
(1) The Fair Market Value of Securities in Individual Client Portfolio Portfolios traded in denominations of currencies different from the denomination of the Individual Client Portfolio Management currency must be calculated using the Bank Indonesia middle exchange rate. (2) In the event that the currency denomination of Securities in Individual Client Portfolio Management is not included in currencies published by Bank Indonesia, the Investment Manager is required to use the middle exchange rate established by an independent institution agreed upon consistently by the Investment Manager and Client.

Article 16
The determination of the Fair Market Value of debt securities that are Securities Portfolios may use the amortized cost method, provided that the debt securities in the Securities Portfolio are not transferred until the maturity date.

CHAPTER V
OBLIGATIONS OF INVESTMENT MANAGERS AND CUSTODIAN BANKS IN INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT
Article 17
(1) Investment Managers and Custodian Banks are required to act in good faith and full responsibility to perform their duties as best as possible for the benefit of Clients in accordance with regulatory provisions. (2) In the event that Investment Managers and/or Custodian Banks do not fulfill their obligations as referred to in paragraph (1), the Investment Managers and/or Custodian Banks are responsible for all losses arising from their respective actions.

Article 18
Investment Managers are required to provide information to Clients regarding investment risk overviews before signing the Individual Client Portfolio Management Agreement.

Article 19
Individual Client Portfolio Management Agreements and/or amendments thereto must be submitted by the Investment Manager to the Financial Services Authority no later than 10 (ten) working days since the date of signing the agreement by the Parties.

Article 20
Custodian Banks are required to provide and submit periodic reports regarding Client portfolios to Clients as stated in the Individual Client Portfolio Management Agreement.

CHAPTER VI
OFFERING INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT
Article 21
(1) Investment Managers may use the services of other Parties to offer Individual Client Portfolio Management services to prospective Clients.
(2) Other Parties as referred to in paragraph (1) may include:
a. companies that have received a business license from the Financial Services Authority as Securities Companies conducting business as underwriters of Securities and/or securities brokers; or b. mutual fund sales agents.

Article 22
(1) The authority of Other Parties in offering Individual Client Portfolio Management as referred to in Article 21 is limited only to forwarding Individual Client Portfolio Management information from the Investment Manager to Clients or providing access to the Investment Manager. (2) In the event that Individual Client Portfolio Management is offered using the services of Other Parties as referred to in paragraph (1), the Investment Manager is required to create:
a. written policies and procedures regarding the offering of Individual Client Portfolio Management using the services of Other Parties; and b. written agreements between the Investment Manager and Other Parties, which must at least contain:

1. rights, obligations, and responsibilities of each Party;
2. costs;
3. resolution in the event of disputes; and
4. resolution of Client complaints.

Article 23
Written agreements between Investment Managers and Other Parties as referred to in Article 22 paragraph (2) letter b must be submitted to the Financial Services Authority no later than 10 (ten) working days since the date of signing the agreement by the Parties.

Article 24
(1) Other Parties as referred to in Article 21 are prohibited from acting as Parties providing Individual Client Portfolio Management services.
(2) Other Parties as referred to in Article 21 may only refer Individual Client Portfolio Management services by providing information or forwarding leaflets, brochures, and/or similar materials containing information and/or explanations from the Investment Manager regarding Individual Client Portfolio Management to Clients, either face-to-face or via mail and electronic media. (3) In the event that Clients intend to enter into an Individual Client Portfolio Management Agreement, Other Parties are required to direct such Clients to the Investment Manager.

CHAPTER VII
DELEGATION OF INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT SERVICES BY FOREIGN INVESTMENT MANAGERS
Article 25
(1) Investment Managers may accept the delegation of Individual Client Portfolio Management services from Foreign Investment Managers for the benefit of Foreign Investment Manager Clients. (2) In the event that an Investment Manager accepts delegation from a Foreign Investment Manager as referred to in paragraph (1), the Investment Manager is required to:
a. create a delegation agreement between the Foreign Investment Manager and the Investment Manager which must at least contain:

1. a statement that the Foreign Investment Manager has the authority or power to delegate Individual Client Portfolio Management on behalf of foreign clients to the Investment Manager;
2. the identity of each party;
3. the duties and responsibilities of each party;
4. the rights and obligations of each party;
5. information regarding the type and amount of initial Securities Portfolios and/or funds delegated to the Investment Manager;
6. fulfillment of provisions regarding customer due diligence principles by each party;
7. investment objectives;
8. investment policies;
9. costs;
10. the method of valuing Securities applied;
11. the date of signing the Individual Client Portfolio Management delegation agreement;
12. provisions for the termination of the Individual Client Portfolio Management delegation agreement;
13. choice of law in the event of disputes; and
14. the duration of the Individual Client Portfolio Management delegation agreement; and
    b. ensure that the Foreign Investment Manager has the authority or power to delegate Individual Client Portfolio Management services to the Investment Manager.

Article 26
Investment Managers are required to submit the Individual Client Portfolio Management delegation agreement as referred to in Article 25 paragraph (2) letter a and any amendments thereto to the Financial Services Authority no later than 10 (ten) working days since the date of signing the agreement by the Parties.

Article 27
(1) The designation of a Custodian Bank in the implementation of the delegation agreement for Individual Client Portfolio Management services from a Foreign Investment Manager for the benefit of Foreign Investment Manager Clients must be made in the form of a written agreement. (2) The Custodian Bank designation agreement as referred to in paragraph (1) must at least contain the rights, obligations, and responsibilities of the Custodian Bank. (3) Securities Portfolios and/or funds of foreign clients managed by Investment Managers based on the delegation of Individual Client Portfolio Management must be stored at a Custodian Bank separately for each delegation agreement.

CHAPTER VIII
PROHIBITIONS IN INDIVIDUAL CLIENT PORTFOLIO MANAGEMENT
Article 28
In Individual Client Portfolio Management, Investment Managers are prohibited from:
a. modifying or renewing the Individual Client Portfolio Management Agreement without written approval from the Client; b. investing in other Securities not previously agreed upon in the Individual Client Portfolio Management Agreement;
c. promising Clients that:

1. there will be profits at a certain level; and/or
2. losses will not exceed a determined level; and
   d. taking other actions beyond the authority of the Investment Manager in the Individual Client Portfolio Management Agreement.

Article 29
Investment Managers are prohibited from borrowing or lending Client Securities Portfolios and/or funds that they manage.

CHAPTER IX
SANCTION PROVISIONS
Article 30
(1) Without prejudice to criminal provisions in the capital market sector, the Financial Services Authority has the authority to impose administrative sanctions on any party that violates the provisions of this Financial Services Authority Regulation, including parties causing the violation, in the form of:
a. written warnings; b. fines, namely the obligation to pay a certain amount of money;
c. restriction of business activities;
d. suspension of business activities; e. revocation of business licenses; f. cancellation of approvals; and/or g. cancellation of registrations.
(2) Administrative sanctions as referred to in paragraph (1) letters b, c, d, e, f, or g may be imposed with or without prior imposition of administrative sanctions in the form of written warnings as referred to in paragraph (1) letter a. (3) Administrative sanctions in the form of fines as referred to in paragraph (1) letter b may be imposed separately or together with the imposition of administrative sanctions as referred to in paragraph (1) letters c, d, e, f, or g.

Article 31
In addition to administrative sanctions as referred to in Article 30 paragraph (1), the Financial Services Authority may take certain actions against any party that violates the provisions of this Financial Services Authority Regulation.

Article 32
The Financial Services Authority may announce the imposition of administrative sanctions as referred to in Article 30 paragraph (1) and certain actions as referred to in Article 31 to the public.

CHAPTER X
CLOSING PROVISIONS

Article 33
Upon the commencement of this Financial Services Authority Regulation, the Decision of the Chairman of the Capital Market Supervisory Agency and Financial Institutions No. Kep-112/BL/2010 concerning Guidelines for Securities Portfolio Management for the Benefit of Individual Clients, along with Regulation No. V.G.6 which is its attachment, is revoked and declared invalid.

Article 34
This Financial Services Authority Regulation shall come into force on the date of its enactment.

This copy is in accordance with the original
Director of Law 1
Legal Department signed
Yuliana

In order for everyone to know it, it is ordered to enact this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on June 21, 2017
CHAIRMAN OF THE COMMISSIONERS BOARD
FINANCIAL SERVICES AUTHORITY, signed
MULIAMAN D. HADAD

Enacted in Jakarta on June 22, 2017
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2017 NUMBER 121

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NO. 21 /POJK.04/2017
CONCERNING
GUIDELINES FOR SECURITIES PORTFOLIO MANAGEMENT FOR THE BENEFIT OF INDIVIDUAL CLIENTS

I. GENERAL
Securities Portfolio Management for the Benefit of Individual Clients, hereinafter referred to as Individual Client Portfolio Management, is a management service provided by an Investment Manager to a single Client based on a fund management agreement contract made between the Investment Manager, the Client, and the Custodian Bank. This Individual Client Portfolio Management service has developed and contributed significantly to the capital market sector, particularly in the field of investment management.

Along with economic growth and market development, some provisions contained in Regulation No. V.G.6, attachment of the Decision of the Chairman of the Capital Market Supervisory Agency and Financial Institutions No. Kep-112/BL/2010 concerning Guidelines for Securities Portfolio Management for the Benefit of Individual Clients, are deemed no longer relevant to market needs, thus requiring efforts to improve the regulations regarding the guidelines for Individual Client Portfolio Management. The substantial potential of investors wishing to invest their funds through Securities Portfolio Management services is one of the main considerations for carrying out improvements by revising Regulation No. V.G.6. This improvement is also aimed at enhancing investor protection through regulations regarding guidelines for Individual Client Portfolio Management, agreements for Individual Client Portfolio Management, duties and responsibilities of the Investment Manager, duties and responsibilities of the Custodian Bank, and the termination of the Individual Client Portfolio Management agreement. Specifically, these provisions also contain minimum requirements that must be included in the Individual Client Portfolio Management agreement, all of which are aimed at increasing investor protection in Individual Client Portfolio Management.

On the other hand, to provide flexibility for Investment Managers and Clients regarding the underlying assets of Individual Client Portfolio Management, this revision of Regulation No. V.G.6 opens the possibility of including Real Estate Investment Funds (DIRE) and Asset-Backed Securities (EBA) as underlying assets for Individual Client Securities Portfolios. With the possibility of adding underlying assets in Individual Client Portfolio Management, it is expected that Investment Managers will have more investment alternatives, so that Clients obtain added value in investing in Individual Client Portfolio Management.

II. ARTICLE BY ARTICLE

Article 1
It is clear enough.

Article 2
It is clear enough.

Article 3
It is clear enough.

Article 4
It is clear enough.

Article 5
It is clear enough.

Article 6
It is clear enough.

Article 7
It is clear enough.

Article 8
It is clear enough.

Article 9
Joint ownership in participation in unit link insurance products, pension funds, and other similar joint ownerships in accordance with statutory regulations are not included in the criteria for owned and/or agreed to be jointly owned, which are prohibited in this article.

Article 10
It is clear enough.

Article 11
It is clear enough.

Article 12
Paragraph (1)
Letter a
Including exchange traded funds (ETF).
Letter b
The term "money market instruments" refers to domestic money market instruments with a maturity of less than 1 (one) year, including Bank Indonesia certificates, money market securities, debt acknowledgments, and deposit certificates, both in Rupiah or foreign currency. Letter c It is clear enough.

Letter d
Securities issued outside the country, including collective investment schemes and unit trusts.
Paragraph (2)
It is clear enough.

Article 13
The term "statutory regulations in the capital market sector regulating Fair Market Value of Securities in Mutual Fund Portfolios" applicable at the time this Financial Services Authority Regulation is enacted is Regulation No. IV.C.2, attachment of the Decision of the Chairman of the Capital Market Supervisory Agency and Financial Institutions No. Kep-367/BL/2012 concerning Fair Market Value of Securities in Mutual Fund Portfolios.

Article 14
It is clear enough.

Article 15
It is clear enough.

Article 16
It is clear enough.

Article 17
It is clear enough.

Article 18
It is clear enough.

Article 19
It is clear enough.

Article 20
It is clear enough.

Article 21
It is clear enough.

Article 22
It is clear enough.

Article 23
It is clear enough.

Article 24
Paragraph (1)
It is clear enough.
Paragraph (2)
In practice, the aforementioned "leaflet" is commonly referred to as a leaflet.
Paragraph (3)
It is clear enough.

Article 25
It is clear enough.

Article 26
It is clear enough.

Article 27
It is clear enough.

Article 28
It is clear enough.

Article 29
It is clear enough.

Article 30
It is clear enough.

Article 31
It is clear enough.

Article 32
It is clear enough.

Article 33
It is clear enough.

Article 34
It is clear enough.

SUPPLEMENTARY STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6068