Change of Business Activities of Conventional Commercial Banks to Sharia Commercial Banks

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To:
The Board of Directors of Conventional Commercial Banks at your place.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2 /SEOJK.03/2017 CONCERNING CHANGE OF BUSINESS ACTIVITIES OF CONVENTIONAL COMMERCIAL BANKS TO SHARIA COMMERCIAL BANKS

In connection with the issuance of Financial Services Authority Regulation Number 64/POJK.03/2016 concerning the Change of Business Activities of Conventional Banks to Sharia Banks (State Gazette of the Republic of Indonesia Year 2016 Number 295, Supplement to the State Gazette of the Republic of Indonesia Number 5985), it is necessary to regulate the implementation of the change of business activities of Conventional Commercial Banks to Sharia Commercial Banks in the following Financial Services Authority Circular Letter:

I. GENERAL PROVISIONS
A. REQUIREMENTS FOR APPLICATION FOR CHANGE OF BUSINESS ACTIVITIES LICENSE The application for a license to change business activities is submitted by the Conventional Commercial Bank (CCB) using the letter format as contained in Appendix I and supported by documents as follows:

1. Draft deed of amendment of the Articles of Association which at least contains:
   a. name and domicile; b. affirmation that the bank carries out business activities of Sharia Commercial Bank (SCB);
   c. capitalization, in case of changes;
   d. ownership, in case of changes; e. provisions regarding the appointment of members of the Board of Directors, members of the Board of Commissioners, and members of the Sharia Supervisory Board (SSB) which must obtain prior approval from the Financial Services Authority; f. provisions regarding the number, authority, responsibility, duties, and other requirements of the Board of Directors, Board of Commissioners, and SSB which must comply with applicable legislation; g. provisions regarding the General Meeting of Shareholders (GMS) which determines that the duties of management, remuneration of the Board of Directors and Board of Commissioners, annual accountability reports, appointment and fees of public accountants, use of profits, and other matters must comply with applicable legislation; and h. provisions regarding the GMS which must be led by the Chairman of the Board of Commissioners or Lead Commissioner. The draft deed of amendment of the Articles of Association may request approval from the competent authority simultaneously with the application for a license to change business activities to the Financial Services Authority. Amendments to the Articles of Association that have been approved by the competent authority are immediately submitted to the Financial Services Authority as completeness of the application documents.

2. Minutes of the General Meeting of Shareholders.

3. List of prospective shareholders along with details of each share ownership, in case of changes in ownership:
   a. in case the prospective shareholder is an individual, the following documents must be attached:
   1) recent passport-sized photo size 4 x 6 cm;
   2) photocopy of identification, which can be an Identity Card (KTP) for Indonesian Citizens or passport and/or KITAS (if residing in Indonesia) for Foreign Citizens;
   3) Curriculum Vitae, with example format as regulated in the provisions regarding suitability and propriety test/assessment;
   4) stamped declaration letter which at least contains that the person concerned has never been convicted for proven criminal acts consisting of:
   a) criminal acts in the financial services sector whose sentence has been completed within the last 20 (twenty) years before nomination; b) criminal acts, namely criminal acts listed in the Criminal Code (KUHP) and/or similar KUHP abroad with a prison sentence threat of 1 (one) year or more whose sentence has been completed within the last 10 (ten) years before nomination; and/or c) other criminal acts with a prison sentence threat of 1 (one) year or more, among others corruption, money laundering, narcotics/psychotropics, smuggling, customs, excise, human trafficking, illegal arms trade, terrorism, counterfeiting currency, in the field of taxation, forestry, environment, marine, and fisheries, whose sentence has been completed within the last 20 (twenty) years before nomination;
   5) in case the prospective individual shareholder is a Principal Shareholder (PSP), additional documents as regulated in the provisions regarding suitability and propriety test/assessment applicable to SCBs must be attached;
   b. in case the prospective shareholder is a legal entity, the following documents must be attached:
   1) deed of establishment of the legal entity containing the articles of association including amendments which have received approval from the competent authority including for foreign legal entities according to the regulations in the country of origin of the legal entity;
   2) documents as referred to in letters a numbers 1) through 4) from:
   a) each member of the Board of Directors and member of the Board of Commissioners, for Limited Liability Companies; or b) each member of the management, for legal entities other than Limited Liability Companies;
   3) recommendation from the home country supervisory authority for prospective foreign legal entity shareholders;
   4) list of shareholders and the amount and value of shares owned by each shareholder;
   5) audited financial statements of the legal entity by a Public Accountant with a position no older than 6 (six) months;
   In case the legal entity is still in the audit process, the financial statements submitted are the audited financial statements of 1 (one) previous year and unaudited financial statements of the last month; and
   6) in case the legal entity is a prospective Principal Shareholder (PSP), additional documents as regulated in the provisions regarding suitability and propriety test/assessment applicable to SCBs must be attached.
   c. in case the prospective shareholder is the central government or local government, the following documents must be attached:
   1) certificate stating the name of the official authorized to represent the government;
   2) documents as in letter a number 1) and number 2) from the official authorized to represent the government;
   3) certificate or document explaining the source of funds in case there is an increase in paid-up capital; and
   4) in case the government is a prospective Principal Shareholder (PSP), a statement letter must be attached stating that the government is willing to overcome capitalization or liquidity difficulties faced by the SCB in carrying out its business activities, signed by the official authorized to represent the government.

4. List of prospective members of the Board of Directors and members of the Board of Commissioners originating from existing or newly nominated members of the Board of Directors and Board of Commissioners of the CCB, accompanied by documents as regulated in the provisions regarding suitability and propriety test/assessment applicable to SCBs.

5. List of prospective members of the SSB accompanied by documents:
   a. recent passport-sized photo size 4 x 6 cm; b. photocopy of KTP;
   c. Curriculum Vitae, with example format as regulated in the provisions regarding suitability and propriety test/assessment;
   d. stamped declaration letter stating that the person concerned:
   1) has never been convicted for proven criminal acts consisting of:
   a) criminal acts in the financial services sector whose sentence has been completed within the last 20 (twenty) years before nomination; b) criminal acts, namely criminal acts listed in the KUHP and/or similar KUHP abroad with a prison sentence threat of 1 (one) year or more whose sentence has been completed within the last 10 (ten) years before nomination; and/or c) other criminal acts with a prison sentence threat of 1 (one) year or more, among others corruption, money laundering, narcotics/psychotropics, smuggling, customs, excise, human trafficking, illegal arms trade, terrorism, counterfeiting currency, in the field of taxation, forestry, environment, marine, and fisheries, whose sentence has been completed within the last 20 (twenty) years before nomination;
   2) commits to comply with laws and regulations, specifically in banking and sharia banking, and supports the policies of the Financial Services Authority;
   3) commits to the healthy development of SCB operations;
   4) is not prohibited from becoming a Principal Party, which among others is not listed in the Disqualified List (DTL);
   5) does not have non-performing loans and/or financing;
   6) has never been declared bankrupt and/or has never been a shareholder, controller, member of the Board of Directors, or member of the Board of Commissioners who was found guilty causing a company to be declared bankrupt within the last 5 (five) years before nomination;
   7) will not violate regulations regarding holding multiple positions;
   e. certificate or certificate from educational and training institutions and/or National Sharia Council – Indonesian Ulama Council regarding education and/or training in mu'amalah sharia, banking, and/or finance generally attended; f. recommendation letter from the National Sharia Council – Indonesian Ulama Council; and g. proof of having obtained a recommendation from the Remuneration and Nomination Committee.

6. Statement letter from shareholders that the source of funds used for SCB ownership, in case there is an increase in paid-up capital:
   a. does not originate from loans or financing facilities in any form from banks and/or other parties; and/or b. does not originate from and for the purpose of money laundering. In case the prospective SCB shareholder is a legal entity, the statement letter is signed by the management authorized to represent the respective legal entity.

7. Organizational structure plan and names of Executive Officials.

8. Feasibility study including market opportunities and economic potential.

9. Business plan which at least contains:
   a. business activity plans covering fund mobilization and disbursement and strategies to achieve them; and b. monthly balance sheet projections and cumulative monthly profit and loss reports for 12 (twelve) months starting from when the SCB operates;

10. Initial financial statements as an SCB showing that the current year profit and loss and last year's profit and loss have a balance of Rp0.00 (zero rupiah) or nil.

11. Corporate plan in the form of a long-term strategic plan to achieve SCB objectives.

12. Risk management guidelines including risk control system guidelines, internal control system plans, information technology system plans used, and guidelines regarding the implementation of Good Corporate Governance.

13. Complete and comprehensive work systems and procedures used in SCB operational activities.

14. Plan to settle all rights and obligations of the bank towards customers who are unwilling to become SCB customers.

15. Proof of operational readiness at least consisting of:
    a. readiness of buildings and office equipment including photos of the office building and room layout; b. documents showing readiness of information system technology including among others core banking system and information regarding telecommunications networks;
    c. proof of ownership or control over office buildings such as land rights certificates or lease agreements; and
    d. examples of forms or instruments with iB logos to be used for SCB operations.

16. Bank office network along with locations to be used as SCB offices, including among others head office, branch offices, sub-branch offices, cash offices, and cash service offices.

B. IMPLEMENTATION OF CHANGE OF BUSINESS ACTIVITIES Reports on the implementation of the change of business activities are submitted using the letter format as contained in Appendix II accompanied by proof of announcement of the implementation of the change of business activities in a newspaper with national circulation.

II. SUBMISSION OF LICENSE APPLICATION REQUIREMENTS AND REPORTING ON THE IMPLEMENTATION OF CHANGE OF BUSINESS ACTIVITIES TO THE FINANCIAL SERVICES AUTHORITY
Applications for licenses and/or submissions of reports on changes in business activities are submitted to the Financial Services Authority with the address of the Sharia Banking Department with copies to the Regional Office of the Financial Services Authority or Financial Services Authority Office, for CCBs or SCBs headquartered in the working area of the Regional Office of the Financial Services Authority or Financial Services Authority Office.

III. CLOSING

1. With the enactment of this Financial Services Authority Circular Letter, Bank Indonesia Circular Letter Number 11/24/DPbS regarding the Change of Business Activities of Conventional Commercial Banks to Sharia Commercial Banks is repealed and declared invalid.

2. Provisions in this Financial Services Authority Circular Letter take effect on the date of determination.

Determined in Jakarta on January 3, 2017
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signed
NELSON TAMPUBOLON

Copy matches the original
Legal Director 1
Legal Department signed
Yuliana

APPENDIX I
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2/SEOJK.03/2017 CONCERNING CHANGE OF BUSINESS ACTIVITIES OF CONVENTIONAL COMMERCIAL BANKS TO SHARIA COMMERCIAL BANKS

Number: .................... (Place), (Date, Month, Year)
Attachment: ....................
To
Sharia Banking Department
Financial Services Authority
Subject: Application for License to Change Business Activities of Conventional Commercial Banks to Sharia Commercial Banks

Assalamu’alaikum Wr. Wb.

Hereby we submit an application for a license to change business activities from ..........(name of Conventional Commercial Bank) to .........(name of Sharia Commercial Bank) located at ……………… To complete the aforementioned application, we hereby submit:

1. draft deed of amendment of the Articles of Association;
2. minutes of the general meeting of shareholders;
3. list of prospective shareholders along with details of each share ownership 1);
4. list of prospective members of the Board of Directors, members of the Board of Commissioners, and members of the Sharia Supervisory Board (SSB);
5. statement letter from shareholders;
6. organizational structure plan and names of Executive Officials;
7. feasibility study regarding market opportunities and economic potential;
8. business plan;
9. initial financial statements as a Sharia Commercial Bank;
10. corporate plan in the form of a long-term strategic plan to achieve the objectives of the Sharia Commercial Bank;
11. risk management guidelines including risk control system guidelines, internal control system plans, information technology system plans used, and guidelines regarding the implementation of Good Corporate Governance;
12. work systems and procedures;
13. plan to settle all rights and obligations of the bank towards customers who are unwilling to become Sharia Commercial Bank customers;
14. proof of operational readiness; and
15. bank office network along with locations to be used as Sharia Commercial Bank offices.

If there are questions or other matters related to this application letter, you can contact our employee namely ……… via telephone…….or email……..

Thus this application is submitted, thank you for your attention.
Wassalamu’alaikum Wr. Wb.
BOARD OF DIRECTORS OF CONVENTIONAL COMMERCIAL BANK

Copy to: 2)
1) If there are changes.
2) Regional Office of the Financial Services Authority or local Financial Services Authority Office for CCBs or SCBs headquartered in the working area of the Regional Office of the Financial Services Authority or Financial Services Authority Office.

Determined in Jakarta on January 3, 2017
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signature
NELSON TAMPUBOLON

Copy matches the original
Legal Director 1
Legal Department signature
Yuliana

APPENDIX II
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 2 /SEOJK.03/2017 CONCERNING CHANGE OF BUSINESS ACTIVITIES OF CONVENTIONAL COMMERCIAL BANKS TO SHARIA COMMERCIAL BANKS

Number: .................... (Place), (Date, Month, Year)
Attachment: ....................
To
Sharia Banking Department
Financial Services Authority
Subject: Report on Implementation of Change of Business Activities of Conventional Commercial Banks to Sharia Commercial Banks

Assalamu’alaikum Wr. Wb.

Referring to the copy of the Decision of the Commissioners of the Financial Services Authority Number …………… dated ………….. regarding Granting of License to Change Business Activities of Conventional Commercial Banks to Sharia Commercial Bank .................., hereby reported that we have started business activities on date ………...............

Attached we submit proof of announcement in a newspaper with national circulation.

Thus for your information.
Wassalamu’alaikum Wr. Wb.
BOARD OF DIRECTORS OF SHARIA COMMERCIAL BANK

Copy to: 1)
1) Regional Office of the Financial Services Authority or local Financial Services Authority Office for CCBs or SCBs headquartered in the working area of the Regional Office of the Financial Services Authority or Financial Services Authority Office.

Determined in Jakarta on January 3, 2017
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signature
NELSON TAMPUBOLON

Copy matches the original
Legal Director 1
Legal Department signature
Yuliana