Financial Quality of Securities Companies

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 1 /POJK.04/2021
CONCERNING
FINANCIAL QUALITY OF SECURITIES COMPANIES
BY THE GRACE OF THE ALMIGHTY GOD,
THE COMMISSIONERS' COUNCIL OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that in order to manage credit risk, securities companies need to maintain the quality of their financing; b. that in order to maintain the quality of financing of securities companies, it is necessary to establish regulations governing the assessment of the quality of financing provided by securities companies;
c. that based on the considerations referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation concerning the Financial Quality of Securities Companies;
Recalling:

1. Law Number 8 of 1995 concerning Capital Markets (State Gazette of the Republic of Indonesia Year 1995 Number 64, Supplement to the State Gazette of the Republic of Indonesia Number 3608);
2. 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);

DECIDING:
Establishing: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE FINANCIAL QUALITY OF SECURITIES COMPANIES.

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

1. Securities are securities instruments, namely debt acknowledgment instruments, commercial paper, shares, bonds, debt certificates, investment contract unit participations, derivative contracts over securities, and every derivative of securities.
2. Securities Transaction is any activity or contract aimed at obtaining, releasing, or using Securities that results in a change of ownership or does not result in a change of ownership.
3. Stock Exchange is a party that organizes and provides systems and/or facilities to match buy and sell offers of Securities from other parties with the aim of trading Securities among them.
4. Stock Exchange Transaction is a contract made by Stock Exchange members according to the requirements determined by the Stock Exchange regarding the sale and purchase of Securities, borrowing and lending of Securities, or other contracts regarding Securities or the price of Securities.
5. Securities Company is a party that conducts business activities as an underwriter of Securities, securities trading intermediary, and/or investment manager.
6. Securities Trading Intermediary is a party that conducts business activities for the sale and purchase of Securities for its own interest or for the interest of other parties.
7. Securities Company Financing is the provision of funds by a Securities Company to its clients or other parties in the form of financing for Securities Transactions or other fund provision, including in the event of negative cash balances resulting from the failure of the Securities Company's clients to fulfill their obligations arising from non-financing transactions.
8. Margin Transaction is a securities purchase transaction for the interest of the Securities Company's clients that is financed by the Securities Company.
9. Repurchase Agreement Transaction, hereinafter referred to as Repo Transaction, is a sale or purchase contract of Securities with a promise to buy or sell back at a predetermined time and price.
10. Non-Financing Transaction is a securities purchase transaction in all markets in Stock Exchange Transactions by the Securities Company's clients that is not financed by the Securities Company.
11. Securities Company Financing for Margin Transactions is the provision of funds by a Securities Company to its clients who conduct Margin Transactions.
12. Securities Company Financing through Repo Transactions is the provision of funds by a Securities Company where the Securities Company acts as the buyer in Repo Transactions.
13. Securities Company Receivables from Non-Financing Transactions are the Securities Company's receivables from its clients resulting from the failure of such clients to fulfill their obligations in Non-Financing Transactions.
14. Financial Information Service System, hereinafter abbreviated as SLIK, is an information system managed by the Financial Services Authority to support the implementation of supervisory tasks and information services in the financial sector.
15. Stock Exchange Day is the day on which Securities trading is held at the Stock Exchange, namely Monday through Friday, except if such day is a national holiday or declared as a Stock Exchange holiday by the Stock Exchange.

Article 2
This Financial Services Authority Regulation applies to Securities Companies conducting business activities as Securities Trading Intermediaries.

CHAPTER II
ASSESSMENT, DETERMINATION, AND REPORTING OF FINANCIAL QUALITY OF SECURITIES COMPANIES
Article 3
(1) Securities Company Financing must be implemented by Securities Companies based on the principle of prudence.
(2) The principle of prudence as referred to in paragraph (1) is implemented by assessing, monitoring, and taking necessary steps to maintain the quality of Securities Company Financing to remain good and comply with relevant regulations in the capital market sector regarding Securities Company Financing.

Article 4
(1) Securities Companies are required to assess and determine the quality of Securities Company Financing.
(2) Securities Companies are required to report the results of the assessment and determination of the quality of Securities Company Financing as referred to in paragraph (1) to the Financial Services Authority via SLIK.

Article 5
(1) The Financial Services Authority may conduct further assessments of the quality of financing reported by Securities Companies through examinations of information sources or other documents. (2) In the event of a difference in the quality of Securities Company Financing assessment between the Securities Company and the Financial Services Authority, the quality of Securities Company Financing determined by the Financial Services Authority shall apply. (3) Securities Companies are required to adjust the quality of Securities Company Financing in accordance with the determination of the Financial Services Authority as referred to in paragraph (2) after receiving notification from the Financial Services Authority. (4) Securities Companies are required to report the results of the adjustment of quality as referred to in paragraph (3) to the Financial Services Authority via SLIK.

Article 6
The quality of Securities Company Financing includes the quality of:
a. Securities Company Financing for Margin Transactions; b. Securities Company Financing through Repo Transactions; and
c. Securities Company Receivables from Non-Financing Transactions.

Article 7
(1) The assessment of the quality of Securities Company Financing as referred to in Article 6 is established as:
a. regular; b. less regular; or
c. dormant.
(2) The determination of the assessment of the quality of Securities Company Financing as referred to in paragraph (1) is established based on the factors of collateral adequacy and the timeliness of fulfilling the obligations of the Securities Company's clients or other parties arising from Securities Company Financing.

Article 8
The assessment of the quality of Securities Company Financing as referred to in Article 7 paragraph (1) for Margin Transactions as referred to in Article 6 letter a is categorized as:
a. regular:

1. if the total exposure of the Securities Company's clients is less than the total collateral of the Securities Company's clients; or
2. if the total exposure of the Securities Company's clients is greater than the total collateral of the Securities Company's clients for a period of less than 5 (five) consecutive Stock Exchange Days;
   b. less regular if the total exposure of the Securities Company's clients is greater than the total collateral of the Securities Company's clients for a period of 5 (five) to 25 (twenty-five) consecutive Stock Exchange Days; and
   c. dormant if the total exposure of the Securities Company's clients is greater than the total collateral of the Securities Company's clients for more than 25 (twenty-five) consecutive Stock Exchange Days.

Article 9
The assessment of the quality of Securities Company Financing as referred to in Article 7 paragraph (1) through Repo Transactions as referred to in Article 6 letter b is categorized as follows:
a. regular if:

1. the Repo Transaction has not yet matured; and
2. the value of the exposure of the Securities Company's clients or other parties is less than the value of the repo securities;
   b. less regular if:
3. the value of the exposure of the Securities Company's clients or other parties is greater than the value of the repo securities for up to 5 (five) consecutive days; or
4. the Securities Company's clients or other parties fail to fulfill their obligations on the repurchase date for up to 5 (five) days after the date of such failure; and
   c. dormant if:
5. the value of the exposure of the Securities Company's clients or other parties is greater than the value of the repo securities for more than 5 (five) consecutive days; or
6. the Securities Company's clients or other parties fail to fulfill their obligations on the repurchase date for more than 5 (five) days after the date of such failure.

Article 10
Securities Company Receivables from Non-Financing Transactions as referred to in Article 6 letter c are categorized as dormant as referred to in Article 7 paragraph (1) letter c if, by the fifth Stock Exchange Day after the settlement date of the Stock Exchange Transaction, the Securities Company still has receivables from the clients.

Article 11
Securities Companies are required to obtain approval from the recipients of Securities Company Financing that the information on the quality of Securities Company Financing reported via SLIK can be known by parties entitled to obtain such information based on Financial Services Authority regulations regarding reporting and requesting debtor information via SLIK.

CHAPTER III
ADMINISTRATIVE SANCTIONS
Article 12
(1) Any party that violates the provisions as referred to in Article 3 paragraph (1), Article 4, Article 5 paragraph (3), paragraph (4), and Article 11 shall be subject to administrative sanctions. (2) Sanctions as referred to in paragraph (1) shall also be imposed on parties causing the violation as referred to in paragraph (1). (3) Sanctions as referred to in paragraph (1) and paragraph (2) shall be imposed by the Financial Services Authority. (4) Administrative sanctions as referred to in paragraph (1) consist of:
a. written warning; b. fine, namely the obligation to pay a certain amount of money;
c. restriction of business activities;
d. suspension of business activities; e. revocation of business license; f. cancellation of approval; and/or g. cancellation of registration.
(5) Administrative sanctions as referred to in paragraph (4) letters b, c, d, e, f, or g may be imposed with or without being preceded by the imposition of administrative sanctions in the form of a written warning as referred to in paragraph (4) letter a. (6) Administrative sanctions in the form of a fine as referred to in paragraph (4) letter b may be imposed separately or together with the imposition of administrative sanctions as referred to in paragraph (4) letters c, d, e, f, or g. (7) The procedure for imposing sanctions as referred to in paragraph (3) shall be carried out in accordance with the provisions of the relevant regulations.

Article 13
In addition to administrative sanctions as referred to in Article 12 paragraph (4), the Financial Services Authority may take specific actions against any party that violates the provisions of this Financial Services Authority Regulation.

Article 14
The Financial Services Authority may announce the imposition of administrative sanctions as referred to in Article 12 paragraph (4) and specific actions as referred to in Article 13 to the public.

CHAPTER IV
CLOSING PROVISIONS
Article 15
This Financial Services Authority Regulation shall come into force on the date of the reporting obligation of Securities Companies conducting business activities as Securities Trading Intermediaries via SLIK, as regulated in the Financial Services Authority regulation regarding reporting and requesting debtor information via SLIK.

This copy is consistent with the original
Legal Director 1
Legal Department signed
Mufli Asmawidjaja

To be known by everyone, ordering the enactment of this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.
Established in Jakarta on January 18, 2021
CHAIRMAN OF THE COMMISSIONERS' COUNCIL
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Enacted in Jakarta on January 19, 2021
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY
STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2021 NUMBER 12

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 1 /POJK.04/2021
CONCERNING
FINANCIAL QUALITY OF SECURITIES COMPANIES

I. GENERAL
In the operations of Securities Companies, there are several financing activities conducted by Securities Companies, whether aimed at financing a Securities Transaction or for other purposes. On one hand, these activities have the benefit of encouraging the increase in liquidity of Securities Transactions, but on the other hand, these activities certainly have risks that must be mitigated. In light of this, it is necessary to have regulations that establish the quality of financing provided by Securities Companies so that it is expected that the implementation of each financing provided by Securities Companies can be carried out with good quality.

II. ARTICLE BY ARTICLE
Article 1
Sufficiently clear.

Article 2
Sufficiently clear.

Article 3
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Steps that can be taken by Securities Companies to maintain the quality of Securities Company Financing to remain good include applying adequate standard operating procedures and conducting regular monitoring of the quality of financing provided by Securities Companies. What is meant by "relevant regulations in the capital market sector regarding Securities Company Financing" includes regulations governing financing of Securities Transactions by Securities Companies for clients, transactions short selling by Securities Companies, guidelines for Repo Transactions for financial service institutions, and internal controls of Securities Companies conducting business activities as Securities Trading Intermediaries.

Article 4
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Reports on the results of the assessment and determination of the quality of Securities Company Financing via SLIK are carried out in accordance with Financial Services Authority regulations regarding reporting and requesting debtor information via SLIK.

Article 5
Paragraph (1)
Assessments conducted by the Financial Services Authority are based on, among other things, assessments and information regarding the condition of the Securities Company's clients and other parties receiving Securities Company Financing. Information sources or other documents include information sources or documents obtained from examinations or analyses of other reports from Securities Companies. Paragraph (2) Sufficiently clear. Paragraph (3) The determination of the quality of Securities Company Financing by the Financial Services Authority is conducted through a letter to the Securities Company. Paragraph (4) Sufficiently clear.

Article 6
Sufficiently clear.

Article 7
Paragraph (1)
Sufficiently clear.
Paragraph (2)
What is meant by "other parties" is parties other than clients acting as sellers in Repo Transactions.

Article 8
Letter a
What is meant by "client exposure" is the total outstanding financing that has been provided by the Securities Company to clients in the context of Margin Transactions.
What is meant by "client collateral" is the amount of funds and/or Securities owned by clients that are submitted by the clients to the Securities Company as collateral for the settlement of Margin Transactions. Letter b Sufficiently clear. Letter c Sufficiently clear.

Article 9
Letter a
What is meant by "exposure value" is the total outstanding financing that has been provided by the Securities Company to the Securities Company's clients or other parties in Repo Transactions. What is meant by "other parties" is parties other than clients acting as sellers in Repo Transactions. What is meant by "repo securities" are Securities submitted by the Securities Company's clients or other parties in Repo Transactions, including Securities traded, substitute Securities, and additional Securities requested by the Securities Company due to changes in market prices of the Securities traded in Repo Transactions. Letter b Sufficiently clear. Letter c Sufficiently clear.

Article 10
Sufficiently clear.

Article 11
Sufficiently clear.

Article 12
Sufficiently clear.

Article 13
What is meant by "specific actions" includes actions by the Financial Services Authority ordering Securities Companies to improve the assessment of the quality of financing provided by them.

Article 14
Sufficiently clear.

Article 15
Sufficiently clear.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6616