Financial Services Authority Regulation Number 1/POJK.05/2015 on the Implementation of Risk Management for Non-Bank Financial Institutions

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 1/POJK.05/2015
ON
THE IMPLEMENTATION OF RISK MANAGEMENT
FOR NON-BANK FINANCIAL INSTITUTIONS
BY THE GRACE OF GOD THE ALMIGHTY
THE COMMISSIONERS' COUNCIL OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that the external and internal conditions of non-bank financial institutions can affect the development of the business activities of non-bank financial institutions and increase the complexity of the level of risk faced by such non-bank financial institutions; b. that the increasing complexity of risks needs to be balanced with the implementation of risk management that includes risk identification, measurement, monitoring, and control;
c. that based on the considerations referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation on the Implementation of Risk Management for Non-Bank Financial Institutions;
Recalling:

1. Law Number 11 of 1992 concerning Pension Funds (State Gazette of the Republic of Indonesia Year 1992 Number 37, Supplement to the State Gazette of the Republic of Indonesia Number 3477);
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 Number 5253);
3. Law Number 40 of 2014 concerning Insurance (State Gazette of the Republic of Indonesia Year 2014 Number 337, Supplement to the State Gazette of the Republic of Indonesia Number 5618);
4. Government Regulation Number 73 of 1992 Concerning the Conduct of Insurance Business (State Gazette of the Republic of Indonesia Year 1992 Number 120, Supplement to the State Gazette Number 3506) as amended several times by Government Regulation Number 81 of 2008 (State Gazette of the Republic of Indonesia Year 2008 Number 79, Supplement to the State Gazette Number 4856);
5. Government Regulation of the Republic of Indonesia Number 76 of 1992 concerning Employer Pension Funds (State Gazette of the Republic of Indonesia Year 1992 Number 126, Supplement to the State Gazette of the Republic of Indonesia Number 3507);
6. Government Regulation of the Republic of Indonesia Number 77 of 1992 concerning Financial Institution Pension Funds (State Gazette of the Republic of Indonesia Year 1992 Number 127, Supplement to the State Gazette of the Republic of Indonesia Number 3508);
   DECIDING:
   Establishing: FINANCIAL SERVICES AUTHORITY REGULATION ON THE IMPLEMENTATION OF RISK MANAGEMENT FOR NON-BANK FINANCIAL INSTITUTIONS.

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

1. Non-Bank Financial Institution, hereinafter abbreviated as NBFIs, is an institution that conducts activities in the insurance, pension fund, and financing institutions sectors, which includes:
   a. general insurance companies, life insurance companies, and reinsurance companies, including those conducting all or part of their business using Sharia principles as referred to in legislation concerning insurance; b. insurance brokers, reinsurance brokers, and insurance loss appraisers as referred to in legislation concerning insurance;
   c. pension funds, including those conducting all or part of their business using Sharia principles as referred to in legislation concerning pension funds;
   d. financing companies, including those conducting all or part of their business based on Sharia principles as referred to in legislation concerning financing institutions.
2. Risk is the potential occurrence of an event that can cause losses to NBFIs.
3. Strategic Risk is Risk that arises due to the failure to set appropriate strategies in achieving the main objectives and targets of NBFIs.
4. Operational Risk is Risk that arises as a result of the inadequacy or failure of internal processes, people, information technology systems, and/or events originating from outside the environment of NBFIs.
5. Asset and Liability Risk is Risk that arises as a result of the failure to manage the assets and liabilities of NBFIs.
6. Management Risk is Risk that arises as a result of the failure of NBFIs to maintain the best composition of its managers, namely the Board of Directors and Board of Commissioners, or equivalents, who have high competence and integrity.
7. Governance Risk is Risk that arises due to the potential for failure in the implementation of good governance of NBFIs, inappropriate management style, control environment, and behavior of every party involved directly or indirectly with NBFIs.
8. Funding Support Risk is Risk that arises due to the insufficiency of funds/capital available at NBFIs, including a lack of access to additional funds/capital in facing losses or unexpected fund/capital needs.
9. Insurance Risk is the risk of failure of insurance companies and reinsurance companies to meet obligations to policyholders and insured parties as a result of inadequate risk selection (underwriting) processes, premium setting (pricing), use of reinsurance, and/or claim handling.
10. Financing Risk is Risk that arises due to the failure of debtors and/or other parties to meet obligations to financing companies.
11. Risk Management is a series of procedures and methodologies used to identify, measure, monitor, and control Risks arising from the business activities of NBFIs.
12. Financial Services Authority, hereinafter abbreviated as OJK, is an independent institution free from the interference of other parties, which has the function, duties, and authorities for regulation, supervision, examination, and investigation as referred to in the law concerning the financial services authority.

CHAPTER II
IMPLEMENTATION OF RISK MANAGEMENT
Article 2
(1) NBFIs are required to implement Risk Management effectively.
(2) The implementation of Risk Management as referred to in paragraph (1) must at least cover:
a. active supervision by the Board of Directors, Board of Commissioners, or equivalents of NBFIs; b. adequacy of policies, procedures, and risk limit settings;
c. adequacy of risk identification, measurement, monitoring, and control processes;
d. risk management information systems; and e. comprehensive internal control systems.
Article 3
The implementation of Risk Management as referred to in Article 2 must be adjusted to the objectives, business policies, size, and complexity of NBFIs.
Article 4
(1) Risk Management as referred to in Article 2 for NBFIs in the form of general insurance companies, life insurance companies, and reinsurance companies, including those conducting all or part of their business using Sharia principles, must be implemented for:
a. Strategic Risk; b. Operational Risk;
c. Asset and Liability Risk;
d. Management Risk; e. Governance Risk; f. Funding Support Risk; and g. Insurance Risk.
(2) Risk Management as referred to in Article 2 for NBFIs in the form of insurance brokers, reinsurance brokers, and insurance loss appraisers must be implemented for:
a. Strategic Risk; b. Operational Risk;
c. Management Risk; and
d. Governance Risk.
(3) Risk Management as referred to in Article 2 for NBFIs in the form of pension funds, including those conducting all or part of their business using Sharia principles, must be implemented for:
a. Strategic Risk; b. Operational Risk;
c. Asset and Liability Risk;
d. Management Risk; e. Governance Risk; and f. Funding Support Risk.
(4) Risk Management as referred to in Article 2 for NBFIs in the form of financing companies, including those conducting all or part of their business using Sharia principles, must be implemented for:
a. Strategic Risk; b. Operational Risk;
c. Asset and Liability Risk;
d. Management Risk; e. Governance Risk; f. Funding Support Risk; and g. Financing Risk.
Article 5
(1) In order to implement Risk Management as referred to in Article 2, NBFIs are required to have guidelines for the implementation of Risk Management.
(2) NBFIs are required to evaluate the guidelines for the implementation of Risk Management as referred to in paragraph (1) at least once every 2 (two) years or when there are significant changes in Risk. (3) Further provisions regarding the procedures for drafting the guidelines for the implementation of Risk Management for NBFIs as referred to in paragraph (1) are regulated in an OJK Circular Letter.

CHAPTER III
ASSESSMENT OF RISK MANAGEMENT IMPLEMENTATION
Article 6
(1) NBFIs are required to prepare a self-assessment of the implementation of Risk Management at least once a year for the position as of December 31.
(2) NBFIs are required to submit a report on the results of the self-assessment as referred to in paragraph (1) to OJK no later than February 28 of the following year. (3) If the deadline for submitting the self-assessment report as referred to in paragraph (2) falls on a holiday, the submission deadline is the first working day thereafter. (4) The results of the self-assessment as referred to in paragraph (1) are used as the basis for compiling the assessment of the level of Risk of NBFIs as referred to in the OJK Regulation concerning the assessment of the level of risk of NBFIs. (5) Further provisions regarding the form, structure, and procedures for submitting the self-assessment report as referred to in paragraph (1) and paragraph (2) are regulated in an OJK Circular Letter.
Article 7
(1) OJK conducts an assessment of the implementation of Risk Management on NBFIs.
(2) NBFIs are required to provide data and information related to the implementation of Risk Management to OJK.

CHAPTER IV
SANCTIONS
Article 8
(1) OJK imposes administrative sanctions in the form of written reprimands to NBFIs that violate the provisions of Article 2 paragraph (1), Article 4, Article 5 paragraph (1) and paragraph (2), Article 6 paragraph (1) and paragraph (2), and Article 7 paragraph (2) of this Financial Services Authority Regulation. (2) Administrative sanctions in the form of written reprimands are imposed for a maximum of 3 (three) consecutive times, namely:
a. first written reprimand; b. second written reprimand; and
c. third written reprimand.
(3) The administrative sanction in the form of the first written reprimand as referred to in paragraph (2) letter a is established if the NBFIs violate the provisions as referred to in paragraph (1) with a compliance period of at most 30 (thirty) days from the establishment of the administrative sanction in the form of the first written reprimand. (4) The administrative sanctions in the form of the second and third written reprimands as referred to in paragraph (2) letters b and c are established if within a period of at most 30 (thirty) days from the establishment of the administrative sanction in the form of the first or second written reprimand, the NBFIs have not been able to overcome the causes of the administrative sanctions in the form of the first or second written reprimands. (5) In the event that NBFIs have been subjected to the administrative sanction in the form of the third written reprimand as referred to in paragraph (2) letter c and have not fulfilled the provisions as referred to in paragraph (4), OJK may require the Board of Directors, Board of Commissioners, or equivalents of the NBFIs concerned to undergo a re-evaluation of competence and propriety.

CHAPTER V
CLOSING PROVISIONS
Article 9
(1) At the time this Financial Services Authority Regulation comes into force, provisions concerning Risk Management for NBFIs are subject to this Financial Services Authority Regulation. (2) With the entry into force of this Financial Services Authority Regulation, NBFIs are required to adjust the implementation of Risk Management of NBFIs to this Financial Services Authority Regulation.
Article 10
This Financial Services Authority Regulation comes into force on January 1, 2016.
To ensure that everyone knows it, order the announcement of this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia. Established in Jakarta on March 23, 2015 CHAIRMAN OF THE COMMISSIONERS' COUNCIL FINANCIAL SERVICES AUTHORITY, Signed, MULIAMAN D. HADAD Promulgated in Jakarta on March 26, 2015 MINISTER OF LAW AND HUMAN RIGHTS REPUBLIC OF INDONESIA, Signed, YASONNA H. LAOLY STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2015 NUMBER 69 Copy in accordance with the original Director of Legal Affairs I Ministry of Law, Signed, Sudarmaji

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 1 /POJK.05/2015
ON
THE IMPLEMENTATION OF RISK MANAGEMENT
FOR NON-BANK FINANCIAL INSTITUTIONS
I. GENERAL
The financial industry in Indonesia has experienced rapid development, both from internal and external environments, especially for NBFIs. This certainly results in the increasing complexity of Risks for the business activities of such NBFIs. The increasing complexity of business Risks needs to be balanced with the implementation of adequate risk identification, measurement, monitoring, and control functions. This is intended so that NBFIs can increase the likelihood of achieving business objectives and provide a better basis for formulating strategic directions. Thus, NBFIs can conduct business activities in accordance with legislation and standards, principles, and practices of healthy business conduct. For this reason, regulations are needed for NBFIs to implement Risk Management.
II. ARTICLE BY ARTICLE
Article 1
Clearly sufficient.
Article 2
Paragraph (1)
Clearly sufficient.
Paragraph (2)
Letter a
Clearly sufficient.
Letter b
Procedures and risk limit settings are adjusted to the level of Risk to be taken (risk appetite) regarding the Risk of NBFIs.
Letter c
Clearly sufficient.
Letter d
Clearly sufficient.
Letter e
Clearly sufficient.
Article 3
Clearly sufficient.
Article 4
Clearly sufficient.
Article 5
Paragraph (1)
Clearly sufficient.
Paragraph (2)
Evaluation of the guidelines for the implementation of Risk Management is conducted at least once every 2 (two) years if there are no significant changes in Risk on NBFIs. If there are significant changes in Risk on NBFIs, evaluation of the guidelines must be conducted immediately after the occurrence of significant changes in Risk. What is meant by significant changes in Risk is indicated, among others, by an increase in the level of Risk of NBFIs to a higher level based on the results of the level of Risk assessment. Paragraph (3) Clearly sufficient.
Article 6
Clearly sufficient.
Article 7
Paragraph (1)
The assessment of the implementation of Risk Management conducted by OJK is part of supervisory activities regarding NBFIs, among others in order to conduct an assessment of the level of Risk of NBFIs. This is regulated in the OJK Regulation concerning the assessment of the level of risk of NBFIs. Paragraph (2) Clearly sufficient.
Article 8
Clearly sufficient.
Article 9
Paragraph (1)
Clearly sufficient.
Paragraph (2)
The adjustment of the implementation of Risk Management of NBFIs referred to in this provision also includes the adjustment of the guidelines for the implementation of Risk Management of NBFIs.
Article 10
Clearly sufficient.
SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5682