Financial Services Authority Regulation Number 28/POJK.05/2020 Concerning the Health Level Assessment of Non-Bank Financial Service Institutions

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHABILITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 28/POJK.05/2020
CONCERNING
HEALTH LEVEL ASSESSMENT OF NON-BANK FINANCIAL SERVICE INSTITUTIONS BY THE GRACE OF THE ALMIGHTY GOD THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that the health level reflecting the condition and performance of non-bank financial service institutions serves as a tool for the Financial Services Authority in determining supervision strategies and focus; b. that to improve the effectiveness of health level assessments, it is necessary to assess the health level of non-bank financial service institutions using a risk-based approach;
c. that regulations regarding health level assessments applicable to non-bank financial service institutions need to be adjusted and integrated;
d. that based on the considerations referred to in letters a, b, and c, it is necessary to establish a Financial Services Authority Regulation concerning the Health Level Assessment of Non-Bank Financial Service 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 of the Republic of Indonesia 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);

DECIDING:
Establishing: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE HEALTH LEVEL ASSESSMENT OF NON-BANK FINANCIAL SERVICE INSTITUTIONS.

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

1. Non-Bank Financial Service Institutions, hereinafter referred to as LJKNB, are insurance companies, pension funds, and financing companies.
2. Board of Directors is the corporate organ authorized and fully responsible for managing the corporation for the benefit of the corporation, in accordance with the intent and purpose of the corporation, and representing the corporation, both in and out of court, in accordance with the articles of association for LJKNB in the form of a limited liability company or equivalent to the Board of Directors for LJKNB in the form of a legal entity of a cooperative, joint venture, and pension fund.
3. Board of Commissioners is the corporate organ tasked with conducting general and/or specific supervision in accordance with the articles of association and providing advice to the Board of Directors for LJKNB in the form of a limited liability company or equivalent to the Board of Commissioners for LJKNB in the form of a legal entity of a cooperative, joint venture, and pension fund.
4. LJKNB Health Level is the result of assessing the condition of LJKNB conducted regarding good corporate governance, risk profiles, profitability, and capital or funding.
5. Composite Rating is the final rating of the LJKNB Health Level assessment results.
6. Subsidiary Company is a company owned and/or controlled by LJKNB directly or indirectly, both domestically and abroad.
7. Control is an action aimed at influencing the management and/or policies of a company in any way, directly or indirectly.

Article 2
LJKNB as referred to in Article 1 number 1 includes:

1. insurance companies, consisting of:
   a. insurance companies, including those conducting part of their business based on Sharia principles; b. reinsurance companies, including those conducting part of their business based on Sharia principles;
   c. Sharia insurance companies; and
   d. Sharia reinsurance companies, as referred to in regulations concerning insurance;
2. pension funds as referred to in regulations concerning pension funds, including those conducting all or part of their business based on Sharia principles;
3. financing companies, consisting of:
   a. financing companies as referred to in regulations concerning financing companies, including those conducting part of their business based on Sharia principles; and b. Sharia financing companies as referred to in regulations concerning Sharia financing companies.

CHAPTER II
LJKNB HEALTH LEVEL ASSESSMENT
Article 3
(1) LJKNB is required to maintain and/or improve the LJKNB Health Level by applying prudence principles and risk management in conducting business activities.
(2) The Board of Directors and Board of Commissioners are responsible for maintaining and monitoring the LJKNB Health Level and taking necessary steps to maintain and/or improve the LJKNB Health Level as referred to in paragraph (1). (3) LJKNB is required to conduct LJKNB Health Level assessments using a risk-based approach individually. (4) In the event that LJKNB exercises Control over a Subsidiary Company, in addition to conducting health level assessments using an individual risk-based approach as referred to in paragraph (3), LJKNB is required to conduct health level assessments using a risk-based approach on a consolidated basis. (5) LJKNB conducting part of its business based on Sharia principles is required to conduct health level assessments for Sharia units or Sharia business units using an individual approach.

Article 4
(1) LJKNB is required to conduct self-assessments of the LJKNB Health Level as referred to in Article 3 paragraphs (3) through (5).
(2) Self-assessments of the LJKNB Health Level as referred to in paragraph (1) are conducted at least annually for the position at the end of December.
(3) In addition to conducting self-assessments as referred to in paragraph (2), LJKNB is required to update self-assessments of the LJKNB Health Level when necessary.
(4) The results of self-assessments of the LJKNB Health Level as referred to in paragraphs (2) and (3) must receive approval from the Board of Directors.
(5) The results of self-assessments of the LJKNB Health Level as referred to in paragraph (4) must be submitted to the Board of Commissioners.
(6) LJKNB is required to submit the results of self-assessments of the LJKNB Health Level to the Financial Services Authority no later than:
a. February 15 for LJKNB Health Level assessments as referred to in paragraph (2); or b. 30 (thirty) working days since the date of updating self-assessments of the LJKNB Health Level as referred to in paragraph (3). (7) If the submission deadline for the results of self-assessments of the LJKNB Health Level as referred to in paragraph (5) letter a falls on a holiday, the results of self-assessments of the LJKNB Health Level are submitted on the next working day.

Article 5
(1) The Financial Services Authority conducts LJKNB Health Level assessments annually for the position at the end of December.
(2) The Financial Services Authority updates LJKNB Health Level assessments when necessary.
(3) LJKNB Health Level assessments as referred to in paragraph (1) and updates of LJKNB Health Level assessments as referred to in paragraph (2) are conducted based on examination results, periodic reports submitted by LJKNB, and/or other information.

Article 6
In the event of differences between the results of LJKNB Health Level assessments conducted by the Financial Services Authority as referred to in Article 5 and the results of self-assessments of the LJKNB Health Level conducted by LJKNB as referred to in Article 4, the results of LJKNB Health Level assessments conducted by the Financial Services Authority shall prevail.

CHAPTER III
MECHANISM FOR INDIVIDUAL LJKNB HEALTH LEVEL ASSESSMENT
Article 7
(1) Individual LJKNB Health Level assessments as referred to in Article 3 paragraph (3) for insurance companies and financing companies are conducted with assessment coverage regarding the following factors:
a. good corporate governance; b. risk profiles;
c. profitability; and
d. capital adequacy.
(2) Individual LJKNB Health Level assessments as referred to in Article 3 paragraph (3) for employer pension funds are conducted with assessment coverage regarding the following factors:
a. good corporate governance; b. risk profiles;
c. profitability; and
d. funding.
(3) Individual LJKNB Health Level assessments as referred to in Article 3 paragraph (3) for financial institution pension funds are conducted with assessment coverage regarding the following factors:
a. good corporate governance; b. risk profiles; and
c. profitability.
(4) Individual health level assessments for Sharia units or Sharia business units as referred to in Article 3 paragraph (5) include assessments regarding the risk profile factor.
(5) Further regulations regarding individual LJKNB Health Level assessments as referred to in paragraphs (1) through (4) are established by the Financial Services Authority.

Article 8
(1) Assessments regarding the good corporate governance factor as referred to in Article 7 paragraph (1) letter a, paragraph (2) letter a, and paragraph (3) letter a are assessments regarding the implementation of good corporate governance principles by LJKNB. (2) Assessments regarding the risk profile factor as referred to in Article 7 paragraph (1) letter b, paragraph (2) letter b, paragraph (3) letter b, and paragraph (4) are assessments regarding inherent risk and the quality of risk management implementation in LJKNB operations concerning 9 (nine) risks, namely:
a. strategic risk; b. operational risk;
c. insurance risk, for insurance companies;
d. credit risk; e. market risk; f. liquidity risk; g. legal risk; h. compliance risk; and
i. reputational risk.
(3) Assessments of the quality of risk management implementation as referred to in paragraph (2) refer to Financial Services Authority Regulations concerning risk management implementation for LJKNB. (4) Risks as referred to in paragraph (2) can be grouped into 3 (three) groups, namely:
a. business risk group:

1. insurance risk, for insurance companies; and
2. strategic risk;
   b. financial risk group:
3. credit risk;
4. market risk;
5. operational risk; and
6. liquidity risk; and
   c. governance risk group:
7. compliance risk;
8. legal risk; and
9. reputational risk.
   (5) Assessments regarding the profitability factor as referred to in Article 7 paragraph (1) letter c, paragraph (2) letter c, and paragraph (3) letter c include at least assessments regarding:
   a. profitability performance; b. profitability sources; and
   c. sustainability of LJKNB profitability.
   (6) Assessments regarding the capital adequacy factor as referred to in Article 7 paragraph (1) letter d include at least assessments regarding:
   a. capital adequacy levels; and b. capital management.
   (7) Assessments regarding the funding factor as referred to in Article 7 paragraph (2) letter d include at least assessments regarding:
   a. funding conditions; and b. additional funding.
   (8) Further regulations regarding assessments of the good corporate governance factor, risk profile factor, profitability factor, capital adequacy factor, and funding factor as referred to in paragraphs (1), (2), (3), (5), (6), and (7) are established by the Financial Services Authority.

Article 9
(1) Each factor of the LJKNB Health Level assessment as referred to in Article 7 is rated based on a comprehensive and structured analytical framework.
(2) Ratings for each factor as referred to in paragraph (1) are categorized as follows:
a. rating 1; b. rating 2;
c. rating 3;
d. rating 4; and e. rating 5.
(3) Determination of ratings for the good corporate governance factor is conducted based on comprehensive and structured analysis of the results of assessments of the implementation of good corporate governance principles by LJKNB and other information related to LJKNB good corporate governance. (4) Determination of ratings for the risk profile factor is conducted through the following stages:
a. determination of risk levels for each risk as referred to in Article 8 paragraph (2); b. determination of composite inherent risk levels and composite quality of risk management implementation; and
c. determination of the risk profile factor rating based on comprehensive and structured analysis of the results as referred to in letters a and b, considering the significance of each risk to the overall risk profile.
(5) Determination of ratings for the profitability factor is conducted based on comprehensive and structured analysis of profitability parameters or indicators, considering the significance of each parameter or indicator and other issues affecting LJKNB profitability. (6) Determination of ratings for the capital adequacy factor is conducted based on comprehensive and structured analysis of capital adequacy parameters or indicators, considering the significance of each parameter or indicator and other issues affecting the capital adequacy of insurance companies and financing companies. (7) Determination of ratings for the funding factor is conducted based on comprehensive and structured analysis of funding parameters or indicators, considering the significance of each parameter or indicator and other issues affecting the funding of employer pension funds. (8) Further regulations regarding the determination of ratings for the good corporate governance factor, risk profile factor, profitability factor, capital adequacy factor, and funding factor as referred to in paragraphs (3) through (7) are established by the Financial Services Authority.

Article 10
(1) Composite Ratings of LJKNB Health Levels are determined based on comprehensive and structured analysis of each factor rating as referred to in Article 9 paragraphs (3) through (7), considering the materiality and significance of each factor. (2) Composite Ratings as referred to in paragraph (1) are categorized as follows:
a. Composite Rating 1; b. Composite Rating 2;
c. Composite Rating 3;
d. Composite Rating 4; and e. Composite Rating 5.
(3) Composite Rating 1 as referred to in paragraph (2) letter a reflects the condition of LJKNB that is generally very healthy, thus assessed as very capable of facing significant negative influences from changes in business conditions and other external factors. (4) Composite Rating 2 as referred to in paragraph (2) letter b reflects the condition of LJKNB that is generally healthy, thus assessed as capable of facing significant negative influences from changes in business conditions and other external factors. (5) Composite Rating 3 as referred to in paragraph (2) letter c reflects the condition of LJKNB that is generally fairly healthy, thus assessed as fairly capable of facing significant negative influences from changes in business conditions and other external factors. (6) Composite Rating 4 as referred to in paragraph (2) letter d reflects the condition of LJKNB that is generally less healthy, thus assessed as less capable of facing significant negative influences from changes in business conditions and other external factors. (7) Composite Rating 5 as referred to in paragraph (2) letter e reflects the condition of LJKNB that is generally unhealthy, thus assessed as unable to face significant negative influences from changes in business conditions and other external factors. (8) Further regulations regarding Composite Ratings of LJKNB Health Levels as referred to in paragraphs (3) through (7) are established by the Financial Services Authority.

CHAPTER IV
MECHANISM FOR CONSOLIDATED LJKNB HEALTH LEVEL ASSESSMENT
Article 11
(1) Consolidated LJKNB Health Level assessments as referred to in Article 3 paragraph (4) for insurance companies and financing companies are conducted with assessment coverage regarding the following factors:
a. good corporate governance; b. risk profiles;
c. profitability; and
d. capital adequacy.
(2) Consolidated LJKNB Health Level assessments as referred to in Article 3 paragraph (4) for employer pension funds are conducted with assessment coverage regarding the following factors:
a. good corporate governance; b. risk profiles;
c. profitability; and
d. funding.
(3) Consolidated LJKNB Health Level assessments as referred to in Article 3 paragraph (4) for financial institution pension funds are conducted with assessment coverage regarding the following factors:
a. good corporate governance; b. risk profiles; and
c. profitability.

Article 12
(1) Determination of ratings for the good corporate governance factor on a consolidated basis as referred to in Article 11 paragraph (1) letter a, paragraph (2) letter a, and paragraph (3) letter a is conducted considering:
a. the significance or materiality of the Subsidiary Company's share to LJKNB on a consolidated basis; and b. issues related to the implementation of good corporate governance principles in the Subsidiary Company that significantly affect the implementation of good corporate governance principles on a consolidated basis. (2) Determination of ratings for the risk profile factor on a consolidated basis as referred to in Article 11 paragraph (1) letter b, paragraph (2) letter b, and paragraph (3) letter b is conducted considering:
a. the significance or materiality of the Subsidiary Company's share to LJKNB on a consolidated basis; and b. risk profile issues in the Subsidiary Company that significantly affect the consolidated risk profile. (3) Determination of ratings for the profitability factor on a consolidated basis as referred to in Article 11 paragraph (1) letter c, paragraph (2) letter c, and paragraph (3) letter c is conducted based on comprehensive and structured analysis of specific profitability parameters or indicators resulting from consolidated financial reports of LJKNB and other financial information, considering:
a. the significance or materiality of the Subsidiary Company's share to LJKNB on a consolidated basis; and b. profitability issues in the Subsidiary Company that significantly affect consolidated profitability. (4) Determination of ratings for the capital adequacy factor on a consolidated basis as referred to in Article 11 paragraph (1) letter d is conducted based on comprehensive and structured analysis of specific capital adequacy parameters or indicators resulting from consolidated financial reports of insurance companies and financing companies and other financial information, considering:
a. the significance or materiality of the Subsidiary Company's share to LJKNB on a consolidated basis; and b. capital adequacy issues in the Subsidiary Company that significantly affect consolidated capital adequacy. (5) Determination of ratings for the funding factor on a consolidated basis as referred to in Article 11 paragraph (2) letter d refers to the assessment of the LJKNB Health Level on an individual basis regarding the funding factor as referred to in Article 8 paragraph (7). (6) Further regulations regarding the determination of ratings for the good corporate governance factor, risk profile factor, profitability factor, and capital adequacy factor on a consolidated basis as referred to in paragraphs (1) through (5) are established by the Financial Services Authority.

Article 13
For LJKNB conducting consolidated LJKNB Health Level assessments:
a. the mechanism for determining ratings for each assessment factor and determining Composite Ratings of LJKNB Health Levels on a consolidated basis; and b. the categorization of ratings for each assessment factor and Composite Ratings on a consolidated basis, must refer to the mechanism for determining and categorizing ratings for LJKNB on an individual basis as referred to in Article 9 and Article 10.

CHAPTER V
FOLLOW-UP ON LJKNB HEALTH LEVEL ASSESSMENT RESULTS
Article 14
(1) In the event that LJKNB Health Level assessment results include:
a. assessment factor ratings for LJKNB Health Levels determined as rating 4 or rating 5; b. Composite Ratings of LJKNB Health Levels determined as rating 4 or rating 5; and/or
c. Composite Ratings of LJKNB Health Levels determined as rating 3, but with significant issues that need to be addressed to not disrupt the continuity of LJKNB business,
LJKNB is required to submit action plans to the Financial Services Authority.
(2) In the event that health level assessments for Sharia units or Sharia business units obtain risk profile factor assessment results of rating 4 or rating 5, insurance companies, reinsurance companies, pension funds, or financing companies with Sharia units or Sharia business units are required to submit action plans to the Financial Services Authority. (3) Action plans as referred to in paragraphs (1) and (2) are commitments of LJKNB to the Financial Services Authority, containing at least improvement steps to be implemented by LJKNB to address the issues faced, along with completion target times. (4) The Financial Services Authority has the authority to request LJKNB to adjust action plans as referred to in paragraphs (1) and (2). (5) LJKNB is required to submit action plans as referred to in paragraphs (1) and (2):
a. for action plans that are follow-ups from LJKNB Health Level assessment results by the Financial Services Authority, submitted within the time limit determined by the Financial Services Authority; or b. for action plans that are follow-ups from self-assessment results of LJKNB, submitted no later than:

1. February 15 for LJKNB Health Level assessments for the position at the end of December; or
2. 30 (thirty) working days since the date of updating self-assessment results of LJKNB Health Levels.
   (6) If the submission deadline for action plans regarding self-assessment results of LJKNB Health Levels as referred to in paragraph (5) letter b number 1 falls on a holiday, the results of self-assessments of LJKNB Health Levels are submitted on the next working day.

Article 15
(1) LJKNB is required to submit reports on the implementation of action plans as referred to in Article 14 paragraphs (1) and (2) no later than:
a. 10 (ten) working days after the target completion time of the action plan; and/or b. 10 (ten) working days after the end of the month and conducted monthly, if there are significant issues that will disrupt the timely completion of the action plan. (2) Reports on the implementation of action plans submitted by LJKNB contain at least explanations regarding the realization of action plan implementation, accompanied by implementation evidence and/or supporting documents related thereto.

Article 16
The Financial Services Authority is authorized to conduct examinations regarding the implementation of action plans by Non-Bank Financial Service Institutions (LJKNB).

CHAPTER VI
SUBMISSION PROCEDURES

Article 17
(1) LJKNB must submit:
a. the results of its own assessment of the LJKNB Health Level as referred to in Article 4 paragraph (5); b. the action plan as referred to in Article 14 paragraph (5); and
c. the report on the implementation of the action plan as referred to in Article 15 paragraph (1),
via an online system through the Financial Services Authority's data communication network system.

(2) In the event that the Financial Services Authority's data communication network system is not yet available or experiences technical disturbances, the submission of the self-assessment results, action plans, and reports on the implementation of action plans as referred to in paragraph (1) shall be submitted to the Financial Services Authority offline.

(3) In the event of technical disturbances as referred to in paragraph (2), the Financial Services Authority shall announce this through its website.

(4) The submission of reports offline as referred to in paragraph (2) must be accompanied by a printed cover letter signed by the Board of Directors.

(5) Further provisions regarding the submission of the LJKNB Health Level self-assessment results, action plans, and reports on the implementation of action plans as referred to in paragraph (1) and paragraph (2) shall be determined by the Financial Services Authority.

CHAPTER VII
COMPLIANCE ENFORCEMENT

First Section
Administrative Sanctions

Article 18
(1) LJKNB that violate the provisions as referred to in Article 3 paragraph (1), paragraph (3), paragraph (4), and paragraph (5), Article 4 paragraph (1), paragraph (3), paragraph (4), and paragraph (5), and Article 13 shall be subject to administrative sanctions in the form of a written warning.

(2) LJKNB that violate the provisions as referred to in Article 4 paragraph (6), Article 14 paragraph (1), paragraph (2), and paragraph (5), and Article 15 paragraph (1) shall be subject to administrative sanctions in the form of:
a. a written warning; and b. an administrative fine.

(3) The administrative fine sanction as referred to in paragraph (2) letter b shall be imposed together with the imposition of the written warning sanction as referred to in paragraph (2) letter a.

(4) The amount of the administrative fine sanction as referred to in paragraph (2) letter b is set at Rp500,000.00 (five hundred thousand rupiah) per day of delay and at most Rp25,000,000.00 (twenty-five million rupiah).

(5) In the event that LJKNB violates the provisions as referred to in paragraph (1) and paragraph (2) but the violation has been corrected, it shall be subject to a written warning sanction that ends automatically.

(6) In the event that LJKNB has fulfilled the provisions as referred to in paragraph (1) and paragraph (2), the Financial Services Authority shall revoke the written warning sanction.

Second Section
Downgrading of Risk Level and Health Level Assessment Results and Re-assessment of Principal Parties of LJKNB

Article 19
In the event that LJKNB does not comply after being subject to administrative sanctions as referred to in Article 18, the Financial Services Authority may:
a. downgrade the risk level or health level assessment results; and/or b. conduct a re-assessment of the principal parties of LJKNB.

CHAPTER VIII
TRANSITIONAL PROVISIONS

Article 20
(1) The results of the LJKNB risk level assessment based on Financial Services Authority Regulation Number 10/POJK.05/2014 concerning the Assessment of the Risk Level of Non-Bank Financial Service Institutions shall remain valid until the submission of the LJKNB Health Level assessment results.

(2) For LJKNB that have obtained business licenses before this Financial Services Authority Regulation is promulgated, the provisions regarding the obligation to conduct health level assessments using a consolidated risk-based approach as referred to in Article 3 paragraph (4) shall apply 3 (three) years from the date this Financial Services Authority Regulation is promulgated.

(3) For LJKNB that have obtained business licenses before this Financial Services Authority Regulation is promulgated, the provisions regarding administrative sanctions as referred to in Article 18 shall apply 1 (one) year from the date this Financial Services Authority Regulation is promulgated.

Article 21
(1) The fulfillment of financial health level requirements for financing companies in the provisions of legislation concerning financing companies shall refer to the results of the LJKNB Health Level assessment based on this Financial Services Authority Regulation and its implementing regulations.

(2) The fulfillment of risk level requirements for LJKNB in the provisions of legislation concerning LJKNB shall refer to the results of the LJKNB Health Level assessment based on this Financial Services Authority Regulation and its implementing regulations.

(3) The LJKNB Health Level assessment results as referred to in paragraph (2) and paragraph (3) shall be set at a minimum Composite Rating 2 as referred to in Article 10 paragraph (2) letter b.

CHAPTER IX
CLOSING PROVISIONS

Article 22
At the time this Financial Services Authority Regulation takes effect, provisions regarding procedures and methods for imposing administrative sanctions in the insurance sector as regulated in Financial Services Authority Regulations concerning procedures and methods for imposing administrative sanctions in the insurance sector and the blocking of assets of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies shall not apply to violations of this Financial Services Authority Regulation.

Article 23
At the time this Financial Services Authority Regulation takes effect:
a. Financial Services Authority Regulation Number 10/POJK.05/2014 concerning the Assessment of the Risk Level of Non-Bank Financial Service Institutions (State Gazette of the Republic of Indonesia Year 2014 Number 197, Supplement to the State Gazette of the Republic of Indonesia Number 5575) together with its implementing provisions; b. Article 4 paragraph (1), paragraph (3), and paragraph (4) of Financial Services Authority Regulation Number 1/POJK.05/2015 concerning the Implementation of Risk Management for Non-Bank Financial Service Institutions (State Gazette of the Republic of Indonesia Year 2015 Number 69, Supplement to the State Gazette of the Republic of Indonesia Number 5682);
c. Article 89, Article 99, and Article 100 of Financial Services Authority Regulation of the Republic of Indonesia Number 35/POJK.05/2018 concerning the Conduct of Financing Company Business (State Gazette of the Republic of Indonesia Year 2018 Number 260, Supplement to the State Gazette of the Republic of Indonesia Number 6286); and
d. Article 86, Article 96, and Article 97 of Financial Services Authority Regulation of the Republic of Indonesia Number 10/POJK.05/2019 concerning the Conduct of Islamic Financing Company Business and Islamic Business Units of Financing Companies (State Gazette of the Republic of Indonesia Year 2019 Number 40, Supplement to the State Gazette of the Republic of Indonesia Number 6320), are repealed and declared invalid.

Article 24
This Financial Services Authority Regulation shall take effect on the date of its promulgation.

This copy is in accordance with the original
Deputy Director of Legal Consultation and
Harmonization of Banking Regulations 1
Legal Directorate 1
Department of Law signed
Wiwit Puspasari

To ensure everyone knows, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on 22 April 2020
CHAIRMAN OF THE COMMISSIONERS COUNCIL
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Promulgated in Jakarta on 29 April 2020
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2020 NUMBER 120

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 28 /POJK.05/2020
CONCERNING
THE ASSESSMENT OF THE HEALTH LEVEL OF NON-BANK FINANCIAL SERVICE INSTITUTIONS

I. GENERAL

Law Number 21 of 2011 concerning the Financial Services Authority mandates that the supervision and regulation functions over all activities in the Indonesian financial services sector are carried out by the Financial Services Authority. The purpose of establishing the Financial Services Authority is so that all financial services activities are conducted in an orderly, fair, transparent, and accountable manner and are able to protect the interests of consumers and the public. In line with the purpose of establishing the Financial Services Authority, this Financial Services Authority Regulation is intended so that LJKNB can continue to maintain their health level by considering all factors covered in the assessment. The LJKNB Health Level, which is a reflection of the condition and performance of LJKNB, serves as a tool for the Financial Services Authority in establishing supervision strategies and focus areas for such LJKNB. The current development of the LJKNB industry is increasingly complex and dynamic. This affects the risks faced by LJKNB, necessitating a methodology for assessing the LJKNB Health Level that can reflect the current and future conditions of LJKNB. The LJKNB Health Level assessment methodology must be able to serve as a tool to evaluate the performance of the LJKNB industry with comprehensive and structured assessments of the integration results of risk profiles and performance, including good corporate governance, profitability, capital adequacy, and/or funding. Provisions regarding the assessment of the LJKNB Health Level are harmonized in an integrated manner in this Financial Services Authority Regulation concerning the Assessment of the Health Level of Non-Bank Financial Service Institutions, which among other things regulates:

1. the obligation to maintain and/or improve the LJKNB Health Level by applying the principle of prudence and risk management;
2. the obligation to conduct LJKNB Health Level assessments using a risk-based approach individually and in a consolidated manner;
3. the components and methods of assessing the LJKNB Health Level, which include: good corporate governance, risk profile, profitability, capital adequacy, and/or funding;
4. the submission of action plans for LJKNB that do not meet certain criteria based on the results of the LJKNB Health Level assessment; and
5. the imposition of sanctions.
   The implementation of this Financial Services Authority Regulation is in line with the implementation of other legislation, particularly that which regulates prudential aspects of LJKNB, such as Financial Services Authority Regulations concerning governance, risk management, business conduct, and financial health of LJKNB. This is particularly reflected in the parameters or indicators used in conducting the LJKNB Health Level assessment. Based on the above, it is necessary to establish provisions regarding the Health Level of Non-Bank Financial Service Institutions in a Financial Services Authority Regulation.

II. ARTICLE BY ARTICLE

Article 1
Clearly stated.

Article 2
Clearly stated.

Article 3
Paragraph (1)
The LJKNB Health Level is maintained and/or improved so that public trust in LJKNB can be maintained. In addition, the LJKNB Health Level is used as one of the tools in evaluating the conditions and problems faced by LJKNB and determining follow-up actions to overcome LJKNB weaknesses or problems, either in the form of corrective actions by LJKNB or supervisory actions by the Financial Services Authority.

Paragraph (2)
The phrase "The Board of Directors and Board of Commissioners are responsible for maintaining and monitoring the LJKNB Health Level" refers to the authority of the Board of Directors and Board of Commissioners as regulated in legislation concerning good corporate governance.

Paragraph (3)
The assessment of the LJKNB Health Level using a risk-based approach or nonbank risk-based rating is conducted based on a comprehensive analysis of performance, risk profile, problems faced, and development prospects of LJKNB.

Paragraph (4)
Clearly stated.

Paragraph (5)
The phrase "Sharia unit" refers to a work unit of an insurance company and reinsurance company that conducts part of its business based on Sharia principles.
The phrase "Sharia business unit" refers to a work unit of entities other than insurance and reinsurance companies that conducts part of its business based on Sharia principles.
The individual health level assessment of a Sharia unit or Sharia business unit is an inseparable part of the assessment of the Health Level of the LJKNB that is its parent entity.

Article 4
Paragraph (1)
Clearly stated.

Paragraph (2)
Clearly stated.

Paragraph (3)
The updating of the self-assessment of the LJKNB Health Level is conducted, among other things, in the event that:
a. the financial condition of LJKNB deteriorates; b. there are external and internal factors that can significantly affect the LJKNB Health Level; or
c. other conditions that, in the opinion of the Financial Services Authority and/or LJKNB, require an update of the health level assessment.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Paragraph (6)
Clearly stated.

Paragraph (7)
Clearly stated.

Article 5
Paragraph (1)
Clearly stated.

Paragraph (2)
Clearly stated.

Paragraph (3)
The phrase "other information" refers to information that will significantly affect the results of the LJKNB Health Level assessment.
Other information may include:
a. information from independent commissioners; b. information from whistleblowers;
c. information from assessment results by other competent authorities; and/or
d. information known to the public, such as assessment results from rating agencies and information from the mass media.

Article 6
Clearly stated.

Article 7
Paragraph (1)
The assessment of LJKNB Health Level factors uses parameters or indicators, among other things, as regulated in legislation concerning prudential aspects of LJKNB, such as Financial Services Authority Regulations concerning good corporate governance, risk management, business conduct, and financial health.

Paragraph (2)
Clearly stated.

Paragraph (3)
Clearly stated.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Article 8
Paragraph (1)
The principle of good corporate governance refers to Financial Services Authority Regulations concerning good corporate governance for LJKNB, taking into account the characteristics and complexity of the business of each LJKNB.

Paragraph (2)
Inherent risk assessment is an assessment of risks inherent in the business activities of LJKNB, both quantifiable and non-quantifiable, that have the potential to affect the financial position of LJKNB.

Paragraph (3)
Clearly stated.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Paragraph (6)
Clearly stated.

Paragraph (7)
Clearly stated.

Paragraph (8)
Clearly stated.

Article 9
Paragraph (1)
Clearly stated.

Paragraph (2)
The order of smaller factor ratings reflects a better condition of LJKNB.

Paragraph (3)
Clearly stated.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Paragraph (6)
Clearly stated.

Paragraph (7)
Clearly stated.

Paragraph (8)
Clearly stated.

Article 10
Paragraph (1)
Clearly stated.

Paragraph (2)
The order of smaller Composite Ratings reflects a healthier condition of LJKNB.

Paragraph (3)
A condition that is generally very healthy, thus assessed as being very capable of facing significant negative influences from changes in business conditions and other external factors, is reflected in assessment factor ratings, including good corporate governance, risk profile, profitability, capital adequacy, and/or funding, which are generally very good. In the event of weaknesses, these weaknesses are generally not significant.

Paragraph (4)
A condition that is generally healthy, thus assessed as being capable of facing significant negative influences from changes in business conditions and other external factors, is reflected in assessment factor ratings, including good corporate governance, risk profile, profitability, capital adequacy, and/or funding, which are generally good. In the event of weaknesses, these weaknesses are generally less significant.

Paragraph (5)
A condition that is generally fairly healthy, thus assessed as being fairly capable of facing significant negative influences from changes in business conditions and other external factors, is reflected in assessment factor ratings, including good corporate governance, risk profile, profitability, capital adequacy, and/or funding, which are generally fairly good. In the event of weaknesses, these weaknesses are generally fairly significant and, if not effectively addressed by management, may disrupt the continuity of LJKNB business.

Paragraph (6)
A condition that is generally less healthy, thus assessed as being less capable of facing significant negative influences from changes in business conditions and other external factors, is reflected in assessment factor ratings, including good corporate governance, risk profile, profitability, capital adequacy, and/or funding, which are generally less good. There are weaknesses that are generally significant and cannot be effectively addressed by management, disrupting the continuity of LJKNB business.

Paragraph (7)
A condition that is generally unhealthy, thus assessed as being unable to face significant negative influences from changes in business conditions and other external factors, is reflected in assessment factor ratings, including good corporate governance, risk profile, profitability, capital adequacy, and/or funding, which are generally poor. There are weaknesses that are generally very significant, requiring funding support from shareholders or funding from other parties to strengthen the financial condition of LJKNB.

Paragraph (8)
Clearly stated.

Article 11
Paragraph (1)
The assessment of the LJKNB Health Level using a risk-based approach is conducted based on a comprehensive analysis of performance, risk profile, problems faced, and development prospects of LJKNB. The assessment of each factor is conducted in a consolidated manner between LJKNB and its Subsidiary Companies.

Paragraph (2)
Clearly stated.

Paragraph (3)
Clearly stated.

Article 12
Paragraph (1)
Clearly stated.

Paragraph (2)
The risk of Subsidiary Companies assessed for the measurement of the consolidated risk profile is set by considering the characteristics of the Subsidiary Company's business and its influence on the consolidated risk profile of LJKNB. The measurement of the risk level in a consolidated manner is conducted using risk measurement parameters appropriate to the characteristics of the Subsidiary Company's business.

Paragraph (3)
Clearly stated.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Paragraph (6)
Clearly stated.

Article 13
Clearly stated.

Article 14
Paragraph (1)
The phrase "LJKNB Health Level assessment results" refers to the LJKNB Health Level assessment results conducted by the Financial Services Authority and/or self-assessment results.

Paragraph (2)
The phrase "Sharia unit or Sharia business unit health level assessment results" refers to the health level assessment results of the Sharia unit or Sharia business unit conducted by the Financial Services Authority and/or self-assessment results. The phrase "action plan" refers to the action plan for the health level of the Sharia unit or Sharia business unit.

Paragraph (3)
Clearly stated.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Paragraph (6)
Clearly stated.

Article 15
Clearly stated.

Article 16
Clearly stated.

Article 17
Clearly stated.

Article 18
Clearly stated.

Article 19
Clearly stated.

Article 20
Clearly stated.

Article 21
Paragraph (1)
For example, the requirement for financing companies conducting investment financing activities through infrastructure financing to have a financial health level of at least a healthy condition, as regulated in Financial Services Authority Regulations concerning the conduct of financing company business, is fulfilled using the results of the LJKNB Health Level assessment based on this Financial Services Authority Regulation.

Paragraph (2)
For example, the requirement for insurance companies intending to expand their business scope to have a risk level of at least a low-medium condition, as regulated in Financial Services Authority Regulations concerning the conduct of business of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies, is fulfilled using the results of the LJKNB Health Level assessment based on this Financial Services Authority Regulation.

Paragraph (3)
Clearly stated.

Article 22
Clearly stated.

Article 23
Clearly stated.

Article 24
Clearly stated.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6504