Financial Services Authority Regulation Number 39/POJK.03/2017 on Single Ownership in Indonesian Banking

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 39/POJK.03/2017
ON
SINGLE OWNERSHIP IN INDONESIAN BANKING
BY THE GRACE OF GOD THE ALMIGHTY
THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that to anticipate the dynamics of regional and global economic development, the national banking industry needs to increase its resilience and competitiveness; b. that the increase in resilience and competitiveness of the national banking industry requires a strong banking structure;
c. that a strong banking structure can be achieved by restructuring bank ownership through a single ownership policy in Indonesian banking;
d. that in connection with the transfer of the functions, duties, and authority for the regulation and supervision of financial services in the banking sector from Bank Indonesia to the Financial Services Authority, it is necessary to re-regulate single ownership in Indonesian banking; e. that based on the considerations as referred to in letters a through d above, it is necessary to establish a Financial Services Authority Regulation on Single Ownership in Indonesian Banking;

Recalling:

1. Law Number 7 of 1992 on Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended by Law Number 10 of 1998 on Amendments to Law Number 7 of 1992 on Banking (State Gazette of the Republic of Indonesia Year 1998 Number 182, Supplement to the State Gazette of the Republic of Indonesia Number 3790);
2. Law Number 21 of 2008 on Sharia Banking (State Gazette of the Republic of Indonesia Year 2008 Number 94, Supplement to the State Gazette of the Republic of Indonesia Number 4867);
3. Law Number 21 of 2011 on 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 ON SINGLE OWNERSHIP IN INDONESIAN BANKING.

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

1. Bank means a Commercial Bank as referred to in Law Number 7 of 1992 on Banking as amended by Law Number 10 of 1998 on Amendments to Law Number 7 of 1992 on Banking and a Sharia Commercial Bank as referred to in Law Number 21 of 2008 on Sharia Banking, excluding branches of banks located outside the country.
2. Single Ownership is a condition where a party can only become a Controlling Shareholder in 1 (one) Bank.
3. Controlling Shareholder, hereinafter abbreviated as PSP, is a legal entity, individual, and/or business group that:
   a. owns shares of a company or Bank amounting to 25% (twenty-five percent) or more of the issued shares and has voting rights; or b. owns shares of a company or Bank less than 25% (twenty-five percent) of the issued shares and has voting rights but can be proven to have controlled the company or Bank, either directly or indirectly.
4. Bank Holding Company is a legal entity formed and/or owned by a PSP to consolidate and control directly all activities of Banks that are its subsidiaries.
5. Holding Function is a function owned by a PSP in the form of an Indonesian legal entity Bank or a Central Government Agency to consolidate and control directly all activities of Banks that are its subsidiaries.

Article 2
(1) Every party may only become a PSP in 1 (one) Bank.
(2) The provisions as referred to in paragraph (1) are exempted for:
a. PSPs in 2 (two) Banks that each conduct business activities with different principles, namely conventional and based on Sharia principles; and b. PSPs in 2 (two) Banks where one of them is a mixed bank (joint venture bank).

Article 3
(1) In the event that the party as referred to in Article 2 paragraph (1) purchases shares of another Bank so as to become a PSP in more than 1 (one) Bank, the party concerned must comply with the provisions as referred to in Article 2 paragraph (1). (2) Compliance with the provisions as referred to in paragraph (1) is carried out by:
a. merger or consolidation of the controlled Banks; b. establishing a Bank Holding Company; or
c. establishing a Holding Function.
(3) Compliance with the provisions as referred to in paragraph (2) letters a and b must be carried out within a maximum period of 1 (one) year after the implementation of the purchase of shares of another Bank that causes the party concerned to meet the criteria as a PSP of the purchased Bank as referred to in paragraph (1). (4) Compliance with the provisions as referred to in paragraph (2) letter c must be carried out within a maximum period of 6 (six) months after the implementation of the purchase of shares of another Bank that causes the party concerned to meet the criteria as a PSP of the purchased Bank as referred to in paragraph (1). (5) Based on the request of the PSP and the controlled Bank, the Financial Services Authority may grant an extension of the adjustment period for compliance with the provisions as referred to in Article 2 paragraph (1), in the event that in the opinion of the Financial Services Authority the problems faced by the PSP and/or the controlled Bank are sufficiently complex so that compliance with the provisions as referred to in Article 2 paragraph (1) cannot be resolved within the time period as referred to in paragraph (3) and paragraph (4).

Article 4
(1) Banks that carry out merger or consolidation as referred to in Article 3 paragraph (2) letter a are given incentives in the form of:
a. extension of the time limit for completion of the Maximum Credit Limit (BMPK) exceedance; b. ease of opening branches;
c. temporary relaxation of governance implementation; and/or
d. other incentives, in accordance with the provisions of legislation regarding incentives in the context of banking consolidation.
(2) The procedures for granting incentives as referred to in paragraph (1) refer to the provisions of legislation regarding incentives in the context of banking consolidation.

CHAPTER II
PROCEDURES FOR ESTABLISHING A BANK HOLDING COMPANY AND ESTABLISHING A HOLDING FUNCTION
Article 5
(1) The legal entity form of a Bank Holding Company is a limited liability company established in Indonesia and in accordance with the provisions of legislation in Indonesia.
(2) A Bank Holding Company may only engage in investment activities, including providing management services to increase the effectiveness of consolidation, business strategy, and optimization of the financials of the controlled business group. (3) A Bank Holding Company is 1 (one) level above the controlled Banks directly. (4) A Bank Holding Company may stand alone as 1 (one) legal entity or be a financial holding company that consolidates financial institutions owned by the PSP.

Article 6
(1) A Holding Function may only be carried out by a PSP in the form of an Indonesian legal entity Bank or a Central Government Agency.
(2) A Holding Function is led by:
a. one of the members of the Board of Directors of the Bank that is the PSP; or b. one of the officials appointed by the highest leadership of the Central Government Agency.

Article 7
(1) A PSP that chooses to establish a Bank Holding Company must submit a plan for the implementation of the establishment of a Bank Holding Company and the transfer of shares from the PSP to the Bank Holding Company to the Financial Services Authority. (2) The submission of the plan for the implementation of the establishment of a Bank Holding Company and the transfer of shares from the PSP to the Bank Holding Company as referred to in paragraph (1) by attaching supporting documents at least:
a. minutes of the General Meeting of Shareholders of each Bank; b. draft articles of association for the establishment of a Bank Holding Company;
c. draft deed of transfer of Bank shares; and
d. list of candidates for members of the Board of Directors and/or members of the Board of Commissioners of the Bank Holding Company.
(3) The process of share transfer as referred to in paragraph (1) is exempted from the provisions of legislation regarding merger, consolidation, and takeover of commercial banks, as well as the provisions of legislation regarding the purchase of shares of commercial banks. (4) The share transfer as referred to in paragraph (1) carried out based on the obligation in these provisions is exempted from the provisions applicable to prospective shareholders of Banks to adjust their share ownership to the maximum ownership limit as referred to in the Financial Services Authority regulations regarding share ownership of commercial banks.

Article 8
(1) The Financial Services Authority conducts an assessment of competence and propriety of the candidates for members of the Board of Directors and candidates for members of the Board of Commissioners of the Bank Holding Company in accordance with the Financial Services Authority regulations regarding the assessment of competence and propriety. (2) A Bank that establishes a Holding Function must submit information and supporting documents regarding the implementation of the Holding Function and its implementation plan to the Financial Services Authority.

Article 9
(1) A Bank Holding Company and a Holding Function must provide strategic direction and consolidate the financial reports of Banks that are subsidiaries.
(2) The Financial Services Authority regulates and supervises the Bank Holding Company and the Holding Function as an inseparable part of the task of regulating and supervising Banks.
(3) In the implementation of supervision as referred to in paragraph (2), the Financial Services Authority may conduct examinations of the Bank Holding Company and the Holding Function both periodically and at any time when necessary.

Article 10
(1) A Bank to be taken over by a party that has become a PSP as referred to in Article 2 paragraph (1) must submit a plan for compliance with such provisions to the Financial Services Authority when applying for takeover permission. (2) The plan for compliance with the provisions as referred to in paragraph (1) must at least contain the method chosen, an action plan, and a schedule of implementation. (3) The plan for compliance with the provisions as referred to in paragraph (1) may be prepared and submitted by each Bank or jointly by several Banks with the same PSP and must be signed by the Board of Directors and Board of Commissioners of each Bank and acknowledged by the PSP. (4) The Bank as referred to in paragraph (1) must submit a report on the progress of the implementation of compliance with the provisions as referred to in paragraph (1) to the Financial Services Authority every quarter calculated from the approval of the Bank regarding the plan for compliance with the provisions as referred to in Article 2 paragraph (1). (5) The plan for compliance with the provisions as referred to in paragraph (1) and the report on the progress of the implementation of compliance with the provisions as referred to in paragraph (4) must be submitted to:
a. the Department of Bank Supervision or the Department of Sharia Banking for Banks headquartered in the Special Capital Region of Jakarta; or b. the Regional Office of the Financial Services Authority or the local Financial Services Authority Office, according to the area where the Bank's headquarters is located.

Article 11
(1) A PSP that does not comply with the provisions as referred to in Article 2 paragraph (1) is prohibited from exercising control and is prohibited from owning shares with voting rights in each Bank more than 10% (ten percent) of the total shares of the Bank. (2) A Bank with a PSP as referred to in paragraph (1) must record share ownership and voting rights in the General Meeting of Shareholders at a maximum of 10% (ten percent) of the total shares of the Bank. (3) The Bank as referred to in paragraph (2) must account for the excess shares above 10% (ten percent) owned by the PSP as non-voting shares until such shares are transferred to other parties.

Article 12
A PSP as referred to in Article 11 paragraph (1) must transfer the excess shares above 10% (ten percent) as referred to in Article 11 paragraph (3) to other parties within a maximum period of 1 (one) year after the end of the time period for compliance with the provisions as referred to in Article 3 paragraph (3) and Article 3 paragraph (4).

CHAPTER III
SANCTIONS
Article 13
Violations of the provisions as referred to in Article 3 paragraph (3), Article 3 paragraph (4), Article 7 paragraph (1), Article 8 paragraph (2), Article 9 paragraph (1), Article 10 paragraph (1), Article 10 paragraph (3), and/or Article 10 paragraph (4) of this Financial Services Authority Regulation are subject to administrative sanctions in the form of:

1. written reprimand; and/or
2. listing of members of the Board of Directors, members of the Board of Commissioners, and/or executive officials in the list of parties who receive the "Fail" status in the competence and propriety test as regulated in the provisions of legislation regarding the competence and propriety test (fit and proper test).

Article 14
A Bank that does not fulfill its obligations as referred to in Article 11 paragraph (2) and/or Article 11 paragraph (3) is subject to:

1. administrative sanctions in the form of a fine of Rp500,000,000.00 (five hundred million rupiah); and/or
2. sanctions in the assessment of governance aspects in the Bank health level assessment.

Article 15
(1) A PSP that owns more than 1 (one) Bank but does not comply with the provisions as referred to in Article 12 is subject to administrative sanctions in the form of a prohibition from acting as a PSP in all banks in Indonesia for a period of 20 (twenty) years. (2) The imposition of sanctions as referred to in paragraph (1) does not eliminate the obligation of the PSP to transfer excess shares above 10% (ten percent) as referred to in Article 12.

Article 16
Members of the Board of Directors and/or members of the Board of Commissioners of a Bank Holding Company who violate the provisions as referred to in Article 5 paragraph (2) are subject to administrative sanctions in the form of listing members of the Board of Directors and/or members of the Board of Commissioners of the Bank Holding Company in the list of parties who receive the "Fail" status in the competence and propriety test as regulated in the provisions of legislation regarding the competence and propriety test (fit and proper test).

CHAPTER IV
CLOSING PROVISIONS
Article 17
Further provisions regarding the procedures for merger or consolidation of controlled Banks, establishment of a Bank Holding Company, and establishment of a Holding Function in the context of Single Ownership in Indonesian banking are regulated in a Circular Letter of the Financial Services Authority.

Article 18
Upon the commencement of this Financial Services Authority Regulation, Bank Indonesia Regulation Number 14/24/PBI/2012 on Single Ownership in Indonesian Banking (State Gazette of the Republic of Indonesia Year 2012 Number 284, Supplement to the State Gazette of the Republic of Indonesia Number 5382) is repealed and declared invalid.

Article 19
This Financial Services Authority Regulation comes into force on the date of enactment.

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

In order that everyone may know it, 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 12 July 2017
CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY, signed
MULIAMAN D. HADAD

Promulgated in Jakarta on 12 July 2017
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY
STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2017 NUMBER 145

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 39 /POJK.03/2017
ON
SINGLE OWNERSHIP IN INDONESIAN BANKING

I. GENERAL
Banking consolidation is one of the prerequisites for realizing a healthy and strong Indonesian banking structure. With banking consolidation, it is expected that there will be an increase in the economies of scale of Banks in Indonesia and an increase in the effectiveness of Bank supervision, especially through consolidated Bank supervision. Meanwhile, the plan for ASEAN financial sector integration in 2020 which allows Banks with certain qualifications (Qualified ASEAN Banks–QAB) to operate freely in the ASEAN region, will increase competition between national Banks and banks from the ASEAN region. To anticipate the integration of the regional and global financial sectors, efforts need to be made to increase the resilience and competitiveness of the national banking industry, both through the acceleration of banking consolidation and efforts to improve the health of Banks, the quality of governance implementation, and the improvement of Bank capitalization. In addition, it must be realized that strong banking resilience and competitiveness are greatly influenced by and require the support of a strong banking structure. A strong banking structure becomes the basic framework expected to be able to support the improvement of the national economy, which can be achieved, among others, through the restructuring of Bank ownership structure.

Considering the above and in connection with the transfer of the functions, duties, and authority for the regulation and supervision of financial services in the banking sector from Bank Indonesia to the Financial Services Authority, it is necessary to re-regulate Single Ownership in Indonesian banking, which is done in part by providing alternatives for adjusting the Bank share ownership structure through the establishment of a Bank Holding Company or the implementation of a Holding Function.

II. ARTICLE BY ARTICLE
Article 1
Sufficiently clear.

Article 2
Paragraph (1)
In the event that the PSP is a legal entity, the definition of PSP is up to the ultimate shareholders and controllers of that legal entity in accordance with the Financial Services Authority regulations regarding the assessment of competence and propriety. In line with that, the definition of having controlled the company or Bank, either directly or indirectly, also refers to the Financial Services Authority regulations regarding the assessment of competence and propriety. Paragraph (2) Letter a Based on these provisions, in the event that a PSP owns more than 2 (two) Banks and among them there are several Banks that conduct business activities with the same principle, ownership of Banks that conduct business activities with the same principle does not receive an exemption. Example:
A PSP that already owns 1 (one) conventional Bank and 1 (one) Sharia-based Bank then takes over a Sharia-based Bank, the PSP adjusts the ownership structure of both Sharia-based Banks.
Letter b
The term "mixed bank" in these provisions refers to a Bank established and owned by a bank located outside the country and a Bank in Indonesia, which has obtained a business license before the enactment of Law Number 7 of 1992 on Banking and at the time the provisions of legislation regarding Single Ownership in Indonesian banking came into force on October 5, 2006, the composition of shareholders still consisted of a bank located outside the country and a Bank in Indonesia. In line with the explanation in letter a, in the event that a mixed bank PSP owns more than 1 (one) other Bank that is not a mixed bank, ownership of the non-mixed bank does not receive an exemption. Example:
A PSP that already owns 1 (one) mixed bank and 1 (one) other Bank that is not a mixed bank then takes over another Bank that is not a mixed bank, the PSP adjusts the ownership structure of both non-mixed Banks.

Article 3
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Letter a
The implementation of merger or consolidation is carried out in accordance with the provisions of legislation regarding merger, consolidation, and takeover of commercial banks.
Letter b
With these provisions, the Bank controlled by the PSP remains as before, but the shares previously owned directly or indirectly by the PSP are transferred to the Bank Holding Company.
Letter c
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Paragraph (4)
Sufficiently clear.
Paragraph (5)
Sufficiently clear.

Article 4
Sufficiently clear.

Article 5
Paragraph (1)
The obligation to establish a Bank Holding Company as an Indonesian legal entity applies to PSPs in the form of:
a. individuals and non-bank legal entities located in Indonesia; and/or b. individuals and legal entities located outside the territory of Indonesia.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Paragraph (4)
The term "financial holding company" refers to a legal entity formed and/or owned by a PSP to consolidate and control directly all activities of financial companies that are subsidiaries.

Article 6
The term "Central Government Agency" refers to an agency authorized to handle Banks owned by the Central Government.

Article 7
Paragraph (1)
The implementation plan for the establishment of a Bank Holding Company is reported in the Bank Business Plan and detailed in the plan for the establishment of a Bank Holding Company and the plan for the transfer of shares from the PSP to the Bank Holding Company. Paragraph (2) Sufficiently clear. Paragraph (3) Sufficiently clear. Paragraph (4) Based on the Financial Services Authority regulations regarding share ownership of commercial banks, prospective shareholders of Banks adjust their share ownership to the maximum share ownership limit at the time of becoming shareholders of the Bank. With these provisions, all shares of the PSP can be transferred to the Bank Holding Company. However, these provisions do not eliminate the obligation of the Bank Holding Company to adjust its share ownership in the event that after the share transfer, the owned Bank does not meet the Bank health level criteria, and/or governance assessment as required in the Financial Services Authority regulations regarding share ownership of commercial banks.

Article 8
Sufficiently clear.

Article 9
Clearly stated.

Article 10
Clearly stated.

Article 11
Paragraph (1)
What is meant by "Bank shares" are Bank shares that have voting rights.

Paragraph (2)
The recording as referred to in this paragraph does not affect the accounting recording nor the capital of the Bank.

Paragraph (3)
Clearly stated.

Article 12
What is meant by "other parties" is a party outside the business group and/or family up to the second degree of the Principal Shareholder.
The transfer of shares from the Principal Shareholder to other parties is carried out in accordance with the provisions of legislation regarding the merger, consolidation, and takeover of commercial banks, as well as the provisions of legislation regarding the purchase of commercial bank shares.

Article 13
Clearly stated.

Article 14
What is meant by "Bank health level assessment" is the assessment of the Bank's health level as regulated in the Financial Services Authority Regulation regarding:
a. Bank Health Level Assessment for Commercial Banks, for Conventional Commercial Banks; and

b. Bank Health Level Assessment for Islamic Commercial Banks and Islamic Business Units, for banking activities with Sharia principles.

Article 15
Paragraph (1)
What is meant by "bank" is Commercial Banks and Rural Banks as regulated in Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998 concerning Amendments to Law Number 7 of 1992 concerning Banking and Islamic Banks as regulated in Law Number 21 of 2008 concerning Islamic Banking.

Paragraph (2)
Clearly stated.

Article 16
Clearly stated.

Article 17
Clearly stated.

Article 18
Clearly stated.

Article 19
Clearly stated.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6088