FINANCIAL SERVICES AUTHORITY

REPUBLIC OF INDONESIA

COPY

FINANCIAL SERVICES AUTHORITY REGULATION

OF THE REPUBLIC OF INDONESIA

NUMBER 40 /POJK.05/2020

CONCERNING

WRITTEN ORDERS FOR HANDLING NON-BANK FINANCIAL INSTITUTION ISSUES

BY THE GRACE OF GOD THE ALMIGHTY

THE COMMISSIONERS COUNCIL OF THE FINANCIAL SERVICES AUTHORITY,

Considering: that to implement the provisions of Article 23 paragraph (2) of Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability which has been established into Law through Law Number 2 of 2020 concerning the Establishment of Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability into Law, it is necessary to establish a Financial Services Authority Regulation concerning Written Orders for Handling Non-Bank Financial Institution Issues;

Recalling: 1. 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);

2. Law of the Republic of Indonesia Number 2 of 2020 concerning the Establishment of Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability into Law (State Gazette of the Republic of Indonesia Year 2020 Number 87, Supplement to the State Gazette of the Republic of Indonesia Number 6485);

DECIDING:

To Establish: A FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING WRITTEN ORDERS FOR HANDLING NON-BANK FINANCIAL INSTITUTION ISSUES.

CHAPTER I

GENERAL PROVISIONS

Article 1

In this Financial Services Authority Regulation, the following terms are defined as:

1. Written Order for Handling Non-Bank Financial Institution Issues, hereinafter referred to as Written Order, is a written order given by the Financial Services Authority to a non-bank financial institution to carry out or accept a merger, consolidation, takeover, and/or integration.

2. Non-Bank Financial Institution, hereinafter referred to as NBFI, is an insurance company, Islamic insurance company, reinsurance company, Islamic reinsurance company, financing company, and Islamic financing company.

3. Merger is a Merger as referred to in the Financial Services Authority Regulation concerning business licensing and institutional structure of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies, and the Financial Services Authority Regulation concerning business licensing and institutional structure of financing companies.

4. Consolidation is a Consolidation as referred to in the Financial Services Authority Regulation concerning business licensing and institutional structure of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies, and the Financial Services Authority Regulation concerning business licensing and institutional structure of financing companies.

5. Takeover is a change of ownership through a takeover as regulated in the Financial Services Authority Regulation concerning business licensing and institutional structure of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies, and the Financial Services Authority Regulation concerning business licensing and institutional structure of financing companies.

6. Integration is a legal act of transferring assets and/or liabilities to another NBFI that has a similar business field.

7. General Meeting of Shareholders, hereinafter abbreviated as GMS, is the general meeting of shareholders as referred to in Law Number 40 of 2007 concerning Limited Liability Companies for NBFIs in the form of a limited liability company or equivalent to the GMS for NBFIs in the form of a cooperative or joint venture legal entity.

CHAPTER II

WRITTEN ORDERS

Article 2

The Financial Services Authority is authorized to issue a Written Order to an NBFI to:

a. carry out a Merger, Consolidation, Takeover, and/or Integration; or

b. accept a Merger, Consolidation, Takeover, and/or Integration.

Article 3

An NBFI is obliged to comply with the Written Order as referred to in Article 2.

Article 4

A Written Order is declared to end when the NBFI has implemented the Written Order as referred to in Article 2.

CHAPTER III

CRITERIA FOR NBFIs SUBJECT TO WRITTEN ORDERS

Article 5

(1) The Financial Services Authority issues a Written Order as referred to in Article 2 letter a to an NBFI that meets the criteria:

a. having:

1. health level at composite rating 1, composite rating 2, or composite rating 3; or

2. minimum solvency or the ratio of own capital to paid-up capital in accordance with the provisions of legislation, but based on the Financial Services Authority's assessment, the NBFI is unable to withstand pressures that are currently being or will be faced; or

b. having:

1. health level at composite rating 4 or composite rating 5; or

2. minimum solvency or the ratio of own capital to paid-up capital not in accordance with the provisions of legislation, and/or

c. shareholders or equivalents of the NBFI do not have the ability to increase paid-up capital to improve the NBFI's condition.

(2) The Financial Services Authority issues a Written Order as referred to in Article 2 letter b to an NBFI that meets the criteria:

a. health level at composite rating 1, composite rating 2, or composite rating 3; or

b. minimum solvency or the ratio of own capital to paid-up capital in accordance with the provisions of legislation,

and based on the Financial Services Authority's assessment, the NBFI is able to withstand pressures that are currently being or will be faced.

Article 6

In addition to meeting the criteria as referred to in Article 5, the NBFI resulting from a Merger, Consolidation, Takeover, and/or Integration must have the following conditions:

a. health level with composite rating 1, composite rating 2, or composite rating 3; or

b. minimum solvency or the ratio of own capital to paid-up capital in accordance with the provisions of legislation.

CHAPTER IV

FOLLOW-UP ON WRITTEN ORDERS

Article 7

(1) An NBFI given a Written Order as referred to in Article 2 is obliged to prepare and submit an implementation plan to follow up on the Written Order.

(2) The implementation plan as referred to in paragraph (1) must at least contain:

a. a series of processes for Merger, Consolidation, Takeover, and/or Integration in accordance with the provisions of legislation regulating Merger, Consolidation, Takeover, and/or Integration for NBFIs; and

b. an implementation schedule until the completion of the Merger, Consolidation, Takeover, and/or Integration process.

(3) An NBFI given a Written Order submits information on the progress of the realization of the implementation plan to follow up on the Written Order as referred to in paragraph (1) to the Financial Services Authority.

(4) An NBFI given a Written Order is obliged to carry out and maintain the smoothness of the Merger, Consolidation, Takeover, and/or Integration process in accordance with the implementation plan as referred to in paragraph (1).

CHAPTER V

PROCEDURES FOR MERGER, CONSOLIDATION, TAKEOVER, AND/OR INTEGRATION

Article 8

The requirements and procedures for Merger, Consolidation, Takeover, and/or Integration are carried out by the NBFI in accordance with:

a. the Financial Services Authority Regulation concerning business licensing and institutional structure of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies; and

b. the Financial Services Authority Regulation concerning business licensing and institutional structure of financing companies,

unless otherwise regulated in this Financial Services Authority Regulation.

Article 9

The requirements and procedures otherwise regulated in this Financial Services Authority Regulation as referred to in Article 8 include:

a. an NBFI may publish a summary of the draft Merger, Consolidation, Takeover, and/or Integration in a daily newspaper in the Indonesian language with national circulation by informing that the details of the summary of the draft Merger, Consolidation, Takeover, and/or Integration can be accessed on the NBFI's website;

b. an NBFI may hold a GMS and/or other meetings related to the Merger, Consolidation, Takeover, and/or Integration process through face-to-face meetings utilizing information technology;

c. in the event that the GMS and/or other meetings are held through face-to-face meetings utilizing information technology as referred to in letter b, the NBFI must determine the location for holding the GMS and/or other meetings related to the Merger, Consolidation, Takeover, and/or Integration process within the territory of the Republic of Indonesia;

d. the implementation of clarification for the assessment of competence and propriety of the prospective main parties of the NBFI resulting from the Merger, Consolidation, Takeover, and/or Integration may be carried out face-to-face utilizing information technology;

e. the submission of documents and/or administrative requirements in the licensing, approval, and/or reporting process of the Merger, Consolidation, Takeover, and/or Integration electronically may be carried out by the NBFI through official electronic mail services addressed to the Financial Services Authority in the event that the Financial Services Authority's related systems for electronic licensing, approval, and reporting are not yet available; and/or

f. an NBFI is obliged to account for documents and administrative requirements submitted electronically to the Financial Services Authority as referred to in letter e.

Article 10

(1) The assessment and conversion of shares in the process of Merger, Consolidation, Takeover, and/or Integration are determined based on the agreement of the NBFI(s) involved in the process of Merger, Consolidation, Takeover, and/or Integration.

(2) In the event that an agreement as referred to in paragraph (1) is not reached, the assessment and conversion of shares in the process of Merger, Consolidation, Takeover, and/or Integration are determined based on a fair assessment by the NBFI(s) accepting the Merger, Consolidation, Takeover, and/or Integration.

Article 11

An NBFI with the status of a public company given a Written Order to carry out or accept a Merger, Consolidation, Takeover, and/or Integration may be exempted from the obligation regarding transparency for public companies with the approval of the Financial Services Authority.

CHAPTER VI

OTHER PROVISIONS

Article 12

The Financial Services Authority may provide exceptions to the fulfillment of regulations for the NBFI resulting from a Merger, Consolidation, Takeover, and/or Integration under a Written Order of the Financial Services Authority in the form of:

a. granting an adjustment period for exceeding foreign ownership limits;

b. granting an adjustment period for single ownership;

c. assessment of competence and propriety for controlling shareholders and/or controllers;

d. adjustment of health level assessment; and/or

e. relaxation of business licensing regulations for NBFIs and/or product reporting regulations.

CHAPTER VII

COMPLIANCE ENFORCEMENT

First Section

Administrative Sanctions

Article 13

(1) An NBFI that violates the provisions as referred to in Article 7 paragraph (1) and paragraph (4) and Article 9 letter f is subject to administrative sanctions in the form of:

a. written warning;

b. restriction of business activities, for part or all of the business activities; and/or

c. revocation of business license.

(2) The procedure and manner of imposing administrative sanctions on insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies are carried out in accordance with the provisions of the Financial Services Authority Regulation concerning procedures and manner of imposing administrative sanctions in the insurance sector and blocking the assets of insurance companies, Islamic insurance companies, reinsurance companies, and Islamic reinsurance companies.

Second Section

Prohibition of Positions

Article 14

In the event that the Financial Services Authority has imposed administrative sanctions as referred to in Article 13 paragraph (1) and the NBFI does not fulfill the provisions that caused the administrative sanction to be imposed, the Financial Services Authority may impose a prohibition on becoming a shareholder, controller, board of directors, board of commissioners, or equivalents thereof, or holding executive positions below the board of directors, or equivalents thereof, for a maximum of 10 (ten) years at the NBFI.

CHAPTER VIII

CLOSING PROVISIONS

Article 15

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

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

In order that everyone knows 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 June 15, 2020

CHAIRMAN OF THE COMMISSIONERS COUNCIL
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Promulgated in Jakarta on June 18, 2020

MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2020 NUMBER 151

EXPLANATION

OF

FINANCIAL SERVICES AUTHORITY REGULATION

OF THE REPUBLIC OF INDONESIA

NUMBER 40 /POJK.05/2020

CONCERNING

WRITTEN ORDERS FOR HANDLING NON-BANK FINANCIAL INSTITUTION ISSUES

I. GENERAL

To maintain financial system stability amidst the occurrence of the Coronavirus Disease 2019 (COVID-19) pandemic and/or to face threats of economic crisis and/or financial system stability, Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability has been established, which has been enacted into Law through Law of the Republic of Indonesia Number 2 of 2020.

In efforts to maintain financial system stability, Article 23 paragraph (1) letter a of Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability, which has been enacted into Law through Law of the Republic of Indonesia Number 2 of 2020, regulates the authority of the Financial Services Authority to issue Written Orders to financial institutions to carry out Merger, Consolidation, Takeover, Integration, and/or conversion, or to accept Merger, Consolidation, Takeover, Integration, and/or conversion, which aims to:

a. maintain financial system stability amidst the occurrence of the Coronavirus Disease 2019 (COVID-19) pandemic; and/or

b. face threats of economic crisis and/or financial system stability.

These two conditions can be considerations for the Financial Services Authority to issue Written Orders to NBFIs to carry out or accept Merger, Consolidation, Takeover, and/or Integration, in efforts to maintain financial system stability, particularly the stability of national NBFIs. Conversion activities are not included as part of the Written Order to NBFIs, as conversion cannot be applied to NBFIs.

In connection with the establishment of Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability, which has been enacted into Law through Law of the Republic of Indonesia Number 2 of 2020, the Laws regulating the authority for Written Orders and supervisory actions that can be carried out by the Financial Services Authority as referred to in Law Number 21 of 2011 concerning the Financial Services Authority, Law Number 40 of 2014 concerning Insurance, and legislation regulating financing companies and Islamic financing companies, remain in force. With the authority granted, the Financial Services Authority has policy options other than those already regulated in the aforementioned legislation.

The Written Order as regulated in Article 23 paragraph (1) letter a of Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Coronavirus Disease 2019 (COVID-19) Pandemic and/or in the Context of Facing Threats Endangering the National Economy and/or Financial System Stability, which has been enacted into Law through Law of the Republic of Indonesia Number 2 of 2020, is one of the alternative supervisory actions of the Financial Services Authority, which is an anticipatory action, among other alternatives as regulated in the Law and Financial Services Authority Regulations. Violations of the Written Order provisions can be subject to administrative sanctions based on this Financial Services Authority Regulation.

In connection with these matters, regulations are needed to serve as the basis for the mechanism and procedures for implementing Written Orders for handling NBFI issues in a Financial Services Authority Regulation.

II. ARTICLE BY ARTICLE EXPLANATION

Article 1

Clearly stated.

Article 2

Letter a

The term "Written Order to an NBFI to carry out a Takeover" refers to a Written Order to an NBFI to be taken over by another NBFI.

Letter b

The term "Written Order to an NBFI to accept a Takeover" refers to a Written Order to an NBFI to take over another NBFI.

Article 3

Clearly stated.

Article 4

The term "has implemented the Written Order" means the NBFI has realized the entire series of Merger, Consolidation, Takeover, and/or Integration legally.

Article 5

Paragraph (1)

Letter a

The assessment of the NBFI's condition uses the criteria of having a health level if regulations regulating the assessment of the NBFI's health level are in effect. In the event that the aforementioned regulations are not yet in effect or the aforementioned regulations are in effect but the assessment using the health level cannot yet be implemented, the assessment of the NBFI's condition uses the criteria of minimum solvency or the ratio of own capital to paid-up capital.

Letter b

Clearly stated.

Letter c

The term "ability to increase paid-up capital" refers to financial and non-financial ability.

Paragraph (2)

Clearly stated.

Article 6

Clearly stated.

Article 7

Clearly stated.

Article 8

Clearly stated.

Article 9

Letter a

Clearly stated.

Letter b

The term "utilizing information technology" includes, among others, through teleconference media, video conferencing, or other electronic media facilities.

Letter c

Clearly stated.

Letter d

Clearly stated.

Letter e

Clearly stated.

Letter f

The obligation of the NBFI to account for documents and administrative requirements is in the form of physical documents.

Article 10

Paragraph (1)

The agreement on share assessment and conversion is based on considerations:

1. fair market value; or

2. results of internal NBFI assessment or assessment by an independent third party.

Paragraph (2)

Clearly stated.

Article 11

Clearly stated.

Article 12

Letter a

Clearly stated.

Letter b

The term "single ownership" means becoming a controlling shareholder in one general insurance company, life insurance company, reinsurance company, Islamic general insurance company, Islamic life insurance company, and Islamic reinsurance company.

Letter c

Clearly stated.

Letter d

The term "adjustment of NBFI health level assessment" means the Financial Services Authority can adjust the NBFI's health level against the results of composite health level assessment and/or results of assessment for each health level assessment factor.

Letter e

Clearly stated.

Article 13

Clearly stated.

Article 14

Clearly stated.

Article 15

Clearly stated.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6529