Implementation Guidelines for Investment Manager Functions

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
EXTRACT
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 24/POJK.04/2014
CONCERNING
IMPLEMENTATION GUIDELINES FOR INVESTMENT MANAGER FUNCTIONS BY THE GRACE OF GOD ALMIGHTY THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that in order to ensure professionalism and customer protection, Investment Managers need to improve the quality of their functions; b. that based on the considerations referred to in letter a, it is necessary to establish a Financial Services Authority Regulation concerning Implementation Guidelines for Investment Manager Functions; Recalling:

1. Law Number 8 of 1995 concerning Capital Markets (State Gazette of the Republic of Indonesia Year 1995 Number 64, Supplement to the State Gazette of the Republic of Indonesia Number 3608);
2. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);
   DECIDING:
   Establish: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING IMPLEMENTATION GUIDELINES FOR INVESTMENT MANAGER FUNCTIONS.

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

1. Investment Manager is a Party whose business activities manage Securities Portfolios for customers or manage collective investment portfolios for a group of customers, except insurance companies, pension funds, and banks that conduct their own business activities based on applicable legislation.
2. Deputy Investment Manager is an individual who acts on behalf of the interests of a Securities Company conducting business as an Investment Manager.
3. Investment Committee is a committee tasked with directing and supervising the Investment Management Team in implementing investment policies and strategies.
4. Investment Management Team is a team tasked with managing Securities Portfolios for customers or collective investment portfolios for the benefit of a group of customers.
5. Risk Management is a series of procedures and methodologies used to identify, measure, monitor, and control risks arising from the business activities of an Investment Manager.

CHAPTER II
INVESTMENT MANAGER FUNCTIONS
Article 2
In carrying out their activities, Investment Managers are required to have and implement the following functions:
a. investment and research functions; b. trading functions;
c. securities transaction settlement functions;
d. risk management, compliance, and internal audit functions; e. marketing and customer complaint handling functions; f. information technology functions; g. accounting and finance functions; and h. human resource development functions.

Article 3
(1) Investment Managers are required to separate the implementation of investment and research functions as referred to in Article 2 letter a from trading functions as referred to in Article 2 letter b, securities transaction settlement functions as referred to in Article 2 letter c, and risk management, compliance, and internal audit functions as referred to in Article 2 letter d. (2) Coordinators and employees implementing one of the four functions as referred to in paragraph (1) are prohibited from holding concurrent positions as coordinators and employees in the other three functions. (3) Board of Directors members are prohibited from acting as coordinators for investment and research functions as referred to in Article 2 letter a, trading functions as referred to in Article 2 letter b, and/or securities transaction settlement functions as referred to in Article 2 letter c. (4) Board of Directors members acting as coordinators for risk management, compliance, and internal audit functions as referred to in Article 2 letter d are prohibited from holding concurrent positions as coordinators for other functions.

Article 4
Investment Managers are required to have standard operating procedures for the implementation of functions as referred to in Article 2 and ensure that standard operating procedures are complied with and implemented by coordinators and all employees implementing those functions.

Article 5
In the event that Investment Manager business activities are conducted within a Securities Company conducting business as an Underwriter of Securities Issues and/or a Securities Trading Intermediary, then:
a. standard operating procedures for implementing Investment Manager functions must be separate from standard operating procedures for implementing business activities as a Securities Underwriter and/or Securities Trading Intermediary; and b. the implementation of research functions, risk management, compliance, and internal audit functions, accounting and finance functions, information technology functions, and/or human resource development functions in the business activities of Investment Managers and Securities Underwriters and/or Securities Trading Intermediaries may be implemented by a single work unit implementing those functions.

CHAPTER III
IMPLEMENTATION OF INVESTMENT MANAGER FUNCTIONS First Section Investment and Research Functions
Article 6
The implementation of investment and research functions must be coordinated by employees who possess Deputy Investment Manager licenses and have at least 3 (three) years of work experience in investment management.

Article 7
In implementing investment functions, the coordinator of investment and research functions as referred to in Article 6 is responsible for:
a. making the best investment decisions for the benefit of customers; b. creating and maintaining records and/or working papers for the purpose of making investment decisions for the benefit of customers;
c. conducting periodic analysis of investment product performance;
d. ensuring that investment decisions taken are consistent with:

1. investment policies and strategies established in agreements for managing Securities Portfolios for customers or collective investment portfolios for groups of customers; and
2. investment policies and strategies established by the Investment Committee;
   e. ensuring that every investment decision taken is based on rational considerations and supported by sufficient research results; and f. applying prudence principles and Risk Management, including:
3. considering potential investment risks and actions to be taken if such investment risks occur; and
4. having clear division of authority in determining transaction volumes.

Article 8
(1) Investment functions are carried out by an Investment Management Team consisting of at least 2 (two) people, including a team leader and team members.
(2) The team leader and members of the Investment Management Team must possess Deputy Investment Manager licenses from the Financial Services Authority.
(3) The Investment Management Team is prohibited from holding concurrent positions as coordinators or implementers of trading functions as referred to in Article 2 letter b, securities transaction settlement functions as referred to in Article 2 letter c, and/or risk management, compliance, and internal audit functions as referred to in Article 2 letter d.

Article 9
(1) The implementation of investment functions is based on directives from the Investment Committee.
(2) The Investment Committee as referred to in paragraph (1) must consist of at least 2 (two) people who have at least 2 (two) years of experience in Capital Markets and/or finance. (3) The Investment Committee as referred to in paragraph (1) must:
a. establish investment policies and strategies; and b. supervise the implementation of investment management activities carried out by the Investment Management Team.
(4) Investment Committee members are prohibited from:
a. holding concurrent positions as coordinators and implementers of trading functions as referred to in Article 2 letter b, securities transaction settlement functions as referred to in Article 2 letter c, and risk management, compliance, and internal audit functions as referred to in Article 2 letter d; and/or b. serving as members of the Investment Management Team for 1 (one) identical investment product.

Article 10
In implementing research functions, the coordinator of investment and research functions as referred to in Article 6 is responsible for:
a. conducting research and analysis of macroeconomic conditions and industrial sectors; b. conducting research and analysis of Securities in investment portfolios that are or will be used as investment portfolios; and
c. creating and documenting records and research result reports.

Second Section
Trading Functions
Article 11
The implementation of trading functions as referred to in Article 2 letter b must meet the following requirements:
a. the implementation of trading functions must be coordinated by a coordinator who is an employee possessing a Deputy Securities Company license from the Financial Services Authority and has at least 2 (two) years of work experience in Capital Markets and/or finance; b. the trading functions coordinator is responsible for:

1. executing transactions for Securities as determined by the investment functions at the best price and time for the benefit of customers; and
2. coordinating with the coordinator of investment and research functions in selecting Securities Trading Intermediaries, considering among other things the costs charged and services provided by such Securities Trading Intermediaries.

Third Section
Securities Transaction Settlement Functions
Article 12
The implementation of securities transaction settlement functions as referred to in Article 2 letter c must meet the following requirements:
a. the implementation of securities transaction settlement functions must be coordinated by a coordinator who is an employee possessing a Deputy Securities Company license from the Financial Services Authority and has at least 2 (two) years of work experience in Capital Markets and/or finance; b. the securities transaction settlement functions coordinator is responsible for:

1. reconciling transaction data with relevant parties such as Securities Trading Intermediaries and Custodian Banks; and
2. cross-checking data existing in Securities administration in Mutual Fund portfolios or products managed by Investment Managers.

Fourth Section
Risk Management, Compliance, and Internal Audit Functions
Article 13
(1) The implementation of risk management, compliance, and internal audit functions must be coordinated by a coordinator who is a unit head, Board of Directors member, or official at a level below the Board of Directors. (2) The coordinator of risk management, compliance, and internal audit functions as referred to in paragraph (1) must:
a. possess a Deputy Investment Manager license from the Financial Services Authority and have at least 3 (three) years of work experience holding managerial positions in institutions operating in Capital Markets and/or finance; b. be established as part of the Investment Manager's organizational structure and have a direct reporting line to the Board of Commissioners; and
c. act independently and have unlimited access to other Investment Manager functions related to their duties to ensure compliance with the implementation of Investment Manager functions.

Article 14
In implementing risk management functions, the coordinator of risk management, compliance, and internal audit functions is responsible for:
a. formulating Risk Management strategies; b. updating Risk Management strategies if:

1. changes and/or additions to Investment Manager activities occur; and/or
2. new regulations and/or changes to Financial Services Authority Regulations or other related regulations occur;
   c. periodically monitoring and reviewing the implementation of Risk Management strategies;
   d. monitoring overall risk positions and per risk type; and e. applying Risk Management effectively and in accordance with the size and complexity of the business as well as the capabilities of the Investment Manager.

Article 15
The application of risk management functions as referred to in Article 14 letter c must be based on Risk Management strategies containing at least:
a. identification of all risks that may arise in Investment Manager activities; b. explanations regarding the causes of such risks;
c. identification of the likelihood of such risks occurring;
d. explanations regarding the implications of such risks occurring; and e. steps that must be taken if such risks occur.

Article 16
In implementing compliance functions, the coordinator of risk management, compliance, and internal audit functions is responsible for:
a. ensuring Investment Manager compliance with applicable legislation; b. acting as a liaison officer with the Financial Services Authority;
c. formulating compliance strategies;
d. updating compliance strategies if:

1. changes and/or additions to Investment Manager activities occur; and/or
2. new regulations and/or changes to Financial Services Authority Regulations or other related regulations occur;
   e. disseminating and socializing compliance manuals, policies, procedures, and other information related to compliance to relevant parties within the Investment Manager; f. conducting supervision and ensuring the implementation of business continuity plans in accordance with established company policies; g. ensuring employees receive training and education related to compliance; h. formulating and submitting annual work plans for compliance functions to the Board of Commissioners, containing activities and schedules for implementing compliance functions;
   i. formulating and submitting mid-year and annual reports on the implementation of compliance functions to the Board of Commissioners; and
   j. submitting incidental reports to the Board of Commissioners if there are suspicions of violations of Capital Markets legislation by Investment Managers and/or customers, no later than 2 (two) working days from the discovery of the suspected violation.

Article 17
The duties and responsibilities of compliance functions must be established in a written charter binding the functions of Investment Managers.

Article 18
In implementing internal audit functions, the coordinator of risk management, compliance, and internal audit functions is responsible for ensuring the implementation of Investment Manager functions in accordance with written procedures/standard operating procedures.

Article 19
In implementing internal audit functions, the coordinator of risk management, compliance, and internal audit functions must:
a. plan, control, and record all internal audit activities; b. record all findings, conclusions, and recommendations from internal audit activities; and
c. prepare internal audit reports after each internal audit is conducted for submission to the Board of Commissioners.

Fifth Section
Marketing and Customer Complaint Handling Functions
Article 20
The implementation of marketing and customer complaint handling functions must meet the following requirements:
a. the implementation of marketing and customer complaint handling functions must be coordinated by a coordinator who is an employee possessing a Deputy Securities Company license from the Financial Services Authority and has at least 2 (two) years of work experience in Capital Markets and/or finance; b. employees conducting Mutual Fund Securities marketing activities must possess Deputy Securities Company licenses or Deputy Mutual Fund Sales Agent licenses;
c. employees conducting marketing of collective investment portfolio management services other than Mutual Funds and investment management services must possess Deputy Securities Company licenses;
d. in the event that marketing and customer complaint handling functions are not implemented in a single unit, then:

1. marketing functions are coordinated by a coordinator who is an employee possessing a Deputy Securities Company license from the Financial Services Authority and has at least 2 (two) years of work experience in Capital Markets and/or finance; and
2. customer complaint handling functions are coordinated by a coordinator who is an employee possessing a Deputy Securities Company license or Deputy Mutual Fund Sales Agent license from the Financial Services Authority and has at least 2 (two) years of work experience in Capital Markets and/or finance.
3. the marketing functions coordinator is responsible for coordinating:
   a) the process of opening Mutual Fund accounts, collective investment portfolios other than Mutual Funds, and investment management services for customers, considering policies and procedures established for implementing the Customer Due Diligence Principles; and b) investment product marketing activities accurately and professionally, applying customer risk profile regulations and other related regulations.
4. the customer complaint handling functions coordinator is responsible for coordinating:
   a) the receipt and administration of customer complaints; b) the handling and follow-up of customer complaints; and c) the administration of the results of handling and follow-up of customer complaints.

Sixth Section
Information Technology Functions
Article 21
The implementation of information technology functions must meet the following requirements:
a. The implementation of information technology functions is coordinated by a coordinator who is a Board of Directors member or an employee who has at least 1 (one) year of work experience in the field of information technology; b. The information technology functions coordinator is responsible for:

1. conducting periodic reviews and maintenance of information technology systems to ensure:
   a) information technology systems can support Investment Manager operational activities to run smoothly; and b) the information technology systems used are suitable for electronic reporting activities to the Financial Services Authority so that reporting activities can be carried out in accordance with regulations; and
2. conducting periodic data backup storage.

Seventh Section
Human Resource Development Functions
Article 22
The implementation of human resource development functions must meet the following requirements:
a. the implementation of human resource development functions is coordinated by a coordinator who is a Board of Directors member or an employee who has at least 1 (one) year of work experience in the field of human resources; b. the human resource development functions coordinator is responsible for:

1. formulating and implementing training programs to improve employees' technical capabilities and compliance with employee codes of ethics and behavioral standards;
2. conducting screening procedures for the acceptance of new employees in accordance with standard operating procedures and applicable regulations; and
3. maintaining records and documents related to human resource development functions, including but not limited to documents related to training and personnel administration.

Eighth Section
Accounting and Finance Functions
Article 23
The implementation of accounting and finance functions must meet the following requirements:
a. the implementation of accounting and finance functions is coordinated by a coordinator who is a Board of Directors member or an employee who has at least 1 (one) year of work experience in the field of accounting and finance; b. the accounting and finance functions coordinator is responsible for:

1. planning and managing accounting and finance activities; and
2. ensuring that annual financial reports, mid-year financial reports, monthly Investment Manager activity reports, Adjusted Net Working Capital reports, and other reports submitted to the Financial Services Authority are prepared based on accurate data and in accordance with Financial Services Authority regulations and Accounting Standards.

CHAPTER IV
TRANSFER OF FUNCTION IMPLEMENTATION
Article 24
Investment Managers may transfer the implementation of information technology functions, human resource development functions, and accounting and finance functions to service providers in the form of legal entities, while still observing regulations related to the implementation of these functions in this Financial Services Authority Regulation and applicable legislation.

Article 25
In the event that Investment Managers transfer functions as referred to in Article 24, Investment Managers are responsible for the behavior and activities conducted by service providers receiving the transfer of functions from such Investment Managers.

Article 26
Investment Managers transferring the implementation of functions as referred to in Article 24 must ensure that service providers receiving the transfer of function implementation are professionals with capacity and capability standards to implement functions and are able to fulfill their obligations in accordance with the function transfer agreements.

Article 27
Investment Managers are required to have and implement standard operating procedures to supervise the behavior and activities of service providers receiving the transfer of Investment Manager functions.

Article 28
The transfer of implementation of information technology functions, human resource development functions, and accounting and finance functions may only be conducted to service providers with the following requirements:
a. Investment Managers must report information regarding the plan to transfer the implementation of information technology functions, human resource development functions, and accounting and finance functions to the Financial Services Authority in accordance with the transfer plan report format as stated in the Appendix, which is an integral part of this Financial Services Authority Regulation. b. Before appointing service providers to implement information technology functions, human resource development functions, and accounting and finance functions, Investment Managers must conduct due diligence on service providers, including among other things:

1. the service provider's ability to implement Investment Manager functions;

2. the service provider's ability to fulfill obligations in accordance with agreements;

3. operational factors and qualitative and quantitative financial capabilities;

4. reputation factors;

5. insurance coverage by service providers (if any);

6. the existence of potential conflicts of interest, especially if service providers operate in the same business field; and

7. the adequacy and sufficiency of resources possessed by service providers, if having agreements for the transfer of Investment Manager functions to service providers (outsourcing) with multiple Parties; and
   c. Investment Managers must conduct periodic reviews of functions run by service providers to ensure that such functions have been implemented well and correctly in accordance with the standard operating procedures for implementing these functions.
   d. Investment Managers must have written agreements with service providers, containing at least:

8. party names;

9. scope, terms, and conditions of Investment Manager functions whose implementation is transferred to service providers;

10. responsibilities of Investment Managers and service providers and supervision over the implementation of such responsibilities;

11. service standards and mechanisms to ensure that such standards can be met at all times;

12. information confidentiality and security;

13. responsibilities related to information technology system security;

14. reporting by service providers to Investment Managers;

15. accountability...

16. accountability of the service provider to the Investment Manager for unsatisfactory services or other breaches of the agreement;

17. guarantees on service quality and compensation;

18. obligation of the service provider, at any time upon request, to provide any records, information, and/or assistance related to the Investment Manager functions performed by it to the Investment Manager appointing the service provider, the auditor of said Investment Manager, and/or the Financial Services Authority;

19. prohibition for the service provider to appoint third parties (subcontractors) in fulfilling its obligations;

20. provisions regarding the continuity of Investment Manager functions in the event the service provider experiences an emergency condition preventing it from performing its functions;

21. termination of the agreement, which includes among others the transfer of information and steps for terminating the agreement, as well as transition procedures; and

22. mechanisms for resolving disputes arising between the Investment Manager and the service provider.
    e. The Investment Manager must ensure that the service provider maintains the confidentiality of information received from the Investment Manager. f. On the next business day, the Investment Manager is required to report to the Financial Services Authority if the service provider cannot fulfill its obligations. g. The Investment Manager must ensure that the Financial Services Authority…

Financial Services Authority may access the accounting books, records, and documents of the service provider related to the delegation of Investment Manager functions to the service provider at any time. h. The Investment Manager may only appoint a service provider whose operational activities are located in Indonesia.

CHAPTER V
REPORTING OBLIGATIONS
Article 29
(1) The Investment Manager is required to submit the following reports to the Financial Services Authority:
a. annual work plan report for the compliance function, as referred to in Article 16 letter h, in accordance with the format of the annual work plan report for the compliance function as contained in the Appendix which is an integral part of this Financial Services Authority Regulation, no later than on the 12th (twelfth) day after the end of December; b. mid-year report on the implementation of the compliance function, as referred to in Article 16 letter i, in accordance with the format of the mid-year report on the implementation of the compliance function as contained in the Appendix which is an integral part of this Financial Services Authority Regulation, no later than on the 12th (twelfth) day after the end of June;
c. annual report on the implementation of the compliance function, as referred to in Article 16 letter i, in accordance with the format of the annual report on the implementation of the compliance function as contained in the Appendix which is an integral part of this Financial Services Authority Regulation, no later than on the 12th (twelfth) day after the end of December; and
d. incidental report, as referred to in Article 16 letter j, in accordance with the format of the incidental report as contained in the Appendix which is an integral part of this Financial Services Authority Regulation, no later than 7 (seven) business days from when the event was known. (2) In the event that the submission deadline for reports as referred to in paragraph (1) letters a, b, and c falls on a holiday, such reports must be submitted no later than on the 1 (one) next business day.

CHAPTER VI
SANCTIONS
Article 30
(1) Without prejudice to criminal provisions in the Capital Market sector, the Financial Services Authority has the authority to impose administrative sanctions on any party that violates the provisions of this regulation, including parties causing the violation, consisting of:
a. written warning; b. fine, namely the obligation to pay a certain amount of money;
c. restriction of business activities;
d. suspension of business activities; e. revocation of business license; f. cancellation of approval; and g. cancellation of registration.
(2) Administrative sanctions as referred to in paragraph (1) letters b, c, d, or e may be imposed with or without prior imposition of administrative sanction in the form of a written warning as referred to in paragraph (1) letter a. (3) Administrative sanctions in the form of a fine as referred to in paragraph (1) letter b may be imposed separately or together with the imposition of administrative sanctions as referred to in paragraph (1) letters c, d, or e.

Article 31
In addition to administrative sanctions as referred to in Article 30 paragraph (1), the Financial Services Authority may take specific actions against any party that violates the provisions of this Financial Services Authority Regulation.

Article 32
The Financial Services Authority may announce the imposition of administrative sanctions as referred to in Article 30 paragraph (1) and specific actions as referred to in Article 31 to the public.

CHAPTER VII
TRANSITIONAL PROVISIONS
Article 33
Investment Managers are required to adjust and comply with the provisions as referred to in this Financial Services Authority Regulation no later than 6 (six) months from the promulgation of this Financial Services Authority Regulation.

CHAPTER VIII
CLOSING PROVISIONS
Article 34
Further provisions regarding the technical implementation of Investment Manager functions not regulated in this Financial Services Authority Regulation shall be regulated in a Circular Letter of the Financial Services Authority.

Article 35
Upon the commencement of this Financial Services Authority Regulation, the Decision of the Chairman of the Capital Market Supervisory Board and Financial Institutions Number: KEP-480/BL/2009 dated 31 December 2009 concerning Guidelines for the Implementation of Investment Manager Functions along with Regulation Number V.D.11 which is its appendix are repealed and declared invalid.

Article 36
This Financial Services Authority Regulation comes into force on the date of promulgation.
To make everyone aware thereof, ordering the promulgation of this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Determined in Jakarta
On 19 November 2014
CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY,
Ttd
MULIAMAN D. HADAD
Promulgated in Jakarta on 19 November 2014
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA,
Ttd.
YASONNA H. LAOLY
STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2014 NUMBER 359 Copy consistent with the original Director of Legal Affairs I Ministry of Law and Human Rights, Ttd.
Tini Kustini