Implementation of Risk Management on Banks Engaging in Mutual Fund Activities

To:

The Board of Directors of Conventional Commercial Banks; and
The Board of Directors of Islamic Commercial Banks,
At their respective locations.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 4/SEOJK.03/2017

CONCERNING

THE IMPLEMENTATION OF RISK MANAGEMENT ON BANKS ENGAGING IN MUTUAL FUND ACTIVITIES

In light of the increasing involvement of Banks in activities related to Mutual Funds, it is recognized that such activities, while providing benefits, also pose various risks to the Bank, including credit risk, market risk, liquidity risk, legal risk, and reputational risk. In this regard, Banks need to enhance the implementation of effective risk management by adhering to the principle of prudence and protecting the interests of customers.

Therefore, in order to support the development of the financial market, enhance the implementation of Risk Management by Banks, protect the interests of Bank customers, and as an implementation of Financial Services Authority Regulation Number 18/POJK.03/2016 concerning the Implementation of Risk Management for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 53, Supplement to the State Gazette of the Republic of Indonesia Number 5861) and Financial Services Authority Regulation Number 65/POJK.03/2016 concerning the Implementation of Risk Management for Islamic Commercial Banks and Sharia Business Units (State Gazette of the Republic of Indonesia Year 2016 Number 298, Supplement to the State Gazette of the Republic of Indonesia Number 5988), it is necessary to further regulate provisions regarding the implementation of risk management on Banks engaging in activities related to Mutual Funds in a Circular Letter of the Financial Services Authority as follows:

I. GENERAL PROVISIONS

Mutual Fund refers to Mutual Funds as referred to in the Law of the Republic of Indonesia Number 8 of 1995 concerning the Capital Market.
Bank activities related to Mutual Funds include:
a. Bank as Investor
Bank activity as an Investor is the Bank's investment activity in Mutual Funds. b. Bank as Mutual Fund Securities Selling Agent Bank activity as a Mutual Fund Securities Selling Agent is the Bank's activity to represent the securities company as an Investment Manager to sell Mutual Fund securities, carried out by Bank employees who hold a license as a Mutual Fund Sales Agent Representative to sell Mutual Fund securities.
c. Bank as Custodian Bank
Bank activity as a Mutual Fund Custodian Bank is the Bank's activity to carry out collective safekeeping, store and administer Mutual Fund assets, administer or record unit participation mutations, and provide other services including calculating net asset value, settling transactions, receiving dividends, interest, and other rights.
Banks engaging in activities related to Mutual Funds must comply with regulations in the banking sector and the capital market sector.
In order to protect customer interests, Banks acting as Mutual Fund Securities Selling Agents must implement product information transparency by providing information both in writing and orally.

II. IMPLEMENTATION OF RISK MANAGEMENT

A. General Implementation of Risk Management

In order to support the implementation of effective risk management, the main things that Banks must do are:
a. ensure that Investment Managers who are partners in activities related to Mutual Funds have obtained a business license from the Financial Services Authority; b. ensure that Mutual Funds have obtained an effective declaration from the Financial Services Authority; and
c. identify, measure, monitor, and control risks arising from activities related to Mutual Funds.
In order to implement the principle of prudence, Banks are not allowed to take actions, either directly or indirectly, that result in Mutual Funds having the characteristics of Bank products, such as savings or deposits. Prohibited actions include:
a. providing guarantees for:
1. redemption of Mutual Funds; and/or
2. certainty of the amount of Mutual Fund returns, including net asset value,
  either directly or indirectly; b. making commitments to purchase underlying assets of Mutual Funds on standby (standby buyer) either directly or indirectly; and
  c. intervening in the portfolio management of Mutual Fund securities carried out by the Investment Manager.

B. Implementation of Risk Management for Each Activity

Bank as Mutual Fund Investor
a. According to regulations governing the assessment of the quality of commercial bank assets and Financial Services Authority Regulation Number 16/POJK.03/2014 concerning the Assessment of the Quality of Assets of Islamic Commercial Banks and Sharia Business Units, Banks are not allowed to have productive assets in the form of shares and/or securities linked or guaranteed by specific underlying reference assets in the form of shares. Thus, Banks are not allowed to invest in Mutual Funds with underlying assets in the form of shares. b. In investing in Mutual Funds, Banks must ensure that the investment in Mutual Funds meets prudential requirements, including:
1. the Bank considers its own financial capacity and condition, as well as its internal investment policies, strategies, and guidelines;
2. at the time of purchase, the Mutual Fund meets the "Current" quality criteria according to regulations on the assessment of commercial bank asset quality and Financial Services Authority Regulation Number 16/POJK.03/2014 concerning the Assessment of the Quality of Assets of Islamic Commercial Banks and Sharia Business Units;
3. the Bank's investment in Mutual Funds does not violate the maximum limits for credit granting and fund disbursement; and
4. investment in Mutual Funds is calculated in the minimum capital provision requirement by considering market risk.
  c. In order to ensure that the quality of Mutual Funds is classified as "Current" as referred to in item b.2), the Bank conducts adequate analysis of the Mutual Fund and the Investment Manager before engaging in investor activities, including:
5. analysis of the quality or rating of the Mutual Fund, or the quality or rating of the underlying assets of the Mutual Fund;
6. analysis of the quality of the Investment Manager with analysis scope including:
  a) performance, liquidity, and reputation of the Investment Manager; and b) diversification of the portfolio held by the Investment Manager. d. The Bank must regularly monitor risk exposure from its activities related to Mutual Funds through:
7. Monitoring of the development and management of Mutual Funds carried out by the Investment Manager, including:
  a) consistency of the Mutual Fund portfolio policy with the prospectus; b) quality or rating of the Mutual Fund, or quality or rating of the underlying assets of the Mutual Fund; c) liquidity management; d) transparency principles to the public; and e) implementation of the principle of prudence;
8. Assessment of the Investment Manager with analysis scope including:
  a) performance, liquidity, and reputation of the Investment Manager; and b) diversification of the portfolio held by the Investment Manager.
Bank as Mutual Fund Securities Selling Agent
a. The Bank may only conduct activities as a Mutual Fund Securities Selling Agent through Bank employees who have obtained a license as a Mutual Fund Securities Sales Agent Representative. Bank employees who are Mutual Fund Securities Sales Agent Representatives must receive specific assignment from the Bank to act on behalf of and for the name of the Bank. b. The Bank as a Mutual Fund Securities Selling Agent, as well as Bank employees who have obtained a license as a Mutual Fund Securities Sales Agent Representative, are not allowed to act as Sub-Agents for Mutual Fund Securities Selling or transfer the function of Mutual Fund Securities Selling Agent to other parties.
c. Mutual Funds that can be sold by the Bank as a Mutual Fund Securities Selling Agent are Mutual Funds that meet the definition and criteria regulated in capital market regulations.
d. Activities as a Mutual Fund Securities Selling Agent must be based on a written agreement that clearly states the functions, authorities, and responsibilities of the Bank as a Mutual Fund Securities Selling Agent. In drafting the written cooperation agreement, the Bank must consider the following among others:
1. clarity of rights and obligations of each party;
2. clear determination of the duration of the cooperation agreement;
3. determination of clauses containing conditions for the termination of the cooperation agreement, including clauses allowing the Bank to terminate cooperation before the end of the agreement period;
4. clarity on the settlement of rights and obligations of each party upon the termination of the cooperation agreement; and
5. determination of clauses regarding the obligation of the Mutual Fund Securities Selling Agent to provide customer data information to the Investment Manager and/or Custodian Bank, and clauses stating that all customer data can only be used for the purpose of activities related to Mutual Funds in order to fulfill the Custodian Bank's obligation to provide confirmation of customer investments.
  e. In the event of an extension of the cooperation period as established in the cooperation agreement as referred to in item d.2), provided there are no changes to features and clauses in the cooperation agreement, the Bank may extend the cooperation period without obtaining permission from the Financial Services Authority. f. In the event of conditions as in letter e, the Bank must inform the Financial Services Authority regarding the extension of the cooperation period through a report signed by the director overseeing the compliance function. g. The Bank must monitor the development and management of Mutual Funds and/or assess the Investment Manager as follows:
6. monitoring of the development and management of Mutual Funds carried out by the Investment Manager, including:
  a) consistency of the Mutual Fund portfolio policy with the prospectus; and b) liquidity management;
7. assessment of the Investment Manager with analysis scope including:
  a) performance, liquidity, and reputation of the Investment Manager; and b) diversification of the portfolio held by the Investment Manager. h. In order to protect customer interests, the Bank must:
8. conduct analysis in selecting Mutual Funds to be offered, including considering:
  a) performance, reputation, and expertise of the Investment Manager; b) characteristics of the Mutual Fund such as investment policy, composition, diversification, and quality or rating of the Mutual Fund, or quality or rating of the underlying assets of the Mutual Fund; and
9. provide transparent information to customers in accordance with regulations regarding product information transparency and the use of customer personal data, as well as Financial Services Authority regulations concerning Consumer Protection in the Financial Services Sector.
  i. In providing transparent information to customers as referred to in item h.2), the Bank must provide complete and clear written information in the Indonesian language and deliver it to customers both in writing and orally, including:
10. information that Mutual Funds are capital market products and not Bank products, and that the Bank is not responsible for any claims and risks regarding the management of Mutual Fund portfolios;
11. information that investment in Mutual Funds is not part of third-party deposits at the Bank and is not included in the scope of objects of the deposit insurance program by the Deposit Insurance Institution;
12. information regarding the Investment Manager managing the Mutual Fund;
13. information regarding the Custodian Bank and explanation that confirmation of customer investment will be issued by the Custodian Bank;
14. information regarding the type of Mutual Fund and risks inherent in the Mutual Fund product, including the possibility of investment value loss to be borne by customers due to fluctuations in net asset value according to market conditions and the quality of underlying assets;
15. information regarding investment policy and portfolio composition; and
16. information regarding costs arising from investment in Mutual Funds.
  j. On every document related to Mutual Funds drafted or issued by the Bank, the following sentence must be clearly and legibly stated:
17. "Bank as Mutual Fund Securities Selling Agent"; and
18. "Mutual Funds are capital market products and not Bank products, so they are not guaranteed by the Bank and are not included in the scope of objects of the deposit insurance program by the Deposit Insurance Institution".
  k. The Bank as a Mutual Fund Securities Selling Agent is not allowed to issue confirmation of investments made by customers.
  l. In activities as a Mutual Fund Securities Selling Agent, the Bank must apply Customer Due Diligence (CDD) procedures as regulated in regulations concerning anti-money laundering and counter-terrorism financing.
Bank as Custodian Bank
a. Activities as a Custodian Bank must be based on a written cooperation agreement. b. In drafting the written cooperation agreement, the Bank must consider the following among others:
1. clarity of rights and obligations of each party;
2. clarity on the settlement of rights and obligations of each party upon the termination of the cooperation agreement;
3. determination of clauses regarding the right of the Custodian Bank to obtain customer data from the Investment Manager and/or Mutual Fund Securities Selling Agent, and clauses regarding the obligation of the Custodian Bank to maintain data confidentiality, as well as clauses stating that all customer data can only be used for the purpose of activities related to Mutual Funds in order to fulfill the Custodian Bank's obligation to provide confirmation of customer investments.
  c. According to capital market regulations, the Custodian Bank is prohibited from being affiliated with the Investment Manager.
  d. The Bank must administer and record deposited securities separately and apart from the Bank's assets and liabilities. e. In issuing confirmation of customer investments, the Bank is not allowed to delegate its obligations to other parties, including to Mutual Fund Securities Selling Agents. f. In conducting activities as a Custodian Bank, the Bank applies CDD procedures as regulated in regulations concerning anti-money laundering and counter-terrorism financing. g. In the event the Bank conducts activities as both a Custodian Bank and a Mutual Fund Securities Selling Agent, the Bank must ensure the following among others:
4. having and applying an effective internal control system, including the principle of segregation of duties, such that officials and employees at the Bank responsible for the Custodian Bank function are in a separate work unit from the work unit functioning as the Mutual Fund Securities Selling Agent;
5. ensuring periodic and continuous verification and review of the handling of material weaknesses in activities as a Custodian Bank and Mutual Fund Securities Selling Agent, and having actions to correct deviations that occur;
6. avoiding the granting of authorities and responsibilities that could cause conflicts of interest; and
7. ensuring that the party signing or approving confirmation of customer investments comes only from the work unit handling custodian activities, and appointing and designating officials and/or employees authorized to do so.

C. Guidelines for Implementation of Risk Management

The implementation of Risk Management as referred to above is embodied in written policies and procedures in accordance with Financial Services Authority Regulation Number 18/POJK.03/2016 concerning the Implementation of Risk Management for Commercial Banks and Financial Services Authority Regulation Number 65/POJK.03/2016 concerning the Implementation of Risk Management for Islamic Commercial Banks and Sharia Business Units.

III. PLANNING AND REPORTING

A. Banks That Will First Conduct Activities as a Mutual Fund Securities Selling Agent or Custodian Bank

The Bank must include the plan to conduct new activities as a Mutual Fund Securities Selling Agent or Custodian Bank in the Bank's business plan for the same year as the plan to conduct such activities, referring to Financial Services Authority regulations regarding Bank business plans. The format for including the plan to conduct new activities as a Mutual Fund Securities Selling Agent or Custodian Bank in the Bank's business plan refers to Appendix I, which is an integral part of this Financial Services Authority Circular Letter.
Banks that have met the provisions in item 1 must submit reports to the Financial Services Authority consisting of:
a. Report on the Plan to Conduct New Activities as a Mutual Fund Securities Selling Agent or Custodian Bank; and b. Report on the Implementation Realization of New Activities as a Mutual Fund Securities Selling Agent or Custodian Bank.
The Report on the Plan to Conduct New Activities as a Mutual Fund Securities Selling Agent or Custodian Bank as referred to in item 2.a consists of:
a. for activities as a Mutual Fund Securities Selling Agent, namely:
1. Report on the Plan to Become a Mutual Fund Securities Selling Agent; and
2. Report on the Plan to Sell Mutual Fund Securities.
  b. for activities as a Custodian Bank, namely the Report on the Plan to Conduct New Activities as a Custodian Bank.
Submission of the Report on the Plan to Become a Mutual Fund Securities Selling Agent to the Financial Services Authority as referred to in item 3.a.1) is conducted as follows:
a. The Report on the Plan to Become a Mutual Fund Securities Selling Agent is submitted:
1. for commercial banks, referring to Circular Letters of the Financial Services Authority regarding Business Activities of Commercial Banks Based on Core Capital; or
2. for Islamic commercial banks and Sharia business units, referring to Financial Services Authority Regulations regarding Products and Activities of Sharia Banks and Sharia Business Units.
  b. The report as referred to in letter a must at least contain matters related to activities as a Mutual Fund Securities Selling Agent as follows:
3. general information including among others objectives, description of potential customers, analysis of Strengths, Weaknesses, Opportunities, Threats (SWOT);
4. cost and benefits analysis;
5. analysis of benefits and risks for customers;
6. implementation procedures (Standard Operating Procedure or SOP), organization, and implementation authority considering the regulation of Risk Management implementation in item II.B.2;
7. human resource readiness at least referring to requirements in item II.B.2.a;
8. readiness regarding information systems;
9. plan for policies and procedures related to the implementation of anti-money laundering and counter-terrorism financing programs, referring to regulations in item II.B.2.l;
10. analysis of legal and compliance aspects;
11. Sharia opinion from the Sharia Supervisory Board, for Islamic commercial banks and Sharia business units referring to Circular Letters of the Financial Services Authority regarding Products and Activities of Islamic Commercial Banks and Sharia Business Units;
12. assessment of readiness as a Mutual Fund Securities Selling Agent;
13. documents or draft documents regarding transparency to customers related to the implementation of activities, including among others agreements between the Bank and customers or other parties, brochures, leaflets, prospectuses, and/or application forms; and
14. other documents.
  c. The format of the Report on the Plan to Become a Mutual Fund Securities Selling Agent refers to Appendix II, which is an integral part of this Financial Services Authority Circular Letter.
  d. The Bank receives a confirmation letter regarding the plan to become a Mutual Fund Securities Selling Agent after all requirements are met and reporting documents are received completely by the Financial Services Authority.
Submission of the Report on the Plan to Sell Mutual Fund Securities as referred to in item 3.a.2) is conducted as follows:
a. The Report on the Plan to Sell Mutual Fund Securities must at least contain the following:
1. documents regarding transparency to customers, including among others brochures, leaflets, and/or application forms, referring to items II.B.2.h.2), II.B.2.i, and II.B.2.j;
2. risk management, including identification, measurement, monitoring, and control of risks inherent in activities as a Mutual Fund Securities Selling Agent;
3. documents related to activities as a Mutual Fund Securities Selling Agent, including among others the final draft of agreements between the Bank and parties related to the sale of Mutual Fund securities, referring to item II.B.2.d; and
4. a form checklist of document completeness for the Report on the Plan to Sell Mutual Fund Securities as referred to in items 1) to 3), accompanied by a statement from the director overseeing the compliance function and the director overseeing the risk management function, that:
  a) the data and/or information submitted by the Bank regarding the Report on the Plan to Sell Mutual Fund Securities has met the provisions in this Financial Services Authority Circular Letter; b) the content of the data and/or information submitted is true and corresponds to the actual facts; and c) in the event that it is later found that the data and/or information submitted does not meet the provisions in this Financial Services Authority Circular Letter and/or is not true and/or does not correspond to the actual facts, the Bank is willing to be subject to sanctions according to Financial Services Authority Regulations concerning the Implementation of Risk Management for Commercial Banks or Financial Services Authority Regulations concerning the Implementation of Risk Management for Islamic Commercial Banks and Sharia Business Units. b. The format of the Report on the Plan to Sell Mutual Fund Securities refers to Appendix III, which is an integral part of this Financial Services Authority Circular Letter.
  c. In the event that the attached documents do not comply with regulations or based on the assessment of the Financial Services Authority, the Bank is declared not to meet the requirements to conduct the sale of Mutual Fund securities, the Financial Services Authority sends a notification of rejection of the plan to sell Mutual Fund securities to the Bank, accompanied by reasons for rejection.
  d. In the event that the Financial Services Authority rejects the plan to sell Mutual Fund securities as referred to in letter c, the Bank may resubmit the plan to sell Mutual Fund securities. e. In the event that the documents comply with regulations and based on the assessment of the Financial Services Authority, the Bank is declared to meet the requirements to conduct the sale of Mutual Fund securities, the Financial Services Authority provides a letter of approval for the plan to sell Mutual Fund securities to the Bank.

f. Notification of rejection regarding the plan to sell Mutual Fund securities as referred to in letter c or approval letter regarding the plan to sell Mutual Fund securities as referred to in letter e is conveyed by the Financial Services Authority within a maximum period of 19 (nineteen) working days since the Bank received the notification of submission of the Mutual Fund Securities Sales Plan Report from the Financial Services Authority.

g. The Bank may conduct activities as a Mutual Fund Sales Agent after receiving a confirmation letter from the Financial Services Authority regarding the plan to become a Mutual Fund Sales Agent and an approval letter regarding the plan to sell Mutual Fund securities.

For activities as a Custodian Bank, the submission of the New Activity Implementation Plan Report as a Custodian Bank as referred to in item 3.b is carried out as follows:

a. The Report is submitted:

for commercial banks with reference to the Financial Services Authority Circular regarding Commercial Bank Business Activities Based on Core Capital; or
for Islamic commercial banks and Islamic business units with reference to the Financial Services Authority Regulation regarding Islamic Bank Products and Activities and Islamic Business Units.

b. The Report as referred to in letter a must contain at least information and explanations for reporting new products or activities in accordance with the Financial Services Authority Circular regarding Commercial Bank Business Activities Based on Core Capital or the Financial Services Authority Circular regarding Islamic Commercial Bank Products and Activities and Islamic Business Units.

B. Banks That Have Previously Conducted Activities and Are Registered or Have Obtained Licenses as Mutual Fund Sales Agents or Custodian Banks

For Activities as Mutual Fund Sales Agents

a. Banks must fulfill regulations related to the Mutual Fund Securities Sales Plan Report in the event that the issuance of Mutual Funds requires a registration statement from the Financial Services Authority.

b. Submission of the Mutual Fund Securities Sales Plan Report as referred to in letter a is carried out in accordance with the regulations as referred to in item III.A.5.

c. The format of the Mutual Fund Securities Sales Plan Report refers to Appendix III which is an integral part of this Financial Services Authority Circular.

d. Requirements for conducting activities as a Mutual Fund Sales Agent refer to the regulations as referred to in item III.A.5.g.

For Activities as Custodian Banks

Changes or developments in the Bank's activities as a Custodian Bank are not included in the criteria for new activities, so the development of activities as a Custodian Bank by Banks that have previously conducted such activities is not subject to the obligation to report plans for new product issuance and/or new activities.

C. Reports on the Realization of New Activity Implementation as Mutual Fund Sales Agents or Custodian Banks

Reports on the Realization of New Activity Implementation as Mutual Fund Sales Agents or Custodian Banks in item III.A.2.b must be submitted within a maximum of 7 (seven) working days after the implementation of the new activity.
Reports on the Realization of New Activity Implementation as Mutual Fund Sales Agents or Custodian Banks must contain at least the following information and explanations:

a. type of activity; b. date of realization of the new activity, namely the date since the activity was first offered by the Bank and can be purchased or utilized by customers; and
c. consistency of the realization of the new activity with the New Activity Implementation Plan Report that has been submitted.

D. Periodic Reports Related to the Implementation of Activities as Mutual Fund Sales Agents and Periodic Reports Related to the Implementation of Activities as Custodian Banks

Banks that have conducted activities as Mutual Fund Sales Agents and/or Custodian Banks compile Periodic Reports Related to the Implementation of Activities as Mutual Fund Sales Agents and/or Periodic Reports Related to the Implementation of Activities as Custodian Banks on a monthly basis.
The Periodic Report Related to the Implementation of Activities as Mutual Fund Sales Agents as referred to in item 1 is submitted to the Financial Services Authority quarterly, covering the position at the end of each month for 3 (three) consecutive months, using the format in Appendix IV which is an integral part of this Financial Services Authority Circular.
Submission of the Periodic Report Related to the Implementation of Activities as Mutual Fund Sales Agents as referred to in item 2 is carried out no later than the 15th (fifteenth) after the end of the 3rd (third) month of the relevant quarter. The end of the quarter refers to the end of March, June, September, and December. If the 15th (fifteenth) is a holiday, the report is submitted on the next working day.
The Periodic Report Related to the Implementation of Activities as Custodian Banks as referred to in item 1 refers to regulations regarding reports of commercial bank headquarters.

E. Report Submission

New Activity Implementation Plan Report as Mutual Fund Sales Agent

a. Plan Report to Become a Mutual Fund Sales Agent

The Plan Report to Become a Mutual Fund Sales Agent for Banks that will first conduct activities as Mutual Fund Sales Agents as referred to in item III.A.3.a.1) is submitted to the Financial Services Authority at the following addresses:

The Relevant Bank Supervision Department or Islamic Banking Department for Banks that have their headquarters or branches of banks located abroad in the Special Capital Region of Jakarta Province; or
The Regional Office of the Financial Services Authority or the Local Office of the Financial Services Authority according to the area where the Bank's headquarters is located.

b. Mutual Fund Securities Sales Plan Report

The Mutual Fund Securities Sales Plan Report for Banks that will first conduct activities as Mutual Fund Sales Agents as referred to in item III.A.3.a.2) and the Mutual Fund Securities Sales Plan Report for Banks that have previously conducted activities and are registered or have obtained licenses as Mutual Fund Sales Agents as referred to in item III.B.1.b are submitted with the following provisions:

The Mutual Fund Securities Sales Plan Report is submitted to the Financial Services Authority online by uploading all documents as referred to in item III.A.5.a through the Financial Services Authority's integrated licensing and registration system;
specifically for Banks that will first conduct activities as Mutual Fund Sales Agents, in submitting the Mutual Fund Securities Sales Plan Report, the Bank must coordinate with the Investment Manager in the process of uploading all documents, so that the uploading process can be carried out on the same day or within a maximum time frame of 2 (two) days since the Investment Manager managing the Mutual Fund to be sold by the Bank registers the effective statement of the Mutual Fund product in the Financial Services Authority's integrated licensing and registration system;
The Mutual Fund Securities Sales Plan Report submitted to the Financial Services Authority online after 17:00 Western Indonesian Time (WIB) is considered received by the Financial Services Authority on the next working day;
in the event of technical disturbances in the Financial Services Authority's integrated licensing and registration system during the submission of the Mutual Fund Securities Sales Plan Report, the Mutual Fund Securities Sales Plan Report is submitted to the Financial Services Authority offline in the form of electronic data using media such as Compact Disc (CD) or other electronic data storage media, which is submitted to the Financial Services Authority at the following addresses:
a) The Relevant Bank Supervision Department or Islamic Banking Department for Banks that have their headquarters or branches of banks located abroad in the Special Capital Region of Jakarta Province; or b) The Regional Office of the Financial Services Authority or the Local Office of the Financial Services Authority according to the area where the Bank's headquarters is located;
in the event that technical disturbances as referred to in item 4) are experienced by the Financial Services Authority, the Financial Services Authority announces via the Financial Services Authority website on the same day as the technical disturbance occurs along with the mechanism for processing the Mutual Fund Securities Sales Plan Report;
The Bank is deemed to have submitted the Mutual Fund Securities Sales Plan Report with the following provisions:
a) for online submission through the Financial Services Authority's integrated licensing and registration system, evidenced by a notification from the Financial Services Authority issued by the integrated licensing and registration system; or b) for offline submission, evidenced by a receipt letter from the Financial Services Authority or a shipping receipt from a courier service company; and
The Bank must retain all documents of the Mutual Fund Securities Sales Plan Report for a period in accordance with laws and regulations and must be able to show the aforementioned documents whenever required by the Financial Services Authority.

Report on the Realization of New Activity Implementation as Mutual Fund Sales Agent or Custodian Bank

The Report on the Realization of New Activity Implementation as Mutual Fund Sales Agent or Custodian Bank as referred to in item III.C is submitted to the Financial Services Authority at the following addresses:
a. The Relevant Bank Supervision Department or Islamic Banking Department for Banks that have their headquarters or branches of banks located abroad in the Special Capital Region of Jakarta Province; or b. The Regional Office of the Financial Services Authority or the Local Office of the Financial Services Authority according to the area where the Bank's headquarters is located.

Periodic Reports Related to the Implementation of Activities as Mutual Fund Sales Agents and Periodic Reports Related to the Implementation of Activities as Custodian Banks

a. The Periodic Report Related to the Implementation of Activities as Mutual Fund Sales Agents and the Periodic Report Related to the Implementation of Activities as Custodian Banks as referred to in item III.D are submitted online through the Financial Services Authority's reporting system.

b. In the event that report submission through the Financial Services Authority's reporting system as referred to in letter a cannot yet be carried out, the Bank submits reports online through the Commercial Bank Headquarters Reporting System (LKPBU) as regulated in the regulations regarding LKPBU.

IV. OTHER PROVISIONS

In order to increase the effectiveness of risk management implementation, Banks that have conducted activities related to Mutual Funds must conduct evaluations and audits of such activities regarding the fulfillment of risk management implementation as referred to in item II.
If necessary, the Financial Services Authority may conduct examinations regarding the effectiveness and consistency of risk management implementation for activities related to Mutual Funds conducted by Banks.
In the event that a Bank markets Mutual Funds issued by an Investment Manager that is a subsidiary of the Bank, the Bank must implement risk management effectively with reference to regulations regarding prudential principles in equity participation activities.

V. PROCEDURES FOR IMPOSITION OF SANCTIONS

Violations of the implementation of risk management as referred to in item II of this Financial Services Authority Circular are subject to administrative sanctions as referred to in Financial Services Authority Regulation Number 18/POJK.03/2016 regarding the Implementation of Risk Management for Commercial Banks or Financial Services Authority Regulation Number 65/POJK.03/2016 regarding the Implementation of Risk Management for Islamic Commercial Banks and Islamic Business Units.
Violations of reporting obligations as referred to in item III.A.4, item III.A.5, item III.A.6, item III.B.1.b, and item III.C.1 are subject to reporting-related sanctions as regulated in Financial Services Authority Regulation Number 18/POJK.03/2016 regarding the Implementation of Risk Management for Commercial Banks or Financial Services Authority Regulation Number 24/POJK.03/2015 regarding Islamic Bank Products and Activities and Islamic Business Units.

VI. TRANSITIONAL PROVISIONS

Before the provisions in this Financial Services Authority Circular take effect, the submission of the Plan Report to Become a Mutual Fund Sales Agent or the New Activity Implementation Plan Report as a Custodian Bank and/or the Mutual Fund Securities Sales Plan Report to the Financial Services Authority is processed in accordance with the regulations in effect at the time the report is submitted.

VII. CLOSING

At the time this Financial Services Authority Circular takes effect:

Bank Indonesia Circular Number 7/19/DPNP dated June 14, 2005 regarding the Implementation of Risk Management on Banks Engaged in Mutual Fund Activities; and
Bank Indonesia Circular Number 11/36/DPNP dated December 31, 2009 regarding Amendments to Bank Indonesia Circular Number 7/19/DPNP dated June 14, 2005 regarding the Implementation of Risk Management on Banks Engaged in Mutual Fund Activities,
are revoked and declared invalid.

The provisions in this Financial Services Authority Circular take effect on March 1, 2017.

Established in Jakarta on January 16, 2017
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signed
NELSON TAMPUBOLON