Implementation of the Compliance Function for Sharia Microfinance Banks

To:
The Board of Directors of Sharia Microfinance Banks

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 11 /SEOJK.03/2019

CONCERNING

IMPLEMENTATION OF THE COMPLIANCE FUNCTION
FOR SHARIA MICROFINANCE BANKS

In connection with the establishment of the Financial Services Authority Regulation Number 24/POJK.03/2018 concerning the Implementation of Corporate Governance for Sharia Microfinance Banks, hereinafter referred to as the POJK on BPRS Corporate Governance, it is necessary to regulate the implementation of the aforementioned Financial Services Authority Regulation in the Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

1. The compliance function is a series of preventive actions or steps to ensure that the policies, regulations, systems, procedures, and business activities carried out by BPRS are in accordance with the provisions of legislation and Sharia Principles, and to ensure BPRS's compliance with commitments made by BPRS to the Financial Services Authority and/or other competent authorities in accordance with the provisions of legislation, including but not limited to Bank Indonesia (BI), the Financial Transaction Reports and Analysis Centre (PPATK), and/or the Deposit Insurance Corporation (LPS).

2. All members of the BPRS Board of Directors are responsible for fostering and realizing the implementation of a compliance culture at all levels of the BPRS organization and business activities. A compliance culture is a value, behavior, and action that supports the creation of compliance with BPRS internal regulations, provisions of legislation, and Sharia Principles.

3. In accordance with Article 62 paragraph (7) and Article 84 of the POJK on BPRS Corporate Governance, in implementing the compliance function, BPRS is required to:
   a. report the temporary replacement of the position of the Board of Directors member overseeing the compliance function; b. submit a report on the main points of the implementation of duties and responsibilities of the Board of Directors member overseeing the compliance function; and
   c. submit a special report regarding Board of Directors policies and/or decisions that, in the opinion of the Board of Directors member overseeing the compliance function, have deviated from the provisions of legislation, to the Financial Services Authority.

4. In accordance with Article 94 of the POJK on BPRS Corporate Governance, BPRS is required to submit reports as referred to in item 3 letter b and letter c to the Financial Services Authority online through the Financial Services Authority reporting system. In the event that submission of reports online through the Financial Services Authority reporting system cannot yet be performed, reports are submitted offline.
   Submission of reports related to the compliance function online through the Financial Services Authority reporting system or offline is carried out as regulated in the Financial Services Authority Regulation concerning reporting by rural credit banks and Sharia microfinance banks through the Financial Services Authority reporting system.

II. COMPLIANCE WORK GUIDELINES, SYSTEMS, AND PROCEDURES

Compliance work guidelines, systems, and procedures must at least include:

1. the party responsible for the compliance function;
2. compliance procedure standards in each BPRS work unit, including:
   a. the obligation for each BPRS work unit to carry out operational activities in accordance with BPRS internal regulations, provisions of legislation, and Sharia Principles; and b. the obligation to adjust BPRS internal regulations with provisions of legislation and Sharia Principles;
3. decision-making procedures by management related to the compliance function;
4. a compliance code of ethics to support a compliance culture;
5. coordination flow and monitoring procedures between:
   a. the Board of Directors member overseeing the compliance function and other Board of Directors members; b. the Board of Directors member overseeing the compliance function and the Compliance Work Unit (SKP) or Executive Officer responsible for the implementation of the compliance function (PE Compliance); and
   c. the SKP or PE Compliance and other work units in BPRS;
6. internal regulations related to the compliance function regulating among others:
   a. the duties and responsibilities of the Board of Directors member overseeing the compliance function at least include:
   1. determining the necessary steps to ensure that BPRS has met all BPRS internal regulations, provisions of legislation, and Sharia Principles;
   2. monitoring and ensuring that BPRS business activities do not deviate from BPRS internal regulations, provisions of legislation, and Sharia Principles;
   3. monitoring and ensuring BPRS compliance with all BPRS commitments to the Financial Services Authority and other competent authorities in accordance with the provisions of legislation;
   4. providing dissenting opinions in the event of policies and/or decisions that deviate from BPRS internal regulations, provisions of legislation, and Sharia Principles;
   5. ensuring the implementation of continuous socialization and training for all relevant work units regarding BPRS internal regulations, provisions of legislation, and Sharia Principles;
   6. reporting in writing to other Board of Directors members and the Board of Commissioners regarding compliance violations committed by BPRS employees;
   7. reporting in writing to the Board of Commissioners regarding compliance violations committed by the BPRS Board of Directors; and
   8. coordinating with the Sharia Supervisory Board (DPS) regarding the implementation of the compliance function concerning Sharia Principles; and
      b. the duties and responsibilities of the SKP or PE Compliance at least include:
   9. monitoring and understanding every development of BPRS internal regulations, provisions of legislation, and Sharia Principles;
   10. implementing continuous socialization and training for all relevant work units regarding BPRS internal regulations, provisions of legislation, and Sharia Principles;
   11. ensuring that each work unit has adjusted BPRS internal regulations with provisions of legislation and Sharia Principles;
   12. providing consultation to work units or BPRS employees regarding compliance with BPRS internal regulations, provisions of legislation, and Sharia Principles;
   13. providing recommendations for BPRS products, activities, and transactions in accordance with BPRS internal regulations, provisions of legislation, and Sharia Principles;
   14. ensuring the implementation of compliance procedures in every BPRS work unit;
   15. coordinating and providing recommendations to the internal audit work unit or Executive Officer responsible for the implementation of the internal audit function regarding compliance violations committed by BPRS employees;
   16. reporting the implementation of the compliance function and the existence of compliance violations to the Board of Directors member overseeing the compliance function;
   17. identifying, measuring, monitoring, and controlling compliance risks as regulated in the Financial Services Authority Regulation concerning the implementation of risk management for Sharia microfinance banks, coordinating with the risk management work unit or Executive Officer responsible for the implementation of the risk management function;
   18. analyzing, evaluating, and assessing compliance risks related to BPRS business activities;
   19. evaluating and developing effective and efficient monitoring procedures; and
   20. coordinating with the DPS regarding the implementation of the compliance function concerning Sharia Principles.

III. REPORTS RELATED TO THE COMPLIANCE FUNCTION

1. Main Report on the Implementation of Duties and Responsibilities of the Board of Directors Member Overseeing the Compliance Function

   a. General Guidelines
   The main report on the implementation of duties and responsibilities of the Board of Directors member overseeing the compliance function is prepared at the end of every December and signed by the Board of Directors member overseeing the compliance function and the President Director, and submitted to the Financial Services Authority no later than March 31 of the following year. If the President Director performs the function as the Board of Directors member overseeing the compliance function, then the main report on the implementation of duties and responsibilities of the Board of Directors member overseeing the compliance function is signed by the President Director. In accordance with Article 115 of the POJK on BPRS Corporate Governance, BPRS must submit the main report on the implementation of duties and responsibilities of the Board of Directors member overseeing the compliance function to the Financial Services Authority for the first time for the position of the end of December 2022 report.

   b. Scope
   The main report on the implementation of duties and responsibilities of the Board of Directors member overseeing the compliance function must at least include:

   1. General information on BPRS according to the latest conditions, at least including:
      a) organizational structure including the Board of Directors, Board of Commissioners, DPS, and Executive Officers; b) human resource formation in each work unit, education, and length of tenure in the current position, including the Board of Directors, Board of Commissioners, and DPS; and c) internal regulations owned, including the implementation date.
   2. Information regarding the implementation of the compliance function in BPRS, at least including:
      a) implementation of continuous socialization and training for all relevant work units regarding BPRS internal regulations, provisions of legislation, and Sharia Principles; b) implementation of the compliance function in all work units, including plans to adjust internal regulations with provisions of legislation, Sharia Principles, and fulfillment of organizational structure or human resources; c) deviations from BPRS internal regulations, provisions of legislation, and Sharia Principles, including explanations of efforts made to prevent deviations; and d) implementation of fulfillment of commitments to the Financial Services Authority and other competent authorities in accordance with the provisions of legislation.

2. Special Report

   a. General Guidelines
   A special report is prepared in the event of Board of Directors policies and/or decisions that, in the opinion of the Board of Directors member overseeing the compliance function, have deviated from the provisions of legislation. In accordance with Article 86 of the POJK on BPRS Corporate Governance, the special report must be signed by the Board of Directors member overseeing the compliance function and must be submitted to the Financial Services Authority no later than 10 (ten) working days since the deviation was found.

   b. Scope
   A special report regarding Board of Directors policies and/or decisions that, in the opinion of the Board of Directors member overseeing the compliance function, have deviated from the provisions of legislation must at least include:

   1. Board of Directors policies and/or decisions that deviate from the provisions of legislation; and
   2. preventive efforts that have been optimally carried out by the Board of Directors member overseeing the compliance function against Board of Directors policies and/or decisions that deviate from the provisions of legislation.

3. Report on Temporary Replacement of the Position of the Board of Directors Member Overseeing the Compliance Function

   a. General Guidelines
   In accordance with Article 62 paragraph (7) of the POJK on BPRS Corporate Governance, BPRS is required to report the temporary replacement of the position of the Board of Directors member overseeing the compliance function. Temporary replacement of the position of the Board of Directors member overseeing the compliance function is carried out when:

   1. the Board of Directors member overseeing the compliance function is temporarily unable to serve for more than 10 (ten) working days up to 90 (ninety) consecutive working days as referred to in Article 62 paragraph (2) of the POJK on BPRS Corporate Governance; or
   2. BPRS is in the process of replacing the Board of Directors member overseeing the compliance function due to the Board of Directors member overseeing the compliance function being permanently unable to serve, resigning, or having completed their term of office, as referred to in Article 62 paragraph (4) of the POJK on BPRS Corporate Governance.
      The report on the temporary replacement of the position of the Board of Directors member overseeing the compliance function is submitted to the Financial Services Authority no later than 10 (ten) working days after the temporary replacement is carried out.

   b. Scope
   The report on the temporary replacement of the position of the Board of Directors member overseeing the compliance function must at least include:

   1. reasons for the temporary replacement of the Board of Directors member overseeing the compliance function;
   2. profile of the Board of Directors member temporarily replacing the Board of Directors member overseeing the compliance function;
   3. duration of the temporary replacement; and
   4. photocopy of the minutes of handover (BAST) from the Board of Directors member overseeing the compliance function to another Board of Directors member with the approval of the Board of Commissioners, or photocopy of the Board of Commissioners' approval regarding the appointment of another Board of Directors member to oversee the compliance function, in the event that the Board of Directors member overseeing the compliance function cannot create a BAST.

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

IV. CLOSING

The provisions in this Financial Services Authority Circular Letter shall take effect on the date of determination.

Determined in Jakarta on June 28, 2019

HEAD OF EXECUTIVE SUPERVISOR OF BANKING
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
HERU KRISTIYANA