OJK Circular No. 6/SEOJK.03/2023 on the Conversion of Conventional Commercial Bank Business Activities to Sharia Commercial Bank

To:
Directors of Conventional Commercial Banks,
Attn.

COPY

CIRCULAR OF THE FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA NUMBER 6 /SEOJK.03/2023

ON

THE CONVERSION OF CONVENTIONAL COMMERCIAL BANK BUSINESS ACTIVITIES TO SHARIA COMMERCIAL BANK

In light of the implementation of Financial Services Authority Regulation Number 64/POJK.03/2016 concerning the Conversion of Business Activities of Conventional Banks to Sharia Banks (State Gazette of the Republic of Indonesia Year 2016 Number 295, Supplement to the State Gazette of the Republic of Indonesia Number 5985), as well as for the purpose of alignment with current regulations and to increase efficiency and effectiveness in the licensing process for the conversion of business activities of Conventional Commercial Banks to Sharia Commercial Banks, it is necessary to regulate provisions regarding the conversion of business activities of Conventional Commercial Banks to Sharia Commercial Banks in this Financial Services Authority Circular as follows:

I. GENERAL PROVISIONS

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

1. Conventional Commercial Bank, hereinafter abbreviated as BUK, is a conventional bank that provides services in the payment system in its activities.
2. Sharia Commercial Bank, hereinafter abbreviated as BUS, is a Sharia bank that provides services in the payment system in its activities.
3. Controlling Shareholder, hereinafter abbreviated as PSP, is a legal entity, individual, and/or business group that holds shares of a company or bank amounting to 25% (twenty-five percent) or more of the issued shares and has voting rights, or holds shares of a company or bank less than 25% (twenty-five percent) of the issued shares and has voting rights but can be proven to have controlled the company or bank, either directly or indirectly.
4. Sharia Supervisory Board, hereinafter abbreviated as DPS, is a board tasked with providing advice and suggestions to the Board of Directors and supervising the activities of the Sharia bank to ensure compliance with Sharia principles.

II. REQUIREMENTS FOR APPLICATION FOR LICENSE TO CHANGE BUSINESS ACTIVITIES

1. A BUK intending to change its business activities into a BUS must have met the capital requirements as regulated, among others, in the provisions regarding minimum capital provision requirements for commercial banks and provisions regarding commercial bank consolidation.
2. The prospective PSP of the BUS resulting from the change in business activities, which is the PSP of the BUK intending to change its business activities, shall undergo a fit and proper assessment through an administrative assessment comprising:
   a. submission of documents in the form of a letter of commitment to the development of Sharia banking; and b. presentation/explanation.
   In the event that the prospective PSP of the BUS resulting from the change in business activities, which is the PSP of the BUK intending to change its business activities, is the central government or regional government, the presentation/explanation shall be conducted if deemed necessary.
3. The prospective members of the Board of Directors and members of the Board of Commissioners of the BUS resulting from the change in business activities, which are members of the Board of Directors and members of the Board of Commissioners of the BUK intending to change its business activities, may not undergo clarification in the fit and proper assessment if there is no negative data or information obtained by the Financial Services Authority.
4. BUK products may remain valid in the BUS resulting from the change in business activities provided that:
   a. they have been adjusted to Sharia principles, proven by the opinion of the DPS from the Sharia Business Unit (UUS), for BUKs that have a UUS; or b. they have been adjusted to the basic products of the BUS in accordance with the Financial Services Authority regulations regarding the provision of commercial bank products, for BUKs that do not have a UUS.

III. DOCUMENTATION REQUIREMENTS FOR APPLICATION FOR LICENSE TO CHANGE BUSINESS ACTIVITIES

The application for a license to change business activities is submitted by the BUK using the letter format contained in Appendix I and accompanied by the following documents:

1. Draft Deed of Amendment of Articles of Association which at least contains:
   a. name and domicile; b. affirmation that the bank conducts BUS business activities;
   c. capital, in the event of changes;
   d. ownership, in the event of changes; e. provisions regarding the appointment of members of the Board of Directors, members of the Board of Commissioners, and members of the DPS which must obtain prior approval from the Financial Services Authority; f. provisions regarding the number, authority, responsibility, duties, and other requirements for the Board of Directors, Board of Commissioners, and DPS in accordance with applicable legislation; and g. provisions regarding the General Meeting of Shareholders (GMS) which determines that the duties of management, remuneration of the Board of Directors and Board of Commissioners, annual accountability reports, appointment and public accountant service fees, use of profits, and other matters are in accordance with applicable legislation. The draft deed of amendment of the articles of association may request approval from the competent authority simultaneously with the application for a license to change business activities to the Financial Services Authority. The deed of amendment of the articles of association which has been approved by the competent authority, along with other documents related to the licensing process for the change in business activities, must be submitted to the Financial Services Authority at the latest simultaneously with the submission of the report on the implementation of the change in business activities.
2. Minutes of the GMS.
3. List of prospective members of the Board of Directors and members of the Board of Commissioners of the BUS resulting from the change in business activities.
   For new prospective members of the Board of Directors and members of the Board of Commissioners, documents must be attached in accordance with the Financial Services Authority regulations regarding the fit and proper assessment for prospective controlling shareholders, prospective members of the Board of Directors, and prospective members of the Board of Commissioners of banks applicable to BUS. For prospective members of the Board of Directors and members of the Board of Commissioners who are members of the Board of Directors and members of the Board of Commissioners of the BUK intending to change its business activities, documents must be attached comprising:
   a. photocopy of identity documents in the form of Identity Card (KTP) for Indonesian Citizens and Limited Stay Permit Card (KITAS) if residing in Indonesia for Foreign Citizens; b. questionnaire form contained in Appendix XV.E – Questionnaire Form for Prospective Members of the Board of Commissioners and Directors of BUS and Prospective Directors of UUS in accordance with the Financial Services Authority Circular regarding the Fit and Proper Assessment for Prospective Controlling Shareholders, Prospective Members of the Board of Directors, and Prospective Members of the Board of Commissioners of Banks;
   c. Sharia banking training certificate; and
   d. letter of commitment supporting the development of Sharia banks.
4. List of prospective members of the DPS of the BUS resulting from the change in business activities, accompanied by documents:
   a. recent 4 x 6 cm photo; b. photocopy of identity document in the form of KTP;
   c. curriculum vitae, with example format contained in Appendix XVII – Curriculum Vitae in accordance with the Financial Services Authority Circular regarding the Fit and Proper Assessment for Prospective Controlling Shareholders, Prospective Members of the Board of Directors, and Prospective Members of the Board of Commissioners of Banks;
   d. stamped letter of commitment stating that the individual:
   1. has never been sentenced for proven criminal acts consisting of:
      a) criminal acts in the financial services sector whose sentence has been completed within the last 20 (twenty) years before nomination; b) criminal acts, namely criminal acts contained in the Criminal Code (KUHP) and/or similar to the KUHP abroad with a prison sentence threat of 1 (one) year or more whose sentence has been completed within the last 10 (ten) years before nomination; and/or c) other criminal acts with a prison sentence threat of 1 (one) year or more, including corruption, money laundering, narcotics/psychotropics, smuggling, customs, excise, human trafficking, illegal arms trade, terrorism, counterfeiting money, in the field of taxation, in the field of forestry, in the field of environment, in the field of marine and fisheries, whose sentence has been completed within the last 20 (twenty) years before nomination;
   2. is committed to complying with applicable legislation, particularly in the field of banking and Sharia banking, and supporting the policies of the Financial Services Authority;
   3. is committed to the healthy operational development of the BUS;
   4. is not prohibited from becoming a Principal, which includes not being listed in the Disqualified List (DTL);
   5. does not have non-performing loans and/or financing, including:
      a) non-performing loans and/or financing listed in the financial information service system or equivalent systems; b) non-performing loans and/or financing not yet reported by Financial Service Institutions (LJK) in the financial information service system or equivalent systems, but based on research conducted by the Financial Services Authority, such loans and/or financing have met the criteria classified as non-performing in accordance with applicable legislation; and/or c) failure to fulfill obligations to settle securities transactions at securities companies;
   6. has never been declared bankrupt and/or has never been a shareholder, controller, member of the Board of Directors, or member of the Board of Commissioners who was declared guilty of causing a company to be declared bankrupt within the last 5 (five) years before nomination;
   7. will not violate provisions and regulations regarding dual positions;
   8. is not a controller, member of the Board of Commissioners, or member of the Board of Directors of a legal entity that has non-performing loans and/or financing; and
   9. is not undergoing legal proceedings due to indications of integrity, financial feasibility/reputation, and/or competence issues at a financial services institution;
      e. letter of certificate or certificate from educational and training institutions and/or the National Sharia Council – Indonesian Ulema Council regarding education and/or training in the field of Sharia muamalah and in the field of banking and/or finance in general referring to competency requirements for DPS in accordance with provisions regarding the institution and/or corporate governance of Sharia commercial banks; f. letter of recommendation from the National Sharia Council – Indonesian Ulema Council; and g. proof of having received a recommendation from the Remuneration and Nomination Committee.
5. Letter of commitment from shareholders that the source of funds used in the ownership of the BUS, in the event of additional paid-up capital:
   a. does not come from loans or financing facilities in any form from banks and/or other parties; and/or b. does not come from and is not for the purpose of money laundering.
   In the event that the prospective shareholder of the BUS is a legal entity, the letter of commitment must be signed by the authorized management representing the respective legal entity.
6. Organizational structure plan and names of executive officials.
7. Feasibility study including market opportunities and economic potential.
8. Business plan which at least contains:
   a. business activity plans covering fund mobilization and distribution and the strategy to achieve them; and b. monthly balance sheet projections and cumulative monthly profit and loss reports for 12 (twelve) months starting from when the BUS operates.
9. Initial financial report as a BUS showing that the profit and loss for the current year and the previous year have a balance of Rp0.00 (zero rupiah) or nil.
10. Corporate plan in the form of a long-term strategic plan to achieve the objectives of the BUS.
11. Risk management guidelines including risk control system guidelines, internal control system plan, information technology system plan to be used, and guidelines regarding the implementation of corporate governance.
12. Complete and comprehensive work systems and procedures used in BUS operational activities.
13. Plan to settle all rights and obligations of the BUK towards customers who are not willing to become customers of the BUS.
14. Proof of operational readiness at least comprising:
    a. readiness of buildings and office equipment including photos of the office building and room layout; b. documents showing the readiness of information system technology including, among others, the core banking system and information regarding telecommunications networks;
    c. proof of ownership or control over office buildings, including proof of land rights or lease agreements; and
    d. examples of forms or documents to be used for BUS operations.
15. BUS office network plan in accordance with the Financial Services Authority Regulation on Sharia Commercial Banks, accompanied by information regarding office locations.

IV. IMPLEMENTATION OF CHANGE IN BUSINESS ACTIVITIES

The report on the implementation of the change in business activities is submitted using the letter format contained in Appendix II, accompanied by the deed of amendment of the articles of association which has been approved by the competent authority and proof of the announcement of the implementation of the change in business activities in a newspaper distributed nationally.

V. SUBMISSION OF APPLICATION REQUIREMENTS FOR LICENSE AND REPORTING OF IMPLEMENTATION OF CHANGE IN BUSINESS ACTIVITIES TO THE FINANCIAL SERVICES AUTHORITY

1. The application for a license to change business activities is submitted to the Financial Services Authority online through the Financial Services Authority licensing system.
   In the event of force majeure and/or the system is not yet available, the application for a license is submitted to the Financial Services Authority at the address of the work unit having the function of licensing BUS, with a copy to the work unit having the function of supervising the relevant BUK, the work unit having the function of supervising the relevant BUS, and the work unit having the function of licensing the BUK.
2. The Financial Services Authority issues a decision on the application for a license to change business activities within a maximum of 60 (sixty) working days since the application documents for the license to change business activities are declared complete.
3. The report on the implementation of the change in business activities is submitted to the Financial Services Authority online through the Financial Services Authority reporting system.
   In the event of force majeure and/or the system is not yet available, the report on the change in business activities is submitted to the Financial Services Authority at the address of the work unit having the function of supervising the relevant BUS, with a copy to the work unit having the function of licensing the BUK, the work unit having the function of licensing the BUS, and the work unit having the function of supervising the relevant BUK.

VI. TRANSITIONAL PERIOD OF BUK OPERATIONS BECOMING BUS

1. A BUK that has obtained a license to change business activities into a BUS and has not yet declared itself to operate in accordance with Sharia principles:
   a. may convert third-party funds deposits and credits into Sharia principles for existing customers; b. may place funds at Bank Indonesia, other banks, and securities based on Sharia principles;
   c. may conduct business activities based on Sharia principles; and
   d. regarding assets, liabilities, income, and profit-sharing from transactions conducted by the BUS, these must be reported according to their characteristics in the BUK reports.
2. A BUK that has obtained a license to change business activities into a BUS and has declared itself to operate in accordance with Sharia principles:
   a. conducts business activities based on Sharia principles; and b. is prohibited from conducting conventional business activities except for the settlement of rights and obligations of existing customers.

VII. CLOSING

1. At the time this Financial Services Authority Circular takes effect, Financial Services Authority Circular Number 2/SEOJK.03/2017 concerning the Conversion of Business Activities of Conventional Commercial Banks to Sharia Commercial Banks is repealed and declared invalid.
2. The provisions in this Financial Services Authority Circular take effect on the date of determination.

Determined in Jakarta
On the date of 21 February 2023

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA,

Signed,

DIAN EDIANA RAE

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APPENDIX I

CIRCULAR OF THE FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA NUMBER 6 /SEOJK.03/2023

ON

THE CONVERSION OF CONVENTIONAL COMMERCIAL BANK BUSINESS ACTIVITIES TO SHARIA COMMERCIAL BANK

Number: ………………… (Place), (Date, Month, Year)
Attachment: …………………

To
Directorate of Regulation and Licensing of Sharia Banking Financial Services Authority

Subject: Application for License to Change Business Activities of BUK to BUS

Assalamu’alaikum warahmatullahi wabarakatuh

Hereby we submit an application for a license to change business activities from ……… (name of BUK) to ……… (name of BUS) which is domiciled in ……….

To complete the aforementioned application, we hereby submit:

1. draft deed of amendment of articles of association;
2. minutes of the general meeting of shareholders;
3. list of prospective members of the Board of Directors and members of the Board of Commissioners;
4. list of prospective members of the Sharia Supervisory Board;
5. letter of commitment from shareholders;
6. organizational structure plan and names of Executive Officials;
7. feasibility study;
8. business plan;
9. initial financial report as a Sharia Commercial Bank;
10. corporate plan;
11. risk management guidelines;
12. work systems and procedures;
13. plan to settle all rights and obligations of the Conventional Commercial Bank towards customers who are not willing to become customers of the Sharia Commercial Bank;
14. proof of operational readiness; and
15. plan for the Sharia Commercial Bank office network along with information regarding office locations.

If there are questions or other matters related to this application letter, you may contact our employee, namely ……… via telephone ……… or email ………

Thus, this application is submitted. Thank you for your attention.

Wassalamu’alaikum warahmatullahi wabarakatuh

BOARD OF DIRECTORS OF BUK

Copy to: 1)
1) Work unit having the function of supervising the relevant BUK, work unit having the function of supervising the relevant BUS, and work unit having the function of licensing the BUK.

Determined in Jakarta
On the date of 21 February 2023

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA,

Signed,

DIAN EDIANA RAE

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APPENDIX II

CIRCULAR OF THE FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA NUMBER 6 /SEOJK.03/2023

ON

THE CONVERSION OF CONVENTIONAL COMMERCIAL BANK BUSINESS ACTIVITIES TO SHARIA COMMERCIAL BANK

Number: ………………… (Place), (Date, Month, Year)
Attachment: …………………

To
Department of Sharia Bank Supervision / OJK Regional Office / OJK Office 1) Financial Services Authority

Subject: Report on Implementation of Change in Business Activities of BUK to BUS

Assalamu’alaikum warahmatullahi wabarakatuh

Referring to the copy of the Decision of the Commissioners of the Financial Services Authority Number ……… dated ……… concerning the Granting of License to Change Business Activities of Conventional Commercial Bank ………. (name of BUK) to Sharia Commercial Bank ………. (name of BUS), hereby we report that we have started business activities based on Sharia principles on the date of ………

Attached are the deed of amendment of the articles of association which has been approved by the competent authority and proof of announcement in a newspaper distributed nationally.

Thus, please be informed.

Wassalamu’alaikum warahmatullahi wabarakatuh

BOARD OF DIRECTORS OF BUS

Copy to: 2)
1) Adjusted to the work unit having the function of supervising the relevant BUS.
2) Work unit having the function of licensing the BUK, work unit having the function of licensing the BUS, and work unit having the function of supervising the relevant BUK.

Determined in Jakarta
On the date of 21 February 2023

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA,

Signed,

DIAN EDIANA RAE