OJK Regulation No. 11/POJK.05/2014 on Direct Examination of Non-Bank Financial Service Institutions

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 11/POJK.05/2014
CONCERNING
DIRECT EXAMINATION OF NON-BANK FINANCIAL SERVICE INSTITUTIONS BY THE GRACE OF GOD THE ALMIGHTY THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering: a. that in the context of supervising non-bank financial service institutions, direct examination is necessary to ascertain the factual condition of non-bank financial service institutions; b. that in order to enhance the effectiveness of supervision as referred to in letter a, it is necessary to refine the provisions governing the direct examination of non-bank financial service institutions;
c. that based on the considerations referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation concerning Direct Examination of Non-Bank Financial Service Institutions;
Recalling: 1. Law Number 2 of 1992 concerning Insurance Business (State Gazette of the Republic of Indonesia Year 1992 Number 13, Supplement to the State Gazette of the Republic of Indonesia Number 3467);
2. Law Number 11 of 1992 concerning Pension Funds (State Gazette of the Republic of Indonesia Year 1992 Number 37, Supplement to the State Gazette of the Republic of Indonesia Number 3477);
3. 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);
4. Government Regulation Number 73 of 1992 concerning the Conduct of Insurance Business (State Gazette of the Republic of Indonesia Year 1992 Number 120, Supplement to the State Gazette of the Republic of Indonesia Number 3506) as amended several times, lastly by Government Regulation Number 81 of 2008 (State Gazette of the Republic of Indonesia Year 2008 Number 212, Supplement to the State Gazette of the Republic of Indonesia Number 4954);
5. Government Regulation Number 76 of 1992 concerning Employer Pension Funds (State Gazette of the Republic of Indonesia Year 1992 Number 126, Supplement to the State Gazette of the Republic of Indonesia Number 3507);
6. Government Regulation Number 77 of 1992 concerning Financial Institution Pension Funds (State Gazette of the Republic of Indonesia Year 1992 Number 127, Supplement to the State Gazette of the Republic of Indonesia Number 3508);
7. Presidential Regulation Number 9 of 2009 concerning Financing Institutions;
DECIDING:
To establish: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING DIRECT EXAMINATION OF NON-BANK FINANCIAL SERVICE INSTITUTIONS.

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

1. Non-Bank Financial Service Institution means:
   a. insurance companies and reinsurance companies, including those conducting all or part of their business using Sharia principles, as referred to in legislation concerning insurance business; b. financing companies, including those conducting all or part of their business using Sharia principles, as referred to in legislation concerning financing institutions;
   c. pension funds, including those conducting all or part of their business using Sharia principles, as referred to in legislation concerning pension funds; and
   d. non-bank financial industry supporting financial service institutions, which include insurance brokerage companies, reinsurance brokerage companies, public appraisal office companies, insurance loss appraisal companies, insurance agency companies, actuarial consulting companies, public accounting firms, and other supporting financial service institutions that support the non-bank financial industry.
2. Direct Examination is a series of activities to search for, collect, process, and evaluate data and/or information regarding Non-Bank Financial Service Institutions conducted at the offices of Non-Bank Financial Service Institutions and at other places directly or indirectly related to the activities of Non-Bank Financial Service Institutions;
3. Examiner is a party appointed by the Financial Services Authority to conduct Direct Examination;
4. Financial Services Authority, hereinafter abbreviated as OJK, is an independent institution free from the interference of other parties that has the function, duties, and authority for regulation, supervision, examination, and investigation, as referred to in Law Number 21 of 2011 concerning the Financial Services Authority.

CHAPTER II
PARTIES SUBJECT TO EXAMINATION
Article 2
(1) OJK may conduct Direct Examination against Non-Bank Financial Service Institutions.
(2) In conducting Direct Examination as referred to in paragraph (1), OJK may conduct Direct Examination against:
a. shareholders or equivalent parties of Non-Bank Financial Service Institutions; b. subsidiaries of Non-Bank Financial Service Institutions; and/or
c. other parties conducting transactions with Non-Bank Financial Service Institutions.
(3) Direct Examination against parties as referred to in paragraph (2) is conducted when such parties are indicated to influence the risk level of Non-Bank Financial Service Institutions or cause violations of applicable legislation.

CHAPTER III
OBJECTIVES OF DIRECT EXAMINATION
Article 3
Direct Examination aims to:
a. obtain an overview of the condition of Non-Bank Financial Service Institutions; b. obtain adequate assurance regarding the risk level of Non-Bank Financial Service Institutions; and/or
c. assess the compliance of Non-Bank Financial Service Institutions with legislation concerning Non-Bank Financial Service Institutions.

CHAPTER IV
FREQUENCY AND SCOPE OF DIRECT EXAMINATION
Article 4
(1) The frequency of Direct Examination is established by OJK according to the risk-based supervision plan.
(2) The frequency of Direct Examination for supporting financial industry institutions as referred to in Article 1 number 1 letter d is established by OJK and conducted at least 1 (one) time in 3 (three) years. (3) The scope of Direct Examination covers all aspects of the conduct of business activities of Non-Bank Financial Service Institutions or specific aspects of the business activities of Non-Bank Financial Service Institutions.

CHAPTER V
EXAMINER CRITERIA
Article 5
(1) Direct Examination as referred to in Article 2 paragraph (1) is conducted by an examination team.
(2) The examination team as referred to in paragraph (1) consists of at least 2 (two) persons.
(3) The examination team as referred to in paragraph (1) may consist of:
a. OJK employees assigned to conduct Direct Examination; b. other parties appointed by OJK; or
c. a combination of OJK employees and other parties appointed by OJK.
(4) The examination team as referred to in paragraph (1) must meet the qualification standards for Non-Bank Financial Service Institution Examiners.
(5) Further provisions regarding the qualification standards for Examiners are regulated by a Commissioner Regulation of OJK.
Article 6
(1) OJK may appoint public accountants, actuaries, and/or independent appraisers as Examiners.
(2) The appointment of parties as referred to in paragraph (1) is stipulated in a work order letter.
(3) Further provisions regarding the appointment of parties as referred to in paragraph (1) are regulated by an OJK Circular Letter.

CHAPTER VI
OBLIGATIONS OF NON-BANK FINANCIAL SERVICE INSTITUTIONS
Article 7
(1) Non-Bank Financial Service Institutions and parties as referred to in Article 2 paragraph (2) are obliged to immediately show and/or provide to the Examiner:
a. books, files, records, dispositions, memoranda; b. documents, electronic data, including copies;
c. all information and explanations related to business activities, both oral and written;
d. opportunity to investigate the existence and use of physical facilities related to business activities; and e. other matters necessary for Direct Examination.
(2) Non-Bank Financial Service Institutions and parties as referred to in Article 2 paragraph (2) are obliged to provide assistance in obtaining the truth of all information, documents, and explanations required by the Examiner. (3) Non-Bank Financial Service Institutions, parties as referred to in Article 2 paragraph (2), and/or other parties are prohibited from hindering the Direct Examination process and influencing the opinions, assessments, or work results of the Examiner.

CHAPTER VII
PROCEDURE FOR DIRECT EXAMINATION
Article 8
(1) Direct Examination is conducted by the Examiner based on a Direct Examination Order Letter issued by OJK.
(2) The Examiner is obliged to submit the Direct Examination Order Letter to the Non-Bank Financial Service Institution.
(3) Before conducting Direct Examination as referred to in paragraph (1), OJK submits a Direct Examination Notification Letter to the Non-Bank Financial Service Institution.
(4) The Direct Examination Notification Letter as referred to in paragraph (3) contains the following information:
a. number and date of the Direct Examination Order Letter; b. name of the Examiner;
c. objective of Direct Examination;
d. duration of Direct Examination; e. documents required for Direct Examination; and f. deadline for submission of documents to the Examiner.
(5) OJK may submit the Direct Examination Notification Letter to the Non-Bank Financial Service Institution on the same day as the implementation of Direct Examination if prior notification before implementation is suspected to complicate or hinder the Direct Examination process, or to allow actions to obscure the actual situation or hide, conceal, or eliminate data, information, or reports required for Direct Examination.
Article 9
(1) The Examiner is obliged to submit a preliminary Direct Examination Result Report to the Non-Bank Financial Service Institution no later than 30 (thirty) working days after the Direct Examination ends. (2) The Non-Bank Financial Service Institution may submit responses to the preliminary Direct Examination Result Report no later than 15 (fifteen) working days from the date of receipt of the letter delivering the preliminary Direct Examination Result Report by the Non-Bank Financial Service Institution. (3) The Examiner and the Non-Bank Financial Service Institution may hold a meeting to discuss the preliminary Direct Examination Result Report. (4) The meeting as referred to in paragraph (3) must be concluded no later than 30 (thirty) working days from the date of receipt of the letter delivering the preliminary Direct Examination Result Report by the Non-Bank Financial Service Institution.
Article 10
(1) OJK submits the final Direct Examination Result Report to the Non-Bank Financial Service Institution no later than 15 (fifteen) working days from the end of the response submission deadline as referred to in Article 9 paragraph (2) or from the date of the meeting as referred to in Article 9 paragraph (3). (2) The final Direct Examination Result Report as referred to in paragraph (1) is confidential.

CHAPTER VIII
FOLLOW-UP ON DIRECT EXAMINATION RESULTS
Article 11
(1) Non-Bank Financial Service Institutions are obliged to take follow-up steps according to recommendations contained in the examination result report as referred to in Article 10 paragraph (1). (2) Non-Bank Financial Service Institutions are obliged to report the implementation of follow-up steps as referred to in paragraph (1) to OJK at least every month or according to the examination result report as referred to in paragraph (1). (3) The obligation to report the implementation of follow-up steps as referred to in paragraph (2) ends when OJK assesses that the Non-Bank Financial Service Institution has implemented the follow-up steps as referred to in paragraph (1). (4) OJK's assessment as referred to in paragraph (3) is submitted to the Non-Bank Financial Service Institution via letter. (5) OJK monitors the implementation of follow-up by Non-Bank Financial Service Institutions as referred to in paragraph (1) as part of supervision activities concerning Non-Bank Financial Service Institutions.

CHAPTER IX
OBLIGATIONS FOR EXAMINERS
Article 12
(1) Examiners conduct Direct Examination in accordance with this Financial Services Authority Regulation and the Direct Examination procedures.
(2) Examiners are obliged to keep confidential data, documents, and/or information obtained from Direct Examination from unauthorized parties.
(3) Further provisions regarding the Direct Examination procedures as referred to in paragraph (1) are regulated by a Commissioner Regulation of OJK.

CHAPTER X
EXAMINATION BY FINANCIAL SERVICE SECTOR SUPERVISORY AUTHORITIES FROM OTHER COUNTRIES
Article 13
(1) Direct Examination against Non-Bank Financial Service Institutions whose shares are partially owned by foreign financial institutions, conducted by examiners from financial service sector supervisory authorities from other countries, may only be conducted after obtaining written permission from OJK. (2) The written permission request as referred to in paragraph (1) must be submitted to OJK no later than 14 (fourteen) working days before the Direct Examination is conducted. (3) Approval or rejection of the permission request as referred to in paragraph (2) is given no later than 7 (seven) working days from the date the request letter is received in complete form by OJK. (4) OJK may request the examiner as referred to in paragraph (1) to also examine matters required by OJK during the Direct Examination. (5) OJK may order OJK employees to accompany the examiner as referred to in paragraph (1) during the Direct Examination activities. (6) The granting of examination permission as referred to in paragraph (1) is based on the principle of reciprocity stipulated in writing. (7) Examiners from financial service sector supervisory authorities from other countries as referred to in paragraph (1) are obliged to report and submit examination results to OJK.

CHAPTER XI
SANCTIONS
Article 14
(1) Non-Bank Financial Service Institutions that do not fulfill the provisions as referred to in Article 7 and Article 11 paragraph (1) and paragraph (2) may be subject to sanctions in the form of:
a. written warning; b. fine, namely the obligation to pay a certain amount of money;
c. obligation for the board of directors or equivalent parties of Non-Bank Financial Service Institutions to undergo re-assessment of competence and propriety;
d. restriction of business activities; e. suspension of business activities; and f. revocation of business licenses.
(2) Sanctions as referred to in paragraph (1) letter b, letter c, letter d, letter e, or letter f may be imposed with or without prior imposition of the written warning sanction as referred to in paragraph (1) letter a. (3) The fine sanction as referred to in paragraph (1) letter b may be imposed separately or together with the imposition of sanctions as referred to in paragraph (1) letter c, letter d, letter e, or letter f. (4) The amount of the fine sanction as referred to in paragraph (1) letter b is established by the Financial Services Authority based on provisions concerning administrative sanctions in the form of fines applicable to each financial service sector. (5) The Financial Services Authority may announce the imposition of administrative sanctions as referred to in paragraph (1) to the public.
Article 15
(1) Shareholders or equivalent parties, subsidiaries, and other parties conducting transactions with Non-Bank Financial Service Institutions as referred to in Article 2 paragraph (2) who do not fulfill the provisions as referred to in Article 7 will be subject to written reprimands from OJK 2 (two) times, each with a grace period of 7 (seven) working days. (2) In the event that shareholders or equivalent parties as referred to in paragraph (1) still do not fulfill the provisions as referred to in Article 7 after the written reprimands as referred to in paragraph (1), OJK may request the shareholders or equivalent parties as referred to in paragraph (1) to divest their ownership in or dissolve the Non-Bank Financial Service Institution. (3) In the event that subsidiaries as referred to in paragraph (1) still do not fulfill the provisions as referred to in Article 7 after the written reprimands as referred to in paragraph (1), OJK may request the Non-Bank Financial Service Institution to divest its ownership in the subsidiaries as referred to in paragraph (1). (4) In the event that other parties as referred to in paragraph (1) still do not fulfill the provisions as referred to in Article 7 after the written reprimands as referred to in paragraph (1), OJK may request the Non-Bank Financial Service Institution to terminate its relationship with the other parties as referred to in paragraph (1).

CHAPTER XII
CLOSING PROVISIONS
Article 16
Legislative provisions governing Direct Examination of Non-Bank Financial Service Institutions are declared to remain valid as long as they do not conflict with this Financial Services Authority Regulation.
Article 17
This Financial Services Authority Regulation comes into force on the date of its promulgation.
To ensure that everyone knows it, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.
Determined in Jakarta on 27 August 2014
CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
Signed.
MULIAMAN D. HADAD
Promulgated in Jakarta on 28 August 2014
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA
Signed.
AMIR SYAMSUDIN
STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2014 NUMBER 198 Copy matches the original Director of Legal Affairs I Ministry of Law, Signed.
Tini Kustini