OJK Regulation No. 26 of 2024 on the Expansion of Banking Business Activities

EXCERPT FINANCIAL SERVICES AUTHORITY REGULATION OF THE REPUBLIC OF INDONESIA NUMBER 26 OF 2024 ON THE EXPANSION OF BANKING BUSINESS ACTIVITIES BY THE GRACE OF GOD THE ALMIGHTY

THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering: that in order to implement the provisions of Article 6 paragraph (2), Article 7 paragraph (2), and Article 13 paragraph (2) of Law Number 7 of 1992 on Banking as amended several times, lastly with Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector, as well as Article 4 paragraph (4), Article 19 paragraph (3), Article 20 paragraph (3), Article 21 paragraph (2), and Article 21A letter c of Law Number 21 of 2008 on Sharia Banking as amended with Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector, it is necessary to establish a Financial Services Authority Regulation on the Expansion of Banking Business Activities;

Recalling: 1. Law Number 7 of 1992 on Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended several times, lastly with Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (State Gazette of the Republic of Indonesia Year 2023 Number 4, Supplement to the State Gazette of the Republic of Indonesia Number 6845); 2. Law Number 21 of 2008 on Sharia Banking (State Gazette of the Republic of Indonesia Year 2008 Number 94, Supplement to the State Gazette of the Republic of Indonesia Number 4867) as amended with Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (State Gazette of the Republic of Indonesia Year 2023 Number 4, Supplement to the State Gazette of the Republic of Indonesia Number 6845); 3. Law Number 21 of 2011 on 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) as amended with Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (State Gazette of the Republic of Indonesia Year 2023 Number 4, Supplement to the State Gazette of the Republic of Indonesia Number 6845); 4. Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (State Gazette of the Republic of Indonesia Year 2023 Number 4, Supplement to the State Gazette of the Republic of Indonesia Number 6845);

DECIDING:

To Establish: A FINANCIAL SERVICES AUTHORITY REGULATION ON THE EXPANSION OF BANKING BUSINESS ACTIVITIES.

CHAPTER I GENERAL PROVISIONS

Article 1 In this Financial Services Authority Regulation, the following terms are meant:

1. Commercial Bank is a bank that conducts business activities conventionally or based on Sharia principles, which in its activities provides services in payment transactions, including branches of banks located outside the country and Sharia business units.
2. Rural Economic Bank, hereinafter abbreviated as BPR, is a conventional bank that in its activities does not directly provide services in giro transactions.
3. Sharia Rural Economic Bank, hereinafter referred to as BPR Syariah, is a type of Sharia bank that in its activities does not directly provide services in giro transactions.
4. Bank means Commercial Bank, BPR, and BPR Syariah.
5. Equity Investment is the investment of funds by a Commercial Bank in the form of shares, including investment in the form of mandatory convertible debt instruments or mandatory convertible investment instruments or certain types of transactions that result in the Commercial Bank having or will have shares in the recipient company of the Equity Investment.
6. BPR or BPR Syariah Equity Investment is the investment of funds by a BPR or BPR Syariah in the form of shares in institutions supporting BPR or BPR Syariah.
7. Institution Supporting BPR or BPR Syariah, hereinafter referred to as Supporting Institution, is a company other than a financial service institution where a BPR or BPR Syariah conducts BPR or BPR Syariah Equity Investment.
8. BPR or BPR Syariah Divestment, hereinafter referred to as Divestment, is the release or reduction of BPR or BPR Syariah Equity Investment in a Supporting Institution conducted directly or through the capital market.
9. Bank Guarantee is a written commitment provided by a Commercial Bank to the guarantee recipient that the Commercial Bank will pay a certain amount of money to them at a specific time if the guaranteed party cannot fulfill its obligations.
10. Foreign Currency Exchange Business Activity, hereinafter abbreviated as KUPVA, is the activity of buying and selling foreign banknotes.
11. Sharia Principle is the principle of Islamic law based on fatwas and/or statements of Sharia compliance issued by an institution having authority in setting fatwas in the field of Sharia.
12. Domestic Documentary Letter of Credit, hereinafter abbreviated as SKBDN, is a written promise from the issuing bank to make payment to the beneficiary as long as all requirements and documents in the SKBDN are fulfilled.
13. Electronic Signature is a signature consisting of electronic information attached to, associated with, or related to other electronic information used as a verification and authentication tool.

CHAPTER II EQUITY INVESTMENT ACTIVITIES BY COMMERCIAL BANKS

First Section Equity Investment by Commercial Banks

Article 2 (1) Commercial Banks conducting business activities conventionally are prohibited from making Equity Investments other than to: a. financial service institutions; and/or b. other companies supporting the banking industry. (2) Commercial Banks conducting business activities based on Sharia Principles are prohibited from making Equity Investments other than to: a. financial service institutions conducting business activities based on Sharia Principles; and/or b. non-financial institutions supporting the Sharia banking industry that do not contradict Sharia Principles. (3) Other companies supporting the banking industry as referred to in paragraph (1) letter b and non-financial institutions supporting the Sharia banking industry that do not contradict Sharia Principles as referred to in paragraph (2) letter b are located within the territory of Indonesia or outside the territory of Indonesia. (4) Sharia business units and branches of banks located outside the country are prohibited from conducting Equity Investment activities.

Article 3 (1) Other companies supporting the banking industry as referred to in Article 2 paragraph (1) letter b and non-financial institutions supporting the Sharia banking industry that do not contradict Sharia Principles as referred to in Article 2 paragraph (2) letter b consist of: a. companies established or whose business activities are prioritized to support the business activities of Commercial Banks and/or subsidiaries of Commercial Banks; b. companies that utilize information technology to produce financial products as their main business; c. companies whose business characteristics are directed to support the business activities of the banking industry; and d. companies located outside the territory of Indonesia, meeting the criteria:

1. based on regulations or statements from the competent authority, they are financial service institutions; and
2. their business activities can be equated with the business activities of financial service institutions according to the Law on the Financial Services Authority. (2) Commercial Banks conducting business activities based on Sharia Principles, in addition to being able to make Equity Investments in companies as referred to in paragraph (1), can also make Equity Investments to non-financial institutions supporting Sharia banking financing. (3) Commercial Banks must ensure that companies as referred to in paragraph (1) and paragraph (2) have obtained permits or are registered with the competent authority.

Second Section Equity Investment by Subsidiary Companies of Commercial Banks

Article 4 (1) In the event that a subsidiary company of a Commercial Bank that is a financial service institution conducts equity investment activities, the Commercial Bank must ensure that the equity investment activities by the subsidiary company of the Commercial Bank are conducted to: a. financial service institutions; b. companies as referred to in Article 3 paragraph (1), for subsidiary companies of Commercial Banks conducting business activities conventionally; or c. companies as referred to in Article 3 paragraph (1) and/or paragraph (2), for subsidiary companies of Commercial Banks conducting business activities based on Sharia Principles. (2) Commercial Banks must ensure that the business activities of companies as referred to in paragraph (1) letter b and letter c are implemented in accordance with regulations regarding permits and/or business activities of companies. (3) Equity investment activities by subsidiary companies of Commercial Banks as referred to in paragraph (1) letter b and letter c are conducted by meeting regulations issued by the competent authority regulating subsidiary companies of Commercial Banks. (4) In the event that a subsidiary company of a Commercial Bank is a venture capital company, the provisions as referred to in paragraph (1) may be exempted, while still meeting the Financial Services Authority Regulations regarding the conduct of venture capital companies and Sharia venture capital companies. (5) Commercial Banks must conduct consolidated capital adequacy monitoring on: a. Commercial Banks; b. subsidiary companies of Commercial Banks; and c. companies controlled by subsidiary companies of Commercial Banks.

Third Section Administrative Sanctions

Article 5 (1) Commercial Banks violating provisions as referred to in Article 2 paragraph (1), paragraph (2), paragraph (4), Article 4 paragraph (1), paragraph (2), and/or paragraph (5) are subject to administrative sanctions in the form of written reprimands. (2) In the event that a Commercial Bank has been subject to administrative sanctions in the form of written reprimands as referred to in paragraph (1) and continues to violate provisions as referred to in Article 2 paragraph (1), paragraph (2), paragraph (4), Article 4 paragraph (1), paragraph (2), and/or paragraph (5), the Commercial Bank is subject to administrative sanctions in the form of: a. prohibition on conducting new Equity Investment activities; and/or b. downgrade of the Commercial Bank's health level.

CHAPTER III EQUITY INVESTMENT ACTIVITIES BY BPR AND BPR SYARIAH

First Section General

Article 6 (1) BPR or BPR Syariah may conduct BPR or BPR Syariah Equity Investment. (2) In the event that BPR Syariah conducts BPR or BPR Syariah Equity Investment as referred to in paragraph (1), it must be conducted based on Sharia Principles. (3) BPR or BPR Syariah must apply adequate risk management in BPR or BPR Syariah Equity Investment activities in accordance with: a. Financial Services Authority Regulations regarding the application of risk management for BPR; or b. Financial Services Authority Regulations regarding the application of risk management for BPR Syariah. (4) BPR or BPR Syariah Equity Investment activities are conducted by considering consistency with the business plan of BPR or BPR Syariah and regulatory provisions. (5) BPR or BPR Syariah violating provisions as referred to in paragraph (3) are subject to administrative sanctions in accordance with: a. Financial Services Authority Regulations regarding the application of risk management for BPR; or b. Financial Services Authority Regulations regarding the application of risk management for BPR Syariah.

Article 7 BPR or BPR Syariah are prohibited from conducting BPR or BPR Syariah Equity Investment other than to Supporting Institutions located within the territory of Indonesia.

Article 8 (1) BPR or BPR Syariah conducting BPR or BPR Syariah Equity Investment activities must provide minimum capital calculated using the minimum capital adequacy ratio in accordance with: a. Financial Services Authority Regulations regarding minimum capital adequacy requirements and minimum core capital fulfillment for BPR; or b. Financial Services Authority Regulations regarding minimum capital adequacy requirements and minimum core capital fulfillment for BPR Syariah. (2) BPR or BPR Syariah Equity Investment is measured and/or recorded in accordance with applicable financial accounting standards for BPR or BPR Syariah. (3) The determination of the quality of productive assets in the form of BPR or BPR Syariah Equity Investment is implemented in accordance with: a. Financial Services Authority Regulations regarding BPR asset quality; or b. Financial Services Authority Regulations regarding BPR Syariah asset quality. (4) BPR or BPR Syariah violating provisions as referred to in paragraph (1) are subject to administrative sanctions in accordance with Financial Services Authority Regulations regarding minimum capital adequacy requirements and minimum core capital fulfillment for BPR or BPR Syariah.

Second Section BPR or BPR Syariah Equity Investment

Paragraph 1 Scope of BPR or BPR Syariah Equity Investment

Article 9 (1) Supporting Institutions consist of: a. companies established or whose business activities are prioritized to support the business activities of BPR or BPR Syariah; and b. companies whose business characteristics are directed to support the business activities of the BPR or BPR Syariah industry. (2) BPR and BPR Syariah must ensure that Supporting Institutions as referred to in paragraph (1) are legal entities registered or licensed with the competent authority in Indonesia.

Article 10 (1) The total portfolio of BPR or BPR Syariah Equity Investments by BPR or BPR Syariah is at most 15% (fifteen percent) of the capital of BPR or BPR Syariah. (2) The total portfolio of BPR or BPR Syariah Equity Investments as referred to in paragraph (1) includes increases in BPR or BPR Syariah Equity Investment and stock dividends.

Article 11 (1) BPR or BPR Syariah Equity Investment is included in: a. fund provision for BPR; or b. fund distribution for BPR Syariah, according to Financial Services Authority Regulations regarding the maximum limit for BPR credit provision and the maximum limit for BPR Syariah fund distribution. (2) In the event that BPR or BPR Syariah Equity Investment causes BPR or BPR Syariah to exercise control over the Supporting Institution, the Supporting Institution is included as a related party according to Financial Services Authority Regulations regarding the maximum limit for BPR credit provision and the maximum limit for BPR Syariah fund distribution. (3) In conducting BPR or BPR Syariah Equity Investment activities as referred to in paragraph (1) and paragraph (2), BPR or BPR Syariah observes the limitations as regulated in Financial Services Authority Regulations regarding the maximum limit for BPR credit provision and the maximum limit for BPR Syariah fund distribution.

Article 12 BPR or BPR Syariah Equity Investment as referred to in Article 6 paragraph (1) is only conducted for long-term investment and not for stock trading.

Article 13 BPR or BPR Syariah must monitor the total portfolio of BPR or BPR Syariah Equity Investments.

Paragraph 2 Exceeding the Limit of BPR or BPR Syariah Equity Investment

Article 14 (1) BPR or BPR Syariah must submit an action plan for exceeding the BPR or BPR Syariah Equity Investment limit to the Financial Services Authority if for 3 (three) consecutive months the total portfolio of BPR or BPR Syariah Equity Investments exceeds the BPR or BPR Syariah Equity Investment limit as referred to in Article 10 paragraph (1) caused by: a. increase in BPR or BPR Syariah Equity Investment in Supporting Institutions; and/or b. decrease in BPR or BPR Syariah capital. (2) The action plan as referred to in paragraph (1) consists of an action plan to adjust the amount of BPR or BPR Syariah Equity Investment within a maximum period of 1 (one) year. (3) The action plan as referred to in paragraph (1) must be submitted to the Financial Services Authority no later than the end of the fourth month since the exceeding of the BPR or BPR Syariah Equity Investment limit occurred. (4) The Financial Services Authority may request BPR or BPR Syariah to adjust the action plan as referred to in paragraph (1) within a certain period. (5) The imposition of sanctions for late submission of the action plan as referred to in paragraph (1) is implemented in accordance with Financial Services Authority Regulations regarding reporting through the Financial Services Authority reporting system and financial condition transparency for BPR and BPR Syariah.

Paragraph 3 Prohibitions in BPR or BPR Syariah Equity Investment

Article 15 BPR or BPR Syariah are prohibited from: a. receiving equity investment from Supporting Institutions, either directly or indirectly; b. conducting BPR or BPR Syariah Equity Investment in companies that are shareholders of BPR or BPR Syariah, either directly or indirectly; and c. conducting BPR or BPR Syariah Equity Investment that results in BPR or BPR Syariah having unlimited liability to the Supporting Institution.

Paragraph 4 Policy, Procedures, and Internal Control System

Article 16 (1) BPR or BPR Syariah conducting BPR or BPR Syariah Equity Investment activities must have policies and procedures to manage risks related to BPR or BPR Syariah Equity Investment. (2) Policies and procedures as referred to in paragraph (1) must at least contain: a. risk management and internal control in BPR or BPR Syariah Equity Investment activities; b. periodic evaluation of BPR or BPR Syariah Equity Investment activities; c. periodic reporting from Supporting Institutions; and d. actions by BPR or BPR Syariah in the event of a decrease in the value of BPR or BPR Syariah Equity Investment in the form of contingency plans. (3) Policies and procedures as referred to in paragraph (1) are formulated by the Board of Directors of BPR or BPR Syariah and approved by the Board of Commissioners of BPR or BPR Syariah.

Article 17 BPR or BPR Syariah must have an effective internal control system for BPR or BPR Syariah Equity Investment activities.

Third Section Mechanism for Requesting Approval of BPR or BPR Syariah Equity Investment

Paragraph 1 BPR or BPR Syariah Equity Investment Plan

Article 18 (1) BPR or BPR Syariah must include the BPR or BPR Syariah Equity Investment plan in the business plan of BPR or BPR Syariah. (2) The BPR or BPR Syariah Equity Investment plan in the business plan of BPR or BPR Syariah as referred to in paragraph (1) must at least contain: a. the name of the Supporting Institution company, including business field and ownership structure of the Supporting Institution; b. the purpose of BPR or BPR Syariah Equity Investment; c. projections of BPR or BPR Syariah Equity Investment; and d. ownership percentage, including control aspects. (3) BPR or BPR Syariah violating provisions as referred to in paragraph (1) are subject to administrative sanctions in accordance with Financial Services Authority Regulations regarding the business plan of BPR and BPR Syariah.

Paragraph 2 Request for Approval of BPR or BPR Syariah Equity Investment Activities

Article 19 (1) BPR or BPR Syariah must obtain approval from the Financial Services Authority in conducting BPR or BPR Syariah Equity Investment in accordance with the BPR or BPR Syariah Equity Investment plan as referred to in Article 18 paragraph (1). (2) Increases in BPR or BPR Syariah Equity Investment originating from stock dividends are exempted from the obligation to obtain approval from the Financial Services Authority as referred to in paragraph (1). (3) BPR or BPR Syariah violating provisions as referred to in paragraph (1) are subject to administrative sanctions in the form of written reprimands. (4) In the event that BPR or BPR Syariah has been subject to administrative sanctions as referred to in paragraph (3) and continues to violate provisions as referred to in paragraph (1), BPR or BPR Syariah is subject to administrative sanctions in the form of health rating downgrade. (5) In the event that BPR or BPR Syariah has been subject to administrative sanctions as referred to in paragraph (3) and/or paragraph (4) and continues to violate provisions as referred to in paragraph (1), the principal party of BPR or BPR Syariah may be subject to administrative sanctions in the form of prohibition as a principal party according to Financial Services Authority Regulations regarding re-evaluation of principal parties of financial service institutions. (6) In the event that based on the Financial Services Authority's assessment there are violations with significant impact requiring immediate sanctions, the imposition of sanctions as referred to in paragraph (4) and paragraph (5) can be imposed directly without being preceded by the imposition of sanctions as referred to in paragraph (3).

Article 20 In submitting a request for approval of BPR or BPR Syariah Equity Investment, BPR or BPR Syariah as referred to in Article 19 paragraph (1) must meet the requirements: a. minimum capital adequacy ratio; b. having a minimum health level of composite rating 2 (two) based on the health level assessment of BPR or BPR Syariah for the last 2 (two) consecutive periods; and c. BPR or BPR Syariah Equity Investment:

1. does not disrupt the continuity of BPR or BPR Syariah business; and
2. does not result in a significant increase in the risk profile of BPR or BPR Syariah.

Article 21 (1) BPR or BPR Syariah meeting the requirements as referred to in Article 20 submit a request for approval accompanied by complete application documents before conducting BPR or BPR Syariah Equity Investment. (2) The application documents for the conduct of BPR or BPR Syariah Equity Investment activities as referred to in paragraph (1) are contained in Appendix I which is an integral part of this Financial Services Authority Regulation. (3) BPR or BPR Syariah submit the request for approval as referred to in paragraph (1) accompanied by a statement letter from the Board of Directors of BPR or BPR Syariah signed by the President Director and the Director overseeing the compliance function of BPR or BPR Syariah. (4) In the event that there are specific conditions causing the President Director and/or the Director overseeing the compliance function of BPR or BPR Syariah to be unable to sign the statement letter as referred to in paragraph (3), the statement letter can be signed by other members of the Board of Directors in accordance with the Articles of Association of BPR or BPR Syariah. (5) The format of the statement letter of BPR or BPR Syariah regarding the conduct of BPR or BPR Syariah Equity Investment activities as referred to in paragraph (3) is contained in Appendix II which is an integral part of this Financial Services Authority Regulation.

Article 22 (1) The request for approval as referred to in Article 21 paragraph (1) is submitted to the Financial Services Authority in accordance with Financial Services Authority Regulations regarding the conduct of BPR and BPR Syariah products. (2) The Financial Services Authority provides approval or rejection of the request for approval as referred to in paragraph (1) within a maximum of 14 (fourteen) working days after all requirements are met and application documents are received completely by the Financial Services Authority.

Article 23 (1) In providing approval, the Financial Services Authority has the authority to request BPR or BPR Syariah to provide: a. written commitment from BPR or BPR Syariah; and/or b. written commitment

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