Procedure for the Issuance of Sharia Deposit Certificates

To:

1. Board of Directors of Sharia Commercial Banks; and
2. Board of Directors of Conventional Commercial Banks with Sharia Business Units,
   At Place.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 49/SEOJK.03/2017 CONCERNING PROCEDURE FOR THE ISSUANCE OF SHARIA DEPOSIT CERTIFICATES

In light of the implementation of the Financial Services Authority Regulation Number 10/POJK.03/2015 concerning the Issuance of Deposit Certificates by Banks (State Gazette of the Republic of Indonesia Year 2015 Number 164, Supplement to the State Gazette of the Republic of Indonesia Number 5718), hereinafter referred to as the POJK on Deposit Certificates, it is necessary to regulate the implementation regarding the procedure for issuing Deposit Certificates based on Sharia Principles in a Financial Services Authority Circular as follows:

I. GENERAL PROVISIONS

1. Sharia Principles are Sharia Principles as referred to in Law Number 21 of 2008 concerning Sharia Banking.

2. Deposit Certificates based on Sharia Principles, hereinafter referred to as Sharia Deposit Certificates, are deposits in the form of deposits based on Sharia Principles, the proof of storage certificates of which can be transferred.

3. Sharia Deposit Certificates can be issued in physical form (warkat) or without physical form (scripless).

4. In accordance with Article 2 paragraph (2) of the POJK on Deposit Certificates, Sharia Deposit Certificates in physical form must be payable to bearer (aan order), namely the ability of the holder of Sharia Deposit Certificates in physical form to transfer the proof of storage certificate to another party by signing on the Sharia Deposit Certificate (endorsement) so that the last designated party has the right to receive payment from the Bank issuing the Sharia Deposit Certificates in physical form upon maturity.

In the event of a change of ownership, the new owner of the Sharia Deposit Certificate must report to the Bank. The report to the Bank aims at the administration of ownership of Sharia Deposit Certificates at the Bank in the context of profit distribution and the redemption of Sharia Deposit Certificates to the owners of Sharia Deposit Certificates.

5. Sharia Deposit Certificates in scripless form are Sharia Deposit Certificates whose ownership administration is conducted by the Indonesia Stock Clearing and Custody Agency (LPP).

6. In accordance with Article 2 paragraph (3) of the POJK on Deposit Certificates, Sharia Deposit Certificates in scripless form must have their ownership identified by the Bank in the recording at the LPP.

7. The issuance of Sharia Deposit Certificates requires regulation regarding the requirements and characteristics of Sharia Deposit Certificates, issuance requirements, procedures for requesting approval for the issuance of Sharia Deposit Certificates in scripless form, proof of issuance of Sharia Deposit Certificates, application of the Anti-Money Laundering and Counter-Financing of Terrorism (APU and PPT) program, risk management, customer protection, and reporting of Sharia Deposit Certificate transactions.

II. REQUIREMENTS AND CHARACTERISTICS OF SHARIA DEPOSIT CERTIFICATES

1. Sharia Deposit Certificates use Mudharabah contracts, either absolute Mudharabah (mudharabah mutlaqah) or restricted Mudharabah (mudharabah muqayyadah) contracts.

2. Requirements for Sharia Deposit Certificates
   a. The Bank acts as the fund manager and the customer acts as the fund owner. b. In the event that Sharia Deposit Certificates use absolute Mudharabah contracts, the Bank is not limited in using customer funds in fund disbursement activities as long as they do not conflict with Sharia Principles.
   c. In the event that Sharia Deposit Certificates use restricted Mudharabah contracts, customers as fund owners provide certain requirements and limitations to the Bank, including regarding location, method, and/or investment objects, which are clearly stated in the agreement.
   d. The Bank and customers share profits in the form of a ratio (nisbah) agreed upon and stipulated in the Sharia Deposit Certificate issuance contract. e. The Bank may reduce the customer's profit ratio as long as it obtains customer approval. f. Profit sharing must come from business activities financed by Sharia Deposit Certificates, whether business activities with fixed returns or non-fixed returns, in accordance with the contract. g. The profit-sharing mechanism is carried out based on agreements between the Bank and customers in accordance with Sharia Principles. h. The issuance of Sharia Deposit Certificates must not use interest mechanisms, including discount mechanisms.
   i. The Bank and customers stipulate agreements on the opening and use of Sharia Deposit Certificate products in the form of written agreements, forms, or other forms that can be equated to those.
   j. The Bank must return funds to customers (the last owner recorded at the Bank) upon maturity. k. The Bank has adequate recording and account administration systems.

3. Characteristics of Sharia Deposit Certificates
   a. The Bank may set customer targets, namely individuals and/or non-individuals. Non-individual customers can be Sharia financial institutions, conventional financial institutions, or other institutions. b. The Bank sets the term of Sharia Deposit Certificates to be at least 1 (one) month and at most 36 (thirty-six) months.
   c. The Bank sets the nominal value of Sharia Deposit Certificates to be at least Rp10,000,000.00 (ten million rupiah) or its equivalent in foreign currency.
   d. The Bank may deduct zakat or profit-sharing donations received by customers as requested by customers in the Sharia Deposit Certificate agreement.

4. Sharia Deposit Certificates can be transferred after the funds of the Sharia Deposit Certificates have been used in the business activities of the issuer of the Sharia Deposit Certificates.

5. Sharia Deposit Certificates can be transferred before maturity.

6. Sharia Deposit Certificate transfer transactions are carried out using sales contracts (bai') with agreed prices. In certain cases, the transfer of Sharia Deposit Certificates can be carried out, among others, due to inheritance and gifts supported by a statement of Sharia compliance from the National Sharia Council-Majelis Ulama Indonesia.

7. Sharia Deposit Certificates can be traded via repurchase agreement (repo) based on Sharia Principles in the secondary market.

III. ISSUANCE REQUIREMENTS FOR SHARIA DEPOSIT CERTIFICATES

A. Deposit Certificates in Physical Form (Warkat)

1. Banks may issue Sharia Deposit Certificates in physical form in Indonesian Rupiah and/or foreign currency without first obtaining approval from the Financial Services Authority.

2. Banks that can issue Sharia Deposit Certificates in physical form in foreign currency as referred to in item 1 are Banks that have obtained approval to conduct business activities in foreign currency in accordance with Financial Services Authority Regulations concerning business activities and office networks based on bank core capital and Circular Letters of the Financial Services Authority concerning products and activities of Sharia commercial banks and Sharia business units.

B. Sharia Deposit Certificates in Scripless Form (Tanpa Warkat)

1. Banks may issue Sharia Deposit Certificates in scripless form in Indonesian Rupiah and/or foreign currency.

2. In accordance with Article 3 paragraph (2) of the POJK on Deposit Certificates, Banks issuing Sharia Deposit Certificates in scripless form must obtain approval from the Financial Services Authority.

3. In accordance with Article 3 paragraph (3) of the POJK on Deposit Certificates, approval from the Financial Services Authority as referred to in item 2 is required for the first issuance of Sharia Deposit Certificates in scripless form by the Bank for all types of currencies.

4. Banks that can issue Sharia Deposit Certificates in scripless form in foreign currency as referred to in item 1 are Banks that have obtained approval to conduct business activities in foreign currency in accordance with Financial Services Authority Regulations concerning business activities and office networks based on bank core capital and Circular Letters of the Financial Services Authority concerning products and activities of Sharia commercial banks and Sharia business units.

IV. PROCEDURE FOR REQUESTING APPROVAL FOR THE ISSUANCE OF SHARIA DEPOSIT CERTIFICATES IN SCRIPLESS FORM

1. Banks must include the plan to issue Sharia Deposit Certificates in the Bank's business plan, which must contain at least the following information:
   a. general description; b. issuance time plan;
   c. issuance objectives;
   d. business strategy and benefits for the Bank; e. potential risks; and f. risk mitigation regarding the issuance.

2. Banks submit a letter requesting approval for the issuance of Sharia Deposit Certificates accompanied by supporting documents containing at least the following information:
   a. issuance time plan; b. information regarding features or characteristics:

1. term of Sharia Deposit Certificates;
2. type of currency in Indonesian Rupiah and/or foreign currency;
3. target nominal value according to the currency used;
4. profit-sharing ratio; and
5. target market and/or customers;
   c. benefits and costs for the Bank;
   d. benefits and risks for customers; e. implementation procedures (standard operating procedures) and authority, including monitoring systems to identify changes in ownership and redemption of Sharia Deposit Certificates; f. policies and procedures related to the application of the APU and PPT program; g. results of identification, measurement, monitoring, and control of risks, both for the Bank and for customers; h. results of legal and compliance aspect analysis;
   i. Sharia opinion from the Sharia Supervisory Board;
   j. accounting information systems, including a brief explanation regarding the connection of the accounting information system with the Bank's overall accounting system, and/or administrative recording systems; k. transparency and customer education, including information on how to own Sharia Deposit Certificates as well as customer rights and obligations;
   l. operational readiness, including human resources and information technology readiness;
   m. related documents:
6. cooperation agreements between the Bank issuing Sharia Deposit Certificates and the LPP;
7. Bank's information technology readiness, including ensuring the Bank can access the latest ownership data of Sharia Deposit Certificates in the LPP system; and
8. procedures for maintaining customer data confidentiality in administration at the Bank and LPP, taking into account relevant regulations;
   and n. concept of contract, agreement, or application form attached with an opinion from the legal unit stating that the concept of contract, agreement, or application form complies with regulations.

3. Banks submit requests for approval for the issuance of Sharia Deposit Certificates to the Financial Services Authority at least 60 (sixty) days before the target time for the Bank to submit requests for recording Sharia Deposit Certificates in scripless form in the LPP system, accompanied by supporting documents as referred to in item 2.

Example:
Bank A has a target time to submit a request for recording Sharia Deposit Certificates in scripless form in the LPP system on November 3, 2017, so Bank A must submit a request for approval to the Financial Services Authority no later than September 4, 2017.

4. Banks enter into cooperation agreements for recording ownership of Sharia Deposit Certificates with the LPP, which must contain at least:
   a. clauses stating that the LPP is responsible for providing systems used to record and monitor ownership changes, distribute profits, and redeem Sharia Deposit Certificates to customers; b. clauses stating that the LPP guarantees the list of holders of Sharia Deposit Certificates submitted to the Bank issuing the Sharia Deposit Certificates, whether in electronic information, electronic documents, and/or printed copies, in accordance with the recording and transfer of Sharia Deposit Certificates at the LPP;
   c. clauses stating that recording is conducted by the LPP on behalf of and for the name of the Bank;
   d. clauses stating that the Bank declares that the names in the list of holders of Sharia Deposit Certificates issued by the LPP are the legitimate owners of the Sharia Deposit Certificates; e. the duration of the cooperation and its extension mechanism; f. conditions and procedures for changing the agreement; g. conditions and procedures for terminating the agreement; h. confidentiality of Sharia Deposit Certificate holder data; and
   i. clauses regarding force majeure and dispute resolution.

5. Requests for approval for the issuance of Sharia Deposit Certificates in scripless form are submitted to the Financial Services Authority at the following addresses:
   a. Sharia Banking Department, for Banks headquartered in the Special Capital Region of Jakarta; b. Regional Office of the Financial Services Authority or local Financial Services Authority Office according to the region where the Bank's headquarters is located; or
   c. online, in the event that online licensing transmission facilities are available.

V. PROOF OF ISSUANCE OF SHARIA DEPOSIT CERTIFICATES

A. Sharia Deposit Certificates in Physical Form (Warkat)

Sharia Deposit Certificates in physical form must contain at least:

1. the signature of the authorized Bank official;

2. on the front page, at least the following information:
   a. the phrases “SHARIA DEPOSIT CERTIFICATE” and “TRANSFERABLE” written in capital letters and large size; b. the serial number of the physical document and account number in administration at the Bank;
   c. the name of the Bank, type of Bank office network, and location of the Bank issuing the Sharia Deposit Certificates;
   d. the nominal value according to the currency used; e. the date and place of issuance; f. the maturity date; g. the profit-sharing ratio; h. the profit payment date;
   i. the business activities invested (if using restricted Mudharabah contracts); and
   j. a statement from the Bank issuing the Sharia Deposit Certificates to pay a nominal value of Sharia Deposit Certificates on the specified date and at the Bank office network issuing the Sharia Deposit Certificates designated;

3. on the back page, at least the following:
   a. clauses stating that Sharia Deposit Certificates are deposits in the form of deposits, the proof of storage certificates of which can be transferred; b. clauses stating that Sharia Deposit Certificates are insured as long as they meet the deposit insurance requirements of the Deposit Insurance Agency;
   c. clauses stating that the Bank may reduce the customer's profit ratio as long as it obtains customer approval;
   d. clauses stating that the redemption of Sharia Deposit Certificates is carried out on the maturity date or after maturity by returning the Sharia Deposit Certificate physical document by the last owner recorded at the Bank or authorized; e. clauses stating that in the event of a change of ownership, the new owner of the Sharia Deposit Certificate must report to the Bank by bringing the Sharia Deposit Certificate physical document accompanied by identity documents and bank account numbers for monthly profit payments and principal payments upon maturity, as well as photocopies of the previous Sharia Deposit Certificate owner's identity documents; f. information regarding the Bank parties that can be contacted by holders of Sharia Deposit Certificates; and g. a page for endorsement with an example as follows:

4. Name:
   Identity number:
   Signature:

5. Name:
   Identity number:
   Signature:

6. Name:
   Identity number:
   Signature:

7. Name:
   Identity number:
   Signature:

B. Sharia Deposit Certificates in Scripless Form (Tanpa Warkat)

1. Proof of issuance and/or recording of Sharia Deposit Certificates in scripless form at the LPP must contain at least:
   a. the name of the Bank issuing the Sharia Deposit Certificates; b. the location of the Bank issuing the Sharia Deposit Certificates;
   c. data on the Bank's legal founding documents or articles of association and amendments thereto;
   d. the serial number of Sharia Deposit Certificates; e. the nominal value of Sharia Deposit Certificates; f. the profit-sharing ratio; g. the profit payment date; h. the business activities invested (if using restricted Mudharabah contracts);
   i. the maturity date of Sharia Deposit Certificates;
   j. the name of the sales agent or arranger; k. a statement that the proof of issuance and/or recording of Sharia Deposit Certificates in scripless form registered at the LPP is issued in the name of the LPP and for the interest of LPP account holders, which is subsequently for the interest of holders of Sharia Deposit Certificates; and
   l. the signature of the Bank official.

2. Proof of issuance and/or recording of Sharia Deposit Certificates in scripless form must be registered and recorded in the LPP system.

3. Banks create a recapitulation list of distribution of Sharia Deposit Certificates in scripless form from customers eligible to be recorded in the LPP system.

VI. APPLICATION OF ANTI-MONEY LAUNDERING AND COUNTER-FINANCING OF TERRORISM PROGRAMS

In conducting issuance and transfer transactions of Sharia Deposit Certificates, in accordance with Article 12 of the POJK on Deposit Certificates, Banks are required to apply the APU and PPT program as regulated in relevant laws and regulations concerning APU and PPT.

Furthermore, in the issuance and transaction activities of Sharia Deposit Certificates, suspicious financial transaction reporting must be observed.

VII. RISK MANAGEMENT

Banks issuing and conducting transactions of Sharia Deposit Certificates must apply effective risk management referring to Financial Services Authority Regulations concerning the application of risk management for Sharia commercial banks and Sharia business units, at least covering:

1. active supervision by the Board of Directors, Board of Commissioners, and Sharia Supervisory Board;
2. adequacy of risk management policies and procedures as well as the establishment of risk limits;
3. adequacy of risk identification, measurement, monitoring, and control processes as well as risk management information systems; and
4. comprehensive internal control systems.

VIII. CUSTOMER PROTECTION

Banks issuing Sharia Deposit Certificates must apply consumer protection principles in accordance with Financial Services Authority Regulations concerning consumer protection in the financial services sector, including:

1. providing and conveying information regarding Sharia Deposit Certificates to customers transparently, containing at least:
   a. customer rights and obligations, including:

1. the right to transfer Sharia Deposit Certificates to other parties;
2. the obligation of the first owner to have an account at the Bank issuing Sharia Deposit Certificates in physical form; and
3. the obligation to open a special account before customers own Sharia Deposit Certificates in scripless form;
   b. benefits, risks, and costs;
   c. profit-sharing ratio;
   d. payment of the nominal value of Sharia Deposit Certificates upon maturity and profit sharing; e. terms and conditions, including conditions for Sharia Deposit Certificates to meet the insurance clauses of the Deposit Insurance Agency; and f. applicable law, namely Indonesian law;

2. using simple words, terms, phrases, and/or sentences in Indonesian that are easy to understand in Sharia Deposit Certificate documents.

IX. REPORTING OF SHARIA DEPOSIT CERTIFICATE TRANSACTIONS

1. Banks must report Sharia Deposit Certificate transactions referring to relevant laws and regulations concerning monthly monetary stability and financial system reports for Sharia commercial banks and Sharia business units, including:
   a. Sharia Deposit Certificates owned by non-bank customers are recorded and reported in the detail list of investment funds; and b. Sharia Deposit Certificates owned by banks are recorded and reported in the detail list of liabilities to other banks.

2. In the event that Sharia Deposit Certificates are not yet present in the Monthly Monetary Stability and Financial System Report for Sharia Commercial Banks and Sharia Business Units, Banks must report Sharia Deposit Certificate transactions as follows:
   a. Sharia Deposit Certificates owned by non-bank customers are recorded and reported as “others” in the detail list of various liabilities; and b. Sharia Deposit Certificates owned by banks are recorded and reported as “others” in the detail list of liabilities to other banks.

This copy is consistent with the original
Legal Director 1
Legal Department signed,
Yuliana

X. CLOSING

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

Determined in Jakarta on September 18, 2017
EXECUTIVE HEAD OF BANKING SUPERVISOR,
FINANCIAL SERVICES AUTHORITY signed,
HERU KRISTIYANA