SEOJK on the Implementation of Compliance Functions for Rural Credit Banks

To:
The Board of Directors of Rural Credit Banks

COPY
FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER
NUMBER 6 /SEOJK.03/2016
CONCERNING
THE IMPLEMENTATION OF COMPLIANCE FUNCTIONS FOR RURAL CREDIT BANKS

In connection with the Financial Services Authority Regulation Number 4/POJK.03/2015 concerning the Implementation of Corporate Governance for Rural Credit Banks (State Gazette of the Republic of Indonesia Year 2015 Number 72, Additional State Gazette Number 5685), hereinafter referred to as the POJK on BPR Corporate Governance, it is necessary to regulate the implementation of the POJK on BPR Corporate Governance in this Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

1. In accordance with Article 51 of the POJK on BPR Corporate Governance, BPRs are required to ensure compliance with Financial Services Authority regulations and other applicable laws and regulations.

2. 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 Financial Services Authority regulations and other applicable laws and regulations, and to ensure BPR compliance with commitments made by BPRs to the Financial Services Authority and/or other authorities such as the Bank Indonesia (BI), the Center for Reporting and Analysis of Financial Transactions (PPATK), and/or the Deposit Insurance Corporation (LPS).

3. In order to implement the compliance function in BPRs, BPRs are required to submit:
   a. reports on the main points of the implementation of duties of the Board of Directors members who oversee the compliance function; b. special reports regarding Board of Directors policies and/or decisions that deviate from Financial Services Authority regulations and other applicable laws and regulations; and
   c. reports on the temporary replacement of the position of the Director overseeing the compliance function.

II. IMPLEMENTATION OF THE COMPLIANCE FUNCTION IN BPRs

1. The Board of Directors is responsible for the implementation of the compliance function in BPRs, and the Board of Commissioners supervises the implementation of the compliance function in BPRs.

2. All members of the Board of Directors are responsible for fostering and realizing the implementation of a compliance culture at all levels of the BPR organization and business activities.

3. In accordance with Article 52 of the POJK on BPR Corporate Governance, in order to assist the implementation of duties by Board of Directors members who oversee the compliance function, BPRs are required to form a work unit or appoint an Executive Officer to carry out the compliance function according to the core capital of the respective BPR as follows.
   a. BPRs having core capital of at least IDR 50,000,000,000.00 (fifty billion rupiah) are required to form an independent compliance unit (compliance unit) relative to operational work units.
   What is meant by operational work units are work units that carry out credit granting, fund collection, and other operational activities. Thus, the compliance unit can also carry out non-operational functions such as risk management, as well as anti-money laundering and counter-terrorism financing (APU and PPT). b. BPRs having core capital of less than IDR 50,000,000,000.00 (fifty billion rupiah) are required to appoint an Executive Officer who is independent of BPR operations to carry out the compliance function. What is meant by being independent of BPR operations is not handling activities directly related to credit granting and fund collection. Thus, Executive Officers handling the compliance function can also carry out operational functions not related to credit granting and fund collection, such as human resources, risk management, as well as APU and PPT.

4. In order to implement the compliance function in BPRs, BPRs have Board of Directors members who oversee the compliance function.

5. Work units or Executive Officers as referred to in point 3 are directly responsible to the Board of Directors members who oversee the compliance function.

6. The imposition of sanctions for fulfilling the organizational structure to implement the compliance function in BPRs, including Board of Directors members who oversee the compliance function, takes effect from April 1, 2017.

III. APPOINTMENT, DISMISSAL, AND/OR RESIGNATION OF BOARD OF DIRECTORS MEMBERS OVERSEEING THE COMPLIANCE FUNCTION

1. In accordance with Article 54 paragraph (1) of the POJK on BPR Corporate Governance, the appointment, dismissal, and/or resignation of Board of Directors members overseeing the compliance function refer to regulations governing the appointment, dismissal, and/or resignation of Board of Directors members as referred to in Financial Services Authority Regulations concerning Rural Credit Banks.

2. In accordance with Article 54 paragraph (2) of the POJK on BPR Corporate Governance, in the event that Board of Directors members overseeing the compliance function are temporarily unable to perform their duties for more than 10 (ten) consecutive working days, the duties must be temporarily replaced by another Board of Directors member until the Board of Directors member overseeing the compliance function can resume their duties.

3. What is meant by being temporarily unable to perform their duties is inability caused by temporary matters such as leave, illness, and official duties. Being temporarily unable also includes cases where Board of Directors members overseeing the compliance function are under legal process as suspects.

4. The duration of temporary inability for Board of Directors members overseeing the compliance function is at most 90 (ninety) working days from the time they are unable to perform their duties.

5. In accordance with Article 54 paragraph (7) of the POJK on BPR Corporate Governance, BPRs are required to report the temporary replacement of the position of the Director overseeing the compliance function to the Financial Services Authority, with report content including at least:
   a. reasons for the temporary replacement of the Board of Directors member overseeing the compliance function; b. profile of the Board of Directors member temporarily replacing the Board of Directors member overseeing the compliance function;
   c. duration of the temporary replacement; and
   d. photocopy of the Minutes of Handover (BAST) from the Director overseeing the compliance function to another Director with the approval of the Commissioner, or a photocopy of the approval from one of the shareholders regarding the appointment of a 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.

6. The procedure for submitting the temporary replacement report is as follows.
   a. Reports on the temporary replacement of Board of Directors members overseeing the compliance function are addressed to the Financial Services Authority u.p. Regional Office or local Financial Services Authority Office. b. Temporary replacement reports are submitted to the Financial Services Authority at the latest 10 (ten) working days after the temporary replacement occurs.

7. If Board of Directors members overseeing the compliance function are temporarily unable beyond the duration referred to in point 4, the Board of Directors member overseeing the compliance function is considered permanently unable.
   Besides exceeding the duration referred to in point 4, permanent inability also includes:
   a. death; b. physical and/or mental disability or other conditions that prevent the individual from performing their duties as a BPR Director;
   c. violations of Financial Services Authority regulations regarding:
   a. prohibitions for Board of Directors members to hold concurrent positions, have family or in-law relationships; and/or b. requirements for professional certification ownership; d. determination of failure based on the results of competence and propriety tests in accordance with Financial Services Authority regulations.

8. In the event that Board of Directors members overseeing the compliance function are permanently unable as referred to in point 7, BPRs must replace the Board of Directors member by referring to Financial Services Authority Regulations concerning BPRs.

IV. GUIDELINES, SYSTEMS, AND COMPLIANCE PROCEDURES

1. In accordance with Article 52 paragraph (5) of the POJK on BPR Corporate Governance, in order to ensure compliance with Financial Services Authority regulations and other applicable laws and regulations, Compliance Work Units or Executive Officers handling the compliance function are required to formulate and/or update compliance guidelines, systems, and procedures.

2. Compliance guidelines, systems, and procedures are formulated by compliance work units or Executive Officers handling the compliance function and approved by the Board of Directors member overseeing the compliance function, with content including at least:
   a. parties responsible for the compliance function; b. compliance procedures standards in each BPR work unit, including:

1. obligations for each BPR work unit to carry out operational activities in accordance with internal regulations and applicable laws and regulations; and
2. obligations to adjust internal BPR regulations with the latest applicable laws and regulations;
   c. decision-making procedures by management regarding the compliance function;
   d. compliance code of ethics to support the creation of values, behaviors, and actions that support compliance with Financial Services Authority regulations and other applicable laws and regulations; e. coordination flows and monitoring procedures between:
3. Board of Directors members overseeing the compliance function and other Board of Directors members;
4. Board of Directors members overseeing the compliance function and compliance work units or Executive Officers handling the compliance function; and
5. compliance work units or Executive Officers handling the compliance function and other work units in the respective BPR;
   f. internal regulations regarding the compliance function governing tasks and responsibilities, including:
6. tasks and responsibilities of Board of Directors members overseeing the compliance function, at least covering:
   a) determining necessary steps to ensure BPRs have met all Financial Services Authority regulations and other applicable laws and regulations in order to implement the principle of prudence, including providing dissenting opinions if there are policies and/or decisions that deviate from Financial Services Authority regulations and/or other applicable laws and regulations; b) monitoring and ensuring that BPR business activities do not deviate from applicable laws and regulations; c) monitoring and ensuring BPR compliance with all commitments made by BPRs to the Financial Services Authority and other authorities; d) ensuring the implementation of continuous socialization and training for all relevant work units regarding the latest Financial Services Authority regulations and other relevant applicable laws and regulations; e) reporting in writing to other Board of Directors members and the Board of Commissioners regarding compliance violations committed by BPR employees; and f) reporting in writing to the Board of Commissioners regarding compliance violations committed by the BPR Board of Directors;
7. tasks and responsibilities of compliance work units or Executive Officers handling the compliance function, at least covering:
   a) monitoring and understanding every development of Financial Services Authority regulations and other relevant applicable laws and regulations regarding BPR business activities; b) carrying out continuous socialization and training for all relevant work units regarding the latest Financial Services Authority regulations and other relevant applicable laws and regulations; c) ensuring that each work unit has adjusted internal regulations with Financial Services Authority regulations and other relevant applicable laws and regulations; d) providing consultation to work units or BPR employees regarding compliance with Financial Services Authority regulations and other applicable laws and regulations; e) providing recommendations for BPR products, activities, and transactions in accordance with applicable laws and regulations; f) ensuring the application of compliance procedures in each BPR work unit; g) coordinating and providing recommendations to Internal Audit Work Units or Executive Officers handling internal audit functions regarding compliance violations committed by BPR employees; h) reporting the implementation of the compliance function and the existence of compliance violations to the Board of Directors member overseeing the compliance function; i) identifying, measuring, monitoring, and controlling compliance risks by referring to Financial Services Authority Regulations concerning the Implementation of Risk Management for Rural Credit Banks, coordinating with Risk Management Work Units or Executive Officers handling Risk Management; j) analyzing, evaluating, and assessing compliance risks related to BPR business activities; and k) evaluating monitoring procedures and developing them effectively and efficiently.

3. Compliance work units or Executive Officers handling the compliance function update compliance guidelines, systems, and procedures.

V. REPORTS ON THE MAIN POINTS OF IMPLEMENTATION OF DUTIES BY BOARD OF DIRECTORS MEMBERS OVERSEEING THE COMPLIANCE FUNCTION

1. Reports on the Main Points of Implementation of Duties by Board of Directors Members Overseeing the Compliance Function include at least:
   a. General Information on BPRs according to the latest conditions, including at least:
   (1) organizational structure including the Board of Directors, Board of Commissioners, and Executive Officers; (2) human resource formations in each work unit, education, and length of tenure in current positions, including the Board of Directors and Board of Commissioners; and (3) internal regulations owned, including implementation dates. b. Information regarding the implementation of the compliance function in BPRs, including at least:
   (1) implementation of continuous socialization and training for all relevant BPR work units regarding the latest and relevant Financial Services Authority regulations and other applicable laws and regulations; (2) application of the compliance function in all BPR work units, including plans to adjust internal regulations that are not yet in accordance with regulations and fulfillment of organizational structure/human resources; (3) deviations from applicable laws and regulations, including explanations of efforts made to prevent deviations; and (4) implementation of fulfillment of commitments to the Financial Services Authority and other authorities such as BI, PPATK, and LPS.

2. Reports as referred to in point 1 are prepared by compliance work units or Executive Officers handling the compliance function and signed by the Board of Directors member overseeing the compliance function.

3. Reports as referred to in point 1 are submitted to the Financial Services Authority u.p. Regional Office or local Financial Services Authority Office.

4. Reports as referred to in point 1 are prepared by BPRs periodically at the end of December each year and submitted to the Financial Services Authority at the latest 3 (three) months after the end of the reporting month.

VI. SPECIAL REPORTS

1. Special reports 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 Financial Services Authority regulations and/or other applicable laws and regulations. Special reports as referred to include:
   a. policies and/or decisions that deviate from Financial Services Authority regulations and other applicable laws and regulations; and b. preventive efforts that have been optimally carried out by the Board of Directors member overseeing the compliance function against policies and/or decisions that deviate from Financial Services Authority regulations and other applicable laws and regulations.

2. Reports as referred to in point 1 are prepared based on monitoring and coordination carried out by the Board of Directors member overseeing the compliance function and compliance work units or Executive Officers handling the compliance function.

3. Reports as referred to in point 1 are signed by the Board of Directors member overseeing the compliance function and addressed to the Financial Services Authority u.p. Regional Office or local Financial Services Authority Office.

4. Reports as referred to in point 1 are submitted to the Financial Services Authority at the latest 10 (ten) working days since the deviation was discovered.

VII. CLOSING

Provisions in this Financial Services Authority Circular Letter take effect from the date of establishment.

Established in Jakarta
On March 10, 2016

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, sd
NELSON TAMPUBOLON

Copy in accordance with the original
Legal Director 1
Legal Department sd
Yuliana