SEOJK Regarding the Procedure for Issuing Deposit Certificates

To:
Directors of Conventional Commercial Banks
At your office.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 41/SEOJK.03/2016 REGARDING PROCEDURE FOR ISSUING DEPOSIT CERTIFICATES

In connection with 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 procedure for issuing Deposit Certificates in a Circular Letter of the Financial Services Authority as follows:

I. GENERAL PROVISIONS

1. Deposit Certificate is a deposit in the form of a time deposit whose proof of ownership certificate can be transferred.

2. Deposit Certificates can be issued in physical (warkat) or scripless (tanpa warkat) forms.

3. According to Article 2 paragraph (2) of the POJK on Deposit Certificates, physical Deposit Certificates must be payable to bearer (aan order), meaning the ability of the holder of physical Deposit Certificates to transfer the proof of ownership certificate to another party by signing on the Deposit Certificate (endorsement), so that the last designated party is entitled to receive payment from the issuing bank when the physical Deposit Certificate matures.

4. Scripless Deposit Certificates are Deposit Certificates whose ownership administration is conducted by the Depository and Clearing Institution.

5. According to Article 2 paragraph (3) of the POJK on Deposit Certificates, scripless Deposit Certificates must have their ownership identified by the bank in the records at the Depository and Clearing Institution.

Ownership identifiable in the records at the Depository and Clearing Institution refers to the name of the last holder of scripless Deposit Certificates recorded at the Depository and Clearing Institution.

6. The Depository and Clearing Institution, hereinafter referred to as LPP, is a party that conducts central custody activities for custodian banks, securities companies, and other parties for the interest of recording and administering scripless Deposit Certificates.

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

II. ISSUANCE REQUIREMENTS FOR DEPOSIT CERTIFICATES

A. Physical Deposit Certificates

1. Banks may issue physical Deposit Certificates in Rupiah without first obtaining approval from the Financial Services Authority.

2. Banks may issue physical Deposit Certificates in foreign currency without first obtaining approval from the Financial Services Authority.

3. Banks that can issue physical Deposit Certificates in foreign currency as referred to in number 2 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 Core Capital and Circular Letters of the Financial Services Authority concerning Business Activities of Commercial Banks Based on Core Capital.

B. Scripless Deposit Certificates

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

2. According to Article 3 paragraph (2) of the POJK on Deposit Certificates, banks issuing scripless Deposit Certificates must obtain approval from the Financial Services Authority.

3. According to Article 3 paragraph (3) of the POJK on Deposit Certificates, approval from the Financial Services Authority as referred to in number 2 is required for the first issuance of scripless Deposit Certificates by a bank for all types of currencies.

4. Banks that can issue scripless Deposit Certificates in foreign currency as referred to in number 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 Core Capital and Circular Letters of the Financial Services Authority concerning Business Activities of Commercial Banks Based on Core Capital.

III. PROCEDURE FOR REQUESTING APPROVAL FOR ISSUANCE OF SCRIPLESS DEPOSIT CERTIFICATES

1. Banks must include the plan to issue Deposit Certificates in the Bank's Business Plan, containing 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 Deposit Certificates accompanied by supporting documents containing at least the following information:
   a. issuance time plan; b. tenure of the Deposit Certificate;
   c. type of currency in Rupiah and/or foreign currency;
   d. target value in Rupiah and/or foreign currency depending on the currency type; e. interest rate; f. target market and/or customers; g. benefits and costs for the bank; h. benefits and risks for customers;
   i. implementation procedures (Standard Operating Procedures) and authority, including monitoring systems to identify changes in ownership and redemption of Deposit Certificates;
   j. policies and procedures related to the application of the APU and PPT program; k. results of identification, measurement, monitoring, and control of risks, both for the bank and for customers;
   l. results of legal and compliance aspect analysis;
   m. accounting information systems, including a brief explanation regarding the correlation of accounting information systems with the overall bank accounting system, and/or administrative recording systems; n. transparency and customer education, including regarding how to own, customer rights and obligations, and others; and o. related documents:

1. cooperation agreements between the bank issuing Deposit Certificates and the LPP;
2. bank information technology readiness, including ensuring the bank can access the latest ownership data of Deposit Certificates in the LPP system; and
3. procedures for maintaining customer data confidentiality in administration at the bank and LPP, considering applicable laws and regulations.

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

Example:
Bank A has a target time to submit a request for recording scripless Deposit Certificates in the LPP system on August 31, 2016, so Bank A must submit a request for approval to the Financial Services Authority by July 2, 2016 at the latest.

4. Banks conduct cooperation agreements for recording ownership of Deposit Certificates with the LPP, containing at least:
   a. clauses stating that the LPP is responsible for providing the system used to record and monitor ownership changes; b. clauses stating that the LPP guarantees the list of Deposit Certificate holders submitted to the issuing bank, whether in electronic information, electronic documents, and/or printed copies, in accordance with the recording and transfer of Deposit Certificates at the LPP;
   c. clauses stating that recording conducted by the LPP is for and on behalf of the bank;
   d. clauses stating that the bank declares that the names in the list of Deposit Certificate holders issued by the LPP are the legitimate owners of the Deposit Certificates; e. duration of cooperation and renewal mechanisms; f. conditions and procedures for changing the agreement; g. conditions and procedures for terminating the agreement; h. confidentiality of Deposit Certificate holder data; and
   i. clauses regarding force majeure and dispute resolution.

5. Requests for approval for the issuance of scripless Deposit Certificates are submitted to the Financial Services Authority at the address:
   a. the relevant Bank Supervision Department, for banks headquartered in the Special Capital Region of Jakarta; b. the Regional Office of the Financial Services Authority or the local Financial Services Authority Office according to the area where the bank's headquarters is located; or
   c. online, in the event that online licensing delivery facilities are available.

IV. PROOF OF ISSUANCE OF DEPOSIT CERTIFICATES

A. Physical Deposit Certificates

Physical Deposit Certificates must contain at least:

1. the signature of the authorized bank official;

2. on the front page, containing at least the following information:
   a. the phrases “DEPOSIT CERTIFICATE” and “TRANSFERABLE” written in capital letters and large size; b. serial number of the physical document and account number in bank administration;
   c. name of the bank, type of bank office, and location of the bank office issuing the Deposit Certificate;
   d. nominal value in the currency used; e. date and place of issuance; f. maturity date; g. interest rate; and h. a statement by the bank issuing the Deposit Certificate to pay a nominal value of the Deposit Certificate on the specified date and at the office of the issuing bank designated;

3. on the back page, containing at least:
   a. clauses stating that the Deposit Certificate is a deposit in the form of a time deposit whose proof of ownership certificate can be transferred; b. clauses stating that the Deposit Certificate is guaranteed as long as it meets the deposit insurance regulations of the Deposit Insurance Agency;
   c. clauses stating that settlement is carried out on the maturity date or after maturity by returning the physical Deposit Certificate by the last owner recorded at the bank or authorized;
   d. clauses stating that in the event of a change in ownership, the new owner of the Deposit Certificate must report to the bank accompanied by identity documents and photocopies of the old owner's identity documents; e. a page for endorsement with an example as follows:
   Name:
   Identity number:
   Signature:
   Name:
   Identity number:
   Signature:
   Name:
   Identity number:
   Signature:
   Name:
   Identity number:
   Signature:
   and f. information regarding the bank party that can be contacted by the holder of the Deposit Certificate.

B. Scripless Deposit Certificates

1. Proof of issuance and/or recording of scripless Deposit Certificates at the LPP must contain at least:
   a. name of the bank issuing the Deposit Certificate; b. location of the bank office issuing the Deposit Certificate;
   c. data on the history of the company's legal founding documents or articles of association and amendments thereto;
   d. serial number of the Deposit Certificate; e. nominal value of the Deposit Certificate; f. interest rate; g. maturity date of the Deposit Certificate; h. name of the sales agent or arranger;
   i. a statement that the proof of issuance and/or recording of scripless Deposit Certificates registered at the LPP is issued in the name of the LPP and for the interest of the LPP account holder; and
   j. signature of the bank official.

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

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

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

In conducting issuance activities and transfer transactions of Deposit Certificates, according to Article 12 of the POJK on Deposit Certificates, banks are required to apply the APU and PPT program as regulated in laws and regulations concerning APU and PPT. Furthermore, in issuance and transaction activities of Deposit Certificates, suspicious financial transaction reporting must be observed.

VI. RISK MANAGEMENT

Banks issuing and conducting transactions of Deposit Certificates must apply effective risk management referring to Financial Services Authority Regulations concerning the Application of Risk Management for Commercial Banks, covering at least:

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

VII. CUSTOMER PROTECTION

Banks issuing 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 delivering information regarding Deposit Certificates to customers transparently, containing at least:
   a. customer rights and obligations, including:

1. the right to transfer to other parties; and
2. the obligation of customers to open special accounts in the event of owning scripless Deposit Certificates;
   b. benefits, risks, and costs;
   c. payment of the nominal value of Deposit Certificates upon maturity and interest payments via discounting;
   d. terms and conditions, including conditions for Deposit Certificates to meet the guarantee clauses of the Deposit Insurance Agency; and e. applicable law, namely Indonesian law;

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

VIII. REPORTING OF DEPOSIT CERTIFICATE TRANSACTIONS

Banks must report Deposit Certificate transactions referring to regulations concerning Monthly Reports of Commercial Banks, including:

1. Deposit Certificates owned by non-bank customers are recorded and reported in the list of detailed time deposits; and
2. Deposit Certificates owned by banks are recorded and reported in the list of detailed liabilities to other banks.

IX. CLOSING

The provisions of this Circular Letter of the Financial Services Authority shall take effect on the date of establishment.

Established in Jakarta on September 27, 2016

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

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