“Digital banks run and operate their business mainly electronically without a physical office (excluding their head office) or using a limited number of physical offices.”
The digital era has grown rapidly within the last decade. Lots of industries are now utilizing digital platform as a media to grow and reach customers. The Banking Industry is also making a move towards this digital era by realizing a concept known as “digital bank”.
A. Digital Bank
The definition of Digital Bank can be found on Article 1 paragraph (22) and Article 23 paragraph (3) of the Financial Service Authority (OJK) Regulation Number 12/ POJK.03/2021 Concerning General Bank. The definition given are as follows:
“Digital Bank is an Indonesia Legal Entity Bank that provides and operates its main activities electronically without a physical office (excluding its head office) or uses a limited number of physical offices”
It can be inferred from the definition above that the main difference between Digital Banks and your typical traditional banks is that Digital Banks operate and run its business primarily through an electronic platform. That being said, Digital Banks are allowed to have a limited number of physical offices that functions to support the bank’s business and operations.
B. Legal Compliance, Capital, and Ownership of Digital Bank
The Financial Service Authority (OJK) Regulation Number 12/ POJK.03/2021 Concerning General Bank regulates the legal compliance that must be met by a Digital Bank. The legal compliances are as follows:
1. Digital Bank has to have 1 (one) Main Office;
2. Fulfill the following requirements (this must be included in the business plan):
a. Have a business model with innovative and safe technology for the customers’ benefit;
b. Have the capability to run sustainable digital banking business model;
c. Have sufficient risk management system;
d. Having competent Board of Directors in the Information and Technological field;
e. Able to protect the safety of customers’ data;
f. Contribute to the expansion and growth of digital financial service.
Digital banks must also fulfill the requirements set for traditional banks. The requirements are:
1. Digital banks are obligated to design a corporate plan for the next 5 (five) years that must be approved by the Board of Commissioner(s) that contains the following information:
a. Bank’s vision and mission;
b. Performance evaluation from the previous period;
c. Internal and external environment analysis;
d. Bank’s target market and strategy.
Digital banks are obligated to convey the corporate plan to the Financial Service Authority at the end of November at the latest of the previous year before the start of the 5 (five) year period.
2. The minimum Paid-up Capital to establish a Digital Bank is IDR 10 trillion. The Financial Service Authority may alter this requirement according to their judgement. The Capital does not come from the loan or whatsoever financing facilities from the bank and/or other parties in Indonesia;
3. Foreign ownership over banks is limited to 99% of the total amount of paid-up capital.
Digital bank must also fulfill the licensing requirements as follows:
1. Principal Permit
a. This permit is for the preparation to establish a bank and not for doing the actual banking activities.
b. To obtain this permit, founders must convey the following documents:
i. Concept of the bank’s structure (name and domicile, business activities, capital, ownership, Board of Directors and Board of Commissioners (Both the BoD and BoC must obtain authorization from the Financial Service Authority);
ii. Bank’s ownership (shareholders data);
iii. List of Board of Directors and Board of Commissioners;
iv. Organization structure;
v. Business plan;
vi. Corporate plan;
vii. Risk management, Internal control system, technological system used, and handbook to the bank’s operation;
viii. Bank’s system and working procedures;
ix. Proof of Paid-Up Capital (at least 30% of the paid-up capital) in the form of a copy of the deposit slip and statement letters stating that the funds do not come from the loan or whatsoever financing facilities from the bank and/or other parties in Indonesia and does not come from and is not intended for money laundering;
x. Business structure
2. Business License
a. Business License allows for the bank to do its banking activities.
b. Business License can only be obtained after the bank obtain the Principal Permit.
c. To obtain the business permit, founders must convey the following documents:
i. Deeds of association and its amendments verified by the responsible institution;
ii. Documents as required for the Principal Permit;
iii. Proof of payment for Paid-up capital;
iv. Proof of operational readiness at least in the form of:
(1) List of funds and inventory;
(2) Proof of ownership or rental of office space;
(3) Photograph of office space and room designs;
(4) Example of forms that will be used for the bank’s operation;
(5) Tax Payer Identification Number;
(6) Business Identification Number
v. Statement letters stating that the funds do not come from the loan or whatsoever financing facilities from the bank and/or other parties in Indonesia and do not come from and is not intended for money laundering;
Author: Christian Chandra
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas includes capital market and financial services.
For further queries and information, contact us:
+621 2294 1394 | info@gaffarcolaw.com | www.gaffarcolaw.com
