“The Financial Services Authority (“OJK”) organizes the regulatory sandbox mechanism to ensure the business model includes its legal compliances and financial aspects meet the Digital Finance Innovation criteria as stipulated in the Financial Services Authority Regulation No. 13/POJK.02/2018 concerning Digital Finance Innovation. ”
The development of Information and Technology has had a significant impact, especially in terms of the financial services sector in Indonesia. This can be seen how business actors in the financial services sector always present various types of financing models based on digital technology. This aims to provide various choices and convenience for its customers to be able to access financial services.
Behind this rapid development, it is also necessary to be accompanied by strong regulations to be able to provide maximum legal protection, both to financial service providers. Therefore, the Financial Services Authority Regulation No. 13/POJK.02/2018 on Digital Finance Innovation (“POJK No. 13/2018“) was formed to support progress in the financial services sector.
A. Digital Finance Innovation (DFI)
Digital Finance Innovation (“DFI“), refers to various activities that modernise business processes, business models, and financial instruments and provide new value added in the financial services sector by involving the digital ecosystem. To be called a DFI company, a company must pass a mechanism known as the Regulatory Sandbox, which is a testing and trialling mechanism implemented by the Financial Services Authority to assess the reliability of business processes, business models, financial instruments and governance providers.
a. DFI Scope
There are 8 (eight) types scope of Digital Finance Innovation as below:
- transaction settlement;
- raising capital;
- investment management;
- collection and disbursement of funds;
- insurance-related business activities;
- market support;
- other digital finance support; and/or
- other financial services activities.
b. DFI criteria
There are 7 (seven) criteria to be considers as Digital Finance Innovation based on article 4 POJK No. 13/2018:
- innovative in nature and forward oriented;
- uses information and communication technology (ICT) as the primary means to provide consumer services in the financial services sector;
- supports financial inclusion and literacy;
- beneficial and widely used;
- able to be integrated into existing financial services;
- applies a collaborative approach; and
- complies with consumer protection and data protection aspects.
B. Regulatory Sandbox
In terms of implementing the provisions of Article 12 paragraph (3) of POJK No. 13/2018, OJK issued Circular Letter of the Financial Services Authority of the Republic of Indonesia No. 21/SEOJK.02/2019 concerning Regulatory Sandbox. This mechanism is a test conducted by the Financial Services Authority (OJK) to assess the reliability of a business including processes, models, and financial instruments.
a. Mechanism
The implementation of the Regulatory Sandbox is implemented with the following mechanism such as:
1. Determination of Provider as a prototype based on the agreement of the OJK panel forum.
2. Evaluation and experimentation consist of the following stages:
- Deepening;
- Scenario testing;
- Testing and trial;
- Fixing; and
- Assessment.
b. Requirement for Regulatory Sandbox Participants
OJK stipulates that each provider be tested in the Regulatory Sandbox mechanism, but before that, some requirements musts be met as a digital financial service provider as stipulated in article 8 paragraph (2) POJK No.13/2018 as follows:
- recorded as a DFI at the OJK for Providers in the form of Non-Financial Services Institutions, or based on an application letter submitted by the relevant supervisory work unit at OJK for Providers in the form of Financial Services Institutions;
- Represent a new business model;
- Have a business scale and broad market coverage;
- Registered in a provider association; and
- Other criteria determined by OJK.
c. Assessment Result
The result of the Regulatory Sandbox for providers is stated based on the following status :
1. Recommended
If recommended, OJK will provide registration recommendations in accordance with the business activities of the Provider.
2. Subject to Improvement
If subject to improvement, OJK will provide an extension of up to 6 (six) months from the date of status to improve its business model.
3. Not recommended
If not recommended, the Provider will be unable to test or trial the same DFI again and will be removed as a recorded Provider.
d. Regulatory Sandbox Implementation
The Regulatory Sandbox is implemented for a maximum period of 1 (one) year, which can be extended for up to 6 (six) months if required.
Author: Rifat Syahrofi
Gaffar & Co. is an Indonesian Boutique Law Firm specializing and focusing in Commercial Law, including Capital Market & Financial Services and Information and Technology.
For further queries and information, contact us:
+62 811 877 216 | info@gaffarcolaw.com | www.gaffarcolaw.com
