“OJK Infinity accommodates a financial technology (fintech) industries with providing Digital Financial Innovation registration before they apply for specific types of Fintech License.”
Term “Fintech” or Financial Technology is something that has been commonly heard of by now, as more and more companies are implementing web/apps-based technology to support their business. However, just like every innovation, the legal aspect would find complication as the currently existing law sometimes couldn’t fully accommodate every aspect of the new invention. The Indonesian Financial Services Authority (OJK) sees that this matter should be properly attended to as the number of Fintech keeps increasing every day. Thus, in August 2018, OJK established Innovation Centre for Digital Financial Technology or also known as OJK Infinity, a division in OJK specifically made to handle some types of Fintech in Indonesia. Through OJK Infinity, OJK is trying to assess whether all these new Fintech is applicable in Indonesia and if a new regulation is needed for a specific type of Fintech.
Scopes of Digital Financial Technology (Inovasi Keuangan Digital/IKD)
Financial technology means the usage of technology in financial aspect to increase efficiency. This means anything that has something to do with both technology and finance is arguably Fintech. Therefore, OJK issued POJK No. 13/POJK.02/2018 on Digital Financial Innovations within the Financial Service Sector to simplify the fintech industry. According to this POJK, the scopes of Digital Financial Technology are as follow:
1. the settlement of transactions;
2. the raising of capital (equity crowdfunding, virtual exchange and smart contracts, and alternative due diligence);
3. management of investment (advance algorithm, cloud computing, capabilities sharing, open source information technology, automated advice and management, social trading and retail algorithmic trading);
4. raising and distribution funds ( P2P Lending, alternative adjudication, virtual technologies, mobile 3.0, third party application programming interface);
5. insurance (sharing economy, autonomous vehicle, digital distribution and securitization and hedge fund);
6. market supporter (artificial intelligence/machine learning, machine readble news, social sentiment, big data, market information platform, and automated data collection and analysis);
7. supporter of other digital finance (social/eco crowdfunding, Islamic digital financing, e-waqf, e-zakat, robo-advise and credit scoring; and/or
8. other financial services activity (invoice trading, voucher, token, blockchain product based).
Registering IKD at OJK
Registering a Fintech product in OJK is quite straightforward as the applicant only need to go through three steps: registration, regulatory sandbox, and re-registration. In the very first step, the applicant registers at OJK Infinity by submitting these following documents:
1. Registration forms (provided by OJK Infinity);
2. Company legality documents;
3. Explanation of the fintech product/business model, including the flowchart and explanation on the market target;
4. Business plan for the next 1-3 years;
5. Certificate Registration from Ministry of Communication and Information Technology;
6. Risk management form (provided by OJK Infinity); and
7. Proof of AFTECH/AFSI registration (can be processed simultaneously with the registration at OJK Infinity).
The very first registration step is merely to list the Fintech applicants in OJK. Passing this step does not mean the Fintech has been registered and approved to be operated in Indonesia. After the document submission, OJK will usually schedule a meeting (or more) to discuss whether the product is passable as fintech or not. If they deemed it to be passable as Fintech, it will then be brought upon panel presentation to decide the placement in the regulatory sandbox.
In the second step, the fintech product will be tested in a period called the “regulatory sandbox” for a maximum of 1 year (extendable for another ½ a year if necessary). During this period, the applicant is obligated to keep OJK updated on the Fintech’s performance and any relevant updates. After the period, OJK will decide whether the product is passable, still needs some fixing, or not recommended.
In the third step, the Fintech product will finally be allowed to be registered as Fintech in OJK, which is proven by a registration certificate issued by OJK. Afterwards, the Fintech product can be used normally for practical usage with the obligation supervision from both OJK and the Fintech’s owner (self-assessment). In the even OJK deemed it necessary, it is also possible that OJK would cooperate with another government body to supervise the Fintech.
IKD Legal Compliance
After the Fintech has been truly registered in OJK, the Company will be required to do risk self-assessment and make a monthly report to OJK and their customers. Although it’s called self-assessment, the Company is still required to give access to these self-assessment results to OJK for supervision. This self-assessment must cover these following aspects:
1. Technological management;
2. Consumer protection;
3. Consumer education and socialization;
4. Risk management;
5. Anti-Money-laundering and terrorism funding; and
6. Information transparency.
Furthermore, the Company is also required to report their investment/portfolio performance to its customers. Also of the self-assessment, the Fintech will be supervised by OJK through the relevant Fintech association, as the associations are supposedly set according to OJK’s standard. Further, if a company were to fail to comply with these post-registration compliances, OJK is entitled to give them sanctions, starting from written warning until the revocation of registration.
Author: Benedictus Giovanni / Latifah Kusumawardani
Gaffar & Co. Indonesian Boutique Law Firm that focused on commercial law areas includes employment law.
For further queries and information, contact us:
+62 21 5080 6536 | info@gaffarcolaw.com | www.gaffarcolaw.com
