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Legal Due Diligence on E-Money Registration

“Legal Due Diligence is required in the E-Money Registration to ensure the legal aspect of the company establishment, not in default, no petition for bankruptcy or suspension of debt payment obligations, and others compliance with the prevailing laws and regulations.”

Bank of Indonesia Regulation No. 20/6/PBI/2018 on Electronic Money requires the Company to submit a representation and warranties letter based on the legal due diligence report as part of permit acquirement process. Generally, in obtaining an Electronic Money Operator Permit, whether as the issuer, acquirer, Switching Operators, Clearance Operators, and/or Settlement Operators, they would have to fulfil general aspect and eligibility aspect requirements.

I. Purpose and Procedure of Legal Due Diligence

Generally, the purpose of due diligence is pretty straightforward, that is to get a clear understanding regarding the legal status of the Company and its compliance to the prevailing laws and regulations. However, unlike most other legal procedures, due diligence is not specifically regulated. In a way, this means the process of due diligence could differ depending on the nature of the transaction that requires the due diligence, however as a general guide for legal due diligence, people would often refer to the Profession Standard of Association of Capital Market Legal Consultants (HKHPM). HKHPM Regulation No. KEP. 02/HKHPM/VIII/2018 sets out some standards for legal due diligence process about stock exchange transactions however it applies to legal due diligence procedure in general. According to this regulation, a due diligence process could be separated into three steps, which are the planning, implementation, and supervision.

In the planning step, the legal consultants responsible for the due diligence should start by creating the team for the due diligence process. The legal consultant should also list all of the documents required to be checked and set the schedule for the whole process. In some cases where there are highly sensitive documents, it is advised to sign a Confidentiality Agreement as well.
The next step, Implementation, involves checking the material information related to the transaction. This can be done via documents checking, interviews, meetings, site visits, cross-checking with the authority, and by requesting information from the related official institutions.
The last step, supervision, is merely an addition, in which legal consultants can appoint assistants to assist the due diligence process however with supervision from the legal consultants. Any work done by legal consultants below Partner position is under the responsibility of the Partner.

II. Legal Due Diligence Aspects on E-Money Registration

In addition to the eligibility aspect requirement, the Company would also have to submit a written Representation and Warranties accompanied with a legal due diligence report to the Bank of Indonesia. In other words, the materials in the Representation and Warranties must be legally approved to be valid by an independent and professional legal consultant before it could be submitted to the Bank of Indonesia. These materials include the following information:

a. The Company (whether a bank or non-bank Institution) have been established properly and legitimately based on the laws of the Republic of Indonesia;
b. The Company is not in default, is not subject to any sanction imposed by relevant authorities and/or is not involved in any criminal or civil cases, which may materially affect the business continuity of the Company;
c. There is no petition for bankruptcy or suspension of debt payment obligations being filed against the Company at an authorized commercial court in Indonesia; and
d. The Company guarantees to:

1. Comply with the provisions of laws and regulations in any activity that are undertaken, either independently or jointly with affiliated parties;
2. Maintain financial health condition which is indicated by good liquidity, profitability and solvability conditions;
3. Organize E-Money activities using a business model which provide benefits to Indonesia’s economy;
4. Not shift the location of the head office in Indonesia to any other country, as well as ensuring that the said head office has the full authority to decide on the organization of E-Money activities in Indonesia; and
5. Ensure the preservation of compliance to contents of representation and warranties during the organization of E-Money.

Author: Benedictus Giovanni / Latifah Kusumawardani

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas includes capital market and financial services.

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