The Financial Services Authority (OJK), Indonesia’s monetary regulator, has given all banks, insurers, and other financial companies that are part of conglomerates, until January 01, 2019 to consolidate themselves under a single holding entity.
The move will allow the OJK to strengthen its supervision of the Indonesian financial system. Other Asian neighbours, such as Malaysia, Singapore, and South Korea, have also implemented a similar rule.
A report by the International Monetary Fund (IMF) released on Monday indicated that 49 financial conglomerates owned 70% of Indonesia’s financial institution assets. Most of these assets are held in a horizontal ownership structure, which makes supervision more complicated.
The IMF has cited that complex structure and weak control over financial institutions are some of the largest roadblocks in regulating Indonesia’s financial sector.
As such, the OJK has directed all conglomerates to consolidate all their financial companies such as banks, insurance companies, brokerages, and fund management firms under a single financial holding company, allowing the regulator to keep a closer eye on their operations.
“The holding company will also improve oversight by shareholders,” Agus Siregar, deputy commissioner for integrated oversight of the OJK, told the Jakarta Globe. Agus added that the formal issuance of the order will be in the next few weeks.
According to the draft regulation, each conglomerate must have its shareholders approve the holding company by January 2018 in preparation for the 2019 deadline. However, the penalties for not complying with this requirement have not yet been stated.
The OJK definition of a financial conglomerate is a group that has control of two or more financial companies, with assets totalling INR2 trillion (US$150 million) and above.
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