Unlicensed Business Activities in Indonesian Financial Sectors

Yogie Sugiharto, Saphira Wu 

The Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) regulations are the main legal framework in Indonesia for the banking, financial services and insurance industries. For a foreign investor who wants to engage in financial services in Indonesia, a business license shall be obtained from OJK, and apart from the general foreign investment regulations in Indonesia, the specific requirements regarding the form of company, minimum paid-up capital, maximum cap for foreign ownership, etc. shall also be complied with depending on the specific financial services to be carried out. The business activities carried out by the financial company shall be subject to the scope of business as set out in the company’s business license. In recent years, more and more foreign investors are expanding their Southeast Asia market in Indonesia, and wish to promote their products in Indonesia through providing corresponding supporting financial services.

Business actors engaging in activities directly or indirectly related to financial services in Indonesia should be aware that OJK now clearly defines and regulates unlicensed business activities within the financial sectors. As a result, OJK is taking a more proactive approach to supervising any business actors who are categorized under the definition of unlicensed business activities in the financial sectors. One of the measures includes the establishment of a task force unit to monitor and handle unlicensed business practices in the financial sectors.

On 21 August 2024, OJK issued OJK Regulation Number 14 of 2024 concerning the Establishment of the Task Force Unit for Handling Unlicensed Business Activities in the Financial Sectors ("OJK Regulation 14/2024"). 

This regulation specifically defines the following key terms:

- Unlicensed Business Activities in the Financial Sectors: business activities involving the collection, distribution, or management of funds, financial intermediation, provision of payment system products or services, or other similar activities conducted without authorization, in violation of regulations, and/or that pose potential harm to the public;

- Entity: an individual, a group of people, a corporation, or a business organization, whether in the form of a legal entity or not, or any other type of entity;

- Illegal Entity: an Entity engaged in Unlicensed Business Activities in the Financial Sectors; and

- Task Force Unit for Handling Unlicensed Business Activities in the Financial Sector: a task force unit established to prevent and handle Unlicensed Business Activities in the Financial Sectors (“Task Force Unit”).

Responsibilities and Authorities

The Task Force Unit members consist of representatives from OJK, relevant authorities, ministries, and/or institutions. Their duties and authorities include, among other things: 

1. providing education and socialization to prevent and mitigate the practice of Unlicensed Business Activities in the Financial Sectors;

2 .monitoring the potential or risk of the Unlicensed Business Activities in the Financial Sectors;

3 .conducting investigations and analysis of suspected Illegal Entities;

4 .suspending the business activities of suspected Illegal Entities after coordinating with the relevant authorities and/or institutions; and

5. Recommend follow-up actions to address Illegal Entities to the relevant authorities, ministries, and/or institutions.

The Task Force Unit is authorized to collect information from the public, its members, and any other sources regarding suspected Illegal Entities. If necessary, the Task Force Unit can request information directly from the suspected Illegal Entities and their employees. When they confirm based on their analysis that there is an indication of Unlicensed Business Activities practice in the Financial Sectors, they have the authority to issue recommendations to the relevant authorities, ministries, and/or institutions for further actions. Such recommended actions may include, among other things: (i) asking the Ministry of Communication and Information Technology of the Republic of Indonesia to block websites, applications, social media accounts, and any other media; (ii) asking the Financial Transaction Reports and Analysis Center (Pusat Pelaporan dan Analisis Transaksi Keuangan – PPATK) for blocking accounts; and/or (iii) abolishing Unlicensed Business Activities in the Financial Sectors by coordinating with the relevant authorities and/or institutions, etc.  

As Indonesia has become a hot spot for foreign investors to expand their business in Southeast Asia and the OJK Regulation 14/2024 strengthens the supervision of financial services and business actually carried out by any Entity, it is suggested that foreign investors consult professional legal counsels regarding any financial services or any services that may be regarded as Unlicensed Business Activities in the Financial Sectors that they intend to engage in, so as to confirm if any business license and authorization is required under the Indonesian regulations and avoid any potential incompliance risks.