On 28 December 2018, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) of the Republic of Indonesia issued the new OJK Regulation No. 35/POJK.05/2018 on the Business Activities of Financing Companies (“POJK 35/2018”), which revokes the following regulations:

• OJK Regulation No. 29/POJK.05/2014 on the Business Activities of Financing Companies (“POJK 29/2014”);
• Article 49 of the OJK Regulation No. 30/POJK.05/2014 on Good Corporate Governance for Financing Companies;
• OJK Circular Letter No. 47/SEOJK.05/2016 on Down Payment Rates for Motor Vehicle Financing for Financing Companies; and
• Point V 2.c (number 4 to 8) of OJK Circular Letter No. 1/SEOJK.05/2016 on Financial Soundness Level for Financing Companies.

The implementing regulations of POJK 29/2014, however, remain in force to the extent that they do not conflict with the provisions of POJK 35/2018.

With the enactment of POJK 35/2018, OJK aims to enhance the role of financing companies in the national economy, the implementation of prudential principles, and also consumer protection in consumer financing industry.

Key changes under POJK 35/2018 include:

Source of funding

There are several major changes to the provisions on the source of funding that need to be noted under POJK 35/2018. Pursuant to POJK 35/2018, financing companies now can only receive funding in the form of the following:

Moreover, other than the above source of funding, financing companies can also receive funding in the form of subordinated loan and asset securitisation. The requirements for these source of funding remain the same with provisions under POJK 29/2014.

Other Requirements

Down payment requirements

One of the provisions that has now been introduced under POJK 35/2018 is the new down payment rates for vehicle financing, which are determined by (i) the financial soundness of financing companies; (ii) net non-performing financing (“Net NPF”) ratios; (iii) type of vehicles based on the number of wheels; and (iv) type of financing provided (e.g. investment financing and multipurpose financing), as set out in the following table:

Previously, the down payments rate were set from the rate of 20% to 25% of the sale price depends only on the type of vehicles based on the number of wheels and the type of financing provided.

Additional form of Multipurpose Financing

POJK 35/2018 introduces a new type of financing namely, fund facilities, provided for Multipurpose Financing. Fund facilities is granted to the Debtors to purchase goods/services for consumption purposes. Specific requirements for the granting of fund facilities are now also regulated under POJK 35/2018.

Anti-fraud control

Enforcement of fraud control and anti-fraud strategy is now mandatory. These entire new provisions are set out in POJK 35/2018 from Article 53 to 64. In implementing anti-fraud control, financing companies are required to among others set up anti-fraud code of conduct, establish anti-fraud unit or function in their organisational structure, apply an effective mechanism to detect fraud, including to arrange educational and training programme for their employees and implement whistleblowing mechanisms. In addition, financing companies are required to submit anti-fraud strategy report to OJK covering: (i) implementation report to be included in their good corporate governance reports; and (ii) any incidental report on indication of fraud.

In conclusion, the issuance of POJK 35/2018 is an effort to improve the previous regulations by introducing several important changes and more detailed rules in relation to the organization of financing company’s business.

If you have any questions  or require any additional information, please contact Ms. Leoni Silitonga, Ms. Sandro Panjaitan, Ms. Rahmatika Rasyiqa or the ZICO Law partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.