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o prevent local investors from falling victim to sophisticated yet risky offshore investment products, a regulation is being drafted that will ban retail investors from buying such products and set tougher conditions for companies selling them to institutional ones.

The new regulation, currently being drafted by the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), aims to provide greater protection for retail investors, following huge losses suffered recently by local individual investors exposed to such products.

Under the draft, overseas-based investment products can only be offered for sale to mutual funds (institutions), general insurance companies, re-insurance firms and pensions funds (institutions), meaning the products are not allowed to be sold to retail investors.

At present, retail investors can buy investment products freely in the market, either through banks or investment managers in securities firms as selling agents.

A clear monitoring system by the authorities, Bapepam or the central bank, is also currently absent for existing foreign investment products in Indonesia, leaving the investors - in particular individual ones - vulnerable to fraud.

Under the new policy, selling agents will be required to submit a monthly report on the product transactions to Bapepam.

The requirement is expected to prevent a repeat of a recent case involving Citibank customers in Indonesia, who suffered billions of rupiah in losses after buying investment products linked to bonds issued by the now-defunct Lehman Brothers, following the US banking giant's bankruptcy announcement.

The investors bought the products through Citibank Indonesia.

In addition to the obligation to report, selling agents are also required to show permits, approval and license of the products from the regulators in the countries where the product issuers are headquartered.

The new policy will also require selling agents to meet a number of criteria before they can sell to institutional investors. Among them is the requirement to include information on the type of investment products, the risks, as well as investors' rights and obligations.

Bapepam has the right to hand out sanctions to those who fail to meet the requirements. The draft does not detail what the sanctions are.

The draft can be viewed at the Bapepam website.

Commenting on the planned new policy, Allianz Insurance Management Asia Pacific chief investment officer Nikhil Srinivasan said in a recent interview the regulation should not include banning, but put more emphasis on more disclosure of products.

"I would suggest ensuring much better disclosure of any products in Indonesia. Let the products be sold, however you must ensure the customers understand the risks they're taking," he said.

Information required to be included in selling documents: