Some securities firms have called on the government to reconsider a plan to stop them from running both an investment management unit and a brokerages unit, at the same time, arguing this could impact negatively on sector growth while the downturn having effects.
Edwin Sinaga, president director of PT Finan Corpindo Nusa, said the proposed policy poses a serious
risk to clients’ assets and could jeopardize the performance of many securities firms.
Currently, a securities company is allowed to have three different permits at once – as a fund manager, an underwriter and as a broker, with licenses being issued by the stock market regulator Bapepam-LK.
Bapepam argues that managing investors’ funds while acting as broker creates a conflict of interest, which could lead to the misappropriation of investors’ funds in order to maximize company profits.
In line with a widespread global overhaul of the role of governments and regulatory bodies in supervising the financial sector following the financial crisis, Bapepam now plans to revise the Capital Market Law.
Under the draft for the revision, Bapepam insists upon the separation of investment management units from underwriting and brokering functions. The draft, however, does not specify the exact mechanisms required to prove separation.
Indonesia Stock Exchange data shows that so far there are 33 firms that run both an investment management unit and a brokerage unit.
Aviyasa Dwipayana, president director of PT Trimegah Securities – a company that will be affected by the proposed plan, said that the Indonesian capital market was just recovering from last year’s crash. The separation, he argued, would directly affect the recovery process.
“This change will be a pressure on our efficiency programs, which have been carried out after the crisis, as we will need to put more investment into any corporate actions to separate these units,” he said.
He also questioned the effectiveness of the policy as the separation of the business units would not guarantee that there would be no conflict of interests, as it was very likely that the divested units would be run by affiliated firms.
“The problem hinges on business ethics. What Bapepam should do is enforce good corporate governance in every securities firm,” he said.
Mutual Fund Managers Associations chairman Abiprayadi Riyanto raised a concern on how the new policy would impact upon new starters in the business. He argued that such separation required considerable resources, which smaller firms could not afford. This could lead to companies closing down, thus affecting the number of outlets for selling mutual fund products.
However Lily Widjaya, chairperson of the Indonesian Securities Companies Association said the impact of the separation would not be as bad as had been imagined.
Lily said the industry was ready for this change as 86 out of 119 securities companies operating in the country already separate fund managing businesses, which had been separated from other business units.
“We have talked about this change before with the regulator and most of us have agreed with this,” she said, adding that the issue has been discussed since 2002.
Bapepam targets that it will submit the draft to the House of Representative next year, after waiting for the newly-elected lawmakers to take their seats in the new parliament.
