The Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) has brought in tougher rules for local investment managers to increase their professionalism in managing client's funds.
Bapepam-LK chairman Fuad A. Rahmany said recently he signed the regulation on Dec. 30 hoping that it could take effect in January.
Under the regulation, investment managers are required to meet new requirements before obtaining a business permit. One is that brokers or firms must show proof of recent capital injections to help ensure they are financially healthy enough to manage clients funds. Unfortunately the regulation doesn't say the minimum amount needed to do this.
Each investment manager must also show a five-year business plan, including proposed products, targeting of investors, proposed selling methods and expected contributions from revenue sources. The manager also must submit a five-year projection for financial performance, showing costs and revenue.
The stock market authority will give the old players one year to adjust to the new regulations. If they fail to comply, then Bapepam can revoke their business permits.
The regulations also require fund management firms to vet staff during recruitment and reject any applicants with a criminal background, or who have been directly responsible for a firm becoming bankrupt.
Reportedly, there have been people working in securities companies or even owning them, after having been materially involved in previous bankruptcies or not having met the highest standards of financial administration.
This potential loophole in the regulatory system, on the regulatory controls determining the quality of staff recruitment, has been blamed as being one of the reasons behind the criminal cases affecting the capital market last year.
"We upgrade the standard requirements for investment managers to make sure no more cases like Sarijaya happen in the future," Fuad said, referring to a prominent case in 2009 involving one of the country's biggest securities firm, PT Sarijaya Permana Sekuritas, which was believed to reflect poor management.
The owner of Sarijaya, Herman Ramli, has been declared guilty of embezzling investors' funds worth Rp 245 billion (US$25.97 million).
Another case in 2009 was that involving PT Antaboga Delta Sekuritas, whose owner was believed to have sold bogus securities products to his investors worth Rp 1.4 trillion.
To help to avoid this sort of thing happening again, Bapepam plans to issue a regulation under the revision of the Capital Market Law that will ban brokerage firms from mixing the functions of selling securities and running an investment management business in the same firm.
According to data from Bapepam, 94 investment managers were registered in 2009. They managed about Rp 113 trillion in mutual funds, which increased by 51.03 percent as compared to a year earlier.
