A. Fuad Rahmany, head of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), said in Jakarta on Wednesday the draft is now being discussed by relevant institutions, including the justice and human rights ministry, the Cabinet secretariat and the state secretariat.

“In the end of the first quarter it may be familiarized to stakeholders. And in the first half of the year we hope it can be handed to the President,” he said.

OJK will operate as a powerful supervisory body tasked to oversee the whole of the financial sector.

Article 34 of the 2004 law on the BI stipulates that the supervision of banks — currently the domain of central bank — should be carried out by the OJK, which will be established before Dec. 31, 2010.

The OJK will also supervise non-banking financial institutions, such as insurance or security firms which are  currently managed and regulated by the Finance Ministry.

The establishment of OJK has in the past encountered opposition from the central bank. But the appointment of Bank Indonesia Senior Deputy Governor Darmin Nasution may smoothen the process as he was one of the initiators proposing the  need to establish  an overall financial services authority.

Bank Danamon chief economist Anton Gunawan said the OJK might take the form of a holding institution, which would supervise BI and Bapepam-LK.

“It will make coordination [between the two institutions] tighter,” he said.

Anton said BI seemed reluctant to hand over its supervisory authority as strongly hinted by Darmin’s speech delivered at the 2010 Bankers’ Dinner on Jan. 22.

At the dinner, acting BI Governor Darmin said the global financial crisis taught BI to understand the importance of having a regulator with responsibility to guard against systemic threats to the financial system, and whose authority would cover overall financial system stability. “The systemic regulator is also responsible to set up laws and regulations, as well to coordinate with other financial supervisory authorities, in establishing proper  protocols for crises” he said.

Finance Minister Sri Mulyani Indrawati said that the bill should stipulate provisions to prevent any recurrence of the Bank Century case.

As a result of the Century collapse the Rp 6.76 trillion (US$716 million) bailout of the failed bank was justified by government as necessary to prevent a systemic threat to the banking system. This  sparked controversy since members of the House of Representatives inquiry suspected there might have been legal violations during the bailout.

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