In order to maintain independence from the government intervention, the proposed financial service authority (OJK) should have its own funds to finance its supervisory activities, a senior official of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) has said.
The agency’s chairman Fuad A. Rahmany said in Jakarta last week that the OJK, which would take over the central bank’s task of supervising banks and non-bank institutions should be financially independent of the government.
“To avoid any governmental intervention, the OJK shouldn’t be funded by the state-budget. It’s unfair to the expect taxpayers to bear the expenses,” he said on the sideline of a financial seminar in Jakarta on Thursday.
Fuad proposed the OJK collect contribution fees from banks and non-bank institutions to cover its running costs. He said the authority could, for example, charge a contribution fee of 0.03 percent of the total funds managed by the financial institutions.
Under article 34 of the 2004 Bank Indonesia Law, banking supervision — currently the domain of the central bank — will be taken over by the OJK, which must be established before Dec. 31.
After the establishment of the OJK, BI as the central bank will be responsible only for macro-prudential matters, especially the protection of the stability of the monetary system.
The OJK was first initiated after the Asian financial crisis in 1997-1998. During the crisis, BI was torn by conflicts of interests and widely criticized for being incapable of taming the crisis.
However, the body’s independence of the body isn’t merely determined by whether it is funded by the state budget.
“At the end of the day, the independence of the OJK will be determined by the integrity of its officials,” said Mirza Adityaswara, a capital market analyst.
He said in some countries, financial services regulators are funded by the taxpayer, while in some other countries, such organizations are financed by financial industry, he said.
For example, he said, the Financial Services Authority (FSA), a financial services regulator in England is funded by the government, while the Australian Prudential Regulation Authority (APRA) in Australia and the German Federal Financial Supervisory Authority (BaFin) are funded by their countries’ financial industry.
In Indonesia, the government proposes the country’s financial industry should finance the OJK. However, Mirza said, the government would still have to provide financial support in the event of future financial crises. (ebf)
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