The Financial Services Authority (OJK) has issued a regulation on a disgorgement fund to protect investors from illegal conduct as stakeholders stress the importance of proper fund management and education for retail investors.

The OJK Regulation (POJK) No. 65/2020 stipulates that the authority will force individuals, firms, associations or organized groups who have received gains through illegal or unethical business transactions in the capital market to pay the proceeds back to investors and pay penalties.

The regulation on disgorgement, which is the legally mandated repayment of gains received through ill-means imposed by courts on wrongdoers, will become effective in July. Such a protection scheme for investors has also been implemented by the Securities and Exchange Commission (SEC) in the United States.

“The implementation of the disgorgement fund is an effort needed to boost law enforcement efficacy and fairness in the financial market,” the OJK said in the regulation. “The disgorgement fund rules will be implemented so that those who engage in illegal conduct do not get to enjoy the profits.”

Read also: Market manipulation among common violations found at IDX: OJK

The OJK will impose administrative and financial sanctions on those who receive gains through illegal means and will oblige the relevant parties to pay back the proceeds within 30 days at the latest or risk an official rebuke. Those who fail to pay within a 90-day period will be forced to hand over their physical assets, including land, buildings and/or vehicles, subject to OJK approval.

The proceeds received by the OJK through disbursement will be used to compensate investors for losses, the regulation adds, but they can also be used to pay for the development of the financial markets.

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