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Reshaping Indonesia’s financial conglomerates: A new playbook for titans
For financial conglomerates, the challenge is no longer about compliance, it’s about transformation.
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Evolving financial landscape: A man opens a digital bank app on July 4, 2024, in Jakarta. (JP/Muhammad Zaenuddin)
F
or months, Indonesia’s big financial groups have been wrestling with a fundamental question: How should they restructure, fine-tune risk strategies and rethink financial models in the wake of a new paradigm? Behind boardroom doors across the country, Financial Services Authority Regulation (POJK) No. 30/2024 on financial conglomeration has evolved from a discussion point to a pressing reality.
More than just a rulebook update, POJK No. 30/2024 introduces a structural realignment which will redefine how Indonesia’s financial titans operate. At stake is their ability to adapt, consolidate and compete in an increasingly complex market.
Centralization is the key theme of this transformation, with financial groups now required to organize themselves under a Financial Holding Company (FHC). Financial groups with Rp 100 trillion (US$6.04 billion) or more in assets across at least two financial sectors must establish a holding company. Those with Rp 20 trillion to Rp 100 trillion must also comply if they operate in three or more sectors.
For decades, financial groups were allowed to operate under loosely connected structures. Banks, insurers and fintech firms could be linked through intricate shareholding webs. Now, those models must be restructured into a more centralized framework.
This shift is necessary to mitigate the risks of interconnected financial entities that may lead to systemic instability. Distress in one subsidiary should not destabilize the entire group. For example, a troubled insurer should not drag down its banking counterpart, triggering broader economic consequences.
To achieve this, regulatory supervision is tightening. Establishing an FHC will require prior approval, and ownership arrangements will be scrutinized to prevent excessive cross-ownership. These measures aim to reduce interdependencies that could threaten financial stability. Indonesia is not acting alone; countries worldwide have introduced similar measures to reinforce it.
The United States, through the Dodd-Frank Act, implemented stricter oversight following the 2008 financial crisis, ensuring that systemically important institutions maintain stronger capital buffers. Europe’s Financial Conglomerates Directive (FICOD) enforces cross-sector risk and capital requirements. In Southeast Asia, countries like Singapore and Malaysia have long mandated centralized governance and strong capital buffers to reduce financial shocks.
