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Financial sector overhaul
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T
he fragmentary statements made by the government over the past three weeks on plans to reform the financial sector could cause confusion in an industry already mired in high uncertainty.
In late August, the Finance Ministry announced that the government was planning a general reform of the financial system through a regulation in lieu of law (Perppu) covering mainly three institutions: Bank Indonesia, the Financial Services Authority (0JK) and the Deposit Insurance Corporation (LPS).
Then, in early September, the government and the House of Representatives suddenly announced an agreement to deliberate a bill to amend the 1999 Bank Indonesia Law. The House-initiated bill would, among other things, move the OJK’s banking supervision powers back to BI so that the central bank would once again be in charge of all banking industry supervision. It would also expand BI’s mandate to drive economic growth and give the minister of finance a bigger role in monetary policy.
But early last week, the Finance Ministry announced it was preparing an omnibus bill that would revise virtually all laws governing the whole financial sector, including bank and non-bank institutions, the capital market and the three main institutions, BI, the OJK and the LPS, in charge of financial sector stability. Prominent among the laws to be revised is the 2016 Law on the Prevention and Resolution of a Financial System Crisis (PPKSK Law).
This law clarifies the responsibilities of the agencies involved in crisis management. It also establishes a committee in charge of managing the stability of the financial sector (KSSK), which comprises the finance minister (coordinator) and the heads of BI, the OJK and the LPS.
The finance ministry explained that the PPKSK Law had to be revised because it covered risks and financial distress only in banks but not in non-bank institutions, such as insurance firms and pension funds. As it happened, three major life insurance companies are now facing financial distress due in part to fraud and various other forms of bad governance.
Our question is, what is the point of putting the 1999 BI Law amendment on top of the House legislation agenda now, while the Finance Ministry is preparing an omnibus bill to govern the whole financial sector?
After all, Law No. 2/2020 (formerly Perppu 1/2020) has significantly reformed the policy framework for the stability of the financial sector. In fact, 12 of the 29 articles in the law are devoted to strengthening the role and organization of BI, the OJK and the LPS, and this, we think, is already adequate, at least until next year, to cope with the current economic crisis caused by the COVID-19 pandemic.
Hence, the government, instead of going ahead with deliberating the central bank law amendment, should focus on completing the omnibus bill on the financial sector.
Most importantly, the omnibus bill should cover all elements of the financial sector, from the resilience and stability of the financial system to the supervision of banks, non-banks and investment firms as well as the protection of consumers/investors and healthy competition within the industry.
