INDONESIA Law and Practice Contributed by: Emir Nurmansyah, Monic N. Devina, D. Meitiara P. Bakrie and Nesya Ashari, ABNR Counsellors at Law
9.2 Contractual Terms to Ensure Performance and Accuracy Subcontracts between duly licensed financial service entities and third parties are generally dictated by regulations. For example, this is the case in banks (commercial and rural banks, including those that are Sharia-compliant) for outsourcing their IT systems. While not specifically applicable to regtech, the OJK mandates specific provisions that must be included for banks to outsource their IT activities, and the contract must contain standard clauses as prescribed by OJK regulations (eg, OJK Regulation No 11/POJK.03/2022 on the Implementation of IT by Commercial Banks, and its implementing regulation, OJK Circular Letter No 21/SEOJK.03/2017). Among the most significant provisions are those concerning:
Insurance companies are limited to doing business tailored to their licences; this means that the offer of overlapping services – ie, life insurance and general insurance at the same time – is not permitted. Business expansion for insurance companies, how - ever, is possible in that life insurance companies can expand their business to investment-related insur - ance products and fee-based activities (these include marketing other non-insurance products – eg, mutu - al funds or other products of financial institutions licensed by the OJK), credit insurance and surety - ship, or other activities assigned by the government. Sharia-compliant general insurance companies can expand into these activities, except for credit insur - ance and suretyship, whereas general insurance com - panies are only allowed to add fee-based activities to their expanding business. Life insurance and general insurance products, includ - ing those that are Sharia-compliant, are subject to dif - ferent regulatory treatment. Currently, regtech is not specifically regulated and is classified as a fintech cluster. Players in the sector qualify as FSTIs under the OJK. It was reported in 2022 that the regulator was preparing a regulatory framework for regtech. Regtech solutions in the mar - ket today are spread into several clusters under the OJK: • regtech (automates the collection and storage of customer due diligence (CDD) data to comply with AML and CFT regulations); • e-KYC – “know your customer” (solutions for digi - tal identity and digital signature); • verification technology (identification and non-CDD verification platforms); • tax and accounting (tax and accounting reporting solutions); and • management of track-record information for parties involved in financial offences within the financial services sector. 9. Regtech 9.1 Regulation of Regtech Providers
• data protection; • confidentiality; • human resources; • IP rights and licences; • systems security standards; • data centres; and • disaster-recovery centres.
Service-level agreements (SLAs) are also mandatory, containing performance standards such as promised service levels and performance targets. 10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry The use of blockchain by incumbent players in Indo - nesia’s financial sector is growing. In fact, the BI has been a pioneer in leveraging blockchain technology by formulating the country’s own central bank digital cur - rency (CBDC), a digital rupiah pilot programme known as Project Garuda. This is further discussed in 10.2 Local Regulators’ Approach to Blockchain . Some major banks have paved the way for blockchain adoption: Bank Permata, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI) deploy blockchain for trade finance and remittance products. Bank Cen - tral Asia (BCA) initiated a financial hackathon for start-
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