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03 September 2010
Bank Indonesia recently issued a number of regulations as part of a new monetary policy package, including the Regulation on Commercial Banks' Obligation to Apply the Prudential Principles in their Activities as Agent for Overseas Financial Products (12/9/PBI/2010). In doing so, Bank Indonesia has sought to respond to the increasing complexities of financial instruments and the consequential need for greater transparency and quality of information, as well as the downturn in the financial markets of most developed countries.
The regulation applies to a wide range of financial instruments, including instruments that are also regulated by other institutions, such as the Capital Market and Financial Institutions Supervisory Board (Bapepam-LK). However, it omits commodities-based financial instruments, which remain subject to separate regulation.
The regulation defines the term 'overseas financial products' as "investment instruments issued by foreign issuers overseas, covering securities-based foreign investment instruments, as well as foreign investment instruments that are not based on securities". The latter are further defined as foreign structured products (which were governed by a separate Bank Indonesia regulation issued in 2009).
The new regulation broadens the scope of what Bank Indonesia considers to be agency activities in foreign financial products. Agency activities, which a commercial bank may conduct directly or indirectly, include:
These activities are now subject to Bank Indonesia's prior approval, as well as the approval of related agencies (eg, Bapepam-LK) if the bank acts as an agent for securities-based foreign investment instruments.
Like the 2009 regulation, the new regulation categorises banks' customers as 'retail' or 'non-retail', indicating the sophistication of their understanding the products and the associated risks.
Other features of the regulation include risk management, risk assessment and customer protection (which includes procedures for the application of the 'know your customer' principles and product suitability).
The regulation was issued and became effective on July 29 2010.
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