On 23 December 2016 the Financial Services Authority (OJK) issued Regulation 73/POJK.05/2016 on Good Corporate Governance (GCG) for Insurance Companies (Regulation 73). Regulation 73 became effective on 28 December 2016.
The first specific regulation on GCG for insurance companies was Regulation of Minister of Finance No. 152/PMK.010/2012 on Good Corporate Governance for Insurance Companies (Regulation 152). On 8 April 2014, the OJK issued a new regulation on GCG for Insurance Companies, that is, OJK Regulation No. 2/POJK.05/2014 (Regulation 2).
Article 85 of Regulation 73 stipulates the following:
- GCG provisions under Regulation 2 for insurance companies in the form of limited liability companies, usaha bersama and cooperatives (koperasi) are revoked.
- GCG provisions under Regulation 2 related to insurance companies are valid to the extent that those provisions do not contradict Regulation 73.
Regulation 73 adopts the general concepts of Regulation 152 and Regulation 2. So many provisions in Regulation 73 are a repetition of the previous regulations (although Regulation 73 does not specifically revoke Regulation 152 and Regulation 2).
As a general overview, Regulation 73 consists of 85 articles and materially covers, among others:
- the principles of GCG
- the structure, requirements and dual position limitations for members of the board of directors (BOD), board of commissioners (BOC) and syariah supervisory board (DPS)
- requirements for shareholders and restrictions on shareholder involvement
- the required committees
- investment management issues
- risk management, business ethics and internal control requirements
- the nature of self-assessments
As noted above the majority of the GCG provisions, under Regulation 73, are repetitious and only amend immaterially the wording of Regulation 2. However in this client alert we are highlighting some material changes under Regulation 73.
Under Regulation 73 there are higher standards and more restrictive measures including:
- the manner in which the boards can be constituted (while many provisions are the same as the prior regulation, there are additional restrictions on nationality unless there is direct foreign investment in the insurance entity)
- the restrictions on the number of positions that a commissioner and DPS member can hold and in what companies
- the obligation to appoint Indonesian citizens as independent commissioners
- the appointment of a compliance director
This regulation is now in force (although there are some transitional periods).
Certain New Key Provisions
Below are some of the new key provisions of Regulation 73.
1. Members of the BOD and BOC
Under Regulation 73, all members of the BOD or BOC must be Indonesian citizens if the insurance company is wholly owned by Indonesian citizens and/or any Indonesian legal entity that is wholly owned or majority-owned by Indonesian citizens. The BOD of a joint venture insurance company, in which a foreign party has a direct shareholding, can consist of Indonesian citizens and expatriates or all Indonesian citizens (although all must be resident).
An independent commissioner of an insurance company must be an Indonesian citizen.
2. Compliance director and working unit
An insurance company must appoint a compliance director within three years after the effective date of Regulation 73. The compliance director is prohibited from holding dual positions.
An insurance company must also have a compliance working unit. The unit will directly report to the compliance director or, until the compliance director is appointed, an appointed director who supervises compliance functions.
3. Compliance director and working unit
Article 23 of Regulation 73 provides that a commissioner is prohibited from holding another position as a member of the BOC, BOD or DPS in another insurance company, with a similar line of business.
An independent commissioner is prohibited from holding a position as an independent commissioner in another insurance company (syariah and conventional), with a similar line of business.
4. Restriction to hold dual position for DPS
A member of the DPS is prohibited from holding a position as a director or commissioner of a syariah insurance or reinsurance company or a conventional insurance or reinsurance company with a similar line of business. A member of the DPS can hold another position as a member of the BOD, BOC or DPS in maximum four other financial institutions.
5. Corporate governance on information and technology
Insurance companies must implement effective corporate governance on information and technology. Governance must include at least the following matters:
- a clear organization structure
- standard operating procedures
- a disaster recovery plan
6. Submission of business plan and corporate action plan
Insurance companies must submit to the OJK a business plan and corporate action plan on or before 31 October of each year (noting previously the submission date was not stipulated).