The Financial Services Authority (OJK) is currently preparing a new regulation on the business plans of non-bank financial institutions. The draft regulation is currently being disseminated by the OJK for public comment. We have not received any confirmation on when the OJK will enact this regulation.
Clients are encouraged to review the draft regulation and to provide comments to the OJK.
According to the latest public draft:
- The regulation will apply to insurance companies, pension funds, financing institutions and other non-bank financial institutions.
- The business plan is to include the short term (one year), mid-term (three years) and long term (five years) plans of the non-bank financial institution. The minimum scope of the business plan is laid out in detail in the draft regulation.
- The key provisions are as follows:
- All non-bank financial institutions must prepare a realistic annual business plan, taking into consideration their long term plan and/or strategic plan, the relevant external and internal factors, prudential principles and risk management. The OJK will have the authority to request a comprehensive presentation by the relevant non-bank financial institution in relation to the proposed business plan.
- The business plan may only be amended if there is a factor that significantly affects the operations or performance of the non-bank financial institution.
All non-bank financial institutions are required to submit their business plans, including any amendments, to the OJK. They are also required to submit a business plan realization report and a business plan supervision report to the OJK each semester.
- The OJK will have the authority to request adjustments to the business plan if (a) the business plan does not cover the minimum scope provided in this regulation and/or (b) the OJK considers the business plan is unrealistic. This provision is critical, as the OJK might also assess the commercial aspects of the businesses of the non-bank financial institution, instead of looking at matters solely from a compliance or governance perspective. If so, this would differ from current practice.
- The board of commissioners of each non-bank financial institution must (a) oversee the implementation of the approved business plan, and (b) prepare recommendations to the OJK on how to rectify any nonperformance; being benchmarked against the approved business plan. So the OJK may seek the board of commissioners' input if a problem occurs, and so the responsibilities of the commissioners are broadened.
Consequently, if the draft regulation is enacted in its current form:
- Clients will need to ensure that there is substantial deliberation on the business plans, e.g., business plans are prepared strategically and on the assumption that the OJK will be less keen to approve changes.
- The board of commissioners is expected to have more responsibility in ensuring that the business plan is implementable and monitored.