Indonesia

By Ahmad Jamal Assegaf, Lubis Ganie SurowidjojoScreen Shot 2017-12-15 at 5.06.32 pm

E: jamal@lgslaw.co.id

 

 

Background
Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan/ OJK) has issued Circular Letter No. 47/SEOJK.04/2017 on the Implementation of Anti-Money Laundering and Prevention of Terrorism Financing Programmes Within Capital Market Sector (Circular No. 47/2017). This circular letter serves as the technical provisions for implementation of anti-money laundering and prevention of terrorism financing (AML-PTF) within the capital market sector as mandated in Article 68 of Regulation No. 12/POJK.01/2017 on the Implementation of Anti-Money Laundering and Prevention of Terrorism Financing Programs Within Financial Sector.

Circular No. 47/2017 applies to financial services providers within the capital markets sector, namely securities companies engaged in securities underwriting business activity, securities brokerage, investment management and commercial banking as a custodian with respect to the prevailing laws and regulations in the capital markets sector (hereinafter collectively referred to as Providers).

Scope of Circular No. 47/2017
Development of products and services along with the growing use of information technology in the financial services sector has increased the risks of Providers being used as the medium for money laundering and terrorism financing. In regard to that, Circular No. 47/2017 aims to strengthen the quality of AML-PTF programme implementation, using a risk-based approach. This legal update will discuss about the implementation of the risk-based approach and the AML-PTF programmes within the capital markets sector.

Risk-based approach
Under this circular letter, Providers are required to implement AML-PTF programmes through a risk-based approach. In implementing the AML-PTF programmes, Section II. 1b Circular No. 47/2017 regulates that Providers in the capital markets sector should refer to and take into account the risks listed under the National Risk Assessment and Sectoral Risk Assessment. Pursuant to Section II. 2b of Circular No. 47/2017, Providers are also obligated to conduct a risk management process in order to comprehend, assess, administer and mitigate any identified risks prior to taking any decisions. It is important for Providers to differentiate inherent risks and residual risks in conducting the risk assessment process. Section II. 2c of Circular No. 47/2017 defines inherent risks as risks linked to an event that occurs in the course of doing business prior to the implementation of any risk-management measures. Meanwhile, residual risks are risks that remain after the risk management measures have been implemented.

In regards to AML-PTF, Section II.2d of Circular No. 47/2017 defines a risk-based approach as a process that consist of these following matters:

1. Identification of risks, which includes four risk factors namely:
a) customers;
b) state or geographical area;
c) product, services, or transactions; and
d) delivery channels
2. Management and mitigation of risks, which should be implemented through internal controls and suitable policies according to the identified risks.
3. Monitoring of customers, transactions and business relations in accordance with the assessed risk levels.

Moreover, Section II.3 of Circular No. 47/2017 provides that Providers should conduct six steps in implementing the risk-based approach, namely:

1. Identification, comprehension and assessment of inherent risks;
2. Determination of risk tolerance;
3. Formulation of measures to minimise and mitigate risks;
4. Evaluation of residual risks;
5. Implementation of a risk-based approach; and
6. Review and evaluation of the implementation of a risk-based approach.

AML-PTF Programmes
The risk-based approach as mentioned above is to be used as the underlying principle for the implementation of AML-PTF programmes. Section I.5 of Circular No. 47/2017 provides that implementation of a risk-based approach in AML-PTF programmes should at least cover:

a) Active supervision by the Board of Directors (BoD) and Board of Commissioners (BoC);
b) mplementation of policies and procedures;
c) Internal controls;
d) Information management system; and
e) Improvements in human resources and training.

As for the implementation of policies and procedures as referred to in point b, Section IV Circular No. 47/2017 provides that such policy and procedure consists of these following activities:

a) Identification and verification of prospective customer, customer and beneficial owner;
b) Declination and termination of business relations with prospective customers who refuse to participate in AML-PTF programmes;
c) Maintenance of accurate data in relation to transactions, the administration of customer due diligence processes, as well as policies and procedures;
d) Data monitoring and updates, the proposal and realisation of data updates must be reported to the OJK;
e) Reporting to senior officials, BoDs and BoCs regarding the implementation of AML-PTF programmes.

Circular No. 47/2017 has been in force since September 6, 2017.

 

LGS_The Law on Your Side2017

 
W: www.lgslaw.co.id

E: jamal@lgslaw.co.id

T: (62-21) 831-5005, 831-5025

F: (62-21) 831-5015, 831-5018

Tags: AML, Capital Markets, Indonesia
Related Articles by Firm
Indonesia: New regulation on guidelines and procedures for the implementation of investment climate development activities
The head of the Indonesian Investment Coordinating Board issued Regulation No. 9 of 2017 on Guidelines and Procedures for the Implementation of Investment Climate Development Activities ...
INDONESIA: The risk of government force majeure under PPA
The electricity industry is known to be a complicated but important industry, where external factors that are beyond the control of the parties involved can cause problems to the progress and/or cost of the projects.
Indonesia: Amendment to government regulation on oil and gas cost recovery
On June 15, 2017, Indonesian Government issued Government Regulation No. 27 of 2017, amending Government Regulation No. 79 of 2010 on the Recoverable Operational Costs ...
Indonesia: New draft bill on the restriction of hard-cash transactions
The Indonesian government and the House of Representatives are currently in the process of drafting the Draft Bill on the Restriction of Hard-Cash Transactions ...
New regulation on wage structure and scale for businesses
A new regulation enacted by Indonesia’s Minister of Manpower requires employers to formulate, set and inform their employees of wage structure and scale....
Key new provisions for power purchase agreements
On January 23, 2017, Indonesia’s Minister of Energy and Mineral Resources introduced a regulation that limits room for negotiation and risk allocation in power purchase agreements (PPAs)....
Recent changes to Indonesia’s coal and mineral resources regulations
On January 11, 2017, the Government of Indonesia enacted Government Regulation No. 1 of 2017 on Fourth Amendment of Government Regulation No. 23 of 2010 on Implementation of Mineral and Coal Mining Business Activity ...
Indonesia’s new construction bill
In December 2016, Indonesia’s Parliament passed the Construction Services Bill to replace existing legislation on construction services, Law No. 18 of 1999 on Construction Services ...
Reformulation of coal prices for mine-mouth power plants
The Minister of Energy and Mineral Resources (MoEMR) has amended a number of key provisions that regulate the price for coal used in mine-mouth power plants. ...
Related Articles
Related Articles by Jurisdiction
The 35000 MW programme: overview of the programme’s structures, challenges and mitigation
Looking at new investment regulations for both the private and public sector in Indonesia, Veronica Situmorang and Donke Kafi of DK & Situmorang Lawyers inform the In-House Community about the various hurdles they’ll have to ...
BKPM amends its regulation on the procedures for licence and investment facilities
Divestment and foreign directors and commissioners’ requirements.
Latest Articles