Indonesia Central Bank Authority Revamps 135 of its Payment Regulations to respond to Indonesia's Digital Innovation Growth

COVID-19 pandemic has been proven as a significant moment for the Indonesian government, including at its regulatory aspect. In addition to the issuance of Law No. 11 of 2020 on Job Creation which revises more than dozens of laws, the Indonesian Central Bank Authority, Bank of Indonesia (“BI”), also follow the trends of revamping its sectoral regulations by reforming 135 payment regulations. The revision is made through the issuance of Bank of Indonesia Regulation No. 22/23/PBI/2020 on Payment System (“PBI SP”), which enters into force 1 July 2021.  PBI SP which is affecting payment service provider (“PSP”), payment infrastructure provider (“PIP”), and payment supporting service provider (“PSSP”) is expected to simplify licensing process, and to respond to digital innovation trends through implementing mitigating measures against digital disruption’s potential risk for payment system industries.

Below are notable provisions on PBI SP:

1. Recognition of Self-Regulatory Organization (SRO): As an effort to support the implementation of BI’s authority in payment system regulations, PBI SP stipulates regulatory authority may be assigned by BI to an SRO. The SRO is a forum or institution representing the payment system industry that has been appointed by the BI. SRO may be assigned by BI to perform certain activities, including among others are, to draft and issue technical provision on the payment system for activities at micro-level upon BI approval and to manage standard which has been decided by BI. 

2. Changes on Local Share Ownership Provision: PBI SP also revises provision on local share ownership for PSP, specifically for a non-bank PSP, to be a minimum of 15% of PSP, a revision to the previous provision which stipulated a minimum of 80% shares must be owned by Indonesian individual and/or Indonesian legal entity. PBI SP also requires that 51% of shares with voting rights ownership must belong to an Indonesian individual and/or legal entity. Any specific rights vested to shares ownership such as rights to appoint the majority of director board, commissioners, or veto rights for a certain decision which have a significant impact on the company must belong to an Indonesian individual and/or legal entity. 

3. Interoperability, Data Center Requirement, and Interface Requirement on Payment System Provision:  As part of the revision, PBI SP requires PSP to comply with several aspects of payment system operation including information system security which includes interoperability, interconnection, and system worthiness. PBI SP requires that as part of this obligation, any electronic system used by PSP and/or PIP to process payment transactions at initiation, authorization, clearance, and settlement must be placed on the data center and data recovery center in Indonesia. Additionally, PBI SP also stipulates that BI may establish an integrated payment interface infrastructure connecting access to a source of a fund with PSP to payment transaction initiation process and/or authorization.

4. Cooperation with Foreign Service Provider: PBI SP also stipulates provisions on the cooperation of PSP or PIP with a foreign supporting provider and/or PSP, which requires Indonesia PSP or PIP to obtain BI approval before engage with the foreign provider. BI’s approval will be granted upon reviewing the operational readiness, system security and worthiness, consumer protection, and reciprocity principle, equal risk management standard implementation, and prospective benefit for Indonesia's economy. 

5. Data processing by PSP or PIP: In response to a data-driven economy, BI stipulates certain provisions on data processing as well as its cross-border transfer mechanism.  In general, this provision requires PSP and/or PIP to ensure that any information or data collection must be in line with the mechanism as stipulated by BI. Specific for personal data, PBI SP requires that personal data processing and transfer be made in line with applicable laws and regulations on personal data protection. BI may cease the user's cross-border data transfer if it is found to be non-compliant with applicable laws and regulations. 

6. BI’s Response to Digital Disruption: Interestingly, BI's response to the growth of digital innovation in the payment industry is evident in PBI SP. According to PBI SP, BI shall provide innovation lab, regulatory sandbox, and industrial sandbox to promote technology innovation. The innovation lab is innovation development that has not been implemented or limitedly implemented in the payment industry. The regulatory sandbox is an innovation on payment system regulation or policy. Meanwhile, the industrial sandbox is for an innovation that has been implemented in the payment system industry and is worth being widely upscaled. 

In addition to the above provisions, PBI SP also explicitly prohibits any PSP or PIP to receive, use, bind and/or process any payment transaction using virtual currency. The supervision, as well as enforcement to PBI SP, will be carried out directly by BI or indirectly by other parties on BI's behalf. Violation to PBI SP may be imposed with various administrative sanctions including reprimand, suspension of activities, until license revocation. (dnk/bcs)

For further inquiries on this topic, please feel free to contact Mr. Danny Kobrata at danny.kobrata@kk-advocates.com or office@kk-advocates.com 

(Tulisan di atas adalah merupakan artikel dan tidak dapat dianggap sebagai advis atau opini hukum dari penulis dan/atau kantor hukum K&K Advocates).