Indonesia's Financial Services Authority (Otoritas Jasa Keuangan, or "OJK") has introduced a new concept, known as Primary Parties in Non-Banking Finance Institutions, along with certain requirements that such Primary Parties must fulfill. Primary Parties, according to recent OJK regulations, are those who manage or supervise and have significant influence over Non-Banking Finance Institutions, i.e. insurance companies, pension funds, finance companies, and credit guarantee companies.
The OJK requires that all Boards of Directors of Non-Banking Finance Institutions submit a list of Primary Parties to the OJK before March 23, 2014. Failure to do so will result in such Primary Parties being required to retake the fit and proper test.
The OJK defined Primary Parties in OJK Regulation No. 4/POJK.05/2013, dated December 23, 2013, regarding Fit and Proper Test for Primary Parties in Insurance Companies, Pension Funds, Financing Companies and Credit Guarantee Companies (Reg No. 4).
According to the Regulation, Primary Parties are as follows:
- Members of Board of Directors;
- Members of Board of Commissioners;
- Members of Sharia Supervisory Board;
- Members of Board of Member Representatives;
- Controlling Shareholders;
- Experts; and
- Foreign Employees.
Reg No. 4 stipulates that Primary Parties must pass a fit and proper test before they can perform their duties in Non-Banking Finance Institutions.
Fit and Proper Test
Reg No. 4 requires a Primary Party as defined above to pass a fit and proper test designed to test for (i) competency, (ii) integrity, and (iii) financial reputation. Controlling Shareholders will not be tested for competency.
During the fit and proper test, the OJK will interview Primary Party candidates in Bahasa Indonesia. Candidates who cannot speak Indonesian must provide their own interpreter.
Please note that a Controlling Shareholder in the form of a legal entity must be represented at the fit and proper test by its President Director or equivalent official.
Validity of Fit and Proper Test Result
The result of the fit and proper test shall be valid for five years for those Primary Parties who pass the test. The validity for Controlling Shareholders that pass the test will be indefinite. If a Primary Party candidate fails the fit and proper test, that candidate will be required to wait a year before being allowed to submit a new application to the OJK. The OJK will not allow such candidate to fill the position of a Primary Party in a Non-Banking Finance Institution until such time as the candidate submits a new application and passes the fit and proper test.
Reg No. 4 provides an exemption for certain Primary Parties who have not taken a fit and proper test. Current Primary Parties will be considered to have passed the fit and proper test as long as their Boards of Directors submit of the names of such Primary Parties to the OJK before March 23, 2014. Failure to do so, as stipulated below, will result in such Primary Parties being subject to the fit and proper test requirement.
Primary Parties shall have the ongoing responsibility to undertake continuing education every year under the supervision of the OJK. This continuing education shall mean attending and/or speaking at industry-relevant seminars and workshops, and/or writing and publishing articles on financial institutions and the finance industry.
Failure to comply with this requirement for two consecutive years will result in the Primary Party being required to retake the fit and proper test. This article is intended for informational purposes only and does not constitute legal advice.
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