Bank Indonesia Regulation Number 14/17/PBI/2012

Nov 23 2012

pbi141712_eng_1391759370.pdf

With Attachment:
FAQ [PDF]

I. Background

In order to bolster national economic development, Bank Indonesia has responsibility to maintain rupiah exchange rate stability which is affected by various factors that influence the balance of supply and demand for foreign exchange in domestic financial markets.
The supply of foreign exchange in domestic financial markets is predominantly obtained from financial sector in particular foreign portfolio investment by which - at the same time increase the potential risk of sudden capital reversal. Whilst, foreign exchange supply from export proceeds, which is more sustainable, is not optimalized.
To support Bank Indonesias policy on management of foreign exchange supply and boosting domestic banks competitiveness, a further policy is required to improve foreign exchange management through services and expertise provided by domestic banks. Such a policy aims to precipitate financial deepening domestically as well.
Considering the benefits of managing foreign exchange through domestic banks and maintaining rupiah exchange rate stability as to achieve the objective of macroprudential policy as well as to provide legal solid ground on Trust activity by bank, Bank Indonesia has issued a regulation concerning Trust Management in Bank under free foreign exchange system pursuant to Act No. 24 of 1999, regarding The Foreign Exchange Flow and Exchange Rate System.

II. The principles of Regulatio : The principles are as follows:

Bank can provide services to manage the assets of its client in the form of Trust.
Trust activities involved three parties namely the settlor (the party who owned the assets and grants the authority to manage the assets to trustee); the trustee (an independent unit under banks management); and the beneficiary (the party who receives the benefits of assets).
The following requirements should be met in Trust activities:
1. Trust activities shall be conducted by a business unit that is separate from Banks other activity units;
2. Assets entrusted by Settlor are limited to financial assets;
3. Assets entrusted by Settlor are recorded and reported separately from Banks assets;
4. in the event a Bank that conducts Trust activities is liquidated, all Trust assets shall not be included in the bankruptcy assets and shall be returned to the Settlor or transferred to a successor trustee appointed by the Settlor;
5. Trust activities shall be set forth in a written agreement between Trustee and Settlor;
6. Trustee shall safeguard the confidentiality of data and information related to Trust activities as provided in the Trust agreement, except where related to the purpose of reporting to Bank Indonesia;
7. Bank that conducts Trust activities shall comply with prevailing provisions and legislations.
Trust activities consist of three services including paying agent, investment agent and borrowing agent (both under conventional and/or Sharia principles).
A locally incorporated bank or a branch office of foreign bank could provide Trust services pursuant to the following requirements:
1. A locally incorporated bank should have core capital at minimum Rp5 trillion with capital adequacy ratio no less than 13% within the past 18 consecutive months. Bank rating is no less than level 2 of composite rating within the past two assessment periods (12 months) consecutively and no lower than level 3 in the previous period. The Trustee activities should be incorporated in Bank Business Plan and subject to the assessment done by Bank Indonesia.
2. A branch office of foreign bank : must be incorporated in Indonesia no later than three years after the promulgation of this regulation; should have the capacity to conduct trust activities based on an assessment done by Bank Indonesia. The branch office of foreign bank must incorporate Trust activities in its Business Plan. It also should met capital equivalency maintained assets (CEMA) no less than Rp5 trillion and have capital adequacy ratio no less than 13% within the past 18 consecutive months. The branch office rating should be no less than level 2 for the past two periods consecutively and at minimum level 3 in the previous period.
While engaging in Trust activities, the bank or the branch office of foreign bank is obliged to meet the requirement associated with core capital/CEMA, CAR and rating.
A locally incorporated bank or a branch office of foreign or bank who merged or consolidated is obliged to meet the Trustee requirements.
A six month recovery period will be given should a locally incorporated bank or a branch office of foreign bank fails to meet the requirements. In the recovery period, the particular bank or branch office of foreign bank is prohibited to make new Trust contract.
Should locally incorporated bank or branch office of foreign bank fails to meet the requirements within recovery period, it must return the assets to the settlor or divert it to pre-designated successor trustee according to the Trust agreement.
The license for Trustee activities consists of two approval namely approbation and confirmation letter.
The trustee may obtain a fee or ujroh for Sharia principles stated under the particular contract.
The Trust services should be done through an account in domestic bank. The Trustee should keep a separate bookkeeping and record for all transactions.
Locally incorporated bank and branch office of foreign bank who provides Trustee services are subject to submit regular reports to Bank Indonesia and the settlor. The report to Bank Indonesia must be submitted no later than the 15th day of the following month after the reporting period.
Sanctions and penalties will be in existence should locally incorporated bank or branch office of foreign bank who provides Trustee services fails to meet the requirements.
In the event of self-liquidation or licensing revoked by Bank Indonesia, the bank or Liquidation Team are required to return the assets to the settlor or divert it to pre-designated successor trustee as stated in Trust Agreement.