A planned amendment to the Capital Market Law aims to provide greater protection to investors by, among other reforms, requiring securities firms to separate out any business other than managing investor's funds and promoting the establishment of an insurance fund to help cover investor's risks.
Currently, a securities company is allowed to have different permits for several operations at once; as a fund manager, or as an underwriter and/or broker, with the licenses issued by the stock market regulator Bapepam-LK.
However, under the draft amendment, Bapepam plans to stop allowing any one securities company from having all business permits at the same time, to avoid possible conflicts of interest.
The change aims at giving greater protection to investors as the separation would allow better internal and external supervision over the operations of these firms - something that has been lacking as evidenced by recent high-profile stock market frauds that left investors in facing massive financial losses.
Having one securities company managing three business divisions within the same company may mean increased vulnerability arising from overlapping management functions as well as potential misuse of funds.
To maintain its independence, securities firms would be required to separate their investment management business from their brokerage and underwriting services.
However, the draft does not specify the mechanism for business separation, whether for instance the company must establish totally new companies or create subsidiaries.
Bapepam's head of legal division Robinson Simbolon recently said that his office was in the process of creating a new mechanism for the issuance of special permits for investment managers.
In addition to the business separation of a securities company, the draft also highlights the need to establish a legal basis for the establishment of an insurance-like fund to provide investors with financial protection whenever their funds become subject to misuse or fraud.
The fund will be derived from mandatory payments from investors, much like a premium payment in an insurance scheme.
Bapepam is expected to finalize the draft soon in the hope of submitting it to the House of Representatives just after the new legislators elected in the recent legislative elections take up their seats in October.
In another part of the draft, Bapepam is also looking to increase its powers to enable it to speed up investigations into fraud cases in the capital market.
The agency is seeking the authority to check on bank accounts belonging to fraud suspects, without prior approval from the central bank, upon request from investigators.
In addition, under the proposed amendments to the law, Bapepam has also requested the right to impose travel bans on fraud suspects.
These moves are expected to help Bapepam in speeding up the fraud investigation process since it would no longer have to depend on other institutions to take such steps.
The latest data from Bapepam showed that out of 89 cases handled by Bapepam this year, only 22 cases have been solved as of August.
Among the not-yet resolved cases is that involving one of the country's largest securities houses PT Sarijaya Permana Sekuritas, where its president commissioner Herman Ramli allegedly embezzled investor funds said to be worth about Rp 245 billion (US$24.5 million).
The agency has been the subject of public criticism that it has been slow in detecting and resolving serious frauds in the capital markets.
In its defense, Bapepam has said its hands have been tied in the past by regulations delaying its ability to move fast to resolve such fraud cases, hence the need for new powers.