ADB provides US$1.7m for banking supervisory agency

ADB provides US$1.7m for banking supervisory agency

JAKARTA (JP): The Asian Development Bank (ADB) will provide
US$1.7 million in technical assistance to help the government set
up a new independent Financial Services Supervisory Institution
(FSSI), according to the bank's Indonesia representative Jan Van
Heeswijk.

Heeswijk said on Wednesday the grant would support the
background work for developing the FSSI.

"It is anticipated that the FSSI will emerge as an effective
regulator and supervisor for the financial sector," he told a
press conference after a two-day workshop on establishing an
integrated FSSI.

The workshop, organized by ADB and the finance ministry,
allowed regulators from around the world to share their
perspectives on issues and models of integrated regulatory and
supervisory agencies.

A strong financial regulatory and supervisory framework is
critical to developing a robust and stable financial system.
Indonesia's economic crisis has been partly precipitated by the
banking collapse.

According to the existing Bank Indonesia Law, the new
financial sector supervisory agency must be established by the
end of next year to let the independent central bank focus on
monetary issues.

Banking supervision is currently still the responsibility of
Bank Indonesia, while the finance ministry is responsible for the
non-bank sector.

One issue is whether the supervision of Indonesia's capital
market will also be integrated into the FSSI.

Manager for the financial sector and industry division of the
Manila-based ADB, Shamshad Akhtar, said in Indonesia's case it
was best to consider integrating the regulatory and supervisory
functions of the bank and non-bank financial sectors.

"My personal advice would be to go for a combined prudential
regulation and supervisory agency for both bank and non-bank
sectors, all in one body," she said.

The finance ministry has set up a task force to design and
develop the FSSI.

Director general of financial institutions, Darmin Nasution,
said the team had set up initial principles to be included in the
proposed bill to establish the FSSI.

The government's initial principles for the FSSI are:

It must be an independent institution.

Its main function is to promote and maintain a healthy, stable
and competitive financial services industry. The FSSI's authority
is expected to cover the banking sector, capital market,
insurance, pension funds and multi-finance.

The FSSI must function transparently.

It must ensure accountability and will report directly to the
President.

The FSSI will be led by a board of executives appointed by the
President and approved by the House of Representatives.(rei)