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)