Deposits in Indonesia's Financial Centre Do Not Need Guarantee, LPS Explains

The Indonesia Deposit Insurance Corporation (LPS) views its role in guaranteeing bank deposits and insurance policies within the financial activities of the International Financial Centre Indonesia (PFII) as unnecessary. Deputy Chairman of the LPS Board of Commissioners, Farid Azhar Nasution, explained that while the LPS supports the establishment of the PFII as an effort to enhance the competitiveness of Indonesia’s financial sector, the LPS’s mandate is philosophically designed to protect small customers and maintain public trust in the national financial system. “From what we have studied, the existence of a deposit and policy guarantee scheme in the PFII area is not required,” he stated during a meeting with Commission XI at the DPR RI building in Jakarta on Wednesday. Farid elaborated that the development of the financial centre aims to attract investment and support the growth of international law. “So it is different, Sir. The clientele here is also different from the customers under the current regime,” he said. Furthermore, he noted that benchmarking against several International Financial Centres (IFCs) in various countries, such as Dubai, Abu Dhabi, Kazakhstan, and Labuan in Malaysia, shows they share almost similar characteristics. Farid stated that the LPS’s study of several international financial centres indicates that deposit and insurance policy guarantee schemes do not automatically apply to all financial activities in those areas. Based on these findings, the LPS assesses that IFCs generally implement their own distinct regulatory regimes that differ from national rules, including the possibility of having special courts and supervisory authorities. According to him, the PFII arrangement needs to clearly distinguish between international financial activities and activities targeting the domestic public. Additionally, it must be noted that financial companies established in the PFI area are generally systemically important and inevitably too large. Consequently, if problems or failures occur, they could potentially affect financial stability in entities outside the PFI area. “And I think this must be strictly maintained, so that it does not impact banks outside the PFI area,” he added. As an illustration, Farid likened the scheme to Indonesian bank branches operating abroad. Because they are outside the domestic guarantee jurisdiction, their activities are not covered by LPS protection.