Lack of enforcement overshadows changes in capital market law

Rendi A. Witular, The Jakarta Post, Jakarta

Tougher sanctions may be imposed on violators of the capital market law under a proposed amendment, but experts are skeptical they would be effective in ensuring good corporate governance due to the government's poor record in law enforcement.

The government proposed on Monday the amendment to the House of Representatives as part of a plan to transfer the supervisory role of the Capital Market Supervisory Agency (Bapepam) to the planned Financial Services Authority Institution (FSAI). The institution is also to take over the banking supervisory role of Bank Indonesia.

Under the planned changes in the 1995 Capital Market Law, the capital market authority would be allowed to ask the Directorate General of Immigration to impose a travel ban on those suspected of committing a crime in the industry.

The amendment also includes two new articles, which stipulate that those who disclose confidential information on customers of securities firms or investment management companies could risk a maximum sentence of ten years and a fine of up to Rp 10 billion (US$1.2 billion).

Capital market officials who are involved in the violation of the law could face a jail term of up to five years and penalty of Rp 10 billion.

However, capital market analyst Ryan Kiryanto from Bank BNI told The Jakarta Post that the new set of proposed sanctions were still too lenient, particularly as Bapepam had tended in the past to only impose minimum sanctions.

A minimum penalty would not deter people nor companies from breaking the law.

"Numerous violations have occurred in our stock market because of the lack of law enforcement by Bapepam. The proposed penalties will not deter people from violating (the law)," said Ryan.

The interest of public investors in the local stock market have often been harmed by manipulation and other forms of financial crimes, but the criminals have often gone free due to the lack of enforcement.

Ryan also doubted if the FSAI could be tougher than Bapepam, as the institution might find difficulties in exercising its supervisory role in the domestic financial services industry, due to the lack of staff and the complicated nature of the work.

He added that strong objections from the central bank and other industry players against establishing the FSAI in the near future would also pose a problem.

The finance ministry plans to start the FSAI in 2006, while the central bank has called for a five-year delay.

Ryan said that even in developed nations, the establishment of such a key institution require a longer period of preparation.

Meanwhile, chairman of the Association of Publicly Listed Companies (AEI) Gunadharma concurred with Ryan, saying that it would be a "disaster" if the FSAI became the watchdog of the capital market industry, as the local stock market was still struggling to recover from the impact of the late-1990s financial crisis.

Other key points of proposed changes to capital market law

1. Bapepam can set up a cooperation with capital market supervisory board of other countries to adopt new capital market rules and mechanism.

2. Companies, institutions, or associations which are related to the capital market industry can risk penalty of up to Rp 15 billion if found guilty of violating the law.

3. Any party which intentionally destroys, eliminate, changes, conceals, or forges records of a listed company with the aim to benefit other party or to deceive Bapepam will be sanctioned with a maximum imprisonment of five years and a fine of Rp 10 billion.