LPS: Deposit and Policy Guarantees Not Needed in Indonesia's International Financial Centre

The Indonesia Deposit Insurance Corporation (LPS) believes that a guarantee scheme for bank deposits and insurance policies does not need to be applied within the Indonesia International Financial Centre (PFII) area. This view refers to practices in various international financial centres. “The philosophy of LPS is to guarantee small customers. Based on international practices we have studied, the existence of a deposit or policy guarantee scheme in the PFII area is not necessary,” said LPS Deputy Chairman of the Board of Commissioners Farid Azhar Nasution during a Public Hearing Meeting of the PFII Bill Working Committee, as quoted from Antara, Wednesday, 8 July 2026. Farid explained that this view resulted from benchmarking against a number of international financial centres (IFCs), including the Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), Astana International Financial Centre (AIFC) in Kazakhstan, and Labuan International Business and Financial Centre (IBFC) in Malaysia. He stated that international financial centres generally have special regulations that differ from national regulations, including the possibility of having their own courts and supervisory authorities. “From the guarantee side, it turns out there is no indication that deposit or policy guarantee schemes are automatically attached to all activities under the IFC area,” Farid said. He acknowledged the risks that could arise if a bank in the PFII area has financial relationships with entities outside the area or if insurance and reinsurance companies in the PFII provide protection to parties outside the PFII. However, even though practices in several countries show no deposit or policy guarantee scheme exists, Farid added that every financial services institution operating in the area is required to have a recovery and resolution plan. “If not, they are not allowed to establish a financial services company in the IFC,” Farid stated. Meanwhile, Farid said the LPS was established to guarantee small customers, protect the public, foster trust, and maintain financial system stability. Customers in global financial centres have different characteristics from the customers currently covered by the LPS guarantee. Farid believes that PFII regulations need to clearly distinguish between international financial activities and activities targeting the domestic public. In addition, he assessed that clarity of the PFII legal framework and its harmonisation with financial sector provisions need attention. He also reminded that financial services institutions operating in global financial centres could potentially be systemically important institutions. If they experience problems or failure, this condition is considered to have the potential to affect financial system stability through entities outside the PFII area. In general, Farid stated that the Indonesia Deposit Insurance Corporation supports the establishment of the Indonesia International Financial Centre as an effort to increase the competitiveness of Indonesia’s financial sector. However, according to him, a clearer coordination mechanism is needed between the LPS, Bank Indonesia, the Financial Services Authority, the Ministry of Finance, and the PFII authority so that every potential risk to financial system stability can be prevented and anticipated.