OJK Says Universal Banking Implementation Depends on Bank Readiness

Jakarta (ANTARA) - The Financial Services Authority (OJK) has stated that the implementation of the universal banking concept will be adjusted to the readiness of each bank, given the diverse conditions and capacities of the banking industry in Indonesia. OJK Chief Executive of Banking Supervision Dian Ediana Rae said the implementation of universal banking will not be uniform because each bank must meet a number of requirements before it can run such a business model. “To carry out universal banking activities, OJK considers the internal readiness of each bank because the conditions and capacities of banks in Indonesia are still diverse, so the implementation of universal banking activities cannot be done uniformly,” Dian said in a statement in Jakarta on Thursday. He explained that generally there are three main aspects that banks must fulfil to implement universal banking, namely human resources, technology, and governance. In terms of human resources, banks need to have experts who are not only proficient in conventional banking but also competent in investment, insurance, and other financial services. From a technological perspective, the bank’s digital infrastructure must be able to integrate various service lines in a reliable and secure system. “This includes the ability to manage customer data in an integrated manner, system resilience against disruptions, and protection against increasingly complex cyber risks as services expand,” Dian said. Meanwhile, from the governance side, banks must have a strong internal supervisory structure, covering the separation of functions between business lines, an integrated risk control mechanism, transparency in reporting to regulators, as well as risk management and compliance capacity. Furthermore, Dian said that the more diverse the services run within one institution, the more important it is to ensure that risks do not spill over to other lines. To mitigate this risk, exposure limits and capital allocation per service line are necessary. The commercial banking division and the capital market activities division should ideally have their own risk limits, with capital reserves allocated separately. “This means that if the investment division suffers a loss, the impact does not directly touch the capital protecting depositors. Each line has its own structural ‘fence’,” he explained. In addition, OJK also highlighted the importance of implementing a Chinese wall, or restrictions on information flow between business units, to prevent conflicts of interest. Dian gave the example of a division between investment banking, which holds material non-public information, and a wealth management or brokerage division serving retail investors. Furthermore, Dian highlighted the need for periodic stress test simulations. “This functions as an early warning system, where vulnerabilities are identified and addressed before they become real problems, not after a crisis occurs,” he said. Universal banking is a banking concept that allows one bank to provide various integrated financial services within a single institution. In addition to collecting funds and extending credit, the bank can also carry out other financial service activities with OJK approval, thereby functioning as a one-stop financial services provider for customers.