OJK Warns Indonesia's Financial Centre Cannot Rely Solely on Tax Incentives
The Financial Services Authority (OJK) considers the establishment of the Indonesia International Financial Centre (PFII) a crucial step in deepening the national financial sector. However, the success of the zone is deemed insufficient if it relies solely on incentives and ease of doing business; it must be supported by governance, legal certainty, and credible supervision.
Deputy Chairman of the OJK Board of Commissioners, Hernawan Bekti Sasongko, stated that investor confidence, both domestic and global, is the primary foundation for the PFII to develop as an international financial centre. Therefore, legal certainty is required.
‘For this reason, we see the need to build legal certainty, maintain strong institutional management, and establish credible regulatory and supervisory standards, as well as market integrity, without forgetting consumer and investor protection and the ability to maintain financial system stability,’ Hernawan said during a Public Hearing Meeting (RDPU) with House of Representatives Commission XI.
According to him, the financial services regulatory and supervisory institution that will operate in the PFII area must possess high credibility, be independent, transparent, and accountable. Furthermore, the institution must have a clear mandate, functions, duties, and authority.
‘So, regarding the establishment of a financial services regulatory and supervisory institution in the PFII area, the OJK is of the view that it needs to be built and indeed must be credible, independent, transparent, and accountable,’ Hernawan stated.
On the same occasion, OJK’s Chief Executive of Banking Supervision, Dian Ediana Rae, explained that the experience of various international financial centres shows that the institutional quality of the regulator is one of the main factors in increasing a jurisdiction’s attractiveness.
‘Therefore, if the government and the Indonesian House of Representatives deem it necessary to form an institution to regulate and supervise financial services activities in the PFII, we are of the view that such an institution should naturally be built based on principles aligned with international best practices,’ Dian said.
Beyond institutional matters, the OJK also highlighted the importance of coordination between the PFII supervisory body, the OJK, and other relevant authorities. Hernawan mentioned that financial services activities in the PFII will later be closely linked to the national financial system, ranging from financial conglomerations and cross-border transactions to the utilisation of market infrastructure.
Consequently, the coordination mechanism is deemed necessary to cover the alignment of regulatory policies, supervision, surveillance, data and information exchange, and the appointment of a lead supervisor for financial conglomerates operating in the PFII.
Moreover, coordination must also encompass consumer complaint handling and arrangements for exceptions to information confidentiality to support supervisory effectiveness according to each institution’s authority.
From a financial system stability perspective, Hernawan said the PFII is expected to become an international financial intermediation centre without disrupting the domestic financial services industry.
‘In relation to national financial system stability, the PFII should function as an international financial intermediation centre to prevent crowding out of domestic financial service institutions and to maintain the effectiveness of monetary policy, prudential regulations, and national crisis management mechanisms,’ he explained.
On the other hand, the OJK assesses that the PFII also needs to be built with strong market integrity to maintain global investor confidence. The development of the financial services sector in the area is also considered necessary to cover various services such as universal banking, a dual banking system, wealth management, family offices, sustainable financing, financial market infrastructure, and digital financial innovation.
Nevertheless, Hernawan emphasised that all such innovations must remain within the corridor of prudence with adequate governance and risk management.
‘And the OJK believes that the PFII can become an important instrument to accelerate financial sector deepening, as was the original purpose of its formation. Therefore, a synchronised ecosystem needs to be designed within the framework of national policy,’ Hernawan concluded.