Insights

While the obligation for Indonesian financial services institutions to compose and implement anti-fraud strategy generally exists, the fact that there is considerable amount of fraud cases transpired in financial service institutions has driven OJK to improve the regulation as well as to apply the minimum standard to be complied in relation to such matter.  On 23 July 2024 OJK issues Regulation No. 12 of 2024 on Implementation of Anti-Fraud Strategy for Financial Services Institution (“POJK 12/2024”) and it will take into effect on 31 October 2024. This insight highlights essential points as well as alerts relevant party on deadlines related to submissions indicated in the said regulation.

Summary

Definition of fraud acts in POJK 12/2024 has been further improved and detailed to be as follows: (i) act of corruption such as: (A) conflict of interest which is detrimental to the financial services institutions and/or customers, (B) bribery, (C) illegal gratuities and (D) extortion; (ii) assets misappropriations i.e. cash and non-cash misappropriations/misuses; (iii) financial statement manipulation i.e. inflating or deflating net worth and/or net income; (iv) fraudulent such as deception or trickery which is intended to gaining advantage or avoiding loss unlawfully; (v) breach of confidential data; and/or (vi) any other acts which could be equivalent to fraud, as determined by laws.

POJK 12/2024 now will capture the entire financial services institutions being banks, securities companies, insurance companies, reinsurance companies, insurance brokers, reinsurance brokers, insurance loss assessor companies, financing companies, venture capital companies, infrastructure financing companies, micro financial institution, pawnshop companies, guarantor companies and other financial services institutions (such as securities crowdfunding and other financial services institutions that are supervised by OJK), either conventional or syariah basis.

All of those financial services institutions (hereinafter as “LJK”) are required to compose and implement anti-fraud strategy which will at least comply with the guidelines set out in the POJK 12/2024. Similar to the previous relevant regulation i.e. OJK Regulation No. 39/POJK.03/2019 on Implementation of Anti-Fraud Strategy for Banks, POJK 12/2024 indicates 4 (four) pillars in relation to anti-fraud strategy i.e. (i) prevention (related to awareness and vulnerability identification), (ii) detection (such as policy and handling with respect to whistleblower), (iii) investigation, reporting and sanctions, and (iv) monitoring, evaluation and follow-up.

Kindly note that the obligation will not only capture LJK but it will also capture directors and commissioners of LJK – any failure to comply with the obligation would expose both LJK and its directors and/or commissioners to administrative sanctions from warning up to freezing of business activity.

Other than the aforementioned obligations, POJK 12/2024 also provides several other key obligations for LJK (i) to educate and develop its employees’ competence as well as conducting the related education and development to external parties, (ii) to dedicate a working unit to handle and manage the implementation of anti-fraud strategy and designate a certified and experienced officer to lead that working unit, and (iii) to report the implementation of anti-fraud strategy (including any change or update on data/information in such report) and the occurrence of fraud case which has significant impact. Any failure or delay in complying with the obligations is subject to administrative sanctions from fines or warning up to freezing of business activity.

Take-aways

Following the issuance of POJK 12/2024, LJK is required to adopt ‘adequate’ anti-fraud strategy going forward in accordance with the standard and guidelines provided in POJK 12/2024. This surely needs immediate attention. In broader context, according to a report issued this year by Association of Certified Fraud Examiners, financial services is indeed still the most common industry where fraud cases were found; hence it displays urgency for financial services institutions to have the anti-fraud strategy in their business operation.

LJK is required to submit its first report on the implementation of the anti-fraud strategy by: 31 January 2025 (applicable for (i) commercial banks, (ii) rural banks with core capital at least IDR50 billion, (iii) pension funds with assets at least IDR 500 billion and (iv) other LJK with paid-up capital at least IDR 50 billion or with assets at least IDR 500 billion) or 31 October 2025 (applicable for (i) rural banks with core capital less than IDR50 billion, (ii) pension funds with assets less than 500 billion, and (iii) other LJK with maximum paid-up capital IDR 50 billion or with assets maximum IDR 500 billion. In addition, LJK has to report immediately within 3 (three) days or 6 (six) days after the occurrence of any fraud case which has significant impact.

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