## _cr12189 — Introduction and Assessment Summary ## Source details **Canonical URL:** [_cr12189 — Introduction and Assessment Summary](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12189.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12189.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12189.pdf.json) --- ### Information and methodology used for assessment - Assessment used the Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation of 2003, reissued in 2008, the related e-methodology, and cited reports, explanatory notes, instructions and guidance. - Principle 30 separately assessed under the Committee on Payment and Settlement Systems/IOSCO Recommendations for Securities Settlement Systems by another assessor. - The IOSCO Principles were amended and augmented in June 2010; this assessment does not address those changes. - Assessment based on: - a comprehensive self-assessment by BAPEPAM-LK; - review of legislation, regulations, guidance, market statistics, exchange/depository/clearing rules; - meetings with BAPEPAM-LK staff, BAPPEBTI, brokers, fund managers, issuers, banks, state-owned enterprises, accountants, lawyers, IDX, JFX, trade associations, IMF and World Bank on-site representatives, and other market participants. - BAPPEBTI did not provide a separate self-assessment under its authorizing legislation. - Oversight of ICDX (launched March 31, 2010) and its vertically integrated clearing was not comprehended in this review. ### Institutional and market structure — overview - Regulatory architecture: - Bank supervision and monetary policy: Bank of Indonesia (BI). - Non-bank financial institutions, securities, and listed commodity derivatives are separately regulated. - Capital Markets and Financial Institutions Supervisory Agency (CMFISA / BAPEPAM-LK) formed in 2006 under the Ministry of Finance. - Listed-derivatives on commodities regulated by Commodity Futures Trading Regulatory Authority (COFTRA / BAPPEBTI) (Law No.32/1997). - Core securities legislation: Capital Markets Law (CML), No 8/1995 effective in 1996. - Exchanges and supporting institutions: - IDX formed by consolidation of Jakarta Stock Exchange (JSX) and Surabaya Stock Exchange (SSX) in 2007. - Jakarta Futures Exchange (JFX) began operating December 15, 2000; launched a spot market in 2010. - Indonesia Commodity and Derivatives Exchange (ICDX) established mid-2009; launched in 2010. - OTC equity market unregulated but may be settled in KSEI; bond transactions, even OTC, to be reported to CTP (Rule X.M.3). - Clearing/depository organizations (KPEI and KSEI) possess SRO powers and must supervise members. ### Market openness and cross-border considerations - Foreign ownership limits and market participation: - Non-domestic investors can own up to 100% of listed companies, including securities companies. - Up to 85% foreign ownership permitted for unlisted securities companies if owned by a foreign financial company and up to 99% if owned by a foreign securities company. - Ownership of shares of banks by foreign investors allowed for up to 99% of total outstanding shares (MOF Decree No 179/KMK.010/2003). - Cross-border exposure (as of 30 November 2009): - 67.51% of the value of shares held in the Central Securities Depository (KSEI) was held by foreign investors. - In 2009 approximately 25% of trading value was of foreign origin. - Approximately 9.30% of trading volume was of foreign origin. ### Market performance and statistics (selected) - Equity market: - Stock market capitalization end-2008: Rp 1,076.49 trillion (48.76% lower than year end 2007). - Equity market capitalization at year-end 2009: 2,019.38 trillion rupiahs (about 215 billion $US). - As of year-end 2009, equity capitalization was approximately 36% of 2009 GDP. - IDX at end-2009: 118 active members; 398 active companies; 17 equity IPOs in 2008 and 13 in 2009. - Average daily transaction values for equities increased 3.90% to Rp 4.44 trillion in 2008. - Average daily turnover increased by 15.96% to 55,905 trades in 2008, further increasing to 87,040 per day in 2009. - Government securities: - SBN market capitalization in 2008 increased 10.04% to Rp 525.69 trillion. - Mutual funds and private equity (as of March/April 2010): - 620 contractual mutual funds (CIS), including 268 structured funds, aggregate NAV Rp_119.76 trillion. - BAPEPAM-LK registered 72 private equity funds, aggregate NAV Rp 21.3 trillion. - 107.75 trillion rupiah held by approximately 350,000 holders; as of February 2010 aggregate net assets rose to 123 trillion rupiah. - As of April 2010: 91 Investment Management Companies; 621 investment funds (all CIC); 75 private equity funds. - Commodity markets: - 22 futures contracts offered but very little volume and open interest. - Market infrastructure: - As of April 2010, IDX operates twelve PIMPs and 67 exchange corners within universities. ### Preconditions for effective securities regulation — key observations - IOSCO preconditions broadly satisfied; legal certainty for judicial enforcement needs strengthening. - Areas for progress: - Promote greater judicial certainty for application of capital markets law and sanctions (consider specialist prosecutorial corps or fraud squad). - Swift progression of comprehensive accounting reform (IFRS convergence). - Bankruptcy reform desirable. - Address consumer expectations for depositor-like protections (e.g., “capital protected” funds) via disclosure and investor education. ### Main findings and policy recommendations (summary) - Overall: - Regulatory framework largely consistent with IOSCO Objectives and Principles. - Legislative reforms and actions to expand regulator’s authority should be accelerated. - Emphasize reliable detection, deterrence, and sanctioning of securities violations and mitigation of prudential concerns. - Effective enforcement is critical to regulatory credibility and market confidence. - Specific recommendations (selected, verbatim where numbered): - Implement legislative changes to the Capital Markets Law to include: - (i) proper immunity from civil damages, - (ii) limitation of ministerial budget allocation review to ex post audit after initial budget approval, - (iii) expanded ability to require governance enhancements, - (iv) ability to proceed judicially under civil law or administratively against third parties to sanction securities violations, - (v) continued confirmation that contractual fund interests are enforced as a matter of law, - (vi) ability to meet international norms for enforcement cooperation, - (vii) modernized resolution authority and insolvency law. - Accelerate accounting improvements and IFRS convergence; Indonesia moving toward implementing IFRS to be complete by 2012. - Expedite review and modification of corporate debt pricing methodology to prevent manipulation of mutual fund NAVs. - Augment administrative enforcement powers, including fining powers applicable to non-licensees, and clarify access to banking records to permit more direct and timely investigations. - Document contingency arrangements between BAPEPAM-LK and IDX, KPEI and KSEI; review delisting procedures and resolution authority. - Confirm and publicize policy on case-by-case exemptions or publish any such exemptions. ### Principle-by-principle highlights (selected grades and findings) - Aggregate implementation ratings: - Fully implemented (FI) – 10 - Broadly implemented (BI) – 13 - Partly implemented (PI) – 5 - Not implemented (NI) – 0 - Not applicable (N/A) – 2 - Selected principle gradings and key findings: - Principle 1 — Broadly Implemented: legal/regulatory framework highly transparent; monitor OTC trading/new platforms for gaps. - Principle 2 — Partly Implemented: pending legislation to reinforce independence; remove Treasury preclearance for budget reallocation. - Principle 3 — Broadly Implemented: CML provides powers; augment administrative enforcement and cooperative powers. - Principle 4 — Fully Implemented: clear rulemaking/consultation/published processes; continue prosecutor awareness measures. - Principle 8 — Fully Implemented: comprehensive inspection/investigation/surveillance powers; IDX handles many on-site inspections subject to BAPEPAM-LK review. - Principle 9 — Broadly Implemented: extensive administrative enforcement powers used proactively; augment fining powers and clarify scope to non-licensees. - Principle 10 — Partly Implemented: enforcement program enhanced but many investigations pending; public perception of enforcement effectiveness needs improvement. - Principle 12 — Fully Implemented: several bi-lateral MOUs; entered Part B of IOSCO MMOU committing to changes to become full signatory. - Principle 13 — Broadly Implemented: can assist foreign regulators but legislative changes needed to become full IOSCO MMOU Part A signatory. - Principle 16 — Partly Implemented: IFRS convergence underway; accelerate adoption and oversight of accounting/audit quality. - Principle 20 — Partly Implemented: NAV and pricing frameworks in place; debt pricing methodology vulnerable to manipulation — expedite reform. - Principle 21 — Fully Implemented: licensing requirements for intermediaries comprehensive. - Principle 22 — Broadly Implemented: NAWC and haircuts specified; rigorously review adequacy against liquidity needs. - Principle 24 — Broadly Implemented: procedures to limit unsupported exposures exist; documented plan for intermediary defaults desirable. - Principle 25–27 — Fully Implemented: exchange authorization, oversight, and trading transparency in place; OTC bond trading transparency remains an issue. - Principle 28–29 — Broadly Implemented: investigative tools exist; prosecution timeliness and guarantee fund sufficiency require attention. - Principle 30 — Not Rated here (separately assessed). ### Enforcement findings and operational statistics (selected, exact figures preserved) - Enforcement actions and investigations: - “these include 101 formal investigations (the bulk), 101 criminal, and 102 administrative including bans, suspensions and revocations of licenses.” - In 2008, 22 licenses of securities companies revoked and $1.3 million in administrative fines assessed. - In 2009, 7 revocations imposed. - 32 cases of potential market manipulation detected in 2008, 22 remain under investigation. - Of 15 cases referred criminally, 11 remain in process and 3 closed. - 121 formal investigations commenced in 2009 involving 57 issuers, 45 transactions or institutions, and 19 investment managers; at year-end 99 remained under investigation, 5 closed, 17 resulted in administrative sanction. - BAPEPAM-LK commenced 8 insider trading cases between 2007 and 2009: 2 resulted in administrative sanctions, 1 closed for lack of evidence, remainder in process. - Examples of fines exceeding regulatory limit: - PT AGIS: fine of Rp 5 Billion assessed against Directors and Rp 2 Billion against directors of subsidiaries. - PTPGN: fine of RP 2.8 Billion assessed against 9 insiders for insider trading. ### Recommended action plan (selected items) - Priority legislative and regulatory action: - Implement CML amendments and other laws to expand BAPEPAM-LK authority (immunity, budget autonomy, administrative fining powers applicable to third parties, cross-border cooperation capability, modernized resolution/insolvency authority). - Expedite accounting/audit reform and IFRS adoption. - Expedite reform of corporate bond pricing methodology and implement an independent bond pricing mechanism. - Strengthen documentation and oversight of IDX/KSEI/KPEI contingency arrangements and resolution plans. - Enhance investor education and public communication of enforcement outcomes. - Supervisory and operational enhancements: - Intensify oversight of IDX SRO inspections and surveillance parameters (SMARTS). - Assure segregation and protection of customer assets, including unique customer ID implementation and online customer account access. - Monitor adequacy of capital and contingency funds to withstand significant market moves. ### Authorities’ response — selected paragraphs (verbatim highlights) - Paragraph 17: Indonesia thanks the IMF and the World Bank for continued support and considers the FSAP exercise an important reference for reform toward a more resilient and efficient capital market supported by a robust regulatory framework in line with international best practice and standards. - Paragraph 18: Indonesia, as an emerging market member of G20, views the assessment and its recommendations very seriously because of the impact on the G20 peer group evaluation on adherence to Global Standards under the FSB framework released in April. Indonesia will continuously undertake factual updates to the World Bank and IMF to facilitate greater awareness on the actual level of Indonesia’s International Standards compliance. - Paragraph 19 (ongoing legal and regulatory reform efforts) — selected items: - a. Implementation of Single Investor ID for Fund and securities for all investors (inclusive of CIS Investors). - b. Revised Capital Market Law will include ability for regulators to appoint statutory managers; Investor protection fund to be introduced. - c. OJK (Financial Service Authority) Bill will provide complete independence of the Capital Market Regulator (Bapepam-LK). - Paragraph 20: Plans include a comprehensive consolidated information warehouse to link related information concerning markets, products, issuers and activity domestically and regionally to enhance surveillance and monitoring capacity. - Paragraph 22 (disagreements with partially implemented ratings) — selected claims addressing Principles 2, 7, 10 and 16. ### Key operational/time thresholds and retention requirements (exact) - NAV publication: daily at 10 am. - Investment Managers report corporate bond quotations: daily at 4 pm. - Redemption requests received by one pm Jakarta time priced on same day; settlement may take up to seven days. - Annual audited financial statements due no later than the end of the third month after fiscal year end. - Semi-annual reporting timetables: last day of first month after period if unaudited; 60 days thereafter if limited review; last day of third month after period if full audit report accompanies. - Records and valuation documentation must be retained for five years. - NAWC initial and continuing requirements examples: - 25 billion rupiah for underwriters; - 25 billion rupiah for broker dealers; - 200 million for investment advisers (after liabilities/current assets haircuts applied). - Haircuts (Form V.D.5-4): Central Bank certificates and government debt haircut 10%; Money market instruments haircut 20%; Listed equities haircut 10%; Listed debt and mutual fund shares haircut 30%; Foreign securities haircut 90%. *Source: _cr12189 - Introduction and assessment excerpts from the provided IMF PDF content.* ### Introduction ........................................................................................................1 ### Introduction ### Information and methodology used for assessment - Assessment conducted using the Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation of 2003, reissued in 2008, the related e-methodology, and the reports, explanatory notes, instructions and guidance cited therein. - Principle 30 separately assessed under the Committee on Payment and Settlement Systems/IOSCO Recommendations for Securities Settlement Systems by another assessor. - The IOSCO Principles were amended and augmented in June 2010. This assessment does not address these recent changes. - Assessment based on: - a comprehensive self-assessment by BAPEPAM-LK using the aforementioned methodology; - review of relevant legislation, regulations, and guidance; - statistical and other descriptive information on the financial market; - rules pertinent to the securities exchange, the clearing and settlement system, and commodities transactions; - relevant websites, media reports, annual reports; - meetings with BAPEPAM-LK staff, the Commodity Futures Trading Regulatory Authority (BAPPEBTI), brokers, fund managers, issuers, end-users that are not themselves issuers, banks, state-owned enterprises, accountants and accounting associations, lawyers, the Indonesian Stock Exchange (IDX), the Jakarta Futures Exchange (JFX), trade (broker) associations, the on-site representatives of the IMF and World Bank, and informal information provided by certain parties providing technical assistance. - BAPPEBTI did not provide a separate self-assessment under its authorizing legislation. - Subsequent to the on-site review, on March 31, 2010, a new electronic derivatives market (licensed in 2009), known as the Indonesia Commodity and Derivatives Exchange (ICDX), was launched. The ICDX has a vertically integrated clearing facility. Oversight of the ICDX and related clearing was not comprehended in this review. - BAPEPAM-LK coordinated meetings, provided logistical support, provided soft-copies of well-indexed versions of relevant laws, assisted in identifying and using market data, corrected misperceptions, and promptly commented on drafts. - Securities assessments in complex countries and markets are unduly compressed; the ability to understand all nuances is constrained by mission length. ### Institutional and market structure—overview - Indonesia’s financial regulatory/supervisory system is a partially integrated system: - Bank supervision and monetary policy: Bank of Indonesia (BI). - Non-bank financial institutions, securities, and listed commodity derivatives are separately regulated. - The Capital Markets and Financial Institutions Supervisory Agency (CMFISA, also known as BABEPAM-LK, hereinafter referred to as BAPEPAM-LK) was formed under the Ministry of Finance by the merger in 2006 of the former securities commission and the Directorate General of Financial Institutions. - BAPEPAM-LK responsibilities: - supervision of the capital markets, including issuers, intermediaries, mutual funds, exchanges, securities depositories and clearing houses; - supervision of non-bank financial institutions, such as multi-finance companies, insurance and pension funds. - Listed-derivatives on commodities defined by statute as “the object of trade which become the subject of Futures Contracts being traded in the [futures] exchange,” are regulated by the Commodity Futures Trading Regulatory Authority (COFTRA or BAPPEBTI) (Law No.32/1997), which oversees both JFX and ICDX. - This assessment relates only to the capital markets and capital markets institutions. - Core securities legislation: the Capital Markets Law (CML), No 8/1995 effective in 1996 (replaced Presidential Decree No. 53/1990 and MOF Decree number 1548/KMK.013/1990). - Legal system: civil law; Minister of Finance has a role with respect to issuance of government regulations and ministerial decrees; BAPEPAM-LK responsible for its own rules. - Company Law modernized in 1995 and further amended in 2007; bankruptcy law modernized in 1998. - Exchanges and supporting institutions: - Exchanges, clearing and depository organizations (KPEI and KSEI) have self-regulatory powers and are required by law to supervise members and enforce their own rules. - Two securities exchanges (Jakarta Stock Exchange (JSX) and Surabaya Stock Exchange (SSX)) consolidated into the Indonesian Stock Exchange (IDX) in 2007. - Jakarta Futures Exchange (JFX) established in 1999; began operating on December 15, 2000; launched a spot market in 2010. - Indonesia Commodity and Derivatives Exchange (ICDX) established in mid-2009; launched in 2010. - Over-the-counter (OTC) equity market is unregulated but may be settled in KSEI; all bond transactions, even OTC, are to be reported to CTP in accordance with BAPEPAM-LK rules (Rule X.M.3). - Futures exchanges trade gold and palm oil and aim to provide indigenous prices for other export commodities. - Capital markets supporting institutions include custodians (including bank custodians) and supporting professionals required to have special qualifications. ### Market openness and cross-border considerations - Foreign ownership: - Non-domestic investors can own up to 100% of listed companies, including securities companies. - Up to 85% foreign ownership permitted for unlisted securities companies if owned by a foreign financial company and up to 99% if owned by a foreign securities company. - Ownership of shares of banks by foreign investors and/or foreign institutions through direct placement or through the IDX is allowed for up to 99% of total outstanding shares. MOF Decree No 179/KMK.010/2003. - Similar limits adopted in 2009 apply to owners of futures brokerages. - No restrictions on sale of foreign products to Indonesian nationals from within Indonesia as well as from remote locations. - As of 30 November 2009: - 67.51% of the value of shares held in the Central Securities Depository (KSEI) was held by foreign investors. - In 2009 approximately 25% of trading value was of foreign origin. - Approximately 9.30% of trading volume was of foreign origin. - These factors underscore the importance of the capacity of the securities regulator to give and receive cross-border enforcement assistance and to have effective liquidity management arrangements. ### Market performance and statistics - Stock market capitalization: - At the end of 2008 stood at Rp 1,076.49 trillion 48.76% lower than year end 2007. - As of year-end 2009, equity capitalization was approximately 36% of 2009 GDP. - Equity market capitalization at year-end 2009 was 2,019.38 trillion rupiahs (about 215 billion $US). - Government securities (SBN) market capitalization in 2008 increased 10.04% to Rp 525.69 trillion. - Average daily transaction values for equities: - Increased 3.90% to Rp 4.44 trillion in 2008. - Average daily turnover: - Increased by 15.96% to 55,905 trades in 2008, further increasing to 87,040 per day in 2009. - IDX at end-2009: - 118 active members. - 110 participants with bond market reporting obligations (not necessarily members), including 59 securities companies, 35 banks and 16 custodian banks. - 17 equity IPOs in 2008 and 13 in 2009. - As of year-end 2009, IDX statistics listed 398 active companies, 78 government bonds, 223 bond offerings (from 86 corporate issuers) and 41 warrants. - Two ETFs traded. - Six securities that trade on IDX are cross listed (Sydney, London, Luxembourg, New York, and Singapore). - Market infrastructure and outreach: - As of April 2010, IDX operates twelve regional information centers known as PIMPs and 67 exchange corners within universities. - Mutual funds and private equity: - As of March 2010, 620 contractual mutual funds (or collective investment schemes (CIS)), including 268 structured funds, representing an aggregate NAV of Rp_119.76 trillion. - BAPEPAM-LK has registered 72 private equity funds, representing an aggregate NAV of Rp 21.3 trillion. - Commodity markets: - Currently offer 22 futures contracts but have very little volume and open interest. - ICDX, a new electronic platform offered by Patsystems, launched in 2010 and the JFX expanded spot market operations. - Equity-based derivatives are tradable at the IDX. ### Preconditions for effective securities regulation - IOSCO preconditions broadly satisfied in Indonesia, including that there should be no unnecessary barriers to entry and exit from Indonesian markets and products. - Caveat: where judicial enforcement is necessary to effect agency action or private rights, efforts are needed to promote further certainty that the relevant capital markets law will be timely applied as intended. - CML explicitly recognizes capital markets’ “strategic role in national development as a source of funding for business and as a vehicle for public investment” and acknowledges dependence on a “sound legal foundation” and protection of the investing public. - Areas noted for further progress: - Promote greater judicial certainty for application of capital markets law and sanctions (e.g., consider extension of a specialist expert prosecutorial corps or fraud squad under the Department of Justice to matters other than corruption). - Swift progression of comprehensive accounting reform underway. - Bankruptcy reform is desirable. - Address consumer expectations for depositor-like protections (e.g., “capital protected” funds) to avoid investor confusion about product risks, especially where products may be distributed through the banking network; ensure disclosure regime suffices to prevent confusion. ### Main findings and recommendations (summary) - The law and related implementing regulations that constitute the regulatory framework affecting the capital markets in Indonesia are largely consistent with the IOSCO Objectives and Principles of Securities Regulation. - Legislative reforms and other actions in process to clarify and expand the security regulator’s authority and to cure certain self-acknowledged gaps should be accelerated. - Attention must be paid to assure that implementation of the regulatory framework results in a system that: - reliably detects, deters, and sanctions securities violations; and - reliably identifies and prevents or mitigates prudential concerns. - Achieving these objectives may require legal reforms beyond those necessary to reform the specific capital markets law; significance depends in part on how regulatory enforcement powers and authorities are augmented and enhanced under the capital markets law revision. - Capital markets operations are heavily dependent on legal certainty, in particular reliable application of contract, company, insolvency, and other legal protections. - BAPEPAM-LK, with government support, has taken impressive steps to increase transparency of regulation and to institute a comprehensive operational program that meets international norms and Indonesia’s understanding of best practices. - BAPEPAM-LK is making an earnest effort to meet challenges posed by the size and scale of Indonesian capital markets, a dispersed population, and the speed of market development. - Effective enforcement of the evolving regulatory framework is critical to regulatory credibility and is identified by the industry as important to market confidence and development. - Legal uncertainty as to timeliness and consistency of judicial support for capital markets regulations in private litigation or securities enforcement or intervention actions can reduce the effectiveness of important investor and systemic protections. - Amendments to the CML are intended to reflect market evolution since 1996 and to align with international norms on securities enforcement, international cooperation to combat cross-border securities fraud, coverage of all relevant financial activity, and powers and independence of the securities regulator. - Necessary changes to improve capacity for international cooperation and to address needed internal reforms to render enforcement of securities laws more efficient and effective should be implemented on an accelerated schedule and should not be held hostage to broader institutional changes; substantive changes that do not implicate revision of the scope of existing institutions should go forward with expedition. - Indonesia’s markets weathered the recent crisis relatively well despite substantial market capitalization decline in 2008; markets made an early recovery in 2009. - Mutual funds are the fastest growing part of the market. *Source: _cr12189 - Introduction* ### 14. The main findings are as follows: ### _cr12189 - 14. The main findings are as follows: ### (i) Principles 1-5, Principles relating to the Regulator - The regulatory framework and regulatory powers and requirements pertaining to the securities regulator are highly transparent. - Such powers are also generally comprehensive, with the exception of: - the need for reinforcement and expansion of administrative enforcement and international cooperative powers, that are in process, - assurance that the scope of regulatory coverage remains complete as the market evolves, and - the legal reform issues mentioned above. - BAPEPAM–LK has an educated, committed, creative and enthusiastic staff. - Concerted effort has been made to assure different voices from the marketplace are represented in policy making through a broad consultative process and that equitable administrative procedures are in place. - Cooperation among the authorities, certain elements of which have been recently formalized, should be kept under close review. - IOSCO requires explicit arrangements for supervisory cooperation where two supervisors/regulators have responsibility for the same entities. - BAPEPAM-LK is enjoined to cooperate with the Central Bank and has specific powers relative to authorizing banks that act as custodians for mutual funds and sell securities products. - There also is a financial stability memorandum between the Central Bank and the Ministry of Finance. - As of April 30, 2010, BAPEPAM-LK and BI concluded a formal information sharing memorandum of understanding; practical experience with sharing at the operational level should be documented and permitted to evolve with experience, particularly with the new global emphasis on monitoring for potential systemic risks. - Required government pre-approval of reallocation of already committed budget resources could potentially compromise regulatory independence and efficiency and should be avoided. - BAPEPAM-LK indicates it does not provide case-by-case exemptions; BAPEPAM-LK should be certain that the regulated industry is informed of its policy in this regard. - If over time exemptions or other derogations from the rules (such as late filings) are in practice commonly permitted, these effective extensions should be documented, as is other guidance, and made generally accessible to the public. ### (ii) Principles 6-7, Principles relating to self-regulation - The CML provides ample authority consistent with the Principles for BAPEPAM-LK to oversee the self-regulatory (rule/contract enforcement) activities of the IDX, KSEI and KPEI. - BAPEPAM-LK can access the information necessary to do so and maintains its own surveillance programs. - The level of BAPEPAM-LK’s oversight activity should be increased proportionate to the growth of the exchange(s) and any other permitted trading venues, and the level of activity and international participation thereon. - BAPEPAM-LK should also assure that indirect (marketing agents) as well as direct market securities companies are subject to appropriate oversight. - Augment existing activities to confirm the effectiveness of IDX oversight of Member conduct especially as to the allocation of customer trades and the handling of customer funds. - This should be accomplished through: - BAPEPAM-LK’s own and IDX’s on-site inspection activities, - new measures, including provision for a unique customer identifier, and - on-line access by customers to the status of their accounts at the KSEI. - Over time, these improvements should increase assurance of the proper handling of customer interests and oversight of marketing. ### (iii) Principles 8-10, Principles relating to enforcement of securities regulation - BAPEPAM-LK has the powers and authority to conduct inspections, investigations, surveillance, and enforcement and has made proactive use of the administrative powers it has to deter misconduct. - BAPEPAM-LK has the authority to obtain the books and records, including banking records of any person, as necessary to address proper enforcement of securities laws, particularly those relating to conduct and market abuse, provided an investigation has been opened and subject to the requirement of a Ministerial request if the financial status of such person is at issue. - Full implementation of these powers requires: 1. additional commitment to detecting and punishing substantive violations; 2. actions to promote further confidence that criminal violations will be expeditiously prosecuted to fruition; and 3. the grant of requested expanded authority to address violations by expanding administrative enforcement powers, including fining and other sanctioning powers to non-licensees. - Current amendments would expand existing provisions that address violations by expanding BAPEPAM-LK’s administrative enforcement powers, including fining and other sanctioning powers, to reach all parties, and not just registrants. - Further refinements to access to banking records, permitting a more direct route to records for securities law violations generally, also would facilitate BAPEPAM-LK’s becoming a full signatory of the IOSCO multilateral MOU on information sharing. - Added resources to educate prosecutors concerning financial crimes and additional authority to participate in criminal proceedings using the investigative record developed by BAPEPAM-LK investigators would provide additional clout to the overall capacity to enforce the laws against insider trading and market abuses within Indonesia. ### (iv) Principles 11-13, Principles for cooperation in regulation - Pending legal changes necessary to permit BAPEPAM-LK’s full commitment to international enforcement cooperation should be made a priority. - Domestic arrangements to assure practical cooperation between the Bank of Indonesia and BAPEPAM-LK in the oversight of the bank distribution network for securities and other matters were concluded in April 2010 and should be kept under review. - Further procedures for BAPEPAM-LK to obtain bank records in connection with securities violations should be clarified to assure that if access is not direct such records can be obtained with sufficient expedition. - Clarification of the authority of BAPEPAM-LK to assist a foreign securities regulator without the need for a corresponding violation of Indonesian law would progress its ability to join the IOSCO Multilateral MOU. ### (v) Principles 14-16, Principles for Issuers - Initial and ongoing disclosure regimes are in place, minority shareholder protections are in place and being enhanced, and a massive, orchestrated project to promptly transition toward international accounting standards (IFRS) is well underway. - Enforcement of existing requirements should be a focus. - Though prospectus disclosure generally meets relevant standards, accounting disclosures are still subject to improvement. - BAPEPAM-LK has confirmed that second tier listings on the IDX, which are subject to lesser listing requirements than first tier offerings, are now in fact clearly identified as such on the trading platform to avoid relevant prospectus disclosure being discounted. ### (vi) Principles 17-20, Principles for collective investment schemes - Provisions are in place to address the sale and structure of collective investment vehicles. - All relevant entities—the fund operator, the product, the sales agent, the custodian and the adviser—are within the regulatory umbrella. - There is a class of retail offerings (so-called discretionary funds) the regulatory status of which has only recently been clarified. - As of April, 2010, BAPEPAM-LK provided Guidance on Individually Managed Securities Portfolios for the Interest of Investors, which made explicit that “discretionary funds” are not pools but individually managed accounts that should be accounted for as such. - The application of such guidance, which eliminated the ability to vend such services outside the regulatory regime, provided for the protection of related customer assets, and restricted riskier offers to certain qualified investors, should be kept under review. - The pending project to improve the means of pricing illiquid debt held in mutual funds should be accelerated to assure proper pricing of funds based on debt instruments. - Further clarification of the legal status of funds would also be useful. ### (vii) Principles 21-24, Principles for market intermediaries - Provisions are in place to license market intermediaries, which include a due diligence review at the outset, internal controls requirements, and risk-based provisions for on-going monitoring, which depend heavily for their execution on reliance on the exchange (IDX). - Capital rules are applied as limits on market exposure and credit risk but should be regularly tested against actual market developments to assure sufficient liquidity protections against unusual market moves. - Customer funds protections for beneficial holders require enhancement to assure compliance by intermediaries and oversight of such compliance by both the IDX and BAPEPAM-LK. - Measures have been implemented to assure a single identifier for transactions (though there may be some issues as to how this is implemented) and to permit customers to view trading activity in their account on line to assure proper treatment of trades. - Continued oversight by the regulator of handling of customer funds is essential. - Only BAPEPAM-LK can place an intermediary in bankruptcy, but once an administrator is appointed, provisions to protect the market from intermediary bankruptcies should be clarified. - Oversight of on-site inspections and ongoing monitoring should be intensified and pending reforms on resolution authority and documentation of contingency plans should be pursued. ### (viii) Principles 25-29, Principles for the Secondary Market - Sophisticated provisions are in place for the oversight of the secondary market and market participants. - No non-exchange platforms currently exist. - BAPEPAM-LK should be certain that existing provisions will cover all markets that are accessible by retail participants and continue to augment its oversight arrangements. - Further more effort should be dedicated to timely enforcement against market abuses and assuring that measures to address potential defaults are documented and fully adequate. ### (ix) Principle 30 - Principle 30 is rated separately under the relevant CPSS/IOSCO standards by a different assessor. *Source: _cr12189 - 14. The main findings are as follows:* ### 15. Table 1 contains a principle-by-principle summary of assessment results: ### _cr12189 - 15. Table 1 contains a principle-by-principle summary of assessment results: ### Table 1A — Summary Implementation of the IOSCO Principles (ROSCs) - Principle 1. The responsibilities of the regulator should be clearly and objectively stated - The legal and regulatory framework is highly transparent and the roles of the regulators and supervisors are clearly defined. - BAPEPAM-LK and the Bank of Indonesia have accountability in some instances for the same entities, and have recently executed a practical information sharing protocol; the operation of this protocol should be kept under review as experience with heightened information sharing and cooperation is made operational. - To the extent that there is significant over-the-counter securities trading or new platforms develop, attention should be paid to assuring existing regulatory arrangements are sufficient to prevent regulatory gaps. - Principle 2. The regulator should be operationally independent and accountable in the exercise of its functions and powers - Legislation in the process of becoming effective that reinforces regulatory independence should be promptly implemented. - Such legislation will change the budget process and provide for terms of office. - The existing provision for preclearance by the Ministry for reallocation of previously allocated funds should be eliminated in that budgetary allocations are subject to audit ex post as part of the budget process. - Principle 3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers - Administrative enforcement powers to fine third parties and cooperative powers should be clarified and enhanced. - Although BAPEPAM-LK reports no difficulty in recruiting and maintaining staff, assurance that BAPEPAM-LK has adequate technical skills should be kept continuously under review and development of defined career paths should be encouraged. - Efforts to promote investor/industry awareness of BAPEPAM-LK’s technical capabilities and resources should continue to be augmented. - Principle 4. The regulator should adopt clear and consistent regulatory processes - Clear processes are in place; enhanced attention should be paid to the extent to which such processes are supported by the judicial system. - Measures to heighten the awareness of prosecutors to the need for effective prosecution of financial crime should be pursued. - All regulatory interpretations including permissions or exceptions, if any, should be made public. - Principle 5. The staff of the regulator should observe the highest professional standards - Appropriate codes of conduct are being enhanced and monitoring of performance occurs. - Principle 6. The regulatory regime should make appropriate use of self-regulatory organizations (SROs) - Appropriate use of self-regulatory functions is encompassed by the CML. See Principle 7. - Principle 7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality - Oversight of exchange programs, especially those of Members (and member supervision of non-member sales agents) should be intensified, documented and reported. - Principle 8. The regulator should have comprehensive inspection, investigation and surveillance powers - Comprehensive powers are in place; on-site inspections of market intermediaries that are exchange members are handled largely by the exchange, subject to review by the BAPEPAM-LK. - Principle 9. The regulator should have comprehensive enforcement powers - The regulator has extensive administrative enforcement and intervention powers, which its staff has used proactively. - Administrative fining powers should be augmented and expanded. - Clarify that all BAPEPAM-LK’s administrative sanctioning powers are explicitly applicable to non-licensees. - Because certain violations must be pursued through the criminal justice system, efforts should be undertaken to provide a special prosecutors corps or to expand the capacity of BAPEPAM-LK to participate directly in criminal cases. - Principle 10. The regulatory system should ensure effective and credible use of enforcement powers and implementation of an effective compliance program - Overall enforcement program has been enhanced but is not perceived by the public to be as effective as desirable for regulatory credibility. - BAPEPAM-LK has taken recent steps to deprive malfeasors of the fruits of misconduct, to bar persons from practice and to revoke licenses. - Substantive violations can take a long time to pursue, may not be enforced judicially, and certain sanctions may continue to be viewed as mere business expenses. - Efforts should be made to assure that the regulated community is sufficiently aware of all enforcement efforts. - Principle 11. The regulator should have the authority to share public and non-public information with domestic and foreign counterparts - The regulator has appropriate information sharing authority; for banking records additional procedures are required that could unduly delay or adversely affect use of such information. - There are no blocking provisions. - Principle 12. Regulators should establish information sharing mechanisms - The regulator has several bi-lateral information sharing arrangements with regulators, particularly in the South Asia region. - The regulator has entered into Part B of the IOSCO MMOU committing to undertake the changes to become a full signatory. - Principle 13. The regulatory system should allow assistance to be provided to foreign regulators - The regulator can provide enforcement assistance to foreign regulators but may have to commence its own investigation. - The regulator should progress legislation to permit it to become a full member of IOSCO MMOU. - Principle 14. There should be full, timely and accurate disclosure of financial results and other information material to investors' decisions - In general disclosures for issuers and public companies meet international standards subject to accounting improvements. - The recent addition of proper identification of second tier listings on the exchange platform should assure such listings do not compromise prospectus disclosure with respect to listed companies. - Principle 15. Holders of securities in a company should be treated in a fair and equitable manner - Company law has recently been improved and enforcement of shareholder rights strengthened. - Interconnections among shareholders and large shareholdings may still require more effective disclosure. - Principle 16. Accounting and auditing standards should be of a high and internationally acceptable quality - Indonesia is rapidly moving toward implementing IFRS, to be complete by 2012. - This process, together with provision for enhanced accounting and audit oversight, should be accelerated to assure appropriate reporting of financial information. - Principle 17. The regulatory system should set standards for those who wish to market or operate a collective investment scheme - Effective standards are in place for licensed Investment Managers, portfolio advisors, custodians, sales personnel and funds. - Confusion over whether discretionary funds were collective investments and applicable regulatory requirements has been addressed by recent rulemaking; these changes should be kept under review. - Principle 18. Rules governing legal form and segregation/protection of client assets for collective investment schemes - Statutory provisions make the participation unit in a contractual fund a security, subject to a custodial and management contract. - The contractual structure and related accounting is typical of civil law jurisdictions and should be clearly disclosed. - If the judiciary does not actively enforce financial contracts, the effectiveness of this structure should be kept under review. - Principle 19. Regulation should require disclosure necessary to evaluate suitability and value of interests in collective investment schemes - Disclosure requirements are comprehensive and fulfill the list provided by IOSCO. - Care must be taken that customers understand that capital protected funds are not principal-guaranteed funds. - Principle 20. Regulation should ensure proper and disclosed basis for valuation, pricing and redemption of units in a collective investment scheme - Provision exists for calculation of a daily NAV and obligations on the Investment Manager and the custodian for pricing integrity and documentation of prices not made in the market. - The system for debt pricing, undergoing reform, can be manipulated; since the majority of retail funds are currently invested in debt, pricing reform should be expedited. - Principle 21. Regulation should provide for minimum entry standards for market intermediaries - Licensing requirements for market intermediaries appear comprehensive; apply to investment advisors as well as broker dealers, and are enforced through an initial due diligence exercise. - Oversight is conducted by the exchange for member firms; more documentation should be made available on ongoing monitoring of intermediaries. - Principle 22. Initial and ongoing capital and prudential requirements for market intermediaries - Capital requirements contain a leverage limiter and haircuts on assets; adequacy of coverage in light of market events and liquidity needs should be kept under rigorous review. - Principle 23. Standards for internal organization and operational conduct of market intermediaries - Good provisions for internal controls and conduct of business are in place; concerns remain about how customer positions are handled in practice. - BAPEPAM-LK created a unique identifier to assure transactions are properly credited to customer accounts; the effectiveness of this reform regarding nominee accounts should be evaluated on an ongoing basis. - BAPEPAM-LK should ensure appropriate coverage of branch supervision within its risk-based oversight because remote branches can breed risks. - Principle 24. Procedures for dealing with failure of a market intermediary to minimize investor loss and systemic risk - Procedures are in place to limit exposures unsupported by capital and to limit leverage. - A documented plan for handling intermediary defaults to the exchange or clearing/settlement systems is desirable. - Adoption of pending resolution reforms is recommended. - Principle 25. Establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight - Provisions for authorizing exchanges/SROs are comprehensive and the exchange is required to have appropriate rules and enforce them. - If over-the-counter equity trading is not bilateral, BAPEPAM-LK may need to assure trading facilities are clearly designated as exchanges or otherwise covered. - Principle 26. Ongoing regulatory supervision of exchanges and trading systems - Provisions include periodic reporting, rule enforcement reviews or inspections, reporting of sanctions, specified follow-up procedures for member capital deficiencies, and capacity to request raw data to complement monitoring activities. - Principle 27. Regulation should promote transparency of trading - Trading on the exchange is transparent; see Principle 20 regarding pricing of debt traded OTC. - Principle 28. Regulation should detect and deter manipulation and other unfair trading practices - BAPEPAM-LK has investigative power and the exchange has tools to detect manipulation; recent actions regarding sub-accounts have materially enhanced detection. - Prosecution of exchange actions to effective and consistent conclusion is lengthy and uncertain. - Principle 29. Regulation should ensure proper management of large exposures, default risk and market disruption - Positions are disciplined by an exposure limit set by reference to net adjusted working capital. - Fails to deliver securities are severely punished and infrequently occur; there is a waterfall of resources to fund defaults. - Contingency arrangements between BAPEPAM-LK and the IDX, KPEI and KSEI should be documented; delisting procedures might be reviewed. - Principle 30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight - Separately assessed under the CPSS/IOSCO Securities Settlement Recommendations by a separate assessor. ### Table 1B — Summary Implementation of the IOSCO Principles (Detailed Assessments) - Principle 1. Grading: Broadly Implemented - Findings: Legal and regulatory framework highly transparent; roles clearly defined; BAPEPAM-LK and Bank of Indonesia have shared accountability in some instances; monitor OTC trading and new platforms for regulatory gaps. - Principle 2. Grading: Partly Implemented - Findings: Implement pending legislation to reinforce regulatory independence; change budget process and provide terms of office; eliminate Ministry preclearance for fund reallocation. - Principle 3. Grading: Broadly Implemented - Findings: Clarify and enhance administrative enforcement and cooperative powers; maintain review of technical skills and career paths; augment investor/industry awareness of BAPEPAM-LK capabilities. - Principle 4. Grading: Fully Implemented - Findings: Clear processes in place; enhance judicial support and prosecutor awareness; make all regulatory interpretations public. - Principle 5. Grading: Fully Implemented - Findings: Codes of conduct enhanced and performance monitored. - Principle 6. Grading: Not Rated - Findings: Appropriate use of self-regulatory functions encompassed by the CML; see Principle 7. - Principle 7. Grading: Partly Implemented - Findings: Intensify, document and report oversight of exchange programs, including Member supervision of non-member sales agents. - Principle 8. Grading: Fully Implemented - Findings: Comprehensive inspection, investigation and surveillance powers in place; exchange handles on-site inspections of exchange-member intermediaries subject to BAPEPAM-LK review. - Principle 9. Grading: Broadly Implemented - Findings: Extensive administrative enforcement powers used proactively; augment and expand fining powers; clarify applicability to non-licensees; provide special prosecutors or expand BAPEPAM-LK participation in criminal cases. - Principle 10. Grading: Partly Implemented - Findings: Recent steps to deprive malfeasors and revoke licenses; substantive violations can be lengthy to pursue and may not be judicially enforced; improve awareness of enforcement actions. - Principle 11. Grading: Fully Implemented - Findings: Appropriate information sharing authority; banking records require additional procedures that could delay use; no blocking provisions. - Principle 12. Grading: Fully Implemented - Findings: Several bi-lateral information sharing arrangements; entered into Part B of IOSCO MMOU committing to changes to become full signatory. - Principle 13. Grading: Broadly Implemented - Findings: Can provide enforcement assistance but may need to commence own investigation; progress legislation to permit full IOSCO MMOU membership; has shared information to support cross-border enforcement efforts. - Principle 14. Grading: Broadly Implemented - Findings: Disclosures for issuers and public companies meet international standards subject to accounting improvements; proper identification of second tier listings added to exchange platform. - Principle 15. Grading: Broadly Implemented - Findings: Company law improved and shareholder rights enforcement strengthened; require more effective disclosure of interconnections and large shareholdings. - Principle 16. Grading: Partly Implemented - Findings: Indonesia moving toward implementing IFRS, to be complete by 2012; accelerate this process and enhanced accounting and auditing oversight. - Principle 17. Grading: Broadly Implemented - Findings: Effective standards for licensed managers, advisors, custodians, sales personnel and funds; continue review of recent rulemaking addressing discretionary funds classification. - Principle 18. Grading: Broadly Implemented - Findings: Contractual fund participation units treated as securities subject to custodian/management contracts; disclose structure clearly and monitor effectiveness if judiciary is passive. - Principle 19. Grading: Broadly Implemented - Findings: Disclosure requirements comprehensive per IOSCO; ensure customers understand capital-protected funds are not principal-guaranteed funds. - Principle 20. Grading: Partly Implemented - Findings: Daily NAV provision and obligations on managers/custodians exist; debt pricing system can be manipulated and reform should be expedited given majority retail funds invested in debt. - Principle 21. Grading: Fully Implemented - Findings: Licensing requirements comprehensive; enforcement via initial due diligence; need more documentation on ongoing monitoring of intermediaries. - Principle 22. Grading: Broadly Implemented - Findings: Capital requirements include a leverage limiter and haircuts; rigorously review adequacy for market events and liquidity needs. - Principle 23. Grading: Broadly Implemented - Findings: Good internal control provisions; concerns over customer position handling; unique identifier created to credit customer accounts—evaluate effectiveness for nominee accounts; ensure branch supervision coverage. - Principle 24. Grading: Broadly Implemented - Findings: Procedures limit unsupported exposures and leverage; a documented plan for intermediary defaults to exchange/clearing/settlement systems is desirable; adoption of pending resolution authority recommended. - Principle 25. Grading: Fully Implemented - Findings: Comprehensive provisions for authorizing exchanges/SROs and enforcing exchange rules; BAPEPAM-LK may need to designate trading facilities if OTC equity trading is not bilateral. - Principle 26. Grading: Fully Implemented - Findings: Oversight provisions include periodic reporting, inspections, sanctions reporting, follow-up on member capital deficiencies, and capacity to request raw data; refer to Principle 7. - Principle 27. Grading: Fully Implemented - Findings: Exchange trading is transparent; note pricing of OTC-traded debt (see Principle 20). - Principle 28. Grading: Broadly Implemented - Findings: Investigative power and exchange detection tools in place; recent sub-account actions enhanced capabilities; prosecution to consistent conclusion remains lengthy and uncertain. *Source: Table 1 — principle-by-principle summary of assessment results.* ### conclusion however is lengthy and highly ### _cr12189 - conclusion however is lengthy and highly ### Implementation findings (selected principles) - Principle 29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption - Status: Broadly Implemented - Findings: - The taking of positions is disciplined by an exposure limit set by reference to net adjusted working capital. - Fails to deliver securities are severely punished, so infrequently occur. - There is a waterfall of resources to fund defaults. - Nonetheless, the contingency arrangements between the BAPEPAM-LK and the IDX, KSEI, KPEI should be documented. - Delisting procedures should also be reviewed. - Principle 30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk - Status: Not Rated - Note: Separately assessed under the CPSS/IOSCO Securities Settlement Recommendations by a separate assessor. ### Aggregate implementation ratings - Fully implemented (FI) – 10 - Broadly implemented (BI) – 13 - Partly implemented (PI) – 5 - Not implemented (NI) – 0 - Not applicable (N/A) – 2 - Status: To be determined ### Recommended action plan to improve implementation of the IOSCO Principles (selected items) - Principles 2, 10, 15, 18, 24 and 28; see also Principles 8 and 13 - Implementation of legislative changes to the Capital Markets Law, and other laws as necessary, intended to update and enhance the authority and power of BAPEPAM-LK and otherwise support the regulatory framework, should be pursued aggressively. These include: - (i) proper immunity from civil damages, - (ii) limitation of ministerial budget allocation review to ex post audit after initial budget approval, - (iii) expanded ability to require governance enhancements, - (iv) ability to proceed judicially under civil law or administratively against third parties to sanction securities violations, - (v) continued confirmation that contractual fund interests are enforced as a matter of law, - (vi) ability to meet international norms for enforcement cooperation, - (vii) modernized resolution authority and insolvency law. - Enhancement of steps to assure investor awareness of the overall regulatory program should be continued and expanded. - Principles 4, 14, 16, 18 and 20 - Enhancements related to fairness and reliability of transactions related to transparency and pricing should be pursued. These include: - (1) Public clarification that exemptions are not accorded or the publication of such exemptions if any. - (2) Continued accounting improvement and review of identification of second tier listings on IDX. - (3) Augmented disclosure to assure that the risks of capital protected funds are clearly disclosed understood not to be principal guarantees. - (4) Review and modification of the corporate debt pricing methodology to assure that prices used for mutual funds are not unduly susceptible to manipulation or liquidity risk. - Principles 18, 23 and 26 - Augmentation of oversight regimes to confirm that the unique customer ID as adopted and implemented enhances customer fund and trading protections as intended, that maintenance of the segregation of customer from firm accounts is sufficiently rigorous, and that sales of non-Member agents are appropriately overseen. - Principles 7, 10, and 28 - Continuation of efforts to assure that the public has due regard for the effectiveness of surveillance and enforcement programs. - Augmentation of legal powers to conduct administrative enforcement proceedings, in particular fining powers. - Enhancement of the documentation and conduct of on-going monitoring and coverage, particularly with respect to the oversight of customer trades and funds. - Extension and continuation of pro-active initiatives to assure that securities violations are punished in a prompt, meaningful way. - Principles 22, 24, and 28 - Continuing monitoring and documentation of contingency arrangements to address firm defaults and assurance that capital requirements provide a sufficient liquidity cushion to withstand a significant standard deviation price move in various markets. - Principles 1, 12, and 13 - Review of the operation, in practice of the new information sharing arrangement between BAPEPAM-LK and BI to assure the appropriate interchange of information and cooperation among entities with responsibility for the same licensed firm. ### Authorities’ response (selected paragraphs) - Paragraph 17 - Indonesia thanks the IMF and the World Bank for continued support and considers the FSAP exercise an important reference for reform toward a more resilient and efficient capital market supported by a robust regulatory framework in line with international best practice and standards. - Paragraph 18 - Indonesia, as an emerging market member of G20, views the assessment and its recommendations very seriously because of the impact on the G20 peer group evaluation on adherence to Global Standards under the FSB framework released in April. Indonesia will continuously undertake factual updates to the World Bank and IMF to facilitate greater awareness on the actual level of Indonesia’s International Standards compliance. - Paragraph 19 (ongoing legal and regulatory reform efforts) - a. Implementation of Single Investor ID for Fund and securities for all investors (inclusive of CIS Investors), which would provide a real time monitoring of end-investor activity and potential misuse by market intermediaries. - b. The revised Capital Market Law will include the ability of regulators to appoint statutory managers to takeover institutions (SRO’s, market intermediaries and NBFI’s). Investor protection fund will be introduced to provide coverage in the event of a market participant failure. Efforts to improve dispute resolution are underway. - c. The recently submitted OJK (Financial Service Authority) Bill will provide a complete independence of the Capital Market Regulator (Bapepam-LK) from the Ministry of Finance. OJK will have the ability to draw upon the best resources from the market. A comprehensive “legal protection” will be provided on top of the current provisions under the Criminal Code (Art 50/51) to protect resources in discharging their duty in a “bona-fide” manner. - Paragraph 20 - Massive efforts to prepare Indonesia’s greater regional integration activities with ASEAN neighbors, including preparing the regulatory environment to handle cross border activities via Mutual Recognition or Substituted Compliance. Plans include a comprehensive consolidated information warehouse to link all related information concerning markets, products, issuers and the activity (on/off exchange) and relationships of all economic agents domestically and regionally to enhance surveillance and monitoring capacity. - Paragraph 21 - The Indonesian capital market regulator believes the amount of resources and the time allocated for the IOSCO assessment by the IMF and World Bank was insufficient for the assessor to gauge comprehensiveness of current regulatory systems and on-going reforms; time and resource constraints reduced the ability to execute a detailed fact finding mission. - Paragraph 22 (disagreements with partially implemented ratings) - a. Principle 2 - Indonesia asserts civil servants are protected via Article 50 & 51 Penal Code and administrative recourse via the Administrative Court (PTUN). The Capital Market Law Article 5 (m) states Bapepam must be allocated with an adequate appropriation in the State Income and Expenditure Budget (APBN). In an emergency, the Government can provide an additional disbursement beyond its budget without having to go to Parliament first, to be reported later as per Government Finance Law No 17 Article 27. Reallocation of previously allocated budget only happens by request of the Regulator and must be approved administratively no later than 5 days as per Minister of Finance Regulation No 69, Article 11(3) if the requesting entity submits its request together with the necessary documents. - b. Principle 7 - The assessment allegedly lacks due diligence and understanding of supporting processes, procedures, and market structure regarding SROs. Laws such as the Criminal Code bind all resources of the SROs in protecting the confidentiality of information. - c. Principle 10 - The assessment does not take into account the comprehensiveness of enforcement powers, efforts, and success, instead focusing on weaknesses of the Indonesian Judiciary system which is beyond Bapepam-LK’s power. - d. Principle 16 - The assessment asserts a major gap between domestic accounting standards and IFRS; Indonesia states the actual gap is not significant and Indonesia is moving towards full convergence to the IFRS by 2012. Bapepam-LK has comprehensive oversight programs on all listed issuers and financial markets agents; Semi Annual and Annual (Audited) financial reports go through comprehensive analysis by the Corporate Finance Bureau and are validated against Indonesian financial accounting standards and the Regulatory Check List of VIII.G.7 (Rule regarding Guidance for the Presentation of Financial Statements). The process filters out financial statements which do not comply with accounting standards and VIII.G.7, and analyzes from substance perspective, material transactions and account relationships to identify risks or potential misrepresentation. *Source: _cr12189 - conclusion however is lengthy and highly* ### 23. The purpose of the assessment is primarily to ascertain whether the legal and ### _cr12189 - 23. The purpose of the assessment is primarily to ascertain whether the legal and ### Purpose and scope - The purpose of the assessment is to ascertain whether the legal and regulatory securities markets requirements of the country and the operations of the securities regulatory authorities in implementing and enforcing these requirements in practice meet the standards set out in the IOSCO Principles. - The assessment is a means of identifying potential gaps, inconsistencies, weaknesses and areas where further powers and/or better implementation of the existing framework may be necessary and used as a basis for establishing priorities for improvements to the current regulatory scheme. ### Principle 1 — Responsibilities of the regulator - Description of regulator: - Capital Markets and Financial Institutions Supervisory Agency (CMFISA, also known as BAPEPAM-LK), formed in 2006 by merger, under the Ministry of Finance. - Responsible for supervision of (1) the capital markets (issuers, intermediaries, mutual funds, exchanges, securities depositories and clearing houses) and (2) non-bank financial institutions (multi-finance companies, insurance and pension funds). - Core securities legislation: Capital Markets Law (CML), No 8/1995 effective in 1996 (replaces Presidential Decree No. 53/1990 and MOF Decree No. 1448/KMK.013/1990). - Enumerated powers (CML Article 5): 16 sections set out powers including: - (i) granting business licenses to exchanges, depositories, clearing guarantee institutions and financial intermediaries; - (ii) granting individual licenses to representatives; - (iii) granting approvals to bank custodians; - (iv) registering capital market supporting professionals (accountants and attorneys); - (v) establishing qualifications, nominating procedures, and procedures for suspending directors and commissioners of licensed market institutions; - (vi) establishing conditions for public offerings; - (vii) conducting inspections and investigations of public companies, licensed persons, and any person with respect to suspected violations; - (viii) intervening to suspend a listing or suspend trading in emergencies; - (ix) intervening to avert loss to the public due to violations of the CML; - (x) defining additional instruments as securities; - (xi) providing technical interpretations of the law and implementing regulations; - plus broad authority to “do any other [non-enumerated] act required by” the CML (Articles 5 q. and 5 n.). - Interaction with other regulators and markets: - Commodity futures regulated by BAPPEBTI (COFTRA) under Ministry of Industry and Trade (Law 32/1997 and Law 9/2006); 22 commodity products authorized for trading; very little open interest on futures markets; 99 per cent of all derivatives in commodities (broadly defined) trade over-the-counter. - No operational arrangements or information sharing understandings between BAPPEBTI and BAPEPAM-LK; joint task force with INTRAC on combating abuses by investment funds. - Distribution and custodianship heavily dependent on banking network; Article 112 of the CML requires BAPEPAM-LK and Bank of Indonesia (BI) to “consult and coordinate” overseeing custodians and trust-agents. - Formal Memorandum of Understanding between BI and BAPEPAM-LK executed April 30, 2010 (see Key Question 3). - Legislative reforms in process (examples as described): - Expanded authority to require independent directors of public companies; - Authorities relative to large shareholdings; - Legal status for the guarantee fund for exchange transactions; - Ability to use electronic data in evidence; - Additional resolution authority for potentially defaulting securities companies; - Strengthened protection for officials and employees of BAPEPAM from liability for bona fide discharge of official functions. - Assessment: Broadly Implemented. - Comments: - With the BI–BAPEPAM-LK MOU in place, principle could move to Fully Implemented with operational experience. - Clarification desirable for oversight of OTC trading and new platforms. - BAPEPAM-LK should make its policy not to issue case-by-case exemptions and availability of information on informal guidance known to the public. ### Principle 2 — Operational independence and accountability - Legal framework: - CML Article 3: BAPEPAM-LK “shall provide ... day to day supervision of the Capital Market.” - CML Article 2: Ministry of Finance determines “general policy.” - BAPEPAM-LK responsible for licensing and execution of powers without ministerial intervention or sign off; licensing procedures set out in Government Regulation 45/1995 as amended by Regulation No. 12/2004. - Governance and oversight: - Chairman proposed by Minister of Finance and serves at the pleasure of the President; appointment procedures in Government Regulation 13/2002. - Legislation submitted to Parliament includes proposals for explicit terms of office and criteria for removal to strengthen independence and relief from civil/criminal liability (in process). - Transparency and accountability: - Open consultations, web-based comment process; stakeholder organizations (e.g., Mutual Fund Dealers Association, currently 20). - Required to report performance to President via Minister of Finance; must produce an Annual Report. - Budget process: BAPEPAM-LK proposes budget to Minister; by law budget must be sufficient (CML 5m); reallocation of funds within the budget subject to pre-review by Directorate General of Treasury. - Public audit applies (Law 15/2006) and review by Internal auditor of the Minister of Finance ex-post. - Civil service status and protections: - Staff (including Chairman) are civil servants subject to Civil Servant rules: professionalism, confidentiality, avoidance of conflicts of interest, neutrality (CML Article 101). - Criminal protection for acting to carry out laws (Articles 50 and 51 of Criminal Code); protection from civil liability for good faith performance not currently accorded but under parliamentary consideration. - “Good faith” defined by BAPEPAM-LK with four quoted criteria. - Assessment: Partly Implemented. - Comments: - Regulator should have broader protection from civil liability for good faith performance. Explicit terms of office and removal criteria for Chair desirable. - Treasury preapproval of budget reallocations could potentially be used to interfere with independence and should be removed, qualified, or clarified. - Consider adding specific disqualifications for licensees and more direct means to obtain banking records for investigations (see Principle 9). ### Principle 3 — Adequate powers, resources and capacity - Legal and enforcement powers: - CML provides powers largely consistent with IOSCO; CML Articles 5 n and q provide open-ended authority used proactively (e.g., disgorgement under Article 5n and Article 100). - BAPEPAM-LK requests amendments to provide administrative authority to fine third parties, augment fining authorities, assure access to records, cooperation with global regulators, and stronger civil/criminal enforcement powers. - Purposes of reforms: (1) enhance regulator effectiveness and credibility; (2) clarify authority for creative equitable remedies such as disgorgement; (3) increase Indonesia’s stature as a major market. - Resources and staffing: - Operated with a surplus of budget over expenses during each of the last five years. - Staff of 800, with 200 more in the process of being hired. - Approximately 500 dedicated to capital markets oversight. - Recent salary enhancements; performance pay system in process since 2007. - Senior staff must meet specific educational qualifications; many have advanced degrees. - Budget and IT: - Prepares own budget for inclusion in State Income and Expenditure Budget (APBN); law requires budget sufficient (Law 17/2003 and CML 5(m)). - Ministerial Decree 06/PMK.02/2009 allows budget reallocation subject to Directorate General of Treasury pre-approval. - Enhancement of IT capacities highlighted as necessary to support market growth. - Assessment: Broadly Implemented. - Comments: - Enforcement powers should be explicitly augmented in the CML (see Principles 9 and 13). - Develop formal internal career paths honored by the Ministry to buttress independence. - Better public communication of BAPEPAM-LK technical capacity and expertise recommended. ### Principle 4 — Clear and consistent regulatory processes - Rulemaking, consultation and publication: - All rules and regulations published on BAPEPAM-LK website (Bahasa and English). - Rule Making Procedure (Rule II.3.1) and specific Operating Procedures (Kep-71/BL2007). - Published procedure for sanctions consideration (Rule II.H.9; XIV B.1 on nonpayment of penalties). - Comprehensive web-based and stakeholder consultation process; proposed rules published with explanations and sent to stakeholders. - Consultation process permits consideration of costs and benefits; rules have been redesigned based on consultations (example: margin policies). - Sanctions and adjudication: - Committee of Administrative Sanctions composed of bureau heads; material actions subject to judicial review. - BAPEPAM-LK required to provide written reasons for material licensing and sanction decisions; charged parties may present information for mitigation (Rule II.H.11). - Administrative fines are paid to the State. - Investor education: - Investor education and outreach programs on misconduct by investment funds and anti-money-laundering; e-learning modules and infomercials in cooperation with INTRAC (PPATK); task force on improper investment activities produced advertisements, brochures, seminars. - Assessment: Fully Implemented. - Comments: - More visibility of regulatory programs and additional educational efforts would be useful. - Publication of practices on not offering case-by-case exemptions and explanation of treatment of consultation comments when final rules are published would reinforce public perception of fairness. - Stakeholders request more use of advisory committees, balanced against risk of delays in needed reforms. ### Principle 5 — Professional standards and confidentiality - Staff obligations and ethics: - Employees subject to Civil Servant duties; internal Code of Conduct (BAPEPAM-LK Ethics Code adopted by MOF) addressing confidentiality, conflicts of interest, and prohibitions on holding securities (except by operation of law). - Ethics Code prohibits outside employment that would abuse authority or information. - Violations subject to moral sanction or disciplinary penalty via Civil Service Law 30/1980. - Article 101(7) of the CML limits use/disclosure of investigation information except as necessary. - Oversight and compliance: - Internal Compliance Bureau and Inspectorate General charged with investigating and resolving ethics and other abuses; Compliance Bureau developing operational policies. - Human Resources, supervisors, and Inspectorate General enforce Civil Servant regulations; sanctions have been imposed on several employees for ethics violations. - Assessment: Fully Implemented. ### Principles 6–7 — Self-Regulation and SRO oversight - Principle 6 — Appropriate use of SROs: - CML imposes SRO functions on IDX, KSEI (Central Securities Depository), and KPEI (Clearing Guarantee Institution and Central Counterparty). - IDX may develop membership criteria; SROs can establish and enforce certain rules and sanction members. - IDX operates IDXnet electronic reporting; as of 2008 a majority of listed companies used IDXnet. - Principle 7 — Oversight of SROs by regulator: - CML Article 9: exchanges and their directors/commissioners must be licensed by BAPEPAM-LK; criteria set by government regulation (45/1955) and rule III B6,7. - Exchange directors/commissioners not permitted to hold positions in other companies; restricted from holding/transacting in shares of listed issuers until six months after term expires. - Exchange inspection unit required by CML Article 12; IDX must maintain an “independent” inspection unit for periodic and surprise inspections. - BAPEPAM-LK requires daily, monthly, semi-annual and annual SRO reports (Rule X A 1) and has dedicated technical unit to review them. - Oversight powers include requiring rule changes, suspending listings or trading, and reviewing/sustaining/reversing disciplinary actions of SROs. - Key market statistics and operational facts: - As of end 2009, IDX had 118 active Members. - As of end 2009, equity market capitalization was approximately 36% of 2009 GDP. - In 2008 IDX issued 211 confirmation requests to 161 issuers, published 65 UMA notices on 60 stocks, and issued 40 suspensions of 39 stocks; investigated 33 market abuse cases in 2008. - Participants in bond transaction reporting included 59 securities companies, 35 banks and 16 custodian banks. - Assessment: Partly Implemented. - Comments: - BAPEPAM-LK conducts routine inspections of IDX but documentation does not fully demonstrate a program testing sufficiency of IDX/KSEI/KPEI surveillance and inspection programs. - Where BAPEPAM-LK relies on IDX for on-site inspections, BAPEPAM-LK oversight should assure IDX’s inspection coverage and adequate performance, including sales activities and non-handling of funds by non-member agents. - BAPEPAM-LK should more aggressively review exchange IT and SMARTS parameters and document operational exception-review procedures. - Stakeholders believe insider trading and insider abuses may be insufficiently deterred; revisions are in train to expand definitions and reduce use of dormant accounts. ### Principle 8 — Inspection, investigation and surveillance powers - Inspection authority: - BAPEPAM-LK authority to inspect or investigate any Person for suspected violations (CML Article 5(e)) and to conduct routine/periodic inspections of licensees, registrants, approved persons and public companies (Article 5(g)) without notice or judicial action. - “Inspection” includes examining business premises and records (manual, mechanical, electronic) and requiring submission of reports. - Recordkeeping requirements: supporting documentation per Rule V.D.3; records maintained for at least five years; AML-related client identification and tracing procedures (Rule VD 10a). - IDX surveillance system SMARTS and BAPEPAM-LK real-time tools (RTI, Stock Watch, Daily Watching) used; proposal to obtain Bloomberg service in process. - Outsourcing: - Inspections may be outsourced but agreements must make results available to BAPEPAM-LK and require confidentiality/disclosure requirements no less stringent than BAPEPAM-LK’s. - Assessment: Fully implemented. - Comments: - BAPEPAM-LK requested broader legislative authority to obtain electronic records (phone, email, computer) directly from providers. - Overall AML effectiveness deferred to FATF-style reviews. ### Principle 9 — Comprehensive enforcement powers - Enforcement tools: - Authority to undertake investigations and bring administrative sanction proceedings including monetary sanctions, revocations of licenses and authorizations (CML Article 102). - May refer investigations for criminal prosecution to Attorney General (CML Articles 5 and 101). - Can proceed against third parties by formal investigation and seek restitution or disgorgement (CML Articles 5n and 100). - Administrative sanctions include written admonitions, fines, restrictions on business activity, suspensions, revocations and cancellations (CML Article 102). - Maximum fine for market abuses (criminal offenses) is 15 billion rupiah. - Authority to suspend listings, advertisements, trading of a security or market, and take steps “necessary to avert loss to the public” (CML Articles 5(f), 5(j), 5(k), 5(n)). - Private parties may sue for compensation (Article 111). - Investigation procedures and evidence: - Procedures for commencing investigations, escalation to criminal proceedings, and preparing investigation reports (Rule II H series). - Powers to inspect and copy records, request information, request MOF access to banking records to determine financial status, and seek bank records via BI to trace transactions. - In criminal cases: may summon information/evidence, inspect locations beyond business premises, and block/freeze bank accounts and financial assets. - May cooperate with BI, INTRAC, MOF, police, and Directorate General of Immigration; BAPEPAM-LK reports BI/MOF requests are never refused for criminal matters under the CML. - Assessment: Broadly Implemented (see also Principle 10). - Comments: - BAPEPAM-LK requested authority to obtain bank account data directly and to seek civil judicial and/or administrative fines against third parties and augmented sanctions more generally; such powers expected to be granted. - Effectiveness depends on reliability of legal and administrative systems (Key Issue 1). ### Principle 10 — Effective and credible use of powers; compliance programs - Enforcement activity and surveillance: - BAPEPAM-LK programs include 101 formal investigations (the bulk), 101 criminal, and 102 administrative (including bans, suspensions, revocations) — phrasing from source: “these include 101 formal investigations (the bulk), 101 criminal, and 102 administrative including bans, suspensions and revocations of licenses.” - BAPEPAM-LK largely relies on IDX for frontline oversight of exchange members; IDX represents it visits 90+% of its members once a year (inspection teams of 11). - BAPEPAM-LK has relatively few technicians for member inspections but reviews IDX program and may conduct its own inspections based on risk-based desk review. - Complaint management system introduced in 2008: of 282 complaints received overall, 106 related to the Capital Market; 25 related to securities companies (8 addressed without investigation; 17 remain in process). - Access to SMARTS data limited; BAPEPAM-LK does not have direct access or capacity to define SMARTS parameters; routine meetings with IDX ongoing and oversight program being refined/documented. - Enforcement outcomes and statistics: - In 2008, 22 licenses of securities companies revoked and $1.3 million in administrative fines assessed. - In 2009, 7 revocations imposed. - 32 cases of potential market manipulation detected in 2008, 22 remain under investigation. - Of 15 cases referred criminally, 11 remain in process and 3 closed. - 121 formal investigations commenced in 2009 involving 57 issuers, 45 transactions or institutions, and 19 investment managers; at year-end 99 remained under investigation, 5 closed, 17 resulted in administrative sanction. - BAPEPAM-LK commenced 8 insider trading cases between 2007 and 2009: 2 resulted in administrative sanctions, 1 closed for lack of evidence, remainder in process. - Compliance requirements for firms: - Securities companies must maintain compliance units and operational internal control structures (division separation per Rule V.D.3). - Public companies required to have corporate secretary and audit committee (Rule dated November 28, 2008). - Assessment: Partly Implemented. - Comments: - BAPEPAM-LK has proactively used administrative deterrent powers (bans, revocation, disgorgement, restitution) in “message cases”; IDX appears active in investigations. - Nonetheless, many investigations remain pending and trading-abuse investigations may not be prosecuted to completion in a timely manner. *Source: _cr12189 - 23. The purpose of the assessment is primarily to ascertain whether the legal and* ### conclusion. Further, although BAPEPAM-LK is awaiting enhancement of administrative powers ### conclusion ### Enforcement powers of BAPEPAM-LK - BAPEPAM-LK is awaiting enhancement of administrative powers against third parties. - In the meantime, the effectiveness and credibility of BAPEPAM-LK enforcement efforts could be compromised because its administrative powers do not explicitly extend fining authority to all parties. - Many matters, though investigated by BAPEPAM experts, must be prosecuted within the criminal justice system as general crimes. - While BAPEPAM-LK may assess an administrative remedy where there also is a criminal violation, confirmation of the extent of BAPEPAM-LK’s capacity to proceed administratively would confirm that the means by which it has exercised its powers is contemplated. ### Coordination and prosecution efforts - BAPEPAM-LK has worked actively with the Department of Justice and the Attorney General to improve/expedite the prosecution of capital markets violations. - The recruitment of a special financial crimes force also should be considered. - Since November 2008, there has been a task force involving the MOF, the Attorney General, INTRAC and BAPEPAM-LK and BI related to addressing issues of malfeasance related to the financial crisis. ### Limitations of the general judicial system - The general judicial system: - (1) can prove slow; - (2) is premised on civil law concepts that do not allow scope for interpretation of inventive or evolving market misconduct; - (3) can reach inconsisten t *Source: IMF staff conclusion text.* ### conclusions with respect to the same conduct for lack of binding precedent; (4) is committed to other ### _cr12189 - conclusions with respect to the same conduct for lack of binding precedent; (4) is committed to other ### Enforcement, rule of law, and sanctions - Findings: - Stakeholders report: (1) lack of binding precedent; (2) BAPEPAM-LK historically perceived as lacking respect for capital markets law; (3) fines may be too low and regarded as a cost of doing business; (4) courts can be uncertain in application of law; (5) administrative bodies can be unreliable in assessing sanctions for financial crimes or misconduct. - BAPEPAM-LK has used authority under Article 5n and Article 100 aggressively to require disgorgement and restitution in amounts that exceed the regulatory limit for fines. - Examples of fines imposed by BAPEPAM-LK that exceed Article 102 of Government Regulation No. 45/1995: - PT AGIS: fine of Rp 5 Billion (US$ 527,000) assessed against Directors and Rp 2 Billion (US$211,000) against directors of subsidiaries for a misleading statement. - PTPGN: fine of RP 2.8 Billion (US$295,600) assessed against 9 insiders for insider trading. - Enforcement efforts have been materially strengthened recently, but perception among regulated community persists that efforts are not as strong, sufficient or as swift as desirable. - Policy recommendations / implications: - Consider further confirmation of the broad administrative authority of BAPEPAM-LK and/or establishment of a special capital market crimes unit within the Office of the Attorney General and Department of Justice to address enforcement weaknesses. - Ensure vigilant oversight program capable of reliably enforcing rules, backed by a consistent judicial system, to promote a culture of compliance and investor confidence. - Keep enforcement and judicial application under active review to deliver consistent results in private litigation about financial protections. *Assessment notes:* enforcement efforts strengthened, but judicial uncertainty and perceptions of insufficient swiftness undermine confidence. --- ### Principle 11 — Authority to share public and non-public information - Description / findings: - BAPEPAM-LK can share information (public and non-public) from its own files or available through inspection without recourse to other Indonesian authorities. - Non-public categories include: - (i) matters under investigation, unless BAPEPAM-LK determines to publish findings in the public interest; - (ii) certain information within files related to public companies (e.g., accountants’ reports of potential violations, proprietary information related to accuracy of disclosures); - (iii) certain bank records received through the Ministry of Finance (subject to specific data protection/privacy requirements). - BAPEPAM-LK has provided non-public information to domestic and international authorities (examples: shared securities account information with BI; interim investigation report with bank records to the Audit Board of Indonesia; similar report to the Corruption Eradication Commission). - Assessment: - Fully Implemented. - Comments / policy points: - Mutual Legal Assistance Treaties include savings clauses limiting obligation to share for criminal purposes (lack of dual criminality, extradition issues, capital penalties, or final sanctions for same conduct in Indonesia). - Regulator may legitimately impose confidentiality and use conditions when sharing non-public information. --- ### Principle 12 — Information-sharing mechanisms (MOUs and arrangements) - Description / findings: - BAPEPAM-LK has MOUs with domestic authorities: Directorate General of Taxation of Ministry of Finance; the Commission for the Supervision of Business Competition; the State Police Department of the Republic of Indonesia; the Attorney General; the Corruption Eradication Commission; the Indonesian Financial Transaction Reports and Analysis Center (INTRAC); and, as of April 30, 2010, Bank of Indonesia. - BAPEPAM-LK participates on a Joint Task Force with State Police Department and BAPPEBTI on criminal offenses in Investment Management. - International MOUs include: US Securities and Exchange Commission; Australia Securities Investment Commission (ASIC); Hong Kong Securities and Futures Commission (HKFSC); Securities Exchange Commission of Sri Lanka; Thailand SEC; Securities Exchange Commission of the Philippines; Securities Commission of Malaysia; China Securities Regulatory Commission (CSRC); Securities Commission of New Zealand; Securities and Exchange Board of India (SEBI). - In every case BAPEPAM-LK takes appropriate steps to protect confidentiality of shared information. - Assessment: - Fully Implemented. - Comments / recommendation: - Suggestion that an information sharing arrangement should be sought with Singapore given substantial cross-border business. --- ### Principle 13 — Assistance to foreign regulators (ability to obtain/share information) - Description / findings: - BAPEPAM-LK can obtain information at request of a foreign securities regulator under certain circumstances but is only an Annex B signatory to the IOSCO Multilateral Memorandum of Understanding (MMOU). - BAPEPAM-LK not mentioned in Banking Law as permitted to obtain bank records directly; therefore bank records must be obtained through BI. If bank records are sought to determine financial status, BAPEPAM-LK must proceed through a request to the Ministry of Finance. - BAPEPAM-LK can only share banking records and other non-public information not within its own files when it has commenced a criminal investigation under its own laws. - IOSCO MMOU verification found BAPEPAM-LK lacks legislative power to cooperate sufficiently to become a full signatory (Part A) to the IOSCO MMOU. - Interim alternatives: - Mutual Legal Assistance Treaty (Law 1/20006 Mutual Legal Assistance in Criminal Matters). - Assistance via comity and reciprocity with Minister of Law and Human Rights. - Article 59 (3)/CML allows BAPEPAM-LK to block funds and securities within its licensed securities depository without commencing formal investigation. - Examples of assistance provided despite limits: - Assisted HKSFC in compelling a non-licensed person’s statement for HKSFC use. - Obtained information on legality of a company for Securities Commission of Malaysia where jurisdiction lay with Ministry of Justice and BAPEPAM-LK requested assistance. - Assessment: - Broadly Implemented. - Policy recommendations: - Take steps (legislative changes or other) to permit BAPEPAM-LK to become a direct signatory to IOSCO MMOU Part A. - Expeditiously obtain legislative authority to access and share bank records promptly to permit prompt investigation, prosecution, and sanction of cross-border financial misconduct. - Progress Amendment to the CML in order to resolve current impediments; progress should be expeditious. - Comment: - IOSCO e-methodology FAQs: sharing through an MLAT is not sufficient for a fully implemented rating of this Principle. --- ### Principles for Issuers — Principle 14: disclosure of financial results and material information - Description / findings: - Public offer definition: offers proposed to more than 100 persons or accepted by more than 50 (CML Article 15(1)). - Prospectus and registration disclosure rules include: No. IX.C.1; No. IX.C.2; No. VIII. G.7; Circular Letter No. SE-02/PM/2002; No. SE-02/BL/2008; industry-specific templates for 16 different industries. - Special disclosures required for municipal bond offerings and Sharia offerings (rules adopted in 2007 and 2006). - Listing (main board/first tier) requirements include: - three years of audited financial statements; - information on business performance and use of proceeds; - legal opinion by an approved BAPEPAM-LK counsel; - schedule of ownership by shareholders; - curriculum vitae/resumes for board members and commissioners; - history of the business. - Listed companies must assure the lesser of a fixed value (100 million rupiah) or 35% of paid in capital not be held by controlling shareholders and meet governance requirements including that 30% of its Commissioners are independent. - Definition of “material” (CML Article 1 (8)) is broad; material changes must be made public within two working days (Rule X.K.1). - Insiders may not trade on non-public information prior to dissemination (CML Article 95). Insiders defined in n.206 to CML Article 95. - Registration process: 45-day approval period for equity securities, tolled if submission incomplete. - Financial reporting timetables: - Annual audited financial statements due 3 months after end of financial year. - Annual Report must be filed four months after end of financial year. - Semi-annual report due on last day of first month after period if unaudited; 60 days thereafter if accompanied by Auditor Report on limited review; last day of third month after reporting period if accompanied by full Audit Report. - Quarterly reporting required by IDX; more than one-half report electronically. - Periodic information must be published in two Indonesian language newspapers (Rule X.K.2). - Information considered stale after 180 days. - BAPEPAM-LK review focuses on completeness, adequacy, objectivity, comprehensiveness and clarity, not merit (CML Article 75). - Enforcement provisions exist in CML for disclosure and continuing disclosure; preparers are accountable (CML Article 80). - Assessment: - Broadly Implemented. - Comments / policy considerations: - Move toward continuous disclosure regimes (two days delay for “immediate” information may no longer be best practice). - Need for better description of key risk factors and user-friendly targeted disclosure. - Accounting issues remain; Indonesia follows standards reflecting US GAAP or IFRS in most cases. --- ### Principle 15 — Fair and equitable treatment of holders of securities - Description / findings: - Legal protections include pre-emptive rights, one shareholder/one vote for directors and corporate actions, prompt notice of changes in control, tender offer/takeover protections. - Tender offer rules (as of June 30, 2008): must be extended to all shareholders for no less than 30 and no more than 90 days when control of 50% of a public company would be altered. Announcement to public and BAPEPAM-LK no later than two business days after change in control. New controller must tender for remaining shares subject to specified exceptions. - If more than 80% interest acquired in an “open company takeover” new controller must ensure minimum public float/paid-in capital no less than 20% and number of shareholders at least 300 within no more than two years (Rule IX.H.1). - Shareholder meeting timing: law requires 14 days after announcement before issuing invitation and 14 days after issuance of invitation before holding meeting. - Central Securities Depository (KSEI) maintains registry for dematerialized securities; a project to apply a unique account identifier for each beneficial holder at member sub-accounts is operative. - Dividends and corporate rights: registrars (KSEI or BAE) must submit list of shares held as of record date at least one day before date basis for rights. Bonus shares must be proportional to ownership interests (Rule IX.D.5). - Accountability: - Company Law Article 97: Board of Directors responsible for management, even to extent of negligence. - Company Law Article 114: Board of Commissioners responsible for supervision, even for negligence. - Company required to report failure or petition for declaration of insolvency to BAPEPAM-LK immediately but not later than two working days. - Large shareholding disclosure: - Disclosure to BAPEPAM-LK and public when crossing five percent or more (CML Article 87 (2)). - Transactions by large shareholders (holders of 5% of paid in capital) and each director or commissioner must be made to BAPEPAM-LK and public within 10 days (Rule X.M.1). - KSEI must report transactions by large shareholders to BAPEPAM-LK no later than one working day after book entry (Rule X.C.1). - Related party transactions must be disclosed within two days (some exemptions by rule). - Cross-share holdings prohibited by listing rules and restricted by Article 36 of the CLM, though stakeholders express concern about insufficient disclosure of coordinated holdings (e.g., joint accounts). - Assessment: - Broadly Implemented. - Comments / recommendations: - Enforcement of cross holdings and disclosure of large shareholdings held in concert should be kept under active review. - Continue work toward more accessible information on non-listed public companies’ ownership/control. - Proposed legislative amendments include further authority for BAPEPAM-LK to require disclosure of beneficial ownership. --- ### Principle 16 — Accounting and auditing standards quality - Description / findings: - Annual Report and financial reports required under Rule X.K.6; financial statements must be prepared in accordance with accounting standards issued by Indonesian Institute of Public Accountants (IIPA) and accounting rules by BAPEPAM-LK and audited by auditors registered by BAPEPAM-LK. - Accountants must report in confidence to BAPEPAM-LK any violation affecting financial viability (CML Article 68). - BAPEPAM-LK registers/approves accountants for capital markets and requires specialized capital markets training; as of April, 2010 there were 358 accountants who met criteria. - MOF Decree 17PMK 01/2008 requires audit partners to rotate every three years, and firms every six. - Indonesian convergence with IFRS as of March 31, 2010: - 21 PSAK fully comparable with IFRS, - 5 are substantially comparable, - 8 are non-comparable, - 4 have yet to be adopted. - Major initiative underway to adopt all IFRS standards by 2011 with final effective/compliance date of 2012. - Indonesia has 8 Sharia-based PSAK and 14 interpretations (ISAK). - Auditing standards (SPAP) currently those adopted in the US; international auditing standards expected to be adopted in 2011. - BAPEPAM-LK supports IFRS convergence, has authority to enforce implementation (CML Article 69(1)), and organized a task force including accountants, practitioners, academics, and government agencies. - Indonesian Institute of Public Accountants has issued: - new Code of Ethics for Public Accountants (in 2008), expected effective January 1, 2011; - exposure draft of new Quality Control Standards (in 2009), expected effective mid-2012. - Assessment: - Partly Implemented. - Comments / policy recommendations: - Continue massive efforts to improve accounting and auditing standards and practice. - Make all rules available in both English and Indonesian. - Assure adequate standards and performance oversight through a mechanism housed in BAPEPAM-LK or another independent body in the public interest. - Aggressively pursue adequate oversight of standard setting and quality control programs. --- ### Principles for Collective Investment Schemes — Principle 17 (introductory findings) - Description / findings: - Regulatory requirements apply to: the fund/product; the fund manager (Investment Manager); the Investment Advisor (if different); the selling agent/representative; professionals serving the fund (accountants, lawyers); and the custodian (must be a bank custodian and cannot be affiliated with the Investment Manager). - If fund is an ETF (two trading as of assessment), it must also fulfill listing rules. - Five BAPEPAM-LK divisions involved in oversight of collective investment vehicles: licensing and fitness; review of product registration and periodic financial reporting; compliance, inspections, and complaints; product development; policy development and education. - As of October 2009, aggregate net assets held in mutual funds totaled [figure omitted from provided excerpt]. - Assessment: - (Assessment not provided in the supplied excerpt for Principle 17.) - Comment: - Complex internal BAPEPAM-LK operational flow charts detail review processes. *Italic: Content based on the provided IMF PDF excerpt (_cr12189).* ### 107.75 trillion rupiah held by approximately 350,000 holders; as of February 2010, aggregate ne ### _cr12189 - 107.75 trillion rupiah held by approximately 350,000 holders; as of February 2010, aggregate ne ### Collective investment vehicles: types, size, and product limits - 107.75 trillion rupiah held by approximately 350,000 holders; as of February 2010, aggregate net assets rose to 123 trillion rupiah. - Two regulated fund types: - (i) investment fund organized as a company (CIS) — issues shares. - (ii) investment fund organized under a collective investment contract (CIC) — issues participation units (defined as “securities” under CML Article 1 (5)). - Investment fund portfolio limits: - Funds are permitted to hold 15% of NAV in offshore securities; structured funds may hold up to 30% of NAV. - Capital Markets Master Plan 2010–2014 anticipates further development of CIS products. - As of April 2010: - 91 Investment Management (fund) Companies. - 621 investment funds (all in the form of CIC). - 75 private equity funds. - Private Equity Fund unit-size requirement: - Unit sizes must be equivalent to $US 500,000 or 5 billion Rupiah; privately placed to fewer than 50 persons that are Professional Investors. ### Licensing, conduct, custody, and segregation - Licensing requirements and exemptions: - An investment fund company must be licensed by BAPEPAM-LK. - A securities company that is an Investment Manager requires a license (CML Article 1 (11)). - Exemptions: persons conducting activities only with credit securities with maturity < one year, certificates of deposit, insurance policies, securities issued or guaranteed by the Indonesian Government or other securities determined by BAPEPAM-LK need not be licensed (CML Article 30 (3)). - Representatives and firms must be licensed (CML Article 32); licensing includes fit and proper tests (proficiency, no misconduct, no history of “shameful” or criminal act, good morals, legal competence) (Govt. Reg. No. 45/1995). - Custody and segregation: - Assets of an Investment Fund must be held by a Custodian Bank which cannot be affiliated with the Investment Manager (though it could be affiliated with the sales agent). - Securities Companies must segregate client and CIC assets from those of the Securities Company (CML Article 37). - Securities in safekeeping or posted to a securities account with a custodian are not part of the Custodian’s assets (CML Article 44). - CIC assets must be separate from Investment Manager and Custodian Bank (Rule IV. B.2). - Each collective investment fund must be separately accounted for as a separate client (or subaccount) at the Custodian or any Securities Depository (CML Article 56). ### Management, fiduciary duties, and prohibited relationships - Professional management: - Portfolios of CIS and CIC must be professionally managed by a licensed Investment Manager pursuant to a contract meeting specified requirements. - In a CIS company, management responsibility is shared with a Board (CML Article 21 (2)). - In an open-ended CIC, parties to the contract are the Investment Manager and the Custodian (CML Article 21 (3); Article 26). - Fiduciary-like obligations: - CML Article 27 requires Investment Managers to act in good faith and administer funds in the interests of the fund. - Advisors must prioritize protecting the interests of their clients (CML 35 and n. 106). - Conflict and related-party restrictions: - Investment Manager cannot keep money at an affiliated bank; related-party transactions with affiliates must not result in fees higher than market (CML Article 41). - Investment Managers must not accept direct or indirect compensation that might influence trading for a collective investment vehicle (CML 42). ### Disclosure, reporting, and investor documentation - Prospectus and registration: - Shares of a CIS and participation units of a CIC are “securities” and must be registered and offered publicly under a prospectus (CML Article 1 (27); Rule No. IX.C.5). - Prospectus contents specified by Rule IX.C.6 and related rules: date of offering; type of fund; rights of investors; investment policies; risk factors; financial information; manager/distributor/custodian information; expenses; disclaimer that BAPEPAM-LK has not merit-approved the offering. - Reporting obligations and NAV: - Financial reports: audited annual financial statement must be submitted no later than the end of the third month after fiscal year end (Rule IV B.1). - NAV publication and reporting: - NAV reported to BAPEPAM and published every day at 10 am. - At 4 pm every day Investment Managers report quotations (bid and offer) for corporate bonds to BAPEPAM via KSEI. - Custodian confirms interests monthly to unit holders (Rule VIII G 8); NAV published daily or sometimes weekly through media. - Transaction and periodic reports: - Monthly reports (operating information and ratios including number of redemptions) must be reported to BABEPAM-LK (Rule No. XD 1) in electronic format. - A daily report including statement of assets and liabilities, investment operations, and return on investment must be filed electronically and NAV announced in media daily (No. IV C.3). - Investor proofs and redemptions: - CIC investor receives confirmation letter when Custodian receives good funds (Rule IV B.2). - Rule IV B.2 (5) grants investor right to obtain proof of ownership and periodic statements. - CML Article 20 requires Investment Manager to repurchase Participation Units of holders who wish to sell. - Redemption pricing and timing: - NAV “shall be the basis for evaluating shares of an open-end corporate fund or participation units.” - Redemptions ordinarily at NAV/share or unit less agreed costs. - Redemption price based on NAV on the same day if request received by one pm in Jakarta; settlement may take up to seven days. - For CIC the original offer price is 1000 rupiahs or $1 or one euro per share; redemption price is NAV on the same day if request received before one PM Indonesian (western) time, and on the following day if received later. ### Valuation, pricing, and specific concerns - Valuation rules and procedures: - BAPEPAM requires Investment Managers determine and publish fair market value/NAV every exchange trading day for open-ended funds (CML Article 22). - Rule IV C 2 prescribes reference price use (exchange price if available) and principles for valuing illiquid, non-rupiah-denominated, and “bankrupt” securities. - Rule X.D.I includes spreadsheet reporting forms for NAV and other ratios monthly. - Custodians also required to compute NAVs and report daily return on investment/share over the last 30 days (Rule IV C 3). - Valuations must (i) follow BAPEPAM rules, (ii) use standard procedures where no market price is available, (iii) use a valuation methodology consistently, and (iv) document valuations in records maintained for five years. - Bond pricing process and risks: - At 4 pm daily Investment Managers report indicative bid and offer quotations for corporate bonds to BAPEPAM through KSEI, which uses those figures and real market prices to determine bond price for NAV. - Quoted bids/offers are “indicative” and may not reflect actual transacted prices. - Valuation algorithm discards certain prices outside specified limits, but treatment of outliers is not transparent. - Assessment and issues: - Assessment: Partly Implemented for valuation and pricing (Principle 20). - Key concerns: - Pricing methodology for illiquid corporate bonds potentially susceptible to manipulation, price collusion, and exacerbation of liquidity drains because it uses indicative, non-market-based quotations. - No prescribed process or principle for correcting pricing errors [Key Question 8]. - BAPEPAM-LK is implementing proposals to improve the bond pricing methodology and to set up an independent bond pricing mechanism outside of KSEI; expedient implementation recommended. - Stakeholders complained about the current methodology and its possible transmission of volatility to other sectors. ### Supervision, monitoring, and enforcement of funds and intermediaries - On-site and off-site monitoring of CIS: - Written audit program for Technical team compliance audits (Rule II F 14); inspections can be performed at any time. - BAPEPAM-LK in 2009 reported: - visited all head offices of banks that sell mutual funds and branch offices in ten major cities on a random basis; - conducted 111 comprehensive on-site visits in 2009; - undertakes desk reviews of all fund reports and financial statements; - revoked 10 licenses in the year prior to the report. - Off-site e-monitoring data includes: - profiles of investment managers and investment funds; - statistics on daily NAV, NAV composition, detailed portfolio holdings (including price details for bonds held); - monitoring data on investment management and investment funds; - early warning system analyzing investment manager reports, custodian bank reports and records on violations; - risk-based supervision data; - data from central custodian on transactions and holdings exceeding 5% threshold. - 2009 inspection sample example: - visits to 17 investment managers (out of 93 total), 67 investment funds (out of 671 total), and 27 (of 27 total) selling agents. - Licensing, entry standards, and ongoing requirements for intermediaries: - Licenses required for all securities intermediaries and their representatives (Government Regulation 45/1995; CML). - NAWC (Net Adjusted Working Capital) requirements and haircuts (see Principle 22). - Ongoing reporting: broker-dealers report capital to BAPEPAM-LK and, if IDX members, to KPEI daily—marked to market—and monthly digital reports within five days after month end. - Assessment: Fully Implemented for minimum entry standards (Principle 21); Broadly Implemented for internal organization and conduct (Principle 23). - Prudential capital (NAWC) specifics: - NAWC initial and continuing requirements: - 25 billion rupiah (or approximately 2.5 million $US) for underwriters. - 25 billion or ($US2.5 million for broker dealers). - 200 million or $US20,000 for investment advisers (after subtracting liabilities from current assets and applying haircuts). - Haircuts (Form V.D.5-4 attached to Rule No. V.D.5): - Central Bank certificates and government debt haircut 10%. - Money market instruments haircut 20%. - Listed equities haircut 10%. - Listed debt and mutual fund shares haircut 30%. - Foreign securities haircut 90%. - Leverage and limits: - Maximum amount of liabilities is 25 times working capital; excess subtracted. - Minimum working capital is 4% of total liabilities. - If NAWC falls below minimum, a firm must cease taking new positions, trade for liquidation only, and submit plan to BAPEPAM-LK. - Assessment: Broadly Implemented (Principle 22); comments note possible insufficiency re liquidity and certain risk sensitivities. - Failure and resolution framework: - BAPEPAM-LK powers to restrict activity, freeze CIS assets, suspend CIS activities, name another operator or liquidate CIS (Rule IV. B. 1; custodial records of shareholder interests). - CML Article 5 gives broad authority to “avert loss.” - Only BAPEPAM-LK can apply for bankruptcy of a regulated intermediary (Law 37/2004). - KPEI Guarantee Fund and ARMS (Automated Risk Management System) support clearing member monitoring. - Assessment: Broadly Implemented for procedures dealing with intermediary failure (Principle 24); comments: need for documented contingency plan and enhanced resolution authority; question on sufficiency of guarantee fund. ### Market infrastructure, exchange oversight, and market integrity - Exchange structure and market statistics: - One securities exchange (IDX) after consolidation with Surabaya exchange end-2007. - IDX characteristics: - mutual, not-for-profit exchange; members must be licensed securities companies. - 118 active members. - IDX owns 100% of KPEI and 67% of PHEI; IDX and KPEI own 35% (26.5 and 8.5 respectively) of KSEI. - trades equities, corporate and government debt, securities derivatives. - overall market capitalization as of March 2010 approximately 51% of 2009 GDP (of which about 40% is equities). - dematerialized securities since 2001; remote trading permitted since 2002. - Investor and product counts: - 2009 data reflect approximately 345,000 mutual fund holders and about 150,000 equity and debt accounts. - More than 67% of equity ownership is foreign; majority of bond ownership is local (96% corporate, 82% government). - Trading dispersion: only three firms account for more than five percent of total. - Average daily turnover: between 55,905 in 2008 reducing to approximately 47, through end 2009. - Exchange oversight and surveillance: - IDX required to have inspection unit, continuous monitoring, surveillance, and rules subject to BAPEPAM-LK approval (CML Article 12). - SMARTS surveillance system used by IDX; BAPEPAM-LK also operates stock watch technology. - BAPEPAM-LK receives daily transaction reports and can obtain pre- and post-trade price and transaction information and raw SMARTS data. - IDX must have paid-in capital of $750,000; Guarantee Fund collects .01% of value per equity trade that cannot be withdrawn; Guarantee Fund is now a little over $100,000,000.00. - Penalties and market safeguards: - Settlement fail penalty for T+3 failure: purchase stock at 125% of the highest price observed over the past three trading days. - Auto-halt requirements: market moves of 35% for smallest value stocks (under 200 rupiah per share) to moves of 20% for equities valued at 5000 rupiah per share (January 2009 pronouncement). - Assessment: Fully Implemented for establishment and oversight of trading systems (Principles 25–26); comments recommend further resources and SOP documentation and consideration of prophylactic circuit breakers. - Transparency, reporting, and OTC trading: - On-exchange trades recorded real-time; OTC trades in bonds and other securities need not be reported for 30 minutes (Rule No. X.M.3) and some may not be reported at all. - Over ninety per cent of bond trading occurs over–the-counter. - Public availability: IDX posts real-time price and volume; exchange files daily transaction report with BAPEPAM-LK available on website. - Assessment: Fully Implemented for trading transparency (Principle 27). - Market abuse detection and enforcement: - Prohibitions and criminalization: - Market/price manipulation, false/misleading statements affecting price, insider trading, front running prohibited (CML Articles 90–98 and 38); these are criminal offenses. - Enforcement pathway: - Exchange surveillance may detect abuse and report to BAPEPAM-LK. - Criminal investigations conducted by specially appointed BAPEPAM-LK staff with powers; prosecutions referred to the Attorney General. - BAPEPAM-LK prefers expanded civil/administrative authority and has requested such authority. - Assessment: Broadly Implemented for detection and deterrence (Principle 28); comments note few prosecutions concluded and stakeholder perception of insufficient active enforcement. ### Clearing, settlement, exposures, and systemic risk management - Clearing and guarantee mechanisms: - KPEI monitors clearing members’ financial capacity, can restrict members to liquidation-only trading, and has stand-by facilities: - stand-by letter of credit from Bank Mandiri secured by time deposits. - intra-day funding facility to enable net continuous settlement from Bank Permata and Bank CIMB Niaga. - Waterfall for settlement guarantee (BAPEPAM-LK Rule III.B.6): - (i) funds/margin/collateral of clearing member who fails to settle; - (ii) guarantee reserve or bank credit; - (iii) funds raised by selling securities in guarantee account of defaulted member, after settlement of the default; - (iv) guarantee fund originated from other credit network members, with 20% equally divided and 80% proportionally divided based on clearing value for the last six months; - thereafter any shortfall within 30 days would be further divided provided KPEI initiates legal action against the nonpaying member. - Assessment: Broadly Implemented for management of large exposures, default risk and market disruption (Principle 29). - Concerns and recommendations: - Questions raised about sufficiency of Guarantee Fund relative to trading activity, volatility, short selling and margin trading. - Access to guarantee funds may require preconditions that delay prompt use and exacerbate insufficiency. - BAPEPAM-LK has requested enhanced resolution authority and is drafting contingency/business continuity plans with SROs. - Coordination with Bank Indonesia: Bank of Indonesia and BAPEPAM-LK concluded a practical operational protocol for expanded information sharing. - Clearing and settlement regulatory oversight: - BAPEPAM-LK has responsibility and approves rules for IDX, KPEI, and KSEI (CML Article 5 a. (1)); KSEI and KPEI required to make rules binding users; as non-profit institutions fees must be compatible with costs and approved by BAPEPAM-LK (CML Articles 16 and 17). - Assessment: No rating required for CPSS/IOSCO aspects (Principle 30); BAPEPAM-LK retains regulatory responsibility. ### Cross-cutting assessments and supervisory observations - IOSCO principle assessments (selected): - Principle 18: Broadly Implemented. Comments: CICs are the dominant form; CIC participation units are defined as securities and intended to create bankruptcy-remote interests; clarification of property rights and practical effect should be kept under review. - Principle 19: Broadly Implemented. Comments: Disclosure requirements are comprehensive but CIC disclosures may need augmentation in specific cases to avoid investor confusion (e.g., “capital protected” funds). - Principle 20: Partly Implemented. Comments: Pricing of illiquid securities, particularly corporate bonds, vulnerable to manipulation and lacks transparent price-correction procedures; implementation of independent bond pricing mechanism recommended. - Principles 21–23: Fully or Broadly Implemented with recommendations to strengthen execution documentation, branch supervision, and customer property protections. - Principle 24: Broadly Implemented. Comments: Robust powers exist but need for explicit contingency plan and enhanced resolution authority. - Principles 25–27: Fully Implemented, with caveats on resources, system capacity for evolving algorithmic trading, and OTC bond transparency. - Principles 28–29: Broadly Implemented. Comments emphasize need for greater enforcement activity, assurance of guarantee fund sufficiency, and prophylactic circuit breaker regime consideration. - Particular operational/time thresholds to note: - NAV publication: daily at 10 am. - Investment Managers report quotations for corporate bonds at 4 pm daily. - Redemption requests received by one pm Jakarta time priced on same day; settlement may take up to seven days. - Financial statement submission: no later than the end of the third month after fiscal year end. - Custodian records and valuation documentation must be retained for five years. *Source: Excerpt from the IMF assessment document provided in the content unit.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12189.pdf_