Cementing Indonesia’s Financial State Through Law No.

4/2023

Background

Cryptocurrency, dispute resolution within the financial industry, economic literacy and
inclusion, consumer protection, these are all important issues subsisting in Indonesia.
However, such issues are not properly addressed yet prior to the newly enacted Law
No. 4 year 2023 concerning Development and Strengthening of the Financial Sector. In
order to resolve the aforementioned issues, an urgency arose and the remedy for that is
actualized in the form of a Law.

The Indonesian financial sector is still plagued by numerous fundamental issues. The
distribution of assets in the national financial sector is not uniform. In comparison to
other financial sectors, the banking sector, which provides short-term financing, remains
extremely dominant. The non-bank financial industry, which is a source of long-term
funds expected to support development financing, still has very little involvement. This
condition indicates that the financial industry's operation mechanism in fundraising is
still limited, despite the fact that the potential for deepening the national financial market
remains quite large.

This Law attempts to strengthen the supervisory and regulatory relations between
different institutions within the financial sector. This is for the purpose of producing
Financial System Stability between different sectors which would include the Ministry of
Finance, Bank Indonesia, Financial Services Authority (OJK), and also Deposit
Insurance Corporation (LPS).

Fortified Significance of OJK

As have been expressed above, this law tries to expand the involvement of different
institutions in its financial sector, one of which is the Financial Services Authority. In
doing so, this law also expands the Financial Services Authority's authority to regulate
and supervise cooperatives engaged in the financial sector, digital asset activities,
Financial Sector Technology Innovation, strengthening the education function,
Consumer Protection, and monitoring market behavior (market conduct), with the goal
of strengthening and developing the national financial sector. 1 This is exemplified by
Article 8 section 4 of Law No. 4/2023. 2 Thus, by strengthening the OJK, the objective of
strengthening and developing the national market can be attained.

Cryptocurrency’s Supervision

The emergence of cryptocurrency in 2020 took Indonesia by a storm. This caught the
government off guard as there was no provision regarding such trend. The absence of
regulation led to many confusions concerning the legality of cryptocurrency, whether it is
allowed or not. Law No. 4/2023, shed light on those confusions that startled Indonesian
people. Cryptocurrency is within the supervision of the OJK, this is enlightened in the
law as cryptocurrency is included in ITSK. 3 Since OJK now supervising cryptocurrency,
the legality of cryptocurrency becomes certified and condoned.

Dispute Resolution in The Financial Sector

Law No. 4/2023 bestows two possible options whereby disputes arise. The first option is
the most conventional way, which is to go to court and the second option is to go for
alternative dispute resolution with an institution that is certified by OJK. 4 This
responsibility is beared by Alternative Institution for Financial Services Sector Dispute
Resolution (Lembaga Penyelesaian Sengketa Sektor Jasa Keuangan/LAPS SJK).
LAPS SJK is an out-of-court dispute resolution institution newly established on
September 22, 2020 and had only started commencing since January 1, 2021.

1 General Elucidation of Law No. 4/2023

2 Art. 8 Section 4 of Law No. 4/2023
3 Art. 213 of Law No. 4/2023
4 Art. 254 of Law No. 4/2023
The appointment of LAPS SJK as the alternative dispute resolution body for disputes in
the financial sector creates several concerns. Firstly, would this rule limit the principle of
freedom of contract? Since the law provides two viable options and one of them being
LAPS SJK as the only alternative dispute resolution body, this certainly limits entities
from their preferred dispute resolution forum and creates a monopoly in this regard.
Second, with this limitation, Syariah entities will not be able to go to National Sharia
Arbitration Board (BASYARNAS) as their dispute resolution forum. This can create a
hindrance since BASYARNAS serves as a well-known and respected dispute resolution
forum which clearly has more experience within the field of Syariah Law and is therefore
reasonably considered as the better forum for Syariah based disputes.

Deposit Insurance Corporation New Mandate

In addition to strengthening the authority of the Deposit Insurance Corporation in

carrying out its deposit insurance and bank resolution functions, the Deposit Insurance
Corporation has also received a new mandate as the administrator of the insurance
policy guarantee program which will be accompanied by increased oversight and
regulatory functions by the insurance supervisory authority. This is enshrined under
Article 7 Section 4 of Law No. 4/2023 which explicitly asserts the Deposit Insurance
Corporation to guarantee insurance policies. The obligation is further elaborated as
having to formulate and establish policies regarding the implementation of the insurance
policy guarantee program.5

Balancing the Banking Sector

The banking consolidation process aims to increase the competitiveness inside the
banking sector by enhancing regulations concerning digital banks and the bank’s use of
information technology, as well as nourishing the role of People's Economic Banks and
Islamic People's Economic Banks in driving the regional economy and developing
Micro, Small, and Medium Enterprises. Banking regulations are also aimed at

5 Art. 7 Section 5 of Law No. 4/2023

expanding banking and Syariah banking business activities in order to propel the
national economy.6 Syariah banking is bolstered by the enactment of the new Law by
increasing the amount of Syariah commercial bank business activities. Previously in
Law No. 21/2008 Syariah commercial bank business activities comprised seventeen
activities,7 whereas now it has been increased into eighteen by allowing Syariah
commercial banks to carry out debt transfer activities.8

With Law No. 4/2023, legislators hope that the new regulations will be able to help in
contributing positively to the eventual development of Indonesia’s economy that is
sustainable, viable and trustworthy.

6 General Elucidation of Law No. 4/2023

7 Article 15 Section 11 of Law No. 4/2023
8 Article 19 of Law No. 21/2008