In response to the vast growth in technological innovations and the tendency of businesses to integrate in order to create business ecosystems, Bank Indonesia (BI) issued Regulation No. 20/6/PBI/2018 dated 3 May 2018 on Electronic Money (Regulation). The Regulation seeks to anticipate the risks associated with the e-money business by implementing risk management and security standards, and increasing supervision over e-money business players. The foreign ownership limits introduced by the Regulation are arguably the most crucial point in the Regulation, and may cause Providers to restructure their e-money businesses.
The Regulation revokes the previous regulations on the same subject and is effective as of 4 May 2018. E-money licences issued before the enactment of the Regulation remain valid for five years after the effective date of the Regulation. Non-bank e-money issuers who already have a licence need to comply with the minimum capital requirements (as discussed below) within six months following the effective date of the Regulation (by 4 November 2018, at the latest).
Some key takeaways of the Regulation are as below:
Controlling shareholder restrictions
Under the Regulation, e-money service providers (the Providers) comprise: (i) issuers; (ii) acquirers; (iii) principals; (iv) switching providers; (v) clearing providers; and (vi) settlement providers. Issuers and acquirers are considered front-end providers, while the rest are back-end providers. A Provider can only provide services in either the front-end or the back-end. For example, an issuer can also be an acquirer, but cannot be a principal. The rationale for this grouping is to avoid potential conflicts of interest in operating front-end as well as back-end services.
In addition, a party cannot become a Controlling Shareholder of non-bank Providers with the same licence (e.g. licence as e-money issuer). A party also cannot become a Controlling Shareholder of non-bank Providers that operate in both ends. The Regulation defines ‘Controlling Shareholder’ as a shareholder holding 25% or more shares with voting rights, or a shareholder holding less than 25% but having direct or indirect control. The definition is not entirely clear on whether an ultimate parent company of a group is considered a Controlling Shareholder of all the companies within the group. However, the restrictions seem to aim at restricting companies within the same group from (i) holding more than one e-money licence; and (ii) operating in different ends.
Foreign ownership restrictions
A non-bank e-money issuer is subject to a maximum 49% foreign ownership. The calculation of the foreign ownership percentage includes direct or indirect ownership as assessed by BI, for which BI will look to the ultimate shareholder or beneficial owner level, and take into account, among others, the benefits to the Indonesian economy. It is not clear yet how BI will implement the assessment of indirect ownership, e.g. whether a shareholding by a foreign investment company (PMA company) in an e-money issuer will be considered foreign ownership. To compare this with the general foreign investment regime, under the Indonesia Investment Coordination Board (BKPM) Regulation No. 13 of 2017 on the Guidelines and Procedures for Investment Licensing and Facilities, investments made by a PMA company are considered investments by a foreign direct investment. In other words, shareholding by a PMA company in another PT will be considered foreign ownership.
For a non-bank e-money issuer that is a public company, BI will only assess those shareholders holding 5% or more shares in such public company. This seems to suggest that even a public company (which is a non-bank e-money issuer) is also subject to the foreign ownership limit.
A non-bank e-money issuer that obtained its licence before the enactment of the Regulation needs to comply with the 49% foreign ownership limit if there is a change of ownership that results in the change in the foreign ownership. With the language used being ‘change of ownership’ and not ‘change of control’, it seems that BI intends to catch any change in shareholding composition of the non-bank issuer, regardless of the percentage.
BI, at its discretion, can also set a different foreign shareholding limit for a non-bank e-money issuer, subject to the applicable maximum limit of 49%. This can be read as if BI can restrict the foreign ownership limit even more, but not relax it.
Minimum capital requirements vis-à-vis floating fund
To control and mitigate liquidity and insolvency risks, the Regulation stipulates certain minimum paid-up capital and placement of Floating Fund requirements for a non-bank e-money issuer. Floating Fund is defined as the entire e-money value held by an e-money issuer as a result of the e-money issuances and top-ups that remain the liabilities of the e-money issuer towards the users and merchants.
The Regulation requires that, during the licence application process, a non-bank e-money issuer must have a paid-up capital of at least IDR3 billion. Afterwards, the paid up capital needs to be adjusted as below:
- If the Floating Fund is more than IDR3 billion up to IDR5 billion, the minimum capital is IDR6 billion;
- If the Floating Fund is more than IDR5 billion up to IDR9 billion, the minimum capital is IDR10 billion; and
- If the Floating Fund is more than IDR9 billion, the minimum capital is IDR10 billion plus 3% of the Floating Fund.
In addition, a non-bank e-money issuer needs to place a minimum 30% of the Floating Fund in a checking account (giro) in the BUKU 4 Category domestic banks (currently Bank Mandiri, BRI, BNI and BCA), subject to its monthly average liquidity requirements. For example, if a non-bank e-money issuer’s monthly average liquidity requirement is 25% of its Floating Fund, then the minimum 30% limit, as above, applies. However, if its monthly average liquidity requirement is 45%, then the minimum limit becomes 45%. The remaining portion of the Floating Fund (i.e. a maximum of 70%) must be placed in securities or financial instruments issued by the Government or BI, or in an account with BI.
Lock-up period
A non-bank Provider is prohibited from making a corporate action that can cause a change in its controlling shareholder to within five years as of the issuance of its e-money licence. An exemption may be granted by BI on a case-by-case basis, for example, if the Provider is suffering from financial difficulties and needs capital injection to survive.
The rationale for this restriction is to avoid the practice of what BI dubs ‘licence brokerage’. Given that BI carefully scrutinises all applications for e-money licenses, some business players believe that it would be much less time-consuming to simply buy a company that already has a licence. This lock-up period is an attempt to avoid applicants applying for a licence with the intention of selling the company forthwith to a buyer who wishes to get the licence without having to go through the application process with BI.
Closed-loop-specific rules
The Regulation recognises closed-loop e-money, which is defined as e-money that can only be used as a payment instrument for goods/services of the e-money issuer. Closed-loop e-money issuers with a Floating Fund of less than IDR1 billion are not subject to a licence requirement from BI. However, if an e-money issuer issues more than one closed-loop e-money product, for the purpose of the IDR1 billion threshold, the size of the Floating Fund is the aggregate Floating Fund of all closed-loop e-money products issued by such e-money issuer.