In January 2023, Indonesia passed Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (P2SK Law), granting the Financial Services Authority ("OJK") the authority to regulate and oversee financial services activities in the carbon exchange sector. Subsequently, OJK issued OJK Regulation No. 14 of 2023 on Carbon Trading through Carbon Exchange ("OJK Regulation"), providing guidelines for carbon exchange operators and participants. The Indonesia Stock Exchange ("IDX") was later approved as the operator of the carbon exchange, allowing businesses to commence trading in carbon units. On 26 September 2023, President Joko Widodo officially launched the carbon exchange.
The OJK Regulation defines carbon units as proof of ownership of carbon in the form of certificates or approvals, recorded in the National Registry System for Climate Change Control (SRN PPI). Carbon units can be traded directly between parties or through the carbon exchange, with IDX being the current operator. Foreign carbon units must meet certain requirements for trading on foreign carbon exchanges. OJK's role in carbon trading includes regulating, licensing, supervising, and assessing the competence of individuals involved in carbon exchange operations. In addition, OJK may impose sanctions for violations. These efforts aim to establish an accountable market mechanism to meet emission reduction targets, though challenges such as preventing double selling of retired carbon units and integrating with offshore registries and exchanges remain. Future regulations may be needed for carbon trading through private placement, as OJK's mandate is limited to carbon trading through the exchange.
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On 8 September 2023, the Ministry of Trade and Industry Singapore (MTI) announced that Singapore and Indonesia have signed a Memorandum of Understanding ("MOU") to strengthen cross-border electricity trade ("September 2023 MOU"). Under the September 2023 MOU, both countries undertake to jointly support the development of commercial projects for cross-border trading of low-carbon electricity, facilitate the implementation of such projects in accordance with their respective laws, and work together on both countries' interconnectivity for cross-border electricity trading.
The September 2023 MOU builds on existing Memoranda of Understanding inked by Singapore and Indonesia aimed at enhancing energy collaboration between the two countries for the benefit of the businesses and their citizens. These include the MOU on Renewable Energy Cooperation signed in March 2023, and the MOU on Energy Cooperation signed in January 2022.
On a related note, Singapore's Energy Market of Authority (EMA) announced that it has also granted Conditional Approvals ("CAs") to five projects to allow them to import a total of two gigawatts ("GW") of low-carbon electricity from Indonesia. The CAs will enable the companies managing the projects to obtain the necessary approvals and licences for their projects including the setting up of manufacturing plants for solar photovoltaics (PV) and battery energy storage systems (BESS) in Indonesia.
The September 2023 MOU brings Singapore a step forward towards achieving its target to import up to import up to four GW of low-carbon electricity by 2035. This supports the decarbonisation efforts of both Singapore and Indonesia, and will pave the way for businesses to explore new investment areas in renewable energy.
On 25 August 2023, Bank Negara Malaysia ("BNM") announced that Bank Indonesia, Bank of Thailand and BNM concluded the signing of three bilateral Memoranda of Understanding ("MOUs"), which relate to the Framework for Cooperation to Promote Bilateral Transactions in Local Currencies between the countries ("Framework"). The MOUs expand the scope of the Framework to include more eligible cross-border transactions beyond trade and direct investment. This will be implemented gradually.
The MOUs will fortify cross-border economic activities, improve regional financial market stability, and deepen local currency markets in the three countries. They will also synergise with cross-border payment initiatives for more accessible and efficient local currency settlements.
The MOUs supersede the MOUs on local currency settlement framework which were signed by the three central banks in August 2015 and December 2016.
In a significant development for Indonesia's cryptocurrency ("crypto") market, the Commodity Futures Trading Regulatory Agency or Badan Pengawas Perdagangan Berjangka Komoditi ("Bappebti") has approved the establishment of key institutions to regulate and facilitate crypto transactions. These institutions are: (i) PT Bursa Komoditi Nusantara, which is authorised to run the crypto asset bourse; (ii) PT Kliring Berjangka Indonesia, which is authorised to serve as the crypto assets clearing house; and (iii) PT Tennet Depository Indonesia, which is authorised to serve as the crypto assets custodian. The establishment of these institutions marks the fulfilment of Bappebti's mandate to establish these institutions, which are integral to enhancing transparency and safety in the Indonesian crypto market. With the full establishment of these institutions, crypto traders and consumers can expect a more regulated and secure environment for their digital asset transactions.
Bappebti recently published Circular Letter No. 203/BAPPEBTI/SE/07/2023 on the national crypto market key institutions ("Circular"). Some key aspects of the Circular include the exclusivity requirement for approved crypto asset bourses to focus solely on crypto asset transactions and not engage in other commodities. Moreover, a moratorium has been imposed on new registrations for crypto asset bourses, clearing houses, and custodians. Crypto asset broker candidates now have one month to apply for Bappebti's approval as fully licensed brokers, with a one-year deadline to meet the requirements outlined in Bappebti Regulation No. 8 of 2021 (as amended). These requirements include a minimum capitalisation of IDR100 billion (approximately US$6.5 million), and compliance with specified standard operating procedures. Existing crypto asset broker candidates will also need to adhere to these requirements within one year of obtaining their registration certificate.
These regulatory developments reflect Indonesia's commitment to creating a well-regulated and secure crypto market while signalling the impending transition from Bappebti to the Financial Services Authority (OJK) as the regulating authority for the crypto sector. Stakeholders should closely monitor forthcoming implementing regulations under Law No. 4 of 2023 on Financial Sector Development and Reinforcement (PPSK Law) for further details on this transition.
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Starting from 1 August 2023, exporters of natural resource products, which for now covers only those produced from mining, plantation, forestry, and fishery businesses, must place at least 30% of the proceeds generated from the export of these products, known as Foreign Exchange Export Proceeds from the Export of Natural Resources Goods or Devisa Hasil Ekspor dari Barang Ekspor Sumber Daya Alam ("DHE SDA"), in the country's financial system. This requirement under Government Regulation No. 36 of 2023 ("Regulation") aims to ensure that the rapid growth in the export of natural resources is accompanied by a proportional growth of foreign exchange proceeds held within Indonesia's domestic financial system, enhancing the nation's profitability. The Regulation introduces a "reward and punishment" approach by offering incentives for compliance while imposing sanctions for non-compliance.
Under the Regulation, exporters are mandated to place a specified percentage of DHE SDA in a special account and maintain it for at least three months. The rule applies to exporters with DHE SDA of at least US$250,000 recorded in their Exports Custom Notification or Pemberitahuan Pabean Ekspor ("PPE"). While the Regulation has a broad scope, it excludes exports not involving foreign exchange and barter trades. Exemptions also apply to exporters with PPE registrations predating 1 August 2023, and those already monitored by Bank Indonesia or the Financial Services Authority (OJK) under the previous regulatory regime. To incentivise compliance, the Regulation offers tax benefits for income generated from DHE SDA placed in approved financial institutions. The Government has also issued a separate regulation with more lenient sanctions for non-compliance, including the suspension of export services. These changes reflect Indonesia's commitment to aligning economic development with the export of natural resources, and exporters in the specified sectors must adjust their business plans to accommodate this regulatory shift.
Additional implementing regulations may be expected in the future to provide further details on the incentives offered under this new Regulation.
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In a recent regulatory development, the Indonesia Stock Exchange ("IDX") has introduced the Watchlist Board, aimed at enhancing transparency and investor protection in the country's capital market. Previously, companies exhibiting unusual market activities were placed on a Special Monitoring List without having a dedicated listing board. With the introduction of the Watchlist Board through the Board of Directors of the IDX Decree, these issuers are now formally recognised, allowing investors to easily identify companies with atypical market behaviours. The move reflects IDX's commitment to creating a more organised and investor-friendly market.
The criteria for companies to be included on the Watchlist Board are diverse, including low share prices, audited financial reports with disclaimer opinions, lack of revenue, negative equity, non-compliance with listing requirements, low liquidity, and more. Importantly, IDX has provided a structured process for the inclusion and removal of companies from the Watchlist Board based on their financial performance and compliance with specific conditions.
The establishment of the Watchlist Board is expected to rejuvenate investor interest in the Indonesian capital market, as it enhances transparency, aids in investor decision-making, and encourages companies to maintain the quality of their securities to avoid suspension. This regulatory change provides a proactive approach for listed companies to improve their performance and secure investor trust before their shares face potential trading suspension.
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The implementation of Government Regulation No. 24 of 2022 on Creative Economy ("Regulation") has opened new opportunities for businesses in Indonesia to utilise intellectual property ("IP") assets as collateral for obtaining financing from banks and non-bank financial institutions. This regulatory change marks a critical development in Indonesia's IP regime and is poised to bolster the creative economy ecosystem. However, as the Regulation comes into effect, there are key steps that the Government, business owners, and lenders must take to ensure its effective implementation. Among the essential actions required are:
- the establishment of a public database by the Directorate General of Intellectual Property ("DGIP") to maintain records of encumbered IP assets;
- providing clarity on enforcement procedures for these assets; and
- the establishment of standardised guidelines for financial institutions regarding IP-based financing to be issued by the Financial Services Authority (OJK).
Business owners planning to utilise their IP as collateral need to conduct IP audits, register or record their IP assets with DGIP, and develop commercialisation strategies for their IPs. Commercialisation, such as generating revenue or royalties, is a critical factor for IP assets to be eligible for collateral. Lenders and financial institutions must also be prepared to handle applications for IP-based financing by allocating resources and establishing procedures to evaluate and process these applications. Additionally, their staff should be equipped with expertise in IP and IP valuation through competency training and courses.
The successful implementation of IP-based financing in Indonesia promises to enhance the economic landscape, boost creativity, and provide access to capital for businesses that leverage their IP assets.
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