A Closer Look at ITSK: Indonesia’s Bold Step in Financial Sector Development with Law 4/2023

In early 2023, the Government of the Republic of Indonesia introduced Law Number 4 of 2023, aimed at the Development and Strengthening of the Financial Sector (referred to as “Law 4/2023”). This legislation revises and introduces new measures within existing financial laws, addressing current challenges and opening new opportunities for industry stakeholders. A key area of interest highlighted in our newsletter is the concept of Technology Innovation within the Financial Sector (Inovasi Teknologi Sektor Keuangan, or ITSK), which is detailed in Chapter XVI of Law 4/2023. ITSK is defined as technological innovation that influences products, activities, services, and business models in the digital financial ecosystem.

ITSK encompasses various areas including payment systems, securities transaction settlements, capital gathering, investment management, risk management, funds collection/distribution, market support, activities related to digital financial assets (including crypto assets), and other digital financial services activities. ITSK initiatives can be leveraged to support economic and financial activities, including those based on Sharia Principles, as sanctioned by the relevant fatwa-issuing sharia authority. Entities involved in ITSK are Financial Services Institutions and other parties engaged in the financial sector, operating in compliance with legal and regulatory provisions. ITSK organizers are required to be legally established as a limited liability company or other legal entities as mandated by law.

Compliance with licensing requirements set by Bank Indonesia or the Financial Services Authority is mandatory for ITSK organizers, based on their respective jurisdictions. The regulation and supervision of ITSK fall under the purview of Bank Indonesia and the Financial Services Authority. Their scope includes providing spaces for trial and innovation development (sandbox), licensing, monitoring, evaluation, financial education, consumer protection, personal data protection, institutional aspects, and the management of ITSK, including third-party activities supporting ITSK.

Bank Indonesia and the Financial Services Authority are responsible for establishing mechanisms and procedures for the sandbox testing of ITSK. They are also entitled to coordinate with various ministries, agencies, and entities within the ITSK framework.

ITSK organizers are required to be members of an association recognized by Bank Indonesia and the Financial Services Authority, adhering to their regulatory competencies. Additionally, organizers must regularly provide data, information, and reports to Bank Indonesia or the Financial Services Authority as per their regulatory requirements.

FKNK Law Firm

Note: If you have any questions on this matter, you may contact our lawyers:

Partner, Widyantoro ([email protected])

Associate, Seyba Nabilla ([email protected])