I. It is related to the function of Central Bank, of OJK and unconstitutionality of Law of OJK against 1945 Constitution.
· About the Function of Central Bank
1. Whereas the provisions regarding Central Bank is regulated in Article 23D of 1945 Constitution where it is mentioned therein that the State has one central bank, whose formation, position, authority, responsibility and independence are governed by virtue of the Law.
2. The provisions of Central Bank was then set forth by virtue of Act Number 23 of 1999 in juncto (in connection with) Act Number 3 of 2004 juncto Act No.6 of 2009 concerning Bank Indonesia (Act of Bank Indonesia).
3. According to Act of Bank Indonesia, Bank Indonesia’s objective is to achieve and maintain IDR Value stability (Article 7), where to achieve the objective, Bank Indonesia shall carry out sustainable, consistent , and transparent monetary policy, which shall have regard to government’s public policy in economy (Article 7 Section (2) of Act of Bank Indonesia)
4. IDR value stability as referred to above is the IDR stability against goods and services as well as against foreign currencies, by which the stability is measured by virtue of inflation rate, while the stability against foreign currencies is measured by foreign exchange rate (Explanation of Article 7 under Act of Bank Indonesia).
5. To achieve the objective, Bank Indonesia has other tasks, inter alia, (a) to determine and execute monetary policy; (b) to regulate and maintain smoothness of payment system; (c) to regulate and supervise banks (Article 8 of Act of Bank Indonesia).
6. The task of “Regulating and Supervising Banks” is specifically set forth in the provisions of Article 24 through 35 of Act of Bank Indonesia.
7. Whereas Act of Bank Indonesia constitutes a regulation established to replace the regulation governing previous Central Bank enshrined under Act Number 13 of 1968 concerning Central Bank, which cites the two main tasks of Central Bank, that is, first, to assist Government in regulating, keeping and maintaining IDR value stability, and secondly, to assist Government in promoting smoothness of production and development as well as broadening employment; to improve people’s wellbeing (Article 7 of Act Number 13 of 1968).
8. Then to execute the main tasks, Central Bank shall carry it out based on the policy determined by Government, where in determining the policy, the Government is assisted by a Monetary Council (Article 8 Section (1) and (2) of Act Number 13 of 1968.
9. Against one of the tasks of Bank Indonesia, namely "regulating and supervising banks" enshrined in Article 8 of the Law of Bank Indonesia, then it is separated and reintegrated with the regulatory and supervisory functions on the Capital Markets and Insurance, Pension Funds, Financing Institutions, and other Finance Service Institutions by forming a body referred to as Finance Service Authority (OJK).
II. Concerning Function and Authority of OJK
1. Act of Bank Indonesia in the provisions of Article 34 Section (1) states that “the Task of supervising Banks will be carried out by an independent finance service institution, which is formed by virtue of Law.
· Based on the provisions of the said Article, an institution was formed, which has a function of organizing regulatory and supervisory system integrated into all activities in finance service sector referred to as Finance Service Authority (OJK) as enshrined in the provisions of Article 5 of Act Number 21 of 2011 concerning Finance Service Authority.
· Whereas as mentioned above, the function of regulating and supervising banks is included in the sphere of finance service of which the regulation and supervision will be carried out independently and separately. This function was previously the domain and authority of Bank Indonesia as governed under Act of Bank Indonesia.
· OJK itself has two main authorities, namely regulation and supervision of nearly all finance services. In terms of Regulation, OJK can spread a variety of policies and new regulations in finance sector. Meanwhile, in terms of supervision, OJK has broad authority including, among other things, supervision, investigation, licensing and law enforcement. From a viewpoint of content and coverage, Act of OJK covers not only banking supervision, but supervision of capital market industry and non-bank finance industry as well. (See provisions of Article 1 of Act of OJK).
· The establishment of OJK was also based on development of finance system has become very complex, where complexity of the issue includes product, transactions and interaction amid finance service institutions as a result of conglomeration of ownership of the finance service institutions.
· Initiation of establishing OJK historically constitutes a mandate of the letter of intent (LoI) between IMF and Government of Indonesia, in which OJK has no direct derivative of 1945 Constitution. This was then worsened by experiences of several countries where similar Institutions like OJK did not give significant impact; such institution even failed in the U.K.
· Establishment of OJK was also based on the fact concerning Bank Century Case, where customers were deceived by a sale of Antaboga Discretional fund, which was not banking product. Development of variety of financial product, which was a mixture of or combining banking to insurance or vice versa. As an example, an insurance product being used at the same time for investment referred to as Unit-Link, which in fact has not yet existed or did not exist in Act of Indonesian Insurance.
· Constitutionally, OJK's legal base is not clearly stated in 1945 Constitution, whether it has a mandate or is derived from Articles, where each authority obtained by OJK (Banking, Capital Market and Insurance as well as other finance institutions) comes from asymmetrical derivatives. Banking itself constitutes direct derivative of Article 23 under 1945 Constitution, which governs Central bank, while Capital Market and Insurance as well as other finance institutions come from the Act.
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