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NEWS UPDATES Asean Affairs   27 November 2010

Indo plans new financial authority

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Indonesia on Friday adopted a radical restructuring of the way banking and financial services are policed with an agreement to set up a new supervisory authority.

A House of Representatives working committee discussing a draft bill on the Financial Services Supervisory Authority, known as the OJK, agreed on Friday that its board of commissioners would have their full powers by Jan. 1, 2013.

"The board of commissioners will be formed no later than six months after the law is passed," said Harry Azhar Azis, deputy chairman of the House's Commission XI, which oversees finance and banking. The House expects the bill to be passed before the end of this year..

The OJK is supposed to take supervisory function over banks from Bank Indonesia and take control of the Capital Market and Financial Institution Supervisory Board (Bapepam-LK), which not only regulates securities markets but also non-banking financial institutions such as insurance firms, pension funds and brokerages. Bapepam would be separated from the Finance Ministry and put under the OJK.

The need for such a superbody was spurred by the 1997-98 Asian financial crisis, with the aim of preventing another banking meltdown.

The idea to establish the OJK came in 2004 when lawmakers saw flaws in the ability of Bank Indonesia to monitor the country's hundreds of commercial banks.

The 2004 central bank law said the authority had to be established by Dec. 31 this year, but the drafting of the law has been slow as Bank Indonesia, keen to retain the power to oversee the nation's banks, has said the stability of the financial system may be put at risk. The government finally submitted the bill on June 12.

One issue seen as a spur to efforts to push the bill through was the row over the state bailout of Bank Century to the tune of Rp 6.7 trillion ($745 million) in 2008, which was blamed on mismanagement and poor oversight by the central bank.

Business is putting high hopes on the OJK to help improve the banking system, particularly the performance of local banks.

Speaking on Thursday, James Riady, vice chairman of Lippo Group, to which the Jakarta Globe is affiliated, said better supervision by the OJK would help reassure customers.

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