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December 24, 2008

Indonesian central bank to introduce new rules for financial products
Indonesia's central bank plans to introduce new rules covering the sale of financial products to the public following big losses by some individual investors, in a move welcomed by some financial industry participants, Reuters reported.

Bank Indonesia said earlier this week that it plans to issue more specific guidelines for banks that sell financial products, forcing them to spell out the investment risks.

The decision follows complaints in Indonesia in recent weeks about the sale of risky financial products which have led to financial losses among middle-class and high net worth investors.

Several wealthy Indonesians said they had been unaware of the risks when they bought structured products including notes issued by Lehman Brothers LEH.N which lost most of their value following the investment bank's collapse.

"Regulation will be a good thing because transparency is a must here. Do not cover something up so when the consumers buy the products they will have confidence in it," said Desimon, a director of PT Trimegah Securities.

"The consumers will know about potential gains and losses, and also what are the risks. It will not be like getting a pig in a poke. The banks should have people who are capable of explaining things in detail."

Bank Indonesia (BI) did not say when the new rules would be issued.

Last month, it imposed a limit on sales of structured financial products by commercial banks, but it wants to introduce a more detailed code of conduct for banks operating as selling agents in order to boost consumer confidence at a time of crisis.

"Many people are not aware of the pluses and minuses, the benefit and the loss, so when the global economy is facing difficulties and everybody is suffering losses, they felt nobody had explained the risks to them," said Muliaman Hadad, a deputy governor at the central bank, on Monday.

"BI will issue a regulation on what the banks must do as sellers of the products. They must not carelessly sell products which are not clear, so there has to be a set of principles or criteria for banks when they act as selling agents. We will also set guidelines for them as investors."

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