Finance Markets

Financial Conglomerate Must Form Holding Company

Financial Services Authority (FSA) said financial conglomerate (KK) with a minimum asset value of IDR 2 trillion is required to have a holding company. The parent company is responsible for the risk management, corporate governance, and integrated capital of its subsidiaries.

Agus Siregar, Deputy Commissioner of FSA for Integrated Supervision, said that FSA is preparing a draft of FSA regulation on Financial Holding Company to complement and strengthen integrated supervision policy on financial conglomerate. The current system with the concept of the Main Entity has a disadvantage because it has no control over other financial services institutions that are members of financial conglomerate which makes it difficult to apply risk management, governance and integrated capital.

“Some countries, such as Malaysia, South Korea and Singapore are implementing the rules of Financial Holding Company, which can consolidate and control all financial conglomerate activities,” said Agus. This policy will result a change in ownership structure if there is financial service institution not owned directly or indirectly by entity that was appointed as Financial Holding Company.

According to POJK No.17/POJK.03/2014 on the Implementation of Integrated Risk Management to Financial Conglomeration, Financial Services Institutions that are in one group due to ownership and/ or management, are considered financial conglomerate. There are currently 48 households with total assets of IDR 5,919 trillion or 67.6 percent of total entire financial services sector asset. Agus said that Financial Holding Company will facilitate Controlling Shareholder or Last Controlling Shareholder to monitor the development of its financial services business.

This rule is expected to be published by the end of 2017 and will be applied on January 1, 2019. “Some financial conglomerates need to hold General Meeting of Shareholders in 2018 to establish holding company. The more complex the ownership structure will affect the required period to form holding company,” said Agus. (*)

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