Licensing and Spin-Off Requirements of Sharia Units
Authors
Effective on 12 July 2023, OJK Regulation No. 12 of 2023 (“OJK Reg 12/2023”) introduces a significant change for Sharia Business Units (Unit Usaha Syariah or “UUS”) in Conventional Commercial Banks (Bank Umum Konvensional [1] or “BUK”). This regulation aims to simplify how UUS are regulated by combining several current rules into one. A key aspect of OJK Reg 12/2023 is that it encourages UUS to become independent from their conventional counterparts, thereby evolving into separate Sharia Commercial Banks (Bank Umum Syariah [2] or “BUS”), in alignment with Law 4/2023.
OJK Regulation No. 12 of 2023 supersedes and replaces earlier regulations [3], this new rule obligates any Conventional Commercial Bank (BUK) wishing to conduct Sharia-compliant business to set up a Sharia Business Unit (UUS), and this initiative should be part of the BUK’s overall business strategy. Non-compliance with these guidelines may lead to imposition of penalties, including the possibility of suspension of the UUS’s operations.
For the purpose of this article, we will concentrate on three critical aspects: (1) the procedure of obtaining business permit; (2) the minimum capital requirements for the establishment of UUS; and (3) prerequisite conditions leading to mandatory spin-offs.
1. Licensing for Sharia Units
To set up a UUS, a BUK must first obtain a business license from OJK.l by submitting a detailed plan along with the mandatory documents as detailed in Appendix I of OJK Reg 12/2023. The procedure of obtaining UUS Business License has been streamlined and now includes the following steps:
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Assessment of BUK’s commitment to establish UUS.
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Interviews with prospective members of the Sharia Supervisory Board (Dewan Pengawas Syariah or "DPS") [4].
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Interviews with the President Director and President Commissioner of BUK, as well as prospective directors of UUS.
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Evaluation of the explanation provided by BUK.
The OJK Reg 12/2023 has simplified the issuance of UUS business permit by eliminating a number of process, including tbe analysis of feasibility study; customer satisfaction; financial stability; and legal considerations for spinning off a UUS into an independent BUS. Instead of being conducted seperately, these aspects are now consolidated into one evaluation process, namely, “the evaluation of statements submitted by BUK”. Additionally, the interview process has been expanded to include not only the prospective directors of the UUS and DPS member, but also the BUK’s top executives.
2. Minimum Capital Requirements
Previously, UUS had to maintain a minimum capital of Rp100.000.000.000 (one hundred billion Rupiah) in which it has to be set aside in the form of cash.[5] However, OJK Reg 12/2023 stipulates several changes, categorizing the minimum capital requirements for UUS into three groups: (1) New UUS; (2) Existing UUS; (3) Existing UUS owned by a regional government bank (Bank Pemerintahan Daerah [6] or “BPD”). This regulation also specifies the time frame for existing UUS to meet their new capital requirements. The details are set out below:
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New UUS (those established after the OJK Reg 12/2023), must have minimum capital of Rp1.000.000.000.000 (one trillion Rupiah)[7];
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Existing UUS must increase their capital to Rp500.000.000 (five hundred billion Rupiah) by 31 December 2023, and then to Rp1.000.000.000.000 (one trillion Rupiah) by 31 December 2024 [8] ;
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Existing UUS owned by a BPD have until 31 December 2024, to increase their capital to Rp500.000.000 (five hundred billion Rupiah) and until 31 December 2025, to reach Rp1.000.000.000.000 (one trillion Rupiah) mark [9].
If an existing UUS fails to meet the newly required minimum capital within the specified period, they are required to sell their assets to other existing BUS or UUS. This transfer/sale of assets must be approved by OJK, and the approval should be secured within 6 (six) months after the applicable deadline. [10]
Should an existing UUS also fails to execute such transfer/sale of assets, the parent BUK has to submit an application for revocation of the UUS Business License to the OJK within 3 (three) months after the expiry of asset transfer/sale application period. [11]
3. Conditions Leading to Mandatory Spin-offs
OJK Reg 12/2023 mandates that if UUS of BUK holds over 50% of the total assets of the parent BUK, or has amassed assets exceeding Rp50.000.000.000.000 (fifty trillion Rupiah), it is required to be spun-off (segregated) from its parent BUK. [12] This asset threshold will be evaluated by the OJK based on the UUS’s quarterly financial reports. [13]
Should a BUK fails to comply withthis spin-off requirement, it will be subject to a severe sanction in the form of revocation of its UUS Business License, which means it will prohibited fromoperating or engaging in Sharia-based business activities. Additionally, the BUK is required to publicly announce the revocation of the UUS Business License through public newspapers, its own website, and/or its social media platform(s).
Conventional Commercial Banks (BUK) are banks that carry out conventional business activities and in their activities provide services in payment traffic. ↩︎
Sharia Commercial Banks (BUS) are banks that carry out business activities based on sharia principles and in their activities provide services in payment traffic. ↩︎
Bank Indonesia Regulation No. 11/10/PBI/2009 as amended by Bank Indonesia Regulation No. 15/14/PBI/2013 (“BI Reg 10/2009”) and OJK Regulation No. 59/POJK.03/2020 (“OJK Reg 59/2020”). ↩︎
DPS is the party tasked with providing advice and suggestions to the BOD as well as supervising UUS activities so that they comply with Sharia Principles (Article 1 (14) OJK Reg 12/2023). ↩︎
Article 4 of BI Reg 10/2009. ↩︎
Regional government banks (BPD) are commercial banks owned by the regional government, both the deed of establishment and the capital and profits are also owned by the regional government. ↩︎
Article 3 (1) of OJK Reg 12/2023. ↩︎
Article 3 (2) of OJK Reg 12/2023. ↩︎
Article 3 (3) of OJK Reg 12/2023. ↩︎
Article 4 (1-3) of OJK Reg 12/2023. ↩︎
Article 4 (4) of OJK Reg 12/2023. ↩︎
Article 59 (1) of OJK Reg 12/2023. ↩︎
Article 59 (2) of OJK Reg 12/2023. ↩︎
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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