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SUMMARY OF REGULATION OF MEMBER OF BOARD OF GOVERNOR

Regulation of Member of Board of Governors No. 22/20/PADG/2020 on Settlement for Bilateral Transactions Between Indonesia and Japan Using Rupiah and Yen Through Bank

Effective Date           :  28 August 2020

Summary                   :

I.         Background

The Japanese Ministry of Finance and Bank Indonesia have agreed to implement the framework to promote the use of local currencies for settlement of bilateral transactions between Indonesia and Japan. It is part of ongoing effort to encourage wider use of local currencies to reduce dependency on a certain currency, which is expected to be able to support Bank Indonesia's duty to maintain exchange rate stability.

To support implementation of the agreement, Bank Indonesia has issued Bank Indonesia Regulation Number 22/12/PBI/2020 on Settlement for Bilateral Transactions Using Local Currencies Through Bank. As a guideline for implementation of this provisions, it is necessary to establish a regulation on implementation of financial activities and transactions under Rupiah and Yen LCS scheme, which among others include opening of special accounts in rupiah and yen, implementation of transactions in rupiah or foreign currency against yen, and provision of financing facilities in rupiah and yen.

II.          Regulation Materials

1. Indonesian ACCD Bank

a.       Criteria for Appointment of Indonesian ACCD Bank:

1. the Bank's health condition;
2. the Bank's ability to facilitate financial activities and financial transactions between Indonesia and Japan;
3. the Bank's ability to establish business relation with banks in Japan;
4. the Bank's office access in Indonesia; and
5. other criteria determined by Bank Indonesia and authority of Japan.

b.      Mechanism of appointment of a Bank as Indonesian ACCD Bank at least follows the following phases:

1. a candidate of Indonesian ACCD Bank submits an application to Bank Indonesia;
2. Bank Indonesia processes the application;
3. Bank Indonesia approves the appointment.
   
    

2. Financial Activities for the purpose of LCS Implementation

1. Opening of Rupiah SNA and Yen SNA;
2. Opening of Yen Sub-SNA;
3. Management of Yen SNA Balance;
4. Management of Balance of Yen Sub-SNA and Balance of Rupiah Sub-SNA;
5. Fund transfer; and
6. Financing.
   
    

3. Financial Transactions

a.     Transactions in rupiah against yen are the following forms:

1. spot transactions;
2. forward transactions;
3. swap transactions; and/or
4. other transactions determined based on agreement between Bank Indonesia and the Japanese authority.

b.     The transactions in rupiah against yen can be conducted by Indonesian ACCD Bank with:

1. another Indonesian ACCD Bank;
2. Japanese ACCD Bank;
3. Indonesian LCS Customer;
4. Indonesian non-ACCD Bank which acts for Indonesian LCS Customer interest; and/or
5. Japanese non-ACCD Bank for squaring position.

c.     Indonesian ACCD Bank may conduct Financial Transactions with:

1. Another Indonesian ACCD Bank;
2. Japanese ACCD Bank;
3. Japanese non-ACCD Bank which acts for an Indonesian LCS Customer; and/or
4. Japanese non-ACCD Bank based on an Underlying Transaction conducted by Indonesian LCS Customer,
   
   for implementation of squaring position.

d.     Transactions in rupiah against yen may be adjusted as follows:

1. rollover transactions;
2. early termination; and/or
3. unwind/cancel up,

which may only be conducted by:

1. netting transfer of principal fund;
2. at the maximum equal to the nominal amount of the Underlying Transaction;
3. according to the term of the Underlying Transaction; and
4. with the same Japanese ACCD Bank or Japanese non-ACCD Bank under an initial transaction contract.
   
    

4. NDF Transactions, Indonesian ACCD Bank is prohibited to conduct NDF transaction as specified in BI provisions for DNDF.

5. Underlying Transactions:

a.       Types of Underlying Transactions include:

1)      current account transactions;

2)      all direct investment activities between Indonesian LCS Customer and Japanese LCS Customer in any of the following forms:

1. investment between Indonesian LCS Customer and Japanese LCS Customer with minimum equity ownership of 10% (ten percent); or
2. intercompany loan in the same group; or

3)      other Underlying Transactions.

b.      Underlying Transaction documents are the following forms:

1. final Underlying Transaction documents; or
2. Underlying Transaction documents in an anticipatory basis, which are allowed only for current account transactions and calculated based on the income plan or payment requirement plan for maximum period of 1 (one) year. 

c.       Underlying Transaction documents for transactions in rupiah against yen:

1. Spot transaction between Indonesian ACCD Bank and Indonesian LCS Customer or Indonesian non-ACCD Bank which acts for Indonesian LCS Customer interest must be proven by final Underlying Transaction documents.
2. Forward and swap transactions between Indonesian ACCD Bank and Indonesian LCS Customer or Indonesian ACCD Bank which acts for Indonesian LCS Customer interest must be proven by final Underlying Transaction document or Underlying Transaction documents in an anticipatory basis.
3. The final Underlying Transaction documents Underlying Transaction in an anticipatory basis are required to be received by Bank Indonesia not later than the settlement date.

d.      Underlying Transaction Documents for Financing explain that the financing provided by Indonesian ACCD Bank is evidenced by final Underlying Transaction documents from Indonesian LCS Customer and is ensured that the documents are consistent with the Financing purpose.

6.   Price Quotation, in executing spot and forward transactions, Indonesian ACCD Bank is required to issue price quotation in yen against rupiah on the information provider at least once every Day, where the price quotation reflects the fair price and it is hittable.

7.   Evaluation and Termination of Appointment of Indonesian ACCD Bank:

a.     Bank Indonesia may terminate Bank's appointment as Indonesian ACCD Bank:

1. based on the joint evaluation result of Bank Indonesia and the Japanese authority;
2. in the event that the business license of the Indonesian ACCD Bank is revoked by the authorized authority;
3. in the event that the Indonesian ACCD Bank is not the result of  Corporate Actions; or
4. based on request of the Indonesian ACCD Bank.

b.     the Indonesian ACCD Bank in the process of business license revocation or in the planning to execute a Corporate Action is required to submit a letter of notification to Bank Indonesia.

 

8. Reporting Procedure:

a.     Indonesian ACCD Bank is required to prepare and submit periodic reports and incidental reports in relation to implementation of Rupiah and Yen LCS to Bank Indonesia.

b.     A periodic report includes the following 7 forms:

1. foreign exchange transactions;
2. open position of yen transactions in Yen SNA;
3. position of Yen SNA balance;
4. fund transfer;
5. position of balance and transaction history of Yen Sub-SNA;
6. position of Financing; and
7. balance and transaction history of a Rupiah SNA owned by Japanese ACCD Bank,

which constitute data within 1 (one) reporting period namely from the first until the last day of the corresponding month.

c.     Incidental reports are the following forms:

1. balance and transaction history of Rupiah Sub-SNA owned by Japanese LCS Customer at Japanese ACCD Bank; and
2. other reports if deemed necessary.
   
    

9. Correspondence:

1. Correspondences for appointment of Indonesian ACCD Banks, implementation of Rupiah and Yen LCS, and termination of appointment of Indonesian ACCD Bank are addressed to DPPK; and
2. Correspondences for reports are addressed to DPKL.
   
    

10.  Mechanism for Sanction Imposition, Bank Indonesia will impose a sanction in the form of written warning to any Indonesian ACCD Bank which breaches the provisions and the copy of such written warning is sent to the relevant authority.

 

11.  Closing provisions, this Regulation comes into force on the date of its issued.