Banking is any matter related to banks, which cover institutional aspects, business activities, and methods as well as processes in the carrying out of business activities. The enactment of the P2SK Law led to several changes to previous banking-related regulations, including Law 7/1992 and Law 21/2008, in order to achieve the aims and objectives of the P2SK Law.

1. AHRP Legal Alert Page 1 of 9
Legal Alert May 2023
An Outlook on Indonesian Banking Sector
Regulation Post P2SK Law
I. Introduction
To address the ever-increasing complexity, the effect of technological
advancements and global pandemic on financial sector, the Indonesian House of
Representatives has initiated and passed the Bill on the Development and
Reinforcement of Financial Sector (Pengembangan dan Penguatan Sektor
Keuangan) (“P2SK Bill”) in December 2022.
On 12 January 2023, the Government of Indonesia enacted the P2SK Bill into Law
Number 4 of 2023 on the Development and Reinforcement of Financial Sector
(“P2SK Law”). Formed with the omnibus method, P2SK Law is set to streamline
the amendment, revocation, and introduce the new provisions on Indonesian
financial sector regulations.
P2SK Law is aimed to encourage the contribution of financial sector for inclusive,
sustainable, and equitable economic growth in order to improve the living
standards of the public, reduce economic inequality, and realize a prosperous,
advanced, and dignified Indonesia.1 Consist of 27 chapters and 341 articles, PS2K
Law reforms the laws and regulations relating to the financial sector ecosystem,
including but not limited to:2
1. banking;
2. capital market, money market, and foreign exchange market;
3. insurance and guarantee;
4. pension funds;
5. financial literacy, financial inclusion, and consumer protection;
6. access to financing for micro, small, and medium enterprises; and
7. financial system stability.
In addition, P2SK Law strengthens the institutional aspects of Indonesian financial
sector authorities, including but not limited to the Central Bank of Indonesia,
Financial Services Authority (Otoritas Jasa Keuangan), Indonesia Deposit
Insurance Corporation (Lembaga Penjamin Simpanan), and the Financial System
Stability Committee (Komite Stabilitas Sistem Keuangan).
In developing and reinforcing the financial sector through the arrangement of
banking and sharia banking sector, P2SK Law amends, revokes, and/or stipulates
the new provisions that are previously regulated in the:
1. Law 7/1992 in regard to banking; and
2. Law 21/2008 in regard to sharia banking.
This Legal Alert will further highlight the notable provisions and key changes of the
above regulations under P2SK Law.
1
Art. 3 (1) P2SK Law.
2
Art. 4 P2SK Law.
Banking is any matter
related to banks, which
cover institutional
aspects, business
activities, and methods
as well as processes in
the carrying out of
business activities. The
enactment of the P2SK
Law led to several
changes to previous
banking-related
regulations, including
Law 7/1992 and Law
21/2008, in order to
achieve the aims and
objectives of the P2SK
Law.

2. AHRP Legal Alert Page 2 of 9
II. Notable Provisions on Banking Sector Regulation Under P2SK Law
1. Revamping the Role of Financial Services Authority over Indonesian
Banking Sector
Upon the enactment of P2SK Law, several provisions were added to catch
up with the latest development in the banking sector, along with the role and
function of relevant financial sector authority. One of the pertinent authorities
is the Financial Services Authority, which is an independent state institution
that has the function, duty, and authority over financial services activities in
the banking sector.3
P2SK Law extends the scope of Affiliated Parties in Law 7/1992, in a way it
also shifts the authority of assessing bank’s affiliated parties from Central
Bank of Indonesia to the Financial Services Authority. Accordingly, one of
the Affiliated Parties defined by P2SK Law includes the parties who, in
accordance with the assessment of the Financial Services Authority,
influence the management of a bank, either directly or indirectly, among
others, parties who have family relationship due to marriage and descent up
to the second degree, both horizontally and vertically, with members of the
board of commissioners or their equivalent, members of the Sharia
Supervisory Board4, members of the board of directors or their equivalent or
their proxies, officials or employees of a bank.5
With the passing of the P2SK Law, the Financial Services Authority in
exercising bank supervisory duties now has the authority to:6
a. request banks to collect and submit data/documents from any place
related to banks;
b. request banks to collect and submit data/documents and information
from any parties which, according to the assessment of the Financial
Services Authority, have influence over banks; and
c. order banks to block certain accounts.
The above-mentioned provisions will be regulated further by the regulation
of the Financial Services Authority.7
In a bid to encourage efficiency to support the financing of the economy, the
Financial Services Authority, upon consultation with the Indonesian House
of Representatives, shall set up the rules relating to the implementation of
interest rate transparency.8 In addition, the Financial Services Authority will
also be responsible for setting-up further provisions on how the commercial
3
Art. 1 (6) P2SK Law jo. Art. 6 (1) (a) Law 21/2011.
4
Based on Art. 1 (25) P2SK Law, Sharia Supervisory Board is a party that has the duties
and function of supervising the organization of company/legal entity activities so that they
comply with Sharia Principles.
5
Art. 1 (21) (d) Law 7/1992.
6
Art. 36A (1) Law 7/1992.
7
Art. 36A (2) Law 7/1992.
8
Art. 8A (2) Law 7/1992.

3. AHRP Legal Alert Page 3 of 9
and sharia banks may open the access to Customer’s9 data and information
to other financial organizers based on the approval and for the interests of
Customers.10
Further, if the bank endures difficulties that may endanger its business
continuity, the Financial Services Authority, among others, has the authority
to:11
a. limit the authority of the general meeting of shareholders or its
equivalent, commissioners or its equivalent, directors or its
equivalent, and shareholders or its equivalent;
b. request and/or order shareholders or the equivalent to increasing their
capital;
c. appoint a statutory manager and instruct banks to support the
implementation of the duties of the statutory manager placed in
banks;
d. request banks to conduct a merger or a consolidation with other
banks; and/or
e. limit certain business activities of banks.
The P2SK Law also emphasizes coordination between the Financial
Services Authority, Indonesia Deposit Insurance Corporation, and Bank
Indonesia should bank still endure difficulties even after the Financial
Services Authority took the above measurements.12
2. Strengthening the Role of Rural Economic Bank and Sharia Rural
Economic Bank
2.1. Rural Economic Bank
The enactment of P2SK Law changes the terminology of Bank Perkreditan
Rakyat to Bank Perekonomian Rakyat (“Rural Economic Bank”). In this
case, changes in the nomenclature of Rural Economic Bank shall be
conducted no later than 2 (two) years from the promulgation of P2SK Law.13
P2SK Law stipulates that Rural Economic Bank is a bank that carries out
business activities conventionally or based on Sharia Principles14 and which,
in its activities, does not directly provide services in demand deposit flow.15
P2SK Law also expands the business activities of the Rural Economic Bank
that are previously regulated in Law 7/1992, which include:16
9
Based on Art. 1 (16) Law 7/1992, Customer is a party who utilizes the services of a bank.
10
Art. 7A (4) Law 7/1992 and Art. 21B (4) Law 21/2008.
11
Art. 37 (1) Law 7/1992.
12
Art. 37 (2) Law 7/1992.
13
Art. 314 (c) P2SK Law.
14
Based on Art. 1 (13) Law 7/1992, Sharia Principles are the principles of Islamic law based
on fatwas and/or sharia conformity statements issued by the institution that has the authority
to establish fatwas in the sharia sector.
15
Art. 1 (4) Law 7/1992.
16
Art. 13 (1) Law 7/1992.

4. AHRP Legal Alert Page 4 of 9
a. distribution of funds in the form of credit or Sharia-Based Financing17;
b. carrying out fund transfer activities for their interests or the interests
of Customers;
c. placing funds in other banks, borrowing funds from other banks, or
lending funds to other banks;
d. carrying out business activity of foreign currency exchange;
e. carrying out capital participation in Rural Economic Bank's supporting
institutions in accordance with the restrictions set out in provisions of
laws and regulations;
f. conducting cooperation with other LJK18 and cooperating with non-
LJK in the provision of financial services to Customers;
g. carrying out receivables transfer activities; and/or
h. carrying out other activities with the approval of the Financial Services
Authority.
In connection with the explanation above, Law 7/1992 previously prohibited
Rural Economic Bank from participating in transactions, conducting
business activities in foreign currency, carrying out capital participation, and
conducting insurance business. However, P2SK Law has changed the
prohibition for Rural Economic Bank above.19 The prohibition of Rural
Economic Bank in the P2SK Law is intended to adjust to the business
activities of Rural Economic Bank, which are primarily intended to serve but
are not limited to micro and small enterprises and communities in the local
area.20
Furthermore, P2SK Law changes the provision related to the legal entity
form of Rural Economic Bank, which was initially regulated through Law
7/1992 and GR 71/1992, namely one of the regional-owned enterprise,
cooperative, or limited liability company, to only be in the form of:21
a. cooperative; or
b. limited liability company.
Hence, a Rural Economic Bank in the form of legal entities other than a
limited liability company or cooperative that already existed before the
enforcement of P2SK Law may still conduct business activities as Rural
Economic Bank and are given the opportunity for a maximum of 3 (three)
years to change the form of legal entity in accordance with P2SK Law.22
17
Based on Art. 1 (12) Law 7/1992, Sharia-Based Financing is the provision of funds or
billing equivalent to it based on an approval or an agreement between a Bank and other
parties which require the borrower to return said fund or billing after a certain period with
rewards or profit sharing.
18
Based on Art. 1 (10) P2SK Law, Financial Services Institution (Lembaga Jasa Keuangan)
(“LJK”) is the institution that carries out activities in the sectors of banking, capital market,
insurance, pension funds, financing institutions, and other financial services based on
provisions of laws and regulations in the financial services sector.
19
Art. 14 Law 7/1992.
20
Elucidation of Art. 14 Law 7/1992.
21
Art. 21 (2) Law 7/1992.
22
Art. 314 (d) P2SK Law.

5. AHRP Legal Alert Page 5 of 9
Additionally, P2SK Law adds a provision that Rural Economic Bank may
conduct a public offering on the stock exchange under the terms and
conditions regulated by the Financial Services Authority and will be further
regulated in a regulation of the Financial Services Authority.23
Besides, Rural Economic Bank may conduct a merger with a microfinance
institution, and in the event of a merger between a Rural Economic Bank
and a microfinance institution, the surviving entity must become a Rural
Economic Bank.24 Further provisions on the merger of a Rural Economic
Bank and a microfinance institution will be regulated in the regulation of the
Financial Services Authority.25
2.2. Sharia Rural Economic Bank
Aligned with the Rural Economic Bank, it is known that there has been a
change in nomenclature from Bank Pembiayaan Rakyat Syariah to Bank
Perekonomian Rakyat Syariah based on P2SK Law (“Sharia Rural
Economic Bank”). In this case, changes in the nomenclature of Sharia
Rural Economic Bank shall be conducted no later than 2 (two) years from
the promulgation of P2SK Law.26
P2SK Law stipulates that Sharia Rural Economic Bank is a type of Sharia
Bank27 which in its activities does not provide services in direct payment
flow.28 Furthermore, Sharia Rural Economic Bank is unable to change its
business activities into Rural Economic Bank.29
It is worth noting that the P2SK Law also changes the business activities of
Sharia Rural Economic Bank, which include:30
a. collecting funds from the public in the form of deposits in the form of
savings, time deposits or other equivalent forms based on an akad
which is not contradictory to the Sharia Principles and investment
based on an akad mudharabah or other akad which is not conflicting
with the Sharia Principles;
b. placing funds and receiving placements of funds from other Sharia
Banks in the form of deposits based on an akad wadi'ah or
investments based on an akad mudharabah and/or other akad that is
not contradictory to the Sharia Principles;
c. conducting fund transfer activities both for their interests and for the
interests of Customers;
23
Art. 23 (2) and (3) Law 7/1992.
24
Art. 28A (1) and (2) Law 7/1992.
25
Art. 28A (3) Law 7/1992.
26
Art. 314 (c) P2SK Law.
27
Based on Art. 1 (7) Law 21/2008, Sharia Bank are business entities that collect funds
from the public in the form of deposits and investments and distribute it to the public in the
form of financing and/or other forms based on Sharia Principles and according to its type
consists of sharia commercial banks and sharia rural banks.
28
Art. 1 (8) Law 21/2008.
29
Art. 5 (7) Law 21/2008.
30
Art. 21 (1) Law 21/2008.

6. AHRP Legal Alert Page 6 of 9
d. conducting receivables transfer activities; and/or
e. providing products or conducting other business activities of Sharia
Banks in accordance with the Sharia Principles based on approval
from the Financial Services Authority.
In addition to conducting business activities as mentioned above, P2SK Law
stipulates that Sharia Rural Economic Bank may:31
a. cooperate with other LJK as well as cooperate with non-LJK in
providing financial services to Customers;
b. conduct foreign exchange business activities; and
c. conduct capital participation in Sharia Rural Economic Bank
supporting institutions in accordance with the restrictions set out in
the provisions of laws and regulations.
Furthermore, P2SK Law affirms that Sharia Rural Economic Bank shall
constitute a legal entity in the form of a limited liability company or a
cooperative.32
In line with the provision of the Rural Economic Bank, Sharia Rural
Economic Bank may conduct a merger with microfinance institutions, and in
the event of a merger between a Sharia Rural Economic Bank and
microfinance institutions occurs, the surviving Bank from the merger must
become a Sharia Rural Economic Bank.33 Specifically, further provisions
regarding the merger between a Sharia Rural Economic Bank and
microfinance institutions will be regulated under the regulation of the
Financial Services Authority.34
3. Reconfiguration of Sharia Business Unit Spin-off
P2SK Law reconfigures the arrangement of the Sharia Business Unit35 spin-
off. Prior to the P2SK Law, a conventional commercial bank with Sharia
Business Unit (i) reaching an asset value of at least 50% (fifty percent) of
the total asset value of its parent bank; or (ii) 15 (fifteen) years since the
enactment of Law 21/2008 is obliged to perform a spin-off to become a
Sharia Commercial Bank36.
Under the P2SK Law, Sharia Business Unit spin-off shall be performed after
the Sharia Business Unit fulfills specific requirements stipulated by Financial
31
Art. 21A Law 21/2008.
32
Art. 7 (2) Law 21/2008.
33
Art. 17A (1) and (2) Law 21/2008.
34
Art. 17A (3) Law 21/2008.
35
Based on Art. 1 (10) Law 21/2008, Sharia Business Unit is a work unit at a head office of
a Conventional Commercial Bank which has the function as the parent office of offices or
units that operate business activities based on Sharia Principles or a work unit at a branch
office of a Bank domiciled abroad which conducts business activities conventionally and has
the function as the parent office of sharia sub-branch offices and/or sharia units.
36
Based on Art. 1 (8) Law 21/2008, Sharia Commercial Bank is a Sharia Bank which
provides services in payment flow.

7. AHRP Legal Alert Page 7 of 9
Services Authority.37 In addition to said requirements, P2SK also extends
the Financial Services Authority’s authority to request a spin-off of the Sharia
Business Unit into a Sharia Commercial Bank in order to consolidate sharia
banking.38 The sharia banking consolidation is carried out to strengthen an
effective, efficient, healthy, and competitive ecosystem of sharia banking.39
Further provisions on the Sharia Business Unit spin-off shall be regulated in
Financial Services Authority regulations after consultation with the
Indonesian House of Representatives no later than 6 (six) months after the
promulgation of the P2SK Law.40 It is hoped that with this reconfiguration,
the Sharia Business Unit spin-off will be significantly more prepared in terms
of its services, capital, and infrastructure.
4. Amplifying the Utilization of Information Technology
The utilization of information technology by commercial banks has been
accommodated through OJK Reg 11/2022. In connection with information
technology, P2SK Law supplements Article 7A Law 7/1992, which stipulates
that banks may utilize information technology in carrying out their business
activities. Such utilization shall be construed as a utilization to encourage
the transformation of banking towards the digital banking era.41
In propelling the utilization of information technology, a bank may open
access to Customer data and information to the other financial organizers,
including ITSK42 organizers, based on the approval and for the interests of
Customers through certain systems or applications.43 This cooperation is
aimed at encouraging digital transformation and establishing the interlink
between the bank and ITSK based on principles that support (i) openness;
(ii) interoperability; (iii) security; (iv) flexibility; (iv) consumer protection; (v)
independence; and (v) novelty.44
The cooperation in opening the Customer’s data and information, as
previously mentioned, shall be carried out in accordance with the provisions
of laws and regulations on the organization of electronic systems and
transactions, as well as the protection of personal data, which address:45
37
Art. 68 (1) Law 21/2008.
38
Art. 68 (2) Law 21/2008.
39
Elucidation of Art. 68 (2) Law 21/2008.
40
Art. 68 (3) and (4) Law 21/2008.
41
Elucidation of Art. 7A (1) Law 7/1992.
42
Based on Art. 1 (34) P2SK Law, Technology Innovation within the Financial Sector
(Inovasi Teknologi Sektor Keuangan) (“ITSK”), is a technology-based innovation that has
an impact on products, activities, services, and business models in the digital financial
ecosystem.
43
Art. 7A (2) Law 7/1992.
44
Elucidation of Art. 7A (2) Law 7/1992.
45
Art. 7A (3) Law 7/1992 and its Elucidation.

8. AHRP Legal Alert Page 8 of 9
a. the obligation to implement the principles of personal data protection
in processing personal data;
b. valid approval from the personal data owner for certain purposes from
the Customer and/or Consumer;
c. implementation of risk management;
d. deletion and/or termination of the use of personal data and
transaction processing if the Customer and/or Consumer withdraws
the consent granted; and
e. governance policies and procedures.
The same provisions of (i) utilization of information technology; and (ii) the
disclosure of access to data and information of Customers may be applied
by Sharia Bank and Sharia Business Unit.46 Additionally, P2SK Law also
enables Rural Economic Bank to utilize information technology in carrying
out its business activities.47
5. Regulating the Basis of Digital Bank
Prior to the enactment of the P2SK Law, OJK Reg 12/2021 set the basis for
Indonesian banks to operate as Digital Bank.48 Digital Bank is an Indonesian
bank that provides and carries out business activities through an electronic
channel, without a physical office other than the headquarters office, or that
uses a limited physical office.49
P2SK Law further complements Article 7B Law 7/1992 as a legal basis for
a bank to operate as a digital bank in carrying out its business activities. The
digital bank shall have 1 (one) physical office as the head office.50
Notwithstanding the provisions mentioned above, the relevant institutions are still
working on preparing the P2SK Law’s implementing regulations. Specifically, the
implementing regulations of P2SK Law shall be stipulated no later than 2 (two)
years from the promulgation of P2SK Law.51
46
Art. 21B (1) and (2) Law 21/2008.
47
Art. 13A Law 7/1992.
48
Art. 23 OJK Reg 12/2021.
49
Art. 1 (22) OJK Reg 12/2021.
50
Art. 7B (2) Law 7/1992.
51
Art. 339 (1) P2SK Law.

9. AHRP Legal Alert Page 9 of 9
Bibliography/References
1. Law Number 7 of 1992 on Banking as lastly amended by Law Number 4 of
2023 on the Development and Reinforcement of Financial Sector (“Law
7/1992”).
2. Law Number 21 of 2008 on Sharia Banking as lastly amended by Law
Number 4 of 2023 on the Development and Reinforcement of Financial
Sector (“Law 21/2008”).
3. Law Number 21 of 2011 on Financial Services Authority as lastly amended
by Law Number 4 of 2023 on the Development and Reinforcement of
Financial Sector (“Law 21/2011”).
4. Law Number 4 of 2023 on the Development and Reinforcement of
Financial Sector.
5. Government Regulation Number 71 of 1992 on Rural Bank (“GR 71/1992”).
6. Financial Services Authority Regulation Number 12/POJK.03/2021 of 2021
on Commercial Banks (“OJK Reg 12/2021”).
7. Financial Services Authority Regulation Number 11/POJK.03/2022 of 2022
on The Organization of Information Technology by Commercial Banks
(“OJK Reg 11/2022”).

10. We will continue to follow the developments on this topic and provide additional information
as it becomes available. If you have any questions on this topic, please contact:
Annisa Safira Anwar
annisa@ahrplaw.com
Aryangga Pradana Febrianto
aryangga@ahrplaw.com
This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not
intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee
concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it
applies to your circumstances before deciding to take any action.
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