Corporate Governance of Financial Conglomerates in Indonesia: Legal Issues and Gaps

Abstract

This chapter aims to examine recent regulatory reform on corporate governance of financial conglomerates in Indonesia. Over the past few decades, financial conglomerates have rapidly emerged and become the prevalent feature of Indonesian financial markets. These conglomerates are complex. They give rise to intricate corporate governance issues due to their complexities. To minimise the issues and to endorse good corporate governance practices of financial conglomerates, the Indonesian Financial Service Authority enacted a regulation on the implementation of integrated corporate governance for financial conglomerates in November 2014. This is the first regulation that specifically addresses financial conglomerate in its entirety as a group in Indonesia. It sets out minimum requirements to be followed by financial conglomerate in establishing its group-wide corporate governance arrangements. Dissimilar to many other countries that adopted the financial holding company concept, this regulation requires a financial conglomerate to appoint the lead entity, which is either the parent company or an appointed sister company, to be held responsible for implementing integrated corporate governance of the financial conglomerate in its entirety as a group. This chapter critically evaluates the regulatory requirements on corporate governance of financial conglomerate, especially related to the lead entity, in this regulation. It finds that many requirements specified in this regulation conflict with the requirement stipulated in other prevailing laws. These conflicting regulatory requirements might raise legal issues for the parties within the financial conglomerate. Furthermore, this chapter argues that this new regulation has not fully addressed the corporate governance issues in financial conglomerates. Thus, we suggest further legal reform to enhance the regulation and to address the legal issues and gaps by enacting a particular law for financial conglomerates.