Financial Technology: Legal Challenges for Indonesia Financial Sector

Abstract

The global financial services sector is transforming as technology advances. Various types of technology based innovative financial business models or financial technology (fin-tech) are growing rapidly around the world, including Indonesia. The Financial Stability Board (FSB) incorporates the fin-tech progress in its work plan in 2017 in the perspective of financial stability. In Indonesia, the Financial Services Authority has issued the Financial Services Authority Regulation No: 77/FSAR.01/2016 on Technology-Based Lending and Borrowing Services to provide a legal basis for fin-tech activities, in particular services with peer to peer lending models. In practice, fin-tech in Indonesia is not only used to facilitate lending and borrowing, but also used for other business models, especially start-up business, investment and social activities, which are not included in the scope of lending and borrowing. On the other hand, fin-tech development in Indonesia is expected to contribute to economic development, particularly in facilitating micro, small and medium enterprises to gain access to finance. The advantages of fin-tech include cost efficiency and ease of access to finance, but on the other hand there are some obstacles and risks that potentially arise, such as credit risk, insufficient technology, misuse of funds and user/consumer data and protection of national interests such as money laundering as well as disruption to monetary stability. Therefore, in addition to the need for comprehensive regulation, supervisory aspects by the financial services authorities are urgently needed to make fin-tech a part of the financial services sector.