How will this impact your compliance strategy?
What's new?
The following are some notable highlights from Regulation 37/2024:
Scope is expanded
Under Regulation 37/2024, the Financial Services Authority (Otoritas Jasa Keuangan or OJK) is authorized to impose administrative sanctions on insurance companies and related parties for violations of not only insurance-specific laws and regulations but also other laws and regulations relevant to the broader financial services sector. This represents a significant step-up from Regulation 17/2017, which limited the imposition of administrative sanctions to violations of insurance-specific laws and regulations. The expanded authority under Regulation 37/2024 reflects OJK's commitment to more comprehensive supervision and enforcement within Indonesia's financial services sector.
New types of sanctions are introduced
Regulation 37/2024 introduces two new types of administrative sanctions:
- Financial soundness downgrade - applicable to insurers and reinsurers
- Prohibition on holding positions as a controller, controlling shareholder, director, commissioner, sharia supervisory board member, or other executive roles – applicable to insurers, reinsurers, brokers, agents, actuarial consultants, public accountants, appraisers, and other parties
While the prohibition on holding positions can be imposed on individuals, it remains unclear how OJK will enforce this prohibition on insurance and insurance-related companies, aside from restricting them from holding positions as controller and controlling shareholder.
It is also not clear what is intended by the reference to "other parties" in the regulation (see item (b) above). Regulation 37/2024 indicates that "other parties" can include both service providers and non-service providers of insurance companies. This suggests that parties not directly involved in insurance business operations could be subject to the regulation. Specifically, it is unclear whether "non-service providers" refers to shareholders, board members or instead all parties without specific limitations. We hope OJK will provide further clarification on this.
Administrative violations vs. substantive violations
To further implement the risk-based approach, Regulation 37/2024 now differentiates between two categories of violations by insurance and reinsurance companies: administrative (i.e., violations that do not have a significant impact on financial health) and substantive (i.e., violations that have a significant impact on financial health).
The types of administrative sanctions that can be imposed for each class of violation will also be different. Please see below a brief summary of difference:
| Administrative Violations |
Substantive Violations |
| Written warnings |
Written warnings |
| Administrative fines of up to IDR 1 billion (approx. USD 66,000). |
Financial soundness downgrade |
| |
Limitation of business |
| |
Restriction of marketing |
| |
Revocation of business license |
| |
Administrative fines of more than IDR 1 billion (approx. USD 66,000) (with some exemptions). |
| |
Prohibitions on holding positions as a controller, controlling shareholder, director, commissioner, sharia supervisory board member, or other executive roles |
OJK may directly impose any of the above administrative sanctions (individually or simultaneously) and does not need to impose them in stages.
Remarks
Insurance and insurance-related companies may need to improve their compliance strategies to align with the more stringent landscape, including to ensure adherence to both insurance-specific regulations and broader financial sector regulations.
Regulation 37/2024 introduces a theoretically lower tolerance for non-compliance compared to the previous regime, granting OJK discretion to impose the most appropriate sanctions based on the severity and nature of the violation, without the need to follow a staged approach. This underscores the importance of implementing robust compliance measures.
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