Urgency of financial technology (Fintech) laws in Indonesia

Abstract

Purpose This paper aims to elaborate the reasons why Indonesia needs Law on Fintech. This paper also identifies the flaws in the existing regulations and policies on Fintech, and it also proposes an ideal framework for a fintech law as a strategy to strengthen consumer protection and to accelerate the growth of the digital economy in Indonesia. Design/methodology/approach This is normative research with a legal approach. Data were collected through a literature study and analyzed using legal norm method. Findings The promising potential and growth of the fintech industry in Indonesia need to be supported by a sound legal framework in the form of Indonesian Law. In regards to fintech, Indonesia does not yet have a specific law on fintech. Existing regulations in the Bank of Indonesia Regulations (PBI) and Indonesia Financial Services Authority Regulations (POJK) only regulate the technical aspects of the industry, thus providing a less sound legal power. Bank of Indonesia (BI) and Indonesia Financial Services Authority (OJK) have limited authority in the making of regulations and the regulations produced by these institutions cannot stipulate criminal provisions. This results in inadequate consumer protection measures. The Investment Alert Task Force reported 2,018 illegal P2P lending, 472 illegal investment companies and 69 illegal pawnbrokers. The accumulation of online lending transactions in December 2019 reached a total of IDR81.50tn, seeing a 259.56% increase from the previous year. Meanwhile, the amount of bad debt reached IDR13.6tn, seeing a 169.48% increase. These reasons illustrate how urgently Indonesia needs Fintech Law. Research limitations/implications This research only examines the existing Fintech regulations in Indonesia. The approach method used is normative legal research. Practical implications This research is expected to be useful for The House of Representatives of the Republic of Indonesia (DPR), the Ministry of Law and Human Rights, the Indonesia Financial Services Authority (OJK) and Bank of Indonesia (BI) in drafting the Fintech Law. Social implications This research is expected to increase protection for consumers, investors and providers of fintech services and accelerate the growth of the digital economy in Indonesia. Originality/value Regulating fintech in the Indonesian Law is meant to give legal certainty and better legal protection for consumers, investors and providers of fintech services. Seeing that the value of the Indonesian digital economy in 2019 has reached USD40bn (approximately IDR586tn), Indonesia is philosophically, juridically and sociologically in urgent need of Fintech Law.

The Weaknesses of Alternative Institutions for Dispute Resolution in Financial Services Sector

“…This research uses normative 9 juridical research 10 . This research focuses on the laws and regulations 11 that apply in Indonesia relating to the settlement of disputes that occur in the financial services sector.…”

Prospects and challenges of Islamic fintech in Indonesia: a legal viewpoint

“…Sharia Banking Acts has played significant roles in the development and growth of the Indonesian sharia banking system (Nastiti and Kasri, 2019). However, when it comes to the context of Islamic fintech, the Indonesian Government still has a lot of works to do, especially to create fintech Acts, which is an important infrastructure in the digital ecosystem (Kharisma, 2020; Magnuson, 2018). Comprehensive legal approach to respond to the challenges in the Islamic fintech sector is needed (Hui, 2019).…”

“…The ideal type of regulation to regulate fintech is the Act, not PBI or POJK. PBI and POJK have many weaknesses (Kharisma, 2020). These regulations only cover technical aspects and are very sectoral, and therefore, they overlap with each other.…”

“…This can be fatal as illegal fintech practices and misuse of fintech services for terrorist financing and money laundering crimes need to be dealt with as criminal acts. Existing regulations are not without flaws, such as not having provisions on criminal sanctions, distribution of roles and authority of BI, OJK, Kemenkominfo and MUI, prevention and mitigation of a digital financial system crisis, mechanism of dispute resolution and many others (Kharisma, 2020). In response to these problems, Indonesia needs an ideal legal construct on fintech that can boost the growth of the Islamic economy while still prioritizing consumer protection and monetary stability.…”

“…However, several studies suggest that fintech needs regulations to prevent from various potential risks that threaten monetary stability (Jagtiani and John, 2018; Kharisma, 2020; Magnuson, 2018) and to strengthen consumer protection and accelerate the growth of the digital economy (Arner et al , 2017, 2018; Rosenblum et al , 2015; Saksonova and Kuzmina-Merlino, 2017). Islamic fintech has legal issues and risks that need to be mitigated (Hidajat, 2020; Kunhibava et al , 2021; Roro and Shomad, 2019; Todorof, 2018).…”