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Indonesia set to pass regulation to stem money laundering, terrorism financing in fintech sector

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Indonesia set to pass regulation to stem money laundering terrorism financing in fintech sector
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Indonesia will soon approve a regulation to stem money laundering and terrorism financing by requiring fintech players to report suspicious transactions.

Providers of peer-to-peer (P2P) lending, equity crowdfunding, and other financial technology services will have to report such transactions to the Financial Transaction Reports and Analysis Centre (PPATK) under the new regulation, which amends one issued in 2015, its chief Dian Ediana Rae said.

“The amended regulation is waiting for signing by the president,” he said. “Hopefully, it will be issued in the near future.”

P2P lending platforms connect individuals who want to access loans directly from other individuals, while equity crowdfunding platforms allow companies to raise capital online from investors.

At present, only e-wallets, such as OVO and GoPAY, are obliged to report their transactions to the PPATK. The anti-money-laundering agency now monitors transactions by P2P lenders, equity crowdfunding platforms, and providers of other fintech services solely through reports from banks to the Financial Services Authority (OJK). P2P lenders are required to open virtual accounts in banks to enable supervision.

Dr Dian said that based on experiences in other countries, there had been misuses of these new payment methods for terrorism financing owing to lack of scrutiny when users set up their accounts.

E-money and e-wallets had also been misused for purchases of materials linked to terrorism activities through e-commerce, as well as for domestic and overseas fund transfers, he added.

Financing is the most critical part of any terror group and militants have justified illegal means like robbery to raise funds, experts say.

Funders of terror acts have, for years, used unconventional methods to transfer foreign money to South-east Asia’s largest economy.

PPATK found in early 2017 that Bahrun Naim, one of Indonesia’s most notorious militants fighting alongside ISIS in the Middle East, had used online payment services such as PayPal, and the cryptocurrency bitcoin, to transfer money to his comrades back home. He was thought to be the mastermind and funder of local terror attacks, including one in Jakarta in January 2016.

The agency also revealed in January that a considerable amount of donations had been transferred abroad, allegedly to support terrorism activities in Iraq and Syria. It found that fund-raising activities, including those through social media, had backed domestic and overseas terror attacks.

In another move to anticipate money laundering and terrorism financing, the OJK will require P2P lenders to report suspicious transactions starting from March 21, said OJK public relation director Darmansyah.

“The obligations include monitoring and reporting suspicious financial transactions and screening if users are in the lists of terrorist suspects and terrorist organisations,” he said. “This is to prevent providers of financial services from facilitating money laundering and/or terrorism financing.”

The OJK earlier this month issued guidelines for P2P lenders to act against money laundering and terrorism, which included demanding that they adopt a “risk-based approach”, such as by identifying and verifying their customers and future customers as well as beneficial owners, and rejecting suspicious transactions.

They must match the profile of their customers with the updated lists of terrorist suspects and terrorist organisations issued by the authorities.

Along with other related institutions, such as the National Antiterrorism Agency (BNPT), the police anti-terrorism squad Densus 88, the Foreign Ministry and the Immigration Office, PPATK has set up a task force to monitor terrorist suspects and terrorist organisations.

It is also developing an information system through which related stakeholders, such as financial services providers, law enforcers and the intelligence agency can exchange information on suspected terrorism financing.

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