Fit and Proper Test in Regulated Sector in Indonesia
A Practitioner’s Tips & Tricks
To date, MNP has had the chance to assist numerous end-to-end processes of appointment of directors, commissioners, and controllers in the financial services sector. The Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) is the main regulator within such process of appointments.
Throughout the process, the firm gained a significant understanding of the financial services regulatory landscape from OJK’s lens e.g., OJK’s objective in controlling the process of appointment of controllers, the thoughts behind such rigorous process, and the impact of such process to the sector.
Based on our experience so far, we set out below our view of the fit and proper test as a practitioner.
The following shall not be deemed as a legal opinion or legal advice. It does not advise on level of compliance and does not serve as guarantee of successful fit and proper test.
Background
Fit and proper test is a prerequisite to appoint controllers in companies in financial services sector. Controllers include shareholders (to certain extent of ownership and authorities), directors, commissioners, and advisors (with certain roles).
Without passing the fit and proper test, the company is unable to appoint the candidate. It must also be noted that there are limited number of attempts.
The process of fit and proper test includes, amongst others:
- Submission of the company’s existing authorized representative’s statement of the intention to appoint the candidate and the reason behind the intended appointment.
- Submission of the candidate’s profile and business plan.
- Submission of the candidate’s mitigation plan in case of failure to achieve the business plan.
- Submission of the candidate’s statement verifying the absence of any non-conformity e.g., no criminal prosecution, has never been declared bankrupt, no outstanding court proceeding.
- Interview by the designated OJK officers.
Key notes
1. The candidate’s profile and business plan
The candidate’s profile and business plan are some of the documents that OJK would review in detailed manner. OJK’s focus when reviewing profile and business plan typically evolves around the following:
- Whether the candidate has sufficient experience within the business sector of the company.
- Whether the candidate has sufficient expertise, knowledge, and capabilities to meet the objective of his/her appointment.
- Whether the candidate’s business plan for the company would bring the intended growth of the company.
- Whether the candidate’s business plan is measurable, clear, and achievable.
Our key recommendations to ensure that the candidate’s profile and business plan meet expectation OJK:
- Candidate’s profile must be described in a manner that is showcasing the expertise that the candidate would bring.
- The profile must describe the candidate’s past experiences and achievements. This description will support the description of the candidate’s expertise.
- Having certification that further showcase the candidate’s expertise and knowledge of the financial services sector would be a major plus.
- The candidate’s business plan must clearly specify the objective of the candidate when appointed and should be divided into short term, medium term, and long-term plan.
- Each of the term-based plan of the candidate must show clear and measurable goals with a clear description of actions to be taken to achieve such goals.
- The candidate’s plan must also show the efforts involved and if there would be any additional investment needed in the company. In case of additional capital investment required, OJK would expect a description of the source of capital investment.
2. The candidate’s mitigating business plan
In our experience, the submission of mitigating business plan is an ad-hoc request from OJK. OJK’s focus when reviewing the mitigating business plan proposed by the candidate typically evolves around the following:
- Whether the mitigating business plan could bridge the gap of growth that was originally intended to be achieved within the original business plan. Otherwise, the mitigating business plan should ideally showcase the growth that the company could achieve if the company were to execute the mitigating business plan.
- Whether the mitigating business plan is measurable, clear, realistic, and impose reasonable costs/expenses for the company to execute.
Our key recommendations to ensure the mitigating business plan is acceptable by OJK:
- The mitigating business plan must clearly specify the trigger of when this business plan would need to be executed.
- The plan must show a comparison of efforts needed versus the efforts needed in executing the original business plan.
- The plan should show the goal that would be achieved by executing the mitigating business plan.
- The mitigating business plan should contain a mechanism to pivot in case of the business condition or investment climate (where relevant) no longer allow the mitigating business plan to be executed.
3. During the interview
The interview stage would be set-up by OJK if OJK believes that the candidate has submitted all the required documents, and all documents are in order as per OJK’s review. The interview stage is the determining stage whether
Our key notes for candidate in preparing and during the interview with OJK officers:
- Staying composed and polite are key.
- It is key for the candidate to be knowledgeable on Indonesian laws and regulations applicable to the relevant financial services sector, in addition to candidate’s technical and/or commercial acumen.
- Knowledge about corporate governance would be a major plus for the candidate.
- Risk management is a common topic that OJK is keen to understand.
- Go to market plan and commercial benefits of the plan are commonly asked by OJK in case of new business funnel being discussed within the business plan.
MNP approach in handling fit and proper test has been tailored for each candidate and the business needs behind the nomination of the candidate to be appointed as one of controllers.
In preparing for the candidate’s interview, our training includes mock interview sessions with series of Q&A that is commonly discussed during the interview with OJK officers – Q&A is not only limited to the technical/commercial side of it but also the relevant regulatory landscape.
When a translator is required, MNP procures professional translator who has worked with OJK before to ensure that the translation of OJK’s questions to the candidate and vice versa is translated accurate with appropriate choice of words.
To read the article in PDF version, click here.
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Disclaimer:
The foregoing material is the property of MNP and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.
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