Indonesian Regulatory Body Issues Moratorium on New Crypto Exchange Licenses

(October 7, 2022) As of August 15, 2022, there is a moratorium in Indonesia on the issuance of new crypto exchange licenses. The moratorium was put in place by the Commodity Futures Trading Regulatory Agency (Badan Pengawas Perdagangan Berjangka Komoditi or “Bappebti”), which is under the Ministry of Trade and is the regulator for cryptocurrency and crypto assets, through Circular Letter No. 208/BAPPEBTI/SE/08/2022 on the Suspension of the Issuance of Registration Licenses for Crypto Asset Physical Trader Candidates (“Circular Letter”).

The Circular Letter provides that Bappebti is no longer accepting applications for the registration of Crypto Asset Physical Trader Candidates (Calon Pedagang Fisik Aset Crypto) or issuing licenses for Crypto Asset Physical Trader Candidates (or prospective crypto exchanges) in Indonesia. The Circular Letter does not indicate when the moratorium is expected to be lifted.

Crypto Asset Trader Business  

Bappebti Regulation No. 8 of 2021, dated October 29, 2021, regarding Guidelines for Organizing a Crypto Asset Physical Trading Market on the Futures Exchange (“Bappebti Reg. 8/2021”) requires a company to obtain a Crypto Asset Physical Trader License in the form of a Crypto Asset Physical Trader Approval from Bappebti to engage in business as a Crypto Asset Physical Trader (also known as a Crypto Exchange). The licensing process under the regulation involves fulfilling capitalization, manpower, technical, and membership requirements at the Futures Exchange (Bursa Berjangka) and the Futures Clearing Agency (Lembaga Kliring Berjangka).

However, as the infrastructure for the Futures Exchange and Futures Clearing Agency is yet to be established, in their absence, Bappebti Reg. 8/2021 requires both existing and new Crypto Asset Physical Trader companies first to apply for registration to obtain a Crypto Asset Physical Trader Candidate License. Successful registration allows companies to do business before obtaining the Crypto Asset Physical Trader License.

Once the Futures Exchange and Futures Clearing Agency have been established, new Crypto Asset Physical Trader companies can apply directly for the physical trader license without first having to register as a Candidate. Companies that have already obtained a Crypto Asset Physical Trader Candidate License are required to reapply to the Head of Bappebti to become a Crypto Asset Physical Trader. This re-application process must be initiated no later than one month as of the establishment of the Futures Exchange and Futures Clearing Agency as mandated under Bappebti Reg. 8/2021.

What to Expect

Since the moratorium was introduced, there has been speculation that Bappebti is drafting a new regulation for Crypto Asset Physical Traders and Candidates that could be issued by the end of 2022 and may amend Bappebti Reg. 8/2021 (the “Draft Regulation”).

On September 20, 2022, the deputy trade minister and the acting head of Bappebti attended a working meeting with Commission VI of the People’s Representative Council (“DPR”). Commission VI is the DPR commission for industry, investment, and business competition. During the working meeting, the DPR received an explanation from the deputy trade minister on the steps being taken by Bappebti to strengthen regulations for the digital trading of crypto assets, the protection of investors/customers on crypto asset exchanges, expert advisor arrangements, and the crypto exchanges themselves.

Bappebti relayed its various plans moving forward, which included the following:

• Bappebti plans to provide ratings for Crypto Asset Physical Traders/Exchanges in Indonesia that the public can refer to prior to making a transaction.
• Crypto Asset Physical Traders will be required to obtain ISO 27001 certification for information management security standards.
• At least two-thirds of the members of the Board of Directors and Board of Commissioners of Crypto Asset Physical Traders will have to be Indonesian citizens and be domiciled in Indonesia.
• In securing customer funds, Bappebti may require crypto assets to be 100% stored by third parties or futures clearing institutions. We understand that third parties here refers to Crypto Asset Custodians or the Futures Clearing Agency.
• Bappebti intends to increase the minimum capital requirement for Crypto Asset Physical Traders from IDR 50 billion to IDR 100 billion, considering the scale of the business and net assets. However, it is unclear if this change would apply to both Crypto Asset Physical Traders and Candidates.
• Crypto Asset Physical Traders may be required to conduct a minimum number of monthly transactions, with sanctions for failing to reach the minimum.

Note that all the above points may change or be scrapped, pending the issuance of a new regulation.