A Look Into OJK’S Regulation on Carbon Trading Through Carbon Exchange in Indonesia 2023

Setyawati Fitrianggraeni, Eva Fatimah Fauziah, Sri Purnama[1]

INTRODUCTION

As Indonesia strides forward in developing its carbon market, The Republic of Indonesia’s Financial Services Authority or Otoritas Jasa Keuangan (OJK)[2] has recently introduced Regulation No. 14 of 2023 (hereinafter referred to as POJK 14/2023) which focuses on Carbon Trading[3] via a Carbon Exchange.[4] To complement this, OJK has also released its Circular Number 12/SEOJK.04/2023 concerning the Operational Procedures for Carbon Trading via the Carbon Exchange (hereinafter referred to as SEOJK 12/2023). The POJK 14/2023 regulation elucidates, amongst others, the spectrum of carbon units eligible for trading within the carbon exchange, requirements for carbon trading through the carbon exchange, and corporate aspects and organs. Here is a consolidated overview of its main provisions:

CARBON UNIT CRITERIA FOR TRADING

Carbon Units,[5] under this regulation, are classified as Securities[6] within the Indonesian financial framework. This categorization implies that these units must undergo a defined registration process before being eligible for transaction on the Carbon Exchange. This registration mandates that they must be recorded on SRN PPI[7] and The Carbon Exchange Organiser.[8]

The Carbon Exchange Organiser can facilitate the trading of Carbon Units from abroad that are registered with the SRN PPI or those not registered with the SRN PPI, although the latter must first comply with the existing legislative regulations.[9]

1. they must be registered, validated, and verified by an institution that has obtained accreditation from the organizer of an international registration system;
2. they must satisfy the conditions to be traded on a foreign Carbon Exchange; and
3. they must meet other requirements set forth by the OJK.

Carbon Exchange Organisers wishing to register Carbon Unites are obliged to apply to the OJK.[10] This application, directed to the division overseeing Carbon Exchange licensing, should encompass, at a minimum, the following essential documentation:[11]

1. identity of the applicant;
2. documentation relating to the project, which serves as the foundation of the Carbon Units in question;
3. evidence of registration, validation, and verification by an institution accredited by an international registration system. Such accreditation is indicative of the carbon unit’s qualification for trading on foreign Carbon Exchanges;
4. a strategic plan detailing the trading of the Carbon Units;
5. a comprehensive review by the Carbon Exchange Organiser of the requisite documents;
6. any additional documentation deemed necessary by the OJK.

Furthermore, the OJK will determine any additional requirements in coordination with the environmental and forestry affairs ministry.[12]

Stakeholders should be vigilant to ensure that their Carbon Units, whether domestic or foreign, satisfy these criteria to facilitate a seamless trading experience on the Carbon Exchange.

REQUIREMENTS FOR CARBON TRADING THROUGH CARBON EXCHANGE

Entities desiring to operate in the business of Carbon Exchange must hold a specific business license as Organisers.[13] This license is obtainable upon application to and approval by the OJK.[14] The regulation stipulates two types of Carbon Units that can be traded: PTBAE-PU[15] and SPE-GRK.[16][17] Carbon Exchange Organisers may also perform additional activities.[18] Notably, for any additional activities or regarding the development of products based on Carbon Units, an organizer must seek prior approval from the OJK.[19]

In terms of trading conduct, Carbon Exchange Organisers are obligated to ensure regular, fair, and efficient trading of Carbon Units. This involves utilizing an electronic system to enable continuous matchmaking of Carbon Unit transactions. These transactions can be conducted directly between parties or via intermediary service users. Additionally, Carbon Exchange Organisers have the authority to enter into agreements related to customer due diligence and creating unique user identification numbers. It is paramount for these organizers to provide a holistic Carbon Unit trading system, covering both the assembly of Carbon Unit sale offers and the subsequent transaction settlements.[20]

When finalizing Carbon Unit transactions, the Carbon Exchange Organiser must guarantee adequate risk management procedures, ensuring the sufficiency of both funds and Carbon Units from the transacting parties.[21] They are also empowered to collaborate with third parties concerning the settlement of Carbon Unit transactions.[22] However, the regulation prohibits Carbon Exchange Organisers from acting self-interestedly within their managed systems.[23]

On the infrastructure front, the establishment of Carbon Unit trading mechanisms, as mentioned in the regulation, demands coordinated efforts between the Carbon Exchange Organisers, the OJK, and the pertinent governmental ministry.[24] Every Carbon Exchange Organiser must be legally recognized as a limited liability company[25] domiciled within Indonesia.[26] Furthermore, the regulation stipulates that any revenue generated from carbon trading at a national level will be managed based on governmental provisions.[27]

Lastly, concerning the capital requirements, the regulation mandates Carbon Exchange Organisers to maintain a minimum paid-up capital of IDR 100,000,000,000 (one hundred billion rupiah).[28] This capital, crucially, cannot be sourced from borrowed funds.[29] The OJK reserves the right, given its evaluative stance on the operational needs or prevailing conditions of the Carbon Exchange Organiser’s activities, to direct the shareholders to reinforce the capital base of the Carbon Exchange Organiser.[30]

SHAREHOLDERS, DIRECTORS, AND THE BOARD OF COMMISSIONERS OF CARBON EXCHANGE ORGANISERS

Shares of the Carbon Exchange organizer can be held by various entities, including sui generis institutions,[31] Indonesian citizens, and domestic and foreign legal entities.[32] Interestingly, foreign legal entities, if they come under the purview of financial service regulators in their native countries, are permitted ownership.[33] However, their stake is capped at 20% of the total voting shares, directly or indirectly.[34] Moreover, the use of nominee arrangements[35] is explicitly forbidden.[36] Ensuring national interest, the regulation mandates that any special rights to appoint a majority of the board or exercise veto rights in pivotal decisions must remain with either sui generis institutions, Indonesian nationals, or Indonesian legal entities.[37]

The onus of vetting shareholders lies with the OJK.[38] Potential shareholders must be approved by the OJK and demonstrate financial viability[39] and integrity.[40][41] OJK’s assessment will revolve around the potential shareholder’s capability and suitability, ensuring the Carbon Exchange’s smooth operation and credibility.[42] The OJK retains the authority to designate entities that exert control over the Carbon Exchange Organiser as controlling shareholders.[43] Documents required for shareholder approval for individuals and legal entities can be seen on ‘Appendices’ at the latter of this article.

Director and commissioner roles come with their own set of stringent standards. Candidates must exemplify qualities of integrity[44] including financial reputation,[45] expertise, and competence.[46][47] Before their official appointment, they are subjected to an in-depth assessment by the OJK.[48] An additional layer of regulation mandates directors to be residents of Indonesia.[49] The details of the assessment for director and commissioner roles can be seen in ‘Appendices’ in the latter of this article.

The Carbon Exchange organizer must have a minimum of two directors, with one of them equipped with expertise.[50] Concurrent directorial positions in other companies are strictly prohibited.[51] The board composition for the Carbon Exchange also necessitates a minimum of two commissioners.[52]

Members of the board and directors, though holding influential positions, are bound by strict prohibitions to ensure impartiality and avoid conflicts of interest. They cannot maintain affiliations with fellow board members or directors within the same Carbon Exchange organization. Direct or indirect control over service users, carbon unit transactions on the Exchange, or illegal narcotics involvement is stringently proscribed.[53]

The tenure guidelines specify a four-year term for directors and board members.[54] A singular reappointment is allowed, but tenures might prematurely conclude due to various reasons, including incapacity, criminal convictions, bankruptcy, or non-compliance as adjudged by the OJK.[55]

OPERATIONAL AND INTERNAL CONTROL OF CARBON EXCHANGE ORGANISERS

Operational Standards for Carbon Exchange Organisers

Carbon Exchange Organisers must set up infrastructure to establish or employ existing systems to oversee Carbon Unit trading. To ensure equity in service provision, Organisers must ensure impartial, efficient, and effective services, precluding discrimination.[56] From an internal standpoint, a robust governance mechanism is required, incorporating adequate internal controls and risk management protocols.[57]

Operational guidelines further dictate the need for well-structured standard operating procedures. These procedures should encapsulate many functionalities, including client services, trade management, oversight protocols, systems regulation, data privacy measures, and business continuity provisions. Organisers are also obligated to keep and manage records of all client interactions and Carbon Unit trading data for a period of not less than five years to ensure accountability and transparency.[58]

From a regulatory perspective, Carbon Exchange Organisers must craft regulations that cover pivotal areas such as client services, details about the traded Carbon Units, trade monitoring, and regulatory adherence. Moreover, in the event of any irregularities or breaches related to Carbon Unit trading laws and regulations, Organisers are responsible for taking immediate corrective action. The OJK must be given instant data access and assistance to facilitate regulatory oversight, underscoring its supervisory role over the Carbon Exchange Organisers and their clientele.[59]

Internal Control Regulations

The delineation of regulations continues. When diving deeper into the specifics:[60]

For Client Services, regulations should elaborate on critical aspects such as the eligibility criteria for service users, registration methods, and the rights and obligations of service users, including reporting mandates, inspections, fee structures, reporting procedures, and sanctions.

Regarding Tradable Carbon Units, the guidelines necessitate defining clear criteria for what constitutes a tradable unit, its registration process, and associated fees.

Regarding Carbon Unit Trade, the rules become even more specific. They ought to detail trading procedures, define trading hours, set provisions for fair trading in line with market mechanisms, and spell out transaction settlement processes. This also extends to ensuring the availability of accurate market data, directives for using primary and secondary trading systems, and provisions in emergencies affecting trading.

For Trade Oversight, the rules must be exacting. This means defining parameters for trade surveillance, including circumstances that may trigger trade suspensions. It also covers the Organisers’ responses to irregular trading patterns, such as the potential for provisional trade halts.

CARBON EXCHANGE OVERSIGHT

Under Carbon Exchange Oversight, the OJK is responsible for supervising Carbon Trading conducted through the Carbon Exchange. This supervisory role extends over several domains, including the Carbon Exchange Organisers, supporting market infrastructure for Carbon Trading, and the service users of the Carbon Exchange. Furthermore, it encompasses transactions and settlements of Carbon Units, Carbon Trading governance, risk management, consumer protection, and all entities, products, and operations affiliated with Carbon Trading via the Carbon Exchange.[61]

LICENSING REQUIREMENTS AND PROCEDURES FOR CARBON EXCHANGE ORGANISERS

Licensing procedures for Carbon Exchange Organisers are expected to adhere to specific principles. These encompass transparency, equal access for all stakeholders, and regulations that institute an equitable playing field – essentially promoting the ethos: same regulation, activity, and risk. The OJK is vested with the authority to provide further stipulations regarding these licensing requirements and processes.[62]

AMENDMENTS TO REGULATIONS AND CARBON EXCHANGE ORGANISERS’ ARTICLES OF ASSOCIATION

Considering Amendments to Regulations and the Articles of Association of Carbon Exchange Organisers, any regulations or subsequent modifications posited by the Carbon Exchange Organisers must attain approval from the OJK prior to enactment.[63] When devising these regulations, Carbon Exchange Organisers are afforded the prerogative to consult with relevant stakeholders.[64] Furthermore, any alterations to the articles of association necessitate the endorsement of the OJK. Once this approval is procured, it is incumbent upon the organisers to communicate or present these changes to the appropriate ministry governing legal and human rights matters to gain additional approval.[65]

ANNUAL WORK PLANS AND BUDGETS OF CARBON EXCHANGE ORGANISERS

Regarding the Annual Work Plans and Budgets of Carbon Exchange Organisers, it is mandated that these entities present their yearly work agendas and financial forecasts to the OJK by the concluding days of November in the corresponding reporting year. The inaugural submission of these documents should align with the Carbon Exchange Organisers’ request for an operational license. Moreover, preliminary consent from the OJK is non-negotiable for these annual plans and budgets to be actionable.[66]

REPORTING OBLIGATIONS OF CARBON EXCHANGE ORGANISERS

Under the provisions of OJK Regulation No. 14 of 2023, Carbon Exchange Organisers have an extensive set of reporting obligations to the OJK.[67] The stipulations, as encapsulated within Section IX of the said regulation, can be summarised as follows:[68]

Carbon Exchange Organisers are bound to furnish the OJK with:

1. A monthly transaction summary report of service users is to be submitted no later than the fifth trading day of the subsequent month.
2. An annual activity report, including the audited annual financial statements verified by an accountant registered with the OJK, is due by the end of the third month after the annual financial statement date.
3. Immediate notification of any approval or rejection of service user applications or modifications will be communicated by the next trading day.
4. Details of any organizational structure or system alterations need to be conveyed by the ensuing trading day.
5. Reporting of any infractions and the corresponding penalties imposed on service users, expected to be notified by the following trading day.
6. Information about significant events should be delivered by the end of the same trading day.

In resignations among the Board of Directors or the Board of Commissioners, the OJK must be informed within two working days of the events.[69]

Outcomes from the general shareholder meetings of the Carbon Exchange Organisers should be reported to the OJK within two working days after the meeting date.[70] Moreover, the notarial deed from these meetings must also be submitted to the OJK within two working days of its receipt by the Carbon Exchange Organisers.[71] Furthermore, Carbon Exchange Organisers should present to the ministry overseeing environmental and forestry affairs the monthly transaction summary, as previously mentioned, and the annual activity report.[72]

Significantly, any resignation of members from the Board of Directors or the Board of Commissioners, as reported, can be deferred by the OJK if such a move might impact the performance and operations of the Carbon Exchange Organisers.[73]

Regarding the modality of these submissions, the regulation favors electronic reporting systems. However, if such electronic systems are unavailable, printed or electronic documents can suffice.[74]

SANCTIONS AND PENALTIES

As outlined in Chapter X of the regulation, the provisions relating to sanctions are stringent and exhaustive, indicating a concerted effort and adherence to the established framework. Regarding compliance with Carbon Exchange, the unit that oversees this matter at the OJK is under the unit “Chief Executive for Supervision of Capital Markets, Derivative Financing, and Carbon Exchange, leading Supervision of Capital Market, Derivative Financing and Carbon Exchange Sector”.[75]

Pursuant to Article 33, any party found in violation of the enumerated articles, including but not limited to Article 3(2), Article 7(1), (2), and (5), and so on until Article 31(1) and (2), shall be subjected to administrative sanctions. These sanctions target the direct violators and extend to any party causing such a violation. The authority to impose these sanctions lies solely with the OJK.[76]

The administrative sanctions that can be levied include:[77]

1. Written warnings.
2. Fines entail an obligation to pay a specified amount.
3. Limitations on business activities.
4. Suspension of business activities.
5. Revocation of business licenses.
6. Annulment of prior approvals.
7. Cancellation of registrations.

Significantly, these administrative sanctions can be imposed either subsequent to or independent of a written warning, offering flexibility to the OJK based on the severity and recurrence of the violation. Similarly, fines can be levied in conjunction with other sanctions if deemed appropriate by the OJK. The procedures for imposing these sanctions shall be in consonance with prevailing legislation.[78]

Beyond the stipulated administrative sanctions, The OJK may publicize the imposition of such administrative sanctions and specific actions to the general public, further amplifying the reputational risks associated with non-compliance.[81]

CONCLUSION

Regulation No. 14 of 2023  provides a structured framework for Carbon Trading through the Carbon Exchange. This regulation meticulously addresses vital aspects of the carbon trade, beginning with a  precise definition of carbon unit criteria for trading. The stipulations for carbon trading via the exchange must ensure all stakeholders that trading on the exchange is transparent and legitimate.

Furthermore, the emphasis on operational and internal controls for Carbon Exchange Organisers accentuates the importance of robust management practices and corporate governance in this sector. The oversight mechanisms elucidated within the regulation appear to reveal OJK’s commitment to maintaining a vigilant eye on the industry, thereby ensuring its integrity.

Licensing procedures and prerequisites have been outlined with a clear focus on establishing a standardised set of practices for Carbon Exchange Organisers. In a bid to maintain dynamism and flexibility, provisions regarding the amendment of regulations and organisational Articles of Association have been incorporated. Furthermore, with directives on annual work plans, budgets, and reporting obligations, the regulation underscores the importance of accountability and planning for exchange organisers.

Lastly, the prescribed sanctions and penalties testify to the gravity with which the regulatory authority perceives deviations from the stipulated norms. POJK 14/2023 is a testament to Indonesia’s commitment to fostering a transparent, accountable, and robust carbon trading market. Legal practitioners and stakeholders alike would do well to thoroughly acquaint themselves with its provisions to ensure seamless compliance and adept navigation through the complexities of the carbon exchange landscape.

APPENDICES

 

Table 1. Assessment of Shareholders’ Capability and Suitability of Carbon Exchange Organisers[82]

No	Criteria	Individuals	Legal Entities
1	Curriculum Vitae	Signed CV	List and details of members (with signed CVs)
2	Identification	Photocopy of personal ID	– Indonesian: Tax ID; – Foreign: Establishment documents
3	Photographs	Two recent 4×6 cm, red background	– Members: 4×6 cm, red background; – Shareholders: similar
4	Financial Proof	Last 2 years of tax returns, bank accounts, asset proof	Audited financial statements from the last year
5	Police Clearance	Yes	Members: Yes
6	Statement of Commitment	To comply with laws, support OJK policies, develop the Carbon Exchange, and face financial difficulties	Similar as individuals
7	Bankruptcy Declaration	Not declared bankrupt in last 5 years	–
8	Annex Answers	Yes	–
9	Controlling Party Details	–	Name, form of control
10	Shareholders of Prospective Shareholder	–	Details as per individuals and legal entities
11	Recommendation for Foreign Legal Entities	–	Financial sector: from supervisory authority; Non-financial sector: from competent authority

 

Table 2. Assessment of Directors and Commissioners Capability and Suitability of Carbon Exchange[83]

No	Detail	Requirement/Description
A	Evaluation
1	Mandatory Evaluation	All members of the Board of Directors and the Board of Commissioners must undergo an assessment by the OJK.
B	Documentation
1	Curriculum Vitae	A signed CV of the nominee.
2	Education & Expertise	Photocopies of the latest formal education certificates and any expertise certificates related to capital markets, climate change, or carbon market.
3	Identification	A photocopy of the national ID or valid identification for foreign citizens.
4	Police Clearance	Police clearance certificate.
5	Photographs	Two 4×6 cm colour photos with a red background.
6	Compliance Declaration	To comply with laws, support OJK policies, develop the Carbon Exchange, and face financial difficulties
7	Drug-Free Certificate	A drug-free certificate from a competent authority.
8	Strategic Plan	For nominees to the Board of Directors.
9	Financial Standing	Declarations about non-default on loans, non-bankruptcy, and non-association with bankrupt entities in the last 5 years.
10	Commitment Declaration	Commitment to the development of the Carbon Exchange and Indonesian capital market.
11	Answers to OJK Questions	As per the annexure format.
C	Pre-Appointment
1	Evaluation	Nominees must pass the OJK’s assessment before their appointment.
D	Nature of Evaluation
1	Assessment Type	Minimum of an administrative assessment. The OJK can seek clarifications during this phase.
E	Expert Assistance
1	External Experts	The OJK may take help from external subject-matter experts for assessments.
F	Termination
1	Nomination Process	OJK can halt the nomination process if the nominee is undergoing legal proceedings.
G	Definition
1	Legal Proceedings	Refers to financial crimes, special crimes not governed by the Criminal Code but with at least one year’s imprisonment penalty, and crimes detailed in the Criminal Code with a similar penalty.

Source

[1] Setyawati Fitrianggraeni holds the position of Managing Partner at Anggraeni and Partners in Indonesia. She also serves as an Assistant Professor at the Faculty of Law, University of Indonesia, and is currently pursuing a PhD at the World Maritime University in Malmo, Sweden. Additionally, Eva Fatimah Fauziah is a Senior Associate in the International Arbitration and Litigation Group and also Head of Legal Lab at Anggraeni and Partners, and Sri Purnama is a Junior Legal Research Analyst at Anggraeni and Partners. The writers express their gratitude to Dr. Hary Elias for generously dedicating his time to provide valuable feedback on their article.

[2]             The Financial Services Authority or Otoritas Jasa Keuangan, regulates, licenses, supervises, and develops Carbon Trading through the Carbon Exchange, see, Art. 2 of OJK Regulation Number 14 of 2023 on Carbon Exchange (hereinafter referred to as POJK 14/2023).

[3]             Carbon Trading or Perdagangan Karbon is a market-based mechanism to reduce GHG emissions through the buying and selling of Carbon Unites, see, Art. 1 number 8 of POJK 14/2023.

[4]             Carbon Exchange or Bursa Karbon is a system that regulates Carbon Trading and/or records of Carbon Unit ownership. Art. 1 number 9 of POJK 14/2023.

[5]             Carbon Unit or Unit Karbon is proof of carbon ownership in the form of a certificate or technical approval expressed as 1 (one) ton of carbon dioxide recorded in the SRN PPI, see, Art. 1 number 3 of POJK 14/2023.

[6]             Securities or Efek are investment documents or contracts, whether conventional or digital, or other forms in line with technological advancements. These grant their holders the right, whether directly or indirectly, to obtain economic benefits from the issuer or a specific party based on an agreement. Any derivative of such securities can be transferred and/or traded in the capital market, see, Art. 1 number 6 of POJK 14/2023.

[7]             The National Climate Change Control Registry System or Sistem Registri Nasional Pengendalian Perubahan Iklim, abbreviated as SRN PPI, is a web-based data management and information system about actions and resources for climate change mitigation, climate change adaptation, and the economic value of carbon in Indonesia, see, Art. 1 number 4 of POJK 14/2023.

[8]             Organisers are Penyelenggara Bursa Karbon. The Carbon Exchange Organisers or Penyelenggara Bursa Karbon is the party that organises and provides the Carbon Exchange, see, Art. 1 number 10 of POJK 14/2023.

[9]             Point II.4. of SEOJK 12/2023.

[10]           One of the Carbon Exchange Organisers that has been chosen is the Bursa Efek Indonesia or Indonesia Stock Exchange (IDX), as stipulated under OJK’s Decree Number KEP-77/D.04/2023 dated 18 September 2023, see, Indonesia Stock Exchange (IDX), “Launching of Indonesia Carbon Exchange (IDXCarbon)”, accessed on https://www.idx.co.id/en/news/news/b882a251-3e5c-ee11-b808-005056aec3a4?id=10282 dated 28 September 2023.

[11]           Point II.6. of SEOJK 12/2023.

[12]           Currently, the ministry overseeing environmental and forestry matters in Indonesia is the Kementerian Lingkungan Hidup dan Kehutanan or the Ministry of Environment and Forestry, as established by the Presidential Regulation of the Republic Indonesia Number 92 of 2020 concerning Ministry of Environment and Forestry.

[13]           Art. 4(1) of POJK 14/2023.

[14]           Art. 4(2) of POJK 14/2023.

[15]           The Technical Approval for Emission Limit for Business Entities or Persetujuan Teknis Batas Atas Emisi bagi Pelaku Usaha, abbreviated as PTBAE-PU, is the determination of greenhouse gas (GHG) or Gas Rumah Kaca (GRK) emission cap for business actors and/or the setting of emission quotas in a specific compliance period for each business entity, see, Art. 1 number 5 of POJK 14/2023; Greenhouse Gas or Gas Rumah Kaca, abbreviated as GRK, is a gas contained in the atmosphere, both natural and anthropogenic, that absorbs and re-emits infrared radiation, see, Art. 1 number 1 of POJK 14/2023.

[16]           The Greenhouse Gas Emission Reduction Certificate or Sertifikat Pengurangan Emisi GRK, abbreviated as SPE-GRK, is a document proving emission reductions by businesses and/or activities that have undergone measurement, reporting, and verification and are recorded in the SRN PPI in the form of a number and/or registry code, see, Art. 4 number 1 of POJK 14/2023.

[17]           Art. 5 of POJK 14/2023.

[18]           What is meant by “other activities” includes, among others, providing a trading platform for derivative products with an underlying asset in the form of Carbon Units, see, the Elucidation of Art. 6(1) of POJK 14/2023.

[19]           Art. 6 of POJK 14/2023.

[20]           Art. 7 of POJK 14/2023.

[21]           Art. 8(1) of POJK 14/2023.

[22]           Art. 8(2) of POJK 14/2023.

[23]           Art. 9 of POJK 14/2023.

[24]           Art. 10 of POJK 14/2023.

[25]           In Indonesia, a Limited Liability Company (LLC) is known as “Perseroan Terbatas” or “PT”. The primary regulation governing PTs is the Law No. 40 of 2007 regarding Limited Liability Companies. This law sets out the framework for the establishment, operation, and dissolution of PTs in Indonesia, covering matters such as capital requirements, shareholder rights and obligations, the role and responsibilities of the board of directors and commissioners, general meeting of shareholders, and other pertinent aspects related to the management and governance of such entities.

[26]           Art. 11 of POJK 14/2023.

[27]           Art. 12 of POJK 14/2023.

[28]           Carbon Exchange Organisers are to provide the OJK with documentation evidencing the fulfilment of paid-up capital by their shareholders, see, Point III.1. of SEOJK 12/2023; The documentation should detail: (a) Articles of Association, pertinent for LLCs that have already met the minimum paid-up capital requirements; or (b) evidence of capital deposits and a confirmation of the capital increase process registered with the Ministry of Law and Human Rights, applicable for LLCs yet to satisfy the minimum capital stipulation, see, Point III.2. of SEOJK 12/2023.

[29]           Art. 13 of POJK 14/2023; It is also reemphasized on Point III.3. of SEOJK 12/2023. Further, it is also stated that this mandate is accentuated by the necessity to submit a declaration ensuring that such capital does not originate from loans or any financing facility from third parties. Equally paramount is the assurance that these funds neither derive from nor are intended for money laundering, terrorism financing, or the proliferation of weapons of mass destruction.

[30]           Point III.4. of SEOJK 12/2023.

[31]           Sui generis institution is an institution formed based on legislation. Examples include Bank Indonesia, the Investment Management Institution (Lembaga Pengelola Investasi), and the Indonesian Export Financing Institution (Lembaga Pembiayaan Ekspor Indonesia), see, Elucidation of Art. 14(1) of POJK 14/2023.

[32]           Art. 14(1) of POJK 14/2023.

[33]           Ibid.

[34]           Art. 14(2) of POJK 14/2023.

[35]           Nominee arrangement is s an agreement and/or acknowledgment by the parties wherein one party is the actual (beneficial) owner of shares that are registered in the name of another party in that nominee arrangement, whether or not followed by an agreement that the party registered as the owner acts for and on behalf of the actual (beneficial) owner. Prohibiting nominee arrangements for shareholders of a Carbon Exchange likely stems from the need for enhanced transparency and accountability. Such arrangements can obscure the ownership of shares, potentially enabling conflicts of interest, undermining regulatory oversight, and compromising the integrity of the carbon market. By ensuring clear ownership, regulatory bodies can better prevent market manipulation, ensure the exchange’s operations align with the broader interests of all participants, and maintain trust in the carbon trading system.

[36]           Art. 14(3) of POJK 14/2023.

[37]           Art. 14(4) of POJK 14/2023.

[38]           Shareholders of Carbon Exchange Organisers are categorised into: (a) controlling shareholders; and (b) non-controlling shareholders, see, Point IV.3. of SEOJK 12/2023.

[39]           Financial viability criteria include (i) financial capability that aligns with the Carbon Exchange Organiser’s business trajectory; (ii) no bankruptcy declarations in the past 5 years, especially if their roles in directorial or commissioner capacities led to such corporate insolvency; and (iii) a demonstrated resolve to undertake necessary actions should the Carbon Exchange Organiser encounter financial difficulties, see, Point IV.1.b. of SEOJK 12/2023.

[40]           Integrity criteria encompass (i) legal capacity to act; (ii) demonstrable moral and ethical character; (iii) no criminal record in the past 20 years related to financial misdemeanors (such as banking, securities market, non-bank financial industries) or particular crimes (encompassing but not limited to corruption, smuggling, human and arms trafficking, terrorism, counterfeiting, tax evasion, and environmental law violations); (iv) absence of reprehensible behavior, validated with a police record no older than 6 months at the time of submission to the OJK; (v) no history of significant legal violations, notably those resulting in severe penalties or cessation of business; (vi) clear commitment to adhering to legislation and supporting OJK’s policies; and (vii) a genuine dedication to developing a resilient Carbon Exchange and a robust Indonesian capital market, see, Point IV.1.a. of SEOJK 12/2023.

[41]           Point IV.1. of SEOJK 12/2023; If the shareholder of a Carbon Exchange Organiser is a legal entity, the requirements above apply to this entity mutatis mutandis, see, Point IV.2. of SEOJK 12/2023.

[42]           Art. 15 of POJK 14/2023; Point VI.1.a. of SEOJK 12/2023.

[43]           Point IV.4. of SEOJK 12/2023; In instances where a prospective Carbon Exchange Organiser is an LLC without a controlling shareholder, the assessment of financial viability can be conducted on the LLC itself, see, Point IV.5. of SEOJK 12/2023.

[44]           Standards of integrity, including but not limited to (i) possessing legal capability; (ii) upholding sound morals and ethics; (iii) no conviction in the past 20 years for financial crimes such as banking-related offenses, capital market offenses, and non-bank financial industry crimes; or specific crimes outside the Criminal Code, such as corruption, narcotics/psychotropic drugs, smuggling, customs, human trafficking, illicit arms trade, terrorism, counterfeit currency, tax evasion, forestry, environmental, and marine and fisheries offenses. A conviction for any crime in the Criminal Code punishable by imprisonment of a year or more should be no older than 10 years; (iv) no reprehensible actions as evidenced by a police certificate no older than six months, or according to the validity period granted by the police if it is less than six months; (v) no severe breaches of prevailing laws resulting in maximum fines, business suspension, revocation of business licenses, annulment of approvals or registrations, or individual license revocations; (vi) demonstrate a commitment to developing the Carbon Exchange Organiser and the Indonesian capital market, see, Point V.1.a. of SEOJK 12/2023.

[45]           Financial reputation, including but not limited to (i) not having any non-performing loans or financing; and (ii) not having been declared bankrupt nor having been a controlling shareholder, non-shareholding controller, director, or commissioner found guilty of causing a company’s bankruptcy within the past five years, see, Point V.1.b. of SEOJK 12/2023.

[46]           Competence and expertise must be held by directors and commissioners. Directors, must possess adequate and relevant knowledge of the capital and/or financial market, have a minimum diploma-level education, and have at least two years of managerial experience in a climate change control company, the capital market sector, and/or financial sector. At least one director must possess knowledge or experience in climate change control and carbon trading. For Commissioners, they should know the capital market sector and have at least two years’ experience in climate change control, the capital market, and/or the financial sector, see, Point V.1.c. of SEOJK 12/2023.

[47]           Art. 16(1) of POJK 14/2023; Point V.1. of SEOJK 12/2013.

[48]           Art. 16(2) of POJK 14/2023. The assessment of capability and suitability is a process to evaluate the fulfilment of the requirements of capability and suitability for candidate members of the Board of Directors or candidate members of the Board of Commissioners of the Carbon Exchange Organiser, see, Elucidation of Art. 16(2) of POJK 14/2023.

[49]           Art. 18 of POJK 14/2023.

[50]           Even though there is no further clarification in Art. 19(3) regarding knowledge or experience in the field of climate change control and the carbon market, it is stated in the Elucidation of Art. 16(2) that the OJK will conduct the assessment of ability and suitability, supra note 37.

[51]           Art. 19 of POJK 14/2023.

[52]           Art. 20 of POJK 14/2023.

[53]           Art. 21 of POJK 14/2023. Affiliation as stated in this article encompasses familial ties up to the second degree due to marriage or descent, such as relationships with spouses, in-laws, grandparents, siblings, and children. Additionally, affiliation includes professional relationships between a Party and its employees, directors, or commissioners, shared governance among companies, control dynamics between entities, and significant shareholding relationships where a Party owns at least 20% of the voting shares of a company, see, Elucidation of Art. 21 of POJK 14/2023. The governance of “affiliation” in the Carbon Exchange regulation is integral for ensuring transparency, preventing conflicts of interest, and maintaining an even trading field. It safeguards against manipulative trading practices that could distort the market, aids in risk management by mitigating systemic threats, and fosters public trust. Additionally, clear definitions aid regulatory oversight and provide operational clarity for entities, reinforcing the exchange’s credibility and integrity.

[54]           Art. 22 of POJK 14/2023.

[55]           Art. 23 of POJK 14/2023.

[56]           Point VII.1 of SEOJK 12/2023.

[57]           Art. 24 of POJK 14/2023.

[58]           Ibid.

[59]           Ibid. In Art. 33, it is stated that if one fails to comply with the instructions of, amongst others, Art. 24 of POJK 14/2023, the party in question may be subject to administrative sanctions. Explanations regarding sanctions will be further explained in the latter part of this article. Please refer to ‘Sanctions and Penalties’.

[60]           Art. 25 of POJK 14/2023.

[61]           Art. 26 of POJK 14/2023.

[62]           Art. 27 of POJK 14/2023. Further stipulations can also be seen on Point VIII of SEOJK 12/2023.

[63]           This is further regulated under Point IX of SEOJK 12/2023.

[64]           Art. 28(1) of POJK 14/2023.

[65]           Art. 29 of POJK 14/2023. The ministry responsible for overseeing matters related to law and human rights in Indonesia is the Kementerian Hukum dan Hak Asasi Manusia or the Ministry of Law and Human Rights. This is established by the Presidential Regulation Number 18 of 2023 concerning the Ministry of Law and Human Rights.

[66]           Art. 30 of POJK 14/2023; See also, Point X of SEOJK 12/2023.

[67]           See also, Point XI of SEOJK 12/2023.

[68]           Art. 31(1) of POJK 14/2023.

[69]           Art. 31(1) letter g of POJK 14/2023.

[70]           Art. 31(1) letter h of POJK 14/2023.

[71]           Ibid.

[72]           Art. 31(2) of POJK 14/2023.

[73]           Art. 31(3) of POJK 14/2023.

[74]           Art. 31 of POJK 14/2023.

[75]           Otoritas Jasa Keuangan, Organisation Structure, accessed on https://ojk.go.id/en/tentang-ojk/pages/struktur-organisasi.aspx dated 28 September 2023.

[76]           Art. 33(1), (2), and (3) of POJK 14/2023.

[77]           Art. 33(4) of POJK 14/2023.

[78]           Art. 33(5), (6), and (7) of POJK 14/2023.

[79]           Specific actions include, among others, actions where the OJK instructs the Carbon Exchange Organisers to improve its standard operating procedures, see, Elucidation of Art. 34 of POJK 14/2023.

[80]           Art. 34 of POJK 14/2023.

[81]           Art. 35 of POJK 14/2023.

[82]           Point VI.1. of SEOJK 12/2023.

[83]           Point VI.2. of SEOJK 12/2023.

 

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