Thursday, March 23, 2023

How-to understand legal framework for cryptocurrency in Indonesia

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The term cryptocurrency (crypto) may have been discussed recently. Cryptocurrencies are an increasingly popular alternative to online payments. Cryptocurrency is a digital asset designed to work as a medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units, and verify asset transfers. The most famous crypto currency is bitcoin. Beside bitcoin, there are still thousands of crypto currencies, including ethereum, litecoin, ripple, stellar, dogecoin, cardano, eos and tron.

Governing law and regulation

  • Law No. 7/2011 concerning Currency
  • Law No. 10/2011 concerning Amendments to Law No. 32/1997 concerning Commodity Futures Trading
  • Commodity Futures Trading Supervisory Agency Regulation (Perbappebti) No. 7/2020 concerning the Establishment of a List of Crypto Assets that can be Traded in the Physical Crypto Asset Market
  • Commodity Futures Trading Supervisory Agency Regulation (Perbappebti) No. 5/2019 Regarding Technical Provisions for the Implementation of the Physical Crypto Asset Market on the Futures Exchange

Cryptocurrencies as payment instruments

Currently, cryptocurrencies are not recognized as legitimate payment instruments, so they are prohibited from being used as payment instruments in Indonesia. The central bank (BI) recently underlined that cryptocurrencies are not a valid payment method. Banks are prohibited from facilitating the use of cryptocurrencies as a form of payment. This is in accordance with the provisions of Law No. 7/2011 which states that currency is money issued by Indonesia and every transaction that has the purpose of payment, or other obligations that must be fulfilled with money, or other financial transactions carried out in the territory of Indonesia must use Rupiah. Also, Article 23B of the country’s Constitution mandates that nearly all financial transactions in Indonesia be conducted in Rupiah, the country’s only recognized currency. Only International transactions, government spending, and bank deposits are exempt. 

If cryptocurrency is used as a payment transaction instrument, then the Payment Service Provider (PJP) who violates it will be subject to administrative sanctions in the form of a warning, temporary suspension of part or all of its activities including the implementation of cooperation, and/or revocation of license as PJP. In addition, any person who does not use rupiah in payment transactions or other financial transactions is subject to a maximum imprisonment of 1 (one) year and a maximum fine of IDR 200 million.

Crypto asset physical traders and crypto asset physical market

A crypto asset physical traders is a party that has obtained approval from the Head of the Bappebti to carry out transaction activities related to crypto assets either on their own behalf and/or facilitate crypto asset customers. The crypto asset physical market is a physical market for crypto assets that is held using electronic means owned by physical traders of crypto assets for buying or selling crypto assets whose market supervision is carried out by the Futures Exchange. Physical market trading of crypto assets can only be carried out using electronic means owned by physical traders of crypto assets who are facilitated and whose market supervision is carried out by futures exchanges that have obtained approval from the Head of the Bappebti.

Functions of cryptocurrency

However, the Ministry of Trade through the Bappebti issued Perbappebti No. 7/2020. With this regulation, the cryptocurrencies that we know today are not recognized as legitimate payment instruments in the territory of the Republic of Indonesia, but as crypto assets that can be traded on the crypto asset physical market. Article 1 paragraph (1) of Perbappebti No. 7/2020 states that Prospective Crypto Asset Physical Traders and/or Crypto Asset Physical Traders can only trade Crypto Assets in the Crypto Asset Physical Market that has been determined by the Head of Bappebti in the Crypto Asset List that can be traded in the Market Physical Crypto Assets. The buying and selling of cryptocurrencies in Indonesia is only permitted for investment reasons or for legally defined crypto assets, according to the laws of the country.

The Requirements of Cryptocurrency

Trading the physical market of crypto assets must pay attention to the following:

  • The principles of good corporate governance to obtain transparent prices
  • The purpose of establishing a physical market for crypto assets as a means of establishing transparent prices
  • Legal certainty
  • Crypto asset customer protection
  • Facilitate innovation, growth and development of trading business activities on the physical market of crypto assets

Types of crypto assets that can be traded are if they meet the following criteria:

  • Based on distributed ledger technology;
  • In the form of utility crypto assets or asset-backed crypto assets (Crypto Backed Assets);
  • Has obtained the results of the assessment using the Analytical Hierarchy Process (AHP) method determined by Bappebti, with the following considerations:
    • Market capitalization value (market cap) of crypto assets (coin market cap);
    • Enter in the transactions of the world’s major crypto asset exchanges;
    • Has economic benefits, such as taxation, growing the digital economy, the information technology industry and the competence of experts in the field of informatics (digital talent);
    • The risk assessment has been carried out, including the risk of money laundering and terrorism financing as well as the proliferation of weapons of mass destruction.

Obligations of physical traders of crypto assets

During the registration process, crypto asset physical traders are required to fulfill the following conditions:

  • Notify any changes to the system, business processes, and rules and regulations that are owned.
  • Committed to disclose any information and data related to the implementation of the provisions in the Bappebti regulations.
  • Take necessary education and counseling for the development of Crypto Asset trading.
  • Participate in every implementation of coordination and cooperation with the Bappebti, other authorities or ministries/institutions.

During the registration process, Crypto Asset Physical Traders who carry out their activities must observe the following provisions:

  • Those who can become Crypto Asset Customers are only limited to individual status and are prohibited for business entities.
  • It is not allowed to sell Crypto Assets created by the respective Crypto Asset Physical Merchant or its affiliates.

Crypto Asset Physical Traders are required to:

  • Provide and/or open access to all systems used for the Bappebti in the context of supervision with read only access rights;
  • Include the reference value of the Crypto Asset trading capitalization used.

Report obligation

Physical traders of crypto assets are required to report to the Bappebti on:

  • Transaction reports on a daily and monthly basis. Daily transaction reports submitted no later than 2 p.m. Jakarta time on the next working day. Monthly transaction reports must be submitted no later than 7 (seven) working days after the reporting period ends. In the event that the last date for submitting the transaction report falls on a holiday, the transaction report will be submitted on the next working day.
  • Financial reports on a daily, monthly and annual basis. The daily and monthly reports are as the same deadline as transaction reports. For the Annual Financial Reports must be submitted no later than 90 (ninety) days after the reporting period ends. The Annual Financial Report must be audited by a Public Accounting Firm (KAP) which is a member of the Indonesian Institute of Accountants (IAI) and the Indonesian Institute of Certified Public Accountants (IAPI), and submitted to the Head of the Bappebti in written form (hard copy).
  • Company activity reports on a quarterly and annual basis. Quarterly Company Reports submitted no later than 45 (forty five) days after the reporting period ends. The Annual Company Report must be submitted no later than 90 (ninety) days after the end of the reporting year by attaching a photocopy of the audited annual financial report.
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