Indonesia's LPS: Deposit, Insurance Guarantees Unnecessary for Financial Center

The Indonesia Deposit Insurance Corporation (LPS) has stated that deposit and insurance policy guarantees are not needed within the proposed Indonesia Financial Center (PFII). This position stems from an analysis of international financial centers, according to LPS Deputy Chairman Farid Azhar Nasution.

Nasution explained that LPS's core philosophy is to protect small depositors. However, practices in international financial centers such as Dubai, Abu Dhabi, Kazakhstan, and Malaysia suggest that automatic deposit or policy guarantees are not standard within these specialized zones. These centers often operate with unique regulations, sometimes including their own courts and supervisory authorities.

While acknowledging potential risks if PFII-based banks have financial dealings outside the zone, or if its insurance companies provide coverage to external parties, Nasution highlighted a crucial requirement. All financial service institutions operating within these international financial centers must possess a robust recovery and resolution plan. Failure to do so would prevent them from establishing operations.

LPS, established to safeguard small depositors and maintain financial system stability, observes that customers in global financial hubs differ from those typically covered by LPS. Nasution emphasized the need for clear distinctions in PFII regulations between international financial activities and those targeting the domestic population. He also pointed to the importance of legal clarity and harmonization with existing financial sector regulations.