Indonesia: Crypto Products Required To Pass On Regulatory Sandbox After New Rule

Indonesia’s regulatory agency has issued a new rule that could potentially affect crypto assets in the country. According to local reports, firms must introduce their products to the Financial Services Authority (OJK)’s Regulatory Sandbox.

Crypto Assets To Be Tested On Regulatory Sandbox

Local reports by news media outlet DetikFinance informed of the new regulatory rule issued by the OJK this week. The rule aims to “increase the development of the technological innovation of the financial sector” and safeguard users from losses and “fraudulent investments.”

OJK’s new measure requires Financial Services Institutions (FSIs) to enter new products and services in Indonesia’s regulatory sandbox. According to the reports, the regulation includes banking, insurance, and crypto companies that “are guaranteed to be suitable for use by consumers.”

Crypto firms must be evaluated in the regulatory sandbox before being authorized to operate in Indonesia. Moreover, crypto products and new business models developed by entities already licensed by the OJK will also need to go through the sandbox.

The Executive Head of the Supervisor of Financial Sector Technology Innovation, Digital Financial Assets, and Crypto Assets, Hasan Fawzi, said:

I think this is our spirit at OJK, especially in consumer protection and education. We hope that all our regulatory mechanisms will be present and have a direct impact on the prevention of fraudulent investments.

If companies fail to follow the new requirement and continue to operate, it will be considered unlicensed and the product illegal.

The regulatory sandbox is a testing mechanism to “assess the reliability of business processes, business models, and financial instruments.” Its goal is to ensure that innovation and financial technology development are carried out responsibly with suitable risk management.

Regulatory Landscape In Indonesia

This regulatory sandbox requirement is a new development for crypto assets regulations in the country. Furthermore, the supervision and regulation of these assets will be transferred from the Commodity Futures Trading Regulatory Agency (Bappebti) to the OJK starting in 2025. Regarding this matter, Fawzi said:

Now this sandbox is a good tool for familiarization of organizers, crypto asset digital finance practitioners, they will get used to how it is regulated by the OJK, on the other hand, we will introduce regulation and supervision at the OJK.

It’s worth noting that Indonesia has received criticism over its regulatory measures in the past. The country’s cautious approach to cryptocurrencies prohibits its use as a direct payment method for goods and services.

Additionally, the crypto’s dual taxation is believed to have potentially hindered the market growth in the country. As reported by Bitcoinist, local exchanges expressed their concerns about the high taxes possibly discouraging users’ activity in licensed exchanges.

Nonetheless, Indonesia has one of the highest adoption rates in the world despite its regulatory landscape. Bappebti, the country’s regulator, reported there were over 18.51 million investors throughout 2023, which increased by over 9.8% by February 2024. According to Chainalysis data, the Asian country ranks 7th in the 2023 Global Crypto Adoption Index.