Indonesia Plans to Strengthen Security for Crypto Investments

Indonesia plans to improve security for cryptocurrency investments in the country.

The Financial Service Authority (OJK) of Indonesia will oversee the regulation, supervision and oversight of crypto investments to improve protection for investors, the Southeast Asian country's finance minister said on Thursday.

The cryptocurrency sector in Indonesia is currently under the joint supervision of the Trade Ministry and the Commodity Futures Trading Regulatory Agency.

Finance Minister Sri Mulyani Indrawati put forward the new plan to improve security as part of financial sector legislation that is being debated in parliament.

Cryptocurrency in Southeast Asia's largest economy has witnessed a boom in crypto investments, but using such assets as means of payment is illegal in Indonesia. However, cryptocurrency transactions for investment purposes are allowed in the commodities market.

According to Sri Mulyani, there were 15.1 million cryptocurrency investors in the country as of June. The number is a massive rise from just 4 million in 2020.

Sri Mulyani told a parliamentary hearing, "we need to build a mechanism of supervision and investor protection that is quite strong and reliable, especially for investment instruments that are high risk."

She added that the new bill would empower OJK to regulate and supervise "digital asset activities, including crypto assets and financial sector technology innovation."

Indonesia also announced in late Sept about new rules for crypto asset exchanges.

The South Asian country's trade ministry is planning to issue new rules to govern crypto exchanges that will require two-thirds of the board of directors and commissioners to be Indonesian citizens and live in Indonesia, a deputy minister said Tuesday.

This change has come about due to the financial issues faced by cryptocurrency exchange Zipmex as it has currently stopped users from withdrawing funds.

"We don't want to give permits (to exchanges) carelessly, so only for those that meet the requirements and are credible," deputy trade minister Jerry Sambuaga told reporters after a parliamentary hearing.

Sambuaga added that the ministry's Commodity Futures Trading Regulatory Agency (Bappebti) would issue the new rule soon.

However, a timeframe has not been provided.

According to a document issued by the ministry, the new rule will require will also require an exchange to use a third party to store client funds and prohibit exchanges from re-investing stored crypto assets.

Didid Noordiatmoko, acting head at Bappebti, told the parliamentary hearing that ensuring two-thirds of the board were Indonesians based in the country "could prevent the top management running away when a problem hits the exchange."

The country's performance in terms of crypto transaction taxes has also improved.

Since the rollout of fintech and crypto transaction taxes in May, Indonesia has amassed nearly $6.8 million, according to the nation’s tax compliance special staffer Yon Arsal.

The Indonesian finance ministry imposed a value-added tax (VAT) of 0.1% on crypto-assets purchases on May 1 this year. While the Indonesian administration decided to tax crypto transactions based on surging popularity among local investors. 

Furthermore, crypto interest in Indonesian soil has skyrocketed since the onset of the COVID-19 pandemic. The number of crypto owners stood at 11 million in 2021.