Understanding Legal Status of Fintech Companies


The amount of financial technology peer-to-peer lending (fintech P2P) has grown rapidly in Indonesia. The Financial Services Authority (OJK) reported that as many as 99 fintech P2P companies had registered with it by February 2019.

However, only one fintech P2P company has obtained a license from the OJK, namely PT Pasar Dana Pinjaman under the platform name “Danamas”. The “registered” and/or “licensed” fintech P2P companies are considered to be legal fintech.

In other words, unregistered and/or unlicensed ones shall be deemed to be illegal fintech P2P companies.

The OJK has identified and categorized as many as 231 such illegal fintech P2P companies and/or platforms as of February 2019. The actual number may be much higher since the categorization was solely based on the findings of investigations conducted by the Investment Alert Task Force of the OJK.

The legality of a fintech P2P company holds a significant role in a transaction agreement made, or in using a platform provided by the relevant fintech P2P company.

Transactions conducted by a legal fintech company shall be considered valid and binding to the relevant parties, namely the lender, organizer (fintech P2P company) and/or borrower. Otherwise, if the transaction is conducted by or using a platform provided by an illegal fintech P2P company, the transaction would be considered invalid and non-binding and result in the cancellation of the transaction.

In light of the foregoing, it is important to pay more attention to the types of illegal fintech companies, particularly for the lender and borrower.

From the lender’s perspective, the lender needs to ensure the platform provided by fintech P2P company is legal.

Therefore, the lender can mitigate the risk of cancellation of the transaction made between the lender and organizer and the transaction between the lender and borrower. From the borrower’s perspective, the legality of a fintech P2P company may be an early signal of the risk of data misuse and incompliance by the relevant fintech P2P company to prevailing laws.

The obligation of a fintech P2P company to be registered with and obtained a license from the OJK is required by Regulation No. 77/POJK.01/2016 concerning information-technology-based lending services.

Fintech P2P companies shall register with the OJK prior commencing business. Those that have been operating prior to the issuance of the OJK rule POJK 77/2016 shall submit applications for registration to the OJK no later than six months after the issuance of the regulation.

[…] in principle, such transactions should legally have never existed.

Therefore there are two types of illegal fintech P2P companies: an already existing and operating fintech P2P company that did not register with the OJK within six months of the regulation being issued and a newly established fintech P2P company that does not register with the OJK.

Transactions made by a pre-existing fintech P2P company from the date of its establishment to June 2017 are legal, valid and binding, even if the company did not subsequently register with the OJK.

Meanwhile, transactions made by newly established fintech P2P companies that do not register with the OJK are invalid from the start.

Therefore, in principle, such transactions should legally have never existed.

The above rule POJK 77/2016 stipulates that fintech P2P companies (as organizers) shall be in the form of limited liability companies or cooperatives. If a newly established fintech P2P company a limited liability company, then its establishment dates from when legalization was granted by the law and human rights minister as per Article 7 of the Limited Liability Company Law.

As the implementation of Online Single Submissions has not been effective, the establishment of cooperatives occurs when legalization is granted by the cooperatives and SMEs minister.

The above 2016 regulation also requires the registered fintech P2P company to submit an application to obtain a license no later than one year after its registered date.

In obtaining the license, the registered fintech P2P company shall meet requirements as stipulated under POJK 77/2016, inter alia, operational readiness, work plan and settlement plan letter. If it does not, the OJK can revoke its registration.

The consequence of revocation is that the fintech P2P company would become illegal and no longer be authorized to operate as a P2P company. Any transactions made after the revocation date would be considered invalid and non-binding, unless the transaction is part of a settlement plan as determined by the OJK.

Finally, legal status, whether licensed, registered, or unlicensed/unregistered, reflects the degree of risk of cancellation of a transaction. The lender or borrower may use the legal status for an initial assessment prior to entering into any transaction with a P2P fintech company.

A license may be interpreted as a green light to pass without hesitation, a registration as a yellow light that calls for care and vigilance and a lack of registration/license as a red light indicating strict prohibition.

However, if you insist on continuing, please do not complain about the risk.


The writer is a legal consultant in Jakarta.

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.


source : https://www.thejakartapost.com/academia/2019/05/03/understanding-legal-status-of-fintech-companies.html