Understanding PBI 18/19/PBI/2016: Bank Indonesia’s Framework on Foreign Exchange Services

In the rapidly evolving global financial landscape, foreign exchange (forex) services play a pivotal role in enabling international trade, investment, and travel. For Indonesia, a country deeply integrated into global commerce, maintaining a stable, transparent, and secure foreign exchange system is critical. Recognizing this, Bank Indonesia (BI) issued PBI No. 18/19/PBI/2016 concerning Foreign Exchange Activities Against Rupiah Conducted by Non-Bank Institutions (referred to hereafter as “PBI 18/2016”).

Since its enactment on September 6, 2016, this regulation has aimed to formalize and regulate the provision of foreign exchange services by non-bank institutions. It ensures that foreign exchange activities comply with financial integrity, anti-money laundering, and prudential practices, while also maintaining national currency sovereignty.

Let’s explore the key aspects of this regulation, why it matters, and what businesses and stakeholders need to know.

Background: Why Regulate Non-Bank Forex Service Providers?

Foreign exchange transactions are not solely the domain of banks. In Indonesia, many non-bank institutions—like money changers and remittance agents—have historically been involved in buying and selling foreign currencies. However, without proper oversight, these operations can become avenues for:

Money laundering and terrorism financing

Speculative currency practices

Violation of national monetary policies

Currency hoarding or leakage

Prior to PBI 18/2016, the regulatory framework lacked clarity and consistency, particularly concerning the licensing, supervision, and reporting obligations of non-bank foreign exchange providers. With this regulation, Bank Indonesia sought to formalize the sector, protect consumers, and bring Indonesia in line with global anti-money laundering (AML) standards and international best practices.

Key Provisions of PBI 18/2016

PBI 18/2016 introduces several critical requirements and structures for non-bank foreign exchange businesses. Here are the major points:

1. Licensing Requirements

Non-bank institutions that conduct foreign exchange transactions must obtain a Foreign Exchange Business License (Penyelenggara Kegiatan Usaha Penukaran Valuta Asing Bukan Bank - KUPVA BB) from Bank Indonesia.

There are two types of licenses:

Head Office License – For companies operating independently or managing a network of branches.

Branch License – For subsidiaries or outlets of licensed head offices.

Licensing involves submitting legal documents, business plans, location details, internal policies, and proof of capital. This requirement ensures only capable and credible entities operate in the foreign exchange space.

2. Capital and Operational Requirements

BI sets minimum capital requirements, which vary depending on the type of license. Licensed entities must also:

Have clear ownership and organizational structures

Install systems for transaction monitoring and reporting

Maintain transaction records and documentation for at least 5 years

Employ staff who understand foreign exchange procedures and compliance

3. Compliance with AML and CFT Rules

PBI 18/2016 integrates AML (Anti-Money Laundering) and CFT (Combating Financing of Terrorism) principles. Providers must:

Implement Know Your Customer (KYC) procedures

Report suspicious transactions to PPATK (Indonesia's Financial Intelligence Unit)

Conduct regular training for staff on AML/CFT risks

Maintain customer due diligence and transaction limits

Failure to comply may result in license revocation, administrative sanctions, or criminal investigation.

4. Reporting and Supervision

Foreign exchange providers are required to submit:

Daily transaction reports to Bank Indonesia

Monthly and quarterly reports on operational performance

Reports of any suspicious or unusual activities

These reports are monitored closely by BI as part of macroprudential oversight and monetary policy implementation.

5. Sanctions and Enforcement

If a provider violates any provision of PBI 18/2016, Bank Indonesia may impose:

Written warnings

Temporary suspension of operations

Fines or administrative penalties

Revocation of business license

This robust enforcement mechanism helps maintain market discipline and regulatory compliance.

Impact of the Regulation

Since the issuance of PBI 18/2016, the non-bank foreign exchange sector in Indonesia has undergone significant transformation:

Greater transparency: With KYC and transaction reporting, the sector is less vulnerable to abuse.

Improved monetary control: BI has better visibility over currency flows and speculation.

Investor and tourist confidence: A formalized money changing ecosystem reassures foreign visitors and investors.

Financial inclusion: Encourages formal participation by small forex businesses in the regulated economy.

Moreover, PBI 18/2016 aligns Indonesia with global standards such as those set by FATF (Financial Action Task Force), helping the country demonstrate commitment to financial integrity on the world stage.

Challenges and Opportunities

Despite its benefits, implementation has not been without challenges:

Smaller operators struggle with the costs of compliance (e.g., staff training, system upgrades).

Informal forex dealers continue to operate in some areas, especially tourist-heavy regions like Bali and border towns.

Digital disruption and new payment technologies may require further regulatory adjustments.

That said, there’s an opportunity here: digital KUPVA BB services (e.g., online remittance and licensed e-money forex channels) are now emerging, paving the way for a more tech-savvy and efficient currency exchange ecosystem.

Final Thoughts

PBI 18/19/PBI/2016 is more than just a regulation—it’s a foundational framework for ensuring that Indonesia’s foreign exchange sector is professional, accountable, and secure. It brings long-needed structure to a once loosely monitored space, empowering Bank Indonesia to manage macroeconomic stability while safeguarding the public interest.

For businesses operating or planning to operate in this sector, understanding and complying with PBI 18/2016 is essential—not only to avoid sanctions, but also to build trust in the eyes of regulators, customers, and partners.

As Indonesia continues to integrate with the global economy, expect further refinements and possibly new iterations of this regulation in response to evolving financial technology, global compliance trends, and national policy priorities.