Indonesia prohibits crypto exchanges from reinvesting user funds

Indonesia will attempt to limit foreign ownership of crypto exchanges by introducing a new rule mandating that 66% of company directors and directors must be citizens living in the country.

The ministry’s Commodity Futures Trading Regulatory Agency (Bappetbi) is expected to roll out the new ruling soon, Reuters reported on Tuesday, citing Deputy Trade Minister Jerry Sambuaga.

Sambuaga told reporters after a parliamentary hearing that the ministry did not want to carelessly hand out exchange permits. Instead, it will send them out to platforms that the ministry deems credible after meeting the necessary requirements.

Blockworks reached out to the ministry to better understand the timeframe for the ruling, as well as the requirements for exchange, but a spokesperson was not immediately available.

The agency will also mandate exchanges to use a third party for the custody of client funds, while prohibiting the marketplaces from reinvesting the stored assets, according to the report, the latter being similar to the main activity of now-bankrupt crypto lenders Celsius and Voyager.

All this marks another step in Indonesia’s journey to regulate digital assets. Last year, the country cracked down on unlicensed crypto traders and payment processors deemed to be operating outside the agency’s purview.

The archipelago nation, made up of 17,000 separate islands, is one of the biggest users of cryptocurrencies in the world, with transaction activity exceeding double the global average in April, according to YouGov.

Indonesia recognized crypto as a commodity and formalized trading of the asset class in 2018, including via centralized exchanges. Although under newer regulatory frameworks in 2019 and 2020, only 229 cryptoassets are legally sanctioned for trading by licensed entities in accordance with Bappetbi.

It comes as the industry bore the brunt of several major project collapses, including Do Kwon’s Terra ecosystem and Marcus Lim’s Zipmex exchange – which have a foothold in the country and are struggling to stay afloat through investment from outside parties.

Kwon, whose ecosystem asset LUNA was legally sanctioned for trading in Indonesia via Zipmex, has an arrest warrant issued in South Korea, where his current whereabouts are unknown.

Didid Noordiatmoko, the agency’s acting head, told a parliamentary hearing on Tuesday that the new ruling could prevent a central bank’s C-suite from bolting from the country when a problem arises.

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