Financial Services Authority Board of Commissioners Regulation Number 5 of 2026: OJK Mandates In-Person Due Diligence, Site Visits, and Enhanced Documentation for Securities Underwriters

Introduction

On 9 July 2026, the Financial Services Authority implemented Financial Services Authority Board of Commissioners Regulation Number 5 of 2026 on Guidelines on Internal Control and Conduct for Securities Companies Conducting Business Activities as Securities Underwriters (“PADK 5/2026”). PADK 5/2026 serves as an operational technical guideline for Securities Companies, particularly Securities Underwriters (“PEE”), in implementing internal control standards, corporate governance, and business conduct at every stage of securities underwriting activities.

The issuance of PADK 5/2026 is driven by the Financial Services Authority’s (“OJK”) need to strengthen the supervisory and control framework for underwriting activities in order to mitigate the risks of negligence and regulatory violations during the public offering process, including Initial Public Offerings (IPO) and the issuance of debt securities and sukuk. Through PADK 5/2026, the OJK seeks to enhance the integrity of the underwriting process while providing greater protection to investors by ensuring that all material information disclosed by an issuer in its prospectus has undergone an adequate, independent, accurate, and legally accountable due diligence process.

Key Provisions

Mandatory Physical (In-Person) Due Diligence

Pursuant to Annex II, Roman Numeral II, Point 1, a Securities Underwriter acting as the managing underwriter is required to verify the accuracy, completeness, and correctness of all information provided by the issuer.

As part of the due diligence process, interviews with the issuer’s management and third parties involved in material transactions (where the transaction value is equal to or exceeds 20% (twenty percent) of the issuer’s equity) must be conducted in person through face-to-face meetings in order to preserve the independence of the verification process and minimize the potential for undue influence.

Remote interviews are permitted only under exceptional circumstances, such as force majeure, natural disasters, or health conditions preventing physical attendance, provided that they are supported by an official written statement and recorded documentation as evidence of the due diligence process.

On-Site Inspection of Operational Locations and Material Assets

Pursuant to Annex II, Roman Numeral II, Point 1 letter i, the Securities Underwriter is required to conduct site visits to the issuer’s operational locations, the locations where the proceeds of the public offering are intended to be utilized, and assets of material value.

Where an on-site inspection cannot be conducted due to jurisdictional constraints or inaccessible locations, the Securities Underwriter may appoint an authorized third party, such as a public appraiser or actuary, to conduct the inspection.

Nevertheless, the appointment of a third party does not transfer the Securities Underwriter’s responsibility. Accordingly, the Securities Underwriter remains fully legally responsible for both the implementation and the results of the inspection conducted by the appointed third party.

Fundamental Assessment of the Issuer’s Financial Condition and Management

Pursuant to Annex II, Roman Numeral II, Point 1 letter j, the Securities Underwriter is required to conduct a comprehensive assessment of the issuer’s eligibility as part of the due diligence process.

Such assessment must, at a minimum, include an evaluation of the stability of the issuer’s financial condition over the preceding 5 (five) years, the identification of any unusual increases or changes in the issuer’s financial condition immediately prior to the public offering, and verification of the issuer’s compliance with its tax obligations.

In addition, the Securities Underwriter is required to examine the legal track record of the issuer’s management, the company, and its beneficial owners for at least the preceding 5 (five) years to ensure that there are no legal issues or disputes that may affect the issuer’s eligibility or the implementation of the public offering.

Investigation of Fixed Allotment Investors

Pursuant to Annex II, Roman Numeral II, Point 4 letter c, in order to prevent market manipulation, the Securities Underwriter is required to conduct due diligence on fixed allotment investors.

The Securities Underwriter must verify the investor’s financial capability by reviewing bank account statements for the preceding 3 (three) months and confirm the identity of the actual ultimate beneficial owner to prevent hidden arrangement (side agreement) schemes under which the investor merely acts as a nominee.

Sanction of Being “Deemed Not to Have Conducted Due Diligence”

Documentation constitutes a fundamental element in the implementation of due diligence under PADK 5/2026.

The Securities Underwriter is required to prepare, administer, and retain all due diligence working papers, whether in physical or electronic form, as evidence of accountability for the implementation of the due diligence process.

Furthermore, Annex II, Roman Numeral II, Point 1 letter n number 2 provides that where the Securities Underwriter is unable to produce the due diligence documentation upon request by the OJK, the due diligence process shall be deemed never to have been conducted by the Securities Underwriter.

This provision makes the completeness of documentation a decisive evidentiary element in assessing the Securities Underwriter’s compliance with its due diligence obligations.

Confidential Reporting Channel (Whistleblowing) for the Compliance Function

PADK 5/2026 strengthens the independence of the internal supervisory function of Securities Underwriters.

Under these provisions, the compliance function is authorized to submit confidential reports directly to the Board of Commissioners of the Securities Underwriter and to the OJK where it identifies indications of violations.

Such direct reporting (bypass reporting) may be carried out where the alleged violation has the potential to cause losses to investors, contains indications of a criminal offence, and has previously been reported to the Board of Directors but has not received adequate follow-up or resolution.

Transitional Provisions

Pursuant to Article 2, all securities companies conducting business activities as Securities Underwriters are required to adjust and comply with all provisions concerning the implementation of the internal control function as stipulated under PADK 5/2026 no later than 1 (one) year from the entry into force of Financial Services Authority Regulation Number 13 of 2025 on Internal Control and Conduct of Securities Companies Conducting Business Activities as Securities Underwriters and Securities Brokers, namely 11 December 2025.

Closing

PADK 5/2026 establishes governance and internal control standards for securities companies conducting business activities as Securities Underwriters through more detailed regulation of the implementation of due diligence, verification of issuer information, on-site inspections, investigations of fixed allotment investors, documentation, and whistleblowing mechanisms. The OJK seeks to enhance the integrity of the underwriting process while strengthening investor protection through the implementation of higher compliance standards.

Securities Underwriters should align their internal policies, operational procedures, documentation systems, and compliance functions with the prescribed standards. Failure to comply with documentation obligations or due diligence requirements may result in legal and supervisory consequences, including questions regarding the validity of the due diligence process. Accordingly, securities companies should ensure that every stage of the underwriting process is conducted in a documented, independent, and accountable manner.