Implementation of Policies Concerning Digital Governanceand Emerging Financial Technologies

The advancement of digital technology affects the youth and is mostly driven by them. It has created opportunities for great leaps of transformation in many cross-cutting areas, but also poses unprecedented risks and challenges for a subset of the population, the marginalized communities. The COVID-19 pandemic has accelerated such transformation in both private and public sectors, some in areas where policy frameworks are still ambiguous and nascent. Government interventions, especially in G20 countries, are thus critical in setting examples of how governments can help. Digital Transformation (DT) policies—governing a broad range of aspects from data privacy to payments—need to be designed to facilitate optimal realization of transformation potential, whilst protecting losers and narrowing the digital divide. To contribute more to recovery and sustainability, digital dividends have to be enjoyed by all.

    Careful attention must be put towards the role of digital governance and a supportive ecosystem for emerging digital technologies, especially in the financial sector. Digitalisation is pushing to be a major factor driving to be a major factor moving forward. However, people are concerned about the negative aspects and risks associated with the internet and digitalisation, such as fraud and online security. In order to boost recovery and support Digital Transformation, it is important to first guarantee that data can flow with trust.

    Digitalisation is pushing to be a major factor driving to be a major factor moving forward. However, people are concerned about the negative aspects and risks associated with the internet and digitalisation, such as fraud and online security. In order to boost recovery and support Digital Transformation, it is important to first guarantee that data can flow with trust.

Data privacy, affirming users’ ownership over their data and the mechanism for countermeasures for data breaches and threats and the secure handling of personal information by the government and private institutions should be implemented and ensured alongside Digital Transformation. UUD 1945 Article 28, guarantees the freedom of association and assembly, expressing thoughts verbally and in writing. Hence, the right to data privacy is rooted in this article as one may not be able to exercise those rights, when privacy does not exist. Meanwhile, a strong data protection regulation will not only guarantee freedom, it will also foster public’s trust and advance digital transformation.

    The Ministry of Communication and Information Technology stated that data breach occurs every second (Johnny G. Plate, 2022). In the past few months few data breaches occurred in Indonesia. Those include data leak from Indonesia’s track and trace app, and the sale of 1.3 billion of Indonesian SIM card numbers (Tempo, 2022). The cost of cybercrime in 2021 reached approximately 2 Trillion US Dollars (BCG, 2021).

    Currently, the law on data protection in Indonesia is scattered in as many as 32 laws such as UU Perbankan, UU ITE, UU Kesehatan. Meanwhile, as of April 2020, 66% of countries have adopted privacy and data protection regulation (UNCTAD, 2020). Therefore, the finalization of RUU PDP, an all-encompassing legislation, is strongly urged. The legislation shall govern the principles of data protection, that aims to balance the benefits and risks associated with data processing so that individuals will have confidence and that their data is used for a legitimate purpose. Kenya for example, has proved that implementation of data protection law in 2019, Amazon Web Services announced new investments, one of them including establishing its cloud services (Finextra, 2019). Countries closer to home such as Singapore and the Philippines have also enacted their data protection and privacy law.

To increase public’s confidence and support Digital Transformation, another residual issue that yet cannot be undermined is the need to have an independent supervisory body to make sure the (adj word) of the enforcement of the law. The most robust data protection legislation – European Union’s General Data Protection Regulation (GDPR) – mandates every EU country to establish its own independent supervisory body (Article 54 GDPR). Implementation of Singapore’s PDPA also established an independent supervisory body called the PDPA. In Indonesia, the president, via a presidential decree, will determine the independence of the supervisory body. If the supervisory body will be placed under a certain ministry, which is most likely to be the Minister of Communication and Informatics (MoCI). This will result in a major drawback – the supervisory body will face difficulties in exercising its competence in supervising MoCI’s compliance to the legislation. Meanwhile, recent major data breaches, which involved the leak and selling of billions of citizen’s SIM card information, was in the hands of MoCI’s (Independent Observer, 2022).

Comprehensive legislation on data privacy is necessary. The ratification of the PDP bill must be prioritized as it will provide legal certainty that will result in confidence of the public to government institutions. In addition to the ratification, a clear roadmap on how to implement the legislation, including education for the relevant stakeholders. It also means that human capital in this sector has to be increased, in terms of quality and quantity. We can learn from our neighboring countries such as Singapore and the Philippines that have an exemplary method of education for Data Protection Officers (APPDI, 2022).

    In addition to issues of data privacy, the development of the industry should also be sustainable and equitable to ensure that all Indonesian citizens can enjoy the digital dividends. Establishing sustainability as a central component in the development of emerging digital technologies in Indonesia requires the establishment of a clear regulatory framework governing energy and emission disclosure, frameworks incentivising sustainable financing of new digital technology and infrastructure projects, and a more standardized ESG and disclosure reporting requirements. Based on UU No. 32 Tahun 2009 Tentang Perlindungan Dan Pengelolaan Lingkungan Hidup dan UUD 1945, national economy should be conducted through the principle of sustainability, yet no clear laws govern the implementation of this principle in key sectors.

    Empirical evidence points toward the positive effect of ESG disclosure on green investment in key sectors (Halimah, 2020). Nevertheless, mandates or standards that are backed up by a clear regulatory mechanism is of utmost importance. Currently, ESG and carbon disclosures are largely voluntary, and studies have found that this is negatively related to firm’s leverage, profitability and size (Simamora, 2022). Meanwhile, the establishment of an independent audit committee is related to the propensity of carbon disclosure. In Indonesia, there exists a rule by the OJ on the implementation of sustainable finance, though the implementation is minimal due to the lack of regulatory support. In neighboring Singapore, Singapore’s central bank, MAS, has issued new disclosure and reporting guidelines for retail ESG funds, including requiring them to provide details on their investment strategy, as regulators globally seek to reduce the risk of greenwashing (Business Times, 2022).

    Some form of incentive mechanism needs to be put in place to incentivise industry players to incorporate sustainability into their operations, by way of penalties for poor disclosure and non-compliance to standards or financial incentives for good practice. This is already part of the OJK’s second phase of sustainable finance, whereby they intend to give a 25% discount on the fees for the registration of green bonds. The Directorate General of Customs and Excise (DJBC) under Indonesia’s Finance Ministry is already planning to provide incentives for new and renewable energy production companies (Vietnam Plus, 2022). Such an initiative can be expanded to industry players in digital technology.

    In addition to the support of a legal framework, there still needs to be a more cohesive and unified standard for sustainability reporting and investment indices. For example, in Indonesia, the stock exchange lists several ESG indices, namely the Sri Kehati Index, IDX ESG Leaders, and ESG Kehati, amongst others. A more standardized framework can incentivise key data center players such as Salim Group, Sinarmas, Lippo, and Telkom to be more mindful of their energy and carbon intensity. Indonesia is expected to bring in investments worth over USD 1 billion at an annual growth rate of 11 percent between 2019 and 2025 (Arizton, 2022). Well-known technology companies including Google, Microsoft, Amazon Web Services, Alibaba and Tencent have already set up data centers in Indonesia, or have announced plans to do so. But we do not know the extent of how green they will be. Moreover, there is still a limited legal basis requiring data centers and infrastructure providers on the disclosure of their carbon emissions and the financing of their projects. One way for this effort to be materialized is by close cooperation with the international community on a centralized, unilateral, or multilateral criteria for information disclosure, as well as the creation of an international database for network and digital infrastructure projects that can be evaluated on a number of sustainability metrics.

    An example of such effort can be seen in Singapore, whereby The Singapore Exchange Regulation (SGX RegCo) is setting up the ESGenome disclosure portal, which will make companies’ climate disclosures available to investors, in a move to close the gap in sustainability reporting and helping more companies get up to speed in the coming year (The Straits Times, 2022). A sustainability reporting advisory committee was set up by SGX RegCo and the Accounting and Corporate Regulatory Authority in June to advise on the suitability of international sustainability reporting standards for Singapore companies, including non-listed ones. Furthermore, they are hosting workshops and finance clinics encouraging the growth of bankable sustainable infrastructure projects. Collaborations harnessing the power of AI and key industry players may also prove to be beneficial. In Singapore, their central bank and Google’s cloud computing arm are teaming up to drive the growth of technology-enabled climate finance solutions in Asia over the next three years (Channel News Asia, 2022) through the Point Carbon Zero Programme. Google Cloud’s dedicated platform will operate out of Singapore and enable fintechs to work with financial institutions to build, host, and scale their climate solutions.

    The issue of creating multilateral consumer protection principles on emerging technologies is related to the aforementioned discussion. There is yet to be a clear, unified, standard that is backed up legally to protect consumers. While consumer protection laws exist, they are yet to incorporate emerging technologies. For these policies to be beneficial, several concerns need to be addressed. In creating these principles, a multi-stakeholder approach needs to be taken, engaging businesses in blockchain and crypto, policymakers, consumer protection and advocacy groups, and consumers. Workshops and clinics along with focus group discussions can be held to really assess what the needs and concerns of the different parties are. Furthermore, we recommend the establishment of a publicly available and transparent database on companies performance and wellbeing so consumers can make an informed decision when choosing which products to associate themselves with. Currently, a lot of fintech companies advertise themselves as being monitored and evaluated by OJK, but little information is actually available on the details of their performance. Again, requiring public disclosure of information can be a good way to protect consumers from wrongdoings in the sector. Additionally, a regulatory mechanism needs to also be put in place for the accountability and enforcement of the rules to the industry players, so penalties and fines can be levied when violation of consumer rights occur. The creation of a clear regulatory framework can help further uptake of digital financial services if consumers feel that they are secure and protected. For example, a common problem now concerns the ‘pinjol’ or online borrowing phenomena which have become predatory. Oversight and regulation needs to be put in place to prevent misuse of technology to happen so consumers can feel safe in their online financial activities.

    The role of youth in the development of emerging financial technologies such as CBDC and their governing regulatory frameworks cannot be taken for granted. The youth have a higher propensity to adopt and embrace financial technologies, and it is therefore in their interest that they be protected and catered for by the right regulations. Considering that the youth now will become the backbone of the economy in years to come, youth participation builds a broader base of citizen involvement, creates more inclusive communities, and one that serves the interest of future generations. Youth participation itself is a right protected by the law according to Chapter III on the function, direction and strategy for youth services of Law No 40. Article 7 mentions increased participation and an active role for youth in developing themselves, society, and the nation.

    Harnessing the role of youth involvement can be done concretely in several ways. Firstly, the youth needs to see that there is genuine interest from their government in hearing their voices. The issue herein lies in that the government tends to ignore youth concerns, apparent in the many protests that have been initiated by student groups. Youth trust in the government and regulatory process needs to be restored. There is a role of marketing, advertising, and PR campaigns to address this through social media and digital campaigns, along with partnership with mainstream media. There are youth advocacy groups and social media accounts promoting political literacy and educating the youth on policy-related issues. Government agencies can collaborate with such groups to create forums, workshops, and discussions. In addition, youth involvement needs to also be incentivised. For example, Singapore has prizes and awards for digital innovation, whereby youths can compete to propose digital solutions. Winners can be granted anything from a sum of money, scholarship, or a role in an associated government agency.

    Aside from youth involvement, a wider public engagement mechanism is crucial for policy making and designing regulations for emerging financial technologies. For example, the EU policy-making process involves a mechanism for the public to respond to policy proposals and they will be answered to. This suggests that a complete rehaul of the parliamentary process of policymaking needs to be considered if we want to include a public engagement mechanism. More concretely, forums can be created whereby the public can respond to policy proposals. Moreover, we can harness the role of NGOs and pressure or advocacy groups with more expertise in key policy areas to push government bodies to include mechanisms for public engagement. At the same time, law protection needs to be available for people who want to protest or advocate, and that they not fall victim to predatory laws such as the UU ITE.

    Amidst the rise of emerging financial technologies is the issue of financial inclusion whereby the development of alternative financial credit scoring systems and credit providers can accelerate financial inclusion. The OJK and BI needs to collaborate with the private sector to research an alternative credit scoring system that allows more people access to financing while still not becoming a burden to the economy and creating unnecessary risks to the financial system. For example, Oskarsdottir et al. (2018) recommends using big data for credit scoring by utilizing mobile phone data and social network analytics. While not every person is necessarily bankable, there is a larger proportion of the unbankable in terms of credit ratings that still use mobile phones, even for calling or texting.

This position paper has recommended several suggestions to concretely implement the communique produced by the Y20 on digital governance and emerging financial technologies. Applying them can help the country realize its goals of reaping the most and equitable dividends from the digital economy.