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After years of delays, the House of Representatives and the government have started to discuss the creation of a financial services authority, with the statutory deadline for its establishment only a year and a half away, legislators and officials said on Tuesday.

The authority is expected to act as a “superbody,” responsible for overseeing banks and financial institutions, and will take over the powers of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) to regulate the stock market and insurance and pension funds, as well as Bank Indonesia’s regulation of the banking system.

After the authority is established, the central bank’s role will be mainly be confined to steering the country’s monetary policy.

The government and central bank agreed to the establishment of the authority in the wake of the financial crisis of 1997-98. This was confirmed by the 2004 Central Bank Law, which provides that the FSA must be created before the end of 2010.

It is common knowledge in the industry that central bank officials have long been involved in a covert campaign to dissuade the House from setting up the authority, as it would erode BI’s potentially lucrative powers over the banking industry.

However, according to Hafiz Zawawi, the chairman of the House of Representatives’ Commission XI on banking and finance, the authority was essential as it would allow Bank Indonesia to devote its attention to monetary policy. “The law requires us to do this now,” he added.

Hafiz said that legislators had urged the government to submit the draft legislation to the House before the recess on July 3. “That would allow us to start the deliberations during the next session and finalize it before our term ends,” he said.

The next House session starts in August, with the current batch of legislators due to end their terms in September.

“We are finalizing the draft right now and have been involved in detailed discussions with other relevant institutions,” said Finance Minister Sri Mulyani Indrawati. “It will be ready this year.”

She said the establishment of the authority was more important than ever, given the global financial crisis. “This has taught us a lesson,” she acknowledged.

Hafiz said, “I hope that with Darmin Nasution in Bank Indonesia, the process can be speed up.” Darmin, who has been at the forefront of drafting the legislation on the new authority, is the Finance Ministry’s former director general of financial institutions, and is due to take up his new post as senior deputy governor of Bank Indonesia in July. He has consistently been a strong supporter of the proposed authority.

Kostaman Thayib, a director of PT Bank Mega, welcomed the decision to press ahead with setting up the authority. He said the line between banking and financial sector products had become blurred, and that a specialized authority was needed to supervise the “gray area.”

Yanuar Rizky, an independent stock analyst, said that it struck him as strange that the House had only now decided to address the matter as the deadline approached.