Greenwashing practices within the Indonesian banking sector threaten the integrity of sustainable financing and potentially trigger systemic financial risks in the form of non-performing loans. This study aims to analyze the legal construction of supervision by the Financial Services Authority (Otoritas Jasa Keuangan/OJK), evaluate the effectiveness of the supervisory mechanism, and identify regulatory loopholes exploited by banking institutions. This study employs normative legal research (normative juridical) through document study, relying on secondary data consisting of primary, secondary, and tertiary legal materials. The data were analyzed using a descriptive-prescriptive qualitative method, applying Authority Theory, Agency Theory, Legitimacy Theory, and Legal Effectiveness Theory.

The results of this research conclude three main findings. First, the current construction of OJK's preventive and repressive supervision suffers from structural paralysis as it remains trapped in administrative formalistic supervision (compliance-based supervision) without material ecological verification in the field, which violates the Principle of Carefulness under the General Principles of Good Governance (AUPB). Second, the supervisory mechanism has proven to be ineffective due to absolute information asymmetry; banks utilize sham compliance to conceal the reality of their massive funding in environmentally destructive extractive sectors. Third, this failure is facilitated by the flaws in OJK Regulation (POJK) Number 51/POJK.03/2017, which contains a vacuum of norm (vacuum of norm) due to the absence of a limitative definition and the use of the conditional phrase "if any" regarding independent verification obligations, alongside a vagueness of norm (vague of norm) concerning sanctions that are limited to written reprimands (lex imperfecta).

In pursuit of Ius Constituendum, it is recommended that OJK issues an Anti-Greenwashing OJK Circular Letter (SEOJK), mandates independent third-party verification (Mandatory Independent Assurance), and imposes structural punitive sanctions in the form of progressive fines, blacklist publication (naming and shaming), and a downgrade of the Bank Soundness Rating (TKB).

Keywords: Administrative Law, Banking, Financial Services Authority, Greenwashing, Sustainable Financing.