I. Introduction

1.1. This Policy Statement is designed to clarify the approach of the Astana Financial Services Authority (“AFSA”) to development of regime for “low-risk financial services firms”.

1.2. This approach outlines the regulatory preferences granted to applicants classified as “low-risk financial services firms” within the Astana International Financial Centre (“AIFC”).

1.3. The Policy Statement defines “low-risk financial services firms” for the purpose of financial services regulation in the AIFC.

1.4. Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in the AIFC Glossary. Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.

II. Issues with the current framework for financial firms intending to offer low-risk services

2.1. The necessity for developing a regime for low-risk financial services firms stems from the issues encountered during the review of various applications. The analysis of the application process, relevant regulatory provisions and the requirement specified there, the following issues have been identified:

(a) Limited Liability Partnership form for Authorised Firms. Despite there being no restrictions on establishing an Authorised Firm in the form of a Limited Liability Partnership (“LLP”), currently, only one Authorised Firm has been established as an LLP. Governance of LLPs is conducted by the Limited Partners under the partnership agreement, and there is no requirement to have a Director, unlike the Private Company, seeking for mandatory appointment of at least one Director in the firm. This is closely linked to governance issues, which often pose challenges for boutique financial firms.

(b) Governing Body (Board of Directors) requirement. Rule 5.3.1 of the AIFC General Rules (“GEN”) mandates that an Authorised Person must establish a Governing Body[1] that meets the requirements of Rules 5.3.2 (membership), 5.3.3 (responsibilities) and 5.3.4 (competence, training, and access to information) of GEN. It is set that the composition of the Governing Body of an Authorised Person must reflect an adequately broad range of experience and must possess adequate collective knowledge, skills, and experience to understand the Authorised Person’s activities and risks.

This necessitates firms to establish a collective Governing Body in compliance with requirements stipulated in GEN. Many applicant firms find this requirement burdensome. In the AIFC, mandatory appointments such as Senior Executive Officer, Finance Officer, Compliance Officer, MLRO, and the obligation to establish a Governing Body, whose members must apply for the Controlled Function of Director, are perceived as overly stringent for financial firms offering limited scope of services. This is particularly relevant for financial firms offering a limited scope of services, even when they are owned and managed by qualified financial services professionals.

(c) Outsourcing arrangement for Controlled Functions. Regulatory provisions in the AIFC Acts do not explicitly specify the opportunity for outsourcing the Controlled Functions to the third-party service providers, except for outsourcing of the Controlled Functions of Insurers to authorised Insurance Managers[2]. In this regard, it is necessary to specify that the boutique firms may outsource certain Controlled Functions, except for Senior Executive Officer position.

III. Definition of term “low-risk financial services firms”

3.1 In formulating a framework for “low-risk financial services firms”, it is essential to delineate the categories of financial services entities to be encompassed within this designation. Furthermore, the classification of low-risk financial services firms should consider not only the nature of the Regulated Activity but also the extent of funds under management/advisory/arranging by the Authorised Firms and their holding of Client Money.

3.2 Accordingly, for the purpose of this Policy Statement, firms already carrying on or seeking to conduct only the following Regulated Activities (whether together or separately), and which are owned and managed only by financial services professionals with proven experience relevant to the activities offered in the AIFC, will be classified as “low-risk financial services firms” and continuing to maintain requirements specified below:

(a) Advising on Investments (with assets under advisory up to 100 mln USD);

(b) Arranging Deals in Investments (with assets under advisory and arranging up to 100 mln USD);

(c) Advising on a Credit Facility;

(d) Arranging a Credit Facility;

(e) Arranging Custody;

(f) Providing Fund Administration;

(g) Insurance Intermediation (excluding the firms permitted to hold Client Money);

(h) Insurance Management (excluding the firms permitted to hold Client Money);

(i) Managing a Collective Investment Scheme (specifically managing Exempt Funds with Assets Under Management (AUM) up to 10 mln USD);

(j) Managing Investments (managing assets of clients classified as Professional Clients with AUM up to 10 mln USD).

3.3 As specified in section 3.2 above, there are three criteria that must be simultaneously satisfied to classify a firm as a “low-risk financial services firm”:

( a) First, the firms must be owned and managed by financial services professionals with proven experience relevant to the business intended to be conducted in the AIFC. Consequently, the Controllers who will jointly carry out the management roles in the firm are required to confirm their fitness and propriety as financial services professionals at the authorisation stage. The assessment of fitness and propriety will be carried out by the AFSA based on the scope, nature, and complexity of activities to be provided by the firm, as well as AIFC Regulations and Rules setting criteria for Controllers and candidates for Controlled Functions in the Authorised Firm.

( b) Secondly, firms classified as “low-risk financial services firms” are required to conduct only the Regulated Activities provided in section 3.2. above (whether together or separately). Firms carrying on or applying to conduct activities not listed above will not be classified as “low-risk financial services firms.”

( c) The size of the firm and its interaction with client money play a crucial role in the classification of firms and the assessment of potential risk exposure. Based on current statistics obtained during the supervision of Authorised Firms, additional criteria related to certain types of activities listed above are applied to classify them as “low-risk financial services firms”:

i. Firms seeking to conduct the Regulated Activities of Managing Investments and Managing a Collective Investment Scheme are classified as “low-risk financial services firms” if their assets under management (“AUM”) is up to 10 mln USD and they provide services only to Professional Clients (managing Exempt Funds in the case of Managing a Collective Investment Scheme). If the AUM exceeds this threshold, or the firm onboards Retail Clients (managing Non-Exempt Funds in the case of Managing a Collective Investment Scheme), the firm will no longer be classified as a “low-risk financial services firm.”

ii. Firms seeking authorisation to conduct Advising on Investments and Arranging Deals in Investments are subject to assets under advisory and arranging requirements and will fall under the “low-risk financial services firms” regime if their assets under advisory and arranging do not exceed 100 mln USD. If the AUM or assets under advisory or arranging exceed this threshold, the firm will no longer be classified as a “low-risk financial services firm.”

iii. Firms seeking authorisation to conduct Insurance Intermediation and Insurance Management services are classified as “low-risk financial services firms” only if they are not permitted to hold Client Money. If these firms apply for permission to hold Client Money, they will no longer be classified as “low-risk financial services firms.”

IV. Proposals under the new regulatory approach

4.1. In reference to the organisational structure and Governing Body requirements for Authorised Persons as outlined in Rules 5.3.1, 5.3.2, 5.3.3, and 5.3.4 of GEN, the requirement to establish a Governing Body for “low-risk financial services firms” will be applied in a modified form, as per the Class Modification Notice for low-risk financial services firms (Annex 1), provided that the Controller(s) confirm their competence to oversee the management of a “low-risk financial services firm” within the AIFC and obtain approval for carrying on the Controlled Functions.

4.2. In evaluating the competence of the Controller(s) of a “low-risk financial services firm” for recognition as a financial services professional by the AFSA, it is mandated that potential Controller(s) must possess a minimum of 10 years of professional experience within a regulated financial institution, including managerial roles. Potential Controllers who do not meet this requirement will not be classified as financial services professionals under the regime for “low-risk financial services firms” and, consequently, will be obliged to establish a Governing Body as per GEN.

4.3. Controller (s) may undertake Controlled Functions alongside their role as a Controller within the Authorised Firm. In such cases, the AFSA will assess the qualifications and suitability of the Controllers to perform these Controlled Functions in accordance with the AIFC Financial Services Framework Regulations, GEN, AIFC Guidance on Competence Assessment, and other relevant AIFC Acts. In doing so, adherence to conflict of interest arrangement is imperative, and should a conflict of interest arise that cannot be effectively managed due to a Controller’s appointment to a Controlled Function, the said function must be delegated to another individual.

4.4. Applicants who meet the criteria for “low-risk financial services firms” but choose not to be established as LLPs (e.g., opting to form a Private Company) may be owned and governed by a single Controller (natural person only) identified as a financial services professional. Regarding LLPs, given the nature of this organisational structure, LLPs could be owned and governed by at least 2 Limited Partners (natural persons only) who are classified as financial services professionals. This is contingent upon the AFSA deeming these individuals competent and capable of owning and managing a “low-risk financial services firm.”

4.5. Based on supervisory practices, entities offering advisory and facilitation services related to investments and credit facilities are not subject to complex prudential returns and capital requirements. Consequently, it is deemed that these responsibilities can be managed by finance professionals, either in-house or outsourced, who possess the requisite expertise to prepare and oversee financial accounts.

4.6. In this regard, the requirement to appoint a candidate for the Controlled Function of Finance Officer should be waived for “low-risk financial services firms” seeking to conduct Regulated Activities of Advising on Investments, Arranging Deals in Investments, Advising on a Credit Facility, and Arranging a Credit Facility, as per the Class Modification Notice for low-risk financial services firms. Instead, such firms should provide accountancy arrangements during the authorisation stage and thereafter.

4.7. While there are no clearly identified restrictions on outsourcing Controlled Functions to qualified third-party service providers, it is expected by AFSA that firms may outsource such functions to service providers possessing the requisite qualifications and experience, except for Senior Executive Officer role. Service providers can be either natural persons or legal entities. However, candidates for Controlled Functions should demonstrate their fitness and propriety to fulfil these roles within the Authorised Firm and submit an Application for Approved Individual status. It is crucial to note that the firm will not be relieved of its regulatory obligations by outsourcing Controlled Functions and remains fully accountable for compliance with AIFC Acts pertaining to the outsourced roles. Moreover, the outsourcing of Controlled Functions constitutes a material outsourcing arrangement, thereby subjecting the firm to relevant obligations as stipulated in Rule 5.2 of GEN.

V. Miscellaneous

5.1. Regarding the transitioning from “low-risk financial services firm" status to the usual regulatory regime, in following cases the firms classified as “low-risk financial services firms” are subject to transitioning to the usual regulatory regime:

- If a “low-risk financial services firm” applies to carry on the Regulated Activities not included in the list of Regulated Activities in section 3.2. above;

- If the AUM or assets under advisory and arranging exceeds the threshold provided in section 3.3.;

- If the shareholding structure of a “low-risk financial services firm” will change resulting in the inclusion of a non-professional in financial services among the Controllers, impacting the decision-making process either directly or via representatives;

- If deemed necessary and desirable by the AFSA in the pursuit of its Regulatory Objectives.

5.2. In the event of the transitioning circumstances outlined above, the firm will be granted a transitional period of 3 to 6 months, depending on the nature and complexity of its business, to notify the Supervision Relationship Manager about transitioning to the usual regulatory regime. For changes in Controllers and the inclusion of new Regulated Activities, firms will be subject to the standard change of control and modification applications. If the firm no longer complies with the conditions and criteria set out in sections 3.2. and 3.3., it must notify the relationship manager at the AFSA as soon as possible, but no later than 10 business days and submit to the AFSA a plan on exiting the “low-risk financial services firms” regime and bringing its activities in compliance with the AIFC acts, which otherwise would have been applicable, within 3-6 months.

Annex 1

CLASS MODIFICATION NOTICE No. AFSA-A-NB-2024-0020 for low-risk financial services firms

To	Low-risk financial services firms as identified in the Policy Statement on the approach of the Astana Financial Services Authority to low-risk financial services firms (“low-risk financial services firms”)
Regulated Activity	Regulated Activities as identified in the Policy Statement on the approach of the Astana Financial Services Authority to low-risk financial services firms

THE ASTANA FINANCIAL SERVICES AUTHORITY HEREBY GIVES NOTICE THAT

1. The Rules specified in the left-hand column of Tables A and B are modified to the extent shown in the right-hand column of the Table A and B, and right-hand column of Tables A and B apply to the low-risk financial services firms under conditions below.

2. The Rules specified in the left-hand column of Table C are modified in relation to low-risk financial services firms to the extent shown in the right-hand column of the Table C and right-hand column of Table C apply to the low-risk financial services firms carrying on or seeking to carry on the Regulated Activities of Advising on Investments, Arranging Deals in Investments, Advising on a Credit Facility and Arranging a Credit Facility under conditions below.

3. In these tables, underlining indicates new text and striking through indicates deleted text, otherwise the Rule remains unaltered.

TABLE A – RULES MODIFIED

AIFC Act	Modified Text
AIFC Glossary, definition of “Governing Body”	The board of directors, Partners, committee of management, Controller(s) (natural person(s) only), Senior Executive Officer either individually or jointly with Controller(s) (natural person(s) only) or/and other Approved Individuals or/and Designated Individuals, or other governing body of an Undertaking.

TABLE B – RULES MODIFIED

AIFC Act

Modified Text

Rule 5.3.2. of AIFC General Rules

An Authorised Person’s Governing Body must comply with the requirements set out below:

(a) ~~the composition of~~ the Governing Body of an Authorised Person must reflect an adequately broad range of experience;

(b) the Governing Body must possess adequate ~~collective~~ knowledge, skills and experience in order to understand the Authorised Person’s activities and risks; and

(c) ~~members of~~ the Governing Body must:

(i) commit sufficient time to perform their functions on the Governing Body; and

(ii) act with honesty, integrity and independence of mind;

(iii) effectively assess and challenge, where necessary, the decisions of the senior management, if applicable, and oversee and monitor decision making.

TABLE C – RULES MODIFIED

AIFC Act

Modified Text

Rule 2.1.1.(1) of AIFC General Rules

Appointments to be filled by Approved Individuals

(1) Subject to (2) an Authorised Person must make the following appointments and ensure that they are held by one or more Approved Individuals at all times:

(a) Senior Executive Officer;

~~(b) Finance Officer;~~

(c) Compliance Officer; and

(d) Money Laundering Reporting Officer.

Rule 6.3 (1) (a) of AIFC Prudential Rules for Investment Firms

6.3 Signing Returns

(1) A prudential return must be signed 2 ~~individual, and in each case:~~

~~(a) one of those individuals must be the individual approved to exercise the Finance Officer Function~~ at least by the Senior Executive Officer.

CONDITIONS

This notice is applicable provided that requirements and conditions under the Policy Statement on the approach of the Astana Financial Services Authority to low-risk financial services firms are met to the satisfaction of AFSA, including:

1) modifications under the Table A and B are applicable to low-risk financial services firms provided that the Controller(s) confirm their competence to oversee the management of a “low-risk financial services firm” within the AIFC and obtain approval for carrying on the Controlled Functions (paragraph 4.1. of the Policy Statement);

2) modifications under the Table C are applicable provided that low-risk financial services firms provide accountancy arrangements during the authorisation stage and thereafter.

EFFECTIVE PERIOD

This notice comes into effect on the date of issue and remains in force until further notice.

INTERPRETATION

Defined terms are identified in this notice by the capitalisation of the initial letter of a word or of each word in a phrase and are defined in the AIFC Glossary. Unless the context otherwise requires, where capitalisation of the initial letter is not used, an expression has its natural meaning.

THIS NOTICE IS ISSUED PURSUANT TO SECTION 9 OF THE AIFC FINANCIAL SERVICES FRAMEWORK REGLATIONS BY THE ASTANA FINANCIAL SERVICES AUTHORITY.

[1] Governing Body (myafsa.com)

[2] Rules 2.3 and 14.3 AIFC Insurance and Reinsurance Prudential Rules