2.2.11.1. General description

Arranging Deals in Investments is listed in section 11 of Schedule 1 of GEN. It means making arrangements with a view to another Person (i) buying, (ii) selling, (iii) subscribing for or (iv) underwriting an Investment (whether that other Person is acting as principal or agent).

The above definition is also wider in cases where the arrangements would not bring about a particular transactions. For example, where the involvement in a chain of events leading to a transaction is of enough importance that without that involvement it would not take place.

The activities which constitute Arranging Deals in Investments generally involve the following elements:

(a)     the purpose of such an arrangement is to ‘facilitate’ or ‘bring about’ transactions between other parties such as:

                       (i)         buyers and sellers of Investments;

                      (ii)         issuers of and subscribers for Securities (note – subscription is generally an activity associated with an initial offer of Securities);

                    (iii)         issuers and underwriters of securities (note – underwriting here is an activity associated with an initial offer of Securities, as opposed to underwriting of risks, which is an activity of an insurer); and

                    (iv)         insurers writing Long-Term Insurance and policyholders who wish to obtain such insurance.

(b)     such arrangements can be either of an on-going nature, for example, an arrangement which is available to potential buyers or sellers of Investments, or an arrangement which is bespoke (i.e. available on a one-off basis for a particular client, such as an underwriter of Securities).

The activities referred to above can include one or more of the following:

(a)     the introduction of:

                       (i)         potential buyers of Investments to issuers or sellers of Investments, or vice versa;

                      (ii)         potential subscribers for Securities to issuers;

                    (iii)         potential underwriters to issuers of Securities, or vice–versa;

                    (iv)         potential parties to a derivatives transaction; and

                     (v)         policyholders or cedants to insurers or reinsurers underwriting Long-Term Insurance;

(b)     assisting any of the parties referred to in (a) through activities, such as, completing the applications or other processes relevant to the transaction;

(c)     negotiating and settling terms of the contracts between the parties referred to in (a);

(d)     collecting and processing fees, commissions or other payments (such as premiums in the case of Long-Term Insurance); and

(e)     transmitting instructions or confirmations relating to transactions.

An arrangement which is part of a wider arrangement for the purpose of bringing about transactions in Investments still falls within the scope of Arranging Deals in Investments. For example, an arranger may arrange (i.e. allow access) for potential investors to access a facility set up by an offeror of Securities. The arrangement to allow access constitutes arranging, although, for a transaction to be concluded, the investor will also need to use the offeror’s facility.

‘Arranging Deals in Investments’ differs from ‘Dealing in Investments as Agent’ because:

(a)     a Person ‘arranging deals’ (i.e. the ‘arranger’) does not have the authority to bind the parties to an Investment transaction resulting from its ‘arranging’ activities; and

(b)     a Person ‘dealing as agent’ acts as the agent of a party to the Investment transaction and has the authority to bind its principal.

For example, a Person acting as an agent either:

(a)     executes the transaction for its principal (the Client); or

(b)     if using another broker to execute the client order, commits the Client to the transaction by giving a binding order to the broker.

In contrast, a Person acting as an arranger may, for example, receive and transmit client orders to a broker, but does not have the power to execute or enter into the transaction for the client, or commit the client to a transaction.

An activity falls within the scope of the service of ‘arranging’ even if it does not necessarily lead to a completed transaction.

For example, a prospective buyer or seller of Securities may change his mind and not sign a contract for the sale or purchase of Securities. Similarly, a potential buyer of Long-Term Insurance, after having completed an application form for Long-Term Insurance with the assistance of an arranger, may not go ahead with the purchase of the policy. In both examples, just because the transaction has not been concluded, the arranger’s activities do not cease to be ‘arranging’.

An Authorised Firm authorised to carry on the regulated activity of Arranging Deals in Investments is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.

Currency regulation

Currency transactions will be performed via AIFC Banks if processed in only foreign currency, and via second-tier banks in any currency. For more details of transactional implications see Chapter 4 of PERG.

The table below illustrates currency regulation implications if services are offered to residents of Kazakhstan that are not AIFC Participants.

For more details see Chapter 4 of PERG.

2.2.11.2. Exclusions

Unless stated otherwise, the following specific exclusions apply to both arranging (bringing about) deals in Investments and making arrangements with a view to deals in Investments:

(1)   where a Person merely enables parties to communicate, the Person does not make arrangements with a view under section 11 of Schedule 1 of GEN - this is likely to apply mainly to Persons such as internet service providers, broadcasters or publishers if all they do is provide communication facilities. The word “merely” is crucial so that where a publisher, broadcaster or Internet service provider goes beyond what is necessary for them to provide a service of publishing, broadcasting or otherwise facilitating the issue of promotions, it may well bring them within the scope of section 11 of Schedule 1 of GEN.

(2)   where a Person is arranging a transaction to which they are a party.

(3)   arranging transactions connected to lending on the security of insurance contracts (but only where a Person is not carrying on insurance mediation or reinsurance mediation) (for further information on exclusions relating to insurance related activities, see relevant sections of PERG).

(4)   arranging for Debentures to be accepted in connection with the making of loans.

(5)   where a transaction for the sale or purchase of a contract of insurance consists of the mere provision of information about a potential policyholder to a relevant insurer or an insurance or reinsurance intermediary, or consists of the provision of information to a potential policyholder about a contract of insurance, or a relevant insurer or insurance or reinsurance intermediary. This exclusion is only available if the provider of the information does not take any step other than the provision of information to assist in the conclusion of a contract of insurance.

(6)   arrangements made by a firm for the issue of its own shares or share warrants or person issuing their own Debentures or Debenture warrants.

A Person who performs for a financial service provider (in or outside the AIFC) delegated or outsourced functions, such as back office administration services, does not carry on ‘arranging’ activities. For example, a Person undertaking administrative tasks (such as processing applications, transmitting orders, or issuing confirmations of transactions for a brokerage firm or an insurer) is not arranging transactions.

A passive display of literature which advertises Investments does not amount to arranging, unless something more is done to help potential investors or policyholders to buy such Investments or policies.

For example, a passive display of leaflets advertising Investments in property funds at the reception of an office, such as an accountant’s office, or a display of leaflets advertising permanent health policies of a Long-Term Insurance insurer at a doctor’s or dentist’s waiting rooms, would not constitute arranging, provided the relevant service providers or employees in their offices do not assist or facilitate transactions by potential investors/policyholders.