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Consultation Paper on Proposed Astana International Financial Centre Security Token Offering Framework
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the Policy paper and proposed AIFC Security Token Offering Framework.
Who should read this CP?
2. The proposals in this paper will be of interest to current and potential AIFC participants dealing with Security Tokens as well as the market and other stakeholders.
Terminology
3. 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 (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4. We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2023-0006” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposed framework is 15 September 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. AFSA prefers to receive comments by email at consultation@afsa.kz or posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Astana, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Issues and Risks;
Part III – Benefits;
Part IV – Best Practice;
Part V – Proposals;
Part VI – Public Consultation Questions;
Annex 1 – Draft Amendments to AIFC Financial Services Framework Regulations (FSFR);
Annex 2 – Draft Amendments to AIFC Glossary (GLO);
Annex 3 – Draft Amendments to AIFC Authorised Market Institutions Rules (AMI);
Annex 4 – Draft Amendments to AIFC Market Rules (MAR); and
Annex 5 – Draft Amendments to AIFC Conduct of Business Rules (COB).
Background
1. A Security Token represents a distinct class of assets and its issuance process, the security token offering (STO), represents a unique method of financing ventures. A Security Token is a digital representation of an investment product, recorded on a distributed ledger, subject to regulation under securities laws. Tokenisation is the process of recording claims on real or financial assets that exist on a traditional ledger onto a programmable platform.
2. Current Security Token projects commonly use distributed ledger technology (DLT). A distributed ledger (DL) is a record of transactions held across a network of computers (nodes) where each node has a synchronised copy. A DL usually relies on cryptography to allow nodes to securely propose, validate and record state changes (or updates) to the synchronized ledger without necessarily the need for a central authority.
3. According to BIS Quarterly Review, there are a few distinctions between book-entry and tokenised securities:
1) Verification Process:
* for book-entry securities, transfer authorisation ultimately depends on the Central Securities Depositary (CSD) verifying the identity of the account holder;
* for digital tokens authorisation depends on “validation” of the token.
2) Degree of centralization:
* a CSD is highly centralized, which means that there can be only one entity that updates the central ledger and sees all transaction histories;
* DLT platforms for tokenised securities exhibit different degrees of decentralization.
4. The global market for STOs is still in its nascent stages, but it is expected to see significant growth in the next few years, as the regulatory landscape becomes clearer, and more businesses and investors become aware of the benefits of STOs.
5. STOs can provide businesses with access to capital and a global pool of investors, while investors can benefit from liquidity, diversification, and transparency. However, STOs are subject to regulatory scrutiny and compliance requirements.
6. Tokenising securities on a DLT has the potential to reduce some of the costs and complexities in clearing and settlement, but it is not without risks. Tokenisation does not change the underlying risks in the settlement cycle, but it may transform some of them and change how they are managed. It may also have implications for the role of intermediaries in securities clearing and settlement.
7. Development of the AIFC Security Token Offering Framework (the “STO Framework”) was prompted by the need to introduce appropriate regulatory regime for Persons undertaking activities that involve or relate to Security Tokens.
Issues and Risks
8. There are several regulatory issues surrounding security tokens that tend to arise:
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One of the primary regulatory challenges is determining whether security tokens fall under the definition of securities in a particular jurisdiction. If they are deemed to be securities, they are subject to securities regulations, including registration, disclosure, and compliance requirements.
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Regulatory frameworks for security tokens are often designed to protect investors. This might include rules regarding accredited investors (investors meeting certain financial criteria), investment limits, and providing investors with accurate and transparent information.
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Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations are typically applicable to security token offerings. Issuers and platforms may need to verify the identity of their investors and ensure compliance with AML regulations.
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Depending on the jurisdiction and the specific activities involved (issuing, trading, custody, etc.), entities dealing with security tokens may need to obtain specific licenses or approvals from regulatory bodies.
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Security tokens can be traded globally, leading to challenges related to cross-border regulations and compliance. This involves understanding how different jurisdictions treat security tokens and ensuring compliance in all relevant regions.
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Regulatory considerations extend beyond just the tokens themselves. The platforms and exchanges facilitating trading of security tokens may also need to adhere to specific regulations, such as market surveillance and fair trading practices.
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Regulators need to understand the underlying blockchain technology, smart contracts, and other technical aspects to ensure that the regulatory framework appropriately addresses the unique features of security tokens.
9. Consequently, STOs are associated with the following important risks:
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STOs are subject to securities laws, which means that businesses must comply with a complex and ever-changing regulatory environment, which can be costly and time-consuming.
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STOs are a new and relatively untested investment product, and there is no guarantee that security tokens will hold their value.
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STOs could be subject to greater regulation in the future, which could limit their usefulness as a fundraising tool.
10. Given that the regulatory landscape for security tokens is still evolving and considering the above-mentioned issues and risks, which need to be addressed, the AFSA considers crucial to develop the AIFC Security Token Offering Framework (the “STO Framework”) to introduce appropriate regulatory regime for Persons undertaking activities that involve or relate to Security Tokens.
Benefits
11. The STOs offer the following potential benefits that are widely acknowledged by industry experts:
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STOs are compliant with securities laws and regulations, making them a secure investment option for both investors and issuers.
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STOs can provide liquidity to investors, allowing them to sell their securities on a regulated secondary market.
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Tokenisation has the potential to enhance the liquidity of certain financial assets, e.g., unlisted shares or syndicated loans, by making transfer of ownership easier and faster.
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Tokenisation may also reduce the need for intermediaries.
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DLT facilitates the use of smart contracts, which automate the execution of contract obligations, thereby potentially reducing risks and costs. This could in turn provide positive outcomes for both market participants and end-consumers.
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DLT supports the wider distribution of ownership records and transaction histories. In principle, having a single ledger that is held by all parties reduces the need for reconciliation and confirmation of trade details between back offices post-trade.
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The use of blockchain technology for STOs makes it possible to provide greater transparency, since investors can have access to real-time information about the investment and trading activity.
Best Practice
12. The AFSA has considered the international standard setting, particularly IOSCO, and have considered the numerous jurisdictions’ regulatory approaches in relation to the Security Token. Our main goal was to determine whether Security Tokens are similar in nature to traditional assets and can therefore fit into the existing regulatory framework for securities.
13. According to IOSCO's recommendations, regulators may consider applying existing regulations that govern traditional financial instruments, such as securities, to certain crypto-assets if they are found to behave similarly to or act as substitutes for regulated financial instruments.
14. In addition, IOSCO's approach to retail investor participation in crypto-asset markets emphasizes the need for additional protections and requirements, including well-constructed suitability assessments, transparent disclosures, and efficient complaint handling mechanisms. These measures are intended to mitigate the unique risks posed by these markets and ensure that retail investors are adequately informed and safeguarded in their participation.
15. Some international regulatory authorities (European Securities and Markets Authority, FCA, BaFin, Financial Market Authority of Switzerland) have adopted a token classification dividing cryptoassets into three broad categories, typically:
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Payment/exchange tokens or cryptocurrencies: a means of value exchange;
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Utility tokens: granting access to a digital platform or service;
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Security tokens: an investment instrument.
16. According to the Cambridge Centre for Alternative Finance’s study a prevalent regulatory approach to date (82 % of 108 selected jurisdictions) is to draw a clear distinction between cryptoassets that qualify as securities and those that do not (please see Figure 1 below).
Figure 1: Regulatory approaches to cryptoasset classification
17. The regulatory developments of the following jurisdictions were analysed:
Dubai International Financial Centre (“DIFC”)
18. In October 2021, the DFSA introduced the Investment Token Framework. The DFSA has adopted an approach that involves incorporating Investment Tokens within the existing regulatory framework for 'Investments,' instead of creating a completely separate regime. This approach required certain modifications to take into account the unique characteristics of investment tokens. For completeness it is noted that the definitions of investments is different from the way that the term is more broadly defined to include digital assets at the AIFC.
19. A Security Token is considered an Investment Token, which is either a Security or an instrument that confers rights and obligations similar to a Security, or has a purpose or effect comparable to a Security. It is important to note that this type of tokens fall under the broader category of Investment Tokens, which also includes Derivative Tokens.
20. In DIFC Security Tokens may be offered on both traditional exchange and multilateral trading facility (MTF)/organised trading facility (OTF) platforms. The DIFC approach to regulation of security tokens appears to be an important precedent for the AIFC, given the similar status of the financial centres and the treatment of security tokens within the existing regime for authorised market institutions.
Abu-Dhabi Global Market (“ADGM”)
21. In ADGM, Security Tokens are defined as virtual tokens that have the features and characteristics of a Security under the FSMR (such as Shares, Debentures, Units in a Collective Investment Fund). Deemed to be Securities pursuant to Paragraph 58(2)(b) of FSMR. The ADGM has a high focus on promotion of the tokenisation regimes through their Multilateral Trading Platforms offering.
22. All financial services activities in relation to Security Tokens, such as operating primary/secondary markets, dealing, trading, managing investments in or advising on such tokens, will be subject to the relevant regulatory requirements under the FSMR.
23. Market intermediaries and market operators dealing or managing investments in Security Tokens need to be approved by FSRA as Financial Services Permission holders, Recognised Investment Exchanges or Recognised Clearing Houses, as applicable.
24. Where an Offer involves Retail Clients participation, it would qualify as an Exempt Offer if it is directed at no more than 200 Retail Clients, in circumstances where the Securities are offered within a Private Financing Planforms or Multilateral Trading Facilities.
Singapore
25. In Singapore, there is no specific regulatory regime applicable to security tokens. Security tokens are generally regulated in the same way as other types of traditional securities.
26. The Monetary Authority of Singapore (MAS) defines a Digital Token as a cryptographically-secured representation of a token-holder’s rights to receive a benefit or to perform specified functions in several of its statements.
27. Offers or issues of digital tokens may be regulated by MAS if the digital tokens are capital markets products under the Securities and Futures Act. Capital markets products include any securities, units in a collective investment scheme, derivatives contracts, and spot foreign exchange contracts for purposes of leveraged foreign exchange trading.
The United Kingdom
28. The HM Treasury published its consultation on Future financial services regulatory regime for cryptoassets, which provides industry with an explanation of where cryptoassets interact with its regulatory perimeter. This consultation ran from 1 February 2023 to 30 April 2023.
29. Security tokens defined as cryptoassets which use a technology such as DLT to support the recording or storage of data and already meet the definition of a specified investment under the Financial Services and Markets Act 2000 and are therefore already subject to regulation.
30. The FCA already has powers to implement regulatory requirements for activities relating to security tokens , which meet the definition of a specified investment. Security tokens are allowed to be offered on a Regulated Market or a primary MTF.
Hong Kong
31. Under the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), centralised virtual asset trading platforms carrying on their businesses in Hong Kong, or actively marketing their services to Hong Kong investors, are required to be licensed and regulated by the Securities and Futures Commission (SFC).
32. Definition of “virtual assets” include any virtual asset and security token. Security token means a cryptographically secured digital representation of value which constitutes “securities” as defined in Chapter 571 of SFO.
33. Trading platforms intending to provide trading in security tokens need to be licensed under the Securities and Futures Ordinance (the SFO) for regulated activities Type 1 (dealing in securities) and Type 7 (providing automated trading services).
34. On June 1, 2023, Hong Kong implemented a new licensing regime for Virtual Asset Trading Platforms (VATPs). The VATP regime will operate in parallel with the SFO regime. VATPs engaging in the trading of security tokens will be regulated under the SFO, and those in the trading of non-security tokens under the VATP regime.
35. As required by its licensing conditions a Platform Operator should provide its security token trading services only to professional investors.
European Union
36. The EU treats security tokens as financial instruments, provided that they fall into the MiFID II definition. According to this definition, transferable securities qualify as financial instruments; the term ‘transferable securities’ is defined as follows:
(a) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares;
(b) bonds or other forms of securitised debt, including depositary receipts in respect of such securities;
(c) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures.
37. If security tokens meet the criteria outlined by MiFID II and fall within the scope of transferable securities, they are considered to be financial instruments under EU regulations.
38. The EU adopted a Pilot Regime for tokenized securities, which took effect on 23 March 2023 for an initial three-year period, extendable for an additional three years. The pilot regime allows for certain DLT market infrastructures to be temporarily exempted from some of the specific requirements of Union financial services legislation that could otherwise prevent operators from developing solutions for the trading and settlement of transactions in crypto-assets that qualify as financial instruments, without weakening any existing requirements or safeguards applied to traditional market infrastructures.
39. The DLT Pilot Regime allows for DLT trading and settlement systems and DLT MTFs to provide for direct retail participation with no broker intermediation.
Proposals
Approach to bringing Security Tokens within AFSA regulation.
40. After the analysis of various approaches to Security Tokens regulation, we can conclude that this type of Investment is already a subject to the existing AFSA Legal Acts since Security Tokens are similar in nature, effect or purpose to traditional Securities.
41. Therefore, we propose to cover the Security Tokens regulation within scope of the existing framework for Securities, subject to certain changes.
42. In light of the above consideration, we propose to extend the current definition of Security in the AIFC Glossary by defining Security Token as a digital representation of Security, that is issued, transferred and stored using DLT or other similar technology.
The type of Licence needed to operate a facility for trading and/or clearing Security Tokens.
43. Since the AFSA regulatory approach to Security Tokens proposed to be similar to Securities, we consider that our regulatory regime for Investment Exchanges, as well as for Clearing Houses should continue to apply to platforms that trade and/or clear Security Tokens.
44. Hence, Investment Exchange was selected as a primary platform for offering of Security Tokens rather than MTF/OTF, since it provides a controlled environment that can help maintain a certain level of investor protection and compliance.
45. Consequently, we propose to include in the AIFC GLO the definition of Operating a Facility for Security Tokens, which means Operating an Investment Exchange on which Security Tokens are traded and Operating a Clearing House on which Security Tokens are cleared.
46. Accordingly, a holder of an AMI licence will be permitted to operate an Investment Exchange for the trading of Security Tokens and Clearing House to clear and settle transactions in Security Tokens, subject to the additional requirements.
Access to facilities for trading and clearing Security Tokens
47. Nowadays, the platform solutions which offer reduced total transaction costs, expedited clearing and settlement cycles, as well as efficient post-trade reporting opportunities, are becoming a challenge for the traditional intermediated model.
48. We propose to allow a direct access of Persons to the facility on which Security Tokens are to be traded and cleared, which means that there would be no orders coming through the regulated firm. This allows direct access to buyers and sellers of Security Tokens on the platform, regardless of whether such buyers and sellers are retail or professional, or individual or institutional.
49. Table 1 below shows the main risks and benefits of allowing direct access to trading in Security Tokens:
Table 1: Risk and benefits of direct access
50. However, an operator of a facility on which are to be traded will be required to demonstrate to the AFSA that it has adequate systems and controls to address market integrity, AML/CTF and investor protection risks.
Enhanced requirements for trading and clearing Security Tokens.
51. Considering that Security Token is a digital representation of Security an additional layer of regulation is needed to address issues and concerns relating to the use of DLT or similar technologies that underpin Security Tokens.
52. After preliminary analysis conducted by the AFSA, it is proposed to introduce the following requirements related to AMIs operating a facility for Security Tokens:
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Technology and governance requirements;
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Additional requirements applicable to AMIs operating a facility for Security Tokens that permits direct access;
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Safe custody of Security Tokens;
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Technology audit reports;
53. Also, it is proposed to the additional content information in the case of a Prospectus relating to a Security Token.
54. Considering direct market access in relation to trading and clearing of Security Tokens, the relevant provisions of AIFC COB Rules proposed to be applied to an AMI operating a facility for Security Tokens.
55. We propose that Authorised Firms who offer Financial Services to clients in respect of Security Tokens be required to, in addition to entering into a Client Agreement with such clients, provide to those clients a key features document relating to Security Tokens.
56. To implement the proposals above the following Act are subject to amendments set out in Annexes 1-5:
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AIFC Financial Services Framework Regulations (FSFR)
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AIFC Authorised Market Institution Rules (AMI)
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AIFC Market Rules (MAR)
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AIFC Conduct of Business Rules (COB)
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AIFC Glossary (GLO).
57. It is proposed to introduce additional fixed application and annual supervision fees for Authorised Market Institutions admitting Retail Clients as Direct Access Members in respect of trading and/or clearing of Security Tokens. The additional information on this proposal can be found in the Consultation Paper AFSA-P-CE-2023-0004 on proposed Amendments to the AIFC Fees Rules.
Public Consultation Questions
58. In the course of public consultation, existing and potential market participants will be invited to comment on the following questions:
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Do you agree with our proposal to treat Security Tokens as Securities and to extend the current definition of Security in the AIFC Glossary by defining Security Token as a digital representation of Security, that is issued, transferred and stored using DLT or other similar technology? If not, why not?
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Do you agree with our proposal to allow AMI operators to operate facilities to trade Security Tokens, subject to the additional requirements proposed in this paper? If not, why not?
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Do you agree with our proposals to allow only an AMI holding a licence to Operate a Clearing House to clear Security Tokens? If not, why not?
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Do you agree with our proposal to include in the AIFC GLO the definition of Operating a Facility for Security Tokens, which means Operating an Investment Exchange on which Security Tokens are traded and Operating a Clearing House on which Security Tokens are cleared? If not, why not?
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Do you agree with our proposal to allow a direct access of Persons to the facility on which Security Tokens are to be traded and cleared? If not, why not?
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Do you have any concerns related to the amendments proposed to introduce a new category of Members of AMI, Persons with access to the facility, on which Security Tokens are traded or cleared or both traded and cleared, in respect of only trading or clearing of Security Tokens?
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Should we confine direct access to trading in Security Tokens for Professional Clients only? If so, what are your reasons?
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Should we limit the participation of Retail Clients in these markets, as an investor protection measure, by placing limits on the volume of their trading activity? If not, why not?
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Do you agree that the AFSA considered all the main risks and benefits of allowing direct access to trading in Security Tokens? If not, what ae additional risks or benefits that can be included?
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Do you think that the term Security Token is appropriate if the token confers rights and obligations that are the same as, or similar in nature to, those conferred by Units? If not, should they be referred to as Unit Tokens? Please explain your thinking.
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Should the AFSA allow the conversion of Security tokens to Securities and vice-versa?
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Do you agree with our proposals to introduce the additional application and annual supervision fee for the AMIs dealing in Security Tokens?
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Do you agree with the proposed amendments to AIFC Rules and Regulations set out in Annexes 1-5? If not, what are your concerns, and how should they be addressed?
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Are there any other issues that need to be addressed regarding the regulation of Security Tokens? If so, what are they, and why and how should they be addressed?
Annex 1
SECURITY TOKEN OFFERING FRAMEWORK
Proposed amendments to the AIFC Financial Services Framework Regulations
In these Regulations, the underlying indicates a new text and the strikethrough indicates a removed text
(…)
55. Persons eligible for Membership
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Subject to such further admission criteria as the AFSA may prescribe by Rules, an Authorised Market Institution may only admit as a Member:
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an Authorised Firm; or
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a Recognised Non-AIFC Member; or
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a Person that is a Body Corporate which intends to undertake Commodity Derivative or Environmental Instrument transactions on the relevant Authorised Market Institution by carrying on such activities for its own account or for another Body Corporate which is in the same Group as the Person, provided that any such member of the Group for which the Person intends to act is a wholly-owned Subsidiary of a Holding Company within the Group or is the Holding Company itself; or
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a Person not referred to in (a),(b), and (c) with access to the facility, on which Security Tokens are traded or cleared or both traded and cleared, in respect of only trading or clearing of Security Tokens.
(…)
Annex 2
Proposed amendments to the AIFC Glossary
In these Rules, the underlying indicates a new text and the strikethrough indicates a removed text
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INTERPRETATION
Annex 3
Proposed amendments to the AIFC Authorised Market Institutions Rules
In these Rules, the underlying indicates a new text and the strikethrough indicates a removed text
(…)
Guidance: Purpose and application of AMI
(…)
The application of the rules in AMI is as follows:
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Chapter 1 contains introductory provisions applicable to all Authorised Market Institutions.
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Chapter 2 contains rules and guidance applicable to all Authorised Market Institutions.
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Chapter 2-1 contains rules and guidance applicable to Authorised Market Institutions Operating a facility for Security Tokens.
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Chapter 3 contains additional rules and guidance applicable to Authorised Investment Exchanges.
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Chapter 4 contains additional rules and guidance applicable to Authorised Clearing Houses (including Authorised Central Counterparties).
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Chapter 5 contains rules in relation to the supervision of Authorised Market Institutions.
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Chapter 6 contains additional rules and guidance applicable to Authorised Digital Assets Trading Facility.
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Chapter 7 contains additional rules and guidance applicable to Authorised Crowdfunding Platforms.
(…)
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INTRODUCTION
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Introduction
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Definitions
(1) An Authorised Market Institution is a Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities. An Authorised Market Institution can be an Authorised Investment Exchange, an Authorised Digital Asset Trading Facility, an Authorised Clearing House and/or an Authorised Crowdfunding Platform.
(2) An Authorised Investment Exchange is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating an Investment Exchange.
(3) An Authorised Clearing House is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Clearing House.
(4) A central counterparty is a legal Person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer.
(5) An Authorised Central Counterparty is a central counterparty which is declared by an order made by the AFSA under these Rules for the time being in force to be an Authorised Central Counterparty.
(6) A Member of an Authorised Market Institution is a Person who is entitled, under an arrangement or agreement between him and the Authorised Market Institution, to use that institution’s facilities.
(7) An Authorised Digital Asset Trading Facility is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Digital Asset Trading Facility.
(8) An Authorised Crowdfunding Platform is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Loan Crowdfunding Platform and/or Operating an Investment Crowdfunding Platform.
(9) Operating a Facility for Security Tokens in relation to an Authorised Market Institution means Operating an Investment Exchange on which Security Tokens are traded and Operating a Clearing House on which Security Tokens are cleared.
(…)
2.5.1. Requirement to prepare Business Rules
(…)
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An Authorised Market Institution must incorporate into its Business Rules the substance of any additional provisions to be found in the COB Rules, with any modifications which seem to the Institution to be appropriate, for the purpose of regulating the conduct of business of a Person referred to in AMI 2.6.1(1)(c) as a Member of the Institution for the purposes of dealing in Commodity Derivatives or Environmental Instruments.
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An Authorised Market Institution must incorporate into its Business Rules the substance of additional provisions to be found in the COB Rules, for the purpose of regulating the conduct of business of a Person referred to in AMI 2.6.1(1)(d) as a Member of the Institution for the purposes of dealing in Security Tokens.
(…)
2.6. Membership
2.6.1. Persons eligible for Membership
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An Authorised Market Institution, except an Authorised Digital Asset Trading Facility, may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and who is categorised as either:
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an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; or
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a Recognised Non-AIFC Member;
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a Person intending to deal in Commodity Derivatives or Environmental Instruments who meets the criteria in GEN 1.1.14; or
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a Person not referred to in (a), (b), and (c) with access to the facility, on which Security Tokens are traded or cleared or both traded and cleared, in respect of only trading or clearing of Security Tokens.
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An Authorised Market Institution must ensure that a Member who is a Person referred to in (1)(c) is a Professional Client and treat the Person as such.
For the purposes of this rule, Professional Client has the same meaning as defined in COB Chapter 2.
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Before admitting a Person referred to in (1)(c) as a Member, an Authorised Market Institution must undertake due diligence to ensure that such a Person:
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is of sufficient good repute;
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has a sufficient level of competence, experience and understanding of relevant Investments, Financial Services, transactions and any associated risks, including appropriate standards of conduct for its staff permitted to use its order entry system; and
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has adequate organisational arrangements, including financial and technological resources, which are appropriate to allow it to discharge its obligations in respect of their category of membership at the Authorised Market Institution.
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An Authorised Market Institution must keep records of the procedures which it has followed under (3), including any documents that evidence the Person’s assessment. The records must be kept for at least six years from the date on which the business relationship with a Person ended.
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Before admitting a Person referred to in (1)(d), an Authorised Market Institution must undertake due diligence to ensure that the Person:
(a) is of sufficient good repute;
(b) has a sufficient level of competence, experience and understanding of relevant Investments, Financial Services, transactions and any associated risks, including appropriate standards of conduct for its staff permitted to use its order entry system;
(c) has adequate financial and technological resources to meet the Business Rules of the facility; and
(d) does not pose any operational risks to the orderly and efficient functioning of the facility’s trading or clearing systems.
(…)
2-1. RULES APPLICABLE TO AUTHORISED MARKET INSTITUTIONS OPERATING A FACILITY FOR SECURITY TOKENS
Guidance
Operating a facility for Security Tokens is defined in GLO as Operating an Exchange and Operating a Clearing House on which Security Tokens are traded, cleared, or both traded and cleared.
2-1.1. Technology and governance requirements
2-1.1.1. Without limiting the generality of the technology resources requirements in AMI 2.4, an Authorised Market Institution must:
(a) ensure that any DLT application used in connection with the facility operates on the basis of ‘permissioned’ access, such that it allows the operator to have and maintain adequate control over the Persons who are permitted to access and update records held on that DLT application;
(b) establish and maintain adequate measures to ensure that the DLT application it uses, and the associated rules and protocols, contain:
(i) clear criteria governing Persons who are permitted to access and update records for the purposes of trading or clearing Security Tokens on the facility, including criteria about the integrity, credentials and competencies appropriate to the roles played by such persons;
(ii) measures to address risks, including to network security and network compatibility, that may arise through systems used by Persons permitted to update the records on the DLT application; and
(iii) processes to ensure that the Authorised Market Institutions undertakes sufficient due diligence and adequate monitoring of ongoing compliance, relating to the matters referred to in (i) and (ii);
(c) ensure any DLT application used for its facility is fit for purpose; and
(d) have regard to industry best practices in developing its technology design and technology governance relating to DLT that is used by the facility.
Guidance
1. To be fit for purpose, the technology design of the DLT application used by an Authorised Market Institution Operating a facility for Security Tokens should be able to address how the rights and obligations relating to the Security Tokens traded on that facility are properly managed and capable of being exercised or performed. For example, where a Security Token confers rights and obligations substantially similar to those conferred by a Share in a company, the DLT application would generally need to enable the management and exercise of the shareholder’s rights. These may, for example, include the right to receive notice of, and vote in, shareholder meetings, receive any declared dividends and participate in the assets of the company in a winding up.
2. To ensure the technology governance of any DLT application used on its facility is fit for purpose, an Authorised Market Institution should, as a minimum, have regard to the following:
a. careful maintenance and development of the relevant systems and architecture in terms of its code version control, implementation of updates, issue resolution, and regular internal and third party testing;
b. security measures and procedures for the safe storage and transmission of data in accordance with agreed protocols;
c. procedures to address changes in the protocol which result in the splitting of the underlying distributed ledger into two or more separate ledgers (often referred to as a ‘fork’), whether or not the new protocol is backwards compatible with the previous version (soft fork) or not (hard fork), and access to information where such a fork is created;
d. procedures to deal with system outages, whether planned or not;
e. decision-making protocols and accountability for decisions;
f. procedures for the establishing and managing interfaces with providers of digital wallets; and
g. whether the protocols, smart contracts and other inbuilt features of the DLT application meet at least a minimum acceptable level of reliability and safety requirements, including to deal with a cyber or hacking attack, and how any resulting disruptions would be resolved.
2-1.2. Operating a facility for Security Tokens that permits direct access
2-1.2.1. An Authorised Market Institution must ensure that:
(1) it treats each Direct Access Member as its Client;
(2) its Business Rules clearly set out:
(a) the duties owed by the Authorised Market Institution to the Direct Access Member and how the Authorised Market Institution is held accountable for any failure to fulfil those duties; and
(b) the duties owed by the Direct Access Member to the Authorised Market Institution and how the Direct Access Member is held accountable for any failure to fulfil those duties;
(3) appropriate investor redress mechanisms are available, and disclosed, to each Member permitted to trade or clear Security Tokens on its facility; and
(4) its facility contains a prominent disclosure of the risks associated with the use of DLT for trading and clearing Investments, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation.
2-1.2.2. (1) Without limiting the generality of the systems and controls obligations of the Authorised Market Institution, an Authorised Market Institution must have in place adequate systems and controls to address market integrity, AML, CTF and investor protection risks in permitting a Direct Access Member to access its facility, including procedures to:
(a) identify the ultimate beneficial owner of a Direct Access Member, where the Member is a Body Corporate;
(b) ensure that appropriate customer due diligence sufficient to address AML and CTF risks has been conducted on each Direct Access Member, before permitting that Member to access its facility;
(c) detect and address market manipulation and abuse; and
(d) ensure that there is adequate disclosure relating to the Security Tokens that are traded on the facility, through prospectus and ongoing disclosure under chapters 1 and 6 of MAR.
(2) An Authorised Market Institution must have adequate controls and procedures to ensure that trading in Security Tokens by Direct Access Members does not pose any risks to the orderly and efficient functioning of the facility’s trading system, including controls and procedures to:
(a) mitigate counterparty risks that may arise from defaults by Direct Access Members, through adequate collateral management measures, such as margin requirements, based on the settlement cycle adopted by the Authorised Market Institution;
(b) identify and distinguish orders that are placed by Direct Access Members, and, if necessary, enable the Authorised Market Institution to stop orders of, or trading by, such Members;
(c) prevent Direct Access Members from allowing any other Persons to access the facility through that Member’s access; and
(d) ensure that Direct Access Members fully comply with the Business Rules of the facility and promptly address any gaps and deficiencies that are identified.
(3) An Authorised Market Institution must have adequate resources and mechanisms to carry out front-line monitoring of the trading activities of Direct Access Members.
(4) An Authorised Market Institution must ensure that, to the extent that any of the systems and controls referred to in (1) are embedded within, or otherwise facilitated through DLT, they must be included within the scope of the annual audit and written report required under AMI 2-1.5.
2-1.2.3. When an Authorised Market Institution Executes a Transaction in Security Tokens for a Direct Access Member, the Authorised Market Institution must comply with the requirements relating to confirmation notes that would apply to an Authorised Firm under COB 9.1.2, 9.1.3 and 9.1.5.
2-1.3. Safe custody of Security Tokens
2-1.3.1. Without limiting the generality of AMI 2.9, where an Authorised Market Institution’s obligations include making provision for the safeguarding and administration of Security Tokens belonging to Members and other participants on its facility, it must ensure that:
(1) where its safe custody arrangements involve acting as a Digital Wallet Service Provider, it complies with the Client Asset provisions in COB 8.2 and 8.3 and the following requirements for firms Providing Custody of Security Tokens:
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Digital Wallet Service Provider must ensure that:
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any DLT applications it uses in Providing Custody of Security Tokens are resilient, reliable and compatible with any relevant facility on which those Security Tokens are traded or cleared;
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it has the ability to clearly identify and segregate Security Tokens belonging to different Clients; and
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it has in place appropriate procedures to enable it to confirm Client instructions and transactions, maintain appropriate records and data relating to those instructions and transactions and to conduct a reconciliation of those transactions at appropriate intervals.
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A Digital Wallet Service Provider, in developing and using DLT applications and other technology to Provide Custody of Security Tokens, must ensure that:
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the architecture of any Digital Wallets used adequately addresses compatibility issues and associated risks;
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the technology used and its associated procedures have adequate security measures (including cyber security) to enable the safe storage and transmission of data relating to the Security Tokens;
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the security and integrity of cryptographic keys are maintained through the use of that technology, taking into account the password protection and methods of encryption used;
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there are adequate measures to address any risks specific to the methods of usage and storage of cryptographic keys (or their equivalent) available under the DLT application used; and
the technology is compatible with the procedures and protocols built into the Operating Rules or equivalent on any facility on which the Security Tokens are traded or cleared or both traded and cleared.
(2) where it appoints a Third Party Digital Wallet Service Provider to Provide Custody for SecurityTokens traded or cleared on its facility, that person is either:
(a) an Authorised Firm permitted to be a Digital Wallet Service Provider; or
(b) a firm that is regulated by a Financial Services Regulator to an equivalent level as that provided for under the AFSA regime for Providing Digital Wallet Services.
2-1.4. Technology audit reports
2-1.4.1. An Authorised Market Institution must:
(a) appoint a suitably qualified independent third party professional to:
(i) carry out an annual audit of the Authorised Market Institution’s compliance with the technology resources and governance requirements that apply to it; and
(ii) produce a written report which sets out the methodology and results of that annual audit, confirms whether the requirements referred to in (i) have been met and lists any recommendations or areas of concern;
(b) submit to the AFSA a copy of the report referred to in (a)(ii) within 4 months of the Authorised Market Institution’s financial year end; and
(c) be able to satisfy the AFSA that the independent third party professional who undertakes the annual audit has the relevant expertise to do so, including by reference to the due diligence undertaken by the Authorised Market Institution to satisfy itself of that fact.
Guidance
An Authorised Market Institution may appoint an Auditor to carry out the functions specified in (a)(i) and (ii), provided it has satisfied itself that Auditor has the relevant expertise required to do so.
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Annex 4
Proposed amendments to the AIFC Market Rules
In these Rules, the underlying indicates a new text and the strikethrough indicates a removed text
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SCHEDULE 1: REGISTRATION DOCUMENT*
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* In the case of a Prospectus relating to a Security Token the Registration Document must include the additional content information set out in Schedule 4.
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SCHEDULE 2: SECURITIES NOTE*
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*In the case of a Prospectus relating to a Security Token the Securities Note must include the additional content information set out in Schedule 4.
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SCHEDULE 4: ADDITIONAL CONTENT OF A PROSPECTUS FOR SECURITY TOKENS
1. A Person producing a Prospectus in relation to a Security Token must ensure that:
(a) the Prospectus contains:
(i) information specified in paragraph 2; and
(ii) a statement confirming the matters specified in paragraph 3 made by a suitably qualified independent third party professional, who has given consent under MAR 1.9.3 for that statement to be included in the Prospectus; and
(b) in the case of a Security Token which will be admitted to trading on an Authorised Market Institution, the Prospectus contains the information specified in paragraph 4.
2. The following information is specified for the purposes of paragraph 1(a)(i):
(a) the essential characteristics of the Security Token, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting such obligations and against whom such rights can be exercised;
(b) the type of Security which the Security Token constitutes and a clear analysis as to how the Security Token meets the definition of such type of Security;
(c) details of the Distributed Ledger Technology that is used to issue, store or transfer the Security Token;
(d) how the holder of a Security Token may exercise any rights conferred by it, such as voting or participation in shareholder actions;
(e) if the capital to be raised through issuing of the Security Token is to be used to fund the creation of a new Token, detailed information about:
(i) the project or venture to be funded;
(ii) whether it is the Issuer or a third party who will receive and apply the capital raised towards that project or venture (and if a third party, what rights and obligations a holder of the Security Token has in respect of that third party);
(iii) the features of that new Token and any rights and obligations attaching to it;
(iv) the terms and conditions relevant to the delivery or establishment of the project or venture, including any right of a Security Token holder to have their contribution refunded if any funding requirement is not met, the expected timetable for completion, any milestones included in that timetable and an explanation of the consequences if the timetable is not met; and
(v) the risks associated with the project or venture, including those associated with the technology used to deliver or facilitate its completion or the Token’s ongoing use;
(f) how title to the Security Tokens is established, certified or otherwise evidenced;
(g) cybersecurity risks associated with the Security Token or its underlying technology, including whether there is a risk of loss of the Security Token in the event of a cyber attack, and details of steps that have been, or can be taken to mitigate such risks;
(h) details of other risks associated with the use of the DLT application, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation; and
(i) any other information relevant to the Security Token that would reasonably assist a prospective investor in making an informed decision about investing in the Security Token.
3. The matters to be confirmed in the statement referred to in paragraph 1(a)(ii) are that:
(a) the DLT application, used to issue, store or transfer the Security Tokens offered under the Prospectus, is an authentic, valid and workable solution capable of meeting its intended purpose; and
(b) the Prospectus accurately describes the architecture, functionality, effect, risks and vulnerabilities of the DLT application, including its compatibility with other technologies, applications and services with which it is intended to interact.
4. The following information is specified for the purposes of paragraph 1(b):
(a) details of a facility on which the Security Token is admitted to trading or cleared including:
(i) the Person responsible for operating an AMI;
(ii) details of each DLT application used by the operator to facilitate trading or clearing of the Security Token and the functionality provided by that DLT application;
(iii) details as to how the operator of the facility meets the technology and governance requirements set out in AMI 2-1.2;
(b) details of the custody arrangements for the Security Token that are permitted or required by the operator of facility, including, in respect of each such arrangement:
(i) the Person who carries out the function of the Digital Wallet service provider;
(ii) the Person who is responsible for the safe custody of the Security Token when held in the Digital Wallet; and
(iii) risks associated with the Digital Wallet, such as the consequences of the loss of cryptographic keys (private and public), cyber security risks associated with Digital Wallets held online, loss, theft or destruction of Digital Wallets held offline, and whether and how such risks are addressed;
(c) whether smart contracts are being used or executed on the facility and, if so:
(i) what form those smart contracts take;
(ii) how the legal rights and obligations arising under the smart contracts are performed, including when contract or settlement finality occurs, (whether by the smart contract itself, an underlying natural language contract or a combination of both); and
(iii) details of the relationship between those smart contracts and any underlying natural language contract.
Annex 5
Proposed amendments to the AIFC Conduct of Business Rules
In these Rules, the underlying indicates a new text and the strikethrough indicates a removed text
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Guidance: Purpose of this rulebook
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Chapter 1 (Application) states that the requirements in the COB rulebook generally apply to Authorised Firms licensed to carry on a Regulated Activity. Some requirements may be modified or disapplied altogether depending on the type of Authorised Firm involved, the nature of its activities, and/or the classification of the Client to whom the Authorised Firm provides services.
In particular, the majority of the COB rules do not apply to Insurance Intermediaries, Trust Service Providers, or Ancillary Service Providers, which are instead required to comply with the requirements set out in Chapters 11, 12 or 13 of COB respectively.
For the avoidance of doubt, COB does not apply to Representative Offices or Authorised Market Institutions, unless otherwise provided under Rules made by the AFSA.
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1. APPLICATION
1.1. General application rule
The requirements in COB apply to an Authorised Firm with respect to any Regulated Activity carried on by an Authorised Firm operating within the jurisdiction of the AIFC as specified in Part 1 of the Framework Regulations.
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1.2.2. Exclusions in relation to certain categories of Centre Participant
For the avoidance of doubt, the requirements in COB do not apply to:
(a) a Representative Office;
(b) an Authorised Market Institution (other than an Authorised Crowdfunding Platform and an Authorised Digital Asset Trading Facility), except for COB 3 (Communications with Clients and Financial Promotions), unless otherwise provided under Rules made by the AFSA.
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4. KEY INFORMATION AND CLIENT AGREEMENT
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4.6. Provision of key features document relating to Security Tokens
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An Authorised Firm must not provide a Financial Service to which this section applies to a Person unless it has provided that Person with a key features document containing the information in (2).
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The key features document must contain the following information in respect of each Security Token relevant to the Financial Services that the Authorised Firm will provide to the Person:
(a) the risks associated with and essential characteristics of the Issuer (or other Person responsible for discharging the obligations associated with the rights conferred), and guarantor if any, of the Security Token, including their assets, liabilities and financial position;
(b) the risks associated with and essential characteristics of the Security Token, including the rights and obligations conferred and the type or types of Investment which it constitutes;
(c) whether the Security Token is or will be admitted to trading and if so, the details relating to such admission, including details of the facility and whether the facility is within the AIFC;
(d) whether the Client can directly access the trading facility, or whether access is only through an intermediary, and the process for accessing the facility;
(e) risks associated with the use of DLT, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation;
(f) whether the Client, the Authorised Firm or a third party is responsible for providing a Digital Wallet service in respect of the Security Token, and any related risks (for example, at whose risk the Client’s Security Tokens are held in the Digital Wallet, whether it is accessible online or stored offline, what happens if keys to the Digital Wallet are lost and what procedures can be followed in such an event);
(g) how the Client may exercise any rights conferred by the Security Tokens such as voting or participation in shareholder actions; and
(h) any other information relevant to the particular Security Token that would reasonably assist the Client to understand the product and technology better and to make informed decisions in respect of it.
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The key features document must be provided in good time before the relevant Financial Service is provided to the Person, to enable that Person to make an informed decision about whether to use the relevant Financial Service.
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The key features document does not need to be provided to a Person to whom the Authorised Firm has previously provided that information, if there has been no significant change since the information was previously provided.
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Consultation Paper on the Proposed AIFC Stablecoin Framework
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the policy paper and proposed AIFC stablecoin framework.
Who should read this CP?
2. The proposals in this paper will be of interest to current and potential AIFC participants involved in stablecoin-related activities, as well as to market participants and other interested parties.
Terminology
3. 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 (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4. We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2023-0005” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposed framework is 15 September 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. AFSA prefers to receive comments by email at consultation@afsa.kz or posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Proposals;
Part III – Public Consultation Questions;
Annex 1 – Draft Rules Applicable to Authorised Firms Providing Money Services in relation to Digital Assets and Issuance of Fiat Stablecoins.
Background
1. The proposed stablecoin framework focuses on the issuance of Fiat stablecoins based on the recommendations of standard-setting bodies and jurisdictional analysis.
2. Regarding service provision activities in relation to stablecoins, AFSA has developed Rules applicable to Digital Asset Service Providers (“DASP”) and Digital Asset Trading Facility operators that include specific requirements for stablecoins.
3. According to the Financial Stability Board, stablecoin is defined as “a crypto-asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets”. The AIFC Glossary defines the following stablecoins: Fiat stablecoin, Commodity stablecoin and Algorithmic stablecoin.
4. Currently, there are seven crypto exchanges in the AIFC sandbox. The trading volume of stablecoins constitutes the majority of overall trading of Digital Assets.
Proposals
5. Algorithmic stablecoins are designed to achieve price stability by balancing the circulating supply of the Digital Asset. This usually entails behind-the-scenes corrections to the supply and demand inputs to arrive at higher or lower equilibrium points. These mechanisms are not immediately transparent to users, markets, and regulators. Therefore, AFSA proposes to prohibit Algorithmic stablecoins meaning that no person may provide any Financial Service with Algorithmic stablecoins in or from the AIFC.
6. Regarding the issuance of a stablecoin, the issuer must be an Authorised Person.
7. According to the AIFC General Rules, the Regulated Activity of Providing Money Services, among others, includes issuing payment instruments and issuing stored value. Therefore, AFSA proposes requiring issuers of stablecoins to hold a Providing Money Services license.
8. AFSA proposes that the Authorised Person can issue a Fiat stablecoin backed by a single currency.
9. AFSA proposes only to allow the issuance of stablecoins pegged to Tenge and the Group of Ten (“G10”) currencies. The G10 currencies are the Australian Dollar, British Pound Sterling, Canadian Dollar, Euro, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona, Swiss Franc and United States Dollar. This considers the availability of high-quality liquid assets that would be fundamental to providing a strong backing for stablecoins.
10. A fiat stablecoin issuer accepts fiat from Clients in exchange for giving them stablecoins. The fiat currency held by the issuer would be considered as Client Money, which can be redeemed by Clients on presentation of the stablecoin. So, the Fiat stablecoin issuer would need to comply with the Client Money provisions (which include Client Reporting, Reconciliation and Recordkeeping) in the AIFC Conduct of Business Rules.
11. According to Recommendation 15 of International Organisation of Securities Commissions (“IOSCO”), the issuer and DASPs should conduct regular and frequent reconciliation of Client Money on a client-by-client basis to identify and resolve any discrepancies in a timely manner. AFSA proposes that the issuer must be able to show that the Fiat stablecoin is backed 1:1 through monthly reconciliation. The frequency and manner of the reconciliation is a matter that may be further refined in the course of the public consultation.
12. Minimum capital requirements for stablecoin issuers are typically determined by their license type. Therefore, it is proposed to establish a base capital requirement of USD 200,000 for stablecoin issuers, aligning with the AIFC Banking Business Prudential Rules applicable to Authorised Firms Providing Money Services. Considering the jurisdictional analysis and incorporating feedback from the FinTech Office, it is necessary to supplement the base capital requirement with a risk-based capital requirement. The risk-based capital requirement is proposed to be set at 2% of the average outstanding value of stablecoins.
13. Considering standard-setting bodies recommendations, AFSA proposes that issuers of stablecoins shall at all times constitute and maintain a reserve of assets.
14. IOSCO policy recommendations for crypto markets highlight that the risks relating to reserve assets are enhanced in stablecoin arrangements in which the reserve assets are not segregated. Therefore, AFSA proposes that the issuer of stablecoins shall ensure that the reserve of assets used to back the stablecoins in circulation is segregated from the issuer's estate and the reserve of assets of other Digital Assets.
15. The reserve of assets shall be composed and managed in such a way that the liquidity risks associated with the permanent redemption rights of the holders are addressed. Particularly, assets must be denominated in the same currency as the pegged currency. The value of the reserve assets should meet the value of the outstanding stablecoins at all times.
16. According to Recommendation 6 of the IOSCO, it is proposed that issuers of stablecoins shall have a clear and detailed policy describing the stabilisation mechanism of stablecoins.
17. Issuers of stablecoins shall establish, maintain and implement custody policies, procedures and contractual arrangements. A Person Providing Custody Services must be an Authorised Person different from the issuer of a Fiat stablecoin. The contractual arrangements between the issuers of stablecoins and the custodians shall ensure that the reserve assets held in custody are protected against claims of the custodians’ creditors.
18. The Financial Stability Board stresses that stablecoins referenced to a single fiat currency should have redemption rights that allow holders to redeem at par into fiat. In the European Union, Japan, Hong Kong, Singapore and the United Kingdom, holders are entitled to a claim at par value. Therefore, AFSA proposes that issuers of stablecoins shall grant holders redemption rights at all times on the issuer of stablecoins. The issuer shall establish, maintain and implement clear, detailed policies and procedures on such rights.
19. Holders of Fiat stablecoins should always be granted a redemption right at par value with funds denominated in the official currency that the stablecoin is referencing.
20. Issuers of stablecoins should have independent third-party verification or checks carried out at least annually to verify that the amount and value of stablecoins and Client Money held in custody on behalf of Clients is correct and matches what the stablecoin Custodian is supposed to hold. The result of the audit is proposed to be notified to AFSA and be published on the website of the issuer.
21. Issuers of stablecoins shall, in a clear, accurate and transparent manner, disclose, on a publicly and easily accessible place on their website: (a) the amount of stablecoins in circulation, and the value and composition of the reserve assets; (b) any event that has or is likely to significantly affect the value of the stablecoins or the reserve assets. Such information shall be updated once a quarter.
22. AFSA proposes requiring issuers to publish a whitepaper where the information about the issuer, rights and obligations attached to the Fiat stablecoin, risks, reserve of assets, underlying technology, and the conditions and the procedure to purchase stablecoins and redeem such stablecoins against reserve assets must be disclosed.
23. A stablecoin arrangement in the AIFC could become systemic if any disruption to the stablecoin arrangement could cause further disruption to its users, cause systemic disruption to the financial system of Kazakhstan, or affect public confidence in the financial system of Kazakhstan. The considerations used to identify a systemic stablecoin arrangement include number, value and type of transactions processed by the stablecoin arrangement, value of stablecoins in circulation, number and type of users, markets served and market share of the stablecoin arrangement, interconnectedness and interdependencies with other financial market infrastructures and financial institutions.
24. At this point, based on the Monetary Authority of Singapore’s environmental scan, no stablecoin arrangement in Singapore is likely to qualify as systemic. Regarding the United Kingdom, general agreement was achieved that systemic stablecoin issuers should be subject to Bank of England regulation. For entities authorised by the Financial Conduct Authority and recognised under the Banking Act, the Bank of England will be the lead prudential authority. AFSA agrees that systemic stablecoin arrangement should be subject to higher regulatory and supervisory standards to safeguard financial stability risk and seeks comments relating regulatory approach towards systemic stablecoins.
Public Consultation Questions
In the course of public consultation, existing and potential market participants will be invited to comment on the following questions:
1. AFSA shall establish constraints on concentration, preventing the issuer from investing in more than a certain percentage of reserve assets issues by a single entity. What should the percentage be? Further should AFSA specify what type of assets may or may not be held by the issuer?
2. The AFSA’s proposals in relation to the investment of reserve assets are following. Comments are sought on the proposals and consultation questions:
a) Issuers of stablecoins that invest a part of the reserve of assets shall only invest in highly liquid financial instruments with minimal market risk, credit risk and concentration risk. The investments shall be capable of being liquidated rapidly with minimal adverse price effect. Should AFSA specify a minimum a percentage of assets that need to be held in highly liquid financial instruments?
b) The financial instruments in which the reserve of assets is invested shall be held in custody.
c) All profits or losses and any counterparty or operational risks that result from the investment of the reserve of assets shall be borne by the issuer of the stablecoins.
d) Issuers of stablecoins shall take all appropriate steps to identify, prevent, manage and disclose conflicts of interest arising from the management and investment of the reserve assets.
e) Issuers of stablecoins shall adopt policies and procedures that are sufficiently effective to ensure compliance with this Regulation. In particular, issuers of stablecoins shall establish, maintain and implement policies and procedures on arrangements with third-party entities for operating the reserve of assets, and for the investment of the reserve assets, the custody of the reserve assets, and, where applicable, the distribution of the stablecoins to the public.
f) If the reserve of assets includes investments, the risks posed by the investment policy on the reserve of assets, then issuers of stablecoins may be required to hold an amount of own funds which is up to 20 % higher than the capital requirement.
g) Where issuers of stablecoins invest a part of the reserve of assets, they must describe in detail the investment policy and contain an assessment of how that investment policy can affect the value of the reserve of assets.
3. AFSA is proposing to regulate stablecoin issuers under the activity of Providing Money Services, and as such, the AIFC Banking Business Prudential Rules are not directly applicable to such issuers. Should AFSA include in the AIFC stablecoin framework the approach that applies specific provisions of the AIFC Banking Business Prudential Rules to issuers of a specific type of stablecoins (e.g. systemic stablecoins) or to all stablecoin issuers?
4. Do you agree with proposed reference currencies that can be pegged to the stablecoin set out in section 4.7.1 of the Annex 1? If not, what are your concerns, and how should they be addressed?
5. Do you agree that Algorithmic stablecoins must be prohibited meaning that no person may provide any Financial Service with Algorithmic stablecoins in or from the AIFC?
6. AFSA proposes that the issuer must be able to show that the Fiat stablecoin is backed 1:1 through monthly reconciliation. Do you agree with the frequency and manner of the reconciliation?
7. Some jurisdictions (e.g. Dubai International Financial Center, Abu Dhabi Global Market) have adopted an approach that limits the types of Digital Assets that can be used in their jurisdictions. This means that any Person wanting to provide a Financial Service in or from the AIFC, in relation to stablecoins, will only be able to do so if the Digital Asset is an accepted stablecoin. Should the AFSA develop assessment criteria for stablecoins that will be included in the “Green list”, i.e. allowed for the use in the AIFC?
8. Do you agree with the prohibitions set out in the section 4.11.4 of the proposed stablecoin framework? If not, what are your concerns, and how should they be addressed?
9. AFSA seeks any other comments relating to the AFSA’s regulatory approach towards stablecoins and stablecoin-related activities, including any implementation issues that the AFSA should consider.
Annex 1
DRAFT RULES APPLICABLE TO AUTHORISED FIRMS PROVIDING MONEY SERVICES IN RELATION TO DIGITAL ASSETS AND ISSUANCE OF FIAT STABLECOINS
This Part 4 applies to a Digital Asset Service Provider which is an Authorised Person carrying on, in or from the AIFC, the Regulated Activity of Providing Money Services in relation to Digital Assets.
Guidance
An Authorised Firm Providing Money Services is a Centre Participant to which provisions of the following regulations and rules apply either directly or in respect of its officers and Employees who are Approved Individuals or Designated Individuals:
FSFR (in whole);
AML (in whole);
Chapter 3 (Communications with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
Chapter 7 (Conflicts of interest) of the COB;
Chapter 8 (Client Assets) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC.
4.1. Authorisation
A Person wishing to carry on the Regulated Activity of Providing Money Services in relation to Digital Assets in or from the AIFC must be an Authorised Firm licensed by the AFSA.
4.2. Requirements
The AFSA may not grant authorisation or variation of a Licence to carry on the Regulated Activity of Providing Money Services in relation to Digital Assets if:
(a) the applicant does not meet general authorisation requirements under the Framework Regulations and other applicable rules, and
(b) the applicant of USD 200,000. In case a Person applying for authorisation of the Regulated Activity of Providing Money Services in relation to Digital Assets conducts or is applying for a Licence to conduct another Regulated Activity for which the capital requirement is higher than USD 200,000, the highest amount applies.
(c) An Authorised Firm carrying on Regulated Activities, including Providing Money Services, in relation to Digital Assets cannot carry on Regulated Activities in relation to other Investments unless it obtains a written approval from the AFSA.
4.3. Mandatory appointments
In addition to the mandatory appointments required by GEN 2.1, an Authorised Person Providing Money Services in relation to Digital Assets must appoint a Chief Information Technology Officer, who is an individual responsible for its ongoing information technology (“IT”) operations, maintenance and security oversight to ensure that the Authorised Firm’s IT systems are reliable and adequately protected from external attack or incident.
4.4 Governance arrangements
(1) A Digital Asset Service Provider must have robust governance arrangements, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks to which it is or might be exposed, and adequate internal control mechanisms, including sound administrative and accounting procedures.
(2) Members of the management body of the Digital Asset Service Provider must have sufficiently good repute and possess sufficient knowledge, experience, and skills to perform their duties. They must also demonstrate that they are capable of committing sufficient time to effectively perform their duties.
(3) Members of the management body of the Digital Asset Service Provider that issues a Fiat stablecoin (an “issuer of a Fiat stablecoin”) must ensure effective and prudent management of the reserve of assets. The issuers must ensure that issuance and redemption of a Fiat stablecoin is always matched by a corresponding increase or decrease of the reserve of assets.
4.5. Policies and procedures
Issuer of a Fiat stablecoin must establish, maintain and implement policies and procedures on:
(a) the reserve of assets;
(b) the custody of the reserve assets, including the segregation of assets;
(c) the rights or the absence of rights granted to the holders of Fiat stablecoins, as specified in DAA 4.11.2;
(d) the mechanism through which Fiat stablecoins are issued and redeemed;
(e) the protocols for validating transactions in Fiat stablecoins;
(f) the functioning of the issuer’s proprietary DLT, where the Fiat stablecoins are issued, transferred and stored on such DLT or similar technology that is operated by the issuer or a third party acting on its behalf;
(g) the mechanisms to ensure the liquidity of Fiat stablecoins;
(h) the written consent of the issuer of the Fiat stablecoin given to Persons which may offer or admit to trading the Fiat stablecoin;
(i) the business continuity policy;
(j) the plan that ensures, in case of an interruption of its systems and procedures, the preservation of essential data and functions and the maintenance of its activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of its activities;
(k) the stabilisation mechanism which must in particular:
(i) list the reference assets to which a Fiat stablecoin aims at stabilising its value and the composition of such reference assets; and
(ii) describe the type of assets and the precise allocation of assets that are included in the reserve of assets;
(iii) complaint handling; and
(iv) conflicts of interests.
4.6. Technology governance, controls and security
4.6.1. Systems, controls and procedures
(1) A Digital Asset Service Provider must ensure that it implements systems and controls necessary to address the risks, including cybersecurity-related risks, to its business. The relevant systems and controls should take into account such factors that include but not limited to the nature, scale and complexity of the Digital Asset Service Provider’s business, the diversity of its operations, the volume and size of its transactions and the level of risk inherent with its business.
(2) A Digital Asset Service Provider must have adequate systems and controls to enable it to calculate and monitor its capital resources and its compliance with the requirements in DAA 4.2. The systems and controls must be in writing and must be appropriate for the nature, scale and complexity of the Digital Asset Service Provider’s business and its risk profile.
(3) A Digital Asset Service Provider must employ appropriate and proportionate systems, resources, and procedures to ensure the continued and regular performance of their services and activities.
(4) If the issuer of a Fiat stablecoin decides to discontinue providing services and activities, such as issuing the Fiat stablecoin, the issuer must present a plan to the AFSA for such discontinuation, for the AFSA’s approval.
(5) Issuer of a Fiat stablecoin must identify sources of operational risk and minimise those risks through the development of appropriate systems, controls and procedures.
(6) Issuer of a Fiat stablecoin must have internal control mechanisms and effective procedures for risk management.
4.6.2. Technology governance and risk assessment framework
(1) A Digital Asset Service Provider must implement a technology governance and risk assessment framework which must be comprehensive and proportionate to the nature, scale, and complexity of the risks inherent in their business model.
(2) The technology governance and risk assessment framework must apply to all technologies relevant to a Digital Asset Service Provider’s business and clearly set out the Digital Asset Service Provider’s cybersecurity objectives.
(3) A Digital Asset Service Provider must ensure that its technology governance and risk assessment is capable of determining the necessary processes and controls that they must implement in order to adequately mitigate any risks identified.
(4) A Digital Asset Service Provider must ensure that its technology governance and risk assessment framework address appropriate governance policies and system development controls, such as a development, maintenance and testing process for technology systems and operations controls, back-up controls, capacity and performance planning and availability testing.
4.6.3. Cyber-security matters
A Digital Asset Service Provider must take reasonable steps to ensure that its IT systems are reliable and adequately protected from external attack or incident.
4.6.4. Cyber-security policy
(1) A Digital Asset Service Provider must create and implement a policy which outlines their procedures for the protection of its electronic systems.
(2) A Digital Asset Service Provider must ensure that its cyber-security policy is reviewed at least on an annual basis by its Chief Information Technology Officer.
(3) The cyber-security policy must, as a minimum, address the following areas:
(a) information security;
(b) data governance and classification;
(с) access controls;
(d) business continuity and disaster recovery planning and resources;
(e) capacity and performance planning;
(f) systems operations and availability concerns;
(g) systems and network security, consensus protocol methodology, code and smart contract validation and audit processes;
(h) systems and application development and quality assurance;
(i) physical security and environmental controls, including but not limited to procedures around access to premises and systems;
(j) customer data privacy;
(i) procedures regarding their facilitation of Digital Asset transactions initiated by a Client including, but not limited to, considering multi-factor authentication or any better standard for Digital Asset transactions that—
(i) exceed transaction limits set by the Client, such as accumulative transaction limits over a period of time; and
(ii) are initiated after a change of personal details by the Client, such as the address of a Digital wallet;
(j) procedures regarding Client authentication and session controls including, but not limited to, the maximum incorrect attempts for entering a password, appropriate time-out controls and password validity periods;
(k) procedures establishing adequate authentication checks when a change to a Client’s account information or contact details is requested;
(l) vendor and third-party service provider management;
(m) monitoring and implementing changes to core protocols not directly controlled by the Digital Asset Service Provider, as applicable;
(n) incident response, including but not limited to, root cause analysis and rectification activities to prevent reoccurrence;
(o) governance framework and escalation procedures for effective decision-making and proper management and control of risks and emergency incidents, including but not limited to responses to ransomware and other forms of cyberattacks; and
(p) hardware and infrastructure standards, including but not limited to network lockdown, services/desktop security and firewall standards.
4.7. Reserve of assets
4.7.1. Requirements related to a reserve of assets
(1) Issuer of a Fiat stablecoin must make reserve assets available for examination and for verification of the issuer's disclosures on the AFSA’s request.
(2) Issuer of a Fiat stablecoin must fully back such stablecoin with reserve assets, meaning that the value of the reserve assets must at all times be at least equal to the nominal value of all outstanding units of the Fiat stablecoin.
(3) Issuer of a Fiat stablecoin must issue stablecoins whose reserve assets consist of only one of the following fiat currencies (“reference assets”):
(a) Kazakh tenge;
(b) Australian dollar;
(c) Euro;
(d) Japanese yen;
(e) New Zealand dollar;
(f) Norwegian krone;
(g) British pound sterling;
(h) Swedish krona;
(i) Swiss franc;
(j) Canadian dollar; or
(k) United States dollar.
(4) Issuer of a Fiat stablecoin must ensure that the reserve of assets is operationally segregated from the issuer’s proprietary assets and from the reserve of assets of other Fiat stablecoins.
(5) The reserve of assets must be composed and managed in such a way that the liquidity risks associated to the permanent redemption rights of the holders are addressed.
(6) Issuer of a Fiat stablecoin that offers two or more categories of Fiat stablecoins to the public must operate and maintain segregated pools of reserves of assets for each category of Fiat stablecoins. Each of these pools of reserve of assets must be managed separately.
(7) Issuer of a Fiat stablecoin must determine the aggregate value of reserve assets by using market prices. Their aggregated value must be at least equal to the aggregate value of the claims on the issuer from holders of Fiat stablecoins in circulation.
(8) Issuer of a Fiat stablecoin must conduct monthly reconciliation of each Fiat stablecoin to demonstrate that the Fiat stablecoin is fully backed with reserve assets.
4.7.2. Independent audit
(1) Issuer of a Fiat stablecoin must mandate an independent audit of the reserve assets annually.
(2) The result of the audit conducted under (1) must be provided to the AFSA without delay, at the latest within four weeks of the reference date of the valuation. The result of the audit must be published within three weeks of the date of the provision of the result of the audit to the AFSA.
(3) The AFSA may instruct the issuer of a Fiat stablecoin to delay the publication of the result of the audit in the event that:
(a) the issuer has been required to implement recovery arrangement;
(b) the issuer has been required to implement a redemption plan;
(c) it is deemed necessary to protect the interests of holders of a Fiat stablecoin;
(d) it is deemed necessary to avoid a significant adverse effect on the financial system of the AIFC;
(e) the AFSA considers appropriate in pursuing the Regulatory Objectives.
(3) The valuation referred to in DAA 4.7.1 (7) at market prices must be made by using mark-to-market.
(4) When using mark- to-market:
(a) the reserve asset must be valued at the more prudent side of bid and offer unless the reserve asset can be closed out at mid-market; and
(b) only good quality market data must be used. Such data must be assessed on the basis of all of the following factors:
(i) the number and quality of the counterparties;
(ii) the volume and turnover in the market of the reserve asset; and
(iii) size of the reserve of assets.
(5) If use of mark-to-market is not possible or the market data is not of sufficient quality, a reserve asset must be valued conservatively by using mark-to-model.
(6) The mark-to-model must accurately estimate the intrinsic value of the reserve asset, based on all of the following up-to-date key factors:
(a) the volume and turnover in the market of that reserve asset;
(b) the size of the reserve of assets; and
(c) market risk, interest rate risk, credit risk attached to the reserve asset.
(7) When using mark-to-model, the amortised cost method, must not be used.
4.7.3. Custody of reserve assets
(1) Issuer of a Fiat stablecoin must establish, maintain and implement custody policies, procedures and contractual arrangements that ensure at all times that:
(a) the reserve assets are not encumbered nor pledged as Collateral;
(b) the reserve assets are held in custody;
(c) the issuer of a Fiat stablecoin has prompt access to the reserve assets to meet any redemption requests from the holders of Fiat stablecoins;
(d) concentration in the custodians of reserve assets are avoided; and
(e) concentration risks in the reserve assets are avoided.
(2) Issuer of a Fiat stablecoin that issues two or more categories of Fiat stablecoins must have a custody policy for each pool of reserve of assets.
(3) Issuer of a Fiat stablecoins that has issued the same category of Fiat stablecoins must operate and maintain only one custody policy.
(4) The reserve assets must be held in custody by no later than 5 working days after the issuance of the Fiat stablecoins.
(5) A Person Providing Custody Services must be a Person different from the issuer of a Fiat stablecoin.
(6) Issuer of a Fiat stablecoin must ensure that the Digital Asset Service Provider appointed as a custodian of the reserve assets has the necessary expertise and market reputation to act as a custodian of such reserve assets, taking into account the accounting practices, safekeeping procedures and internal control mechanisms.
(7) The contractual arrangements between the issuer of a Fiat stablecoin and custodians must ensure that the reserve assets held in custody are protected against claims of the custodians’ creditors.
(8) The custody policies and procedures referred to in (1) must set out the selection criteria for the appointments of custodians of the reserve assets and the procedure to review such appointments.
4.8. White paper
4.8.1. Content and form of the white paper
(1) A Digital Asset white paper for a Fiat stablecoin must contain all of the following information:
(a) information about the issuer;
(b) information about the Fiat stablecoin;
(c) information on the rights and obligations attached to a Fiat stablecoin;
(d) information on the underlying technology;
(e) information on risks;
(f) information on the reserve of assets;
(g) the method and all factors used to calculate the value of reserve assets;
(h) the initial value and composition of the reserve assets;
(i) the conditions and the procedure to purchase stablecoins and redeem such stablecoins against reserve assets;
(j) details of the arrangements for custody and management of the reserve assets;
(k) the rights provided to holders of the stablecoin;
(l) a summary of the redemption policies; and
(m) any other information that the AFSA instructs to include.
(2) All information in the white paper referred to in (1):
(a) must be fair, clear and not misleading;
(b) must not contain material omissions; and
(c) must be presented in a concise and comprehensible form.
(3) The white paper must not contain any assertions on the future value of the Fiat stablecoin.
(4) The white paper must contain a clear and unambiguous statement that:
(a) the Fiat stablecoin may lose their value in part or in full;
(b) the Fiat stablecoin may not always be transferable; and
(c) the Fiat stablecoin may not be liquid;
(5) The white paper for a Fiat stablecoin must contain a statement from the management body of the issuer confirming that the white paper complies with the requirements of this Part and that, to the best knowledge of the management body, the information presented in the white paper:
(a) is in accordance with the facts; and
(b) that the white paper makes no omission likely to affect its import.
(6) The white paper must contain a summary that must in brief and non-technical language provide key information about the offer to the public of the Fiat stablecoins or about the intended admission of Fiat stablecoins to trading on a Digital Asset Trading Facility.
(7) The summary must be presented and laid out in easily understandable words and in a clear and comprehensive form, using characters of readable size.
(8) The format and content of the summary of the white paper must provide, in conjunction with the white paper, appropriate information about characteristics of the Fiat stablecoins concerned in order to help potential holders of the Fiat stablecoins to make an informed decision.
(9) The summary must indicate that:
(a) the holders of a Fiat stablecoin have a redemption right at any moment; and
(b) the conditions of redemption.
(10) The summary must contain a warning that:
(a) it should be read as an introduction to the white paper; and
(b) the potential holder should base any decision to purchase a Fiat stablecoin on the content of the whole white paper.
(11) Prior to the publication of the white paper no marketing communications or Financial Promotions can be made. This restriction does not affect the ability of the issuer of a Fiat stablecoin to conduct market soundings.
4.8.2. Modification of the white paper
(1) Issuer of a Fiat stablecoin must inform in writing the AFSA of any intended change of the issuer’s business model likely to have a significant influence on the purchase decision of any actual or potential holder of a Fiat stablecoin, which occurs after the authorisation or approval of the white paper. Such changes may include:
(a) the governance arrangements, including reporting lines to the management body and risk management framework;
(b) the reserve assets and the custody of the reserve assets;
(c) the rights granted to the holders of a Fiat stablecoin;
(d) the mechanism through which Fiat stablecoins are issued and redeemed;
(e) the protocols for validating the transactions in Fiat stablecoins;
(f) the functioning of the issuer’s proprietary DLT, where the Fiat stablecoins are issued, transferred and stored on such a DLT;
(g) the mechanisms to ensure the liquidity of Fiat stablecoins, including the liquidity management policy for issuers of Fiat stablecoins;
(h) the arrangements with third parties, including for managing the reserve assets and the investment of the reserve, the custody of reserve assets, and, where applicable, the distribution of Fiat stablecoins to the public;
(i) the complaint handling procedure; or
(j) the money laundering and terrorist financing risk assessment and general policies and procedures.
(2) The AFSA must be informed in writing 30 working days prior to the intended changes taking effect.
(3) The AFSA must grant its approval or refuse to approve the draft modified white paper within 30 working days following the acknowledgement of receipt.
(4) During the examination of the draft modified white paper, the AFSA may request an issuer of a Fiat stablecoin to provide any additional information, explanations or justifications on the draft modified white paper.
(5) If the AFSA requests additional information, the time limit of 30 working days must commence only when the AFSA has received the additional information requested.
(6) Where approving the modified white paper, the AFSA may request the issuer of Fiat stablecoins:
(a) to put in place mechanisms to ensure the protection of holders of Fiat stablecoins, when a potential modification of the issuer’s operations can have a material effect on the value, stability, or risks of the Fiat stablecoins or reserve assets;
(b) to take any appropriate corrective measures to address concerns related to financial stability, the smooth operation of payment systems, or market integrity.
4.8.3. Liability of issuers of Fiat stablecoins for the information given in the white paper
(1) If an issuer or its management or supervisory bodies has breached requirements set out in DAA 4.8.1(2), by providing in its white paper or in a modified white paper information which is not complete, fair or clear or by providing information which is misleading, a holder of such Fiat stablecoins may claim damages from that issuer of Fiat stablecoins or its bodies for damage caused to her or him due to that infringement.
(2) It must be the responsibility of the holders of Fiat stablecoins to present evidence indicating that the issuer of Fiat stablecoins has breached DAA 4.8.1(2) and that such breach had an impact on the holder’s decision to buy, sell or exchange the said Fiat stablecoin.
(3) A holder of Fiat stablecoins must not be able to claim damages for the information provided in a summary, including the translation thereof, except where:
(a) the summary is misleading, inaccurate or inconsistent when read together with the other parts of the white paper;
(b) the summary does not provide, when read together with the other parts of the white paper, key information in order to aid potential holders when considering whether to purchase such Fiat stablecoins.
4.8.4. Publication of the white paper
(1) Issuer of a Fiat stablecoin must publish on its website its approved white paper and, where applicable, its modified white paper.
(2) The approved white paper must be publicly accessible by no later than the starting date of the offer to the public of the Fiat stablecoins or the admission of those tokens to trading on a Digital Asset Trading Facility.
(3) The approved white paper, and, where applicable, the modified white paper must remain available on the issuer’s website for as long as the Fiat stablecoin is held by the public.
4.9. AFSA power to limit the amount of Fiat stablecoins
(1) The AFSA may limit the amount of Fiat stablecoins to be issued or impose a minimum denomination to the Fiat stablecoins when the National Bank of the Republic of Kazakhstan issues an opinion that the Fiat stablecoins poses a serious threat to monetary policy transmission, smooth operation of payment systems or monetary sovereignty, and specify the applicable limit or minimum denomination amount.
(2) The AFSA may, at any time and in its sole discretion, prohibit or otherwise limit the issuance or use of a Fiat stablecoin before or after an issuer which has been approved issues such Fiat stablecoin, and may require that any such issuer delist, halt, or otherwise limit or curtail activity with respect to such Fiat stablecoin.
4.10. Monitoring of Fiat stablecoins
(1) If the AFSA considers it appropriate, it may require the issuer of the Fiat stablecoin to provide a report with the following information:
a. the customer base;
b. the value of the Fiat stablecoins issued and the size of the reserve of assets;
c. the average number and value of transactions per day; and
d. any other information the AFSA considers appropriate.
(2) Digital Asset Service Providers, which provide services on the Fiat stablecoins, must provide the issuer of a Fiat stablecoin with information necessary to prepare the report, including by reporting off chain transactions.
4.11. Miscellaneous
4.11.1. Ongoing information to holders of Fiat stablecoins
(1) Issuer of a Fiat stablecoin must in a clear, accurate and transparent manner disclose at least once a quarter, on a publicly and easily accessible place on its website, the amount of Fiat stablecoins in circulation, and the value and the composition of the reserve assets.
(2) The published information must demonstrate that the reserves:
(i) are at least equal in value to the notional value of outstanding Fiat stablecoins in circulation (that value is calculated by multiplying the number of Fiat stablecoins in circulation by the purported pegged Fiat Currency value);
(ii) include not more than 10% in high-quality liquid assets other than cash;
(iii) are denominated in the reference currency; and
(iv) are held in segregated accounts with properly regulated banks or custodians.
(3) Issuer of a Fiat stablecoin must publish as soon as possible on a publicly and easily accessible place on their website a brief, clear, accurate and transparent summary of the audit report and the full and unredacted audit report in relation to the reserve assets.
(4) Issuer of a Fiat stablecoin must as soon as possible and in a clear, accurate and transparent manner disclose on its website any event that has or is likely to have a significant effect on the value of the Fiat stablecoin, or on the reserve assets.
4.11.2. Rights on issuers of Fiat stablecoins
1. Issuer of a Fiat stablecoin must grant holders redemption rights at all times on the issuer of Fiat stablecoins, and on the reserve assets when the issuer is not able to comply with its certain obligations.
2. Holders should be able to redeem their Fiat stablecoins at any moment and at par value to the referenced asset. Issuer of a Fiat stablecoin must establish a policy on such permanent redemption right setting out:
(a) the conditions, including thresholds, periods and timeframes, for holders of a Fiat stablecoin to exercise this right;
(b) the mechanisms and procedures to ensure the redemption of the Fiat stablecoins;
(c) the valuation, or the principles of valuation, of the Fiat stablecoins and of the reserve assets when this right is exercised by the holder of a Fiat stablecoin;
(d) the settlement conditions when this right is exercised
(e) measures the issuer of a Fiat stablecoin is taking to adequately manage increases or decreases of the reserve, to avoid any adverse impacts on the market of the assets included in the reserve.
4.11.3. Ongoing capital
In addition to DAA 4.2(b), an issuer of a Fiat stablecoin must ensure that it maintains at all times ongoing capital resources in the amount of 2% of the average outstanding Fiat stablecoins issued by the issuer of a Fiat stablecoin.
4.11.4. Prohibitions
(1) Issuer of a Fiat stablecoin is prohibited to grant interest in relation to a Fiat stablecoin.
(2) For the purposes of this Rule, any remuneration or any other benefit related to the length of time during which a holder of a Fiat stablecoin holds such a Fiat stablecoin must be treated as interest.
(3) The interest includes net compensation or discount, with an equivalent effect of an interest received by the holder, directly from the issuer or through third parties, directly associated to the Fiat stablecoin or through the remuneration or pricing of other products.
(4) The issuance of stablecoins that aim or purport to maintain a stable value via protocols that provide for the increase or decrease of the supply of such stablecoins or other digital assets in response to changes in demand is prohibited.
Consultation paper on Proposed Regulatory Guidance on Assessment, Competency and Trainings for Controlled and Designated Functions
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Consultation paper on Policy on the Enhancement of the AIFC Digital Asset Trading Facility Framework
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Consultation paper on the proposed AIFC Commodities Exchange Framework
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Consultation Paper on Proposed Perimeter Guidance
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Introduction
Why are we issuing this Consultation Paper (CP)?
The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed Perimeter Guidance.
Who should read this CP?
The proposals in this paper will be of interest to any person seeking or considering authorisation by the AFSA to perform regulated activities in the AIFC.
Terminology
Defined terms have the initial letter of the word capitalised or of each word in a phrase. Definitions are set out in the Glossary Rules (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2023-0003” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
The deadline for providing comments on the proposed framework is 30 June 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
AFSA prefers to receive comments by email at consultation@afsa.kz.
Comments may also be posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Key proposals;
Part III – Questions in this consultation paper;
Annex 1 – Proposed Perimeter Guidance.
Part I - Background
The AFSA is proposing to adopt Perimeter Guidance.
Currently, the AIFC legal framework does not contain a comprehensive guidance document on licensing requirements.
The purpose of PERG is to give guidance about the circumstances in which authorisation to perform the activities that are regulated under the AIFC Financial Services Framework Regulations (AIFC FSFR) is required, including applicability of any available exemptions or exclusions.
In addition to the regulatory perimeter PERG contains provisions on the AIFC currency perimeter, which sets boundaries for offering services to the residents of the Republic of Kazakhstan and is regulated by the AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (AIFC Currency Rules).
PERG is based on the relevant provisions of the AIFC FSFR, AIFC General Rules, AIFC Conduct of Business Rules and AIFC Currency Rules.
Part II - Key proposals
DRAFT PERIMETER GUIDANCE
Introduction
This chapter gives introduction on the application, purpose, overview and status of PERG, brief description on the acting Law of the AIFC, terms of updating PERG, defined terms and list of general guidance to be found in PERG.
Authorisation (Getting Regulated)
This chapter contains five big sections 2.1. - 2.5.
Section 2.1. gives description to general requirements and provisions related to becoming regulated by the AFSA:
2.1.1. Carrying activities by way of business
2.1.2. Regulated Activities, Market Activities or Ancillary Services
2.1.3. Carrying on activities in the AIFC
2.1.4. Exempt Activities
2.1.5. Excluded Activities
2.1.6. Recognition regime
2.1.7. Carrying activities without authorisation
2.1.8. Offering services to residents and non-residents of the Republic of Kazakhstan
2.1.9. Offering services to retail and Professional Clients
2.1.10. Variation of the Licence. Waivers and modifications.
Sections 2.3. – 2.5. contain description of activity, currency regulation implications, and possible exclusions for Regulated Activities, Ancillary Services, Market Activities and FinTech Lab activities.
Financial Promotion and Communication
This chapter describes the AFSA’s approach to financial promotion, gives examples of communications to be considered as financial promotion.
Currency Regulation
This chapter outlines the currency regulatory perimeter, currency residency, services and transactions of the AIFC participants and reporting on them.
Unregulated Activities
This chapter gives brief guidance about the AFSA’s approach to unregulated activities.
Miscellaneous
This chapter gives guidance on certain AML and CFT requirements applicable to firms if their activities constitute them being Designated Non-Financial Business and Profession.
AFSA PERIMETER GUIDANCE (PERG)
1. INTRODUCTION
1.1. Application
This Perimeter Guidance (PERG) applies to:
- (a) a Person who is considering carrying on activities in the AIFC which may fall within the scope of the AIFC Financial Services Framework Regulations (FSFR) and is seeking guidance on whether the Person needs to become an Authorised Person or an Ancillary Service Provider;
- (b) a Person who seeks to become an Authorised Person or an Ancillary Service Provider under the FSFR and who is, or is considering to, applying for authorisation to carry on regulated activities in the AIFC;
- (c) a Person who is seeking guidance on whether any communication the Person may be seeking to make or cause to be made will be a Financial Promotion and be subject to the restriction in section 27 of the FSFR (Prohibition relating to Financial Promotions); and
- (d) Persons generally.
1.2. Purpose
The purpose of PERG is to give guidance about the circumstances in which authorisation to perform the activities that are regulated under the FSFR is required, including applicability of any available exemptions or exclusions.
Activities that might be exempt include such Regulated Activities, Market Activities or Ancillary Services that are exempt from the General Prohibition set by section 24 of the FSFR. See below sections 2.1.4. and 2.1.5. of PERG where you can find examples of such exempt or excluded activities.
Activities that might be excluded include such activities that are not carried out “by way of business”, as described in Rule 1.1.9 of the AIFC General Rules (GEN) and are not regulated under the FSFR. See below section 2.1.1. of PERG where you can see explanation of “by way of business”.
1.3. Overview
The key and governing act under the Financial Services Framework is the FSFR adopted by the AFSA, which provide a legal basis for the regulation and supervision of financial services. Under this AIFC Act (the term AIFC Act refers to an act adopted by the AIFC Body) Persons are permitted by the AFSA to carry on various financial activities in the AIFC, which are subject to regulation (referred to as Regulated Activities, Market Activities or Ancillary Services).
For reference: AIFC Bodies are the AIFC Management Council, the Governor of the AIFC, the AIFC Authority, the Astana Financial Services Authority, the AIFC Court and the International Arbitration Centre (Article 9 of the Constitutional Statute on the AIFC).
The “regulatory perimeter” for the AIFC financial services regulation is set out in the FSFR and contains two key prohibitions underlying that perimeter:
- (1) the General Prohibition, which prohibits Persons from carrying on a Regulated Activity, Market Activity or Ancillary Service unless it is authorised to do so by the AFSA or is exempt; and
- (2) the Financial Promotion prohibition, which prohibits unauthorised Persons from communicating promotion of Investments or any Regulated Activity.
Regulated Activities, Market Activities and Ancillary Services are specified in GEN: for example, Accepting Deposits, Managing Investments, Effecting Contracts of Insurance, Dealing in Investments as Agent; Providing Legal Services, Providing Audit Services; Operating and Exchange, Operating a Clearing House, etc. (see Chapter 2 of PERG (Authorisation (Getting Regulated)).
In addition to the regulatory perimeter the AIFC legal framework also has a currency perimeter, which sets parameters for AIFC Participants offering services to the residents of the Republic of Kazakhstan through the services of Kazakhstan’s commercial banks (second tier banks) or AIFC Banks. The currency perimeter is regulated by the AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (AIFC Rules on Currency Regulation).
The FSFR, and the secondary legislation made under the FSFR (e.g., Rules), are complex. Although PERG gives guidance about Regulated Activities, Market Activities, or Ancillary Services and Financial Promotions, it does not aim to, nor can it, be exhaustive.
References have been made to relevant provisions in the FSFR and secondary legislation. However, since reproducing an entire statutory provision would sometimes require a lengthy quotation, or considerable further explanation, many provisions of the FSFR, or secondary legislation made under the FSFR, are cross-referred.
For the precise details of the legislation, readers of PERG should, therefore, refer to the FSFR and the secondary legislation itself, as well as PERG.
1.4. Acting Law of the AIFC
The Acting Law of the AIFC is based on the Constitution of the Republic of Kazakhstan and consists of:
- (1) the Constitutional Statute on the AIFC (Constitutional Statute);
- (2) the AIFC Acts; and
- (3) the Acting Law of the Republic of Kazakhstan, which applies in part to matters not governed by the Constitutional Statute and AIFC Acts.
Constitutional Statute on the AIFC applies at all times.
Kazakhstan legislation applies as part of the Acting Law of the AIFC whenever the AIFC Acts do not displace that Kazakhstan legislation. Kazakhstan law does not apply at all in the AIFC if there has been a valid process of creation of law by an AIFC Act to displace the general law.
E.g., as part of the Acting law of Kazakhstan, criminal law and criminal procedure always apply in the AIFC. Another example would be the Republic’s tax law, though the Constitutional Statute makes provision for a beneficial tax exemptions for some activities in the AIFC. A third would be the law relating to activities in the AIFC territory which are not regulated by the AFSA: hotels, restaurants, sports etc. where the AIFC Acts are not applied, and thus the general law of Kazakhstan applies in full.
Examples of cases, where the AIFC Acts disapply the general law of Kazakhstan are Kazakhstan law on companies and other forms of a legal entity.
A boundary between application of the AIFC Acts and the legislation of Kazakhstan is prescribed further in the AIFC Acts. This is achieved under the AIFC Regulations on AIFC Acts, section 40:
40. Application (1) Because, by virtue of article 4 of the Constitutional Statute, AIFC legislation is able to apply in the AIFC despite any Acting Law of Kazakhstan on civil or commercial matters, the rights and liabilities between Persons in any civil or commercial matter are to be decided according to the relevant law for the time being in force in the Jurisdiction chosen in accordance with subsection (2). (2) The Jurisdiction chosen is to be the Jurisdiction first ascertained under the following paragraphs: (a) so far as there is a regulatory content, the AIFC Acts or any other law in force in the AIFC; failing which, (b) the law of any Jurisdiction other than the AIFC expressly applying under any AIFC Act; failing which, (c) the laws of a Jurisdiction as agreed between all the relevant Persons concerned in the matter; failing which, (d) the laws of any Jurisdiction that appears to the Court or Arbitrator to be the Jurisdiction most closely related to the facts of and the Persons concerned in the matter; failing which, (e) the Acting Law of Kazakhstan. |
Considering this structure of regulation, it is critical to recognise that the Constitutional Statute sets out the areas of economic activity which are considered as a priority to the AIFC. This include under Article 2.2 (2), (3), and (4) of the Constitutional Statute: 2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets; 3) developing insurance markets, banking services, Islamic finance, financial technologies, digital assets, electronic commerce and innovative projects in the Republic of Kazakhstan; 4) developing financial and professional services based on international best practice.
1.5. Status
PERG has been prepared for information purposes and does not constitute an exhaustive list of requirements that might be applicable to the firm’s business operations or to individuals, since the application of the PERG depends on the nature, scale and complexity of the business.
PERG is a Regulatory Material (for example, guidance, modifications, rules, policy statements), adopted by the AFSA under an AIFC Act. In cases when the FSFR and the secondary legislation say otherwise they will override PERG.
1.6. Updating PERG
PERG will be amended from time to time in the light of changing circumstances, developing business practices, or case law with the actual version published on the website of the AFSA. The newer version will be identified by the date in the cover page of the document.
1.7. Defined terms
The terms with initial capital letters (other than proper nouns) have the meaning as defined in the AIFC Glossary.
GEN uses the terms Authorised Firm, Authorised Market Institution, Authorised Person, and Ancillary Service Provider.
Authorised Firm is a Centre Participant which has been licensed by the AFSA to carry on one or more Regulated Activities.
Authorised Market Institution is a Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities.
Authorised Person is either an Authorised Firm or an Authorised Market Institution.
Ancillary Service Provider is a Centre Participant which has been licensed by the AFSA to carry on one or more Ancillary Services.
1.8. List of general guidance to be found in PERG
Chapter: | Applicable to: | About |
2 AUTHORISATION (GETTING REGULATED) | an unauthorised Person wishing to find out whether it needs to be authorised or is exempt or excluded to perform certain activities in or from the AIFC an authorised Person wishing to know whether it needs to vary the scope of its Licence | the regulatory scope of the FSFR the Regulated Activities, Market Activities, Ancillary Services, FinTech Lab Activities in GEN the exemptions and exclusions available for Regulated Activities, Market Activities, Ancillary Services, FinTech Lab Activities |
3 FINANCIAL PROMOTION AND COMMUNICATION | any Person who needs to know whether its communications are Financial Promotions subject to the restriction in section 27 of the FSFR or whether its activities in making or helping others to make Financial Promotions are Regulated Activities | Examples of Financial Promotions, Exempt Financial Promotions and general requirements for communications |
4 CURRENCY REGULATION | a person who needs to know whether a particular transaction is subject to the AIFC Rules on Currency Regulation | the scope of the AIFC Rules on Currency Regulation |
5 UNREGULATED ACTIVITIES | any Person | the AFSA’s approach to unregulated activities |
6 MISCELLANNEOUS | any Person | miscellaneous provisions |
2. AUTHORISATION (GETTING REGULATED)
2.1.General requirements for becoming regulated
Under section 24 of the FSFR (the General Prohibition), a Centre Participant must not carry on a Regulated Activity, Market Activity or Ancillary Service unless it is licensed to do so by the AFSA.
In order for firms to establish whether their proposed business requires authorisation to carry on Regulated Activities, Market Activities or Ancillary Services they need to refer to Rules 1.1.1., 1.2. and 1.3.1. of GEN.
The applicants will be assessed against the following criteria:
- (a)business model: a Person will need to satisfy the AFSA that its business model is suitable for the activities that it wishes to undertake;
- (b)effective supervision: a Person must demonstrate that it is capable of being effectively supervised by the AFSA with respect to other entities in its Group or related persons on whom it may rely upon for certain functions;
- (c)location of operations: a Person’s arrangements will be assessed to qualify for criteria set in section 6 of the FSFR (Meaning of “in the AIFC”) to be considered as carrying on activities in or from the AIFC;
- (d)adequate and appropriate financial and non-financial resources: a Person must have suitable people, financial resources and systems to be able to undertake activities;
- (e)fitness and propriety: a Person will be assessed for fitness and propriety of the members of its Governing Body, Shareholders (Controllers), Connected Persons, and Approved Individuals; and
- (f)compliance: the Person will be assessed for adequate regulatory compliance arrangements.
- Any Person who is concerned that its proposed activities may require authorisation will need to consider the following questions:
- (a)Will I be carrying on my activities by way of business (applicable only to Regulated Activities)?
- (b)Will my activities be, or include, Regulated Activities, Market Activities or Ancillary Services?
- (c)If so, will I be carrying them on in the AIFC?
- (d)Whether my activities will or may be exempt?
- (e)If not, will my activities be outside the scope of regulation by the AFSA?
A Person may also apply to the AFSA for variation of the Licence.
Chapters 2, 3 and 5 of PERG provide high-level guidance on the above questions.
Chapter 4 explains currency perimeter related to offering services by the AIFC Participants to residents of the Republic of Kazakhstan.
2.1.1.Carrying activities by way of business
Rule 1.1.9 of GEN gives a description of what is understood as being carried on “by way of business”. Three criteria listed there do not contain the closed list of activities, and therefore whether an activity is carried by way of business or not is ultimately a question of judgment that may take into account several additional factors:
- (a)the degree of continuity;
- (b)the existence of a commercial element, for example is there direct or indirect financial benefit expected, which is not limited to profit;
- (c)the scale of the activity;
- (d)the proportion which the activity bears to other activities carried on by the same Person but which are not regulated;
- (e)the nature of the particular activity that is carried on; and
- (f)the existence of customers/clients.
If a Person can establish that the activities it is carrying on is not by way of business, and there are no applicable exclusions or exemptions, it follows that its activities do not require authorisation.
Further, if the activities are not undertaken by way of business, the AIFC Conduct of Business Rules will not be applicable, as those rules only apply to an Authorised Firm with respect to any Regulated Activity carried on by an Authorised Firm operating in the AIFC.
With regard to an individual, who works for a Person, the General Prohibition will not be applied on the ground that the individual is not carrying on its business in a personal capacity if the individual is working under an employment agreement or services agreement (contract of service, contract for service).
2.1.2. Regulated Activities, Market Activities or Ancillary Services
The list of Regulated Activities, Market Activities or Ancillary Services is available in GEN, respectively in Schedules 1, 4 and 2: https://afsa.orderly.kz/articles/general-rules.
The process of applying for authorisation is available on the AFSA website: https://afsa.aifc.kz/authorisation-process/.
The AFSA may arrange pre-application meetings to provide general information about the authorisation process and applicable requirements.
Arranging a pre-application meeting with a prospective applicant for Regulated or Market Activities is a general recommendation, rather than an option. Forms of pre-application meetings may vary occasionally and be interchanged with a conference call in case of impossibility to arrange a meeting. However, the purpose of such meetings is to provide a prospective applicant with an overview of regulations, information about the application process and requirements, rather than to perform preliminary assessment of the application, which is a part of the authorisation process.
Pre-application meetings with the AIFC Authority and the AFSA are an important starting point in respect of any application to obtain a licence where a holistic description of the project, the proposed nature of the financial services and expansion plans are discussed. The outcome of such meetings is to provide general information, rather than perform the initial review. A prospective applicant for Regulated and Market Activities may seek advice from legal and other professional advisers in relation to any application for licencing and relevant laws, regulations and rules that may apply. While an advisor is welcomed at the pre-application meeting, the AFSA officials expect a firm’s shareholder or prospective management to speak on the firm’s behalf.
Before selecting a name of the firm, the applicant needs to check sensitive business names. Pursuant to the AIFC Companies Regulations a firm must not use a name that, because of any fact, matter or circumstance, is, or is reasonably likely to become, misleading, deceptive or conflicting with another name (including an existing name of another Company or Recognised Company). The firm must not use the name indicating it is related to providing regulated financial services without being properly authorised to do so, for example, “Fund Management”, “Investment Management”, etc.
In order to register a firm providing regulated financial services the applicant needs to ensure that it has the required amount of regulatory capital, which will be different based on the requirements for each category or type of firm (see the relevant AIFC Prudential Rules). It is recommended that the applicant's initial capital exceeds the required base capital, where additional risk and operational capital are considered. The firm must have and maintain at all times Capital Resources and Liquid Assets in accordance with the relevant prudential rules.
The individuals that will be performing senior management roles like Approved and Designated Individuals need to undergo the Fit and Proper test (see the Regulatory Guidance on Fitness and Propriety and the Guidance on Competence Assessment).
2.1.3. Carrying on activities in the AIFC
Carrying on activities in the AIFC shall be dealt with in relation to activities in the territory of the Centre, and concerning the persons who can “use” the Centre. The heading of Article 3 of the Constitutional Statute mentions both of these, as the heading is “Activities conducted in the AIFC and by AIFC Participants”.
As to activities in the territory, Article 3(1) of the Constitutional Statute precludes “activities that may be conducted in the AIFC”. Thus, it enables AIFC Bodies to adopt AIFC Acts which define the permissible activities to be conducted inside the Centre. As to the people who can use the Centre, the focus switches to Article 4 of the Constitutional Statute. It empowers, at Article 4(3), AIFC Bodies, to “regulate relationships” between various persons. By a “relationships” the Constitutional Statute means, e.g., the relationship between an authorised Centre Participant and the AFSA. It imposes limits on these powers of the AIFC Bodies, by defining the “relationships” concerned. The main relationships are defined those as (a) between AIFC Participants, (b) between AIFC Bodies, and (c) between persons in (a) and (b). Employees of either persons are also included.
The words “in the AIFC” need to be considered as legal and regulatory construct, not solely geographical. It can be linked to the meaning ‘conducted under and in accordance with (valid) AIFC Law’, and not as having the literal, stricter, meaning limiting the activities to those having effects only withing geographical boundary of the AIFC.
Going further, section 6 of the FSFR envisages the circumstances when activities are deemed to be carried on “in the AIFC” for the purposes of the FSFR, thereby ensuring that the conduct falls within the remit of regulation by the AFSA:
6. Meaning “in the AIFC” (1) A Person will be deemed to be carrying on activities in the AIFC for the purposes of these Regulations if: (a) that Person is a Centre Participant and the day-to-day management of those activities (even if those activities are undertaken in whole or in part from outside the AIFC) is the responsibility of the Centre Participant in its capacity as such; or (b) that Person’s head office is outside the AIFC, but the activity is carried on from a branch maintained by it in the AIFC; or (c) the activities are conducted in circumstances that are deemed to amount to activities carried on in the AIFC under Rules made by the AFSA. (2) The AFSA may issue Rules and guidance as to the circumstances in which activities capable of having an effect in the AIFC are or are not to be regarded as conducted in the AIFC. |
Subsection 1(a) refers to an AIFC Participant carrying out activities for which it has either been registered or recognised and for which it is responsible for managing on a daily basis. The part "even if those activities are undertaken in whole or in part from outside the AIFC" clearly envisages that the activities being carried on will still fall "in" the AIFC for the purposes of this particular regulation even if they are carried on with persons outside the geographical limits of the AIFC.
Where subsection 1(b) applies, care needs to be taken not to read the word "in" in its geographical sense alone. Although the word "branch" clearly connotes a physical presence, it needs both to be physically within the area of the AIFC and "in" also, by way of recognition. This means that if a firm is recognised by the AFSA to operate as a Branch Office in the AIFC, any regulated activities that the firm carries on through that branch will fall "in the AIFC".
It is worth noting, of course, that if a firm has been successful in obtaining recognition through a Branch Office, this will be because the “Head Office” is governed by a system of financial regulation which is of sufficient quality and rigour to be recognised by the AFSA. The “Head Office” will not be able to use its branch’s AFSA authorisation other than through its Branch Office in the AIFC.
Finally, subsection 1(c) is aimed at enabling the AFSA to protect the integrity of the AIFC. It is a method by which the AFSA can bring potentially marginal activities by an AIFC Participant within the AIFC and therefore within its powers of regulation and enforcement. The AFSA, upon careful analysis of the activity proposed to be carried out and in accordance with the Rules and associated guidance, may "deem" that activity to fall within the AIFC and can thereafter take steps to regulate, prevent or curtail those activities.
For completeness, where activities are carried out in or from the AIFC which contravene the criminal laws of Kazakhstan, then the perpetrator of those activities will be subject to the criminal justice system of the Republic of Kazakhstan. Such a perpetrator may also face civil sanction within the AIFC arising from the same activities.
For reference: Requirements for having a registered office in the AIFC can be found in section 24 of the AIFC Companies Regulations.
In practice the AFSA may require some representatives of the management (CEO, compliance function, Directors) to be located in the AIFC.
Branches
When an entity desires to perform activities through a Branch Office, the threshold conditions, which are the minimum conditions for authorisation, apply to the international company as a whole and not just the AIFC branch, since a Branch Office is not a separate legal entity in its own right but an extension of a company incorporated outside of the AIFC. The AFSA requires companies to have an appropriate amount of liquidity and its quality, to have appropriate resources to monitor, measure, and manage the risks to which it is or may be exposed, to be fit and proper, to conduct their business prudently and to be capable of being effectively supervised by the AFSA.
For more details on the AFSA considerations for branch supervision of banks, insurers and investment companies see Supervisory Policy Statement on the AFSA’s approach to Branch supervision.
Representative Offices
When an entity desires to perform activities through a Representative Office, it shall not undertake a Regulated Activity outside the scope of its Licence.
The Scope of a Representative Office's Licence may include:
- (a)marketing activities of services or products;
- (b)activities that increase the profile, in the AIFC, of the Representative Office's head office;
- (c)activities that relate to correspondence with or the provision of information from the Representative Office's head office;
- (d)activities that relate to the provision of information to the Representative Office's head office relating to business trends, business opportunities and developments in the AIFC markets; and
- (e)any other activities that the AFSA determine may be suitable for a Representative Office to conduct.
For more details on description of activities see AIFC Representative Office Rules.
Substantial presence requirements for tax exemption purposes
For more details on substantial presence of the AIFC Participants applying tax exemptions see AIFC Rules on the Substantial Presence of the Astana International Financial Centre Participants Applying Tax Exemptions for the Payment of Corporate Income Tax, Value Added Tax (SPR).
The AFSA is in the process of drafting Guidance on the SPR, which is supposed to be adopted in May/June 2023 and will provide more detailed information on applying the SPR.
The SPR have been adopted for the purposes of implementation of the OECD Base Erosion and Profit Shifting (BEPS) Action 5 and should be considered in addition to the "in the AIFC” requirement.
In general, under the SPR it is required to have adequate members of staff in the AIFC.
2.1.4. Exempt Activities
The FSFR envisages that certain AIFC Participants or categories of AIFC Participants may be exempted by an order or Rules from the General Prohibition in respect of Regulated Activities, or requirements of the criteria for granting of a Licence to carry on Regulated Activities.
Such exemptions are limited to certain Regulated Activities or specified circumstances, or subject to certain conditions and restrictions.
References to exemptions relate to Persons who are exempt from the need to apply for authorisation to carry on Regulated Activities, which means they can carry on Regulated Activities without breaching the General Prohibition.
Similar exemptions in the AIFC legal framework are also available to Authorised Market Institutions, who still need to be authorised to perform Market Activity but may be exempt from the General Prohibition in respect of any connected Regulated Activity.
Pursuant to section 39(1) of the FSFR an Authorised Investment Exchange is exempt from the General Prohibition in respect of any Regulated Activity:
- (a)which is carried on as a part of the Authorised Investment Exchange's business as an investment exchange; or
- (b)which is carried on for the purposes of, or in connection with, the provision by the Authorised Investment Exchange of services designed to facilitate the provision of clearing services by another Person.
Pursuant to section 39(2) of the FSFR an Authorised Clearing House is exempt from the General Prohibition in respect of any Regulated Activity:
- (a)which is carried on for the purposes of, or in connection with, the provision of clearing services by the Authorised Clearing House; or
- (b)which is carried on for the purposes of, or in connection with, the provision by the Authorised Clearing House of services designed to facilitate the provision of clearing services by another Person.
Pursuant to section 39(3) of the FSFR an Authorised Private E-currency Trading Facility is exempt from the General Prohibition in respect of any Regulated Activity:
- (a)which is carried on as a part of the Authorised Digital Asset Trading Facility's business as a Digital Asset trading facility; or
- (b)which is carried on for the purposes of, or in connection with, the provision by the Authorised Digital Asset Trading Facility of services designed to facilitate the provision of clearing services by another Person.
Pursuant to section 39(4) of the FSFR and subject to Rule 7.2 of the AIFC Authorised Market Institution Rules, an Authorised Crowdfunding Platform is exempt from the General Prohibition in respect of any Regulated Activity which is carried on as a part of the Authorised Crowdfunding Platform's business as a private crowdfunding platform.
2.1.5. Excluded Activities
References to exclusions relate to activities which, if applicable, would mean that the activity in question would not be considered as carrying on a Regulated Activity in breach of the General Prohibition.
Statutory exclusions, which, if complied with, may turn Regulated Activities into unregulated activities may apply to specified activities generally, and to several specified kinds of activity.
GEN contains the list of exclusions in respect of several activities:
No. | Name | Reference to exclusion |
1 | Dealing in Investments as Principal | GEN 1.1.10 |
2 | Acting as nominee | GEN 1.1.11 |
3 | Acting with or for Group companies | GEN 1.1.12 |
4 | Non-financial business | GEN 1.1.13 |
5 | Dealing in commodity derivatives | GEN 1.1.14 |
6 | Acquisition or disposal of a Body Corporate | GEN 1.1.15 |
7 | Acting as a trustee | GEN 1.1.16 |
8 | Single Family Offices | GEN 1.1.17 |
PERG will provide additional available exclusions where applicable throughout the text below.
2.1.6. Recognition regime
AIFC legal framework also envisages a recognition regime, which foresees entities established in foreign regulatory regimes where they may become members of an AMI in the AIFC on the basis that they are considered to be subject to a broadly equivalent level of regulation to those AMI members licensed by the AFSA to perform similar activities in or from the AIFC.
Non-AIFC Market Institutions
Recognition requirements for Recognised Non-AIFC Investment Exchanges and Recognised Non-AIFC Clearing Houses are listed in section 89(3) of the FSFR:
- (a)investors are afforded protection equivalent to that which they would be afforded if the body concerned were required to comply with the relevant requirements for the licensing of an Authorised Market Institution;
- (b)there are adequate procedures for dealing with a Person who is unable, or likely to become unable, to meet its obligations in respect of one or more Market Contracts connected with the investment exchange or clearing house;
- (c)the applicant is able to co‐operate with the AFSA by sharing information and in other ways;
- (d)adequate arrangements exist for co‐operation between the AFSA and those responsible for the supervision of the applicant in the country or territory in which the applicant or the applicant's head office is situated.
Non-AIFC Members
Recognition requirements for Recognised Non-AIFC Members are listed in section 91(3) of the FSFR:
- (a)the applicant is licensed or otherwise authorised to trade on or use the facilities of an exchange or clearing house in a jurisdiction acceptable to the AFSA;
- (b)the applicant is regulated in respect of trading in such jurisdiction by a regulator to a standard satisfactory to the AFSA;
- (c)the law and practice under which the applicant is licensed or otherwise authorised is broadly equivalent to the AFSA’s regulatory regime as it applies to a Member;
- (d)when using the facilities of an Authorised Investment Exchange or Authorised Clearing House, the applicant does not exceed the scope of the activities it is authorised to carry on by those responsible for the supervision of the applicant in the country or territory in which the applicant's head office is situated;
- (e)the applicant has agreed to cooperate with the AFSA and subject itself to such parts of the legal and regulatory framework administered by the AFSA as the AFSA may require.
For more details on recognition and supervision of recognised entities see AIFC Recognition Rules.
AFSA may publish notices on equivalent regulated exchanges from time to time.
2.1.7.Carrying activities without authorisation
For carrying on activities without authorisation all possible exemptions and exclusions must be reviewed.
2.1.8. Offering services to residents and non-residents of the Republic of Kazakhstan
Offering services to residents of Kazakhstan
The Acting Law of the AIFC may contain specific limitations for offering financial and professional services to residents and non-residents of the Republic of Kazakhstan.
When an AIFC Participant decides to offer financial services to residents of the Republic of Kazakhstan that are not AIFC participants it needs to be aware of potential currency regulation implications.
The AIFC Rules on Currency Regulation use the definitions such as “financial services”, “related services” and “professional services”. GEN does not have the same differentiation. In fact, those definitions are used due to the wording provided in the Constitutional Statute and in the jurisdiction of the Republic of Kazakhstan. One could review them under GEN context in the following way:
AIFC Rules on Currency Regulation | GEN |
Financial services | Regulated Activity/Market Activity |
Related services | |
Professional services | Ancillary Services |
However, this should not be a straightforward approach, and each activity needs to be considered separately. The context of the AIFC Rules on Currency Regulation may set a different understanding of the name of the allowed service.
When an AIFC Participant decides to offer services to the residents of Kazakhstan that are not AIFC Participants, he may do this only in accordance with Schedule 2 or Schedule 3 of the AIFC Rules on Currency Regulation:
- -Schedule 2 contains the list of permitted services and the type of allowed currency.
- -Schedule 3 contains the list of professional services that can be provided in any currency.
Sections 2.2., 2.3., 2.4. and 2.5. of PERG below contain brief guidance on currency regulatory implications of each activity.
The detailed currency implications of offering services by AIFC Participants to residents that are not AIFC Participants are presented in Chapter 4 of PERG.
Offering services to non-residents of Kazakhstan
An AIFC Participant may offer services to other AIFC Participants and non-residents of Kazakhstan within the scope of permitted activities under the Licence.
There may be restrictions to perform certain transactions using AIFC banks that are described in more details in Chapter 4 of PERG.
2.1.9. Offering services to retail and professional Clients
Firms when performing Regulated Activities must classify persons as:
- (a)a Retail Client;
- (b)a Professional Client; or
- (c)a Market Counterparty.
There are separate requirements to perform client classification. For more details see Chapter 2 of the AIFC Conduct of Business Rules (COB).
2.1.10. Variation of the Licence. Waivers and modifications
The AFSA may vary a Licence based on the application of the Authorised Firm. Terms and conditions of variation depend on the circumstances of each case and are decided individually.
The AFSA also may waive all or any part of its generally adopted requirements as to form and contents either in individual cases or generally, provided it is satisfied in either case that:
- (a)materially similar, up-to-date information is provided in other documentation already issued or completed by the applicant; or
- (b)such information is not necessary in the light of any registration or authorisation of the applicant in another jurisdiction; or
- (c)such information is not considered by the AFSA to be relevant in the context of any particular application.
2.2.Becoming regulated as an Authorised Firm
Currency regulatory perimeter is applicable to the provision of services by AIFC participants to the residents of the Republic of Kazakhstan and is presented in Chapter 4 of PERG. Thus, whatever a firm is licensed for, it must also operate in accordance with the AIFC Rules on Currency Regulation when dealing with Kazakhstan persons and/or using the services of the Kazakhstan commercial or “second tier” banks for such business.
For currency regulation implications for the Banking Business and Islamic Banking Business in the AIFC see Chapter 4 of PERG.
2.2.1.Dealing in Investments as Principal
2.2.1.1. General description
Dealing in Investments as Principal is listed in section 1 of Schedule 1 of GEN. The activity consists of:
- (a)buying;
- (b)selling;
- (c)subscribing for; or
- (d)underwriting
any Investment as principal.
The definition of Investment in Glossary includes the following: A Security, Unit, Derivative or a Digital Asset and a right or interest in the relevant Security, Unit, Derivative, Digital Asset or Environmental Instrument.
In order to be covered by the description, the principal must hold itself out as willing, as principal, to:
- (a)buy, sell, or subscribe for Investments at prices determined by the principal generally and continuously rather than in respect of each particular transaction;
- (b)engage in the business of buying Investments with a view to selling them;
- (c)engage in the business of underwriting Investments; or
- (d)regularly solicit members of the public with the purpose of inducing them, as principals or agents, to enter into a transaction.
An Authorised Firm authorised to carry on the regulated activity of Dealing in Investments as Principal is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | 1)Offering dealer services (making deals for own benefit) 2)Underwriting (placement of securities during IPO / SPO at the AIX, foreign stock exchanges) | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1)3.2.1. 2)3.1.1. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | Quarterly (no later than the 10th day of the month following the reporting month) reports on securities to the AFSA in accordance with Annex 3 to Schedule 5. Transactional reporting may also be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.1.2.Exclusions
There are several exclusions for this activity:
- (1)A Person does not Deal in Investments as Principal merely by accepting an instrument, creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation which that Person has made or provided.
- (2)When a Person issues or redeems Securities issued by that Person it does not fall into this category as well.
- (3)When a Person (not an Authorised Firm or an Authorised Market Institution) enters into a transaction with or through an Authorised Firm or a Regulated Financial Institution (meaning a Person authorised in other jurisdiction by another Financial Services Regulator).
The exclusion in (3) does not apply if the Person holds itself out as:
- (a)willing to enter into transactions in Investments of the kind to which the transaction relates; or
- (b)engaging in the business of buying, selling, subscribing for or underwriting Investments.
A Person may hold itself out as carrying on an activity by various means including, for example, on its webpage, in an advertisement or through representations made by its employees. However, merely placing orders for a person’s own account with a broker or on a market will not amount to holding out unless it offers to do so on behalf of other persons.
A Person who is an Authorised Firm, does not Deal in Investments as Principal if in the course of managing the assets of a Private Equity Fund:
- (a)the Person makes an initial subscription for Units of that Fund; and
- (b)the Units are held by that Person for a period of more than 12 months.
When a Person Deals in Investments for their own account, this will also be excluded from the scope of the Regulated Activity.
The additional condition for being considered a Regulated Activity is that a Person must hold themself out as making a market in the relevant specified Investments or as being in the business of Dealing in Investments, or they must regularly solicit members of the public with the purpose of inducing them to deal.
2.2.2.Dealing in Investments as Agent
2.2.2.1.General description
Dealing in Investments as Agent is listed in section 2 of Schedule 1 of GEN. The activity consists of:
- (a)buying;
- (b)selling;
- (c)subscribing for; or
- (d)underwriting
any Investment as agent (i.e. for and on behalf of another person or group).
An Authorised Firm authorised to carry on the regulated activity of Dealing in Investments as Agent is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Brokerage services (conclusion of transactions in the interests of the client): 1)Brokerage services on international capital markets, at the Astana International Exchange Limited as related to securities issued under the Acting Law of the AIFC and foreign law 2)Brokerage services at the Astana International Exchange as related to Kazakhstani securities provided that the AIFC participant has relevant ARDFM* licence and (or) direct access to settlements in the Central Securities Depository JSC. * ARDFM – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3.3. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.2.2.Exclusions
A Person does not Deal in Investments as Agent if the activity:
- (a)is carried on in the course of providing legal or accountancy services which do not otherwise consist of the carrying on of financial services;
- (b)may reasonably be regarded as a necessary part of any other services provided in the course of providing legal or accountancy services; and
- (c)is not remunerated separately from the other services.
A Person does not Deal in Investments as Agent if that Person:
- (a)is merely receiving and transmitting a Client order in respect of an Investment; and
- (b)does not execute the Client order for and on behalf of the Client or otherwise commit the Client to the transaction relating to the relevant Investment.
However, this may nevertheless amount to Arranging Deals in Investment.
An exchange does not Deal in Investments as Agent merely by taking action in accordance with its Default Rules.
2.2.3.Managing Investments
2.2.3.1.General description
Managing Investments is listed in section 3 of Schedule 1 of GEN. It means managing on a discretionary basis the buying and selling of investment instruments belonging to another Person.
An Authorised Firm authorised to carry on the regulated activity of Managing Investments is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Managing Investment (including investment funds): 1)in relation to clients (investors) who are citizens and legal entities of the Republic of Kazakhstan investing in securities of the funds incorporated in the AIFC and managed by management companies licensed by ARDFM* 2)in relation to clients (investors) who are professional investors and have financial assets equivalent to not less than USD 150 000, when transferring the investments under the management or investing in securities of the funds incorporated in the AIFC or elsewhere and managed by a fund manager licensed by AFSA. * ARDFM – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market. Note: Client classification in COB has different threshold for classifying individual clients as Assessed Professional Clients, for example the client needs to have net assets of at least USD 100 000. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3.5. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.3.2.Exclusions
A Person who is not an Authorised Firm or an Authorised Market Institution does not Manage Investments if all day-to-day decisions relating to the Investments which are included in those assets are taken by an Authorised Firm or a Regulated Financial Institution.
2.2.4.Managing a Collective Investment Scheme
2.2.4.1.General description
Managing a Collective Investment Scheme is listed in section 4 of Schedule 1 of GEN. It means:
- (a)establishing;
- (b)managing; or
- (c)otherwise operating; or
- (d)winding up
a Collective Investment Scheme.
In case any activity as indicated above constitutes Managing Assets, Providing Fund Administration, Dealing as Agent, Dealing as Principal, Arranging Deals in Investments, or Providing Custody, such a Regulated Activity is taken to be incorporated within Managing a Collective Investment Scheme.
An Authorised Firm authorised to carry on the regulated activity of Managing a Collective Investment Scheme is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
A Collective Investment Scheme may only be established, promoted or marketed in the AIFC by a Person who is:
- (a)a Domestic Fund Manager;
- (b)a Foreign Fund Manager; or
- (c)another Centre Participant.
Foreign Fund Managers
A Foreign Fund Manager may manage a Domestic Fund in accordance with the AIFC Collective Investment Scheme Rules and Acting Law of the AIFC.
Domestic Fund Managers
Domestic Fund Manager may manage a Fund in other jurisdictions subject to the rules and regulations of that jurisdiction, AIFC Collective Investment Scheme Rules and Acting Law of the AIFC.
However, each foreign jurisdiction needs to be assessed first to ensure there is an adequate level of equivalence, and typically reciprocal arrangements would be expected to be in place.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Managing Investment (including investment funds): 1)in relation to clients (investors) who are citizens and legal entities of the Republic of Kazakhstan investing in securities of the funds incorporated in the AIFC and managed by management companies licensed by ARDFM* 2)in relation to clients (investors) who are professional investors and have financial assets equivalent to not less than USD 150 000, when transferring the investments under the management or investing in securities of the funds incorporated in the AIFC or elsewhere and managed by a fund manager licensed by AFSA. * ARDFM – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market. Note: Client classification in COB has different threshold for classifying individual clients as Assessed Professional Clients, for example the client needs to have net assets of at least USD 100 000. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3.5. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
2.2.4.2.Exclusions
Arrangements not amounting to a Collective Investment Scheme are specified in section 3 of the AIFC Collective Investment Scheme Rules.
Arrangement | Rule |
Schemes not operated by way of business | 3.3. |
Deposits | 3.4. |
Common accounts | 3.5. |
Commercial activities unrelated to Regulated Activities | 3.6. |
Group arrangements | 3.7. |
Franchise arrangements | 3.8. |
Clearing services | 3.9. |
Certificates or Options | 3.10. |
Time‐share and other 'property‐enjoyment' related arrangements | 3.11. |
Bodies corporate not undertaking investment management | 3.12. |
Debentures and Warrants of a single issuer | 3.13. |
Insurance | 3.14. |
Profit Sharing Investment Accounts (PSIAs) | 3.15. |
Discretionary Portfolio Accounts | 3.16. |
Close Relative accounts | 3.17. |
Sukuk | 3.18. |
Employee reward schemes | 3.19. |
Carried interest vehicles | 3.20. |
Other circumstances | 3.21. |
For requirements applicable to Foreign Fund Managers, i.e. Fund Managers not located in the AIFC see AIFC Collective Investment Scheme Rules.
Specific products or activities forming part of Islamic Financial Business are not regulated as Collective Investment Schemes due to their unique characteristics and the specific regulations applied to them.
Such Islamic Financial Business activities are expressly excluded from the remit of the AIFC Collective Investment Scheme Rules but may be considered as Islamic Investment Funds.
For applicable requirements to Islamic Investment Funds see AIFC Islamic Finance Rules.
2.2.5.Providing Custody
2.2.5.1.General description
Providing Custody is listed in section 5 of Schedule 1 of GEN. It means safeguarding and administering Investments (Fund Property, Digital Assets) belonging to another Person.
Safeguarding and administering Investments consists of both of the following:
- (a)safeguarding of assets belonging to another, and
- (b)the administration of those assets.
Administering an Investment would include, for example, crediting income arising out of an Investment to the beneficiary's account; however, it is important that discretion is not exercised in the carrying out of the activities, otherwise the actions will fall within another regulated activity (that of Advising on Investments, or Managing Investments), and separate permission will be required.
Safeguarding an Investment is holding it in safe custody, e.g. looking after a share certificate.
An Authorised Firm authorised to carry on the regulated activity of Providing Custody is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Providing custody services (nominal holding, accounting and safeguarding of securities): 1)Providing custody of the securities issued in accordance with foreign legislation and Acting Law of the AIFC 2)Providing custody by the AIFC participant in respect to Kazakhstani securities provided that the AIFC participant has relevant ARDFM licence 3)Settlement depository or custodial services of the Astana International Exchange Central Securities Depository Limited in respect to all securities included in the official list of the Astana International Exchange Limited. * ARDFM – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3.4. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.5.2.Exclusions
There are a number of exclusions applicable in certain circumstances:
- (a)while acting as personal representative;
- (b)in connection with the carrying on of a profession of a non-investment business;
- (c)in connection with the sale of goods or supply of services;
- (d)where they belong to a group member or participator in a joint enterprise;
- (e)in connection with an employee share scheme;
- (f)that involve the provision of information to policyholders or potential policyholders about contracts of insurance on an incidental basis; or
- (g)where they are acting as an insolvency practitioner.
2.2.6.Arranging Custody
2.2.6.1.General description
Arranging Custody is listed in section 6 of Schedule 1 of GEN and means arranging provision of custody for one or more Persons.
An Authorised Firm authorised to carry on the regulated activity of Arranging Custody is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Arranging Custody: intermediary consulting services, collecting and processing customer payments disclosure and settlement of agreement terms between the custodian and the person who receives the custody. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.6.2.Exclusions
A Person (an “introducer”) does not carry on the activity of Arranging Custody merely by introducing another Person to a custodian who is an Authorised Firm or a Regulated Financial Institution authorised to provide custody.
This exclusion does not apply if:
- (a)the custodian is a member of the same Group as the introducer;
- (b)the custodian is a part of the same legal entity as the introducer and, conducts custody services outside the AIFC; or
- (c)the introducer is remunerated for making the introduction by any Person, including by an entity referred to in (a) or (b).
An exchange does not Arrange Custody merely by making arrangements for, or taking steps that facilitate:
- (a)the safeguarding and administration of assets belonging to Members or other participants; or
- (b)the settlement by another Person of transactions entered into on a facility operated by the exchange.
2.2.7.Providing Trust Services
2.2.7.1.General description
Providing Trust Services is listed in section 6 of Schedule 1 of GEN and means:
- (a)the provision of services with respect to the creation of an express trust;
- (b)arranging for any Person to act as a trustee in respect of any express trust;
- (c)acting as trustee in respect of an express trust; or
- (d)acting as protector or enforcer in respect of an express trust.
Definition of an express trust is provided in the AIFC Trust Regulations and mean a trust created with the Settlor’s express intent declared in writing or a written declaration of trust by the trustee.
An Authorised Firm authorised to carry on the regulated activity of Providing Trust Services is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Trust services: trust services (provision of services related to express trust creation and management) without restrictions. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3.6. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.7.2.Exclusions
A Person who is a Trustee does not carry on Dealing in Investments as Principal, Managing Investments and Providing Custody in circumstances where it is acting as a trustee.
A Person does not carry on Providing Trust Services by way of business where it is:
- (a)acting as enforcer or protector; or
- (b)where it is arranging for a Person to act as trustee, in respect of less than three (3) trusts.
A law firm, notary firm, or other independent legal business or an accounting firm, audit firm, or insolvency firm does not provide Trust Services where it only:
- (a)arranges for a Person to act as trustee in respect of an express trust; or
- (b)provides services with respect to the creation of an express trust; provided that:
- (i)the provision of such services is solely incidental to the practice of law or accounting as the case may be; and
- (ii)the DNFBP is not holding itself out as Providing Trust Services.
Acting as trustee, protector or enforcer are not activities incidental to the practice of law or accounting and require a Licence.
2.2.8.Providing Fund Administration
2.2.8.1.General description
Providing Fund Administration is listed in section 8 of Schedule 1 of GEN. It means providing one or more of the following services in relation to a Fund (i.e. a Collective Investment Scheme):
- (a)processing dealing instructions including subscriptions, redemptions, stock transfers and arranging settlements;
- (b)valuing of assets and performing net asset value calculations;
- (c)maintaining the share register and Unitholder registration details;
- (d)performing anti money laundering requirements;
- (e)undertaking transaction monitoring and reconciliation functions;
- (f)performing administrative activities in relation to banking, cash management, treasury and foreign exchange;
- (g)producing financial statements, other than as the Fund’s registered auditor; or
- (h)communicating with participants, the Fund, the Fund Manager, and investment managers, the prime brokers, the Regulators and any other parties in relation to the administration of the Fund.
An Authorised Firm authorised to carry on the regulated activity of Providing Fund Administration is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Services of Providing Investment Fund Establishment and Administration: assets valuation and calculation of the value of assets, undertaking transactions monitoring and reconciliation of functions, communication with stakeholders. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 6. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.8.2.Exclusions
There are none.
2.2.9.Acting as the Trustee of a Fund
2.2.9.1.General description
Acting as the Trustee of a Fund is listed in section 9 of Schedule 1 of GEN. It means holding the assets of a Fund on trust for the Unitholders where the Fund is in the form of an Investment Trust.
To the extent that any activity indicated above constitutes Providing Fund Administration or Providing Custody, such a Financial Service is taken to be incorporated within Acting as the Trustee of a Fund.
A Trustee is not required to obtain additional authorisations for certain activities involving offering Financial Services that fall within the ordinary scope of the activity of Acting as the Trustee of a Fund.
An Authorised Firm authorised to carry on the regulated activity of Acting as a Trustee of a Fund is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Acting as Trustee of a fund: holding the assets of a Fund on trust for the unitholders. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 7. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.9.2.Exclusions
A Person is not Acting as the Trustee of a Fund merely because it is acting as an agent, employee or delegate of a Trustee.
2.2.10.Advising on Investments
2.2.10.1.General description
Advising on Investments is listed in section 10 of Schedule 1 of GEN. It means giving advice to a Person:
- (a)in the capacity as an investor or potential investor; or
- (b)in the capacity as agent for an investor or a potential investor,
on the merits of his (i) buying, (ii) selling, (iii) holding, (iv) subscribing for or (v) underwriting a particular Investment (whether as principal or agent).
"Advice" includes a statement, opinion or report:
- (a)where the intention is to influence a Person, in making a decision, to select a particular Investment or an interest in a particular Investment; or
- (b)which could reasonably be regarded as being intended to have such an influence.
An Authorised Firm authorised to carry on the regulated activity of Advising on Investments is subject to prudential supervision and must comply with AIFC Prudential Rules for Investment Firms.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | 1)Advising on Investments: giving advice to a person in his capacity as an investor or potential investor on the merits of his buying, selling, holding, subscribing for or underwriting a particular investment. 2)Investment banking services: financial consulting (M&A structuring, private equity, restructuring, hedging). | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1)2. 2)3.1.2. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.10.2.Exclusions
There are none.
2.2.11.Arranging Deals in Investments
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.
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 implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Arranging Deals in Investments Making arrangements with a view to another person buying, selling, subscribing for or underwriting an investment. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
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.
2.2.12.Managing a Restricted Profit Sharing Investment Account
2.2.12.1.General description
Managing a Restricted Profit Sharing Investment Account is listed in section 12 of Schedule 1 of GEN. It means managing an account or portfolio which is a Restricted Profit Sharing Investment Account (RPSIA).
More detailed information about Restricted Profit Sharing Investment Account can be found in the AIFC Islamic Finance Rules and AIFC Islamic Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Managing a restricted profit sharing investment account based on Islamic financial contract: managing an investment account (portfolio, fund), involving restriction of investments only within the Islamic Financial Contract with profit/loss sharing between the management company and the holder of the Islamic account (client). | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 8. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.12.2.Exclusions
There are none.
2.2.13.Islamic Banking Business
2.2.13.1.General description
Islamic Banking Business is listed in section 13 of Schedule 1 of GEN. It means providing financing or making Investments by entering as principal or agent into any Islamic Financial Contract while raising funds for those activities through either or both of the following:
- (a)raising, accepting and managing funds or money placements;
- (b)managing Unrestricted Profit Sharing Investment Accounts (UPSIA);
provided that all such activities are carried out in a Shari’ah-compliant manner.
The definition of an Islamic Financial Contract can be found in the AIFC Islamic Finance Rules and may include any of the following:
- (i)murabahah and its variations;
- (ii)salam and its variations;
- (iii)tawarruq and its variations;
- (iv)istisna and its variations;
- (v)ijarah and its variations;
- (vi)musharakah and its variations;
- (vii)mudarabah and its variations;
- (viii)qard;
- (ix)any other Islamic Financial Contract that is approved to be so by the relevant Authorised Firm’s Shari’ah Supervisory Board.
For more details on Islamic Banking Business see AIFC Islamic Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Islamic banking and Islamic financing carried out by Islamic banks | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1.1. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.13.2.Exclusions
There are none.
2.2.14.Providing Islamic Financing
2.2.14.1.General description
Providing Islamic Financing is listed in section 14 of Schedule 1 of GEN. It means providing financing in a Shari’ah-compliant manner by entering into any Islamic Financial Contract.
The definition of an Islamic Financial Contract can be found in the AIFC Islamic Finance Rules.
For more details on Providing Islamic Financing see AIFC Islamic Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Islamic banking and Islamic financing carried out by Islamic banks | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1.1. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.14.2.Exclusions
There are none.
2.2.15.Insurance Intermediation
2.2.15.1.General description
Insurance Intermediation is listed in section 15 of Schedule 1 of GEN. It means:
- (a)advising on a Contract of Insurance;
- (b)acting as agent for another Person in relation to the buying or selling of a Contract of Insurance for that other Person; or
- (c)making arrangements with a view to another Person, whether as principal or agent, buying a Contract of Insurance.
For further details about “advising” and “arrangements” see section 15 of GEN.
A Contract of Insurance is any enforceable contract under which a “provider” undertakes:
- (1)in consideration of one or more payments;
- (2)to pay money or provide a corresponding benefit (including in some cases services to be paid for by the provider) to a ‘recipient’;
- (3)in response to a defined event the occurrence of which is uncertain (either as to when it will occur or as to whether it will occur at all) and adverse to the interests of the recipient
An Authorised Firm authorised to carry on the regulated activity of Insurance Intermediation is subject to prudential supervision and must comply with AIFC Prudential Rules for Insurance Intermediaries and Insurance Managers.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Reinsurance broker’s activity: Kazakhstani insurers have the right to transfer insurance risks for reinsurance through the insurance broker - AIFC participant | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 2.3. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.15.2.Exclusions
There are none.
2.2.16.Operating a Representative Office
2.2.16.1.General description
Operating a Representative Office is listed in section 16 of Schedule 1 of GEN. It means the marketing, from an establishment in the AIFC, of one or more financial services or investments which are offered in a jurisdiction other than the AIFC.
For further details see GEN and AIFC Representative Office Rules.
Currency regulation implications
Subject to the general currency regulation legislation of the Republic of Kazakhstan.
2.2.16.2.Exclusions
Any communication which amounts to marketing in respect of a Financial Service or Investment, which is issued by or on behalf of a Government or non‐commercial governmental entity, does not constitute marketing for the purposes of the general description. This does not include activity of a broker that is marketing or selling Government bonds to its Clients.
2.2.17.Accepting Deposits
2.2.17.1.General description
Accepting Deposits is listed in section 17 of Schedule 1 of GEN.
A Firm is accepting deposits if money or funds received as a Deposit:
- (a)is lent to other Persons, or
- (b)used to finance wholly, or partly, any other activity of the Person accepting the Deposit.
To the extent that any activity constitutes Opening and Operating Bank Accounts such a Regulated Activity is taken to be incorporated within Accepting Deposits.
A Deposit is a sum of money paid on terms:
- (a)under which it will be repaid, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the Person making the payment and the Person receiving it; and
- (b)which is not relevant to the provision of property (other than currency) or services or the giving of security.
- Money is paid on terms which are relevant to the provision of property or services or the giving of security if:
- (a)it is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services, and is repayable only in the event that the property or services are not in fact sold, hired or otherwise provided;
- (b)it is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the non-performance of a contract; or
- (c)without prejudice to (b), it is paid by way of security for the delivery of property, whether in a particular state of repair or otherwise.
An Authorised Firm authorised to carry on the regulated activity of Accepting Deposits is subject to prudential supervision and must comply with AIFC Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Accepting deposits from residents of Kazakhstan is prohibited. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | Not mentioned. The services cannot be offered to residents of Kazakhstan that are not AIFC Participants. | |
Type of currency: | Not applicable | |
Transaction implications | Not applicable | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | AIFC Rules on Currency Regulation do not apply. |
For details see Chapter 4 of PERG.
2.2.17.2.Exclusions
Whether or not Accepting Deposits is a Regulated Activity depends on the use to which the money is put.
The activity is caught if money received by way of Deposit is lent to others or if any other activity of the person accepting the Deposit is financed wholly (or to a material extent) out of the capital of, or interest on, money received by way of Deposit.
Anyone concerned that they may be carrying on the Regulated Activity of Accepting Deposits will need to work out whether the sum received is in fact a Deposit.
A sum is not a Deposit if it is paid:
- (a)by a Person in the course of carrying on a business consisting wholly or to a significant extent of lending money;
- (b)by one company to another at a time when both are members of the same Group;
- (c)by an Authorised Firm authorised to carry on the Regulated Activity of Accepting Deposits;
- (d)by a Person who is a close relative of the Person receiving it or who is a director, manager or Controller of that Person.
A sum is not a Deposit if it is received:
- (a)by a lawyer acting in a professional capacity;
- (b)by an accountant acting in a professional capacity;
- (c)by an Authorised Firm or an Authorised Market Institution authorised to carry on any one or more of the Regulated Activities defined in Schedule 1 of the GEN, except Accepting Deposits, in the course of or for the purpose of any such Regulated Activity disregarding any applicable exclusions; or
- (d)by a Person as consideration for the issue by the person of a Debenture.
2.2.18.Providing Credit
2.2.18.1.General description
Providing Credit is listed in section 18 of Schedule 1 of GEN.
It means providing a Credit Facility to another Person, i.e. providing any facility which includes any arrangement or agreement which extends monetary credit whether funded or unfunded to a Person including:
- (a)any loan or syndicated loan;
- (b)mortgage;
- (c)overdraft;
- (d)financial lease;
- (e)letter of credit;
- (f)financial guarantee;
- (g)trade finance;
- (h)transaction finance;
- (i)project finance; or
- (j)asset finance.
A Person does not carry on the Regulated Activity of Providing Credit if the Credit Facility is to be provided by the Authorised Person in the course of carrying on one or more of the following activities: (a) Dealing in Investments as Agent; (b) Arranging Deals in Investments; (c) Managing Investments; (d) Managing a Collective Investment Scheme; (e) Providing Custody.
An Authorised Firm is a Credit Provider if it is authorised to conduct the Regulated Activity of Providing Credit and it is not a Bank. Credit Providers may raise funds from capital markets or money markets using debt instruments of any type but must not accept Deposits.
Also see list of exclusions in 2.1.5. PERG.
An Authorised Firm authorised to carry on the regulated activity of Providing Credit is subject to prudential supervision and must comply with AIFC Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Provision of loans to legal entities of the Republic of Kazakhstan. Note: provision of loans to natural persons of the Republic of Kazakhstan is prohibited. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1.2. | |
Type of currency: | Foreign currency | |
Transaction implications | Foreign currency transactions can be performed both via AIFC Banks and second-tier banks | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.18.2.Exclusions
A Person who is an Authorised Firm does not Provide Credit where the provision of the Credit Facility is incidental to or in connection with the trading of Investments, or conducting Insurance Business.
An operator of the Crowdfunding Platform does not Provide Credit to the extent that it Operates a Loan Crowdfunding Platform.
A Person does not Provide Credit to the extent that the Person operates a loyalty or rewards programme where a participant earns points or other monetary value from acquiring goods or services, which the participant can use to receive a discount on, or purchase, further goods or services.
2.2.19.Advising on a Credit Facility
2.2.19.1.General description
Advising on a Credit Facility is listed in section 19 of Schedule 1 of GEN. It means giving advice to a Person in the person’s capacity as a borrower or a potential borrower, or as an agent for a borrower or a potential borrower, on the merits of entering into a particular Credit Facility.
For further details see GEN. The definition of a Credit Facility is given in the AIFC Glossary. The definition of advice is given in section 19(2) of Schedule 1 of GEN.
An Authorised Firm authorised to carry on the regulated activity of Advising on a Credit Facility is subject to prudential supervision and must comply with AIFC Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Advising on a Credit Facility: giving advice to a person in his capacity as a borrower or a potential borrower, on the merits of his entering into a particular credit facility. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 4. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.19.2.Exclusions
There are none.
2.2.20.Arranging a Credit Facility
2.2.20.1.General description
Arranging a Credit Facility is listed in section 20 of Schedule 1 of GEN. It means making arrangements for the provision of a Credit Facility by one or more Persons.
The definition of a Credit Facility is given in the AIFC Glossary.
An Authorised Firm authorised to carry on the regulated activity of Arranging a Credit Facility is subject to prudential supervision and must comply with AIFC Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Arranging a Credit Facility: collecting and processing commissions, fees, and other payments, assisting the lender in placing funds and the borrower in obtaining credit facility, agreement and settlement of the terms of the contractual relationship between the lender and the borrower, transmission of instructions or confirmations concerning credit facility. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 5. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.20.2.Exclusions
A Person does not carry on the Regulated Activity of Arranging a Credit Facility if the person:
- (a)is to be a party to the Provision of Credit Facilities in question; or
- (b)merely provides the means by which a Person providing a Credit Facility communicates with the Person to whom the Credit Facility is or is to be provided.
A Person does not carry on the Regulated Activity of Arranging a Credit Facility if the activity:
- (a)is carried on in the course of Providing Legal Services or Providing Accountancy Services, which does not otherwise consist of the carrying on of Financial Services;
- (b)may reasonably be regarded as a necessary part of any other services provided in the course of Providing Legal Services or Providing Accountancy Services; and
- (c)is not remunerated separately from the other services.
2.2.21.Providing Money Services
2.2.21.1.General description
Providing Money Services is listed in section 21 of Schedule 1 of GEN. This Regulated Activity means engaging in, among others, the following activities:
- (a)providing currency exchange;
- (b)selling or issuing payment instruments;
- (c)selling or issuing stored value;
- (d)execution of payment transactions, including transfers of funds on a settlement account, (including a bank account), with the user's payment service provider or with another payment service provider:
- (i)execution of direct debits, including one-off direct debits;
- (ii)execution of payment transactions through a payment card or a similar device; and
- (e)execution of payment transactions where the funds are covered by a credit line for a payment service user:
- (i)execution of direct debits, including one-off direct debits;
- (ii)execution of payment transactions through a payment card or a similar device; and
- (f)money remittance; and
- (g)execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.
An Authorised Firm authorised to carry on the regulated activity of Providing Money Services is subject to prudential supervision and must comply with AIFC Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Receiving and making payments and (or) money transfers using current bank account (within the permitted types of services) | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1.4. | |
Type of currency: | Foreign currency | |
Transaction implications | Foreign currency transactions can be performed both via AIFC Banks and second-tier banks | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.21.2.Exclusions
An Authorised Firm, does not Provide Money Services if it does so in relation to the carrying on of another financial service where Providing Money Services is in connection with and a necessary part of that other financial service, for example, money service activities carried on in connection with, and as a necessary part of, Providing Credit, Dealing in Investments (as principal or agent), Operating an Exchange or Clearing House, Managing Assets or Providing Custody.
A Person does not Provide Payment Services if the Person carries out a Payment Transaction for their own account.
2.2.22.Effecting Contracts of Insurance
2.2.22.1.General description
Effecting Contracts of Insurance is listed in section 22 of Schedule 1 of GEN. It means effecting Contracts of Insurance as Principal, i.e. as a seller.
The ordinary meaning of “effect” is to cause something to happen or bring something about. “Effecting” a contract of insurance involves more than merely making the contract. It could also include the offering of insurance services and the negotiation of the terms of the contract, and steps necessary to conclude the insurance contract (for example, confirmation of the cover and policy issuance).
An Authorised Firm authorised to carry on the regulated activity of Effecting Contracts of Insurance is subject to prudential supervision and must comply with AIFC Insurance and Reinsurance Prudential Rules.
Different insurance categories are presented in the AIFC Insurance and Reinsurance Prudential Rules (General Insurance Business and Long-Term Insurance). P
Acting as principal implies exclusion of agents who act on behalf of insurers.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | (1)Direct voluntary insurance (a)air transport insurance (b)water transport insurance (c)space objects insurance (d)insurance of cargo related to air transport, water transport and space objects (e)legal liability insurance of air transport owners (f)legal liability insurance of water transport owners (g)legal liability insurance of space objects owners (2)Reinsurance activities (a)acceptance of all risks from Kazakhstani insurers for reinsurance (3)Additional types of insurance (a)insurance of guarantees and bails (b)insurance of court costs (c)title insurance (d)Islamic insurance (4)New types of specific risks insurance (a)catastrophe risks (b)climate related risks (c)cyber risks (d)terrorism related risks (e)political risks | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 2.1., 2.2., 2.4., 2.5. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.21.2.Exclusions
There are none.
2.2.23.Carrying on Contracts of Insurance
2.2.23.1.General description
Carrying on Contracts of Insurance is listed in section 23 of Schedule 1 of GEN. It means carrying on Contracts of Insurance as Principal.
Carrying out insurance contracts relates to the performance of obligations under contract after it has been entered into, such as:
- (a)collecting premiums;
- (b)the maintenance of records; and
- (c)handling and paying claims.
Acting as principal implies exclusion of agents who act on behalf of insurers.
A Person, who is an Authorised Firm authorised to carry on the regulated activity of Carrying on Contracts of Insurance is subject to prudential supervision and must comply with AIFC Insurance and Reinsurance Prudential Rules
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | (1)Direct voluntary insurance (h)air transport insurance (i)water transport insurance (j)space objects insurance (k)insurance of cargo related to air transport, water transport and space objects (l)legal liability insurance of air transport owners (m)legal liability insurance of water transport owners (n)legal liability insurance of space objects owners (2)Reinsurance activities (b)acceptance of all risks from Kazakhstani insurers for reinsurance (3)Additional types of insurance (e)insurance of guarantees and bails (f)insurance of court costs (g)title insurance (h)Islamic insurance (4)New types of specific risks insurance (f)catastrophe risks (g)climate related risks (h)cyber risks (i)terrorism related risks (j)political risks | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 2.1., 2.2., 2.4., 2.5. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.23.2.Exclusions
There are none.
2.2.24.Insurance Management
2.2.24.1.General description
Insurance Management is listed in section 24 of Schedule 1 of GEN. It means:
- (a)performing underwriting or administration functions for or on behalf of an insurer or Captive, for the purposes of that insurer effecting or carrying out a Contract of Insurance as principal; or
- (b)arranging reinsurance for and on behalf of an insurer or Captive for whom it is underwriting;
- (c)performing underwriting or administration functions for or on behalf of a Takaful Operator or a Captive Takaful Operator, for the purposes of that Takaful Operator effecting or carrying out a Takaful Contract as principal; or
- (d)arranging Retakaful for and on behalf of a Takaful Operator or Captive for whom it is underwriting.
For the meaning of “administration”, “underwriting”, “insurer” and “Takaful Operator” see section 24 of Schedule 1 of GEN.
An Authorised Firm authorised to carry on the regulated activity of Insurance Management is subject to prudential supervision and must comply with AIFC Prudential Rules for Insurance Intermediaries and Insurance Managers.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Offering Insurance Management to residents of Kazakhstan is prohibited. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | Not mentioned | |
Type of currency: | Not applicable | |
Transaction implications | Not applicable | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | AIFC Rules on Currency Regulation do not apply. |
For more details see Chapter 4 of PERG.
2.2.24.2.Exclusions
There are none.
2.2.25.Takaful Business
2.2.25.1.General description
Takaful Business is listed in section 25 of Schedule 1 of GEN. It means the business of conducting either or both of the following activities:
- (a)effecting Takaful Contracts as Principal;
- (b)carrying on Takaful Contracts as Principal.
For more details on Takaful Business see AIFC Takaful and Retakaful Prudential Rules.
A Person, who is an Authorised Firm authorised to carry out regulated activity of Takaful Business is subject to prudential supervision and must comply with AIFC Takaful and Retakaful Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Islamic insurance | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 2.4.4. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.25.2.Exclusions
There are none.
2.2.26.Opening and Operating Bank Accounts
2.2.26.1.General description
Opening and Operating Bank Accounts is listed in section 26 of Schedule 1 of GEN. It means one or more of the following activities:
- (a)opening and operating Bank Accounts;
- (b)services enabling funds to be placed on a Bank Account as well as all the operations required for operating a Bank Account; and
- (c)services enabling funds withdrawals from a Bank Account as well as all the operations required for operating a Bank Account.
An Authorised Firm authorised to carry out regulated activity of Opening and Operating Bank Accounts is subject to prudential supervision and must comply with AIFC Banking Business Prudential Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Opening and maintaining current bank accounts for clients (for lending and investment banking services) | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 1.3. | |
Type of currency: | Foreign currency | |
Transaction implications | Foreign currency transactions can be performed via both AIFC Banks and second-tier banks | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.26.2.Exclusions
There are none.
2.2.27.Operation of a Payment System
2.2.27.1.General description
Operation of a Payment System is listed in section 27 of Schedule 1 of GEN. It means operation of funds transfer system with formal and standardised arrangements and common rules for the processing, clearing or settlement of payment transactions.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Offering services of Operating a Payment System to Kazakhstan residents is prohibited. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | Not mentioned. | |
Type of currency: | Not applicable. | |
Transaction implications | Not applicable. | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2 of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.2.27.2.Exclusions
There are none.
2.2.28.Operating a Multilateral Trading Facility
2.2.29.1.General description
Operating a Multilateral Trading Facility or “MTF” is listed in section 28 of Schedule 1 of GEN, where MTF means a system which brings together multiple third parties buying and selling Investments, rights or interests in Investments, in accordance with its non-discretionary rules, in a way that results in a contract in respect of such Investments.
For more details see AIFC Multilateral and Organised Trading Facilities Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | To be completed | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | - | |
Type of currency: | To be completed | |
Transaction implications | - | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2. of AIFC Rules on Currency Regulation may apply (subject to the adoption of the proposal). |
For more details see Chapter 4 of PERG.
2.2.28.2.Exclusions
A Person does not operate a Trading Facility if it operates a facility which is an order routing system where buying and selling interests in, or orders for, financial instruments are merely transmitted but do not interact or consummate a trade.
2.2.29.Operating an Organised Trading Facility
2.2.29.1.General description
Operating an Organised Trading Facility or “OTF” is listed in section 29 of Schedule 1 of GEN, where OTF means a system which brings together multiple third parties buying and selling Investments, rights or interests in Investments, in accordance with its discretionary rules, in a way that results in a contract in respect of such Investments.
For more details see AIFC Multilateral and Organised Trading Facilities Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | To be completed | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | - | |
Type of currency: | To be completed | |
Transaction implications | Not applicable. | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2. of AIFC Rules on Currency Regulation may apply (subject to the adoption of the proposal). |
For more details see Chapter 4 of PERG.
2.2.29.2.Exclusions
A Person does not operate a Trading Facility if it operates a facility which is an order routing system, where buying and selling interests in, or orders for, financial instruments are merely transmitted but do not interact or consummate a trade.
2.3.Becoming regulated as an Ancillary Service Provider
2.3.1.Providing Legal Services
2.3.1.1.General description
Providing Legal Services is listed in section 1 of Schedule 2 of GEN. It includes:
- (a)giving legal advice or counsel; or
- (b)drafting or completion of legal documents or agreements; or
- (c)representation in court proceedings or in an administrative adjudicative procedure in which legal pleadings are filed or a record is established as the basis for judicial review; or
- (d)negotiation of legal rights or responsibilities; but excluding acting as a lay representative authorised by an administrative agency or tribunal, serving as a judge, mediator, arbitrator, conciliator or facilitator; and participation in employment negotiations, arbitrations or conciliations.
Rule 1.3.3. of GEN establishes a statutory requirement on registration of at least one (1) employee as a Legal Adviser with the AIFC Legal Services Board for a Person to be eligible to receive a Licence from the AFSA to carry on an Ancillary Service of Providing Legal Services.
With the commencement of Rule 13.3 of COB on 3 May 2023, Ancillary Service Providers licensed to carry on an Ancillary Service of Providing Legal Services will be required at all times to employ at least one (1) Legal Adviser registered with the AIFC Legal Services Board to be eligible to maintain their Licence.
The regime of registration and regulation of Legal Advisers by the AIFC Legal Services Board operates in accordance with the AIFC Legal Services Regulations and Rules of the AIFC Legal Services Board. For more information follow the link: https://aifc.kz/en/legal-services-regulation.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Legal services | |
Relevant reference to Schedule 3 to the AIFC Rules on Currency Regulation: | 1. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a professional service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.4.1. of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.3.1.2.Exclusions
There are none.
2.3.2.Providing Audit Services
2.3.2.1.General description
Providing Audit Services is listed in section 2 of Schedule 2 of GEN. It means:
- (a)performing audit, examination, verification, investigation, certification, presentation or review of financial transactions and accounting records; and
- (b)preparing or certifying reports on audits or examinations of books or records of account, balance sheets, and other financial, accounting and related documents.
For more details see AIFC Auditor Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Audit services | |
Relevant reference to Schedule 3 to the AIFC Rules on Currency Regulation: | 2 | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a professional service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.4.1. of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.3.2.2.Exclusions
There are none.
2.3.3.Providing Accountancy Services
2.3.3.1.General description
Providing Accountancy Services is listed in section 3 of Schedule 2 of GEN. It includes:
- (a)advising on matters relating to accounting procedure; and
- (b)recording, presentation or certification of financial information or data, including financial information or data required by any law for the time being in force in the AIFC.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Accounting services | |
Relevant reference to Schedule 3 to the AIFC Rules on Currency Regulation: | 3 | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: only foreign currency Via second-tier banks: any currency | |
Currency reporting | No specific reporting for a professional service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.4.1. of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.3.3.2.Exclusions
There are none.
2.3.4.Providing Consulting Services
2.3.4.1.General description
Providing Consultancy Services is listed in section 4 of Schedule 2 of GEN. It means providing expert knowledge or advice on a particular topic.
Consultancy Services may include the activity of Company service providers. For additional details on Company Service Providers see AIFC Glossary .
The Guidance on Providing Consultancy Services in the AIFC includes, by way of example the following list of services, which require obtaining authorisation from the AFSA:
- (1)Compliance, regulatory, due diligence and risk consultancy (including Shari’ah compliance consultancy);
- (2)Management and business consultancy (including market research) related to Financial Services;
- (3)Tax consultancy;
- (4)Company Service Provider
Currency regulation implications
Subject to the general currency regulation legislation of the Republic of Kazakhstan.
For more details see Chapter 4 of PERG.
2.3.4.2.Exclusions
There are none.
2.3.5.Providing Credit Rating Services
2.3.5.1.General description
Providing Credit Rating Services is listed in section 5 of Schedule 2 of GEN. It means:
- (a)analysis or evaluation of information carried on with a view to issuing or reviewing a Credit Rating; or
- (b)issuing or reviewing a Credit Rating.
Credit Rating is an opinion regarding the creditworthiness of an entity, Security, debt or other financial obligation which is disseminated to the public or distributed to a Person by subscription and expressed using an established and defined ranking system regarding the creditworthiness of the rating subject.
Currency regulation implications
Subject to the general currency regulation legislation of the Republic of Kazakhstan.
For more details see Chapter 4 of PERG.
2.3.5.2.Exclusions
There are none.
2.4.Becoming regulated as an Authorised Market Institution
2.4.1.Operating an Exchange
2.4.1.1.General description
Operating an Exchange is listed in section 1 of Schedule 4 of GEN.
It means operating a facility which functions regularly and brings together multiple third party buying and selling interests in Investments, in accordance with its non-discretionary rules, in a way that can result in a contract in respect of Investments admitted to trading or traded on the facility.
For more details see AIFC Authorised Market Institution Rules.
Currency regulation implications
Pursuant to paragraph 2 of Article 5 of the Constitutional Statute on AIFC monetary obligations of trading members on the stock exchange are expressed and executed in currencies determined by the rules of the stock exchange.
For more details see Chapter 4 of PERG.
2.4.1.2.Exclusions
There are none.
2.4.2.Operating a Clearing House
2.4.2.1.General description
Operating a Clearing House is listed in section 2 of Schedule 4 of GEN. It means operating a facility where confirmation, clearance or settlement of transactions in Investments are carried out in accordance with the non-discretionary rules of the facility, under which the Person operating the facility:
- (a)either becomes a Central Counterparty (“CCP”); or
- (b)provides a book-entry Securities Settlement System (“SSS”), regardless of whether or not such a Person also operates a Central Securities Depository.
Acting as a Central Securities Depository means holding Investments in uncertificated (dematerialised) form to enable book entry transfer of such Investments for the purposes of clearing or settlement of transactions on its own facility and on any other similar facility.
For the meaning of “confirmation”, “clearance”, and settlement see GEN. For more details also see AIFC Authorised Market Institution Rules.
Currency regulation implications
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | Settlement depository services of the Astana International Exchange Central Securities Depository Limited in respect to all securities included in the official list of the Astana International Exchange Limited | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | 3.4.3. | |
Type of currency: | Any currency | |
Transaction implications | Via AIFC Banks: foreign currency Via second-tier banks: any currency | |
Currency reporting | Quarterly (no later than the 10th day of the month following the reporting month) reports on securities to the AFSA in accordance with Annex 3 to Schedule 5. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2. of AIFC Rules on Currency Regulation applies. |
For more details see Chapter 4 of PERG.
2.4.2.2.Exclusions
There are none.
2.4.3.Operating a Digital Asset Trading Facility
2.4.3.1.General description
Operating a Digital Asset Trading Facility is listed in paragraph 3 of Schedule 4 of GEN. It means operating a facility which functions regularly and brings together multiple parties
- (a)to buy, sell or exchange Digital Assets for a Fiat currency; or
- (b)to exchange one Digital Asset for another Digital Asset, in its Facility, in accordance with its non-discretionary rules.
Fiat currency means a currency which is issued by or on behalf of the government in its country (or countries) of issuance, and which is designated as legal tender in that or those countries through government decree, regulation or law.
Digital Asset has the same meaning as Private Electronic Currency or Private E-money and means a digital representation of value that:
- (1)can be digitally traded and functions as (a) a medium of exchange; or (b) a unit of account; or (c) a store of value;
- (2)can be exchanged back-and-forth for Fiat Currency, but is neither issued nor guaranteed by the government of any jurisdiction; and
- (3)fulfils the above functions only by agreement within the community of users of the Digital Asset; and, accordingly
- (4)is to be distinguished from Fiat Currency and E-money.
For more details see AIFC Authorised Market Institution Rules.
Currency regulation implications
To be completed
For more details see Chapter 4 of PERG.
2.4.3.2.Exclusions
There are none.
2.4.4.Operating a Loan Crowdfunding Platform
2.4.4.1.General description
Operating a Loan Crowdfunding Platform is listed in section 4 of Schedule 4 of GEN. It means:
(a)operating an electronic platform that facilitates the bringing together of potential lenders and Borrowers; and
(b)administering a loan agreement that results from operating the electronic platform.
For the meaning of “administering a loan agreement” and “electronic platform” see GEN. For more details see AIFC Authorised Market Institution Rules.
Currency regulation implications
To be completed
For more details see Chapter 4 of PERG.
2.4.4.2.Exclusions
There are none.
2.4.5.Operating an Investment Crowdfunding Platform
2.4.5.1.General description
Operating an Investment Crowdfunding Platform is listed in section 5 of Schedule 4 of GEN. It means:
- (a)operating an electronic platform that facilitates the bringing together of potential Investors and Issuers who wish to obtain funding for a business or project, resulting in an Investor obtaining an Investment from the Issuer seeking funding; and
- (b)administering an Investment that results from operating the electronic platform.
Operating an Investment Crowdfunding Platform also includes making arrangements for an Investor to sell its Investment.
For the meaning of “administering an Investment” and “electronic platform” see GEN.
It is also possible to operate several types of crowdfunding platforms. For this see guidance in section 5 of Schedule 4 of GEN.
For more details see AIFC Authorised Market Institution Rules.
Currency regulation implications
To be completed
For more details see Chapter 4 of PERG.
2.4.5.2.Exclusions
There are none.
2.4.6.Operating a Private Financing Platform
2.4.6.1.General description
Operating a Private Financing Platform is listed in section 6 of Schedule 4 to GEN. It means operating an electronic platform which brings together multiple third parties directly or indirectly buying an instrument acknowledging or creating indebtedness arising from the supply of goods or the delivery of services, and includes:
- (a)entering into an arrangement with a party for the purpose facilitating the activity above whether through an intermediary investment vehicle or otherwise;
- (b)facilitating an arrangement described in (a); or
- (c)holding or controlling Client Money or Arranging Custody in connection with an arrangement described above.
For more details see AIFC Authorised Market Institution Rules.
Currency regulation implications
To be completed
For more details see Chapter 4 of PERG.
2.4.6.2.Exclusions
There are none.
2.5.Becoming regulated as a FinTech Lab participant
2.5.1.Activities performed in FinTech Lab
2.5.1.1.General description
Pursuant to GEN 1.4.1. the following activities can be performed in FinTech Lab:
- (a)the Regulated or Market Activities that are specified in Schedule 1 and 4 of GEN can be carried on by a Person subject to the terms and Licence issued under AIFC Financial Technology Rules.
- (b)a Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on activities not specified in (a).
- (c)for the purposes of (b), the AFSA may grant a Licence for a Person to carry on activities as specified in the Licence.
FinTech means technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services.
The FinTech Lab is a regulatory environment within the AIFC that allows a Person to Test or Develop the FinTech Activities without being immediately subject to the full set of regulatory requirements under the FSFR and AIFC Financial Technology Rules.
For eligibility criteria for Testing and Developing the FinTech Activities, Licence requirements and possible waivers see AIFC Financial Technology Rules.
Currency regulation implications
If you plan to
Are you planning to offer your services to legal entities or natural persons – residents of Kazakhstan that are not AIFC Participants? | ||
Yes: | Your services will be subject to the AIFC Rules on Currency Regulation: | |
Name of allowed activity: | See sections 2.2 and 2.3. of PERG for a relevant Regulated or Market Activity. | |
Relevant reference to Schedule 2 to the AIFC Rules on Currency Regulation: | Not applicable | |
Type of currency: | Not applicable | |
Transaction implications | Not applicable | |
Currency reporting | No specific reporting for a financial service. Transactional reporting may be applicable (see Chapter 4 of PERG for more details). | |
No: | Subrule 3.3.2. of AIFC Rules on Currency Regulation may apply. |
For more details see Chapter 4 of PERG.
2.5.1.2.Exclusions
There are none.
3. FINANCIAL PROMOTION AND COMMUNICATION
3.1.AFSA’s approach to financial promotion
Pursuant to section 27(1) of the FSFR a “Financial Promotion” is any communication (made via any medium including brochures, telephone calls and presentations) the purpose or effect of which is:
- (a)to promote or advertise (i) Investments or (ii) any Regulated Activity; or
- (b)to invite or induce any Person (i) to enter into an agreement with any Person in relation to Investments or (ii) to engage in any Regulated Activity.
A Centre Participant may not make a Financial Promotion except as provided by or under the FSFR and Rules relating to the circumstances in which a Centre Participant may make, or will be deemed to make, a Financial Promotion, and the form and content of such Financial Promotion.
3.1.1.Requirements for communications
Pursuant to section 3.2.1. of the COB an Authorised Firm must ensure that:
- (a)any communication with a Client in relation to a Financial Product or Financial Service; or
- (b)any Financial Promotion that it communicates or approves,
is fair, clear and not misleading.
A “communication” includes:
- (a)a Financial Promotion;
- (b)a client agreement;
- (c)terms of business;
- (d)Financial Product terms and conditions;
- (e)a mandate;
- (f)a power of attorney entered into for the purposes of a Financial Product or Financial Service; and
- (g)any other communication which relates in whole or in part to the provision of a Financial Product or Financial Service.
3.1.2. Financial Promotions
Pursuant to section 27 of the FSFR an unauthorised Person must not make a Financial Promotion in relation to a Regulated Activity or Market Activity.
There are three circumstances for making Financial Promotions pursuant to COB 3.3.1:
- (1)if they are made by Authorised Firms;
- (2)if their content was approved by an Authorised Firm; or
- (3)the communication is considered as Exempt Financial Promotion.
For the Purposes of COB 3.3.1. a person who makes Financial Promotion is called “Authorised Promoter”.
Any Authorised Firm must either have authorisation from the AFSA or fall within an exemption conferred by the AIFC Acts before it approves the content of a Financial Promotion.
Approval must be intended to allow unauthorised Firms to transmit Financial Promotions without breaching the restriction. Although the requirement is that approval relates to the content of communications, approval should relate specifically to that part of a communication which promotes an invitation or inducement as opposed to the whole communication.
Before Authorised Firms give their approval to unauthorised Firms, they need to make sure that promotions comply with the relevant conduct rules contained in COB (including the promotions to be fair, clear and not misleading).
Authorised Firms must not approve financial promotions if the promotions will be made in the course of a personal visit, telephone conversation or other interactive dialogue.
When an Authorised Firm approves a financial promotion, it must ensure that the promotion is fair, clear, and not misleading. If at a later stage they find out that promotions which they have approved no longer comply with the rules, they must withdraw their approval and notify anyone who is relying on it as soon as possible.
An Authorised Firm that communicates or approves a financial promotion must have put in place adequate systems and controls, or policies and procedures, to comply with COB.
In addition, a firm must ensure that information presented is accurate and always gives a fair and prominent indication of any relevant risks when referencing any potential benefits.
The following key elements must be considered to determine whether there is a Financial Promotion:
- (a)is there an invitation or inducement?
- (b)has it been communicated?
- (c)is it made during the course of business?
- (d)is the purpose or effect of the communication that a person will engage in investment activity or any Regulated Activity?
Under the Financial Promotion regime, promotions can be real time or non-real time, and real time promotions are subdivided to solicited or unsolicited promotions.
Real time promotion
Real-time promotions are promotions made in the course of a personal visit, telephone conversation or other interactive dialogue. Scope for interaction is essential if a Financial Promotion is to be a real-time communication. For example, a telephone call is not the same thing as a telephone conversation. A call can be made by an intelligent automated machine asking questions, however, this is not an interactive dialogue any more than a questionnaire or electronic decision tree. Broadly speaking, a real-time communication is one which enables interaction at the time it is made.
Non-real time promotion
Non-real-time promotions are promotions which are not real-time communications. They include dialogues which take place by letter, email or in a publication. In this context a “publication” includes newspapers, journals, magazines or other periodical publications, websites or similar systems for the electronic display of information, television or radio programmes and teletext services.
Meetings and presentations will be real-time communications, however slides, handouts and other visual aids made available during presentations and meetings will be non-real-time communications. Other communications which may exist in enduring form and which will be non-real-time communications include videos, audio cassettes, bulletin boards, websites and recorded telephone messages. Messages placed on internet chat-rooms will also be non-real-time communications.
Radio or television programmes or teletext services may contain communications that involve an interactive dialogue, for example, a communication made by the broadcaster and addressed to an interviewee studio guest, a member of the audience or a person who speaks to the broadcaster by telephone. However, these will always be non-real-time communications.
The Financial Promotion restriction is meant to catch the activities of people, rather than the media through which the activity in question is conducted, and is intended to be media-neutral. Internet publications are therefore treated in the same way as documents posted to specific recipients or published in newspapers as they are non-real time promotions.
Solicited real time promotion
A solicited real-time financial promotion is a communication made in the course of a personal visit, telephone conversation or other interactive dialogue which:
- (a)is initiated by the recipient, or
- (b)takes place in response to an express request from the recipient of the communication.
Real-time communications will only be solicited if it is clear from all the circumstances that they concern the kind of controlled activities or investments envisaged by the recipient at the time they initiate or request the communication. All the circumstances in which a call, visit or dialogue is requested or initiated need to be taken into account.
Unsolicited real time promotion
An unsolicited real-time promotion is the regulatory term for a cold call and it is defined as real-time communications which is not solicited.
More detailed definition, examples of and restrictions with regard to Unsolicited Real Time Financial Promotions are given in COB 3.4.
Promotion by crowdfunding platform
Pursuant to Rule 7.3.9 of the AIFC Authorised Market Institution Rules an Authorised Crowdfunding Platform must not advertise a specific lending or Investment proposal that is available on the Authorised Crowdfunding Platform. The Authorised Crowdfunding Platform must take reasonable steps to ensure that Borrowers or Issuers that use platform do not advertise the lending or Investment proposal, unless the advertisement is made on the platform and is accessible only to existing Clients who use the Authorised Crowdfunding Platform.
3.1.3. Exempt Financial Promotions
For the purposes of COB 3.3.1(c), a communication is an exempt Financial Promotion if it is:
- (a)directed at and capable of acceptance exclusively by a Person who is believed by the Person making the Financial Promotion, on reasonable grounds, to be a Professional Client or Market Counterparty;
- (b)made to a Person as a result of an unsolicited request by that Person to receive the Financial Promotion;
- (c)made or issued by or on behalf of a government or non-commercial government entity, (including a central bank);
- (d)made by a Person in the course of providing legal or accountancy services and may reasonably be regarded as incidental to and a necessary part of the provision of such services;
- (e)included in a Prospectus approved by the AFSA in accordance with MAR; or
- (f)included in any document required or permitted to be published under the Listing Rules.
A communication is exempt from the provisions related to Unsolicited Real Time Financial Promotions when it is an image advertising consisting of:
- (a)the name of the Authorised Promoter;
- (b)a logo or other image associated with the Authorised Promoter;
- (c)a contact point; and
- (d)a reference to the types of Financial Product or Financial Service provided by the Authorised Promoter, or to its fees.
3.1.4. Other exclusions from the Financial Promotions Prohibition
The requirements with regard to Financial Promotions do not apply to certain categories of Centre Participants:
- (a)a Representative Office;
- (b)a MTF Operator and an OTF Operator.
Provisions with regard to Unsolicited Real Time Financial Promotions do not apply to Market Counterparty Business.
4. CURRENCY REGULATION
4.1.Currency residency in the AIFC
AIFC Rules on Currency Regulation recognise the following persons as residents:
- (a)AIFC Participants;
- (b)individuals and legal entities, as well as branches (and representative offices) of foreign entities recognised as residents under the Law of the Republic of Kazakhstan "On Currency Regulation and Currency Control".
This chapter outlines the regulator’s approach to currency regulation in the AIFC of services provided by AIFC Participants, and transactions of AIFC banks.
4.2.Currency regulation for AIFC participants
4.2.1.Services of AIFC participants (except AIFC banks)
4.2.1.1. General description
AIFC Rules on Currency Regulation define conditions and procedure for provision of financial and related services, and provision of professional services.
Transactions related to these services can be performed via bank accounts of the AIFC participants opened in second-tier banks of Kazakhstan or AIFC Banks.
The list of financial and related services is given in Schedule 2 of the AIFC Rules on Currency Regulation.
The list of professional services is given in Schedule 3 of the AIFC Rules on Currency Regulation.
4.2.1.2. Types of services
Provision of financial and related services to other AIFC participants (residents) and non-residents
AIFC participants have the right to provide financial services to other AIFC participants and non-residents in accordance with their AFSA licence in national or foreign currency.
The requirements are listed in section 3.3.2. of the AIFC Rules on Currency Regulation and basically require:
- (i)using bank accounts in second-tier banks of Kazakhstan for financial services to be rendered both in national and foreign currency; and
- (ii)using bank accounts in AIFC banks for financial services to be rendered in foreign currency only.
Provision of professional services to other AIFC participants (residents) and non-residents
AIFC participants have the right to provide professional services to other AIFC participants and non-residents in accordance with the list approved by AFSA, in any currency.
The requirements are listed in section 3.4.1. of the AIFC Rules on Currency Regulation and follow the same approach:
- (i)using bank accounts in second-tier banks of Kazakhstan for professional services to be rendered both in national and foreign currency; and
- (ii)using bank accounts in AIFC banks for professional services to be rendered in foreign currency only.
Provision of financial and related services to residents that are not AIFC participants
AIFC participants provide financial and related services to residents that are not AIFC participants in accordance with the list of financial services and in the currency set out in Schedule 2 to the AIFC Rules on Currency Regulation, subject to the Acting Law of the AIFC or legislation of Kazakhstan.
The requirements are listed in section 3.3.3. of the AIFC Rules on Currency Regulation and follow the same approach:
- (i)using bank accounts in second-tier banks of Kazakhstan for financial and related services to be rendered both in national and foreign currency; and
- (ii)(ii) using bank accounts in AIFC banks for financial and related services to be rendered in foreign currency only.
Provision of professional services to residents that are not AIFC participants
AIFC participants have the right to provide professional services in any currency to residents that are not AIFC participants in accordance with the list set out in Schedule 3 the AIFC Rules on Currency Regulation.
The requirements are listed in section 3.4.1. of the AIFC Rules on Currency Regulation and follow the same approach:
- (i)using bank accounts in second-tier banks of Kazakhstan for financial and related services to be rendered both in national and foreign currency; and
- (ii)using bank accounts in AIFC banks for financial and related services to be rendered in foreign currency only.
1.2.1.3. Prohibitions
The following transactions can be carried out only via bank accounts of AIFC Participants opened in second-tier banks of Kazakhstan:
(i)related to export or import of goods, works, services;
(ii)exchange transactions using the national currency;
(iii)transactions subject to assignment of registration number in accordance with the currency legislation of Kazakhstan.
4.2.2.Transactions of AIFC banks
4.2.2.1. General description
AIFC Rules on Currency Regulation define conditions and procedures for the currency transactions provided by the following AIFC banks:
- (a)AIFC banks that are not Islamic Banks;
- (b)AIFC banks that are Islamic Banks.
4.2.2.2. Types of transactions
Performed by AIFC banks, including Islamic Banks
AIFC banks, including Islamic banks, have the right to:
- (a)open bank accounts in other banks, including foreign banks, and transfer own funds using such bank accounts in national or foreign currency (subject to the requirements in the acting AIFC Law and legislation of Kazakhstan);
- (b)open bank accounts for residents that are AIFC participants and non-residents (opening of savings (deposit) account for residents is prohibited to AIFC banks) and make payments or money transfers using such accounts (subject to the requirements set out in the AIFC Rules on Currency Regulation);
- (c)open correspondent accounts in the second-tier banks of Kazakhstan in accordance with the procedure established by the legislation of Kazakhstan and carry out transactions using such correspondent accounts (subject to the requirements set out in the AIFC Rules on Currency Regulation or the legislation of Kazakhstan);
- (d)open savings (deposit) accounts in foreign currency for non-residents, and AIFC participants the controlling shareholder of which is non-resident;
- (e)carry out transactions envisaged by Schedule 4 to AIFC Rules on Currency Regulation through their correspondent accounts in national currency in second-tier banks of Kazakhstan.
AIFC Islamic Banks have the right to:
- (a)open bank accounts in the national currency for residents, including AIFC participants and non-residents;
- (b)open savings (deposits) accounts for residents (including AIFC participants), subject to the provisions in subparagraph (d) of paragraph 3.1.3 of the AIFC Rules on Currency Regulation.
4.2.2.3. Prohibitions
AIFC banks that are not Islamic Banks
AIFC banks are prohibited to:
- (a)open bank accounts in the national currency for residents (including AIFC participants), and non-residents;
- (b)open savings (deposits) accounts for residents (including AIFC participants);
- (c)carry out transactions of residents related to export or import of goods, works, services, or transactions subject to assignment of registration number in accordance with the currency legislation of the Republic of Kazakhstan;
- (d)carry out exchange transactions under instructions of clients using national currency, except for the cases of executing the instructions of clients as part of transactions set out in Schedule 4 to the AIFC Rules on Currency Regulation;
- (e)make payments or money transfers with respect to the services which are, under the Acting Law of the AIFC or the legislation of RK, prohibited to be provided by AIFC participants to residents that are not AIFC participants;
- (f)provide services to residents that are not AIFC participants, the provision of which by AIFC banks is prohibited in accordance with the Acting Law of the AIFC or the legislation of RK; and
- (g)carry out transactions through correspondent accounts in the national currency in STBs of RK that are not in the list set out in Schedule 4 to these Rules.
AIFC banks that are Islamic Banks
Islamic banks of the AIFC are prohibited to:
- (a)carry out transactions of residents related to export or import of goods, works, services or transactions subject to assigning of registration number in accordance with the currency legislation of the Republic of Kazakhstan;
- (b)carry out exchange transactions under instruction of clients using the national currency;
- (c)make payments or transfers of clients' money for the services not related to Islamic financing;
- (d)provide services to residents that are not AIFC participants, the provision of which by Islamic banks of the AIFC is prohibited in accordance with the Acting law of the AIFC or the legislation of RK.
4.2.3.Transactions of non-AIFC participants (except non-AIFC banks)
4.2.3.1. General description
Residents of Kazakhstan that are not AIFC participants are legal entities and individual residents of the Republic of Kazakhstan.
4.2.3.2. Prohibitions
Residents that are not AIFC participants, are prohibited to carry out the following transactions through the AIFC Banks:
- (a)related to export or import of goods, works, services;
- (b)exchange transactions using the national currency;
- (c)transactions subject to assignment of registration number in accordance with the currency legislation of Kazakhstan.
4.2.4. Transactions of non-AIFC banks
Transactions of non-AIFC banks are not regulated by the AIFC Rules on Currency Regulation.
4.2.5. Payments or money transfers on transactions of residents and non-residents in the AIFC
Section 4 of the AIFC Rules on Currency Regulation contains provisions regulating payments or money transactions of residents and non-residents in the AIFC.
Such payments or money transfers on foreign exchange transactions are carried out through bank accounts in AIFC banks or the second-tier banks of Kazakhstan.
Bank transfers between the AIFC bank from the accounts of the AIFC participants to their accounts in a second-tier bank of Kazakhstan and vice-versa are made in foreign currency.
Section 4.3 of the AIFC Rules on Currency Regulation sets conditions for payments or money transfers for client transactions.
The list of identifying documents and information to be provided to the AIFC bank by the client includes the following documents and information:
- (a)currency contract (for transactions in the equivalent of over USD 10,000);
- (b)BIN;
- (c)if the client is a legal entity or an organisation that is not legal entity - documents defining the country of registration and the founders of the entity or organisation, if these documents have not been submitted or have been changed.
The AIFC bank must have sufficient identification information about the client to determine the client’s residency, link to the AIFC public register and, if applicable, client’s status as an AIFC participant as listed in section 4.3.(b) of the AIFC Rules on Currency Regulation.
The information considered as sufficient identification information about the client is listed in section 4.3.(c) of the AIFC Rules on Currency Regulation.
Section 4.3. (d) sets the conditions when the AIFC bank must refuse to make a payment or to transfer money to the client.
4.2.6. Exchange transactions in the AIFC
A purchase or sale of foreign currency can be carried out only through AIFC banks or second-tier banks of Kazakhstan under the following requirements:
- (a)a request needs to indicate the purpose of the transaction;
- (b)when performed with non-cash foreign currency for the national currency it is carried out solely through second-tier banks of Kazakhstan;
- (c)when performed with non-cash foreign currency for other non-cash foreign currency it can be carried out through AIFC banks or second-tier banks of Kazakhstan;
- (d)when performed with foreign currency in cash it is carried out through second-tier banks of Kazakhstan or through legal entities authorised by the National Bank of Kazakhstan.
4.3.Currency reporting of AIFC participants
4.3.1.Reporting on services
Annex 3 to Schedule 5 to the AIFC Rules on Currency Regulation require AIFC participants providing depository and brokerage services in accordance with their AFSA Licence submitting quarterly (no later than the 10th day of the month following the reporting month) reports on securities to the AFSA.
The information is provided electronically through secure communication channels with confirmation by an electronic digital signature.
There is no other service specific reporting under the AIFC Rules on Currency Regulation.
4.3.2.Reporting on transactions
AIFC Participants must provide information for the purposes of currency regulation with regard to the following:
- (a)information on payments and (or) money transfers on currency transactions carried out by AIFC banks, including on behalf of clients, as well as by a second-tier bank of Kazakhstan on behalf of AIFC participants;
- (b)information on resident clients' transactions and the status of their accounts provided by AIFC banks;
- (c)information on deals and transactions carried out by AIFC participants, including on behalf of clients, that affected the change in requirements for non-residents and obligations in front of them;
- (d)information on transactions with securities and derivatives carried out by AIFC participants with non-residents;
- (e)information on income accrued and received from foreign exchange transactions with financial instruments of AIFC participants.
The information is provided electronically through secure communication channels with confirmation by an electronic digital signature.
The AIFC participant provides the AFSA with information on the contract, on the basis of and pursuant to which capital movement transactions are carried out, for an amount equal to or exceeding the equivalent of USD 500,000, in accordance with Annex 4 to Schedule 5 to the AIFC Currency Rules. The information is provided before the expiration of 30 (thirty) calendar days from the date of commencement of payments under this contract.
5. UNREGULATED ACTIVITIES
5.1.AFSA’s approach to unregulated activities
5.1.1.AIFC Participants
While Persons applying to carry on Regulated Activities, Market Activities, Ancillary Services, and FinTech Lab Activities must be authorised, and must be registered/incorporated in the AIFC, not all companies registered/incorporated in the AIFC require an authorisation.
Those activities that are not listed as Regulated Activities, Market Activities, Ancillary Services and FinTech Lab Activities, could be registered/incorporated without authorisation.
5.1.2. Non-AIFC Participants
The Astana International Finance Centre is not the exclusive preserve of the AIFC Participants. Non-AIFC Participants established inside the territorial (geographical) boundary of the AIFC in the city of Astana can carry on trading, even in financial services, under the general law of the Republic of Kazakhstan and still remain unconnected to the AIFC. These others, in governing their affairs, remain subject to the Acting Law of Kazakhstan. Banks and other financial institutions can stay in the Centre without joining the Centre’s legal arrangements but complying with the general requirements in Kazakhstan concerning financial regulating in particular. Unless they register as the AIFC Participants, or make Financial Promotion the regulatory regime of the AFSA will not extend to them.
6. MISCELLANEOUS
Certain AIFC Participants who are not authorised or licensed by the AFSA will be subject to the AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules if their activities constitute them being Designated Non-Financial Business and Profession (DNFBPs).
The following class of persons whose business or profession is carried on in or from the AIFC constitute DNFBPs:
- (a)A real estate developer or agency which carries out transactions with a customer involving the buying or selling of real property;
- (b)A dealer in precious metals or precious stones;
- (c)A dealer in any saleable item of a price equal to or greater than USD 15,000
- (d)A law firm, notary firm, or other independent legal business;
- (e)An accounting firm, audit firm, or insolvency firm; or
- (f)A Company service provider; or
- (g)A Single Family Office.
Be reminded that a person who is an Authorised Person or a Registered Auditor is not a DNFBP.
The AFSA may conduct reviews and inspections of DNFBPs to perform its AML and CFT responsibilities, including as part of its risk-based approach to supervision. In addition, DNFBPs must provide an annual AML return to the AFSA.
Consultation Paper on Proposed Amendments to the AIFC Rules on Currency Regulation and provision of information on currency transactions in the AIFC
Please, press “PDF” button above to download a Consultation Paper
Introduction
Why are we issuing this Consultation Paper (CP)?
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed amendments to the AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC.
Who should read this CP?
2.The proposals in this paper will be of interest to current and potential AIFC participants, second-tier banks and other Persons who work within the AIFC or have currency transactions with AIFC participants or AIFC Bodies or/and organisations.
Terminology
3.Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in the Glossary Rules (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4.We invite comments from interested stakeholders on the proposed framework. All commentsshould be in writing and sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper AFSA-G-CE-2023-0001” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5.The deadline for providing comments on the proposed framework is 03 July 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6.AFSA prefers to receive comments by email at consultation@afsa.kz
Comments may also be posted to:
Governmental Relations Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Proposals;
Part III – Questions in this consultation paper;
Annex 1 – Proposed amendments to the AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC.
Part I - Background
1.The Astana Financial Services Authority ("AFSA") intends to enhance the legislative framework of Astana International Financial Centre (“AIFC”) governing AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (“the Rules”).
2.The proposed amendments in this consultation paper contain the following proposals from existing AIFC participants stemming from the practical application of the Rules and further enhancements developed internally within AFSA:
- A.Covering identified gaps;
- B.Extension of the list of financial services that AIFC participants may provide to residents;
- C.Extension of banking services and currency transactions;
- D.Provision of information on currency transactions within the AIFC;
- E.Editorial changes and clarifications.
Part II - Proposals
Gaps
Within one year of implementing the Rules, AFSA identified gaps that need to be addressed. For instance, one major concern arose regarding second-tier banks ("STBs"), as AIFC participants were unable to make payments to AFSA in foreign currency as stipulated in the AIFC Fees Rules. This issue stemmed from the absence of provisions covering AIFC Bodies as a subject of the Rules.
Another issue faced by AIFC participants was the difficulty in forming a company's share capital in foreign currency. The AIFC Companies Regulations do not impose any restrictions on forming the share capital in foreign currency. Additionally, Article 43(3)(a) of the AIFC Companies Regulations mandates that a Public Company must have an issued and allotted share capital (excluding treasury shares) of no less than USD 100,000 at any given time. However, STBs refused to allow AIFC participants to form the share capital in USD or any other foreign currency through their current banking accounts. This was due to the absence of explicit provisions in the Rules regarding such transactions. As a result, the STBs relied on the "On Currency Regulation and Currency Control" law, which prohibits such transactions between two residents.
Additionally, the Rules include a clause that allows AIFC banks to open correspondent accounts in STBs. However, the currency of these correspondent accounts is not specified, leading to uncertainty and the need for clarification.
In the current version of the Rules there is no clause that regulates currency transactions between AIFC bodies, AIFC participants and their employees. Article 5(1) of the Constitutional Statute permits AIFC Participants to denominate and fulfill their monetary obligations in the currencies agreed upon in their contracts. Furthermore, the AIFC Employment Regulations do not impose any restrictions on the currency in which wages should be paid within the AIFC. Therefore, it was proposed to make the specific amendment to the Rules.
The section regulating the provision of information on currency transactions lacked measures specifically tailored for AIFC participants, particularly concerning the absence or late submission of zero-value reports. To address this issue and ensure compliance, a proposal was made to introduce a clause granting AFSA the authority to impose enforcement measures.
Extension of financial services that AIFC participants may provide to residents that are not AIFC participants
Banking
In the current version of the Rules, it is unclear whether AIFC Islamic banks are permitted to offer deposits to residents who are not AIFC participants in any currency. This lack of clarity creates uncertainty for both customers and AIFC Islamic banks.
Also, to extent the powers of AIFC Islamic banks it was proposed to allow them to make payments and transfers of clients' money for the services that comply with principles of Islamic financing.
In the AIFC there are business models of banks that offer potential lending opportunities for the businesses in Kazakhstan. However, to extent loan possibilities it is necessary to enable lending against collateral provided by shareholders' funds deposited in savings accounts.
The Rules allow AIFC Islamic banks to offer Islamic banking and Islamic financing services. However, the current version of the document does not specifically mention Islamic financial organizations. To enhance Islamic financial services within the AIFC, AFSA has reached an agreement with the NBK to include this service in Schedule 2 of the Rules.
In Kazakhstan, there are programs aimed at developing the agricultural sector of the economy. However, AIFC participants who offer loans to the market have limitations on providing loans only in foreign currency. This poses an inconvenience for farms that primarily generate income in the national currency. As a solution, it has been proposed to include leasing services for legal entities in Kazakhstan, such as farms, individual entrepreneurs, and other business entities engaged in the agro-industrial complex in Schedule 2 of the Rules.
Digital assets
As per the Rules of the Pilot Project concerning the interaction between AIFC crypto exchanges and STBs, crypto exchanges are authorised to offer services to residents of the Republic of Kazakhstan. Currently, there are six crypto-exchanges and seven second-tier banks participating in the Pilot Project. Furthermore, to make digital services more comprehensive AFSA proposed to include dealer, broker, custody and investment management services with digital assets. Thus, it was proposed to include all these services to the Schedule 2 of the Rules.
Investment services
Currently, AIFC brokers do not have access to Kazakhstani securities unless they obtain a license from the ARDFM. To extend rights for AIFC participants, it has been proposed to introduce specific amendments that would grant AIFC brokers access to Kazakhstani securities without an ARDFM license.
Regarding depositary services in the Rules, there is a provision that restricts the holding of securities to those included in the official list of the AIX. However, some investors have expressed a desire to hold securities that are not listed on the AIX through a depositary governed by common law. The AIX CSD meets this requirement, enabling investors to expand their options. This development will enhance the functionality of AIX CSD.
Additionally, in order to increase the rights of fund managers of the AIFC, AFSA proposes to allow fund managers with AFSA license to provide managing investment services:
- in relation to securities of AIFC funds that are included in the list of AIX;
- access to retail investors, residents of the RK who are not AIFC participants.
Another AFSA initiative focuses on introduction of crowdfunding services to the Rules. On June 24, 2019, AFSA, with the support of the European Bank for Reconstruction and Development, developed the first-ever regulations on investment and loan crowdfunding in the region, giving impetus to the successful growth of crowdfunding activities at the AIFC. Currently, several crowdfunding platforms are registered at the AIFC. These amendments will expand the list of financial services and provide access for AIFC crowdfunding companies to operate in any currency in relation to residents of RK.
Trading platforms
Effective January 1, 2022, AFSA introduced regulations to govern the operations of Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs) within the AIFC. These rules provide a comprehensive framework for overseeing the activities of MTFs and OTFs, aiming to enhance transparency and accountability in the financial markets operating within the AIFC. Thus, there is a need to add these services to the AIFC currency framework and expand the list of financial services that will be available to residents that are not AIFC participants.
Provision of information on currency transactions within the AIFC
The second part of the amendments related to the procedure on provision of information on currency transactions within the AIFC. According to paragraph 5 of article 5 of the Constitutional Statute - AIFC acts, that impose requirements on AIFC participants in relation to the provision of information about currency transactions as well as the procedure for the transfer of information between AIFC Bodies and the NBK shall be developed with the agreement of the NBK.
During the implementation, NBK and AFSA identified several issues concerning the procedure for providing information on currency transactions within the AIFC. To address these concerns, it has been proposed to make amendments to the Rules in order to rectify the existing issues and ensure a more streamlined process for reporting currency transactions.
For instance, AFSA decided to introduce for all types of reporting provided by the AIFC participants an obligation to submit zero values reports to the AFSA in the absence of transactions, the provision of information on which is provided for by these Rules, during the reporting period.
It has been proposed to include 4 amendments of a technical and clarifying nature in Annex 2, 4, 5 of the Rules. Additionally, to Annex 4 included a new section 3 regarding other transactions of capital movements. At the same time, it should be highlighted that most amendments have been developed to Annex 3. Major amendments to Annex 3 includes:
- -changing the reporting form (from 8 to 14 sections)
- -changing the terms of the reporting (quarterly from 10th to 15th following the reporting month)
- -adding dealer and custody services to the report
- -adding contact information of the reporter.
Part III – Questions in this consultation paper
Do you agree with the proposed amendments to AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC? If not, what are your concerns, and how should they be addressed?
Disclaimer:
The proposals incorporated into this Consultation paper have been developed by AFSA, taking into account the established practices of AFSA’s divisions and previous requests made by AIFC participants. It is important to note that according to paragraph 3 of article 5 of the Constitutional Statute "On the AIFC" dated December 7, 2015 (N438-V ZRK), proposed amendments to the Rules are subject to the approval of the National Bank of the Republic of Kazakhstan.
Annex 1
PROPOSED AMENDMENTS TO THE AIFC RULES ON CURRENCY REGULATION
AND PROVISION OF INFORMATION ON CURRENCY TRANSACTIONS IN THE AIFC
In these amendments, underlining indicates a new text and strikethrough indicates a removed text
- General Provisions
1.1. ….
1.2. ….
1.3. These Rules have been developed in furtherance of paragraphs 3, 4 and 5 of Article 5 of the Constitutional Statute of the Republic of Kazakhstan "On the Astana International Financial Centre" dated December 7, 2015 No 438-V.
1.4. The provisions of these Rules apply to:
(a)the AIFC participants, AIFC Bodies and their organisations;
(b)the AIFC banks;
(c)residents and non-residents of RK carrying out the transactions with the AIFC participants, AIFC Bodies and their organisations or using bank accounts opened in the AIFC banks;
(d)STB of RK to the extent of transactions regulated by these Rules.
Transactions that are not regulated by these Rules are carried out by STB of RK in accordance with the legislation of RK and by the AIFC banks in accordance with the Acting Law of the AIFC.
1.5. ….
1.6. ….
2.Currency Residency in the AIFC
2.1 ….
3.Rights of the AIFC participants, the AIFC Bodies and their organisations. Transactions in the AIFC
3.1 Rights of the AIFC participants, the AIFC Bodies and their organisations
3.1.1 ….
3.1.2 ….
3.1.3 The AIFC banks, including Islamic banks of the AIFC, have the right to:
(а) ….
(b) ….
(с) open correspondent accounts in the STB of RK in the national and foreign currency in accordance with the procedure established by the legislation of RK and to carry out transactions using such correspondent accounts subject to the requirements set out in these Rules and (or) the legislation of RK;
(d) ….
(d-1) for Islamic banks of the AIFC to open savings (deposit) accounts that comply with the principles of Islamic financing in any currency for residents, including those who are the AIFC participants;
(e) ….
(f) open savings (deposit) accounts in foreign currency for residents to place funds on them as collateral for granted loans (within the permitted activities).
3.1.4 The AIFC banks (except for Islamic banks of the AIFC) are prohibited to:
…..
3.1.5 Islamic banks of the AIFC are prohibited to:
(a) ….
(b) ….
(c) make payments and (or) transfers of clients' money for the services not related to Islamic financing that do not comply with the principles of Islamic financing;
(d) ….
3.1.6 The AIFC participants that are investment funds or fund manager licensed by the AFSA within the regulated activities specified in section 3.5 of Schedule 2 of these Rules have right to carry out transactions with residents that are not AIFC participants in foreign currency:
a) for the acquisition and (or) sale of investment objects, within the framework of regulated activities;
b) to receive compensation for the value of lost investment objects of the fund, including compensation payments, insured events and fines in the framework of regulated activities.
3.2 Transactions of the AIFC Bodies, their organisations and the AIFC participants
3.2.1 Transactions between the AIFC participants, AIFC Bodies and their organisations are carried out in national or foreign currency, subject to the requirements stipulated by these Rules.
3.2.2 Transactions between the AIFC Bodies, their organisations or the AIFC participants (except for the AIFC banks) and non-residents are carried out in any currency at discretion of the parties in accordance with the requirements envisaged under the Acting Law of the AIFC and (or) the legislation of RK.
3.2.3 …
3.3 Provision of financial services by the AIFC participants
3.3.1 ….
3.3.2 The AIFC participants, except for the AIFC banks, have right to provide financial services to other AIFC participants, the AIFC Bodies, their organisations, and non-residents in accordance with the AFSA licence in national or foreign currency, subject to the following requirements:
- financial services to be rendered in the national currency are carried out using the bank accounts of the AIFC participants opened in STB of RK;
- financial services to be rendered in foreign currency are carried out using the bank accounts of the AIFC participants opened in the AIFC banks or STB of RK.
3.3.3 …..
3.4 Carrying out of transactions, related to provision of professional services by the AIFC participants
3.4.1 The AIFC participants provide professional services to other AIFC participants, the AIFC Bodies and their organisations and non-residents in accordance with the list approved by the AFSA, determined in the Schedule 2 of the AIFC General Rules, in any currency, subject to the following requirements:
- professional services to be rendered in the national currency are carried out using the bank accounts of the AIFC participants, the AIFC Bodies and their organisations opened in STB of RK;
- professional services to be rendered in foreign currency are carried out using the bank accounts of the AIFC participants, the AIFC Bodies and their organisations, opened in the AIFC banks or STB of RK.
3.5 ….
3.6 ….
3.7 ….
3.8 The AIFC participants, the AIFC Bodies and their organisations have the right to carry out operations for the formation of share capital through the STB of the RK in any currency and AIFC banks in foreign currency under the Acting Law of the AIFC.
3.9 Mandatory payments, fees, and fines to the AFSA, including for transactions related to registration, licensing and recognition in the AIFC, are made by natural and legal entities that are not the AIFC participants through the STB of RK in any currency, through AIFC banks in foreign currency.
3.10 Transactions for the transfer of wages to employees of the AIFC participants, AIFC Bodies and their organisations are made through the STB of the RK in any currency, through AIFC banks in foreign currency.
4. Payments and (or) money transfers on transactions of residents and non-residents in the AIFC
4.1 Payments and (or) money transfers on foreign exchange transactions of the AIFC participants (except for the AIFC banks) are carried out through bank accounts in the AIFC banks and (or) the STB of RK in compliance with the conditions envisaged under the Acting Law of the AIFC and the legislation of RK.
4.2 The AIFC bank transfers money of the AIFC participants from their accounts in the AIFC bank to their accounts in the STB of RK, as well as from their accounts in STB of RK to their accounts in AIFC bank in foreign currency.
4.3 Payments and (or) money transfers for client transactions are made in accordance with the following conditions:
(a) ….
(b) ….
(c) ….
(d) ….
(e) This paragraph does not apply to payments and money transfers made between non-residents not registered in RK and (or) not operating in the territory of RK.
4.4 ….
5 Exchange transactions in the AIFC
5. Purchase and (or) sale of foreign currency can be carried out only through the AIFC banks or STB of RK, subject to the following requirements:
(a) ….
(b) ….
(c) purchase or sale of non-cash foreign currency for other non-cash foreign currency is carried out through the AIFC banks or STB of RK, or foreign banks;
(d) …
(e) to ensure their own activities, the AIFC Bodies have the right to purchase non-cash foreign currency in the amount of not more than $300,000 in one bank in one business day, without limiting the time limit for the reverse exchange of foreign currency into national currency.
6. Provision of information on currency transactions in the AIFC for the purposes of currency regulation
6.1 The list and procedure for providing information on carried out transactions carried out on the territory of the AIFC and on transactions of the AIFC participants carried out outside the AIFC as well as financial requirements to non-residents and obligations to them is established in accordance with Schedule 5 to these Rules.
7.Exchange of information between the AIFC and NBRK bodies
….
8.Confidentiality
….
9.Responsibility for Rules violation
9.1 ….
9.2 In case of non-submission or late submission by the AIFC participants of the reporting provided by these Rules, the AFSA shall apply measures to them in accordance with the Acting Law of the AIFC.
Schedule 1
TERMS AND DEFINITIONS
1)….
2)….
3)AIFC bank – the AIFC participant licensed by the AFSA to provide the following services, subject to the requirements established by these Rules:
a)accepting deposits, granting the loans, making payments providing money services, opening and maintaining bank accounts;
b)Islamic banking and Islamic financing (except for non-banking Islamic organisations);
4)….
5)….
6)….
7)….
8)….
9)….
10) ….
11) ….
12) ….
13) Credit provider – the AIFC participant, licensed by the AFSA to provide services for granting the loans, subject to the requirements established by these Rules;
14) AIFC Islamic bank is the AIFC participant that has a license from the AFSA to provide banking services, accept deposits and (or) open and maintain bank accounts in accordance with the principles of Islamic financing in the territory of the AIFC;
15) Islamic financial organisation is the AIFC participant, licensed by the AFSA to provide financial services that comply with the principles of Islamic financing.
Schedule 2
LIST OF FINANCIAL SERVICES PROVIDED BY THE AIFC PARTICIPANTS TO THE RESIDENTS THAT ARE NOT THE AIFC PARTICIPANTS
No. | Name of the service | Currency | |
1 | Banking, credit and payment services | ||
1.1 | Islamic banking | Any currency | |
1.2 | …. | … | |
1.3 | …. | … | |
1.4 | …. | … | |
1.5 | leasing services for legal entities of RK, including business entities (farms, individual entrepreneurs and other business entities engaged in the agro-industrial complex and road transport infrastructure) | Any currency | |
1.6 | opening and maintaining bank accounts (current, deposit) of clients for placing funds on them as collateral for loans granted (within the permitted activities) | Foreign currency | |
1.7 | exchange transactions using the national currency for the purpose of carrying out permitted activities | Foreign currency | |
2 | Insurance | ||
…. | …. | ||
3 | Investment services | ||
3.1 | Investment banking services | ||
3.1.1 | …. | …. | |
3.1.2 | …. | …. | |
3.2 | …. | ||
3.2.1 | …. | …. | |
3.3 | Brokerage services (conclusion of transactions in the interests of the client) | ||
3.3.1 | …. | ||
3.3.2 |
Brokerage services as related to Kazakhstani securities when concluding transactions by AIFC participants on stock exchanges operating in the territory of the Republic of Kazakhstan and (or) direct access to settlements in JSC "Central Securities Depository" and (or) direct access to settlements of the AIFC Central Securities Depository | …. | |
3.4 | Providing custody services (nominal holding, accounting and safeguarding of securities) | ||
3.4.1 | …. | …. | |
3.4.2 | …. | …. | |
3.4.3 | Settlement depository or custody services of the AIFC Central Securities Depository: - as related to Kazakhstani securities included in the official list of the AIFC Exchange; - as related to foreign securities and securities of the AIFC without restrictions | Any currency | |
3.5 | Managing Investment (including investment funds) | ||
3.5.1 | - in relation to clients (investors) - citizens and legal entities of the Republic of Kazakhstan investing in securities of the funds incorporated in the AIFC that are included in the official list of the AIFC Exchange and managed by management companies licensed by - in relation to clients (investors) - citizens and legal entities of the Republic of Kazakhstan investing in securities of the funds incorporated in the AIFC that are not included in the official list of the AIFC Exchange and managed by management companies licensed by ARDFM | Any currency | |
3.5.2 | …. | ….. | |
3.6 | Trust services | ||
3.6.1 | …. | ….. | |
3.7 | Crowdfunding | ||
3.7.1 | Operating a loan crowdfunding platform | Any currency | |
3.7.2 | Operating an investment crowdfunding platform | Any currency | |
4 | Digital assets* | ||
4.1 | Operating a digital assets platform (crypto exchange) | Any currency | |
4.2 | Dealer services with digital assets | Any currency | |
4.3 | Brokerage services with digital assets | Any currency | |
4.4 | Custody services with digital assets | Any currency | |
4.5 | Investment management of digital assets | Any currency | |
*Note: Residents of the Republic of Kazakhstan classified as retail clients under the AIFC acts are subject to a monthly fiat deposit limit equivalent to USD 1 000 (one thousand). This limit does not apply to residents of the Republic of Kazakhstan who were classified as professional clients under the AIFC acts. | |||
5 | Operating of trading, financing facilities and platforms | ||
5.1 | Operating a multilateral trading facility | Any currency | |
5.2 | Operating an organised trading facility | Any currency |
Schedule 4
LIST OF TRANSACTIONS THAT THE AIFC BANKS ARE ENTITLED TO CARRY OUT THROUGH THEIR CORRESPONDENT ACCOUNTS IN NATIONAL CURRENCY IN STB OF RK
No. | Type of transaction |
1 | …. |
2 | Execution of clients ' instructions on payment of taxes and obligatory payments to the budget, wages, lease of premises as well as execution by the AIFC bank of collection orders (tax authorities and bailiffs) brought forward to the client's current bank account |
3 | ….. |
4 | ….. |
5 | ….. |
6 | ….. |
Schedule 5
THE PROCEDURE FOR PROVIDING INFORMATION ON CURRENCY TRANSACTIONS IN THE AIFC
1. GENERAL PROVISIONS
1.1. ….
1.2. …..
1.3. …..
1.4. …..
1.5. ….
1.6. ….
1.7. ….
1.8 …..
1.9 For all types of reporting provided by the AIFC participants, including AIFC banks, and STBs of RK to the AFSA, in the absence of transactions, the provision of information on which is provided for by these Rules, during the reporting period, it is necessary to submit zero values reports to the AFSA. This paragraph does not apply to Annex 4 of Schedule 5 of these Rules.
2. TERMS AND DEFINITIONS
….
3. THE PROCEDURE FOR PROVIDING INFORMATION ON CURRENCY TRANSACTIONS BY THE AIFC BANKS AND STB OF RK
3.1. ….
3.2. ….
3.3. The AFSA, no later than the 18th (eighteenth) day of the month following the reporting month, provides information to the NBRK in the form of Annex 1 to this Schedule and no later than the 15th (fifteenth) day of the month following the reporting month, provides information to the NBRK in the form of Annex 2 to this Schedule electronically via secure communication channels with confirmation by electronic digital signature.
4. THE PROCEDURE FOR PROVIDING INFORMATION BY THE AIFC PARTICIPANTS PROVIDING DEPOSITORY AND BROKERAGE SERVICES
4.1. The AIFC participants providing dealer, depository, custodian and brokerage services in accordance with the AFSA's licence (hereinafter referred to as participants), quarterly no later than the 10th (tenth) 15 (fifteenth) day of the month following the reporting month, submit reports on securities to the AFSA in accordance with Annex 3 to this Schedule (in MS Excel format).
The AFSA submits the participants' reports to the NBRK no later than the 20th (twentieth) day of the month following the reporting quarter.
4.2. The report is submitted on the AIFC participants' own transactions and transactions of their clients. AIFC participants providing dealer and/or brokerage; custodial services in accordance with the Committee's license shall not provide data on transactions conducted on behalf of the following clients
- which are other participants of the AIFC;
- Joint Stock Company Development Bank of Kazakhstan;
- professional participants of the securities market of the Republic of Kazakhstan, having an appropriate license of the Agency of the Republic of Kazakhstan on Regulation and Development of Financial Market.:
(a)with securities issued by residents and owned by a non-resident;(b)with securities issued by non-residents and owned by a resident;(c)with securities issued by residents abroad and owned by a resident.
4.3. The report reflects data on transactions carried out during the reporting period (on its own behalf and on behalf of clients) with all securities issued in the Republic of Kazakhstan and abroad.
- 1) with securities issued by residents in the Republic of Kazakhstan and owned by a non-resident client of an AIFC participant (transaction code - 1111);
- 2) with securities issued by non-residents and owned by an AIFC participant and a client-resident of an AIFC participant (transaction code - 2200);
- 3) with securities issued by residents abroad and belonging to the AIFC participant and client-resident of the AIFC participant (operation code 2120);
- 4) with securities issued by residents abroad and belonging to the client-nonresident of the AIFC participant (transaction code - 2121).
The report Data are also provided data on the number of securities, their value at the beginning and end of the reporting period, and, if available, investment income from the ownership of securities and service fees, including in the absence of transactions in the reporting period.
Transactions of securities repurchased (direct and reverse repurchase agreements) are not reflected in Annex 3 to this Schedule. Data at the beginning and end of the reporting period on the security involved in the repurchase agreements in repo transactions are reflected by the original owner of the security.
4.4. The data is presented separately for each type of security by customer/owner sectors final beneficiary:
A) country code - three-digit numerical code of account owner's country - beneficiary in accordance with national classifier of the Republic of Kazakhstan "Codes for representation of names of countries and their administrative-territorial subdivisions";
B) sector code of account owner-beneficiary:
«1» central government;
«2» regional and local governments;
«3» central (national) banks;
«4» other depositary organisations;
«5» other financial organisations;
«6» state non-financial organisations;
«7» non-state non-financial organisations;
«8» non-profit organisations serving households;
«9» households.
An AIFC participant providing custody services specifies the country and sector code for its AIFC depositary customer in an aggregated manner.
4.5. Positions on securities at the beginning of the reporting period are equal to their positions at the end of the previous period. The position on securities at the end of the reporting period is determined based on the market price announced on the organised securities market at the end of the reporting period. Financial transactions include transactions between a resident and a non-resident involving a change of economic ownership of securities and are recorded at the value specified in the transaction (if not, the price quoted in the market on the date of the agreement): purchase (sale) on the primary and secondary securities markets, crediting/writing of securities by mutual agreement; receipt (transfer) of securities as a gift, by inheritance.
4.6. In the case of securities for which transactions are concluded in an unorganised market, the following prices are applied in order of preference to assess the position on securities at the end of the reporting period:
(a) the last transaction price of the security;(b) the price of the security at the purchase price, excluding acquisition-related expenses (brokerage fees, banking services fees);(c) nominal value of the security.
Other transactions include:
1) Transactions between a resident and a non-resident which do not result in the transfer of ownership of securities (transfer of securities into nominal holding, transfer of clients from one nominee holder or registrar to another nominee holder or registrar);
2) Transactions between residents and non-residents with transfer of ownership, except those classified as financial transactions: alienation of securities by court decision;
3) Transactions between non-residents with transfer of ownership (purchase at the secondary market, sale at the secondary market);
4) Transactions between residents with transfer of ownership (purchase on the secondary market, sale on the secondary market).
4.7. Financial transactions include transactions between a resident and a non-resident involving a change in the economic ownership of securities, and are reflected at the value specified in the transaction (in case of absence - at the price quoted on the market on the date of the agreement): purchase (sale) on the primary and secondary securities markets, receipt (transfer) of securities as a gift, by inheritance. Value changes in column 20 include changes resulting from exchange rate fluctuations (exchange rate differences in the case of securities denominated in currencies other than United States dollars (hereinafter the "US dollars") as well as the market value of the security.
In order to correctly reflect changes in value, the statistical form must first be completed in the currency of denomination, and only then are flows and stocks translated at the appropriate exchange rates to the US dollar. After completing all columns other than value changes in the accounting currency, column 20 is determined by the residual method:
column 20 = column 22 - column 7 - column 9 + column 11 - column 13 + column 15 - column 17 + column 19 for each line.
4.8. Other transactions include:
1) transactions between a resident and a non-resident that do not result in the transfer of ownership of securities (transfer of securities to a nominal holding, transfer of clients from one nominal holder or registrar to another nominal holder or registrar);
2) transactions between a resident and a non-resident with the transfer of ownership rights, except for those related to financial transactions: alienation of securities by court decision;
3) transactions between non-residents with the transfer of ownership rights (purchase on secondary market, sale on secondary market);
4) transactions between residents with the transfer of ownership rights (purchase on secondary market, sale on secondary market).
Only data on debt securities are reflected in column 23:
1) accrual of announced fees for days of holding a security by the respondent or his/her client during the reporting period;
2) amortization of premium or discount for the days of holding a security by the respondent or his client during the reporting period.
4.9. Financial transactions and other indicators denominated in other foreign currencies are calculated in USD at the cross-rate determined as follows:
1) the cost at the beginning of the period is transferred at the cross-rate at the end of the previous period;
2) the cost at the end of the period - at the cross-rate at the end of the reporting period;
3) financial and other transactions, investment income and commissions – at the cross-rate at the date of the transaction or at the weighted average cross-rate for the reporting period.
Column 24 are reflected data on income received in the reporting period:
1) dividends received by the respondent or his/her client during the reporting period;
2) remuneration received by the respondent or his/her client during the reporting period upon repayment of accrued interest on debt securities by the issuer.
The income referred to in this paragraph are reflected in the amount including any fees or taxes withheld therefrom.
4.10. Column 25 are reflected the fee income for brokerage, advisory, information and other services paid by a non-resident client to the respondent.
For the Depositary of AIFC, it is allowed to show fees and commissions in aggregate for each non-resident client of the Depositary. In this case, the fee is recorded for the security (at the highest amount at the end of the period) owned by the non-resident customer.
4.11. Purchases and sales of securities on the secondary market are reflected in columns 13 and 15 at the current market value, or the value corresponding to the price indicated by the buyer or seller customer.
4.12. The securities positions at the beginning of the reporting period in columns 6 and 7 are reflected equal to their positions at the end of the previous period. The securities position at the end of the reporting period in column 22 are reflected determined on the basis of the market price announced on the organised securities market at the end of the reporting period.
4.13. In the case of securities for which transactions are executed on the unorganised market, the following prices shall be applied in order of preference to assess the position of securities at the end of the reporting period:
(a) the price of the security on the last transaction;
(b) price of the security at purchase value, excluding acquisition related costs (brokerage fees, bank fees);
(c) the nominal value of the security.
4.14. Financial transactions and other items denominated in other foreign currencies are translated into US dollars at cross rates determined as follows:
1) the value at the beginning of the period is translated at the cross rate at the end of the preceding period;
2) the value at the end of the period - at the cross rate at the end of the reporting period;
3) financial and other operations, investment income and commissions - at cross-exchange rate as of the date of operation or at the average weighted cross-exchange rate for the reporting period.
5. THE PROCEDURE FOR PROVIDING INFORMATION ON CURRENCY TRANSACTIONS OF CAPITAL MOVEMENTS BY THE AIFC PARTICIPANTS
5.1. …
5.2. …
5.3. …
Annex 1 to Schedule 5
Report on executed currency transactions
(structure of payment information in the bank's report)
Name of AIFC Bank/ STB of RK |
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Address |
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BIN |
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Name of Implementing Officer of the AIFC Bank/ STB of RK |
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Period | Number of month |
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Phone |
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Type of activity |
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Name of AIFC Bank / STB of RK
(identification code) ___________________________
1. Details of the currency contract | 2. Sender of money under payment document | ||||||
1.1 | 1.2 | 1.3 | 2.1 | 2.2 | 2.3 | 2.4 | 2.5 |
Number of currency contract | Date of currency contract | Account number of currency contract | Name or surname, first name, patronymic (if any) | BIN/ IIN | Country code | Residency indicator | Economic sector code |
… | |||||||
… | |||||||
.. |
3. Beneficiary of payment document | ||||
3.1 | 3.2 | 3.3 | 3.4 | 3.5 |
Name or surname, first name, patronymic (if any) | BIN/ IIN | Country code | Residency indicator | Economic sector code |
… | ||||
… | ||||
.. |
4. Information about currency transaction | ||||||||
4.1 | 4.2 | 4.3 | 4.4 | 4.5 | 4.6 | 4.7 | 4.8 | 4.9 |
Date | Currency transaction reference | Currency transaction code | Payment purpose code (PPC) | Amount in thousands of currency units | Payment currency code | Payment indicator | Indicator of an intra-corporate money transfer | Indicator of transaction related to the withdrawal of money |
… | ||||||||
… | ||||||||
… |
5. Information about counterparty's organisation (bank) for a currency transaction | 6. Sender of money under a currency contract | ||||||
5.1 | 5.2 | 5.3 | 6.1 | 6.2 | 6.3 | 6.4 | 6.5 |
Identification code of the organisation (bank) (BIC) | Name | Country code | Name or surname, first name, patronymic (if any) | BIN/ IIN | Country code | Residency indicator | Economic sector code |
… | |||||||
… | |||||||
.. |
7. The recipient of money under currency contract | 8. Note | ||||
7.1 | 7.2 | 7.3 | 7.4 | 7.5 | |
Name or surname, first name, patronymic (if any) | BIN/ IIN | Country code | Residency indicator | Economic sector code | |
… |
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Annex 2 to Schedule 5
Report on the monetary movement on clients' bank accounts in foreign currency
as of__________
Name of AIFC Bank/ STB of RK |
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Address |
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BIN |
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Name of Implementing Officer of the AIFC Bank/ STB of RK |
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Period | Number of month |
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Phone |
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Type of activity |
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Name of the AIFC Bank / STB of RK_____________
1.Aggregated information on the balance of funds on customers' bank accounts in foreign currency at the reporting date (in thousands of currency units).
Indicator name \ Bank account currency | Amount in USD in equivalent | Including by type of currency: | |||
USD | EUR | CNY | … | ||
Balance at the beginning of the period, total | |||||
including: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
Non-residents - legal entities | |||||
Receipt to clients' bank accounts in foreign currency, total | |||||
including from: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
including transactions: | |||||
Sale of goods and intangible assets | |||||
Provision of services | |||||
Receipt of the principal amount of debt and income on loans issued | |||||
Raising loan funds from resident banks | |||||
Transactions with securities, promissory notes and contributions ensuring participation in the capital | |||||
Other money transfers | |||||
Non-residents - legal entities | |||||
including transactions: | |||||
Sale of goods and intangible assets | |||||
Provision of services | |||||
Receipt of the principal amount of debt and income on loans issued | |||||
Raising loan funds | |||||
Transactions with securities, promissory notes and contributions ensuring participation in the capital | |||||
Other money transfers | |||||
Transfers of money from their bank accounts by residents – individuals. total | |||||
including opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Transfers of money from non–resident individuals from their bank accounts, total | |||||
including opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Transfers of money from their bank accounts by residents – legal entities, total | |||||
including opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Transfers of money from non–resident legal entities from their bank accounts, total | |||||
including opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Purchase of foreign currency, total | |||||
including: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
Non-residents - legal entities | |||||
Crediting foreign currency in cash to their bank accounts, total | |||||
including: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
Non-residents - legal entities | |||||
Withdrawal of money from clients' bank accounts in foreign currency, total | |||||
including in favor of: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
including transactions: | |||||
Purchase of goods and intangible assets | |||||
Receiving services | |||||
Grant of a loan | |||||
Fulfillment of obligations on loans attracted from resident banks | |||||
Transactions with securities, promissory notes and contributions ensuring participation in the capital | |||||
Other money transfers | |||||
Non-residents - legal entities | |||||
including transactions: | |||||
Purchase of goods and intangible assets | |||||
Receiving services | |||||
Grant of a loan | |||||
Fulfillment of obligations on loans attracted | |||||
Transactions with securities, promissory notes and contributions ensuring participation in the capital | |||||
Other money transfers | |||||
Transfers of money from residents - individuals to their bank accounts, total | |||||
of them opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Transfers of money from non–resident individuals to their bank accounts, total | |||||
of them opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Transfers of money from residents - legal entities to their bank accounts, total | |||||
of them opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Transfers of money from non–resident legal entities to their bank accounts, total | |||||
of them opened in: | |||||
Resident banks | |||||
Non-resident banks | |||||
Sale of foreign currency, total | |||||
including: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
Non-residents - legal entities | |||||
Withdrawal of foreign currency cash from their bank accounts, total | |||||
including: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
Non-residents - legal entities | |||||
Balance at the end of the period, total | |||||
including: | |||||
Residents - individuals | |||||
Non-residents - individuals | |||||
Residents - legal entities | |||||
Non-residents - legal entities |
2.List of resident individuals and resident legal entities that opened bank accounts in foreign currency
Subparagraph No | IIN / BIN | Resident status in the AIFC | Account type | Account currency | Account opening date |
Annex 3 to Schedule 5
Report on transactions of resident clients with securities of foreign issuers, with securities issued by residents in accordance with the legislation of other states and on their territory, and on transactions of non-resident clients with securities issued by residents of the Republic of Kazakhstan
for ___ quarter of 20__
AIFC participant BIN/Name
Name of AIFC participant |
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Address |
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BIN |
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Name of Implementing Officer of the AIFC particiopant |
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Period | Number of month |
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Phone |
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Type of activity |
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N | Operation Code | ISIN | Account holder type code | At the beginning of the reporting period | |||
Quantity, pcs | Securities value | ||||||
Country code | Economy sector code | ||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 |
Financial operations | |||||||
primary market purchase | redemption/redemption by the issuer | secondary market purchase | secondary market sale | ||||
Quantity, pcs | Securities value | Quantity, pcs | Securities value | Quantity, pcs | Securities value | Quantity, pcs | Securities value |
8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 |
Other operations | Cost changes | At the end of the reporting period | |||||
on the crediting of securities | on writing off securities | Quantity, pcs | Securities value |
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Quantity, pcs | Securities value | Quantity, pcs | Securities value |
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16 | 17 | 18 | 19 | 20 | 21 | 22 |
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Investment income | Commissions received | Name of asset/financial instrument | Name of issuer | Currency of issue | |
Accrued during the reporting period | Received during the reporting period | ||||
23 | 24 | 25 | 26 | 27 | 28 |
Transaction code - 1111. Securities issued by residents in the Republic of Kazakhstan and owned by a non-resident customer of an AIFC participant;
Transaction code - 2200. Securities issued by non-residents and owned by an AIFC participant and a client-resident of an AIFC participant;
Transaction code - 2120. Securities issued by residents abroad and owned by the AIFC participant and the client-resident of the AIFC participant;
Transaction code - 2121. Securities issued by residents abroad and held by a client which is a non-resident of an AIFC participant.
Annex 4 to Schedule 5
Information on contracts on the basis of and pursuant to which currency transactions of capital movements are carried out
The information is provided under currency contracts, on the basis of and pursuant to which currency transactions of capital movements are carried out, for an amount equal to or exceeding the equivalent of USD 500,000. The equivalent in USD is calculated at the market exchange rate (cross-rate) on the effective date of the contract.
The information is provided according to the following structure:
Name of the AIFC participant ________________________ BIN____________
Name of AIFC participant |
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Address |
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BIN |
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Name of Implementing Officer of the AIFC particiopant |
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Period | Number of month |
| Year |
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Phone |
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Type of activity |
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1. Information on financial loans attracted by AIFC participant from a non-resident (issued by AIFC participants to a non-resident)
Subparagraph No | Indicator name | Information about the financial loan 1 | Information about the financial loan 2 |
А | B | 1 | 2 |
1 | Contract identification data (name, number, date) | ||
2 | Aim and purpose of financing under the contract (if specified in the contract) | ||
3 | Effective date of the contract | ||
4 | Resident status under the contract (lender/borrower/agent) | ||
5 | Non-resident(s)-participant(s) of the contract (name) | ||
5.1 | Non-resident status under the contract (lender/borrower/agent) | ||
5.2 | Relation to the resident party to the contract (affiliation) | ||
5.3 |
Name/country code of the non-resident's registration country; | ||
6 | Currency of a contract | ||
7 | Contract amount (in thousands of units of the contract currency) | ||
8 |
Date of repayment of the loan under the contract. | ||
9 | The interest rate (in the case of a fixed interest rate, % per annum is indicated, in the case of a floating interest rate, the basis of its calculation and the margin size are indicated) | ||
10 | Debt repayment schedule (thousands of units of the contract currency) | ||
11 | Note |
2.Information about participation of a non-resident in the capital of AIFC participant (AIFC participant in the capital of a non-resident), as well as on transactions involving the acquisition from a non-resident (sale to a non-resident) by an AIFC participant of shares, participatory interests in the capital of a third party"
Subparagraph No | Indicator name | Information about capital participation 1 | Information about capital participation 2 |
А | B | 1 | 2 |
1 | Contract identification data (name, number, date) | ||
2 | Type of participation in the capital (acquisition of equity, units, shares, participatory inputs, etc.) | ||
3 | Share of participation based on the results of the transaction, as a percentage | ||
4 | Effective date of the contract | ||
5 | Resident status under the contract (investor/investment object/buyer/seller) | ||
6 | Investor (name or full name) | ||
6.1 | Residency indicator | ||
6.2 | BIN for residents | ||
6.3 | Country of legal registration for non-residents | ||
7 | Investment object (name) | ||
7.1 | Residency indicator | ||
7.2 | BIN for residents | ||
7.3 | Country of legal registration for non-residents | ||
8 | Seller (name or full name) | ||
8.1 | Residency indicator | ||
8.2 | BIN for residents | ||
8.3 | Country of legal registration for non-residents | ||
9 | Buyer (name or full name) | ||
9.1 | Residency indicator | ||
9.2 | BIN for residents | ||
9.3 | Country of legal registration for non-residents | ||
10 | Currency of a contract | ||
11 | Contract amount (in thousands of units of the contract currency) | ||
12 | Note |
3. Information on other capital transactions of an AIFC participant
N | Indicator name | Contract information 1 | Contract information 2 |
А | B | 1 | 2 |
1 | Type of transaction (ownership of real estate, exclusive right to intellectual property, joint venture, gratuitous transfer of money and other currency values) |
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2 | Identification of the contract (name, number, date) |
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3 | Non-resident(s)-contracting parties (name or surname) |
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4 | Non-resident's country of registration (code) |
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5 | Currency of the contract |
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6 | Contract amount (in thousands of units of the contract currency) |
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7 | Brief description of the operation |
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8 | Note |
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Explanation of completion:
1. non-resident to resident ratio is selected from the list:
1) _direct ownership by non-resident of 10 (ten) per cent or more of voting shares, votes of resident participants;
2) _indirect ownership by non-resident of 10 (ten) percent or more of voting shares, votes of resident participants;
3) _direct ownership by a resident of 10 (ten) per cent or more of voting shares, votes of non-resident participants;
4) _indirect ownership by a resident of 10 (ten) per cent or more of voting shares, votes of non-resident participants;
5) _ resident and non-resident do not have any control or influence over each other but are controlled or influenced by the same investor owning directly or indirectly at least 10 (ten) per cent of voting shares, votes of participants of a resident;
6) _cases not specified in subparagraphs 1), 2), 3), 4) and 5) of this paragraph.
1.Debt repayment schedule (in thousand units of the loan currency):
Quarter, year | Repayment of principal | Payment of remuneration |
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Total |
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Annex 5 to Schedule 5
List of AIFC participants which opened deposit accounts in STB
Name of STB of RK |
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Address |
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BIN |
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Name of Implementing Officer of the STB of RK |
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Period | Number of month |
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Phone |
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Type of activity |
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№ | IIN/ BIN | Status of the AIFC participant | Account type | Currency of an account | Date of opening an account |
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[1] For international organisations, specify "International Organisation"
[2] accrual of the declared remuneration for the days of ownership by the participant or his client of the security in the reporting period; depreciation of the premium or discount for the days of ownership by the participant or his client of the security in the reporting period
[3] dividends received by the respondent or his client in the reporting period; remuneration received by the respondent or his client in the reporting period when the issuer repays accrued interest on debt securities
[4] data on commission income for brokerage services, advisory, information, registration and other services paid by a non-resident client to a participant
Consultation Paper on Proposed Enhancing the Financial Services Tax Exemption Framework
Please, press “PDF” button above to download a Consultation Paper
INTRODUCTION
Why are we issuing this Consultation Paper (CP)?
The Astana Financial Services Authority (AFSA) has released a Consultation Paper to gather input from the market regarding the proposed Guidance on the application of the Rules on substantial presence for AIFC participants seeking tax exemptions on corporate income tax and value-added tax (VAT) (Guidance on Substance Rules). The purpose of this consultation is to seek suggestions and feedback from stakeholders on the Guidance on the Substance Rules.
The Consultation Paper has been approved by the Legislative Committee of the Board of AFSA, indicating the official endorsement and authorization of the consultation process. The AFSA is seeking valuable insights and recommendations from the market to shape the final version of the Guidance.
By initiating this consultation, AFSA aims to ensure transparency, inclusiveness, and the participation of relevant stakeholders in the development of the Guidance. This collaborative approach allows for a comprehensive understanding of the market's perspectives and concerns, ultimately leading to the creation of a well-informed and effective set of rules.
Interested parties are encouraged to review the Consultation Paper and provide their suggestions and feedback based on their expertise and experience. This input will contribute to the refinement and enhancement of the proposed Guidance on the Substance Rules for AIFC participants.
Who should read this CP?
The proposals outlined in this paper will be of significant interest to various stakeholders, including international tax authorities or organizations, relevant government bodies, tax and law firms, and AIFC participants.
What are the next steps?
Interested stakeholders are encouraged to provide their comments on the proposed Guidance on the Substance Rules. It is preferable for comments to be submitted in writing and sent to the specified address or email. When submitting comments via email, please use the subject line "Consultation Paper AFSA-G-CE-2023-0002”to ensure proper identification. If applicable, stakeholders may also indicate the organization they represent when providing their comments.
Please note that unless expressly requested otherwise, the AFSA reserves the right to publish the comments received, including on its website. Stakeholders are encouraged to provide comments supported by reasoning and evidence, as such submissions will carry more weight in the assessment process conducted by the AFSA.
The deadline for providing comments on the proposed framework is 3 July 2023.
Once we receive your comments, we shall consider if any refinements are required to this proposal. Comments to be addressed by post:
Government Relations Division (Attention: M Ishaq Burney, MD and CLO)
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz
Tel: +7 7172 613741
Background
- I.The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) is a collaborative effort among more than 139 countries and jurisdictions. Its goal is to implement the BEPS Package, which consists of 15 Actions designed to address tax avoidance, enhance international tax rules, and promote transparency in taxation.
- II.Kazakhstan joined the Inclusive Framework on BEPS in January 2017, committing to comply with four minimum standards outlined in OECD Action 5 (Harmful tax practices), Action 6 (Treaty abuse), Action 13 (Transfer pricing documentation), and Action 14 (Dispute resolution).
- III.Action 5 specifically focuses on harmful tax practices and requires member countries to undergo peer reviews to identify features of preferential tax regimes that could facilitate base erosion and profit shifting, potentially undermining the tax base of other jurisdictions.
- IV.The AIFC tax regime underwent a review by the OECD's Forum on Harmful Tax Practices (FHTP) between 2018 and 2020. The FHTP Peer Review identified risks of tax base erosion and profit shifting associated with the AIFC and the Republic of Kazakhstan's tax regimes.
- V.As a result of such review, the FHTP Secretariat requested the implementation of "substantial presence" requirements by the AIFC to align with the standards set out in Action 5 of the BEPS initiative, which addresses harmful tax practices.
- VI.In November 2021, the Joint Order between the AFSA and the Ministry of Finance of Kazakhstan endorsed the Rules on the substantial presence of the AIFC participants applying tax exemptions for the payment of corporate income tax, and value-added tax (Substance Rules).
- VII.The Substance Rules establish the requirements for determining the substantial presence, but they do not provide detailed guidance on how to meet requirements. As a result, further clarification is needed in this regard the AFSA commenced the development of the Guidance on the Rules on the substantial presence of the AIFC participants applying tax exemptions for the payment of corporate income tax, value added tax (Guidance on the Substance Rules), aiming to establish a clear procedure for applying the Rules and provide comprehensive explanations to AIFC participants.
Proposal
The Substance Rules apply to the AIFC participants’ income derived from the tax exempt services.
If all the following conditions specified in paragraph 6 of the Substance Rules are met, the Participant may apply for exemptions from CIT and VAT:
- a.The Core Income Generating Activities (hereinafter, CIGA) of the AIFC Participant are provided on the territory of the AIFC and consist of the services established by paragraphs 3 and/or 4 of Article 6 of the Constitutional Statute of the Republic of Kazakhstan On the AIFC (Constitutional Law) and paragraph 5 of Chapter 3 of the List of Financial Services provided by participants of the AIFC (List of Financial Services).
- b.The amount of operating expenses incurred by the AIFC Participant must correspond to the adequate amount required for performing of the CIGA.
- c.The number of qualified full-time employees of the AIFC Participant must correspond to the adequate number required for delivery of the CIGA.
·CIGA
According to the Substance Rules, the Core Income Generating Activities (CIGA) that generate income and business value for AIFC Participants are specified in Article 6 of the and Chapter 3 of the List of Financial Services. It should be noted that the specific set of CIGA may vary for each AIFC Participant based on their license type, business model, and other conditions.
It is proposed to recognize a participant as conducting activities within the AIFC territory if two conditions met simultaneously: the substantial presence of Officers of the AIFC Participant within the AIFC’s premises performing official duties, and the substantial presence of the Board of Directors or the main executive body of the AIFC Participant within the AIFC when making major strategic and commercial decisions. Here:
− the term "substantial presence" refers to the physical presence of relevant persons within an office or premises on the AIFC territory, as defined by the terms and conditions of a labor or civil agreement and the boundaries of the AIFC set by the relevant decree.
− The definition of "Officers" includes Directors, Secretaries, Senior Managers, and in the case of liquidation or bankruptcy proceedings, may also include Interim and Bankruptcy Trustees, as well as the Liquidator of the company.
− Major strategic and commercial decisions encompass decisions made by the Board of Directors or the main executive body of the AIFC Participant that affect the conduct of CIGA, obligations and rights under licensed service agreements, and the fulfilment of agreements where the AIFC Participant acts as a contractor/subcontractor for licensed services. For AIFC Participants registered as a Recognized Company (branch) in the AIFC, major strategic and commercial decisions are limited to activities directly related to the branch's operations.
·Fulfillment of the condition on adequate operating expenses
It is proposed that operating expenses incurred by the AIFC Participant should be recorded in accordance with International Financial Reporting Standards and classified as operating expenses based on the accounting policy. For meeting requirements, the expenses should be directly connected to the CIGA performed by the AIFC Participant, generating income from the licensed services.
For verification of the adequacy of operating expenses it is proposed to formalize evidence of the following:
1. Execution of CIGA required to provide the licensed service during the relevant period.
2. Sources of operating expenses recorded in the accounting records, including salaries of employees involved in performing the necessary CIGA and expenses related to assets and liabilities used for carrying out the CIGA and providing the licensed services.
·Fulfillment of the condition on an adequate number of qualified employees
It is proposed to link the condition on the adequate number of qualified employees with the existing requirements set by the AFSA regarding the number of employees, their professional qualifications, work experience, certifications, and other criteria during the authorization procedure.
The proposed approach is the principles-based, aligning with the general legal framework of the AIFC. This makes it straightforward to adopt and implement.
QUESTIONS
The proposed questions for public consultation are as follows:
1. Does the Guidance on the Substance Rules provide you with a clear understanding of how to meet the substantial presence test? If not, please specify what aspects are unclear to you. What additions or amendments do you think should be made to the Guidance on the Substance Rules in order to be clearer?
3. Do you find the substance requirements burdensome? If yes, please explain in what ways and suggest how they could be eased.
4. Do you believe that your business will meet the substance requirements?
These questions aim to gather feedback and insights from the public regarding their understanding of the substantial presence test, suggestions for improving the clarity of the requirements, opinions on the burden of compliance, and the readiness of businesses to meet the substance requirements by the specified year.
Annex 1
Guidance for Applying the Rules on the Substantial Presence of the Astana International Financial Centre Participants Applying Tax Exemptions for the Payment of Corporate Income Tax, Value Added Tax
CONTENTS
1. INTRODUCTION
2. GENERAL PROVISIONS
3. CONDITIONS OF THE SUBSTANTIAL PRESENCE
4. PROCEDURE FOR APPLYING THE GUIDANCE
1. INTRODUCTION
1) This Guidance for Applying the Rules on the Substantial Presence of the Astana International Financial Centre Participants Applying Tax Exemptions for the Payment of Corporate Income Tax, Value Added Tax (hereinafter, the Guidance) is developed in accordance with Chapter 4 (Procedure for Applying the Rules) of the Rules on the Substantial Presence of the Astana International Financial Centre Participants Applying Tax Exemptions for the Payment of Corporate Income Tax, Value Added Tax, dated 17 October 2021 (hereinafter, the Rules).
2) The purpose of the Guidance is to provide a procedure for applying the Rules and to explain them to the Centre Participants. The provisions outlined in the Guidance must be followed by the Centre Participants in order to fulfil the conditions of substantial presence as defined by the Rules when carrying out activities on the territory of the Centre.
3) During tax audits, state revenue authorities may refer to the Guidance to determine whether the conditions of substantial presence outlined in the Rules have been met.
2. GENERAL PROVISIONS
1) Paragraph 6 of the Rules establishes the conditions that must be simultaneously fulfilled for a Centre Participant to be recognized as substantially present within the Centre's territory (referred to as "the Conditions").
If all the Conditions specified in paragraph 6 are met, the Participant may apply for exemptions from Corporate Income Tax (CIT) and Value Added Tax (VAT) when providing specified financial services, as outlined in paragraph 3 of Article 6 of the Constitutional Statute of the Republic of Kazakhstan "On the Astana International Financial Centre" (referred to as “ the Constitutional Law”) and paragraph 5 of Chapter 3 of the List of Financial Services provided by participants of the Astana International Financial Centre[1] (referred to as "the List of Financial Services").
2) The time period for a Centre Participant to be recognized as substantially present is a calendar year. The Participant will be considered substantially present only within the tax period in which they fulfill the conditions.
3) Centre Participants are required to follow the Guidance to independently determine whether the conditions stipulated by the Rules have been met when conducting activities within the Centre's territory.
4) Tax audits by state revenue authorities is conducted in accordance with the tax legislation of the Republic of Kazakhstan.
5) An economic study of the project, including expense justifications and employee numbers, must be submitted to the state revenue authority at the place of registration by March 31 of the year following the reporting period. This submission should follow the provided form in Annex 1 and consider the deadlines for extending tax return submissions.
6) Centre Participants should make their best efforts to submit the economic study according to the procedure and deadlines outlined in paragraph 5.
7) Failure to submit the economic study as per the procedure and deadlines mentioned in paragraph 5 may result in administrative liability in accordance with the laws of the Republic of Kazakhstan.
8) Outsourcing or subcontracting services and works directly related to the Core Income Generating Activities (CIGA) is not allowed outside of the RoK.
3. CONDITIONS OF THE SUBSTANTIAL PRESENCE
1) CIGA
Regarding sub-paragraph 1 of paragraph 6 of the Rules, the CIGA consist of services and inherent activities outlined in paragraph 3 of Article 6 of the Constitutional Statute and/or paragraph 5 of Chapter 3 of the List of Financial Services.
CIGA are essential and valuable activities that generate income and business value for Centre Participants, as explained in paragraph 10 of the Rules. Depending on the license type, business model, and other conditions, each Centre Participant may engage in a unique set of CIGA. The Participant may perform the full list of CIGA specified in their license.
A Centre Participant will be recognized as conducting activities within the Centre's territory if the following two conditions are met simultaneously:
- a. Employees of the Centre Participant are physically present within the Centre and perform their official duties on its premises.
- b. The Board of Directors or the main executive body of the Centre Participant is physically present within the Centre when making major strategic and commercial decisions.
"Substantial presence" refers to the physical presence of the relevant person for a specific period of time as defined by the terms and conditions of a labour agreement or a civil agreement, within an office or premises located on the territory of the Centre that the person has a right to use through ownership, lease, or other legal basis. The boundaries of the Centre’s territory as defined by the relevant decree.
Major strategic and commercial decisions include any decisions made by the Board of Directors or the main executive body of the Centre Participant that impact:
- a. Conducting CIGA/providing licensed services;
- b. Obligations and rights under licensed service agreements;
- c. Fulfillment of agreements where the Centre Participant acts as a contractor/subcontractor for licensed services.
For Centre Participants registered as a Recognized Company (branch) in the Centre, major strategic and commercial decisions only pertain to activities directly related to the branch's operations.
2) Fulfillment of the condition on adequate operating expenses
Regarding sub-paragraph 2 of paragraph 6 of the Rules, the amount of operating expenses incurred refers to expenses recorded in the Centre Participant's accounting records in accordance with International Financial Reporting Standards. These expenses should be classified as operating expenses according to the accounting policy for the profit and loss statement.
The adequacy of operating expenses means that there is a direct connection between the expenses incurred and the CIGA performed by the Centre Participant to generate income from the services or work provided as specified in paragraph 3 of Article 6 of the Constitutional Statute and/or paragraph 5 of Chapter 3 of the List of Financial Services.
Therefore, the link between operating expenses and CIGA indicates that these expenses were incurred to carry out the CIGA and ultimately generate income from the licensed activities.
To independently verify the fulfillment of the condition of adequate operating expenses, the Centre Participant should have documented evidence of the following:
I. The execution of CIGA required to provide the licensed service during the period.
II. The sources of operating expenses recognized in the accounting records, including but not limited to:
a. Salaries of employees and individuals directly involved in performing the CIGA necessary for providing the licensed services.
b. Expenses related to assets and liabilities of the Centre Participant directly used to carry out the CIGA and necessary for the provision of the licensed services.
3) Fulfillment of the condition on an adequate number of qualified employees
Regarding sub-paragraph 3 of paragraph 6 of the Rules, it implies that the Astana Financial Services Authority's (referred to as “the AFSA”) requirements regarding the number of employees, their professional qualifications, work experience, certifications, and other criteria established during the authorization procedure and license acquisition must be met during the period.
4. PROCEDURE FOR APPLYING THE GUIDANCE
For matters not addressed in the Guidance, the Centre Bodies, in accordance with the Constitutional Law, have the authority to:
1) Amend and supplement the Guidance in consultation with the state authority responsible for tax collection and other mandatory payments to the budget, as long as it is not contradictory to the Constitutional Statute cons.
2) Provide explanations and comments on the application of the Guidance within their jurisdiction.
Annex 1
to the Guidance for Applying the Rules on the Substantial Presence
of Participants of the Astana International Financial Centre Applying
Tax Exemptions for the Payment of Corporate Income Tax, Value Added Tax
Form of economic study of the project,
justification of expenses and number of employees
Section А. General information about the taxpayer
1. BIN: ___________________
2. Tax period for which the Form is submitted: _____
3. Name of the taxpayer: __________________________________
4. Name of the licence issued by the Astana Financial Services Authority:
_________________________________________________________________
5. Licence number, date of issue: ______________________________________
6. Types of core income generating activities (according to paragraph 5 of Chapter 3 of the List of Financial Services)
Section В. Information about income
Income | Total income (excluding VAT, in KZT) |
Income from licensed activities on the territory of the Centre | |
Other income | |
TOTAL |
|
Section С. Information about expenses
Description of expenses | Total income (excluding VAT, in KZT) |
Total amount of operating expenses | |
including: - expenses associated with the maintenance and upkeep of the office on the territory of the Centre, in which workplaces are located | |
- expenses for qualified personnel (payroll, taxes) | |
- depreciation charges calculated on assets used for the CIGA; | |
- other expenses for goods, works, services used when carrying out the CIGA | |
Other expenses | |
TOTAL |
Section D. Information about qualified personnel
Expenses for employees | Headcount | Total expenses, in KZT |
Payroll and tax expenses for qualified employees | ||
Payroll and tax expenses for other employees | ||
TOTAL |
Head of "_ (insert name of the legal entity_")
Full name
SealSubmission date: ___________________
[1] Joint Order of the AIFC, the Ministry of National Economy of the Republic of Kazakhstan and the Ministry of Finance of the Republic of Kazakhstan "On Approval of the List of Financial Services Income from which is Exempt from the Payment of Corporate Income Tax and Value Added Tax, provided by Participants of the Astana International Financial Centre".
Consultation Paper on Proposed Amendments to the AIFC Financial Services Framework Regulations
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed amendments to the AIFC Financial Services Framework Regulations.
Who should read this CP?
2. The proposals in this paper will be of interest to current and potential AIFC Participants dealing with digital assets as well as the market and other stakeholders.
Terminology
3. Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in the Glossary Rules (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4. We invite comments from interested stakeholders on the proposed amendments. All commentsshould be in writing and sent to the email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2023-0003” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposed framework is 2 July 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. AFSA prefers to receive comments by email at consultation@afsa.kz or posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Astana, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Issues;
Part III – Best Practice;
Part IV – Proposals;
Part V – Public Consultation Questions;
Part VI – Outcomes.
Annex 1 - Draft amendments to the AIFC Financial Services Framework Regulations;
Annex 2 – Consequential amendments to AIFC rules.
Background
In accordance with the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the Astana Financial Services Authority (the “AFSA”) is a legal entity responsible for the regulation of financial services and related activities in the Astana International Financial Centre (the “AIFC”). Pursuant to sub-paragraph 5) of paragraph 3 of Article 12 of the Constitutional Statute, the AFSA also conducts consumer protection, exercises control and supervision over the activities of AIFC Participants and takes appropriate measures in relation to them.
The AIFC Financial Services Framework Regulations provide that in performing its functions and exercising its powers, the AFSA may pursue the following objective: preventing, detecting and restraining actions that may cause damage to the reputation of the AIFC or to the financial activities carried out in the AIFC by taking appropriate measures, including by imposing sanctions.
ASP regime
The AFSA, as a supervisory authority, is responsible for the regulation of Financial Services and Ancillary Services in the AIFC.
Ancillary Services in the AIFC include providing:
1.Legal Services;
2.Audit Services;
3.Accountancy Services;
4.Consulting Services;
5.Credit Rating Services.
A law firm, accounting firm, audit firm, insolvency firm, and company service provider are also considered as Designated Non-Financial Business and Profession (“DNFBP”) in the AIFC.
The AFSA may only grant a Licence permitting a Centre Participant to carry on one or more Ancillary Services if it is satisfied that the Centre Participant is fit and proper. AFSA prescribed by Rules the requirements for the grant of such Licence and the circumstances in which the AFSA may withdraw such a Licence.
In relation to Legal Services Providers, AIFC Legal Services Regulations were adopted in 2022, which provided a statutory ground to establish the AIFC Legal Services Board (“LSB”) as a designated body within the AIFC for registration and regulation of legal advisers. The LSB determines standards of legal services, qualification requirements, code of ethics and some other measures to foster the development of the AIFC legal services market. Amendments were introduced to the AIFC General Rules, AIFC Conduct of Business Rules and the AIFC Glossary on a statutory requirement for registration of at least 1 legal adviser for Legal Services Providers to be eligible to receive and maintain a Licence from the AFSA to Providing Legal Services in the AIFC.
As to the Audit Services providers, AFSA adopted AIFC Auditor Rules with purpose to provide a single reference point for all persons who are permitted by the AFSA and the Registrar of Companies to carry out audit services in the AIFC and to ensure that auditors, and audit services undertaken in the AIFC comply with international best practice in the field of regulation of audit and the provision of audit services.
However, the AIFC legal system does not contain any special provisions for supervisory powers of the AFSA in relation to Ancillary Service Providers (“ASP”). The existing powers of the AFSA do not fully comply with effective Regulator principles due to the current absence of the regulatory framework for the supervision of ASPs. The lack of the regulator’s supervisory powers creates risks and may have a negative impact on the customers.
As of 18 May 2023, 120 ASPs have been licensed to provide legal, consulting, accountancy, audit activities, credit rating services; none of these are deemed to be of systemic importance.
Issues
The FSFR have been drafted based on various sources including similar framework legislation in the United Kingdom, Dubai International Financial Centre (the “DIFC”), Abu Dhabi Global Market, Qatar Financial Centre (the “QFC”), Guernsey, and Australia. The DIFC Regulatory Law was served as the primary legislative model for decision-making procedures. However, the DIFC has the Regulatory Policy and Process Sourcebook (the “RPP”) which specifies that decisions made by the DFSA fall into three categories:
- (a) decisions which are subject to the procedures in Schedule 3 of the Regulatory Law (“Schedule 3 Decisions” is similar to Schedule 1 of the FSFR), e.g., a decision to withdraw the Licence of an Authorised Person;
- (b) decisions which are subject to a bespoke process instead of the procedures in Schedule 3, e.g., the rejection of a new Controller of an Authorised Firm; and
- (c) routine operational decisions, e.g., a DFSA decision to start an investigation against a Person. These decisions are not subject to the procedures in Schedule 3 and are not referable to the Financial Markets Tribunal but may be reviewed by way of judicial review in the DIFC Court.
Section 10 (1) of the FSFR provides that ‘[w]here a provision in these Regulations or Rules made thereunder requires the AFSA to make a decision, the AFSA will follow the decision making procedures set out in Schedule 1’. Since there is no document in the AIFC similar to the DIFC Regulatory Policy and Process Sourcebook, there are some uncertainties in which cases the AFSA should follow procedures specified in Schedule 1.
ASP regime
The absence of the supervisory powers of the AFSA in relation to ASPs has been highlighted in recent assessments conducted of the AIFC jurisdiction.
During the self-assessment against the International Organization of Securities Commissions (“IOSCO”) principles for August 2020 – March 2021, it was identified that out of 37 principles, ASP is covered in five principles from 19 to 23. AFSA is fully compliant with principles 19, 20, 21 and 23.
Principle 22 was marked as not compliant with following deficiencies and proposed solutions. It was noted that AIFC legal framework does not contain provisions that allow AFSA to an adequate level of oversight (ongoing supervision, inspections, enforcement) in relation to ASPs.
The leading financial centres in the Asian region (e.g., Dubai International Financial Centre (“DIFC”), Abu-Dhabi Global Market (“ADGM”), Qatar Financial Centre (“QFC”). Hong-Kong) have implemented supervisory framework for ASPs or DNFBPs.
The AIFC in its further development stage needs to have a supervisory framework to maintain the competitive advantages that its regulatory system offers to investors in or from the region.
Best Practice
The AFSA reviewed financial services frameworks of peer jurisdictions (e.g., the DIFC Regulatory Law and QFC Financial Services Regulations) and made a comparison of their regimes with the one in the AIFC.
In relation to the decision-making procedures, there were several options which we considered:
1) to explicitly specify in Section 10 of the FSFR decisions which should not be subject to Schedule 1 (e.g., the AFSA’s decision to exercise the power to require the production of a report); or
2) to categorise all decisions that the AFSA may make and specify which of them are subject to Schedule 1; or
3) to insert additional subsections to certain sections of the FSFR that will clarify that these sections are subject to Schedule 1.
Having considered all three options, we concluded that options 1 and 2 have some flaws. For example, there is a risk that we may not capture all existing decisions. In addition, since the AFSA has been constantly working on the development and enhancement of the AIFC’s legal and regulatory framework, some new provisions may be developed which will give the AFSA power to make decisions in new cases. This approach may require the AFSA to constantly amend and update Section 10 of the FSFR.
Therefore, the drafters suggest following Option 3 and inserting new subsections that would explicitly state that the AFSA should follow Schedule 1 when makes decisions under these sections (e.g., suspending a Licence of an Authorised Person). In this regard, the drafters made a table of cases (sections) where the AFSA may exercise its powers and indicated sections where the AFSA’s decisions should be subject to Schedule 1. Such approach seems to give more comfort both to the regulator and regulated entities.
ASP regime
The AFSA conducted a thorough analysis of the ASP frameworks of peer jurisdictions (DIFC, ADGM, QFC and Hong-Kong), and used as best example jurisdictions to identify the requisites for the ASP framework. The analysis is briefly summarised below.
DIFC
The legislative framework in the DIFC is based on Law No 5 of 2021 Concerning the DIFC and DIFC Regulatory Law 2004.
Since 2006, the DFSA supervision of an ASP had been primarily focused on its compliance with AML rules. This supervisory approach was reflected in the contents of the ASP Module, the bulk of which was made up of AML rules which largely duplicated those in the AML module.
ASP regime was reviewed in 2012, and relevant amendments to the DIFC Regulatory Law 2004 followed. ASPs were brought into the DNFBP regime and consequently the ASP regime was repealed, with existing ASPs being re-classified as DNFBPs. The purpose was to avoid having a twin track regime depending on whether a person provides services to an Authorised Person.
At that time, DNFBP definition included law firms, notary firms, or other independent legal businesses; accounting, audit or insolvency firms; company service providers among others.
In 2013, following a strategic review by the DIFC Authority (DIFCA), the responsibility for AML/CTF supervision of DNFBPs was transferred to the DFSA by DIFCA. This was on the basis that the DFSA was to be the single authority responsible for AML/CTF supervision in the DIFC for Financial Institutions and DNFBPs. As the single authority responsible for AML/CTF supervision of these entities, the DFSA consolidated its AML rules into one module.
In 2018, DFSA introduced changes to the DNFBP regime so that DNFBPs ceased to be able to conduct any activities in or from the DIFC unless they were registered by the DFSA as a DNFBP.
Currently, DNFBP means:
(1) The following class of Persons whose business or profession is carried on in or from the DIFC:
- (a)a real estate developer or agency which carries out transactions with a customer involving the buying or selling of real property;
- (b)a dealer in precious metals or precious stones;
- (c)a dealer in any saleable item of a price equal to or greater than $15,000;
- (d)a law firm, notary firm, or other independent legal business;
- (e)an accounting firm, audit firm or insolvency firm;
- (f)a company service provider; or
- (g)a Single Family Office.
(2) A Person who is an Authorised Person or an Auditor is not a DNFBP.
The Regulatory Law gives the DFSA a power to supervise DNFBPs’ compliance with relevant AML laws in the State. The Regulatory Law requires a DNFBP to be registered by the DFSA to conduct its activities in the DIFC. The Regulatory Law also gives the DFSA several other important powers in relation to DNFBPs, including powers of enforcement. This includes a power to obtain information and to conduct investigations into possible breaches of the Regulatory Law. The DFSA may impose fines for breaches of the Regulatory Law or the Rules. It may also suspend or withdraw the registration of a DNFBP in various circumstances.
To register as a DNFBP, an applicant needs to satisfy the DFSA that:
(a)it is fit and proper to perform AML functions;
(b)it has adequate resources and systems and controls, including policies and procedures, to comply with the applicable AML requirements under the Federal AML Legislation, the Regulatory Law and the AML Module; and
(c)it satisfies any other requirements prescribed by the DFSA.
The DFSA emphasises that the registration process for DNFBPs would be different to that for Authorised Firms and focus on the issue of the integrity and suitability of the applicant to control a DNFBP, rather than on qualifications and experience. The registration process must include, reviewing the fitness and propriety of relevant persons, and ascertaining the identity of the ultimate beneficial owners.
From the supervision standpoint, DNFBPs are obliged to notify the DFSA promptly of any change in name, legal status, address, MLRO, or beneficial owners; and submit an Annual Information Return.
ADGM
The Registration Authority (“RA”) is responsible for the regulation of all ADGM licensed persons (Controlled Activities) as well as Registered Auditors, Registered Audit Principals and insolvency practitioners in accordance with ADGM’s commercial legislation.
In the ADGM ASPs are regulated by the Commercial Licensing Regulations 2022, Commercial Licensing Regulations (Controlled Activities) Rules 2022, Financial Services and Markets Regulations 2015 and Anti-Money Laundering and Sanctions Rules and Guidance (AML).
Controlled activities include [Commercial Licensing Regulations (Controlled Activities) Rules 2022]:
1. financial services;
2. legal services;
3. accountancy services;
4. audit services;
5. insolvency practitioner services;
6. company services;
7. other economic activities.
For legal services, accountancy services, insolvency practitioners services, healthcare, providing company services it is mandatory to be licensed or authorised by an approved legal regulatory body to carry on activities of the kind which the applicant intends to carry on in the ADGM.
DNFBP [Anti-Money Laundering and Sanctions Rules and Guidance (AML)]:
- (a) a real estate agency, which carries out transactions with other persons that involve the acquiring or disposing of Real Property;
- (b) a dealer in precious metals or precious stones;
- (c) a dealer in any saleable item of a price equal to or greater than USD15,000;
- (d) an accounting firm, audit firm, insolvency firm or taxation consulting firm;
- (e) a law firm, notary firm or other independent legal business; or
- (f) a company service provider that carries out any of the following services to a customer:
- (i) acting as a formation agent of a Legal Person;
- (ii) acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership or a similar position in relation to other Legal Persons or any other legal arrangement;
- (iii) providing a registered office, business address or accommodation, correspondence or administrative address for a Legal Person or any other legal arrangement;
- (iv) acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement; or
- (v) acting as (or arranging for another Person to act as) a nominee shareholder for another person.
For legal services, accountancy services, insolvency practitioners’ services, healthcare, providing company services it is mandatory to be licensed or authorised by an approved legal regulatory body to carry on activities of the kind which the applicant intends to carry on in the ADGM.
Pursuant to Article 11(6) of Abu Dhabi Law No. 4 of 2013, the RA, in addition to registering and licensing legal entities, is the commercial regulator of the ADGM, responsible for monitoring and, where necessary, enforcing compliance with ADGM’s commercial legislation.
The scope of the RA’s monitoring and enforcement function is broad as the RA is responsible for monitoring all ADGM licensed persons (financial, non-financial and retail businesses), auditors and insolvency practitioners, concerning a range of different commercial regulatory regimes, as applicable. The RA is also responsible for administering and monitoring the UAE’s economic substance requirements in respect of ADGM licensed persons.
In turn, the Financial Services and Markets Regulations (“FSMR”) establish the legislative and regulatory framework for financial services in ADGM. FSMR gives the Regulator a power to supervise DNFBPs’ compliance with relevant Anti-Money Laundering laws in the State. FSMR also gives the Regulator a number of other powers in relation to DNFBPs, including powers of enforcement. This includes a power to obtain information and to conduct investigations into possible breaches of the FSMR. The Regulator may also impose fines for breaches of FSMR or the Rules. It may also suspend or withdraw the registration of a DNFBP in various circumstances.
Under an agreement with the FSRA, the RA is also responsible for monitoring compliance with anti-money laundering requirements by ADGM licensed DNFBPs.
For note:
An accounting firm, audit firm, insolvency firm or taxation consulting firm; a law firm, notary firm or other independent legal business; and a company service provider are among others treated as NFDBPs.
QFC
The QFC Law provides that no activities may be conducted in or from the QFC unless they fall within the general categories of Permitted Activities.
The Permitted Activities are divided in two types: Regulated Activities and non-Regulated Activities, as determined by QFC Law No. 7 of Year 2005. Not Regulated Activities include, among others, the business of providing professional services including audit, accounting, tax, consulting and legal services and the business of provision, formation, operation and administration of companies.
The QFC Authority Rules among other things deal with the licensing of firms to conduct non-Regulated activities and contain rules relating to the conduct of business, licensed firm assets and compliance and enforcement. The QFC Authority currently licenses firms to provide non-Regulated services in or from the QFC.
When licensing applicants for non-Regulated Activities, a list of the professional bodies to which the Applicant is associated and/or regulated by is considered. Conduct of Business, Compliance and Enforcement procedures are determined by QFC Authority Rules and administered by the QFC Authority.
It is worth to mention, that in 2017 Legal Services Code, applied to all Legal Services Firms and all QFC Lawyers, and QFC Professional Accountants’ Code, applied to all Accountancy Firms and QFC Accountants, were adopted by the QFC Authority as parts of the QFC Authority Rules.
Hong Kong
Legal Services
The legal profession in Hong Kong is self-regulated by the Bar Association and the Law Society. The Bar Association is a professional organisation of barristers in Hong Kong. It is governed by an executive committee known as the Bar Council. The Law Society is a professional association for solicitors (including trainee solicitors and foreign lawyers). It is mandatory for barristers and solicitors to be members of the Bar Association and Law Society respectively.
The Barristers Disciplinary Tribunal is an independent body, and it deals with cases referred by the Bar Council where a barrister acts in breach of the Bar Code. The Solicitors Disciplinary Tribunal is an independent body, and it deals with disciplinary cases brought by the Law Society against solicitors, registered foreign lawyers, trainee solicitors or an employee of a solicitor or a registered foreign lawyer in Hong Kong for alleged professional misconduct.
The provisions under the Drug Trafficking (Recovery of Proceeds) Ordinance/Organised and Serious Crimes Ordinance/ United Nations (Anti-Terrorism Measures) Ordinance in respect of, among other things, dealing with criminal proceeds, funding terrorist activities and suspicious transaction reporting, apply to every person in Hong Kong including the legal profession.
In addition, the Law Society has issued Practice Direction P "Guidelines on Anti-Money Laundering and Terrorist Financing". Any law firm or solicitor who fails to follow the mandatory elements of Practice Direction P can be subject to disciplinary proceedings. The mandatory requirements include rules on client identification and verification, client due diligence, record keeping and staff training. Since 1 March 2018, the customer due diligence and record-keeping requirements of the AMLO apply to legal professionals. The AMLO enables the Law Society, as the sole authority for enforcing AMLO requirements for legal professionals, to have the discretion to promulgate guidelines and determine the content of Practice Direction P. Practice Direction P has been revised with effect from 1 September 2018 in light of the amendments to the AMLO.
Audit services
The Hong Kong Institute of Certified Public Accountants (“HKICPA”) as the professional body for certified public accountants in Hong Kong sets the standards for auditing and assurance and regulates the profession. HKICPA develops and issues Hong Kong Standards on Auditing (“HKSA”), which are converged with the Clarified International Standards on Auditing that are to be applied in audits of financial statements. All companies registered in Hong Kong are required to have their financial statements audited, and audits of financial statements have to be carried out in accordance with HKSA.
To be eligible to conduct an audit in Hong Kong, the auditor must be:
1.A member of the HKICPA;
2.Registered with the HKICPA;
3.Authorized by the HKICPA to conduct the evaluation process.
The roles and responsibilities of auditors vary depending on the type of audit being conducted. However, all auditors must:
1.Conduct the process following HKICPA standards;
2.Cooperate with the company during the audit process;
3.Report any irregularities or non-compliance to the HKICPA.
Accountancy services
The accountancy profession in Hong Kong is self-regulated under the Professional Accountants Ordinance (“PA Ordinance”) by the Hong Kong Institute of Certified Public Accountants (HKICPA).
Under the PA Ordinance, professional accountants in Hong Kong are designated as Certified Public Accountants (“CPA”) and Certified Public Accountants Practicing (CPA (Practicing)) for auditors. These designations are conferred by HKICPA. Membership and a practicing certificate issued by HKICPA is mandatory for auditors. The PA Ordinance also establishes the functions of the HKICPA, including maintaining a registry of all professional accountants and firms, regulating the practice of accountancy professionals by establishing quality assurance reviews and an investigation and discipline systems for members and member firms, setting ethical requirements for members, setting auditing and accounting standards to be applied in Hong Kong, and setting initial professional development and continuing professional development (“CPD”) requirements.
To qualify to become a professional accountant with the HKICPA, individuals have to complete the Qualification Program (“QP”) offered by HKICPA, which is made up of four technical modules that include technical workshops, a final examination of professional competence, and completing supervised practical experience. To qualify for the QP, a Bachelor’s degree in accounting from any Hong Kong tertiary institution, or an overseas degree, or other academic qualification accepted by HKICPA is required. Individuals who wish to practice as auditors are required to satisfy up to four-years of full-time approved work experience, pass relevant Practicing Certificate examinations in auditing, local law and taxation (if not qualified through the QP), and complete relevant CPD. Annual CPD is mandatory for all CPA’s.
Under the Professional Accountants Ordinance, the HKICPA is responsible for setting ethical requirements for professional accountants in Hong Kong.
Credit Rating services
The Securities and Futures Commission ("SFC”) is an independent statutory body which licences Type 10 regulated activity – providing credit rating services. The SFC will be guided by the Code of Conduct for Persons Providing Credit Rating Services (“CRA Code”) in considering whether a licensed or registered person satisfies the requirement that it/he is fit and proper to be or to remain licensed or registered. The CRA Code is based on the revised Code of Conduct Fundamentals for Credit Rating Agencies issued by the International Organization of Securities Commissions in May 2008 (“IOSCO Code”).
Only a staff member, who prepares credit ratings for a Credit Rating Agency (“CRA”), is required to be licensed. Marketing or business development activities are unlikely to be regarded as “providing credit rating services”.
In general, a CRA should not carry on any business which can reasonably be considered to have the potential to give rise to any conflict of interest in relation to its business of providing credit rating services. If the CRA intends to provide Ancillary Services, it should ensure its compliance with paragraph 30 of the CRA Code. In any event, a CRA is not allowed to provide the consultancy or advisory services to a rated entity, or its related party, regarding the corporate or legal structure, assets, liabilities or activities of that rated entity or related party.
Apart from being an analyst involved in the rating process of a CRA, experience acquired by an individual in relation to credit risk management of financial institutions, financial analysis, credit analysis or bank’s internal counterparty risk assessment would also be considered as relevant to “providing credit rating services”.
Proposals
The analysis suggests that the AIFC may enhance its framework by:
1) Clarifying in which cases Schedule 1 (Decision-making procedures) of the FSFR apply;
2) Adding new provisions that will fill some current gaps;
3) Extending the AFSA”s powers in certain aspects; and
4) Making the relevant editorial changes.
It is expected that the clarification of whether Schedule 1 of the FSFR applies will provide greater certainty to the users of the FSFR. As noted above, in comparison with the DIFC, there is currently no analogue of the RPP in the AIFC. The RPP aims to provide an understanding of how the DFSA functions and operates and what is expected from the regulated community.
Another benefit of specifying cases in which Schedule 1 to the FSFR applies is related to the development of the new legal frameworks. This implies that there could be more instances where the AFSA would need to make a decision. As not all of these decisions should be subject to the decision-making procedures, new subsections that indicate the application of Schedule 1 would provide a better understanding to the readers.
In addition, it is suggested to extend the AFSA’s powers in relation to:
-making an order, issuing a direction or prohibition, or imposing a requirement in relation to any Person (not only in relation to Authorised Persons);
-the appointment or removal of an Auditor in relation to an Authorised Person;
-Ancillary Service Providers (from the supervisory powers’ perspective since they are also licensed and should be supervised appropriately).
Other proposed amendments relate to making a Money Laundering Reporting Officer an Approved Individual (it is currently a Designated Individual) and some other editorial changes for consistency throughout the Act.
Besides, for the sake of consistency with other AIFC acts (e.g., Section 5(2) of the AIFC Companies Regulations) and making it clearer to a reader section 6 of the FSFR was amended to clarify that the expression “in the AIFC” should be read as if it includes the expression “from the AIFC”. A such, any reference in the FSFR or any other rules under the AIFC financial services legal framework now should be read as “in or from the AIFC”. This addition brings more clarity since the AIFC legal framework does allow the AIFC Participants to, for example, market or provide financial services to their clients and users who are based outside the territory of the AIFC.
ASP regime
As the analysis showed, in the jurisdictions where a financial regulator regulates ASPs, the financial regulatory law’s scope covers ASPs. In those jurisdictions, where authorities other than a financial regulator do regulate ASPs/DNFBPs, separate ASP framework is adopted.
Since the AFSA is a single regulator for Financial Services and Ancillary Services in the AIFC, it is proposed to expand the FSFR.
To enhance the AIFC ASP framework in accordance with the recommendations in the self-assessment against IOSCO principles, the AFSA proposes to adopt a number of amendments, mainly to the AIFC Financial Services Framework Regulations ("FSFR") and, additionally, to the AIFC General Rules and AIFC Conduct of Business Rules to extend supervisory powers of AFSA to ASPs.
The draft rules and amendments to the FSFR are similar to the DIFC legal framework for ASP regulation, namely some provisions of the DIFC Regulatory Law 2004 related to the DNFBPs. From the analysis of the provisions existing in the DIFC it is concluded that they correspond to the requirements of the recommendations in the IOSCO self-assessment report. The DIFC legal framework has also been chosen due to the similarity of their legal framework with existing legal framework in the AIFC.
(1) AIFC FSFR
The suggested amendments include specification of the AFSAs’ supervisory powers to act as a supervisory authority and apply supervisory powers and tools over ASPs:
- (a) clarification on withdrawal of ASP Licence application by an applicant;
- (b) clarification on the AFSA powers to grant or reject ASP Licence application;
- (c) extension of the AFSA supervisory powers (Part 8: Supervision) in relation to ASPs:
- power to gather information;
- power to require a production of report;
- power to restrict, withdraw or suspend a Licence;
- power to impose a prohibition and requirement;
- power to obtain information and documents for investigation;
- (d) clarifications on obligations of ASPs:
- obligation of disclosure to AFSA;
- obligation to comply with an order or requirement of the AFSA;
- obligation of an ASP to provide an annual activity report;
- obligation not to engage in conduct that is intended to obstruct the AFSA;
- (e) clarification on no liability for provision of information or documents to the AFSA;
- (f) editorial amendments.
(2) Amendments to the AIFC Rules
In addition, certain amendments are proposed to the AIFC General Rules and AIFC Conduct of Business Rules related to the licensing of Legal Services Providers.
AIFC General Rules
It is proposed to add new subrule “Effective supervision” in relation to the ASPs. In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 41(1) of the Framework Regulations, the AFSA will consider the nature, including the complexity, of the Ancillary Services that the applicant will carry on; and the way in which the applicant's business is organised; and (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and whether the applicant is subject to consolidated supervision.
It is suggested to extend conflict of interest and record keeping obligation to the ASPs. It is also proposed to extend “Guidance: Exercise of supervisory powers by the AFSA”, “core information”, “regulatory impact”, “fraud and errors”, “winding up, bankruptcy and insolvency”, “accuracy of information”, “correction of inaccurate information” subrules to the ASPs
It is suggested to make amendments to AIFC General Rules on replacing a statutory requirement in registration of at least 1 legal adviser for Legal Services Providers to be eligible to receive and maintain a Licence from the AFSA to Provide Legal Services in the AIFC with all legal advisers employed by Legal Services Providers starting from 1 January 2024.
This proposal is based on practices of regulation of legal profession in common law countries, including Hong Kong. It aims to further enhance standards of ethics and conduct on ASPs providing Legal Services in the AIFC. Legal Consultants employed by ASPs in the AIFC will continue to be regulated by the AIFC Legal Services Board.
Other Ancillary Services were considered whether any special rules are needed to be adopted. Considering practice of the DIFC, ADGM, and the QFC, any special rules related to Accountancy, Consulting, and Credit Rating Services are not proposed at this stage of the AIFC development.
AIFC Conduct of Business Rules
It is proposed to supplement Part 13 “Ancillary Service Providers” with 2 more principles of conduct for ASPs:
1.“Conflicts of Interest” to ensure that conflicts of interest between itself and its Clients, between its Employees and Clients and between one Client and another are identified and then prevented or managed, or disclosed, in such a way that the interests of a Client are not adversely affected; and
2.“Complaints” to ensure that Complaints made against it by Clients are handled fairly, consistently and promptly.
AFSA Glossary
Editorial amendments – replacing “Constitutional Law” term with “Constitutional Statute” term and replacing the word 'shall' with the word 'must'.
AIFC Fees Rules
Editorial amendments – dealing with typo, replacing words “modify”, “modification” with words “vary”, “variation”.
For the sake of consistency, it is also proposed that to use the same drafting style when some expressions are used. For example, the AFSA “makes a decision”, “issues, varies or withdraws a Licence”, “withdraws an Approved Individual status”, “gives a direction”, “revokes a direction”, “withdraws a condition or restriction”, etc. In this regard, it is suggested to replace the word used in the expression “revoke a Licence” (used only once in section 41 of the FSFR) with the word “withdraw”.
Such approach is consistent with the drafting styles used in peer jurisdictions. For example, there are 4 instances in the DIFC Regulatory Law where the word “revoke’ was used (in relation to a direction, requirement and recognition). There are only 1 instance in the QFC’s Financial Services Regulations where the word “revoke” was used (in relation to a written notice).
The word “withdrawal” is used (both in case of the applicant and regulator) in the QFC and DIFC in the context of the Licence (Authorisation).
The approach used in the Financial Services and Markets Act 2000 follows the same approach as the word “revoke/revocation” is used in relation to requirements, recognition, directions, authorisation orders” but not in relation to licences/authorisations. The word “withdrawal” is used in section 33 in terms of the authorisation (licence).
Public consultation questions
In the course of public consultation, existing and potential market participants will be invited to comment on the following questions:
1. Do you agree with our proposal to clearly state where Schedule 1 of the FSFR applies? If not, why not?
2. Do you agree with the introduction of new sections?
3. Do you agree with our proposals in relation to Ancillary Service Providers? If not, why, and what alternative(s) would you suggest?
4. Do you consider that the FSFR should include provisions providing for passporting of licensees from other jurisdictions or whether such matters should be dealt with by way of class orders/waivers and operational arrangements of the AFSA?
Outcomes
As a result of the proposed amendments, the AFSA will fill certain gaps and clarify powers to give certainty to AIFC Participants. Additionally, the proposed amendments will bring in line the FSFR with its counterparts in other peer jurisdictions.
ASP regime
From the ASP regime’s perspective, the AFSA will address the shortcomings identified in the preliminary review of its legal regime and as noted in recent assessment exercises. It is expected that the ASPs regulatory framework clarifications will make the AIFC jurisdiction more aligned with the applicable international standards of, in the first instance, Ancillary Services, including DNFBPs.
Enhancement of the ASPs regulatory framework will also help the AIFC to continue positioning itself as a financial centre compliant with the highest international standards, bringing more economic activity to the centre and reaffirming its existing commitments to those international standards.
Annex 1
PROPOSED AMENDMENTS TO THE AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS
In these Regulations, underlining indicates a new text and strikethrough indicates a removed text
CONTENTS
40. Application for a Licensce to carry on Ancillary Services
(…)
PART 8: SUPERVISION OF AUTHORISED PERSONS
(…)
CHAPTER 2 – Obligations of Authorised Persons and Ancillary Service Providers
(…)
3. Application
(1) These Regulations apply in the AIFC.
(2) Where the AFSA makes an order, issues a direction or prohibition, or imposes any requirement in relation to a Person pursuant to a provision of these Regulations or Rules or legislation administered by the AFSA, such Person must, unless he has a reasonable excuse, comply with such order, direction, prohibition or requirement.
6. Meaning of “in the AIFC”
(1) A Person will be deemed to be carrying on activities in the AIFC for the purposes of these Regulations if:
(a) that Person is a Centre Participant and the day-to-day management of those activities (even if those activities are undertaken in whole or in part from outside the AIFC) is the responsibility of the Centre Participant in its capacity as such; or
(b) that Person’s head office is outside the AIFC but the activity is carried on from a branch maintained by it in the AIFC; or
(c) the activities are conducted in circumstances that are deemed to amount to activities carried on in the AIFC under Rules made by the AFSA.
(2) The AFSA may issue Rules and guidance as to the circumstances in which activities capable of having an effect in the AIFC are or are not to be regarded as conducted in the AIFC.
(3) The expression “in the AIFC” means “in or from the AIFC”. Any reference to the expression “in the AIFC” in these Regulations and rules made thereunder means the expression “in or from the AIFC”.
7. Main functions, powers and objectives of the AFSA
(…)
(3) In performing its functions and exercising its powers, the AFSA will pursue the following objectives (“the Regulatory Objectives”):
(a)the regulation, control and supervision of financial activities in the AIFC by Centre Participants with a view to the maintenance of the safety and soundness of the financial system within the AIFC;
(b)ensuring that financial markets in the AIFC are fair, efficient, transparent and orderly;
(c)creating fair, transparent and non-discriminatory conditions for Centre Participants;
(d)fostering and maintaining confidence in the AIFC’s financial system and regulatory regime;
(e)fostering and maintaining the financial stability of the AIFC’s financial services industry and capital markets, including the reduction of systemic risks;
(f)preventing, detecting and restraining actions, including the Financial Crime, that may cause damage to the reputation of the AIFC or to the financial activities carried out in the AIFC by taking appropriate measures, including by imposing sanctions;
(g)protecting interests of investors and users of financial services;
(h)implementing in the AIFC a regulatory regime that complies with international standards in the sphere of regulation of financial services;
(i)fostering the development of financial technologies in the AIFC; and
(j)pursuing such other objectives as may be specified by AIFC’s Regulations from time to time.
(4) The AFSA may prepare and make available forms for any purpose under these Regulations or Rules made hereunder and may give instructions for their completion.
7A. Principles of good regulation
In performing its functions and exercising its powers under the Acting Law of the AIFC and these Regulations, the AFSA must have regard to:
(a) the need to use its resources in the most economic and efficient way;
(b) the desirability of facilitating innovation and fostering the international competitiveness of the AIFC;
(с) the desirability of fostering competition between those who are subject to regulation by the AFSA;
(d) the principle that the AFSA should exercise its powers and functions in a fair and transparent manner;
(е) the need to comply with such generally accepted principles of good governance as it is reasonable to regard as applicable to it;
(f) the need to balance the burdens and restrictions on firms with the benefit of regulation; and
(g) the need to act in accordance with all laws and Regulations to which it is subject.
(…)
8A. Power of the AFSA to give Guidance
(1)The AFSA may, on the application of Person(s) or on its own initiative, give Guidance consisting of such information and advice as it considers appropriate:
(a)with respect to the operation of specified parts of these Regulations, any Regulations and any Rules which the AFSA administers;
(b)with respect to any matter relating to functions of the AFSA;
(c)for the purpose of meeting the Regulatory Objectives; and
(d)with respect to any matters about which it appears to the AFSA to be desirable to give the relevant information or advice.
(2)Guidance issued by the AFSA may be given to Persons generally, to a class of Authorised Persons or Ancillary Service Providers, or to any Authorised Person or Ancillary Service Provider or other Person individually.
(3)Unless otherwise indicated by the AFSA, Guidance issued by the AFSA is indicative of the view of the AFSA at the time and in the circumstances in which it was given and is non-binding.
(4)Unless the AFSA is satisfied that it is inappropriate or unnecessary to do so, it must publish Guidance in a way the AFSA considers appropriate for bringing Guidance to the attention of:
(a)Persons(s) likely to be affected by it; and
(b)others who may be likely to become subject to similar guidance.
9. AFSA power to modify, waive or grant relief
(…)
(2) The AFSA must not givemake a direction under (1)(a) unless it is satisfied that:
(…)
(2-1) The AFSA mustshall make public by way of guidance the criteria applicable to the making ofgiving directions under (1)(b) after the date of publication of the guidance.
(…)
11. Appeals against decisions of the AFSA, and the AFSA's statutory immunity
(…)
(4) Neither the AFSA nor any Person who is, or is acting as, a director, officer or member of staff of the AFSA mustshall be held liable for anything done or omitted to be done in the performance or purported performance of its functions, or in the exercise or purported exercise of its powers, under these Regulations or any other AIFC Regulations or Rules, unless the act or omission is shown to have been done in bad faith.
20. Definition of Controlled Function
(…)
(2) Controlled Functions prescribed under section 20(1) may include the functions of senior officers or Eemployees with material responsibility for both or either:
(…)
35. Grant or rejection of application
(…)
(3) Where the AFSA rejects an application for Aauthorisation or variation or withdrawal of an Aauthorisation, the AFSA will inform the applicant in writing of such refusal and, where requested by the applicant, the reasons for such refusal, and of the applicant’s right to appeal that decision to the AIFC Court.
(4) If the applicant requests the AFSA to provide the reasons for refusal, the time for instituting an appeal stops and resumes after the AFSA provides the reasons for refusal.
38. Grant or rejection of application
(…)
(3) Where the AFSA rejects an application under section 36, the AFSA will inform the applicant in writing of such refusal and, where requested by the applicant, the reasons for such refusal, and of the applicant’s right to appeal that decision to the AIFC Court.
(3A) If the applicant requests the AFSA to provide the reasons for refusal, the time for instituting an appeal stops and resumes after the AFSA provides the reasons for refusal.
39. Exemption for Authorised Market Institutions
(…)
(3) An Authorised Digital Asset Trading Facility is exempt from the General Prohibition in respect of any Regulated Activity: [intentionally omitted]
(a) which is carried on as a part of the Authorised Digital Asset Trading Facility's business as a Digital Asset trading facility; or [intentionally omitted]
(b) which is carried on for the purposes of, or in connection with, the provision by the Authorised Digital Asset Trading Facility of services designed to facilitate the provision of clearing services by another Person. [intentionally omitted]
CHAPTER 3 – Licensing of Ancillary Service Providers
40. Application for a Licensce to carry on Ancillary Services
(1) A Person may apply to the AFSA for a License permitting a Centre Participant to carry on one or more Ancillary Services.
(2) An Ancillary Service Provider may apply to the AFSA to extend, vary, or withdraw its Licence to carry on Ancillary Services. The applicant for a Licence or its variation or withdrawal may withdraw its application by giving the AFSA notice at any time before the AFSA issues, varies or withdraws the Licence or rejects the application.
(…)
40A. Grant or rejection of application
(1) The AFSA may:
(a) grant an application under section 40, either without conditions, restrictions or requirements or with such conditions, restrictions or requirements as it considers appropriate; or
(b) reject the application.
(2) Where the AFSA grants an application under section 40, the AFSA will notify the applicant of:
(a) such decision;
(b) the date on which the Licence will be deemed to take effect;
(c) the Ancillary Service or Ancillary Services that the applicant is authorised to carry on; and
(d) any conditions and restrictions applicable to the Licence.
(3) Where the AFSA rejects an application under section 36, the AFSA will inform the applicant in writing of such refusal and, where requested by the applicant, the reasons for such refusal, and of the applicant’s right to appeal that decision to the AIFC Court.
(4) If the applicant requests the AFSA to provide the reasons for refusal, the time for instituting an appeal stops and resumes after the AFSA provides the reasons for refusal.
(5) The AFSA may vary the terms of a Licence granted by it under this section, either on the application of the Ancillary Service Provider or upon its own initiative.
41. Criteria for the grant of a Licence to carry on Ancillary Services
(1) The AFSA may only grant a Licence permitting a Centre Participant to carry on one or more Ancillary Services if it is satisfied that the Centre Participant is fit and proper.
(2) The AFSA may prescribe by Rules:
(a) the Centre Participants or class of Centre Participants who may be permitted to carry on Ancillary Services;
(b) the requirements for the grant of such a Licence; and
(c) the circumstances in which the AFSA may withdrawrevoke such a Licence.
44. Grant or rejection of application
(…)
(3) Where the AFSA rejects an application for approval or variation of an approval under section 42, the AFSA will inform the Authorised Person in writing of such refusal and, where requested by the Authorised Person, the reasons for such refusal, and of the Authorised Person’s right to appeal that decision to the AIFC Court.
(4) If the Authorised Person requests the AFSA to provide the reasons for refusal, the time for instituting an appeal stops and resumes after the AFSA provides the reasons for refusal.
45. Residency requirement for AuthorisedApproved Individual
The AFSA may require where it considers appropriate in particular circumstances an Authorised Person to ensure that a particular Controlled Function is carried on by an Authorised Approved Individual who is resident in the Republic of Kazakhstan.
45A. Suspending or withdrawing Approved Individual status
(1) If the AFSA reasonably concludes that:
(a) an Approved Individual is in breach of, or has been in breach of, an obligation that applies as a result of such individual’s Approved Individual status; or
(b) an individual is no longer fit and proper to perform a role in respect of which he is an Approved Individual;
it may either restrict the individual from carrying on a Controlled Function or suspend or withdraw the Approved Individual status from such individual.
(2) The AFSA may withdraw the Approved Individual status of an individual if:
(a) the individual becomes bankrupt;
(b) the individual is convicted of a serious criminal offence;
(c) the individual becomes incapable (through mental or physical incapacity) of managing his affairs;
(d) the individual or the relevant Authorised Person requests the AFSA to withdraw the relevant status; or
(e) the Licence of the relevant Authorised Person is withdrawn.
(3) Where the AFSA:
(a) is conducting an investigation under section 114; and
(b) in the course of such investigation believes on reasonable grounds that an individual has engaged in serious misconduct that may form grounds for the withdrawal of the individual’s Approved Individual status;
it may suspend the Approved Individual status of such individual for the duration of the investigation or related proceedings insofar as such investigation or proceedings relate to the individual.
(4) An individual commits a contravention if the individual carries on a Controlled Function:
(a) in breach of a provision in these Regulations or any Rules or legislation administered by the AFSA that applies to that individual;
(b) contrary to a restriction imposed under subsection (1); or
(c) where his Approved Individual status has been suspended or withdrawn under subsections (1), (2) or (3).
(5) The AFSA may vary or withdraw a restriction or suspension imposed under this section where it is reasonable to do so.
(6) the AFSA may act under subsection (5) on its own initiative or at the request of the relevant individual or Authorised Person.
(7) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
49. Rules governing cControllers
The AFSA may make Rules in connection with the change of control of Authorised Persons incorporated in the AIFC, including Rules as to:
(a) when a Person becomes or ceases to be a Controller of an Authorised Person;
(b) when the acquisition or increase in the level of control of an Authorised Person requires either the prior approval of, or notification to, the AFSA;
(c) when the AFSA is likely object to an existing Controller;
(d) the procedures relating to the approval, notification and objections referred to in section 49(b) and 49(c); and
(e) any other matter necessary or incidental to give effect to the provisions governing cControllers.
50. Powers of the AFSA in respect of Controllers
(1) Without limiting the generality of the AFSA powers, the AFSA may:
(a) approve or object to a Person becoming a Controller of an Authorised Person incorporated in the AIFC;
(b) approve or object to an increase in the level of control of an existing cController of an Authorised Person incorporated in the AIFC;
(c) object to an existing cController of an Authorised Person incorporated in the AIFC where it has reasonable grounds to believe that such a Person is no longer an acceptable cController; and
(d) approve a Person as a Controller or approve an increase of control by an existing Controller subject to such conditions as it considers appropriate.
(…)
57. AFSA power to impose requirements on an Authorised Market Institution
Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:
(a) requiring compliance with any duty, requirement, prohibition, obligation or responsibility applicable to an Authorised Market Institution; or
(b) requiring an Authorised Market Institution to act in a specified manner in relation to a transaction conducted on or through the facilities operated by an Authorised Market Institution, or in relation to a specified class of transactions; or
(c) requiring an Authorised Market Institution to act in a specified manner or to exercise its powers under any rules that the Authorised Market Institution has made.; or
(d) excluding the application of any requirements for engaging in the activity of Operating a Digital Asset Business imposed by the Rules; or [intentionally omitted]
(e) imposing on an Authorised Person engaged in the activity of Operating a Digital Asset Business any additional requirements that the AFSA considers appropriate.[intentionally omitted]
68. Suspending and delisting Securities or Units in a Listed Fund from an Official List
(…)
(3) The AFSA may revokewithdraw a direction givenmade under section 68(2) at any time.
(…)
71. AFSA power to authorise omission of information
The AFSA may authorise the omission from the Prospectus, or constituent parts thereof, of certain information to be included therein, where it considers that any of the following conditions is met:
(a) disclosure of such information would be contrary to the public interest;
(b) disclosure of such information would be seriously detrimental to the Issuer or to the guarantor, if any, provided that the omission of such information would not be likely to mislead the public with regard to facts and circumstances essential for an informed assessment of the Issuer or guarantor, if any, and of the rights attached to the Ssecurities to which the prospectus relates;
(c) such information is of minor importance in relation to admission to trading on an Authorised Investment Exchange and would not influence the assessment of the financial position and prospects of the Issuer or guarantor, if any.
77. Defence of reasonable reliance on information given by another Person
(1) A Person does not commit a contravention of section 75(1) if the Person proves that he placed reasonable reliance on information given to him by:
(a) if the Person is not a natural person, someone other than a member of the Ggoverning Bbody, or Eemployee or agentrepresentative of the Person; or
(b) if the Person is a natural person, someone other than an Eemployee or agentrepresentative of the natural person.
(2) For the purposes of this Part, a Person is not the agentrepresentative of a Person merely because he performs a particular professional or advisory function for the Person.
78. Statements about future matters
(1) A Person is taken to make a misleading or deceptive statement about a future matter whether by himself or through his agent, if he, at the time of making the statement or causing the statement to be made, did not have reasonable grounds for making the statement or causing the statement to be made.
(…)
84. Financial reports
The AFSA may prescribe by Rules:
(a) financial reports to be filed by a Reporting Entity; and
(b) audit requirements to be observed by a Reporting Entity.
CHAPTER 8 – Prevention of Market Abuse
86. Market Abuse
A Person must not:
(…)
(d) effect, or participate in effecting, transactions or orders to trade (otherwise than for legitimate reasons in conformity with accepted market practice on the relevant market) which:
(i) give, or are likely to give a false or misleading impression as to the supply of, or demand for, or as to the price or value of, one or more Investments; or
(ii) secure the price of one or more Investments at an abnormal or artificial level; or
(…)
CHAPTER 10 – Recognition
89. Recognition of Non-AIFC Market Institutions
(…)
(3) The AFSA may make an order referred to in subsection (1) if, having regard to the law and practice of the country or territory in which the applicant's head office is situated and to the rules and practice of the applicant, it appears to the AFSA that the following requirements are met:
(a) investors are afforded protection equivalent to that which they would be afforded if the body concerned were required to comply with the relevant requirements for the licensing of an Authorised Market Institution in 0Chapter 2 of Part 3;
(…)
91. Recognised Non-AIFC Member
(…)
(3) The AFSA may make an order referred to in subsection (1) if, the applicant satisfies the AFSA that the following requirements are met:
(a) the applicant is licensed or otherwise authorised to trade on or use the facilities of an exchange or clearing house in a jurisdiction acceptable to the AFSA;
(b) the applicant is regulated in respect of trading in such jurisdiction by a regulator to a standard satisfactory to the AFSA;
(c) the law and practice under which the applicant is licensed or otherwise authorised is broadly equivalent to the AFSA’s regulatory regime as it applies to a Member;
(d) when using the facilities of an Authorised Investment Exchange, or Authorised Clearing House, MTF Operator, OTF Operator, or Digital Asset Trading Facility Operator the applicant does not exceed the scope of the activities it is authorised to carry on by those responsible for the supervision of the applicant in the country or territory in which the applicant’s head office is situated;
(e) the applicant has agreed to cooperate with the AFSA and subject itself to such parts of the legal and regulatory framework administered by the AFSA as the AFSA may require.
(…)
94. Power to givemake directions in respect of Collective Investment Schemes
(…)
PART 8: SUPERVISION OF AUTHORISED PERSONS
CHAPTER 1 – Supervisory powers of the AFSA
95. Exercise of supervisory powers by the AFSA
(…)
(3) Where the AIFC has exercised one or more of the powers set out in this Chapter it may, where it considers it necessary or desirable to do so in accordance with its Regulatory Objectives:
(a) withdraw a prohibition, restriction, or requirement, or decision to exercise any of its supervisory powers; or
(b) substitute or vary an existing prohibition, restriction, or requirement, or decision to exercise any of its supervisory powers.
(…)
96. Power to gather information
(1) The AFSA may, by notice in writing, require an Authorised Person, Ancillary Service Provider, Approved Individual, Designated Individual or any other Director, Employee or representative agent of an Authorised Person or Ancillary Service Provider to:
(…)
(2) The AFSA may require an Authorised Person or Ancillary Service Provider to allow the AFSA to enter its premises during normal business hours or at any other time as may be agreed for the purpose of inspecting and copying information or documents stored in any form on such premises, as it considers necessary or desirable to meet the Regulatory Objectives of the AFSA.
97. Power to require a production of a report
(1) The AFSA may, by notice in writing, require an Authorised Person, or Ancillary Service Provider to provide the AFSA with a report on any matter as the AFSA considers necessary or desirable to meet the objectives of the AFSA.
(2) The Person appointed to make a report required by section 97(1) must be a Person nominated or approved by the AFSA.
(3) Where a requirement has been made of an Authorised Person or Ancillary Service Provider under this section, the Authorised Person or Ancillary Service Provider must take all reasonable steps to ensure that:
(a) any Person who is providing or has provided services to the Authorised Person or Ancillary Service Provider must provide all such assistance as the appointed Person may reasonably require; and
(b) the appointed Person co-operates with the AFSA.
(4) The obligation in section 97(1) is enforceable on application by the AFSA to the AIFC Court.
(5) The costs of providing a report under section 97(1) will be borne by the Authorised Person,or Ancillary Service Provider to whom a notice has been given under section 97(1).
(…)
98. Power to restrict, withdraw or suspend a Licence
(1) The AFSA may:
(a) impose or vary such conditions, restrictions and requirements on a Licence as the AFSA considers appropriate; or
(b) withdraw an Authorised Person’s Licence or vary its Licence to remove one or more Regulated Activities or Market Activities; or
(ba) withdraw an Ancillary Service Provider’s Licence or vary its Licence to remove one or more Ancillary Services; or
(c) suspend an Authorised Person’s Licence in relation to one or more Regulated Activities or Market Activities.; or
(ca) suspend an Ancillary Service Provider’s Licence in relation to one or more Ancillary Services.
(2) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
99. Power to impose a prohibition
(1) The AFSA may prohibit an Authorised Person or Ancillary Service Provider from:
(a) entering into certain specified transactions or types of transactions; or
(b) soliciting business from certain specified Persons or types of Persons; or
(c) carrying on business in a specified manner or other than in a specified manner; or
(d) using a particular name or description in respect of the Authorised Person or Ancillary Service Provider; or
(e) dealing with any relevant property in a specified manner or other than in a specified manner; or
(f) assisting, counselling or procuring another Person to deal with any relevant property in a specified manner or other than in a specified manner.
(2) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
99A. Power to issue directions for prudential purposes and capital requirements
(1)For prudential purposes and capital requirements, the AFSA may direct that an Authorised Person or Authorised Persons within a specified class (including but not limited to):
(a)comply with any specified additional capital or liquidity requirements;
(b)apply a specific provisioning policy or treatment of specified assets;
(c)comply with specified limits on material risk exposures;
(d)comply with specified limits on exposures to related parties;
(e)meet additional or more frequent reporting requirements; or
(f)take such other action as is specified in the direction.
(2)The AFSA may direct an Affiliate of an Authorised Person to take specified steps or not to carry out specified activities if the AFSA:
(a)is the consolidated supervisor of the Group to which the Authorised Person belongs; and
(b)is satisfied that the direction is necessary or desirable for the purposes of the effective prudential supervision of the Group on a consolidated basis.
(3)A direction to an Affiliate under subsection (2) may include a requirement that the Affiliate:
(a)limit any activities it undertakes or may undertake (including closing any office which is outside the jurisdiction in which it has its principal place of business and head office) if the activities are reasonably likely to expose the Authorised Person or its Group to excessive risks or risks that are not properly managed; or
(b)take such other measures as are necessary to remove any impediments to effective supervision of the Group on a consolidated basis, including a direction to take steps to restructure the Group.
(4)Nothing in this section limits the scope or application of any other power that the AFSA may have in these Regulations, any Rules or Regulations or legislation administered by it.
(5)A direction issued under this section comes into force on the date specified in it and remains in force, subject to subsection (7), until it is revoked or varied in writing by the AFSA pursuant to subsection (6).
(6)The AFSA may withdraw or vary any direction given pursuant to this section.
(7)A direction issued to Authorised Persons within a specified class under subsection (1), including any variation made to such a direction according to subsection (6), may not remain in force for a period longer than 12 months from the date specified in the initial direction issued according to subsection (1).
(8)The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this decision.
100. Power to impose a requirement
(1) The AFSA may require an Authorised Person or Ancillary Service Provider to:
(a) take or refrain from taking such action as the AFSA considers appropriate;
(b) carry on business in, and only in, a specified manner;
(c) deal with any relevant property in a specified manner;
(d) deal with any relevant property such that:
(i) the property remains of a value and in a condition that appears to the AFSA to be desirable with a view to ensuring that the Person will be able to meet its liabilities in relation to the business which constitutes a Regulated Activity for which it holds a Licence or Ancillary Service; and
(ii) the Person is able at any time to transfer or dispose or otherwise deal with the property when instructed to do so by the AFSA.
(…)
(3) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
CHAPTER 2 – Obligations of Authorised Persons and Ancillary Service Providers
102. Obligation of disclosure to the AFSA
(1) Subject to (2), an Authorised Person or Ancillary Service Provider must disclose to the AFSA anything which reasonably tends to show:
(a) a breach, or likely breach of a provision of legislation administered by the AFSA; or
(b) a failure, or likely failure, to comply with any obligation to which a Person is subject under such legislation; or
(c) any other matter as the AFSA may prescribe in Rules;
which may be attributable to the conduct of the Authorised Person or Ancillary Service Provider or theirits Directors, officers, Employees or representativesagents.
(…)
(3) An Authorised Person or an Ancillary Services Provider must establish and implement appropriate systems and internal procedures to enable its compliance with section 102(1).
(4) Any provision in an agreement between an Authorised Person, Ancillary Service Provider and a dDirector, officer, eEmployee, representativeagent or auditor thereof is void in so far as it purports to hinder compliance with an obligation under section 102(1).
(5) No Person may be subjected to detriment or loss or damage merely by reason of undertaking any act to cause or assist an Authorised Person or Ancillary Service Provider to comply with an obligation under section 102(1).
(…)
103. Obligation to comply with an order or requirement of the AFSA
Where the AFSA makes an order, issues a direction or prohibition, or makes any requirement in relation to an Authorised Person or Ancillary Service Provider pursuant to a provision of this Law these Regulations or Rules or legislation administered by the AFSA, such Authorised Person or Ancillary Service Provider must, unless he has a reasonable excuse, comply with such order, direction, prohibition or requirement.
104. Provision of information to the AFSA
(1) An Authorised Person and Ancillary Service Provider must not:
(…)
(2) An Ancillary Service Provider must provide to the AFSA an activity report using the appropriate form specified by the AFSA on an annual basis.
105. Obstruction of the AFSA
An Authorised Person or Ancillary Service Provider must not engage in conduct that is intended to obstruct the AFSA in the exercise of any powers under this Part or Part 9 (Enforcement), including without limitation the:
(…)
106. No liability for provision of information or documents to the AFSA
An Authorised Person, an Ancillary Service Provider, an Approved Individual, a Designated Individual or any other Employee or Director of an Authorised Person or an Ancillary Service Provider is neither liable to a proceeding, nor subject to a liability, nor in breach of any duty, merely by reason of:
(…)
107. Self-incrimination
(…)
pursuant to any requirement under either this Part 8 (Supervision of Authorised Persons) or 09 (Enforcement) on the grounds that any such information or document or answer, as the case may be:
(…)
109. Requirement to appoint an Auditor
(1) An Authorised Person must appoint an Auditor.
(2) The AFSA may direct, or the AIFC Court on an application made by the AFSA may order, an Authorised Person to:
(a) appoint an Auditor, where an Auditor has not been appointed by the Authorised Person; or
(b) remove an Auditor and appoint a new Auditor, where in the opinion of the AFSA or the AIFC Court (as the case may be) the Auditor appointed by the Authorised Person is not suitable to provide Audit Services to the Authorised Person.
(3) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
111. Relevant Transfer
The AFSA may provide by Rules that the transfer of the business of carrying on specified Regulated Activities by an Authorised Firm (a “Relevant Transfer”) either:
(a) may only be made by an order of the AIFC Court under section 1130; or
(b) may be made by such an order if the transferor elects.
113. Powers of the Court in relation to a transfer scheme
(1) The AIFC Court may make an order under this section sanctioning a Relevant Transfer if:
(a) any directions madegiven by the ASFA pursuant to section 112(2) have been complied with;
(…)
116. Powers to Obtain Information and Documents for Investigation
(1) Where the AFSA considers that a Person is or may be able to give information or produce a document which is or may be relevant to an investigation, it may:
(a) enter the business premises of such Person during normal business hours for the purpose of inspecting and copying information or documents stored in any form on such premises;
(b) require such Person, by written notice, to
(i) give, or procure the giving of, specified information in such form as it may reasonably require; or
(ii) produce, or procure the production of, specified documents; or
(iii) to attend before an officer, or Eemployee or agent of the AFSA at a specified time and place to answer questions in private (compulsory interview); or
(iv) give it any assistance in relation to the investigation which the Person is able to give.
(…)
(5) The AFSA may exercise its powers under section 116(1) in respect of any Person within, or outside of, the AIFC provided that, if the Person is outside the AIFC and is not an Authorised Person, Ancillary Service Provider or Approved Individual, the AFSA will either:
(…)
118. Sanctions for contraventions
(1) If the AFSA considers that a Person has committed a Contravention, it may:
(a) fine the Person such amount as it considers appropriate in respect of the contravention; and/or
(b) censure the Person in respect of the contravention; and/or
(c) makegive a direction requiring the Person to effect restitution or compensate any other Person in respect of the contravention within such period and on such terms as the AFSA may direct; and/or
(d) makegive a direction requiring the Person to account for, in such form and on such terms as the AFSA may direct, such amounts as the AFSA determines to be profits or unjust enrichment arising from the contravention; and/or
(e) makegive a direction requiring the Person to cease and desist from such activity constituting or connected to the contravention as the AFSA may stipulate; and/or
(f) makegive a direction requiring the Person to do an act or thing to remedy the contravention or matters arising from the contravention; and/or
(g) makegive a direction restricting or prohibiting the Person from holding office in or being an Director or Eemployee of any Authorised Person or Ancillary Service Provider.
(2) Nothing in this section prevents the AFSA from exercising any other power that it may exercise under any legislation administered by it.
(3) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
123. Compulsory Winding up
(1) The AFSA may present a petition to the AIFC Court for the winding up of an Authorised Person or Ancillary Service Provider.
(2) On such a petition, the AIFC Court may wind up the Authorised Person or Ancillary Service Provider if it is of the opinion that it is just and equitable that it should be wound up.
125. Injunction – investigations and proceedings
(…)
(g) in the event that the relevant Person is a natural pPerson
(…)
130A. Procedural irregularities
(1) A procedure under these Regulations or any other Rules or Regulations is not invalidated because of any procedural irregularity unless the AIFC Court declares the procedure to be invalid.
(2) For the purposes of this Section:
(a) procedure includes the making of a decision, the conduct of a hearing, the giving of the relevant notice, and any proceedings (legal or otherwise); and
(b) procedural irregularity includes a reference to a defect, irregularity or deficiency of notice or time.
PART 10: CONFIDENTIALITY
131. Confidential information
(1) For the purposes of these Regulations, information is confidential if it is received by the AFSA or an officer, Eemployee,or delegate or agent of the AFSA in the exercise of a function under these Regulations or any other AIFC Regulations or Rules.
(…)
132. General prohibition on disclosure
(1) Subject to subsection (2), confidential information must not be disclosed to a third party by the AFSA or by an officer, Eemployee, or delegate or agent of the AFSA, or by any Person coming into possession of the information, without the consent of the Person to whom the duty of confidentiality is owed.
(2) The AFSA may disclose confidential information where such disclosure:
(a) is permitted or required under these Regulations or under any other AIFC Regulations or Rules;
(b) is made to any of the authorities listed in CO-OP for the purpose of assisting the exercise by any such authority of its regulatory functions; or
(c) is made in good faith for the purposes of the exercise of the functions and powers of the AFSA.
(3) A Contravention in bad faith of subsection (1) by an officer, Eemployee, delegate or agent of the AFSA, or by any other Person coming into possession of the information shall be punishable by a fine of such amount as it considers appropriate in respect of the Contravention up to a maximum fine of $10,000 and/or disciplinary proceedings. The AFSA may seek injunctive relief where appropriate.
(4) The AFSA may make Rules for the purpose of ensuring the confidentiality of information received in the exercise of a regulatory function.
132A. Prohibition on disclosure for Person
A Person who received from the AFSA any notice, decision, direction, order, request or warning, which is marked as confidential, must not disclose the existence and content of such notice, decision, direction, order, request or warning to any third party except for obtaining any necessary professional advice in relation to his rights and obligations.
PART 11:CO-OPERATION AND EXCHANGE OF INFORMATION
133. Regulatory co-operation
(…)
(2) The AFSA mustshall implement policies and procedures to ensure that it:
(…)
PART 12: Miscellaneous
134. Public Registers
(1) The AFSA must publish and maintain a register of current and past grants, withdrawals and suspensions of Licences of all Authorised Persons and Ancillary Service Providers, statuses of Recognised Non-AIFC Market Institutions, Recognised Non-AIFC Members, Foreign Fund Managers, Approved Individuals, and Principal Representatives in such manner as it believes appropriate.
(2) The AFSA may publish and maintain registers of:
(a) all Persons in relation to whom action has been taken under section 45A(1); and
(b) all Persons who have been prohibited under section 118(1)(g) from holding office or being a Director or Employee of any Authorised Person or Ancillary Service Provider,
indicating whether any such action is of past effect or current, in such manner as the AFSA believes appropriate.
(3) The AFSA may decide not to publish information about a suspension imposed under section 45A(3).
(4) The AFSA must make a reasonably current version of each register kept under subsections (1) to (3) freely available for viewing by the public during the normal business hours of the AFSA.
135. Extended jurisdiction
(1) Any power which the AFSA may exercise in relation to an Authorised Person, Ancillary Service Provider, Approved Individual, Designated Individual or any Director, officer, Employee or representative of an Authorised Person, Ancillary Service Provider, Registered Auditor under these Regulations or any other Rules or other legislation administered by the AFSA may, subject to subsections (2) and (3), continue to be exercised after the date on which:
(a) the Licence of such Authorised Person or Ancillary Service Provider; or
(b) the Approved Individual or Designated Individual status of such individual;
is withdrawn by the AFSA under these Regulations or any other Rules or other legislation administered by the AFSA.
(2) Except as provided in subsection (3), the AFSA may only exercise a power under subsection (1) in relation to a Person within three years after the day on which the AFSA became aware of the act or omission that gave rise to the right to exercise the power in respect of that Person.
(3) If proceedings with respect to the act or omission are commenced by the AFSA within the period referred to in subsection (2), then the provisions of subsection (1) must remain in force until such time as the proceedings and any review or appeal relating to the proceedings are completed.
(4) For the purposes of this section, the AFSA is aware of an act or omission if it has information from which the act or omission can reasonably be inferred.
(5) The decision-making procedures in Schedule 1 apply to a decision made by the AFSA under this section.
136. Publication by the AFSA
The AFSA may publish in such form and manner as it regards appropriate information and statements relating to decisions of the AFSA and the AIFC Court, sanctions, and any other matters which the AFSA considers relevant to the conduct of affairs in the AIFC.
SCHEDULE 1: Decision-making procedures of the AFSA
(…)
2. Application of Schedule
This Schedule applies to the AFSA where a provision in these Regulations or Rules made
3. Decisions to which procedures do not apply
(1) The procedures in this Schedule (other than sub-paragraph (2) of this paragraph) do not apply to a decision by the AFSA:
(a) to revokewithdraw a direction,or withdraw a requirement, restriction or prohibition; or
(b) to withdraw a condition or restriction imposed in relation to a Licence, registration, authorisation or approval; or
(c) in relation to a Person, if the Person has requested, or consented in writing to, the making of the decision.; or
(d) to givemake, revoke and/or vary a direction under section section 9.
4. Opportunity to make representations before a decision
(1) If the AFSA proposes to make a decision to which this Schedule applies, it must first give the Rrelevant Person:
(a) a written notice (a “Preliminary Notice”) containing the information in sub-paragraph (2); and
(b) an opportunity to make representations to the AFSA in Pperson orand in writing concerning the decision the AFSA proposes to take.
(…)
6. Opportunity to make representations after a decision
(1) If this paragraph applies under paragraph 4(7), the AFSA must:
(a) provide the Relevant Person with an opportunity to make representations to the AFSA in Pperson orand in writing within a period of 14 days, or such further period as may be agreed, from the date on which the Decision Notice is given to the Person under paragraph 5; and
(…)
7. Third party rights
(1) If any of the reasons contained in a Decision Notice relate to a matter which:
(a) identifies a Person (a “Third Party”) other than the Person to whom the Decision Notice is given; and
(b) in the opinion of the AFSA, is prejudicial to the Third Party,
The AFSA must give a notice or a copy of the Decision Notice, or extracts of its relevant parts, to the Third Party.
(2) The notice copied to the Third Party must specify a reasonable period within which he may make representations to the AFSA.
(3) A copy of the notice is not required to be given to a Third Party if the AFSA considers it impractical to do so.
(4) The Third Party may refer to the AIFC Court:
(a) the decision in question or any aspect of the decision, so far as it related to him; or
(b) any opinion expressed by the AFSA in relation to him.
(5) The copy of the Decision Notice must advise the Third Party’s right to make a reference to the AIFC Court.
(6) If the Third Party does refer the matter to the AIFC Court, the Third Party may apply to the AIFC Court to stay the action specified in the Decision Notice.
(7) The Third Party must be given a copy of any discontinuance applicable to the proceedings to which the Decision Notice related.
SCHEDULE 2: Appeal to the AIFC Court
1. Time frame for instituting an appeal
(1) An appeal under section 11 may be instituted:
(a) within a period of 28 days immediately following the date of the decision, including the Decision Notice, given to the Personissued by the AFSA, and
(b) by serving a Claim Form on the AFSA, in accordance with the service provisions of the AIFC Court Rules, stating the grounds and material facts on which the appellant relies.
(2) An appeal does not operate as a stay of the decision being appealed.
(…)
Annex 2
PROPOSED AMENDMENTS TO THE AIFC GENERAL RULES
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
Guidance: Purpose of this rulebook
…
• GEN 5 contains the key System and Controls requirements that apply to all Authorised Persons and Ancillary Services Providers.
• GEN 6 complements Part 8 of the Framework Regulations (Supervision of Authorised Persons). The chapter begins with guidance setting out a non-exhaustive list of the circumstances in which the AFSA is likely to exercise the supervisory powers granted to it by sections 96 to 101 of the Framework Regulations. GEN 6.1 adds details to section 97 of the Framework Regulations which gives the AFSA the power to require an Authorised Person to provide it with a report on a specified matter. GEN 6.2 identifies a large number of instances in which an Authorised Person is obliged to make a notification to the AFSA. Finally GEN 6.3 contains requirements relating to accounting and auditors, including requirements to prepare financial reports, keep accounting records, make certain notifications to the AFSA and cooperate with an auditor.
…
1.3.2. Form and content of application for a Licence
A Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on one or more Ancillary Services in the AIFC by:
(a) completing the form prescribed in Schedule 3 and filing the form with the AFSA accompanied by such documents as are specified in the form;
(b) providing such further information as the AFSA may require; and
(c) paying the fee prescribed in the Fees Rules to the AFSA.
1.3.3-1 Effective supervision
In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 41(1) of the Framework Regulations, the AFSA will consider:
(a) the nature, including the complexity, of the Ancillary Services that the applicant will carry on; and
(b) the way in which the applicant's business is organised; and
(c) (if the applicant is a member of a Group) whether membership of the Group is likely to prevent the AFSA’s effective supervision of the applicant; and
(d) whether the applicant is subject to consolidated supervision.
2. CONTROLLED AND DESIGNATED FUNCTIONS
2.1. Mandatory appointments
2.1.1. 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; and
(c) Compliance Officer.; and
(d) Money Laundering Reporting Officer.
(2) For an Authorised Person Operating a Representative Office the mandatory appointments in (1) may be carried on by its Principal Representative.
2.2.5-1. Money Laundering Reporting Officer
The Money Laundering Reporting Officer function must be carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for the implementation of an Authorised Person's anti‐money laundering policies, procedures, systems and controls and day to day oversight of its compliance with the Rules in AML and any relevant anti‐money laundering Rules.
2.3.4. Money Laundering Reporting Officer
The Money Laundering Reporting Officer function must be carried out by an individual who is a Director, Partner or Senior Manager of an Authorised Person and who has responsibility for the implementation of an Authorised Person's anti‐money laundering policies, procedures, systems and controls and day to day oversight of its compliance with the Rules in AML and any relevant anti‐money laundering Rules. [intentionally omitted]
5.6 Conflicts of interest
5.6.1. Identification of conflicts of interest
An Authorised Person or Ancillary Service Provider must take all reasonable steps to identify conflicts of interest that may arise between:
(a)the Authorised Person or Ancillary Service Provider, (including its managers and Employees,) and the Clientsof the Authorised Person or Ancillary Service Provider, or any Persondirectly or indirectly linked to the Authorised Persons or Ancillary Service Providersthem by control; or
(b)one Client of the Authorised Person or Ancillary Service Provider and another Client,
in the course of the Authorised Person carrying on any Regulated Activity or Market Activity or Ancillary Service Provider carrying on Ancillary Services.
5.6.2. Factors relevant to the existence of a conflict of interest in the provision of a service
For the purposes of identifying the types of conflict of interest that arise, or may arise, in the course of providing a service and whose existence may entail a material risk of damage to the interests of a Client, an Authorised Person or an Ancillary Service Provider must take into account, as a minimum, whether the Authorised Person or Ancillary Service Provider or a Persondirectly or indirectly linked by controlto the Authorised Person or Ancillary Service Provider:
(a)is likely to make a financial gain, or avoid a financialloss, at the expense of the Client;or
(b)has an interestin the outcome of a service providedto the Client or of a transaction carried outon behalf of the Client,which is distinctfrom the Client'sinterest in that outcome; or
(c)has a financial or other incentive to favour the interest of another Client or group of Clients over the interests of the Client;or
(d)carries on the same businessas the Client; or
(e)receives or will receive from a Personother than the Client an inducement in relation to a service provided to the Client, in the form of monies, goods or services, other than the standard commission or fee for that service.
5.6.3. Management of conflicts of interest
If arrangements made by an Authorised Person or Ancillary Service Provider to manage conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a Client will be prevented, the Authorised Person or Ancillary Service Provider must clearly disclose the general nature and sources of conflicts of interest to the Clientbefore undertaking businessfor the Client.
…
5.9. Recordkeeping
5.9.1. Record keeping obligation
An Authorised Person or Ancillary Service Provider must make and retain recordsof matters and dealings, including Accounting Records and corporate governance practices which are the subjectof requirements and standards under the Framework Regulations and Rules.
5.9.2. Retrieval of records
An Authorised Person or Ancillary Service Provider must ensure that records stored pursuant to GEN 5.9.1 are capable of reproduction on paper withina reasonable periodnot exceeding five Business Days.
6. SUPERVISION
…
Guidance: Exercise of supervisory powers by the AFSA
The AFSA is likely to exercise the supervisory powers in sections 96 to 101 of the Framework Regulations in the following circumstances:
(a)an Authorised Person or Ancillary Service Provider is failing, or is likely to fail, to satisfy the criteria referred to in sections 34 or 37 or 41 of the Framework Regulations as appropriate (Criteria for the grant of a Licence); or
(b)an Authorised Person or Ancillary Service Provider has failed, during a period of at least 12 months, to carry on a Regulated Activity or Market Activity or Ancillary Service for which it has a Licence;or
(c)it is desirable to take such steps to exercise such power in order to protect the interests of Clientsor customers of an Authorised Person or Ancillary Service Provider or the financial system; or
(d)an Authorised Person or Ancillary Service Provider is in breach of, or has been, in breach of one or more conditions, restrictions or requirements applicable to its Licence; or
(e)an Authorised Person or Ancillary Service Provider is (or has been) otherwise in breach of the AIFC Constitutional Law Statute, the Framework Regulations or any Rulesor other relevantlegislation; or
(f)an Authorised Person is in breachof a requirement under section48 of the Framework Regulations (Requirement for AFSA approvalto change in control); or
(g)a request has been received from aFinancial Services Regulator; or
(h)there is a reasonable likelihood that an Authorised Person or Ancillary Service Provider will contravene a requirement of any Regulations or Rules; or
(i)an Authorised Person or Ancillary Service Provider has contravened a relevant requirement and there is a reasonable likelihood that the contravention will continue or be repeated; or
(j)there is loss, risk of loss, or other adverse effect on an Authorised Person’s or Ancillary Service Provider’s Clients; or
(k)an investigation is being carried out in relation to an act or omission by an Authorised Person or Ancillary Service Provider that constitutes or may constitute a Contravention of any applicable Regulation or Rule; or
(l)an enforcement action has commenced againstan Authorised Person or Ancillary Service Provider for a Contravention of any applicable Regulation or Rule; or
(m)civil proceedings have commenced against an Authorised Person or Ancillary Service Provider; or
(n)an Authorised Person, or Ancillary Service Provider, or any of Its Employeesmay be or has been engaged in Market Abuse; or
(o)an Authorised Person or Ancillary Service Provider is subjectto a merger; or
(p)a meeting has been called to consider a resolution for an Authorised Person’s or Ancillary Service Provider’s winding‐up; or
(q)an application has been made for the commencement of any insolvency proceedings or the appointment of any receiver,administrator or provisional liquidator under the law of any country,territory or jurisdiction outside the AIFC for an Authorised Person or Ancillary Service Provider; or
(r)there is a notification to dissolve an Authorised Person or Ancillary Service Provider or strike it from the register maintained by the Registrarof Companies, or a comparable register in another jurisdiction; or
(s)there is information to suggest that an Authorised Person or Ancillary Service Provider is involved in Financial Crime; or
(t)the AFSA considers that the exerciseof the power is necessaryor desirable to ensure Clients, Authorised Persons, Ancillary Service Providers or the financial system, are not adversely affected.
6.2 Obligation of disclosure to the AFSA
6.2.1. Core information
An Authorised Personor Ancillary Service Provider must provide the AFSA with reasonable advance notice of a changein:
(a)the Authorised Person’s or Ancillary Service Provider’s name; or
(b)any business or tradingname under which the Authorised Person or Ancillary Service Provider carries on a Regulated Activity, MarketActivity or Ancillary Service; or
(c)the address of the Authorised Person’sor Ancillary Service Provider’s principal place of business in the AIFC; or
(d)in the case of a Branch,its registered office or head officeaddress; or
(e)its legal structure; or
(f)an Approved Individual’s name or any material mattersrelating to his fitness and propriety.
…
6.2.3. Regulatory impact
An Authorised Person or Ancillary Service Provider must advisethe AFSA immediately if it becomesaware, or has reasonable grounds to believe, that any of the following matters may have occurred or may be about to occur:
(a)the Authorised Person’s or Ancillary Service Provider’s failure to satisfy the fit and proper requirements; or
(b)any matter which could have a significant adverse effect on the Authorised Person’s or Ancillary Service Provider’s reputation; or
(c)any matter in relation to the Authorised Person or Ancillary Service Provider which could result in serious adverse financialconsequences to the financial system or to other Authorised Persons or Ancillary Service Providers; or
(d)a significant breach of a Rule by the Authorised Person or Ancillary Service Provideror any of its Employees; or
(e)a breach by the Authorised Person or Ancillary Service Provider or any of Its Employees of any requirement imposed by any applicable law bythe Authorised Personor Ancillary Service Provider orany of its Employees; or
(f)any proposed restructuring, merger, acquisition, reorganisation or business expansion which could have a significant impact on the Authorised Person’s or Ancillary Service Provider's risk profileor resources; or
(g)any significant failure in the Authorised Person’s or Ancillary Service Provider’s systems or controls,including a failurereported to by the Authorised Person’s or Ancillary Service Provider's Auditor; or
(h)any action that would result in a materialchange in the capital adequacy or solvency of the Authorised Person or Ancillary Service Provider; or
(i)non-compliance with Rules due to an emergency outsidethe Authorised Person’sor Ancillary Service Provider’s controland the steps beingtaken by the Authorised Person or Ancillary Service Provider.
…
6.2.6. Fraud and errors
An Authorised Personor Ancillary Service Provider must notify the AFSA immediately if one of the followingevents arises inrelation to its activities:
(a)it becomes aware that an Employee may have committeda fraud against one of its or another Person’s Clients; or
(b)a fraud has been committed againstit; or
(c)it has reasonto believe that a Personis acting with intent to commit a serious fraud against it; or
(d)it identifies significant irregularities in its accounting or other records,whether or not there is evidence of fraud; or
(e)it suspects that one of its Employees who is connected with the Authorised Person’s Regulated Activities or MarketActivities or Ancillary Service Provider’s Ancillary Services may be guilty of serious misconduct.
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6.2.9. Winding up, bankruptcy and insolvency
An Authorised Personor Ancillary Service Provider must notify the AFSA immediately on:
(a)the calling of a meetingto consider a resolution for winding up the Authorised Person or Ancillary Service Provider; or
(b)an application to dissolvethe Authorised Personor Ancillary Service Provider orto strike it from the register maintained by the AIFC Registrar of Companies, or a comparable register in anotherjurisdiction; or
(c)the presentation of a petitionfor the windingup of the Authorised Person or Ancillary Service Provider; or
(d)the making of, or any proposals for the making of, a composition or arrangement with creditors of the Authorised Person or Ancillary Service Provider; or
(e)the application of any Person against the Authorised Person or Ancillary Service Provider for the commencement of any insolvency proceedings, appointment of any receiver, administrator or provisional liquidator under the law ofany country.
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6.2.11. Accuracy of information
An Authorised Person or Ancillary Service Provider must take reasonable steps to ensure that all information that it provides to the AFSA in accordance with any applicable legislation is:
(a)factually accurate or, in the case of estimates and judgements, fairlyand properly based; and
(b)complete, in that it should include anything of which the AFSA would reasonably expect to be notified.
6.2.12. Correction of inaccurate information
An Authorised Person or Ancillary Service Provider must notify the AFSA immediately if it becomes aware, or has information that reasonably suggests, that it:
(a)the Authorised Person or Ancillary Service Provider has or may have provided the AFSA with information which was or may have been false, misleading, incomplete or inaccurate; or
(b)the information provided by the Authorised Person or Ancillary Service Provider has or may have changed in a material particular.
PROPOSED AMENDMENTS TO THE AIFC CONDUCT OF BUSINESS RULES 2017
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
Guidance: Purpose of this rulebook
The purpose of this rulebook,“COB”, is to ensure that financial servicesfirms operating in the AIFC meet the standards of conduct expected of such firms, particularly with regard to the treatment of their clients, but also in their dealings with counterparties and other market participants. COB also includes rules to ensure that the behaviour of firms operating in the AIFC contributes to fostering and maintaining the integrity of financialmarkets in the AIFC. COB also includes certain requirements applicable to Ancillary Services Providers.
(…)
13. ANCILLARY SERVICEPROVIDERS
(…)
13.2. Principles for Ancillary Service Providers
(…)
13.2.9. Principle 9 ‐ Conflicts of interest
An Ancillary Service Provider must take all reasonable steps to ensure that conflicts of interest between itself and its Clients, between its Employees and Clients and between one Client and another are identified and then prevented or managed, or disclosed, in such a way that the interests of a Client are not adversely affected.
13.2.10. Principle 10 – Complaints
An Ancillary Service Provider must take all reasonable steps to ensure that Complaints made against it by Clients are handled fairly, consistently and promptly.
PROPOSED AMENDMENTS TO THE AFSA GLOSSARY
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
AIFC Court | The court specified under Article 13 of the Constitutional |
Centre Bodies | The bodies identified in Article 9 of the Constitutional |
Centre Participant | As defined in Article 1(5) of the Constitutional |
Client Assets | Client Money and Client Investment |
Financial Crime | Any kind of conduct relating to money or to financial services or markets that would amount to criminal conduct under Kazakh law (whether or not such conduct takes place in the Republic of Kazakhstan), including any offence involving: (a) fraud or dishonesty; or (b) misconduct in, or misuse of information relating to, a financial market; or (c) handling the proceeds of crime; or (d) the financing of terrorism (e) money laundering. |
Guidance | (a) guidance adopted under, or contained in, any AIFC Act; or (b) a code of practice, standard, policy statement or anything else adopted as guidance under any AIFC Act. |
Offer | (1) In relation to Securities, an Offer of Securities. (2) In relation to Units, an Offer of Units (and “Offered” and “Offering” and similar terms have corresponding meanings |
Regulation | A regulation enacted under Article 4(3) of the Constitutional |
Rule | A rule made by the AFSA under Article 4(3) of the Constitutional |
Security | 1. A Security is: (a) a Share; (b) a Debenture; (c) a Warrant; (d) a Certificate; or (e) a Structured Product. 2. For the purposes of article 6 of the Constitutional |
PROPOSED AMENDMENTS TO THE AIFC FEES RULES
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
1.2.3. Application fees payable to the AFSA in respect of Ancillary Services
An applicant seeking to carry on one or more Ancillary Services or an Authorised FirmAncillary Service Provider applying to modifyvary or withdraw a Licence to carry on Ancillary Services, must pay to the AFSA:
(a) the application fees specified in Schedule 3; and
(b) any supplementary fee required by the AFSA in accordance with FEES 6.
SCHEDULE 3: APPLICATION FEES PAYABLE TO THE AFSA FOR ANCILLARY SERVICES
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1.2 Fees for variationmodification or withdrawal of a Licence
Application to varymodify or withdraw a Licence
Fee (USD)*
VariationModification of an Ancillary Service Provider's Licence
The application fee under table 1.1 of Schedule 3 of FEES for an additional type of Ancillary Service currently being sought. This applies only to a variationmodification (change) of the scope of Licence where new Ancillary Services sought to be included.
Withdrawal of an Ancillary Service Provider’s Licence
At present, the AFSA does not intend to charge an application fee for these activities. Any such application fee shall be determined by the AFSA at a later date.
* Application fee for variationmodification of a Licence prescribed herein is applied from 1 May 2022. Before 1 May 2022, this fee is not applied.
Applications to varymodify or withdraw
An Ancillary Service Provider applying to the AFSA to change the scope of its Licence, to have a condition or restriction varied or withdrawn, or to have its Licence withdrawn must pay the prescribed fee set out in the table at 1.2 above
Consultation Paper on Proposed AIFC Digital Assets Trading Facility Framework
Please, press “PDF” button above to download a Consultation Paper
Introduction
Why are we issuing this Consultation Paper (CP)?
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the amendments to the AIFC Rules and regulations to enhance the AIFC Digital Asset Trading Facility Framework.
Who should read this CP?
2.The proposals in this paper will be of interest to current and potential AIFC participants dealing with digital assets as well as the market and other stakeholders.
Terminology
3.Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in the Glossary Rules (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4.We invite comments from interested stakeholders on the proposed framework. All commentsshould be in writing and sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2023-0001” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5.The deadline for providing comments on the proposed framework is 2 July 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6.AFSA prefers to receive comments by email at consultation@afsa.kz or posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Astana, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Issues;
Part III – Best Practice;
Part IV – Proposals;
Part V – Public Consultation Questions;
Part VI – Outcomes.
Annex 1 - Draft AIFC Rules on Digital Asset Activities (Digital Asset Trading Facility framework);
Annex 2 – Consequential amendments to AIFC Regulations and Rules.
Background
1.Regulatory authorities globally are examining the issues surrounding trading of digital assets. The International Organization of Securities Commissions’ (“IOSCO”) in its March 2022 Decentralized Finance Report have raised concerns about key risks including market integrity, illicit activity and operational and technological risks. There are also other issues such as safekeeping and segregation of client assets, liquidity (or insolvency) risk, lack of disclosure and skills (experience, culture) on market surveillance function, risk of improper investor assessment, business continuity risk (prudential risk), pre- and post-trade processes, risk of arbitrage and inefficient price formation which regulators seek to address. The AFSA also examined its legal and regulatory framework based on risks and issues that were raised by jurisdictions around the world.
Based on our analysis, it is believed that the below factors require further enhancements of the framework:
- i.Market specifics and consequential risks; and
- ii.Concerns of the current Digital Asset Trading Facility (“DATF”) framework structure.
2.Following the review of the AIFC DATF framework, AFSA issued a Consultation Paper on “Enhancements to Digital Asset Trading Facility framework” on 27 January 2023 to address the existing risks in the digital asset industry and consider options for restructuring the DATF framework.
3.Feedback received during the public consultation as well as initial examination of the DATF framework by AFSA were used to prepare this Consultation Paper on “Amendments to the AIFC Digital Asset Trading Facility framework”.
Issues
In light of the recent developments and reported failures of some cryptoexchanges, the AFSA considers taking measures in order to pursue its regulatory objectives. The absence of a clear legal and regulatory framework for digital assets may lead to a lack of investors’ confidence in those digital assets, which could significantly hinder the development of a market and could lead to missed opportunities in terms of innovative digital services or new funding sources for AIFC companies.
Regulatory authorities globally are examining the issues surrounding trading of digital assets. International Organization of Securities Commissions’ (“IOSCO”) in its March 2022 Decentralized Finance Report have raised concerns about key risks including market integrity, illicit activity and operational and technological risks. There are also other issues such as safekeeping and segregation of client assets, liquidity (or insolvency) risk, lack of disclosure and skills (experience, culture) on market surveillance function, risk of improper investor assessment, business continuity risk (prudential risk), pre- and post-trade processes, risk of arbitrage and inefficient price formation which regulators seek to address. The AFSA also examined its legal and regulatory framework based on risks and issues that were raised by jurisdictions around the world.
Based on our analysis, it is believed that the below factors require further enhancements of the framework:
(1)Market specifics and consequential risks; and
(2)Concerns of the current DATF framework structure.
Market specifics and consequential risks
There is a number of market factors that influence the level of risks originating from DATFs:
·Market capitalisation hit 2.6 trln. USD (2021) with subsequent fall to one third of value (to approximately one 1 trln. USD);
·A large number of Retail Investors (e.g., 6.2% of British citizens own cryptoassets);
·Increasing level of adoption of cryptocurrencies by traditional finance intermediaries. Many online retailers and some brick-and-mortar stores accept payment in crypto through payment service gateways and providers.
·Collapse of Luna and Terra (USD pegged algorithmic stablecoin) in Q2 2022 and FTX in Q4, demonstrating the high volatility of the asset class.
The above factors demonstrate the risks for consumer protection and financial stability from illicit activities, cyber threats and market abuse. These risks are only partially addressed by the existing mitigants or lack the appropriate and adequate measures, including
(1)money laundering and terrorist financing risks;
(2)risk of operational failure and cyber risk;
(3)conflict of interest risk;
(4)market abuse risk (market manipulation, misleading or other fraudulent and deceptive conduct);
(5)insufficient information available to the investors on trading rules;
(6)lack of information describing all relevant types of Digital Assets;
(7)insufficient knowledge by DATFs;
(8)counterparty risk and settlement finality risk;
(9)problems within DATF framework, i.e., inefficient structure of the framework, inefficient provisions, deficiencies revealed as a result of day-to-day supervision processes;
(10)structural issues with the DATF framework.
Concerns of current DATF framework’s structure
The ongoing supervision of cryptoexchanges revealed contradictions, inefficient provisions, and uncertain definitions within the regime. The AIFC DATF regime does not address all required risks that would be caused if/when FinTech Lab cryptoexchanges start operating under full authorisation regime. Another deficiency of the framework is its form, where DATF related rules are spread across various AIFC rules. This is known to be inconvenient to technology driven cryptoexchanges that do not have a regulatory compliance skillset and culture and prefer to have all requirements in one place.
Best Practice
The AIFC’s legal framework was assessed against the issues and risks specified in the IOSCO’s Final Report “Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms”. Guidance of other global standard setting bodies (e.g., the FATF and Financial Stability Board) has also been taken into account, and relevant suggestions / recommendations have been developed based on such guidance and best international practice. The Policy Paper mainly focuses on the analysis of regimes in such financial centres and jurisdictions as the Abu-Dhabi Global Market (“ADGM”), Dubai International Financial Centre (“DIFC”), and Bahrain that have comprehensive cryptoexchange regulatory frameworks. In addition, in some instances, references to best practices of other jurisdictions (Malaysia, the European Union, United States, and Japan) have been given.
Primarily, the legal framework of the ADGM is selected as a primary benchmark due to various common features such as:
(1)Similar status of international financial centre with risk-based regulation;
(2)Regulatory framework is generally based on the UK financial legal framework, principles and rules;
(3)Comprehensive regulatory framework for DATFs embracing many aspects of their activities (e.g., authorisation, fitness and propriety, conduct of business, anti-money laundering, prudential requirements and guidance);
(4)Previously AIFC followed the ADGM approach for DATF and DA regulations;
(5)Relatively mature DATFs regulatory framework that was implemented in 2018 and was subject to revisions;
(6)Relatively developed cryptomarket (multiple DATFs have been licenced by the ADGM’s Financial Services Regulatory Authority);
The other two benchmark jurisdictions are the DIFC and Bahrain. The DIFC introduced its Investment Token framework recently in October 2022 and its Crypto Token Framework in November 2022. The Bahraini framework has also the common financial center feature and is based on the UK financial legal framework. Bahrain adopted its DASPs and DA regulatory framework in 2019. Bahrain established a standalone crypto framework that is comprehensive, convenient in terms of navigation, has some commonalities with ADGM, but at the same time provides for many specific and tailored measures that address the risks of the DASP-related activities.
Unlike AIFC, where DATF is treated as an Authorised Market Institution, cryptoexchanges provide services under the Multilateral Trading Facility regime in the ADGM.
Proposals
1. Risk mitigation measures
1.1. Governance
Digital Asset Service Providers should have internal controls in place with a view to establish risk management across its operations, departments, branches, and subsidiaries, both domestically and where relevant abroad. Those internal controls should include appropriate governance arrangements to establish clear responsibilities for the management of risks. These arrangements are scalable depending on the nature and size of the business, but for a cryptoexchange or large broker should include a board of directors, board committees and an executive team with a Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer, Chief Risk Officer, Chief Technology Officer, and external/internal independent audit function. Some of these requirements are already set by the AIFC General Rules.
1.2.Risk of illicit activity
Following the analysis of AIFC AML regime, it was concluded that it has to be strengthened by a Travel Rule requirement, Guidance on AML aspects of DATF operations (e.g., setting criteria for Digital Assets admission to trading) and imposing bans on privacy tokens (fully anonymous digital assets).
The rule, formally known as FATF Recommendation #16, requires DASPs to obtain, hold, and submit required originator and beneficiary information associated with Digital Asset transfers in order to identify and report suspicious transactions, take freezing actions, and prohibit transactions with designated persons and entities. Besides, AFSA proposed its approach to the transactions of DASPs with unhosted wallets and sunrise issue that follows FATF recommendations.
Finally, AFSA set a requirement on conducting due diligence by VASPs of its counterparties as per FATF recommendation #13.
1.3. Operational resilience and cyber security
Overall, the regulatory measures under the AIFC Rules are aimed at ensuring basic standards for technology governance to prevent operational disruptions and cyber threats within cryptoexchanges (systems and controls, outsourcing requirements, requirements for testing etc.). However, given the high cyber risks in the cryptosphere, the regulatory protections have some deficiencies. Therefore, the following measures are suggested:
(1) impose mandatory independent third-party audit of technology governance and IT systems of all DASPs; set a criteria for the independent third-party auditors and define scope of the audit;
(2) requirement to make a mandatory appointment of Chief Information Technology Officer;
(3) regulate the types of wallet solutions (hot vs cold wallet) for Digital Asset custody through a guidance; the Paper suggests setting expectations under the Guidance for storage of DAs in cold wallet or using other alternative solutions that ensure high standards of security and resilience.
(4) extend the COB Chapter 4 on Client agreement and Key Information on DATF regime;
(5) impose additional obligations for providing DA custody services (e.g., informing client on confirmation of successful transfer of DA, on final fees and charges, set out in Client agreement the legal grounds for cryptoexchange to stop and restrict client access to its services).
1.4. Safekeeping and segregation of client assets
There is a high risk of co-mingling of cryptoexchanges’ DAs with those of their clients and there are concerns with proper record-keeping procedures in cryptoexchanges. Measures proposed below will enhance segregation, reconciliation and accurate accounting requirements:
(1) application of COB 8 Client investment rules on DATF (proposal considered when a problem of treatment of cryptoexchanges as Regulated or Market activity is analyzed below);
(2) substitute the term “Digital Asset Depository” with the term “Providing (Digital Asset) Custody” services; and
(3) daily reconciliation of Digital Asset balances requirements.
1.5. Conflict of interests
Existing cryptoexchanges’ business models that combine custody, market making, settling and clearing services are highly exposed to conflicts of interest risk. The current regulatory measures against this risk are not efficient since conflict of interests rules under COB are not applicable to DATF activity. Hence, this Paper proposes to extend existing conflicts of interests Rules under COB on DATF.
Additionally, AFSA suggests to allow proprietary trading for DATF on its own platform. Proprietary trading by cryptoexchanges is a prevailing practice in many markets abroad, used for creating liquidity on its own platform. Given that the AIFC cryptoexchange market is at the early stage of development, this approach may have positive effects such as decreased price volatility and attraction of investors. Furthermore, to avoid the comingling of the traditional finance activities with activities of DASPs, AFSA proposes a prohibition for traditional services Operating an Exchange to admit and trade Digital Assets.
1.6. Market Abuse
Trading on cryptoexchanges globally has attracted various market abuse practices, whereas the measures are generic and lack the clarity on applicability of the separate and comprehensive rules against market abuse on DATF and Digital Assets. Thus, the applicability of Market Abuse provisions under AIFC Market Rules to DATF and Digital Assets is clearly defined. Additional mitigants concern imposing requirement on DATF to monitor its own forums to avoid market manipulation.
1.7. Disclosures to investors
The process of admission to trading would require the DATF to prepare a report on Digital Asset in the form of a white paper but additionally with non-technical details for AFSA’s approval.
In regard to the lack of specific rules on disclosures of data on specific features of Digital Assets (e.g., hacking vulnerabilities, traceability of Digital Assets), that is mitigated by imposing a requirement on DASPs to disclose a Key Features Document (KFD or “Digital Asset Prospectus”) prior to providing services to clients. KFD may provide data on key issuers, design team of the Digital Assets, underlying technology, valuation of the Digital Assets, volatility, fraud, hacking risks, and other relevant topics.
1.8.Pre- and post-trade processes
In addition to the existing requirements on cryptoexchanges to disclose trade data prior to and after the trades, it is proposed that DATFs have to disclose additional pre-trade data, in the form of volume of bid and offer, and the depth of trading interest shown at the prices and volumes advertised to participants.
Further, the proposed amendments is also aimed at providing an exemption from pre-trade transparency for participants that intend to enter into large trades (e.g., large orders of institutional investors that do not wish such orders to be displayed) that will benefit the certain large players.
1.9. Retail Clients protections
Retail clients have a direct access to the DATF platform. Therefore, direct investing in digital assets that are risky and volatile, exposes the retail consumers to the high risks and losses. Existing measures to protect Retail clients under AIFC DATF framework will be complemented by:
·retaining investment limits to digital assets on retail clients – residents of Kazakhstan, whereas no investment limits will be applicable on non-residents of Kazakhstan. However, non-residents of Kazakhstan will be subject to appropriateness assessment by the DATF Operator prior to allowing access to trading.
·Prohibition to use the Digital Asset Derivative products, unless Retail Clients residents of Kazakhstan successfully pass appropriateness assessment by the DATF Operator.
2. Further enhancement of the existing DATF framework
During our analysis, several policy matters were identified that are suggested to be changed.
2.1.Regulated vs Market activity
The fundamental aspect of the regulatory regime is treatment of the cryptoexchange either as a market or regulated activity. Currently, cryptoexchanges are considered an Authorised Market Institution, however direct access of investors to a cryptoexchange without traditional brokers weakens its market infrastructure features. The business practices of cryptoexchanges require them to combine additional custody and proprietary trading services (meaning direct interaction with clients), therefore, it is concluded that qualifying the cryptoexchange as a regulated firm is more appropriate.
2.2. Net asset test
It is proposed to allow investors to provide evidence of owning Digital Assets as part of their net assets for the professional investor eligibility test. Specifically, it is proposed to recognise Approved Digital Assets in the net asset test with 70% haircut for unbacked Digital Assets (e.g., Bitcoin) or without a haircut for regulated fiat stablecoins (e.g., USD Coin or Tether).
2.3.“Green list”
The existing DATF regulatory regime requires the approval of Digital Assets for trading on cryptoexchange by the AFSA. To increase efficiency in the course of assessment, the Paper proposes a criteria-based process that leads to the inclusion of Digital Asset on a “green list”. These criteria may include maturity / market capitalisation, security, traceability of the Digital Asset, support of Digital Assets by other cryptoexchnages, security and usability of distributed ledger technology, innovation / efficiency, and practical application/functionality. AFSA may publish the so-called green list of the Approved Digital Assets on its website, and regularly review it.
This Paper proposes to impose a requirement on DATFs to notify the AFSA 10 days before admission of a Digital Asset to trading and confirm that it has available tools to trace the specific Digital Asset transaction on its underlying blockchain. In addition, the Paper proposes to impose a requirement on DATFs to notify the AFSA if DATFs become aware of significant developments that may result in the Digital Asset no longer qualifying as an Approved Digital Asset (e.g., cyber risks, or privacy features making the Digital Asset transaction non-traceable or fully-anonymous).
2.4. Considering DATF framework restructuring
One of the deficiencies of the existing framework is its form, where DATF related rules are spread across various AIFC Rules. This is known to be inconvenient to technology driven cryptoexchanges that do not have a high-level regulatory compliance skillset and culture and prefer to have all requirements in one place.
Therefore, analysis suggested three options for the restructuring of the existing DAFT Framework:
Option 1 – Keeping the existing framework form; or
Option 2 – Developing a standalone DATF framework; or
Option 3 – Treatment of cryptoexchanges as an MTF.
As a result of review of the options, it is proposed to select the most user-friendly and comprehensive approach - option 2, where a single Rulebook brings together all provisions from other rulebooks with necessary adjustments for Digital Asset and DATF activity.
Public consultation questions
In the course of public consultation, existing and potential market participants will be invited to comment on the following questions:
(1)AFSA invites comments on the draft Rules on Digital Asset Activities and consequential amendments set out in the paper.
(2)Are there any new provisions or amendments that are not clear? What are they and what is your interpretation of them? How would you recommend addressing the lack of clarity?
(3)How much time will your business need to make itself compliant with the proposed amendments?
(4)AFSA invites comments on the proposed DATF rulebook restructuring.
(5)What is your view on the proposed capital requirements?
(6)Do you agree with our proposal to insert provisions in the Rules which will outline requirements in relation to the composition, structure, duties, and powers as well as skills, experience and qualifications of the members of the Board of Directors? Do you think there is a need to add provisions which will specify the minimum number of independent directors? If so, how many independent directors you think will be the optimal number?
(7)What do you think about the proposed requirements in relation to the IT systems and technology governance?
(8)What is your view on the approval process of the Digital Assets to trading? Do you agree that DATF Operators should analyse and decide themselves whether to admit Digital Assets to trading?
(9)Do you agree with the proposed restrictions and prohibitions?
(10)Do you agree with our proposal to specify in the Rules the residency requirement (i.e. to be residents in the Republic of Kazakhstan) for certain Approved Individuals?
Outcomes
It is expected that the implementation of the Amendments to the AIFC Digital Asset Trading Facility framework by the AFSA will help:
1) address and mitigate risks originating from cryptoexchanges’ operations and cryptoasset industry in general;
2) address contradictions, inefficient requirements, unclear provisions of the existing framework;
3) create favorable regime for cryptoexchange business in the AIFC, encouraging innovation in digital assets and contributing to the development of crypto-asset ecosystem in Kazakhstan.
This will collectively help to create a clear, convenient, efficient, detailed and balanced AIFC DATF framework with high standards for consumer protection, without hindering development of cryptoexchanges.
Annex 1
1.GENERAL
1.1.Application of these Rules
These Rules, which may be cited as the AIFC Rules on Digital Asset Activities (“DAA”), apply to a Person carrying on, in or from the AIFC, the following Regulated Activities in relation to Digital Assets:
(a)Dealing in Investments as Principal;
(b)Dealing in Investments as Agent;
(c)Managing Investments;
(d)Managing a Collective Investment Scheme;
(e)Providing Custody;
(f)Arranging Custody;
(g)Advising on Investments;
(h)Arranging Deals in Investments;
(i)Providing Money Services; and
(j)Operating a Digital Asset Trading Facility.
Guidance:
The following activities do not constitute Operating a Digital Asset Business:
(a) trading of Digital Assets for the Person’s own investment purposes; or
(b) any other activity or arrangement that is deemed by the AFSA to not constitute Operating a Digital Asset business, where necessary and appropriate in order for the AFSA to pursue its objectives.
2.RULES APPLICABLE TO DIGITAL ASSET TRADING FACILITY OPERATORS
This Chapter 2 applies to all Digital Asset Trading Facility Operators.
Guidance
A Digital Asset Trading Facility Operator is an Authorised Firm to which the following provisions of the Constitutional Statute, GEN, COB, AML, MAR are applicable either directly or in respect of its officers and Employees who are Approved Individuals or Designated Individuals:
Article 4-1 of the Constitutional Statute;
AML (in whole);
Chapter 2 (Client classification) of the COB;
Chapter 3 (Communications with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
Chapter 7 (Conflicts of interest) of the COB;
Chapter 8 (Client Assets) of the COB;
Chapter 9 (Reporting to Clients) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 5 (Market Abuse) of the MAR;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC.
2.1.Authorisation
(1) A Person wishing to carry on the Regulated Activity of Operating a Digital Asset Trading Facility must be an Authorised Firm licensed by the AFSA.
(2) A Person wishing to carry on the Regulated Activity of Operating a Digital Asset Trading Facility must submit to the AFSA relevant policies and controls.
2.2.Requirements for Digital Asset Trading Facility Operator authorisation
The AFSA may not grant authorisation or variation to operate a Digital Asset Trading Facility unless the applicant satisfies all of the following requirements:
(1)general authorisation requirements applicable to the applicant under the Framework Regulations and other applicable rules, and
(2)the applicant must ensure that it maintains at all times capital resources in the amount specified in Table 1 by reference to the activity that the Authorised Firm is licensed to conduct or, if it is authorised to conduct more than one such activity, the amount that is the higher or highest of the relevant amounts in Table 1.
Table 1
Regulated Activity | Capital requirement (USD) |
Operating a Digital Asset Trading Facility | 200,000 or amount equal to 12 months’ operational expenses (the amount that is the higher or highest) |
Providing Custody (in relation to Digital Assets) | 250,000 |
2.3.Governance
2.3.1. Mandatory appointments
A Digital Asset Trading Facility Operator must make the following appointments and ensure they are held by the relevant Approved or Designated Individuals at all times:
(1)the Senior Executive Officer;
(2)Finance Officer;
(3)Compliance Officer;
(4)Risk Manager; and
(5)Money Laundering Reporting Officer.
In addition, a Digital Asset Trading Facility Operator must appoint a Chief Information Technology Officer, who is an individual responsible for its ongoing information technology (“IT”) operations, maintenance and security oversight to ensure that the Digital Asset Trading Facility Operator’s IT systems are reliable and adequately protected from external attack or incident.
2.3.2. Board of Directors of a Digital Asset Trading Facility Operator
(1) A Digital Asset Trading Facility Operator must have an effective Board of Directors which is collectively accountable for ensuring that the Digital Asset Trading Facility Operator’s business is managed prudently and soundly.
(2) The AFSA may issue guidance on the requirements relating to Board composition, structure, duties and powers as well as skills, experience and qualifications of Directors, and other relevant requirements.
(3) The Board must ensure that there is a clear division between its responsibility for setting the strategic aims and undertaking the oversight of the Digital Asset Trading Facility Operator and the senior management’s responsibility for managing the Digital Asset Trading Facility Operator’s business in accordance with the strategic aims and risk parameters set by the Board.
(4) The Board and its committees must have an appropriate balance of skills, experience, independence, and knowledge of the Digital Asset Trading Facility Operator’s business, and adequate resources, including access to expertise as required and timely and comprehensive information relating to the affairs of the Digital Asset Trading Facility Operator.
(5) The Board must ensure that the Digital Asset Trading Facility Operator has an adequate, effective, well-defined and well-integrated risk management, internal control and compliance framework.
(6) The Board must ensure that the rights of shareholders are properly safeguarded through appropriate measures that enable the shareholders to exercise their rights effectively, promote effective dialogue with shareholders and other key stakeholders as appropriate, and prevent any abuse or oppression of minority shareholders.
(7) The Board must ensure that the Digital Asset Trading Facility Operator’s financial and other reports present an accurate, balanced and understandable assessment of the Digital Asset Trading Facility Operator’s financial position and prospects by ensuring that there are effective internal risk control and reporting requirements.
(8) A Director of the Digital Asset Trading Facility Operator must act:
(a)on a fully informed basis;
(b) in good faith;
(c) honestly;
(d) with due skill, care and diligence; and
(e) in the best interests of the Digital Asset Trading Facility Operator and its shareholders and Clients.
2.4.Technology resources
2.4.1. Sufficient resources
A Digital Asset Trading Facility Operator must have sufficient technology resources to continually operate, maintain, and supervise its facility.
2.4.2. Confidentiality
A Digital Asset Trading Facility Operator must take reasonable steps to ensure that its information, records and data are secure, and the confidentiality is maintained.
2.4.3. Cyber-security
A Digital Asset Trading Facility Operator must take reasonable steps to ensure that its IT systems are reliable and adequately protected from external attack or incident.
2.4.4. Cyber-security policy
(1) A Digital Asset Trading Facility Operator must implement a written cyber-security policy setting forth its policies and procedures for the protection of its electronic systems and Members and counterparty data stored on those systems, which shall be reviewed and approved by the Digital Asset Trading Facility Operator’s Governing Body at least on an annual basis.
(2) The cyber-security policy must, as a minimum, address the following areas:
(a) information security;
(b) data governance and classification;
(c) access controls;
(d) business continuity and disaster recovery planning and resources;
(e) capacity and performance planning;
(f) systems operations and availability concerns;
(g) systems and network security;
(h) systems and application development and quality assurance;
(i) physical security and environmental controls;
(j) customer data privacy;
(k) vendor and third-party service provider management; and
(l) incident response.
(3) A Digital Asset Trading Facility Operator must inform the AFSA immediately if it becomes aware, or has reasonable grounds to believe, that a significant breach by any Person of its cyber-security policy may have occurred or may be about to occur.
2.4.5. On-going monitoring
For the purposes of meeting the requirement in DAA 2.4.1, a Digital Asset Trading Facility Operator must have adequate procedures and arrangements for the evaluation, selection and on-going maintenance and monitoring of IT systems. Such procedures and arrangements must, at a minimum, provide for:
(a) incident and problem management and system change;
(b) testing IT systems before live operations in accordance with the requirements in DAA 2.4.6. and 2.4.7;
(c) real time monitoring and reporting on system performance, availability and integrity; and
(d) adequate measures to ensure:
(i) the IT systems are resilient and not prone to failure;
(ii) business continuity in the event that an IT system fails;
(iii) protection of the IT systems from damage, tampering, misuse or unauthorised access; and
(iv)the integrity of data forming part of, or being processed through, IT systems.
2.4.6. Testing of technology systems
A Digital Asset Trading Facility Operator must, before commencing live operation of its IT systems or any updates thereto, use development and testing methodologies in line with internationally accepted testing standards in order to test the viability and effectiveness of such systems. For this purpose, the testing must be adequate for the Digital Asset Trading Facility Operator to obtain reasonable assurance that, among other things the systems:
(a)enable it to comply with all the applicable requirements on an on-going basis;
(b)can continue to operate effectively in stressed market conditions;
(c)have sufficient electronic capacity to accommodate reasonably foreseeable volumes of messaging and orders;
(d) are adequately scalable in emergency conditions that might threaten the orderly and proper operations of its facility; and
(e)embed any risk management controls, such as generating automatic error reports, work as intended.
2.4.7. Testing relating to Members’ technology systems
(1) A Digital Asset Trading Facility Operator must implement standardised conformance testing procedures. A Digital Asset Trading Facility Operator must ensure that the systems which its Members are using to access facilities operated by it have a minimum level of functionality that is compatible with its IT systems and will not pose any threat to fair and orderly conduct of its facility.
(2) A Digital Asset Trading Facility Operator must also require its Members, before commencing live operation of any electronic trading system, user interface or a trading algorithm, including any updates to such arrangements, to use adequate development and testing methodologies to test the viability and effectiveness of their systems, to include system resilience and security.
(3) For the purposes of (2), a Digital Asset Trading Facility Operator must require its Members:
(a) to adopt trading algorithm tests, including tests in a simulation environment which are commensurate with the risks that such a strategy may pose to itself and to the fair and orderly functioning of the facility operated by the Digital Asset Trading Facility Operator; and
(b)not to deploy trading algorithms in a live environment except in a controlled and cautious manner.
(4) The requirements in (1)-(3) do not apply to the Member of a Digital Asset Trading Facility Operator if the Member is a Body Corporate or an individual (natural person) that carries on the activity solely as principal.
2.4.8. Regular review of systems and controls
(1) A Digital Asset Trading Facility Operator must undertake annual review and updates of its IT systems and controls as appropriate to the nature, scale and complexity of its operations, the diversity of its operations, the volume and size of transactions, and the level of risk inherent with its business
(2)For the purposes of (1), a Digital Asset Trading Facility Operator must adopt well defined and clearly documented development and testing methodologies which are in line with internationally accepted testing standards.
2.4.9. Mandatory third-party audit of technology governance and IT systems
(1) A Digital Asset Trading Facility Operator is required to undergo a qualified independent third-party technology governance and IT audit to conduct vulnerability assessments and penetration testing at least on an annual basis.
(2) A Digital Asset Trading Facility Operator must provide the results of technology governance and IT assessments and tests to the AFSA upon its request.
(3) The AFSA may publish a list of requirements that should be met by qualified auditors who conduct independent third-party technology governance and IT audit.
Guidance:
Credentials which indicate a qualified independent third-party auditor is suitable to conduct audit of technology governance and IT systems may include:
(1) designation as a Certified Information Systems Auditor (CISA) or Certified Information Security Manager (CISM) by the Information Systems Audit and Control Association (ISACA); or
(2) designation as a Certified Information Systems Security Professional (CISSP) by the International Information System Security Certification Consortium (ISC); or
(3) accreditation by a recognised and reputable body to certify compliance with relevant ISO/IEC 27000 series standards; or
(4) accreditation by the relevant body to certify compliance with the Kazakhstani standards in the area of information (cyber) security.
2.4.10. Systems and controls
(1) A Digital Asset Trading Facility Operator must ensure that it has appropriate systems and controls to address the risks to their business. Such systems and controls should be developed considering such factors as the nature, scale and complexity of the Digital Asset Trading Facility Operator’s business, the diversity of its operations, the volume and size of transactions, and the level of risk inherent with its business.
(2) A Digital Asset Trading Facility Operator must, as a minimum, have in place systems and controls with respect to the procedures describing the creation, management and control of Digital wallets and private keys.
(3) A Digital Asset Trading Facility Operator must have adequate systems and controls to enable it to calculate and monitor its capital resources and its compliance with the requirements in DAA 2.2.(2). The systems and controls must be in writing and must be appropriate for the nature, scale and complexity of the Digital Asset Trading Facility Operator’s business and its risk profile.
2.4.11. Technology governance
A Digital Asset Trading Facility Operator must, as a minimum, have in place systems and controls with respect to the following:
(a) Procedures describing the creation, management and controls of Digital Asset wallets, including:
(i) wallet setup/configuration/deployment/deletion/backup and recovery;
(ii) wallet access management;
(iii) wallet user management;
(iv) wallet rules and limit determination, review and update; and
(v) wallet audit and oversight.
(b) Procedures describing the creation, management and controls of private and public keys, including, as applicable:
(i) private key generation;
(ii) private key exchange;
(iii) private key storage;
(iv) private key backup;
(v) private key destruction;
(vi) private key access management;
(vii) public key sharing; and
(viii) public key re-use.
(c) Systems and controls to mitigate the risk of misuse of Digital Assets, setting out how
(i) the origin of Digital Assets is determined, in case of an incoming transaction; and
(ii) the destination of Digital Assets is determined, in case of an outgoing transaction.
(d) A security plan describing the security arrangements relating to:
(i) the privacy of sensitive data;
(ii) networks and systems;
(iii) cloud based services;
(iv) physical facilities; and
(v) documents, and document storage.
(e) A risk management plan containing a detailed analysis of likely risks with both high and low impact, as well as mitigation strategies. The risk management plan must cover, but is not limited to:
(i) operational risks;
(ii) technology risks, including ‘hacking’ related risks;
(iii) market risk for each Digital Asset admitted to trading; and
(iv) risk of Financial Crime.
2.5.Requirements applicable to a Digital Asset Trading Facility Operator
2.5.1. Business Rules, Membership Rules and Admission to Trading Rules
A Digital Asset Trading Facility Operator must prepare Business Rules, Admission to Trading Rules, and Membership Rules (the “DATF Operator’s Rules”).
2.5.2.Content of Business Rules
A Digital Asset Trading Facility Operator’s Business Rules must:
(a) be based on objective criteria;
(b) be non-discriminatory;
(c) be clear and fair;
(d) set out the Members’ and other participants’ obligations:
(i) arising from the Digital Asset Trading Facility Operator’s constitution and other administrative arrangements;
(ii) when undertaking transactions on its facility; and
(iii) relating to professional standards that must be imposed on staff and agents of the Members and other participants when undertaking transactions on its facility;
(e) be made publicly available free of charge;
(f) contain provisions for the resolution of Members’ and other participants’ disputes and an appeal process from the decisions of the Digital Asset Trading Facility Operator, whether by an internal but independent body or otherwise; and
(g) contain disciplinary procedures, including any sanctions that may be imposed by the Digital Asset Trading Facility Operator against its Members and other participants.
2.5.3.Monitoring and enforcing compliance with Business Rules
The Digital Asset Trading Facility Operator must have effective arrangements for monitoring and enforcing compliance with its Business Rules including procedures for:
(a) prompt investigation of complaints made to the Digital Asset Trading Facility Operator about the conduct of Persons in the course of using the Digital Asset Trading Facility Operator’s facility; and
(b) where appropriate, disciplinary action resulting in financial and other types of penalties.
2.5.4.Financial penalties
Where arrangements made pursuant to DAA 2.5.3. include provision for requiring the payment of financial penalties, they must include arrangements for ensuring that any amount so paid is applied only in one or more of the following ways:
(a) towards meeting expenses incurred by the Digital Asset Trading Facility Operator in the course of the investigation of the breach or course of conduct in respect of which the penalty is paid, or in the course of any appeal against the decision of the Digital Asset Trading Facility Operator in relation to that breach or course of conduct; or
(b) for the benefit of users of the Digital Asset Trading Facility Operator's facility.
2.5.5.Appeals
Arrangements made pursuant to DAA 2.5.3. must include provision for fair, independent and impartial resolution of appeals against decisions of the Digital Asset Trading Facility Operator.
2.5.6.Membership Rules
The Membership Rules of a Digital Asset Trading Facility Operator must specify the obligations imposed on users or Members of its facility arising from:
(a) the constitution and administration of the Digital Asset Trading Facility Operator;
(b) where appropriate rules relating to transactions on its trading venues;
(c) admission criteria for Members;
(d) where appropriate rules and procedures for clearing and settlement of transactions; and
(e) where appropriate rules and procedures for the prevention of Market Abuse, money laundering and Financial Crime.
2.5.7.Admission to Trading Rules
(1) A Digital Asset Trading Facility Operator must make clear and transparent rules concerning the admission of Digital Assets to trading on its facility.
(2) The Admission to Trading Rules of the Digital Asset Trading Facility Operator must ensure that:
(a) Digital Assets admitted to trading on a facility of the Digital Asset Trading Facility Operator are capable of being traded in a fair, orderly and efficient manner; and
(b) Digital Assets admitted to trading on a facility of the Digital Asset Trading Facility Operator are freely negotiable.
2.5.8. Consultation
(1) A Digital Asset Trading Facility Operator must seek prior approval of any of the DATF Operator’s Rules and of amendments to any of its Rules by:
(a) making such Rules available to public for consultation for no less than 30 days; and
(b) obtaining approval of the AFSA.
(2) For these purposes, a Digital Asset Trading Facility Operator must publish a consultation paper setting out:
(a) the text of both the proposed amendment and the current version of the rules that are to be amended;
(b) the reasons for proposing the amendment; and
(c) a reasonable consultation period, which must not be less than thirty calendar days after the date of publication, within which Members and other stakeholders may provide comments.
The Digital Asset Trading Facility Operator must lodge with the AFSA the consultation paper no later than the time when it is released for public comment.
(3) The AFSA may, if it considers on reasonable grounds that it is appropriate to do so, require the Digital Asset Trading Facility Operator to extend its proposed period of public consultation specified in the consultation paper.
(4) A Digital Asset Trading Facility Operator must:
(a) facilitate, as appropriate, informal discussions on the proposed amendment with Members and other stakeholders including any appropriate representative bodies of such Persons;
(b) consider the impact the proposed amendment has on the interests of its Members and other stakeholders; and
(c) have proper regard to any public comments received.
(5) Following public consultation, a Digital Asset Trading Facility Operator must publish the final version of any of the DATF Operator’s Rules and consider whether it would be appropriate to discuss the comments received and any amendments made before publication.
(6) A Digital Asset Trading Facility Operator must have procedures in place to ensure that the relevant of its Rules are monitored and enforced.
2.5.9. Waiver of consultation requirement
The AFSA may dispense with the requirement in DAA 2.5.2(2)(a) in cases of emergency, force majeure, typographical errors, minor administrative matters, or to comply with applicable laws. A Digital Asset Trading Facility Operator must have procedures for notifying users of these amendments for which the ASFA has dispensed with public consultation.
2.5.10. Review of Rules
In determining whether a Digital Asset Trading Facility Operator’s procedures for consulting Members and other users of its facilities are appropriate, the AFSA may have regard to:
(a) the range of Persons to be consulted by the Digital Asset Trading Facility Operator under those procedures; and
(b) the extent to which the procedures include:
(i) informal discussions at an early stage with users of the Digital Asset Trading Facility Operator’s facility or appropriate representative bodies;
(ii) publication to users of the Digital Asset Trading Facility Operator’s facility of a formal consultation paper which includes clearly expressed reasons for the proposed changes and an appropriately detailed assessment of the likely costs and benefits;
(iii) adequate time for users of its facility to respond to the consultation paper and for the Digital Asset Trading Facility Operator to take their responses properly into account;
(iv) adequate arrangements for making responses to consultation available for inspection by users of its facility, unless the respondent requests otherwise; and
(v) adequate arrangements for ensuring that the Digital Asset Trading Facility Operator has proper regard to the representations received.
2.6.Membership
2.6.1. Persons eligible for Membership
A Digital Asset Trading Facility Operator may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is:
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments as Principal and Dealing in Investments as Agent;
(b) a Recognised Non-AIFC Member; or
(c) a Body Corporate or an individual (natural person) which carries on the activity solely as principal.
2.6.2. Admission criteria
(1) A Digital Asset Trading Facility Operator must ensure that access to its facility is subject to criteria designed to protect the orderly functioning of the market and the interests of investors.
(2) A Digital Asset Trading Facility Operator may only give access to or admit to membership a Person who:
(a) is fit and proper and of good repute;
(b) if applicable, has a sufficient level of ability, competence and experience, including appropriate standards of conduct for its staff; and
(c) if applicable, has adequate organisational arrangements, including financial and technological resources.
(3) In assessing whether access to a Digital Asset Trading Facility Operator’s facility is subject to criteria designed to protect the orderly functioning of the market or of those facilities and the interests of investors, the AFSA may have regard to whether:
(a) the Digital Asset Trading Facility Operator limits access as a Member to such Persons:
(i) over whom it can with reasonable certainty enforce its rules contractually;
(ii) who have sufficient technical competence to use its facilities; and
(iii) if appropriate, who have adequate financial resources in relation to their exposure to the Digital Asset Trading Facility Operator;
(b) indirect access to the Digital Asset Trading Facility Operator’s facility is subject to suitable criteria, remains the responsibility of a Member of the Digital Asset Trading Facility Operator and is subject to the Digital Asset Trading Facility Operator’s rules; and
(c) the Operator’s rules:
(i) set out the design and operation of the Digital Asset Trading Facility Operator’s relevant systems;
(ii) set out the risk for Members and other users when accessing and using the Operator’s facilities;
(iii) contain provisions for the resolution of Members’ and other users’ disputes and an appeal process for the decisions of the Digital Asset Trading Facility Operator;
(iv) contain disciplinary proceedings, including any sanctions that may be imposed by the Digital Asset Trading Facility Operator against its Members and other users; and
(v) set out other matters necessary for the proper functioning of the Digital Asset Trading Facility Operator and the facilities operated by it.
2.6.3. Lists of users or Members
A Digital Asset Trading Facility Operator must make arrangements to provide the AFSA quarterly with a list of users or Members of its facility.
2.6.4. Undertaking to comply with AFSA rules
A Digital Asset Trading Facility Operator may not admit a Recognised Non-AIFC Member as a Member unless it:
(a) agrees in writing to submit unconditionally to the jurisdiction of the AFSA in relation to any matters which arise out of or which relate to its use of the facility of the Digital Asset Trading Facility Operator;
(b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Court in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facility of the Digital Asset Trading Facility Operator;
(c) agrees in writing to subject itself to the Acting Law of the AIFC in relation to its use of the facility of the Digital Asset Trading Facility Operator; and
(d) where the Recognised Non-AIFC Member is incorporated outside the Republic of Kazakhstan, appoints and maintains at all times, an agent for service of process in the AIFC.
2.7.Direct Electronic Access
2.7.1.Direct Electronic Access to the facility
For the purposes of these Rules, Direct Electronic Access means any arrangement, such as the use of the Member's trading code, through which a Member or the Clients of that Member are able to transmit electronically orders relating to Digital Assets directly to the facility provided by the Digital Asset Trading Facility Operator and includes arrangements which involve the use by a Person of the infrastructure of the Digital Asset Trading Facility Operator or the Member or Client or any connecting system provided by the Digital Asset Trading Facility Operator or Member or Client, to transmit the orders and arrangements where such an infrastructure is not used by a Person.
Guidance:
A Person who is permitted to have Direct Electronic Access to a Digital Asset Trading Facility Operator's facility through a Member is not, by virtue of such permission, a Member of the Digital Asset Trading Facility Operator.
2.7.2.Permitting Members that are Body Corporates to provide Direct Electronic Access to clients
(1) This rule applies if a Digital Asset Trading Facility Operator proposes to permit a Member that is a Body Corporate to provide its clients Direct Electronic Access to the Digital Asset Trading Facility Operator’s facility.
(2) A Digital Asset Trading Facility Operator may permit a Member to provide its clients Direct Electronic Access to the Digital Asset Trading Facility Operator’s facility only if:
(a) the clients meet the suitability criteria established by the Member in order to meet the requirements in DAA 2.7.3;
(b) the Member retains responsibility for the orders and trades executed by its clients who are using Direct Electronic Access; and
(c) the Member has adequate mechanisms to prevent its clients placing or executing orders using Direct Electronic Access in a manner that would result in the Member exceeding its position or margin limits.
2.7.3. Criteria, standards and arrangements for providing Direct Electronic Access to clients of Members that are Body Corporates
(1) A Digital Asset Trading Facility Operator which permits its Members to provide its clients Direct Electronic Access to the Digital Asset Trading Facility Operator’s facility under DAA 2.7.2. must:
(a) set appropriate standards regarding risk controls and thresholds on trading through Direct Electronic Access;
(b) be able to identify orders and trades made through Direct Electronic Access; and
(c) if necessary, be able to stop orders or trades made by a client using Direct Electronic Access provided by the Member without affecting the other orders or trades made or executed by that Member.
(2) A client who is permitted to have Direct Electronic Access to a Digital Asset Trading Facility Operator’s facility through a Member is not, by virtue of such permission, a Member of the Digital Asset Trading Facility Operator. However, such client is subject to the jurisdiction of the Digital Asset Trading Facility Operator.
(3) In determining whether a Digital Asset Trading Facility Operator has adequate arrangements to permit Direct Electronic Access to its facility and to prevent and resolve problems likely to arise from the use of electronic systems to provide indirect access to its facility to Persons other than the Digital Asset Trading Facility Operator’s Members, the AFSA may have regard to:
(a) the rules and guidance governing Members’ procedures, controls and security arrangements for inputting instructions into the system;
(b) the rules and guidance governing the facilities that Members provide to its clients to input instructions into the system and the restrictions placed on the use of those systems;
(c) the rules and practices to detect, identify, and halt or remove instructions breaching any relevant restrictions;
(d) the quality and completeness of the audit trail of a transaction processed through an electronic connection system; and
(e) procedures to determine whether to suspend trading by those systems or access to them by or through individual Members.
2.7.4. Criteria, standards and arrangements for giving Direct Electronic Access to Members who are individuals (natural persons)
(1) This rule applies if a Digital Asset Trading Facility Operator proposes to give to a Member who is an individual (natural person) Direct Electronic Access to the Digital Asset Trading Facility Operator’s facility.
(2) A Digital Asset Trading Facility Operator must ensure that:
(a) its rules clearly set out:
(i) the duties owed by the Digital Asset Trading Facility Operator to its Members with Direct Electronic Access, and how the Digital Asset Trading Facility Operator is held accountable for any failure to fulfil those duties; and
(ii) the duties owed by the Members with Direct Electronic Access to the Digital Asset Trading Facility Operator and how such Members are held accountable for any failure to fulfil those duties;
(b) appropriate investor redress mechanisms are available, in accordance with COB Chapter 15, and disclosed to Members permitted to trade Digital Assets on its facility; and
(c) its facility contains a prominent disclosure of the risks associated with trading and clearing Digital Assets.
(3) Without limiting the generality of the systems and controls obligations of the Digital Asset Trading Facility Operator, the Digital Asset Trading Facility Operator must have adequate systems and controls to address market integrity, AML and CTF, and investor protection risks in giving Direct Electronic Access to a Member, to trade on its facility, including procedures to:
(a) ensure that appropriate customer due diligence sufficient to address AML and CTF risks has been conducted on each Member, before permitting the Member to trade on its facility and periodically on an ongoing basis after the establishment of relations with a Member;
(b) detect and address market manipulation and abuse; and
(c) ensure that there is adequate disclosure relating to the Digital Assets that are traded on the facility.
(4) A Digital Asset Trading Facility Operator must have adequate controls and procedures to ensure that trading Digital Assets by Members with Direct Electronic Access does not pose any risks to the orderly and efficient functioning of the facility’s trading system, including controls and procedures to:
(a) mitigate counterparty risks that may arise from defaults by such Members through adequate collateral management measures, such as margin requirements, based on the settlement cycle adopted by the Digital Asset Trading Facility Operator;
(b) identify and distinguish orders that are placed by such Members, and, if necessary, enable the Digital Asset Trading Facility Operator to stop orders of, or trading by, such Members;
(c) prevent such Members from allowing access to other Persons to trade on the trading facility; and
(d) ensure that such Members fully comply with the rules of the facility and promptly address any gaps and deficiencies that are identified.
(5) A Digital Asset Trading Facility Operator must have adequate resources and systems to carry out frontline monitoring of the trading activities of Members with Direct Electronic Access.
2.8.Admission of Digital Assets to trading
2.8.1. Application for admission of Digital Assets to Trading
(1) Applications for the admission of a Digital Asset to trading can be made to a Digital Asset Trading Facility Operator by:
(a) the issuer of the Digital Asset; or
(b) a third party on behalf of and with the consent of the issuer of the Digital Asset; or
(c) a Member of the Digital Asset Trading Facility Operator.
(2) A Digital Asset can also be admitted to trading on the Digital Asset Trading Facility Operator’s own initiative.
(3) A Digital Asset Trading Facility Operator must, before admitting any Digital Asset to trading:
(a) be satisfied that the applicable requirements, including those in its Admission to Trading Rules, have been or will be fully complied with in respect of such Digital Asset; and
(b) obtain approval of the AFSA in respect of such Digital Asset.
(4) For the purposes of (1), a Digital Asset Trading Facility Operator must notify an applicant in writing of its decision in relation to the application for admission of the Digital Asset to trading. In the case that such decision is to reject the application, the written notice should indicate (i) whether the application has been considered by the AFSA, and if so, (ii) the AFSA’s determination in respect thereof.
(5) For the purposes of 3(b), an application to the AFSA by a Digital Asset Trading Facility Operator must include:
(a) a copy of the admission application; and
(b) any other information requested by the AFSA.
(6) In assessing an application, the AFSA may:
(a) require the applicant to provide additional information reasonably required for the AFSA to be able to decide the application;
(b) require the applicant to provide information on how the applicant intends to ensure compliance with any criterion;
(c) require the applicant to verify information it provides to the AFSA in any way that the AFSA specifies;
(d) make any enquiries which it may consider appropriate; and
(e) take into account any information which it considers to be relevant in making a suitability assessment.
2.8.2. Admission criteria
(1) For the purposes of 2.8.2(3)(b), a Digital Asset can be admitted to trading on the Operator’s facility if the AFSA is satisfied that:
(a) having considered the matters in (2), the Digital Asset is suitable for use in the AIFC;
(b) is not prohibited for use in the AIFC; and
(c) for a Fiat or Commodity stablecoin, all of the requirements in (4) are met in respect of that Fiat or Commodity stablecoin (and conditions (a) and (b) above are met).
(2) The matters referred to in (1)(a), which the AFSA considers, are:
(a) the regulatory status of the relevant Digital Asset in other jurisdictions, including whether it has been assessed or approved for use in another jurisdiction;
(b) whether there is adequate transparency relating to the Digital Asset and underlying blockchain, including sufficient detail about its purpose, protocols, consensus mechanism, governance arrangements, founders, key persons, miners and significant holders;
(c) the size (the market capitalisation), liquidity and volatility of the market for the Digital Asset globally;
(d) whether there is a total limit (cap) for the issuance of Digital Asset; the controls/processes to manage volatility of a particular Digital Asset (tokenomics);
(e) the adequacy and suitability of the technology used in connection with the Digital Asset; and
(f) whether risks associated with the Digital Asset are adequately mitigated, including risks relating to governance, legal and regulatory issues, cybersecurity, money laundering, Market Abuse and other
Financial Crime;
(g) whether a Digital Asset is traceable;
(h) whether there are any issues relatingto the security and/or usability of a DLT used for the purposes of a Digital Asset; and
(i) whether a DLT and smart contract (if any) have stress tested or subject to independent audit.
(3) In assessing the matters in (2), the AFSA may consider the cumulative effect of factors which, if taken individually, may be regarded as insufficient to give reasonable cause to doubt that the criteria in (1)(a) is satisfied.
(4) In the case of a Fiat stablecoin or Commodity stablecoin, the additional criteria referred to in (1)(c) are that:
(a) information is published at least once in a quarter on the value and composition of the reserves backing the Fiat stablecoin or Commodity stablecoin;
(b) the published information referred to in (4)(a) is verified by a suitably qualified third-party professional who is independent of the issuer of the Digital Asset and any persons responsible for the Digital Asset;
(c) the published information referred to in (4)(a) demonstrates that the reserves:
(i) at least equal in value to the notional value of outstanding Digital Assets in circulation (that value being calculated by multiplying the number of Digital Assets in circulation by the purported pegged Fiat Currency value);
(ii) include not more than 10% in high quality liquid assets other than cash;
(iii) are denominated in the reference currency; and
(iv) are held in segregated accounts with properly regulated banks or custodians in jurisdictions with regulation that is equivalent to the AFSA’s regime and AML regulation that is equivalent to the
standards set out in the FATF Recommendations;
(d) the Digital Asset is able to maintain a stable price relative to the Fiat Currency it references; and
(e) a Person is clearly responsible and liable to investors for the Digital Asset.
2.8.3. Decision-making procedures for the AFSA in relation to applications for approval of the admission of Digital Assets to trading
(1) Where a Digital Asset Trading Facility Operator applies for approval of the admission of a Digital Asset to trading, the AFSA may:
(a) approve the application;
(b) reject the application; or
(c) approve the application subject to conditions or restrictions.
(2) The AFSA may exercise its powers under (1)(b) where the AFSA reasonably considers that:
(a) granting the Digital Assets admission to trading of Digital Assets would be detrimental to the interests of Persons dealing in the relevant Digital Assets using the facilities of a Digital Asset Trading Facility Operator or otherwise; or
(b) any requirements imposed by the AFSA or in the Admission to Trading Rules of a Digital Asset Trading Facility Operator as are applicable have not been or will not be complied with; or
(c) the issuer of the Digital Assets has failed or will fail to comply with any obligations applying to it including those relating to having its Digital Assets admitted to trading or traded in another jurisdiction.
(3) Where the AFSA rejects an application for approval of admission of a Digital Asset to trading pursuant to (2), such Digital Assets must not be admitted by a Digital Asset Trading Facility Operator to its facility.
(4) Where the AFSA approves an application for approval of admission of a Digital Asset to trading subject to conditions or restrictions, the A Digital Asset Trading Facility Operator is responsible for implanting such conditions and restrictions in admitting the Digital Asset to trading, and such conditions or restrictions may not be varied or removed without the approval of the AFSA.
2.8.4. Withdrawal of a Digital Asset from the List of Digital Assets admitted to trading
The AFSA may withdraw a Digital Asset from the List of Digital Assets admitted to trading if it is no longer satisfied of the matters specified in DAA 2.8.2. in respect of the Digital Asset.
2.8.5. Events or developments affecting the Digital Asset
(1) If a Digital Asset Trading Facility Operator becomes aware of any significant event or development that reasonably suggests that the Digital Asset no longer meets the criteria in DAA 2.8.2 for it to be admitted to trading, it must immediately notify the AFSA of such event or development.
(2) A notification under (1) is not required if the Digital Asset Trading Facility Operator reasonably believes that the information is already generally available to the public.
(3) A Digital Asset Trading Facility Operator must ensure that, where it seeks to offer services in relation to the Digital Asset associated with the new version of the underlying protocol (“hard fork”), this new Digital Asset meets the requirements for an Approved Digital Asset and that it obtains approval of the AFSA in respect of such Digital Asset.
2.8.6. List of Digital Assets admitted to trading
(1) The AFSA may publish on its website a List of Digital Assets admitted and approved by the AFSA to trading which can be traded on the trading facility of any Digital Asset Trading Facility Operator without obtaining the AFSA’s approval.
(2) Where a Digital Asset Trading Facility Operator decides to admit a Digital Asset under (1) to trading, the Digital Asset Trading Facility Operator is required to notify the AFSA 10 days prior to the date of the admission of the Digital Asset to trading.
(3) Where a Digital Asset Trading Facility Operator admits a Digital Asset to trading under (1), it is still required to publish a key features document under DAA 2.8.8.
2.8.7. Digital Asset white paper
(1) A Person seeking admission of a Digital Asset to trading a Digital Asset Trading Facility Operator’s facility must prepare, submit to the AFSA and publish on its website the Digital Asset white paper.
(2) A Digital Asset white paper must contain:
(a) information about:
(i) the offeror or the Person seeking admission to trading; or
(ii) the issuer, if different from the offeror or Person seeking admission to trading; or
(iii) the Member of an Authorised Digital Asset Trading Facility seeking admission to trading; or
(iv) the Digital Asset Trading Facility Operator when it is seeking admission on its own initiative;
(b) information about the admission to trading on a Digital Asset Trading Facility Operator’s facility;
(c) information on the rights and obligations attached to a Digital Asset;
(d) information on the underlying technology, including details of the technology that is used to issue, store or transfer the Digital Asset;
(e) information on the valuation of a Digital Asset;
(f) information on how ownership of the Digital Asset is established, certified, or otherwise evidenced;
(g) risks related to fraud, hacking, and Financial Crime;
(h) risks related to the volatility and unpredictability of price of the Digital Asset relative to Fiat Currency, which may result in significant losses over a short period of time;
(i) any other information relevant to the relevant Digital Asset that may assist the Client to understand the product and technology better and to make an informed decision; and
(j) any other information that the AFSA may request to add.
(3) All information referred to DAA 2.7.3. (2) must be clear, fair, and not misleading. The Digital Asset white paper should not contain materials omissions and should be presented in a concise and comprehensible form.
(4) The Digital Asset white paper must contain a summary which should be written in brief and non-technical language to provide key information about the offer to the public of a Digital Asset or about the intended admission of a Digital Asset to trading on the Digital Asset Trading Facility Operator’s facility. The format and content of the summary of a Digital Asset white paper should provide, in conjunction with the Digital Asset white paper, appropriate information about the characteristics of a Digital Asset concerned to assist potential holders of a Digital Asset to make an informed decision.
2.8.8. Publication of key features document
(1) A Digital Asset Trading Facility Operator may permit a Digital Asset to trading only if it published a key features document on its website about the Digital Asset.
(2) The key features document must include the following:
(a) information about the issuer (if any) and the individuals responsible for designing the Digital Asset;
(b) characteristics of the Digital Asset, including rights attaching to the Digital Asset and any project or venture to be funded (if relevant);
(c) the regulatory status of the Digital Asset in other jurisdictions;
(d) details of Persons responsible for performing obligations associated with the Digital Asset and details of where and against whom rights conferred by the Digital Asset may be exercised;
(e) information on the underlying DLT or similar technology used for the Digital Asset, including details of the technology that is used to issue, store or transfer the Digital Asset and any interoperability with other DLT;
(f) information on the underlying technology used by the Digital Asset Trading Facility Operator, including protocols and technical standards adhered to;
(g) details about how ownership of the Digital Asset is established, certified or otherwise evidenced;
(h) how the Digital Asset will be valued, and an explanation of how this is carried out and what benchmarks, indices or third parties are relied on;
(i) details of any other facility on which the Digital Asset is traded;
(j) the risks relating to the volatility and unpredictability of the price of the Digital Asset;
(k) in the case of a Fiat stablecoin or Commodity stablecoin, details about the reserves backing that Fiat stablecoin or Commodity stablecoin and the stabilisation and redemption mechanisms;
(l) cyber-security risks associated with the Digital Asset or its underlying technology, including whether there is a risk of loss of the Digital Asset in the event of a cyberattack, and details of steps that have been, or can be taken to mitigate those risks;
(m) the risks relating to fraud, hacking and Financial Crime; and
(n) information related to the principal adverse environmental and climate-related impacts of the consensus mechanism used to issue each Digital Asset; any
(o) other information relevant to the Digital Asset that would reasonably assist the Client to understand the Digital Asset and whether to invest in the Digital Asset, or use the service being offered to the Client.
Guidance:
The Digital Asset white paper is a document outlining the main economic and technical aspects of a specific Digital Asset. The key features document is a document outlining the main characteristics of the Digital Asset in a simple format to provide potential investors with the aims and benefits of the Digital Asset, along with the relevant risks and limitations. The content of the Digital Asset white paper and key features document should not conflict each other.
2.8.9. Ongoing information
(1) A Digital Asset Trading Facility Operator must take reasonable steps to ensure that accurate and up-to-date information is made available about Digital Assets traded on its facility so that users of the facility are able to make informed decisions about trading in the Digital Assets.
(2) Without limiting the generality of (1), the Digital Asset Trading Facility Operator must as a minimum ensure the following information is readily available for each Digital Asset:
(a) the total number, and market capitalisation, of the Digital Assets traded globally;
(b) whether the supply of the Digital Assets is set to increase or decrease according to a pre-defined path;
(c) details of any inflationary or deflationary mechanisms that are to be used, such as the issuing or burning of the Digital Assets (other than through the normal mining process);
(d) the total number of the Digital Assets held by the developers or issuer of the Digital Asset, held in reserve for rewards or other promotional purposes or otherwise locked away from the total supply of the Digital Assets;
(e) a breakdown of the largest holders of the Digital Assets, in particular holders of 10% or more of the total supply of the Digital Assets; and
(f) in the case of a Fiat stablecoin or Commodity stablecoin, details about the reserves backing that Fiat stablecoin or Commodity stablecoin and the stabilisation and redemption mechanisms.
(3) Under (2)(e), a Digital Asset Trading Facility Operator is not required to disclose the identity of the holder if it has identified that a Person holds 10% or more of the Digital Assets but after taking reasonable steps has not been able to establish the holder’s identity.
2.8.10. Risk warnings
(1) A Digital Asset Trading Facility Operator must display prominently on its website the following risk warnings relating to Digital Assets:
(a) that Digital Assets are not legal tender or backed by a government;
(b) that Digital Assets are subject to extreme volatility and the value of the Digital Asset can fall as quickly as it can rise;
(c) that an investor in Digital Assets may lose all, or part, of their money;
(d) that Digital Assets may not always be liquid or transferable;
(e) that investments in Digital Assets may be complex making it hard to understand the risks with buying, selling, holding or lending them;
(f) that Digital Assets can be stolen because of cyber attacks;
(g) that trading in Digital Assets is susceptible to irrational market forces;
(h) that the nature of Digital Assets may lead to an increased risk of Financial Crime;
(i) there being limited or, in some cases, no mechanisms for the recovery of lost or stolen Digital Assets;
(j) the risks of Digital Assets with regard to anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement;
(k) that the nature of Digital Assets means that technological difficulties experienced by the Authorised Firm may prevent the access or use of a Client’s Digital Assets; and
(l) that investing in, and holding, Digital Assets is not comparable to investing in traditional investments such as Securities.
(2) Where a Digital Asset Trading Facility Operator presents any marketing or educational materials and other communications relating to a Digital Asset on a website, in the general media or as part of a distribution made to existing or potential new Clients, it must include the risk warning referred to in (1) in a prominent place at or near the top of each page of the materials or communication.
(3) If the material referred to in (1) is provided on a website or an application that can be downloaded to a mobile device, the warning must be:
(a) statically fixed and visible at the top of the screen even when a person scrolls up or down the webpage; and
(b) included on each linked webpage on the website.
2.8.11. Forums
If a Digital Asset trading Facility Operator provides a means of communication (a “forum”) for users to discuss Digital Assets, it must:
(a) include a clear and prominent warning on the forum informing users that the Digital Asset Trading Facility Operator does not conduct due diligence on information on the forum;
(b) restrict the posting of comments on the forum to Digital Asset Trading Facility members;
(c) ensure that all users of the forum have equal access to information posted on the forum;
(d) require a person posting a comment on the forum to disclose clearly if he is affiliated in any way with a Digital Asset or is being compensated, directly or indirectly, to promote a Digital Asset;
(e) take reasonable steps to monitor and prevent posts on the forum that are potentially misleading or fraudulent or may contravene the Market Abuse provisions (Chapter 5 of the MAR);
(f) immediately take steps to remove a post, or to require a post to be deleted or amended, if the Digital Asset Trading Facility Operator becomes aware that (d) or (e) have not been complied with; and
(g) not participate in discussions on the forum except to moderate posts or to take steps referred to in (f).
2.8.12. Undertaking to comply with the Acting Law of the AIFC
A Digital Asset Trading Facility Operator may not admit a Digital Asset to trading unless the Person who seeks to have Digital Assets admitted to trading:
(a) gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AIFC in relation to any matters which arise out of or which relate to its use of the facilities of the Digital Asset Trading Facility Operator;
(b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Court in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Digital Asset Trading Facility Operator; and
(c) agrees in writing to subject itself to the Acting Law of the AIFC in relation to its use of the facilities of the Digital Asset Trading Facility Operator.
2.8.13. Review of compliance
The Digital Asset Trading Facility Operator must maintain arrangements regularly to review whether the Digital Assets admitted to trading on its facilities comply with the Admission to Trading Rules.
2.9.Suspending or removing Digital Assets from trading
2.9.1. Power to suspend or remove a Digital Asset from trading
(1) The rules of a Digital Asset Trading Facility Operator must provide that it has the power to suspend or remove from trading on its facility any Digital Assets with immediate effect or from such date and time as may be specified where it is satisfied that there are circumstances that warrant such action, or it is in the interests of the AIFC.
(2) The AFSA may direct a Digital Asset Trading Facility Operator to suspend or remove Digital Assets from trading with immediate effect or from such date and time as may be specified if it is satisfied there are circumstances that:
(a) warrant such action, or
(b) it is in the interests of the AIFC.
(3) The AFSA may withdraw a direction made under (2) at any time.
(4) Digital Assets that are suspended from trading of Digital Assets remain admitted to trading for the purposes of this Chapter.
(5) The AFSA may prescribe any additional requirements or procedures relating to the removal or suspension of Digital Assets from or restoration of Digital Assets to trading.
2.9.2. Limitation on power to suspend or remove Digital Assets from trading
The rules of a Digital Asset Trading Facility Operator must contain provisions for orderly suspension and removal from trading on its facility any Digital Asset which no longer complies with its rules considering the interests of investors and the orderly functioning of the financial market of the AIFC.
2.9.3. Publication of decision
(1) Where the Digital Asset Trading Facility Operator suspends or removes any Digital Asset from trading on its facility, it must notify the AFSA in advance and make that decision public by issuing a public notice on its website.
(2) Where the Digital Asset Trading Facility Operator lifts a suspension or re-admits any Digital Asset to trading on its facility, it must notify the AFSA in advance and make that decision public by issuing a public notice on its website.
(3) Where a Digital Asset Trading Facility Operator has made any decisions on admission, suspension, or removal of Digital Assets from trading on its facility, it must have adequate procedures for notifying users of such decisions.
2.10.Transparency obligations
2.10.1. Pre-trade disclosure
(1) A Digital Asset Trading Facility Operator must disclose to its users the following information relating to trading of Digital Assets on its facility:
(a) the current bid, offer prices and volume of Digital Assets traded on its systems on a continuous basis during normal trading hours;
(b) the depth of trading interest shown at the prices and volumes advertised through its systems for the Digital Assets; and
(c) any other information relating to Digital Assets which would promote transparency relating to trading.
(2) The AFSA may waive or modify the disclosure requirement in DAA 2.10.1 in relation to certain transactions where the order size is predetermined, exceeds a pre-set and published threshold level and details of the exemption are made available to the Digital Asset Trading Facility Operator’s Members and the public.
(3) In assessing whether an exemption from pre-trade disclosure is allowed, the AFSA would regard to such factors as:
(a) the level of an order threshold compared with the normal market size for the Digital Asset;
(b) the impact such an exemption would have on price discovery, fragmentation, fairness and overall market quality;
(c) whether there is sufficient transparency relating to trades executed without pre-trade disclosure (as a result of orders executed on execution platforms without pre-trade transparency), whether or not they are entered in transparent markets;
(d) whether the Digital Asset Trading Facility Operator supports transparent orders by giving a priority to transparent orders over dark orders, for example, by executing such orders at the same price as transparent orders; and
(e) whether there is adequate disclosure of details relating to dark orders available to Members and other participants on the Digital Asset Trading Facility to enable them to understand the manner in which their orders are handled and executed on the Digital Asset Trading Facility.
(4) When making disclosure, a Digital Asset Trading Facility Operator must adopt a technical mechanism showing differentiations between transactions that have been recorded in the central order book and transactions that have been reported to the Digital Asset Trading Facility as off-order book transactions. Any transactions that have been cancelled pursuant to its rules must also be identifiable.
(5) A Digital Asset Trading Facility Operator must use appropriate mechanisms to enable pre-trade information to be made available to users in an easy to access and uninterrupted manner at least during normal trading hours.
2.10.2.Post-Trade Disclosure
(1) A Digital Asset Trading Facility Operator must disclose the price, volume and time of the transactions effected in respect of Digital Assets to users as close to real-time as is technically possible on a non-discretionary basis. The Digital Asset Trading Facility Operator must use adequate mechanisms to enable post-trade information to be made available to users in an easy to access and uninterrupted manner at least during business hours.
(2) A Digital Asset Trading Facility Operator must provide price, volume, time and counterparty details to the AFSA within 24 hours of the close of each trading day via a secure electronic feed.
2.10.3. Public notice of suspended or terminated Membership
The Digital Asset Trading Facility Operator must promptly issue a public notice on its website in respect of any Member that has a Licence to carry on the Regulated Activities whose Membership is suspended or terminated.
2.10.4. Cooperation with office-holder
The Digital Asset Trading Facility Operator must cooperate, by the sharing of information and otherwise, with the AFSA, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a Member of the Digital Asset Trading Facility Operator.
2.11.Clients
2.11.1. Clients of a Digital Asset Trading Facility Operator
Members of a Digital Asset Trading Facility Operator and their clients are Clients of a Digital Asset Trading Facility Operator.
2.11.2. Investment limits
A Digital Asset Trading Facility Operator must maintain effective systems and controls to ensure that a Retail Client, who is a resident of the Republic of Kazakhstan, complies with any requirements and limits imposed by the Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC.
2.11.3. Calculation of an individual Client’s net assets
(1) For the purposes of calculating an individual Client’s net assets to treat him as an Assessed Professional Client under Rule 2.5.1(a) of the COB, the Digital Asset Trading Facility Operator:
(a) must exclude the value of the primary residence of the Client;
(b) must exclude Digital Assets belonging to the Client that are not on the List of Digital Assets admitted to trading;
(c) must include only 30% of the market value of a Digital Asset admitted to trading, which belongs to the Client, but must include 100% of the market value of a Fiat stablecoin and Commodity stablecoin, which belongs to the Client; and
(e) may include any other assets held directly or indirectly by that Client.
2.11.4. Additional information for Providing Custody of Digital Assets
A Digital Asset Trading Facility Operator Providing Custody of Digital Assets must include in the Client Agreement:
(a) a breakdown of all fees and charges payable for a transfer of Digital Assets (a “transfer”) and when they are charged;
(b) the information required to carry out a transfer;
(c) the form and procedures for giving consent to a transfer;
(d) an indication of the time it will normally take to carry out a transfer;
(e) details of when a transfer will be considered to be complete;
(f) how, and in what form, information and communications relating to transfer services will be provided to the Client, including the timing and frequency of communications and the language used and technical requirements for the Client’s equipment and software to receive the communications;
(g) clear policies and procedures relating to unauthorised or incorrectly executed transfers, including when the Client is and is not entitled to redress;
(h) clear policies and procedures relating to situations where the holding or transfer of Digital Assets may have been compromised, such as if there has been hacking, theft or fraud; and
(i) details of the procedures the Digital Asset will follow to contact the Client if there has been suspected or actual hacking, theft or fraud.
2.11.5. Provision of prompt confirmation to Clients
(1) Prior to execution of each transaction in Digital Assets, a Digital Asset Trading Facility Operator must confirm with its Clients the following terms:
(a) name of the Digital Asset in the proposed transaction;
(b) amount or value of the proposed transaction;
(c) fees and charges to be borne by the Client including applicable exchange rates; and
(d) a warning that once executed the transaction may not be undone.
(2) After a Digital Asset Trading Facility Operator has effected a transaction for a Client, it must confirm promptly with the Client the essential features of the transaction. The following information should be included:
(a) name of the Digital Asset in the transaction;
(b) amount or value of the transaction; and
(c) fees and charges borne by the Client including applicable exchange rates.
2.11.6. Provision of statements of account upon request
Where a Digital Asset Trading Facility Operator receives a request from a Client for a statement of account as of the date of the request, it must:
(a) prepare a statement of account in respect of the Client which includes the following information:
(i) the name, address and account number of the Client to whom the Digital Asset Trading Facility Operator is required to provide the statement of account;
(ii) the date on which the statement of account is prepared;
(iii) the outstanding balance of that account; and
(iv) the quantity, and, in so far as readily ascertainable, the market price and market value of each Client Digital Asset, held for that account.
(b) prepare the requested statement of account to the Client as soon as practicable after the date of the request.
2.11.7. Appropriateness test
A Digital Asset Trading Facility Operator must not carry on a Regulated Activity with or for a Retail Client, who is a non-resident of the Republic of Kazakhstan, unless the Digital Asset Trading Facility Operator has carried out an appropriateness test of the Person and formed a reasonable view that the Person has:
(a) adequate skills and expertise to understand the risks involved in trading in Digital Assets or Digital Asset Derivatives (as the case may be); and
(b) the ability to absorb potentially significant losses resulting from trading in Digital Assets or Digital Asset Derivatives (as the case may be).
Guidance:
(1) To form a reasonable view referred to in DAA 2.11.7. in relation to a Person, a Digital Asset Trading Facility Operator should consider issues such as whether the Person:
(a) has sufficient knowledge and experience relating to the type of a Digital Asset or Digital Asset Derivative offered, having regard to such factors as:
(i) how often and in what volumes that Person has traded in the relevant type of a Digital Asset or Digital Asset Derivative; and
(ii) the Person’s relevant qualifications, profession or former profession;
(b) understands the characteristics and risks relating to Digital Assets or Digital Asset Derivatives, and the volatility of their prices;
(c) understands the impact of leverage, due to which, there is potential to make significant losses in trading in Digital Assets or Digital Asset Derivatives; and
(d) has the ability, particularly in terms of net assets and liquidity available to the Person, to absorb and manage any losses that may result from trading in the Digital Assets or Digital Asset Derivatives offered.
(2) To be able to demonstrate to the AFSA that it complies with DAA 2.11.7., a Digital Asset Trading Facility Operator should have in place systems and controls that include:
(a) pre-determined and clear criteria against which a Retail Client’s ability to trade in Digital Assets or Digital Asset Derivatives can be assessed;
(b) adequate records to demonstrate that the Digital Asset Trading Facility Operator has undertaken the appropriateness test for each Retail Client; and
(c) in the case of an existing Retail Client with whom the Digital Asset Trading Facility Operator has previously traded in Digital Assets or Digital Asset Derivatives, procedures to undertake a fresh appropriateness test if:
(i) a new Digital Asset or Digital Asset Derivative with a materially different risk profile is offered to the Retail Client; or
(ii) there has been a material change in the Retail Client’s circumstances.
(3) If a Digital Asset Trading Facility Operator forms the view that it is not appropriate for a Person to trade in Digital Assets or Digital Asset Derivatives, the Digital Asset Trading Facility Operator should refrain from offering that service to the Person. As a matter of good practice, the Digital Asset Trading Facility Operator should inform the Person of its decision.
2.12.Conflicts of interest
2.12.1. Conflicts of interest – core obligation
A Digital Asset Trading Facility Operator must take reasonable steps, including the maintenance of adequate systems and controls, governance and internal policies and procedures, to ensure that the performance of its regulatory functions and obligations is not adversely affected by its commercial interests.
Guidance: regulatory functions of a Digital Asset Trading Facility Operator
The regulatory functions of a Digital Asset Trading Facility Operator include, as appropriate:
• its obligations to monitor and enforce compliance with its Business Rules, Admission to Trading Rules, and Membership Rules;
• its obligation to prevent, detect and report Market Abuse or Financial Crime; and
• its obligations in respect of admission of Digital Assets to trading or to clearing.
2.12.2. Conflicts of interest – identification and management
For the purposes of compliance with DAA 2.12.1, a Digital Asset Trading Facility Operator must:
(a)identify conflicts between the interests of the Digital Asset Trading Facility Operator, its shareholders, owners and operators and the interests of the Persons who make use of its facility or the interests of the trading venues operated by it; and
(b)manage or disclose such conflicts so as to avoid adverse consequences for the sound functioning and operation of the trading venues operated by the Digital Asset Trading Facility Operator and for the Persons who make use of its facility.
2.12.3. Conflicts of interest – personal account transactions
A Digital Asset Trading Facility Operator must establish and maintain adequate policies and procedures to ensure that its Employees do not undertake personal account transactions in Digital Assets in a manner that creates or has the potential to create conflicts of interest.
2.12.4. Conflicts of interest – code of conduct
A Digital Asset Trading Facility Operator must establish a code of conduct that sets out the expected standards of behaviour for its Employees, including clear procedures for addressing conflicts of interest. Such a code must be binding on all of its Employees.
2.13. Other requirements
2.13.1.Measures to prevent, detect and report Market Abuse or Financial Crime
A Digital Asset Trading Facility Operator must:
(a) ensure that appropriate measures (including the monitoring of transactions effected on or through the Digital Asset Trading Facility Operator’s facility) are adopted to reduce the extent to which the Digital Asset Trading Facility Operator’s facility can be used for a purpose connected with Market Abuse, Financial Crime or money laundering, and to facilitate their detection and monitor their incidence; and
(b) immediately report to the AFSA any suspected Market Abuse, Financial Crime or money laundering, along with full details of that information in writing.
2.13.2.Whistleblowing
A Digital Asset Trading Facility Operator must have appropriate procedures and protections for requiring its Employees to disclose any information to the AFSA in a manner which does not expose them to any disadvantage or discrimination as a result of so doing.
2.13.3.Lending and staking
(1)A Digital Asset Trading Facility Operator must not offer or provide any facility or service that allows a Member or another user of its facility to lend a Digital Asset to another Person unless it is reasonably satisfied that:
(a)the Member or user is a Professional Client; and
(b)the lending is solely for the purpose of the borrower participating in the proof-of-stake consensus mechanism on the DLT or another similar technology that hosts the relevant Digital Asset.
(2)The prohibition in (1) does not apply to the provision of any Digital Asset to an Authorised Firm as Collateral.
2.13.4.Trading of Digital Assets
(1) A Digital Asset Trading Facility Operator must establish and maintain policies and procedures relating to the trading process to prevent or detect errors, omissions, fraud, and other unauthorised or improper activities.
(2) A Digital Asset Trading Facility Operator must execute a trade for a Client only if there are sufficient Fiat Currencies or Fiat stablecoins, which are on the List of Digital Assets admitted to trading, in the Client’s account with the Digital Asset Trading Facility Operator to cover that trade except for any off-platform transactions to be conducted by institutional investors which are settled intra-day.
(3) A Digital Asset Trading Facility Operator should not provide any financial assistance for its Clients to acquire Digital Assets. It should ensure, to the extent possible, that no Person within the same Group as the Digital Asset Trading Facility Operator does so unless for exceptional circumstances which should be approved by the AFSA on a case-by-case basis.
2.13.5. Trading controls
(1) A Digital Asset Trading Facility Operator must put in place risk management and supervisory controls for the operation of its trading platform. These controls should include:
(a) automated pre-trade controls that are reasonably designed to:
(i) prevent the entry of any orders that would exceed appropriate position limits prescribed for each Client;
(ii) alert the user to the entry of potential erroneous orders and prevent the entry of erroneous orders;
(iii) prevent the entry of order which are not in compliance with regulatory requirements; and
(b) post-trade monitoring to reasonably identify any:
(i) suspicious market manipulative or abusive activities; and
(ii) market events or system deficiencies, such as unintended impact on the market, which call for further risk control measures.
(2) A Digital Asset Trading Facility Operator must be able to:
(a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
(b) temporarily halt or constrain trading on its facility if necessary or desirable to maintain an orderly market; and
(c) cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member.
2.13.6. Settlement and clearing arrangements
(1) A Digital Asset Trading Facility Operator must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), clearing and settlement of the rights and liabilities of the parties to transactions effected on the Digital Asset trading facility (being rights and liabilities in relation to those transactions).
(2) A Digital Asset Trading Facility Operator must ensure that clearing and settlement of transactions on its facility take place only by means of Fiat Currencies or Fiat stablecoin which are on the List of Digital Assets admitted to trading.
(3) A Digital Asset Trading Facility Operator acting as a Digital Asset Custodian must:
(a) have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of Digital Assets issuers and holders, prevent the unauthorised creation or deletion of Digital Assets, and conduct daily reconciliation of each Digital Asset balance it maintains for issuers and holders;
(b) prohibit overdrafts and debit balances in Digital Assets account;
(c) maintain Digital Assets in an immobilised or dematerialised form for their transfer by book entry;
(d) protect assets against custody risk through appropriate rules and procedures consistent with its legal framework;
(e) ensure segregation between the Digital Asset Custodian’s own assets and the Digital Assets of its participants and segregation among the Digital Assets of participants; and
(f) identify, measure, monitor, and manage its risks from other custody related activities that it may perform.
2.13.7.Digital Asset Trading Facility Operator Providing Custody of Digital Assets
(1) A Digital Asset Trading Facility Operator which is a Digital wallet Service Provider must ensure that:
(a) any DLT application it uses in Providing Custody of Digital Assets is resilient, reliable and compatible with any relevant facility on which the Digital Assets are traded or cleared;
(b) it is able to clearly identify and segregate the Digital Assets belonging to different Clients;
(c) it has in place appropriate procedures to enable it to confirm Client instructions and transactions, maintain appropriate records and data relating to those instructions and transactions and to conduct a reconciliation of those transactions at appropriate intervals.
(2) A Digital Asset Trading Facility Operator which is a Digital wallet Service Provider must ensure that, in developing and using DLT applications and other technology to Provide Custody of Digital Assets:
(a) the architecture of any Digital wallet used adequately addresses compatibility issued and associated risks;
(b) the technology used and its associated procedures have adequate security measures (including cyber security) to enable the safe storage and transmission of data relating to the Digital Assets;
(c) the security and integrity of cryptographic keys are maintained through the use of that technology, taking into account the password protection and methods of encryption used;
(d) there are adequate measures to address any risks specific to the methods of usage and storage of cryptographic keys (or their equivalent) available under the DLT application used; and
(e) the technology is compatible with the procedures and protocols on any facility on which the Digital Assets are traded or cleared or both traded and cleared.
2.13.8.Requirements for a Digital Asset Trading Facility Operator appointing a Third Party Digital wallet Service Provider
A Digital Asset Trading Facility Operator which appoints a Third Party Digital wallet Service Provider to Provide Custody of Digital Assets traded on its facility, must ensure that the Person is:
(1) an Authorised Firm appropriately authorised to be a Digital wallet Service Provider; or
(2) a Person which is appropriately regulated by a Financial Services Regulator to an equivalent level of regulation to that provided for under the AFSA regime for Providing Digital wallet Services.
Guidance:
If a Digital Asset Trading Facility Operator appoints a non-AIFC firm regulated by a Financial Services Regulator, it must undertake sufficient due diligence to establish that the non-AIFC firm is subject to an equivalent level of regulation as under the AFSA regime in respect of that service.
2.13.9.Requirements in relation to Hot and Cold Digital wallets
A Digital Asset Trading Facility Operator must ensure that not more than 30 % of the Client Digital Assets are stored in Hot Digital wallets.
2.13.10.Obligation to report transactions
(1) A Digital Asset Trading Facility Operator must report to the AFSA details of transactions in Digital Assets traded on its facility which are executed, or reported, through its systems.
(2) The AFSA may, by written notice or guidance, specify:
(a) the information to be included in reports made under the preceding paragraph; and
(b) the manner in which such reports are to be made.
2.13.11.Obligation to report to the AFSA
(1) A Digital Asset Trading Facility Operator must submit on a quarterly basis report that should include a financial statement, income statement and calculation of the relevant capital resources and its compliance with these Rules.
(2) The AFSA may request a Digital Asset Trading Facility to submit other returns. The list of returns required to be submitted and returns templates may be prescribed by the AFSA from time to time.
(3) Returns submitted to the AFSA must be signed by two (2) Approved Individuals and one of them must be approved to exercise the Finance Officer function.
2.13.12.Obligation to notify the AFSA
If a Digital Asset Trading Facility Operator becomes aware, or has a reasonable ground to believe, that it is or may be (or may be about to be) in breach of any of these Rules, that applies to it, it must:
(a) notify the AFSA in writing about the breach and the relevant circumstances immediately and not later than within 1 business day; and
(b) not make any cash transfers or payments or transfers of liquid assets to its Affiliates or Related Persons, whether by way of dividends or otherwise, without the AFSA’s written consent.
Guidance:
In dealing with a breach, or possible breach, of this part, the AFSA’s primary concern will be the interests of existing and prospective Clients and potential adverse impact on market participants as well as market stability. The AFSA recognises that there will be circumstances in which a problem may be resolved quickly, for example, by support from a parent entity, without jeopardising the interests of Clients and stakeholders. In such circumstances, it will be in the interests of all parties to minimise the disruption to the firm’s business. The AFSA's will normally seek to work cooperatively with the Digital Asset Trading Facility Operator in such stressed situations to deal with any problems. There will, however, be circumstances in which it is necessary to take regulatory action to avoid exposing market participants, stakeholders and Clients to the potential adverse consequences of the firm’s Failure, and the AFSA will not hesitate to take appropriate action if it considers this necessary.
2.14. Restrictions
2.14.1. Restriction on own account transactions
(1) A Digital Asset Trading Facility Operator or any of its Associate may execute an Own Account Transaction in a Digital Asset unless it is not expected to materially affect the price of the Digital Asset.
(2) For the purposes of this Rule:
(a) “Own Account Transaction” means a transaction Executed by the Digital Asset Trading Facility Operator for its own benefit or for the benefit of its Associate; and
(b) “Execute”, in relation to a transaction, means carrying into effect or performing the transaction, whether as principal or as agent, including instructing another Person to execute the transaction.
2.14.2. Offer of incentives
If a Digital Asset Trading Facility Operator offers or provides to a Retail Client any incentive that influences, or is reasonably likely to influence, the Retail Client to trade in a Digital Asset or Digital Asset Derivative, it must comply with the requirements set out in Chapter 3 of the COB.
2.15. Prohibitions
2.15.1.Use of only those Digital Assets which are admitted to trading
(1) If a Person is not admitted to trading, it must not engage in any of the following activities in or from the AIFC relating to Digital Assets:
(a)carrying on a Regulated Activity in relation to the Digital Asset;
(b)making or approving a Financial Promotion relating to the Digital Asset;
(c)carrying on an activity specified in (a) or (b) above in relation to a Fund that invests in the Digital Asset; or
(d)carrying on an activity specified in (a) or (b) in respect of a Derivative or instrument relating to the Digital Asset.
(2) Digital Asset Trading Facility Operator is prohibited to conduct transactions with Digital Asset associated with the new version of the underlying protocol (“hard fork”), except for custody of it, unless it obtains the approval of the AFSA.
2.15.2.Prohibition on use of Privacy Tokens and Privacy Devices
A Person must not in or from the AIFC:
(a)carry on a Regulated Activity relating to a Privacy Token or that involves the use of a Privacy Device;
(b)make or approve a Financial Promotion relating to a Privacy Token; or
(c)offer to the public a Privacy Token.
2.15.3.Prohibition of Digital Asset Derivatives for Retail Clients who are residents of the Republic of Kazakhstan
A Retail Client, who is a resident of the Republic of Kazakhstan, is prohibited to trade Digital Asset Derivatives unless a Digital Asset Trading Facility Operator carried out an appropriateness test of the Person and formed a reasonable view that the Person has:
(a) adequate skills and expertise to understand the risks involved in trading Digital Asset Derivatives; and
(b) the ability to absorb potentially significant losses resulting from trading in Digital Asset Derivatives.
Guidance:
(1) To form a reasonable view referred to in DAA 2.15.3. in relation to a Person, a Digital Asset Trading Facility Operator should consider issues such as whether the Person:
(a) has sufficient knowledge and experience relating to the type of a Digital Asset Derivative offered, having regard to such factors as:
(i) how often and in what volumes that Person has traded in the relevant type of a Digital Asset Derivative; and
(ii) the Person’s relevant qualifications, profession or former profession;
(b) understands the characteristics and risks relating to Digital Asset Derivatives, and the volatility of its prices;
(c) understands the impact of leverage, due to which, there is potential to make significant losses in trading in Digital Asset Derivatives; and
(d) has the ability, particularly in terms of net assets and liquidity available to the Person, to absorb and manage any losses that may result from trading in the Digital Asset Derivatives offered.
(2) To be able to demonstrate to the AFSA that it complies with DAA 2.15.3., a Digital Asset Trading Facility Operator should have in place systems and controls that include:
(a) pre-determined and clear criteria against which a Retail Client’s ability to trade in Digital Asset Derivatives can be assessed;
(b) adequate records to demonstrate that the Digital Asset Trading Facility Operator has undertaken the appropriateness test for each Retail Client, who is a resident of the Republic of Kazakhstan; and
(c) in the case of an existing Retail Client with whom the Digital Asset Trading Facility Operator has previously traded in Digital Asset Derivatives, procedures to undertake a fresh appropriateness test if:
(i) a new Digital Asset Derivative with a materially different risk profile is offered to the Retail Client; or
(ii) there has been a material change in the Retail Client’s circumstances.
(3) If a Digital Asset Trading Facility Operator forms the view that it is not appropriate for a Person to trade in Digital Asset Derivatives, the Digital Asset Trading Facility Operator should refrain from offering that service to the Person. As a matter of good practice, the Digital Asset Trading Facility Operator should inform the Person of such decision.
2.16. AFSA power to impose requirements
Without limiting the powers available to the AFSA under Part 8 of the Framework Regulations, the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions imposing on a Digital Asset Trading Facility Operator any additional requirements that the AFSA considers appropriate.
Annex 2
FINANCIAL SERVCES FRAMEWORK REGULATIONS
In these Regulations, underlining indicates a new text and strikethrough indicates a removed text
39. Exemption for Authorised Market Institutions
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(3) An Authorised Digital Asset Trading Facility is exempt from the General Prohibition in respect of any Regulated Activity: [intentionally omitted]
(a) which is carried on as a part of the Authorised Digital Asset Trading Facility's business as a Digital Asset trading facility; or [intentionally omitted]
(b) which is carried on for the purposes of, or in connection with, the provision by the Authorised Digital Asset Trading Facility of services designed to facilitate the provision of clearing services by another Person. [intentionally omitted]
57. AFSA power to impose requirements on an Authorised Market Institution
Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:
(a) requiring compliance with any duty, requirement, prohibition, obligation or responsibility applicable to an Authorised Market Institution; or
(b) requiring an Authorised Market Institution to act in a specified manner in relation to a transaction conducted on or through the facilities operated by an Authorised Market Institution, or in relation to a specified class of transactions; or
(c) requiring an Authorised Market Institution to act in a specified manner or to exercise its powers under any rules that the Authorised Market Institution has made.; or
(d) excluding the application of any requirements for engaging in the activity of Operating a Digital Asset Business imposed by the Rules; or [intentionally omitted]
(e) imposing on an Authorised Person engaged in the activity of Operating a Digital Asset Business any additional requirements that the AFSA considers appropriate.[intentionally omitted]
GENERAL RULES
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
1.2. Authorised Market Institutions
Guidance: Definition of Market Activity
Market Activity is defined in the section 18 of the Framework Regulations as:
(a) Operating an Exchange;
(b) Operating a Clearing House;
(c) Operating a Digital Asset Trading Facility;[intentionally omitted]
(d) Operating a Loan Crowdfunding Platform;
(e) Operating an Investment Crowdfunding Platform.;
(f) Operating a Private Financing Platform.
(…)
1.2.6. Effective supervision
In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:
(a) the nature, including the complexity, of the Market Activities that the applicant will carry on;
(b) if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, a Digital Asset Trading Facility, a Loan Crowdfunding Platform or an Investment Crowdfunding Platform, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities in carrying on that Market Activity;
(…)
1.2.7. Compliance arrangements
(…)
(c) effective arrangements for monitoring and enforcing compliance of its Members with its own rules and, if relevant, its clearing and settlement arrangements; and
(d) if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, effective arrangements to verify that issuers admitted to trading on its facilities comply with the Market Rules.; and
(e) if the applicant seeks a licence to carry on the Market Activity of Operating a Digital Asset Trading Facility, effective arrangements to verify that members admitted to trading on its facilities comply with the Conduct of Business Rules and the Authorised Market Institution Rules.
(…)
GENERAL RULES. SCHEDULE 1: REGULATED ACTIVITIES
30. Operating a Digital Asset Trading Facility
Operating a Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:
(a) to buy, sell or exchange Digital Assets for a Fiat currency; and/or
(b) to exchange one Digital Asset for another Digital Asset, in its Facility, in accordance with its non-discretionary rules.; and/or
(c) to buy, sell or exchange Digital Assets for a commodity.
GENERAL RULES. SCHEDULE 4: MARKET ACTIVITIES
Schedule 4: Market Activities.
(…)
3. Operating a Digital Asset Trading Facility
Operating a Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:
(a) to buy, sell or exchange Digital Assets for a Fiat currency; and/or
(b) to exchange one Digital Asset for another Digital Asset, in its Facility, in accordance with its non-discretionary rules. [intentionally omitted]
GLOSSARY
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
GLOSSARY. 1. Application. (t) AIFC Rules on Regulation of Digital Asset Activities (DAA).
(…)
Algorithmic stablecoin | A Digital Asset which uses, or purports to use, an algorithm to increase or decrease the supply of Digital Assets in order to stabilise its price or reduce volatility in its price |
| A Centre Participant which has been licensed by the AFSA to carry on the Regulated |
Client Account | In relation to Client Investments or Client Digital Assets is an account which: (a) is held with a Third Party Agent or by an Authorised Firm which is authorised under its Licence to Provide Custody; (b) is established to hold Client Assets; (c) when held by a Third Party Agent, is maintained in the name of: (i) if a Domestic Firm, the Authorised Firm; or (ii) if not a Domestic Firm, a Nominee Company controlled by the Authorised Firm; and (d) includes the words ‘Client Account’ in its title. |
Commodity stablecoin | A Digital Asset whose value purports to be determined by reference to a commodity (e.g., gold, oil). |
Digital Asset Business | Any one or more of the following Regulated Activities in relation to Digital Assets: (a)Dealing in Investments as Principal; (b)Dealing in Investments as Agent; (c)Managing Investments; (d)Managing a Collective Investment Scheme; (e)Providing Custody; (f)Arranging Custody; (g)Advising on Investments; (h)Arranging Deals in Investments; (i)Providing Money Services; and (j)Operating a Digital Asset Trading Facility.
A Person wishing to carry on or more of the above Regulated Activities in relation to Digital Assets, cannot carry on the Regulated Activities in relation to other types of Investments. |
Digital Asset Derivative | A Derivative the value of which is determined by reference to: (a)a Digital Asset; or (b)an index that includes a Digital Asset. |
DASP | Digital Asset Service Provider |
Digital Asset Service Provider | A Centre Participant which has been licensed by the AFSA to carry on one or more of the following Regulated Activities in relation to Digital Assets: (a)Operating a Digital Asset Trading Facility; (b)Dealing in Investments as Principal; (c)Dealing in Investments as Agent; (d)Managing Investments; (e)Providing Custody; (f)Arranging Custody; (g)Advising on Investments; (h)Arranging Deals in Investments; and (i)Providing Money Services.
A Person wishing to carry on one or more of the above Regulated Activities in relation to Digital Assets, cannot carry on the Regulated Activities in relation to other types of Investments. |
Digital Asset Custodian | Authorised Firm which carries on the Regulated Activity of Providing Custody in relation to Digital Assets. |
DATF | Digital Asset Trading Facility |
Digital Asset Trading Facility | A facility on which Digital Assets, rights or interests in Digital Assets are traded. |
Digital Asset Trading Facility Operator | A Centre Participant which is licensed by the AFSA to carry on the Regulated Activity of Operating a Digital Asset Trading Facility. |
Digital Asset (or Private Electronic Currency or Private E-money) | A digital representation of value that (1) can be digitally traded and functions as (a) a medium of exchange; or (b) a unit of account; or (c) a store of value; (2) can be exchanged back-and-forth for Fiat Currency, but is neither issued nor guaranteed by the government of any jurisdiction, and (3) fulfils the above functions only by agreement within the community of users of the Digital Asset; and accordingly (4) is to be distinguished from Fiat Currency and E-money.
An Excluded Digital Asset is excluded from the scope of the DAA. |
Digital wallet Service Provider | An Authorised Firm Providing Custody of Digital Assets by holding and controlling the public and private cryptographic keys relating to the Digital Assets. |
Direct Electronic Access | Direct Electronic Access means: (a) an arrangement (called direct market access), through which a Member or a client of a member is able to electronically transmit, using the Member’s trading code, an order relating to a Digital Asset, Security, Unit in a Listed Fund or Qualified Investment directly to the facility operated by the Authorised Market Institution, Digital Asset Trading Facility Operator or MTF or OTF Operator. It includes arrangements for the use, by a Person, of the infrastructure (or connecting system) of the Member, client of the Member or another participant; or (b) an arrangement (called sponsored access) through which a Member or a client of a member is able to electronically transmit, using the Member’s trading code, an order to the facility operated by the Authorised Market Institution or MTF or OTF Operator without using the infrastructure (or connecting system) of the Member or another participant or client. |
Distributed Ledger Technology | A class of technologies that support the recording of encrypted data where the data: (a) is held on a distributed ledger; (b) is electronically accessible, from multiple locations, by a network of participants; and (c) can be updated by those participants, based on agreed consensus, protocol or procedures. |
DLT | Distributed Ledger Technology |
Domestic Firm | An Authorised Person or Ancillary Service Provider which: (a) has its registered and head office in the AIFC; or (b) if it is a subsidiary of an Undertaking whose principal place of business and head office is in a jurisdiction other than the AIFC, has its registered office in the AIFC. |
Excluded Digital Asset | A Digital Asset which is: (a) a Non-Fungible Token; (b) a Utility Token; or (c) a digital currency issued by any government, government agency, central bank, or another monetary authority. |
Execute or Execution | The exercise of a Client order that results in a binding transaction. |
Fiat stablecoin | A Digital Asset whose value purports to be determined by reference to a Fiat Currency or a basket of Fiat Currencies. |
Investment Business | The business of: (a) Dealing in Investments as Principal; (b) Dealing in Investments as Agent; (c) Managing Investments; (d) Managing a Collective Investment Scheme; (e) Providing Custody; (f) Arranging Custody; (g) Acting as the Trustee of a Fund; (h) Advising on Investments; (i) Arranging Deals in Investments; (j) Managing a Restricted Profit Sharing Investment Account; or (k) Operating an Exchange
but not including Digital Asset Business. |
List of Digital Assets admitted to trading | A list of Digital Assets which could be traded in the AIFC and do not require the AFSA’s approval. |
Member | A Person who is entitled, under an arrangement between him and an Authorised Market Institution, a Digital Asset Trading Facility Operator, a MTF Operator or an OTF Operator, to use that institution’s or operator’s facilities |
Non-Fungible Token | An Investment which: (a) is unique and not fungible with any other Non-Fungible Token; (b) related to an identified asset; and (c) is used to prove the ownership or provenance of the asset. |
Operating a Digital Asset Trading Facility | The Regulated |
Privacy Device | Any technology, Digital wallet or another mechanism or device (excluding a VPN), which has any feature or features used, or intended to be used, to hide, anonymise, obscure or prevent the tracing of any of the following information: (a) a Digital Asset transaction; or (b) the identity of the holder of a Digital Asset; or (c) the cryptographic key associated with a Person; or (d) the identity of parties to a Digital Asset transaction; or (e) the value of a Digital Asset transaction; or (f) the beneficial owner of a Digital Asset. |
Privacy Token | A Digital Asset where the Digital Asset or the DLT or another similar technology used for the Digital Asset, has any feature or features that are used, or intended to be used, to hide, anonymise, obscure or prevent the tracing of any of the following information: (a) a Digital Asset transaction; or (b) the identity of the holder of a Digital Asset; or (c) the cryptographic key associated with a Person; or (d) the identity of parties to a Digital Asset transaction; or (e) the value of a Digital Asset transaction; or (f) the beneficial owner of a Digital Asset. |
Safe Custody Digital Assets | Digital Assets held or to be held for safekeeping by an Authorised Firm or Third Party Agent. |
Security Token | A Digital Asset that represents ownership of a Security. |
Self-Custody of Digital Assets | The holding and controlling of Digital Assets by their owner, through the owner holding and controlling the public and private cryptographic keys relating to the Digital Assets. |
Self-hosted Digital Wallet | A software or hardware that enables a person to store and transfer Digital Assets on his own behalf, and in relation to which the public and private cryptographic keys are controlled or held by that Person. |
Third Party Agent | In relation to a Client Account, means an Authorised Firm or Regulated Financial Institution (including a bank, custodian, an intermediate broker, a settlement agent, a clearing house, an exchange and ‘over the counter’ counterparty) that is a separate legal entity from the Authorised Firm that is required under COB to establish the Client Account. |
Third Party Digital wallet Service Provider | (1) A Digital wallet Service Provider other than a Digital Asset Trading Facility Operator Providing Custody of Digital Assets traded on its facility; or (2) A Person in another jurisdiction Providing Custody of Digital Assets by holding and controlling the public and private cryptographic keys relating to the Digital Assets, which is authorized and appropriately supervised for that activity by a Financial Services Regulator. |
Travel Rule | Has the meaning given to it in FATF’s Updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers [October 2021], as may be amended from time to time |
Utility Token | A Digital Asset: (a) which can be used by the holder only to pay for, receive a discount on, or access a product or service (whether current or proposed); and (b) the product or service referred to in (a) is provided by the issuer of the Digital Asset or of another entity in the issuer’s Group. |
VPN | A virtual private network that creates a safe, encrypted online connection for internet users. |
AUTHORISED MARKET INSTITUTION RULES
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6. RULES APPLICABLE TO AN AUTHORISED DIGITAL ASSET TRADING FACILITY…........... 39
6.1. Main requirements relating to trading on the facility ........................................................... 39
6.2. Requirement to prepare Rules ............................................................................................... 39
6.3. Admission of Digital Assets to trading ...................................................................................40
6.4. Suspending or removing Digital Assets from trading ..........................................................42 6.5. Transparency obligations ....................................................................................................... 42 6.6. Additional requirements on technology resources .............................................................. 43 6.7. Clients of an Authorised Digital Asset Trading Facility and Investment limits ..................45 [intentionally omitted]
(…)
Guidance: Purpose and application of AMI
·the licensing requirements, or standards, which an applicant must satisfy to be granted a Licence to carry on either of the Market Activities of Operating an Investment Exchange, Operating Digital Assets Trading Facility and Operating a Clearing House;
(…)
·Chapter 6 contains additional rules and guidance applicable to Authorised Digital Assets Trading Facility.
(…)
1. INTRODUCTION
1.1. Introduction
1.1.1. Definitions
(1) An Authorised Market Institution is a Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities. An Authorised Market Institution can be an Authorised Investment Exchange, an Authorised Digital Asset Trading Facility, an Authorised Clearing House and/or an Authorised Crowdfunding Platform.
(7) An Authorised Digital Asset Trading Facility is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Digital Asset Trading Facility.[intentionally omitted]
(…)
2.4.4. Resources of Members
(…)
(2) The requirements in (1) do not apply to:
(a) an Authorised Crowdfunding Platform (or its Clients).; or
(b) the Member of an Authorised Digital Asset Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal. [intentionally omitted]
(…)
2.4.7. Testing relating to Members’ technology systems
(…)
(4) The requirements in (1)-(3) do not apply to:
(a) an Authorised Crowdfunding Platform (or its Clients).; or
(b) the Member of an Authorised Digital Asset Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.5. Business Rules
2.5.1. Requirement to prepare Business Rules
(…)
(d) Admission to Trading Rules, prepared in accordance with AMI 3.2 or AMI 6.3, or Admission to Clearing Rules, prepared in accordance with AMI 4.1, governing the admission of Securities,or Units in a Listed Fund or Digital Assets to trading, or clearing and settlement, as appropriate to its facilities;
(e) Listing Rules, prepared in accordance with AMI 3.6, setting out the rules and conditions applicable to a Person who wishes to have Securities or Units in a Listed Fund included in an Official List; and
(f) any other matters necessary for the proper functioning of the Authorised Market Institution and the facilities operated by it.
The requirements in (c) and (e) do not apply to the Authorised Digital Asset Trading Facility.
2.6. Membership
2.6.1. Persons eligible for Membership
(1) An Authorised Market Institution, except an Authorised Digital Asset Trading Facility, may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and who is either:
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; or
(b) a Recognised Non-AIFC Member.
(2) An Authorised Digital Asset Trading Facility may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is: [intentionally omitted]
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; [intentionally omitted]
(b) a Recognised Non-AIFC Member; or [intentionally omitted]
(c) a body corporate or an individual (natural person) which carries on the activity solely as principal. [intentionally omitted]
2.7. Direct Electronic Access
2.7.1. Direct Electronic Access
Direct Electronic Access means any arrangement, such as the use of the Member's trading code, through which a Member or the clients of that Member are able to transmit electronically orders relating to Securities, or Units in a Listed Fund or Digital Asset directly to the facility provided by the Authorised Market Institution and includes arrangements which involve the use by a Person of the infrastructure of the Authorised Digital Asset Trading Facility or the Member or participant or client or any connecting system provided by the Authorised Digital Asset Trading Facility or Member or participant or client, to transmit the orders and arrangements where such an infrastructure is not used by a Person.
(…)
2.9.2. Custody and investment risk
(1) An Authorised Market Institution must have effective means to address risks relating to:
(a) custody of its own assets, in accordance with (2), if it is an Authorised Clearing House; or
(b)investments, in accordance with (3), if it is an Authorised Investment Exchange.; or
(c) Digital Assets, if it is an Authorised Digital Asset Trading Facility. [intentionally omitted]
(…)
6. RULES APPLICABLE TO AN AUTHORISED DIGITAL ASSET TRADING FACILITY
6.1. Main requirements relating to trading on the facility
(1) An Authorised Digital Asset Trading Facility must, at the time a Licence is granted and at all times thereafter, have:
(a) transparent and non-discriminatory rules and procedures to ensure fair and orderly trading of Digital Assets on its facility;
(b) objective criteria governing access to its facility;
(c) objective and transparent criteria for determining the Investments that can be traded on its facility; and
(d) adequate technology resources.
(2) An Authorised Digital Asset Trading Facility must maintain effective arrangements to verify that its members comply with requirements set out in COB, AML.
(3) An Authorised Digital Asset Trading Facility must not introduce a liquidity incentive scheme other scheme for encouraging bids on a trading venue or to increase the volume of business transacted unless it has obtained the prior approval of the AFSA.
(4) For the purposes of (1), an Authorised Digital Asset Trading Facility must make available to the public, without any charges, data relating to the quality of execution of transactions on the Authorised Digital Asset Trading Facility on at least an annual basis. Reports must include details about price, costs, speed and likelihood of execution for individual Digital Assets.
6.2. Requirement to prepare Rules
(1) An Authorised Digital Asset Trading Facility’s Rules must:
(a) be based on objective criteria;
(b) be non-discriminatory;
(c) be clear and fair;
(d) be made publicly available free of charge;
(e) contain provisions for the resolution of Members’ and other participants’ disputes;
(f) contain provisions for penalties or sanctions which may be imposed by the Authorised Digital Asset Trading Facility for a breach of the Rules; and
(g) contain provisions for an appeal process from the decisions of the Authorised Digital Asset Trading Facility.
(2) An Authorised Digital Asset Trading Facility must seek prior approval of its Rules (Business Rules, Admission to Trading Rules, Membership Rules) and of amendments to its Rules by:
(a) making its Rules available for market consultation for no less than 30 days; and
(b) obtaining approval of the AFSA.
(3) Where an Authorised Digital Asset Trading Facility has made any amendments to its Rules, it must have adequate procedures for notifying users and the AFSA of such amendments with a notice period of at least 30 days prior to making any amendments to its Rules available for market consultation.
(4) An Authorised Digital Asset Trading Facility must have procedures in place to ensure that its Rules are monitored and enforced.
6.3. Admission of Digital Assets to trading
6.3.1. Admission to Trading Rules
(1) An Authorised Digital Asset Trading Facility must make clear and transparent rules concerning the admission of Digital Assets to trading on its facilities.
(2) The rules of the Authorised Digital Asset Trading Facility must ensure that:
(a) Digital Assets admitted to trading on an Authorised Digital Asset Trading Facility’s facilities are capable of being traded in a fair, orderly and efficient manner; and
(b) Digital Assets admitted to trading on an Authorised Digital Asset Trading Facility’s facilities are freely negotiable.
6.3.2. Application for admission of Digital Assets to Trading
(1) Applications for the admission of a Digital Asset to trading can be made to an Authorised Digital Asset Trading Facility by the issuer of the Digital Asset, by a third party on behalf of and with the consent of the issuer of the Digital Asset, or by a Member of an Authorised Digital Asset Trading Facility.
(2) A Digital Asset can also be admitted to trading on the Authorised Digital Asset Trading Facility’s own initiative.
(3) An Authorised Digital Asset Trading Facility must, before admitting any Digital Asset to trading:
(a) be satisfied that the applicable requirements, including those in its Admission to Trading Rules, have been or will be fully complied with in respect of such Digital Asset and
(b) obtain approval of the AFSA in respect of such Digital Asset.
(4) For the purposes of (1), an Authorised Digital Asset Trading Facility must notify an applicant in writing of its decision in relation to the application for admission of the Digital Asset to trading. In the case that such decision is to deny the application, the written notice should indicate (i) whether the application has been considered by the AFSA, and if so, (ii) the AFSA’s determination in respect thereof.
(5) For purposes of 3(b), an application to AFSA by Authorised Digital Asset Trading Facility shall include:
(a) a copy of the admission application; and
(b) any other information requested by the AFSA.
6.3.3. Decision-making procedures for the AFSA in relation to applications for approval of the admission of Digital Assets to trading
(1) Where an Authorised Person Operating a Digital Asset Trading Facility applies for approval of the admission of a Digital Asset to trading, the AFSA may:
(a) approve the application;
(b) deny the application; or
(c) approve the application subject to conditions or restrictions.
(2) The AFSA may exercise its powers under (1)(b) where the AFSA reasonably considers that:
(a) granting the Digital Assets admission to trading of Digital Assets would be detrimental to the interests of Persons dealing in the relevant Digital Assets using the facilities of an Authorised Person Operating a Digital Asset Trading Facility or otherwise; or
(b) any requirements imposed by the AFSA or in the Rules of an Authorised Digital Asset Trading Facility as are applicable have not been or will not be complied with; or
(c) the Issuer of the Digital Assets has failed or will fail to comply with any obligations applying to it including those relating to having its Digital Assets admitted to trading or traded in another jurisdiction.
(3) Where the AFSA denies an application for approval of admission of a Digital Asset to trading pursuant to (2), such Digital Assets must not be admitted by an Authorised Person Operating a Digital Asset Trading Facility to its facility.
(4) Where the AFSA approves an application for approval of admission of a Digital Asset to trading subject to conditions or restrictions, the Authorised Person Operating a Digital Asset Trading Facility is responsible for implanting such conditions and restrictions in admitting the Digital Asset to trading, and such conditions or restrictions may not be varied or removed without the approval of the AFSA.
6.3.4. Undertaking to comply with the acting law of the AIFC
An Authorised Digital Asset Trading Facility may not admit Digital Asset to trading unless the person who seeks to have Digital Assets admitted to trading:
(a) gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AIFC in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution;
(b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution; and
(c) agrees in writing to subject itself to the acting law of the AIFC in relation to its use of the facilities of the Authorised Market Institution.
6.3.5. Review of compliance
The Authorised Digital Asset Trading Facility must maintain arrangements regularly to review whether the Digital Assets admitted to trading on its facilities comply with the Admission to Trading Rules.
6.4. Suspending or removing Digital Assets from trading
6.4.1. Power to suspend
(1) The rules of an Authorised Digital Asset Trading Facility must provide that the Authorised Digital Asset Trading Facility have the power to suspend or remove from trading on its facilities any Digital Assets with immediate effect or from such date and time as may be specified where it is satisfied that there are circumstances that warrant such action or it is in the interests of the AIFC.
(2) The AFSA may direct an Authorised Person Operating a Digital Asset Trading Facility to suspend or remove Digital Assets from trading with immediate effect or from such date and time as may be specified if it is satisfied there are circumstances that warrant such action or it is in the interests of the AIFC.
(3) The AFSA may withdraw a direction made under (2) at any time.
(4) Digital Assets that are suspended from trading of Digital Assets remain admitted to trading for the purposes of this Chapter.
(5) The AFSA may prescribe any additional requirements or procedures relating to the removal or suspension of Digital Assets from or restoration of Digital Assets to trading.
6.4.2. Limitation on power to suspend or remove Digital Assets from trading
The rules of an Authorised Digital Asset Trading Facility must contain provisions for orderly suspension and removal from trading on its facilities any Digital Asset which no longer complies with its rules taking into account the interests of investors and the orderly functioning of the financial markets of the AIFC.
6.4.3. Publication of decision
(1) Where the Authorised Digital Asset Trading Facility suspends or removes any Digital Asset from trading on its facilities, it must notify the AFSA in advance and make that decision public by issuing a public notice on its website.
(2) Where the Authorised Digital Asset Trading Facility lifts a suspension or re-admits any Digital Asset to trading on its facilities, it must notify the AFSA in advance and make that decision public by issuing a public notice on its website.
(3) Where an Authorised Digital Asset Trading Facility has made any decisions on admission, suspension, or removal of Digital Assets from trading on its facilities, it must have adequate procedures for notifying users of such decisions.
6.5. Transparency obligations
6.5.1. Trading transparency obligation
An Authorised Digital Asset Trading Facility must make available to the public:
(a) the current bid and offer prices of Digital Assets traded on its systems on a continuous basis during normal trading hours;
(b) the price, volume and time of the transactions executed in respect of Digital Assets traded on its facilities in as close to real-time as technically possible; and
(c) provide price, volume, time and counterparty details to the AFSA within 24 hours of the close of each trading day via a secure electronic feed.
6.5.2. Public notice of suspended or terminated Membership
The Authorised Digital Asset Trading Facility must promptly issue a public notice on its website in respect of any Member that has a Licence to carry on Market Activities or Regulated Activities whose Membership is suspended or terminated.
6.5.3. Cooperation with office-holder
The Authorised Digital Asset Trading Facility must cooperate, by the sharing of information and otherwise, with the AFSA, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a Member of the Digital Asset Trading Facility.
6.6. Additional requirements on technology resources
6.6.1. Cyber-security policy
(1) An Authorised Digital Asset Trading Facility shall implement a written cyber security policy setting forth its policies and procedures for the protection of its electronic systems and members and counterparty data stored on those systems, which shall be reviewed and approved by the Authorised Digital Asset Trading Facility’s governing body at least annually.
(2) The cyber security policy must, as a minimum, address the following areas:
(a) information security;
(b) data governance and classification;
(c) access controls;
(d) business continuity and disaster recovery planning and resources;
(e) capacity and performance planning;
(f) systems operations and availability concerns;
(g) systems and network security;
(h) systems and application development and quality assurance;
(i) physical security and environmental controls;
(j) customer data privacy;
(k) vendor and third-party service provider management; and
(l) incident response.
(3) An Authorised Digital Asset Trading Facility must advise the AFSA immediately if it becomes aware, or has reasonable grounds to believe, that a significant breach by any Person of its cyber security policy may have occurred or may be about to occur.
6.6.2. Technology governance
An Authorised Digital Asset Trading Facility must, as a minimum, have in place systems and controls with respect to the procedures describing the creation, management and control of digital wallets and private keys.
6.6.3. Trading controls
An Authorised Digital Asset Trading Facility must be able to:
(a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
(b) temporarily halt or constrain trading on its facilities if necessary or desirable to maintain an orderly market; and
(c) cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member.
6.6.4. Settlement and Clearing facilitation services
(1) An Authorised Digital Asset Trading Facility must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), clearing and settlement of the rights and liabilities of the parties to transactions effected on the Authorised Digital Asset Trading Facility (being rights and liabilities in relation to those transactions).
(2) An Authorised Digital Asset Trading Facility acting as a Digital Asset Depository must:
(a) have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of Digital Assets issuers and holders, prevent the unauthorised creation or deletion of Digital Assets, and conduct periodic and at least daily reconciliation of each Digital Asset balance it maintains for issuers and holders;
(b) prohibit overdrafts and debit balances in Digital Assets accounts;
(c) maintain Digital Assets in an immobilised or dematerialised form for their transfer by book entry;
(d) protect assets against custody risk through appropriate rules and procedures consistent with its legal framework;
(e) ensure segregation between the Digital Asset Depository’s own assets and the Digital Assets of its participants and segregation among the Digital Assets of participants; and
(f) identify, measure, monitor, and manage its risks from other custody related activities that it may perform.
6.7. Clients of an Authorised Digital Asset Trading Facility and Investment limits
(1) Members of an Authorised Digital Asset Trading Facility and their clients will be Clients of an Authorised Digital Asset Trading Facility.
(2) An Authorised Digital Asset Trading Facility must maintain effective systems and controls to ensure that a Retail Client using its service does not invest, in respect of all Digital Assets in aggregate calculated over a period of one month, an amount which exceeds the greater of:
(a) USD 1,000; or
(b) the lesser of (i) 10 percent of the annual income; or (ii) 5 percent of the net worth of such Retail Client (excluding the value of the primary residence), up to a maximum aggregate amount of USD100,000.
CONDUCT OF BUSINESS RULES
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CONTENTS
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1.2.2. Exclusions in relation to certain categories of Centre Participant
For the avoidance of doubt, the requirements in COB do not apply to:
(a) a Representative Office;
(b) an Authorised Market Institution (other than an Authorised Crowdfunding Platform and an Authorised Digital Asset Trading Facility), except for COB 3 (Communications with Clients and Financial Promotions); or
(c) an Authorised Crowdfunding Platform, except for COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 7 (Conflicts of Interest), COB 8 (Client Assets) and COB Schedule 2 (Key Information and Content of Client Agreement); or
(d) an Authorised Digital Asset Trading Facility, except for COB 2 (Client Classification) and COB 3 (Communications with Clients and Financial Promotions).
(…)
For the purposes of 1.2.2(d), references in COB 2 and COB 3 to:
(a) "Authorised Firms" shall be read as if it were a reference to "an Authorised Digital Asset Trading Facility "; and
(b) "Regulated Activities" shall be read as if it were a reference to "Market Activities".
(…)
17. OPERATORS OF A DIGITAL ASSET BUSINESS
17.1. Application
This chapter applies to an Authorised Person engaged in the activity of Operating a Digital Asset Business.
Guidance
The following activities do not constitute Operating a Digital Asset Business:
trading of Digital Assets for the Person’s own investment purpose;
the issuance of Digital Assets by a Person and their administration (including sale, redemption);
any other activity or arrangement that is deemed by the AFSA to not constitute Operating a Digital Asset Business, where necessary and appropriate in order for the AFSA to pursue its objectives.
17.2. Rules Applicable to an Authorised Digital Asset Trading Facility Operator
In addition to all requirements applicable to Authorised Persons in these rules, GEN, and AML, an Authorised Person carrying on the Market Activity of Operating a Digital Asset Trading Facility must comply with the applicable requirements set out in the AMI, unless the requirements in this chapter expressly provide otherwise.
17.3. Admission of Digital Assets to trading
An Authorised Person Operating a Digital Asset Trading Facility may grant admission of Digital Assets to trading only where it is satisfied that such admission is in accordance with the AMI and an Authorised Digital Asset Trading Facility’s Admission to Trading Rules.
An Authorised Person Operating a Digital Asset Trading Facility must not permit trading of Digital Assets on its facilities unless those Digital Assets are admitted to, and not suspended from, trading by the Authorised Person Operating a Digital Asset Trading Facility pursuant to Chapter 6 of AMI. [intentionally omitted]
17.4. Additional disclosure requirements
Prior to entering into an initial transaction for, on behalf of, or with a Client, an Authorised Person Operating a Digital Asset Business shall disclose in a clear, fair and not misleading manner:
(a) all terms, conditions and risks relating to the Digital Assets that have been admitted to trading and/or is the subject of the transaction;
(b) all material risks associated with its products, services and activities; and
(c) all details on the amount and the purpose of any premiums, fees, charges or taxes payable by the Client, whether or not these are payable to the Operating a Digital Asset Business. [intentionally omitted]
17.5. The risks to be disclosed pursuant to COB 17.4
The risks to be disclosed pursuant to COB 17.4. include, but are not limited to, the following:
(a) Digital Assets not being legal tender or backed by a government;
(b) the value, or process for valuation, of Digital Assets, including the risk of a Digital Assets having no value;
(c) the volatility and unpredictability of the price of Digital Assets relative to Fiat Currencies;
(d) that trading in Digital Assets is susceptible to irrational market forces;
(e) that the nature of Digital Assets may lead to an increased risk of Financial Crime;
(f) that the nature of Digital Assets may lead to an increased risk of cyber-attack;
(g) there being limited or, in some cases, no mechanism for the recovery of lost or stolen Digital Assets;
(h) the risks of Digital Assets with regard to anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement;
(i) that there is no assurance that a Person who accepts a Digital Asset as payment today will continue to do so in the future;
(j) that the nature of Digital Assets means that technological difficulties experienced by the Authorised Person may prevent the access or use of a Client’s Digital Assets;
(k) any links to Digital Assets related activity outside the AIFC, which may be unregulated or subject to limited regulation; and
(l) any regulatory changes or actions by the AFSA or Non-AIFC Regulator that may adversely affect the use, transfer, exchange, and value of a Digital Asset. [intentionally omitted]
17.6. Complaints
An Authorised Person Operating a Digital Asset Business shall establish and maintain written policies and procedures to fairly and timely resolve complaints made against it or other parties (including members).
An Authorised Person Operating a Digital Asset Business must provide, in a clear and conspicuous manner: on its website or websites; in all physical locations; and in any other location as the AFSA may prescribe, the following disclosures:
(a) the mailing address, email address, and telephone number for the receipt of complaints;
(b) a statement that the complainant may also bring his or her complaint to the attention of the AFSA;
(c) the AFSA’s mailing address, website, and telephone number; and
(d) such other information as the AFSA may require.
An Authorised Person Operating a Digital Asset Business shall report to the AFSA any change in its complaint policies or procedures within ten days.
An Authorised Person Operating a Digital Asset Business must maintain a record of any complaint made against it or other parties (including members) for a minimum period of six years from the date of receipt of the complaint. [intentionally omitted]
17.7. Obligation to report transactions
An Authorised Person Operating a Digital Asset Business shall report to the AFSA details of transactions in Digital Assets traded on its facility which are executed, or reported, through its systems.
The AFSA may, by written notice or Guidance, specify:
(a) the information to be included in reports made under the preceding paragraph; and
(b) the manner in which such reports are to be made. [intentionally omitted]
17.8. AFSA power to impose a prohibition or requirement
The AFSA may prohibit an Authorised Person Operating a Digital Asset Business from:
(a) entering into certain specified transactions or types of transactions; or
(b) outsourcing any of its functions or activities to a third party.
The AFSA may, by written notice or guidance, set fees payable by an Authorised Person Operating a Digital Asset Business to the AFSA on certain specified transactions or types of transactions. [intentionally omitted]
SCHEDULE 2: KEY INFORMATION AND CONTENT OF CLIENT AGREEMENT
1. | CORE INFORMATION |
(…) | (…) |
5. | ADDITIONAL INFORMATION FOR DIGITAL ASSET TRADING FACILITY OPERATORS AND DIGITAL ASSET SERVICE PROVIDERS PROVIDING CUSTODY |
| The additional information required where an Authorised Firm Provides Custody in relation to Digital Assets: |
| a breakdown of all fees and charges payable for a transfer of Digital Assets (a “transfer”) and when they are charged; |
| the information required to carry out a transfer; |
| the form and procedures for giving consent to a transfer; |
| an indication of the time it will normally take to carry out a transfer; |
| details of when a transfer will be considered to be complete; |
| how, and in what form, information and communications relating to transfer services will be provided to the Client, including the timing and frequency of communications and the language used and technical requirements for the Client’s equipment and software to receive the communications; |
| clear policies and procedures relating to unauthorised or incorrectly executed transfers, including when the Client is and is not entitled to redress; |
| clear policies and procedures relating to situations where the holding or transfer of Digital Assets may have been compromised, such as if there has been hacking, theft or fraud; and |
| details of the procedures the Digital Asset will follow to contact the Client if there has been suspected or actual hacking, theft or fraud. |
AIFC FEES RULES
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SCHEDULE 1: APPLICATION FEES PAYABLE TO THE AFSA FOR REGULATED ACTIVITIES
1.1Application fees for applying for Licence to carry on Regulated Activities
Regulated Activities | Fee (USD)* |
Operating a Representative Office | 3 000 |
(…) | (…) |
Operating an Organised Trading Facility | 5000 |
Operating a Digital Asset Trading Facility | 70 000 |
(…)
SCHEDULE 2: APPLICATION FEES PAYABLE TO THE AFSA FOR MARKET ACTIVITIES
1.2Application fees for applying for Licence to carry on Market Activities
Application fee by activities | Fee (USD) |
Operator of a Clearing House | 125 000 |
Operator of an Investment Exchange | 125 000 |
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Operator of a Crowdfunding Platform | 5 000 |
Operating a Private Financing Platform | 5 000 |
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SCHEDULE 6: ANNUAL SUPERVISION FEES PAYABLE TO THE AFSA
6.1 Annual supervision fees for Regulated Activities
Annual supervision fees for Regulated Activities are determined by the activities the Authorised Firm conducts as set out below:
Regulated Activities | Fee (USD)* |
Operating a Representative Office | 1 000 |
(…) | (…) |
Operating an Organised Trading Facility | • 3 000 USD (fixed); and • trading levy of 0.0006% of the average daily trading value (variable)**. Note: AFSA will not invoice the trading levy (variable) fee unless it exceeds 500 USD |
Operating a Digital Asset Trading Facility | 35 000 |
(…)
6.2 Annual supervision fees for Market Activities
Annual supervision fees for Market Activities are determined by the activities the Authorised Market Institution conducts as set out below:
Application fee by activities | Fee (USD) |
Operator of a Clearing House | 62 500 |
Operator of an Investment Exchange | 62 500 |
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Operator of a Crowdfunding Platform | 3 000 |
Operating a Private Financing Platform | 3 000 |
(…)
AIFC ANTI-MONEY LAUNDERING, COUNTER-TERRORIST FINANCING AND SANCTIONS RULES
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6. CUSTOMER DUE DILIGENCE
6.1. Conducting Customer Due Diligence
6.1.1. Obligation to conduct Customer Due Diligence
A Relevant Person must:
(a) conduct CDD under AML 6.3.1 for each of its customers including when the customer is
carrying out occasional transactions the value of which singularly or in several linked operations (whether at the time or later), equal or exceed USD 15,000; and
(a-a) conduct CDD under AML 6.3.1 for each of its customers including when the customer is
carrying out occasional transactions with Digital Assets the value of which singularly or in several linked operations (whether at the time or later), equal or exceed USD 1,000; and
(b) in addition to (a) and (a-a), conduct EDD under AML 7.1.1 in respect of:
(i) each customer it has assigned as high risk;
(ii) business relationships and transactions with persons from countries with high geographical risk factors.
(…)
11-1. DIGITAL ASSET TRANSFER (the “Travel Rule”)
11-1.1. Digital Asset transfer definition
(1) A Digital Asset transfer is a transaction carried out:
(a) by a Digital Asset Trading Facility Operator or Digital Asset Service Provider (an “ordering institution”) on behalf of an originator by transferring any Digital Assets; and
(b) with a view to making the Digital Assets available
(i) to that Person or another Person (a “beneficiary”); and
(ii) at an institution (a “beneficiary institution”) which may be the ordering institution or another institution, whether or not one or more other institutions (“intermediary institutions”) participate in completion of the transfer of the Digital Assets.
11-1.2. Obligations of Ordering Institution
(1) Before carrying out both a cross-border or domestic Digital Asset transfer of the amount equal to or above USD 1,000, an ordering institution must obtain, record and ensure that the transfers are accompanied by the following information:
(a) the name of the originator;
(b) the number of the originator’s account maintained with the ordering institution and from which the Digital Assets are transferred or, in the absence of such an account, a unique reference number assigned to the Digital Asset transfer by the ordering institution;
(c) the originator’s address, or national identity number, or customer identification number, or date and place of birth;
(d) the name of the beneficiary (recipient); and
(e) the number of the recipient’s account maintained with the beneficiary institution and to which the Digital Assets are transferred or, in the absence of an account number, a unique transaction number assigned to the Digital Asset transfer by the beneficiary institution.
(2) Before carrying out both a cross-border or domestic Digital Asset transfer of the amount below USD 1,000, an ordering institution must obtain, record and ensure that the transfers are accompanied by the following information:
(a) the name of the originator;
(b) the number of the originator’s account maintained with the ordering institution and from which the Digital Assets are transferred or, in the absence of such an account, a unique reference number assigned to the Digital Asset transfer by the ordering institution;
(c) the name of the beneficiary (recipient); and
(d) the number of the recipient’s account maintained with the beneficiary institution and to which the Digital Assets are transferred, or, in the absence of an account number, a unique transaction number assigned to the Digital Asset transfer by the beneficiary institution.
(3) Before transferring Digital Assets, an ordering institution must verify the accuracy of the information referred to in (1) (a) to (c) on the basis of documents, data or information obtained from a reliable and independent sources.
(4) If several individual domestic or cross-border Digital Asset transfers from a single originating institution are bundled in a batch file for te transmission to recipient(s), then a Digital Asset Trading Facility Operator or Digital Asset Service Provider that is an ordering institution must ensure that:
(i) the batch file contains the originator information required in (1) and/or (2) respectively;
(ii) it has verified the originator information referred to in (1); and
(iii) the batch file contains the recipient information required under (1) and/or (2) for each recipient and
that information is fully traceable in each recipient’s jurisdiction.
(5) The information referred to in (1), (2), (4) must be submitted in advance of, or simultaneously or concurrently with, the transfer of Digital Assets and in a secure manner and in line
with the requirements of the AIFC rules and regulations on data protection.
Guidance:
(1) The number of the account maintained with the ordering institution or
beneficiary institution from or to which the Digital Assets are transferred referred to in 11-1.2.(1)(b) to (e) and 11-1.2.(2)(b) to (d) could mean:
(a) the originator’s or recipients’ Digital wallet (address), where a transfer of Digital Assets is registered on a network using distributed ledger technology or similar technology or,
(b) the originator’s or beneficiary's account number, where such an account exists and is used to process the Digital Asset transaction if a transfer of Digital Asset is not registered on a network using distributed ledger technology or similar technology;
(b) Where information both in (1) (a) and (b) exists, ordering or beneficiary institutions should obtain, hold and/or send all information.
11-1.3. Obligations of Beneficiary Institution
(1) A Digital Asset Trading Facility Operator or Digital Asset Service Provider, which acts as a beneficiary institution in a Digital Asset transfer must obtain, record and implement effective procedures, including, where appropriate, monitoring during or after the transfer, in order to detect whether the referred to in 11-1.1(1) and (2) respectively, on the originator and the beneficiary is included in, or follows, the transfer of Digital Assets or batch file transfer.
(2) Before making the Digital Assets available to the beneficiary, for a Digital Asset transfer of amount equal to or above USD 1,000, a beneficiary institution must verify the accuracy of information of the recipient referred to in 11-1.1.(1)(d), on the basis of documents, data or information obtained from a reliable and independent sources.
11-1.4. Transfers of Digital Assets with missing or incomplete information on the originator or the beneficiary
(1) A Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary must implement effective risk-based procedures, including procedures based on the risk-sensitive basis, for determining whether to execute or reject or suspend a transfer of Digital Asset that is not accompanied with a required complete originator and beneficiary information and for taking the appropriate follow-up action.
(2) Where the Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary becomes aware that the information referred to in 11-1.1(1) and (2) is missing or incomplete, the Digital Asset Trading Facility Operator or Digital Asset Service Provider must before making the Digital Assets available to the beneficiary, on a risk-sensitive basis and without undue delay:
(a) reject the transfer or return the transferred Digital Assets to the originator’s account; or
(b) ask for the required information on the originator and the beneficiary before making the Digital Assets available to the beneficiary.
(2) Where a Digital Asset Trading Facility Operator or Digital Asset Service Provider repeatedly fails to provide the required information on the originator or the beneficiary, the Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary must:
(a) take steps, which may initially include the issuing of warnings and setting of deadlines; or
(b) reject any future transfers of Digital Assets from or to, or restrict or terminate its business relationship with, a provider of Digital Assets transfers that fails to provide the required information. The Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary must report that failure, and the steps taken, to the competent authority responsible for monitoring compliance with these Rules.
11-1.5. Digital Asset Transfers to or from self-hosted digital wallets
(1) In the case of a transfer of Digital Assets made to or received from on behalf of its a self-hosted digital wallet(s), the Digital Asset Service Provider of the originator or beneficiary must obtain and hold information referred to in in (1) or (2) from clients and ensure that the transfer of Digital Assets can be individually identified.
(2) In case of a Digital Asset transfer whose amount exceeds USD 1,000 or there is a suspicion of money laundering of a transfer to a self-hosted digital wallet Digital Asset Service Provider of the originator or beneficiary must take adequate measures on a risk-sensitive basis to mitigate and manage the ML/TF risks associated with the transfers.
Guidance on risk mitigating measures on transfers to or from self-hosted digital wallets
Digital Asset Service Provider should undertake following measures (non-exhaustive) to ensure compliance with (2):
(a) conduct enhanced monitoring of Digital Asset transfers with self-hosted digital wallets;
(b) accept Digital Asset transfers only from or to self-hosted digital wallets that the Digital Asset Service Provider has assessed to be reliable, having regard to the screening results of the Digital Asset transactions and the associated digital wallets and the assessment results on the ownership or control of the self-hosted digital wallet by the originator or beneficiary; and
(c) impose transaction limits or prohibition.
11-1.6. Rules in Chapter 11-1. comes into operation 12 months after the adoption of the AIFC Rules on Regulation of Digital Asset Activities.
11-2. DIGITAL ASSET TRANSFER COUNTERPARTY DUE DILIGENCE AND ADDITIONAL MEASURES.
11-2.1. General requirements Digital Asset transfer counterparty due diligence
(1) When an Authorised Person conducts a Digital Asset transfer referred to in Chapter 11-1, the Authorised Person will be exposed to money laundering and terrorist financing risks associated with the institution which may be the ordering institution, intermediary institution or beneficiary institution involved in the Digital asset transfer (“Digital Asset transfer counterparty”).
(2) To avoid sending or receiving Digital Assets to or from illicit actors or designated parties that had not been subject to appropriate CDD and screening measures of a Digital Asset transfer counterparty and to ensure compliance with the Travel Rule, an Authorised Person must conduct due diligence on the Digital Asset transfer counterparty to identify and assess the money laundering and terrorist financing risks associated with the Digital Asset transfers to or from the Digital Asset transfer counterparty and apply appropriate risk-based anti-money laundering and countering financing terrorism measures.
(3) An Authorised Person should conduct due diligence measures on a Digital Asset transfer counterparty before conducting a Digital Asset transfer, or making the transferred Digital Assets available to the recipient.
(4) An Authorised Person does not need to undertake the Digital Asset transfer counterparty due diligence process for every individual Digital Asset transfer when dealing with Digital Asset transfer counterparties that it has already conducted counterparty due diligence on previously, unless when there is a suspicion of money laundering and terrorist financing.
(5) An Authorised Person undertakes reviews of the Digital Asset transfer counterparty due diligence records on a regular basis or upon trigger events (e.g., when it becomes aware of a suspicious transaction or other information such as negative news from credible media, public information that the counterparty has been subject to any targeted financial sanction, money laundering and terrorist financing investigation or regulatory action).
(6) Based on the Digital Asset transfer counterparty due diligence results, the Authorised Person determines if it should continue to conduct Digital Asset transfers with, and submit the required information to, a Digital Asset transfer counterparty, and the extent of anti-money laundering and countering financing terrorism measures that it should apply in relation to Digital Asset transfers with the Digital Asset transfer counterparty on a risk-sensitive basis.
11-2.2. Digital Asset transfer counterparty due diligence procedures
Digital Asset transfer counterparty due diligence typically involves the following procedures:
(a) determining whether the Digital Asset transfer is or will be with a Digital Asset transfer counterparty or a Self-Hosted Digital wallet;
(b) where applicable, identifying the Digital Asset transfer counterparty (e.g., by making a reference to lists of licensed or registered Digital Asset Service Providers or financial institutions in different jurisdictions); and
(c) assessing whether the Digital Asset transfer counterparty is an eligible counterparty to deal with and to send the required information to.
11-2.3. Digital Asset transfer counterparty due diligence measures
An Authorised Person applies the following Digital Asset transfer counterparty due diligence measures before it conducts a Digital Asset transfer with a Digital Asset transfer counterparty:
(a) determines if the respondent entity is licensed or registered;
(b) collects sufficient information about the Digital Asset transfer counterparty to enable it to understand fully the nature of the Digital Asset transfer counterparty’s business;
(c) understands the nature and expected volume and value of Digital Asset transfers with the Digital Asset transfer counterparty;
(d) determines from publicly available information the reputation of the Digital Asset transfer counterparty and the quality and effectiveness of the anti-money laundering and countering financing terrorism regulation and supervision over the Digital Asset transfer counterparty by authorities in the jurisdictions in which it operates and/or is incorporated which perform functions similar to those of the competent authorities;
(e) assesses the anti-money laundering and countering financing terrorism controls of the Digital Asset transfer counterparty and ensures that the anti-money laundering and countering financing terrorism controls of the Digital Asset transfer counterparty are adequate and effective;
(f) assesses whether the Digital Asset transfer counterparty is subject to the Travel Rule similar to that imposed under Chapter 11-1 in the jurisdictions in which the Digital Asset transfer counterparty operates and/or is incorporated;
(g) assesses the adequacy and effectiveness of the anti-money laundering and countering financing terrorism controls that the Digital Asset transfer counterparty has put in place for ensuring compliance with the Travel Rule;
(h) assesses whether the Digital Asset transfer counterparty can protect the confidentiality and integrity of personal data (e.g., the required originator and recipient information), taking into account the adequacy and robustness of data privacy and security controls of the Digital Asset transfer counterparty; and
(j) obtains approval from its senior management.
Guidance:
(1) While a relationship with a Digital Asset transfer counterparty is different from a cross-border correspondent relationship referred to in Chapter 10, there are similarities in the due diligence approach which can be of assistance to an Authorised Person. By virtue of this, the Authorised Person should conduct the due diligence measures in Chapter 10, with reference to the requirements set out in AML 10.2.
(2) When assessing money laundering and financing terrorism risks posed by a Digital Asset transfer counterparty, an Authorised Person should take into account relevant factors that may indicate a higher money laundering and financing terrorism risk. Examples of such risk is where a Digital Asset transfer counterparty:
(i) operates or is incorporated in a jurisdiction posing a higher risk or with a weak anti-money laundering and countering financing terrorism regime;
(ii) is not (or yet to be) licensed or registered and supervised for anti-money laundering and countering financing terrorism purposes in the jurisdictions in which it operates and/or is incorporated by authorities which perform functions similar to those of the competent authorities;
(iii) does not have in place adequate and effective anti-money laundering and countering financing terrorism systems, including measures for ensuring compliance with the Travel Rule;
(iv) does not implement adequate measures or safeguards for protecting the confidentiality and integrity of personal data; or
(v) is associated with money laundering and financing terrorism or other illicit activities.
Consultation Paper on AIFC Digital Asset Service Providers Framework
Please, press “PDF” button above to download a Consultation Paper
Introduction
Why are we issuing this Consultation Paper (CP)?
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the amendments to the AIFC Rules and regulations to enhance the AIFC Digital Asset Trading Facility Framework.
Who should read this CP?
2.The proposals in this paper will be of interest to current and potential AIFC participants dealing with digital assets as well as the market and other stakeholders.
Terminology
3.Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in the Glossary Rules (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4.We invite comments from interested stakeholders on the proposed framework. All commentsshould be in writing and sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2023-0002” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5.The deadline for providing comments on the proposed framework is 2 July 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6.AFSA prefers to receive comments by email at consultation@afsa.kz or posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Astana, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Issues;
Part III – Best Practice;
Part IV – Proposals;
Part V – Public Consultation Questions;
Part VI – Outcomes.
Annex 1 - Draft AIFC Rules on Digital Asset Activities (Digital Asset Service Providers framework);
Annex 2 – Consequential amendments to AIFC Regulations and Rules.
Background
Digital Asset Service Providers (the “DASPs”) are companies or entities that offer digital asset-related services such as exchanges, wallet providers, custody, and transfer services.
A total global market cap of digital assets amounts to $1.24 trillion as of April 2023[1]. The global DASP market is expected to witness significant growth in the coming years due to the increasing adoption of blockchain technology and virtual assets. The increasing demand for cryptocurrencies, digital securities, and other virtual assets is driving the growth of the DASP market.
However, the DASP market faces several challenges, such as regulatory uncertainty, cybersecurity risks, and money laundering concerns. Regulators across the world are introducing new laws and regulations to address these challenges and ensure the safe and secure operation of DASPs.
Regulating Digital Assets Service Providers is challenging and requires a comprehensive regulatory regime consisting of relevant licensing and regulatory requirements for DASPs' operations.
Development of the AIFC Digital Asset Service Providers Framework (the “DASPs Framework”) was prompted by the need to introduce appropriate regulatory regime for persons wishing to provide financial services activities in respect of digital assets.
The DASPs Framework aimed to:
·introduce relevant investor protection requirements in this area, while also facilitating the development of this market in a responsible and prudent manner. Proper regulation can help ensure the security and stability of the digital asset markets, reduce volatility, and provide greater confidence to participants;
·help combat illicit activities such as money laundering and terrorist financing, which are often facilitated through the use of digital assets, and provide the greater transparency and accountability;
·help facilitate the growth and adoption of digital assets as a legitimate means of exchanging value. By establishing clear rules for digital asset service providers, this Framework can provide clarity and certainty to businesses and investors, encouraging innovation and growth in the industry.
As of April 2023, Fintech Lab (Sandbox) has 10 Digital Asset Service Providers carrying on the following Regulated Activities:
·Providing Custody
·Operating a Digital Asset Trading Facility
·Arranging Custody
·Dealing in Investments as Principal
·Dealing in Investments as Agent
·Managing Investments
·Advising on Investments, Arranging Deals in Investments
·Operating an Exchange
·Operating a Clearing House
·Providing Money Services
·Arranging Deals in Investments.
Issues
The absence of a clear legal and regulatory framework for digital assets can lead to a lack of investors’ confidence in those assets. Besides, it may also lead to missed opportunities in terms of innovative digital services and new funding sources for AIFC Participants.
The lack of a framework on digital assets can also hinder digital asset service providers to scale up their business. Despite the fact that the digital asset market is still modest in size, it may pose a significant a threat to the AIFC financial stability in future. Therefore, the AFSA developed a framework which will regulate activities of the VASPs.
Best Practice
We took into consideration the directions given by international standard-setters, including the Financial Action Task Force (FATF), Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) in respect of Digital Assets.
The regulatory developments in other jurisdictions, including the DIFC, ADGM, UK and Bahrain, were analyzed.
Primarily, the legal framework of the DIFC is selected as a benchmark due to similar status of international financial centre with risk-based regulation and comprehensive regulatory framework for DASPs embracing many aspects of their activities.
Dubai International Financial Centre (“DIFC”)
In March 2021, the DFSA introduced the Investment Token Framework with the intention of:
a) Clarifying the application of the financial services regime to persons undertaking activities that involve, or relate to, Investment Tokens; and
b) Putting in place a consistent, risk based and proportionate application of financial regulation to products, services and activities involving Investment Tokens.
In March 2022 the Crypto Token Framework was introduced, describing a regulatory regime for persons wishing to provide financial services activities in respect of Crypto Tokens. It requires all entities intending to offer financial services in relation to Crypto Tokens to establish in the DIFC as a Body Corporate and be incorporated under DIFC Law.
The Crypto Token Regime has:
·extended the scope of many existing financial services activities including advising, dealing, arranging, trading and custody, to apply to the provision of products and services in relation to Crypto Tokens;
·implemented a wide range of amendments to existing laws and rulebook modules in the DIFC; and
·limited the use of Crypto Tokens to be those which are “recognised” by the DFSA.
The following Financial Services activities are allowed for the provision of services in relation to Crypto Tokens:
a)Dealing in Investments as Principal;
b) Dealing in Investments as Agent;
c) Arranging Deals in Investments;
d) Managing Assets;
e) Advising on Financial Products;
f) Operating an Exchange;
g) Providing Custody;
h) Arranging Custody;
i) Operating a Clearing House; and
j) Operating an Alternative Trading System.
Abu-Dhabi Global Market (“ADGM”)
The ADGM’s Virtual Asset framework has been designed for Multilateral Trading Facilities using virtual assets, custodians and other intermediaries engaged in virtual asset activities, such as brokers.
Specifically, a licence for a Regulated Activity in relation to virtual assets permits undertaking one or more virtual asset activities, including:
a)buying, selling or exercising any right in accepted virtual assets (whether as principal or agent);
b)managing accepted virtual assets belonging to another person;
c)making arrangements with a view to another person (whether as principal or agent) buying, selling or providing custody of accepted virtual assets;
d)marketing of accepted virtual assets;
e)advising on the merits of buying or selling of accepted virtual assets or any rights conferred by such buying or selling;
f)operating a Multilateral Trading Facility in relation to virtual assets; and/or
g)operating as a Virtual Asset custodian.
Firms wishing to apply for one of the above permissions can only do so in relation to “Accepted virtual assets”. These virtual assets are the ones that fulfil the criteria prescribed by the FSRA. A list of accepted virtual assets is not publicly available. Each applicant must submit an application for each virtual asset they intend to offer, regardless of whether the FSRA may have accepted the virtual asset for another Authorised Firm.
As for now, there are 5 virtual asset firms launched in ADGM:
1.Matrix (operating a regulated virtual asset Multilateral Trading Facility and custody platform);
2.MidChains (operating a regulated virtual asset Multilateral Trading Facility and custody platform);
3.Hayvn (arranging deals in investments and providing custody for accepted virtual assets);
4.Seba Bank (advising on investments or credit, arranging credit and custody, and arranging deals in investments);
5.Yoshi markets (operating a regulated virtual asset Multilateral Trading Facility and custody platform).
Bahrain
The Bahraini framework has also the common financial center feature and is based on the UK financial legal framework. Bahrain adopted its DASPs and DA regulatory framework in 2019. Bahrain established a standalone crypto framework that is comprehensive, convenient in terms of navigation, has some commonalities with ADGM, but at the same time provides for many specific and tailored measures that address the risks of the DASP-related activities.
According to the Central Bank of Bahrain and Financial Institutions Law 2006 regulated crypto-asset services means the conduct of any or any combination of the following types of activities:
a)Reception and Transmission of order;
b)Execution of orders on behalf of clients;
c)Dealing on own account;
d)Portfolio Management;
e)Crypto-asset Custodian;
f)Investment Advice;
g)Crypto-asset exchange.
As of the date of this paper, there are 3 licensed companies in Bahrain:
1.Binance Bahrain B.S.C (other activities auxiliary to financial service activities - Crypto-asset services)
2.Rain Management W.L.L. (trading in accepted crypto-assets as agent; trading in accepted crypto-assets as principal; portfolio management; crypto-asset custody; investment advice)
3.Coinmena B.S.C. (trading in accepted crypto-assets as agent; portfolio management; crypto-asset custody; investment advice; trading in accepted crypto-assets as principal)
The United Arab Emirates (Virtual Asset Regulatory Authority)
On 7 February 2023, the Dubai Virtual Asset Regulatory Authority (VARA) issued the Virtual Assets and Related Activities Regulations 2023 (VARA Regulations) and accompanying Rulebooks which set out VARA’s Virtual Asset Regime for the Emirate of Dubai (including its commercial freezones but excluding the Dubai International Financial Centre (DIFC)) in UAE.
Virtual assets are broadly defined as “a digital representation of value that may be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes. This includes virtual tokens, which are a digital representation of a set of rights that can be digitally offered and traded through a virtual asset platform, and any digital representation of any other value as determined by VARA”.
The regulated virtual asset activities, which will require a licence from VARA are:
a) Advisory Services;
b) Broker-Dealer Services;
c) Custody Services;
d) Exchange Services;
e) Lending and Borrowing Services;
f) Payments and Remittances Services; and
g) VA Management and Investment Services.
During 2022, VARA has been working with established virtual asset service providers (VASPs) including Binance and Crypto.com on a minimum viable product program (MVP Program) to onboard VASPs into the jurisdiction.
VARA has also announced that it plans to only permit the MVP Program licensees to provide services to qualified and/or institutional investors in the initial stages, following which the VASPs will be able to progress to a full market product licence and permission to onboard retail clients.
Hex Trust and Crypto.com have officially launched its operations in Dubai after receiving the MVP Operational Licence from VARA, in February and March respectively.
Proposals
Based on the best practice analysis of the DIFC and ADGM, the following Regulated Activities are proposed to be allowed for carrying on, in or from the AIFC, in relation to Digital Assets:
- (a) Dealing in Investments as Principal;
- (b) Dealing in Investments as Agent;
- (c) Managing Investments;
- (d) Managing a Collective Investment Scheme;
- (e) Providing Custody;
- (f) Arranging Custody;
- (g) Advising on Investments; and
- (h) Arranging Deals in Investments.
After preliminary analysis conducted by the AFSA, it is proposed to introduce the following common requirements related to:
1.Authorisation of Digital Asset Service Providers, including the capital requirement and mandatory appointments applicable to Digital Asset Service Providers;
2.Implementing technology governance, controls and systems requirements;
3.Establishing appropriate internal policies and procedures, as well as public disclosure requirements;
4. Provision of key features document and disclosure of risks;
5. Reconciliation;
6. Investment limits and calculation of net assets for effective client management;
7. Prohibitions on marketing, facilitating investments, and certain activities related to Digital Assets;
8. Regular reporting and breach notification obligations.
Digital Asset Service Provider carrying on any one or more of the Regulated Activities in relation to Digital Assets should be subject to relevant provisions of AIFC Acts either directly or in respect of its officers and Employees who are Approved or Designated Individuals.
It is also proposed to introduce the following requirements for each Regulated Activity in relation to Digital assets:
1. Digital Asset Service Providers carrying on a Regulated Activity of Advising on Investments and Arranging Deals in Investments are proposed to ensure that the advice provided is free from misleading or false information, and they must verify factual information from reliable sources, while also assessing a diverse range of Digital Assets to meet the client's investment objectives;
2. Digital Asset Service Providers carrying on a Regulated Activity of Providing and Arranging Custody should comply with the applicable requirements for a proper digital wallet management. This includes ensuring resilient and compatible DLT applications, clear segregation of a client’s digital assets, proper cryptographic key management, providing contractual arrangements, making additional disclosures in order to strengthen security and protect client assets;
3.The requirements for Digital Asset Service Providers Managing Investments and a Collective Investment Scheme should include verification of information, providing transparent client reporting and valuation, implementation of risk management and due diligence measures, and maintaining confirmation notes.
4. Digital Asset Service Providers Dealing in Investments as Principal or Agent should also maintain confirmation notes that include information, that ensures transparency and clarity for clients regarding their investment transactions, and conduct appropriateness test.
Public consultation questions
In the course of public consultation, existing and potential market participants will be invited to comment on the following questions:
(1)AFSA invites comments on the draft Rules on Digital Asset Activities related to the Digital Asset Service Providers and consequential amendments.
(2)What is your view on the proposed capital requirements?
(3)What do you think about the proposed requirements in relation to the IT systems and technology governance?
(4)Do you agree with the proposed restrictions and prohibitions?
Outcomes
It is expected that the introduction of the Digital Asset Service Providers framework will help:
1) address and mitigate risks related to the Digital Asset Service Providers’ activities;
2) support innovation and fair competition;
3) maintain the competitiveness of the AIFC on international financial and technological markets; and
4) provide investors with significant benefits in terms of access to cheaper, faster and safer financial services and asset management.
Annex 1
RULES APPLICABLE TO DIGITAL ASSET SERVICE PROVIDERS
This Part 3 applies to a Person carrying on, in or from the AIFC, one or more of the following Regulated Activities in relation to Digital Assets:
- (a)Dealing in Investments as Principal;
- (b)Dealing in Investments as Agent;
- (c)Managing Investments;
- (d)Managing a Collective Investment Scheme;
- (e)Providing Custody;
- (f)Arranging Custody;
- (g)Advising on Investments; and
- (h)Arranging Deals in Investments.
3.1. Authorisation of Digital Asset Service Providers
A Person wishing to carry on one or more of the Regulated Activities in relation to Digital Assets in or from the AIFC must be an Authorised Firm licensed by the AFSA.
3.2. Requirements for Digital Asset Service Providers
The AFSA may not grant authorisation or variation to carry on the Regulated Activities in relation to Digital Assets, except for Operating a Digital Asset Trading Facility, unless the applicant satisfies all of the following requirements:
(1) general authorisation requirements applicable to the applicant under the Framework Regulations and other applicable rules, and
(2) the applicant must ensure that it maintains at all times capital resources in the amount specified in Table 2 by reference to the activity that the Digital Asset Service Provider is authorised to conduct or, if it is authorised to conduct more than one such activity, the amount that is the higher or highest of the relevant amounts in Table 2.
Table 2
Regulated Activity | Capital requirement (USD) |
Dealing in Investments as Principal, unless such activities are limited to matching client orders and the AFSA determines that it is appropriate in all the circumstances to apply a lower capital requirement | 250,000 |
Dealing in Investments as Principal, where such activities are limited to matching client orders and the AFSA determines that it is appropriate in all the circumstances to apply a lower capital requirement than above | 50,000 |
Dealing in Investments as Agent | 50,000 |
Managing Investments | 100,000 |
Managing a Collective Investment Scheme, which is an externally managed Exempt Fund and has an appointed Eligible Custodian, unless the appointment of an Eligible Custodian is not require | 50,000 |
Managing a Collective Investment Scheme, which is a Non-Exempt Fund | 150,000 |
Managing a Collective Investment Scheme, which is a Self-managed Fund and has an appointed Eligible Custodian, unless the appointment of an Eligible Custodian is not required due to the nature of the Fund and the type of assets which it holds | 200,000 |
Managing a Collective Investment Scheme, which does not have an appointed Eligible Custodian, except where an Eligible Custodian is not required due to the nature of the Fund and type of assets which it holds | 250,000 |
Providing Custody | 250,000 |
Arranging Custody | 10,000 |
Advising on Investments | 10,000 |
Arranging Deals in Investments | 10,000 |
Guidance:
A Digital Asset Service Provider may carry on the Regulated Activities only in relation to Digital Assets and may not carry on the Regulated Activities in relation to other Investments unless for circumstances which could be approved by the AFSA on a case-by-case basis.
3.3. Mandatory appointment
In addition to the mandatory appointments required by GEN 2.1., a Digital Asset Service Provider must appoint a Chief Information Technology Officer, who is an individual responsible for its ongoing information technology (“IT”) operations, maintenance and security oversight to ensure that the Digital Asset Service Provider’s IT systems are reliable and adequately protected from external attack or incident.
3.4. Technology governance, controls and security
3.4.1. Systems and controls
(1) A Digital Asset Service Provider must ensure that they implement systems and controls necessary to address the risks, including cybersecurity-related risks, to its business. The relevant systems and controls should take into account such factors that include but not limited to the nature, scale and complexity of the Digital Asset Service Provider’s business, the diversity of its operations, the volume and size of its transactions and the level of risk inherent with its business.
(2) A Digital Asset Service Providers must have adequate systems and controls to enable it to calculate and monitor its capital resources and its compliance with the requirements in DAA 3.2.(2). The systems and controls must be in writing and must be appropriate for the nature, scale and complexity of the Digital Asset Service Provider’s business and its risk profile.
3.4.2. Technology governance and risk assessment framework
(1) Digital Asset Service Providers must implement a technology governance and risk assessment framework which must be comprehensive and proportionate to the nature, scale, and complexity of the risks inherent in their business model.
(2) The technology governance and risk assessment framework must apply to all technologies relevant to a Digital Asset Service Provider’s business and clearly set out the Digital Asset Service Provider’s cybersecurity objectives, including the requirements for the competency of its relevant Employees and, as relevant, end users and clients and clearly defined systems and procedures necessary for managing risks.
(3) Digital Asset Service Providers must ensure that their technology governance and risk assessment is capable of determining the necessary processes and controls that they must implement in order to adequately mitigate any risks identified. In particular, Digital Asset Service Providers must ensure that their technology governance and risk assessment framework includes consideration of international standards and industry best practice codes.
(4) Digital Asset Service Providers must ensure that their technology governance and risk assessment framework addresses appropriate governance policies and system development controls, such as a development, maintenance and testing process for technology systems and operations controls, back-up controls, capacity and performance planning and availability testing.
3.4.3. Cyber-security matters
A Digital Asset Service Provider must take reasonable steps to ensure that its IT systems are reliable and adequately protected from external attack or incident.
3.4.4. Cyber-security policy
(1) A Digital Asset Service Provider must create and implement a policy which outline their procedures for the protection of its electronic systems.
(2) A Digital Asset Service Provider must ensure that its cyber-security policy is reviewed at least on an annual basis by its Chief Information Technology Officer.
(3) The cyber-security policy must, as a minimum, address the following areas:
(a) information security;
(b) data governance and classification;
(с) access controls;
(d) business continuity and disaster recovery planning and resources;
(e) capacity and performance planning;
(f) systems operations and availability concerns;
(g) systems and network security, consensus protocol methodology, code and smart contract validation and audit processes;
(h) systems and application development and quality assurance;
(i) physical security and environmental controls, including but not limited to procedures around access to premises and systems;
(j) customer data privacy;
(i) procedures regarding their facilitation of Digital Asset transactions initiated by a Client including, but not limited to, considering multi-factor authentication or any better standard for Digital Asset transactions that—
(i) exceed transaction limits set by the Client, such as accumulative transaction limits over a period of time; and
(ii) are initiated after a change of personal details by the Client, such as the address of a Digital wallet;
(j) procedures regarding Client authentication and session controls including, but not limited to, the maximum incorrect attempts for entering a password, appropriate time-out controls and password validity periods;
(k) procedures establishing adequate authentication checks when a change to a Client’s account information or contact details is requested;
(l) vendor and third-party service provider management;
(m) monitoring and implementing changes to core protocols not directly controlled by the Digital Asset Service Provider, as applicable;
(n) incident response, including but not limited to, root cause analysis and rectification activities to prevent reoccurrence;
(o) governance framework and escalation procedures for effective decision-making and proper management and control of risks and emergency incidents, including but not limited to responses to ransomware and other forms of cyberattacks; and
(p) hardware and infrastructure standards, including but not limited to network lockdown, services/desktop security and firewall standards.
3.4.5. Cryptographic keys and Digital wallets management
(1) A Digital Asset Service Provider must ensure that its technology governance and risk assessment framework addresses, to the extent necessary, the generation of cryptographic keys and Digital wallets, the signing and approval of transactions, the storage of cryptographic keys and seed phrases, Digital wallets creation and management thereof.
(2) A Digital Asset Service Provider must:
(a) safeguard access to Digital Assets in accordance with industry best practices and, in particular, ensure that there is no single point of failure in the Digital Asset Service Provider’s access to, or knowledge of, Digital Assets held by the Digital Asset Service Provider;
(b) adopt industry best practices for storing the private keys of Clients, including ensuring that keys stored online or in any one physical location are insufficient to conduct a Digital Asset transaction, unless appropriate controls are in place to render physical access insufficient to conduct such Digital Asset transaction;
(c) ensure that backups of the key and seed phrases are stored in a separate location from the primary key and/or seed phrase;
(d) adopt strict access management controls to manage access to keys, including an audit log detailing each change of access to keys;
(e) adopt procedures designed to immediately revoke a key signatory’s access.
(3) A Digital Asset Service Provider must:
(a) ensure that the key generation process ensures that revoked signatories do not have access to the backup seed phrase or knowledge of the phrase used in the key’s creation;
(b) perform internal audits on a quarterly basis concerning the removal of user access by reviewing access logs and verifying access as appropriate;
(c) implement and maintain a procedure for documenting the onboarding and offboarding of staff;
(d) implement and maintain a procedure for documenting a Digital Asset Service Provider’s permission to grant or revoke access to each role in its key management system; and
(e) regularly assess the security of its IT systems or software integrations with external parties and ensure that the appropriate safeguards are implemented in order to mitigate all relevant risks.
(4) Digital Asset Service Providers should provide information to Clients on measures they can take to protect their keys and/or seed phrases from misuse or unauthorised access, and the consequences of sharing their private keys and other security information.
(5) Digital Asset Service Providers must ensure that access to their systems and data may only be granted to individuals with a demonstrable business need and implement safeguards to ensure the proper identification of all individuals, including the maintenance of an access log.
3.4.6. On-going monitoring
For the purposes of meeting the requirement in DAA 3.4.1, a Digital Asset Service Provider must have adequate procedures and arrangements for the evaluation, selection and on-going maintenance and monitoring of its IT systems. Such procedures and arrangements must, at a minimum, provide for:
(a) problem management and system change;
(b) testing IT systems before live operations in accordance with the requirements in DAA 3.4.7;
(c) real time monitoring and reporting on system performance, availability and integrity; and
(d) adequate measures to ensure:
(i) the IT systems are resilient and not prone to failure;
(ii) business continuity in the event that an IT system fails;
(iii) protection of the IT systems from damage, tampering, misuse or unauthorised access; and
(iv)the integrity of data forming part of, or being processed through, IT systems.
3.4.7. Testing and audit of technology systems
(1) A Digital Asset Service Provider must, before commencing live operation of its IT systems or any updates thereto, use development and testing methodologies in line with internationally accepted testing standards in order to test the viability and effectiveness of such systems. For this purpose, the testing must be adequate for the Digital Asset Service Provider to obtain reasonable assurance that, among other things:
(a)the systems enable it to comply with all the applicable requirements on an on-going basis;
(b)the systems can continue to operate effectively in stressed market conditions;
(c)the systems have sufficient electronic capacity to accommodate reasonably foreseeable volumes of messaging and orders; and
(d)any risk management controls embedded within the systems, such as generating automatic error reports, work as intended.
(2) A Digital Asset Service Provider is required to undergo a qualified independent third-party technology governance and IT audit to conduct vulnerability assessments and penetration testing at least on an annual basis.
(2) A Digital Asset Service Providers must engage a qualified independent third-party auditor prior to the introduction of any new systems, applications and products.
(3) A Digital Asset Service Provider must provide the results of technology governance and IT assessments and tests to the AFSA upon its request.
3.4.8. Technology audit reports
(1) This Rule applies to an Authorised Firm that:
(a) holds or controls Digital Assets;
(b) relies on DLT or similar technology to carry on one or more of the following Regulated Activities in relation to Digital Assets:
(i) Dealing in Investments as Principal;
(ii) Dealing in Investments as Agent;
(iii) Arranging Deals in Investments;
(iv) Managing Investments;
(v) Advising on Investments;
(vi) Providing Custody; or
(vii) Arranging Custody; or
(с) is Managing a Collective Investment Scheme where:
(i) Units of the Fund are Security Tokens; or
(ii) 10% or more of the gross asset value of the Fund Property of the Fund consists of Digital Assets.
(2) The Authorised Firm must:
(a) appoint a suitably qualified independent third-party professional to:
(i) carry out an annual audit of the Authorised Firm’s compliance with the technology resources and governance requirements that apply to it; and
(ii) produce a written report which sets out the methodology and results of that annual audit, confirms whether the requirements referred to in DAA 3.4.8. (i) have been met and lists any recommendations or areas of concern;
(b) submit to the AFSA a copy of the report referred to in DAA 3.4.8. (a)(ii) within 4 months of the Authorised Firm’s financial year end; and
(c) be able to satisfy the AFSA that the independent third party professional appointed to carry out the annual audit has the relevant expertise to do so, and that the Authorised Firm has done proper due diligence to satisfy itself of that fact.
(3) A Digital wallet Service Provider must ensure that the report required under DAA 3.4.8 (a)(ii) includes confirmation as to whether it has complied with the requirements in DAA 3.5.1.
Guidance:
Credentials which indicate a qualified independent third-party auditor is suitable to conduct audit of technology governance and IT systems may include:
(1) designation as a Certified Information Systems Auditor (CISA) or Certified Information Security Manager (CISM) by the Information Systems Audit and Control Association (ISACA);
(2) designation as a Certified Information Systems Security Professional (CISSP) by the International Information System Security Certification Consortium (ISC); or
(3) accreditation by a recognised and reputable body to certify compliance with relevant ISO/IEC 27000 series standards; or
(4) accreditation by the relevant body to certify compliance with the Kazakhstani standards in the area of information (cyber) security.
3.5. Policies, procedures, and public disclosures
3.5.1. Policies and procedures required for Digital Asset Service Providers
(1) Digital Asset Service Providers carrying on a Regulated Activity of Advising on Investments must establish, implement and enforce appropriate written internal policies and procedures relating to the following:
(a) how they ensure the independent basis of their advice;
(b) how they ensure all Directors and Employees providing the relevant advice are sufficiently competent;
(c) such other policies and procedures as the AFSA may require from time to time.
(2) Digital Asset Service Providers carrying on Regulated Activities of Dealing in Investments as Principal or Agent must establish, implement and enforce appropriate written internal policies and procedures relating to the following:
(a) the prohibition, detection, prevention and/or deterrence of market offences and any other abusive practices within their business or using their services including, but not limited to, relevant internal rules, compliance programmes, sanctioning policies and powers;
(b) Execution and routing of Client orders;
(c) the ability of Clients to have access to and withdraw their Digital Assets including, but not limited to, during periods of high uncertainty and/or extreme volatility; and
(d) such other policies and procedures as the AFSA may require from time to time.
(3) Digital Asset Service Providers carrying on a Regulated Activity of Providing Custody must establish, implement and enforce appropriate written internal policies and procedures relating to the following:
(a) the ability of Clients to have access to and withdraw their Digital Assets including, but not limited to, during periods of high uncertainty and/or extreme volatility; and
(b) such other policies and procedures as the AFSA may require from time to time.
(4) Digital Asset Service Providers carrying on a Regulated Activity of Managing Investments must establish, implement and enforce appropriate written internal policies and procedures relating to the following:
(a) the ability of Clients to have access to and withdraw their Digital Assets including, but not limited to, during periods of high uncertainty and/or extreme volatility;
(b) their assessment of Client suitability for relevant products or services, including but not limited to the nature, features, costs and risks of investment services, Digital Assets or other financial instruments selected for their Clients, while taking into account cost and complexity;
(c) how they ensure all Directors and Employees Managing Investments to Clients are sufficiently competent; and
(d) such other policies and procedures as the AFSA may require from time to time.
(5) All Digital Asset Service Providers specified in (1) to (4) must assess and, in any case, at least yearly review the effectiveness of their policies and procedures and take appropriate measures to address any deficiencies.
3.5.2. Public disclosures
(1) All Digital Asset Service Providers specified in (1) to (4) in DAA 3.5.1. must publish on their website in a prominent place or make available by other publicly accessible means:
(a) a detailed description of any actual or potential conflicts of interest arising out of their activities, and how these are managed; and
(b) their policies and procedures relating to data privacy, whistleblowing and handling of Client complaints.
(2) In addition to (1), Digital Asset Service Providers carrying on a Regulated Activity of Advising on Investments must publish on their website in a prominent place or make available by other publicly accessible means:
(a) a statement of whether the Digital Asset Service Provider refers or introduces Clients to other Persons including, but not limited to, other Digital Asset Service Providers, and if so, a description of the terms of such arrangements, and the monetary or non-monetary benefits received by the Digital Asset Service Provider, including by way of reciprocation for any service or business; and
(b) a statement of whether the Digital Asset Service Provider has accounts, funds or Digital Assets maintained by a third party and if so, provide the identity of that third party.
(3) In addition to (1), Digital Asset Service Providers carrying on Regulated Activities of Dealing in Investments as Principal or Agent must publish on their website in a prominent place or make available by other publicly accessible means:
(a) a statement as to the Digital Asset Service Provider’s arrangements for the protection of Clients’ ownership of assets held by the Digital Asset Service Provider;
(b) a statement of whether the Digital Asset Service Provider refers or introduces Clients to other Persons including, but not limited to, other Digital Asset Service Providers and, if so, a description of the terms of such arrangements and the monetary or non-monetary benefits received by the Digital Asset Service Provider, including by way of reciprocation for any service or business; and
(c) a statement of whether the Digital Asset Service Provider has accounts, funds or Digital Assets maintained by a third party and if so, provide the identity of that third party.
(4) In addition to (1), Digital Asset Service Providers carrying on a Regulated Activity of Providing Custody must publish on their website in a prominent place or make available by other publicly accessible means a statement of whether the Digital Asset Service Provider has accounts, funds or Digital Assets maintained by a third party and if so, provide the identity of that third party.
(5) In addition to (1), Digital Asset Service Providers carrying on a Regulated Activity of Managing Investments must publish on their website in a prominent place or make available by other publicly accessible means:
(a) a statement as to the ability of clients to have access to and withdraw their Digital Assets, particularly in times of extreme volatility;
(b) a statement as to the Digital Asset Service Provider’s arrangements for the protection of Clients’ assets held by the Digital Asset Service Provider and how it determines uses of Client Digital Assets including but not limited to a detailed description of such uses;
(c) a statement as to how they protect Client Digital Assets from counterparty risk;
(d) a statement as to how in the course of Managing Investments, Client Digital Assets are used and how Clients’ interests in respect of those Digital Assets are thereby respected;
(e) a statement explaining that Client Digital Assets used by the Digital Asset Service Provider in the course of Managing Investments may be at risk, including the types and nature of such risks, and a statement on the likelihood and severity of any losses which may be suffered;
(f) a statement in relation to order execution by the Digital Asset Service Provider;
(g) a statement as to how liquidity risk is managed; and
(h) such other information as the AFSA may require from time to time.
3.6. Requirements for Digital Asset Service Providers Advising on Investments and Arranging Deals in Investments
Guidance: A Digital Asset Service Provider which carries on a Regulated Activity of Advising on Investments in relation to Digital Assets is an Authorised Firm to which the following provisions of the GEN, COB, and AML are applicable either directly or in respect of its officers and Employees who are Approved or Designated Individuals:
AML (in whole);
Chapter 2 (Client classification) of the COB;
Chapter 3 (Communication with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
COB 5.2 (Suitability assessment) of the COB;
Chapter 7 (Conflicts of interest) of the COB;
Chapter 10 (Investment research) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 16 (Record keeping and internal audit) of the COB;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (in whole).
3.6.1. Verification of information
(1) In addition to requirements set out in Chapter 3 of the COB, Digital Asset Service Providers Advising on Investments must provide advice which does not contain statements, promises, forecasts or other types of information which they know or suspect to be misleading, false or deceptive or which they should have reasonably known to be misleading, false or deceptive at the time of making such statement, promise or forecast.
(2) Prior to making any statement, promise or forecast, a Digital Asset Service Provider Advising on Investments must verify factual information against appropriate and reliable source materials and must use all reasonable endeavours to verify the continued accuracy of such information.
3.6.2. Methodology
A Digital Asset Service Provider in the course of Advising on Investments must assess a broad range of Digital Assets available to the Client which should be sufficiently diverse such that the Client’s investment objectives are met.
3.6.3. Appropriateness test
A Digital Asset Service Provider Arranging Deals in Investments must not carry on a Regulated Activity with or for a Retail Client, who is a non-resident of the Republic of Kazakhstan, unless the Digital Asset Service Provider has carried out an appropriateness test of the Person and formed a reasonable view that the Person has:
(a) adequate skills and expertise to understand the risks involved in trading in Digital Assets or Digital Asset Derivatives (as the case may be); and
(b) the ability to absorb potentially significant losses resulting from trading in Digital Assets or Digital Asset Derivatives (as the case may be).
Guidance:
(1) To form a reasonable view referred to in DAA 3.6.3. in relation to a Person, a Digital Asset Service Provider should consider issues such as whether the Person:
(a) has sufficient knowledge and experience relating to the type of a Digital Asset or Digital Asset Derivative offered, having regard to such factors as:
(i) how often and in what volumes that Person has traded in the relevant type of a Digital Asset or Digital Asset Derivative; and
(ii) the Person’s relevant qualifications, profession or former profession;
(b) understands the characteristics and risks relating to Digital Assets or Digital Asset Derivatives, and the volatility of their prices;
(c) understands the impact of leverage, due to which, there is potential to make significant losses in trading in Digital Assets or Digital Asset Derivatives; and
(d) has the ability, particularly in terms of net assets and liquidity available to the Person, to absorb and manage any losses that may result from trading in the Digital Assets or Digital Asset Derivatives offered.
(2) To be able to demonstrate to the AFSA that it complies with DAA 3.6.3., a Digital Asset Service Provider should have in place systems and controls that include:
(a) pre-determined and clear criteria against which a Retail Client’s ability to trade in Digital Assets or Digital Asset Derivatives can be assessed;
(b) adequate records to demonstrate that the Digital Asset Service Provider has undertaken the appropriateness test for each Retail Client; and
(c) in the case of an existing Retail Client with whom the Digital Asset Service Provider has previously traded in Digital Assets or Digital Asset Derivatives, procedures to undertake a fresh appropriateness test if:
(i) a new Digital Asset or Digital Asset Derivative with a materially different risk profile is offered to the Retail Client; or
(ii) there has been a material change in the Retail Client’s circumstances.
(3) If a Digital Asset Trading Facility Operator forms the view that it is not appropriate for a Person to trade in Digital Assets or Digital Asset Derivatives, the Digital Asset Trading Facility Operator should refrain from offering that service to the Person. As a matter of good practice, the Digital Asset Trading Facility Operator should inform the Person of its decision.
3.7. Requirements for Digital Asset Service Providers Providing and Arranging Custody
Guidance: A Digital Asset Service Provider which carries on a Regulated Activity of Providing Custody in relation to Digital Assets is an Authorised Firm to which the following provisions of the GEN, COB, and AML are applicable either directly or in respect of its officers and Employees who are Approved or Designated Individuals:
AML (in whole);
Chapter 2 (Client classification) of the COB;
Chapter 3 (Communication with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
Chapter 7 (Conflicts of interest) of the COB;
Chapter 8 (Client Assets) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 16 (Record keeping and internal audit) of the COB;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (in whole).
A Digital Asset Service Provider which carries on a Regulated Activity of Arranging Custody in relation to Digital Assets is an Authorised Firm to which the following provisions of the GEN, COB, and AML are applicable either directly or in respect of its officers and Employees who are Approved or Designated Individuals:
AML (in whole);
Chapter 2 (Client classification) of the COB;
COB 8.3.7 (on assessing the suitability of Third Party Account Providers);
COB 8.3.13 (on disclosure);
COB 8.3.14(2) (on client reporting);
COB 8.3.15 (on record keeping);
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN; and
Chapter 6 (Supervision) of the GEN.
3.7.1. Requirements for Digital Asset Service Providers Providing Custody of Digital Assets
(1) A Digital wallet Service Provider must ensure that:
(a) any DLT application it uses in Providing Custody of Digital Assets is resilient, reliable and compatible with any relevant facility on which the Digital Assets are traded or cleared;
(b) it is able to clearly identify and segregate Digital Assets belonging to different Clients; and
(c) it has in place appropriate procedures to enable it to confirm Client instructions and transactions, maintain appropriate records and data relating to those instructions and transactions and to conduct a reconciliation of those transactions at appropriate intervals.
(2) A Digital wallet Service Provider must ensure that, in developing and using DLT applications and other technology to Provide Custody of Digital Assets:
(a) the architecture of any Digital wallet used adequately addresses compatibility issues and associated risks;
(b) the technology used and its associated procedures have adequate security measures (including cyber security) to enable the safe storage and transmission of data relating to the Digital Assets;
(c) the security and integrity of cryptographic keys are maintained through the use of that technology, taking into account the password protection and methods of encryption used;
(d) there are adequate measures to address any risks specific to the methods of usage and storage of cryptographic keys (or their equivalent) available under the DLT application used; and
(e) the technology is compatible with the procedures and protocols built into the relevant rules or equivalent procedures and protocols on any facility on which the Digital Assets are traded or cleared or both traded and cleared.
(3) Digital Assets held by the Digital Asset Service Provider Providing Custody are not depository liabilities or assets of the Digital Asset Service Provider and must hold them on trust.
Guidance:
Where an Authorised Person which is a Digital wallet Service Provider delegates any functions to a Third Party Digital wallet Service provider, it must ensure that the delegate fully complies with the requirements of DAA 3.7.1. The outsourcing and delegation requirements of GEN 5.2.
3.7.2. Digital wallet management
(1) Requirements in relation to Hot and Cold Digital wallet storage.
(a) A Digital wallet Service Provider must at all times maintain appropriate certifications as may be required under industry best practices applicable to the safekeeping of Digital Assets.
(b) A Digital wallet Service Provider should conduct a risk-based analysis to determine the method of Digital Asset storage including different types of Digital wallets.
(c) A Digital wallet Service Provider should document in detail the methodologies and behaviour determining the transfer of Digital Assets between different types of Digital wallets. The mechanisms for transfer between different types of Digital wallets should be well documented and subject to internal controls and audits performed by an independent third-party auditor in ensuring compliance with DAA 3.6.2 (1).
(2) Seed or key generation, storage, and use.
(a) To ensure a secure generation mechanism, a Digital wallet Service Provider must use industry best standards to create the seed, asymmetric private and public key combinations, or other similar mechanisms.
(b) A Digital wallet Service Provider must consider all risks associated with producing a private key or seed for a signatory including whether the signatory should be involved in the generation process or whether creators of the seed, private key, or other similar mechanism should be prohibited from cryptographically signing any transaction or from having access to any relevant systems.
(c) A Digital wallet Service Provider must adopt industry best practices when using encryption and secure device storage for a Client’s private keys when not in use.
(d) A Digital wallet Service Provider must ensure that any keys stored online or in one physical location are not capable of conducting a Digital Asset transaction, unless appropriate controls are in place to ensure that physical access itself by an individual is insufficient to conduct a transaction.
(e) All key and seed backups must be stored in a separate location from the primary key and seed. Key and seed backups must be stored with encryption at least equal to the encryption used to protect the primary seed and key.
(f) Digital wallet Service Providers must mitigate the risk of collusion between all authorised parties or signatories who are able to authorise the movement, transfer or withdrawal of Virtual Assets held under custody on behalf of clients. The risk of collusion and other internal points of failure should be addressed during recurring operational risk assessments.
(3) Lost or stolen keys.
(1) Digital wallet Service Providers must establish and maintain effective policies and procedures in the event that any seed or cryptographic keys of any Digital wallet are lost or otherwise compromised.
(2) The policy and procedures must address matters including but not limited to:
(a) recovery of affected Digital Assets;
(b) timely communications with all clients and counterparties regarding consequences arising from relevant incidents and measures being taken to remedy such consequences;
(c) cooperation with law enforcement agencies and regulatory bodies; and
(d) if applicable, preparation of winding down arrangements and public disclosure of such arrangements.
3.7.3. Contractual arrangement
A Digital Asset Service Provider that is Providing Custody for a Client should provide such activity based on a contractual arrangement. Under such an arrangement a Client is lawfully in control of, or entitled to control, a Digital Asset, transfers control of the Digital Asset to a Digital Asset Service Provider solely for the purpose of receiving custody services and does not in any way transfer to the Digital Asset Service Provider any legal interest in the Digital Asset or any discretionary authority not stated in the Client Agreement or otherwise agreed to by the Client.
3.7.4. Additional disclosure requirements
Before entering into an initial transaction for, on behalf of, or with a Client, a Digital wallet Service Provider must disclose in a clear, fair and not misleading manner:
(a) all terms, conditions and risks relating to the Digital Assets that have been admitted to trading and/or is the subject of the transaction;
(b) all material risks associated with its products, services and activities; and
(c) all details on the amount and the purpose of any premiums, fees, charges or taxes payable by the Client.
3.7.5. Additional information for a Digital Asset Service Provider Providing Custody of Digital Assets
A Digital Asset Service Provider Providing Custody of Digital Assets must include in the Client Agreement:
(a) a breakdown of all fees and charges payable for a transfer of Digital Assets (a “transfer”) and when they are charged;
(b) the information is required to carry out a transfer;
(с) the form and procedures for giving consent to a transfer;
(d) an indication of the time it will normally take to carry out a transfer;
(е) details of when a transfer will be considered to be complete;
(f) how, and in what form, information and communications relating to transfer services will be provided to the Client, including the timing and frequency of communications and the language used and technical requirements for the Client’s equipment and software to receive the communications;
(g) clear policies and procedures relating to unauthorised or incorrectly executed transfers, including the Client is and is not entitled to redress;
(h) clear policies and procedures relating to situations where the holding or transfer of Digital Assets may have been compromised, such as if there has been hacking, theft or fraud; and
(i) details of the procedures the Authorised Firm will follow to contact the Client if there has been suspected or actual hacking, theft or fraud.
3.7.6. Client accounts in relation to Client Investments or Digital Assets
(1) A Digital Asset Service Provider which Provides Custody or holds or controls Client Investments or Client Digital Assets must register or record all Safe Custody Investments in the legal title of:
(a) a Client Account; or
(b) the Digital Asset Service Provider where, due to the nature of the law or market practice, it is not feasible to do otherwise.
(2) A Client Account in relation to Client Investments or Client Digital Assets is an account which:
(a) is held with a Third Party Agent or by a Digital Asset Service Provider which is authorised under its Licence to carry on the Regulated Activity of Providing Custody;
(b) is established to hold Client Assets;
(c) when held by a Third Party Agent, is maintained in the name of;
(i) if a Domestic Firm, the Digital Asset Service Provider; or
(ii) if not a Domestic Firm, a Nominee Company controlled by the Digital Asset Service Provider; and
(d) includes the words ‘Client Account’ in its title.
(3) A Digital Asset Service Provider must maintain a master list of all Client Accounts which must detail:
(a) the name of the account;
(b) the account number;
(c) the location of the account;
(d) whether the account is currently open or closed; and
(e) the date of opening or closure.
(4) A Digital Asset Service Provider must not use a Client’s Safe Custody Investments or Safe Custody Digital Assets for its own purpose or that of another Person without that Client’s prior written consent.
(5) A Digital Asset Service Provider which intends to use a Client’s Safe Custody Investments or Safe Custody Digital Assets Tokens for its own purpose or that of another Person, must have systems and controls in place to ensure that:
(a) it obtains that Client’s prior written consent;
(b) adequate records are maintained to protect Safe Custody Investments or Safe Custody Digital Assets which are applied as collateral or used for stock lending activities;
(c) the equivalent assets are returned to the Client Account of the Client; and
(d) the Client is not disadvantaged by the use of his Safe Custody Investments.
3.7.7. Client disclosure
(1) Before an Authorised Firm Arranges Custody for a Client it must disclose to that Client, if applicable, that the Client’s Safe Custody Investments or Safe Custody Crypto Tokens may be held in a jurisdiction outside the DIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the DIFC.
(2) Before an Authorised Firm Provides Custody for a Client it must disclose to the Client on whose behalf the Safe Custody Investments or Safe Custody Crypto Tokens will be held:
(a) a statement that the Client is subject to the protections conferred by the Safe Custody Provisions;
(b) the arrangements for recording and registering Safe Custody Investments or Safe Custody Crypto Tokens, claiming and receiving dividends and other entitlements and interest and the giving and receiving instructions relating to those Safe Custody Investments or Safe Custody Crypto Tokens;
(c) the obligations the Authorised Firm will have to the Client in relation to exercising rights on behalf of the Client;
(d) the basis and any terms governing the way in which Safe Custody Investments will be held, including any rights which the Authorised Firm may have to realise Safe Custody Investments or Safe Custody Crypto Tokens held on behalf of the Client in satisfaction of a default by the Client;
(e) the method and frequency upon which the Authorised Firm will report to the Client in relation to his Safe Custody Investments or Safe Custody Crypto Tokens;
(f) if applicable, a statement that the Authorised Firm intends to mix Safe Custody Investments or Safe Custody Crypto Tokens with those of other Clients;
(g) if applicable, a statement that the Client’s Safe Custody Investments or Safe Custody Crypto Tokens may be held in a jurisdiction outside the DIFC and the market practices, insolvency and legal regime applicable in that jurisdiction may differ from the regime applicable in the DIFC;
(h) if applicable, a statement that the Authorised Firm holds or intends to hold Safe Custody Investments or Safe Custody Crypto Tokens in a Client Account with a Third Party Agent which is in the same Group as the Authorised Firm; and
(i) the extent of the Authorised Firm’s liability in the event of default by a Third Party Agent.
3.7.8. Client reporting
(1) An Authorised Firm which Provides Custody or which holds or controls Client Investments or Client Crypto Tokens for a Client must send a statement to a Retail Client at least every six months or in the case of a Professional Client at other intervals as agreed in writing with the Professional Client.
(2) The statement must include:
(a) a list of that Client’s Safe Custody Investments or Safe Custody Crypto Tokens as at the date of reporting;
(b) a list of that Client’s Collateral and the market value of that Collateral as at the date of reporting; and
(c) details of any Client Money held by the Authorised Firm as at the date of reporting.
(3) The statement sent to the Client must be prepared within 25 business days of the statement date.
3.7.9. Recording, registration and holding requirements
(1) A Digital Asset Service Provider which Provides Custody or holds or controls Client Investments or Client Digital Assets must ensure that Safe Custody Digital Assets are recorded, registered and held in an appropriate manner to safeguard and control such property.
(2) A Digital Asset Service Provider which Provides Custody or holds or controls Client Investments or Client Crypto Tokens must record, register and hold Safe Custody Investments separately from its own Investments.
3.8. Requirements for Digital Asset Service Providers Managing Investments and a Collective Investment Scheme
Guidance: A Digital Asset Service Provider which carries on a Regulated Activity of Managing Investments in relation to Digital Assets is an Authorised Firm to which the following provisions of the GEN, COB, and AML are applicable either directly or in respect of its officers and Employees who are Approved or Designated Individuals:
AML (in whole);
Chapter 2 (Client classification) of the COB;
Chapter 3 (Communication with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
COB 5.2 (Suitability assessment);
Chapter 7 (Conflicts of interest) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 16 (Record keeping and internal audit) of the COB;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (in whole).
A Digital Asset Service Provider which carries on a Regulated Activity of Managing a Collective Investment Scheme in relation to Digital Assets is an Authorised Firm to which the following provisions of the GEN, COB, and AML are applicable either directly or in respect of its officers and Employees who are Approved or Designated Individuals:
AML (in whole);
Chapter 2 (Client classification) of the COB;
Chapter 3 (Communication with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
Chapter 7 (Conflicts of interest) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 16 (Record keeping and internal audit) of the COB;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (in whole).
3.8.1. Verification of information
(1) In addition to requirements set out in Chapter 3 of the COB, Digital Asset Service Providers Managing Investments and/or a Collective Investment Scheme must not provide statements, promises, forecasts or other types of information which they know or suspect to be misleading, false or deceptive or which they should have reasonably known to be misleading, false or deceptive at the time of making such statement, promise or forecast.
(2) Prior to making any statement, promise or forecast, Digital Asset Service Providers Managing Investments and/or a Collective Investment Scheme must verify factual information against appropriate and reliable source materials and must use all reasonable endeavours to verify the continued accuracy of such information.
3.8.2. Client reporting and valuation
(1) Digital Asset Service Providers Managing Investments and/or a Collective Investment Scheme must, at least monthly, provide to each of their Clients a written statement containing the following information:
(a) the total value of Digital Assets in a Client’s account;
(b) all transactions entered into between the Digital Asset Service Provider and the client in the reporting period; and
(c) the change in amount and valuation of Digital Assets in a Client’s account [both total and during the reporting period].
(2) Digital Asset Service Providers Managing Investments and/or a Collective Investment Scheme must ensure that all assets under management are subject to ongoing independent valuation.
(3) Digital Asset Service Providers Managing Investments and/or a Collective Investment Scheme must have comprehensive and well documented valuation policies and procedures in place to ensure the production of timely and accurate valuation in accordance with DAA 3.7.2. (1).
3.8.3. Risk management and due diligence
(1) Digital Asset Service Providers Managing Investments and/or a Collective Investment Scheme must ensure that liquidity risk and market risk are each monitored and tested regularly, and appropriate measures put in place as required to address any such risk in a prompt manner.
(2) All such risk management and due diligence must be audited by an independent third party on an annual basis and provided to the AFSA upon request.
3.8.4. Content of confirmation notes
For the purposes of COB 9.1.3., a Digital Asset Service Provider Managing a Collective Investment Scheme must include the following general information:
(a) the Digital Asset Service Provider’s name and address;
(b) whether the Digital Asset Service Provider executed the Transaction as principal or agent;
(c) the Client’s name, account number or other identifier;
(d) a description of the Digital Asset;
(e) whether the Transaction is a sale or purchase;
(f) the price or unit price at which the Transaction was executed;
(g) if applicable, a statement that the Transaction was executed on an execution-only basis;
(h) the date and time of the Transaction;
(i) the total amount payable and the date on which it is due;
(j) the amount of the Digital Asset Service Provider charges in connection with the Transaction, including Commission charges and the amount of any Mark-up or Mark-down, Fees, taxes or duties;
(k) the amount or basis of any charges shared with another Person or statement that this will be made available on request; and
(l) at statement that the price at which the Transaction has been Executed is on a Historic Price or Forward Price basis, as the case may be.
(2) A Digital Asset Service Provider may combine items (f) and (j) above in respect of a Transaction where the Client has requested a note showing a single price combining both of these items.
3.9. Requirements for Digital Asset Service Providers Dealing in Investments as Principal or Agent
Guidance: A Digital Asset Service Provider which carries on a Regulated Activity of Dealing in Investments as Principal or Agent in relation to Digital Assets is an Authorised Firm to which the following provisions of the GEN, COB, and AML are applicable either directly or in respect of its officers and Employees who are Approved or Designated Individuals:
AML (in whole);
Chapter 2 (Client classification) of the COB;
Chapter 3 (Communication with Clients and Financial Promotions) of the COB;
Chapter 4 (Key information and client agreement) of the COB;
COB 5.3 (Appropriateness assessment);
Chapter 6 (Order execution and order handling) of the COB;
Chapter 7 (Conflicts of interest) of the COB;
Chapter 9 (Reporting to Clients) of the COB;
Chapter 15 (Complaints handling and dispute resolution) of the COB;
Chapter 16 (Record keeping and internal audit) of the COB;
Chapter 2 (Controlled and Designated Functions) of the GEN;
Chapter 3 (Control of Authorised Persons) of the GEN;
Chapter 4 (Core Principles) of the GEN;
Chapter 5 (Systems and Controls) of the GEN;
Chapter 6 (Supervision) of the GEN; and
Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC (in whole).
3.9.1. Content of confirmation notes
For the purposes of COB 9.1.3., a Digital Asset Service Provider must include the following general information:
(a) the Digital Asset Service Provider’s name and address;
(b) whether the Digital Asset Service Provider executed the Transaction as principal or agent;
(c) the Client’s name, account number or other identifier;
(d) a description of the Digital Asset;
(e) whether the Transaction is a sale or purchase;
(f) the price or unit price at which the Transaction was executed;
(g) if applicable, a statement that the Transaction was executed on an execution-only basis;
(h) the date and time of the Transaction;
(i) the total amount payable and the date on which it is due;
(j) the amount of the Digital Asset Service Provider charges in connection with the Transaction, including Commission charges and the amount of any Mark-up or Mark-down, Fees, taxes or duties;
(k) the amount or basis of any charges shared with another Person or statement that this will be made available on request; and
(2) A Digital Asset Service Provider may combine items (f) and (j) above in respect of a Transaction where the Client has requested a note showing a single price combining both of these items.
3.9.2. Appropriateness test
A Digital Asset Service Provider must not carry on a Regulated Activity with or for a Retail Client, who is a non-resident of the Republic of Kazakhstan, unless the Digital Asset Service Provider has carried out an appropriateness test of the Person and formed a reasonable view that the Person has:
(a) adequate skills and expertise to understand the risks involved in trading in Digital Assets or Digital Asset Derivatives (as the case may be); and
(b) the ability to absorb potentially significant losses resulting from trading in Digital Assets or Digital Asset Derivatives (as the case may be).
Guidance:
(1) To form a reasonable view referred to in DAA 3.9.2. in relation to a Person, a Digital Asset Service Provider should consider issues such as whether the Person:
(a) has sufficient knowledge and experience relating to the type of a Digital Asset or Digital Asset Derivative offered, having regard to such factors as:
(i) how often and in what volumes that Person has traded in the relevant type of a Digital Asset or Digital Asset Derivative; and
(ii) the Person’s relevant qualifications, profession or former profession;
(b) understands the characteristics and risks relating to Digital Assets or Digital Asset Derivatives, and the volatility of their prices;
(c) understands the impact of leverage, due to which, there is potential to make significant losses in trading in Digital Assets or Digital Asset Derivatives; and
(d) has the ability, particularly in terms of net assets and liquidity available to the Person, to absorb and manage any losses that may result from trading in the Digital Assets or Digital Asset Derivatives offered.
(2) To be able to demonstrate to the AFSA that it complies with DAA 3.9.2., a Digital Asset Service Provider should have in place systems and controls that include:
(a) pre-determined and clear criteria against which a Retail Client’s ability to trade in Digital Assets or Digital Asset Derivatives can be assessed;
(b) adequate records to demonstrate that the Digital Asset Service Provider has undertaken the appropriateness test for each Retail Client; and
(c) in the case of an existing Retail Client with whom the Digital Asset Service Provider has previously traded in Digital Assets or Digital Asset Derivatives, procedures to undertake a fresh appropriateness test if:
(i) a new Digital Asset or Digital Asset Derivative with a materially different risk profile is offered to the Retail Client; or
(ii) there has been a material change in the Retail Client’s circumstances.
(3) If a Digital Asset Trading Facility Operator forms the view that it is not appropriate for a Person to trade in Digital Assets or Digital Asset Derivatives, the Digital Asset Trading Facility Operator should refrain from offering that service to the Person. As a matter of good practice, the Digital Asset Trading Facility Operator should inform the Person of its decision.
3.10. Provision of key features document and disclosure of risks
3.10.1. Provision of key features document to Person
(1) An Authorised Firm which carries on any one or more of the following Regulated Activities in relation to Digital Assets:
(a) Dealing in Investments as Principal;
(b) Dealing in Investments as Agent;
(c) Managing Investments;
(d) Managing a Collective Investment Scheme;
(e) Providing Custody;
(f) Arranging Custody;
(g) Advising on Investments; and
(h) Arranging Deals in Investments.
must not provide that service or services to a Person unless it has provided the Person with a key features document.
(2) The key features document must contain the following information:
(a) risks associated with and essential characteristics of the Issuer (or another Person responsible for discharging the obligations associated with the rights conferred), and guarantor if any, of the Digital Asset, including their assets, liabilities and financial position;
(b) risks associated with and essential characteristics of the Digital Asset, including the rights and obligations conferred and the type and types of Investments which it constitutes;
(с) whether the Digital Asset is or will be admitted to trading and if so, the details relating to the admission, including details of the facility and whether the facility is within the AIFC;
(d) whether the Client can directly access the trading facility, or whether access is only through an intermediary, and the process for accessing the facility;
(е) risks associated with the use of DLT, in particular those relating to Digital wallets and the susceptibility of private cryptographic keys to misappropriation;
(f) whether the Client, the Authorised Firm or a third party is responsible for providing a Digital wallet service in respect of the Digital Asset, and any related risks (including at whose risk the Client’s Digital Assets are held in the Digital wallet, whether it is accessible online or stored offline, what happens if keys to the Digital wallet are lost and what procedures can be followed in such an event);
(g) how the Client may exercise any rights conferred by the Digital Assets such as voting or participation in shareholder actions; and
(h) any other information relevant to the particular Digital Asset which would reasonably assist the Client to understand the product and technology better and to make informed decisions in respect of it.
(3) The key features document must be provided in good time before the relevant service is provided to the Person, to enable that Person to make an informed decision about whether to use the relevant service.
(4) The key features document does not need to be provided to a Person to whom the Authorised Firm has previously provided that information, if there has been no significant change since the information was previously provided.
(5) An Authorised Firm may use a key features document prepared by another Person if it has taken reasonable steps to ensure that the information in that document is complete, accurate and up to date.
(6) If an Authorised Firm provides a Person with a key features document prepared by another Person, the Authorised Firm remains legally accountable to the Person to whom it is provided for the content of the document.
3.10.2. Risk warnings
(1) An Authorised Firm must display prominently on its website the following risk warnings relating to Digital Assets:
(a) that Digital Assets are not legal tender or backed by a government;
(b) that Digital Assets are subject to extreme volatility and the value of the Digital Asset can fall as quickly as it can rise;
(c) that an investor in Digital Assets may lose all, or part, of their money;
(d) that Digital Assets may not always be liquid or transferable;
(e) that investments in Digital Assets may be complex making it hard to understand the risks with buying, selling, holding or lending them;
(f) that Digital Assets can be stolen because of cyber attacks;
(g) that trading in Digital Assets is susceptible to irrational market forces;
(h) that the nature of Digital Assets may lead to an increased risk of Financial Crime;
(i) there being limited or, in some cases, no mechanisms for the recovery of lost or stolen Digital Assets;
(j) the risks of Digital Assets with regard to anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement;
(k) that the nature of Digital Assets means that technological difficulties experienced by the Authorised Firm may prevent the access or use of a Client’s Digital Assets; and
(l) that investing in, and holding, Digital Assets is not comparable to investing in traditional investments such as Securities.
(2) Where a Digital Asset Service Provider presents any marketing or educational materials and other communications relating to a Digital Asset on a website, in the general media or as part of a distribution made to existing or potential new Clients, it must include the risk warning referred to in (1) in a prominent place at or near the top of each page of the materials or communication.
(3) If the material referred to in (1) is provided on a website or an application that can be downloaded to a mobile device, the warning must be:
(a) statically fixed and visible at the top of the screen even when a person scrolls up or down the webpage; and
(b) included on each linked webpage on the website.
3.10.3. Past performance and forecasts of Digital Assets
(1) A Digital Asset Service Provider must ensure that any information or representation relating to past performance, or any future forecast based on past performance or other assumptions, which is provided to or targeted at Retail Clients:
(a) presents a fair and balanced view of the financial products or financial services to which the information or representation relates;
(b) identifies, in an easy-to-understand manner, the source of information from which the past performance is derived and any key facts and assumptions used in that context are drawn; and
(c) contains a prominent warning that past performance is not necessarily a reliable indicator of future results.
(2) A Digital Asset Service Provider should in providing information about the past performance of a Digital Asset:
(a) consider the knowledge and sophistication of the audience to whom the information is targeted;
(b) fully disclose the source and the nature of the past performance presented;
(с) ensure that the time period used is not an inappropriately short period, or a selective period, that is chosen to show a better performance; and
(d) if a comparison is being made with the same calculation method and period is being used.
3.11. Reconciliation
(1) A Digital Asset Service Provider must:
(a) at least every 25 business days, reconcile its records of Client Accounts held with Third Party Agents with monthly statements received from those Third Party Agents;
(b) at least every six months, count all Safe Custody Digital Assets physically held by the Authorised Firm, or its Nominee Company, and reconcile the result of that count to the records of the Authorised Firm; and
(c) at least every six months, reconcile individual Client ledger balances with the Authorised Firm’s records of Safe Custody Digital Asset balances held in Client Accounts.
(2) An Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.
(3) The Authorised Firm must notify the AFSA where there have been material discrepancies with the reconciliation which have not been rectified.
Guidance
(1) An Authorised firm should maintain a clear separation of duties to ensure that an Employee with responsibility for operating Client Accounts, or an Employee that has authority over Safe Custody Digital Assets, should not perform the reconciliations under DAA 3.11.
(2) Reconciliation performed in accordance with DAA 3.11. must be reviewed by a member of the Authorised Firm who has adequate seniority.
(3) The individual referred to in (2) must provide a written statement confirming that the reconciliation has been undertaken in accordance with the requirements of this section.
(4) A material discrepancy includes discrepancies which have the cumulative effect of being material, such as longstanding discrepancies.
3.12. Clients
3.12.1. Investment limits
A Digital Asset Service Provider must maintain effective systems and controls to ensure compliance with the requirements and limits imposed by the Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC when dealing with a Retail Client who is a resident of the Republic of Kazakhstan.
3.12.2. Calculation of an individual Client’s net assets
(1) For the purposes of calculating an individual Client’s net assets to treat him as an Assessed Professional Client under Rule 2.5.1(a) of the COB, the Digital Asset Service Provider:
(a) must exclude the value of the primary residence of the Client;
(b) must exclude Digital Assets belonging to the Client that are not on the List of Digital Assets admitted to trading;
(c) must include only 30% of the market value of a Digital Asset admitted to trading, which belongs to the Client, but must include 100% of the market value of a Fiat stablecoin and Commodity stablecoin, which belongs to the Client; and
(e) may include any other assets held directly or indirectly by that Client.
3.13. Prohibitions
(1) A Representative Office must not market a Digital Asset or a Financial Service related to a Digital Asset.
(2) An Authorised Crowdfunding Platform Operating an Investment Crowdfunding Platform must not facilitate a Person investing in the Digital Assets.
(3) An Authorised Firm may not carry on an activity related to a Utility Token or Non-Fungible Token.
(4) The prohibition in (3) does not apply to a Digital Asset Service Provider:
(a) which is authorised to Provide Custody; and
(b) to the extent that it Provides Custody in relation to a Utility Token or Non-fungible Token.
3.14. Obligations
3.14.1. Obligation to report to the AFSA
(1) A Digital Asset Service Provider must submit on a quarterly basis report that should include a financial statement, income statement and calculation of the relevant capital resources and its compliance with these Rules.
(2) The AFSA may request a Digital Asset Service Provider to submit other returns. The list of returns required to be submitted and returns templates may be prescribed by the AFSA from time to time.
(3) Returns submitted to the AFSA must be signed by two (2) Approved Individuals and one of them must be approved to exercise the Finance Officer function.
3.14.2. Obligation to notify the AFSA
If a Digital Asset Service Provider becomes aware, or has a reasonable ground to believe, that it is or may be (or may be about to be) in breach of any of these Rules, that applies to it, it must:
(a) notify the AFSA in writing about the breach and the relevant circumstances immediately and not later than within 1 business day; and
(b) not make any cash transfers or payments or transfers of liquid assets to its Affiliates or Related Persons, whether by way of dividends or otherwise, without the AFSA’s written consent.
Guidance:
In dealing with a breach, or possible breach, of this part, the AFSA’s primary concern will be the interests of existing and prospective Clients and potential adverse impact on market participants as well as market stability. The AFSA recognises that there will be circumstances in which a problem may be resolved quickly, for example, by support from a parent entity, without jeopardising the interests of Clients and stakeholders. In such circumstances, it will be in the interests of all parties to minimise the disruption to the firm’s business. The AFSA's will normally seek to work cooperatively with the Digital Asset Trading Facility Operator in such stressed situations to deal with any problems. There will, however, be circumstances in which it is necessary to take regulatory action to avoid exposing market participants, stakeholders and Clients to the potential adverse consequences of the firm’s Failure, and the AFSA will not hesitate to take appropriate action if it considers this necessary.
3.15. AFSA power to impose requirements
Without limiting the powers available to the AFSA under Part 8 of the Framework Regulations, the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions imposing on a Digital Asset Trading Facility Operator any additional requirements that the AFSA considers appropriate.
Annex 2
FINANCIAL SERVCES FRAMEWORK REGULATIONS
In these Regulations, underlining indicates a new text and strikethrough indicates a removed text
39. Exemption for Authorised Market Institutions
(…)
(3) An Authorised Digital Asset Trading Facility is exempt from the General Prohibition in respect of any Regulated Activity: [intentionally omitted]
(a) which is carried on as a part of the Authorised Digital Asset Trading Facility's business as a Digital Asset trading facility; or [intentionally omitted]
(b) which is carried on for the purposes of, or in connection with, the provision by the Authorised Digital Asset Trading Facility of services designed to facilitate the provision of clearing services by another Person. [intentionally omitted]
57. AFSA power to impose requirements on an Authorised Market Institution
Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:
(a) requiring compliance with any duty, requirement, prohibition, obligation or responsibility applicable to an Authorised Market Institution; or
(b) requiring an Authorised Market Institution to act in a specified manner in relation to a transaction conducted on or through the facilities operated by an Authorised Market Institution, or in relation to a specified class of transactions; or
(c) requiring an Authorised Market Institution to act in a specified manner or to exercise its powers under any rules that the Authorised Market Institution has made.; or
(d) excluding the application of any requirements for engaging in the activity of Operating a Digital Asset Business imposed by the Rules; or [intentionally omitted]
(e) imposing on an Authorised Person engaged in the activity of Operating a Digital Asset Business any additional requirements that the AFSA considers appropriate.[intentionally omitted]
GENERAL RULES
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
1.2. Authorised Market Institutions
Guidance: Definition of Market Activity
Market Activity is defined in the section 18 of the Framework Regulations as:
(a) Operating an Exchange;
(b) Operating a Clearing House;
(c) Operating a Digital Asset Trading Facility;[intentionally omitted]
(d) Operating a Loan Crowdfunding Platform;
(e) Operating an Investment Crowdfunding Platform.;
(f) Operating a Private Financing Platform.
(…)
1.2.6. Effective supervision
In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:
(a) the nature, including the complexity, of the Market Activities that the applicant will carry on;
(b) if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, a Digital Asset Trading Facility, a Loan Crowdfunding Platform or an Investment Crowdfunding Platform, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities in carrying on that Market Activity;
(…)
1.2.7. Compliance arrangements
(…)
(c) effective arrangements for monitoring and enforcing compliance of its Members with its own rules and, if relevant, its clearing and settlement arrangements; and
(d) if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, effective arrangements to verify that issuers admitted to trading on its facilities comply with the Market Rules.; and
(e) if the applicant seeks a licence to carry on the Market Activity of Operating a Digital Asset Trading Facility, effective arrangements to verify that members admitted to trading on its facilities comply with the Conduct of Business Rules and the Authorised Market Institution Rules.
(…)
GENERAL RULES. SCHEDULE 1: REGULATED ACTIVITIES
30. Operating a Digital Asset Trading Facility
Operating a Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:
(a) to buy, sell or exchange Digital Assets for a Fiat currency; and/or
(b) to exchange one Digital Asset for another Digital Asset, in its Facility, in accordance with its non-discretionary rules.; and/or
(c) to buy, sell or exchange Digital Assets for a commodity.
GENERAL RULES. SCHEDULE 4: MARKET ACTIVITIES
Schedule 4: Market Activities.
(…)
3. Operating a Digital Asset Trading Facility
Operating a Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:
(a) to buy, sell or exchange Digital Assets for a Fiat currency; and/or
(b) to exchange one Digital Asset for another Digital Asset, in its Facility, in accordance with its non-discretionary rules. [intentionally omitted]
GLOSSARY
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
GLOSSARY. 1. Application. (t) AIFC Rules on Regulation of Digital Asset Activities (DAA).
(…)
Algorithmic stablecoin | A Digital Asset which uses, or purports to use, an algorithm to increase or decrease the supply of Digital Assets in order to stabilise its price or reduce volatility in its price |
| A Centre Participant which has been licensed by the AFSA to carry on the Regulated |
Client Account | In relation to Client Investments or Client Digital Assets is an account which: (a) is held with a Third Party Agent or by an Authorised Firm which is authorised under its Licence to Provide Custody; (b) is established to hold Client Assets; (c) when held by a Third Party Agent, is maintained in the name of: (i) if a Domestic Firm, the Authorised Firm; or (ii) if not a Domestic Firm, a Nominee Company controlled by the Authorised Firm; and (d) includes the words ‘Client Account’ in its title. |
Commodity stablecoin | A Digital Asset whose value purports to be determined by reference to a commodity (e.g., gold, oil). |
Digital Asset Business | Any one or more of the following Regulated Activities in relation to Digital Assets: (a)Dealing in Investments as Principal; (b)Dealing in Investments as Agent; (c)Managing Investments; (d)Managing a Collective Investment Scheme; (e)Providing Custody; (f)Arranging Custody; (g)Advising on Investments; (h)Arranging Deals in Investments; (i)Providing Money Services; and (j)Operating a Digital Asset Trading Facility.
A Person wishing to carry on or more of the above Regulated Activities in relation to Digital Assets, cannot carry on the Regulated Activities in relation to other types of Investments. |
Digital Asset Derivative | A Derivative the value of which is determined by reference to: (a)a Digital Asset; or (b)an index that includes a Digital Asset. |
DASP | Digital Asset Service Provider |
Digital Asset Service Provider | A Centre Participant which has been licensed by the AFSA to carry on one or more of the following Regulated Activities in relation to Digital Assets: (a)Operating a Digital Asset Trading Facility; (b)Dealing in Investments as Principal; (c)Dealing in Investments as Agent; (d)Managing Investments; (e)Providing Custody; (f)Arranging Custody; (g)Advising on Investments; (h)Arranging Deals in Investments; and (i)Providing Money Services.
A Person wishing to carry on one or more of the above Regulated Activities in relation to Digital Assets, cannot carry on the Regulated Activities in relation to other types of Investments. |
Digital Asset Custodian | Authorised Firm which carries on the Regulated Activity of Providing Custody in relation to Digital Assets. |
DATF | Digital Asset Trading Facility |
Digital Asset Trading Facility | A facility on which Digital Assets, rights or interests in Digital Assets are traded. |
Digital Asset Trading Facility Operator | A Centre Participant which is licensed by the AFSA to carry on the Regulated Activity of Operating a Digital Asset Trading Facility. |
Digital Asset (or Private Electronic Currency or Private E-money) | A digital representation of value that (1) can be digitally traded and functions as (a) a medium of exchange; or (b) a unit of account; or (c) a store of value; (2) can be exchanged back-and-forth for Fiat Currency, but is neither issued nor guaranteed by the government of any jurisdiction, and (3) fulfils the above functions only by agreement within the community of users of the Digital Asset; and accordingly (4) is to be distinguished from Fiat Currency and E-money.
An Excluded Digital Asset is excluded from the scope of the DAA. |
Digital wallet Service Provider | An Authorised Firm Providing Custody of Digital Assets by holding and controlling the public and private cryptographic keys relating to the Digital Assets. |
Direct Electronic Access | Direct Electronic Access means: (a) an arrangement (called direct market access), through which a Member or a client of a member is able to electronically transmit, using the Member’s trading code, an order relating to a Digital Asset, Security, Unit in a Listed Fund or Qualified Investment directly to the facility operated by the Authorised Market Institution, Digital Asset Trading Facility Operator or MTF or OTF Operator. It includes arrangements for the use, by a Person, of the infrastructure (or connecting system) of the Member, client of the Member or another participant; or (b) an arrangement (called sponsored access) through which a Member or a client of a member is able to electronically transmit, using the Member’s trading code, an order to the facility operated by the Authorised Market Institution or MTF or OTF Operator without using the infrastructure (or connecting system) of the Member or another participant or client. |
Distributed Ledger Technology | A class of technologies that support the recording of encrypted data where the data: (a) is held on a distributed ledger; (b) is electronically accessible, from multiple locations, by a network of participants; and (c) can be updated by those participants, based on agreed consensus, protocol or procedures. |
DLT | Distributed Ledger Technology |
Domestic Firm | An Authorised Person or Ancillary Service Provider which: (a) has its registered and head office in the AIFC; or (b) if it is a subsidiary of an Undertaking whose principal place of business and head office is in a jurisdiction other than the AIFC, has its registered office in the AIFC. |
Excluded Digital Asset | A Digital Asset which is: (a) a Non-Fungible Token; (b) a Utility Token; or (c) a digital currency issued by any government, government agency, central bank, or another monetary authority. |
Execute or Execution | The exercise of a Client order that results in a binding transaction. |
Fiat stablecoin | A Digital Asset whose value purports to be determined by reference to a Fiat Currency or a basket of Fiat Currencies. |
Investment Business | The business of: (a) Dealing in Investments as Principal; (b) Dealing in Investments as Agent; (c) Managing Investments; (d) Managing a Collective Investment Scheme; (e) Providing Custody; (f) Arranging Custody; (g) Acting as the Trustee of a Fund; (h) Advising on Investments; (i) Arranging Deals in Investments; (j) Managing a Restricted Profit Sharing Investment Account; or (k) Operating an Exchange
but not including Digital Asset Business. |
List of Digital Assets admitted to trading | A list of Digital Assets which could be traded in the AIFC and do not require the AFSA’s approval. |
Member | A Person who is entitled, under an arrangement between him and an Authorised Market Institution, a Digital Asset Trading Facility Operator, a MTF Operator or an OTF Operator, to use that institution’s or operator’s facilities |
Non-Fungible Token | An Investment which: (a) is unique and not fungible with any other Non-Fungible Token; (b) related to an identified asset; and (c) is used to prove the ownership or provenance of the asset. |
Operating a Digital Asset Trading Facility | The Regulated |
Privacy Device | Any technology, Digital wallet or another mechanism or device (excluding a VPN), which has any feature or features used, or intended to be used, to hide, anonymise, obscure or prevent the tracing of any of the following information: (a) a Digital Asset transaction; or (b) the identity of the holder of a Digital Asset; or (c) the cryptographic key associated with a Person; or (d) the identity of parties to a Digital Asset transaction; or (e) the value of a Digital Asset transaction; or (f) the beneficial owner of a Digital Asset. |
Privacy Token | A Digital Asset where the Digital Asset or the DLT or another similar technology used for the Digital Asset, has any feature or features that are used, or intended to be used, to hide, anonymise, obscure or prevent the tracing of any of the following information: (a) a Digital Asset transaction; or (b) the identity of the holder of a Digital Asset; or (c) the cryptographic key associated with a Person; or (d) the identity of parties to a Digital Asset transaction; or (e) the value of a Digital Asset transaction; or (f) the beneficial owner of a Digital Asset. |
Safe Custody Digital Assets | Digital Assets held or to be held for safekeeping by an Authorised Firm or Third Party Agent. |
Security Token | A Digital Asset that represents ownership of a Security. |
Self-Custody of Digital Assets | The holding and controlling of Digital Assets by their owner, through the owner holding and controlling the public and private cryptographic keys relating to the Digital Assets. |
Self-hosted Digital Wallet | A software or hardware that enables a person to store and transfer Digital Assets on his own behalf, and in relation to which the public and private cryptographic keys are controlled or held by that Person. |
Third Party Agent | In relation to a Client Account, means an Authorised Firm or Regulated Financial Institution (including a bank, custodian, an intermediate broker, a settlement agent, a clearing house, an exchange and ‘over the counter’ counterparty) that is a separate legal entity from the Authorised Firm that is required under COB to establish the Client Account. |
Third Party Digital wallet Service Provider | (1) A Digital wallet Service Provider other than a Digital Asset Trading Facility Operator Providing Custody of Digital Assets traded on its facility; or (2) A Person in another jurisdiction Providing Custody of Digital Assets by holding and controlling the public and private cryptographic keys relating to the Digital Assets, which is authorized and appropriately supervised for that activity by a Financial Services Regulator. |
Travel Rule | Has the meaning given to it in FATF’s Updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers [October 2021], as may be amended from time to time |
Utility Token | A Digital Asset: (a) which can be used by the holder only to pay for, receive a discount on, or access a product or service (whether current or proposed); and (b) the product or service referred to in (a) is provided by the issuer of the Digital Asset or of another entity in the issuer’s Group. |
VPN | A virtual private network that creates a safe, encrypted online connection for internet users. |
AUTHORISED MARKET INSTITUTION RULES
In these Rules, underlining indicates a new text and strikethrough indicates a removed text
6. RULES APPLICABLE TO AN AUTHORISED DIGITAL ASSET TRADING FACILITY…........... 39
6.1. Main requirements relating to trading on the facility ........................................................... 39
6.2. Requirement to prepare Rules ............................................................................................... 39
6.3. Admission of Digital Assets to trading ...................................................................................40
6.4. Suspending or removing Digital Assets from trading ..........................................................42 6.5. Transparency obligations ....................................................................................................... 42 6.6. Additional requirements on technology resources .............................................................. 43 6.7. Clients of an Authorised Digital Asset Trading Facility and Investment limits ..................45 [intentionally omitted]
(…)
Guidance: Purpose and application of AMI
·the licensing requirements, or standards, which an applicant must satisfy to be granted a Licence to carry on either of the Market Activities of Operating an Investment Exchange, Operating Digital Assets Trading Facility and Operating a Clearing House;
(…)
·Chapter 6 contains additional rules and guidance applicable to Authorised Digital Assets Trading Facility.
(…)
1. INTRODUCTION
1.1. Introduction
1.1.1. Definitions
(1) An Authorised Market Institution is a Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities. An Authorised Market Institution can be an Authorised Investment Exchange, an Authorised Digital Asset Trading Facility, an Authorised Clearing House and/or an Authorised Crowdfunding Platform.
(7) An Authorised Digital Asset Trading Facility is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Digital Asset Trading Facility.[intentionally omitted]
(…)
2.4.4. Resources of Members
(…)
(2) The requirements in (1) do not apply to:
(a) an Authorised Crowdfunding Platform (or its Clients).; or
(b) the Member of an Authorised Digital Asset Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal. [intentionally omitted]
(…)
2.4.7. Testing relating to Members’ technology systems
(…)
(4) The requirements in (1)-(3) do not apply to:
(a) an Authorised Crowdfunding Platform (or its Clients).; or
(b) the Member of an Authorised Digital Asset Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.5. Business Rules
2.5.1. Requirement to prepare Business Rules
(…)
(d) Admission to Trading Rules, prepared in accordance with AMI 3.2 or AMI 6.3, or Admission to Clearing Rules, prepared in accordance with AMI 4.1, governing the admission of Securities,or Units in a Listed Fund or Digital Assets to trading, or clearing and settlement, as appropriate to its facilities;
(e) Listing Rules, prepared in accordance with AMI 3.6, setting out the rules and conditions applicable to a Person who wishes to have Securities or Units in a Listed Fund included in an Official List; and
(f) any other matters necessary for the proper functioning of the Authorised Market Institution and the facilities operated by it.
The requirements in (c) and (e) do not apply to the Authorised Digital Asset Trading Facility.
2.6. Membership
2.6.1. Persons eligible for Membership
(1) An Authorised Market Institution, except an Authorised Digital Asset Trading Facility, may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and who is either:
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; or
(b) a Recognised Non-AIFC Member.
(2) An Authorised Digital Asset Trading Facility may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is: [intentionally omitted]
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; [intentionally omitted]
(b) a Recognised Non-AIFC Member; or [intentionally omitted]
(c) a body corporate or an individual (natural person) which carries on the activity solely as principal. [intentionally omitted]
2.7. Direct Electronic Access
2.7.1. Direct Electronic Access
Direct Electronic Access means any arrangement, such as the use of the Member's trading code, through which a Member or the clients of that Member are able to transmit electronically orders relating to Securities, or Units in a Listed Fund or Digital Asset directly to the facility provided by the Authorised Market Institution and includes arrangements which involve the use by a Person of the infrastructure of the Authorised Digital Asset Trading Facility or the Member or participant or client or any connecting system provided by the Authorised Digital Asset Trading Facility or Member or participant or client, to transmit the orders and arrangements where such an infrastructure is not used by a Person.
(…)
2.9.2. Custody and investment risk
(1) An Authorised Market Institution must have effective means to address risks relating to:
(a) custody of its own assets, in accordance with (2), if it is an Authorised Clearing House; or
(b)investments, in accordance with (3), if it is an Authorised Investment Exchange.; or
(c) Digital Assets, if it is an Authorised Digital Asset Trading Facility. [intentionally omitted]
(…)
6. RULES APPLICABLE TO AN AUTHORISED DIGITAL ASSET TRADING FACILITY
6.1. Main requirements relating to trading on the facility
(1) An Authorised Digital Asset Trading Facility must, at the time a Licence is granted and at all times thereafter, have:
(a) transparent and non-discriminatory rules and procedures to ensure fair and orderly trading of Digital Assets on its facility;
(b) objective criteria governing access to its facility;
(c) objective and transparent criteria for determining the Investments that can be traded on its facility; and
(d) adequate technology resources.
(2) An Authorised Digital Asset Trading Facility must maintain effective arrangements to verify that its members comply with requirements set out in COB, AML.
(3) An Authorised Digital Asset Trading Facility must not introduce a liquidity incentive scheme other scheme for encouraging bids on a trading venue or to increase the volume of business transacted unless it has obtained the prior approval of the AFSA.
(4) For the purposes of (1), an Authorised Digital Asset Trading Facility must make available to the public, without any charges, data relating to the quality of execution of transactions on the Authorised Digital Asset Trading Facility on at least an annual basis. Reports must include details about price, costs, speed and likelihood of execution for individual Digital Assets.
6.2. Requirement to prepare Rules
(1) An Authorised Digital Asset Trading Facility’s Rules must:
(a) be based on objective criteria;
(b) be non-discriminatory;
(c) be clear and fair;
(d) be made publicly available free of charge;
(e) contain provisions for the resolution of Members’ and other participants’ disputes;
(f) contain provisions for penalties or sanctions which may be imposed by the Authorised Digital Asset Trading Facility for a breach of the Rules; and
(g) contain provisions for an appeal process from the decisions of the Authorised Digital Asset Trading Facility.
(2) An Authorised Digital Asset Trading Facility must seek prior approval of its Rules (Business Rules, Admission to Trading Rules, Membership Rules) and of amendments to its Rules by:
(a) making its Rules available for market consultation for no less than 30 days; and
(b) obtaining approval of the AFSA.
(3) Where an Authorised Digital Asset Trading Facility has made any amendments to its Rules, it must have adequate procedures for notifying users and the AFSA of such amendments with a notice period of at least 30 days prior to making any amendments to its Rules available for market consultation.
(4) An Authorised Digital Asset Trading Facility must have procedures in place to ensure that its Rules are monitored and enforced.
6.3. Admission of Digital Assets to trading
6.3.1. Admission to Trading Rules
(1) An Authorised Digital Asset Trading Facility must make clear and transparent rules concerning the admission of Digital Assets to trading on its facilities.
(2) The rules of the Authorised Digital Asset Trading Facility must ensure that:
(a) Digital Assets admitted to trading on an Authorised Digital Asset Trading Facility’s facilities are capable of being traded in a fair, orderly and efficient manner; and
(b) Digital Assets admitted to trading on an Authorised Digital Asset Trading Facility’s facilities are freely negotiable.
6.3.2. Application for admission of Digital Assets to Trading
(1) Applications for the admission of a Digital Asset to trading can be made to an Authorised Digital Asset Trading Facility by the issuer of the Digital Asset, by a third party on behalf of and with the consent of the issuer of the Digital Asset, or by a Member of an Authorised Digital Asset Trading Facility.
(2) A Digital Asset can also be admitted to trading on the Authorised Digital Asset Trading Facility’s own initiative.
(3) An Authorised Digital Asset Trading Facility must, before admitting any Digital Asset to trading:
(a) be satisfied that the applicable requirements, including those in its Admission to Trading Rules, have been or will be fully complied with in respect of such Digital Asset and
(b) obtain approval of the AFSA in respect of such Digital Asset.
(4) For the purposes of (1), an Authorised Digital Asset Trading Facility must notify an applicant in writing of its decision in relation to the application for admission of the Digital Asset to trading. In the case that such decision is to deny the application, the written notice should indicate (i) whether the application has been considered by the AFSA, and if so, (ii) the AFSA’s determination in respect thereof.
(5) For purposes of 3(b), an application to AFSA by Authorised Digital Asset Trading Facility shall include:
(a) a copy of the admission application; and
(b) any other information requested by the AFSA.
6.3.3. Decision-making procedures for the AFSA in relation to applications for approval of the admission of Digital Assets to trading
(1) Where an Authorised Person Operating a Digital Asset Trading Facility applies for approval of the admission of a Digital Asset to trading, the AFSA may:
(a) approve the application;
(b) deny the application; or
(c) approve the application subject to conditions or restrictions.
(2) The AFSA may exercise its powers under (1)(b) where the AFSA reasonably considers that:
(a) granting the Digital Assets admission to trading of Digital Assets would be detrimental to the interests of Persons dealing in the relevant Digital Assets using the facilities of an Authorised Person Operating a Digital Asset Trading Facility or otherwise; or
(b) any requirements imposed by the AFSA or in the Rules of an Authorised Digital Asset Trading Facility as are applicable have not been or will not be complied with; or
(c) the Issuer of the Digital Assets has failed or will fail to comply with any obligations applying to it including those relating to having its Digital Assets admitted to trading or traded in another jurisdiction.
(3) Where the AFSA denies an application for approval of admission of a Digital Asset to trading pursuant to (2), such Digital Assets must not be admitted by an Authorised Person Operating a Digital Asset Trading Facility to its facility.
(4) Where the AFSA approves an application for approval of admission of a Digital Asset to trading subject to conditions or restrictions, the Authorised Person Operating a Digital Asset Trading Facility is responsible for implanting such conditions and restrictions in admitting the Digital Asset to trading, and such conditions or restrictions may not be varied or removed without the approval of the AFSA.
6.3.4. Undertaking to comply with the acting law of the AIFC
An Authorised Digital Asset Trading Facility may not admit Digital Asset to trading unless the person who seeks to have Digital Assets admitted to trading:
(a) gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AIFC in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution;
(b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution; and
(c) agrees in writing to subject itself to the acting law of the AIFC in relation to its use of the facilities of the Authorised Market Institution.
6.3.5. Review of compliance
The Authorised Digital Asset Trading Facility must maintain arrangements regularly to review whether the Digital Assets admitted to trading on its facilities comply with the Admission to Trading Rules.
6.4. Suspending or removing Digital Assets from trading
6.4.1. Power to suspend
(1) The rules of an Authorised Digital Asset Trading Facility must provide that the Authorised Digital Asset Trading Facility have the power to suspend or remove from trading on its facilities any Digital Assets with immediate effect or from such date and time as may be specified where it is satisfied that there are circumstances that warrant such action or it is in the interests of the AIFC.
(2) The AFSA may direct an Authorised Person Operating a Digital Asset Trading Facility to suspend or remove Digital Assets from trading with immediate effect or from such date and time as may be specified if it is satisfied there are circumstances that warrant such action or it is in the interests of the AIFC.
(3) The AFSA may withdraw a direction made under (2) at any time.
(4) Digital Assets that are suspended from trading of Digital Assets remain admitted to trading for the purposes of this Chapter.
(5) The AFSA may prescribe any additional requirements or procedures relating to the removal or suspension of Digital Assets from or restoration of Digital Assets to trading.
6.4.2. Limitation on power to suspend or remove Digital Assets from trading
The rules of an Authorised Digital Asset Trading Facility must contain provisions for orderly suspension and removal from trading on its facilities any Digital Asset which no longer complies with its rules taking into account the interests of investors and the orderly functioning of the financial markets of the AIFC.
6.4.3. Publication of decision
(1) Where the Authorised Digital Asset Trading Facility suspends or removes any Digital Asset from trading on its facilities, it must notify the AFSA in advance and make that decision public by issuing a public notice on its website.
(2) Where the Authorised Digital Asset Trading Facility lifts a suspension or re-admits any Digital Asset to trading on its facilities, it must notify the AFSA in advance and make that decision public by issuing a public notice on its website.
(3) Where an Authorised Digital Asset Trading Facility has made any decisions on admission, suspension, or removal of Digital Assets from trading on its facilities, it must have adequate procedures for notifying users of such decisions.
6.5. Transparency obligations
6.5.1. Trading transparency obligation
An Authorised Digital Asset Trading Facility must make available to the public:
(a) the current bid and offer prices of Digital Assets traded on its systems on a continuous basis during normal trading hours;
(b) the price, volume and time of the transactions executed in respect of Digital Assets traded on its facilities in as close to real-time as technically possible; and
(c) provide price, volume, time and counterparty details to the AFSA within 24 hours of the close of each trading day via a secure electronic feed.
6.5.2. Public notice of suspended or terminated Membership
The Authorised Digital Asset Trading Facility must promptly issue a public notice on its website in respect of any Member that has a Licence to carry on Market Activities or Regulated Activities whose Membership is suspended or terminated.
6.5.3. Cooperation with office-holder
The Authorised Digital Asset Trading Facility must cooperate, by the sharing of information and otherwise, with the AFSA, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a Member of the Digital Asset Trading Facility.
6.6. Additional requirements on technology resources
6.6.1. Cyber-security policy
(1) An Authorised Digital Asset Trading Facility shall implement a written cyber security policy setting forth its policies and procedures for the protection of its electronic systems and members and counterparty data stored on those systems, which shall be reviewed and approved by the Authorised Digital Asset Trading Facility’s governing body at least annually.
(2) The cyber security policy must, as a minimum, address the following areas:
(a) information security;
(b) data governance and classification;
(c) access controls;
(d) business continuity and disaster recovery planning and resources;
(e) capacity and performance planning;
(f) systems operations and availability concerns;
(g) systems and network security;
(h) systems and application development and quality assurance;
(i) physical security and environmental controls;
(j) customer data privacy;
(k) vendor and third-party service provider management; and
(l) incident response.
(3) An Authorised Digital Asset Trading Facility must advise the AFSA immediately if it becomes aware, or has reasonable grounds to believe, that a significant breach by any Person of its cyber security policy may have occurred or may be about to occur.
6.6.2. Technology governance
An Authorised Digital Asset Trading Facility must, as a minimum, have in place systems and controls with respect to the procedures describing the creation, management and control of digital wallets and private keys.
6.6.3. Trading controls
An Authorised Digital Asset Trading Facility must be able to:
(a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
(b) temporarily halt or constrain trading on its facilities if necessary or desirable to maintain an orderly market; and
(c) cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member.
6.6.4. Settlement and Clearing facilitation services
(1) An Authorised Digital Asset Trading Facility must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), clearing and settlement of the rights and liabilities of the parties to transactions effected on the Authorised Digital Asset Trading Facility (being rights and liabilities in relation to those transactions).
(2) An Authorised Digital Asset Trading Facility acting as a Digital Asset Depository must:
(a) have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of Digital Assets issuers and holders, prevent the unauthorised creation or deletion of Digital Assets, and conduct periodic and at least daily reconciliation of each Digital Asset balance it maintains for issuers and holders;
(b) prohibit overdrafts and debit balances in Digital Assets accounts;
(c) maintain Digital Assets in an immobilised or dematerialised form for their transfer by book entry;
(d) protect assets against custody risk through appropriate rules and procedures consistent with its legal framework;
(e) ensure segregation between the Digital Asset Depository’s own assets and the Digital Assets of its participants and segregation among the Digital Assets of participants; and
(f) identify, measure, monitor, and manage its risks from other custody related activities that it may perform.
6.7. Clients of an Authorised Digital Asset Trading Facility and Investment limits
(1) Members of an Authorised Digital Asset Trading Facility and their clients will be Clients of an Authorised Digital Asset Trading Facility.
(2) An Authorised Digital Asset Trading Facility must maintain effective systems and controls to ensure that a Retail Client using its service does not invest, in respect of all Digital Assets in aggregate calculated over a period of one month, an amount which exceeds the greater of:
(a) USD 1,000; or
(b) the lesser of (i) 10 percent of the annual income; or (ii) 5 percent of the net worth of such Retail Client (excluding the value of the primary residence), up to a maximum aggregate amount of USD100,000.
CONDUCT OF BUSINESS RULES
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CONTENTS
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1.2.2. Exclusions in relation to certain categories of Centre Participant
For the avoidance of doubt, the requirements in COB do not apply to:
(a) a Representative Office;
(b) an Authorised Market Institution (other than an Authorised Crowdfunding Platform and an Authorised Digital Asset Trading Facility), except for COB 3 (Communications with Clients and Financial Promotions); or
(c) an Authorised Crowdfunding Platform, except for COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 7 (Conflicts of Interest), COB 8 (Client Assets) and COB Schedule 2 (Key Information and Content of Client Agreement); or
(d) an Authorised Digital Asset Trading Facility, except for COB 2 (Client Classification) and COB 3 (Communications with Clients and Financial Promotions).
(…)
For the purposes of 1.2.2(d), references in COB 2 and COB 3 to:
(a) "Authorised Firms" shall be read as if it were a reference to "an Authorised Digital Asset Trading Facility "; and
(b) "Regulated Activities" shall be read as if it were a reference to "Market Activities".
(…)
17. OPERATORS OF A DIGITAL ASSET BUSINESS
17.1. Application
This chapter applies to an Authorised Person engaged in the activity of Operating a Digital Asset Business.
Guidance
The following activities do not constitute Operating a Digital Asset Business:
trading of Digital Assets for the Person’s own investment purpose;
the issuance of Digital Assets by a Person and their administration (including sale, redemption);
any other activity or arrangement that is deemed by the AFSA to not constitute Operating a Digital Asset Business, where necessary and appropriate in order for the AFSA to pursue its objectives.
17.2. Rules Applicable to an Authorised Digital Asset Trading Facility Operator
In addition to all requirements applicable to Authorised Persons in these rules, GEN, and AML, an Authorised Person carrying on the Market Activity of Operating a Digital Asset Trading Facility must comply with the applicable requirements set out in the AMI, unless the requirements in this chapter expressly provide otherwise.
17.3. Admission of Digital Assets to trading
An Authorised Person Operating a Digital Asset Trading Facility may grant admission of Digital Assets to trading only where it is satisfied that such admission is in accordance with the AMI and an Authorised Digital Asset Trading Facility’s Admission to Trading Rules.
An Authorised Person Operating a Digital Asset Trading Facility must not permit trading of Digital Assets on its facilities unless those Digital Assets are admitted to, and not suspended from, trading by the Authorised Person Operating a Digital Asset Trading Facility pursuant to Chapter 6 of AMI. [intentionally omitted]
17.4. Additional disclosure requirements
Prior to entering into an initial transaction for, on behalf of, or with a Client, an Authorised Person Operating a Digital Asset Business shall disclose in a clear, fair and not misleading manner:
(a) all terms, conditions and risks relating to the Digital Assets that have been admitted to trading and/or is the subject of the transaction;
(b) all material risks associated with its products, services and activities; and
(c) all details on the amount and the purpose of any premiums, fees, charges or taxes payable by the Client, whether or not these are payable to the Operating a Digital Asset Business. [intentionally omitted]
17.5. The risks to be disclosed pursuant to COB 17.4
The risks to be disclosed pursuant to COB 17.4. include, but are not limited to, the following:
(a) Digital Assets not being legal tender or backed by a government;
(b) the value, or process for valuation, of Digital Assets, including the risk of a Digital Assets having no value;
(c) the volatility and unpredictability of the price of Digital Assets relative to Fiat Currencies;
(d) that trading in Digital Assets is susceptible to irrational market forces;
(e) that the nature of Digital Assets may lead to an increased risk of Financial Crime;
(f) that the nature of Digital Assets may lead to an increased risk of cyber-attack;
(g) there being limited or, in some cases, no mechanism for the recovery of lost or stolen Digital Assets;
(h) the risks of Digital Assets with regard to anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement;
(i) that there is no assurance that a Person who accepts a Digital Asset as payment today will continue to do so in the future;
(j) that the nature of Digital Assets means that technological difficulties experienced by the Authorised Person may prevent the access or use of a Client’s Digital Assets;
(k) any links to Digital Assets related activity outside the AIFC, which may be unregulated or subject to limited regulation; and
(l) any regulatory changes or actions by the AFSA or Non-AIFC Regulator that may adversely affect the use, transfer, exchange, and value of a Digital Asset. [intentionally omitted]
17.6. Complaints
An Authorised Person Operating a Digital Asset Business shall establish and maintain written policies and procedures to fairly and timely resolve complaints made against it or other parties (including members).
An Authorised Person Operating a Digital Asset Business must provide, in a clear and conspicuous manner: on its website or websites; in all physical locations; and in any other location as the AFSA may prescribe, the following disclosures:
(a) the mailing address, email address, and telephone number for the receipt of complaints;
(b) a statement that the complainant may also bring his or her complaint to the attention of the AFSA;
(c) the AFSA’s mailing address, website, and telephone number; and
(d) such other information as the AFSA may require.
An Authorised Person Operating a Digital Asset Business shall report to the AFSA any change in its complaint policies or procedures within ten days.
An Authorised Person Operating a Digital Asset Business must maintain a record of any complaint made against it or other parties (including members) for a minimum period of six years from the date of receipt of the complaint. [intentionally omitted]
17.7. Obligation to report transactions
An Authorised Person Operating a Digital Asset Business shall report to the AFSA details of transactions in Digital Assets traded on its facility which are executed, or reported, through its systems.
The AFSA may, by written notice or Guidance, specify:
(a) the information to be included in reports made under the preceding paragraph; and
(b) the manner in which such reports are to be made. [intentionally omitted]
17.8. AFSA power to impose a prohibition or requirement
The AFSA may prohibit an Authorised Person Operating a Digital Asset Business from:
(a) entering into certain specified transactions or types of transactions; or
(b) outsourcing any of its functions or activities to a third party.
The AFSA may, by written notice or guidance, set fees payable by an Authorised Person Operating a Digital Asset Business to the AFSA on certain specified transactions or types of transactions. [intentionally omitted]
SCHEDULE 2: KEY INFORMATION AND CONTENT OF CLIENT AGREEMENT
1. | CORE INFORMATION |
(…) | (…) |
5. | ADDITIONAL INFORMATION FOR DIGITAL ASSET TRADING FACILITY OPERATORS AND DIGITAL ASSET SERVICE PROVIDERS PROVIDING CUSTODY |
| The additional information required where an Authorised Firm Provides Custody in relation to Digital Assets: |
| a breakdown of all fees and charges payable for a transfer of Digital Assets (a “transfer”) and when they are charged; |
| the information required to carry out a transfer; |
| the form and procedures for giving consent to a transfer; |
| an indication of the time it will normally take to carry out a transfer; |
| details of when a transfer will be considered to be complete; |
| how, and in what form, information and communications relating to transfer services will be provided to the Client, including the timing and frequency of communications and the language used and technical requirements for the Client’s equipment and software to receive the communications; |
| clear policies and procedures relating to unauthorised or incorrectly executed transfers, including when the Client is and is not entitled to redress; |
| clear policies and procedures relating to situations where the holding or transfer of Digital Assets may have been compromised, such as if there has been hacking, theft or fraud; and |
| details of the procedures the Digital Asset will follow to contact the Client if there has been suspected or actual hacking, theft or fraud. |
AIFC FEES RULES
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SCHEDULE 1: APPLICATION FEES PAYABLE TO THE AFSA FOR REGULATED ACTIVITIES
1.1Application fees for applying for Licence to carry on Regulated Activities
Regulated Activities | Fee (USD)* |
Operating a Representative Office | 3 000 |
(…) | (…) |
Operating an Organised Trading Facility | 5000 |
Operating a Digital Asset Trading Facility | 70 000 |
(…)
SCHEDULE 2: APPLICATION FEES PAYABLE TO THE AFSA FOR MARKET ACTIVITIES
1.2Application fees for applying for Licence to carry on Market Activities
Application fee by activities | Fee (USD) |
Operator of a Clearing House | 125 000 |
Operator of an Investment Exchange | 125 000 |
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Operator of a Crowdfunding Platform | 5 000 |
Operating a Private Financing Platform | 5 000 |
(…)
SCHEDULE 6: ANNUAL SUPERVISION FEES PAYABLE TO THE AFSA
6.1 Annual supervision fees for Regulated Activities
Annual supervision fees for Regulated Activities are determined by the activities the Authorised Firm conducts as set out below:
Regulated Activities | Fee (USD)* |
Operating a Representative Office | 1 000 |
(…) | (…) |
Operating an Organised Trading Facility | • 3 000 USD (fixed); and • trading levy of 0.0006% of the average daily trading value (variable)**. Note: AFSA will not invoice the trading levy (variable) fee unless it exceeds 500 USD |
Operating a Digital Asset Trading Facility | 35 000 |
(…)
6.2 Annual supervision fees for Market Activities
Annual supervision fees for Market Activities are determined by the activities the Authorised Market Institution conducts as set out below:
Application fee by activities | Fee (USD) |
Operator of a Clearing House | 62 500 |
Operator of an Investment Exchange | 62 500 |
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Operator of a Crowdfunding Platform | 3 000 |
Operating a Private Financing Platform | 3 000 |
(…)
AIFC ANTI-MONEY LAUNDERING, COUNTER-TERRORIST FINANCING AND SANCTIONS RULES
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6. CUSTOMER DUE DILIGENCE
6.1. Conducting Customer Due Diligence
6.1.1. Obligation to conduct Customer Due Diligence
A Relevant Person must:
(a) conduct CDD under AML 6.3.1 for each of its customers including when the customer is
carrying out occasional transactions the value of which singularly or in several linked operations (whether at the time or later), equal or exceed USD 15,000; and
(a-a) conduct CDD under AML 6.3.1 for each of its customers including when the customer is
carrying out occasional transactions with Digital Assets the value of which singularly or in several linked operations (whether at the time or later), equal or exceed USD 1,000; and
(b) in addition to (a) and (a-a), conduct EDD under AML 7.1.1 in respect of:
(i) each customer it has assigned as high risk;
(ii) business relationships and transactions with persons from countries with high geographical risk factors.
(…)
11-1. DIGITAL ASSET TRANSFER (the “Travel Rule”)
11-1.1. Digital Asset transfer definition
(1) A Digital Asset transfer is a transaction carried out:
(a) by a Digital Asset Trading Facility Operator or Digital Asset Service Provider (an “ordering institution”) on behalf of an originator by transferring any Digital Assets; and
(b) with a view to making the Digital Assets available
(i) to that Person or another Person (a “beneficiary”); and
(ii) at an institution (a “beneficiary institution”) which may be the ordering institution or another institution, whether or not one or more other institutions (“intermediary institutions”) participate in completion of the transfer of the Digital Assets.
11-1.2. Obligations of Ordering Institution
(1) Before carrying out both a cross-border or domestic Digital Asset transfer of the amount equal to or above USD 1,000, an ordering institution must obtain, record and ensure that the transfers are accompanied by the following information:
(a) the name of the originator;
(b) the number of the originator’s account maintained with the ordering institution and from which the Digital Assets are transferred or, in the absence of such an account, a unique reference number assigned to the Digital Asset transfer by the ordering institution;
(c) the originator’s address, or national identity number, or customer identification number, or date and place of birth;
(d) the name of the beneficiary (recipient); and
(e) the number of the recipient’s account maintained with the beneficiary institution and to which the Digital Assets are transferred or, in the absence of an account number, a unique transaction number assigned to the Digital Asset transfer by the beneficiary institution.
(2) Before carrying out both a cross-border or domestic Digital Asset transfer of the amount below USD 1,000, an ordering institution must obtain, record and ensure that the transfers are accompanied by the following information:
(a) the name of the originator;
(b) the number of the originator’s account maintained with the ordering institution and from which the Digital Assets are transferred or, in the absence of such an account, a unique reference number assigned to the Digital Asset transfer by the ordering institution;
(c) the name of the beneficiary (recipient); and
(d) the number of the recipient’s account maintained with the beneficiary institution and to which the Digital Assets are transferred, or, in the absence of an account number, a unique transaction number assigned to the Digital Asset transfer by the beneficiary institution.
(3) Before transferring Digital Assets, an ordering institution must verify the accuracy of the information referred to in (1) (a) to (c) on the basis of documents, data or information obtained from a reliable and independent sources.
(4) If several individual domestic or cross-border Digital Asset transfers from a single originating institution are bundled in a batch file for te transmission to recipient(s), then a Digital Asset Trading Facility Operator or Digital Asset Service Provider that is an ordering institution must ensure that:
(i) the batch file contains the originator information required in (1) and/or (2) respectively;
(ii) it has verified the originator information referred to in (1); and
(iii) the batch file contains the recipient information required under (1) and/or (2) for each recipient and
that information is fully traceable in each recipient’s jurisdiction.
(5) The information referred to in (1), (2), (4) must be submitted in advance of, or simultaneously or concurrently with, the transfer of Digital Assets and in a secure manner and in line
with the requirements of the AIFC rules and regulations on data protection.
Guidance:
(1) The number of the account maintained with the ordering institution or
beneficiary institution from or to which the Digital Assets are transferred referred to in 11-1.2.(1)(b) to (e) and 11-1.2.(2)(b) to (d) could mean:
(a) the originator’s or recipients’ Digital wallet (address), where a transfer of Digital Assets is registered on a network using distributed ledger technology or similar technology or,
(b) the originator’s or beneficiary's account number, where such an account exists and is used to process the Digital Asset transaction if a transfer of Digital Asset is not registered on a network using distributed ledger technology or similar technology;
(b) Where information both in (1) (a) and (b) exists, ordering or beneficiary institutions should obtain, hold and/or send all information.
11-1.3. Obligations of Beneficiary Institution
(1) A Digital Asset Trading Facility Operator or Digital Asset Service Provider, which acts as a beneficiary institution in a Digital Asset transfer must obtain, record and implement effective procedures, including, where appropriate, monitoring during or after the transfer, in order to detect whether the referred to in 11-1.1(1) and (2) respectively, on the originator and the beneficiary is included in, or follows, the transfer of Digital Assets or batch file transfer.
(2) Before making the Digital Assets available to the beneficiary, for a Digital Asset transfer of amount equal to or above USD 1,000, a beneficiary institution must verify the accuracy of information of the recipient referred to in 11-1.1.(1)(d), on the basis of documents, data or information obtained from a reliable and independent sources.
11-1.4. Transfers of Digital Assets with missing or incomplete information on the originator or the beneficiary
(1) A Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary must implement effective risk-based procedures, including procedures based on the risk-sensitive basis, for determining whether to execute or reject or suspend a transfer of Digital Asset that is not accompanied with a required complete originator and beneficiary information and for taking the appropriate follow-up action.
(2) Where the Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary becomes aware that the information referred to in 11-1.1(1) and (2) is missing or incomplete, the Digital Asset Trading Facility Operator or Digital Asset Service Provider must before making the Digital Assets available to the beneficiary, on a risk-sensitive basis and without undue delay:
(a) reject the transfer or return the transferred Digital Assets to the originator’s account; or
(b) ask for the required information on the originator and the beneficiary before making the Digital Assets available to the beneficiary.
(2) Where a Digital Asset Trading Facility Operator or Digital Asset Service Provider repeatedly fails to provide the required information on the originator or the beneficiary, the Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary must:
(a) take steps, which may initially include the issuing of warnings and setting of deadlines; or
(b) reject any future transfers of Digital Assets from or to, or restrict or terminate its business relationship with, a provider of Digital Assets transfers that fails to provide the required information. The Digital Asset Trading Facility Operator or Digital Asset Service Provider of the beneficiary must report that failure, and the steps taken, to the competent authority responsible for monitoring compliance with these Rules.
11-1.5. Digital Asset Transfers to or from self-hosted digital wallets
(1) In the case of a transfer of Digital Assets made to or received from on behalf of its a self-hosted digital wallet(s), the Digital Asset Service Provider of the originator or beneficiary must obtain and hold information referred to in in (1) or (2) from clients and ensure that the transfer of Digital Assets can be individually identified.
(2) In case of a Digital Asset transfer whose amount exceeds USD 1,000 or there is a suspicion of money laundering of a transfer to a self-hosted digital wallet Digital Asset Service Provider of the originator or beneficiary must take adequate measures on a risk-sensitive basis to mitigate and manage the ML/TF risks associated with the transfers.
Guidance on risk mitigating measures on transfers to or from self-hosted digital wallets
Digital Asset Service Provider should undertake following measures (non-exhaustive) to ensure compliance with (2):
(a) conduct enhanced monitoring of Digital Asset transfers with self-hosted digital wallets;
(b) accept Digital Asset transfers only from or to self-hosted digital wallets that the Digital Asset Service Provider has assessed to be reliable, having regard to the screening results of the Digital Asset transactions and the associated digital wallets and the assessment results on the ownership or control of the self-hosted digital wallet by the originator or beneficiary; and
(c) impose transaction limits or prohibition.
11-1.6. Rules in Chapter 11-1. comes into operation 12 months after the adoption of the AIFC Rules on Regulation of Digital Asset Activities.
11-2. DIGITAL ASSET TRANSFER COUNTERPARTY DUE DILIGENCE AND ADDITIONAL MEASURES.
11-2.1. General requirements Digital Asset transfer counterparty due diligence
(1) When an Authorised Person conducts a Digital Asset transfer referred to in Chapter 11-1, the Authorised Person will be exposed to money laundering and terrorist financing risks associated with the institution which may be the ordering institution, intermediary institution or beneficiary institution involved in the Digital asset transfer (“Digital Asset transfer counterparty”).
(2) To avoid sending or receiving Digital Assets to or from illicit actors or designated parties that had not been subject to appropriate CDD and screening measures of a Digital Asset transfer counterparty and to ensure compliance with the Travel Rule, an Authorised Person must conduct due diligence on the Digital Asset transfer counterparty to identify and assess the money laundering and terrorist financing risks associated with the Digital Asset transfers to or from the Digital Asset transfer counterparty and apply appropriate risk-based anti-money laundering and countering financing terrorism measures.
(3) An Authorised Person should conduct due diligence measures on a Digital Asset transfer counterparty before conducting a Digital Asset transfer, or making the transferred Digital Assets available to the recipient.
(4) An Authorised Person does not need to undertake the Digital Asset transfer counterparty due diligence process for every individual Digital Asset transfer when dealing with Digital Asset transfer counterparties that it has already conducted counterparty due diligence on previously, unless when there is a suspicion of money laundering and terrorist financing.
(5) An Authorised Person undertakes reviews of the Digital Asset transfer counterparty due diligence records on a regular basis or upon trigger events (e.g., when it becomes aware of a suspicious transaction or other information such as negative news from credible media, public information that the counterparty has been subject to any targeted financial sanction, money laundering and terrorist financing investigation or regulatory action).
(6) Based on the Digital Asset transfer counterparty due diligence results, the Authorised Person determines if it should continue to conduct Digital Asset transfers with, and submit the required information to, a Digital Asset transfer counterparty, and the extent of anti-money laundering and countering financing terrorism measures that it should apply in relation to Digital Asset transfers with the Digital Asset transfer counterparty on a risk-sensitive basis.
11-2.2. Digital Asset transfer counterparty due diligence procedures
Digital Asset transfer counterparty due diligence typically involves the following procedures:
(a) determining whether the Digital Asset transfer is or will be with a Digital Asset transfer counterparty or a Self-Hosted Digital wallet;
(b) where applicable, identifying the Digital Asset transfer counterparty (e.g., by making a reference to lists of licensed or registered Digital Asset Service Providers or financial institutions in different jurisdictions); and
(c) assessing whether the Digital Asset transfer counterparty is an eligible counterparty to deal with and to send the required information to.
11-2.3. Digital Asset transfer counterparty due diligence measures
An Authorised Person applies the following Digital Asset transfer counterparty due diligence measures before it conducts a Digital Asset transfer with a Digital Asset transfer counterparty:
(a) determines if the respondent entity is licensed or registered;
(b) collects sufficient information about the Digital Asset transfer counterparty to enable it to understand fully the nature of the Digital Asset transfer counterparty’s business;
(c) understands the nature and expected volume and value of Digital Asset transfers with the Digital Asset transfer counterparty;
(d) determines from publicly available information the reputation of the Digital Asset transfer counterparty and the quality and effectiveness of the anti-money laundering and countering financing terrorism regulation and supervision over the Digital Asset transfer counterparty by authorities in the jurisdictions in which it operates and/or is incorporated which perform functions similar to those of the competent authorities;
(e) assesses the anti-money laundering and countering financing terrorism controls of the Digital Asset transfer counterparty and ensures that the anti-money laundering and countering financing terrorism controls of the Digital Asset transfer counterparty are adequate and effective;
(f) assesses whether the Digital Asset transfer counterparty is subject to the Travel Rule similar to that imposed under Chapter 11-1 in the jurisdictions in which the Digital Asset transfer counterparty operates and/or is incorporated;
(g) assesses the adequacy and effectiveness of the anti-money laundering and countering financing terrorism controls that the Digital Asset transfer counterparty has put in place for ensuring compliance with the Travel Rule;
(h) assesses whether the Digital Asset transfer counterparty can protect the confidentiality and integrity of personal data (e.g., the required originator and recipient information), taking into account the adequacy and robustness of data privacy and security controls of the Digital Asset transfer counterparty; and
(j) obtains approval from its senior management.
Guidance:
(1) While a relationship with a Digital Asset transfer counterparty is different from a cross-border correspondent relationship referred to in Chapter 10, there are similarities in the due diligence approach which can be of assistance to an Authorised Person. By virtue of this, the Authorised Person should conduct the due diligence measures in Chapter 10, with reference to the requirements set out in AML 10.2.
(2) When assessing money laundering and financing terrorism risks posed by a Digital Asset transfer counterparty, an Authorised Person should take into account relevant factors that may indicate a higher money laundering and financing terrorism risk. Examples of such risk is where a Digital Asset transfer counterparty:
(i) operates or is incorporated in a jurisdiction posing a higher risk or with a weak anti-money laundering and countering financing terrorism regime;
(ii) is not (or yet to be) licensed or registered and supervised for anti-money laundering and countering financing terrorism purposes in the jurisdictions in which it operates and/or is incorporated by authorities which perform functions similar to those of the competent authorities;
(iii) does not have in place adequate and effective anti-money laundering and countering financing terrorism systems, including measures for ensuring compliance with the Travel Rule;
(iv) does not implement adequate measures or safeguards for protecting the confidentiality and integrity of personal data; or
(v) is associated with money laundering and financing terrorism or other illicit activities.
Consultation Paper on Proposed Amendments to AIFC Fees Rules
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed amendments to AIFC Fees Rules.
Who should read this CP?
2. The proposals in this paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
Terminology
3. 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 (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4. We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2023-0004” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposed framework is 15 September 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. Comments to be addressed by post:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz
Structure of this CP
Part I – Background;
Part II – Key proposals;
Part III – Questions in this consultation paper;
Annex 1 – Draft Amendments to AIFC Fees Rules.
Part I - Background
1. In 2021 and 2022, the AFSA gradually started to charge application and supervision fees for Regulated, Market and Ancillary Services and the fees for recognition of Non-AIFC Market Institutions and Non-AIFC Members.
2. Over the course of 2022 and 2023, the AFSA received various comments and queries regarding the application of AIFC Fees Rules, which highlighted the need of greater clarity and consistency in imposing and calculation of fees.
3. The proposals in this paper are designed to outline the AFSA approach to supervision fees while conducting certain Regulated, Market and FinTech Activities, including those proposed due to the developed or currently being under development new frameworks related to regulation of Digital Assets, to make improvements in FEES based on our lessons and feedback, as well as to make some provisions related to AFSA’s powers more explicit.
4. In making any changes to its fee regime, the AFSA remains committed to:
- careful consideration of the impact of any potential fee change on the supervised (and potential supervised) entities; and
- full public consultation.
5. The proposals include:
- annual supervision fee for Operators of a Multilateral or Organised Trading Facility;
- annual supervision fee for Operators of a Digital Asset Trading Facility;
- annual supervision fee for FinTech Lab Participants;
- annual supervision fee for Operators of a Clearing House;
- fees to be charged in case of combining different types of activities; and
- other amendments to clarify implementation of certain provisions.
6. The proposed amendments are expected to be enacted on 1 January 2024.
Part II - Key proposals
Annual supervision fees for MTF/OTF Operators
7. Current version of FEES captures the following annual supervision fee applicable to MTF/OTF Operators:
- fixed fee – 3,000 USD; and
- variable fee – trading levy of 0.0006% of the average daily trading value (payable quarterly).
The AFSA does not invoice the trading levy (variable) fee unless it exceeds 500 USD.
8. There is a need to improve the formula of the variable part of the supervision fee, which is currently calculated based on the average daily trading value, while the fee is assumed to be charged for the supervision during the corresponding quarter. The use of average daily trading value has prompted queries on how these amounts are to be calculated.
9. The proposed annual supervision fee payable by MTF/OTF Operators is as follows:
- fixed fee – 3,000 USD (paid annually); and
- variable fee:
- trading levy of 0% of the cumulative quarterly trading value, where the quarterly trading value is less than 30 million USD; or
- trading levy of 0.006% of the cumulative quarterly trading value, where the quarterly trading value is 30 million USD and more (paid quarterly).
10. The intention behind the proposal is to encourage the AIFC market to grow and allow firms of different size to come and operate to the AIFC. Thus, a firm with less than 500,000 USD of trading value per day will be exempt from the variable fees payment. Since the variable fee is charged every quarter, the quarterly trading value is 31,500,000 USD, assuming that the number of trading days per quarter is 63 days. It is therefore proposed to introduce the formula based on quarterly trading value with the threshold of 30 million USD.
11. The current threshold of 500 USD for issuing an invoice for payment of the supervision fee is proposed to be removed.
Annual supervision fees for DATF Operators
12. Recently DATF Operators have been proposed to be considered as a firm carrying on Regulated Activity rather than a Market Activity. The proposed amendments are expected to come into force starting from 1 January 2024.
13. With these amendments it is also proposed to reconsider the supervision fee approach to DATF Operators.
14. Taking into account that DATF platforms provide for trading of various instruments, it is proposed to have the supervision fee consisting of two components, i.e., a fixed fee (35,000 USD) and a variable fee of trading levy.
15. The annual supervision fee payable by DATF Operators:
- fixed fee – 35,000 USD (paid annually); and
- variable fee:
- trading levy of 0% of the cumulative quarterly trading value (no variable trading levy), where the quarterly trading value is less than 45 million USD; or
- trading levy of 0.006% of the cumulative quarterly trading value, where the quarterly trading value is 45 million USD and more (paid quarterly).
16. It is proposed to use the same formula for calculation of the variable fee as for MTF/OTF Operators, considering different size of businesses. The firms with the trading value of 500,000 USD or more are expected to pay the variable fee. Thus, based on the assumption that the number of trading days of DATF Operators is 365 days, the threshold is defined as 45 million USD.
Annual supervision fees for FTL Participants
17. It is proposed to reconsider the current approach to supervision fees and start charging the full amount of the fees corresponding to relevant Regulated and/or Market Activities the FTL Participant is licensed to carry on.
18. Meanwhile, the application fee will remain at current 10% of the application fee corresponding to the relevant type of activities.
Annual supervision fees for Operators of Clearing Houses
19. Currently, FEES provide for charging supervision fee from Clearing Houses Operators, which includes the variable fee. The formula for calculation of the said variable part includes the settlement value and depository value fees. The formula does not provide for charging the supervisions fees from an Authorised Person acting as a Central Counterparty.
20. It is proposed to amend the formula of a supervision fee charged from an Authorised Person as follows:
SF=FF+SVF+DVF+CF,
where
SF – Supervision fee
FF – Fixed fee, which is 15 000 USD (paid annually)
SVF – Settlement value fee (excluding On-Exchange Trades on Secondary Market), calculated as 0.001% of settlement volume (paid quarterly)
DVF – Depository value fee, calculated as 0.00005% of depository value (paid quarterly)
CF – Clearing value fee, calculated as 0.001% of clearing value (paid quarterly)
Combination of activities
21. FEES provide that the AFSA charges the highest of any applicable application and supervision fees, when carrying on more than one Regulated or Market Activities, and the highest application fee in case of FinTech Activities.
22. One of the comments the AFSA received was related to lack of clarity in the combination of different activities by a firm and application and supervision fees to be charged in such case.
23. The AFSA conducted a benchmarking analysis of DIFC, ADGM, QFC, UK and Singapore jurisdictions in this regard.
24. The results of the analysis are below:
- The regulators appear to charge the highest fee corresponding to the activities of a firm;
- In some specific circumstances, additional fees are charged for other activities (for example, due to the complexity of a business).
More than one Regulated or Market Activity
25. It is proposed to continue to apply the approach of charging the highest application and supervision fees accordingly related to the activities of a firm.
26. In relation to supervision, it is proposed to additionally charge 50% of fees with regard to each additional activity.
27. Meanwhile, the application and supervisions fees for the activities of Operating an Exchange, Operating a Clearing House, Operating a DATF and Operating a MTF/OTF will be charged separately in full. This common approach is justified noting the complexity of their core business nature and the processes of authorisation and supervision, which are time- and effort- consuming.
Regulated and Market Activities
28. Currently, FEES are silent with regard to application and supervision fees charged when a firm is planning to or conducts both Regulated and Market Activities.
29. It is proposed to follow the approach reflected above and charge the highest application and supervision fees accordingly corresponding to the relevant activities.
30. Additional 50% of the relevant supervision fees will be payable by the firm for carrying on each other type of Regulated or Market Activity.
31. Meanwhile, the application and supervisions fees for the activities of Operating an Exchange, Operating a Clearing House, Operating a DATF and Operating a MTF/OTF will be charged separately in full.
FTL Participants seeking to conduct Regulated and/or Market Activities
32. Considering the amendments proposed to the application and supervision fees above for fully authorised firms, it is consistent to apply a similar approach to FTL Participants.
Application fee
33. Noting that the AFSA currently charges 10% of the application fees for fully authorised firms, the proposed approach is as follows:
34. The highest fee will be defined and charged in the amount of 10% of corresponding fee in the cases of conducting either more than one Regulated or Market Activities or both Regulated and Market Activities;
35. The application fees for the activities of Operating an Exchange, Operating a Clearing House, Operating a DATF and Operating a MTF/OTF will be charged separately in the amount of 10% of corresponding fees.
Supervision fees
36. The highest fee is to be paid in the cases of conducting either more than one Regulated or Market Activities, or both Regulated and Market Activities.
37. Supervision of Operating an Exchange, Operating a Clearing House, Operating a DATF and Operating a MTF/OTF will be charged separately in full amount.
Other amendments
38. There is also a need to clarify the approach in charging application fees for Ancillary Service Providers (ASP). There are provisions on the highest approach adopted for Regulated, Market and FinTech Lab Activities, while FEES do not capture any relevant provisions for ASPs. Currently, the AFSA charges application fee for each Ancillary Service separately, which is consistent with FEES. It is proposed to introduce relevant amendment to FEES to specify the approach being applied.
39. FEES Chapter 6 “Supplementary fees” outlines the right of the AFSA to require an Authorised Firm or applicant to pay a supplementary fee to the AFSA in circumstances where it expects to incur substantial additional costs in dealing with an application or conducting ongoing supervision. However, the current version of the Chapter lacks the AFSA powers in relation to Authorised Market Institutions and Fintech Lab Participants. The provision is proposed to be amended to cover Persons, AIFC Participants and applicants.
Also, FEES do not clearly define powers of the Registrar of Companies to impose supplementary fees to AIFC Participants where such substantial additional costs incur.
The proposed amendments are aimed to clarify the scope of the AFSA’s power to charge supplementary fees.
40. There is a lack of clarity on the power of the AFSA to charge a fee from FTL Participants that are willing to modify their licence, while similar provisions are captured for Authorised Persons. As a general approach, FTL Participants are subject to the requirements, which are similar to those imposed on fully authorised firms. It is therefore proposed to make amendments to Chapter 8 and Schedule 8 of FEES on Fintech Lab fees to clarify this matter and capture the common rule applied by the regulator.
41. Also, FEES should specify the fees to be charged in case of an Authorised Firm modifying its licence to capture a Market Activity(s), or where an Authorised Market Institution is planning to carry on Regulated Activities. While relevant provisions are not envisaged in FEES, the AFSA is proposing to extend the approach already being applied to firms carrying on either Regulated or Market Activities. Amendments on modification fees will be reflected in Schedule 1 “Application fees payable to the AFSA for Regulated Activities” and Schedule 2 “Application fees payable to the AFSA for Market Activities” of FEES.
42. It is proposed to change the “trading volume” to “trading value” in respect of Operator of an Investment Exchange, RNAMIs and RNAMs, as “trading value” refers to the total monetary value of all transactions, while trading volume represents the total number of financial instruments traded during a given time period. This corresponds to the approach the AFSA and relevant firms already take while calculating their supervision fees.
43. Regarding the Market Activities of Operating an Investment Exchange and Clearing House, there is a framework on the Security Token Offering currently under development. One of the proposals made within the framework is to allow an Investment Exchange and Clearing House Operators to admit Retail Clients as Direct Access Members in respect of trading or clearing of Security Tokens. The AFSA has conducted a benchmarking analysis of other jurisdictions and revealed the tendency to charge additional fees from Authorised Market Institutions granting membership to Retail Clients. The approach is deemed to be justified, noting the higher risks for the market and, subsequently, higher supervisory and other regulatory functions burden on the regulator. It is proposed to introduce additional fixed application and annual supervision fees in the amount of 5,000 USD each for such Authorised Market Institutions.
44. Additional editorial amendments to FEES are proposed to specify the terms of payment of late fees, variable parts of fees by relevant entities and other clarifications.
Part III - Questions in this consultation paper
1. Are there any comments on or concerns related to the proposed amendments? Is the level of the proposed fees considered to be appropriate? If not, what alternative is suggested?
2. Do you agree with the reconsideration of the supervision fee for Operators of a Multilateral or Organised Trading Facilities? Does the approach in relation to the revised variable part seem appropriate?
3. Do you agree with the introducing the variable part of the supervision fee for Operators of a Digital Asset Trading Facilities? Is the level of the proposed variable part considered to be appropriate?
4. Does the approach to start charging the full amount of the supervision fees corresponding to relevant Regulated and/or Market Activities from FinTech Lab Participants seem appropriate? If not, why not?
5. Do you agree with the proposed amendments to the formula for calculation of the supervision fee for Operators of a Clearing House?
6. Are there any objections to charging application and supervision fees from firms combining more than one Regulated or Market Activities, both Regulated and Market Activities, FinTech Activities? If so, what are they and how should be they addressed?
7. Are there any concerns about other proposed amendments?
8. Do you have any comments on the proposed timing of the amendments?
Annex to the Consultation Paper on
Proposed amendments to AIFC Fees Rules
Proposed amendments to the AIFC Fees Rules
In these Rules, the underlying indicates a new text and the strikethrough indicates a removed text
(…)
1.2.2-1. Combination of activities
- An applicant seeking to conduct more than one Regulated and/or Market Activities must pay to the AFSA the highest of the corresponding application fees in Schedule 1 and/or Schedule 2.
- An applicant seeking to conduct the Regulated Activities of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility must pay to the AFSA an application fee specified in the fees table in Schedule 1 in full.
- An applicant seeking to carry on the Market Activities of Operating an Investment Exchange or Operating a Clearing House must pay to the AFSA an application fee specified in the fees table in Schedule 2 in full.
(…)
3.1.5. Subsequent annual supervision fees
- A standard annual supervision fee must be paid for any period of regulation after the period described in FEES 3.1.4.
- The standard annual supervision fee is:
- the highest of the fees specified in the fees table corresponding to the activities which the relevant entity is licensed to carry on.
(ii) [intentionally omitted].
3.1.6. Combination of activities
- An Authorised Person licensed to conduct more than one Regulated and/or Market Activities, other than specified in (b) and (c), must pay to the AFSA:
-
- the highest of the supervision fees specified in the fees table corresponding to the activities which the relevant entity is licensed to carry on; plus
- 50% of the supervision fees specified in the fees table corresponding to each additional activity which the relevant entity is licensed to carry on.
b. An Authorised Person licensed to carry on the Regulated Activities of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility must pay to the AFSA an annual supervision fee specified in the fees table in Schedule 6 in full.
c. An Authorised Market Institution licensed to carry on the Market Activities of Operating an Investment Exchange or Operating a Clearing House must pay to the AFSA an annual supervision fee specified in the fees table in Schedule 6 in full.
(…)
6. SUPPLEMENTARY FEES
6.1.1. AFSA and the Registrar of Companies may require supplementary fees in certain cases
The AFSA and the Registrar of Companies may require an Authorised Firm a Person, AIFC Participant or applicant, to pay a supplementary fee to the AFSA in circumstances where it expects to incur substantial additional costs, in dealing with an application or conducting ongoing supervision.
In such cases the AFSA or the Registrar of Companies will notify the Person, AIFC Participant or applicant as soon as reasonably practicable that a supplementary fee is likely to be required, in order that the Person, AIFC Participant or applicant may make an informed decision as to whether to withdraw or modify its application.
If a supplementary fee is required, the AFSA or the Registrar of Companies will notify the client Person, an AIFC Participant or applicant as soon as reasonably practicable of the amount of the supplementary fee. The Person, AIFC Participant or applicant must pay the supplementary fee within the period specified in the notification.
(…)
8.1.2. Application fees to the FinTech Lab
- In accordance with FINTECH 2.4.3, once the AFSA is satisfied that the Person meets the eligibility criteria, a Person seeking to Test and/or Develop the FinTech Activities within the FinTech Lab must pay to the AFSA the application fees specified in Schedule 8.
- A Person seeking to Test and/or Develop the FinTech Activities of Operating an Investment Exchange, Operating a Clearing House, Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility within the FinTech Lab must pay to the AFSA an application fee specified in the fees table in Schedule 8 in full.
(…)
8.1.2-1. Application fees for modification of a Licence
In accordance with FINTECH 2.5.2, a FinTech Lab Participant, which intends to change the scope of its Licence, must pay to the AFSA the application fees specified in Schedule 8.
8.2. Supervision fees payable to the AFSA by the FinTech Lab Participants
A FinTech Lab Participant must pay to the AFSA the supervision fee specified in Schedule 8 corresponding to the activities which the FinTech Lab Participant conducts in accordance with FEES 3.
(…)
8.2-1. Supplementary fees
A FinTech Lab Participant or an applicant seeking to Test and/or Develop the FinTech Activities within the FinTech Lab must pay to the AFSA a supplementary fee required by the AFSA in accordance with FEES 6.
(…)
SCHEDULE 1: APPLICATION FEES PAYABLE TO THE AFSA FOR REGULATED ACTIVITIES
(…)
1.2 Application fees for modification and withdrawal of a Licence or Approved Individual's registration
(…)
Notes
Fees for initial application — firm to conduct one or more Regulated Activities, or Regulated and Market Activities
An applicant seeking authorisation to conduct one or more Regulated Activities, or Regulated and Market Activities, specified in the fees tables must pay:
- the fee specified for the Regulated Activity in the table above (or, if the applicant intends to carry on more than one Regulated Activity, or Regulated and Market Activities, the highest fee specified in the table for any of those Regulated Activities in accordance with FEES 1.2.2-1); and
- the amount of 200 USD, for each individual for whom Approved Individual status is sought.
(…)
SCHEDULE 2: APPLICATION FEES PAYABLE TO THE AFSA FOR MARKET ACTIVITIES
-
Application fees for applying for Licence to carry on Market Activities
Application fees are determined by the Market Activities the Authorised Person conducts or intends to conduct, as set out below:
(…)
1.2 Application fees for modification and withdrawal of a Licence or Approved Individual's registration
(…)
Notes
Fees for initial application — firm to conduct one or more Market Activities, or Market and Regulated Activities
An applicant seeking authorisation to conduct one or more Market Activities, or Market and Regulated Activities, specified in the fees table must pay:
- the fee specified for the Market Activity in the table above (or, if the applicant intends to carry on more than one Market Activity, or Market and Regulated Activities, the highest fee specified in the table for any of those Market Activities in accordance with FEES 1.2.2-1); and
- the amount of 200 USD, for each individual for whom Approved Individual status is sought.
(…)
SCHEDULE 3: APPLICATION FEES PAYABLE TO THE AFSA FOR ANCILLARY SERVICES
(…)
Fees for applications to carry on Ancillary Services
An applicant seeking to carry on one or more Ancillary Services must pay to the AFSA the application fee for each type of Ancillary Services set out in the table 1.1 above.
(…)
SCHEDULE 6: ANNUAL SUPERVISION FEES PAYABLE TO THE AFSA
6.1 Annual supervision fees for Regulated Activities
(…)
(…)
**For Operating a Multilateral Trading Facility, and Organised Trading Facilitiesy or Operating a Digital Asset Trading Facility, fixed component of the annual supervision fees must be paid in full to the AFSA on a yearly basis on or before 1 January of every calendar year and variable component of the annual supervision fees must be paid in full to the AFSA on a quarterly basis following each quarter (paid within 21 business days after the issuance of an invoice by the AFSA, but no later than within 1 month following each corresponding quarter).
6.2 Annual supervision fees for Market Activities
Annual supervision fees for Market Activities are determined by the activities the Authorised Market Institution conducts as set out below:
(…)
Formula 1
SF= FF+TVF+LF,
where
SF – Supervision fee
FF – Fixed fee, which is 15 000 USD (paid annually)
TVF – Trading volume value fee, calculated as 0.003% of trading volume value in one year (paid quarterly within 21 business days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
LF – Listing fee, calculated as 2% of all listing fees collected by an Operator of an Investment Exchange in one year (paid quarterly within 21 business days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
Formula 2
SF=FF+SVF+DVF+CF,
where
SF – Supervision fee
FF – Fixed fee, which is 15 000 USD (paid annually)
SVF – Settlement value fee (excluding On-Exchange Trades on Secondary Market), calculated as 0.001% of settlement volume value (paid quarterly within 21 business days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
DVF – Depository value fee, calculated as 0.00005% of depository value (paid quarterly within 21 business days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
CF – Clearing value fee, calculated as 0.001% of clearing value (paid quarterly within 21 business days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
(…)
6.4 Annual recognition fees for Recognised Non-AIFC Market Institutions and Recognised Non-AIFC Members
Formula 1
RF= FF+TVF,
where
RF – Annual recognition fee
FF – Fixed fee, which is 1 000 USD pro-rated over a calendar year
TVF – Trading volume value fee, calculated as 0.001% of trading volume value in one year, applicable only to Recognised Non-AIFC Members admitted to trading by Operator of an Investment Exchange, whose trading volume value is over 100 million USD (paid within one month following each corresponding quarter 21 business days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter).
(…)
SCHEDULE 8: FINTECH LAB FEES
(…)
8.2 Application fees
(…)
Notes
Fees for initial application—firm to conduct one or more activities within the FinTech Lab
(a) An applicant seeking authorisation to conduct one or more activities specified in the fees table must pay:
(ai) the fee specified for the activity in the table above (or, if the applicant intends to carry on more than one activity, the highest fee specified in the table for any of those activities 10% of the application fee specified in FEES 1.2.2-1); and
(bii) the amount of 50 USD for each individual for whom Approved Individual status is sought.
(b) An applicant seeking to conduct the FinTech Activities of Operating an Investment Exchange, Operating a Clearing House, Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility within the FinTech Lab must pay to the AFSA an application fee specified in the fees table above in full.
(…)
8.4 Supervision fees payable to the AFSA by FinTech Lab Participants
(…)
(…)
*****Fixed component of the annual supervision fees must be paid in full to the AFSA on a yearly basis on or before 1 January of every calendar year and variable component of the annual supervision fees must be paid in full to the AFSA on a quarterly basis following each quarter.
(…)
8.5. Application fees for modification of a Licence
An application fee equal to 10% of the application fee for modification of a Licence specified in table 1.2 of Schedule 1 of FEES or table 1.2 of Schedule 2 of FEES.
(…)
8.3 Migration fees to full authorisation
Migration fees payable to the AFSA by FinTech Lab Participants are determined by the activities the FinTech Lab Participant conducts as set out below:
(…)
SCHEDULE 10: LATE FEES PAYABLE TO THE AFSA*
10.1 Late fees for failure to provide notification, report or return
A Person falling within FEES 7.1 must pay to the AFSA a late fee in the amount of 300 USD within 3-business days after the contravention occurs, if the Person fails to provide notification, report or return within 3 business days after it has committed a contravention. Non-payment of the late fee within 30 calendar days incurs a further late payment fee equal to 10% of the late fee for each calendar day.
10.2 Late fees for failure to comply with direction issued by the AFSA
A Person falling within FEES 7.4 must pay to the AFSA a late fee in the amount of 300 USD within 3-business days after the contravention occurs, if the Person fails to comply with direction issued by the AFSA within 3 business days after such failure. Non-payment of the late fee within 30 calendar days incurs a further late payment fee equal to 10% of the late fee for each calendar day.
(…)
SCHEDULE 11: LATE FILING FEES PAYABLE TO THE REGISTRAR OF COMPANIES*
101. A Person failing to provide annual return, annual confirmation statement or annual accounts to the Registrar of the Companies within the periods specified in the AIFC Companies Regulations A Person falling within FEES 7.6 must pay to the Registrar of Companies a late fee in the amount of 50 USD within 5 business days after the contravention occurs, if the Person fails to provide annual return, annual confirmation statement or annual accounts within 5 business days after it has committed a contravention. Non-payment of the late fee within 30 calendar days incurs a further late payment fee equal to 5% of the late fee for each calendar day.
*Late filing fees for failure to provide annual return, annual confirmation statement or accounts in relation to each financial year payable to the Registrar of Companies are applied from 1 April 2023.
Consultation Paper on Rules and mechanisms of cooperation of Unbacked Digital Asset Exchanges and/or the Centre Participants authorized to carry out digital assets-related activities with second-tier bank of the Republic of Kazakhstan
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Consultation Paper on List, timing and procedure of report submission by digital asset exchanges of the Astana International Financial Centre
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Revised Proposed Amendments to AIFC Fees Rules 02
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to continue to seek suggestions from the market on the reconsidered proposals regarding the AIFC Fees Rules in continuation of its proposals published in Consultation Paper AFSA-P-CE-2023-0004. The AFSA gives due consideration to the public consultations comments. Given the market feedback to the previous proposals and the resulting revisions to the previous proposals, the AFSA considers it appropriate to undertake further public consultation on these proposals.
Who should read this CP?
2. The proposals in this paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
Terminology
3. 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 (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4. We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2023-0007" in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposed framework is 2 December 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. Comments to be addressed by post:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz
Structure of this CP
Part I – Background;
Part II – Key proposals;
Part III – Questions in this consultation paper;
Annex 1 – Draft Amendments to AIFC Fees Rules (new amendments are colored in red).
Part 1. Background
7. On 11 August 2023, the AFSA released Consultation Paper AFSA-P-CE-2023-0004 on proposed amendments to AIFC Fees Rules for public comment. The consultation period closed on 15 September 2023, and we received various external comments and queries from a wide range of interested parties. The AFSA is grateful to all those who have contributed to the consultation process.
8. The AFSA has considered the feedback and now is consulting on the revised proposals on application, supervision fees and other fees payable by AIFC Participants.
9. As was previously communicated, in making any changes to its fee regime, the AFSA remains committed to careful consideration of the impact of any potential fee change on the supervised (and potential supervised) entities.
10. Having said that, the AFSA, being a risk based financial services regulator, is also of the view that these proposals appropriately reflect resource impact of the growth in the scope and the scale of the maintenance of the AFSA’s regulatory objectives.
11. The proposals include:
a) annual supervision fee for Operators of a Multilateral or Organised Trading Facility;
b) annual supervision fee for Operators of a Digital Asset Trading Facility;
c) annual supervision fee for FinTech Lab Participants;
d) annual supervision fee for Operators of a Clearing House;
e) annual recognition fee for a Recognised Clearing House;
f) annual recognition fee for a Recognised Non-AIFC Member;
g) fees to be charged in case of combining different types of activities;
h) other fees payable to the AFSA; and
i) other fees payable to the Registrar of Companies
12. The proposed amendments are expected to be enacted on 1 January 2024.
Part 2. Key Proposals
Annual supervision fees for MTF/OTF Operators
1. The AFSA has developed 2 possible approaches:
Option 1
2. Option 1 is to keep the currently applied approach to supervision fee (fixed fee of 3 000 USD and variable fee of 0.0006% of ADTV).
3. The AFSA suggests clarifying the way of calculation of the trading levy. The current AFSA approach is to calculate the variable fee based on the quarterly volumes, i.e., the average daily trading value is multiplied by the number of active trading days in quarter.
Option 2
4. Option 2 is to keep the currently applied approach to supervision fee (fixed fee of 3 000 USD and variable fee of 0.0006% of ADTV) but introduce the minimum threshold for charging the variable part of the annual supervision fee:
· fixed fee – 3 000 USD; and
· variable fee calculated on a quarterly basis:
• where the average daily trading value is less than 500 000 USD, is not applicable;
• where the average daily trading value is more than 500 000 USD:
- trading levy of 0.0006% of the average daily trading value; or
- 2 500 USD,
whichever is greater.
5. Meanwhile, in order to encourage firms to grow, the AFSA is proposing to set one of the following additional thresholds for annual variable fee:
a) the maximum threshold for the annual variable fee of 700 000 USD; or
b) trading levy of 0.0003% of ADTV on ADTV in excess of the threshold of 500 million USD.
6. This option ensures that the expenses borne by Operators of MTF or OTF would be proportionate to their trading value, while introduction of the minimum threshold would allow the AFSA to cover its regulatory costs. In terms of the additional thresholds, it is proposed to set the fixed maximum threshold, as this may be more cost-effective for firms in the long-term perspective in comparison with paying the reduced trading levy rate.
7. Also, it is proposed to include the guidance on how the variable fee is calculated, as provided in Option 1.
Option 3
8. In addition to the existing fixed fee of 3 000 USD, it is proposed to introduce the table of variable fees based on the trading value of MTF/OTF Operators.
Average daily trading value |
Variable fee |
Less than 500 000 USD |
- |
500 000 USD or more and less than 1 million USD |
10 000 USD |
1 million USD or more and less than 10 million USD |
50 000 USD |
10 million USD or more and less than 50 million USD |
100 000 USD |
50 million USD or more and less than 150 million USD |
200 000 USD |
150 million USD or more and less than 350 million USD |
400 000 USD |
350 million USD and more |
700 000 USD |
Notes:
1. The amounts given in the second column of the table indicate the annual variable fees.
2. Variable fee is calculated on a quarterly basis by pro-rating the annual variable fee, that would have been payable based on the average daily trading value, for the relevant quarter.
As such, the amount of the variable fee payable each quarter may vary depending on the average daily trading value of that quarter.
Example:
a. Average daily trading value of a firm is 450 000 USD in quarter 1, the variable fee will not be applied in quarter 1;
b. Average daily trading value of a firm is 500 000 USD in quarter 2, the variable fee will be 2 500 USD for quarter 2;
c. Average daily trading value of a firm is 5 million USD in quarter 3, the variable fee will be 12 500 USD for quarter 3;
d. Average daily trading value of a firm is 10 million USD in quarter 4, the variable fee will be 25 000 USD for quarter 4.
Thus, the firm must pay 40 000 USD as the variable fee for that year.
3. Variable fee is paid quarterly.
4. The AFSA does not invoice the variable fee in excess of 700 000 USD in one year.
9. This option would ensure ease of calculation and transparency in terms of the annual supervision fees to be paid, which will allow firms to forecast future costs. Also, this approach would still allow firms with ADTV less than 500 000 USD to grow their business first without being required to pay the variable fee.
Annual supervision fees for DATF Operators
10. The AFSA is proposing applying similar approaches to DATF Operators.
Option 1
11. Option 1 is to reduce the currently applied fixed fee (35 000 USD) and introduce the variable fee with the minimum threshold:
· fixed fee – 25 000 USD; and
· variable fee calculated on a quarterly basis:
a. where the average daily trading value is less than 500 000 USD, is not applicable;
b. where the average daily trading value is more than 500 000 USD:
i. trading levy of 0.0006% of the average daily trading value; or
ii. 5 000 USD,
whichever is greater.
12. Meanwhile, in order to encourage firms to grow, the AFSA is proposing to set the maximum threshold for the annual variable fee of 1 000 000 USD.
13. Option 1 ensures that the expenses borne by Operators of MTF or OTF would be proportionate to their trading value, while introduction of the minimum threshold would allow the AFSA to cover its regulatory costs. Meanwhile, the fixed maximum threshold would encourage firms to grow.
14. Furthermore, the approach outlined in Option 1 might be favorable for DATF Operators noting that the following may cause additional costs:
a) the DATF business model adopted by most platform operators requires carrying on the Regulatory Activity of Providing Custody; and
b) the established scope of services of DATF operating in or outside the AIFC covers other activities, including Managing Investments, Advising on Investments and other services.
Option 2
15. It is proposed to reconsider the fixed amount of the supervision fee formula and introduce the table of variable fees based on the trading value of DATF Operators:
· fixed fee – 25 000 USD; and
· variable fee:
Average daily trading value |
Variable fee |
Less than 500 000 USD |
- |
500 000 USD or more and less than 1 million USD |
20 000 USD |
1 million USD or more and less than 5 million USD |
25 000 USD |
5 million USD or more and less than 10 million USD |
35 000 USD |
10 million USD or more and less than 20 million USD |
45 000 USD |
20 million USD or more and less than 50 million USD |
90 000 USD |
50 million USD or more and less than 80 million USD |
150 000 USD |
80 million USD or more and less than 150 million USD |
250 000 USD |
150 million USD or more and less than 350 million USD |
550 000 USD |
350 million USD or more |
1 000 000 USD |
Notes:
1. The amounts given in the second column of the table indicate the annual variable fees.
2. Variable fee is calculated on a quarterly basis by pro-rating the annual variable fee, that would have been payable based on the average daily trading value, for the relevant quarter.
As such, the amount of the variable fee payable each quarter may vary depending on the average daily trading value of that quarter.
Example:
a. Average daily trading value of a firm is 450 000 USD in quarter 1, the variable fee will not be applied in quarter 1;
b. Average daily trading value of a firm is 500 000 USD in quarter 2, the variable fee will be 5 000 USD for quarter 2;
c. Average daily trading value of a firm is 5 million USD in quarter 3, the variable fee will be 8 750 USD for quarter 3;
d. Average daily trading value of a firm is 10 million USD in quarter 4, the variable fee will be 11 250 USD for quarter 4.
Thus, the firm must pay 25 000 USD as the variable fee for that year.
3. Variable fee is paid quarterly.
4. The AFSA does not invoice the variable fee in excess of 1 000 000 USD in one year.
16. This option would ensure ease of calculation and transparency in terms of the annual supervision fees to be paid, which will allow firms and the AFSA to forecast future costs and income.
Annual supervision fees for FTL Participants
17. In August the AFSA made the proposal to start charging the full amount of the fees corresponding to relevant Regulated and/or Market Activities the FTL Participant is licensed to carry on. The rationale for such amendments was to encourage firms to grow their business and migrate to full authorisation after expiration of their FinTech licences.
18. Following consideration of comments received during the public consultations, the AFSA is proposing to start charging a full supervision fee after 2 years of being in the FinTech Lab.
19. Relevant amendments are proposed to be made in table 8.4 of Schedule 8 on “Supervision fees payable to the AFSA by the FinTech Lab Participants”.
Annual supervision fees for Operators of Clearing Houses
20. The AFSA has also received comments on the proposed amendments to the calculation formula of the annual supervision fees for Operators of Clearing Houses, which implies including the Clearing value fee.
21. Following consideration of comments of market participants, the AFSA is proposing to specify that the clearing value fee will be applicable to Clearing Houses acting as Central Counterparties:
SF=FF+SVF+DVF+CVF,
where
SF – Supervision fee
FF – Fixed fee, which is 15 000 USD (paid annually)
SVF – Settlement value fee (excluding On-Exchange Trades on Secondary Market), calculated as 0.001% of settlement volume (paid quarterly)
DVF – Depository value fee, calculated as 0.00005% of depository value (paid quarterly)
CVF – Clearing value fee, calculated as 0.001% of clearing value, applicable only to an Operator of a Clearing House acting as a Central Counterparty (paid quarterly)
22. Additionally, it is proposed to exempt a Clearing House, which carries on the clearing or settlement functions for the trading facility in its Group, including an Investment Exchange, Multilateral or Organised Trading Facilities from payment of clearing and clearing value fees.
Annual recognition fees for Recognised Non-AIFC Market Institution operating as a Clearing House
23. It is proposed to align the approach on the annual recognition fee payable by a Recognised Non-AIFC Clearing Houses with the proposals made to the annual supervision fee for an Authorised Clearing House.
24. The annual recognition fee for such Recognised Non-AIFC Clearing House would be as follows:
a. Fixed fee – 15,000 USD, and
b. Variable recognition fee: 0.001% of settlement value + 0.00005% of depositary value + 0.001% of clearing value generated for Authorised Market Institutions, Multilateral or Organised Trading Facilities.
Meanwhile, clearing value will be applicable to a Clearing House acting as a Central Counterparty.
25. In accordance with the approach above, it is proposed to exempt a Recognised Non-AIFC Clearing House, which carries on the clearing or settlement functions for the trading facility in its Group from payment of clearing and clearing value fees.
Annual recognition fees for Recognised Non-AIFC Members
26. Current formula for calculation of the annual recognition fee for a Recognised Non-AIFC Member (RNAM) refers to its membership in an Authorised Investment Exchange. Meanwhile, MTF/OTF and DATF Operators may also admit RNAMs to trading, which is not reflected in FEES.
27. Also, as the variable part of the annual recognition fee for RNAMs depends on the annual trading value but is charged quarterly, the AFSA received a proposal to clarify the quarterly trading value in the fee formula.
28. It is therefore proposed to amend the annual recognition fee as follows:
· For Recognised Non-AIFC Members that are admitted to trading by an Authorised Investment Exchange, Multilateral or Organised Trading Facility or Digital Asset Trading Facility: calculated according to formula 1 below;
RF= FF+TVF,
where
RF – Annual recognition fee
FF – Fixed fee, which is 1 000 USD pro-rated over a calendar year
TVF – Trading value fee, calculated as 0.001% of trading value in one year, applicable only to Recognised Non-AIFC Members admitted to trading by Operator of an Investment Exchange, Multilateral or Organised Trading Facility or Digital Asset Trading Facility, whose trading volume is over 100 25 million USD per quarter on each trading platform;
· For Recognised Non-AIFC Members that are not admitted to trading by an Authorised Investment Exchange, Multilateral or Organised Trading Facility or Digital Asset Trading Facility, or whose trading value is lower than 100 25 million USD per quarter on each trading platform: a fixed amount of 1 000 USD pro-rated over a calendar year.
Combination of activities
Application fees in case of combination of activities
29. Earlier the AFSA proposed to introduce additional criteria when calculating the application fees payable by firms planning to combine more than one activity in its licence: to charge application fees for the activities of Operating an Exchange, Operating a Clearing House, Operating a DATF or Operating an MTF/OTF in full.
30. In order to clearly outline the calculation method based on the approach above, it is proposed to add clarifying revisions on the application fees payable by firms for initial licence in case of conducting multiple activities in Notes on fees for initial application in Schedules 1 and 2 of FEES.
Supervision fees in case of combination of activities
31. The AFSA is proposing to apply the following approach when charging the supervision fee from a firm combining more than one activity in its licence:
· The highest supervision fee, plus
· 50% of fees with regard to each additional activity.
32. Meanwhile, relevant fees for the activities of Operating an Exchange, Operating a Clearing House, Operating a DATF or Operating a MTF/OTF would be charged in full.
33. However, it was not clear for some market participants, whether these five distinguished types of activities would be excluded from the formula of defining the highest supervision fee. It is therefore proposed to amend FEES 3.1.6. “Combination of activities” and specify that the listed activities would be charged separately and not taken into account when calculating the supervision fees according to the formula above.
Other fees payable to the AFSA
34. During the consultation period there have been additional proposals raised internally and externally.
Additional fees in relation to Digital Assets
35. One of the issues raised during the consultation period was related to the higher risks associated with supervising firms conducting Regulated or Market Activities in relation to Digital Assets. The increased regulatory burden arising from overseeing such activities results in excess costs borne by the AFSA.
36. The AFSA is proposing to introduce the application and supervision fees of 5 000 USD and 3 000 USD, respectively, for AIFC Participants conducting Regulated Activities in relation to Digital Assets. Relevant amendments are proposed to be captured in Rule 1.1-1 of Schedule 1 and Rule 6.1-1 of Schedule 6 of FEES.
Supplementary fees in case of particular supervisory events
37. Based on its prior supervisory experience, the AFSA has identified that there are applications or supervisory events not regarded as regular and are therefore outside the scope of general supervisory activities. Thus, such events may require additional significant resources to process and complete. Considering that these are standalone events, it would not be appropriate to include them in the annual supervision fee. It is proposed to assign supplementary fees payable on a particular supervisory event. In addition, it is also proposed to provide applicants with an opportunity to give their views on the decision of the AFSA or Register of Companies on the supplementary fee.
38. The main point of having the supplementary fee for supervisory events is to enable AFSA to cover the costs it incurs. It is not intended as a general revenue-raising measure or for the AFSA to make a profit from the particular case.
39. The provision is proposed to be included in Chapter 6 of FEES “Supplementary fees”.
Application fees for modification of a Licence
40. When a firm applies for modifying its licence, the AFSA charges the difference between the application fee for the new activity(s) and the application fee paid at the authorisation stage.
41. To be consistent with the approach to charging application fees in case of multiple activities, it is proposed to charge the highest application fee corresponding to the additional activities a firm is applying for. The relevant amendments will be reflected in Schedules 1 and 2 on application fees payable by Authorised Firms and Authorised Market Institutions.
42. Also, as discussed earlier, the activities of Operating an Exchange, Operating a Clearing House, Operating a DATF or Operating a MTF/OTF are not taken into account when calculating the application fee. The said activities would not therefore be included in calculations when defining the fee for modification of a licence. This approach would be applied in both cases, when: (a) a firm is seeking to obtain a Licence to carry on one or more of the activities mentioned above, or (b) a firm already performs functions corresponding to the activities under its current Licence. Relevant amendments are to be made in tables 1.2 on “Application fees for modification and withdrawal of a Licence or Approved Individual's registration” in Schedules 1 and 2 on application fees payable for Regulated and Market Activities, respectively.
Application fees for change of control
43. The AFSA receives numerous applications on change of control, while no relevant fees are captured in FEES.
44. Consideration of such applications may require significant additional AFSA resources, as the majority of applications are complex cases that require conducting thorough analysis and due diligence, as well as engaging profile divisions. Repetitive reviews of applications is also usually required.
45. Noting the above, the AFSA proposes to charge 1 000 USD for reviewing applications on change on control.
46. The new amendments are proposed to be included in Schedules 1 and 2 of FEES outlining the application fees payable by Authorised Firms and Authorised Market Institutions.
Application fees for changes to Fund Documentation
47. The AFSA receives numerous applications on change of Fund Documentation (Constitution and Offering Materials), while no relevant fees are captured in FEES.
48. The AFSA proposes to introduce the fee for making changes in the Fund's Constitution and Offering Materials for Non-Exempt Funds only. The amount of the fee is suggested to be 500 USD. Introduction of the fee is considered reasonable noting the type of clients engaged in operations of such Funds (Retail Clients).
49. The new amendments are proposed to be included in FEES 9 (“Other fees”) and Schedule 9.
Application fees for approval or modification of an Approved Individual's status
50. The AFSA receives numerous applications for modifying the Approved Individual status. The current fee (200 USD, Schedules 1 and 2 of FEES) does not correspond to the workload caused by reviewing the applications, which also often implies engaging other divisions for conducting detailed due diligence.
51. Noting the amount of application received and complexity of certain cases, the application fee for modification of the Approved Individual’s status is proposed to be reconsidered and increased to 300 USD.
52. In order to maintain a uniform approach at the authorisation and supervision stages, it is also proposed to increase the application fee for approving Approved Individual’s status at the authorisation stage to 300 USD, as well.
Migration fees from FTL to full authorisation
53. Current version of FEES does not fully reflect the AFSA’s approach on what the application and further supervision fees should be payable to the AFSA by firms migrating from the FinTech sandbox regime to full authorisation.
a. FEES provisions do not capture the newly proposed approach on application fees payable in case of combination of Regulated and Market Activities, which distinguishes certain types of activities. Relevant amendments have been made to table 8.3 of Schedule 8 of FEES on “Migration fees to full authorisation” to address the scenario.
b. Noting that firms usually graduate from the FinTech sandbox throughout the year and FTL supervision fees for that year have already been paid, FEES are silent on how further supervision fee should be calculated. It is therefore proposed to extend the approach and calculation principle applied to the migration fee. Thus, once a FTL participant is granted a full licence, it should pay the difference between the annual supervision fee already paid for its time being in the FinTech Lab and the initial annual supervision fee applicable to the participant with a full licence.
Other fees payable to the Registrar of Companies
Application fees in respect of waivers and/or modifications
54. Current legislation does not provide for charging fees for reviewing applications on granting a waiver or modification. Meanwhile, the assessment of applications requires deep legislation analysis and may take up to 1 month.
55. As FEES contain Chapter 2 listing regular application fees payable to the Registrar of Companies, it is proposed to introduce a new provision (Rule 2.7) allowing the Register of Companies to determine the fees in respect of waivers and/or modifications.
Application fees for transfer of incorporation to/from AIFC
56. The transfer of incorporation is a complicated process which requires long time for consideration and thorough assessment of the firm. The overall re-domiciliation process may take from 1 to 9 months. No relevant fee is captured in FEES.
57. Noting the complexity of the process, it is proposed to introduce an application fee for transfer of incorporation of Companies or Partnerships to/from the AIFC in the amount of 3 000 USD. The amendments will be reflected in FEES Rule 2.1.2 “Application fees payable to the Registrar of Companies in respect of a Foreign Company” and Schedule 5 “Fees payable to the Registrar of Companies”.
58. The new amendments are proposed to be included in Schedules 1 and 2 of FEES outlining the application fees payable by Authorised Firms and Authorised Market Institutions.
Application fees for changes to Fund Documentation
59. The AFSA receives numerous applications on change of Fund Documentation (Constitution and Offering Materials), while no relevant fees are captured in FEES.
60. The AFSA proposes to introduce the fee for making changes in the Fund's Constitution and Offering Materials for Non-Exempt Funds only. The amount of the fee is suggested to be 500 USD. Introduction of the fee is considered reasonable noting the type of clients engaged in operations of such Funds (Retail Clients).
61. The new amendments are proposed to be included in FEES 9 (“Other fees”) and Schedule 9.
Application fees for approval or modification of an Approved Individual's status
62. The AFSA receives numerous applications for modifying the Approved Individual status. The current fee (200 USD, Schedules 1 and 2 of FEES) does not correspond to the workload caused by reviewing the applications, which also often implies engaging other divisions for conducting detailed due diligence.
63. Noting the amount of application received and complexity of certain cases, the application fee for modification of the Approved Individual’s status is proposed to be reconsidered and increased to 300 USD.
64. In order to maintain a uniform approach at the authorisation and supervision stages, it is also proposed to increase the application fee for approving Approved Individual’s status at the authorisation stage to 300 USD, as well.
Migration fees from FTL to full authorisation
65. Current version of FEES does not fully reflect the AFSA’s approach on what the application and further supervision fees should be payable to the AFSA by firms migrating from the FinTech sandbox regime to full authorisation.
a. FEES provisions do not capture the newly proposed approach on application fees payable in case of combination of Regulated and Market Activities, which distinguishes certain types of activities. Relevant amendments have been made to table 8.3 of Schedule 8 of FEES on “Migration fees to full authorisation” to address the scenario.
b. Noting that firms usually graduate from the FinTech sandbox throughout the year and FTL supervision fees for that year have already been paid, FEES are silent on how further supervision fee should be calculated. It is therefore proposed to extend the approach and calculation principle applied to the migration fee. Thus, once a FTL participant is granted a full licence, it should pay the difference between the annual supervision fee already paid for its time being in the FinTech Lab and the initial annual supervision fee applicable to the participant with a full licence.
Other fees payable to the Registrar of Companies
Application fees in respect of waivers and/or modifications
66. Current legislation does not provide for charging fees for reviewing applications on granting a waiver or modification. Meanwhile, the assessment of applications requires deep legislation analysis and may take up to 1 month.
67. As FEES contain Chapter 2 listing regular application fees payable to the Registrar of Companies, it is proposed to introduce a new provision (Rule 2.7) allowing the Register of Companies to determine the fees in respect of waivers and/or modifications.
Application fees for transfer of incorporation to/from AIFC
68. The transfer of incorporation is a complicated process which requires long time for consideration and thorough assessment of the firm. The overall re-domiciliation process may take from 1 to 9 months. No relevant fee is captured in FEES.
69. Noting the complexity of the process, it is proposed to introduce an application fee for transfer of incorporation of Companies or Partnerships to/from the AIFC in the amount of 3 000 USD. The amendments will be reflected in FEES Rule 2.1.2 “Application fees payable to the Registrar of Companies in respect of a Foreign Company” and Schedule 5 “Fees payable to the Registrar of Companies”.
Part 3. Questions in this consultation paper
1. Are there any comments on or concerns related to the proposed amendments? Is the level of the proposed fees considered to be appropriate? If not, what alternative is suggested?
2. What are your views on the proposed options for the supervision fee for Operators of a Multilateral or Organised Trading Facilities? What approach in relation to the revised variable fee seems appropriate?
3. What are your views on the proposed options for the supervision fee for Operators of a Digital Asset Trading Facilities? What approach in relation to the revised variable fee seems appropriate?
4. Do you find the clarifications on how the AFSA will charge the application and supervision fees for firms combining more than one Regulated or Market Activities, both Regulated and Market Activities, FinTech Activities clear?
5. Do you agree with the proposed additional application and supervision fees for firms carrying on Regulated Activities in relation to Digital Assets?
6. What are your views on the proposals to introduce other new fees?
Annex to the Consultation Paper on Proposed amendments to AIFC Fees Rules
Proposed amendments to the AIFC Fees Rules
In these Rules, the underlying indicates a new text and the strikethrough indicates a removed text
(…)
1. APPLICATION FEES PAYABLE TO THE AFSA
1.2.2-1. Combination of activities
(a) An applicant seeking to conduct more than one Regulated and/or Market Activities must pay to the AFSA the highest of the corresponding application fees in Schedule 1 and/or Schedule 2.
(b) An applicant seeking to conduct the Regulated Activities of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility must pay to the AFSA an application fee specified in the fees table in Schedule 1 in full.
(c) An applicant seeking to carry on the Market Activities of Operating an Investment Exchange or Operating a Clearing House must pay to the AFSA an application fee specified in the fees table in Schedule 2 in full.
(…)
2. APPLICATION AND OTHER FEES PAYABLE TO THE REGISTRAR OF COMPANIES
(…)
2.1.2. Application fees payable to the Registrar of Companies in respect of a Foreign Company or Partnership incorporated outside the AIFC
An applicant on behalf of a Foreign Company or Partnership incorporated outside the AIFC seeking recognition as a Recognised Company or Partnership or continuation in order to carry on business in the AIFC and applying for a Certificate relevant certificate of, must pay to the Registrar of Companies the application fees specified in Schedule 5.
(…)
2.1.3. Application fees payable to the Registrar of Companies in respect of transfer of incorporation from the AIFC
A Company or Partnership registered in the AIFC seeking to transfer its incorporation from the AIFC must pay to the Registrar of Companies the application fee specified in Schedule 5.
(…)
2.7. Application fees payable to the Registrar of Companies in respect of waivers and/or modifications
An applicant seeking decision of the Registrar of Companies on waiver and/or modification under the Companies Regulations, must pay the fee prescribed by the Registrar of Companies from time to time.
(…)
3. ANNUAL SUPERVISION FEES PAYABLE TO THE AFSA
(…)
3.1.5. Subsequent annual supervision fees
(a) A standard annual supervision fee must be paid for any period of regulation after the period described in FEES 3.1.4.
(b) The standard annual supervision fee is:
(a) the highest of the fees specified in the fees table corresponding to the activities which the relevant entity is licensed to carry on.
(ii) [intentionally omitted].
3.1.6. Combination of activities
(a) An Authorised Person licensed to conduct more than one Regulated and/or Market Activities, other than specified in (b) and (c), must pay to the AFSA:
(i) the highest of the supervision fees specified in the fees table corresponding to the activities which the relevant entity is licensed to carry on; plus
(ii) 50% of the supervision fees specified in the fees table corresponding to each additional activity which the relevant entity is licensed to carry on.
(b) An Authorised Person licensed to carry on the Regulated Activities of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility must pay to the AFSA an annual supervision fee specified in the fees table in Schedule 6 in full.
(c) An Authorised Market Institution licensed to carry on the Market Activities of Operating an Investment Exchange or Operating a Clearing House must pay to the AFSA an annual supervision fee specified in the fees table in Schedule 6 in full.
(…)
6. SUPPLEMENTARY FEES
6.1.1. AFSA and the Registrar of Companies may require supplementary fees in certain cases
6.1.1.The AFSA and the Registrar of Companies may require an Authorised Firm a Person, AIFC Participant or applicant, to pay a supplementary fee to the AFSA or the Registrar of Companies in circumstances where it expects to incur substantial additional costs are expected to be incurred when in dealing with an application, or conducting ongoing supervision or dealing with a particular supervisory event.
6.1.2. In such cases case of application the AFSA or the Registrar of Companies will notify the applicant as soon as reasonably practicable that a supplementary fee is likely to be may be required, in order that the applicant may make an informed decision as to whether to make representations, withdraw or modify its application.
6.1.3. If a supplementary fee is required, the AFSA or the Registrar of Companies will notify the client Person, AIFC Participant or applicant as soon as reasonably practicable of the amount of the supplementary fee. The Person, AIFC Participant or applicant must pay the supplementary fee within the period specified in the notification.
6.1.4. The AFSA may issue guidance on supplementary fees required from AIFC Participants when conducting ongoing supervision or dealing with a particular supervisory event.
(…)
8. FINTECH LAB FEES
(…)
8.1.2-1. Application fees for modification of a Licence
In accordance with FINTECH 2.5.2, a FinTech Lab Participant, which intends to change the scope of its Licence, must pay to the AFSA the application fees specified in Schedule 8.
(…)
8.2. Supervision fees payable to the AFSA by the FinTech Lab Participants
1. A FinTech Lab Participant must pay to the AFSA the supervision fee specified in Schedule 8.
2. A FinTech Lab Participant, which applies to extend the Licence, must pay to the AFSA the supervision fee specified in accordance with FEES 3.
8.2-1. Supplementary fees
A FinTech Lab Participant or an applicant seeking to Test and/or Develop the FinTech Activities within the FinTech Lab must pay to the AFSA a supplementary fee required by the AFSA in accordance with FEES 6.
(…)
9. Other FEES
(…)
9.3. Application to make amendments to the Constitution or Offering Materials of a Non-Exempt Fund
A Domestic Fund Manager seeking to make amendments to the Constitution or Offering Materials of a Non-Exempt Fund must pay to the AFSA the application fee specified in Schedule 9.
(…)
SCHEDULE 1: APPLICATION FEES PAYABLE TO THE AFSA FOR REGULATED ACTIVITIES
(…)
1.1-1 Application fee in relation to Digital Assets
An applicant seeking to conduct Regulated Activities in relation to Digital Assets must pay to the AFSA an additional application fee in the amount of 5 000 USD.
(…)
1.2 Application fees for modification and withdrawal of a Licence or Approved Individual's registration
Application to Modify |
Fee (USD)* |
Modification of an Authorised Firm's Licence |
(a) An application fee equal to the highest of the corresponding application fees payable under table 1.1 of Schedule 1 or table 1.1 of Schedule 2 of FEES for additional activities. (b) An Authorised Firm applying to the AFSA to change the scope of its Licence and seeking to conduct the Regulated Activities of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility must pay to the AFSA an application fee specified in the fees table above in full. (c) An Authorised Firm applying to the AFSA to change the scope of its Licence and seeking to carry on the Market Activities of Operating an Investment Exchange or Operating a Clearing House must pay to the AFSA an application fee specified in the fees table in Schedule 2 in full. (d) An Authorised Firm applying to the AFSA to change the scope of its Licence and seeking to carry on the Regulated Activities in respect of Digital Assets must pay to the AFSA an application fee specified in 1.1-1 of Schedule 1 of FEES above in full. (e) For the avoidance of doubt, the formula in (a) does not apply to the activities specified in (b), (c) and (d). |
Modification of an Approved Individual's registration |
|
(…)
Notes
Fees for initial application — firm to conduct one or more Regulated Activities, or Regulated and Market Activities
An applicant seeking authorisation to conduct one or more Regulated Activities, or Regulated and Market Activities, specified in the fees tables must pay:
(a) the fee specified for the Regulated Activity in the table above (or, if the applicant intends to carry on more than one Regulated Activity, or Regulated and Market Activities, the highest fee specified in the table for any of those Regulated Activities in accordance with FEES 1.2.2-1); and
(b) the fee amount of 200 USD, for each individual for whom Approved Individual status is sought, specified below.; and
(c) if the applicant intends to carry on Regulated Activities in respect of Digital Assets, the fee specified in 1.1-1 above.
Application fee for Approval of Individuals
An Authorised Firm submitting applications on behalf of additional individuals seeking Approved Individual status must pay an application fee in the amount of 200 300 USD in respect of each additional Approved Individual application.
Application fee for change of control
An Authorised Firm applying for change of control must pay to the AFSA an application fee in the amount of 1 000 USD.
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SCHEDULE 2: APPLICATION FEES PAYABLE TO THE AFSA FOR MARKET ACTIVITIES
1.1 Application fees for applying for Licence to carry on Market Activities
Application fees are determined by the Market Activities the Authorised Person conducts or intends to conduct, as set out below:
Application fee by activities |
Fee (USD) |
Operator of a Clearing House |
125 000; and an additional application fee in the amount of 5 000 USD if intends to clear Security Tokens and have Direct Access Members |
Operator of an Investment Exchange |
125 000; and an additional application fee in the amount of 5 000 USD if intends to trade Security Tokens and have Direct Access Members |
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1.2 Application fees for modification and withdrawal of a Licence or Approved Individual's registration
Application to Modify |
Fee (USD)* |
Modification of an Authorised Market Institution's Licence |
(a) An application fee equal to the highest of the corresponding application fees for additional activities payable under table 1.1 of Schedule 2 or table 1.1 of Schedule 1 of FEES. (b) An Authorised Market Institution applying to the AFSA to change the scope of its Licence and seeking to carry on the Market Activities of Operating an Investment Exchange or Operating a Clearing House must pay to the AFSA an application fee specified in the fees table in Schedule 2 in full. (c) An Authorised Market Institution applying to the AFSA to change the scope of its Licence and seeking to conduct the Regulated Activities of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility must pay to the AFSA an application fee specified in the fees table above in full. (d) For the avoidance of doubt, the formula in (a) does not apply to the activities specified in (b) and (c). |
Modification of an Approved Individual's registration |
|
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Notes
Fees for initial application — firm to conduct one or more Market Activities, or Market and Regulated Activities
An applicant seeking authorisation to conduct one or more Market Activities, or Market and Regulated Activities, specified in the fees table must pay:
(a) the fee specified for the Market Activity in the table above (or, if the applicant intends to carry on more than one Market Activity, or Market and Regulated Activities, the highest fee specified in the table for any of those Market Activities in accordance with FEES 1.2.2-1); and
(b) the fee amount of 200 USD, for each individual for whom Approved Individual status is sought, specified below.
Application fee for Approval of Individuals
An Authorised Market Institution submitting applications on behalf of additional individuals seeking Approved Individual status must pay an application fee in the amount of 200 300 USD in respect of each additional Approved Individual application.
Application fee for change of control
An Authorised Market Institution applying for change of control must pay to the AFSA an application fee in the amount of 1 000 USD.
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SCHEDULE 3: APPLICATION FEES PAYABLE TO THE AFSA FOR ANCILLARY SERVICES
(…)
Fees for applications to carry on Ancillary Services
An applicant seeking to carry on one or more Ancillary Services must pay to the AFSA the application fee for each type of Ancillary Services set out in the table 1.1 above.
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SCHEDULE 5: FEES PAYABLE TO THE REGISTRAR OF COMPANIES
(…)
5.1 An applicant seeking registration or recognition must pay the following fees to the Registrar of Companies:
(…)
Foundations |
1 000 |
1 700 |
5.2 Company or Partnership seeking to transfer its incorporation to or from the AIFC must pay to the Registrar of Companies an application fee in the amount of 3 000 USD.
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SCHEDULE 6: ANNUAL SUPERVISION FEES PAYABLE TO THE AFSA
6.1 Annual supervision fees for Regulated Activities
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Operating a Multilateral Trading Facility |
Option 1 • 3 000 USD (fixed); and • trading levy of 0.0006% of the average daily trading value (variable)**. Note: AFSA will not invoice the trading levy (variable) fee unless it exceeds 500 USD Please see Notes for Option 1 below the table. Option 2 · fixed fee – 3 000 USD; and · variable fee calculated on a quarterly basis: • where the average daily trading value is less than 500 000 USD, is not applicable; • where the average daily trading value is more than 500 000 USD: - trading levy of 0.0006% of the average daily trading value; or - 2 500 USD, whichever is greater. Additional thresholds: a) The AFSA does not invoice the variable fee in excess of 700 000 USD in one year; or b) Where the average daily trading value is more than 500 million USD, the variable fee is trading levy of 0.0003% of the average daily trading value in excess of 500 million USD. Please see Notes for Option 2 below the table. Option 3 · fixed fee – 3 000 USD; and · variable fee:
Please see Notes for Option 3 below the table. |
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Operating an Organised Trading Facility |
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Operating a Digital Asset Trading Facility |
Option 1 · fixed fee – 25 000 USD; and · variable fee calculated on a quarterly basis: • where the average daily trading value is less than 500 000 USD, is not applicable; • where the average daily trading value is more than 500 000 USD: - trading levy of 0.0006% of the average daily trading value; or - 5 000 USD, whichever is greater. The AFSA does not invoice the variable fee in excess of 1 000 000 USD in one year. Please see Notes for Option 1 below the table. Option 2 · fixed fee – 25 000 USD; and · variable fee:
Please see Notes for Option 2 below the table. |
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*Supervision fees prescribed herein are applied from 1 May 2022. Before 1 May 2022, these fees are not applied.
**For Operating a Multilateral and Organised Trading Facilities, fixed component of the annual supervision fees must be paid in full to the AFSA on a yearly basis on or before 1 January of every calendar year and variable component of the annual supervision fees must be paid in full to the AFSA on a quarterly basis following each quarter.
Notes for Option 1
For Operating a Multilateral Trading Facility, Organised Trading Facility or Operating a Digital Asset Trading Facility, variable fee is calculated on a quarterly basis by multiplying the average daily trading value by the active trading days in the relevant quarter.
Notes for Option 2 for Operators of MTF/OTF / Option 1 for Operators of DATF
1. For Operating a Multilateral Trading Facility, Organised Trading Facility or Operating a Digital Asset Trading Facility, variable fee is calculated on a quarterly basis by multiplying the average daily trading value by the active trading days in the relevant quarter.
Example:
a) Average daily trading value of a Multilateral Trading Facility is 450 000 USD in quarter 1, the variable fee will not be applied in quarter 1;
b) Average daily trading value of the firm is 1 million USD in quarter 2, the variable fee will be calculated as follows: 1 million * 63 (average trading days in quarter) * 0.0006% = 378 USD. As 2 500 USD is more than 378 USD, the variable fee will be 2 500 USD for quarter 2;
c) Average daily trading value of the firm is 5 million USD in quarter 3, the variable fee will be 1 890 USD. As 2 500 USD is more than 1 890 USD, the variable fee will be 2 500 USD for quarter 3;
d) Average daily trading value of the firm is 10 million USD in quarter 4, the variable fee will be 3 780 USD for quarter 4.
Thus, the firm must pay 8 780 USD as the variable fee for that year.
2. Variable fee is paid quarterly (paid within 21 days after the issuance of an invoice by the AFSA, but no later than within 1 month following each corresponding quarter).
3. Additional thresholds for Operators of MTF/OTF:
a) The AFSA does not invoice the variable fee for Operating a Multilateral Trading Facility, Organised Trading Facility in excess of 700 000 USD in one year; or
b) Where the average daily trading value is more than 500 million USD, the variable fee will be calculated separately for the average daily trading value of less or equal to 500 million USD (trading value of 0.0006%) and the average daily trading value of more than 500 million USD (trading value of 0.0003%).
Example:
Where the average daily trading value of the firm is 600 million USD in a quarter, the variable fee will be 207 900 USD for that quarter (0.0006% of 500 million USD and 0.0003% of 100 million USD).
4. The AFSA does not invoice the variable fee for Operating a Digital Asset Trading Facility in excess of 700 000 USD in one year.
Notes for Option 3 Operators of MTF/OTF / Option 2 for Operators of DATF
1. For Operating a Multilateral Trading Facility, Organised Trading Facility or Operating a Digital Asset Trading Facility, the amounts of variable fees given in the second column of the table indicate the annual variable fees.
2. Variable fee is calculated on a quarterly basis by pro-rating the annual variable fee, that would have been payable based on the average daily trading value, for the relevant quarter.
As such, the amount of the variable fee payable each quarter may vary depending on the average daily trading value of that quarter.
Example:
e) Average daily trading value of a Multilateral Trading Facility is 450 000 USD in quarter 1, the variable fee will not be applied in quarter 1;
f) Average daily trading value of the firm is 500 000 USD in quarter 2, the variable fee will be 2 500 USD for quarter 2;
g) Average daily trading value of the firm is 5 million USD in quarter 3, the variable fee will be 12 500 USD for quarter 3;
h) Average daily trading value of the firm is 10 million USD in quarter 4, the variable fee will be 25 000 USD for quarter 4.
Thus, the firm must pay 40 000 USD as the variable fee for that year.
3. Variable fee is paid quarterly (paid within 21 days after the issuance of an invoice by the AFSA, but no later than within 1 month following each corresponding quarter).
4. The AFSA does not invoice the variable fee for Operating a Multilateral Trading Facility, Organised Trading Facility in excess of 700 000 USD in one year.
5. The AFSA does not invoice the variable fee for Operating a Digital Asset Trading Facility in excess of 1 000 000 USD in one year.
6.1-1 Annual supervision fee in relation to Digital Assets
An Authorised Firm conducting Regulated Activities in relation to Digital Assets must pay to the AFSA an additional annual supervision fee in the amount of 3 000 USD.
6.2 Annual supervision fees for Market Activities
Annual supervision fees for Market Activities are determined by the activities the Authorised Market Institution conducts as set out below:
Market Activities |
Fee (USD)*** |
Operator of an Investment Exchange |
Calculated according to formula 1 below; and an additional annual supervision fee in the amount of 5 000 USD if intends to trade Security Tokens and have Direct Access Members |
Operator of a Clearing House |
Calculated according to formula 2 below; and an additional annual supervision fee in the amount of 5 000 USD if intends to clear Security Tokens and have Direct Access Members
|
(…)
Formula 1
SF= FF+TVF+LF,
where
SF – Supervision fee
FF – Fixed fee, which is 15 000 USD (paid annually)
TVF – Trading volume value fee, calculated as 0.003% of trading volume value in one year (paid quarterly within 21 days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
LF – Listing fee, calculated as 2% of all listing fees collected by an Operator of an Investment Exchange in one year (paid quarterly within 21 days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
Formula 2
SF=FF+SVF+DVF+CVF,
where
SF – Supervision fee
FF – Fixed fee, which is 15 000 USD (paid annually)
SVF – Settlement value fee (excluding On-Exchange Trades on Secondary Market), calculated as 0.001% of settlement volume value (paid quarterly within 21 days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
DVF – Depository value fee, calculated as 0.00005% of depository value (paid quarterly within 21 days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
CF – Clearing value fee, calculated as 0.001% of clearing value, applicable only to an Operator of a Clearing House acting as a Central Counterparty (paid quarterly within 21 days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter)
Notes
Where an Operator of a Clearing House carries on a clearing or settlement function for the trading facility operated by a member of its Group, relevant clearing and settlement fee is not applied.
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6.4 Annual recognition fees for Recognised Non-AIFC Market Institutions and Recognised Non-AIFC Members
Recognition fee |
Fee (USD) |
|||||||||
Recognised Non-AIFC Market Institution |
|
|||||||||
Recognised Non-AIFC Member |
For Recognised Non-AIFC Members that are admitted to trading by an Authorised Investment Exchange, Multilateral or Organised Trading Facility or Digital Asset Trading Facility: calculated according to formula 1 below. For Recognised Non-AIFC Members that are not admitted to trading by an Authorised Investment Exchange, Multilateral or Organised Trading Facility or Digital Asset Trading Facility, or whose trading |
Formula 1
RF= FF+TVF,
where
RF – Annual recognition fee
FF – Fixed fee, which is 1 000 USD pro-rated over a calendar year
TVF – Trading volume value fee, calculated as 0.001% of trading volume value in one year, applicable only to Recognised Non-AIFC Members admitted to trading by Operator of an Investment Exchange, Multilateral or Organised Trading Facility or Digital Asset Trading Facility, whose trading volume value is over 100 25 million USD per quarter on each trading platform (paid within one month following each corresponding quarter 21 days after the issuance of invoice by the AFSA, but no later than within 1 month following each corresponding quarter).
Notes
Where a Recognised Non-AIFC Market Institution operating as a Clearing House carries on a clearing or settlement function for the trading facility operated by a member of its Group, relevant clearing and settlement fee is not applied.
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SCHEDULE 8: FINTECH LAB FEES
(…)
8.2 Application fees
(…)
Notes
Fees for initial application—firm to conduct one or more activities within the FinTech Lab
An applicant seeking authorisation to conduct one or more activities specified in the fees table must pay:
(a) the fee specified for the activity in the table above (or, if the applicant intends to carry on more than one activity, the highest fee specified in the table for any of those activities 10% of the application fee specified in FEES 1.2.2-1); and
(b) the amount of 50 USD for each individual for whom Approved Individual status is sought.
(…)
8.3 Migration fees to full authorisation
1. Migration fees payable to the AFSA by FinTech Lab Participants are determined by the activities the FinTech Lab Participant conducts as set out below:
Applications |
Fee (USD)*** |
Regulated Activities |
A migration fee equal to the difference between: (a) the application fee which would be payable under table 1.1 of Schedule 1 of FEES if it were an applicant for a full Licence; and (b) the application fee under |
Market Activities |
A migration fee equal to the difference between: (a) the application fee which would be payable under table 1.1 of Schedule 2 of FEES if it were an applicant for a full Licence; and (b) the application fee under |
Regulated and Market Activities |
A migration fee equal to the difference between: (a) the application fee which would be payable under FEES 1.2.2-1; and (b) the application fee under Schedule 8 of FEES. |
2. The initial supervision fee payable to the AFSA by a FinTech Lab Participant, which migrated to the full supervisory regime, is the difference between:
(a) the initial annual supervision fee which would be payable under FEES 3; and
(b) the annual supervision fee which was paid under Schedule 8 of FEES.
(…)
8.4 Supervision fees payable to the AFSA by FinTech Lab Participants
(…)
Activities within the FinTech Lab |
|
Fee |
Regulated Activities |
|
20% of the supervision fees under table 6.1 of Schedule 6 of FEES |
Market Activities |
|
• 10% of the supervision fees under table 6.2 of Schedule 6 of FEES (fixed); and • trading levy of 0.001% of the average daily trading value (variable)***** Note: AFSA will not invoice the trading levy (variable) fee unless it exceeds 200 USD |
(…)
*****Fixed component of the annual supervision fees must be paid in full to the AFSA on a yearly basis on or before 1 January of every calendar year and variable component of the annual supervision fees must be paid in full to the AFSA on a quarterly basis following each quarter is paid quarterly (paid within 21 days after the issuance of an invoice by the AFSA, but no later than within 1 month following each corresponding quarter.
Notes
1. A FinTech Lab Participant licensed to conduct more than one Regulated and/or Market Activities, other than specified below, must pay to the AFSA the highest of the supervision fees specified in table 8.4.
2. A FinTech Lab Participant licensed to carry on:
(a) the Market Activity of Operating an Investment Exchange or Operating a Clearing House; or
(b) the Regulated Activity of Operating a Digital Asset Trading Facility, Operating a Multilateral Trading Facility or Operating an Organised Trading Facility;
must pay to the AFSA an annual supervision fee specified in table 8.4 for each such activity.
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8.5. Application fees for modification of a Licence
An application fee equal to the difference between:
(a) the application fee which would be payable under table 8.2 of Schedule 8 of FEES if it were an applicant for a Licence in terms of currently being sought; and
(b) the application fee which was paid or would be payable under table 8.2 of Schedule 8 of FEES if it were an applicant for a Licence in terms of that currently held.
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SCHEDULE 9: OTHER FEES
9.1 Application to register a Non-Exempt Fund and Exempt Fund or provide notification for an Exempt Fund
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9.2 Application to make amendments to the Constitution or Offering Materials of a Non-Exempt Fund
A Domestic Fund Manager that intends to make amendments to the Constitution or Offering Materials of a Non-Exempt Fund must pay to the AFSA an application fee in the amount of 500 USD.
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SCHEDULE 10: LATE FEES PAYABLE TO THE AFSA*
10.1 Late fees for failure to provide notification, report or return
A Person falling within FEES 7.1 must pay to the AFSA a late fee in the amount of 300 USD within 3-business days after the contravention occurs, if the Person fails to provide notification, report or return within 3 business days after it has committed a contravention. Non-payment of the late fee within 30 calendar days incurs a further late payment fee equal to 10% of the late fee for each calendar day.
10.2 Late fees for failure to comply with direction issued by the AFSA
A Person falling within FEES 7.4 must pay to the AFSA a late fee in the amount of 300 USD within 3-business days after the contravention occurs, if the Person fails to comply with direction issued by the AFSA within 3 business days after such failure. Non-payment of the late fee within 30 calendar days incurs a further late payment fee equal to 10% of the late fee for each calendar day.
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SCHEDULE 11: LATE FILING FEES PAYABLE TO THE REGISTRAR OF COMPANIES*
101. A Person failing to provide annual return, annual confirmation statement or annual accounts to the Registrar of the Companies within the periods specified in the AIFC Companies Regulations A Person falling within FEES 7.6 must pay to the Registrar of Companies a late fee in the amount of 50 USD within 5 business days after the contravention occurs, if the Person fails to provide annual return, annual confirmation statement or annual accounts within 5 business days after it has committed a contravention. Non-payment of the late fee within 30 calendar days incurs a further late payment fee equal to 5% of the late fee for each calendar day.
*Late filing fees for failure to provide annual return, annual confirmation statement or accounts in relation to each financial year payable to the Registrar of Companies are applied from 1 April 2023.
Proposed Amendments to the AIFC Collective Investment Scheme Rules on Environmental, Social and Governance ESG FUNDS
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed amendments to the AIFC Collective Investment Scheme Rules on ESG Funds.
Who should read this CP?
2. The proposals in this paper will be of interest to current and potential AIFC participants who are interested in asset and fund management activities in or from the AIFC.
Terminology
3. 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 (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.
What are the next steps?
4. We invite comments from interested stakeholders on the proposed framework. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2023-0008” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposed framework is 2 December 2023. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. AFSA prefers to receive comments by email at consultation@afsa.kz or posted to:
Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Astana, Kazakhstan
Structure of this CP
Part I – Background;
Part II – Best Practice;
Part III – Proposals;
Part IV – Public Consultation Questions;
Annex 1 – Draft Amendments to AIFC Collective Investment Scheme Rules (CIS);
Annex 2 – Draft Amendments to AIFC Glossary (GLO);
Background
1. The Astana Financial Services Authority ("AFSA") intends to enhance the Collective Investment Scheme (“CIS”) legal framework to reflect our prioritisation of a shift towards a more responsible and forward-thinking approach to investing and finance.
2. As environmental, social and governance (“ESG”) related investment products continue to gain attraction globally, regulatory bodies in various jurisdictions are placing greater emphasis on ESG reporting and disclosure. This has prompted companies and investors to integrate ESG factors into their decision-making processes to ensure compliance and transparency.
3. According to a recent report, despite the lower global net inflows and challenging investment climate, global sustainable fund assets hit nearly $2.8 trillion at the end of June 2023[1].
4. The growing market interest in ESG funds indicates a more extensive transition towards responsible and sustainable investing, which is also backed up by interest of several AIFC Participants to establish such type of funds. As such, the AFSA intends to issue these proposals as part of a broader initiative to enhance the ESG related frameworks at the AIFC.
5. Obtaining a status of an ESG fund holds significant importance since it enables investors to support companies that prioritise sustainability and responsible practices, but also offers potential financial benefits and risk mitigation.
6. It is important to note that sustainable finance is one of the strategic priorities for the Astana International financial Centre (“AIFC”) given the following:
· The AIFC declared its commitment to the principles of sustainable financing, which contribute to strengthening and actively encouraging stakeholders to harmonize their activities with the priorities of sustainable development of Kazakhstan[2].
· To improve the investment ecosystem in 2022, the government has adopted a new Concept of Investment Policy of the Republic of Kazakhstan until 2026[3], which provides for a set of measures aimed at increasing investment in the manufacturing industry, production of high value-added goods, as well as stimulating investment in sustainable development projects in the context of increasing ESG standards, and global energy and technological transitions. The AIFC actively participates in the implementation of the policy to achieve Kazakhstan’s investment priorities.
· According to the President Kassym-Jomart Tokayev`s State of the Nation Address "Economic course of a Just Kazakhstan" the adoption of ESG principles has become standard practice in the financial sector. To align with this trend, the AIFC must become the primary platform for attracting "green" funding in the region.
7. Including ESG funds in the AFSA’s regulatory perimeter would contribute to significant reduction of greenwashing risks, by ensuring that funds adhere to genuine ESG criteria and accurately represent their sustainability efforts.
8. The AFSA has considered the international standard setting, particularly the International Organization of Securities Commissions (IOSCO), and have considered the numerous jurisdictions’ regulatory approaches in relation to ESG Funds.
9. In November 2022 IOSCO issued a Call for Action to “counter the risk of greenwashing related to asset managers and ESG rating and data providers[1].” According to IOSCO's recommendations the following actions should be taken to improve ESG guidance and disclosures and prevent greenwashing:
· Establish policies, procedures, and practices covering the classification of material risks and opportunities;
· Include product-level disclosures that provide transparency of material sustainability-related risks and opportunities;
· Standardize sustainable finance and ESG-related terms to provide consistency across the global asset management industry;
· Promote related investor education;
· Set clear expectations for due diligence of ESG ratings and data products used in internal processes.
10. The regulatory approaches of the following jurisdictions were considered by the AFSA:
European Union (The European Securities and Markets Authority “ESMA”)
11. Sustainable Finance Disclosure Regulation (SFDR) is a cornerstone of the EU's sustainable finance agenda. It requires financial market participants, including fund managers, to disclose information about the sustainability of their investments. This regulation aims to improve transparency and prevent greenwashing. Under the SFDR, funds that promote environmental or social characteristics (so-called light green funds) are categorized as Article Eight funds, while funds that have sustainable investment as their objective are categorized as Article Nine funds.
12. The main requirements to ESG funds are indicated in the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector and the Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088.
13. The 2021 released the EU Sustainable Finance Strategy aims to support the financing of the transition to a sustainable economy by proposing action in four number of areas: transition finance, inclusiveness, resilience and contribution of the financial system and global ambition.
United Kingdom (The Financial Conduct Authority “FCA”)
14. According to FCA’s strategy for 2023 the finalised Sustainable Disclosure Requirements will be available by the end of 2023. The proposals aim to cover the following main areas:
· Sustainable investment labels to help consumers navigate the investment product landscape and enhance consumer trust;
· Consumer‑facing disclosures to help consumers understand the key sustainability-related features of a product;
· Detailed disclosures targeted at a wider audience;
· Naming and marketing rules;
· Requirements for distributors;
· A general ‘anti‑greenwashing’ rule applied to all regulated firms which reiterates existing rules to clarify that sustainability-related claims must be clear, fair and not misleading.
Singapore (Monetary Authority of Singapore)
15. Published in July 2022 the Circular on Disclosure and Reporting Guidelines for Retail ESG Funds sets out Monetary Authority of Singapore’ expectations on how existing requirements under the Code on Collective Investment Schemes and the Securities and Futures Regulations apply to retail ESG funds, and the disclosure and reporting guidelines applicable to these funds. Items covered in the guidelines include governance and strategy, research and portfolio construction, portfolio risk management, stewardship, and disclosure of environmental risk information
16. ESG Fund is defined as a fund which uses or includes ESG factors as its key investment focus and strategy, and represents itself as an ESG-focused scheme. In Singapore, at least two-thirds of the fund’s net asset value should be invested in green or sustainable companies.
Hong Kong (Securities and Futures Commission “SFC”)
17. In April 2019, the SFC issued the Circular to management companies of SFC-authorized unit trusts and mutual funds – Green or ESG funds (“2019 Circular”)
18. In view of local and international market and regulatory developments, in June 2021 the SFC revised the 2019 Circular to provide further guidance on enhanced disclosure including periodic assessment and reporting for ESG funds and with additional guidance for funds with climate-related focus. This circular applies to SFC-authorized funds which incorporate ESG factors as their key investment focus and reflect such in the investment objective and/or strategy. To be qualified as an ESG fund in Hong Kong, the fund should invest at least 70% of its net asset value in the companies that satisfy green or sustainable requirements.
Abu-Dhabi Global Market (“ADGM”)
19. In July 2023 ADGM has implemented its sustainable finance regulatory framework, comprising the comprehensive ESG disclosure requirements and a regulatory framework for funds, discretionary managed portfolios, bonds and sukuks designed to accelerate the transition of the UAE to net zero greenhouse gas emissions.
20. According to the ADGM Funds Rules Green Fund must be a Domestic Fund that meets the Green Fund Investment Requirement and the Green Fund Attestation Requirement.
Dubai International Financial Centre (“DIFC”)
21. The DIFC regulatory framework does not provide any special provisions regarding ESG funds, however establishment of green Funds is indicated as one of the milestones in their Sustainable Finance Roadmap 2021-2024.
22. In September 2023 DIFC published its Sustainable Finance Framework with a positive Second Party Opinion review by S&P Global Ratings, which sets out fundraising principles for investments in its environmental and social projects that enable sustainable business operations.
23. In light of the emerging need to align with the principles of sustainable financing it is proposed to introduce the amendments the AIFC Collective Scheme Framework and the AIFC Glossary to include ESG Funds as a separate type of Specialist Funds.
24. The following provisions are proposed to be included in:
· Definition;
· General investment powers and limits;
· Content requirements for Offering Materials;
· Enhanced reporting requirements.
Public consultation questions
In the course of public consultation, existing and potential market participants will be invited to comment on the following questions:
(1) Do you agree with the proposed amendments to AIFC Collective Investment Scheme Rules? If not, what are your concerns, and how should they be addressed?
(2) Do you agree with the definition of an ESG Fund proposed to be introduced in the AIFC Glossary? If not, what are your concerns, and how should they be addressed?
Annex 1
Proposed amendments to the AIFC Collective Investment Scheme Rules
In these Rules, the underlining indicates a new text and the strikethrough indicates a removed text
(…)
2.4-1. Other Specialist Funds
(…)
(e) An ESG Fund, is a Fund where:
(i) its main investment focus incorporates ESG factors; and
(ii) at least 70 % of net asset value of the Fund Property is invested in accordance with the investment strategy.
(…)
5.3. Content requirements for Offering Materials
(…)
(m) Information relating to an ESG Fund:
(i) a description of the investment objective, policy and strategy incorporating an ESG Fund’s investment focus;
(ii) a Fund Manager of an ESG Fund must ensure that Offering Materials do not refer to an “ESG Fund”, or otherwise includes or uses ESG-related or similar terms, unless the Fund meets the criteria in 2.4-1(e);
(iii) a list of ESG criteria used to measure the attainment of the Fund’s ESG focus;
(iv) a description of the sustainable investment strategy used by the Fund to achieve its ESG focus, the binding elements of that strategy in the investment process, and how the strategy is implemented in the investment process on a continuous basis;
(v) where the Fund uses a benchmark index to measure the attainment of its ESG focus, an explanation of how the benchmark index is consistent with or relevant to its investment focus;
(vi) where the Fund uses a benchmark index for financial performance measurement only, a statement of that fact; and
(vii) risks associated with the Fund’s investment focus and strategy;
(viii) any ESG-related terms used must be clearly defined.
(…)
10.5-1. Fund Manager’s report
The matters set out in (a) to (hi) must be included in any Fund Manager’s report:
(…)
(i) for a report on an ESG Fund, the information containing:
(i) how the Fund’s investment focus has been met during the financial year, including a comparison with the previous year (if any); and
(ii) the actual proportion of investments that meet the Fund’s investment focus (if applicable); and
(iii) any action taken by the Fund in attaining the Fund’s ESG focus.
(iii)
(…)
Consultation paper on umbrella sandbox
INTRODUCTION
1. Astana International Financial Centre (AIFC) has issued this Consultation Paper to seek suggestions from the market on the proposed approach on regulation of Umbrella Sandbox regulatory regime.
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3. All comments should be in writing and sent to the address or email specified below.
4. If sending your comments by email, please use “Consultation Paper AFSA–CE–2021–0001” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is 26 February 2020.
7. Once we receive your comments, we shall consider if any refinements are required to this proposal.
8. Comments to be addressed by
Consultation Paper No. AFSA–CE–2021–0001
AIFC FinTech Hub
55/18, Mangylyk El avenue, block C-3.3, Astana, Kazakhstan
or emailed to: r.abdirassilov@aifc.kz
BACKGROUND
1. AFSA is proposing the introduction of new FinTech Lab regulatory regime “Umbrella Sandbox”, which shall complement existing FinTech Lab regulatory regimes of Testing and Developing FinTech Lab Activities.
2. The concept of the Umbrella Sandbox regime envisages authorisation of a Principal (e.g. university, research organisation, venture capital fund or other financial institution) that would further allow PRep (e.g. university students, professors, investee or start-ups firms) to offer FinTech services under the Licence of Principal.
3. Umbrella sandbox is for small-scale testings of feasibility of early-stage business models and ideas to verify that some FinTech product/service has practical potential. Given that Umbrella sandbox regulatory regimes primarily is designed for small group of innovators with minimum viable products, compared to the existing FinTech Lab regime, Umbrella sandbox regime aims to attract different market of innovators, which are at their early stage of development of their FinTech products/services.
4. The analogous practice of Umbrella Sandbox has been also implemented in other leading jurisdictions such as United Kingdom and Singapore, whereby a firm or person may run regulated financial activities and act as an agent for a financial firm directly authorised by the UK Financial Conduct Authority .
5. Implementation of Umbrella sandbox regime jointly with another AFSA initiatives such as development of Intellectual Property regime, digital (mobile) banking, payments and e-money, venture capital frameworks is another step towards the development and enhancement of comprehensive AIFC FinTech ecosystem.
PROPOSAL
6. Conceptually the Umbrella Sandbox is a regulatory lab designed for universities, venture capital funds, financial institutions and research organisations (“Principals”) to allow its students, professors, researchers and start-ups (“Principal Representatives”) to experiment and test FinTech products/services under the licence of its Principal, whereby the authorisation and supervision will be performed by the Principal who is in turn authorised and supervised by the AFSA.
7. The Principal, “incubator”, allows its regulatory permissions to be used by the Principal Representative (hereinafter – PRep), so that the PRep can perform financial services under those regulatory permissions of the Principal whilst retaining its own identity, ownership and control. In other words, the compliance function of the PRep is outsourced to the Principal with appropriate compliance knowledge, financial and human resources, systems and controls.
8. The deployment of Umbrella Sandbox would allow:
a) Innovators or PRep: to grow and focus primarily on the testing and development of financial services under the regulatory wing of its Principal, establish close collaboration with universities, financial institutions and venture capital funds to get access to talents, capital, compliance systems and controls, knowledge and expertise of a Principal;
b) Principals: gain first-hand insights from innovators and establish collaboration with financial innovative businesses.
c) Consumers: reduce risk of consumer exposure to harm due to the outsourcing of compliance function to the Principal with appropriate financial, human and compliance resources, enable more innovative products to reach the market that may otherwise never have been tested; and
d) AFSA and AIFC: clearly signal to the market that innovation is firmly on the regulatory agenda that would help to further promote the development of FinTech within the vibrant and innovation prone AIFC FinTech ecosystem.
REGULATORY APPROACH
1.AFSA seeks to establish sound and flexible AIFC regulatory regimes of a high standard that promotes sustainable and safe environment and help firms to innovate. However, new entrants with untested business models expose consumers to new risk exposures. Therefore, AFSA sees that promotion of collaboration and outsourcing of compliance function of start-ups (PRep) to established institutions (Principals) would reduce the regulatory risks for consumers.
2.The regulatory approach in designing the proposed Umbrella Sandbox regime is primarily based on the UK legislation and current FinTech Lab practices.
Responsibility of Principal
3.The Principal must apply to FinTech Lab to obtain a Licence to offer regulated activities under the existing FinTech Lab licensing process.
4.Before a Principal appoints a Person as a PRep, the Principal must seek an approval from the AFSA on appointment of a PRep and must have:
a)appropriate FinTech Lab Licence for the regulated financial activity that the PRep is willing to conduct under the Principal’s FinTech Lab Licence; and
b)adequate controls over the PRep regulated activities for which the firm has responsibility;
c)appropriate resources to monitor and enforce compliance of the PRep with the relevant regulatory requirements;
d)complaints handling procedures, including provision of contact details of PRep, Principal and AFSA to Clients;
e)appropriate systems and controls to enable the PRep to comply properly with any limitations or requirements of its own permission; and
f)no close links with PRep and its employees which would be likely to prevent the effective supervision of the PRep by the Principal.
The eligibility criteria to become a PRep
5.A Person to become a PRep must:
a)be fit and proper;
b)be solvent;
c)be capable of being effectively supervised by Principal and AFSA; and
d)enter into contract agreement with Principal which permits the PRep to carry on financial services under the FinTech Lab Licence of Principal.
6.The proposed FinTech Lab Activities of PRep must:
a) fall within the scope of the permission under the Principal’s Licence;
b)be in a sufficiently advanced stage of development to mount a live test with real customers; and
c)promote innovation.
7.A Principal must ensure that the PRep satisfies eligibility criteria on becoming PRep. The result of such assessment shall be presented to the AFSA. After the AFSA has been convinced that the requirements are sufficiently met, AFSA may permit a person to offer FinTech Lab Activities under the Licence of Principal in the capacity of PRep, impose additional and/or adjust/modify the individual limitations and conditions applicable to Principal and/or its PReps.
8.In reviewing the eligibility of the PRep, the AFSA, among others, shall consider the nature (including the scale and complexity) of the regulated activities of the Principal and its PReps and any associated risks that those activities pose to the AFSA’s Regulatory Objectives.
Continuing obligations of Principals with PReps
9.Principal must monitor and check the activities of its PRep on a regular basis to ensure the PRep complies with obligations imposed by AIFC or AFSA regulatory requirements. Normally the Principal is expected to submit monthly reports to AFSA on the results of such checks.
10.The PRep may offer permitted activities under the Principal’s Licence for a period of up to two years, but which should not exceed the validity of the Principal’s Licence. Subject to AFSA approval this period may be extended or shortened, subject to extension or shortening of validity of the Principal’s Licence.
11.A Principal must not permit a PRep to hold client money unless otherwise permitted by AFSA.
Final provisions
12.To ensure greater level of responsibility of Principal for compliance of PReps, anything that a PRep has done or omitted to be done as respects the business for which the Principal has accepted responsibility will be treated as having been done or omitted to be done by the Principal.
13.The senior management of a Principal should be aware that the activities of PReps are an integral part of the business that they manage. The responsibility for the control and monitoring of the activities of PReps rests with the senior management of the Principal.
14.Principals with sufficient resources that can ensure regulatory compliance of its PReps with AIFC/AFSA requirements may appoint several PReps so that PReps could offer several types of regulated services in the AIFC under the Principal’s FinTech Lab Licence/-s.
15.Principals should be aware that, under the existing AFSA regulatory regime, the Principal is responsible for submitting applications to the AFSA for the approval of a person who performs controlled functions of the Principal and/or PRep.
16.If a contract with a PRep is terminated or substantially amended, a Principal must take all reasonable steps to ensure that:
a)if the contract between the PRep and Principal is terminated, contract parties and AFSA shall be notified immediately that the contract is terminated, and PRep is no longer permitted to offer regulated activities;
b)outstanding regulated activities and obligations to Clients are properly completed and fulfilled either by Principal and/or PRep;
c)where appropriate, Clients are informed of any relevant changes;
17.The implementation of Umbrella Sandbox regime implies potential amendments to AIFC General Rules and mostly would entail amendments to the AIFC Financial Technology Rules.
Consultation paper on Regulation of payment services and electronic money in the AIFC
1 Introduction and scope of policy paper
1.1 The Astana Financial Services Authority (the AFSA), as the independent regulator of the Astana International Financial Centre (AIFC) is seeking to develop a regulatory framework for payment services and electronic money in the AIFC (the Framework or the PSEM Framework).
1.2 This policy paper outlines our proposal for the Framework, including its aims, operation, and interaction with the current regulatory environment in the AIFC. The AFSA has made key policy decisions following its consideration of the preliminary proposals contained in this policy paper, and these decisions are outlined in the summary of policy issues provided by the AFSA on 30 October 2020 contained in Schedule 1 and Schedule 2.
1.3 At a high level, the AFSA has specified that the Framework should be developed with the aims of:
- (a)establishing an integrated and efficient payments market within the AIFC;
- (b)facilitating the development and emergence of new, innovative, and secure e-money and payment services;
- (c)providing companies and individuals with access to the e-money and payment services market, whilst also ensuring customers' protection; and
- (d)encouraging effective competition within the market of the AIFC.[1]
1.4 Our proposal for the Framework has been developed in accordance with the governing law of the AIFC, and is based on English law. We have also considered international best practice in regulating payment services and e-money, including the approaches taken in Singapore and Australia.
1.5 Our proposal for the Framework is also compatible with the AFSA's regulatory objectives, as set out in section 7 of the AIFC Financial Services Framework Regulations (FSFR).
1.6 In summary, we propose to introduce the provision of payment services and the issuance of e-money as new Regulated Activities (which will be set out in Schedule 1 of the AIFC General Rules (GEN)). The Framework will be implemented through new AIFC Rules known as the "Payment Services and Electronic Money Rules" or "PSEM".
1.7 The Framework will:
- (a)complement Chapter 1 of Part 3 of the FSFR (Licensing of Authorised Firms) to provide for the licensing and registration of institutions who wish to carry on the new Regulated Activities;
- (b)provide for specific conduct of business rules that will apply to those institutions, regulating the rights and obligations of all parties involved in the relevant market; and
- (c)complement the provisions in Part 8 of the FSFR (Supervision of Authorised Persons) and Chapter 6 of GEN (Supervision), to outline rules in relation to the supervision of both Relevant Authorised Firms and certain other specified entities providing payment services or issuing e-money.
1.8 It follows that the AFSA will be responsible for the regulation of institutions providing payment services or issuing e-money that are licensed under FSFR and GEN or registered under the Framework, and enforcement of the conduct of business rules.
1.9 We propose that the Framework sets out any specific conditions for licensing or registration, as well as the rights and obligations of parties to which the Framework applies. It will not seek to prescribe the specific approach that the AFSA will take in relation to supervision and enforcement under the Framework.
[1] Page 4, AFSA, Terms of Reference for Development of E-Money and Payment Services Framework in the Astana International Financial Centre
2 Financial regulation in the AIFC
2.1 The current regulation of financial services in the AIFC is provided for in a number of regulations and rules. The General Rules (GEN) and the FSFR are the most relevant to the Framework, however the Conduct of Business Rules (COB), Authorised Market Institution Rules, the Banking Prudential Guideline, the Banking Business Rules, the Anti-Money Laundering (AML) and Counter-terrorist financing (CTF) Rules, the Law of the Republic of Kazakhstan “On Counteracting Legalisation (Laundering) of Illegally Gained Income and Financing of Terrorism” No. 191-IV dated 28 August 2009, and the Constitutional Law of the Republic of Kazakhstan “On the Astana International Financial Centre” No. 438-V dated 7 December 2015 (the Constitutional Statute) are also relevant. We anticipate that a number of amendments will be required to the existing AIFC regulations and rules as a consequence of adopting the Framework (see section 5.1)
2.2 The existing financial services regulatory framework in the AIFC is similar to the UK's. Both jurisdictions share the legal concept of regulated activities, and a general prohibition on carrying out regulated activities without authorisation (in the UK) or a licence (in AIFC). However, we note the AIFC's concept of Market Activities[1] as distinct from the UK regulatory regime.
2.3 The AFSA regulates financial and non-financial services activities, and is the AIFC equivalent of a National Competent Authority for the purposes of EU law, as the Financial Conduct Authority is in the UK (FCA). The AFSA issues licences for AIFC Participants (Participants)[2] wishing to carry on Regulated Activities[3], Market Activities, or Ancillary Services[4], and is responsible for enforcing the AIFC rules and regulations.
2.4 However, the AIFC does not currently have a regulatory framework for payment services or e-money. Both of these are important in creating and supporting a transparent, fair, and modern digital ecosystem in the financial services industry.
2.5 The proposals in this policy paper are intended to be incorporated into the AIFC's existing financial services regulatory framework, and are consistent with the key concepts of having regulated activities, conduct of business rules, and licensing or registration by a supervisory body.
2.6 Regulation of Islamic Finance in the AIFC is provided for primarily in the Islamic Finance Rules and the Islamic Banking Business Prudential Rules. The AIFC provides a framework for Islamic Banking Businesses and specifies Regulated Activities relating to Islamic Finance. The proposals in this policy paper do not reference Islamic Finance directly, mirroring the UK's generally "religion-neutral" regulatory approach. At a high level, we do not consider that the proposals in this policy paper conflict with the general principles of Islamic Law.
[1] As defined in Section 18, FSFR
[2] As defined in Article 1(5) of the Constitutional Statute
[3] As defined in Section 17, FSFR
[4] As defined in Section 19, FSFR
3 Payment services
3.1 Scope and key concepts
3.1.1 Broadly speaking, there are two types of payment schemes: those made through four party schemes, and those made through three party schemes.
(a)Four party schemes involve two parties providing payment services. For example, one bank providing services to a payer, with another bank providing services to the payee. These banks may be linked by a payment scheme or a specific relationship.
(b)Three party schemes (or closed schemes) involve one party providing payment services to both the payer and the payee. The transaction travels across the books of this one provider, such as is the case for PayPal or AmEx.
3.1.2 At a high level, these are the processes that will be regulated under the Framework (although the distinction between three and four party schemes will not directly affect parties' obligations under the Framework).
3.1.3 Payment systems enable the transfer of funds, as set out at 3.1.1. We propose to regulate payment services, meaning the services offered to individuals, businesses, and other organisations. This reflects the technology neutral approach to regulation set out at Error! Reference source not found., and allows payment systems to evolve without needing to amend the regulatory framework.
3.1.4 We propose that payment services be separately regulated to Market Activities and instead included as a new Regulated Activity. This is slightly different to the UK's regulatory approach, which provides a separate regime for the regulation of payment services. Certain Authorised Persons[1] will also be permitted to provide payment services under the Framework without holding a specific payment services licence or registration. This reflects the fact that certain Authorised Persons are already supervised by the AFSA to a sufficiently high standard to allow them to participate in the payment services market.
3.1.5 The Framework will regulate Participants (being legal entities registered under the Acting Law of the AIFC and recognised by the AIFC) that provide payment services and will designate which Participants are permitted to provide payment services. Participants providing payment services as a regular occupation or business activity in the AIFC[2] will be regulated as "payment service providers" in the Framework.
3.1.6 Authorised Market Institutions[3] and Participants who hold a licence to carry out the regulated activities of Islamic Banking Business, Accepting Deposits, Providing Credit, and Providing Money Services (Relevant Authorised Firms) will be permitted to carry on payment services under the Framework. Many of these Participants will already provide payment services to some degree. It should be noted that the AIFC Framework for Mobile and Digital Banking Services (MDB Framework) policy paper[4] proposes to develop a standalone regulatory framework for digital-only banks and a phased approach to full authorisation for these banks (including a limited licence where a digital bank only provides limited Regulated Activities). Assuming the MDB Framework policy paper will be finalised before the Framework is finalised, it must be ensured that the Framework's provisions as to Relevant Authorised Firms (which could include digital-only banks) are consistent with the MDB Framework.
3.1.7 In addition, the Framework will introduce the categories of licensed Payment Institutions (PIs), registered small Payment Institutions (SPIs), licensed Electronic Money Institutions (EMIs), and registered small Electronic Money Institutions (SEMIs), (EMIs and SEMIs are discussed in full at 4) who will also be permitted to provide payment services.
3.1.8 We propose that PIs fall within the existing licensing regime under GEN, but that the Framework include a new registration regime for SPIs to ensure that they are regulated. This allows non-bank Participants to participate in the payments market, but with less onerous obligations than would be imposed on a Participant who wished to accept deposits, for example. This reflects the principle set out at Error! Reference source not found., and has the dual function of opening up the payments market to new entrants, whilst also ensuring the integrity of existing Participants. This proposed regime is set out in full at 3.2.
3.1.9 As a result, entities providing payment services must only do so in accordance with the general prohibition in the FSFR (the General Prohibition). The Framework will introduce an exemption to the General Prohibition for certain Participants providing payment services such as Relevant Authorised Firms and registered payment service providers.
3.1.10 This regime is supplemented by conduct of business rules, which are set out in full at 3.4, and which regulate:
(a)the information to be provided to payment service users before and after executing a payment transaction; and
(b)the rights and obligations of both payment service providers and payment service users in respect of a payment transaction.
3.1.11 Payment services under the Framework will encompass activities such as:
- (a)services which enable money to be paid into and out of bank accounts;
- (b)execution of transactions, such as payments made via payment instruments or devices, direct debits, credit transfers, and debit payments;
- (c)execution of transactions as above, but where funds are covered by a line of credit, such as an overdraft facility;
- (d)issuing of payment instruments and/or acquiring of payment transactions;
- (e)money remittance;
- (f)account information services (AIS); and
- (g)payment initiation services (PIS).
3.1.12 A light touch registration regime will apply to payment service providers which solely provide the payment service of AIS, and these entities will be known as registered AIS providers (RAISPs). This mirrors the UK approach, which allows for entities to solely provide AIS without having to go through the onerous full licensing process that forms part of the Regulated Activity regime. Any payment service providers seeking to provide only PIS, or AIS in addition to other payment services, would still need to become fully licensed within the existing AIFC Regulated Activity regime unless they meet the requirements to register as an SPI or SEMI.
3.1.13 Transactions which are executed wholly in cash (this does not include ATMs) or based on paper documents such as cheques will not be within the scope of the Framework, and nor will transactions relating to securities settlement systems, clearing houses, etc., or transactions relating to securities asset servicing, such as dividends, share sales, unit redemptions, etc.
3.1.14 The Framework will also introduce the concepts of, and provide for:
- (a)payment accounts, meaning accounts held in payment service users' names used for executing payment transactions;
- (b)payment orders, meaning instructions by a payer or payee to its payment service provider requesting the execution of a payment transaction;
- (c)payment instruments, meaning personalised devices or sets of procedures (or both), agreed between the payment service user and payment service provider, and used to initiate payment orders (such as debit cards, credit cards, credit transfers and direct debits); and
- (d)payment service users, meaning persons making use of a payment service as a payer, payee, or both.
3.1.15 We acknowledge the potential overlap between the above concepts and the existing definitions set out in GEN and the AIFC Glossary (GLO), and confirm that this overlap will be addressed in the drafting of the Framework.
3.1.16 There are certain requirements in the payment services aspects of the Framework that will apply to Participants that are not payment service providers, specifically:
- (a)Participants that rely on exclusions relating to limited networks, electronic communications, or ATM operations must notify the AFSA that they are doing so;
- (b)Participants providing currency conversion services will need to provide certain information to the AFSA; and
- (c)Participants that impose charges or reductions when using a given payment instrument will need to provide certain information to the AFSA.
3.2 Licensing and registration regime
3.2.1 The Framework will require Participants that provide payment services to be one of the following:
- (a)a Relevant Authorised Firm (see 3.1.6);
- (b)a PI[5];
- (c)an SPI;[6]
- (d)a RAISP;
- (e)an EMI; or
- (f)a SEMI.
3.2.2 The SPI categorisation assists smaller Participants, who have an actual or projected average turnover in payment transactions below a prescribed threshold, to enter the payments market. In the UK, the average of the preceding 12 months' total amount of payment transactions executed by the Participant must not exceed €3 million (or an equivalent amount) per month. The AFSA has confirmed that the equivalent threshold in the AIFC will be $3,500,000 USD.
3.2.3 To apply to become a PI or an SPI, a Participant will be required to submit an application to the AFSA and pay a fee. In the UK, these fees range from £250 for re-registration, to £5,000 for a new licence as a PI. The AFSA has confirmed that the equivalent fees in the AIFC will be $1,000 USD for SPIs and $3,500 USD for PIs. The information that must be provided by an applicant Participant will vary depending on the type of registration / licence sought, but may include:
- (a)a description of its business or business plan and of its product/s;
- (b)policies and procedures in relation to internal governance arrangements, security, safeguarding, business continuity, customer on-boarding, anti-money laundering, incident reporting, customer grievance redressal measures, managing sensitive payment data and audit; and
- (c)details of the organisational structure, senior managers and responsible persons and persons that control the Participant.
3.2.4 As discussed at 1.9, the Framework will not prescribe the AFSA's approach to assessing and determining these applications. In the interests of assisting Participants to seek licensing / registration, the AFSA may choose to publish guidance or information on its decision-making process and timing in a similar manner to its existing "Guidebook on Authorisation of AIFC Participants and Recognition of Non-AIFC Members".
3.3 Ongoing requirements
3.3.1 As well as requiring market participants providing payment services to be licensed or registered, the Framework will impose ongoing requirements on payment service providers, relating to:
- (a)capital requirements, including:
- (i)initial capital, meaning payment service providers must hold a prescribed amount at the stage of applying for licensing or registration, which can be made up of capital instruments, share premium accounts, retained earnings, or other comprehensive income or reserves; and
- (ii)ongoing capital, meaning payment service providers must carry at all times an amount that is the greater of their initial capital or their own funds amount, (which is calculated based on a firm's fixed overheads, average monthly payment volume, or previous year's income);
- (b)safeguarding requirements, where PIs and SPIs must safeguard sums received from a payment service user for executing transactions or received from another payment service provider for executing their payer's transaction. Safeguarding can take the form of segregating funds or insurance / comparable guarantee. One way to comply with the segregation of funds method is to invest in liquid, low-risk assets approved by the appropriate regulator. The payment service provider can also choose to deposit the relevant funds in a separate account held with a licensed bank;
- (c)reporting and notification requirements, which will apply to payment service providers on an ongoing basis (such as annual financial returns), as well as event-driven notifications (such reporting major security incidents);
- (d)outsourcing and use of agents requirements, where PIs, SPIs and other payment service providers must comply with obligations relating to registration, liability, and governance; and
- (e)accounting and statutory audit obligations to the AFSA. These obligations will not apply to all payment service providers. Only PIs that carry out activities other than the provision of payment services must comply with these accounting and statutory audit obligations, reflecting the UK's regulatory approach. Under the UK framework, these obligations would not, for example, apply to SPIs, or to payment service providers that do not carry out activities other than the provision of payment services.
3.3.2 The reason for the Framework containing the ongoing requirements (rather than by amendment to GEN) is because they will apply to certain non-licensed entities such as SPIs and RAISPs.
3.3.3 These ongoing requirements are in addition to the requirements on Authorised firms in GEN which will apply to PIs. It will be necessary to consider which (if any) of the rules in GEN ought not to apply to PIs. Where the AFSA wishes for some of requirements in GEN to apply to registered payment service providers (such as SPIs and RAISPs), it will need to make specific provision for this in the Framework or GEN.
3.3.4 We note that the MDB Framework policy paper proposes a standalone set of rules applying to digital-only banks – the AIFC Digital Bank Rules (DBR). The MDB Framework policy paper also provides that Authorised Digital Banks would be limited to providing some or all of the Regulated Activities in Schedule 1 (Regulated Activities) of GEN, including Providing Money Services. It will be important to ensure that the DBR do not include provisions that conflict with the Framework. Presumably, a digital-only bank that provides payment services would be subject to the DBR, but they would also be subject to the ongoing requirements and conduct of business obligations of the Framework (summarised in this section 3.3 and the following section 3.4). It will also be necessary to ensure that the payment services activities listed in the definition of Providing Money Services either do not overlap or are consistent with those we propose to include in the Framework (including those set out in section 3.1.11).
3.3.5 The MDB Framework policy paper also sets out suggestions concerning security standards (e.g. strong customer authentication), client on-boarding, cybersecurity, business recovery, outsourcing, client terms, authorised status and consumer protection. However, the MDB Framework policy paper leaves it to the AFSA to consider whether to take a prescriptive approach in such areas, or to merely set out certain areas where Relevant Authorised Firms need to provide policies and procedures to address these to the satisfaction of the AFSA. If the MDB Framework were to contain prescriptive measures concerning these areas, it would be necessary to ensure that they do not conflict with any of the ongoing requirements and conduct of business obligations in the Framework, which would be imposed on firms carrying out payment services.
3.4 Conduct of business rules
3.4.1 The conduct of business rules set out in the Framework will apply to payment services where they are provided from an establishment maintained by a payment service provider (or its agent) in the AIFC, and to transactions where one of the parties' payment service provider is in the AIFC. In certain instances, the rules will apply to a lesser extent. A "corporate opt-out" will also be available, to allow payment service providers to agree with non-retail customers to derogate from certain conduct of business rules.[7] The reason for the Framework containing the conduct of business rules (rather than by amendment to COB) is because they will apply to certain non-licensed entities such as SPIs, SEMIs and RAISPs.
3.4.2 The conduct of business rules under the Framework will be in addition to the rules in COB which will apply to PIs and EMIs. It will be necessary to consider which (if any) of the rules in COB ought not to apply to PIs and EMIs. Where the AFSA wishes for some of the rules in COB to apply to registered payment service providers (such as SPIs, RAISPs and SEMIs), it will need to make specific provision for this in the Framework or COB.
3.4.3 In relation to information requirements, the Framework will distinguish between, and apply different rules to:
- (a)an ongoing payment agreement, meaning a contract governing the future execution of individual and successive payment transactions, such as parts of a bank's current account terms and conditions; and
- (b)a one-off payment service, meaning a contract governing a single payment transaction not covered by an ongoing payment agreement.
3.4.4 The conduct of business rules will apply high level requirements to both forms of contract, with more granular requirements relating to each. For ongoing payment agreements, information requirements are generally engaged in relation to the formation of the contract, whilst for one-off payment services, the requirements apply to the transaction itself. The information requirements are qualitative (e.g. information to be provided in an easily accessible manner) and quantitative (e.g. details of charges, interest, and exchange rates).
3.4.5 In relation to parties' rights and obligations:
- (a)on executing payment transactions:
- (i)timeframes should be set out for execution, value dating, crediting funds, and displaying these as available to the payee;
- (ii)payment service providers should distinguish between authorised and unauthorised transactions, with mechanisms for customers to give consent to execute payment transactions;
- (iii)payment service providers should only debit payments upon receipt of a valid payment order; and
- (iv)payers should not be able to revoke a payment order after it has been received by their payment service provider, with limited exceptions (for example, relating to direct debits and future-dated payments);
- (b)on liability:
- (i)this is generally apportioned on the basis of who initiated the payment transaction (such as where the payer initiates a transaction, their payment service provider is liable to them for correct execution);
- (ii)for unauthorised payment transactions, the customer must notify its payment service provider of any unauthorised transactions, whilst the payment service provider bears the burden of proof for demonstrating that transactions are properly executed; and
- (iii)customers' liability is capped for losses in connection with loss, theft, etc., but not fraud or breach of their obligations, and customers are liable for providing incorrect information leading to loss (such as providing an incorrect unique identifier);
- (c)on payment instruments, these should not be misused by customers, whilst payment service providers must ensure their security; and
- (d)on charging, payment service providers should generally not be able to charge customers, and any charges must be agreed between the parties.
3.4.6 However, regulatory frameworks do not exist in a vacuum. For example, payment service providers in the UK must comply with various pieces of legislation. In addition to the key statutes relating to payment services and e-money, provisions of other laws impose obligations relating to:
- (a)general standards and principles of governance imposed by regulators;[8]
- (b)accountability of senior staff;[9]
- (c)consumer protection legislation[10], and in particular:
- (i)dispute resolution mechanisms;
- (ii)unfair contract terms; and
- (iii)broader consumer rights;
- (d)"distance marketing",[11] i.e. online sales;
- (e)advertising and e-commerce;[12]
- (f)interchange fees;[13]
- (g)data protection and cyber security;[14] and
- (h)AML and CTF.[15]
3.4.7 In relation to the UK, this is principally due to a combination of the law's incremental development and reform, and the influence of European legislation.
3.4.8 The AFSA already regulates many of the functions set out at 3.4.6 above. For example, mechanisms to ensure the accountability of senior management are provided for in parts 4 and 5 of the FSFR, and the AML and CTF framework in the AIFC closely resembles that of the UK. Where the AFSA wishes for some of these functions to apply to registered payment service providers (such as SPIs, RAISPs and SEMIs), it will need to make specific provision for this in the Framework or by amending the relevant rules. Where there are regulatory gaps, how the AFSA chooses to regulate these areas will be a matter of policy. Specifically, the AIFC's regulatory framework is less mature in relation to consumer protection and data protection. As the scope of the Framework does not include provisions relating to consumer or data protection, the AFSA may wish to seek separate advice on its existing consumer and data protection regulatory regime (potentially to bring it more in line with the UK / EU approach), appreciating that these regimes are likely to apply much more broadly than the remit of this Framework.
[1] As defined at Section 15, FSFR
[2] As defined in Section 6, FSFR
[3] As defined at Section 14, FSFR
[4] Received from AFSA on 13 July 2020
[5] Participants must apply to become a PI if they do not qualify as an SPI (i.e. their actual or projected average turnover in payment transactions is above the prescribed threshold).
[6] If a Participant has an average turnover in payment transactions not exceeding the prescribed threshold, it does not have to apply to be licensed and it can choose instead to be registered as an SPI. Registration would be cheaper and simpler than applying for a full licence.
[7] Payment service providers may agree with business customers (that is, payment service users who are not consumers, small charities or micro-enterprises) to vary the information they provide from that specified in the Framework, and, in certain cases, agree different terms in relation to rights and obligations.
[8] FCA Handbook, Principles for Business (PRIN) and other applicable provisions
[9] FCA Senior Managers & Certification Regime
[10] Consumer Credit Act 1974, Consumer Rights Act 2015, and various statutory instruments
[11] Distance Marketing Regulations 2004
[12] Electronic Commerce (EC Directive) Regulations 2002
[13] Interchange Fee Regulation (EU) 2015/751
[14] General Data Protection Regulation (EU) 2016/679
[15] The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
4 E-money
4.1 Scope and key concepts
4.1.1 E-money is a digital alternative to cash. It allows users to make cashless payments with money stored on a card or phone, or over the internet.
4.1.2 It is broadly defined as electronically-stored monetary value, represented by a claim on the issuer, issued on receipt of funds for the purposes of making payment transactions, and accepted as a means of payment by a person other than the issuer.
4.1.3 Payment instruments such as debit cards are not e-money because the monetary value is not stored in the device. These payment instruments only contain the data necessary to identify the holder and link the holder to a bank account. Debit cards also enable the holder to make purchases and/or withdraw cash and have those transactions directly and immediately charged to their bank account, whether held with the card issuer or not. At the other end of the scale, e-money also does not include value stored on instruments that can only be used on the issuer's premises, or a limited network of providers providing a limited range of goods and services.
4.1.4 We propose to regulate e-money within the AFSA's existing Regulated Activities regime, as provided for by section 1.1.1 of GEN. Issuing e-money will therefore become a regulated activity as set out at schedule 1 of GEN.
4.1.5 We also propose that EMIs fall within the existing licensing regime under GEN, but that the Framework include a new registration regime for SEMIs to ensure they are regulated. This allows non-bank Participants issuing e-money, but who do not wish to undertake the full range of banking operations, to be able to operate within the e-money market. Similar to the licensing and registration regime in relation to payment services, this will also allow EMIs and SEMIs to be subject to less stringent prudential requirements than banks, reflecting the limited systemic risk they pose as compared to banks. This reflects the principle set out at 3.1.3(b), and has the dual function of opening up the e-money market to new entrants, whilst also ensuring the integrity of existing Participants.
4.1.6 As a result, entities issuing e-money must only do so in accordance with the General Prohibition. The Framework will introduce an exemption to the General Prohibition for SEMIs. As with payment services, Relevant Authorised Firms will be permitted to issue e-money without needing to be specifically licensed as an EMI or registered as a SEMI. This reflects the fact that they are already adequately regulated under FSFR. However, they will require a license which permits them to carry out the Regulated Activity of issuing e-money. As set out in 3.1.6, it should be noted that the MDB Framework policy paper proposes to develop a standalone regulatory and authorisation framework for digital-only banks. It will be important to ensure that the Framework's provisions as to Relevant Authorised Firms (which could include digital-only banks) are consistent with the MDB Framework.
4.1.7 This licensing and registration regime is supplemented by conduct of business rules. These rules are partly laid down specifically in relation to e-money, but are also provided for under the payment services framework. These conduct of business rules regulate:
- (a)the issue and redemption of e-money, as set out at 4.3 (these are specific to issuers); and
- (b)the payment services aspects of issuers' business, as set out at 3.4. These are the same standards that apply in respect of payment services.
4.1.8 In regulating e-money, specific concerns arise in relation to the trade-off between restricting e-money issuance to authorised institutions, and therefore protecting users, and opening up the e-money market to competition by reducing the barriers to entry where appropriate (e.g. for lower risk entities). We consider that including EMIs in the existing licensing regime but introducing a new registration regime for SEMIs in the Framework strikes a balance between these two concerns. In particular, the registration regime will provide a more proportionate approach for SEMIs which are not subject to the same requirements where their operations fall below a given threshold. For example, in relation to capital requirements, only SEMIs whose business activities generate (or are projected to generate) average outstanding e-money above a certain threshold (€500,000 in the UK) must hold an amount of initial capital at least equal to 2% of their average outstanding e-money.
4.1.9 Supervisory efforts should also consider the pool of money that EMIs and SEMIs will hold pending redemption of e-money, and how the use (i.e. investment) of this pool should be regulated, as well as safeguards against counterfeiting, money laundering, and terrorist financing.
4.2 Licensing and registration regime
4.2.1 Similar to the licensing and registration regime in relation to payment services set out at 3.2, to issue e-money, the Framework will require Participants to be one of the following:
4.2.2 Similar to the concept of a SPI in payment services, a SEMI's business must be projected to generate an average outstanding e-money below a prescribed threshold. In the UK, the total business activities of the applicant immediately before the time of registration as a SEMI must not generate average outstanding e-money that exceeds €5 million. In addition, if the Participant intends to also undertake payment services that are not connected with issuing e-money, its monthly average turnover in relation to these payment services must be less than a prescribed threshold (in the UK, €3 million). The AFSA has confirmed that the equivalent threshold in AIFC will be $5,500,000 USD.
4.2.3 To become a licensed EMI or registered SEMI, a Participant will be required to submit an application to the AFSA and pay a fee. In the UK, these fees range from £250 for re-registration, to £5,000 for a new licence as an EMI. The AFSA has confirmed that the equivalent fees in the AIFC will be $1,000 USD for a SEMI and $3,500 USD for an EMI. As with payment services, the information that must be provided by an applicant Participant will vary depending on whether it is seeking registration or licensing, but may include the information at 3.2.3.
4.2.4 As discussed at 3.2.4, the AFSA may choose to publish guidance or information to assist Participants in making an application for licensing or registration to issue e-money.
4.3 Ongoing requirements
4.3.1 In addition to the registration regime for SEMIs, the Framework will impose requirements on e-money issuers in respect of:
- (a)capital requirements, where:
- (i)EMIs and SEMIs must carry a prescribed amount of initial capital when applying for licensing or registration (see 3.3.1(a)(i)); and
- (ii)EMIs must hold a prescribed amount of ongoing capital, being the greater of the initial capital amount, or 2% of their average outstanding electronic money issued. EMIs will also have to meet the capital requirements in relation to any unrelated payment services aspects of its business;
- (b)safeguarding requirements, where all e-money issuers will need to safeguard funds received in exchange for the e-money they have issued, either by way of segregating funds or an insurance-based solution (for further detail on segregating funds see 3.3.1(b)). Where there is an insolvency event for an EMI, the claims of holders of e-money must also be paid from the asset pool of the EMI in priority to all other creditors;
- (c)allowed activities, where EMIs may – in addition to issuing e-money – carry on activities relating to:
- (i)providing payment services;
- (ii)providing operational and closely related ancillary services, such as executing payment transactions, foreign exchange services;
- (iii)operating payment systems; and
- (iv)business activities other than issuing electronic money;
- (d)reporting and notification requirements, which broadly mirror those set out at 3.3.1(c);
- (e)outsourcing and use of agents requirements, which broadly mirror those set out at 3.3.1(d), however with a distinction between distributing and redeeming e-money, which may be outsourced, and issuing e-money, which may not; and
- (f)accounting and statutory audit requirements, which broadly mirror those set out at 3.3.1(e).
4.3.2 The reason for the Framework containing the ongoing requirements (rather than by amendment to GEN) is because they will apply to certain non-licensed entities such as SEMIs.
4.3.3 The ongoing requirements in the Framework would apply in addition to any requirements in GEN which apply to EMIs. It will be necessary to consider which (if any) of the rules in GEN ought not to apply to EMIs. Where the AFSA wishes for some of the rules in GEN to apply to SEMIs, it will need to make specific provision for this in the Framework or GEN.
4.3.4 As explained at 3.3.2 above in relation to payment services, we note that the MDB Framework policy paper proposes that the standalone DBR apply to digital-only banks. It will be important to ensure that the DBR do not include provisions that conflict with the Framework in the context of e-money. Presumably, a digital-only bank that issues e-money would be subject to the DBR, but they would also be subject to these ongoing requirements and conduct of business obligations in the Framework (set out in this section 4.3 and below at 4.4).
4.3.5 The MDB Framework policy paper also sets out suggestions concerning security standards (e.g. strong customer authentication), client on-boarding, cybersecurity, business recovery, outsourcing, client terms, authorised status and consumer protection. As set out in relation to payment services at 3.3.5, if the MDB Framework were to contain prescriptive measures concerning these areas, it would be necessary to ensure that they do not conflict with any ongoing requirements or conduct of business obligations imposed on e-money issuers.
4.4 Conduct of business rules
4.4.1 The conduct of business rules set out at 3.4 above will apply to e-money issuers in relation to the payment services aspects of their business in the AIFC. In addition, the Framework will set out rules that apply to issuing and redeeming e-money (the e-money rules). The reason for the Framework containing the conduct of business rules (rather than by amendment to COB) is because they will apply to certain non-licensed entities such as SEMIs.
4.4.2 The conduct of business rules under the Framework will be in addition to the rules in COB which will apply to EMIs. It will be necessary to consider which (if any) of the rules in COB ought not to apply to EMIs. Where the AFSA wishes for some of the rules in COB to apply to SEMIs, it will need to make specific provision for this in the Framework or COB.
4.4.3 The e-money rules will apply to issuing and redeeming e-money, where this is carried out by a Participant in the AIFC.
4.4.4 On issuing e-money, issuers must do so at par value (i.e. for the same amount as the funds received) when they receive the funds. They must also do so without delay.
4.4.5 On redeeming e-money:
- (a)holders of e-money must have the right to redeem the monetary value at any time, and at par value;
- (b)the issuer must ensure the contract clearly states the conditions for redemption, including any fees;
- (c)any fees charged for redemption must be proportionate to the costs actually incurred by the issuer (for example, the costs of recording and safeguarding e-money would qualify);
- (d)the issuer cannot award interest in respect of holding e-money, or award any other benefits that are linked to the length of time that the e-money is held; and
- (e)the issuer must allow redemption for up to six years after the contract with the holder of the e-money ends.
4.4.6 In addition to complying with the Framework, the AFSA should consider the extent to which it will require issuers of e-money to comply with other aspects of regulation, such as those outlined in section 3.4.6 in relation to payment service providers. This will primarily be a matter of policy.
[1] If a Participant has average outstanding e-money that does not exceed the prescribed threshold, it does not have to apply to be licensed and it can choose instead to be registered as a SEMI. Registration would be cheaper and simpler than licensing.
[2] Participants must apply to become a licensed EMI if they do not qualify as a SEMI (i.e. their average outstanding e-money exceeds the prescribed threshold).
5 Implementation of the proposed framework
5 Implementation of the proposed framework
5.1 Amendments / effect on existing AIFC legislation
5.1.1 We anticipate that a number of amendments to existing AIFC legislation will be necessary in order to adopt the Framework. The precise scope of these amendments will become clear once the Framework has been drafted. At a high level, the following amendments are likely to be required:
- (a)amending the list of Regulated Activities in Schedule 1 of GEN to include "Providing Payment Services" and "Issuing Electronic Money";
- (b)amending the definition of "Providing Money Services" contained in Schedule 1 of GEN to ensure no inconsistencies with the newly Regulated Activities outlined in 6.1.1(a);
- (c)adding the definitions introduced by the Framework to GLO;
- (d)adding to the AIFC Fees Rules to reflect any fees that the AFSA may wish to impose upon Participants applying for a licence as a PI or EMI, or a registration as a SPI, SEMI or RAISP;
- (e)amending the AIFC Insolvency Rules to reflect the safeguarding requirements set out at 5.3.1(b);
- (f)amending the COB; and
- (g)amending the provisions relating to outsourcing at GEN 5.2 to reflect the outsourcing requirements at 4.3.1(d) and 5.3.1(e), subject to the precise wording of the Framework.
5.2 Consideration of Kazakh law
5.2.1 We understand that the Framework will be characterised as an AIFC Act[1] and will form part of the Acting Law[2] of the AIFC alongside the Acting Law of the Republic of Kazakhstan, which will apply to Participants to the extent the Constitutional Statute and the AIFC Acts do not apply to certain legal subject matter. The Framework will therefore need to be drafted bearing in mind this potential interaction with existing Kazakh law. For example, certain Kazakh regulations allow for money held in a bank account:
- (a)to be withdrawn without the client’s consent – for example, in accordance with a collection order issued by the state revenue authorities, or as expressly provided for by Kazakhstan legislative acts; or
- (b)to be arrested based on either a court decision or a resolution of an enforcement officer sanctioned by the prosecutor general.
5.2.2 We appreciate that the AFSA is likely to have previously considered the extent to which provisions of Kazakh law such as those described above should apply to entities operating within the AIFC. Understanding the AFSA's approach in this regard will assist when it comes to drafting the Framework.
[1] As defined in Article 1(4) of the Constitutional Statute
[2] Within the meaning of Article 4(1) of the Constitutional Statute
6 Glossary
Term | Meaning |
ACL | Australian Consumer Law |
AFSA | Astana Financial Services Authority |
ADI | Authorised deposit-taking institution |
AIFC | Astana International Financial Centre |
AIS | Account information services |
AISP | Account Information Service Provider |
AML | Anti-money laundering |
APRA | Australian Prudential Regulation Authority |
ASIC | Australian Securities and Investments Commission |
CA | The Corporations Act 2001 |
COB | Conduct of Business Rules |
Constitutional Statute | Constitutional Law of the Republic of Kazakhstan “On the Astana International Financial Centre” No. 438-V dated 7 December 2015 as amended |
CTF | Counter-terrorist financing |
DBR | AIFC Digital Bank Rules |
DPT | Digital payment tokens |
EMD2 | The second Electronic Money Directive (2009/110/EC) |
EMI | Licensed Electronic Money Institution |
E-money rules | Framework rules that will apply to issuing and redeeming e-money |
EMRs | Electronic Money Regulations 2011 |
FCA | Financial Conduct Authority |
Framework | Regulatory framework for payment services and electronic money in the AIFC |
FSFR | AIFC Financial Services Framework Regulations |
GDPR | General Data Protection Regulation (EU) 2016/679 |
GEN | General Rules |
GLO | Glossary |
MAS | Money Authority of Singapore |
MDB Framework | AIFC Framework for Mobile and Digital Banking Services |
Participant | An AIFC Participant, as defined in Article 1(5) of the Constitutional Statute. |
PDPA | Personal Data Protection Act 2012 |
PI | Licensed Payment Institution |
PIS | Payment initiation services |
Privacy Act | Privacy Act 1988 |
PSA | Payment Services Act 2019 |
PSD2 | The second Payment Services Directive ((EU) 2015/2366) |
PSRA | Payment Systems (Regulation) Act 1998 |
PSRs | Payment Services Regulations 2017 |
RAISP | Registered Account Information Service Provider |
RBA | Reserve Bank of Australia |
Relevant Authorised Firms | Participants who are authorised to carry out the regulated activities of Islamic Banking Business, Accepting Deposits, Providing Credit, and Providing Money Services |
SEMI | Registered Small Electronic Money Institution |
SPI | Registered Small Payment Institution |
The Code | ePayments Code |
Schedule 1 – Policy issues (major)
Policy issue identified by AFSA for consideration | AFSA's policy decision | |
1 | Would it be acceptable to regulate payment services separately from the AIFC's existing "Regulated Activity" regime? (section 4.1.4 of the policy paper) | ·Payment services will be included in the list of Regulated Activities in Schedule 1 of GEN. ·Separate AIFC Rules will be prepared which provide the details of the Framework. ·Activities that are included in existing the Regulated Activity of “Providing Money Services” will be defined and regulated under the separate AIFC Rules for the PSEM Framework. |
2 | What should be the turnover threshold for a Participant to be able to apply for registration as a SPI? (section 4.2.2 of policy paper) | ·The threshold will be 3,500,000 USD per month, meaning that if a Participant has an actual or projected average turnover in payment transactions below the threshold of 3,500,000 USD per month, it can apply to be registered as an SPI. |
3 | What should be the projected average outstanding e-money threshold for a Participant to be able to apply for registration as a SEMI? (section 5.2.2 of policy paper) | ·The threshold will be 5,500,000 USD, meaning that if a Participant's business activities (immediately before the time of its registration application) generate average outstanding e-money below the threshold of 5,500,000 USD, it can apply to be registered as an SEMI. |
Schedule 2 - Policy issues (non-major)
Schedule 1- Policy issues (non-major)
# | Policy issue identified by AFSA for consideration | AFSA's policy decision |
1 | What should be the application fees to become an authorised PI or a registered SPI? (section 4.2.3 of policy paper) | ·The application fees to become a registered SPI will be 1,000 USD and to become an authorised PI will be 3,500 USD. ·If an SPI no longer meets the requirements to qualify as a SPI, but intends to continue providing payment services, it will be required to apply for authorisation as a PI. There will not be any other more streamlined / shortened process for transitioning from a registered SPI to an authorised PI. |
2 | What should be the application fees to become an authorised EMI or registered SEMI? (section 5.2.3 of policy paper) | ·The application fees to become a registered SEMI will be 1,000 USD and to become an authorised EMI will be 3,500 USD. ·If an SEMI no longer meets the requirements to qualify as a SEMI, but intends to continue providing payment services, it will be required to apply for authorisation as an EMI. There will not be any other more streamlined / shortened process for transitioning from a registered SEMI to an authorised EMI. |
3 | What should be the prescribed amount of ongoing capital that electronic money issuers must hold? (section 5.3.1(a)(ii) of policy paper) | ·EMIs will be required to hold a prescribed amount of ongoing capital, being the greater of the initial capital amount, or 2% of their average outstanding e-money issued. The initial capital amount for EMIs will be expressed in USD, and be approximately equivalent to €350,000. ·SEMIs will be subject to an initial capital requirement of 2% average outstanding e-money issued, where their business activities generate (or are projected to generate) average outstanding e-money over a prescribed threshold. The prescribed threshold will be expressed in USD, and be approximately equivalent to €500,000.SEMIs that are subject to this initial capital requirement will also be required to continue to meet this requirement on an ongoing basis (unless their level of business falls below the prescribed threshold). |
Consultation Paper on Proposed amendments to the AIFC Insurance and Reinsurance Prudential Rules
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Insurance and Reinsurance Prudential Rules (PINS).
2.The proposals in this Consultation Paper will be of interestto current and potential AIFC participants who are interested in exercising business activities in or from the AIFC as captive insurers and insurance managers.
3.All comments should be in writing and sent to the address or email specified below. If sending your comments by email, pleaseuse “Consultation PaperAFSA- P-CE-2020-0010” in the subject line. You may,if relevant, identifythe organisation you represent when providing your comments. The AFSA reserves the right to publish, includingon its website, any commentsyou provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4.The deadline for providing comments on the proposals is 12 December 2020. Prior to this consultation paper the AFSA published the policy paper on Enhancement of the AIFC Regulatory Framework for Captive Business, which included same proposals at policy level.
5.Once we receive your comments, we shall consider if any refinements are required to this proposal.
6.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA) 55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
7.The remainder of this Consultation Paper contains the following:
(a)Background to theproposal
(b)Annex 1: Proposed Amendments to the AIFC Insurance and Reinsurance Prudential Rules.
Background
1.A captive insurance is a risk management vehicle used by companies to cover risks that cannot be efficiently insured in the market or to manage risks in a more cost-effective manner. Captive insurers mainly underwrite risks related to or arising out of the businessor operations of the groupto which they belong or third- party risks arising in related businesses.
2.Captive insurance allows a company to insure its industry-specific risks which would otherwise be overpriced by commercial insurers. The cost savings would result not only from a more tailored risk assessment but also from avoidance of marketing and administration costs. In addition, captives are uniquely positioned to manage their own risks as they can make more precise forecasts based on their own historical data as opposed to commercial insurers who rely on industry averages.
3.The following summarizes the proposed amendments to the AIFC Insurance and Reinsurance Prudential Rules (PINS) that aim to provide a competitive and clear risk-based regulation for full-fledged and effective operation of captive insurers.
(1)Introduce three classes of captive insurers differentiating on the amount of third-party risk allowed to be written.
(2)Set prudential requirements for each class of captive insurers based on the level of risk the scope of their license assumes.
(3)Explicitly state that an AIFC captive insurer can be either self-managed or managed by an AIFC insured Insurance Manager
(4) Expand the functions of the AIFC Captive Insurance Managers.
As a result of introduction of these changes, AFSA aims to further develop the insurance market in the AIFC and Kazakhstan.
4.The key objectives of the proposed amendments include:
-Make the AIFC jurisdiction suitable for different types of captive insurers;
-Increase the numberof captive insurersand insurance managersin the AIFC;
-Alignment of captive insurance classification with international standards;
-Add clarification and precision to the requirements to captive insurance managers.
5.Annex 1 includes the proposed Amendments to the AIFC Insurance and Reinsurance Prudential Rules.
Annex 1
Proposed amendments to the AIFC Insurance and Reinsurance Prudential Rule
In these Rules the underlying indicates a new text and the strikethrough indicates a removed texT
14Captive Insurers
14.1 Introduction
14.1.1Definition of Captive Insurer
A Captive Insurer is an Authorised Firm with a Licence to carry on Insurance Business as a Class 1, Class 2 or Class 3 Captive Insurer only for the business or operations of the Group to which it belongs.
14.1.1-1. Classification of Captive Insurer
(1) A class 1 Captive Insurer is an AIFC Captive Insurer that is permitted under the conditions of its authorisation to effect or carry out Contracts of Insurance only for risks related to or arising out of the business or operations of the group to which the Insurer belongs.
(2) A class 2 Captive Insurer is an AIFC Captive Insurer that is permitted under the conditions of its authorisation to obtain no more than 20% of its gross written premium from third-party risks arising from business or operations that are closely linked to the business or operations of the group to which the Insurer belongs.
(3)A class 3 Captive Insurer is an AIFC Captive Insurer that:
(a)is permitted under the conditions of its authorisation to effect or carry out Contracts of Insurance only for risks related to or arising out of the business or operations of persons who engage in similar, related or common:
i.businesses; or
ii.activities; or
iii.trade; or
iv.services; or
v.operations; and
(b)is owned by the persons mentioned in paragraph (i) or by a body corporate of which all such persons are members such as group captives.
14.1.2Definition of Captive Insurance Business
(1) Captive Insurance Business is the business of Effecting or Carrying out Contracts of Insurance as a Class 1, Class 2 or Class 3 Captive Insurer only for the business or operations of the Group to which the Captive Insurer belongs.
(2) General Captive Insurance Business is Captive Insurance Business in relation to General Insurance Contracts
(3) Long-Term Captive Insurance Business is Captive Insurance Business in relation to Long-Term Insurance Contracts.
14.1.3 Captive Insurer to be incorporated in the AIFC
(1) Only an Authorised Firm which is incorporated under the laws of the AIFC may apply to the AFSA for a Licence to conduct Captive Insurance Business.
(2) A Captive Insurer may either be self-managed or managed by an Insurance Manager authorised by AFSA.
14.3 Application of PINS to Captive Insurers
14.3.1Application of PINS 2 (Systems and Controls)
(1) A Captive Insurer must comply with the requirements of PINS 2 (Systems and Controls) in full subject to (2).
(2) A Captive Insurer may appoint an Insurance Manager authorised by AFSA to perform the Controlled Function of Senior Executive Officer provided that such Employee is an Approved Individual and the Designated Function of Money Laundering Reporting Officer.
14.3.2 (…)
14.3.3 (…)
14.3.4 (…)
14.3.5 (…)
14.3.6 (…)
14.3.7 (…)
14.3.8 (…)
14.3.9 (…)
14.3.10 (…)
14.3.11 (…)
14.3.12 Application of PINS 13 (Prudential Returns)
(1) A Captive Insurer must comply with PINS 13 (Prudential returns) in full.
(2)Unless required otherwise by AFSA in writing, Class 1 Captive Insurer may submit Prudential Returns semi-annually instead of quarterly as stated in Schedule 6.
14.4Capital adequacy requirements for Captive Insurers
14.4.1Minimum Capital Requirement (MCR) for a Captive Insurer
(1)For the purposes of Schedule 4 of PINS, the Capital Floor for a Captive Insurer is the highest of the following:
(a) US$150,000 for a Captive Insurer carrying on General Captive Insurance Business;
(b) US$150,000 for a Captive Insurer carrying on Long-term Captive Insurance Business; or
(c)an amount specified in writing by the AFSA. (d) the Base Capital Requirement;
(e)he Premium Risk Component;
(f)the Technical Provision Risk Component.
(2) Base Capital Requirement (BCR) for a Captive Insurer is
(a)US$100,000 for a Class 1 Captive Insurer;
(b)US$200,000 for a Class 2 Captive Insurer;
(c)US$300,000 for a Class 3 Captive Insurer.
(3) Premium Risk Component for a Captive Insurer
(a) The Premium Risk Component for a Class 1, Class 2 or Class 3 Captive Insurers conducting general insurance business or life insurance business is the amount calculated in accordance with the following formula:
[18% ´ firm’s net written premium up to US$ 5 million]+
[16% ´ firm’s net written premium in excess of US$ 5 million]
(4) Technical Provision Risk Component for a Captive Insurer
(a)The Technical Provision Risk Component for a Class 1, Class 2 or Class 3 Captive Insurers conducting general insurance business is the amount calculated in accordance with the following formula:
[5% ´ firm’s net claims reserve under general Contracts of Insurance]-
[15% ´ the amount of firm’s reinsurance and other recoveries expected to be received in respect of those claims]
(b)The technical provision risk component for a Class 1, Class 2 or Class 3 Captive Insurers conducting long-term insurance business is the amount calculated in accordance with the following formula:
[2.5% ´ Policyholder liabilities calculated using actuarial methods for long-term insurance]
14.4.2 (…)
14.4.3Prescribed Capital Requirement for a Protected Cell Company
(1) Class 1, Class 2 and Class 3 Captive Insurers are not required to calculate Prescribed Capital Requirement;
(2) For a Protected Cell Company each Cell of a Protected Cell Company must calculate its Prescribed Capital Requirement in accordance with PINS 5.2.3 (Obligation to calculate PCR) as if it were a stand-alone Insurer.
14.4.4 (…).
Introduction
Consultation Paper on Proposed Approach on the Application of the AIFC regulatory fees
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed approach on the application of the AIFC regulatory fees.
2.The proposals in this Consultation Paper will be of interestto current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3.All comments should be in writingand sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P- CE-2020-0009” in the subject line. You may, if relevant,identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4.The deadline for providing comments on the proposals is 20 December 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
6.The remainder of this Consultation Paper contains the following:
(a)Background to theproposal;
(b)Key proposals on the application of the AIFC regulatory fees;
(c)Annex 1: Proposed supervision fees tables.
Background
1.AFSA have not been applying application fees for authorisation and recognition as well as supervision fees, stipulated by the AIFC Fees Rules (FEES). This proposal comes as AIFC is approaching the end of waiver for application fees granted in June 2018 expiring on 1 January 2021.
2.There are two types of supervision fees in FEES: initial annual supervision fee and subsequent standard annual supervision fees.
3.According to FEES, initialannual supervision fee must be paid for the initialperiod of regulation after the grant of licensed status. The initial annual supervision fee is calculated as the fee which was payable at the time of application for authorisation, pro-rated over the whole months remaining between the date of authorisation and the end of the year.
4.Subsequent annual supervision fees must be paid for any period of regulation after the period described above. The standard annual supervision fee is:
(i)the highest of the fees specified in the fees table corresponding to the activities which the relevant entity is licensed to carry on; and
(ii)an amount as may be determined by the AFSA for each Approved Individual employed by the relevant entity at 30 September in the previous year, or on the date of the grant of authorisation, whichever is the later.
5.The proposed approach on the application of the AIFC regulatory fees is discussed in the next section of this document. Annex 1 includes the proposed supervision fees tables.
Key proposals on the application of the AIFC regulatory fees
1. With the focus on the currentdevelopment stage of the AIFC, it is proposed to remove authorisation and recognition application fees and introduce only annual supervision fees that will take effecton 2021 and will be applied after1 year from the AIFC entity’s commencement of operations. Annex 1 sets out the proposed supervision fees.
2. This proposal does not require upfront payments for new potential participants and maintains the AIFC attractiveness. This proposal also allows the AIFC participants to operate 1 year without supervision fees further increasing the ease of setting up a business in the AIFC.
3. For existing AIFC participants, the proposal is to apply supervision fees starting from 2021 if such participants have been operational for more than 1 year. For those companies that have not yet commenced operations, the supervision fees will be applied after 1 year from their commencement of operations. Therefore, the application of supervision fees includes the “commencement of operations” ratherthan the “date of a Licence” since the AIFC entity may obtain a Licence but do not commence its operations in the AIFC.
4.Additionally, thereare proposals to introduce the following fees starting from 2021 that were not earlier introduced:
(a) fees at the level of 50% of the revised fees in Annex 1 for post-authorisation processes such as applications to vary the scope of a Licence;
(b)in an amount of 300 USD for withdrawal of a Licence; and
(c)in an amount of 50 USD for modification and withdrawal of Approved Individual’s registration.
5. It is proposed to waive all fees, including authorisation and supervision fees, for FinTech Lab participants until further notice from AFSA.
6. Proposed supervision fees in Annex1 are based on currentapplication fees set out in Schedules 1-4 of FEES by applying to them risk-based approach and reducing them noting the nature, scale and complexity of businesses. Therefore, the proposed reductions are:
(a)90% for AIFC Participants not holding Client Money/Asset and with the lowest Base Capital Requirements;
(b)50% for other AIFC Participants not holding Client Money/Asset;
(c) 20% for AIFC Participants holding Client Money/Asset;
(d)20% for Ancillary Service Providers, Authorised Market Institutions and entities for recognition regime.
Annex 1
1. Proposed supervision fees for Regulated Activities
90% reduction is proposed for the following AIFC Participants not holding Client Money/Asset and with the lowest Base Capital Requirements:
Application fee by Regulated Activities | Fee (USD) | Revised Fee (USD) |
Advising on Investments | 5000 | 500 |
Arranging Deals in Investments | 5000 | 500 |
Insurance Intermediation | 5000 | 500 |
Advising on a Credit Facility | 5000 | 500 |
Arranging a Credit Facility | 5000 | 500 |
Providing Insurance Management | 5000 | 500 |
50% reduction is proposed for the following AIFC Participants not holding Client Money/Asset:
Application fee by Regulated Activities | Fee (USD) | Revised Fee (USD) |
Operating a Representative Office | 3000 | 1500 |
Providing Trust Services (where an Authorised Firm is not acting as trustee in respect of an express trust and does not hold clients’ money) | n/a | 2500 |
Providing Islamic Financing, in case if only own funds are used | 10000 | 5000 |
Providing Money Services | 5000 | 2500 |
Operation of a Payment System | 5000 | 2500 |
20% reduction is proposed for AIFC Participants holding Client Money/Asset:
Application fee by Regulated Activities | Fee (USD) | Revised Fee (USD) |
Managing a Collective Investment Scheme | 5000 | 4000 |
Arranging Custody | 5000 | 4000 |
Providing Fund Administration | 5000 | 4000 |
Managing Investments | 5000 | 4000 |
Providing Custody | 5000 | 4000 |
Providing Trust Services | 5000 | 4000 |
Acting as the Trustee of a Fund | 5000 | 4000 |
Dealing in Investments as Agent | 10000 | 8000 |
Dealing in Investments as Principal | 10000 | 8000 |
Managing a Restricted Profit Sharing Investment Account | 10000 | 8000 |
Islamic Banking Business | 15000 | 12000 |
Providing Islamic Financing, in case if not only own funds are used | n/a | 8000 |
Accepting Deposits | 15000 | 12000 |
Providing Credit | 10000 | 8000 |
Conducting Insurance Business | 10000 | 8000 |
Conducting Takaful Business | 10000 | 8000 |
Conducting Captive Insurance Business through a Protected Cell Company | 5000 plus 1000 for each cell | 4000 plus 800 for each cell |
Conducting Captive Insurance Business other than through a Protected Cell Company | 5000 | 4000 |
Conducting Captive Takaful Business through a Protected Cell Company | 5000 plus 1000 for each cell | 4000 plus 800 for each cell |
Conducting Captive Takaful Business other than through a Protected Cell Company | 5000 | 4000 |
Opening and Operating Bank Accounts | 5000 | 4000 |
2.Proposed supervision fees for Market Activities
20% reduction is proposed for AIFC Participants carrying on Market Activities:
Application fee by Market Activities | Fee (USD) | Revised Fee (USD) |
Operator of a Clearing House | 125 000 | 100 000 |
Operator of an Investment Exchange | 125 000 | 100 000 |
Operator of a Digital Asset Trading Facility | 5 000 | 4000 |
Operator of a Crowdfunding Platform | 5 000 | 4000 |
Operating a Multilateral Trading Facility | 5 000 | 4000 |
Operating an Organised Trading Facility | 5 000 | 4000 |
Operating a Private Financing Platform | 5 000 | 4000 |
3.Proposed supervision fees for Ancillary Services
20% reduction is proposed for AIFC Participants providing Ancillary Services
Activity | Fee (USD) | Revised Fee (USD) |
Providing Legal Services | 2 000 | 1600 |
Providing Audit Services | 2 000 | 1600 |
Providing Accountancy Services | 2 000 | 1600 |
Providing Consulting Services | 2 000 | 1600 |
Providing Credit Rating Services | 2 000 | 1600 |
4. Proposed supervision fees for Recognised Non-AIFC Market Institution and Recognised Non-AIFC Member
20% reduction is proposed for Recognised Non-AIFC Market Institution and Recognised Non- AIFC Member
Application fee | Fee (USD) | Revised Fee (USD) |
Recognised Non-AIFC Market Institution | 2 000 | 1600 |
Recognised Non-AIFC Member | 2 000 | 1600 |
Consultation Paper on Proposed Enhancement of AIFC Regulatory Framework for Captive Business
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed policy for captive insurance business.
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2020- 000X” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unlessyou expressly requestotherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 25 November 2020. Once we receive your comments, we shall considerif any refinements are requiredto this proposal.
5. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA) 55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6.The remainder of this Consultation Paper contains the following:
(a)Background to the proposal
(b) Annex 1: Policy paper on Enhancing the Regulatory Framework on Captive Insurance Business
Background
1.A captive insurance is a risk management vehicle used by companies to cover risks that cannot be efficiently insured in the market or to manage risks in a more cost-effective manner. Captive insurersmainly underwrite risksrelated to or arising out of the business or operations of the group to which they belong or third-party risks arising in related businesses.
2.Captive insurance allows a company to insure its industry-specific risks which would otherwise be overpriced by commercial insurers. The cost savings would result not only from a more tailored risk assessment but also from avoidance of marketing and administration costs. In addition, captives are uniquely positioned to manage their own risks as they can make more precise forecasts based on their own historical data as opposed to commercial insurers who rely on industry averages.
3.The following summarizes the proposed amendments to the AIFC Insurance and Reinsurance Prudential Rules (PINS) that aim to provide a competitive and clear risk- based regulation for full-fledged and effective operation of captive insurers.
(1)Introduce three classes of captive insurersdifferentiating on the amount of third-party risk allowed to be written.
(2)Set prudential requirements for each class of captive insurers based on the level of risk the scope of their license assumes.
(3)Explicitly state that an AIFC captive insurer can be either self-managed or managed by an AIFC insured Insurance Manager
(4)Expand the functions of the AIFC Captive Insurance Managers.
(5)Provide AIFC Guidance on Captive InsuranceBusiness aimed at providing guidance to potential and licensedAIFC captive insurersand insurance managersand includes a generaloverview of captiveinsurance business, classesof captives, responsibilities and expectations to Insurance Managers or Captive Insurers (in case self-managed) for managing a captive insurance business. This Guidance will be designed to be read in conjunction with all other relevant AIFC rules.
4.As a result of introduction of these changes,AFSA aims to further developthe insurance market in the AIFC and Kazakhstan.
5. The key objectives of the proposed amendments include:
-Make the AIFC jurisdiction suitable for different types of captive insurers;
-Increase the number of captive insurers and insurance managers in the AIFC;
-Alignment of captive insurance classification with international standards;
-Add clarification and precision to the requirements to captive insurance managers;
-Provide additional guidance document describing high level information for captive insurers and insurance managers.
6.Annex 1 includes the Policy paper on Enhancing the Regulatory Framework on Captive Insurance Business in the AIFC.
Annex 1
POLICY PAPER ON ENHANCING THE REGULATORY FRAMEWORK FOR CAPTIVE BUSINESS IN THE AIFC
Consultation Paper on Proposed Enhancement of the AIFC Regulatory Framework for Representative Offices
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite publiccomments on the proposed amendments to the AIFC Regulatory framework for Representative Offices.
2.The proposals in this Consultation Paper will be of interestto current and potential AIFC participants who are interested in exercising business activities in or from theAIFC.
3.All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2020- 0006” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reservesthe right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supportedby reasoning and evidence will be given more weightby the AFSA.
4.The deadline for providing comments on the proposals is 4 November 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA) 55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6.The remainder of this Consultation Paper contains the following:
(a)Background to the proposal
(b)Annex 1: Draft of the proposed amendments to the AIFC Pre-IPO Listing Rules
Background
1. The scope of Representative Office’s includes:
(a)marketing activities;
(b)activities that increase the profile, in the AIFC, of the Representative Office's head office;
(c)activities that relate to correspondence with or the provision of information from the Representative Office's head office;
(d)activities that relate to the provision of information to the Representative Office's head office relating to business trends, business opportunities and developments in the AIFC markets;
(e)any other activities that the AFSA determine may be suitable for a Representative Office to conduct.
2.The proposed amendments to existing legal framework aim to provide market expansion opportunities and streamline the existing processesof Representative Officeregistration, namely:
1) Exempt Representative Offices from the requirement to assign Senior Executive Officer (SEO), Money Laundering ReportingOfficer (MLRO), FinanceOfficer (FO) and Compliance Officer (CO). Instead, allow these functions (except MLRO) to be conducted by Principal Representatives, persons assigned to manage Representative Offices.
2) Exempt Representative Officesfrom the obligation to comply with the requirements of the AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanction Rules (AML) as these requirements are not proportionate to the nature of activities conducted by Representative Offices.
3) Allow Principal Representatives, persons assigned to manage Representative Offices, to be non-residents ofKazakhstan.
3. The key objectives of the proposed amendments include:
-streamline the registration process of Representative Offices
-create market expansion opportunities for Representative Offices
-create an opportunity for potential Authorised Firms to test the AIFC market and jurisdiction by registering first as a Representative Office.
4.Annex 1 describes the proposed amendments to the AIFC General Rules, AIFC Representative Office Rules and AIFC Anti-Money Laundering, Counter Terrorist Financing and Sanctions.
Proposed amendments to the AIFC Rules regarding Representative Offices
In these Rules the underlying indicates a new text and the strikethrough indicates a removed text
Rule: AIFC General Rules
CONTROLLED AND DESIGNATED FUNCTIONS
2.1.Mandatory appointments
2.1.1. 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; and
(c)Compliance Officer
(2)For an Authorised Person Operating a Representative Office the mandatory appointments in
(1) may be carried on by its Principal Representative.
2.1.2.Appointments to be filled by Approved Individuals or Designated Individuals
(1)An Authorised Person, except for an Authorised Person Operating a Representative Office, must make the following appointments and ensure that they are held by either an Approved Individual or a Designated Individual at alltimes:
(a)Money Laundering Reporting Officer; and
(b)such other role or function as the AFSA may direct from time to time.
(2) …
Rule: AIFC Representative Office Rules
3.4. Principal Representative
(1)A Representative Office must at all times have a Principal Representative who (a) is resident in Kazakhstan; and
(b) has satisfied the AFSA as to his/her fitness and propriety. The AFSA may give a Representative Officewritten notice that a PrincipalRepresentative is not fit and proper if the AFSA makes such a determination.
(2)If:
(a)the Principal Representative ceases to be an employee of the Representative Office; or
(b)the Representative Office receivesthe notice describedin REP 3.4(1)(b), the Representative Office must designate a replacement PrincipalRepresentative as soon as possibleafter, and in any event within 28 days of, either the Principal Representative's departure in REP 3.4(2)(a) or the Representative Office'sreceipt of the notice mentionedin REP 3.4(1)(b). The
AFSA may revoke a Representative Office's Licence if they fail to follow the procedure outlined in REP 3.4(2).
Rule: AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules
2.APPLICATION
2.1.Application
(a)The AML Rules apply to:
(i)every Relevant Person in respect of all its AFSA regulated or supervised activities except an Authorised Firm licenced to operate a Representative Office; and
(ii)the persons specified in AML 2.2 as being responsible for a Relevant Person's compliance with these Rules.
(b)For the purposes of these Rules, a Relevant Person means:
(i)an Authorised Firm;
(ii)an Authorised Market Institution;
(iii)a DNFBP; or
(iv)a Registered Auditor.
Consultation paper on the proposed amendments to the AIFC Pre-IPO Listings Rules
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Pre- IPO Listings Rules.
2.The proposals in thisConsultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3.All comments should be in writingand sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P- CE-2020-0005” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4.The deadline for providing comments on the proposals is 16 October 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6.The remainder of this Consultation Paper contains the following:
(a)Background to theproposal
(b)Annex 1: Draft of the proposed amendments to the AIFC Pre-IPO Listing Rules
Background
1.According to the AIFC Strategy 2025, developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets are the key objectives of the AIFC. AIFC shall become the country’s core platform for attracting portfolio investments, conducting IPO/SPO of large national and private companies. While furtherissuance and placement of corporate and public sectors financial instruments will be continued, raisingdemand from frontierand emerging markets in willingness to invest, shall also be fulfilled by provision of appropriate financial instruments.
2.The AIFC Pre-IPO Listings Rules were developed in 2018 with the aim to allow the admission of the Shares of an Issuer to an Official List maintained by an Authorised Investment Exchange, without the Issuer immediately carrying out an initial public offering of Shares and seeking their admission to trading on the Authorised Investment Exchange.
3.According to the AIFC Glossary, the Shares and Certificate over Shares are equity securities. A Share is a share or stock in the share capital of any Body Corporate or any unincorporated body (excluding a Unit). A Certificate over Shares is an instrument which confers on the holder contractual or property rights to or in respect of a Share held by a Person and the transferof which may be effectedby the holder without the consent of that other Person.
4.The common ways for issuers to raise equity capital is to offer shares and/or certificates representing shares. While shares in most of the cases can only be traded in local currency and on local exchanges, certificates allow issuers to list their securities in foreign currencies and on foreign exchanges and reach out to wider investor base. The certificates help to increase global trade, which in turn can help increase not only volumes on local and foreign markets but also the exchange of information as well as market transparency.
5.In order to apply the AIFC Pre-IPOrules in its entirety to Certificates over Shares, it is proposed to introduce an amendment in the AIFC Pre-IPO Listings Rules by adding “(or Certificates over Shares”)” after“Shares”.
6.The key objectives of the proposed amendments to the AIFC Pre-IPO Rules are as follows:
-clarification of the AIFC regulatory framework;
-attraction of new issuers and market participants to the AIX Market;
-greater exposure to the global marketfor issuers, extension of international shareholder base;
-diversification ofinvestments.
7.Annex 1 describesthe proposed amendments to the AIFC Pre-IPO ListingsRules.
Annex 1
Proposed amendments to the AIFC Pre-IPO Listings Rules
In these Rules the underlying indicates a new text
Guidance: Purpose and application of these Rules
The purpose of these Rules is to compliment AMI in relation to Pre-IPO Listings in the AIFC.
1. Application and Scope
(1)These Rules apply within the jurisdiction of the AIFC.
(2)The following do not apply in the case of a Pre-IPO Listing:
(a)Sections 66(3), 82(1) and 83(1) of the Framework Regulations; and
(b)Sections 86(a) through (c) of the Framework Regulations, provided that the Issuer complies with the requirements of the Listing Rules of the Authorised Investment Exchange as prescribed by Sections 4 and 5 of these Rules;
(c)MAR, in its entirety; and
(d)any Takeover Rules prescribed by the AFSA under Section88 of the Framework Regulations outside of MAR, unless such Rules specifically state that they apply in the case of a Pre-IPO Listing.
2. Interpretation
(1) For purpose of these Rules, a “Pre-IPO Listing” means the admission of the Shares (or Certificates over Shares) of an Issuer to an Official List maintained by an Authorised Investment Exchange, without the Issuer immediately carrying out an initial public offering of Shares (or Certificates over Shares) and seeking their admission to trading on the Authorised Investment Exchange.
3. Rules applicable to Authorised Investment Exchange
(1)Subject to the requirements of this section 3, an Authorised Investment Exchange may include Pre-IPO Listings under a subheading of its Official List.
(2)Without limitation of any other applicable requirements of AMI 3.6, an Authorised Investment Exchange that wishes to permit Pre-IPO Listings must include the following requirements in its Listing Rules:
(a)procedures for admission of Shares (or Certificates over Shares) to its Official List as a Pre-IPO Listing, including:
i.requirements to be met before Shares (or Certificates over Shares) may be granted admission to an Official List as a Pre-IPO Listing; and
ii.agreements in connection with admitting Shares (or Certificates over Shares) to an Official List as a Pre-IPO Listing;
(b)procedures for suspension and delisting of Shares (or Certificates over Shares) from an Official List as a Pre-IPO Listing; and
(c)requirements for disclosure to the markets of such information as the
Authorised Investment Exchange, in consultation with the AFSA, deems appropriate in lieu of the disclosure requirements of section 83(1) of the Framework Regulations and MAR.
(3)For purposes of 3(2)(c), the Listing Rules must prescribe the type of information and the circumstances and manner in which such information must be disclosed including:
(a)financial information; and
(b)any other information or material changewhich occurs in relation to the Issuer.
(4)A prominent warning, approved by the Authorised Investment Exchange, shall accompany each release of the information disclosed, regarding the nature and purpose of such information, including without limitation that
(a)certain regulatory requirements and protections applicable to Shares (or Certificates over Shares) admitted to trading on an Authorised Investment Exchange do not apply to a Pre-IPO Listing, including sections 82(1) (corporate governance), 83(1) (market disclosure) and 86(a) through (c) (insider information) of the AIFC Financial Services Framework Regulations, and the AIFC Market Rules in their entirety; and
(b) the information being disclosed (i) is provided solely for purposes of a Pre-IPO Listing; (ii) does not include key information customarily used for making investment decisions; (iii) is not a substitute for investment research,due diligence or advice;and (iv) is used by an investorfor investment decision-making purposes solely at the investor’s own risk.
Consultation Paper on Proposed Enhancement of AIFC Market Institutions Framework
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on ways to enhance AIFC Market Institutions framework.
2.The proposals in this Consultation Paper will be of interest to current and potential issuers on AIFC Authorised Investment Exchange, AIFC participants who are interested in exercising business activities in or from the AIFC, Recognised Non-AIFC Members as well as investors and other interested parties.
3.We invite comments from interested stakeholders on the following proposed amendments to the AIFC Authorised Market Institutions Rules (AMI):
(a)clarification on securities settlement finality provisions;
(b)alignment of the outsourcing requirement in AMI with the requirement in AIFC General Rules;
(c)clarification on the requirement for Direct Electronic Access Rules;
(d)guidance on the definition of service of process and the role of an agent for service of process;
(e)alignment of the notification requirement to admit Securities or Units to the Official List with the existing AFSA Waiver and Modification Notice and alignment of submitting audit financial reports requirement in AMI with the requirement in AIFC General Rules.
4.All comments should be in writingand sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P- CE-2020-0008” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5.The deadline for providing comments on the proposals is 19 December 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz Tel: +8 7172 613741
7.The remainder of this Consultation Paper contains the following:
(a)Background to theproposal;
(b)Annex 1: Proposed Amendments to the AIFC Authorised Market Institutions Rules.
Background
1.According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan On the Astana International Financial Centre (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1)attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2)developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic financing, in the Republic of Kazakhstan;
(4)developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
2.Further development of the AIFC requires the enhancement of regulatory framework for market institutions to best meet the region specificities and the market needs.
3.Enhancing AIFC Market Institutions Framework envisages the following:
1)Enhancing the securities settlement finality framework in the AIFC;
2)Introducing miscellaneous enhancements in AMI with regards to:
•Outsourcing arrangement;
•Direct Electronic Access Rules;
•Agent for service of process;
•Reporting and notification requirements.
4.On settlement finality framework in the AIFC, the amendments are needed for establishing international interoperable links and attracting foreign investment by the Authorised Investment Exchange in the AIFC. The amendments on securities settlement finality provisions have been developed based on the best practices deployed in the European Union, United Kingdom, Australia, New Zealand and Dubai International Financial Centre.
5.Other miscellaneous amendments are aimed at alignment of requirements and providing additional clarification and guidance. Thus, the amendments will reflect practical experience of the Authorised Investment Exchange in the AIFC in implementing AMI and the evolving external environment (e.g., unavailability of Direct Electronic Access; period for notification of AFSA in respect of Public Listings and Exempt Offer Listings), clarify certain requirements (e.g., process agent appointment and submission of annual financials by AMI to AFSA). The
introduction of changes to AMI will result in clearer and more explicit statement of rules that are already in effect.
6.Annex 1 includes the proposed amendments to the AIFC Authorised Market Institutions Rules.
Annex 1
Proposed amendments to the AIFC Authorised Market Institutions RulesIn these Rules the underlying indicates a new text and the strikethrough indicates a removed text
1. INTRODUCTION (…)
1.1.2. Outsourcing
An Authorised Market Institution may satisfy the requirements applying to it under these Rules by making arrangements for functions to be performed on its behalf by any other Person. In such circumstances:
(a) An Authorised Market Institution must, before entering into any material outsourcing arrangements with a service provider, obtain the AFSA’s prior approval to do so notify AFSA of such an arrangement.
(b) For the avoidance of doubt, the requirement in sub-paragraph (a) applies to any outsourcing arrangements which were not in existence at the time the Authorised Market Institution was granted a Licence.
(c) Outsourcing arrangements made by an Authorised MarketInstitution do not affect the responsibility of the Authorised Market Institution to satisfy the requirements applying to it, but there is in addition a requirement applying to the Authorised Market Institution that the Personwho performs (or is to perform) the functions is a fit and properPerson who is able to perform them.
(d) An Authorised Market Institution that outsources any functions must comply with the outsourcing requirements in GEN.
2. RULES APPLICABLE TO ALL AUTHORISED MARKET INSTITUTIONS (…)
2.5. Business Rules
2.5.1.Requirement to prepare Business Rules
Save where the AFSA otherwise directs, an Authorised Market Institution must establish and maintain Business Rules governing relations between itself and the participants in the market, including but not limited to:
(a) Membership Rules,prepared in accordance with AMI 2.6, governing the admission of Members and any other Persons to whom access to its facilities is provided;
(b) Direct Electronic Access Rules, preparedin accordance with AMI 2.7, in case a Direct Electronic Access is available at the Authorised Market Institution, setting out the rules and conditions pursuant to which its Members may provide their clients with Direct Electronic Access to the Authorised Market Institution’s trading systems;
(…)
2.6.4. Undertaking to comply with AFSA rules
An Authorised Market Institution may not admit a Recognised Non-AIFC Member as a Member unless it:
(…)
(d) where the Recognised Non-AIFC Member is incorporated outside the Republic of Kazakhstan, appoints and maintains at all times, an agent for service of process in the Republic of Kazakhstan AIFC.
Guidance
(1)Service of process is the procedure by which a party to a lawsuit (Claimant) gives an appropriate notice of initial legal action (Claim Form) to another party (Defendant), in an effort to exercise jurisdiction over that Person so as to enable that Person to respond to the proceeding before the court. Notice is furnished by delivering a set of court documents (called "process") to the Person to be served. Service of a Claim Form is defined in clause 4.9 of the AIFC Court Rules. Acknowledgement of process and consequences of not filing an acknowledgment of service are defined in clause 7.4 of the AIFC Court Rules. Methods of service are defined in Part 5 of the AIFC Court Rules.
(2)An agent for service of process is a serviceprovider having legal and real presence in the AIFC.
(3)The main role of agent for serviceof process is to receiveservice of processin the AIFC on behalf of a Person, acknowledge the service of process, and forward the process to such Person once it is received.
3. RULES APPLICABLE TO AUTHORISED INVESTMENT EXCHANGES
3.2.3. Undertaking to comply with AFSA rules
An Authorised Investment Exchange may not admit Securities or Units in a Listed Fund to trading unless the Person who seeks to have such Investments admitted to trading:
(…)
(d) appoints and maintains at all times, an agent for service of process in the AIFC and requires such agent to accept its appointment for service of process.
Guidance
See Guidance to AMI 2.6.4
(….)
3.6.5.Application for admission of Securities or Units in a Listed Fund to an Official List (…)
(4)Subject to (5), at least 5 business days prior to an admission of Securities (other than (i) Exempt Securities or (ii) EquitySecurities in connection with Pre-IPO Listings) or Units
in a Listed Fund to its Official List, an Authorised Investment Exchange must provide the AFSA with notice of the decision and include the following information in the notification:
(a) a copy of the listing application;
(b) a copy of the assessment of the listing application carried out by the Exchange; and
(c) any information requested by the AFSA.
(4-1) Subject to (5), at least 2 business days prior to an admission of Exempt Securities to its Official List or Equity Securities to its Official List under the sub-heading “Pre-IPO
Listings”, an Authorised Investment Exchange must provide the AFSA with notice of the decision and include the information specified in (4) above.
(5)An Authorised Investment Exchange must immediately notify the AFSA of any decision to suspend,restore from suspension or de-list any Securities or Units in a Listed Fund from its Official List and the reasons for the decision.
3.6.6.Undertaking to comply with AFSA rules
An Authorised Investment Exchange may not admit Securities or Units in a Listed Fund to an Official List unless the issuer of such Investments:
(…)
(d) appoints and maintains at all times, an agent for service of process in the AIFC and requires such agent to accept its appointment for service of process.
Guidance
See Guidance to AMI 2.6.4
4. RULES APPLICABLE TO AUTHORISED CLEARING HOUSES (…)
4.4.Settlement
4.4.1.Settlement finality
(1)An Authorised Clearing House must have rules and procedures which clearly define:
(a) the point at which settlement is final according to the relevant governing law; and
(b) the point after which unsettled payments, transfer instructions, or other obligations may not be cancelled by a participant.
(2)An Authorised Clearing House must complete final settlement no later than the end of the valuedate.
(3)Notwithstanding (1) above,a settlement by an Authorised Clearing House is final,
irrevocable and binding and may not under any circumstances be reversed or avoided after:
(a)an amount of money is credited to or debited from a depository account; or
(b) an Investment approved for admission to the depository is credited to or debited from a depository account.
(4)Notwithstanding (1) above, transfer instructions and settlement are legally enforceable and, even in the event of insolvency proceedings against a participant, shall be binding on third parties, provided that transfer instructions were entered into a system before the moment of opening of such insolvency proceedings. Where, exceptionally, transfer instructions are entered into a system after the moment of opening of insolvency proceedings and are carried out on the day of opening of such proceedings, they shall be legally enforceable and binding on third parties only if, after the time of settlement, the Authorised ClearingHouse can prove that it was not aware, nor should have been aware, of the opening of such proceedings.
(5)For the purpose of (4), the moment of opening of insolvency proceedings shall be the moment when the relevant judicial or administrative authority handed down its decision.
5. SUPERVISION (…)
5.3.Financial and otherinformation
5.3.1.Annual reports and accounts financial statements
Authorised Market Institution must give the AFSA:
(a) a copy of its audited annual report and accounts financial statements; and
(b) a copy of any audited consolidated annual report and accounts financial statements of any group of which the Authorised Market Institution is a member;
no later than when the first of the following events occurs:
(c) three four months after the end of the financial year to which the document relates;
(d) the time when the documents are sent to Persons granted access to the facilities or shareholders of the Authorised Market Institution; or
(e) the time when the document is sent to a holding company of the Authorised Market Institution.
Consultation Paper on Special Rules Declaring Provisions of AIFC Regulations and Rules to be Subject to Section 9 of the AIFC Financial Services Framework Regulations
Introduction
1.This paper summarises the approach taken to drafting the Special Rule. The Annex sets out the proposed draft of Special Rule, which may be subject to change depending on the scope of the regulatory framework requested by the AIFC.
2.The proposals in this Consultation Paper will be of interest to current and potential AIFC Participants who are interested in doing business in the AIFC.
3.All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2020- 0001” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unlessyou expressly requestotherwise. Comments supported by reasoning and evidence will be given more weightby the AFSA.
4.The deadline for providing commentson the proposals is 24 July 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA) 55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6.The remainder of this Consultation Paper contains the following:
(a) Background
(b) The Rules
(c) Annex 1
Background
1.In2017-2019 the AFSA worked on the development of the body of the AIFC legislation. As of 2020, the key legislative acts based on the best international practices and international standards were developed and approved. Given that, at the beginning the AIFC participants from Kazakhstan and the whole region could experience some difficulties in meeting the highestregulatory requirements, the AFSA would like to enhance its approach for granting waivers, modifications and other types of reliefs.
2. Currently, AFSA can only waive and modify FSFR and provisions of the Rules made pursuant to FSFR, which significantly limits the powers of the AFSA on providing waivers or modifications direction. At this stage of development such approach does not allow AFSA to provide timely and efficient responses to business needs of AIFCparticipants.
3.This necessitates the changeof the approach by grantingAFSA’s Board of Directors power to enact other types of Regulations outside the scope of FSFR and AFSA’s CEO the broader power to waive,modify and provideother types of reliefs in order to avoid constant need to amend legislation.
4.To implement the abovementioned amendments to the section 9 of the FSFR (AFSA Power to modify or waive Rules) has been made, that provides AFSA with executivepower to waive and modify a provision of FSFR and other Regulations, the Rules..
5.Amended Section 9 of FSFR gives the AFSA power to waive and modify the application to a Person of certain “relevant provisions” in and under the FSFR. Also, gives the AFSA power to waive and modify not only Rules pursuant to FSFR, but Regulations as well in order to make the regulations much more flexible and for AFSA to be more pro-active, when it is needed for businesses, and the regulations much more flexible.
6.For these purposes, “relevant provision” means any provision (a) of FSFR, the Rules or any other legislation administered by the AFSA, and (b) of any other Regulations and Rules which (i) relate to the functions of the AFSA and (ii) are declared by Rules adopted by the Board of Directors of the AFSA to be a provision to which Section 9 of FSFR applies.
7.Considering that the language of Section 9 is enabling in that it permits provisions of the
(i)AIFC Trust Regulations, (ii) AIFC Personal Property Regulations, (iii) AIFC Payment System Settlement Finality Regulations, (iv) AIFC NettingRegulations to be made subject to the AFSA’s waivercapacity under Section9 through the issuance of Rules, includingfor present purposes such rules as may be issued by the Board of Directors of the AFSA.
8.It is proposed that the Special Rule be issued as a special stand-alone Rule. The Rule could be made to, by its own terms.
The Rules
1.In summary, the contents of the draft Special Rule are as follows:
2. Part 1: (General): which include:
1.1. Name
1.2. Commencement
1.3. Legislative Authorit
1.4. Application of these Rules
1.5. Definitions, etc.
3. Part 2: (AIFC REGULATIONS AND RULES SUBJECT TO SECTION 9 OF THE AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS): which include:
2.1. The provisions of AIFC Regulations and Rules and AIFC Regulations and Rules specified in Schedule 1 are hereby subject to Section 9 (AFSA power to modify, waive or grant a relief) of the AIFC Financial Services Framework Regulations.
2.2.Where a waiver, modification or no-action letteris granted pursuantto Section 9 of the AIFC Financial Services Framework Regulations, any other provisions referencing such relevant provision shall be read with the necessary changes being made in order to give effect to such waiver, modification or no-action letter.
2.2.1. Includes an example of applicability of the Special Rule.
4. Schedule 1: Provides the list of Regulations which are subject to Section 9 (AFSA power to modify, waive or grant a relief) of FSFR. Which include:
1. AIFC Trust Regulations
2. AIFC Personal Property Regulations
3. AIFC Payment System Settlement Finality Regulations
4. AIFC Netting Regulations
Annex 1 to Consultation Paper: AIFC Special Rules Declaring Provisions of AIFC Regulations and Rules to be Subject to Section 9 of the AIFC Financial Services Framework Regulations (“Special Rule”)
AIFC SPECIAL RULES DECLARING PROVISIONS OF AIFC REGULATIONS AND RULES TO BE SUBJECT TO SECTION 9 OF THE AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS
PART 1: GENERAL
1.1 Name
These Rules are the Special Rules DeclaringProvisions of AIFC Regulations and Rules to be Subject to Section 9 of the AIFC Financial Services Framework Regulations.
1.2Commencement
These Rules commence on .
1.3 Legislative Authority
These Rules are adopted by the Board of Directors of the Astana Financial Services Authority under Section 5(23) of the Charter of the Board of Directors of the Astana Financial Services Authority.
1.4 Application of these Rules
These Rules apply within the jurisdiction of the AIFC.
1.5 Definitions, etc.
Terms used in this Rule have the same meanings as they have, from time to time, in the AIFC Regulations and AIFC Rules, or the relevant provisions of those Regulations and Rules, unless the contrary is stated.
PART 2: AIFC REGULATIONS AND RULES SUBJECT TO SECTION 9 OF THE AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS
2.1The provisions of AIFC Regulations and Rules and AIFC Regulations and Rules specified in Schedule 1 are hereby subject to Section 9 (AFSA power to modify, waive or grant a relief) of the AIFC Financial Services Framework Regulations.
2.2Where a waiver, modification or no-action letter is granted pursuant to Section 9 of the AIFC Financial Services Framework Regulations, any other provisions referencing such relevant provision shall be read with the necessary changes being made in order to give effect to such waiver, modification or no-action letter.
2.2.1.Example: if a modifications is granted from the requirement of Section 56(9) of the AIFC Trust Regulations that the Trustees may make payment on fines imposed by the AFSA within 60 days not 30 days, shall be read as permitting such Trustee to make fine payment within 60 days.
SCHEDULE 1
1. AIFC Trust Regulations, AIFC Regulations No. 31 of 2019
2. In relationto matters relatedto the regulation conducted by the AFSA, modifying or waiving the application of provisions of the AIFC Personal Property Regulations in relation to the holding of Investments or interests or entitlements in Investments, pursuantto Section (43) of the AIFC Personal Property Regulations, AIFC Regulations No.15 of 2017
3. AIFC Payment System Settlement Finality Regulations, AIFC Regulations No.9 of 2017
4. AIFC Netting Regulations, AIFC Regulations No.8 of 2017
Consultation Paper on Enhancing AIFC Islamic Banking Business Rules
Addressing Certain Limitations Related to Founding Members of Non-Profit Incorporated Organisations
KEY ELEMENT OF THE PROPOSED AMENDMENTS
Currently, Section 12(1) of the AIFC Non-profit Incorporated Organisations Regulations states that “Three or more individuals may apply for the incorporation of an Incorporated Organisation by signing, and filing with the Registrar of Companies, an application for incorporation in the accordance with the Rules”. The definition of Founding Member similarly uses the word “individuals”.
The proposed amendments remove limitations in the current framework to permit legal entities to serve as Founding Members of the AIFC Non-profit Incorporated Organisation, as well as remove the requirement on the number of Founding Members that may apply for the incorporation of a Non-profit Incorporated Organisation.
Additionally, the proposed amendments are related to simplification of the Standard Charter for Non-profit Incorporated Organisations.
Question
Do you have any concerns related to the proposed amendments to AIFC Non-profit Incorporated Organisations Regulations and AIFC Non-profit Incorporated Organisations Regulations Rules? If so, what are they, and how should they be addressed?
Annex 1: Draft of proposed amendments
In this Annex, a blue font and underlining indicates new text and strikethrough indicates deleted text.
AIFC NON-PROFIT INCORPORATED ORGANISATIONS REGULATIONS
PART 3: FORMATION AND REGISTRATION
12. Method of formation
(1) Three One or more individuals Founding Members may apply for the incorporation of an Incorporated Organisation by signing, and filing with the Registrar of Companies, an application for incorporation in the accordance with the Rules.
(2) The application must state the following:
(a) the proposed name of the Incorporated Organisation;
(b) the proposed address of the Incorporated Organisation’s registered office;
(c) the Authorised Activities proposed to be conducted by the Incorporated Organisation;
(d) the full name, nationality, residency and address of each of the applicants, if the applicant is a natural person;
(e) the other particulars (if any) required by the Registrar of Companies or the Rules;
(f) the full name, date and place of incorporation or registration of each of the applicants, if the applicant is a Body Corporate.
(3) The application must include, or be accompanied by, the following:
(a) a declaration signed by each of the applicants that the Incorporated Organisation will only conduct Authorised Activities;
(b) the proposed Charter of Organisation of the Incorporated Organisation.
PART 4: FINANCIAL RESOURCES, ACCOUNTS AND AUDIT
22. Accounts
(1) The Founding Members of an Incorporated Organisation must ensure that accounts are prepared in relation to each financial year of the Incorporated Organisation within 6 months after the end of the financial year and that the accounts comply with the requirements of this section.
(2) The accounts must:
(a) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar of Companies; and
(b) show a true and fair view of the financial position of the Incorporated Organisation; and
(c) comply with any other requirements of these Regulations and the Rules.
(3) The Founding Members must approve the Incorporated Organisation’s accounts and must ensure that they are signed on their behalf by at least 2 1 of them.
(4) The accounts must be examined and reported on by an Auditor.
(5) An Incorporated Organisation must file its audited accounts for a financial year with the Registrar of Companies within 7 days after the day the accounts are approved by the Founding Members and reported on by an Auditor.
(6) Contravention of this section is punishable by a fine.
PART 5: FOUNDING MEMBERS AND ORDINARY MEMBERS
23. Founding Members and Ordinary Members
(1) An Incorporated Organisation must have Founding Members and may have Ordinary Members.
(2) The Charter of Organisation of an Incorporated Organisation must define who may become a Founding Member or an Ordinary Member of the Incorporated Organisation.
(3) The initial Founding Members are the Persons who applied for the incorporation of the Incorporated Organisation.
(4) After the incorporation of the Incorporated Organisation, Founding Members are appointed by Special Resolution of the Founding Members
(5) The Founding Members of an Incorporated Organisation must, in Exercising their Functions, act honestly, in good faith and in the best interest of the Incorporated Organisation and must exercise the care, diligence and skill that a reasonably prudent pPerson would exercise in comparable circumstances.
(6) A pPerson may not be a Founding Member and an Ordinary Member at the same time in the same Incorporated Organisation.
26. Meetings of Founding Members
(1) The Founding Members are to meet at the times and places that they decide.
(2) However, a Founding Member may at any time call a meeting of the Founding Members by giving the other Founding Members at least 21 7 days Written notice of the meeting.
27. Board of Incorporated Organisation
(1) An Incorporated Organisation must be managed by a Board.
(2) An Incorporated Organisation must ensure that its Board consists solely of Founding Members and that Ordinary Members are not involved in the management of the Incorporated Organisation. [intentionally omitted]
(3) An Incorporated Organisation must ensure that its Charter of Organisation makes provision about the membership of its Board and the Board’s Functions and operations.
(4) The Board may appoint a resident of the Republic of Kazakhstan to be the Incorporated Organisation’s agent.
(5) Subject to the Charter of Organisation, the Board may delegate any of its Functions to any Person it considers appropriate.
(6) Contravention of this section is punishable by a fine.
PART 6: REPORTING
28. Notice of certain changes
(1) If any of the following changes happen in relation to an Incorporated Organisation, the Incorporated Organisation must file notice of the change with the Registrar of Companies, in accordance with the Rules, within 30 days after the day the change happens:
(a) any change relating to its registered office or contact details (including, for example, a change in the address of its registered office, a change in a telephone or fax number or a change of email address);
(b) any change to its Founding Members;
(c) any change to its name;
(d) any change in its Authorised Activities.
(2) Changes in the Registered Details notice must be accompanied by the prescribed fee set out in the Rules from time to time.
SCHEDULE 1: INTERPRETATION
Annex 1 (Comparative table of proposed amendments to the AML Rules) (AIFC Rules No.FR0008 of 2017)
*Annex 1_AIFC BBR Rules
Chapter 1 General
1.1 Introduction
The purpose of this Banking Business Rules (BBR) is to establish the prudential framework for Authorised Firms carrying out Banking Business. These rules are based on the Basel Accords and on the Basel Core Principles for Effective Banking Supervision, issued by the Basel Committee on Banking Supervision.
1.2 Commencement
These rules commence on 1 2018.
1.3 Effect of definitions, notes and examples
(1) A definition in the glossary to these rules also applies to any instructions or document made under these rules.
(2) A note in or to these rules is explanatory and is not part of these rules. However, examples and guidance are part of these rules.
(3) An example is not exhaustive, and may extend, but does not limit, the meaning of these rules or the particular provision of these rules to which it relates.
(4) Unless the contrary intention appears, a reference in these rules to an accord, principle, standard or other similar instrument is a reference to that instrument as amended from time to time.
1.4 Banking Business firms
(1) Banking Business comprises the Regulated Activities of Accepting deposits and Dealing in Investments as Principal. An Authorised Firm that has an authorization to conduct any of those activities is a Banking Business firm.
(2) However, an Authorised Firm that is an Islamic bank or an Islamic Broker dealer or an Islamic Financing Company (within the respective meanings of the AIFC Islamic Banking Business Prudential Rules No. FR0014 of 2017) is not a Banking Business firm for the purposes of these Rules.
(3) A Banking Business firm may be a Bank or a Broker Dealer.
Guidance
A firm that conducts any of the activities that make up Banking Business, or a combination of those activities, will need to consider the extent to which its business model is subject to the prudential requirements set out in these rules. These rules are designed to address the different prudential risks that could arise from the broad range of business models, risk appetites and risk profiles of banking business firms.
For example, a firm that solely conducts the activity of Dealing in Investments as Principal (that is, a Broker Dealer) will need to consider the extent to which its activities in buying, selling, subscribing to or underwriting
investments attract prudential risks that are subject to the requirements of these rules. In contrast, a firm that is a Bank and that also deals in Investments as Principal would be subject to a broader range of prudential requirements. In both examples, these rules apply in accordance with the nature, scale and complexity of the firm’s business.
1.5 Bank
(1) An Authorised Firm is a Bank if it is authorised to conduct the Regulated Activity of Accepting Deposits.
(2) An Authorised Firm is a Bank even if it is also authorised to conduct any other Regulated Activity or activity. The authorisation for Accepting Deposits qualifies an Authorised Firm as a Bank.
1.6 Broker Dealer
(1) An Authorised Firm is a Broker dealer if it is authorised to conduct the regulated activity of dealing in investments as Principal and it is not a Bank.
(2) A Broker Dealer may raise funds from capital markets or money markets using debt instruments of any type but must not accept deposits.
(3) A firm is a Broker Dealer even if it is also authorised to conduct any other regulated activity (except accepting deposits). The authorisation for dealing in investments as a Principal and the absence of an authorisation for accepting Deposits qualifies an Authorised Firm as a Broker Dealer.
(4) An Authorised Firm licensed to conduct the Regulated Activity of Dealing in Investments as Principal on a matched principal basis does not fall under the category of Broker Dealer. Such firms are subject to the rules in PRU (INVT) and are not subject to the BBR rules.
1.7 Legal form that firms must take
(1) A Bank must be:
(a) a limited liability company incorporated under the AIFC Companies Regulations or
(b) a branch of a Foreign Company, registered as a Recognised Company in the AIFC with the Registrar in accordance with the AIFC Companies Rules.
(2) A Broker Dealer must be:
(a) a limited liability company incorporated under the AIFC Companies Regulations;
(b) a branch of a Foreign Company, registered as a Recognised Company in the AIFC with the Registrar in accordance with the AIFC Companies Rules; or
(c) a Limited Partnership incorporated under the AIFC Limited Partnership
Regulations.
1.8 Application of these rules—general
(1) Except as stated otherwise, these rules apply to a Person that has, or is applying for, an authorisation to conduct Banking Business, as defined in Rule 1.4(a).
(2) Except as stated otherwise, all references to a Bank in the rest of this BBR Rules must be read as referring also to Broker Dealers, defined in Rule 1.6. Consequently, all the regulatory requirements imposed by these BBR Rules apply to all entities licensed to carry out Banking Business as defined in Rule 1.4 (a), except for specific sections or rules wherein their applicability is defined in a particular manner. For sake of clarity, all the regulatory requirements imposed by the BBR Rules apply to Banks and Broker Dealers as defined in Rules 1.5 and 1.6, unless specified otherwise in specific sections or rules of the BBR.
Guidance
It is possible for an Authorised Firm to be authorised both as a Bank under these rules and to hold authorisations for carrying out other Regulated Activities defined in Schedule 1 of the AIFC GEN Rules. Both these rules and the relevant rules for those activities could apply to such an Authorised Firm in relation to the activities they are involved in. In relation to such an Authorised Firm, however, the Capital requirements in these rules apply. If that Authorised Firm complies with the Capital requirements in these rules, it is taken to comply with the prudential rule requirements specified in PRU Rules of the AFSA rulebook.
1.9 Application of these rules—branches
(1) Chapter 4 (Capital adequacy) does not apply to a Bank operating in the form of a branch in the AIFC, in so far as that Chapter would require the branch to hold Capital.
(2) However, the AFSA may require a branch to have Capital resources or to comply with any other Capital requirement if the AFSA considers it necessary or desirable to do so in the interest of effective supervision of the branch.
1.10 Requirement for policy also requires procedures and systems
In these rules, a requirement for a Bank to have a policy also requires such a firm to have the procedures, systems, processes, controls and limits needed to give effect to the policy.
1.11 Responsibility for principles
(1) A Bank’s Governing Body is responsible for the firm’s compliance with the
principles and requirements set out in these rules.
(2) The governing body must ensure that the firm’s senior management establishes and implements policies to give effect to these rules. The governing body must approve significant policies and any changes to them (other than formal changes) and must ensure that the policies are fully integrated with each other.
Note: The significant policies relate to the adequacy of capital and the management of various prudential risks faced by a Bank and group risk, as set out in the following Chapters.
(3) The governing body must review the firm’s significant policies from time to time, taking into account changed operating circumstances, market conditions, activities and risk profiles. The interval between reviews must be appropriate for the nature, scale and complexity of the Bank’s business, but must not be longer than 12 months.
(4) The governing body must ensure that the policies are made known to, and understood by, all relevant staff.
Chapter 2 Principles relating to Banking Business
2.1 Principle 1—Capital Adequacy
A Bank must have capital, of adequate amount and appropriate quality, for the nature, scale and complexity of its business and for its risk profile. A Bank must have appropriate risk management strategies that have been approved by the Bank's Governing Body. The Governing Body of the Bank must set its risk appetite to define the level of risk the Bank is willing to assume.
2.2 Principle 2—Credit Risk and Problem Assets
(1) A Bank must have an adequate credit risk management policy that takes into account the Bank’s risk tolerance, its risk profile and the market and macroeconomic conditions.
(2) A Bank must have comprehensive policies to identify, measure, evaluate, monitor, report and control or mitigate credit risk in a timely way.
(3) A Bank must have adequate policies for the early identification and management of problem assets, and the maintenance of adequate provisions and reserves.
2.3 Principle 3—Transactions with Related Parties
A Bank must enter into transactions with related parties on an arm’s-length basis in order to avoid conflicts of interest.
2.4 Principle 4—Concentration Risk
A Bank must have adequate policies to identify, measure, evaluate, manage and control or mitigate concentrations of risk in a timely way.
2.5 Principle 5—Market Risk
A Bank must have an adequate market risk management policy that takes into account the firm’s risk tolerance, its risk profile, the market and macroeconomic conditions and the risk of a significant deterioration in market liquidity. The firm must have adequate policies to identify, measure, evaluate, manage and control or mitigate market risk in a timely way.
2.6 Principle 6—Operational Risk
A Bank must have an adequate operational risk management policy that takes into account the firm’s risk tolerance, its risk profile and market and macroeconomic conditions. The firm must have adequate policies to identify, measure, evaluate, manage and control or mitigate operational risk in a timely way.
2.7 Principle 7— Interest Rate Risk in the Banking Book
A Bank must have an adequate management policy for interest rate risk in the banking book that takes into account the firm’s risk tolerance, its risk profile and the market and macroeconomic conditions. The firm must have policies to identify, measure, evaluate, manage and control or mitigate interest rate risk in the banking book on a timely basis.
2.8 Principle 8—Liquidity Risk
A Bank must have prudent and appropriate quantitative and qualitative liquidity requirements. The firm must have policies that enable the firm to comply with those requirements and to manage liquidity risk prudently.
2.9 Principle 9—Group Risk
A Bank must effectively manage risks arising from its membership in a group.
Chapter 3 Prudential Reporting Requirements
3.1 Introduction
(1) This Chapter sets out the prudential reporting requirements for a Bank.
(2) Prudential returns of a Bank must reflect its management accounts, financial statements and ancillary reports. A Bank’s returns, accounts, statements and reports must all be prepared using the same standards and practices, and must be easily reconcilable with one another.
(3) A return is referred to as a solo return if it reflects the individual Bank’s accounts,
statements and reports.
(4) A consolidated return means a return which reflects the accounts, statements and reports of a Bank consolidated with those of the other members of its Financial Group.
Note Financial Group is defined in Chapter 10 of BBR and is used for consolidated reporting instead of
‘corporate group’.
3.2 Information about Financial Group
(1) If directed by the AFSA, a Bank must give the AFSA the following information about its Financial Group:
(a) details about the entities in the group;
(b) the structure of the group;
(c) how the group is managed;
(d) any other information that the AFSA requires.
3.3 Financial Group risk
(1) If a Bank is part of a financial group, credit risk, market risk, operational risk, IRRBB and liquidity risk exposures (collectively referred to as prudential risk exposures) apply on a consolidated basis to the Bank and the other members that constitute its Financial Group.
(2) Preparing returns on a consolidated basis means including the financial effects and risk exposures arising from all the activities of all the members or entities forming part of the Bank’s Financial Group. Such returns are not restricted to just reflecting the financial activities or positions of the Bank.
Note: A Bank is required to have systems to enable it to calculate its financial group capital requirement and resources, according to rules in Chapter 10 of the BBR.
3.4 Preparing returns
(1) A Bank must prepare the prudential returns that it is required to prepare by a notice published by the AFSA on its own website. Such a notice may also require Banks to give other information to the AFSA.
(2) The Bank must give the return to the AFSA within the period stated in the notice.
(3) The AFSA may, by written notice:
(a) require a Bank to prepare additional prudential returns;
(b) exempt a Bank from a requirement to prepare annual, biannual, quarterly or monthly returns (or a particular return); or
(c) extend the period within which to give a return.
(4) An exemption may be subject to one or more conditions. The Bank availing the exemption must comply with any condition attached to an exemption.
(5) The Bank must prepare and submit its prudential returns in accordance with the AFSA’s instructions. Such instructions may require that the return be prepared or given through an electronic submission system.
(6) The instructions may be set out in these rules, in the return itself, in a separate document published by the AFSA on its own approved website or by written notice. These instructions, wherever or however they are given, are collectively referred to as instructions for preparing returns.
Note: Instructions may be in the form of formulae or blank spaces that the Bank are expected to use or fill in which would automatically compute the amounts to be reported.
3.5 Giving information
(1) The AFSA may, by written notice, require a Bank to provide information in addition to that required under these rules.
(2) A Bank must submit the required information to the AFSA in accordance with the AFSA’s instructions and within the period stated in the written notice seeking such information. The AFSA may extend the period for the submission of such information.
(3) The AFSA may exempt a Bank from giving information. The Bank must comply with any conditions attached to such an exemption.
3.6 Accounting standards
A Bank must prepare and maintain its financial accounts and prepare its financial statements in accordance with the International Financial Reporting Standards (IFRS).
3.7 Signing returns
(1) A prudential return must be signed by 2 individuals, who are Approved Individuals for the Bank and who occupy any of the Controlled Functions of Director, Senior Executive Officer or Finance Officer.
(2) If these Approved Individuals are not available or are unable to sign, the return must be signed by 1 or 2 of the individuals approved to exercise the following Controlled Functions:
(a) the Risk Manager function;
(b) the Compliance Officer function.
3.8 Obligation to notify the AFSA
(1) A Bank must notify the AFSA if it becomes aware, or has reasonable grounds to believe, that the Bank has breached, or is about to breach, a prudential requirement.
(2) In particular, the Bank must notify the AFSA as soon as practicable of:
(a) any breach or potential breach of its minimum capital requirement;
(b) any concern it has about its solvency or capital adequacy position;
(c) any indication of significant adverse change in the market price of, or trading volume of, the equity capital or other capital instruments of the Bank or those of its Financial Group (including pressure on the Bank to purchase its own equity or debt);
(d) any other significant adverse change in its capital; and
(e) any significant departure from its ICAAP.
(3) The Bank must also notify the AFSA of any measures planned or taken to deal with any real or potential breach or concerns related to its solvency or capital adequacy position.
Chapter 4 Capital Adequacy
4.1 Introduction
(1) This Chapter sets out capital adequacy requirements for a Bank.
(2) A Bank’s total Regulatory Capital is the sum of its tier 1 capital and tier 2 capital. The categories and elements of regulatory capital, as well as the limits, restrictions and adjustments to which they are subject are set out in this Chapter.
(3) Capital adequacy and capital management must be an integral part of a Bank’s overall governance and its bank-wide risk management process. Capital management must align the Bank’s risk appetite and risk profile with its capacity to absorb losses.
4.2 Application to branches
(1) This chapter does not apply to a Bank that is licensed to operate as a branch in the AIFC, insofar as this chapter would require the branch to hold capital.
(2) A branch is required to comply with the reporting requirements under this chapter. In relation to the branch’s ICAAP, the branch may rely on the ICAAP for the bank of which it is a part (if available), to demonstrate compliance.
4.3 Governing Body’s responsibilities
(1) A Bank’s governing body must consider, on a periodic basis, whether the minimum capital and liquidity resources required by these rules are adequate to ensure that there is no significant risk that the Bank’s liabilities cannot be met as they fall due. The Bank must take material and effective measures to obtain additional capital and liquidity resources if its governing body considers that the minimum requirements defined in these rules do not adequately reflect the risks of its business.
(2) The governing body is also responsible for:
(a) ensuring that capital management is part of the Bank’s enterprise-wide risk management framework and is aligned with its risk appetite and risk profile;
(b) ensuring that the Bank has, at all times, capital and liquidity resources of the kinds and amounts required by these rules;
(c) ensuring that the Bank has capital, of adequate amount and appropriate quality, for the nature, scale and complexity of its business and for its risk profile;
(d) ensuring that the amount of capital it has exceeds its minimum capital requirement, calculated according to these rules;
(e) reviewing the Bank’s annual ICAAP and approving it, including but not limited to
taking decisions to raise additional capital for the Bank; and
(f) monitoring the adequacy and appropriateness of the Bank’s systems and controls to ensure the Bank’s compliance with these rules.
4.4 Systems and controls
(1) A Bank must have adequate systems and controls to allow it to calculate and monitor its minimum capital requirement.
(2) The systems and controls must be documented and must be appropriate for its risk profile and proportionate to the nature, scale and complexity of its business.
(3) The systems and controls employed by a Bank must include the ICAAP process which is defined in greater detail in a separate chapter of these BBR Rules.
(4) The systems and controls must enable the Bank to demonstrate, its compliance with the rules in this Chapter, at all times.
(5) The systems and controls of the Bank must enable it to manage available capital in anticipation of events or changes in market conditions.
(6) A Bank must have adequate and proportionate contingency plans to maintain or increase its capital in times of stress, whether idiosyncratic or systemic.
4.5 Use of internal models
A Bank must not use its internal models to calculate regulatory capital requirements and assess capital adequacy in accordance with the BBR rules or to achieve compliance with the BBR Rules.
4.6 References to particular currencies
In these BBR rules, the specification of an amount of money in a particular currency is also taken to specify the equivalent sum in any other currency at the relevant time.
Initial and ongoing capital requirements
Section 4A – Capital Requirements and Ratios
4.7 Capital Requirements
(1) A Bank is required to meet minimum risk-based capital requirements for exposure to credit risk, market risk and operational risk, under these rules. The Bank’s capital adequacy ratios (consisting of CET 1 ratio, total tier 1 ratio and total capital ratio) are calculated by dividing its Regulatory Capital by total Risk-Weighted Assets (RWAs).
(2) Total RWAs of a Bank is the sum of:
(a) the Bank’s risk-weighted on-balance-sheet and off-balance-sheet exposures calculated in accordance with the Rules in Chapter 5 of BBR; and
(b) 12.5 times the sum of the Bank’s market and operational risk capital requirements (to the extent that each of those requirements applies to the Bank) calculated in accordance with the Rules in Chapters 6 and 7 of BBR respectively
(3) In this chapter, consolidated subsidiary, of a Bank, means:
(a) a subsidiary of the Bank; or
(b) a subsidiary of a subsidiary of the Bank.
4.8 Required tier 1 capital on authorisation
A Bank must have, at the time of its authorisation and at all times thereafter, Common Equity Tier 1 Capital (CET1 Capital) as defined in Rule 4.14, at least equal to the Base Capital Requirement applicable to it. The AFSA will not grant an authorisation for conducting Banking Business unless it is satisfied that the entity complies with this requirement.
4.9 Required ongoing capital
(1) A Bank must have at all times, Capital at least equal to the higher of:
(a) its Base capital requirement; and
(b) its Risk-based capital requirement.
Note A Bank whose minimum capital requirement is determined by its risk-based capital requirement is subject to the additional requirement to maintain a capital conservation buffer, as defined in Rule 4.31.
(2) The amount of Capital that a Bank must have, in accordance with these rules, is its Minimum Capital Requirement.
4.10 Base Capital Requirement
The Base Capital Requirement is:
(a) for a Bank — USD 10 million; or
(b) for a Broker dealer — USD 2 million.
4.11 Risk-based capital requirement
(1) The Risk-based Capital Requirement for a Bank is the sum of:
(a) its credit risk capital requirement;
(b) its market risk capital requirement; and
(c) its operational risk capital requirement.
(2) The market risk and operational risk capital requirements are required to be calculated according to the rules in chapters 6 and 7 respectively.
(3) The credit risk capital requirement must be calculated as
= 12.5 times the Bank’s risk-weighted on-balance-sheet and off-balance-sheet exposures calculated in accordance with the Rules in Chapter 5 of BBR.
4.12 Capital adequacy ratios
(1) A Bank’s capital adequacy is measured in terms of 3 capital ratios expressed as
percentages of its total Risk-Weighted Assets (RWAs).
(2) A Bank’s minimum capital adequacy ratios are:
(a) a CET 1 Capital ratio of 4.5%;
(b) a Tier 1 Capital (T1 Capital) ratio of 6%; and
(c) a Total Capital ratio of 8%.
(3) The AFSA may, if it believes it is prudent to do so, increase any or all of a Bank’s minimum capital adequacy ratios. The AFSA will notify the Bank in writing about a higher capital adequacy ratio and the timeframe available for the Bank to meet it.
(4) A Bank must maintain at all times capital adequacy ratios higher than the required minimum levels, so that adequate capital is maintained in the context of the Bank’s risk appetite and, risk profile, to absorb unexpected losses arising from its business activities.
Section 4B – Elements of regulatory capital
4.13 Regulatory Capital
(1) The Regulatory Capital of a Bank is the sum of its Tier 1 (T1) Capital and Tier 2 (T2) capital.
(2) T1 capital is the sum of a Bank’s CET 1 capital and Additional Tier 1 (AT1) capital. T1 capital is also known as going-concern capital because it is meant to absorb losses while the Bank is viable.
(3) T2 Capital is defined in BBR rule 4.18. T2 capital is also known as gone-concern capital because it is meant to absorb losses after the Bank ceases to be viable.
(4) For these rules, the 3 categories of regulatory capital are CET 1 Capital, AT1 Capital and T2 Capital.
4.14 Common Equity Tier 1 (CET1) Capital
CET 1 Capital is the sum of the following elements:
(a) common shares issued by the Bank that satisfy the criteria in rule 4.15 for classification as common shares for regulatory purpose (or the equivalent for non-joint stock companies);
(b) share premium resulting from the issue of instruments included in CET 1 Capital;
(c) retained earnings;
(d) accumulated other comprehensive income and other disclosed reserves;
(e) common shares, issued by a consolidated subsidiary of the Bank and held by third parties, that satisfy the criteria in rule 4.22 for inclusion in CET 1 capital;
(f) regulatory adjustments applied in the calculation of CET 1 capital in accordance with BBR rule 4.28.
4.15 Criteria for classification as common shares
A capital instrument issued by a Bank is eligible for classification as common equity and for inclusion in CET 1 capital, only if all of the following criteria in sub-rules (1) to (14) below are satisfied.
(1) The instrument is the most subordinated claim in case of the liquidation of the Bank.
(2) The holder of the instrument is entitled to a claim on the residual assets that is proportional to its share of issued capital, after all senior claims have been repaid in liquidation. The claim must be unlimited and variable and must be neither fixed nor capped.
(3) The principal amount of the instrument is perpetual and never repayable except in liquidation. Discretionary repurchases and other discretionary means of reducing capital allowed by law do not constitute repayment.
(4) The Bank does nothing to create an expectation at issuance that the instrument will be bought back, redeemed or cancelled. The statutory or contractual terms do not provide anything that might give rise to such an expectation.
(5) Distributions are paid out of distributable items of the Bank (including retained earnings) and the amount of distributions:
(a) is not tied or linked to the amount paid in at issuance; and
(b) is not subject to a contractual cap (except to the extent that a Bank may not pay distributions that exceed the amount of its distributable items).
(6) There are no circumstances under which the distributions are obligatory. Non-payment of distributions does not constitute default.
(7) Distributions are paid only after all legal and contractual obligations have been met and payments on more senior capital instruments have been made. There are no preferential distributions and in particular none for any other elements classified as the highest quality issued capital.
(8) It is the issued capital that takes the first and proportionately greatest share of any losses as they occur. Within the highest quality capital, each instrument absorbs losses on a going-concern basis proportionately and equally with all the others.
Note This criterion in (8) above would be considered as fulfilled if the instrument includes a permanent write- down mechanism.
(9) The paid-in amount is recognised as equity capital (rather than as a liability) for determining balance-sheet insolvency.
(10) The paid-in amount is classified as equity in accordance with the relevant accounting standards.
(11) The instrument is directly issued and paid-in, and the Bank has not directly or indirectly funded the purchase of the instrument.
(12) The paid-in amount is neither secured nor covered by a guarantee of the Bank or a related party, nor subject to any other arrangement that legally or economically enhances the seniority of the holder’s claim in relation to the claims of the Bank’s creditors.
(13) The instrument is issued only with the approval of the owners of the Bank, either given directly by the owners or, if permitted by the applicable law, given by its governing body or by other persons authorised by the owners.
(14) The instrument is clearly and separately disclosed on the Bank’s balance sheet.
4.16 AT1 Capital
AT 1 Capital is the sum of the following elements:
(a) instruments issued by a Bank that satisfy the criteria in BBR rule 4.17 for inclusion in AT1 Capital (and are not included in CET 1 Capital);
(b) share premium resulting from the issue of instruments included in AT1 Capital, according to (a) above, if any;
(c) instruments, issued by consolidated subsidiaries of the Bank and held by third parties, that satisfy the criteria in BBR rule 4.23 for inclusion in AT1 Capital (and are not included in CET 1 capital of the respective Banks);
(d) regulatory adjustments applied in the calculation of AT1 Capital in accordance with BBR rule 4.28.
4.17 Criteria for inclusion in AT1 Capital
A capital instrument is eligible for inclusion in AT1 Capital only if that instrument meets all of the following criteria in sub-rules (1) to (15).
(1) The instrument is issued and paid-up.
(2) The instrument is the most subordinated claim after those of depositors, general creditors and holders of the subordinated debt of the Bank.
(3) The paid-up amount for the capital instrument is neither secured nor covered by a guarantee of the Bank or a related party, nor subject to any other arrangement that legally or economically enhances the seniority of the holder’s claim in relation to the claims of the Bank’s creditors.
(4) The instrument is perpetual. It has no maturity date and there are no step-ups or other incentives to redeem.
(5) If the instrument is callable by the Bank, it can only be called 5 years or more after the instrument is paid-in and only with the approval of the AFSA. The Bank must not do anything to create an expectation that the exercise of the option will be approved, and, if the exercise is approved, the Bank:
(a) must replace the called instrument with capital of the same or better quality and at conditions sustainable for the income capacity of the Bank; or
(b) must demonstrate to the AFSA that its capital will exceed the Bank’s minimum
capital requirement after the call option is exercised.
(6) A repayment of principal through repurchase, redemption or other means must be approved by the AFSA. The Bank must not assume, or create a market expectation, that such approval will be given.
(7) In respect of the dividend or coupon payable on the instrument
(a) The Bank has full discretion at all times to cancel distributions or payments;
(b) Any cancellation of a dividend or coupon is not an event of default;
(c) The Bank has full access to cancelled payments to meet obligations as they fall due; and
(d) Any cancellation of dividend or coupon does not impose restrictions on the Bank, except in relation to distributions to common shareholders.
(8) Dividends and coupons must be paid out of distributable items.
(9) The instrument must not have a credit-sensitive-dividend feature under which a dividend or coupon is periodically reset based (wholly or partly) on the Bank’s credit standing.
(10) The instrument must not contribute to the Bank’s liabilities exceeding its assets if such a balance-sheet test forms part of any insolvency law applying in the jurisdiction where the instrument was issued.
(11) An instrument classified as a liability for accounting purposes must have principal loss absorption through conversion to common shares, or a write-down mechanism that allocates losses to the instrument, at a pre- specified trigger point. The conversion must be made in accordance with rule 4.20.
(12) A write-down of the instrument has the following effects:
(a) reducing the claim of the instrument in liquidation;
(b) reducing the amount repaid when a call option is exercised;
(c) reducing or eliminating dividend or coupon payments on the instrument.
(13) Neither the Bank nor a related party over which the Bank exercises control or significant influence has purchased the instrument, nor has the Bank directly or indirectly funded the purchase of the instrument.
(14) The instrument has no features that hinder recapitalisation. For example, it must not require the Bank to compensate investors if a new instrument is issued at a lower price during a specified period.
(15) If the instrument is issued by a special purpose vehicle, the proceeds are immediately available without limitation to the Bank through an instrument that satisfies the other criteria for AT1 capital.
4.18 Tier 2 capital (T2 capital)
T2 capital is the sum of the following elements:
(a) instruments issued by the Bank that satisfy the criteria in rule 4.19 for inclusion in T2 capital (and are not included in T1 capital);
(b) share premium resulting from the issue of instruments included in T2 capital according to (a), if any;
(c) instruments, issued by consolidated subsidiaries of the Bank and held by third parties, that satisfy the criteria in rule 4.24 for inclusion in T2 capital (and are not included in T1 capital);
(d) regulatory adjustments applied in the calculation of T2 capital in accordance with BBR rule 4.28;
(e) general provisions or general reserves held against future, presently unidentified losses (but only up to a maximum of 1.25% of risk-weighted assets for credit risk, calculated using the standardised approach Chapter 5 of BBR).
Note General provisions and reserves are freely available to meet losses that subsequently materialise and therefore qualify for inclusion in T2 capital. In contrast, provisions for identified deterioration of particular assets or known liabilities, whether individual or grouped, should be excluded because they would not be available to meet losses.
4.19 Criteria for inclusion in T2 capital
A capital instrument is eligible for inclusion in T2 capital only if all the criteria in sub-rules (1) to (11) below are satisfied.
(1) The instrument is issued and paid-in.
(2) The instrument is the most subordinated claim after those of depositors and general creditors.
(3) The paid-in amount is neither secured nor covered by a guarantee of the Bank or a related party, nor subject to any other arrangement that legally or economically enhances the seniority of the holder’s claim in relation to the claims of the Bank’s depositors and general creditors.
(4) The original maturity of the instrument is at least 5 years.
(5) The recognition in regulatory capital in the remaining 5 years before maturity is amortised on a straight line basis and there are no step-ups or other incentives to redeem.
(6) If the instrument is callable by the Bank, it can only be called 5 years or more after the instrument is paid-in and only with the approval of the AFSA. The Bank must not do anything to create an expectation that the exercise of the option will be approved, and, if the exercise is approved, the Bank:
(a) must replace the called instrument with capital of the same or better quality and at conditions sustainable for the income capacity of the Bank; or
(b) must demonstrate to the AFSA that its capital will exceed the Bank’s minimum
capital requirement after the call option is exercised.
(7) The holder has no right to accelerate future scheduled payments of coupon or principal, except in bankruptcy or liquidation.
(8) The instrument does not have a credit-sensitive-dividend feature under which a dividend or coupon is periodically reset based (wholly or partly) on the Bank’s credit standing.
(9) Neither the Bank nor a related party over which the Bank exercises control or significant influence has purchased the instrument, nor has the Bank directly or indirectly funded the purchase of the instrument.
(10) If the instrument is issued by a special purpose vehicle, the proceeds are immediately available without limitation to the Bank through an instrument that satisfies the other criteria for tier 2 capital.
4.20 Requirements—loss absorption at point of non-viability
(1) This rule applies to an AT1 or T2 capital instrument issued by a Bank. It sets out additional requirements to ensure loss absorption at the point of non-viability.
(2) The terms and conditions of an instrument must give the AFSA the discretion to direct that the instrument be written-off or converted to common equity on the happening of a trigger event.
(3) The Bank must be able to issue the required number of shares specified in the instrument if a trigger event happens. The issuance of any new shares because of a trigger event must happen before any public sector injection of capital so that capital provided by the public sector is not diluted.
(4) Trigger event, in relation to the Bank that issued the instrument, is the earliest of:
(a) a decision of the AFSA that a write-off (without which the Bank would become non-viable) is necessary; and
(b) a decision by the relevant authority to make a public sector injection of capital, or give equivalent support (without which injection or support the Bank would become non-viable, as determined by that authority).
(5) If the Bank is a member of a financial group and the Bank wishes the instrument to be included in the group’s capital in addition to its solo capital, the trigger event must be the earliest of:
(a) the decision in sub-rule (4) (a);
(b) the decision in sub-rule (4) (b);
(c) a decision, by the relevant authority in the Bank’s home jurisdiction, that a write- off (without which the Bank would become non-viable) is necessary; and
(d) a decision, by the relevant authority in the jurisdiction of the financial regulator that regulates the parent entity of the Bank, to make a public sector injection of capital, or give equivalent support, in that jurisdiction (without which injection or support the Bank would become non-viable, as determined by that authority).
(6) Any compensation paid to the holder of an instrument because of a write-off must be paid immediately in the form of common shares (or the equivalent for non-joint-stock companies).
(7) If the Bank is a member of a financial group, any common shares paid as compensation to the holder of the instrument must be common shares of the Bank or of the parent entity of the group.
Section 4B – Treatment of Minority interests
4.21 Introduction
This section sets out the criteria and formulae for the treatment of minority interests in a Bank’s regulatory capital.
4.22 Criteria for third party interests— CET 1 capital
(1) For rule 4.14 (e), CET1 capital issued by a consolidated subsidiary of a Bank and held by a third party as a non-controlling interest, may be included in the Bank’s CET 1 capital if:
(a) the share would be included in the Bank’s CET 1 capital had it been issued by the
Bank; and
(b) the subsidiary that issued the share is itself a Bank or a Broker Dealer (or an equivalent entity in its home jurisdiction).
(2) The amount to be included in the consolidated CET 1 capital of a Bank is calculated in accordance with the following formula:
NCI – ((CET1s – Min) × SS)
where:
NCI is the total of the non-controlling interests of minority shareholders in a consolidated
subsidiary of the Bank.
CET1s is the amount of CET 1 capital of the subsidiary.
Min is the lower of:
(a) 7% of the total RWAs, as defined in BBR Rule 4.7 (2), of the subsidiary; and
(b) 7% of the share of consolidated RWAs of the group attributable to the subsidiary.
SS means the percentage of the shares in the subsidiary (being shares included in CET 1 capital) held by those third parties.
4.23 Criteria for third party interests—AT1 Capital
(1) For rule 4.16 (c), an instrument (including a common share) issued by a consolidated subsidiary of a Bank and held by a third party as a non-controlling interest may be included in the Bank’s AT1 Capital if the instrument would be included in the Bank’s AT1 Capital had it been issued by the Bank.
(2) Subject to (3), the amount to be included in the consolidated AT1 Capital of a Bank is calculated in accordance with the following formula:
NCI – ((T1s – Min) × SS)
where:
NCI is the total of the non-controlling interests of third parties in a consolidated subsidiary of the Bank.
T1s is the amount of Tier 1 capital of the subsidiary.
Min is the lower of:
(a) 8.5% of the total RWAs, as defined in BBR Rule 4.7 (2), of the subsidiary; and
(b) 8.5% of the share of consolidated RWAs of the group attributable to the subsidiary.
SS means the percentage of the shares in the subsidiary (being shares included in additional tier 1 capital) held by those third parties.
(3) A Bank must determine the amount of qualifying T1 Capital of a Subsidiary that is included in consolidated AT1 Capital by excluding the minority interests of that Subsidiary that are included in consolidated CET1 Capital, in accordance with BBR rule 4.22.
4.24 Criteria for Minority interests—tier 2 capital
(1) For rule 4.18 (c), an instrument (including common equity or any other T1 Capital instrument) issued by a consolidated subsidiary of a Bank and held by a third party as a non-controlling interest may be included in the Bank’s T2 Capital if the instrument would be included in the Bank’s T2 Capital had it been issued by the Bank.
(2) The amount to be included in the consolidated T2 capital of a Bank is calculated in accordance with the following formula:
NCI – ((T2s – Min) × SS)
where:
NCI is the total of the non-controlling interests of third parties in a consolidated subsidiary of the Bank.
T2s is the amount of tier 2 capital of the subsidiary.
Min is the lower of:
(a) 10.5% of the total RWAs, as defined in BBR Rule 4.7 (2), of the subsidiary; and
(b) 10.5% of the share of consolidated RWAs of the group attributable to the subsidiary.
SS means the percentage of the shares in the subsidiary (being shares included in tier 2 capital) held by those third parties.
(3) A Bank must determine the amount of qualifying Total Capital of a Subsidiary that is included in consolidated T2 Capital by excluding the minority interests of that Subsidiary that are included in consolidated CET1 Capital and consolidated AT1 Capital, in accordance with BBR rules 4.22 and 4.23.
4.25 Treatment of third party interests from special purpose vehicles
(1) An instrument issued out of a special purpose vehicle and held by a third party must not be included in a Bank’s CET 1 capital. Such an instrument may be included in the Bank’s AT1 or T2 Capital (and treated as if it had been issued by the Bank itself directly to the third party), if:
(a) the instrument satisfies the criteria for inclusion in the relevant category of regulatory capital; and
(b) the only asset of the special purpose vehicle is its investment in the capital of the Bank and that investment satisfies the criterion in rule 4.17 (15) or 4.19 (10) for the immediate availability of the proceeds.
(2) A capital instrument described in sub-rule (1) above that is issued out of a special purpose vehicle through a consolidated subsidiary of a Bank may be included in the Bank’s consolidated AT 1 or T2 Capital if the instrument satisfies the criteria in rule 4.23 or 4.24, as the case requires. Such an instrument is treated as if it had been issued by the subsidiary itself directly to the third party.
Section 4C Regulatory adjustments
4.26 Valuation approaches and related adjustments
(1) A Bank must use the same approach for valuing regulatory adjustments to its capital as it does for balance-sheet valuations. An item that is deducted from capital must be valued in the same way as it would be for inclusion in the Bank’s balance sheet.
(2) The Bank must use the corresponding deduction approach and the threshold deduction rule in making adjustments to its capital.
4.27 Definitions for Section 4C
In this Section:
entity concerned means any of the following entities:
(a) a Bank;
(b) any other financial or insurance entity;
(c) an entity over which a Bank exercises control.
significant investment, by a Bank in an entity concerned, means an investment of 10% or more in the common shares, or other instruments that qualify as capital, of the entity concerned.
investment includes a direct, indirect and synthetic holding of capital instruments.
4.28 Adjustments to Common Equity Tier 1 Capital (CET1 capital)
(1) Form of adjustments: Adjustments to CET 1 capital must be made in accordance with this Rule. Regulatory adjustments are generally in the form of deductions, but they may also be in the form of recognition or derecognition of items in the calculation of a Bank’s capital.
(2) Goodwill and intangible assets: A Bank must deduct from CET 1 capital the amount of its goodwill and all other intangible assets (except mortgage servicing rights). The amount must be net of any related deferred tax liability that would be extinguished if the goodwill or assets become impaired or derecognised under IFRS or any other relevant accounting standards.
(3) Deferred tax assets:
(a) A Bank must deduct from CET 1 capital the amount of deferred tax assets (except those that relate to temporary differences) that depend on the future profitability of the Bank.
(b) A deferred tax asset may be netted with a deferred tax liability only if the asset and liability relate to taxes levied by the same taxation authority and offsetting is explicitly permitted by that authority. A deferred tax liability must not be used for netting if it has already been netted against a deduction of goodwill, other intangible assets or defined benefit pension assets.
(4) Cash flow hedge reserve: In the calculation of CET 1 capital, a Bank must derecognise the amount of the cash flow hedge reserve that relates to the hedging of items that are not fair valued on the balance sheet (including projected cash flows).
(5) Cumulative gains and losses from changes to own credit risk: In the calculation of CET 1 capital, a Bank must derecognise all unrealised gains and unrealised losses that have resulted from changes in the fair value of liabilities that are due to changes in the Bank’s own credit risk.
(6) Defined benefit pension fund assets:
(a) A Bank must deduct from CET 1 capital the amount of a defined benefit pension
fund that is an asset on the Bank’s balance sheet. The amount must be net of any related deferred tax liability that would be extinguished if the asset becomes impaired or derecognised under IFRS or any other relevant accounting standards.
(b) The Bank may apply to the AFSA for approval to offset from the deduction any asset in the defined benefit pension fund to which the Bank has unrestricted and unfettered access. Such an asset must be assigned the risk-weight that would be assigned if it were owned directly by the Bank.
(7) Securitisation gains on sale:In the calculation of CET 1 capital, a Bank must derecognise any increase in equity capital or CET 1 capital from a securitisation or resecuritisation transaction (for example, an increase associated with expected future margin income resulting in a gain-on- sale).
(8) Higher capital imposed on overseas branch
(a) If a Bank has an overseas branch, the Bank must deduct from CET 1 capital whichever is the higher of any capital requirement imposed by the AFSA or the financial regulator in the jurisdiction in which the branch is located.
(b) This rule does not apply if the overseas branch is a consolidated entity of the Bank.
A branch is a consolidated entity if it is included in the Bank’s consolidated returns.
(c) Despite sub-rule (b) above, if the financial regulator in the jurisdiction in which a branch is located imposes a capital requirement for the foreign branch, a banking Bank must deduct from CET 1 capital the amount of any shortfall between the actual capital held by the foreign branch and that capital requirement.
(9) Assets lodged or pledged to secure liabilities
(a) A Bank must deduct from CET 1 capital the amount of any assets lodged or pledged by the Bank if:
and
(i) the assets were lodged or pledged to secure liabilities incurred by the Bank;
(ii) the assets are not available to meet the liabilities of the Bank.
(b) The AFSA may determine that, in the circumstances, the amount of assets lodged or pledged need not be deducted from the Bank’s CET 1 capital. The determination must be in writing.
(10) Acknowledgments of debt
(a) A Bank must deduct from CET 1 capital the net present value of an acknowledgement of debt outstanding issued by it to directly or indirectly fund instruments that qualify as CET 1 capital.
(b) This rule does not apply if the acknowledgement is subordinated in rank similar to that of instruments that qualify as CET 1 capital.
(11) Accumulated losses: A Bank must deduct from CET 1 capital the amount of any accumulated losses.
4.29 Deductions from Regulatory Capital
(1) Deductions using corresponding deduction approach:
(a) The deductions that must be made from CET 1 capital, AT 1 capital or T2 capital under the corresponding deduction approach are set out in the rules 4.30 to 4.36. A Bank must examine its holdings of index securities and any underlying holdings of capital to determine whether any deductions are required as a result of such indirect holdings
(b) Deductions must be made from the same category for which the capital would qualify if it were issued by the Bank itself or, if there is not enough capital at that category, from the next higher category.
(c) The corresponding deduction approach applies regardless of whether the positions or exposures are held in the banking book or trading book.
Note If the amount of T2 capital is insufficient to cover the amount of deductions from that category, the shortfall must be deducted from AT1 capital and, if AT1 capital is still insufficient, the remaining amount must be deducted from CET 1 capital.
(2) Investments in own shares and capital instruments
(a) A Bank must deduct direct or indirect investments in its own common shares or own capital instruments (except those that have been derecognised under IFRS). The Bank must also deduct any of its own common shares or instruments that it is contractually obliged to purchase.
(b) The gross long positions may be deducted net of short positions in the same underlying exposure only if the short positions involve no counterparty risk. However, gross long positions in its own shares resulting from holdings of index securities may be netted against short positions in its own shares resulting from short positions in the same underlying index, even if those short positions involve counterparty risk.
(3) Reciprocal cross holdings: A Bank must deduct reciprocal cross holdings in shares, or other instruments that qualify as capital, of an entity concerned.
(4) Non-significant investments—where the Bank does not own more than 10% of issued common equity of the entity
(a) This rule applies if:
(i) a Bank makes a non-significant investment in an entity concerned;
(ii) the entity concerned is an unconsolidated entity (that is, the entity is not
one that is included in the firm’s consolidated returns);
(iii) the Bank does not own more than 10% of the common shares of the entity concerned; and
(iv) after applying all other regulatory adjustments, the total of the deductions required to be made under this rule is less than 10% of the Bank’s CET 1 capital.
(b) A Bank must deduct any investments in common shares, or other instruments that qualify as capital, of an entity concerned.
(c) The amount to be deducted is the net long position (that is, the gross long position net of short positions in the same underlying exposure if the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least 1 year).
(d) Underwriting positions held for more than 5 business days must also be deducted.
(e) If a capital instrument is required to be deducted and it is not possible to determine whether it should be deducted from CET 1 capital, additional tier 1 capital or tier 2 capital, the deduction must be made from CET 1 capital.
(5) Non-significant investments—aggregate is 10% or more of Bank’s CET 1 capital
(a) This rule applies if, after applying all other regulatory adjustments, the total of the deductions required to be made under rule 4.29 (4) is 10% or more of the Bank’s CET 1 capital.
(b) A Bank must deduct the amount by which the total of the deductions required to be made under rule 4.29 (4) exceeds 10% of the Bank’s CET 1 capital. This amount to be deducted is referred to as the excess.
(c) How much of the excess gets to be deducted from each category of regulatory capital under the corresponding deduction approach is calculated in accordance with the following formula:
where: Excess * A / B
A is the amount of CET 1 capital, additional tier 1 capital or tier 2 capital of the Bank, as the case may be.
B is the total capital holdings of the Bank.
(6) Significant investments
(a) This rule applies if:
(i) a Bank makes a significant investment in an entity concerned;
(ii) the entity concerned is an unconsolidated entity (that is, the entity is not
one that is included in the Bank’s consolidated returns); and
(iii) the Bank owns 10% or more of the common shares of the entity concerned.
(b) A Bank must deduct the total amount of investments in the entity concerned (other than investments in common shares, or other instruments that qualify as CET 1 capital, of the entity).
(c) The amount to be deducted is the net long position (that is, the gross long position net of short positions in the same underlying exposure if the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least 1 year).
(d) Underwriting positions held for more than 5 business days must also be deducted.
(e) If a capital instrument is required to be deducted and it is not possible to determine whether it should be deducted from CET 1 capital, AT1 capital or T2 capital, the deduction must be made from CET 1 capital.
(7) Banks may use estimates or exclude deductions
(a) If it is impractical for a Bank to examine and monitor the Bank’s exposures to the capital of entities concerned (including through holdings of indexed securities), the Bank may apply to the AFSA for approval to use an estimate of such exposures. The authority will grant such an approval only after the Bank satisfies the authority that the estimate is conservative, well-founded and reasonable.
(b) A Bank may also apply to the AFSA for approval not to deduct an investment made to resolve, or provide financial assistance to reorganise, a distressed entity.
4.30 Deductions from CET1 capital
(1) In addition to the other deductions to CET 1 capital under this Chapter, deductions may be required to CET 1 capital under the threshold deduction rule.
(2) The threshold deduction rule provides recognition for particular assets that are considered to have some limited capacity to absorb losses. The following items come within the threshold deduction rule:
(a) significant investments in the common shares, or other instruments that qualify as CET 1 capital, of an unconsolidated entity concerned;
(b) mortgage servicing rights;
(c) deferred tax assets that relate to temporary differences (for example, allowance for credit losses).
(3) Instead of full deduction, the items that come within the threshold deduction rule receive limited recognition when calculating CET 1 capital. The total of each of the items in subrule (2) do not require adjustment from CET 1 capital and are risk-weighted at 300% (for items listed on a recognised exchange) or 400% (for items not so listed) provided that:
(a) each item is no more than 10% of the Bank’s CET 1 capital (net of all regulatory adjustments except those under this Subdivision); or
(b) in total, the 3 items are no more than 15% of the Bank’s CET 1 capital (net of all
regulatory adjustments except those under this Subdivision).
(4) A Bank must deduct from CET 1 capital any amount in excess of the threshold in sub- rule (3) (a) or (b) above.
Section 4D Capital Buffers
4.31 Capital conservation buffer
(1) A Bank whose risk-based capital requirement is higher than its base capital requirement must maintain a minimum capital conservation buffer of:
(a) 2.5% of the Bank’s total risk-weighted assets; or
(b) a higher amount that the AFSA may, by written notice, set from time to time.
(2) A Bank’s capital conservation buffer must be made up of CET 1 capital above the amounts used to meet the Bank’s CET 1 capital ratio, T1 capital ratio and regulatory capital ratio in rule 4.12.
4.32 Capital conservation ratios
(1) If a Bank’s capital conservation buffer falls below the required minimum, the Bank must immediately conserve its capital by restricting its distributions.
(2) This rule sets out, in column 3 of table 4A, the minimum capital conservation ratios for Banks that are required to maintain a capital conservation buffer. Capital conservation ratio is the percentage of earnings that a Bank must not distribute if its CET 1 capital ratio falls within the corresponding ratio in column 2 of that table.
(3) A Bank must have adequate systems and controls to ensure that the amount of distributable profits and maximum distributable amount are calculated accurately. The Bank must be able to demonstrate that accuracy if directed by the AFSA.
(4) If the Bank is a member of a financial group, the capital conservation buffer applies at group level.
Table 4A Minimum capital conservation ratios
column 1 item | column 2 CET1 capital ratio | column 3 minimum capital conservation ratio (% of earnings) |
1 | 4.5% to 5.125% | 100 |
2 | ≥5.125% to 5.75% | 80 |
3 | ≥5.75% to 6.375% | 60 |
4 | ≥6.375% to 7.0% | 40 |
5 | >7% | 0 |
4.33 Powers of the AFSA
(1) The AFSA may impose a restriction on capital distributions by a Bank even if the amount of the Bank’s CET 1 capital is greater than its CET 1 capital ratio and required capital conservation buffer.
(2) The AFSA may, by written notice, impose a limit on the period during which a Bank may operate within a specified capital conservation ratio.
(3) A Bank may apply to the AFSA to make a distribution in excess of a limit imposed by this Part. The authority will grant approval only if it is satisfied that the Bank has appropriate measures to raise capital equal to, or greater than, the amount the Bank wishes to distribute above the limit.
4.34 Capital reductions
(1) A Bank must not reduce its capital and reserves without the AFSA’s written approval.
(2) A Bank planning a reduction must prepare a forecast (for at least 2 years) showing its projected capital after the reduction. The Bank must satisfy the authority that the Bank’s capital will still comply with these rules after the reduction.
4.35 Authority can require other matters
Despite anything in these rules, the AFSA may require a Bank to have capital resources, comply with any other capital requirement or use a different approach to, or method for, capital management. The authority may also require a Bank to carry out stress- testing at any time.
Section 4E Leverage Ratio
4.36 Application
The rules in this section apply only to Banks. For the sake of clarity, the rules in this section apply only to Banks licensed by the AFSA to conduct the Regulated Activity of “Accepting Deposits”.
4.37 Calculation of Leverage Ratio
(1) A Bank must calculate its Leverage Ratio in accordance with the following formula:
Leverage Ratio = Capital Measure ÷ Exposure Measure
Where:
(a) “Capital Measure” represents T1 Capital of the Bank calculated in accordance with BBR rule 4.13; and
(b) “Exposure Measure” represents the value of exposures of the Bank calculated in accordance with (2) of this rule.
(2) For the purpose of determining the Exposure Measure, the value of exposures of an Bank must be calculated in accordance with the International Financial Reporting Standards (IFRS) subject to the following adjustments:
(a) on-balance sheet, non-derivative exposures must be net of specific allowances and valuation adjustments (e.g. credit valuation adjustments);
(b) physical or financial collateral, guarantees or credit risk mitigation purchased must not be used to reduce on-balance sheet exposures; and
(c) loans must not be netted with deposits.
Note Detailed guidance specifying the methodologies, parameters and formulae for calculating the Leverage Ratio are set out in Section D of Chapter 4 of the CAG issued by the AFSA.
Chapter 5 Credit Risk and Concentration Risk
Part I Credit Risk
Introduction
Guidance
1. This chapter sets out the regulatory requirements in respect of managing the Credit Risk exposures of a Bank. Credit Risk refers to risk of incurring losses due to failure on the part of a borrower or a counterparty to fulfil their obligations in respect of a financial transaction. This chapter aims to ensure that a Bank holds sufficient regulatory capital of acceptable quality so that it can absorb unexpected losses arising out of its Credit Risk exposures, should the need arise and that it continues to operate in a sustainable manner.
2. This chapter requires a Bank to:
(a) implement a comprehensive Credit Risk management framework to manage, measure and monitor Credit Risk commensurate with the nature, scale and complexity of its operations;
(b) calculate the Credit Risk Capital Requirement for its on-balance sheet and off- balance sheet credit exposures after adjusting for applicable levels of credit risk mitigation, according to the norms, methodologies, standards and guidance provided in the CAG issued by the AFSA;
(c) implement a sound framework for managing concentration risk and large exposures, including limits for concentration of such exposures to individual and group borrowers.
3. This Chapter also deals with the following elements of determination of regulatory capital requirements to support a Bank’s credit risk exposures:
● the risk-weighted assets approach;
● CRM techniques;
● Provisioning requirements for impaired assets of the Bank.
4. To guard against abuses and to address conflicts of interest, this Chapter requires transactions with related parties to be at arm’s length.
5. The detailed requirements specifying the calculation methodologies, parameters, metrics and formulae in respect of the primary credit risk management and credit risk capital requirements outlined in this chapter are provided in the Capital Adequacy Guideline (CAG) issued by the AFSA. The CAG also provides detailed guidance on calculation methodologies, formulae, parameters and norms involved in calculation of Credit Risk capital requirements which is an element used to calculate the capital adequacy ratios for a Bank, as set out in Chapter 4 of BBR. It is suggested that this Chapter of the BBR, be read in conjunction with Chapter 5 of the CAG issued by the AFSA to facilitate understanding of the regulatory requirements and compliance with them.
5.1 Credit Risk Management – Systems and Controls
(1) A Bank must implement and maintain comprehensive Credit Risk management systems which:
(a) are appropriate to the Bank’s type, scope, complexity and scale of
operations;
(b) enable the Bank to effectively identify, assess, monitor and control Credit
Risk and to ensure that adequate Capital is available to support the credit risk exposures assumed; and
(c) ensure effective implementation of the Credit Risk strategy and policy.
(2) A Bank must:
(a) identify, assess, monitor, mitigate and, control its Credit Risk; and
(b) implement and maintain a prudent Credit Risk management policy which enables it to identify, assess, monitor, control and mitigate its Credit Risk.
(3) The Credit Risk management policy must:
(a) be documented and approved by its governing body;
(b) include the Bank’s risk appetite for Credit Risk;
(c) be appropriate to the nature, scale and complexity of its activities and for its risk profile;
(d) must establish procedures, systems, processes, controls and approaches to identify, measure, evaluate, manage and control or mitigate its credit risk and to ensure the integrity of its credit risk management;
(e) must set out the organizational structure, and must define the responsibilities and roles, for managing credit risk;
(f) ensure that its risk management framework including but not limited to tools, methodologies and, systems enable it to implement its Credit Risk management policy; and
(g) be reviewed and updated at a reasonable frequency, but at least on an annual basis.
(4) A Bank’s credit risk management policy must establish:
(a) a well-documented and effectively-implemented process for assuming credit risk that does not rely unduly on external credit ratings;
(b) well-defined criteria for approving credit (including prudent underwriting standards), and renewing, refinancing and restructuring existing credit;
(c) a process for identifying the approving authority for credit, given its size and complexity;
(d) effective credit risk administration, including:
(i) regular analysis of counterparties’ ability and willingness to repay;
and
(ii) monitoring of documents, legal covenants, contractual requirements, and collateral and other CRM techniques;
(e) effective systems for the accurate and timely identification, measurement, evaluation, management and control or mitigation of credit risk, and
reporting to the Bank’s governing body and senior management;
(f) prudent and appropriate credit limits that are consistent with the Bank’s risk tolerance, risk profile and capital;
(g) provide for process and criteria for identification and recognition of problem assets as well as systems for measurement and reporting of problem assets;
(h) the criteria and responsibility for credit risk reporting, and the scope, manner and frequency of reporting, to the governing body or a committee of the governing body;
(i) establish, and must provide for the regular review of, the Bank’s credit risk
tolerance and credit exposure limits to control credit exposures of the Bank;
(j) procedures for tracking and reporting exceptions to credit limits and deviations from credit risk management policies; and
(k) effective controls for the quality, reliability and relevance of data and validation procedures.
Note Guidance in respect of the contents of a Bank’s Credit Risk management policy which is required to satisfy the regulatory requirement in the Rule 5.1 is provided in Chapter 5 of the CAG issued by the AFSA.
(5) A Bank’s credit risk management policy must ensure that credit decisions are free of conflicts of interest and are made on an arm’s-length basis. In particular, the credit approval and credit review functions must be independent of the credit initiation function.
(6) A Bank’s credit risk management policy must provide for monitoring the total indebtedness of each counterparty and any risk factors that might result in default (including any significant unhedged foreign exchange risk).
(7) A Bank must give the AFSA full access to information about its credit portfolio. The Bank must also give the AFSA access to staff involved in assuming, managing and reporting on credit risk.
(8) The Credit Risk management policy must enable the Bank to carry out stress-tests on its credit portfolio at intervals appropriate for the nature, scale and complexity of the Bank’s business and using various scenarios based on appropriate assumptions. The policy must take into account the Bank’s credit risk profile (including on-balance-sheet and off-balance-sheet exposures) and tolerance in the context of the markets and macroeconomic conditions in which the Bank operates. The Bank’s credit risk stress testing must include procedures to make any changes to its credit risk management framework based on the results from the stress testing.
Note Guidance in respect of a Bank’s policies for Credit Risk assessment which is required to satisfy the regulatory requirement in the Rule 5.1 is provided in paragraphs 10 & 11 of Chapter 5 of the CAG issued by the AFSA.
5.2 Role of governing body—Credit Risk
(1) A Bank’s governing body must ensure that its Credit Risk management policy enables it to obtain a comprehensive Bank-wide view of its Credit Risk exposures and covers the full credit lifecycle including credit underwriting, credit evaluation, and the credit risk management of the Bank’s trading activities.
(2) A Bank must ensure that its Governing Body is responsible for monitoring the nature and level of Credit Risk assumed by it and for monitoring the Credit Risk management process.
(3) The governing body of the Bank must also ensure that:
(a) an appropriate senior management structure with clearly defined responsibilities and roles for Credit Risk management and for compliance with the Bank’s Risk strategy, is established and maintained;
(b) the credit risk management framework is consistent with the Bank’s risk
profile and its systemic importance.
(c) the Bank’s senior management and other relevant staff have the necessary experience to manage Credit risk and to effectively implement the Credit risk management policy;
(d) appropriate Credit limits covering Credit Risk management in both day-to-day and stressed conditions are set;
(e) stress-tests, funding strategies, contingency funding plans and holdings of high-quality liquid assets are effective and appropriate for the Bank;
(f) the Bank’s senior management:
(i) develops a Credit risk management policy in accordance with the
Bank’s Credit risk tolerance;
(ii) monitors the Bank’s Credit risk profile and reports to the governing
body regularly;
(iii) determines, and sets out in the Bank’s credit risk management policy, the structure, responsibilities and controls for managing credit risk and for overseeing the credit risk of all legal entities, branches and subsidiaries in the jurisdictions in which the Bank is active; and
(iv) monitors trends and market developments that could present significant, unprecedented or complex challenges for managing credit risk so that appropriate and timely changes to the credit risk management policy can be made.
(4) The governing body must regularly review reports on the Bank’s Credit Risk profile and portfolio returns and, where necessary, information on new or emerging problem assets. The governing body of the Bank must also review the Credit Risk tolerance and strategy at least on an annual basis.
(5) The governing body must approve:
(a) the Bank’s Credit Risk management policy; and
(b) its Credit risk tolerance and risk strategy.
5.3 Classification of Credit exposures
(1) Unless a Bank has established something more detailed, the Bank must classify credits into 1 of the 5 categories in table 5A. Nothing in the table prevents a Bank from classifying a credit under a higher risk category than the table requires.
(2) Unless there is good reason not to do so, the same category must be given to all credit exposures to the same counterparty
Annex 1_AIFC FinTech Rules
PART 1. INTRODUCTION
1.1. Title
These Rules may be cited as the AIFC Financial Technology Rules (or AIFC FinTech Rules).
1.2. Commencement
These Rules commence on [TBD February] 2019.
1.3. Application
These Rules apply within the jurisdiction of the AIFC.
1.4. Interpretations
Words and expressions used in these Rules and interpretative provisions applying to these Rules are specified in the Glossary.
1.5. Administration of the Rules
These Rules are administered by the Chief FinTech Officer (hereinafter, the
“CFTO”) of the AFSA FinTech Office.
PART 2. FINTECH LAB
2.1. General introduction to FinTech Lab
2.1.1. The FinTech Lab is a regulatory environment within the AIFC that allows a Person to Test and/or Develop the FinTech Activities without immediately incurring full set of regulatory requirements envisaged under the AIFC acts for Regulated and Market Activities.
2.1.2. FinTech Lab is designed to deliver more effective competition in the interests of consumers by:
(a) reducing the time and, potentially, the cost of getting FinTech to market;
(b) enabling greater access to finance for innovators, including start-ups;
(c) allowing the AFSA to collaborate with the applicant to ensure that appropriate consumer protection safeguards are built into their FinTech Activities; and
(d) enabling more FinTech Activities to be Tested and/or Developed, thus, potentially introduced to the market.
2.1.3. Given that the FinTech Lab is a live environment, Testing and/or Developing the FinTech Activities in the FinTech Lab may result in financial loss or other risks to the FinTech Lab Participants, their customers and the financial system.
2.1.4. The FinTech Lab is not intended to create a risk‐free FinTech environment, rather incorporates appropriate safeguards to identify and manage potential risks that promotes the FinTech Activities, however, minimises the risks of poor customer outcomes posed by these FinTech Activities.
2.2. Testing the FinTech Activities
2.2.1. Eligibility Criteria
(a) The regime of Testing the FinTech Activities is a live environment which allows a Person to test the validity of the following types of activities in a cost-effective and time-bound manner, in close collaboration with the AFSA:
1. Financial Activities which are similar to those that are already being regulated in the AIFC, where:
i. a different technology or process is being applied; or
ii. the same technology is being applied differently; or
2. Financial Activities not regulated in the AIFC; or
3. Activities likely to be regulated in the AIFC as a financial or an ancillary service.
(b) The FinTech Activities specified in (a) above, should bring benefits to consumers, which may include, for example, improvement accessibility, efficiency, security and quality in the provision of financial services, promoting better risk management solutions and regulatory outcomes for the financial industry.
2.3. Developing the FinTech Activities
2.3.1 Eligibility Criteria
4. The regime of Developing the FinTech Activities is a live market environment in which a Person can engage into the activities that are currently regulated or not regulated by the AFSA without immediately incurring full set of regulatory requirements envisaged under the AIFC acts for Regulated and Market Activities.
5. The regime of Developing the FinTech Activities is tailored in the circumstances where:
(i) it is less clear whether the proposed FinTech Activity would have demand in Kazakhstani or regional market (test the waters), or
(ii) an applicant is a start-up that does not meet full-set of requirements for the regulated activities but seeks to deploy the FinTech Activities and comply with regulatory obligations gradually, or
(iii) an applicant holds a licence to operate the proposed FinTech Activity in other jurisdiction(s) which is not currently regulated by the AFSA.
6. For the purposes of 2.3.1(b), the FinTech Activities eligible for being Developed include those that fall under the Regulated and/or Market Activities specified in GEN Schedule 1 and/or Framework Regulations Schedule 3, and other non-regulated by AFSA activities.
2.4. Application process
2.4.1. General overview
(a) A Person seeking to Test and/or Develop the FinTech Activities within the FinTech Lab must qualify the eligibility criteria specified in 2.2.1. and 2.3.1. and satisfy the application requirements specified in 2.4.3(b) to get an authorisation.
(b) A Person may apply to the AFSA for a Licence authorising a Centre Participant to Test and/or Develop the FinTech Activities by:
(i) completing the pre-application and application form and filing such completed form with the AFSA accompanied by such documents as are specified in the form; and
(ii) providing such further information as the AFSA may require.
2.4.2. Pre-application form
(a) The pre-application form is designed to verify eligibility of a Person to Test and/or Develop the FinTech Activities within the FinTech Lab.
(b) The pre-application form is further designed to provide an insight to the AFSA regarding the proposed FinTech and to verify its suitability for support from the FinTech Lab as well as allows the applicant to familiarize with the AFSA’s approach in fostering innovation within the FinTech Lab.
(c) A Person must justify compliance with the eligibility criteria to proceed further with the application form.
2.4.3. Application form
(a) Once the AFSA is satisfied that the Person meets the edibility criteria, such Person can complete and submit an application form for obtaining a License to carry on a Testing and/or Developing the FinTech Activities.
(b) In assessing the application, the AFSA will consider whether:
(i) the Person has performed a rigorous due diligence on legal and regulatory requirements of AIFC for deploying the proposed FinTech Activities and understands them;
(ii) the Person has identified the risks discovered from the preliminary testing and the potential risks to financial industry and consumers that may arise from the Testing and/or Developing of the proposed FinTech Activities in the FinTech Lab, and has proposed appropriate safeguards to address the identified risks to the best of its ability;
(iii) the Person has the necessary financial and non-financial resources to support Testing and/or Developing the FinTech Activities in the FinTech Lab; and
(iv) the Person has prepared the business, testing and/or development plan(s).
(c) The AFSA reviews the application within up to 30 business days from the date of receipt and informs the applicant on authorisation decision within 3 business days.
(d) The procedures of assessing the application, terms and conditions of issuance of the License is defined by the AFSA.
(e) Nothing in these Rules prevents the Person whose application had been rejected to apply to the FinTech Lab again, provided that the reasons causing the rejection of application have been addressed or the different FinTech Activities or the same FinTech Activities under the different business model shall be proposed for being Tested and/or Developed by that Person.
2.5. Licence
2.5.1. General
(a) Person must not Test and/or Develop the FinTech Activities within the FinTech Lab unless it holds a License issued by the CFTO.
(b) A Licence issued by the CFTO, which can be subject to the set of conditions, serves as an authorisation of a Centre Participant to:
(i) Test the FinTech Activities within the FinTech Lab; and/or
(ii) Develop the FinTech Activities within the FinTech Lab.
(c) The Licence has effect for 2 years from the date of its issuance.
2.5.2. Extension, varying, withdrawal of the Licence
(a) The FinTech Lab Participant is entitled to apply to the AFSA to extend, vary or withdraw the Licence.
(b) The FinTech Lab Participant submits application for the Licence extension at least 2 months prior to the Licence expiration date.
(c) The FinTech Lab Participant is entitled to apply to the AFSA to extend the validity, to change the scope, to have a condition/restriction varied or withdrawn, or to have its Licence withdrawn by:
(i) filing the form with the AFSA accompanied by such documents as are specified in the form or as may be requested by the AFSA;
(ii) providing such further information as the AFSA may require.
(d) Each application for an extension, varying or withdraw of the Licence must be accompanied by the sufficient reasons behind such an application.
(e) In the case of withdrawal of the Licence, the FinTech Lab Participant follows the procedure specified in 2.5.3(d) of these Rules.
(f) The CFTO approves the extension, varying or withdrawal of the Licence on a case-by-case basis at his/her own discretion.
(g) The CFTO’s decision on the extension, varying or withdrawal of the Licence is final.
(h) The CFTO may vary the terms of the Licence on his/her own initiative and at his/her own discretion based on the progress of the FinTech Lab Participant in Testing and/or Developing the FinTech Activities.
2.5.3. Suspension, revocation of the Licence
(a) The CFTO may suspend the Licence based on an application of the FinTech Lab Participant.
(b) The CFTO is entitled to suspend or revoke all or some of the terms of the Licence or the full Licence at his/her own discretion.
(c) For the purposes of 2.5.3(b), the CFTO may exercise its power only if the CFTO:
(i) is satisfied that there is a breach, or likely breach of a provision of legislation administered by the AFSA; or there is a failure, or likely failure, to comply with any obligation to which the FinTech Lab Participant is subject under the Licence;
(ii) considers that the exercise of the power is necessary or desirable in the interests of the AIFC as the risks posed by the Tested and /or Developed FinTech Activities exceed the benefits to consumers or the financial system.
(d) Upon revocation or withdrawal of the Licence, the FinTech Lab Participant must:
(i) immediately implement its exit strategy to cease the provision of the FinTech to new and existing customers;
(ii) provide notification to customers informing them of the cessation and their rights to redress, where relevant;
(iii) compensate any customers who had suffered the incurred financial losses from engaging with the FinTech Lab Participant pursuant the safeguards submitted by the FinTech Lab Participant while the application for authorisation;
(iv) ensure all the existing obligations to its customers must be fully fulfilled or addressed before exiting the FinTech Lab; and
(v) submit a final report to the AFSA on the actions taken pursuant the paragraph 2.7.3. of these Rules within 30 days after the revocation or withdrawal.
2.6. Waivers, conditions, restrictions
2.6.1. General
(a) The regime of Testing and/or Developing the FinTech Activities envisages the blank-sheet approach as the normal regulatory requirements applicable to the AIFC Participants, to whom the Framework Regulations apply, would initially not apply to the Person to carry on the Regulated Activity of Testing and / or Developing the FinTech Activities within the FinTech Lab.
(b) The AFSA may, on the application of a Person or its own initiative and by written notice, waive or modify the conditions, restrictions and/or requirements of the AIFC Regulations or Rules made thereunder, and define the appropriate boundary conditions at authorization and through different stages of Testing and / or Developing the FinTech Activities.
2.7. Reporting
2.7.1. Monitoring
(a) The FinTech Lab Participant is subject to the monitoring from the AFSA throughout the Licence validity period, whereby the FinTech Lab Participant submits the information on fulfilling of the testing and/or developing plan according to the paragraph 2.4.3(b)(iv) of these Rules.
(b) The FinTech Lab Participant must ensure proper maintenance of records during the Testing and/or Developing period to support reviews of the testing and/or developing plan by the AFSA.
2.7.2. Interim reports
(a) The FinTech Lab Participant must submit interim reports to the AFSA on the progress of fulfilment of the testing and/or developing plan, which may, without limitations, include information on the following:
(i) key performance indicators, key milestones and statistical information;
(ii) key issues arising as observed from fraud or operational incident reports; and
(iii) actions or steps taken to address the key issues referred to in (ii) above.
(b) The frequency and specific details for reporting, depends on duration, complexity, scale and risks associated with the Testing and/or Developing the FinTech Activities and shall be defined by AFSA.
2.7.3. Final report
(a) The FinTech Lab Participant must submit a final report containing the following information to the AFSA within 30 calendar days from the expiry, or the revocation, or withdrawal of the Licence:
(i) key outcomes, key findings of the Testing and/or Developing the FinTech Activities;
(ii) a full account of all incident reports and resolution of customer complaints (if any); and
(iii) in the case of a failed Test and/or Development – the lessons learnt from the Test and/or Development.
2.8. Miscellaneous
2.8.1. Upon expiry of the Licence’s validity, the legal and regulatory requirements which have been tailored, waived or modified by the AFSA will expire.
2.8.2. Unless the extension of the Licence is requested pursuant paragraph 2.5.2. of these Rules, or at such time as otherwise might be necessary and agreed by the CFTO, the FinTech Lab Participant will have to exit the FinTech Lab and choose to either:
(a) migrate to the full authorisation and supervisory regime under the AIFC regulatory framework and deploy its FinTech on a broader scale; or
(b) continue a business as a non-regulated activity under the commercial license obtained from the Registrar of Companies;
(c) employ an exit strategy and follow the procedure specified in paragraph 2.5.3(d).
2.8.3. Migration to full authorisation is possible provided that:
(a) both AFSA and the FinTech Lab Participant are satisfied that the intended Test and/or Development outcomes are achieved; and
(b) the FinTech Lab Participant can fully comply with the relevant legal and regulatory requirements envisaged under the AIFC acts to carry on the Regulated and/or Market Activities.
2.8.4. The FinTech Lab Participant may continue its business under the commercial licence obtained from the Registrar of Companies in certain circumstances when, for instance, the Tested and/or Developed FinTech Activities remain non-regulated by the AFSA, or when the intention of the FinTech Lab Participant or its financial/non-financial resources suggests continuing the business as a non-regulated by the AFSA activity.
2.8.5. The exit strategy of the FinTech Lab Participant may vary based on commercial needs, and may include the ceasing the business, or transferring the FinTech and engaged customers to the other authorised financial institution(s).
PART 3. THE AFSA FINTECH OFFICE
3.1. Overview
3.1.1. The FinTech Lab is administered by CFTO who has an office established within the framework of AFSA.
3.1.2. In exercising the CFTO’s functions, the CFTO must act in an independent way, even though the CFTO is an agent of the AFSA.
3.2. Objectives and functions
3.2.1. Objectives
(a) In exercising the CFTO’s functions, the CFTO acts in an independent and
non-biased way.
(b) The CFTO exercises the CFTO’s functions only in pursuit of the following CFTO’s objectives:
(i) to promote good practices and observance of the requirements of these Rules;
(ii) to pursue effectiveness and transparency in administering of these Rules.
3.2.2. Functions
(a) The CFTO has the functions given to the CFTO by or under the AIFC Acts, decisions of Governor and AFSA Executive Body.
(b) Without limiting the paragraph (a), the CFTO’s functions include the following:
(i) preparing draft rules, standards and codes of practice and submitting them to the AFSA Board Legislative Committee for consideration;
(ii) preparing and adopting non-binding guidance for the AIFC Participants, and advising the Board of Directors of the AFSA of any guidance adopted by the CFTO;
(iii) issuing or adopting the necessary forms, procedural guidance and other necessary documents pertinent to these Rules;
(iv) initiating and convening the AFSA Committee on authorisation of the FinTech Lab applicants;
(v) devising the tailored regulatory regime for the FinTech Lab Participant to Test and/or Develop the FinTech Activities within the FinTech Lab, including, without limitations, the following:
i. modify eligibility criteria on a case by case basis at his/her own discretion with due consideration of risks posed by the proposed FinTech; and/or
ii. impose waivers, conditions, restrictions and cancel and/or vary any waiver, condition, restriction; and/or
iii. impose such further waiver, condition, restriction as it may think fit; and/or
iv. issue an individual guidance subject to specific characteristics and risk(s) posed by the FinTech Activity; and/or
v. vary the applicable legislative requirements as the FinTech Lab Participant progress through different stages of Testing and/or Developing the FinTech Activities.
(vi) holding the signature right over various legal matters:
i. approve the form of the Licence and other application forms, make modifications thereto;
ii. issue of the Licence;
iii. modify, suspend or revoke the Licence at any time at his/her own discretion due to necessity to pursue one or more regulatory objective.
3.2.3. Other powers
(a) These Rules are not an exhaustive source of the CFTO’s policy on the exercise of its statutory powers and discretions. In discharge of its regulatory mandate, the CFTO is entitled to exercise other powers or functions which the CFTO considers necessary or desirable for or in connection with, or reasonably incidental to, the exercise of the CFTO’s functions, where it might be relevant to address any specific matter in FinTech.
(b) The CFTO may delegate all or any of the CFTO’s functions to any AFSA employee.
(c) The CFTO, and any delegate of the CFTO, is not liable to third parties for anything done or omitted to be done in the exercise or purported exercise of the CFTO’s functions (including any function delegated to the CFTO) under the AIFC Acts, decisions of Governor and AFSA Executive Body, except when it is established that such an action or omission was committed with unfair intentions and/or malicious intent and/or for the purpose of deliberate non-fulfillment or violation of his/her official duties.
Consultation Paper on Regulation of digital banking services
PART A - INTRODUCTION
Comments to be addressed to:
R.Abdirassilov@aifc.kz
1.Scope and Purpose
1.1 This paper presents a proposed policy to be adopted by the Astana Financial Services Authority (the "AFSA") for the regulation of digital banking services in the Astana International Financial Services Centre (the "AIFC") (the "Framework").
1.2 Terms not defined herein have the meaning given to them in the AIFC Glossary.
1.3 The proposed Framework will aid the economic and social development of Kazakhstan by diversifying who provides banking services, what those banking services are and how Clients[1] use these services.
1.4 This will support the five-year programme for 'Digital Kazakhstan', which is seeking to improve the competitiveness of Kazakhstan’s economy and quality of life through the progressive development of the digital ecosystem. This programme also includes the development of financial technologies, non-cash payments and electronic commerce, as well as progressive regulations that create a vibrant environment to promote greater inclusion and innovation. The AFSA is being supported by and working with the European Bank of Reconstruction and Development (the "EBRD") in implementing aspects of the 'Digital Kazakhstan' programme within the AIFC. The AFSA and the EBRD are engaging consultants, such as Clifford Chance in this case, to assist it with this programme. The proposed Framework is a part of this programme.
1.5 The aim of the proposed Framework is to enhance and build on the existing regulatory framework in order to support the licensing of digital-only banks and to regulate banking services provided remotely (e.g. online; in a mobile app), in support of the introduction of "Open Banking".
1.6 The proposed Framework will provide regulatory certainty to Authorised Firms providing banking services, and to their Clients. It will also promote new and innovative ways for banking services to be provided in the AIFC.
2. Background
2.1 Digital banking is transforming how banking services are provided around the world. It is expanding the ways that banking services can be offered, which is opening it up to clients that were previously under-served. This means that traditional banking products, such as accepting deposits and providing credit, do not need to be offered through physical branches, but can be provided remotely; for example, online or in a mobile app. Clients can therefore access more banking services in any location.
2.2 In addition, the concept of 'Open Banking' has gained traction over the past few years. This allows a client's banking data to be used not only by his or her own bank, but also by third party providers in order to enable the provision of new products and services which will benefit clients. It establishes a secure way for a wide variety of providers to access a client's banking information and receive improved financial services and other related services.
2.3 Over the past few years, an increasing number of jurisdictions have been putting in place the regulatory infrastructure to enable remote access through digital banking, and to develop 'Open Banking'. Against this background, the AIFC is seeking to put in place the proposed Framework so that Kazakhstan can benefit from these developments and become an attractive location for both local and international providers of such services.
[1] As per the AFSA Glossary, "Clients" is a broad term including individuals, corporate and government bodies, which can be located within Kazakhstan or externally.
PART B – REGULATORY APPROACH
3. Overview and Scope of Activities
3.1 The proposed Framework is being developed by the AFSA as part of its plan to enhance regulatory policies aimed at facilitating the adoption of technological innovations in the AIFC.
3.2 In formulating the proposed Framework, it has been proposed to:
- 3.2.1 develop a standalone regulatory framework for digital-only banks (please see Sections 5 to 8 below with respect to "Authorised Digital Banks" and "Authorised Digital Banks (Limited Licence)");
- 3.2.2 offer a phased approach to full authorisation for digital-only banks to encourage new providers into the AIFC (i.e., to lower the barriers to entry into the banking market) (please see Section 8 below with respect to "Authorised Digital Banks (Limited Licence)");
- 3.2.3 consider ways to access online banking;
- 3.2.4 define new Regulated Services to permit 'Open Banking' activities;
- 3.2.5 consider what additional infrastructure may need to be developed so that 'Open Banking' can operate fully; and
- 3.2.6 put in place suitable safeguards that recognise and address the security and other challenges posed by digital banking.
3.3 Following various policy discussions, it has been decided to include provisions related to "Open Banking" in the separate Payment Services and Electronic Money Framework ("PSEM Framework").
4. Legislation
4.1 When developing the proposed digital banking framework, the starting point will be to review the existing AIFC Acts which apply to Banks generally. When conducting this review, the question in each case will be: should this rule apply to an Authorised Digital Bank and, if so, does the rule need to be modified in any way in respect of its application to Authorised Digital Banks. The acts to be reviewed are:
- 4.1.1 AIFC Financial Services Framework Regulations (“FSFR”);
- 4.1.2 AIFC General Rules (“GEN”);
- 4.1.3 AIFC Conduct of Business (“COB”);
- 4.1.4 AIFC Banking Business Prudential Rules ("BBR");
- 4.1.5 AIFC Market Rules ("MAR");
- 4.1.6 AIFC Anti-Money Laundering, Counter – Terrorist Financing and Sanctions Rules (“AML”);
- 4.1.7 AIFC Fees Rules ("FEES"); and
- 4.1.8 AIFC Glossary.
4.2 New rules for digital-only banks will also be drafted - the new AIFC Digital Bank Rules ("DBR").
PART C – SUMMARY OF POLICY POSITIONS
5. Digital-Only Banks - Scope
5.1 Traditionally, banks have physical infrastructure through which they provide banking services to clients. For example, retail banks operate networks of branches where clients receive key banking services (e.g. open bank accounts) and they provide ATMs where clients can withdraw cash from their bank accounts (either through their own ATM network or through an agent bank's ATM network).
5.2 The AIFC wants to establish a regulatory framework for digital-only banks. The aim of this is to enable Clients to receive banking services remotely, without the need for the physical infrastructure of traditional banks. In order to achieve this, there would need to be sufficient technological infrastructure (both at a network level and at a corporate/individual level) and technological literacy. Enabling Clients to receive banking services remotely would benefit them, as they would have immediate access to banking services wherever they are. Digital-only banks would also benefit from reduced operating costs.
5.3 Digital-only banks will need to be defined to distinguish them from traditional banks. We propose that the core concept of the definition is a bank which provides only digital banking services, and which has only limited physical infrastructure. For example, it could have a head office but no branch network. Digital kiosks and ATMs will be permitted in order to help attract Clients and assist with Client on-boarding and Client queries (such kiosks could be manned or unmanned).
5.4 Applicants would have their own application process (see Section 6 below) to become "Authorised Digital Banks", and their own rules, the DBR (see Section 7 below). Please also see Section 8 below where it is proposed that there is an intermediate step for "Authorised Digital Banks (Limited Licence)", where more limited rules would apply.
5.5 Authorised Digital Banks will come within the definition of Authorised Firms, as will Authorised Digital Banks (Limited Licence). We understand that under the Payment Services and Electronic Money ("PSEM") Policy Paper, certain Authorised Firms do not need separate authorisation to carry out the new payment services Regulated Activity; such Authorised Firms include those with permission to Accept Deposits, Provide Credit and Provide Money Services. Authorised Digital Banks with these permissions will not therefore require separate authorisation to provide payment services as a Regulated Activity.
5.6 There is then also a policy question around whether Authorised Digital Banks should be permitted to carry out the new Regulated Activity under the PSEM Framework of issuing electronic money. Our view is that Authorised Digital Banks should be permitted to do so on the basis that this would be consistent with the banking and payment services activities that Authorised Digital Banks are proposed to be able to carry out and supportive of the general objectives for the DBRs, of expanding the use of financial technology and non-cash payments within the AIFC.
5.7 Authorised Digital Banks would be limited to providing certain existing Regulated Activities set out in Schedule 1 (Regulated Activities) to the AIFC General Rules ("GEN")[1]. They would be allowed to carry out the following Regulated Activities:
- 5.7.1 17. Accepting Deposits;
- 5.7.2 18. Providing Credit; and
- 5.7.3 26. Opening and Operating Bank Accounts.
- They may then also carry out one or more of the following Regulated Activities:
- 5.7.4 19. Advising on a Credit Facility; and/or
- 5.7.5 21. Providing Money Services.
5.8 In addition, Authorised Digital Banks will be permitted to carry out the new Payment Services Regulated Activity, proposed as part of the PSEM Framework, including those activities introduced for "Open Banking". Further review will be required of the PSEM Framework, once drafted, to ensure that the DBRs and the PSEM Framework are consistent. Given the broad definition of Client in the AIFC Glossary, Authorised Digital Banks could not only provide these Regulated Activities and other non-regulated activities to corporates etc., but also to other banks or financial institutions. Authorised Digital Banks will also be able to accept limited deposits of up to USD 10,000 from Retail Clients, unlike other Banks in the AIFC.
5.9 Another issue is as to whether there should be any limit on an Authorised Digital Bank when providing credit to Retail Clients. Policy options for AFSA here include:
- 5.9.1 allowing Authorised Digital Banks to provide unlimited credit to Retail Clients in the same way that an existing AFSA-authorised Bank would be permitted to;
- 5.9.2 allowing Authorised Digital Banks to provide microloans of up to USD 10,000 only per Retail Client;
- 5.9.3 allowing Authorised Digital Banks to provide microloans of up to USD 10,000 per Retail Client but permitting uncapped loans to Retail Clients where either:
- (a)the funds for loans over the USD 10,000 cap are not derived from client deposits; or
- (b)reasonable and proportionate security for the loan is taken by the Authorised Digital Bank.
5.10 In our view, there are pros and cons for each of these approaches, based on considerations including consumer protection, ease of implementation and enforcement and ensuring that Authorised Digital Banks are able to grow stable and sustainable businesses. Whilst capping the amount that can be loaned to each Retail Client may be an appropriate way of protecting consumers, allowing Authorised Digital Banks some flexibility to provide further credit to such customers, especially with additional protections, also seems worthwhile in order to support sustainable business growth.
5.11 The application process for becoming an Authorised Digital Bank will allow for an Authorised Firm that is not an Authorised Digital Bank to set up a subsidiary which is an Authorised Digital Bank, or itself become an Authorised Digital Bank, subject to meeting relevant criteria. The AFSA shall have discretion to accelerate the Authorised Digital Bank (Limited Licence) phase for an existing AFSA-authorised Bank wishing to become an Authorised Digital Bank or to establish a subsidiary which is an Authorised Digital Bank.
6.DIGITAL-ONLY banks – Applications
6.1 Applicants to become Authorised Digital Banks will have their own set of application forms. This will include choosing which of the Regulated Activities that are available to Authorised Digital Banks the applicant wishes to provide (see Section 5.5 above).
7. DIGITAL-ONLY banks - Rules
7.1 The AFSA wishes to make its regime attractive to digital-only banks. Part of its appeal will be to reduce unnecessary burdens in the application process. A key part of the work that an applicant will do is to assess the rules that will apply to it.
7.2 The AFSA will need some new rules for Authorised Digital Banks. These will be set out the DBR. In particular, the DBR will set out what defines an Authorised Digital Bank, the application process and any requirements specific to Authorised Digital Banks. The DBR will also do this for Authorised Digital Banks (Limited Licence) (see Section 8 below). As noted in Section 11, there are certain security and consumer protection provisions which should be put in place where banking and other services are provided remotely. As these will also be relevant to other Authorised Firms who provide such services remotely, these will not be included in the DBRs but may be issued as separate guidelines by the AIFC or be included in another AIFC Rulebook (e.g. in the AIFC General Rules or the rules to be drafted for the new PSEM Framework).
7.3 In addition, some existing AIFC Acts applicable to other types of firms will also apply to Authorised Digital Banks. Current rules which may need to apply to Authorised Digital Banks are contained in the following AIFC Acts:
- 7.3.1 AIFC Financial Services Framework Regulations (“FSFR”);
- 7.3.2 AIFC General Rules (“GEN”);
- 7.3.3 AIFC Conduct of Business (“COB”)[2];
- 7.3.4 AIFC Banking Business Prudential Rules ("BBR");
- 7.3.5 AIFC Market Rules ("MAR")[3];
- 7.3.6 AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules (“AML”);
- 7.3.7 AIFC Fees Rules ("FEES"); and
- 7.3.8 AIFC Glossary.
New rules are also currently being developed under the PSEM Framework, some of which (such as conduct of business rules) will also apply to Authorised Digital Banks when carrying out payment services; these rules will need to be considered when drafting the DBRs.
7.4 Whilst it would be simpler for Authorised Digital Banks to have all their rules in one place (e.g. no need to follow cross-references to other parts of the AIFC Acts), it would create a lengthy rulebook. In addition, care would need to be taken that any future updates are reflected, where relevant, in both the existing AIFC Acts and in the DBR. Instead, the DBR will set out only specific new rules applicable to Authorised Digital Banks or, existing rules which need to be modified when they apply to Authorised Digital Banks. It will also cross reference however to other existing rules in existing AIFC Acts which will apply to Authorised Digital Banks, to help make the DBR easier to follow, without setting out these existing rules in full.
7.5 The BBR sets out detailed requirements for Banks, including principles relating to Banking Business, prudential reporting requirements, capital adequacy, credit risk and concentration risk, market risk, operational risk, interest rate risk in the Banking Book, liquidity risk, group risk, supervisory review and evaluation process and public disclosure requirements. It is understood that these will also apply in full to Authorised Digital Banks (but not for an Authorised Digital Banks (Limited Licence) as discussed in Section 8 below).
7.6 Authorised Digital Banks will also require corporate governance rules. Currently, corporate governance rules for listed entities are set out in MAR and apply to a Reporting Entity, which is a Person who: (i) has Securities or Units admitted to an Official List; (ii) is the Fund Manager of a Listed Fund; or (iii) is declared by the AFSA to be a Reporting Entity. To the extent that an Authorised Digital Bank is a Reporting Entity, they will be subject to these rules, in the same way as other Banks under AFSA's current approach.
8. DIGITAL-ONLY Banks – Authorised Digital Bank (Limited licence)
8.1 In order to encourage new entrants to the banking sector, there will be an intermediary stage between applying for and becoming a full Authorised Digital Bank. This will allow applicants to provide limited Regulated Activities and to not be subject to the full set of rules for an Authorised Digital Bank. They are intended to be known as Authorised Digital Banks (Limited Licence). This is similar to the approach taken in Singapore and is designed to lower the barriers to entry to new entrants to the banking sector.
8.2 All applicants to become an Authorised Digital Bank must first become an Authorised Digital Bank (Limited Licence), until the AFSA have carried out an evaluation to check that the Authorised Digital Bank (Limited Licence) has satisfied certain conditions and can become an Authorised Digital Bank. The Authorised Digital Bank (Limited Licence) phase will be time limited period and an Authorised Digital Bank (Limited Licence) will be required to cease doing business in the AIFC if they fail to satisfy the AFSA's evaluation to become an Authorised Digital Bank within the required time period.
8.3 Limitations on an Authorised Digital Bank (Limited Licence) being considered include:
- 8.3.1 when providing the Regulated Activities of Accepting Deposits and Providing Credit:
- (a) no Deposits will be accepted from Retail Clients; and/or
- (b) a cap on the Credit provided to each Retail Client of USD 10,000.;
- 8.3.2 The BBR will apply in a reduced manner, such as lower capital requirements (e.g. USD 5 million[4]);
- 8.3.3 Restrictions on holding safeguarded funds for Payment Institutions and Small Payment Institutions pursuant to any requirements under the PSEM Framework for safeguarded sums to be held with an authorised Bank.
Further rules could also not be applied or be applied in a reduced manner if that is required.
8.4 An Authorised Digital Banks (Limited Licence) will come within the definition of Authorised Firms and so be required to comply with other AIFC Acts applicable to Authorised Firms, subject to modifications set out in the DBR.
8.5 We understand that under the PSEM Policy Paper, certain Authorised Firms do not need separate authorisation under the PSEM Regime, providing they have permission to carry out Regulated Activities such as Accepting Deposits. If an Authorised Digital Bank (Limited Licence) is an Authorised Firm with such permissions, this would ensure that they do not require separate authorisation when acting as payment service providers.
9.Access to Online banking
9.1 Clients want increased flexibility in how they access banking services. This means that they do not want to have to visit a physical branch to receive banking services. Clients want to be able to transfer funds, view their account balance and undertake other account activities wherever they are. In the AIFC, clients will want this regardless of whether they receive remote banking services from an existing Authorised Firm such as a Bank or, in the future, from an Authorised Digital Bank or Authorised Digital Bank (Limited Licence) (i.e. standards and processes around remote access to Regulated Activities should apply to all Authorised Firms).
9.2 It is important that the Framework is suitably robust and technologically neutral in order for its rules and requirements to apply wherever relevant Regulated Activities are accessed remotely, regardless of what interface is used (e.g., web-page; mobile app; tablet; watch). In the past, some jurisdictions developed a standalone licensing regime for mobile banking. However, leading jurisdictions now rarely have a licensing regime exclusively for mobile banking. This is because they require a technologically neutral licensing regime which is flexible enough to permit banking services to be provided through a variety of interfaces and which therefore does not need to be constantly revised to take account of technological changes. Standards and processes around access and conduct of business are therefore required to ensure that any remote access to banking services is secure and safe for Clients.
9.3 In order to facilitate this, it is likely that certain security standards will need to be implemented in the AIFC in order to allow Clients to access banking services securely. Whilst certain specific security standards should be implemented as rules as discussed in Section 11 below (e.g. SCA (as defined in Section 11)), the AIFC may also wish to develop security guidelines as, for example, the European Banking Authority ("EBA") has done in the EU.[5]
10.Open banking – API and other Standards
10.1 In order to be able to provide Account Information Services and/or Payment Initiation Services, Authorised Firms, such as Banks, will need to open up their application programming interfaces ("APIs") to share information securely with Authorised Firms providing Account Information Services and/or Payment Initiation Services.
10.2 APIs are codes and protocols which allow different applications to communicate with each other by deciding how different software components should interact. Open data API specifications are available publicly. These allow API providers, such as Banks, to develop API "endpoints" which can be accessed by Authorised Firms providing Account Information Services and/or Payment Initiation Services through building compatible online applications. Open data API specifications are crucial to ensuring the technological neutrality of the Framework, and to allowing the broadest pool of firms to provide Account Information Services and/or Payment Initiation Services.
10.3 The AFSA will need to decide how it wishes to control APIs. For example, in the UK, Open Banking Limited has set out certain API specifications which must be adhered to.[6] This helps ensure the widest possible access through the use of common standards. However, this is less about financial regulation and more about the technical standards and associated boundaries which the AFSA wishes to put in place to foster innovation and encourage new and existing Authorised Firms to provide Account Information Services and/or Payment Initiation Services.
10.4 Furthermore, using the example of the UK's Open Banking Limited, the AFSA may wish to put in place additional guidelines around security, customer experience and operations.[7] However, this is again less about financial regulation and more about the technical standards and associated boundaries which the AFSA may wish to put in place. As these requirements will apply more broadly than just to Authorised Digital Banks, AFSA's powers to issue such guidelines will be set out, if necessary, elsewhere in the AIFC Rules.
11. Security and Consumer Protection
11.1 Where any banking services take place remotely, there are inherent security risks. This is an issue for all Authorised Firms (including Authorised Digital Banks and Authorised Digital Banks (Limited Licence), regardless of whether they come within the definition of Authorised Firms). However, the Framework offers an opportunity to put in place requirements that will increase security and reduce fraud for all Clients.
11.2 One solution to this is to put in place security standards and processes which must be complied with if Clients:
- 11.2.1 access Bank Accounts online;
- 11.2.2 initiate an electronic payment transaction; or
- 11.2.3 carry out any other action through a remote channel which may imply a risk of payment fraud.
This would therefore affect not just the new Regulated Activities of Account Information Services and Payment Initiation Services, but also existing Regulated Activities where these take place remotely (e.g. online or in a mobile app).
11.3 AFSA intends to follow the EU's approach, which is to require Authorised Firms to apply strong customer authentication ("SCA") where a client wishes to take any of the actions in Sections 11.2.1, 11.2.2 or 11.2.3. SCA would also apply to providers of Account Information Services and/or Payment Initiation Services. SCA requires authentication based on two or more independent elements from the following:
- 11.3.1 'Knowledge Factor' – something only the Client knows (e.g. password);
- 11.3.2 'Possession Factor' – something held only by the Client (e.g. card verification number); and/or
- 11.3.3 'Inherence Factor' – something inherent to the Client (e.g. biometric fingerprint, facial recognition or voice recognition).
Given the importance of business-to-business services, the AFSA may wish to introduce specific exemptions for corporate Clients which either disapply SCA for them, or permit them to implement their own equivalent security processes (with equivalence to be determined by the AFSA).
11.4 Where any banking services are accessed online, there are also other factors which will be considered as part of the DBR drafting process, although these will also be applicable to other Authorised Firms carrying out business remotely. By way of example, please see the summary below.
- 11.4.1 Client on-boarding – If a Client is on-boarded remotely (e.g. by an Authorised Digital Bank), which documents it would need to provide and how (e.g. PDF copies of invoices as proof of address, passports etc.). Careful consideration needs to be given to Client due diligence that is done remotely. We understand that this will sit within the AIFC's (and/or Kazakhstan's) existing AML/CFT framework. Generally, jurisdictions do not have specific rules for remote Client due diligence. However, there may be some benefit in including some express requirements (e.g. a "selfie" video) where Client due diligence is done remotely.
- 11.4.2 Cybersecurity – If Authorised Firms provide Regulated Activities online, what security measures they should put in place for their websites, mobile apps and other interfaces to prevent them succumbing to cyber-attacks and to Client data being stolen.
- 11.4.3 Business recovery – As Clients will be relying upon a remote interface (e.g. online platform or mobile app), what back-up measures Authorised Firms must put in place in order to ensure continuity of service (e.g. servers in an alternative location; multiple data stores).
- 11.4.4 Outsourcing – To what extent Authorised Firms will be permitted to outsource operational functions, and to the extent that they do, how the AFSA monitors that (e.g. requests to see draft contracts) and the continuing liability of Authorised Firms for outsourced functions. The AFSA may wish to develop guidelines around such outsourcing and what standards need to be adhered to.[8] Whilst we understand that drafting such guidelines are outside the scope of this project, these could be developed by the AFSA to complement the Framework.
- 11.4.5 Client terms – If Client terms must contain any specific provisions (e.g. treatment of alleged unauthorised transactions; liability for unauthorised transactions; fees) and whether they would differ between Retail Clients and other Clients. However, this is not specific to banking services taking place remotely.
- 11.4.6 Authorised status – Where and how Authorised Firms should set out their authorised status online.
- 11.4.7 Consumer protection – Whether Authorised Firms are required to apply any particular security features to Retail Clients or, if security features apply to all Clients, can non-Retail Clients consent to disapply them. Also, whether a higher degree of liability should apply to Authorised Firms when they deal with Retail Clients. These are issues which go beyond just the Framework.
- 11.4.8 Data protection – Where Authorised Firms provide Regulated Activities on a remote basis, data protection will clearly be important in a number of ways. For example, access to Clients' records, the sending and receiving of messages/instructions and how Authorised Firms use, store, access, move and ultimately dispose of Client data. The Client should be able to access its own data and move it elsewhere, including cross-border, if it so wishes. We understand that data protection will sit within the AIFC's existing data protection framework.
11.5 The AFSA would need to consider whether to take a prescriptive approach in such areas, or to set out certain areas where Authorised Firms need to provide policies and procedures to address these which satisfy the AFSA. By way of example, the EU has adopted a very prescriptive approach, as demonstrated in the EBA's 'Guidelines on the security measures for operational and security risks of payment services under PSD2'.
[1] We note that some of these activities, in particular providing Money Services and Opening and Operating Bank Accounts, may be amended as part of the introduction of the PSEM Framework and this will be taken into account as part of the drafting process, to ensure the PSEM Framework and DBRs are consistent.
[2] Namely COB 2 (Client Classification), COB 3 (Communication with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 7 (Conflicts of Interest), COB 15 (Complaints Handling and Dispute Resolution), COB 16 (Record Keeping and Internal Audit), COB 18 (Banks), Schedule 2 (Key Information and Content of Client Agreement) and Schedule 5 (Financial Promotions).
[3] Namely MAR 2 (Governance of Reporting Entities), MAR 3 (Financial Reports), MAR 5 (Market Abuse), MAR 6 (Market Disclosure) and Schedule 3 (Corporate Governance Best Practice Standards).
[4] Under Rule 4.10(a) BBR, the Base Capital Requirement of a Bank is USD 10 million. USD 5 million therefore seems a reasonable Base Capital Requirement for an Authorised Digital Bank (Limited Licence)
[5]https://eba.europa.eu/sites/default/documents/files/documents/10180/2060117/d53bf08f-990b-47ba-b36f-15c985064d47/Final%20report%20on%20EBA%20Guidelines%20on%20the%20security%20measures%20for%20operational%20and%20security%20risks%20under%20PSD2%20(EBA-GL-2017-17).pdf
[6] https://standards.openbanking.org.uk/api-specifications/
[7] https://standards.openbanking.org.uk/
[8] For example, the EBA and the UK FCA have drafted guidelines to complement their regulatory regimes. https://eba.europa.eu/sites/default/documents/files/documents/10180/2551996/38c80601-f5d7-4855-8ba3-702423665479/EBA%20revised%20Guidelines%20on%20outsourcing%20arrangements.pdf?retry=1
https://www.fca.org.uk/publication/finalised-guidance/fg16-5.pdf
Amendments to the AIFC AML Rules (Annex 2)
5. CUSTOMER RISK ASSESSMENT
5.1. Assessing customer AML risks
Conduct of the customer risk assessment
When undertaking a risk-based assessment of a customer under AML 5.1.1 a Relevant Person must:
(a)identify the customer, and any beneficial owner(s) and any person acting on behalf of a customer;
(b)obtain information on the purpose and intended nature of the business relationship;
(c)consider the type of customer, its ownership and control structure, and its beneficial ownership (if any);
(d)consider the nature of the customer's business relationship with the Relevant Person;
(e)consider the customer's country of origin, residence, nationality, place of incorporation or place of business;
(f)consider the relevant product, service or transaction;
(g)consider the beneficiary of a life insurance policy, where applicable; and
(h)consider the outputs of the business risk assessment under Chapter 5.
6. CUSTOMER DUE DILIGENCE
6.1. Undertaking Customer Due Diligence
Undertaking Simplified Due Diligence
A Relevant Person may undertake SDD in accordance with AML 8.1.1 by modifying the CDD under AML 6.3.1 for any customer it has assigned as low risk. Simplified measures should not be conducted whenever there is a suspicion of money laundering and/or terrorist financing.
6.2. Timing of Customer Due Diligence
Establishing a business relationship before Customer Due Diligence is complete
A Relevant Person may establish a business relationship with a customer before completing the verification required by AML 6.3.1 if the following conditions are met:
(a) deferral of the verification of the customer or beneficial owner is necessary in order not to interrupt the normal conduct of a business relationship;
(b) risk management procedures concerning the conditions under which a customer may utilise the business relationship prior to verification have been adopted and are in place; and there is little risk of money laundering occurring and any such risks identified can be effectively managed by the Relevant Person;
(c) in relation to a bank account opening, there are adequate safeguards in place to ensure that the account is not closed and transactions are not carried out by or on behalf of the account holder (including any payment from the account to the account holder) before verification has been completed; and
(d) subject to (c), the relevant verification is completed as soon as reasonably practicable and in any event, no later than 30 days after the establishment of a business relationship.
6.3. Undertaking Customer Due Diligence
Verification of obligations
In undertaking CDD required by AML 6.1.1, a Relevant Person must:
(a) verify the identity of the customer, and of any beneficial owner(s) and any person acting on behalf of a customer, including his authorisation to so act, based on original or properly certified documents, data or information issued by or obtained from a reliable and independent source;
(b) obtain information on the purpose and intended nature of the business relationship;
(c) understand the customer's sources of funds;
(d) understand the customer's sources of wealth; and
(e) undertake on-going due diligence of the customer business relationship under AML 6.4.1.
Customer obligation for life insurance
In complying with AML 6.3.1 for life insurance or other similar policies, a Relevant Person must:
(a) verify the identity of any named beneficiaries of the insurance policy; and
(b) verify the identity of the persons in any class of beneficiary, or where these are not identifiable, ensure that it obtains sufficient information to be able to verify the identity of such persons at the time of pay-out of the insurance policy;.
(c) if a beneficiary of the insurance policy who is a legal person or a legal arrangement presents a higher risk, take enhanced measures which should include reasonable measures to identify and verify the identity of the beneficial owner of the beneficiary, at the time of pay-out; and
(d) take reasonable measures to determine whether the beneficiaries of the insurance policy and/or, where required, the beneficial owner of the beneficiary, are PEPs, at the latest, at the time of the pay-out, and, in cases of higher risks, inform senior management before the pay-out of the policy proceeds, conduct enhanced scrutiny on the whole business relationship with the policyholder, and consider making a suspicious transaction report.
Guidance on identification and verification of beneficial owners
(a) In determining whether an individual meets the definition of a beneficial owner or controller, regard should be had to all the circumstances of the case.
(b) When identifying beneficial owners, a Relevant Person is expected to adopt a substantive (as opposed to form over substance) approach to CDD for legal persons. Adopting a substantive approach means focusing on the money laundering risks of the customer and the product/service and avoiding an approach which focusses purely on the legal form of an arrangement or sets fixed percentages at which beneficial owners are identified (or not).
(c) A Relevant Person should take all reasonable steps to establish and understand a corporate customer's legal ownership and control and to identify the beneficial owner. There are no explicit ownership or control thresholds in defining the beneficial owner because the applicable threshold to adopt will ultimately depend on the risks associated with the customer, and so a Relevant Person must adopt the RBA and pursue on reasonable grounds an approach which is proportionate to the risks identified. A Relevant Person should not set fixed thresholds for identifying the beneficial owner without objective and documented justification. An overly formal approach to defining the beneficial owner may result in a criminal "gaming" the system by always keeping his financial interest below the relevant threshold.
(d) In some circumstances no threshold should be used when identifying beneficial owners because it may be important to identify all underlying beneficial owners to ensure that they are not associated or connected in some way. This may be appropriate where there are a small number of investors in an account or fund, each with a significant financial holding and the customer- specific risks are higher. However, where the customer-specific risks are lower, a threshold can be appropriate. For example, for a low-risk corporate customer which, combined with a lower- risk product or service, a percentage threshold may be appropriate for identifying "control" of the legal person for the purposes of the definition of a beneficial owner.
(e) For a retail investment fund, which is widely-held and where the investors invest via pension contributions, the manager of the fund is not expected to look through to underlying investors where there are none with any material control or ownership levels in the fund. However, for a closely-held fund with a small number of investors, each with a large shareholding or other interest, a Relevant Person should identify and verify each of the beneficial owners, depending on the risks identified as part of its risk-based assessment of the customer.For a corporate health policy with defined benefits, a Relevant Person need not identify the beneficial owners.
(f) Where a Relevant Person carries out identification and verification in respect of actual and potential beneficial owners of a trust, this should include the trustee, settlor, the protector, the enforcer, beneficiaries, other persons with power to appoint or remove a trustee and any person entitled to receive a distribution, whether or not such person is a named beneficiary.
(g) Where no natural person is identified as a beneficial owner, the relevant natural person who holds the position of senior managing official should be identified as such and verified.
6.4. Checking sanctions lists
6.5. Failure to conduct or complete Customer Due Diligence
Prohibitions
Where, in relation to any customer, a Relevant Person is unable to conduct or complete the requisite CDD in accordance with AML 6.3.1 it must, to the extent relevant:
(a) not carry out a transaction with or for the customer through a bank account or in cash;
(b) not open an account or otherwise provide a service;
(c) not otherwise establish a business relationship or carry out a transaction;
(d) terminate or suspend any existing business relationship with the customer;
(e) return any monies or assets received from the customer; and
(f) consider whether the inability to conduct or complete Customer Due Diligence necessitates the making of a Suspicious Activity Report (see Chapter 13).
A Relevant Person is prohibited from knowingly keeping anonymous accounts or accounts in obviously fictitious names.
PART A - INTRODUCTION
Comments to be addressed to:
R.Abdirassilov@aifc.kz
1.Scope and Purpose
1.1 This paper presents a proposed policy to be adopted by the Astana Financial Services Authority (the "AFSA") for the regulation of digital banking services in the Astana International Financial Services Centre (the "AIFC") (the "Framework").
1.2 Terms not defined herein have the meaning given to them in the AIFC Glossary.
1.3 The proposed Framework will aid the economic and social development of Kazakhstan by diversifying who provides banking services, what those banking services are and how Clients[1] use these services.
1.4 This will support the five-year programme for 'Digital Kazakhstan', which is seeking to improve the competitiveness of Kazakhstan’s economy and quality of life through the progressive development of the digital ecosystem. This programme also includes the development of financial technologies, non-cash payments and electronic commerce, as well as progressive regulations that create a vibrant environment to promote greater inclusion and innovation. The AFSA is being supported by and working with the European Bank of Reconstruction and Development (the "EBRD") in implementing aspects of the 'Digital Kazakhstan' programme within the AIFC. The AFSA and the EBRD are engaging consultants, such as Clifford Chance in this case, to assist it with this programme. The proposed Framework is a part of this programme.
1.5 The aim of the proposed Framework is to enhance and build on the existing regulatory framework in order to support the licensing of digital-only banks and to regulate banking services provided remotely (e.g. online; in a mobile app), in support of the introduction of "Open Banking".
1.6 The proposed Framework will provide regulatory certainty to Authorised Firms providing banking services, and to their Clients. It will also promote new and innovative ways for banking services to be provided in the AIFC.
2. Background
2.1 Digital banking is transforming how banking services are provided around the world. It is expanding the ways that banking services can be offered, which is opening it up to clients that were previously under-served. This means that traditional banking products, such as accepting deposits and providing credit, do not need to be offered through physical branches, but can be provided remotely; for example, online or in a mobile app. Clients can therefore access more banking services in any location.
2.2 In addition, the concept of 'Open Banking' has gained traction over the past few years. This allows a client's banking data to be used not only by his or her own bank, but also by third party providers in order to enable the provision of new products and services which will benefit clients. It establishes a secure way for a wide variety of providers to access a client's banking information and receive improved financial services and other related services.
2.3 Over the past few years, an increasing number of jurisdictions have been putting in place the regulatory infrastructure to enable remote access through digital banking, and to develop 'Open Banking'. Against this background, the AIFC is seeking to put in place the proposed Framework so that Kazakhstan can benefit from these developments and become an attractive location for both local and international providers of such services.
[1] As per the AFSA Glossary, "Clients" is a broad term including individuals, corporate and government bodies, which can be located within Kazakhstan or externally.
2. GUIDANCE ON KAZAKHSTAN CRIMINAL LAW
2.1. Kazakhstan criminal law
(a)Kazakhstan's criminal legislation, including the Criminal Code, applies to all Centre Participants and therefore Relevant Persons must be aware of their obligations in respect of the criminal law as well as these Rules. Relevant Kazakhstan criminal legislation includes the AML Law and the Criminal Code.
(b)Under Article 218 of the CriminalCode, a Person is criminally liable for the offence of money laundering if they knowingly receive, convert, conceal, possess, or use property representing the proceeds of criminal or administrative infractions of the law of Kazakhstan. The offence may be punished by a custodial sentence, confiscation of assets, and/or a fine.
4. THE RISK BASED APPROACH
4.1. Obligations of the Risk-Based Approach
Obligation to conduct business and customer risk assessment
In order to identify and assess the risks of money laundering and terrorist financing a Relevant Person must conduct a business risk assessment and must also conduct customer risk assessments in accordance with Chapter 5 and keep these assessments up to date.
The risks of money laundering and terrorist financing that may arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products must be identified and assessed by a Relevant Person prior to the launch or use of such products, practices and technologies.
4.3. Internal policies, controls and procedures
Requirements of policies, controls and procedures
The policies, controls and procedures adopted by a Relevant Person under AML 4.1.1 must be:
(a) proportionate to the nature, scale and complexity of the activities of the Relevant
Person’s business;
(b) comprised of, at minimum, organisation of the development and maintenance of the policies, procedures, systems and controls required by AML 4.1.1, risk management, customer identification, transaction monitoring and studying, employees training and awareness programs;
(c) approved by its senior management; and
(d) monitored, reviewed and updated regularly.
12. SANCTIONS
12.1. Relevant United Nations resolutions and sanctions
Sanctions systems and controls
A Relevant Person must establish and maintain effective systems and controls to ensure that on an on-going basis it is properly informed as to, and takes reasonable measures to comply with, relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan. A Relevant Person must freeze without delay and without prior notice, the funds or other assets of designated persons and entities pursuant to relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan.
Notification obligation
A Relevant Person must report to the Committee on financial monitoring of the Ministry of Finance of the Republic of Kazakhstan any assets frozen or actions taken in compliance with the prohibition requirements of the relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan, including attempted transactions.
A Relevant Person must immediately notify the AFSA when it becomes aware that it is:
(a) carrying on or about to carry on an activity;
(b) holding or about to hold money or other assets; or
(c) undertaking or about to undertake any other business whether or not arising from or in connection with (a) or (b),
for or on behalf of a person, where such carrying on, holding or undertaking constitutes or may constitute a contravention of a relevant sanction or resolution issued by the United Nations Security Council.
13. MONEY LAUNDERING REPORTING OFFICER, SUSPICIOUS TRANSACTIONS AND TIPPING OFF
13.7. Reporting
A Relevant Person must complete the AFSA's AML Return form on an annual basis and submit such form to the AFSA within four 4 months of its financial year end.
Threshold Transactions Controls
A Relevant Person must establish and maintain procedures, systems and controls to monitor, detect and report transactions above defined thresholds in accordance with the AML Law.
Suspicious Activity Controls
A Relevant Person must establish and maintain policies, procedures, systems and controls to monitor and detect suspicious activity or transactions in relation to potential money laundering or terrorist financing.
Immunity from liability for disclosure of information relating to money laundering transactions
The disclosure by a Relevant Person to the competent authorities of information relating to money laundering/terrorist financing is not a breach of the obligation of secrecy or non- disclosure or (where applicable) of any enactment by which that obligation is imposed.
Employee reporting to MLRO
A Relevant Person must have policies, procedures, systems and controls to ensure that whenever any employee, acting in the ordinary course of his employment, either:
(a) knows;
(b) suspects; or
(c) has reasonable grounds for knowing or suspecting,
that a person is engaged in or attempting money laundering or terrorist financing, that employee promptly notifies the Relevant Person’s MLRO and provides the MLRO with all relevant information within the employee's knowledge.
14. GENERAL OBLIGATIONS
14.1. Training and Awareness
Training and Other Obligations
A Relevant Person must implement screening procedures to ensure high standards when hiring employees.
A Relevant Person must take appropriate measures to ensure that its employees:
(a) are made aware of the law relating to money laundering and terrorist financing;
(b) are regularly given training in how to recognise and deal with transactions and other activities which may be related to money laundering or terrorist financing;
(c) understand its policies, procedures, systems and controls related to money laundering and any changes to these;
(d) understand the types of activity that may constitute suspicious activity in the context of the business in which an employee is engaged and that may warrant a notification to the MLRO under AML 13.7.3;
(e) understand its arrangements regarding the making of a notification to the MLRO under AML 13.7.3;
(a) are aware of the prevailing techniques, methods and trends in money laundering relevant to the business of the Relevant Person;
(b) understand the risk of tipping-off and how to avoid informing a customer or potential customer that it is or may be the subject of a SAR;
(c) understand the roles and responsibilities of employees in combating money laundering, including the identity and responsibility of the Relevant Person’s MLRO and deputy, where applicable; and
(d) understand the relevant findings, recommendations, guidance, directives, resolutions, sanctions, notices or other conclusions described in Chapter 13.
Appropriate measures
In determining what measures are appropriate under AML 14.1.1 Relevant Person must take account of:
(a) the nature of its business;
(b) its size; and
(c) the nature and extent of the risks of money laundering and terrorist financing to which its business is subject.
The AFSA may impose additional training requirements in respect of all, or certain, relevant employees of a Relevant Person.
Amendments to the AIFC GEN Rules (Annex 2)
AIFC General Rules (GEN)
In this document, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
Schedule 1: Regulated Activates
22. Developing Financial Technology Activities
(1) An activity specified in paragraph 2.3.1(c) of the AIFC FinTech Rules.
23. Testing Financial Technology Activities
(1) Financial activities which are similar to those that are already being regulated in the AIFC, where (i) a different technology is being applied; or
(ii) the same technology is being applied differently;
(2) Financial activities not regulated in the AIFC; or
(3) Activities likely to be regulated in the AIFC as a financial or an ancillary service.
*Annex 2_CAG
Chapter 5 Credit Risk
A. Introduction
1. Credit risk is:
(a) the risk of default by counterparties; and
(b) the risk that an asset will lose value because its credit quality has deteriorated.
2. Credit risk may result from on-balance-sheet and off-balance-sheet exposures, including loans and advances, investments, inter-bank lending, derivative transactions, securities financing transactions and trading activities. It can exist in a Bank’s trading book or banking book.
B. Credit Risk - Management Framework & Governance
1. This section of the CAG sets out the standards, guidance and norms required to comply with the rules in respect of the Credit Risk management framework and governance, as specified in Chapter 5 of BBR. These elements convey the supervisory expectations of the AFSA on Credit risk management framework and its governance. Compliance with the standards and guidance detailed in this section of CAG, both in letter and in spirit, is required to demonstrate fulfillment of the regulatory obligations specified in Chapter 5 of BBR. The AFSA will use these standards, norms and key elements specified here to assess compliance with BBR Rules on Credit Risk management.
2. In order to comply with the requirements specified in BBR Rule 5.1, and considering the nature, scale and complexity of a Bank’s credit risk, and how often it provides credit or
incurs credit risk, a Bank’s credit risk management policy is expected to include:
(a) how the Bank defines and measures credit risk;
(b) the Bank’s business aims in incurring credit risk, including:
(i) identifying the types and sources of credit risk that the Bank will permit itself to be exposed to (and the limits on that exposure) and those that it will not;
(ii) setting out the degree of diversification that the Bank requires, the Bank’s tolerance for risk concentrations and the limits on exposures and concentrations; and
(iii) stating the risk-return trade-off that the Bank is seeking to achieve;
(c) the kinds of credit to be offered, and ceilings, pricing, profitability, maximum maturities and ratios for each kind of credit;
(d) a ceiling for the total credit portfolio (in terms, for example, of loan-to- deposit ratio,
undrawn commitment ratio, a maximum amount or a percentage of the Bank’s capital);
(e) portfolio limits for maximum gross exposures by region or country, by industry or sector, by category of counterparty (such as banks, non-bank financial entities and corporate counterparties), by product, by counterparty and by connected counterparties;
(f) limits, terms and conditions, approval and review procedures and records kept for lending to connected counterparties;
(g) types of collateral, loan-to-value ratios and criteria for accepting guarantees;
(h) the detailed limits for credit risk, and a credit risk structure, that:
(i) takes into account all significant risk factors, including intra- group exposures;
(ii) is commensurate with the scale and complexity of the Bank’s activities; and
(iii) is consistent with the Bank’s business aims, historical performance, and the
amount of capital it is willing to risk;
(i) procedures for
(i) approving new products and activities that give rise to credit risk;
(ii) regular risk position and performance reporting; and
(iii) approving and reporting exceptions to limits
(j) allocating responsibilities for implementing the credit risk management policy and monitoring adherence to, and the effectiveness of, the policy; and
(k) the required information systems, staff and other resources.
3. Problem assets include impaired credits wherein the debt servicing payments are already overdue for a significant amount of time and also include assets, where there is material uncertainty about the collectability of the payments due in full or in part.
Credit Decisions
4. BBR Rule 5.1 (5) does not prevent arrangements such as an employee loan scheme, so long as the policy ensures that the scheme’s terms, conditions and limits are generally available to employees and adequately address the risks and conflicts that arise from loans under it.
5. The credit risk management policy of a Bank should clearly set out who has the authority to approve loans to employees. The authority of a credit committee or credit officer should be appropriate for the products or portfolio and should be commensurate with the committee’s or officer’s credit experience and expertise. Each authority to approve should be reviewed regularly to ensure that it remains appropriate for current market conditions and the committee’s or officer’s performance.
6. A Bank’s remuneration policy should be consistent with its credit risk management policy and should not encourage officers to attempt to generate short-term profits by taking an unacceptably high level of risk.
7. The policy must state that decisions relating to the following are made at the appropriate
level of the Bank’s senior management or governing body:
(a) exposures exceeding a stated amount or percentage of the Bank’s capital;
(b) exposures that, in accordance with criteria set out in the policy, are especially risky;
(c) exposures that are outside the Bank’s core business.
8. The level at which credit decisions are made should vary depending on the kind and amount of credit and the nature, scale and complexity of the Bank’s business. For some Banks, a credit committee with formal terms of reference might be appropriate; for othrs, individuals with pre-assigned limits would do.
9. A Bank should ensure, through periodic independent audits, that the credit approval function is properly managed and that credit exposures comply with prudential standards and internal limits. The results of audits should be reported directly to the governing body, credit committee or senior management, as appropriate.
C. Credit Risk management
Credit Risk Assessment
1. A Bank must establish and implement appropriate policies to enable it to assess credit risk when the credit is granted or the risk is incurred and afterwards. In particular, the policies must enable the Bank:
(a) to measure credit risk (including the credit risk of off-balance- sheet items, such as derivatives, in credit equivalent terms);
(b) to effectively use its internal credit risk assessment;
(c) to rate and risk-weight a counterparty;
(d) to monitor the condition of individual credits;
(e) to administer its credit portfolio, including keeping the credit files current, getting up-to- date financial information on counterparties, and the electronic storage of important documents;
(f) to ensure that the value of collateral and the value of the other CRM techniques used by the Bank are assessed regularly;
(g) to assess whether its CRM techniques are effective; and
(h) to calculate its credit risk capital requirement.
2. A Bank involved in loan syndications or consortia should not rely on other parties’ assessments of the credit risk involved but should carry out a full assessment based on its own credit risk management policy.
3. The AFSA expects that an Bank’s Credit Risk strategy will set out the approach that the Bank will take to Credit Risk management, including various quantitative and qualitative targets. It should be communicated to all relevant functions and staff within the organisation and be set out in the Bank's Credit Risk policy.
4. The AFSA expects that an Bank’s Credit Risk management policy and strategy for
managing Credit Risk will take into account the need to:
(a) develop a Credit management strategy, policies and processes in accordance with the
Bank’s stated Credit Risk tolerance;
(b) ensure that the Bank maintains sufficient capital to support its credit risk exposure at all times;
(c) determine the structure, responsibilities and controls for managing Credit Risk and for overseeing the credit portfolio of all branches and subsidiaries in the jurisdictions in which the Bank is active, and outline these elements clearly in the Bank’s credit risk management policy;
(d) have in place adequate internal controls to ensure the integrity of its Credit Risk management processes;
(e) ensure that stress testing of the credit risk portfolio is effective and appropriate for the Bank;
(f) establish a set of reporting criteria, specifying the scope, manner and frequency of reporting to various recipients (such as the Governing Body, senior management and the asset/liability committee) and who is responsible for preparing the reports
(g) establish the specific procedures and approvals necessary for exceptions to policies and limits, including the escalation procedures and follow-up actions to be taken for breaches of limits;
(h) monitor closely current trends and potential market developments that may present significant, unprecedented and complex challenges for managing Credit Risk so that appropriate and prompt changes to the Credit management strategy can be made as needed; and
(i) continuously review information on the Bank’s Credit developments and report
regularly to the Governing Body
5. In respect of managing the Bank’s Credit Risk, senior management are expected to:
(a) oversee the development, establishment and maintenance of procedures and practices that translate the goals, objectives and risk tolerances approved by the governing body into operating standards that are consistent with the governing body's intent and which are understood by the relevant members of an Bank's staff;
(b) adhere to the lines of authority and responsibility that the governing body has established for managing Credit Risk;
(c) oversee the establishment and maintenance of management information and other systems that identify, assess, control and monitor the Bank's Credit Risk; and
(d) oversee the establishment of effective internal controls over the Credit Risk management process.
D. Problem Assets & Impaired Assets
Impaired credits
1. Impaired credit means a credit that is categorised as substandard, doubtful or loss. For the purpose of applying risk-weights, interest is suspended on an impaired credit. A credit is a restructured credit if it has been re-aged, extended, deferred, renewed, rewritten or placed in a workout program.
2. The Credit Risk management system and, in particular, the systems, policies and processes aimed at classification of credits, monitoring and identification of problem credits, management of problem credits and provisioning for them must include all the on- balance sheet and off-balance sheet credit Exposures of the Bank.
3. The review of impaired credits and other problem assets may be done individually, or by class, but must be done at least once a month. A large exposure that is an impaired credit must be managed individually in terms of its valuation, categorisation and provisioning.
4. Unless there is good reason to do so, a restructured credit can never be classified as performing. A restructured credit may be reclassified to a more favourable category, but only by one level of rating up from its category before the restructure. The credit may be reclassified one further category up after 180 days of satisfactory performance under the terms of the new contract.
E. Calculation of Credit Risk Capital Requirement
Using external credit rating agencies (ECRAs)
1. This section provides additional information and guidance in respect of BBR Rule 5.5.
2. A rating is a solicited rating if the rating was initiated and paid for by the issuer of the instrument, the rated counterparty or any other entity in the same corporate group as the issuer or rated counterparty.
3. A Bank that chooses to use ratings determined by an ECRA for exposures belonging to a class must consistently use those ratings for all the exposures belonging to that class. The Bank must not selectively pick between ECRAs or ratings in determining risk- weights.
4. A Bank may use an unsolicited rating, only if it receives AFSA’s written approval to do so or in accordance with a direction from the AFSA. The AFSA may give a written direction setting out conditions that must be satisfied before a Bank may use an unsolicited rating.
5. The Bank must ensure that the relevant rating takes into account the total amount of the exposure (that is, the principal and any interest due).
Calculation of Risk-Weighted Assets (RWAs)
6. In order to comply with the rules in BBR 5.6 in respect of calculation of Credit Risk-Weighted Assets and to meet the expectations of the AFSA in this regard, a Bank is expected to consider and employ the guidance, interpretations and additional information provided in this section of the CAG.
7. Risk-weights used in the calculation of RWAs as defined in BBR Rule 5.6, are based on credit ratings or fixed risk-weights and are broadly aligned with the likelihood of counterparty default. A Bank may use the ratings determined by an ECRA if allowed to do so by these rules and subject to the provisions of BBR 5.5.
8. In respect of table 5B, investment property is land, a building or part of a building (or any combination of land and building) held to earn rentals or for capital appreciation or both. Investment property does not include property held for use in the production or supply of goods or services, for administrative purposes, or for sale in the ordinary course of business. A real estate asset owned by a Bank as a result of a counterparty default is treated as ‘other item’ and risk-weighted at 100% but only for a period of 3 years starting from the date when the Bank records the asset on its books.
9. In respect of table 5B, the list of multilateral development banks (Item 4 in Column 1) which qualify for a 0% risk weight, are published by the Basel Committee for Banking Supervision (BCBS). The list was originally included in the document Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework—Comprehensive
Version¸ published by the BCBS on 30 June 2006, and has since been updated by BCBS
newsletters.
10. As at November 2016 the list is as follows:
• the African Development Bank
• the Asian Development Bank
• the Caribbean Development Bank
• the Council of Europe Development Bank
• the European Bank for Reconstruction and Development
• the European Investment Bank
• the European Investment Fund
• the Inter-American Development Bank
• the International Development Association
• the International Finance Facility for Immunization
• the Islamic Development Bank
• the Nordic Investment Bank
• the World Bank Group (comprising the International Bank for Reconstruction and Development, the International Finance Corporation and the Multilateral Investment Guarantee Agency).
Examples of MDBs that do not qualify for 0% risk weight are:
• the Arab Bank for Economic Development in Africa
• the Asian Infrastructure Investment Bank
• the Black Sea Trade and Development Bank
• the Development Bank of Latin America
• the Central American Bank for Economic Integration
• the Development Bank of Central African States
• the East African Development Bank
• the Economic Cooperation Organization Trade and Development Bank
• the Eurasian Development Bank
• the International Finance Facility for Immunisation
• the International Fund for Agricultural Development
• the International Investment Bank
• the New Development Bank
• the OPEC Fund for International Development
• the West African Development Bank.
11. For the purposes of BBR Rule 5.8, specialised lending is a lending transaction that complies with the following requirements:
(a) the purpose of the loan is to acquire an asset;
(b) the cash flow generated by the collateral is the loan’s exclusive (or almost exclusive) source of repayment;
(c) the loan represents a significant liability in the borrower’s capital structure;
(d) the credit risk is determined primarily by the variability of the cash flow generated by the collateral (rather than the independent capacity of a broader commercial enterprise).
12. Specialised lending is associated with the financing of projects where the repayment depends on the performance of the underlying collateral. There are 5 sub-classes of specialised lending:
(a) project finance—financing industrial projects based on the projected cash flows of the project;
(b) object finance—financing physical assets based on the projected cash flows obtained primarily through the rental or lease of the assets;
(c) commodities finance—financing the reserves, receivables or inventories of exchange- traded commodities where the exposure is paid back based on the sale of the commodity (rather than by the borrower from independent funds);
(d) income-producing real estate finance—financing real estate that is usually rented or leased out by the debtor to generate cash flow to repay the exposure; and
(e) high-volatility commercial real estate finance—financing commercial real estate which demonstrates a much higher volatility of loss rates compared to other forms of specialised lending.
13. For the purposes of BBR Rule 5.9, eligible residential mortgage means a mortgage on a residential property that is, or will be:
(a) occupied by the counterparty for residential use; or
(b) rented out (on a non-commercial basis) for residential use.
14. For the purposes of BBR Rule 5.11:
(a) Current credit exposure is the absolute mark-to-market value (or replacement cost) of the item.
(b) Potential future credit exposure (also known as ‘the add-on’) is the amount calculated by multiplying the notional principal amount of the item by the relevant credit conversion factor in table 5D. The notional principal amount is the reference amount used to calculate payment streams between counterparties to the item.
Table E1: Credit conversion factors for market-related off-balance-sheet items
Column 1 item | Column 2 description of claim or asset | Column 3 credit conversion |
1 | interest rate contracts | |
(a) residual maturity 1 year or less | 0 | |
(b) residual maturity > 1 year to 5 years | 0.5 | |
(c) residual maturity > 5years | 1.5 | |
2 | foreign exchange and gold contracts | |
(a) residual maturity 1 year or less | 1 | |
(b) residual maturity > 1 year to 5 years | 5 | |
(c) residual maturity > 5years | 7.5 | |
3 | equity contracts | |
(a) residual maturity 1 year or less | 6 | |
(b) residual maturity > 1 year to 5 years | 8 | |
(c) residual maturity > 5years | 10 | |
4 | precious metal contracts (other than gold) | |
(a) residual maturity 1 year or less | 7 | |
(b) residual maturity > 1 year to 5 years | 7 | |
(c) residual maturity > 5years | 8 | |
5 | other commodity contracts (other than precious metals) | |
(a) residual maturity 1 year or less | 10 | |
(b) residual maturity > 1 year to 5 years | 12 | |
(c) residual maturity > 5years | 15 | |
6 | other market-related contracts | |
(a) residual maturity 1 year or less | 10 | |
(b) residual maturity > 1 year to 5 years | 12 | |
(c) residual maturity > 5years | 15 |
(c) Potential future credit exposure must be based on an effective, rather than an apparent, notional principal amount. If the stated notional principal amount of an item is leveraged or enhanced by the structure of the item, the Bank must use the effective notional principal amount in calculating the potential future credit exposure. No potential future credit exposure is calculated for a single-currency floating/floating interest rate swap. The credit exposure from such an interest rate swap must be based on mark-to-market values.
15. For the purposes of BBR Rule 5.13:
(a) The credit conversion factors for a protection buyer in a single-name credit default swap or single-name total-rate-of-return swap are set out in column 3 of table E2. The credit conversion factors for a protection seller are set out in column 4 of that table.
(b) The protection seller in a single-name credit default swap or single- name total-rate- of-return swap is subject to the add-on factor for a closed-out single-name swap only if the protection buyer becomes insolvent while the underlying asset is still solvent. The add-on must not be more than the amount of unpaid premiums.
(c) In the table E2, qualifying reference obligation includes obligations arising from items relating to:
(i) securities that are rated investment grade by at least 2 ECRAs; or
(ii) securities that are unrated (or rated investment grade by only 1 ECRA), but:
(1) are approved by the AFSA, on application by the Bank, to be of comparable investment quality; and
(2) are issued by an issuer that has its equity included in a main index used in a recognised exchange.
Table E2 Credit conversion factors for single-name swaps
Column 1 Item | Column 2 type of swap | Column 3 Protection Buyer (%) | Column 4 Protection Seller (%) |
1 | credit default swap with qualifying reference obligation | 5 | 5 |
2 | credit default swap with non-qualifying reference obligation | 10 | 10 |
3 | total-rate-of-return swap with qualifying reference obligation | 5 | 5 |
4 | total-rate-of-return swap with non-qualifying reference obligation | 10 | 10 |
16. For the purposes of complying with BBR Rule 5.15, the credit equivalent amount of non- market related items is calculated by the following procedures:
(a) Unless the item is a default fund guarantee in relation to clearing through a central counterparty, the credit equivalent amount of a non-market-related off-balance- sheet item is calculated by multiplying the contracted amount of the item by the relevant credit conversion factor in table E3.
(b) If the Bank arranges a repurchase or reverse repurchase or a securities lending or borrowing transaction between a customer and a third party and provides a guarantee to the customer that the third party will perform its obligations, the Bank must calculate the credit risk capital requirement as if it were the principal.
Table E3 Credit conversion factors for non-market-related off-balance-sheet items
Column 1 Item | Column 2 Type of item | Column 3 Credit conversion |
1 | direct credit substitutes | 100 |
2 | performance-related contingencies | 50 |
3 | trade-related contingencies | 20 |
4 | lending of securities, or lodging securities as | 100 |
5 | assets sold with recourse | 100 |
6 | forward asset purchases | 100 |
7 | partly paid shares and securities | 100 |
8 | placements of forward deposits | 100 |
9 | note issuance and underwriting facilities | 50 |
10 | commitments with certain drawdown | 100 |
11 | commitments with uncertain drawdowns (for example, undrawn formal standby facilities and credit lines) with an original maturity of 1 year or less | 20 |
12 | commitments with uncertain drawdowns with an original maturity of more than 1 year | 50 |
13 | commitments that can be unconditionally cancelled at any time without notice (for example, undrawn overdraft and credit card facilities for which any outstanding unused balance is subject to review at | 0 |
(c) For item 4 of table E3, an exposure from lending securities, or lodging securities as collateral, may be treated as a collateralised transaction.
17. An illustration of the operation of BBR rule 5.17 is as follows: An irrevocable commitment with an original maturity of 6 months with an associated facility that has a nine-month term is taken to have an original maturity of 15 months.
F. Credit Risk Mitigation (CRM)
1. A Bank is able to obtain capital relief by using Credit Risk Mitigation (CRM) techniques. CRM techniques must be viewed as complementary to, rather than a replacement for, thorough credit risk assessment.
2. According to BBR rule 5.6 (2), if a claim or asset to which a risk-weight must be applied is secured by eligible financial collateral or guarantee (or there is a mortgage indemnity insurance, or a credit derivative instrument or netting agreement) this Part on credit risk mitigation may be used to reduce the credit risk capital requirement of the Bank.
3. Available CRM techniques include:
(a) accepting collateral, standby letters of credit and guarantees;
(b) using credit derivatives or other derivative instruments;
(c) using netting agreements; and
(d) purchasing insurance.
4. CRM using collateral and guarantees is usually dealt with at the time credit is granted. In contrast, credit derivatives and netting agreements are often used after the credit is granted or used to manage the Bank’s overall portfolio risk.
5. A Bank should not rely excessively on collateral or guarantees to mitigate credit risk. While collateral or guarantees may provide secondary protection to the Bank if the counterparty defaults, the primary consideration for credit approval should be the counterparty’s
repayment ability.
6. In choosing a CRM technique, the Bank must consider:
(a) the Bank’s knowledge of, and experience in using, the technique;
(b) the cost-effectiveness of the technique;
(c) the type and financial strength of the counterparties or issuers;
(d) the correlation of the technique with the underlying credits;
(e) the availability, liquidity and realisability of the technique;
(f) the extent to which documents in common use (for example, the ISDA Master Agreement) can be adopted; and
(g) the degree of recognition of the technique by financial services regulators.
7. In respect of employing a CRM technique:
(a) a Bank accepting eligible financial collateral for CRM, must ensure that such collateral can be enforced and any necessary legal procedures have been followed.
(b) A Bank should consider whether independent legal opinion should be sought on the enforceability of documents. The documents should be ready before the Bank enters into a contractual obligation or releases funds.
8. If a CRM technique (other than a guarantee) and the exposure covered by it are denominated in different currencies (that is, there is a currency mismatch between them), the haircut that applies is:
(a) if the mismatched currencies are both pegged to the same reference currency, or 1 of them is pegged to the other—0; or
(b) in any other case—8%.
9. If there is a currency mismatch between a guarantee and the exposure covered by it, the amount of the exposure that is covered must be reduced using the following formula:
where:
G is the nominal amount of the guarantee.
Hfx is the haircut appropriate for the currency mismatch between the credit protection and the underlying obligation, as follows:
(a) if the guarantee is revalued every 10 business days—8%;
(b) if the guarantee is revalued at any longer interval—the factor H calculated using the formula in sub-rule (5); or
(c) if the mismatched currencies are both pegged to the same reference currency, or if 1 of them is pegged to the other—0.
10. If the guarantee is revalued at intervals longer than 10 business days, the 8% haircut must
be scaled up using the following formula:
where:
H is the scaled-up haircut.
N is the number of business days between the revaluations.
11. In respect of cash collateral, the recourse may be in the form of a contractual right of set- off on credit balances. A common-law right of set-off is, on its own, insufficient to satisfy this rule.
12. While using collateral as a CRM technique, the Bank should have clear and robust procedures for the liquidation of collateral to ensure that the legal conditions for declaring default and liquidating the collateral are observed. The Bank should also consider whether, in the event of default, notice to the party that lodged the collateral would be needed before the Bank could have recourse to it.
13. In respect of using collateral as a CRM technique, under BBR rule 5.17, Collateral accepted by a Bank must be valued at its net realisable value, taking into account prevailing market conditions. That value must be monitored at appropriate intervals, and the collateral must be regularly revalued.
14. The net realisable value of some collateral may be readily available (for example, collateral that is marked-to-market regularly). Other collateral may be more difficult to value and may require knowledge and consideration of prevailing market conditions. The method and frequency of monitoring and revaluation depend on the nature and condition of the collateral. For example, securities accepted as collateral are usually marked to market daily.
G. Use of Netting Agreements for Credit Risk Mitigation (CRM)
1. In respect of using a netting agreement to obtain capital relief under BBR rule 5.20, a Bank must follow the guidance and criteria specified in the following paragraphs of this section.
2. The following kinds of transactions may be netted:
(a) on-balance-sheet loans and deposits, but only if:
(i) the Bank is able to determine at all times the assets and liabilities that are subject to netting under the agreement; and
(ii) the deposits satisfy the criteria for eligible financial collateral;
(b) securities financing transactions;
(c) over the counter derivative transactions.
3. Securities financing transactions are not included as part of market related transactions. A netting agreement may include the netting of over the counter derivative transactions:
(a) across both the banking and trading books of a Bank (if the netted transactions satisfy the criteria in this section); and
(b) across different market-related products to the extent that they are recognised as market-related transactions.
Criteria for eligible netting agreements
4. To be an eligible netting agreement, a netting agreement:
(a) must be in writing;
(b) must create a single obligation covering all transactions and collateral included in the agreement and giving the Bank the following rights:
(i) the right to terminate and close-out, in a timely way, all the transactions included in the netting agreement;
(ii) the right to net the gains and losses on those transactions (including the value of any collateral) so that the Bank either has a claim to receive, or an obligation to pay, only the net sum of the close-out values of the individual transactions;
(iii) the right to liquidate or set-off collateral if either party to the agreement fails to meet its obligations because of default, liquidation, bankruptcy or other similar circumstances;
(c) must not be subject to a walkaway clause; and
(d) must be supported by a written and reasoned legal opinion that complies with noms and criteria in this section.
(e) For forward contracts, swaps, options and similar derivative transactions, the right to net gains and losses will include the positive and negative mark-to-market values of the individual transactions.
5. A Bank must not recognise a netting agreement as an eligible netting agreement if it becomes aware that a financial services regulator of the counterparty is not satisfied that the agreement is enforceable under the laws of the regulator’s jurisdiction. This rule applies regardless of any legal opinion obtained by the Bank. A netting agreement is not an eligible netting agreement if there is doubt about its enforceability.
6. A Bank must ensure that a netted transaction is covered by an appropriate legal opinion. In calculating the net sum due to or from a counterparty, the Bank must exclude netted transactions for which it has not obtained a satisfactory legal opinion applicable in the relevant jurisdiction. An excluded transaction must be reported on a gross basis.
7. For an eligible netting agreement which meets the requirements specified in paragraph 4 of this section, the legal opinion must conclude that, in the event of default, liquidation, bankruptcy or other similar circumstances of a party to the netting agreement, the Bank’s claims and obligations are limited to the net sum calculated under the netting agreement in accordance with the applicable law.
8. The AFSA expects the legal opinion to deal with the issue of which of the following laws applies to the netting:
(a) the law of the jurisdiction in which the counterparty is incorporated or formed (or, in the case of an individual, resides)
(b) if an overseas branch of the counterparty is involved—the law of the jurisdiction in which the branch is located
(c) the law that governs the individual transactions
(d) the law that governs any contract or agreement necessary to give effect to the netting.
9. In particular, the legal opinion must conclude that, in the event of insolvency or external administration of a counterparty, a liquidator or administrator of the counterparty will not be able to claim a gross amount from the bank while only being liable to pay a dividend in insolvency to the Bank (as separate money flows).
10. In some countries, there are provisions for the authorities to appoint an administrator to a troubled bank. Under statutory provisions applying in those countries, the appointment of an administrator might not constitute a ground for triggering a netting agreement. Such provisions do not prevent the recognition of an affected netting agreement if the agreement can still take effect if the bank under administration does not meet its obligations as they fall due.
Requirements—legal opinion
11. Before a Bank uses a legal opinion to support a netting agreement, the Bank:
(a) must ensure that the opinion is not subject to assumptions or qualifications that are unduly restrictive;
(b) must review the assumptions about the enforceability of the agreement and must ensure that they are specific, factual and adequately explained in the opinion; and
(c) must review and assess the assumptions, qualifications and omissions in the opinion to determine whether they give rise to any doubt about the enforceability of the agreement.
12. The Bank must have procedures to monitor legal developments and to ensure that its netting agreements continue to be enforceable. The Bank must update the legal opinions about the agreements, as necessary, to ensure that the agreements continue to be eligible.
13. The Bank may rely on a legal opinion obtained on a group basis by another member of the Financial Group of which it is a member if the Bank and the other member have satisfied themselves that the opinion covers a netting agreement to which the Bank is a counterparty. The Bank must report a transaction on a gross basis if there is any doubt about, or any subsequent legal development affects, the enforceability of the agreement.
14. A Bank may rely on a general legal opinion about the enforceability of netting agreements in a particular jurisdiction if the Bank is satisfied that the type of netting agreement is covered by the opinion. The Bank must satisfy itself that the netting agreement with a counterparty and the general legal opinion are applicable to each transaction and product type undertaken with the counterparty, and in all jurisdictions where those transactions are originated.
Netting of positions across books
15. A Bank may net positions across its banking and trading books only if:
(a) the netted transactions are marked-to-market daily; and
(b) any collateral used in the transactions satisfies the criteria for eligible financial collateral in the banking book.
Monitoring and reporting of netting agreements
16. If directed by the AFSA, a Bank must demonstrate that its netting policy is consistently implemented, and that its netting agreements continue to be enforceable. The Bank must keep adequate records to support its use of netting agreements and to be able to report netted transactions on both gross and net bases. The Bank must monitor its netting agreements and must report and manage:
(a) roll-off risks;
(b) exposures on a net basis; and
(c) termination risks;
for all the transactions included in a netting agreement.
Collateral and guarantees in netting
17. A Bank may take collateral and guarantees into account in calculating the risk-weight to be applied to the net sum under a netting agreement. The Bank may assign a risk-weight based on collateral or a guarantee only if:
(a) the collateral or guarantee has been accepted or is otherwise subject to an enforceable agreement; and
(b) the collateral or guarantee is available for all the individual transactions that make up the net sum of exposures calculated.
18. The Bank must ensure that provisions for applying collateral or guarantees to netted exposures under a netting agreement comply with the requirements for eligible financial collateral and guarantees in these rules.
H. Securitisation and Re-securitisation
1. In respect of obtaining capital relief under BBR rule 5.21 for securitisation and re- securitisation arrangements, a Bank must follow the guidance and criteria specified in the following paragraphs of this section.
2. A Bank’s securitisation exposures may arise from the Bank being (or acting in the capacity of) party to a securitisation. Securitisation, in relation to a Bank, is the process of pooling various kinds of contractual debt or non-debt assets that generate receivables and selling their related cash flows to third party investors as securities. In a securitisation, payments to the investors depend on the performance of the underlying pool of assets, rather than on an obligation of the originator of the assets.
3. The underlying pool in a securitisation may include 1 or more exposures. The securities usually take the form of bonds, notes, pass-through securities, collateralised debt obligations or even equity securities that are structured into different classes (tranches) with different payment priorities, degrees of credit risk and return characteristics.
4. A securitisation (whether traditional or synthetic) must have at least 2 tranches. Re- securitisation is a securitisation in which at least one of the underlying assets is itself a securitisation or another re-securitisation. Exposures arising from re-tranching are not re- securitisation exposures if, after the re-tranching, the exposures act like direct tranching of a pool with no securitised assets. This means that the cash flows to and from the Bank as originator could be replicated in all circumstances and conditions by an exposure to the securitisation of a pool of assets that contains no securitisation exposures.
5. A reference in this Part to securitisation includes re-securitisation.
Securitisation structures
6. A securitisation may be a traditional securitisation or a synthetic securitisation.
7. In a traditional securitisation, title to the underlying assets is transferred to an SPE, and the cash flows from the underlying pool of assets are used to service at least 2 tranches. A traditional securitisation generally assumes the movement of assets off the originator’s balance- sheet.
8. A synthetic securitisation is a securitisation with at least 2 tranches that reflect different degrees of credit risk where the credit risk of the underlying pool of exposures is transferred, in whole or in part, through the use of credit derivatives or guarantees. In a synthetic securitisation, the third party to whom the risk is transferred need not be an SPE.
9. The AFSA would treat as securitisations other structures designed to finance assets that are legally transferred to a scheme by packaging them into tradeable securities secured on the assets and serviced from their related cash flows. Funded credit derivatives would include credit-linked notes, and unfunded credit derivatives would include credit default swaps.
Securitisation exposures
10. A securitisation exposure of a Bank is a risk position (whether on-balance-sheet or off- balance-sheet) held by the Bank arising from a securitisation. A few examples of sources are
(a) investments in a securitisation
(b) asset-backed securities (including mortgage-backed securities)
(c) credit enhancements and liquidity facilities
(d) interest rate swaps and currency swaps
(e) credit derivatives
(f) corporate bonds, equity securities and private equity investments
(g) reserve accounts (such as cash collateral accounts) recorded as assets by a Bank that is, or that acts in the capacity of, an originator.
Parties to securitisation
11. For purposes of calculating a Bank’s capital requirement, the parties to a securitisation are the originator, the issuer and the investors. Depending on the securitisation structure, a Bank may be (or act in the capacity of) originator, issuer, investor or any 1 or more of the following:
(a) a manager of the securitisation;
(b) a sponsor of the securitisation;
(c) an adviser to the securitisation;
(d) an entity to place the securities with investors;
(e) a provider of credit enhancement;
(f) a provider of a liquidity facility;
(g) a servicer to carry out certain activities usually carried out by the manager of the securitisation in relation to the underlying assets.
12. A Bank may act as sponsor of a securitisation or similar programme involving assets of a customer. As sponsor, the Bank earns fees to manage or advise on the programme, place the securities with investors, provide credit enhancement or provide a liquidity facility
13. A Bank is an originator of a securitisation if:
(a) the Bank originates, directly or indirectly, underlying assets included in the securitisation; or
(b) the Bank serves as sponsor of an asset-backed commercial paper programme (or similar programme) that acquires exposures from third parties.
14. In relation to a programme that acquires exposures from third parties, a Bank would generally be considered a sponsor (and, therefore, an originator) if the Bank, in fact or in substance, manages or advises the programme, places securities into the market, provides a liquidity facility or provides a credit enhancement. Acts of management would include handling related taxes, managing escrow accounts, remitting payments and obtaining insurance.
Securitisation process
15. The process of a securitisation is:
(a) first, the origination of assets or credit risk;
(b) second, the transfer of the assets or credit risk; and
(c) third, the issuance of securities to investors.
16. In a securitisation, the cash flow from the pool is used to make payments on obligations to at least 2 tranches or classes of investors (typically holders of debt securities), with each tranche or class being entitled to receive payments from the pool before or after another tranche or class of investors, so that the tranches or classes bear different levels of credit risk.
Special purpose entities
17. A special purpose entity (or SPE) is a legal entity that is created solely for a particular financial transaction or series of transactions. The SPE must not engage in any other business. In a securitisation, an SPE typically purchases and holds the assets for the purposes of the securitisation. The SPE’s payment for the pool is typically funded by debt, including through the issue of securities by the SPE.
18. The purpose of the SPE to facilitate the securitisation, and the extent of a Bank’s involvement in the SPE, should be clear. The SPE’s activities should be limited to those necessary to accomplish that purpose. Most securitisations need the creation of an SPE to:
(a) hold the assets transferred by the originator;
(b) issue securities based on the assets; and
(c) act as intermediary between the originator and the investors.
19. A synthetic securitisation may or may not require an SPE. An SPE may take the form of a limited partnership, limited liability company, corporation, trust or collective investment fund. An SPE may also be established under a special law that allows the creation of SPEs. By its nature, an SPE is a legal shell with only the specific assets transferred by the originator (that is, the SPE has no other property in which any other party could have an interest).
20. An SPE must be bankruptcy-remote from the originator. It must not be consolidated with the originator for tax, accounting or legal purposes. Any undertaking given by a Bank to an SPV must be stated clearly in the transaction documents for the securitization.
Operational requirements for using external ratings
21. Depending on the securitisation structure, 1 or more ECRAs may be involved in rating the securitisation. A Bank must use only ECRAs that have a demonstrated expertise in assessing securitisations. Expertise might be evidenced by strong market acceptance.
22. For the purposes of risk-weighting, an ECRA must take into account the total amount of the Bank’s exposure on all payments owed to it. For example, if the Bank is owed principal and interest, the ECRA’s assessment must have taken into account timely repayment of both principal and interest.
23. A credit rating assigned by an ECRA must be publicly available. If the rating assigned to a facility is not publicly available, the facility must be treated as unrated. The loss and cash flow analysis for the securitisation, and the sensitivity of the rating to changes in the assumptions on which it was made, must also be publicly available. Information required under this section should be published in an accessible form for free. Information that is made available only to the parties to a securitisation is not considered publicly available.
24. A credit rating assigned by an ECRA must be applied consistently across all tranches of a securitisation. A Bank must not use an ECRA’s credit rating for 1 or more tranches and another ECRA’s rating for other tranches within the same securitisation structure (whether or not those other tranches are rated by the first ECRA).
25. Under rules in Chapter 5 of BBR, use of ratings from ECRA should be as follows:
(a) if there are 2 different assessments by ECRAs, the higher risk-weight must be applied; and
(b) if there are 3 or more different assessments by ECRAs, the assessments corresponding to the 2 lowest risk-weights should be referred to and the higher of those 2 risk-weights must be applied.
Calculation of risk-weighted assets
26. A Bank would be taken to maintain effective control over transferred credit risk exposures if:
(a) the Bank is able to repurchase from the transferee the transferred exposures in order to realise their benefits; or
(b) the Bank is obligated to retain the risk of the exposures.
27. A Bank that is an originator may act as servicer of the underlying assets, and the Bank’s retention of servicing rights would not necessarily constitute indirect control over the assets.
Operational requirements for synthetic securitisation
28. In calculating its risk-weighted assets, a Bank that is an originator or sponsor of a synthetic securitisation may exclude securitised exposures only if:
(a) substantially all credit risk associated with the securitised exposures have been transferred;
(b) the CRM technique used to obtain capital relief is eligible financial collateral, an eligible credit derivative, a guarantee or an eligible netting agreement;
(c) the securitisation does not include any terms or conditions that limit the amount of credit risk transferred, such as clauses that:
(i) materially limit the credit protection or credit risk transference (including clauses that provide significant materiality thresholds below which credit protection is not to be triggered even if a credit event occurs and clauses that allow termination of the protection because of deterioration in the credit quality of the underlying exposures);
(ii) require the Bank to alter the underlying exposures to improve the pool’s
weighted average credit quality;
(iii) increase the Bank’s cost of credit protection to the Bank in response to a
deterioration in the credit quality of the underlying exposures;
(iv) allow increases in a retained first loss position or credit enhancement; or
(v) increase the yield payable to parties other than the Bank (for example, payments to investors and providers of credit enhancement) in response to a deterioration in the credit quality of the underlying exposures;
(d) a qualified legal counsel (whether external or in-house) has given a written reasoned opinion that paragraph (c) is satisfied and that the contract for the transfer of the credit risk is enforceable in all relevant jurisdictions;
(e) any clean-up call complies with the rules in this section; and
(f) if the credit risk associated with the securitised exposures is transferred to an SPE:
(i) the securities issued by the SPE are not obligations of the Bank;
(ii) the holders of the beneficial interests in the SPE have the right to pledge or exchange those interests without restriction; and
(iii) the Bank holds no more than 20% of the aggregate original amount of all securities issued by the SPE, unless:
(a) the holdings consist entirely of securities that are rated AAA to AA- (long term) or A-1 (short term); and
(b) all transactions with the SPE are at arm’s length and on market terms and conditions.
Requirements for clean-up calls—traditional and synthetic securitisations
29. A clean-up call is an option that permits the securitisation exposures to be called before all of the underlying exposures or securitisation exposures have been repaid. There is no capital requirement for a securitisation that includes a clean- up call, if:
(a) the exercise of the clean-up call is at the discretion of the originator or sponsor;
(b) the clean-up call is not structured:
(i) to avoid allocating losses to credit enhancements or positions held by investors; or
(ii) to provide credit enhancement; and
(c) the clean-up call may only be exercised:
(i) for a traditional securitisation—when 10% or less of the original underlying pool of assets, or securities issued, remains; or
(ii) for a synthetic securitisation—when 10% or less of the original reference portfolio value remains.
30. For a traditional securitisation, a clean-up call might be carried out by repurchasing the remaining securitisation exposures after the balance of the pool has, or the outstanding securities have, fallen below a specified level. For a synthetic securitisation, a clean-up call might take the form of a clause that extinguishes the credit protection.
31. In the case of a securitisation that includes a clean-up call that does not comply with all of the operational requirements specified in this section, the originator or sponsor must calculate a capital requirement for the securitisation.
32. If the clean-up call is exercised and found to serve as a credit enhancement, the exercise of the call must be considered as implicit support and treated in accordance with the relevant rules in this section addressing implicit support. For a traditional securitisation, the underlying assets must be treated as if they were not securitised. No gain-on-sale of those assets may be recognised.
33. For a synthetic securitisation, a Bank that purchases protection must hold capital against the entire amount of the securitised exposures as if they did not benefit from any credit protection.
Treatment of most senior exposure
34. If the most senior exposure in a securitisation is unrated and the composition of the underlying pool is known at all times, a Bank that holds or guarantees such an exposure may determine the risk weight by applying a “look-through” treatment. The Bank need not consider any interest rate or currency swap when determining whether an exposure is the most senior in a securitisation. In the look-through treatment, the unrated most senior position receives, subject to the AFSA’s review, the average risk-weight of the underlying exposures.
Treatment of second loss position in ABCP programmes
35. An unrated securitisation exposure arising from a second loss position (or better position) in an ABCP programme is subject to a risk-weight of the higher of:
(a) 100%; and
(b) the highest risk-weight applicable to an underlying exposure covered by the facility.
If it satisfies the following conditions:
(a) the exposure is economically in a second loss position or better and the first loss position provides significant credit protection to the second loss position;
(b) the associated credit risk is the equivalent of investment grade or better; and
(c) the Bank holding the exposure does not retain or provide the first loss position.
Treatment of overlapping exposures
36. Overlapping exposures may result if a Bank provides 2 or more facilities (such as liquidity facilities and credit enhancements) in relation to a securitisation that can be drawn under various conditions with different triggers. In effect, the Bank provides duplicate cover to the underlying exposures. For the purposes of calculating its capital requirements, a Bank’s exposure (exposure A) overlaps another exposure (exposure B) if in all circumstances the Bank will preclude any loss to it on exposure B by fulfilling its obligations with respect to exposure A.
37. If a Bank has 2 or more overlapping exposures to a securitisation, the Bank must, to the extent that the exposures overlap, include in its calculation of risk-weighted assets only the exposure, or portion of the exposure, producing the higher or highest risk-weighted assets amount. If the overlapping exposures are subject to different credit conversion factors, the Bank must apply the higher or highest factor to the exposures.
38. An example of the treatment of an overlapping exposure is given here:
If, under exposure A, a Bank provides full credit support to some notes while simultaneously holding as exposure B a portion of those notes, its full credit support obligation precludes any loss from its exposure from its holding of the notes. If the Bank can satisfactorily show that fulfilling its obligations with respect to exposure A will preclude a loss from its exposure B under any circumstance, there are overlapping exposures between the 2 exposures and the Bank need not calculate risk-weighted assets for exposure B.
Liquidity facility and eligible liquidity facility
39. A liquidity facility, for a securitisation, is a commitment from the facility provider to provide liquid funds if:
(a) funds are needed to meet contractual payments to investors; and
(b) there is a delay between the date of collection of the related cash flows and the date on which the payment to the investors is due.
40. Liquidity facilities are required to be built into securitisation structures to address and manage timing mismatches between cash collections from the underlying assets and the scheduled payments to the investors in certain situations.
41. To be an eligible liquidity facility:
(a) the commitment to provide liquid funds must be in writing and must clearly state the circumstances under which the facility may be availed of and the limits for any drawdown;
(b) drawdowns must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements;
(c) the facility must not cover any losses incurred in the underlying pool of exposures before a drawdown;
(d) the facility must not be structured in such a way that drawdowns are certain;
(e) the facility must be subject to a condition that precludes it from being availed of to cover credit risk exposures that are past due for more than 90 days;
(f) if the exposures that the facility is required to fund are ECRA-rated securities, the facility can only be used to fund securities that are rated, by an ECRA, investment grade at the time of funding;
(g) the facility cannot be availed of after all applicable credit enhancements (whether transaction-specific or programme-wide enhancements), from which the liquidity would benefit, have been exhausted; and
(h) the repayment of drawdowns on the facility (that is, assets acquired under a purchase agreement or loans made under a lending agreement):
(i) must not be subordinated to any interests of any note holder in the programme (such as an ABCP programme); and
(ii) must not be subject to deferral or waiver.
42. If a Bank that is an originator or sponsor of a securitisation also provides a liquidity facility that is not an eligible servicer cash advance facility to the securitisation, the risk-weight of the exposure from the facility must be calculated by:
(a) applying:
(i) a 50% credit conversion factor (regardless of the maturity of the facility) if the facility is an eligible liquidity facility; or
(ii) a 100% credit conversion factor if the facility is not an eligible liquidity
facility; and
(b) multiplying the resulting credit equivalent amount by the applicable risk- weight in table 5H in Chapter 5 of the BBR, depending on the credit rating of the Bank (or by 100% if the Bank is unrated).
However, if an ECRA rating of the facility is itself used for risk- weighting the facility, a 100% credit conversion factor must be applied.
Treatment of unrated eligible liquidity facility
43. A Bank providing an eligible liquidity facility that is unrated, or that is treated as unrated, must apply to the resulting securitisation exposure the highest risk weight that would be applied to an underlying exposure covered by the facility. An eligible liquidity facility must be treated as unrated, when the facility’s rating is not publicly available or when the facility is provided to a particular securitisation exposure (such as a particular tranche) and the resulting mitigation is reflected in the ECRA rating of the securitisation.
Treatment of eligible servicer cash advance facility
44. A servicer cash advance facility is a liquidity facility under which a servicer to a securitisation advances cash to ensure timely payment to investors. A zero percent risk-weight may be applied to an undrawn servicer cash advance facility only if the facility is an eligible servicer cash advance facility. If the servicer cash advance facility is not an eligible servicer cash advance facility, the facility must be treated according to the paragraph 42 above of this section.
45. To be an eligible servicer cash advance facility:
(a) the servicer must be entitled to full reimbursement;
(b) the servicer’s right to reimbursement must be senior to other claims on cash flows from the underlying pool;
(c) the facility is itself an eligible liquidity facility; and
(d) the facility may be cancelled at any time, without any condition and without any need to give advance notice.
Effect of CRM techniques
46. If a CRM technique is provided to specific underlying exposures or the entire pool of exposures by an eligible protection provider and the credit risk mitigation is reflected in the ECRA rating assigned to a securitisation exposure, the risk-weight based on that rating must be used. To avoid double-counting, no additional capital recognition is permitted.
47. Eligible protection provider means:
(a) a central counterparty;
(b) the Republic of Kazakhstan or any other sovereign;
(c) an entity that is treated as a sovereign in accordance with the Basel Accords;
(d) a public sector enterprise or other entity that has:
(i) a risk-weight of 20% or lower; and
(ii) a lower risk-weight than the party to whom the protection is provided; or
(e) a parent entity, subsidiary or affiliate of a party to whom the protection is provided that has a lower risk-weight than the party.
48. If the provider of the CRM technique is not an eligible protection provider, a Bank must treat the exposure as unrated. A Bank must not use an ECRA rating if the assessment by the ECRA is based partly on unfunded support provided by the Bank itself.
49. If a Bank buys ABCP for which it provides an unfunded securitisation exposure (such as a liquidity facility or credit enhancement) to the ABCP programme and the exposure plays a role in determining the credit assessment on the ABCP, the Bank must treat the ABCP as if it were unrated.
50. If the CRM technique is provided solely to protect a particular securitisation exposure (for example, if the technique is provided to a tranche of the securitisation) and the protection is reflected in the ECRA rating of the securitisation, a Bank must treat the exposure as unrated. This applies to a securitisation exposure whether it is in the Bank’s trading book or banking book. The capital requirement for a securitisation exposure in the trading book must not be less than the amount that would be required if the exposure were in the Bank’s banking book.
51. For the treatment of an exposure arising from a liquidity facility of the kind described in paragraph (50) above of this section, please follow the method set out in paragraph 43 of this section relating to treatment of unrated eligible liquidity facility.
Early amortisation provisions
52. An early amortisation provision in a securitisation is a mechanism that, if triggered, allows investors to be paid out before the originally stated maturity of the securities issued. An early amortisation provision may be controlled or non-controlled. Triggers employed could include economic triggers which are events that are economic in nature by reference to the financial performance of the transferred assets.
53. An early amortisation provision is a controlled early amortisation provision if:
(a) the Bank concerned has appropriate capital and liquidity plans to ensure that it has sufficient capital and liquidity if the provision is triggered; and
(b) throughout the life of the securitisation (including the amortisation period) there is the same pro-rata sharing of interest, principal, expenses, losses and recoveries based on the Bank’s and investors’ relative shares of the receivables outstanding at the beginning of each month.
An early amortisation provision that fails to meet either requirement in this paragraph is a non-controlled early amortisation provision.
Operational requirements for securitisations with early amortisation provisions
54. A securitisation involving revolving exposures that is originated or sponsored by a Bank is taken to fail the operational requirements set out in rule 5.21 (6) for securitisations or
operational requirements for synthetic securitisations provided in paragraph 28 of this chapter, if the securitisation has an early amortisation provision (or a similar provision) that, if triggered, will:
(a) subordinate the Bank’s senior or equal interest in the underlying revolving credit facilities to the interest of other investors;
(b) subordinate the Bank’s subordinated interest to an even greater degree
relative to the interests of other parties; or
(c) increase in any other way the Bank’s exposure to losses associated with the underlying revolving credit facilities.
55. A Bank that is the originator or sponsor of a securitisation that does not involve revolving exposures may exclude the underlying exposures from the calculation of risk-weighted assets if:
(a) the securitisation is a replenishment structure; and
(b) the securitisation has an early amortisation provision that ends the ability of the Bank to add new exposures.
56. A Bank that is the originator or sponsor of a securitisation involving revolving exposures may exclude the underlying exposures from the calculation of risk-weighted assets if:
(a) the securitisation meets the relevant operational requirements referred in paragraph 54 above; and
(b) the securitisation has an early amortisation provision of the kind described in any of the following subparagraphs:
(i) the securitisation relates to revolving credit facilities that themselves have early amortisation features that mimic term structures (that is, where the risk on the underlying exposures does not return to the Bank) and the early amortisation provision in the securitisation, if triggered, would not effectively result in subordination of the Bank’s interest;
(ii) the Bank securitises 1 or more revolving credit facilities and investors remain fully exposed to future drawdowns by borrowers even after an early amortisation event has occurred;
(iii) the early amortisation provision is solely triggered by events not related to the performance of the securitised assets or of the Bank (such as material changes in tax laws or regulations).
57. The Bank must still hold regulatory capital against any securitisation exposures that it retains in relation to the securitisation.
Capital charges for securitisation involving revolving exposures with early amortisation
58. A Bank that is an originator or sponsor of a securitisation involving revolving exposures that has an early amortisation provision must calculate an additional capital charge to cover the possibility that the Bank’s credit risk exposure may increase if the provision is triggered. The charge must be calculated for the total exposure related to the securitisation (that is, for
both drawn and undrawn balances related to the securitised exposures). If the underlying pool of a securitisation is made up of both revolving exposures and term exposures, the Bank must apply the amortisation treatment only to the portion of the underlying pool made up of those revolving exposures.
Capital charges for securitisation involving revolving exposures with controlled early amortisation
59. A Bank that is an originator or sponsor of a securitisation involving revolving exposures that has a controlled early amortisation provision must calculate a capital charge for the investors’ interest (that is, against both drawn and undrawn balances related to the securitised exposures). The capital charge is the product of:
(a) the investors’ interest;
(b) the appropriate credit conversion factor in accordance with table H1 in this section, depending on whether the securitised exposures are uncommitted retail credit lines or not; and
(c) the risk weight for the kind of underlying exposures (as if those exposures had not been securitised).
60. For uncommitted retail credit lines (such as credit card receivables) in securitisations that have controlled early amortisation provisions that can be triggered by the excess spread falling to a specified level, a Bank must compare the three-month average excess spread to the point at which the bank is required to trap excess spread (the excess spread trapping point) as economically required by the structure. If a securitisation does not require the trapping of excess spread, the excess spread trapping point for the securitisation is 4.5 percentage points (450 basis points) more than the excess spread at which early amortisation is triggered.
61. A Bank that is the originator or sponsor of a securitisation must divide the securitisation’s excess spread by the securitisation’s excess spread trapping point to determine the appropriate segments and apply the corresponding credit conversion factor for uncommitted credit lines in accordance with table 5 I.
Table H1 Credit conversion factors (CCFs) for securitisation involving revolving exposures with controlled early amortisation
Column 1 Item | Column 2 Segments | Column 3 CCFs for uncommitte d credit lines | Column 4 CCFs for committe d credit |
Retail credit lines | |||
1 | 133.33% of trapping point or more | 0 | 90 |
2 | <133.33% to 100% of trapping point | 1 | 90 |
3 | <100% to 75% of trapping | 2 | 90 |
4 | <75% to 50% of trapping point | 10 | 90 |
5 | <50% to 25% of trapping point | 20 | 90 |
6 | <25% of trapping point | 40 | 90 |
7 | Non-retail credit lines | 90 | 90 |
62. The capital charge to be applied for securitisations involving revolving exposures with controlled early amortisation is the higher of the capital requirement for retained securitisation exposures in the securitisation and the capital requirement that would apply if the exposures had not been securitised. The Bank must also deduct from its CET1 the amount of any gain-on- sale and credit-enhancing interest-only strips arising from the securitisation.
Capital charges for Securitisation involving revolving exposures with non-controlled early amortisation
63. A Bank that is an originator or sponsor of a securitisation involving revolving exposures that has a non-controlled early amortisation provision must calculate a capital charge for the investors’ interest (that is, against both drawn and undrawn balances related to the securitised exposures). The capital charge is the product of:
(a) the investors’ interest;
(b) the appropriate credit conversion factor in accordance with table H1 in this section, depending on whether the securitised exposures are uncommitted retail credit lines or not; and
(c) the risk weight for the kind of underlying exposures (as if those exposures had not been securitised).
64. For uncommitted retail credit lines (such as credit card receivables) in securitisations that have non-controlled early amortisation provisions that can be triggered by the excess spread falling to a specified level, a Bank must compare the three-month average excess spread to the point at which the bank is required to trap excess spread (the excess spread trapping point) as economically required by the structure. If a securitisation does not require the trapping of excess spread, the excess spread trapping point for the securitisation is 4.5 percentage points more than the excess spread at which early amortisation is triggered.
65. A Bank that is the originator or sponsor of a securitisation must divide the securitisation’s excess spread by the securitisation’s excess spread trapping point to determine the appropriate segments and apply the corresponding credit conversion factor for uncommitted credit lines in accordance with table H2.
Table H2 Credit conversion factors (CCFs) for securitisations involving revolving exposures with non-controlled early amortisation
Column 1 Item | column 2 Segments | Column 3 CCFs for uncommitted | Column 4 CCFs for committed credit lines % |
Retail credit lines | |||
1 | 133.33% of trapping point or | 0 | 100 |
2 | <133.33% to 100% of trapping point | 5 | 100 |
3 | <100% to 75% of trapping point | 15 | 100 |
4 | <75% to 50% trapping point | 50 | 100 |
5 | <50% of trapping point | 100 | 100 |
6 | Non-retail credit lines | 100 | 100 |
I. Provisioning requirements Review of provisions made
1. A review of a Bank’s write-offs can help identify whether the Bank’s provisioning policy results in over-provisioning or under-provisioning.
2. The AFSA regularly assesses trends and concentrations in risk and risk build-up across financial entities in relation to problem assets. In making the assessment, the authority takes into account any observed concentration in the CRM techniques used by Banks and the potential effect on the efficacy of those techniques in reducing loss. The authority would consider the adequacy of provisions for a Bank (and the industry in general) in the light of the assessment.
3. The AFSA might seek the opinion of external experts in assessing the adequacy of a Bank’s policies for grading and classifying its assets and the appropriateness and robustness of the levels of its provisions.
4. If the AFSA considers that existing or anticipated deterioration in asset quality is of concern or if the provisions do not fully reflect expected losses, the authority may require the Bank to adjust its classifications of individual assets, increase its levels of provisions or capital and, if necessary, impose other remedial measures.
J. Transactions with related parties Concept of related parties
1. The concept of parties being related to a Bank is used in the BBR rule 5.23 in the context of parties over which the Bank exercises control or parties that exercise control over the Bank. The concept is primarily used in relation to the requirement that the Bank’s transactions be at arm’s length. In contrast, the concept of parties being connected to one another (which is discussed with concentration risk in Chapter 5 of BBR) is used in these rules to measure concentration risk and large exposures. It is of course possible for connected counterparties to be related to the Bank holding the exposure concerned.
2. Related party is wider than a Bank’s corporate group in that it includes individuals. Related parties include the Bank’s subsidiaries and major stock holders; members of its governing body; its senior management and key employees.
3. To guard against abuses in lending to related parties and to address conflicts of interest, this rule requires transactions with related parties to be at arm’s length and subject to appropriate supervision and limits. Related-party transactions must be interpreted broadly. Related party transactions include on-balance-sheet and off-balance-sheet credit exposures, service contracts, asset purchases and sales, construction contracts, lease agreements, derivative transactions, borrowing and write-offs.
4. For purposes of concentration risk, the Bank’s exposure to connected counterparties (whether related or not) is taken to be a single risk. Additional guidance on related party transactions
5. Favourable terms could relate to interest rate, credit assessment, tenor, fees, amortisation schedule and need for collateral. An exception for beneficial terms could be appropriate if it is part of an employee’s remuneration package (for example, more favourable loan rates to employees).
K. Concentration Risk Definition of Connected Parties
1. Parties would be connected if the same persons significantly influence the governing body of each of them. Parties would be connected if one of them has an exposure to the other that was not incurred for the clear commercial advantage of both of them and is not on arm’s length terms. Parties would be connected if they are so closely linked that:
(a) the insolvency or default of 1 is likely to be associated with the insolvency or default of the other;
(b) it would be prudent when assessing the financial condition or creditworthiness of 1 to consider that of the other; or
(c) there is, or is likely to be, a close relationship between their financial performance.
2. Parties would be connected if a Bank has exposures to them and any loss to the Bank on any of the exposures to one of the parties is likely to be associated with a loss to the Bank with respect to at least one exposure to each of the others.
3. Two or more individuals or legal persons would constitute a single risk if they are so connected that, if one of them were to experience financial problems, the other or others would be likely to encounter repayment difficulties. Connected counterparties should be identified and the procedures to manage the combined credit risk considered. A Bank may need to monitor and report the gross exposure to connected counterparties against combined limits in addition to monitoring the exposure to each counterparty.
Concentration Risk
4. Significant sources of concentration risk include:
(a) concentration of exposures to a single counterparty or connected counterparties;
(b) concentration of exposures to counterparties in the same industry, sector, region or country; and
(c) concentration of exposures to counterparties whose financial performance depends on the same activity or commodity.
5. A concentration of exposures would also arise if a Bank accepts collateral or credit protection provided by a single provider.
6. A Bank’s policy should be flexible to help the Bank to identify risk concentrations. To achieve
this, the systems should be capable of analysing the Bank’s credit portfolio by:
(a) size of exposure
(b) exposure to connected counterparties
(c) product
(d) geography
(e) industry or sector (for example, manufacturing and industrial)
(f) account performance management
(g) internal credit risk assessment
(h) funding
(i) outstandings versus commitments
(j) types and coverage of collateral.
7.
8.
9.
Funding Strategy
L. uidity Risk management
Chapter 4 Capital Adequacy
A. Introduction
1. Capital adequacy is a critical to the safety and soundness of a Bank. This is reflected in the predominance of global regulatory standards addressing capital adequacy for banks, as established by the Basel Committee for Banking Supervision.
2. Capital supports a Bank’s operation by providing a buffer to absorb losses from its activities and, in the event of problems, it enables the Bank to continue to operate in a sound and viable manner while the problems are resolved. Capital management must be an integral part of a Bank’s credit risk management process and must align the Bank’s risk tolerance and risk profile with its capacity to absorb losses.
3. This chapter of the CAG sets out the standards, guidance, parameters and norms required to comply with the rules in respect of the Capital Adequacy as well as capital management framework and governance, as specified in Chapter 4 of BBR. These elements convey the supervisory expectations of the AFSA on Capital Adequacy and on capital management framework & its governance. Compliance with the standards, methods, norms, parameters and guidance detailed in this chapter of CAG, both in letter and in spirit, is required to demonstrate fulfillment of the regulatory obligations specified in Chapter 4 of BBR. The AFSA will use these standards, norms and key elements specified here to assess compliance with BBR Rules on Capital Adequacy and capital management.
B. Capital Management - Framework & Governance
1. In respect of BBR Rule 4.3, the risk tolerance of a Bank is usually defined as part of the Bank’s risk management strategy. It may be referred as risk appetite in some cases. The terms ‘risk tolerance’ and ‘risk appetite’ embrace all relevant definitions used by different institutions and supervisory authorities. These two terms are used interchangeably to
describe both the absolute risks a Bank is open to take (which some may call risk appetite) and the actual limits within its risk appetite that a Bank pursues (which some call risk tolerance).
2. If the Bank is a member of a financial group, the AFSA expects the capital of the financial group to be apportioned among the group’s members, based on the allocation of risks between them.
3. In relation to BBR Rule 4.4 (3), a Bank’s internal capital adequacy assessment process or ICAAP is the process by which the Bank continuously demonstrates that it has implemented methods and procedures to ensure that it has adequate capital resources to support the nature and level of its risks. ICAAP is a critical component of the Pillar 2 process forming part of the Basel III framework for prudential regulation of banks.
4. For Rule 4.14, Retained earnings and other comprehensive income include appropriated profit or loss. Share premium is also known as stock surplus and constitutes additional paid-in capital. An example of disclosed reserve is the foreign currency translation reserve referred in chapter 6 of the BBR.
5. In relation to BBR rule 4.20, Conversion or write-off under this rule would be limited to the extent necessary to enable the AFSA to conclude that the Bank is viable without further conversion or write-off.
6. While addressing permitted adjustments to regulatory capital as defined in BBR rule 4.28, any deferred tax liability that may be netted must be allocated pro rata between deferred tax assets under this rule and those under the threshold deduction rule. For the treatment of deferred tax assets that relate to temporary differences (for example, allowance for credit losses), the relevant rule is BBR rule 4.30 which defines deductions from CET1 Capital.
C. Capital Conservation Buffers
1. This section provides additional guidance and examples for the purpose of complying with BBR rule 4.32, in respect of capital conservation buffer. In this respect, a payment made by a Bank that does not reduce its CET 1 capital is not a distribution for the purposes of this Part. Distributions include, for example, dividends, share buybacks and discretionary bonus payments.
Examples of application of table 4A
2. Assume that a Bank’s minimum CET 1 capital ratio is 4.5% and an additional 2.5% capital conservation buffer (which must be made up of CET 1 capital) is required for a total of 7% CET 1 capital ratio. Based on table 3.3.3:
(a) If a Bank’s CET 1 capital ratio is 4.5% or more but less than 5.125%, the Bank needs to conserve 100% of its earnings.
(b) If a Bank’s CET 1 capital ratio is 5.125% or more but less than 5.75%, the Bank needs to conserve 80% of its earnings and must not distribute more than 20% of those earnings by way of dividends, share buybacks and discretionary bonus payments.
(c) A Bank with a CET 1 capital ratio of more than 7% can distribute 100% of its earnings.
3. Earnings in respect of BBR rule 4.32 means distributable profits calculated before deducting elements subject to the restrictions on distributions. Earnings must be calculated after notionally deducting the tax that would have been payable had none of the distributable items been paid. The effect of calculating earnings after tax is that the tax consequence of the distribution is reversed out.
4. For the purpose of BBR rule 4.34, the following are examples of ways to reduce capital by a bank:
(a) a share buyback or the redemption, repurchase or repayment of capital instruments issued by the Bank
(b) trading in the Bank’s own shares or capital instruments outside an arrangement
agreed with the AFSA
(c) a special dividend.
D. Leverage Ratio
1. This section provides the guidance, method and parameters required for calculation of the Leverage Ratio of a Bank in compliance with the formula provided in BBR rule 4.37.
2. The Exposure Measure under Rule 4.37 should be calculated as the sum of:
(a) on-balance sheet items; and
(b) off-balance sheet items.
3. In relation to on-balance sheet items:
(a) for SFTs, the exposure value should be calculated in accordance with IFRS and the netting requirements referred to in rules on credit risk mitigation in Chapter 5 of BBR;
(b) for Derivatives, including credit protection sold, the exposure value should be calculated as the sum of the on-balance sheet value in accordance with IFRS and an add-on for potential future exposure calculated in accordance with rules on credit risk mitigation in Chapter 5 of BBR; and
(c) for other on-balance sheet items, the exposure value should be calculated based on their balance sheet values in accordance with rules in Chapter 5 of BBR.
4. In relation to off-balance sheet items:
(a) for commitments that are unconditionally cancellable at any time by the Bank without prior notice, the exposure value should be the notional amount for the item multiplied by a CCF of 10%; and
(b) for other off-balance sheet items, including:
(i) direct credit substitutes;
(ii) certain transaction-related contingent items;
(iii) short-term self-liquidating trade-related contingent items and commitments to underwrite debt and equity securities;
(iv) note issuance facilities and revolvingunderwriting facilities;
(v) transactions, other than SFTs, involving the posting of securities held by the Bank as collateral;
(vi) asset sales with recourse, where the credit risk remains with the Bank;
(vii) other commitments with certain drawdown;
(viii) any other commitments; and
(ix) unsettled transactions,
the exposure value should be the notional amount for each of the items multiplied by a CCF of 100%.
*Amendments to the AIFC Glossary (Annex 3)
*Amendments to the AIFC Conduct of Business Rules (Annex 3)
*Amendments to the AIFC General Rules (Annex 3)
Amendments to the AIFC FSFR (Annex 1)
AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS (FSFR)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
39. Exemption for Authorised Market Institutions
An Authorised Investment Exchange is exempt from the General Prohibition in respect of any Regulated Activity:
which is carriedon as a part of the Authorised Investment Exchange's business as an investment exchange; or
which is carriedon for the purposes of, or in connection with, the provisionby the Authorised Investment Exchange of services designed to facilitate the provision of clearing services by anotherPerson.
An Authorised Clearing House is exempt from the General Prohibition in respect of any Regulated Activity:
which is carried on for the purposes of, or in connection with, the provision of clearing services by the Authorised Clearing House; or
which is carried on for the purposes of, or in connection with, the provision by the Authorised Clearing House of services designed to facilitate the provision of clearing services by another Person.
An Authorised Virtual Currency Trading Facility is exempt from the General Prohibition in respect of any Regulated Activity:
which is carried on as a part of the Authorised Virtual Currency Trading Facility's business as an virtual currency trading; or
which is carried on for the purposes of, or in connection with, the provision by the Authorised Virtual Currency Trading Facility of services designed to facilitate the provision of clearing services by another Person.
55. Persons eligible for Membership
Subject to such further admission criteria as the AFSA may prescribe by Rules, an Authorised Market Institution may only admit as a Member:
an Authorised Firm;or
a Recognised Non-AIFCMember;
An Authorised Person engaged in the activity of Operating a Virtual Currency Business may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is either:
an Authorised Firm;
a Recognised Non-AIFC Member; or
a body corporate or an individual (natural person) that carries on the activity solely as principal.
AFSA power to impose requirements on an Authorised Market Institution
Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:
requiring compliance with any duty, requirement, prohibition, obligation or responsibility applicable to an Authorised Market Institution; or
requiring an Authorised Market Institution to act in a specified manner in relation to a transaction conducted on or through the facilities operated by an Authorised Market Institution, or in relation to a specified class of transactions; or
requiring an Authorised Market Institution to act in a specified manner or to exercise its powers under any rules that the Authorised Market Institution has made; or
excluding the application of any requirements for engaging in the activity of Operating a Virtual Currency Business imposed by the rules; or
imposing on an Authorised Person engaged in the activity of Operating a Virtual Currency Business any additional requirements that the AFSA considers appropriate.
AFSA power to give directions to an Authorised Market Institution
Without limiting the application of section 95 (Exercise of supervisory powers by the AFSA), the AFSA may direct an Authorised Market Institution to:
close the marketor facilities operatedby an Authorised Market Institution in a particular manner or for a specified period; or
suspend transactions on the marketor through the facilities operatedby the Authorised Market Institution; or
suspend transactions in Securities or Virtual Currencies conducted on the market or through the facilities operated by the Authorised Market Institution; or
prohibit trading in Securities or Virtual Currencies conducted on the market or through the facilities operated by the Authorised Market Institution; or
defer for a specified period the completion date of transactions conducted on the market or through the facilities operated by the Authorised Market Institution; or
prohibit a specified Person from undertaking any transactions on the facilities operated by the Authorised Market Institution; or
do any act or thing, or not do any act or thing, in order to ensure an orderly
market, or reduce risk to the AFSA’s objectives.
Schedule 3: Market Activities
3. Operating a Virtual Currency Trading Facility
Operating a Virtual Currency Trading Facility means operating a facility which functions regularly and brings together multiple third parties (whether as principalor agent):
buying, selling or exchanging Virtual Currencies for a Real (Fiat) currency, and/or
exchanging one Virtual Currency for another Virtual Currency,
in its facility and in accordance with its non-discretionary rules – in a way that results in a contract.
Guidance
The following activities do not constitute Operating a Virtual Currency Business–
trading of Virtual currencies for its own investment purpose;
the issuance of Virtual Currencies by a Person and their administration (including sale, redemption);
any other activity or arrangement that is deemed by the AFSA to not constitute Operating a Virtual Currency Business, where necessary and appropriate in order for the AFSA to pursue its objectives.
Amendments to the AIFC GEN (Annex 2)
AIFC GENERAL RULES (GEN)
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1.2. Authorised Market Institutions
Guidance: Definition of Market Activity
Market Activity is defined in the section 18 of the Framework Regulations as:
Operating an Exchange; and
Operating a Clearing House;
Operating a Virtual Currency Trading Facility.
Effective supervision
In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:
the nature, including the complexity, of the Market Activities that the applicant will carry on;
ifthe applicant seeks a licenceto carry on the MarketActivity of Operating an Exchange or a Virtual Currency Trading Facility, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities as an exchange in carrying on that Market Activity;
Compliance arrangements
In assessing whether an applicant has adequate compliance arrangements for the purposes of section 37(1)(d) of the Framework Regulations, the AFSA will consider whether it has:
clear and comprehensive policies and procedures relating to compliance with all applicable legal requirements;
adequate means to implement those policies and procedures and monitor that they are operating effectively and as intended;
effective arrangements for monitoring and enforcing compliance of its Members with its own rules and, if relevant, its clearing and settlement arrangements; and
ifthe applicant seeks a licenceto carry on the MarketActivity of Operating an Exchange, effective arrangements to verify that issuers admittedto trading on its facilities comply with the Market Rules; and
if the applicant seeks a licenceto carry on the MarketActivity of Operating an Virtual Currency Trading Facility, effective arrangements to verify that members admitted to trading on its facilities comply with the Conduct of Business Rules.
Schedule 1: REGULATED ACTIVITIES
5. Providing Custody
Providing Custody means one or more of the following activities:
safeguarding and administering Investments belonging to another Person; or
in the case of a Fund, safeguarding and administering Fund Property; or
safeguarding and administering Virtual Currencies belonging to another Person.
Amendments to the AIFC AMI (Annex 3)
AIFC AUTHORISED MARKET INSTITUTION RULES (AMI)
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Contents
RULES APPLICABLE TO AUTHORISED VIRTUAL CURRENCY TRADING FACILITY
Main requirements relating to trading on the facility 6.2. Requirement to prepare Rules
Admission of Virtual Currencies to trading
Suspending or removing Virtual Currencies from trading 6.5. Transparency obligations
6.6. Additional requirements on technology resources
1.1.1. Definitions
(1) An Authorised Market Institution is a CentreParticipant which has been licensed by the AFSA to carry on one or more Market Activities. An Authorised Market Institution can be an Authorised Investment Exchange, an Authorised Virtual Currency Trading Facility and/or an Authorised Clearing House.
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(7) An Authorised Virtual Currency Trading Facility is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Virtual Currency Trading Facility.
2.4.4. Resources of Members
An Authorised Market Institution must ensure that its Members and other participants on its facilities have sufficient and secure technology resources which are compatible with its own.
The requirements in (1) do not apply to the Member of an Authorised Virtual Currency Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.4.7. Testing relating to Members’ technology systems
An Authorised MarketInstitution must implement standardised conformance testing procedures to ensure that the systemswhich its Membersare using to accessfacilities operated by it have a minimumlevel of functionality that is compatible with the Authorised Market Institution’s information technology systems and will not pose any threatto fair and orderly conductof its facilities.
An Authorised Market Institution must also require its Members, before commencing live operation of any electronic trading system, user interface or a trading algorithm, including any updates to such arrangements, to use adequate development and testing methodologies to test the viability and effectiveness of their systems, to include system resilience and security.
For the purposes of (2), an Authorised Market Institution must require its Members:
to adopt trading algorithm tests, including tests in a simulation environment which are commensurate with the risks that such a strategy may pose to itself and to the fair and orderly functioning of the facility operated by the Authorised Market Institution; and not to deploy trading algorithms in a live environment except in a controlled and cautious manner.
The requirements in (1)-(3) do not apply to the Member of an Authorised Virtual Currency Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.5.1. Requirement to prepare Business Rules
Save where the AFSA otherwise directs, an Authorised Market Institution must establish and maintain Business Rules governing relations between itself and the participants in the market, including but not limited to:
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(d) Admission to Trading Rules, prepared in accordance with AMI 3.2 or AMI 6.3., or Admission to Clearing Rules,prepared in accordance with AMI 4.1, governing the admission of Securities or Virtual Currencies to trading, or clearing and settlement, as appropriate to its facilities;
(g) The requirements in (c) and (e) do not apply to the Authorised Virtual Currency Trading Facility.
2.6.1. Persons eligible for Membership
An Authorised Market Institution, except Authorised Virtual Currency Trading Facility, may only admit as a Member a Person who satisfies admissioncriteria set out in its Membership Rules and which is either:
an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; or a Recognised Non-AIFCMember
An Authorised Virtual Currency Trading Facility may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is:
an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments;
a Recognised Non-AIFC Member; or
a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.6.4. Undertaking to comply with AFSA rules
An Authorised Market Institution may not admit a Recognised Non-AIFC Member as a Member unlessit:
agrees in writingto submit unconditionally to the jurisdiction of the AFSA in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution;
agrees in writingto submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution;
agrees in writing to subject itself to the AIFC laws in relation to its use of the facilities of the Authorised Market Institution; and
where the Recognised Non-AIFC Member is incorporated outside the Republic of Kazakhstan, appoints and maintainsat all times, an agent for service of process in the Republic of Kazakhstan.
The requirements in (1) apply to the Member of an Authorised Virtual Currency Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
Direct Electronic Access
Direct Electronic Access means any arrangement, such as the use of the Member's trading code, through which a Member or the clients of that Member are able to transmit electronically orders relating to Securities or Virtual Currency directly to the facility provided by the Authorised Market Institution and includes arrangements which involve the use by a Person of the infrastructure of the Authorised Virtual Currency Trading Facility or the Member or participant or client or any connecting system provided by the Authorised Virtual Currency Trading Facility or Member or participant or client, to transmit the orders and arrangements where such an infrastructure is not used by a Person
Direct electronic access – general conditions
An Authorised Market Institution may only permit a Member specified in AMI 2.6.1(1)(a) and (b) to provide its clients Direct Electronic Access to the Authorised Market Institution's facilities where the clients meet the suitability criteria established by the Member in order to meet the requirements in AMI 2.7.3.
Direct electronic access – criteria, standards and arrangements
An Authorised Market Institution which permits its Members to have direct electronic access to its trading facilities or permits its Members to allow their clients to have Direct Electronic Access to its trading facilities must:
ensure that a Member allowing its clients to have direct electronic access to the trading facilities of an Authorised Market Institution is only permitted to provide direct electronic access to the venue if the Member is an Authorised Person;
Direct electronic access rules
An Authorised Market Institution operating a trading venue which permits Direct Electronic Access through it systems must set out and publish the rules and conditions pursuant to which its Members specified in AMI 2.6.1(1)(a) and (b) may provide Direct Electronic Access to their clients.Those rules and conditions must at least cover the specific requirements set outbelow:
2.9.2. Custody and investment risk
An Authorised Market Institution must have effective means to address risks relating to:
custody of its own assets, in accordance with (2), if it is an Authorised Clearing House; or
investments, in accordance with (3), if it is an Authorised Investment Exchange; or
Virtual Currencies, if it is an Authorised Virtual Currency Trading Facility.
RULES APPLICABLE TO AUTHORISED VIRTUAL CURRENCY TRADING FACILITY
Main requirements relating to trading on the facility
An Authorised Virtual Currency Trading Facility must, at the time a Licence is granted and at all times thereafter, have:
transparent and non-discriminatory rules and procedures to ensure fair and orderly trading of Virtual Currencies on its facility;
objective criteria governing access to its facility;
objective and transparent criteria for determining the Investments that can be traded on its facility; and
adequate technology resources.
An Authorised Virtual Currency Trading Facility must maintain effective arrangements to verify that its members comply with requirements set out in COB, AML.
An Authorised Virtual Currency Trading Facility must not introduce a liquidity incentive scheme unless it has obtained the prior approval of the AFSA.
For the purposes of (1), an Authorised Virtual Currency Trading Facility must make available to the public, without any charges data relating to the quality of execution of transactions on the Authorised Virtual Currency Trading Facility on at least an annual basis. Reports must include details about price, costs, speed and likelihood of execution for individual Virtual Currencies.
Requirement to prepare Rules
An Authorised Virtual Currency Trading Facility’s Rules must:
be based on objective criteria;
be non-discriminatory;
be clear and fair;
be made publicly available free of charge;
contain provisions for the resolution of Members’ and other participants’
disputes;
contain provisions for penalties or sanctions which may be imposed by the Authorised Virtual Currency Trading Facility for a breach of the Rules; and
contain provisions for an appeal process from the decisions of the Authorised Virtual Currency Trading Facility.
An Authorised Virtual Currency Trading Facility prior approval of its Rules (Business Rules, Admission to Trading Rules, Membership Rules) and amendments to its Rules must:
make available for market consultation for no less than 30 days; and
obtain approval of the AFSA.
In urgent cases, the AFSA may, on written application by the Authorised Virtual Currency Trading Facility, dispense with the requirement in (2)(a).
Where an Authorised Virtual Currency Trading Facility has made any amendments to its Rules, it must have adequate procedures for notifying users of such amendments.
An Authorised Virtual Currency Trading Facility must have procedures in place to ensure that its Rules are monitored and enforced.
Admission of Virtual Currencies to trading 6.3.1. Admission to Trading Rules
An Authorised Virtual Currency Trading Facility must make clear and transparent rules concerning the admission of Virtual Currencies to trading on its facilities.
The rules of the Authorised Virtual Currency Trading Facility must ensure that:
Virtual Currencies admitted to trading on an Authorised Virtual Currency Trading Facility’s facilities are capable of being traded in a fair, orderly and efficient manner; and
Virtual Currencies admitted to trading on an Authorised Virtual Currency Trading Facility’s facilities are freely negotiable.
Application for admission of Virtual Currencies to Trading
Applications for the admission of Virtual Currencies to trading must be made to the AFSA by an Authorised Virtual Currency Trading Facility.
Applications for the admission of Virtual Currencies to trading can be made to an Authorised Virtual Currency Trading Facility by the issuer of the Virtual Currencies, by a third party on behalf of and with the consent of the issuer of the Virtual Currencies, or by members of an Authorised Virtual Currency Trading Facility.
An Authorised Virtual Currency Trading Facility must, before admitting any Virtual Currencies to trading:
be satisfied that the applicable requirements, including those in its Admission to Trading Rules, have been or will be fully complied with in respect of those Virtual Currencies; and
obtain approval of the AFSA in respect of those Virtual Currencies
For the purposes of (2), an Authorised Virtual Currency Trading Facility must notify an applicant in writing of its decision in relation to the application for admission of Virtual Currencies to trading.
Subject to (2)(b), an Authorised Virtual Currency Trading Facility must provide the AFSA the following information:
a copy of the admission application; and
any information requested by the AFSA.
AFSA objection to admission of Virtual Currencies to trading
Where an Authorised Person Operating a Virtual Currency Business applies for approval of admission or grant admission of Virtual Currencies to trading, the AFSA may:
object to the admission of Virtual Currencies to trading; or
impose conditions or restrictions in respect of the admission of Virtual Currencies to trading, or vary or withdraw such conditions or restrictions, in the circumstances specified in (2).
The AFSA may exercise its powers under (1) where the AFSA reasonably considers that:
granting the Virtual Currencies admission to trading of Virtual Currencies would be detrimental to the interests of Persons dealing in the relevant Virtual Currencies using the facilities of an Authorised Person Operating a Virtual Currency Business or otherwise; or
any requirements imposed by the AFSA or in the DATF Operator’s Rules
as are applicable have not been or will not be complied with; or
the Issuer of the Virtual Currencies has failed or will fail to comply with any obligations applying to it including those relating to having its Virtual Currencies admitted to trading or listed or traded in another jurisdiction.
Where the AFSA objects to the admission of Virtual Currencies to trading pursuant to (2), such Virtual Currencies must not be admitted by an Authorised Person Operating a Virtual Currency Business to its facility.
Where the AFSA imposes conditions or restrictions on the admission of Virtual Currencies to trading, such Virtual Currencies must not be admitted by an Authorised Person Operating a Virtual Currency Business to its facility unless there is compliance with those conditions and restrictions.
Undertaking to comply with AIFC laws An Authorised Virtual Currency Trading Facility may not admit Virtual Currencies to trading unless the person who seeks to have Virtual Currencies admitted to trading:
gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AIFC in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution;
agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution; and
agrees in writing to subject itself to the AIFC laws in relation to its use of the facilities of the Authorised Market Institution.
Review of compliance
The Authorised Virtual Currency Trading Facility must maintain arrangements regularly to review whether the Virtual Currencies admitted to trading on its facilities comply with the Admission to Trading Rules.
Suspending or removing Virtual Currencies from trading 6.4.1. Power to suspend
The rules of an Authorised Virtual Currency Trading Facility must provide that the Authorised Virtual Currency Trading Facility have the power to suspend or remove from trading on its facilities any Virtual Currencies with immediate effect or from such date and time as may be specified where it is satisfied that there are circumstances that warrant such action or it is in the interests of the AIFC.
The AFSA may direct an Authorised Person Operating a Virtual Currency Business to suspend or remove Virtual Currencies from trading with immediate effect or from such date and time as may be specified if it is satisfied there are circumstances that warrant such action or it is in the interests of the AIFC.
The AFSA may withdraw a direction made under (2) at any time.
Virtual Currencies that are suspended from trading of Virtual Currencies remain admitted to trading for the purposes of this Chapter.
The AFSA may prescribe any additional requirements or procedures relating to the delisting or suspension of Virtual Currencies from or restoration of Virtual Currencies to trading.
Limitation on power to suspend or remove Virtual Currencies from trading
An Authorised Virtual Currency Trading Facility may not suspend or remove from trading on its facilities any Virtual Currency which no longer complies with its rules, where such step would be likely to cause significant damage to the interests of investors or the orderly functioning of the financial markets
Publication of decision
Where the Authorised Virtual Currency Trading Facility suspends or removes any Virtual Currency from trading on its facilities, it must notify the AFSA and make that decision public.
Where the Authorised Virtual Currency Trading Facility lifts a suspension or re-admits any Virtual Currency to trading on its facilities, it must notify the AFSA and make that decision public.
Where an Authorised Virtual Currency Trading Facility has made any decisions on admission, suspension, or removal of Virtual Currencies from trading on its facilities, it must have adequate procedures for notifying users of such decisions.
Transparency obligations
Trading transparency obligation
An Authorised Virtual Currency Trading Facility must make available to the public:
the current bid and offer prices of Virtual Currencies traded on its systems on a continuous basis during normal trading hours; and
the price, volume and time of the transactions executed in respect of Virtual Currencies traded on its facilities in as close to real-time as technically possible.
Public notice of suspended or terminated Membership
The Authorised Virtual Currency Trading Facility must issue a public notice on its website in respect of any Member that has a Licence to carry on the Market or Regulated Activities whose Membership is suspended or terminated.
Cooperation with office-holder
The Authorised Virtual Currency Trading Facility must cooperate, by the sharing of information and otherwise, with the AFSA, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a Member of the Virtual Currency Trading Facility.
Additional requirements on technology resources 6.6.1. Cyber-security policy
An Authorised Virtual Currency Trading Facility shall implement a written cyber security policy setting forth its policies and procedures for the protection of its electronic systems and members and counterparty data stored on those systems, which shall be reviewed and approved by the Authorised Virtual Currency Trading Facility’s governing body at least annually.
The cyber security policy must, as a minimum, address the following areas:
information security;
data governance and classification;
access controls;
business continuity and disaster recovery planning and resources;
capacity and performance planning;
systems operations and availability concerns;
systems and network security;
systems and application development and quality assurance;
physical security and environmental controls;
customer data privacy;
vendor and third-party service provider management; and
incident response.
Technology Governance
An Authorised Virtual Currency Trading Facility must, as a minimum, have in place systems and controls with respect to the procedures describing the creation, management and controls of digital wallets and private keys.
Trading controls
An Authorised Virtual Currency Trading Facility must be able to:
reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
temporarily halt or constrain trading on its facilities if necessary or desirable to maintain an orderly market; and cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member.
Settlement and Clearing facilitation services
An Authorised Virtual Currency Trading Facility must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), Clearing and settlement of the rights and liabilities of the parties to transactions effected on the An Authorised Virtual Currency Trading Facility (being rights and liabilities in relation to those transactions)
An Authorised Virtual Currency Trading Facility acting as a Virtual Currency Depository must:
have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of Virtual Currencies issuers and holders, prevent the unauthorised creation or deletion of Virtual Currencies, and conduct periodic and at least daily reconciliation of Virtual Currencies issues it maintains;
prohibit overdrafts and debit balances in Virtual Currencies accounts;
maintain Virtual Currencies in an immobilised or dematerialised form for their transfer by book entry;
protect assets against custody risk through appropriate rules and procedures consistent with its legal framework;
ensure segregation between the Virtual Currency Depository’s own assets and the Virtual Currencies of its participants and segregation among the Virtual Currencies of participants; and identify, measure, monitor, and manage its risks from other activities that it may perform.
Amendments to the AIFC COB (Annex 4)
AIFC CONDUCT OF BUSINESSRULES (COB)
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8.3.14. Client reporting
In relation to each Client for whom it receives or holds Client Investments, anAuthorised Firm must provide at least once a year an auditedstatement of the Client Investments unless such a statement has been provided in a periodic statementin accordance with COB 9.
An Authorised Person which Provides Custody for safeguarding and administering Virtual Currencies belonging to a Retail Client must send a statement to its Retail Clients at least monthly.
8.3.16. Reconciliations
AnAuthorised Firm must:
atleast once every calendar month, reconcile its records of Client Accountsheld with Third Party AccountProviders with monthlystatements received from those Third Party AccountProviders;
at least every six months, count all Client Investments physically held by the Authorised Firm, or its Nominee Company, and reconcile the result of that count to the records of the Authorised Firm; and
atleast every six months, reconcileindividual Client ledgerbalances with the Authorised Firm’s recordsof Client Investment balances held in Client Accounts.
An Authorised Firm must ensure that the process of reconciliation does not give rise to a conflict of interest.
For the purposes of Authorised Persons that are Providing Custody for safeguarding and administering Virtual Currencies belonging to another Person, all reconciliations required under 8.3.16 shall be conducted at least every week.
OPERATORS OF A VIRTUAL CURRENCY BUSINESS
Application
This chapter applies to an Authorised Person engaged in the activity of Operating a Virtual Currency Business.
17.2 Rules Applicable to an Authorised Virtual Currency Trading Facility
In addition to all requirements applicable to Authorised Persons in these rules, GEN, and AML, an Authorised Person carrying on the Market Activity of Operatinga Virtual Currency Trading Facility must comply with the applicable requirements set out in the AMI, unless the requirements in this chapter expressly provide otherwise.
Admission of Virtual Currencies to trading
An Authorised Person Operating a Virtual Currency Trading Facility may grantadmission of Virtual Currencies to trading only where it is satisfied that such admission is in accordance with AMI and an Authorised Virtual Currency Trading Facility’s Admission to Trading Rules.
An Authorised Person Operating a Virtual Currency Trading Facility must not permit trading of Virtual Currencies on its facilities unless those Virtual Currencies are admitted to, and not suspended from, trading by the an Authorised Person Operating a Virtual Currency Trading Facility and approved by the AFSA except where otherwise prescribed in the Rules.
Additional disclosure requirements
Prior to entering into an initial transaction for, on behalf of, or with a Client, an Authorised Person Operating a Virtual Currency Business shall disclose in a clear,fair and not misleading manner:
all terms, conditions and risks relating to the Virtual Currencies that have been admitted to trading and/or is the subject of the transaction;
all material risks associated with its products, services and activities; and
all details on the amount and the purpose of any premiums, fees, charges or taxes payable by the Client, whether or not these are payable to the Operating a Virtual Currency Business.
The risks to be disclosed pursuant to Rule 17.4. include, but are not limitedto, the following:
Virtual Currencies not being legal tender or backed by a government;
the value, or process for valuation, of Virtual Currencies, including the risk of a Virtual Currency having no value;
the volatility and unpredictability of the price of Virtual Currencies relative to Real (Fiat) Currencies;
that trading in Virtual Currencies is susceptible to irrational market forces;
that the nature of Virtual Currencies may lead to an increased risk of Financial Crime;
that the nature of Virtual Currencies may lead to an increased risk of cyber- attack;
there being limited or, in some cases, no mechanism for the recovery of lost or stolen Virtual Currencies;
the risks of Virtual Currencies with regard to anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement;
that there is no assurance that a Person who accepts a Virtual Currencies as payment today will continue to do so in the future;
that the nature of Virtual Currencies means that technological difficulties experienced by the Authorised Person may prevent the access or use of a Client’s Virtual Currencies;
any links to Virtual Currencies related activity outside AIFC, which may be unregulated or subject to limited regulation; and
any regulatory changes or actions by the AFSA or Non-AIFC Regulator that may adversely affect the use, transfer, exchange, and value of a Virtual Currency.
Complaints
An Authorised Person Operating a Virtual Currency Business shall establish and maintain written policies and procedures to fairly and timely resolve complaints.
An Authorised Person Operating a Virtual Currency Business must provide, ina clear and conspicuous manner, on its website or websites, in all physical locations, and in any other location as the AFSA may prescribe, the following disclosures:
the mailing address, email address, and telephone number for the receipt of complaints;
a statement that the complainant may also bring his or her complaint to the attention of the AFSA;
the AFSA’s mailing address, website, and telephone number; and
such other information as the AFSA may require.
An Authorised Person Operating a Virtual Currency Business shall report to the AFSA any change in its complaint policies or procedures within ten days.
An Authorised Person Operating a Virtual Currency Business must maintain a record of any complaint made against it for a minimum period of six years from the date of receipt of the complaint
Obligation to report transactions
An Authorised Person Operating a Virtual Currency Business shall report to the AFSA details of transactions in Virtual Currencies traded on its facility which are executed, or reported, through its systems.
The AFSA may make Rules specifying—
the information to be included in reports made under subsection (1); and
the manner in which such reports are to be made.
AFSA power to impose a prohibition or requirement
The AFSA may prohibit an Authorised Person Operating a Virtual Currency Business from: entering into certain specified transactions or types of transactions; or outsourcing any of its functions or activities to a third party.
The AFSA may, by written notice or Guidance set fees payable by an Authorised Person Operating a Virtual Currency Business to the AFSA on certain specified transactions or types of transactions.
Amendments to the AIFC MAR (Annex 5)
AIFC MARKETS RULES (MAR)
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OFFER OF SECURITIES
Offer of Securities
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1.1.2 Conditions for the offer of Securities by way of placement
An Authorised Firm issuer may not offer Securities by way of placement in or from the AIFC, and an Authorised Firm may not conduct, facilitate or participate in such as offer, unless:
the offer is made to or directed at only Professional Clients;or
the offer is directed at fewer than 50 Retail Clients in any 12 month period; or
the offer is addressed to investors who acquire Securities for a total consideration of at least $100,000 (or an equivalent amount in another currency) per Person for each separate offer; or
the offer is denominated in amounts of at least $100,000 per unit (or an equivalent amount in another currency); or
the total aggregate consideration for the Securities offered is less than
$100,000, or an equivalent amount in another currency, calculated over a period of 12 months; or
the Securities offered are Shares which are issued in substitution for Shares of the same class as already issued, where the issue of the new Shares does not involve any increase in the issued Share capital; or
the Securities offered are convertibles issued under a Prospectus to existing members or creditors of the Issuer or a member of its Group and there is no additional consideration to be paid; or
the Securities offered are offered in connection with a Takeover and an informational document is made available which is considered by the AFSA as being equivalent to that of a Prospectus; or
the Securities offered are offered, allotted or to be allotted in connection with a merger if an informational document is available which is regarded by the AFSA as being equivalent to that of a Prospectus; or
the Securities offered are offered, allotted or to be allotted in connection with a rights issue where:
the Securities are of a class subject to Reporting Entity disclosure; and
a document is made available containing information on the number and nature of the Securities including rights attaching to those Securities and the reasons for and details of the offer; or
the Securities offered are Shares which are offered, allotted or to be allotted to existing Shareholders free of charge or dividends paid out in the form of Shares of the same class as the Shares in respect of which the dividends are paid, and a document is made available containing information on the number and nature of the Shares and the reasons for and details of the offer; or
the Securities offered are offered, allotted or to be allotted to an existing or former Director or Employee, or any close relative of such a Director or Employee, of the Issuer or a member of the same Group as the Issuer and:
the Issuer or the member of the Group already has its Securities admitted to trading on a Regulated Exchange; and
a document is made available to the offerees containing information on the number and nature of the Securities and the reasons for and details of the Offer; or
the offer meets all of the following conditions:
the total aggregate consideration for the offer of Securities is not more than $5 million, or an equivalent amount in another currency, calculated over a period of 12 months; and
the offer is made to and directed at investors who are:
Professional Clients; and
a Retail Client, provided that the aggregate amount sold to such Clients, including any amount sold in reliance on the exemption provided under this sub-paragraph during the 12-month period preceding the date of such transaction, does not exceed the greater of $2,000 or 10 percent of the annual income or 5 percent of net worth of such Client (excluding the value of the primary residence), whichever is lesser, but not to exceed a maximum aggregate amount sold of $100,000; or
there is a Prospectus in relation to the relevant Securities that satisfies the requirements of this Part and has been approved by the AFSA.
The following requirements apply to an offer of Securities by way of placement conducted under sub-sections (1)(a) through (1)(m) of MAR 1.1.2:
the issuer shall make available to each Client at a reasonable time prior to the purchase of securities the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which the issuer possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished under this section;
the issuer shall take reasonable steps to verify the status of the Clients;
the issuer shall, if Retail Clients are participating in the offering, give any Retail Client disclosure documents that contain the necessary information which is material to an investor for making an informed investment decision; and
the issuer shall file a notice with the AFSA within 30 days after the sale of securities in the offering.
Neither the issuer nor any person acting on its behalf shall offer or sell the Securities by any form of general solicitation or general advertising, including, but not limited to, the following:
any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, and
any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
For the purposes of (3), the advertisement made on the issuer’s or Authorised
Firm’s website is not considered as general solicitation or general advertising.
Amendments to the AIFC GLO (Annex 6)
AFSA GLOSSARY
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
Defined Terms | Definitions |
Virtual Currency | A digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, and can be exchanged back-and-forth for Real (Fiat) Currency, but does not have legal tender status in any jurisdiction. It is neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Virtual Currency, and distinguished from Real (Fiat) Currency and E-money. |
Centralised Virtual Currencies | Virtual Currency issued by a single or several administrating authorities that establish the rules for its use, maintain a central payment ledger, and have authority to redeem the Currency (withdraw it from circulation). |
Decentralised Virtual Currencies | Virtual Currency that have no central administrating authority, and no central monitoring or oversight, and give rise to no claims on their issuer. |
Real (Fiat) Currency | Government issued currency that is designated as legal tender in its country of issuance through government decree, regulation or law. |
E-currency (or E-money) | A digital representation of Real (Fiat) Currency used to electronically transfer value denominated in Real (Fiat) Currency. |
Digital wallet (or E-wallet) | A means (software application, electronic device or other mechanism/medium) for holding, storing and transferring Virtual Currency, E-money and/or other assets, investments. |
Cold Digital wallet | A Digital wallet that is stored in a platform (device) that is not connected to the Internet. |
Hot Digital wallet | A Digital wallet that is stored in a platform (software application) that is connected to the Internet. |
Smart-Contract | A contract whose terms are encoded into a computer program that self-executes and self- |
enforces the terms automatically without the need for intermediaries. | |
Operating a Virtual Currency Business | Operating of a Virtual Currency Trading Facility or Providing Custody for safeguarding and administering Virtual Currencies belonging to another Person, or both. |
Operating a Virtual Currency Trading Facility | Operating a facility which functions regularly and brings together multiple third party (whether as principal or agent) – (a)buying, selling or exchanging Virtual Currencies for a Real (Fiat) Currency, and/or (b)exchanging one Virtual Currency to another Virtual Currency, in its facility and in accordance with its non- discretionary rules – in a way that results in a contract. |
Providing Custody | Means one or more of the following activities – (a)safeguarding and administering Investments belonging to another Person; (b)in the case of a Fund, safeguarding and administering Fund Property; or (c)safeguarding and administering Virtual Currencies belonging to another Person. |
Providing Transaction Services for Decentralised Virtual Currencies | Operating a facility that functions regularly to validate and add transaction records to the ledger of all transactions. |
Transaction Services for Decentralised Virtual Currencies (also known as Mining) | Validation and adding transactions made with a Decentralised Virtual Currencies to the ledger of all transactions. |
Investment | A Security, Unit, Derivative or a Virtual Currency and a right or interest in the relevant Security, Unit, Derivative or Virtual Currency. |
*Consultation paper No.12. Amendments to the AIFC Companies Regulations
Consultation Paper No.6 on Private Placement Regimes
1. Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper to invite public feedback and comments on the proposed amendments to the Astana International Financial Centre (“AIFC”) Companies Regulations on providing exemption to Private Companies relating to offer Securities by the way of private placement.
2. The proposed amendments are set out in Annex A to this Paper.
3. This Consultation Paper may be of interest to individuals, legal entities, financial organisations and investors who are interested in doing business in the AIFC.
4. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 6” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is 20 July 2018. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments.
7. Comments to be addressed to:
Consultation Paper No 6 Innovation Policy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: Fintech.Consultation@afsa.kz
Tel: +7 (7172) 647260
2. Background
1. On May 25, 2018, issued his Consultation Paper #4 to invite public feedback and comments on the proposed amendments to the Astana International Financial Centre (“AIFC”) Regulations and Rules on regulation of Virtual Currencies, facilities offering trading of Virtual Currencies, and regimes for alternative sources of funding for businesses (“Proposed Framework”).
2. The Proposed Framework involves amendments to the AIFC’s legislation to extend the current exempt offering regime for the offer of Securities by way of placement. The current edition of the AIFC Companies Regulation does not allow Private Companies to use these regimes.
3. Therefore, the AFSA is proposing amendments to the AIFC Companies Regulations on providing exemptions to Private Companies relating to offer Securities by the way of private placement.
3. Annex A
AIFC COMPANIES REGULATIONS
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES
CHAPTER 4–PROHIBITION OF PUBLIC OFFERS BY PRIVATE COMPANIES
50. Prohibition of public offers by Private Companies
(1) A Private Company must not:
(a) make an offer of its Securities to the public; or
(b) allot or agree to allot its Securities to any Person with a view to the Securities being offered to the public.
…
(3) A Private Company does not Contravene subsection (1) if it:
(a) acts in good faith under arrangements under which it is to re-register as a Public Company before the Securities are allotted; or
(b) undertakes, as part of the terms of the offer, to re-register as a Public Company within 6 months after the day the offer is first made, and the undertaking is complied with.; or
(c) offers Securities by way of placement as provided in Rules made by the AFSA.
Consultation Paper No.7 on Financial Services Exempt from Corporate Income Tax
1. Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper to invite public feedback and comments on the proposed amendments to the Order of The Governor of the AIFC on Financial Services Exempt from Corporate Income Tax on providing relief from corporate income tax for Participants of the AIFC Fintech Regulatory Sandbox (“the Sandbox”).
2. The proposed amendments are set out in Annex A to this Paper.
3. This Consultation Paper may be of interest to individuals, legal entities, financial technology firms, investors and consulting firms who are interested in doing business in the AIFC and the Sandbox.
4. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 7” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is 28 July 2018. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments.
7. Comments to be addressed to:
Consultation Paper No 7 Innovation Policy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: Fintech.Consultation@afsa.kz
Tel: +7 (7172) 647260
2. Background
1. In accordance to the latest changes to the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Center”, the development of financial technologies (“FinTech”) and innovation projects are one of the key pillars of the AIFC.
2. As part of development of financial technologies in the AIFC, the Astana Financial Services Authority (“AFSA”) deployed the FinTech Regulatory Sandbox, a framework that allows FinTech startups and other innovators to conduct live experiments in a controlled environment under a regulator's supervision.
3. The AIFC is positioned as a jurisdiction with tax free regimes for financial service providers. Given that the Sandbox is designed for firms that are looking to apply technology in an innovative way to provide financial services that are or likely to be regulated by AFSA, it is proposed to provide relief from corporate income tax for Participants of the Sandbox.
3. Annex A
ORDER OF THE GOVERNOR OF THE AIFC ON FINANCIAL SERVICES EXEMPT FROM CORPORATE INCOME TAX
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
Order of the Governor of the Astana International Financial Centre on Financial Services Exempt from Corporate Income Tax
In accordance with subparagraph 5 of paragraph 3 of article 6 of the Constitutional Statute of the Republic of Kazakhstan On the Astana International Financial Centre and paragraph 9 of article 3 of The Structure of the Bodies of the Astana International Financial Centre, adopted by the Resolution of the Management Council on May 26, 2016 No. 20-27/1814, as amended by the Resolution of the Management Council, the Amendments and Supplementations to the Structure of the Bodies of the Astana International Financial Centre, adopted on October 9, 2017 No. 17-61-6.2, the Governor of the Astana International Financial Centre (AIFC) ORDERS:
1. In the event a Centre Participant carries on any service specified in Schedule 1, the Centre Participant shall not be liable for corporate income tax imposed by the Tax Code of the Republic of Kazakhstan on income or capital resulting from that
service provided the service is carried on in full compliance with the AIFC Regulations and Rules.
2. The list of financial services that are exempt from corporate income tax is specified in Schedule 1 hereof.
3. This order comes into effect from the date of its signing.
AIFC Governor К. Kelimbetov
Schedule 1: The List of Financial Services that are Exempt from Corporate Income Tax
(a) A Regulated Activity listed in Schedule 1 of the AIFC General Rules (GEN).
(b) A Market Activity listed in Schedule 3 of the AIFC Financial Services Framework Regulations (FSFR).
(c) A financial services activity specified in an AIFC FinTech Regulatory Sandbox Permission issued pursuant to the AIFC FinTech Regulatory Sandbox Guidance.
Consultation paper No.0009. Introduction of an option for Private Companies and Partnership to keep information in the Register kept by the Registrar.
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Regulations and Rules which aim at updating and modernising the legal framework to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC Participants who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2019-0009” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including onits website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 25 October 2019. Once we receive your comments, we shall consider if any refinements are required to the proposals.
5. Comments to be addressed by: post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El avenue, block C3.2, Nur-Sultan, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +7 7172 613626
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the key element of the proposed amendments;
(c) Annex 1: Draft of proposed amendments to AIFC Regulations;
(d) Annex 2: Draft of proposed amendments to AIFC Rules.
Background
The Astana Financial Services Authority ("AFSA") proposes to make amendments to the AIFC Acts which aim at updating and modernising the legal framework to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment. Additionally, the proposed amendments aim to make a positive contribution to the AIFC Development Strategy, in particular by improving the ease of doing business.
The key aspect of the proposal is to introduce an option for Private Companies and partnerships to keep information in the Register kept by the Registrar rather than in their own statutory books. The election of this option will decrease the administrative burden on the AIFC Participants. The relevant registers include the: register of Shareholders, register of Directors and Secretaries (if applicable), register of ultimate beneficial owners (UBOs), register of Partners, and the register of Members. This is modelled based on the practice of the United Kingdom.
It is proposed to amend each of the following AIFC Acts:
1) AIFC Companies Regulations
2) AIFC Limited Partnership Regulations
3) AIFC Companies Rules
4) AIFC General Partnership Rules
5) AIFC Limited Liability Partnership Rules
6) AIFC Fees Rules
KEY ELEMENT OF THE PROPOSED AMENDMENTS
The key aspects of the proposal is to introduce an option for Private Companies and partnerships to keep information in the Register kept by the Registrar rather than in their own statutory books. The election of this option will decrease the administrative burden on the AIFC Participants. The relevant registers include the: register of Shareholders, register of Directors and Secretaries (if applicable), register of ultimate beneficial owners (UBOs), register of Partners, and the register of Members. This is modelled based on the practice of the United Kingdom.
Question
Do you have any concerns related to the proposed amendments to AIFC Rules and Regulations? If so, what are they, and how should they be addressed?
Annex 1
Proposed amendments to AIFC Regulations
Chapter Number/Section Number | Current version | Proposed version |
AIFC Companies Regulations | ||
CHAPTER 5– REGISTERS OF SHAREHOLDE RS AND DEBT SECURITY HOLDERS AND SHARE CERTIFICATES Section 52 | 52. Register of Shareholders (1) A Company must establish and maintain a Register of Shareholders. (2) The Company must promptly enter the following in the Register of Shareholders: (a) the names and addresses of its Shareholders, together with a statement of the Shares held by each Shareholder, distinguishing each Share by its number (if the Share has a number) and, if the Company has 2 or more classes of issued Shares, by its class; (b) the date each Shareholder was registered as a Shareholder; | 52. Register of Shareholders (1) A Company must establish and maintain a Register of Shareholders, unless the Register is kept by the Registrar for the Private Company under subsection (4). (2) The Company must promptly enter the following in the Register of Shareholders: (a) the names and addresses of its Shareholders, together with a statement of the Shares held by each Shareholder, distinguishing each Share by its number (if the Share has a number) and, if the Company has 2 or more classes of issued Shares, by its class; |
(c) the date any Person ceased to be a Shareholder; | (b) the date each Shareholder was registered as a Shareholder; | |
(d) the date the number of Shares held by any Shareholder increased or decreased; | (c) the date any Person ceased to be a Shareholder; | |
(e) for Shares that are not fully paid—the amount remaining unpaid on each Share; | (d) the date the number of Shares held by any Shareholder increased or decreased; | |
(f) for joint holders of Shares in a Company—unless otherwise provided in its Articles of Association, the following: (i) the names of each joint holder; (ii) the nominee Shareholder for the purposes of voting; (iii)a nominated single address to which all communications required to be sent to a | (e) for Shares that are not fully paid—the amount remaining unpaid on each Share; (f) for joint holders of Shares in a Company— unless otherwise provided in its Articles of Association, the following: (i) the names of each joint holder; (ii) the nominee Shareholder for the purposes of voting; (iii) a nominated single address to which all communications required to be sent to a | |
Shareholder can be sent. (3) Contravention of this section is punishable by a fine | Shareholder can be sent. (3) Contravention of (2) is punishable by a fine (4) A Private Company may make elect to keep information on the Register kept by the Registrar. (5) An election may be made under this section by: (a) the applicant wishing to incorporate a Private Company under these Regulations; or (b) the Private Company itself once it is incorporated. (6) In paragraph (b) of subsection (5), the election is of no effect, without prior agreement of all the Shareholders of the Private Company at the particular time to the making of the election. (7) An election under this section is made by giving notice of election to the Registrar. (8) If the notice is given by Person(s) wishing to incorporate a Private Company: (a) it must be given together with the application for the incorporation under section 13; and (b) it must be accompanied by a statement containing all the information under subsection (2). (9) If the notice is given by the Private Company, it must be accompanied by: (a) a statement by the Private Company that all the Shareholders of the Private Company have assented to the making of the election; and (b) a statement containing all the information that is required under subsection (2) to be contained in the Private Company's register of Shareholders as at the date of the notice in respect of matters that are current as at that date. (10)An election made under subsection (4) takes effect when the notice of election is registered by theRegistrar. (11)The election remains in force until either: | |
(a) the Private Company ceases to be a Private Company; or (b) a notice of withdrawal sent by the Private Company under subsection (14) is registered by the Registrar, whichever occurs first. (12) A Private Company must continue to keep a register of Shareholders in accordance with subsection (2) containing all the information that was required to be stated in that Register as at the time immediately before the election took effect, but the Private Company does not have to update that Register to reflect any changes that occur after that time. (13)The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. (14)A Private Company must deliver to the Registrar any information under subsection (2) that the Private Company would during the period when an election under subsection (4) is in force, have been obliged under these regulations to enter in its Register of Shareholders, as soon as reasonably practicable but within 14 days. (15) A Private Company may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subsection (4). (a) the withdrawal takes effect when the notice is registered by the Registrar; (b) the effect of withdrawal is that the Private Company's obligation under subsection (1) to maintain a register of Shareholders applies from then on with respect to the period going forward. (c) the Private Company must place a note in its register ofShareholders— (i) stating that the election under subsection (4) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii)indicating that information about its Shareholders relating to the period when the election was in force that is no longer current is available for | ||
public inspection on the register kept by the Registrar. (16) Contravention of subsections (4) to (15) is punishable by a fine. | ||
Section 90 | 90. Register of Directors and Secretaries (1)Every Company must keep, at its registered office, a Register of its Directors and, if applicable, a Register of its Secretaries. The Company must ensure that a register contains the particulars required by the Rules. (2)If a Company is required to keep a register under subsection (1), the Company must ensure that the register is open to inspection, during business hours and without charge, by the Registrar or any Shareholder or Director of the Company. (3)The Company may, by its Articles of Association or a decision in General Meeting, impose reasonable restrictions on the availability of a register for inspection under subsection (2), but must nevertheless ensure that the register is open for inspection for at least 2 hours on each day that its registered office is open. (4)If a Company Fails to make a register available for inspection under subsection (2) by the Registrar or a Shareholder or Director of the Company, the Registrar may, by Written notice given to the Company, direct the Company to immediately make the register available for inspection by that Person. The Company must comply with the direction. (5)Contravention of this section is punishable by a fine. | 90. Register of Directors and Secretaries (1)Every Company must keep, at its registered office, a Register of its Directors and, if applicable, a Register of its Secretaries, unless the Register is kept by the Registrar for the Private Company under subsection (6). The Company must ensure that a register contains the particulars required by the Rules. (2)If a Company (3)The Company may, by its Articles of Association or a decision in General Meeting, impose reasonable restrictions on the availability of a register for inspection under subsection (2), but must nevertheless ensure that the register is open for inspection for at least 2 hours on each day that its registered office is open. (4)If a Company Fails to make a register available for inspection under subsection (2) by the Registrar or a Shareholder or Director of the Company, the Registrar may, by Written notice given to the Company, direct the Company to immediately make the register available for inspection by that Person. The Company must comply with the direction. (5)Contravention of (6) A Private Company may make an election to keep information on the register kept by the Registrar. (7)An election may be made under this section by: |
(a) the applicant wishing to incorporate a Private Company under these Regulations; or (b) the Private Company itself once it is incorporated. (8) In paragraph (b) of subsection (7), the election is of no effect, without prior agreement of all the Shareholders of the Private Company at the particular time to the making of the election. (9) An election under this section is made by giving notice of election to the Registrar. (10)If the notice is given by Person(s) wishing to incorporate a Private Company: (a) it must be given together with the application for the incorporation under section 13; and (b) it must be accompanied by a statement containing all the information prescribed by the Rules. (11)If the notice is given by the Private Company, it must be accompanied by: (a) a statement by the Private Company that all the Shareholders of the Private Company have assented to the making of the election; and (b) a statement containing all the information prescribed by the Rules to be contained in the Private Company's register of Directors and Secretaries as at the date of the notice in respect of matters that are current as at that date. (13)An election made under subsection (6) takes effect when the notice of election is registered by theRegistrar. (14)The election remains in force until either: (a) the Private Company ceases to be a Private Company; or (b) a notice of withdrawal sent by the Private Company under subsection (18) is registered by the Registrar, whichever occurs first. (15) A Private Company must continue to keep a register of Directors and Secretaries in accordance with the Rules, containing all the information that was required to be stated in that register as at the time immediately before | ||
the election took effect, but the Private Company does not have to update that register to reflect any changes that occur after that time. (16)The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. (17)A Private Company must deliver to the Registrar any information prescribed by the Rules that the Private Company would during the period when an election under subsection (6) is in force, have been obliged under these regulations to enter in its register of Directors and Secretaries, as soon as reasonably practicable but within 14 days. (18) A Private Company may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subsection (6). (a)the withdrawal takes effect when the notice is registered by the Registrar; (b) the effect of withdrawal is that the Private Company's obligation under subsection (1) to keep a register of Directors and Secretaries applies from then on with respect to the period going forward. (c) the Private Company must place a note in its register of Directors or Secretaries— (i) stating that the election under subsection (6) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii)indicating that information about its Directors or Secretaries relating to the period when the election was in force that is no longer current is available for public inspection on the register kept by the Registrar. (19) Contravention of subsections (6) to (18) is punishable by a fine. | ||
PART 14-1: ULTIMATE BENEFICIAL OWNERS CHAPTER 2: BENEFICIAL | 179-4 Requirements relating to Beneficial Ownership Register (1) A Relevant Person shall keep and maintain a Beneficial Ownership Register within the time specified in subsections (3) and (4), in which the UBO Details in respect of each of its | 179-4 Requirements relating to Beneficial Ownership Register (1) A Relevant Person shall keep and maintain a Beneficial Ownership Register within the time specified in subsections (3) and (4), in which the UBO Details in respect of each of its |
OWNERSHIP REGISTER Section 179-4 | Ultimate Beneficial Owners and (if applicable) the information required under section 179-9 (Ownership through the Exempt entity), shall be recorded. The Relevant Person shall record any changes to this information in the Beneficial Ownership Register within thirty (30) days of becoming aware of such change. (2) The Beneficial Ownership Register shall be kept and maintained at the address of the Relevant Person's registered office or any other address notified in Writing by the Relevant Person to the Registrar. (3) Each Relevant Person in existence at the Commencement Date shall establish a Beneficial Ownership Register within ninety (90) days of such commencement. (4) Each Relevant Person which comes into existence on or after the Commencement Date shall establish a Beneficial Ownership Register within thirty (30) days of its incorporation or registration. (5) Subject to section 179-9 (Ownership through the Exempt entity), the Relevant Person shall cause the following information to be entered in its Beneficial Ownership Register in respect of each Ultimate Beneficial Owner: (a) full legal name; (b) residential address and, if different, an address for service of notices under these Regulations; (c) date and place of birth; (d) nationality; (e) information identifying the Person from their passport or other government-issued national identification document acceptable to the Registrar, including: (i) identifying number; (ii)country of issue; and (iii) date of issue and ofexpiry; (f) the date on which the Person became an Ultimate Beneficial Owner of the Relevant Person; and (g) the date on which the Person ceased to be an Ultimate Beneficial Owner of the Relevant | Ultimate Beneficial Owners and (if applicable) the information required under section 179-9 (Ownership through the Exempt entity), shall be recorded. The Relevant Person shall record any changes to this information in the Beneficial Ownership Register within thirty (30) days of becoming aware of such change. (1-1) If an election was made under subsection (9), to keep the Register by theRegistrar, subsections (1) to (8) shall notapply. (2) The Beneficial Ownership Register shall be kept and maintained at the address of the Relevant Person's registered office or any other address notified in Writing by the Relevant Person to the Registrar. (3) Each Relevant Person in existence at the Commencement Date shall establish a Beneficial Ownership Register within ninety (90) days of such commencement. (4) Each Relevant Person which comes into existence on or after the Commencement Date shall establish a Beneficial Ownership Register within thirty (30) days of its incorporation or registration. (5) Subject to section 179-9 (Ownership through the Exempt entity), the Relevant Person shall cause the following information to be entered in its Beneficial Ownership Register in respect of each Ultimate Beneficial Owner: (a) full legal name; (b) residential address and, if different, an address for service of notices under these Regulations; (c) date and place of birth; (d) nationality; (e) information identifying the Person from their passport or other government-issued national identification document acceptable to the Registrar, including: (i) identifying number; (ii)country of issue; and (iii) date of issue and ofexpiry; (f) the date on which the Person became an Ultimate Beneficial Owner of the Relevant Person; and (g) the date on which the Person ceased to be an Ultimate Beneficial Owner of the Relevant |
Person. (6) If after having exhausted all reasonable means: (a) no natural person is identified as the Ultimate Beneficial Owner of the Relevant Person; or (b) there is reasonable doubt that that any natural person so identified is an Ultimate Beneficial Owner of the Relevant Person, the Relevant Person shall enter on its Beneficial Ownership Register, the UBO Details of the natural persons who are deemed to be the Ultimate Beneficial Owners pursuant to section 179-1(6). (7) If a Relevant Person causes an entry to be made in its Beneficial Ownership Register naming a natural person as an Ultimate Beneficial Owner, and the information and particulars were not provided either by that natural person or with his or her knowledge, the Relevant Person shall within thirty (30) days of making the entry, notify the Person whose name has been included in the Beneficial Ownership Register of that fact. (8) Contravention of subsection (1) is punishable by a fine. | Person. (6) If after having exhausted all reasonable means: (a) no natural person is identified as the Ultimate Beneficial Owner of the Relevant Person; or (b) there is reasonable doubt that that any natural person so identified is an Ultimate Beneficial Owner of the Relevant Person, the Relevant Person shall enter on its Beneficial Ownership Register, the UBO Details of the natural persons who are deemed to be the Ultimate Beneficial Owners pursuant to section 179-1(6). (7)If a Relevant Person causes an entry to be made in its Beneficial Ownership Register naming a natural person as an Ultimate Beneficial Owner, and the information and particulars were not provided either by that natural person or with his or her knowledge, the Relevant Person shall within thirty (30) days of making the entry, notify the Person whose name has been included in the Beneficial Ownership Register of that fact. (8)Contravention of subsection (1) is punishable by a fine. (9) A Private Company may make an election to keep information on the register kept by the Registrar. (10)An election may be made under this section by: (a) the applicant wishing to incorporate a Private Company under these Regulations; or (b) the Private Company itself once it is incorporated. (11) In paragraph (b) of subsection (10), the election is of no effect, without prior agreement of all the Shareholders of the Private Company to the making of the election. (12) An election under this section is made by giving notice of election to the Registrar. (13) If the notice is given by Person(s) wishing to incorporate a Private Company: | |
(a) it must be given together with the application for the incorporation under section 13; and (b) it must be accompanied by a statement containing all the information prescribed by the Rules. (14)If the notice is given by the Private Company, it must be accompanied by: (a) a statement by the Private Company that all the Shareholders of the Private Company have assented to the making of the election; and (b) a statement containing all the information prescribed by the Rules to be contained in the Private Company's Beneficial Ownership Register as at the date of the notice in respect of matters that are current as at that date. (15)An election made under subsection (9) takes effect when the notice of election is registered by theRegistrar. (16)The election remains in force until either: (a) the Private Company ceases to be a Private Company; or (b) a notice of withdrawal sent by the Private Company under subsection (20) is registered by the Registrar, whichever occurs first. (17)A Private Company must continue to keep a Beneficial Ownership Register in accordance with the subsection (5) of section 179-4, containing all the information that was required to be stated in that register as at the time immediately before the election took effect, but the Private Company does not have to update that register to reflect any changes that occur after that time. (18) The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. (19)A Private Company must deliver to the Registrar any information prescribed by subsection (5) of section 179-4 that the Private Company would during the period when an election under subsection (9) is in force, have been obliged under these Regulations to enter in its Beneficial | ||
Ownership Register, as soon as reasonably practicable but within 14 days. (20)A Private Company may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subsection (9). (a) the withdrawal takes effect when the notice is registered by the Registrar; (b) the effect of withdrawal is that the Private Company's obligation under subsection (1) of section 179-4 to keep and maintain a Beneficial Ownership Register applies from then on with respect to the period going forward. (c) the Private Company must place a note in its register of Beneficial Ownership— (i) stating that the election under subsection (9) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii) indicating that information about its Beneficial Owners relating to the period when the election was in force that is no longer current is available for public inspection on the register kept by the Registrar. (21) Contravention of subsections (9) to (20) is punishable by a fine. | ||
Section 179-7 Register of Nominee Directors | 179-7 Register of Nominee Directors (1) A company which has one (1) or more Nominee Directors shall keep and maintain a Register of Nominee Directors in which there shall be entered, the following information obtained pursuant to section 179-6(1) (Duty of Nominee Directors) or otherwise known by it, shall be entered in relation to the Person on whose behalf, each Nominee Director acts: (a) full legal name; (b) residential address and, if different, an address for service of notices under these Regulations; (c) date of birth; (d) nationality; (e) information identifying the Person from their passport or other government-issued national identification document acceptable to the Registrar of Companies, including: (i) identifying number; (ii)country of issue; and (iii)date of issue and of expiry, | 179-7 Register of Nominee Directors (1) A company which has one (1) or more Nominee Directors shall keep and maintain a Register of Nominee Directors in which there shall be entered, unless the Register is kept by the Registrar for the Private Company under subsection (3). (1-1) The following information obtained pursuant to section 179-6 (1) (Duty of Nominee Directors) or otherwise known by it, shall be entered in relation to the Person on whose behalf, each Nominee Director acts: (a) full legal name; (b) residential address and, if different, an address for service of notices under these Regulations; (c) date of birth; (d) nationality; (e) information identifying the Person from their passport or other government-issued national identification document acceptable to the Registrar of Companies, including: |
and, in respect of each Nominee Director; (f) the date on which the Nominee Director became a Nominee Director of the Company; and (g) the date on which the Nominee Director ceased to be a Nominee Director of the Company. (2) Contravention of subsection (1) is punishable by a fine. | (i) identifying number; (ii)country of issue; and (iii)date of issue and of expiry, and, in respect of each Nominee Director; (f) the date on which the Nominee Director became a Nominee Director of the Company; and (g) the date on which the Nominee Director ceased to be a Nominee Director of the Company. (2) Contravention of subsection (1) is punishable by a fine. (3) A Private Company may make an election to keep information on the register kept by the Registrar. (4)An election may be made under this section by: (a) the applicant wishing to incorporate a Private Company under these Regulations; or (b) the Private Company itself once it is incorporated. (5) In paragraph (b) of subsection (4), the election is of no effect, without prior agreement of all the Shareholders of the Private Company to the making of the election. (6) An election under this section is made by giving notice of election to the Registrar. (7) If the notice is given by Person(s) wishing to incorporate a Private Company: (a) it must be given together with the application for the incorporation under section 13; and (b) it must be accompanied by a statement containing all the information prescribed by the Rules. (8) If the notice is given by the Private Company, it must be accompanied by: (a) a statement by the Private Company that all the Shareholders of the Private Company have assented to the making of the election; and (b)a statement containing all the information prescribed by the Rules to be contained in the Private Company's Register of Nominee Directors as at the date of the notice in respect of matters that are current as at that date. | |
(9) An election made under subsection (3) takes effect when the notice of election is registered by the Registrar. (10)The election remains in force until either: (a) the Private Company ceases to be a Private Company; or (b)a notice of withdrawal sent by the Private Company under subsection (14) is registered by the Registrar, whichever occurs first. (11) A Private Company must continue to keep a Register of Nominee Directors in accordance with the subsection (1) of section 179-7, containing all the information that was required to be stated in that register as at the time immediately before the election took effect, but the Private Company does not have to update that register to reflect any changes that occur after that time. (12)The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. (13) A Private Company must deliver to the Registrar any information prescribed by subsection (1-1) of section 179-7 that the Private Company would during the period when an election under subsection (3) is in force, have been obliged under these Regulations to enter in its Register of Nominee Directors, as soon as reasonably practicable but within 14 days. (14) A Private Company may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subsection (3). (a) the withdrawal takes effect when the notice is registered by the Registrar; (b) the effect of withdrawal is that the Private Company's obligation under subsection (1) of section 179-7 to keep and maintain a Register of Nominee Directors applies from then on with respect to the period going forward. (c) the Private Company must place a note in its Register of Nominee Directors — | ||
(i) stating that the election under subsection (3) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii)indicating that information about its Nominee Directors relating to the period when the election was in force that is no longer current is available for public inspection on the register kept by the Registrar. (15) Contravention of subsections (3) to (14) is punishable by a fine. | ||
Chapter Number/Section Number | Current version | Proposed version |
AIFC Limited Partnership Regulations | ||
Section 16 | 16. Limited Partnerships: registered office and conduct of business etc. (1) A Limited Partnership that conducts any business, purpose or activity in or from the AIFC must, at all times, have a registered office in the AIFC to which all communications and notices to the partnership may be addressed. (2) A Limited Partnership must conduct its principal business, purpose or activity in the AIFC, unless the Registrar of Companies otherwise permits. (3) A Document may be served on a Limited Partnership by leaving it at, or sending it by post to, the registered office of the Limited Partnership in the AIFC. (4) The General Partners of a Limited Partnership must keep at the registered office of the partnership in the AIFC: (a) a register showing the following particulars for each Person who is or has been a Partner, and kept in alphabetical order of their names: (i) for an individual—the individual’s full name and address; (ii)for a body corporate—the body corporate’s full name, the place where it was incorporated and the address of its registered or principal office; (iii) the date each Person was registered as a Partner and whether the Person was registered as a general partner or limited partner; | 16. Limited Partnerships: registered office and conduct of business etc. (1) A Limited Partnership that conducts any business, purpose or activity in or from the AIFC must, at all times, have a registered office in the AIFC to which all communications and notices to the partnership may be addressed. (2) A Limited Partnership must conduct its principal business, purpose or activity in the AIFC, unless the Registrar of Companies otherwise permits. (3) A Document may be served on a Limited Partnership by leaving it at, or sending it by post to, the registered office of the Limited Partnership in the AIFC. (4) The General Partners of a Limited Partnership must keep at the registered office of the partnership in the AIFC, unless the register is kept by the Registrar under subsection (9): (a) a register showing the following particulars for each Person who is or has been a Partner, and kept in alphabetical order of their names: (i) for an individual—the individual’s full name and address; (ii)for a body corporate—the body corporate’s full name, the place where it was incorporated and the address of its registered or principal office; (iii)the date each Person was registered as a Partner and whether the Person was |
(iv) if the Person has ceased to be a Partner—a statement that the Person has ceased to be a Partner and the date the Person ceased to be a partner; and (b) a copy of the partnership’s certificate of registration; and (c) a copy of the partnership agreement and each amendment made to it; and (d) a statement of the amounts of any contributions agreed to be made by the Partners and the time at which, or events on the happening of which, the contributions are to be made; and (e) a statement of the amounts of money, and nature and value of any other property, contributed by each Partner and the dates the contributions were made; and (f) anything else required by these Regulations or the Rules. (5) The General Partners must ensure that Limited Partnership’s Records kept under subsection (4) are available for inspection, and copying without charge, by a Partner during ordinary business hours at the request of the Partner. (6) If any of the details in the Limited Partnership’s Records kept under subsection (4) change, the General Partners must ensure that the Records are updated within 14 days after the day the change happens. (7) The information contained in the Records of a Limited Partnership kept under subsection (4) are taken to be accurate, unless proven otherwise. (8) Contravention of this section is punishable by a fine. | registered as a general partner or limited partner; (iv) if the Person has ceased to be a Partner—a statement that the Person has ceased to be a Partner and the date the Person ceased to be a partner; and (b)a copy of the partnership’s certificate of registration;and (c) a copy of the partnership agreement and each amendment made to it; and (d)a statement of the amounts of any contributions agreed to be made by the Partners and the time at which, or events on the happening of which, the contributions are to be made; and (e) a statement of the amounts of money, and nature and value of any other property, contributed by each Partner and the dates the contributions were made; and (f) anything else required by these Regulations or the Rules. (5) The General Partners must ensure that Limited Partnership’s Records kept under subsection (4) are available for inspection, and copying without charge, by a Partner during ordinary business hours at the request of the Partner. (6) If any of the details in the Limited Partnership’s Records kept under subsection (4) change, the General Partners must ensure that the Records are updated within 14 days after the day the change happens. (7)The information contained in the Records of a Limited Partnership kept under subsection (4) taken to be accurate, unless proven otherwise. (8)Contravention of (9)A Limited Partnership may make an election to keep information on the Register kept by the Registrar. (10) An election may be made under this section by: | |
(a) the applicant wishing to incorporate a Limited Partnership under these Regulations; or (b) the Limited Partnership itself once it is incorporated. (11) In paragraph (b) of subsection (10), the election is of no effect, without prior agreement of all the Partners of the Limited Partnership to the making of the election. (12) An election under this section is made by giving notice of election to the Registrar. (13) If the notice is given by Persons wishing to register a Limited Partnership: (a) it must be given together with the application for registration under section 12; and (b) it must be accompanied by a statement containing all the information under subsection (4). (14) If the notice is given by the Limited Partnership, it must be accompanied by: (a) a statement by the Limited Partnership that all the Partners of the Limited Partnership have assented to the making of the election; and (b) a statement containing all the information that is required under subsection (4) to be contained in the Limited Partnership's register of Partners as at the date of the notice in respect of matters that are current as at that date. (15) An election made under subsection (9) takes effect when the notice of election is registered by the Registrar. (16) The election remains in force until either: (a) the Limited Partnership ceases to be a Limited Partnership; or (b) a notice of withdrawal sent by the Limited Partnership under subsection (20) is registered by the Registrar, whichever occurs first. (17)A Limited Partnership must continue to keep a register of Partners in accordance with subsection (4) containing all the information that was required to be stated in that Register | ||
as at the time immediately before the election took effect, but the Limited Partnership does not have to update that Register to reflect any changes that occur after that time. (18)The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. (19)A Limited Partnership must deliver to the Registrar any information under subsection (4) that the Limited Partnership would during the period when an election under subsection (9) is in force, have been obliged under these regulations to enter in its register of Partners, as soon as reasonably practicable but within 14 days. (20)A Limited Partnership may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subsection (9). (a) the withdrawal takes effect when the notice is registered by the Registrar; (b) the effect of withdrawal is that the Limited Partnership's obligation under subsection (4) to maintain a register of Partners applies from then on with respect to the period going forward. (c) the A Limited Partnership must place a note in its register of Partners — (i) stating that the election under subsection (9) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii)indicating that information about its Partners relating to the period when the election was in force that is no longer current is available for public inspection on the register kept by the Registrar. (21) Contravention of sections (9) to (20) is punishable by a fine. |
Annex 2
Proposed amendments to AIFC Rules
Chapter Number/Section Number | Current version | Proposed version |
AIFC Companies Rules | ||
PART 4: PRIVATE COMPANIES AND PUBLIC COMPANIES 4.1. Registers of Directors and Secretary | 4.1. Registers of Directors and Secretary 4.1.1. The Register of Directors kept by a Company under section 90 (Register of Directors and Secretaries) of the AIFC Companies Regulations must contain the required particulars of each Person who is or has been a Director of the Company and be kept in alphabetical order of the names. 4.1.2. The Register of Secretaries, if applicable, kept by a Company under section 90 of the AIFC Companies Regulations must contain the required particulars of each Person who is or has been a Secretary of the Company, and be kept in alphabetical order of the names. | 4.1. Registers of Directors and Secretary 4.1.1.The Register of Directors kept by a Company or the Register kept by the Registrar for Private Companies under section 90 (Register of Directors and Secretaries) of the AIFC Companies Regulations must contain the required particulars of each Person who is or has been a Director of the Company and be kept in alphabetical order of the names. 4.1.2. The Register of Secretaries, if applicable, kept by a Company or the Register kept by the Registrar for Private Companies under section 90 of the AIFC Companies Regulations must contain the required particulars of each Person who is or has been a Secretary of the Company, and be kept in alphabetical order of the names. |
4.2.3 | 4.2.3.If a Company evidences title to Shares without a Written instrument: (a) an entry relating to a Person in the Register of Shareholders maintained by the Company under section 52 (Register of Shareholders) of the AIFC Companies Regulations is evidence of the following: (i) the Person being a Shareholder of the Company; (ii)the number of Shares held by the Person; (iii)if the Company has 2 or more classes of issued Shares—the class, or classes, of Shares held by the Person and the number of shares of that class, or each of those classes, held by the Person; (iv)the date the Person became a Shareholder; and | 4.2.3. If a Company evidences title to Shares without a Written instrument: (a) an entry relating to a Person in the Register of Shareholders maintained by the Company or by the Registrar for Private Companies under section 52 (Register of Shareholders) of the AIFC Companies Regulations is evidence of the following: (i) the Person being a Shareholder of the Company; (ii)the number of Shares held by the Person; (iii)if the Company has 2 or more classes of issued Shares—the class, or classes, of Shares held by the Person and the number of shares of that class, or each of those classes, held by the Person; (iv)the date the Person became a Shareholder; and (b) a transfer of Shares in the Company must take place in accordance with: (i) if the Company’s Shares are admitted to a register of listed securities—the |
(b) a transfer of Shares in the Company must take place in accordance with: (i) if the Company’s Shares are admitted to a register of listed securities—the rules of the relevant exchange and clearing house; and (ii)in any other case—the Company’s Articles of Association. | rules of the relevant exchange and clearing house; and (ii) in any other case—the Company’s Articles of Association. | |||||||||||
4.2.4 | 4.2.4. No notice of any trust, express, implied or constructive, is to be taken in account of by a Company or entered on the Register of Shareholders maintained by a Company under section 52 (Register of Shareholders) of the AIFC Companies Regulations. | 4.2.4. No notice of any trust, express, implied or constructive, is to be taken in account of by a Company or entered on the Register of Shareholders maintained by a Company or by the Registrar for Private Companies under section 52 (Register of Shareholders) of the AIFC Companies Regulations. | ||||||||||
AIFC Companies Rules Schedule 3 | 62 | 179-4 (8) | Requirements relating to Ultimate Beneficial Ownership Register | 10,000 | 62 | 179-4 (8) or (21) | Requirements relating to Ultimate Beneficial Ownership Register | 10,000 | ||||
64 | 179-7(2) | Register of Nominee Directors | 10,000 | 64 | 179-7(2) or (15) | Register of Nominee Directors | 10,000 | |||||
Chapter Number/Section Number | Current version | Proposed version |
AIFC General Partnership Rules | ||
Section 2.4 | 2.4. Register of partners of General Partnership | 2.4. Register of partners of General Partnership |
The partners of a General Partnership must keep, at the registered office of the partnership in the AIFC, a register showing the following particulars for each Person who is or has been a partner, and kept in alphabetical order of their names: | 2.4.1. The partners of a General Partnership must keep, at the registered office of the partnership in the AIFC, unless the Register is kept by the Registrar under subrule (2.4.2), a register showing the following particulars for each Person who is or has been a partner, and kept in alphabetical order of their names: | |
(a) the partner’s full name; | (a) the partner’s full name; | |
(b)if the partner has a former name (including, for an individual, any former given or family)—the former name or, if the partner has 2 or more former names, each former name; (c)the partner’s date and place of birth, incorporation, formation or registration, as the case may be; | (b)if the partner has a former name (including, for an individual, any former given or family)—the former name or, if the partner has 2 or more former names, each former name; (c)the partner’s date and place of birth, incorporation, formation or registration, as the case may be; (d)the partner’s address or, if the partner has 2 or more addresses, each address; | |
(d)the partner’s address or, if the partner has 2 or more addresses, each address; (e)if the partner has had a former address within the last 5 years—the address or, if the partner has had 2 or more former addresses within that period, each former address; | (e)if the partner has had a former address within the last 5 years—the address or, if the partner has had 2 or more former addresses within that period, each former address; (f)the date the partner was registered as a partner; (g)if relevant, the date the partner ceased to be registered as a partner. | |
(f)the date the partner was registered as a partner; (g)if relevant, the date the partner ceased to be registered as a partner. | 2.4.2. A General Partnership may make an election to keep information on the Register kept by the Registrar. 2.4.3. An election may be made under this rule by: | |
(a) the applicant wishing to incorporate a General Partnership under the Regulations; or | ||
(b) the General Partnership itself once it is incorporated. | ||
2.4.4. In subrule 2.4.3(b), the election is of no effect, without prior agreement of all the Partners of the General Partnership to the making of the election. |
2.4.5. An election under this rule is made by giving notice of election to the Registrar. 2.4.6. If the notice is given by Persons wishing to register a General Partnership: (a) it must be given together with the application for registration under section 12 (AIFC General Partnership Regulations); and (b) it must be accompanied by a statement containing all the information under subrule 2.4.1. 2.4.7. If the notice is given by the General Partnership, it must be accompaniedby: (a) a statement by the General Partnership that all the Partners of the General Partnership have assented to the making of the election; and (b) a statement containing all the information that is required under subrule 2.4.1 to be contained in the General Partnership's register of Partners as at the date of the notice in respect of matters that are current as at that date. 2.4.8. An election made under subrule 2.4.2 takes effect when the notice of election is registered by the Registrar. 2.4.9. The election remains in force until either: (a) the General Partnership ceases to be a General Partnership; or (b) a notice of withdrawal sent by the General Partnership under subrule 2.4.13 is registered by the Registrar, whichever occurs first. 2.4.10. A General Partnership must continue to keep a register of Partners in accordance with subrule 2.4.1 containing all the information that was required to be stated in that Register as at the time immediately before the election took effect, but the General Partnership does not have to update that Register to reflect any changes that occur after that time. 2.4.11. The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. 2.4.12. A General Partnership must deliver to the Registrar any information under subrule 2.4.1 that the General Partnership would during the period when an election under subrule 2.4.2 is in force, |
have been obliged under these regulations to enter in its register of Partners, as soon as reasonably practicable but within 14 days. 2.4.13. A General Partnership may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subrule 2.4.2. (b) the withdrawal takes effect when the notice is registered by the Registrar; (b) the effect of withdrawal is that the General Partnership's obligation under subrule 2.4.1 to maintain a register of Partners applies from then on with respect to the period going forward. (c) the General Partnership must place a note in its register of Partners — (i) stating that the election under subrule (2.4.2.) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii)indicating that information about its Partners relating to the period when the election was in force that is no longer current is available for public inspection on the register kept by the Registrar. | ||
Chapter Number/Section Number | Current version | Proposed version |
AIFC Limited Liability Partnership Rules | ||
Section 2.6. | 2.6.Register of members of Limited Liability Partnership A Limited Liability Partnership mustkeep, at its registered office, a register showing the following particulars for each Person who is or has been a member (including a Designated Member) of the partnership (the member), and kept in alphabetical order of their names: (a)the member’s full name; (b)if the member has a former name (including, for an individual, any former given or family name)— the former name or, if the member has 2 or more former names, each former name; (c)the member’s date and place of birth, incorporation, formation or registration, as the case may be; | 2.6.Register of members of Limited Liability Partnership 2.6.1. A Limited Liability Partnership must keep, at its registered office, unless the Register is kept by the Registrar under subrule (2.6.2), a register showing the following particulars for each Person who is or has been a member (including a Designated Member) of the partnership (the member), and kept in alphabetical order of their names: (a)the member’s full name; (b)if the member has a former name (including, for an individual, any former given or family name)— the former name or, if the member has 2 or more former names, each former name; (c)the member’s date and place of birth, incorporation, formation or registration, as the case may be; |
(d)the member’s address or, if the member has 2 or more addresses, each address; (e)if the member has had a former address withinthe last 5 years— the address or, if the member has had 2 or more former addresses within that period, each former address; (f)the date the member became a member; (g)if relevant, the date the member ceased to be a member; (h)whether the member is or has been a Designated Member; (i)if the member is or has been a Designated Member—the date (or each of the dates) when the member became a Designated Member and, if relevant, the date (or each of the dates) when the member ceased to be a Designated Member. | (d)the member’s address or, if the member has 2 or more addresses, each address; (e)if the member has had a former address within the last 5 years— the address or, if the memberhas had 2 or more former addresses within that period, each former address; (f)the date the member became a member; (g)if relevant, the date the member ceased to be a member; (h)whether the member is or has been a Designated Member; (i)if the member is or has been a Designated Member—the date (or each of the dates) when the member became a Designated Member and, if relevant, the date (or each of the dates) when the member ceased to be a Designated Member. 2.6.2. A Limited Liability Partnership may make an election to keep information on the Register kept by the Registrar. 2.6.3. An election may be made under this rule by: (a) the applicant wishing to incorporate a Limited Liability Partnership under the Regulations; or (b) the Limited Liability Partnership itself once it is incorporated. 2.6.4. In subrule 2.6.3(b), the election is of no effect, without prior agreement of all the Members of the Limited Liability Partnership to the making of theelection. 2.6.5. An election under this rule is made by giving notice of election to the Registrar. 2.6.6. If the notice is given by Persons wishing to register a Limited Liability Partnership: (a) it must be given together with the application for registration under section 10 (AIFC Limited Liability Partnership Regulations); and (b) it must be accompanied by a statement containing all the information under subrule 2.6.1. 2.6.7. If the notice is given by the Limited Liability Partnership, it must be accompanied by: | |
(a) a statement by the Limited Liability Partnership that all the Members of the Limited Liability Partnership have assented to the making of the election; and (b) a statement containing all the information that is required under subrule 2.6.1 to be contained in the Limited Liability Partnership's register of Members as at the date of the notice in respect of matters that are current as at that date. 2.6.8. An election made under subrule 2.6.2 takes effect when the notice of election is registered by the Registrar. 2.6.9. The election remains in force until either: (a) the Limited Liability Partnership ceases to be a General Partnership; or (b) a notice of withdrawal sent by the Limited Liability Partnership under subrule 2.6.13 is registered by the Registrar, whichever occurs first. 2.6.10. A Limited Liability Partnership must continue to keep a register of Members in accordance with subrule 2.6.1 containing all the information that was required to be stated in that Register as at the time immediately before the election took effect, but the Limited Liability Partnership does not have to update that Register to reflect any changes that occur after that time. 2.4.11. The date to be recorded in the Register kept by the Registrar is to be the date on which the document containing that information is registered by the Registrar. 2.6.12. A Limited Liability Partnership must deliver to the Registrar any information under subrule 2.6.1 that the Limited Liability Partnership would during the period when an election under subrule 2.6.2 is in force, have been obliged under these regulations to enter in its register of Members, as soon as reasonably practicable but within 14 days. 2.6.13. A Limited Liability Partnership may by giving notice of withdrawal to the Registrar withdraw an election made by or in respect of it under subrule 2.6.2. (a)the withdrawal takes effect when the notice is registered by the Registrar; | ||
(b) the effect of withdrawal is that the Limited Liability Partnership's obligation under subrule 2.6.1 to maintain a register of Members applies from then on with respect to the period going forward. (c) the Limited Liability Partnership must place a note in its register of Members— (i) stating that the election under subrule (2.4.2.) has been withdrawn, (ii)recording when that withdrawal took effect, and (iii)indicating that information about its Members relating to the period when the election was in force that is no longer current is available for public inspection on the register kept by the Registrar. | ||
Chapter Number/Section Number | Current version | Proposed version |
AIFC Fees Rules | ||
New section | 2.5. FEE FOR KEEPING INFROMATION ON THE REGISTER KEPT BY THE REGISTRAR 2.5.1. Person seeking to make election to keep information on the Register kept by the Registrar may be required to accompany by the filing fee prescribed by the Registrar from time to time. 2.5.2.Fee for keeping information on the Register kept by the Registrar specified in Schedule 7. | |
New Schedule | Schedule 7: FEES FOR KEEPING INFROMATION ON THE REGISTER KEPT BY THE REGISTRAR At present, the AFSA does not intend to charge an fee for keeping information on the Register kept by the Registrar. Any such fee shall be determined by the AFSA at a later date. |
Consultation Paper No. 0010. Inclusion of Company service providers as Ancillary Service Providers
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC General Rules and AIFC Glossary related to inclusion of Company service providers as Ancillary Service Providers.
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC Participants who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2019-0010” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including onits website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 25 October 2019. Once we receive your comments, we shall consider if any refinements are required to the proposals.
5. Comments to be addressed by: post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El avenue, block C3.2, Nur-Sultan, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +7 7172 613626
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the key element of the proposed amendments;
(c) Annex 1: Draft of proposed amendments.
Background
The Astana Financial Services Authority ("AFSA") proposes to make amendments to the AIFC General Rules and AIFC Glossary with respect to inclusion of Company service providers (CSP) as Ancillary Service Providers (ASP).
It is proposed to amend e the following AIFC Acts:
1) AIFC General Rules
2) AIFC Glossary
KEY ELEMENT OF THE PROPOSED AMENDMENTS
Annex 1
Proposed amendments to AIFC Regulations
Chapter Number/Section Number | Current version | Proposed version |
AIFC General Rules | ||
SCHEDULE 2: ANCILLARY SERVICES | 4. Providing Consulting Services Performing Consultancy Services means providing expert knowledge or advice on a particular topic. | 4. Providing Consulting Services Performing Consultancy Services means providing expert knowledge or advice on a particular topic. Consultancy Services may include the activity of Company service providers. |
AIFC Glossary | ||
2. INTERPRETATION | Company service provider A company service provider is a person, not captured by (a) to (e) of the definition of DNFBP that, by way of business, provides any of the following services to a customer: (a) acting as an agent of legal persons to form a company; (b) acting as, or arranging for another person to act as, a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons; (c) providing a registered office, business address, or accommodation, correspondence or administrative address for a company, a partnership, or any other legal person or arrangement; or (d) acting as, or arranging for another person to act as, a nominee shareholder for another person. | Company service provider A Company service provider is a Person, not captured by (a) to (e) of the definition of DNFBP that, by way of business, provides any of the following services to a customer: (a) acting as an agent of legal persons to form a company; (b) acting as, or arranging for another Person to act as, a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons; (c) providing a registered office, business address, or accommodation, correspondence or administrative address for a company, a partnership, or any other legal person or arrangement; or (d) acting as, or arranging for another Person to act as, a nominee shareholder for another Person. |
2. INTERPRETATION | DNFBP Designated Non-Financial Business and Profession. The following class of persons whose business or profession is carried on in or from the AIFC constitute DNFBPs: (a) A real estate developer or agency which carries out transactions with a customer | DNFBP Designated Non-Financial Business and Profession. The following class of persons whose business or profession is carried on in or from the AIFC constitute DNFBPs: (a) A real estate developer or agency which carries out transactions with a customer |
involving the buying or selling of real property; (b) A dealer in precious metals or precious stones; (c) A dealer in any saleable item of a price equal to or greater than USD 15,000; (d) A law firm, notary firm, or other independent legal business; (e) An accounting firm, audit firm, or insolvency firm; or (f) A company service provider; or (g) A Single Family Office. A person who is an Authorised Person or a Registered Auditor is not a DNFBP. | involving the buying or selling of real property; (b) A dealer in precious metals or precious stones; (c) A dealer in any saleable item of a price equal to or greater than USD 15,000; (d) A law firm, notary firm, or other independent legal business; (e) An accounting firm, audit firm, or insolvency firm; or (f) A Company service provider; or (g) A Single Family Office. A person who is an Authorised Person or a Registered Auditor is not a DNFBP. |
Consultation Paper No. 0011 on the proposed amendments to AIFC FSFR, GLO, COB and CO-OP
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Financial Services Framework Regulations, AIFC Glossary, AIFC Co-operation and Exchange of Information Rules, and AIFC Conduct of Business Rules.
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P- CE-2019-0011” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 25 October 2019. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) Background to the proposals
(b) Key elements of the proposed amendments
(c) Annex 1: Draft of proposed amendments to the AIFC Financial Services Framework Regulations
(d) Annex 2: Draft of proposed amendments to the AIFC Glossary
(e) Annex 3: Draft of proposed amendments the AIFC Co-operation and Exchange of Information Rules
(f) Annex 4: Draft of proposed amendments to the AIFC Conduct of Business Rules
Background
On the proposed amendments to the AIFC Financial Services Framework Regulations and AIFC Glossary concerning the appointment of auditors
1. The current wordings of AIFC Financial Services Framework Regulations (FSFR), AIFC Market Rules (MAR) and AIFC Glossary require the Authorised Person and Reporting Entities to appoint auditors who are Ancillary Service Providers. It is proposed to eliminate the requirement for Authorised Person registered as recognised companies or recognised partnerships and Reporting Entities in the AIFC to appoint an auditor who are Ancillary Services Providers by amending FSFR and Glossary.
On the proposed amendments to the AIFC Co-operation and Exchange of Information Rules
2. The AIFC Co-operation and Exchange of Information Rules (CO-OP) envisage that if the AFSA intends to disclose confidential information received from a Financial Services Regulator to Persons specified in the CO-OP it may give notice to the Person(s) to whom the disclosure relates. Current wording of CO-OP 3.2.8 covers providing notice only in relation to information received from Financial Services Regulator and does not cover the information generated by the AFSA. Therefore, it is proposed to delete the wording “received from a Financial Services Regulator” by amending CO-OP.
On the proposed amendments to the AIFC Conduct of Business Rules
3. Under current definition of the Professional Clients, a minimum threshold for net assets of individual clients is not proportionate to the income level in the country. Analysis of laws and regulatory requirements of the professional client classification in the region shows that AIFC threshold is more than 10 times higher than in Russia and more than 20 times than in Kyrgyzstan. It is proposed to reduce current net assets requirement for Assessed Professional Clients by amending AIFC Conduct of Business Rules (COB).
KEY ELEMENTS OF THE PROPOSED AMENDMENTS
Annex 1
Proposed Amendment
to AIFC Financial Services Framework Regulations
In this document, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
Chapter 3. Accounting / Auditing
109. Requirement to appoint an auditor Auditor
An Authorised Person must appoint an auditor Auditor who is an Ancillary Service Provider.
Annex 2
Proposed Amendment to AIFC Glossary
In this document, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
Auditor | (a) in relation to an Authorised Person which is incorporated in the AIFC has the meaning given in AUD 1; (b) in relation to an Authorised Person which is a Recognised Company or Recognised Partnership – an auditor of that Authorised Person; (c) in relation to a Reporting Entity – an auditor. |
Annex 3
Proposed Amendment
to the AIFC Co-operation and Exchange of Information Rules
In this document, the striking through indicates deleted text in the proposed amendment
3. CONFIDENTIALITY (…)
3.2. Requests to obtain information (…)
3.2.8. Notice of disclosure
If the AFSA intends to disclose confidential information received from a Financial Services Regulator to any of the Persons specified in subsection 2.2, the AFSA may give notice to the Person(s) to whom the disclosure relates in the following circumstances:
(a) the disclosure relates to a Person’s compelled testimony to a law enforcement
(b) agency for the purpose of criminal proceedings against thatPerson;
(c) the disclosure relates to private civil litigation, in order that the Person may challenge the request according to the Rules of the AIFC Court; or
(d) there are serious and legitimate concerns about the appropriateness of the disclosure, including where the body requesting the confidential information does not perform a financial service related regulatory function.
Annex 4
Proposed Amendment
to the AIFC Conduct of Business Rules
In this document, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
2.5.1. Assessed Professional Clients: Individual Clients
For the purposes of COB 2.3.1, an Authorised Firm may treat an individual Client as an Assessed Professional Client if:
(a) the Client has net assets of at least USD 1 million 100,000;
(b) either:
(i)the Authorised Firm assesses the Client, on reasonable grounds, to have sufficient experience and understanding of relevant Financial Products, Financial Services, Transactions and any associated risks; or
(ii)the Client works or has worked in the previous two years in an Authorised Firm or any other authorised or regulated financial institution, including a bank, securities firm or insurance company, in a position that requires knowledge of the type of Financial Products, Financial Services or Transactions envisaged; and
(c) the following procedure is followed:
(i)the Client must confirm in writing to the Authorised Firm that it wishes to be treated as a Professional Client either:
(1) generally;
(2) in respect of a specific Financial Product, Financial Service, or Transaction; or
(3) in respect of a type of Financial Product, Financial Service, or Transaction;
(ii)the Authorised Firm must give the Client a clear warning in writing setting out the protections that the Client may lose as a result of giving up its classification as a Retail Client; and
(iii)the Client must confirm in writing, in a separate document from the client agreement or other contract, that it is aware of the consequences of losing such protections.
Guidance: Meaning of an "individual"
For the purposes of COB 2.5.1, an "individual" means a Person who is a natural person and not an Undertaking.
*Consultation Paper No.23 on proposed revisions to AIFC investment funds framework
*Consultation Paper No.26 on proposed revisions to AIFC investment funds framework
Consultation Paper No.0008 on proposed amendments to AIFC Legal entities framework
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Regulations and Rules which aim at updating and modernising the legal framework to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC Participants who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2019-0008” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including onits website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 2 October 2019. Once we receive your comments, we shall consider if any refinements are required to the proposals.
5. Comments to be addressed by:
post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El avenue, block C3.2, Nur-Sultan, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +7 7172 613626
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the list of key elements of the proposed amendments;
(c) Annex 1: Draft of proposed amendments to AIFC Regulations;
(d) Annex 2: Draft of proposed amendments to AIFC Rules;
(e) Annex 3: Draft of the proposed amendments to the Schedule 1 of the AIFC Companies Rules.
Background
The Astana Financial Services Authority ("AFSA") proposes to make amendments to the AIFC Companies Regulations which aim at updating and modernising the legal framework to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment.
The amendments introduce a number of changes to simplify and improve the AIFC legal framework, including a variety of deregulatory measures which have been widely welcomed by business in global financial centres. Best practices of the United Kingdom, Singapore and DIFC were considered in preparing this proposal.
The proposed amendments are intended to apply generally to the AIFC Participants. It is accordingly proposed to amend each of the following AIFC Acts to give effect to the general legal framework:
1) AIFC Companies Regulations
2) AIFC General Partnership Regulations
3) AIFC Limited Partnership Regulations
4) AIFC Limited Liability Partnership Regulations
5) AIFC Non-Profit Incorporated Organisations Regulations
6) AIFC Foundations Regulations
7) AIFC Companies Rules
8) AIFC General Partnership Rules
9) AIFC Limited Partnership Rules
10) AIFC Limited Liability Partnership Rules
11) AIFC Non-Profit Incorporated Organisations Rules
12) AIFC Special Purpose Company Rules
13) AIFC Fees Rules
KEY ELEMENTS OF THE PROPOSED AMENDMENTS
The key aspects of the proposal include:
1) Substitution of Annual return with Confirmation Statement.
The Confirmation Statement is based on the 2016 amendments to the UK Companies Act which substituted such statements for Annual Returns. The Confirmation statement is intended to serve roughly the same purpose as the Annual return: for companies to provide up-to-date information for inclusion on the Register. However, one main difference is that rather than the AIFC Participants providing a snapshot of their data at a specific date, AIFC Participants will need to ‘check and confirm’ the information that the Registrar holds is accurate.
2) Introduction of corporate directorship possibility for Companies, so that an Ancillary Service Provider or a holding company may serve as a corporate director, and giving the Registrar power to give permission in other circumstances. However, companies will be required to have at least one director who is a natural person. This amendment is consistent with the approach taken in the UK and the Netherlands, while maintaining the transparency and accountability of directors.
3) Transferring the AFSA Board of Directors’ power to adopt rules in relation to (i) prescribing standard articles of association; (ii) forms, procedures and requirements under the Companies Regulations, the Rules or any other Legislation Administered by the Registrar; and (iii) keeping of public registers and database to the Registrar. Granting of such restricted rule-making power to the Registrar will improve the operational efficiency of AFSA.
4) Revision of the Standard Articles of Association for Private Companies, and elimination of the requirement to file Standard Articles with the Registrar.
Topics dealt with for the first time or in greater detail include:
(a) removal of a section on the registered address. The registered address shall be that provided in the public register;
(b) introduction of a section on liability of Shareholders;
(c) introduction of a section on classes of Shares;
(d) revision of the section on transmission of shares;
(e) introduction of a section on Shareholders’ reserve power;
(f) introduction of a section on Lien over partly paid shares;
(g) introduction of a section on calls on shares and forfeiture;
(h) other matters.
These have largely been modelled on corresponding provisions in the United Kingdom Companies Act 2006 and their corresponding private company model articles as well as the model articles of DIFC.
5) Granting additional power for the Registrar of Companies to waive and modify any provisions of legislation administered by the Registrar, declared by the Rules to be a provision to which waivers and modifications apply. This will increase the operational efficiency of the AFSA, and is consistent with the approach taken in the DIFC.
6) Extending the scope of the Scheme of arrangement section to include body corporates incorporated outside of the AIFC to participate in restructuring or amalgamation. This is in line with the English High Court’s decisions concerning schemes of arrangement (English High court cases of German-incorporated companies PrimaCom Holding GmbH and Rodenstock GmbH).
7) Other miscellaneous enhancements.
Question
Do you have any concerns related to the proposed amendments to AIFC Rules and Regulations? If so, what are they, and how should they be addressed?
Annex 1
Proposed amendments to AIFC Regulations
In this table, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
Section Number | Current version | Proposed version | Comments |
1. AIFC Companies Regulations | |||
Section 13 | 13. Formation of companies (1) A company may be incorporated under these Regulations on the application of any 1 or more Persons in accordance with this Part. (2) A company must not be incorporated for an unlawful purpose. (3) An application for the incorporation of a company must be filed with the Registrar by the Incorporators or their duly authorised representative. (4) The application must state the following: (a) the proposed name of the Company; (b) whether the proposed Company is to be a Private Company or a Public Company; (c) the nature of the business to be conducted by the proposed Company; (d) the amount of the initial share capital and shareholdings of the Incorporators; (e) the nominal value of each Share; (f) the address of the proposed Company’s registered office; (g) the following information for each Incorporator: | 13. Formation of companies (1) A company may be incorporated under these Regulations on the application of any 1 (one) or more Persons in accordance with this Part. (2) A company must not be incorporated for an unlawful purpose. (3) An application for the incorporation of a company must be filed with the Registrar by the Incorporators or their duly authorised representative. (4) The application must state the following: (a) the proposed name of the Company; (b) whether the proposed Company is to be a Private Company or a Public Company; (c) the nature of the business to be conducted by the proposed Company; (d) the amount of the initial share capital and shareholdings of the Incorporators; (e) the nominal value of each Share; (f) the address of the proposed Company’s registered office; (g) the following information for each Incorporator: | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(i) the full name, nationality and address of the Incorporator; (ii)if the Incorporator is an individual and is to hold Shares in trust for another Person—the full name, nationality and address of the beneficial owner of the Shares; (iii)if the Incorporator is a Body Corporate—the beneficial ownership information of the Body Corporate required by the Rules; (h) the full name (including any previous names), nationality, address, business occupation (if any) and date of birth of the individuals who are to serve as the Directors and, if applicable, the Secretary; (i) the other particulars (if any) required by the Registrar or the Rules; and (j) the particulars required by Part 14-1 (Ultimate Benefecial Owners) of these Regulations. (5) The proposed Articles of Association, signed by or on behalf of each Incorporator, must be filed with the application. | (i) the full name, nationality and address of the Incorporator; (ii)if the Incorporator is an individual and is to hold Shares in trust for another Person—the full name, nationality and address of the beneficial owner of the Shares; (iii)if the Incorporator is a Body Corporate—the beneficial ownership information of the Body Corporate required by the Rules; (h) the full name (including any previous names), nationality, address, business occupation (if any) and date of birth of the individuals who are to serve as the Directors and, if applicable, the Secretary; (i) the other particulars (if any) required by the Registrar or the Rules; and (j) the particulars required by Part 14-1 (Ultimate (5) Unless the Standard Articles are adopted by a Company in their entirety, the proposed Articles of Association, signed by or on behalf of each Incorporator, must be filed with the application. | ||
Section 14 | 14. Articles of Association (1) A Company’s Articles of Association must be in the English language and must be divided into paragraphs numbered consecutively. (2) A Company’s Articles of Association must contain: (a) a statement as to whether the Company is a Private Company or a Public Company; and (b) the information mentioned in section 13(4)(a) to (h) (Formation of companies); and (c) the other matters (if any) required by these Regulations or the Rules to be included in the Articles of Association of a Company. (3) The Articles of Association may contain any other matters that the Shareholders wish to include in the Articles of Association. However, the Articles of Association must not contain a provision that is inconsistent with these Regulations or the Rules. | 14. Articles of Association (1)A Company’s Articles of Association must be in the English language and must be divided into paragraphs numbered consecutively. (2)A Company’s Articles of Association must contain: (a)a statement as to whether the Company is a Private Company or a Public Company; and (b)the information mentioned in section 13(4)(a) to (c)the other matters (if any) required by these Regulations or the Rules to be included in the Articles of Association of a Company. (3) The Articles of Association may contain any other matters that the Shareholders wish to include in the Articles of Association. However, the Articles of Association must not contain a provision that | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(4) A Company may adopt, as its Articles of Association, the whole or any part of the Standard Articles that is relevant to the Company. (5) If Standard Articles are not adopted by a Company in their entirety, the Company must submit to the Registrar, before the Articles of Association are adopted by the Company, a statement by the Incorporators that the Articles of Association proposed to be adopted by the Company comply with the requirements of these Regulations, the Rules and all other applicable AIFC Regulations and AIFC Rules. (6) If any change to these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a Company’s Articles of Association and the provisions of these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules: (a) the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b) the Company is not required to amend its Articles of Association, unless these Regulations, the Rules or any other applicable AIFC Regulations expressly require it to do so. | is inconsistent with these Regulations or the Rules. (4)A Company may adopt, as its Articles of Association, the whole or any part of the Standard Articles that is relevant to the Company. (5)If Standard Articles are not adopted by a Company in their entirety, the Company must submit to the Registrar, before the Articles of Association are adopted by the Company, a statement by the Incorporators that the Articles of Association proposed to be adopted by the Company comply with the requirements of these Regulations, the Rules and all other applicable AIFC Regulations and AIFC Rules. (6)If any change to these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a Company’s Articles of Association and the provisions of these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules: (a)the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b)the Company is not required to amend its Articles of Association, unless these Regulations, the Rules or any other applicable AIFC Regulations expressly require it to do so. | ||
Section 15 | 15. Decision on incorporation application etc. (1) The Registrar may refuse to incorporate a Company for any reason the Registrar considers to be a proper reason for refusing to incorporate the Company. (2) If the Registrar incorporates a Company, the Registrar must register the Articles of Association filed with the application for incorporation. | 15. Decision on incorporation application etc. (1)The Registrar may refuse to incorporate a Company for any reason the Registrar considers to be a proper reason for refusing to incorporate the Company. (2)If the Registrar incorporates a Company, the Registrar must register the Articles of Association filed with the application for incorporation, unless Standard Articles are adopted by a Company in their entirety. | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Section 16 | 16. Effects of incorporation etc. (1) On the incorporation of a Company and registration of its Articles of Association, the Registrar must: (a) issue a certificate of incorporation confirming that the Company is incorporated | 16. Effects of incorporationetc. (1)On the incorporation of a Company (a)issue a certificate of incorporation confirming that the Company is incorporated | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
as either a Private Company or a Public Company; and (b) assign a number to the Company, which is to be the Company’s identification number; And (c) enter the name of the Company in the Register. (2) On the date of incorporation mentioned in the certificate of incorporation: (a) the Incorporators of the Company become the Shareholders of the Company; and (b) the Company, having the name contained in the certificate of incorporation, becomes a body corporate, capable of Exercising all the Functions of an incorporated Company. (3) A certificate of incorporation issued by the Registrar is conclusive evidence of the following matters: (a) that the Company has been duly incorporated; (b) whether the Company is a Public Company or a Private Company; (c) that the requirements of these Regulations and the Rules have been complied with in respect of the incorporation of the Company. (4) Without limiting subsection (1)(a), the Registrar may make alternative arrangements relating to the issue of certificates of incorporation to Companies in circumstances prescribed by the Rules. | as either a Private Company or a Public Company; and (b)assign a number to the Company, which is to be the Company’s identification number; and (c)enter the name of the Company in the Register. (2)On the date of incorporation mentioned in the certificate of incorporation: (a)the Incorporators of the Company become the Shareholders of the Company; and (b)the Company, having the name contained in the certificate of incorporation, becomes a body corporate, capable of Exercising all the Functions of an incorporated Company. (3)A certificate of incorporation issued by the Registrar is conclusive evidence of the following matters: (a)that the Company has been duly incorporated; (b)whether the Company is a Public Company or a Private Company; (c)that the requirements of these Regulations and the Rules have been complied with in respect of the incorporation of the Company. (4) Without limiting subsection (1)(a), the Registrar may make alternative arrangements relating to the issue of certificates of incorporation to Companies in circumstances prescribed by the Rules. | ||
Section 17 | 17. Notification of change in Registered Details of Company (1) If any of the Registered Details of a Company change, the Company must notify the Registrar in Writing of the change within 14 days after the day the change happens and must comply with all other requirements applying to the Company under the Rules in relation to the change. (2) Contravention of this section is punishable by a fine. | 17. Notification of change in Registered Details of Company (1) If any of the Registered Details of a Company change, the Company must notify the Registrar in Writing of the change within 14 days after the day the change happens and must comply with all other requirements applying to the Company under the Rules in relation to the change. (2) Contravention of this section is punishable by a fine. | Category 7) of amendments set out “Key elements of proposed amendments” of the Consultation Paper |
(3) The change in Registered Details notice must be accompanied by the fee prescribed by the Rules from time to time. | |||
Section 18 | 18. Effect of Articles of Association (1) Subject to these Regulations and the Rules, on registration the Articles of Association bind the Company and its Shareholders to the same extent as if theyhad been signed by the Company and by each Shareholder, and contained covenants by the Company and each Shareholder to comply with all their provisions. (2) An amount payable by a Shareholder to the Company under the Articles of Association is a debt due from the Shareholder to the Company. | 18. Effect of Articles ofAssociation (1)Subject to these Regulations and the Rules, (2)An amount payable by a Shareholder to the Company under the Articles of Association is a debt due from the Shareholder to the Company. | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Section 19 | 19. Amendment of Articles of Association (1) Subject to these Regulations and the Rules, a Company may amend its Articles of Association by Special Resolution. (2) Unless an amendment of the Articles of Association of a Company relates solely to a change of its name, correcting manifest errors or increasing the amount of its authorised or issued share capital, the Company must, before the amendment is made, submit to the Registrar: (a) the proposed amendment; and (b) a certificate given by at least 1 of the Directors of the Company stating that the proposed amendment complies with the requirements of these Regulations and the Rules and all other applicable AIFC Regulations and AIFC Rules. (3) If the Articles of Association of a Company are amended, the rights and obligations of the Shareholders and the Company that arose under the Articles of Association before the amendment is made are not be affected unless the amendment expressly provides for it to have such an effect. (4) Despite anything in the Articles of Association of a Company, a Shareholder of the Company is not bound by an amendment made to the articles after the day the Shareholder became a Shareholder so far as the amendment: | 19. Amendment of Articles of Association (1)Subject to these Regulations and the Rules, a Company may amend its Articles of Association by Special Resolution or by any other means provided by the Company’s Articles of Association. (2) (a) (b)a certificate given by at least 1 of the Directors of the Company stating that the proposed amendment complies with the requirements of these Regulations and the Rules and all other applicable AIFC Regulations and AIFC Rules; and (c) a copy of a Special Resolution, agreement, enactment, order or any other document by which the Articles of Association are amended. (2-1) The Registrar may rely on the certificate, provided in accordance with subsection 2 (b), as sufficient evidence of thematters stated in it. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(c) requires the Shareholder to take or subscribe for more Shares than those held by the Shareholder at the end of the day immediately before the amendment is made; or (d) in any way increases the Shareholder’s Liability at the end of that day to contribute to the Company’s share capital or otherwise to pay an amount to the Company. (5) Subsection (4) does not apply in relation to the Shareholder if the Shareholder, either before or after the amendment is made, agreed to be bound by it. | (3)If the Articles of Association of a Company are amended, the rights and obligations of the Shareholders and the Company that arose under the Articles of Association before the amendment is made are not be affected unless the amendment expressly provides for it to have such an effect. (4)Despite anything in the Articles of Association of a Company, a Shareholder of the Company is not bound by an amendment made to the articles after the day the Shareholder became a Shareholder so far as the amendment: ( ( (5)Subsection (4) does not apply in relation to the Shareholder if the Shareholder, either before or after the amendment is made, agreed to be bound by it. | ||
Section 22 | 22. Change of Company name | 22. Change of Company name (1)A Company must not change its name otherwise than by Special Resolution or by other means provided for by the company’s Articles of Association and must not change its name to a name that is not acceptable to the Registrar. (2)If a Company changes its name (3)Contravention of subsection (1) or (2) is punishable by a fine. (4) If a Company changes its name and complies with subsection (2) in relation to the | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(1) A Company must not change its name otherwise than by Special Resolution and must not change its name to a name that is not acceptable to the Registrar. | |||
(2) If a Company changes its name by Special Resolution in accordance with subsection (1), the Company must file the Special Resolution with the Registrar within 14 days after the day the Special Resolution is passed. | |||
(3) Contravention of subsection (1) or (2) is punishable by a fine. | |||
(4) If a Company changes its name and complies with subsection (2) in relation to the change, the Registrar must, as soon as practicable: | |||
(a) enter the new name in the Register in place of the former name; and | change, the Registrar must, as soon as practicable: (a)enter the new name in the Register in place of the former name; and (b)issue a certificate of name change showing the previous name and the new name of the Company. (5)The change of name takes effect on the day the Registrar issues the certificate of name change. (6)The change of name does not: (a)affect any rights or obligations of the Company; or (b)render defective any legal proceedings by or against it. (7)Any legal proceedings that could have been commenced or continued against the Company under its former name may be commenced or continued against it under its new name. (8)A Company may obtain the prior approval of the Registrar to the new name before the name is changed
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(b) issue a certificate of name change showing the previous name and the new name of the Company. | |||
(5) The change of name takes effect on the day the Registrar issues the certificate of name change. | |||
(6) The change of name does not: | |||
(a) affect any rights or obligations of the Company; or | |||
(b) render defective any legal proceedings by or against it. | |||
(7) Any legal proceedings that could have been commenced or continued against the Company under its former name may be commenced or continued against it under its new name. | |||
(8) A Company may obtain the prior approval of the Registrar to the new name before the name is changed by Special Resolution. | |||
Section 24 | 24. Registered office and conduct of business (1) A Company must, at all times, have a registered office in the AIFC to which all communications and notices to the Company may be addressed. (2) A Document may be served on a Company by leaving it at, or sending it by post to, the registered office of the Company in the AIFC. | 24. Registered office and conduct of business (1)A Company must, at all times, have a registered office in the AIFC to which all communications and notices to the Company may be addressed. (2)A Document may be served on a Company by leaving it at, or sending it by post to, the registered office of the Company in the AIFC. (3)A Company must conduct its principal business activity in the AIFC, unless the Registrar otherwise permits. (3-1) A Company may change the address of its registered office by giving notice to the Registrar. The change takes effect upon the notice being registered by the Registrar. (4)Contravention of subsection (1) or (3) is punishable by a fine. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(3) A Company must conduct its principal business activity in the AIFC, unless the Registrar otherwise permits. | |||
(4) Contravention of subsection (1) or (3) is punishable by a fine. | |||
New section | 25-1. Annual confirmation of accuracy of information on register | Category 1) of amendments | |
that substitut es section 26 | (1)Every Company must, before the end of the period of 14 days after the end of each review period, deliver to the Registrar: (a)such information as is necessary to ensure that the Company is able to make the statement referred to in paragraph (b), and | set out in “Key elements of proposed amendments” of the Consultation Paper | |
(b) a statement (a “confirmation statement”) confirming that all information required to be delivered by the Company to the Registrar in relation to the confirmation period concerned under any duty mentioned in subsection (2) either: | |||
(i) has been delivered, or | |||
(ii) is being delivered at the same time as the confirmation statement. | |||
(2) The following duties are duties to notify: | |||
(a) the duty to give notice of a change in the address of the company's registered office; | |||
(b) the duty to give notice of a change in Shareholders or in particulars required to be included in Register of Shareholders; | |||
(c) the duty to give notice of a change in Directors or in particulars required to be included in Register of Directors; | |||
(d) in the case of a Company with a Secretary or a Public Company, the duty to give notice of a change in Secretary or joint Secretaries or in particulars required to be included in Register of Secretaries; | |||
(e) the duty to give notice of a change in Nominee Directors or in particulars required to be included in Register of Nominee Directors; | |||
(f)the duty to give notice of a change in of UBO Details in relation to each of its Ultimate Beneficial Owners; (g)in the case of a Company which keeps any company records at a place other than its registered office, any duty under this Regulations to give notice of a change in the address of that place; (h)the duty to notify a change in company's principal business activities; (i)the duty to deliver statement of capital; (j)the duty to give a statement, for each class of Shares in the Company, setting out either: (i)the name and address of each Shareholder who, on the filing date, held not less than 5% of the Allotted Shares of that class and the number of Shares of that class held by the Shareholder, together with the number of Shareholders each of whom, on that date, held less than 5% of the Allotted Shares of that class and the total number of Shares held by them; or (ii)the name and address of every Shareholder who, on the filing date, held any Shares of that class and the number of Shares of that class held by the Shareholder; and (m)the duty to give notice of a change in number of Shares held by the Company as treasury Shares; (n) the duty to give notice of a change in other information (if any) required by the Regulations and Rules. (3) In this section: | |||
confirmation period means (a) in relation to a Company's first confirmation statement, means the period beginning with the day of the Company's incorporation and ending with the date specified in the statement (“the confirmation date”); (b) in relation to any other confirmation statement of a Company, means the period beginning with the day after the confirmation date of the last such statement and ending with the confirmation date of the confirmation statement concerned. (4)The confirmation date of a confirmation statement must be no later than the last day of the review period concerned. (5)For the purposes of this section, each of the following is a review period: (a) the period of 12 months beginning with the day of the company's incorporation; (b) each period of 12 months beginning with the day after the end of the previous review period. (6)But where a Company delivers a confirmation statement with a confirmation date which is earlier than the last day of the review period concerned, the next review period is the period of 12 months beginning with the day after the confirmation date. (7)For the purpose of making a confirmation statement, a Company is entitled to assume that any information has been properly delivered to the Registrar if it has been delivered within the period of 5 days ending with the date on which the statement is delivered. (8)But subsection (7) does not apply in a case where the Company has received notice from the Registrar that such information has not been properly delivered. (9)The confirmation statement must be accompanied by the filing fee prescribed by the Rules from time to time. (10)A Shareholder may request a Company to provide a copy of a confirmation | |||
statement of the Company to the Shareholder. If the Shareholder pays the reasonable fee (if any) that the Company requires, the Companymust, within 10 days after the day the request is received or the day any required payment is made (whichever is later), either give the Shareholder a written copy of the confirmation statement or make a written copy of the confirmation statement available for the Shareholder at the Company’s registered office. (11)A Person may request a Public Company to provide a copy of a confirmation statement of the Public Company to the Person. If the Person pays the reasonable fee (if any) that the Public Company requires, the Public Company must, within 10 days after the day the request is received or the day any required payment is made (whichever is later), either give the Person a written copy of the confirmation statement or make a written copy of the confirmation statement available for the Person at the Public Company’s registered office. (12)Contravention of this section is punishable by a fine. | |||
Section 26 | 26. Annual returns (1) A Company must, within 6 months of the end of each financial year, or other date the Registrar considers appropriate, file with the Registrar an annual return containing: (a) its financial statements for the last financial year for which the Company’s accounts have been prepared; and (b) a statement, for each class of Shares in the Company, setting out either: (i) the name and address of each Shareholder who, on the filing date, held not less than 5% of the Allotted Shares of that class and the number of Shares of that class held by the Shareholder, together with the number of Shareholders each of whom, on that date, held less than 5% of the Allotted Shares of that class and the total number of Shares held by them; or (ii)the name and address of every Shareholder who, on the filing date, held any Shares of that class and the number of Shares of that class held by the Shareholder; and | 26.
| Category 1) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(c) the particulars mentioned in section 13(4)(j) (Formation of companies) for each Director and, if applicable, the Secretary; and |
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(d) if Shares are held by the Company as treasury Shares—the entry required by section 62(8)(a) (Treasury Shares); and |
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(e) the other information, and declarations, (if any) required by the Rules. |
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(2) The annual return must be accompanied by the filing fee prescribed by the Rules from time to time. |
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(2-1) A Shareholder may request a Company to provide a copy of an annual return of the Company to the Shareholder. If the Shareholder pays the reasonable fee (if any) that the Company requires, the Company must, within 10 days after the day the request is received or the day any required payment is made (whichever is later), either give the Shareholder a written copy of the annual return or make a written copy of the annual return available for the Shareholder at the Company’s registered office. (3) A Person may request a Public Company to provide a copy of an annual return of the Public Company to the Person. If the Person pays the reasonable fee (if any) that the Public Company requires, the Public Company must, within 10 days after the day the request is received or the day any required payment is made (whichever is later), either give the Person a written copy of the annual return or make a written copy of the annual return available for the Person at the Public Company’s registered office. |
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(4) Contravention of subsection (1), (2-1) or (3) is punishable by a fine. |
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Section 28 | 28. Filing of Special Resolutions and certain other Resolutions and agreements (1) This section applies to the following Resolutions and agreements in relation to a Company: (a) any Special Resolution; | 28. Filing of Special Resolutions and certain other Resolutions and agreements affecting a Company's Constitutional Documents (1) This section applies to the following Resolutions and agreements in relation to a Company’s Constitutional Documents: | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(b) any Ordinary Resolution or agreement agreed to by all the Shareholders of the Company that, if not agreed to by all the | (a) any Special Resolution; | ||
Shareholders, would not have been effective for its purpose, unless passed as a Special Resolution; (c) any Ordinary Resolution or agreement agreed to by all the Shareholders of a class of Shares that, if not agreed to by all those Shareholders, would not have been effective for its purpose, unless passed by some particular majority or otherwise in some particular way; (d) any Ordinary Resolution or agreement that effectively binds all the Shareholders of a class of Shares, although not agreed to by all those Shareholders. (2) A reference in subsection (1) to the Shareholders of a Company, or to the Shareholders of class of Shares in a Company, does not include a reference to the Company itself if the Company is a Shareholder, or a Shareholder of that class of Shares, only because it holds Shares as treasury Shares. (3) A Company must file a written copy of every Resolution or agreement to which this section applies or, if a Resolution or agreement is not in Writing, a written memorandum setting out its terms with the Registrar within 15 days after the day it is passed or made. (4) Contravention of subsection (3) is punishable by a fine. | (b)any Ordinary Resolution or agreement agreed to by all theShareholders of the Company that, if not agreed to by all the Shareholders, would not have been effective for its purpose, unless passed as a Special Resolution; (c)any Ordinary Resolution or agreement agreed to by all the Shareholders of a class of Shares that, if not agreed to by all those Shareholders, would not have been effective for its purpose, unless passed by some particular majority or otherwise in some particular way; (d)any Ordinary Resolution or agreement that effectively binds all the Shareholders of a class of Shares, although not agreed to by all those Shareholders. (2)A reference in subsection (1) to the Shareholders of a Company, or to the Shareholders of class of Shares in a Company, does not include a reference to the Company itself if the Company is a Shareholder, or a Shareholder of that class of Shares, only because it holds Shares as treasury Shares. (3)A Company must file a written copy of every Resolution or agreement to which this section applies or, if a Resolution or agreement is not in Writing, a written memorandum setting out its terms with the Registrar within 15 days after the day it is passed or made. (4)Contravention of subsection (3) is punishable by a fine. | ||
Section 50 | 50. Prohibition of public offers by Private Companies (1) A Private Company must not: (a)make an offer of its Securities to the public; or (b)allot or agree to allot its Securities to any Person with a view to the Securities being offered to the public. (2) Unless the contrary is proved, an allotment or agreement to allot Securities is presumed to be made with a view to such Securities being offered to the public if an offer of the Securities (or any of them) is made to the public: | 50. Prohibition of public offers by Private Companies (1) A Private Company must not: (a)make an offer of its Securities to the public; or (b)allot or agree to allot its Securities to any Person with a view to the Securities being offered to the public. (2) Unless the contrary is proved, an allotment or agreement to allot Securities is presumed to be made with a view to such Securities being offered to the public if an offer of the Securities (or any of them) is made to the public: | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(a)within 6 months after the allotment or agreement to allot; or (b)before the receipt by the Company of the whole of the consideration to be received by the Company in respect of the Securities. (3)A Private Company does not Contravene subsection (1) if it: (a)acts in good faith under arrangements under which it is to re-register as a Public Company before the Securities are allotted; (b)undertakes, as part of the terms of the offer, to re-register as a Public Company within 6 months after the day the offer is first made, and the undertaking is complied with; or (c)offers Securities by way of placement as provided in the Rules made by the AFSA. (4) For this section: (a)an offer to the public includes an offer to any section of the public, however selected; and (b)an offer is not regarded as an offer to the public if: (i)it can be properly regarded, in all the circumstances, as not being calculated to result, directly or indirectly, in the Securities becoming available to Persons other than those receiving the offer; or (ii)it can be properly regarded, in all the circumstances, as being made to an existing Shareholder or Employee of the Company (or a member of the Person’s immediate family), an existing holder of a Debt Security of the Company, or a trustee for any of them, and, if it is made on terms renounceable, it can only be renounced in favour of another Person who is entitled to receive that offer; or (iii)it can be properly regarded, in all the circumstances, as being an offer for Securities to be held under an Employee Share Scheme and, if it is made on terms renounceable, it can only be renounced in favour of another Person who is entitled to receive that offer. (5) Contravention of subsection (1) is punishable by a fine. | (a)within 6 months after the allotment or agreement to allot; or (b)before the receipt by the Company of the whole of the consideration to be received by the Company in respect of the Securities. (3)A Private Company does not Contravene subsection (1) if it: (a)acts in good faith under arrangements under which it is to re-register as a Public Company before the Securities are allotted; (b)undertakes, as part of the terms of the offer, to re-register as a Public Company within 6 months after the day the offer is first made, and the undertaking is complied with; or (c)offers Securities by way of placement as provided in the Rules made by the AFSA; or (d)offers, allots or allots by agreement Securities (Debt Securities) which was entitled by the Registrar on the application. (4) For this section: (a)an offer to the public includes an offer to any section of the public, however selected; and (b)an offer is not regarded as an offer to the public if: (i)it can be properly regarded, in all the circumstances, as not being calculated to result, directly or indirectly, in the Securities becoming available to Persons other than those receiving the offer; or (ii)it can be properly regarded, in all the circumstances, as being made to an existing Shareholder or Employee of the Company (or a member of the Person’s immediate family), an existing holder of a Debt Security of the Company, or a trustee for any of them, and, if it is made on terms renounceable, it can only be renounced in favour of another Person who is entitled to receive that offer; or (iii)it can be properly regarded, in all the circumstances, as being an offer for Securities to be held under an Employee Share Scheme and, if it is made on terms renounceable, it can only be renounced in favour of another Person who is entitled to receive that offer. | ||
(5) Contravention of subsection (1) is punishable by a fine. | |||
Section 65 | 65. Reduction of Share Capital by Private Company supported by solvency statement (1) A Resolution for reducing Share Capital of a Private Company is supported by a solvency statement for section 64(1) (Reduction of share capital) if: | 65. Reduction of Share Capital by Private Company supported by solvency statement (1) A Resolution for reducing Share Capital of a Private Company is supported by a solvency statement for section 64(1) (Reduction of share capital) if: | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(a) on a day not more than 30 days and not less than 15 days before the date the reduction of the Share Capital is to have effect, the Company has published a notice in the Appointed Publications stating the following: | (a) on a day not more than 30 days and not less than 15 days before the date the reduction of the Share Capital is to have effect, the Company has published a notice in the Appointed Publications stating the following: | ||
(i) the amount of the Share Capital as most recently determined by the Company; | (i) the amount of the Share Capital as most recently determined by the Company; | ||
(ii) the nominal value of each Share; | |||
(ii) the nominal value of each Share; | |||
(iii) the amount by which the Share Capital is to be reduced; | (iii) the amount by which the Share Capital is to bereduced; | ||
(iv) the date the reduction is to have effect; and | (iv) the date the reduction is to have effect; and | ||
(b) the notice contains a solvency statement that complies with subsection (2). | (b) the notice contains a solvency statement that complies with subsection (2). | ||
(2) A solvency statement is a statement by each Director of the Company that the Director: (a) has formed the opinion, as regards the Company’s situation at the date of the statement, that there is no ground on which the Company could be found to be unable to discharge its debts as they fall due; and | (2)A solvency statement is a statement by each Director of the Company that the Director: (a)has formed the opinion, as regards the Company’s situation at the date of the statement, that there is no ground on which the Company could be found to be unable to discharge its debts as they fall due; and | ||
(b) has also formed the opinion that: | |||
(b) has also formed the opinion that: | |||
(i) if the Company intended to commence its winding up within 12 months after the date of the statement, the Company would be able discharge its debts in full within 12 months of the commencement of the winding up; or | (i) if the Company intended to commence its winding up within 12 months after the date of the statement, the Company would be able discharge its debts in full within 12 months of the commencement of the winding up; or | ||
(ii) in any other case, the Company would be able to discharge its debts as they fall due during the year immediately after the date of the statement. | (ii) in any other case, the Company would be able to discharge its debts as they fall due during the year immediately after the date of the statement. | ||
(3) A Director of the Company must not make a solvency statement mentioned in | |||
subsection (1)(b) unless the Director has reasonable grounds for the opinion expressed in the statement. In forming the opinion, the Director must take into account all of the Company’s Liabilities (including any contingent or prospective Liabilities). (4) Contravention of subsection (3) is punishable by a fine. (5) If a Company reduces the amount of its Share Capital, the Company must, within 30 days after the day the reduction takes effect, file with the Registrar a copy of the notice under subsection (1) | (3)A Director of the Company must not make a solvency statement mentioned in subsection (1)(b) unless the Director has reasonable grounds for the opinion expressed in the statement. In forming the opinion, the Director must take into account all of the Company’s Liabilities (including any contingent or prospective Liabilities). (4)Contravention of subsection (3) is punishable by a fine. (5)If a Company reduces the amount of its Share Capital, the Company must, within notice under subsection (1) | ||
Section 74 | 74. Directors (1) A Private Company must have at least 1 director and a Public Company must have at least 2 directors. (2) A Person must not be a Director if the Person: (a) is not a natural person; or (b) is under 18 years old; or (c) is disqualified from being a Director because of: (i) having been convicted of a criminal offence, involving dishonesty or moral turpitude, in any jurisdiction in the past 10 years; or (ii)having been found guilty of insider trading or the equivalent in any jurisdiction at any time; or (iii)having been judged disqualified by any court; or (iv)having been disqualified by the AFSA; or (v) a disqualification specified in the Articles of Association; or (d) is an undischarged bankrupt. | 74. Directors (1)A Private Company must have at least 1 director and a Public Company must have at least 2 directors. (1-1) A company must have at least one director who is a natural person and meets therequirements set out in subsection (2). (2)A Person, who is a natural person, must not be a Director if the Person: (a) (b)is under 18 years old; or (c)is disqualified from being a Director becauseof: (i)having been convicted of a criminal offence, involving dishonesty or moral turpitude, in any jurisdiction in the past 10 years; or (ii)having been found guilty of insider trading or the equivalent in any jurisdiction at any time; or (iii)having been judged disqualified by any court; or (iv)having been disqualified by the AFSA; or (v)a disqualification specified in the Articles of Association; or (d)is an undischarged bankrupt. | Category 2) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(3) A Person, who is a Body Corporate, must not be a Director, unless the Person is: (a)Ancillary Service Provider; or (b)a holding company. (4) Notwithstanding subsection (3) Registrar may grant or refuse to grant a permission to a Body Corporate to be appointed as a director of the Company. Guidance issued by Registrar may impose any restrictions and conditions on granting permission. (5)Contravention of this section is punishable by a fine. | |||
Section 92 | 92. Disqualification orders (1) Without limiting any other powers available to the Registrar, if the Registrar considers that it is in the public interest that an individual should not, without the leave of the Court, be a Director of, or in any way (whether directly or indirectly) be concerned or take part in the management of, a Company, the Registrar may apply to the Court for an order to that effect against the Person. (2) The Court may make the order applied for if satisfied that the Person’s conduct (including, for example, any Breach by the person of any 1 or more of the duties under sections 77 to 83 and section 85) makes the person unfit to be concerned or take part in the management of a Company. An order under subsection (2) may be made: (a) in the case of a first offence, for the period, not longer than 15 years; or (b) in the case of a repeated offence, for an unlimited period, as the Court considers appropriate. (3) A Person must not Contravene an order under subsection (2). (4) Contravention of subsection (4) is punishable by a fine | 92. Disqualification orders (1) Without limiting any other powers available to the Registrar, if the Registrar considers that it is in the public interest that (2) The Court may make the order applied for if satisfied that the Person’s conduct (including, for example, any Breach by the section 85) makes the An order under subsection (2) may be made: (a) in the case of a first offence, for the period, not longer than 15 years; or (b) in the case of a repeated offence, for an unlimited period, as the Court considers appropriate. (3) A Person must not Contravene an order under subsection (2). (4) Contravention of subsection (4) is punishable by a fine | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Section 98 | 98. General provisions about meetings and votes The following provisions apply to any General Meeting of a Company or of the holders of any class of Shares in a Company unless the Articles of Association provide otherwise: (a) a notice of every meeting must be given to every Shareholder entitled to receive it: | 98. General provisions about meetings and votes Thefollowing provisions applyto any General Meeting of a Company or of the holders of any class of Shares in a Company unless the Articles of Association provide otherwise: (a)a notice of everymeeting must be given to every Shareholder entitled to receive it: | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(i) by delivering or posting it to the Shareholder’s registered address; or (ii)in the electronic form (if any) agreed to by the Shareholder; or (iii)by making it available on the website (is any) agreed to by the Shareholder; or (iv)in the other way or form (if any) agreed to by the Shareholder; (b) except for a Company with a single Shareholder, at any General Meeting of the Company, 2 Shareholders personally present or represented by proxy are a quorum; (c) at any meeting dealing with a variation of any class rights other than an adjourned meeting, the quorum is the number of Shareholders holding or representing by proxy at least 1/3 in nominal value of the issued and Allotted Shares of the class, and at an adjourned meeting,1 Shareholder holding Shares of the class or the Shareholder’s proxy is a quorum; (d) any Shareholder elected by the Shareholders present at the meeting may chair the meeting; (e) on a show of hands, every Shareholder present in person at the meeting has 1 vote and, on a poll, every Shareholder has 1 vote for every Share held by the Shareholder. | (i)by delivering or posting it to the Shareholder’s registered address; or (ii)in the electronic form (if any) agreed to by the Shareholder; or (iii)by making it available on the website (is any) agreed to by the Shareholder; or (iv)in the other way or form (if any) agreed to by the Shareholder; (b)except for a Company with a single Shareholder, at any General Meeting of the Company, 2 Shareholders personally present or represented by proxy are a quorum; (c)at any meeting dealing with a variation of any class rights other than an adjourned meeting, the quorum is the number of Shareholders holding or representing by proxy at least 1/3 in nominal value of the issued and Allotted Shares of the class, and at an adjourned meeting,1 Shareholder holding Shares of the class or the Shareholder’s proxy is a quorum; (d)any Shareholder elected by the Shareholders present at the meeting may chair the meeting; (e)on a show of hands, every Shareholder present in person at the meeting has 1 vote and, on a poll, every Shareholder has 1 vote for every Share held by the Shareholder. (f)if practicable, voting can be arranged in any other form, determined in the Articles of Association. | ||
Section 104 | 104. Minutes and examination of minute books (1) Every Company must ensure that minutes of all proceedings at General Meetings, meetings of the holders of any class of Shares, and meetings of its Directors and of committees of Directors, are entered in books kept for that purpose. The Company must ensure that the names of the Directors | 104. Minutes and examination of minute books (1) Every Company must ensure that minutes of all proceedings at General Meetings, meetings of the holders of any class of Shares, and meetings of its Directors and of committees of Directors, are entered in books kept for that purpose. The Company must ensure that the names of the Directors present at each of those meetings are recorded in the minutes. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
present at each of those meetings are recorded in the minutes. (2) If the minutes purport to be signed by the chair of the meeting at which the proceedings took place or by the chair of the next meeting, the minutes are evidence of the proceedings. (3) If minutes of a meeting have been made in accordance with this section, then, unless the contrary is proved, the meeting is taken to have been duly called and held, and all proceedings that took place at the meeting are taken to have duly taken place. (4) A Company must ensure that the books containing the minutes of the General Meetings of the Company, or of meetings of the holders of a class of Shares of the Company, are kept at the Company’s registered office, and are open to inspection during business hours by a Shareholder without charge. (5) A Shareholder of a Company may, by giving the Company a Written request and paying the reasonable amount (if any) required by the Company, ask the Company for a copy of any minutes mentioned in subsection (4) (other than minutes of a meeting of the holders of a class of Shares if the Shareholder is not a holder of that class of Shares). The Company must, within 7 days after the day it receives the request and payment of any required amount, give the copy of the minutes to the Shareholder. (6) If a Company Contravenes subsection (4) or (5) in relation to a Shareholder of the Company, the Registrar may, by Written notice given to the Company, direct the Company to immediately comply with the subsection in relation to the Shareholder. If a Company is given a direction under this subsection, the Company must comply with the direction. | (2)If the minutes purport to be signed by the chair of the meeting at which the proceedings took place or by the chair of the next meeting, the minutes are evidence of the proceedings. (3)If minutes of a meeting have been made in accordance with this section, then, unless the contrary is proved, the meeting is taken to have been duly called and held, and all proceedings that took place at themeeting are taken to have duly takenplace. (4)A Company must ensure that the books containing the minutes of the General Meetings of the Company, or of meetings of the holders of a class of Shares of the Company, are kept at the Company’s registered office, and are open to inspection during business hours by a Shareholder without charge. The records mentioned in this subsection can be stored using a system of mechanical or electronic data processing or any other medium that is capable or reproducing any required information in intelligible written form within a reasonable time. (5)A Shareholder of a Company may, by giving the Company a Written request and paying the reasonable amount (if any) required by the Company, ask the Company for a copy of any minutes mentioned in subsection (4) (other than minutes of a meeting of the holders of a class of Shares if the Shareholder is not a holder of that class of Shares). The Company must, within 7 days after the day it receives the request and payment of any required amount, give the copy of the minutes to the Shareholder. (6)If a Company Contravenes subsection (4) or (5) in relation to a Shareholder of the Company, the Registrar may, by Written notice given to the Company, direct the Company to immediately comply with the subsection in relation to the Shareholder. If a Company is given a direction under this subsection, the Company must comply with the direction. | ||
Section 126 | 126. Provisions for facilitating Company reconstruction or amalgamation If an application is made to the Court under section 124 (Power of Company to compromise with Creditors and Shareholders) for the sanctioning of a compromise or arrangement proposed between a Company and any Persons mentioned in that section, the Court may make any orders as it considers appropriate to facilitate the compromise or arrangement, including a reconstruction of the Company, or an amalgamation of the Company with any other Company | 126. Provisions for facilitating Company reconstruction oramalgamation If an application is made to the Court under section 124 (Power of Company to compromise with Creditors and Shareholders) for the sanctioning of a compromise or arrangement proposed between a Company and any Persons mentioned in that section and/or a Body Corporate incorporated outside the AIFC, the Court may make any orders as it considers appropriate to facilitate the compromise or arrangement, including a reconstruction of the Company and/or a Body Corporate incorporated outside the AIFC , or an amalgamation of the Company with any other Company or a Body Corporate incorporated outside the AIFC. | Category 6) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Section 148 | 148. Notification of change in Registered Details of Recognised Company (1) If any of the Registered Details of a Recognised Company change, the Recognised Company must notify the Registrar in Writing of the change within 14 days after the day the change happens and must comply with all other requirements applying to the Recognised Company under the Rules in relation to the change. (2) Contravention of this section is punishable by a fine. | 148. Notification of change in Registered Details of Recognised Company (1) If any of the Registered Details of a Recognised Company change, the Recognised Company must notify the Registrar in Writing of the change within 14 days after the day the change happens and must comply with all other requirements applying to the Recognised Company under the Rules in relation to the change. (2) Contravention of this section is punishable by a fine. (3) The change in Registered Details notice must be accompanied by the fee prescribed by the Rules from time to time. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Section 165 | 165. Direction to comply with Legislation Administered by the Registrar (1)This section applies if a Regulated Entity, or a Regulated Relevant Person for a Regulated Entity, Fails to comply with a requirement (however expressed and including, to remove any doubt, a requirement applying for the benefit of a Person other than the Registrar of Companies): (a)under a provision of these Regulations, the Rules or any other Legislation Administered by the Registrar; or (b)made by the Registrar under these Regulations, the Rules or any other Legislation Administered by the Registrar. | 165. Direction to comply with Legislation Administered by the Registrar (1)This section applies if a Regulated Entity, or a Regulated Relevant Person for a Regulated Entity, (a)under a provision of these Regulations, the Rules or any other Legislation Administered by the Registrar; or (b)made by the Registrar under these Regulations, the Rules or any other Legislation Administered by the Registrar. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(2)The Registrar of Companies may, by Written notice, direct the Regulated Entity, the Regulated Relevant Person, or another Regulated Relevant Person for the Regulated Entity, to comply with the requirement, or ensure that the requirement is complied with, within the time stated in the notice. (3)If the Regulated Entity or Regulated Relevant Person Fails to comply with the direction under subsection (2), the Registrar of Companies may apply to the Court for 1 or more of the following orders: (a)an order directing the Regulated Entity or Regulated Relevant Person, or another Regulated Relevant Person for the Regulated Entity, to comply with the direction or with any relevant provision of these Regulations, the Rules or any other Legislation Administered by the Registrar, or ensure that the direction is complied with, within the time stated in the order; (b)an order directing the Regulated Entity or Regulated Relevant Person to pay any costs incurred by the Registrar or any other Person relating to: (i)the giving of the direction by the Registrar; or (ii)the relevant Contravention of these Regulations; (c) any other order that theCourt considers appropriate. (4) This section does not affect the operation of any other provision of these Regulations, the Rules or any other Legislation Administered by the Registrar imposing penalties in respect of a Failure to comply with a requirement to which this section applies, or any powers that the Registrar, another Person or the Court may have under any other provision of these Regulations, the Rules or any otherAIFC Regulations or AIFC Rules. | (2)The Registrar of Companies may, by Written notice, direct the Regulated Entity, the Regulated Relevant Person, or another Regulated Relevant Person for the Regulated Entity, to comply with the requirement, or ensure that the requirement is complied with, within the time stated in the notice. (3)If the Regulated Entity or Regulated Relevant Person Fails to comply with the direction under subsection (2), the Registrar of Companies may apply to the Court for 1 or more of the following orders: (a)an order directing the Regulated Entity or Regulated Relevant Person, or another Regulated Relevant Person for the Regulated Entity, to comply with the direction or with any relevant provision of these Regulations, the Rules or any other Legislation Administered by the Registrar, or ensure that the direction is complied with, within the time stated in the order; (b)an order directing the Regulated Entity or Regulated Relevant Person to pay any costs incurred by the Registrar or any other Person relating to: (i)the giving of the direction by the Registrar; or (ii)the relevant Contravention of these Regulations; (c) any other order that theCourt considers appropriate. (4) This section does not affect the operation of any other provision of these Regulations, the Rules or any other Legislation Administered by the Registrar imposing penalties in respect of a Failure to comply with a requirement to which this section applies, or any powers that the Registrar, another Person or the Court may have under any other provision of these Regulations, the Rules or any other AIFC Regulations or AIFC Rules. | ||
Section 167 | 167. Powers to strike off names of Companies from Register (1) The Registrar of Companies may strike the name of a Company off the Register if the Registrar has reason to believe that: (a) the Company is not conducting business or is not in operation; | 167. Powers to strike off names of Companies from Register (1)The Registrar of Companies may strike the name of a Company off the Register if the Registrar has reason to believe that: (a)the Company is not conducting business or is not in operation; | Category 1) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(b) the Company is Contravening these Regulations; or (c) it is prejudicial to the interests of the AIFC for the Company to remain in the Register. (1-1) The Registrar of Companies may conclude that a Company is not conducting business or is not in operation where: (a) the annual return of the Company has not been filed by the relevant date pursuant to section 26 (Annual returns); or (b) a fee due to the Registrar has not been paid on the date due, and in each case, the Company has failed to file the annual return, pay the fee due or to respond to correspondence with the Registrar and a period of 12 months has elapsed since the date on which the annual return was due to be filed or the relevant fee was due to be paid. (2) The Registrar of Companies may also strike the name of a Company off the Register if the Company is being wound up in a creditors voluntary winding up and: (a) the Registrar has reason to believe either that: (i) no liquidator is acting; or (ii)the affairs of the Company are fully wound up; and (b) the returns required to be made by the liquidator have not been made for a period of at least 6 consecutive months. (3) In deciding whether to strike the name of a Company off the Register under subsection (1) or (2), the Registrar of Companies comply with the Decision-making Procedures and must also: (a) publish a notice in the Appointed Publications of the Registrar’s intention to strike the name of the Company off the Register and dissolve the Company before doing so; and (b) if the Company is licensed, registered or recognised by the AFSA—obtain the AFSA’s | (b)the Company is Contravening these Regulations; or (c)it is prejudicial to the interests of the AIFC for the Company to remain in the Register. (1-1) The Registrar of Companies may conclude that a Company is not conducting business or is not in operation where: (a)the (b)a fee due to the Registrar has not been paid on the date due, and in each case, the Company has failed to file the annual return, pay the fee due or to respond to correspondence with the Registrar and a period of 12 months has elapsed since the date on which the annual return was due to be filed or the relevant fee was due to be paid. (2)The Registrar of Companies may also strike the name of a Company off the Register if the Company is being wound up in a creditors voluntary winding up and: (a)the Registrar has reason to believe either that: (i)no liquidator is acting; or (ii)the affairs of the Company are fully wound up; and (b) the returns required to be made by the liquidator have not been made for a period of at least 6 consecutive months. (3)In deciding whether to strike the name of a Company off the Register under subsection (1) or (2), the Registrar of Companies comply with the Decision-making Procedures and must also: (a)publish a notice in the Appointed Publications of the Registrar’s intention to strike the name of the Company off the Register and dissolve the Company before doing so; and (b)if the Company is licensed, registered or recognised by the AFSA—obtain the | ||
consent before publishing the notice under paragraph (a). (4) If an application is made by a Company to strike the Company’s name off the Register following a voluntary winding up in accordance with the procedures under the AIFC Insolvency Regulations, the Registrar of Companies may strike the Company's name off the Register if the requirements of subsection (5) to (9) are met. (5) An application under subsection (4)must: (a) be made on the Company’s behalf by its Directors or a majority of them; and (b) be in the form prescribed by the Rules. (6) Within 7 days after the day that an application under subsection (4) is made, the applicants must give a copy of the application to every Person who, on the day the application is made, is: (a) a Shareholder of the Company; or (b) an Employee of the Company; or (c) a Creditor of the Company; or (d) a Director of the Company who is not a party to the application. (7) An application must not be made on behalf of a Company under subsection (4): (a) if at any time in the previous 3 months, the Company has: (i) changed its name; or (ii)traded or otherwise carried on business; or (iii)made a disposal for value of property or rights held, before the disposal, for gain in the normal course of trading; or (iv)engaged in any other activity, other than an activity that is necessary or desirable for the purposes of making an application under subsection (4) for concluding the affairs of the Company or complying with associated legal requirements; or (b) at a time when any process in respect of the Company, or its property, has commenced under the AIFC Insolvency Regulations. | AFSA’s consent before publishing the notice under paragraph (a). (4)If an application is made by a Company to strike the Company’s name off the Register following a voluntary winding up in accordance with the procedures under the AIFC Insolvency Regulations, the Registrar of Companies may strike the Company's name off the Register if the requirements of subsection (5) to (9) are met. (5)An application under subsection (4) must: (a)be made on the Company’s behalf by its Directors or a majority of them; and (b)be in the form prescribed by the Rules. (6) Within 7 days after the day that an application under subsection (4) is made, the applicants must give a copy of the application to every Person who, on the day the application is made, is: (a)a Shareholder of the Company; or (b)an Employee of the Company; or (c)a Creditor of the Company; or (d)a Director of the Company who is not a party to the application. (7)An application must not be made on behalf of a Company under subsection (4): (a)if at any time in the previous 3 months, the Companyhas: (i)changed its name; or (ii)traded or otherwise carried on business; or (iii)made a disposal for value of property or rights held, before the disposal, for gain in the normal course of trading; or (iv)engaged in any other activity, other than an activity that is necessary or desirable for the purposes of making an application under subsection (4) for concluding the affairs of the Company or complying with associated legal requirements; or | ||
(8) The Registrar of Companies must not strike the Company’s name off the Register under subsection (4) unless the Registrar has published a notice in the Appointed Publications, containing the matters required by subsection (9), and at least 3 months have elapsed since the day of publication of the notice. (9) A notice under subsection (8) must: (a) state that the Registrar of Companies may exercise the power to strike the Company’s name off the Register; and (b) invite any Person to show cause why that should not be done. (10)If the name of a Company is struck off the Register under subsection (1), (2) or (4), the Liability of every Director and Shareholder of the Company continues and may be enforced as if the Company had not beendissolved. (11)If the Registrar of Companies strikes the name of the Company off the Register, the Company must be dissolved. (12)If the name of a Public Company is struck off the Register under this section, the Company must maintain its books and Records for a period of 6 years after the day its name is struck off the Register. | (b) at a time when any process in respect of the Company, or its property, has commenced under the AIFC Insolvency Regulations. (8)The Registrar of Companies must not strike the Company’s name off the Register under subsection (4) unless the Registrar has published a notice in the Appointed Publications, containing the matters required by subsection (9), and at least 3 months have elapsed since the day of publication of the notice. (9)A notice under subsection (8) must: (a)state that the Registrar of Companies may exercise the power to strike the Company’s name off the Register; and (b)invite any Person to show cause why that should not be done. (10)If the name of a Company is struck off the Register under subsection (1), (2) or (4), the Liability of every Director and Shareholder of the Company continues and may be enforced as if the Company had not beendissolved. (11)If the Registrar of Companies strikes the name of the Company off the Register, the Company must be dissolved. (12)If the name of a Public Company is struck off the Register under this section, the Company must maintain its books and Records for a period of 6 years after the day its name is struck off the Register. | ||
Section 182, sub- section (4), para (c) | (c) that the Rules do not change, or significantly change, the policy intended to be give effect to by these Regulations and the Rules or any other AIFC Regulations or AIFC Rules. | (c) that the Rules do not change, or significantly change, the policy intended to | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Section 181 | 181. Power to adopt Rules etc. (1) The Board of Directors of the AFSA may adopt Rules prescribing matters: (a) required or permitted by these Regulations, or any other AIFC Regulations that are Legislation Administered by the Registrar, to be prescribed by the Board by the Rules; or (b) necessary or convenient to be prescribed for carrying out or giving effect to these | 181. Power to adopt Rules etc. (1) The Board of Directors of the AFSA may adopt Rules prescribing matters: (a) required or permitted by these Regulations, or any other AIFC Regulations that are Legislation Administered by the Registrar, to be prescribed by the Board by the Rules; or (b) necessary or convenient to be prescribed for carrying out or giving effect to these | Category 3) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Regulations, the Rules or any other Legislation Administered by the Registrar. (2) However, the Board may not adopt Rules under this section on matters related to the regulation of financial services and related operations in the AIFC. (3) Without limiting subsection (1), the Board may adopt Rules: (a) with respect to any matters relating to the Registrar’s Objectives or Functions; or (b) to facilitate the administration of, or further the purposes of, these Regulations or any Legislation Administered by the Registrar; or (c) prescribing model articles of association; or (d) with respect to the procedures for the imposition or recovery of fines, including any circumstances in which the procedures do not apply to the imposition of a fine; or (e) setting limits for fines and other penalties that may be imposed for Contraventions of these Regulations; or (f) the giving of waiver and modification notices under section 195 (Waivers and modifications of certain provisions), including the procedures for the making of application for, or giving of, notices; or (g) with respect to any of the following: (i) forms, procedures and requirements under these Regulations, the Rules or any other Legislation Administered by the Registrar; (ii)the keeping of public registers and databases; (iii)the conduct of the Registrar and the Registrar’s officers, employees, delegates and agents in relation to the Exercise of Functions, including discretionary Functions and the conduct of investigations and hearings. (4) Rules adopted by the Board may incorporate standards and codes of practice by reference. A standard or code of practice incorporated into Rules adopted by the Board | Regulations, the Rules or any other Legislation Administered by the Registrar. (2) However, the Board may not adopt Rules under this section on matters related to the regulation of financial services and related operations in the AIFC. (3) Without limiting subsection (1), the Board may adopt Rules: (a) with respect to any matters relating to the Registrar’s Objectives or Functions; or (b) to facilitate the administration of, or further the purposes of, these Regulations or any Legislation Administered by the Registrar; or (c) (d) with respect to the procedures for the imposition or recovery of fines, including any circumstances in which the procedures do not apply to the imposition of a fine; or (e) setting limits for fines and other penalties that may be imposed for Contraventions of these Regulations; or (f) the giving of waiver and modification notices under section 195 (Waivers and modifications of certain provisions), including the procedures for the making of application for, or giving of, notices; or (g) with respect to any of the following: (i) (ii) (iii)the conduct of the Registrar and the Registrar’s officers, employees, delegates and agents in relation to the Exercise of Functions, including discretionary Functions and the conduct of investigations and hearings. (4) Rules adopted by the Board may incorporate standards and codes of practice by reference. A standard or code of practice incorporated into Rules adopted by the Board | ||
has the same effect as it had been adopted in the Rules, except so far as the Rules otherwise provide. (5) Instead of incorporating a standard or code of practice into Rules adopted by the Board, the Board may adopt the standard or code of practice as non-binding guidance for AIFC Participants. (6) Without limiting subsection (1), Rules adopted by the Board may do any of the following: (a) make different provision for different cases or circumstances; (b) include supplementary, incidental and consequential provisions; (c) make transitional and savings provisions. (7) If any Rules adopted by the Board purport to be adopted in the exercise of a particular power or powers, the Rules are taken also to be adopted in the exercise of all the powers under which they may be adopted. (8) Until Rules mentioned in subsection (3)(e) are adopted by the Board, there are no limits on the fines and other penalties that may be imposed for a Contravention of these Regulations. | has the same effect as it had been adopted in the Rules, except so far as the Rules otherwise provide. (5) Instead of incorporating a standard or code of practice into Rules adopted by the Board, the Board may adopt the standard or code of practice as non-binding guidance for AIFC Participants. (6) Without limiting subsection (1), Rules adopted by the Board may do any of the following: (a) make different provision for different cases or circumstances; (b) include supplementary, incidental and consequential provisions; (c) make transitional and savings provisions. (7) If any Rules adopted by the Board purport to be adopted in the exercise of a particular power or powers, the Rules are taken also to be adopted in the exercise of all the powers under which they may be adopted. (8) Until Rules mentioned in subsection (3)(e) are adopted by the Board, there are no limits on the fines and other penalties that may be imposed for a Contravention ofthese Regulations. | ||
New Section 183-1 | 183-1. Registrar’s power to adopt Rules The Registrar of Companies may adopt Rules prescribing: (a)standard articles of association; or (b) forms, procedures and requirements under these Regulations, the Rules or any other Legislation Administered by the Registrar;or (c)the keeping of public registers and databases. | Category 3) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper | |
Section 189 | 189. Funding and fees (1) The Board of Directors of the AFSA shall provide financial resources to the Registrar from the annual budget available to the AFSA to enable the Registrar to Exercise the Registrar’s Functions in an adequate manner. (2) The Rules may require the payment to the AFSA of fees in respect of: (a) the Exercise by the Registrar of prescribed Functions under or for these Regulations, the Rules or any other Legislation Administered by the Registrar, including the receipt by the | 189. Funding and fees (1) The Board of Directors of the AFSA shall provide financial resources to the Registrar from the annual budget available to the AFSA to enable the Registrar to Exercise the Registrar’s Functions in an adequate manner. (2) The Rules may require the payment to the AFSA of fees in respect of: (a) the Exercise by the Registrar of prescribed Functions under or for these Regulations, the Rules or any other Legislation Administered by the Registrar, including the receipt by the | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Registrar of any Document that is required to be given or delivered to, or filed with, the Registrar (however described); and (b) the inspection of Documents or other material held by the Registrar under these Regulations, the Rules or any other Legislation Administered by the Registrar. (3) The Registrar may charge a fee for any services provided by the Registrar otherwise than under an obligation imposed on the Registrar by or under these Regulations, the Rules or any other Legislation Administered by the Registrar. (4) If a fee is prescribed or charged under this section for the Exercise of a Function, or the provision of services, by the Registrar, no action need be taken by the Registrar until the fee is paid and, if the fee is payable on the receipt by the Registrar of a Document required to be given or delivered to, or filed with, the Registrar (however described), the Registrar is taken not to have received the Document until the fee is paid. | Registrar of any Document that is required to be given or delivered to, or filed with, the Registrar (however described); (b) the inspection of Documents or other material held by the Registrar under these Regulations, the Rules or any other Legislation Administered by the Registrar; and (c) the Post- Registration Procedures service provided by the Registrar under these Regulations, the Rules or any other Legislation Administered by the Registrar. (3) The Registrar may charge a fee for any services provided by the Registrar otherwise than under an obligation imposed on the Registrar by or under these Regulations, the Rules or any other Legislation Administered by the Registrar. (4) If a fee is prescribed or charged under this section for the Exercise of a Function, or the provision of services, by the Registrar, no action need be taken by the Registrar until the fee is paid and, if the fee is payable on the receipt by the Registrar of a Document required to be given or delivered to, or filed with, the Registrar (however described), the Registrar is taken not to have received the Document until the fee is paid. | ||
Section 195 | 195. Waivers and modifications of certain provisions (1) In this section: relevant provision means a provision of these Regulations, the Rules, or any other Legislation Administered by the Registrar, if the provision is expressed to be subject to this section or declared by the Rules to be a provision to which this section applies. (2) On the application or with the consent of a Person, the Registrar may, by Written notice, provide that 1 or more relevant provisions: (a) do not apply to the Person; or (b) apply to the Person with the modifications stated in the notice. (3) The notice may be given subject to conditions. | 195. Waivers and modifications of certain provisions (1)In this section: relevant provision means a provision of these Regulations, the Rules, or any other Legislation Administered by the Registrar, (2)On the application or with the consent of a Person, the Registrar may, by Written notice, provide that 1 or more relevant provisions: (a)do not apply to the Person; or (b)apply to the Person with the modifications stated in the notice. | Category 5) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(4) If the notice is given subject to conditions, the Person must comply with the conditions. If the Person Contravenes a condition, the Registrar may, without limiting the Registrar’s other powers, apply to the Court for the order that the Registrar considers appropriate, including an order that the Person comply with the condition, whether or not in a specified way. (5) Unless the Registrar is satisfied that it is inappropriate or unnecessary to do so, the Registrar must publish a notice under subsection (2) in a way the Registrar considers appropriate for bringing the notice to the attention of: (a) Persons likely to be affected by it;and (b) others who may be likely to become subject to a similar notice. (6) The Registrar may withdraw or vary a notice under subsection (2), on the Registrar’s own initiative or on the application of the Person to whom the notice applies. | (3)The notice may be given subject to conditions. (4)If the notice is given subject to conditions, the Person must comply with the conditions. If the Person Contravenes a condition, the Registrar may, without limiting the Registrar’s other powers, apply to the Court for the order that the Registrar considers appropriate, including an order that the Person comply with the condition, whether or not in a specified way. (5)Unless the Registrar is satisfied that it is inappropriate or unnecessary to do so, the Registrar must publish a notice under subsection (2) in a way the Registrar considers appropriate for bringing the notice to the attention of: (a)Persons likely to be affected by it; and (b)others who may be likely to become subject to a similar notice. (6) The Registrar may withdraw or vary a notice under subsection (2), on the Registrar’s own initiative or on the application of the Person to whom the notice applies. | ||
SCHEDUL E 1: INTERPRE TATION | Post-Registration Procedures means any post-registration procedure including but not limited to, change in Registered Details | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper | |
SCHEDUL E 1: INTERPRE TATION | Ancillary Service Provider has the meaning given in AIFC Glossary | Category 2) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
Annex 2
Proposed amendments to AIFC Rules
In this table, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
Rule Number | Current version | Proposed version | |
1. AIFC Companies Rules | |||
2.2. | 2.2.Articles of Association 2.2.1.For the definition of Standard Articles in Schedule 1 of the AIFC Companies Regulations, the provisions of Schedule 1 (Standard Articles) are the model articles of association. 2.2.2.If the proposed Articles of Association filed with an application for the incorporation of a company do not adopt the Standard Articles in their entirety, the proposed Articles of Association must, for section 14(2)(c) of the AIFC Companies Regulations, include provision for the following matters: (a)information set out in the form prescribed by the Registrar of Companies; (b)the purpose for which the company is being incorporated; (c)the rights attaching to Shares or classes of Shares; (d)the transfer of Shares; (e)an Annual General Meeting; (f) the proceedings, including voting at General Meetings; (g)accounts and other information to be provided to Shareholders before Annual General Meetings; | 2.2.Articles of Association 2.2.1.For the definition of Standard Articles in Schedule 1 of the AIFC Companies Regulations, the provisions of Schedule 1 (Standard Articles) are the model articles of association. 2.2.2.If the proposed Articles of Association filed with an application for the incorporation of a company do not adopt the Standard Articles in their entirety, the proposed Articles of Association must, for section 14(2)(c) of the AIFC Companies Regulations, include provision for the following matters: (a)information set out in the form prescribed by the Registrar of Companies; (b)the (c)the rights attaching to Shares or classes of Shares; (d)the transfer of Shares; (e) if a Public company,an Annual General Meeting; (f) if a Public company, the proceedings, including voting at General Meetings; (g) if a Public company, accounts and other information to be provided to Shareholders before Annual General Meetings; | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(h)the maximum number of Directors; (i)the appointment, retirement, disqualification and removal of Directors; (j)the powers of Directors; (k)proceedings of Directors; (l)if the company is to have a Secretary (or joint Secretaries)— appointment of the Secretary (or joint Secretaries); (m) the keeping of minutes of all proceedings at General Meetings, meetings of the holders of any class of Shares, and meetings of Directors and of committees of Directors; (n)the division of powers between the Shareholders and Directors; (o) the issue of new Shares; (p)if there are to be any to be restrictions on the transfer of Shares—the restrictions; (q)termination and liquidation of the company. | (h) the maximum number of Directors; (i) the appointment, retirement, disqualification and removal of Directors; (j) the powers of Directors; (k) proceedings of Directors; (l)if the company is to have a Secretary (or joint Secretaries)—appointment of the Secretary (or joint Secretaries); (m)the keeping of minutes of all proceedings at General Meetings, meetings of the holders of any class of Shares, and meetings of Directors and of committees of Directors; (n) the division of powers between the Shareholders and Directors; (o) the issue of new Shares; (p) if there are to be any to be restrictions on the transfer of Shares—the restrictions; (q) termination and liquidation of the company. | ||
2.4. | 2.4.3 The following provisions apply to the name of a Company or the reservation of a name for a Company (or a proposed Company): (a) the name must use letters of the English alphabet, numerals or other characters acceptable to the Registrar of Companies; (b) the name must not, in the opinion of the Registrar, be, or be reasonably likely to become, misleading, deceptive or conflicting with another name (including an existing name of another Company or Recognised Company); (c) the name must not include words that may suggest a relationship with the AIFCA, AFSA or any other governmental authority in the AIFC, Astana or the Republic of Kazakhstan, unless the relevant authority has consented in Writing to the use of the name; | 2.4.3 The following provisions apply to the name of a Company or the reservation of a name for a Company (or a proposed Company): (a) the name must use letters of the English alphabet, numerals or other characters acceptable to the Registrar of Companies; (b) the name must not, in the opinion of the Registrar, be, or be reasonably likely to become, misleading, deceptive or conflicting with another name (including an existing name of another Company or Recognised Company); (c) the name must not include words that may suggest a relationship with the AIFCA, AFSA or any other governmental authority in the AIFC, | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(d) the name must not include any of the following words unless the AFSA has consented in Writing to their use: (i) the word ‘bank’, ‘insurance’ or ‘trust’; (ii)words that suggest that the Company (or proposed Company) is a bank, insurance company or trust company; (iii)words that suggest in some other way that it is authorised to conduct Financial Services in the AIFC; (e) the name must not include words that may suggest a connection with, or the patronage of, any Person or organisation, unless the Person or organisation has consented in Writing; (f) the name must not be, in the opinion of the Registrar, otherwise undesirable. | (d) the name must not include any of the following words unless the AFSA has consented in Writing to their use: (i) the word ‘bank’, ‘insurance’ or ‘trust’; (ii)words that suggest that the Company (or proposed Company) is a bank, insurance company or trust company; (iii)words that suggest in some other way that it is authorised to conduct Financial Services in the AIFC; (e) the name must not include words that may suggest a connection with, or the patronage of, any Person or organisation, unless the Person or organisation has consented in Writing; (f) the name must not be, in the opinion of the Registrar, otherwise undesirable. | ||
3.6. | 3.6.2 The application must state the following: (a) the address of the Foreign Company’s proposed principal place of business in the AIFC; (b) the nature of the business the Foreign Company proposes to conduct in or from the AIFC; (c) the name and address of each Person authorised to accept service of any Document or notice on behalf of the company; (d) the following information for each Director of the Foreign Company: (i) the full name, nationality and address of the Director; (ii)if the Director has a former name (including, for an individual, any former given or family name)—the former name or, if the Director has 2 or more former names, each former name; (iii)the Director’s date and place of birth, incorporation, formation or registration, as the case may be; (iv) the Director’s address; (e) the address of the Foreign Company’s registered office in its place of origin or, if it is not required to have a registered office under the laws of the place of | 3.6.2 The application must state the following: (a) the address of the Foreign Company’s proposed principal place of business in the AIFC; (b) the nature of the business the Foreign Company proposes to conduct in or from the AIFC; (c) the name and address of each Person authorised to accept service of any Document or notice on behalf of the company; (d) the following information for each Director of the Foreign Company: (i)in the case of an individual the full name, nationality and address of the Director, in the case of a body corporate, corporate or firm name and registered or principal address; (ii)if the Director has a former name (including, for an individual, any former given or family name)—the former name or, if the Director has 2 or more former names, each former name; (iii)in the case of an individual, the Director’s date and place of birth, in the case of a body corporate, the legal form of the company or firm and the law by which it is governed and if applicable, the register in which it is entered (including | Category 2) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
origin, the address of its principal place of business in its place of origin. | details of the state) and its registration number in that register; | ||
(iv) | |||
(e) the address of the Foreign Company’s registered office in its place of origin or, if it is not required to have a registered office under the laws of the place of origin, the address of its principal place of business in its place of origin. | |||
4.2. Evidence of title to Securitie s | 4.2.1. Subject as otherwise provided in the Articles, for sections 54 (Transfer and registration of Shares and Debt Securities) and 58 (Share certificates) of the AIFC Companies Regulations, title to Shares may be evidenced and transferred without a Written instrument of transfer, and title to Shares may be evidenced without a Written instrument, in accordance with the following requirements: (a) where, following a transfer of title evidenced, to the satisfaction of the Company, otherwise than by a Written instrument, details of a Shareholder are to be deleted from, and those of another are to be added to, the Company’s Register of Shareholders, the Company must provide Written notice of the deletion to the former Shareholder and Written notice of the addition to the new Shareholder; | 4.2.1. Subject as otherwise provided in the Articles of Association, for sections 54 (Transfer and registration of Shares and Debt Securities) and 58 (Share certificates) of the AIFC Companies Regulations, title to Shares may be evidenced and transferred without a Written instrument of transfer, and title to Shares may be evidenced without a Written instrument, in accordance with the following requirements: (a) where, following a transfer of title evidenced, to the satisfaction of the Company, otherwise than by a Written instrument, details of a Shareholder are to be deleted from, and those of another are to be added to, the Company’s Register of Shareholders, the Company must provide Written notice of the deletion to the former Shareholder and Written notice of the addition to the new Shareholder; | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(b) when the details of a Shareholder are amended in the Company’s Register of Shareholders, the Company must provide Written notice of the change to the Shareholder; | (b) when the details of a Shareholder are amended in the Company’s Register of Shareholders, the Company must provide Written notice of the change to the Shareholder; | ||
(c) if share certificates have previously been issued by the Company, the Company must require the return of share certificates and, on their return, must cancel them; | (c) if share certificates have previously been issued by the Company, the Company must require the return of share certificates and, on their return, must cancel them; | ||
(d) the Company will not recognise the rights of third parties in relation to issued Shares. | (d) the Company will not recognise the rights of third parties in relation to issued Shares. | ||
6.8.4. | 6.8.4 Subject as otherwise provided in the Articles, an Open-Ended Investment Company must redeem its Shares at a price based on the net asset value of the property of the Company in accordance with and at such intervals as may be prescribed by its Articles of Association and any relevant Legislation | 6.8.4 Subject as otherwise provided in the Articles of Association, an Open- Ended Investment Company must redeem its Shares at a price based on the net asset value of the property of the Company in accordance with and at such intervals as may be prescribed by its Articles of Association and any relevant | Category 7) of amendments set out in “Key elements of proposed amendments” of the |
Schedule 3 | proposed amendments” of the Consultation Paper | ||
2. AIFC General Partnership Rules | |||
2.1. | 2.1.3 The following provisions apply to the nameof a General Partnership or the reservation of a name for a General Partnership (or a proposed General Partnership): (a)the namemust use letters of the English alphabet, numerals or other characters acceptable to the Registrar of Companies; (b)the name must comply with section 12(2)(a) (Registration as General Partnership) of the AIFC General PartnershipRegulations; (c)the name must not, in the opinion of the Registrar, be, or be reasonably likely to become, misleading, deceptive, conflicting with another name (including an existing name of another partnership); (d)the name must not contain words that may suggest a relationship with the AIFCA, AFSA or any other governmental authority in the AIFC, Astana or the Republic of Kazakhstan, unless the relevant authority has consented in Writing to the use of the name; (e)the namemust not containany of the following words unless the AFSA has consented in Writing to their use: (i)the word ‘bank’, ‘insurance’ or ‘trust’; (ii)words that suggest that the partnership is engaged in banking, insurance or trust activities; (iii)words thatsuggest in some other way that it is authorised to conduct Financial Services in the AIFC; (f)the name must not contain words that may suggest a connection with,or the patronage of, any Person or organisation, unless the Personor organisation consents in Writing; (g)the name must not be, in the opinion of the Registrar, otherwise undesirable. | 2.1.3 The following provisions apply to the nameof a General Partnership or the reservation of a name for a General Partnership (or a proposed General Partnership): (a) the name must use letters of the English alphabet, numerals or other characters acceptable to the Registrar of Companies; (b)the name must comply with section 12(2)(a) (Registration as General Partnership) of the AIFC General PartnershipRegulations; (c)the name must not, in the opinion of the Registrar, be, or be reasonably likely to become, misleading, deceptive, conflicting with another name (including an existing name of another partnership); (d)the name must not contain words that may suggest a relationship with the AIFCA, AFSA or any other governmental authority in the AIFC (e)the namemust not containany of the following words unless the AFSA has consented in Writing to their use: (i)the word ‘bank’, ‘insurance’ or ‘trust’; (ii)words that suggest that the partnership is engaged in banking, insurance or trust activities; (iii)words thatsuggest in some other way that it is authorised to conduct Financial Services in the AIFC; (f) the name must not contain words that maysuggest a connection with, or the patronage of, any Person or organisation, unless the Personor organisation consents in Writing; | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
(g) the name must not be, inthe opinion of the Registrar, otherwise undesirable. | |||
3. AIFC Limited Partnership Rules | |||
2.2.3 | 2.2.3 The following provisions apply to the name of a Limited Partnership or the reservation of a name for a Limited Partnership (or a proposed Limited Partnership): (a)the name must use letters of the English alphabet, numerals or other characters acceptable to the Registrar of Companies; (b)the name must end with the words ‘Limited Partnership’; (c)the name must not, in the opinion of the Registrar, be, or be reasonably likely to become, misleading, deceptive, conflicting with another name (including an existing name of another partnership); (d)the name must not contain words that may suggest a relationship with the AIFCA, the AFSA or any other governmental authority in the AIFC, Astana or the Republic of Kazakhstan, unless the relevant authority has consented in Writing to the use of the name; (e) the name must not contain any of the following words unless the AFSA has consented in Writing to their use: (i)the word ‘bank’, ‘insurance’ or ‘trust’; (ii)words that suggest that the partnership is engaged in banking, insurance or trust activities; (iii)words that suggest in some other way that it is authorised to conduct Financial Services in or from the AIFC; (f)the name must not contain words that may suggest a connection with, or the patronage of, any Person or organisation, unless the Person or organisation consents in Writing; (g)the name must not be, in the opinion of the Registrar, otherwise undesirable. | 2.2.3 The following provisions apply to the name of a Limited Partnership or the reservation of a name for a Limited Partnership (or a proposed Limited Partnership): (a)the name must use letters of the English alphabet, numerals or other characters acceptable to the Registrar of Companies; (b)the name must end with the words ‘Limited Partnership’; (c)the name must not, in the opinion of the Registrar, be, or be reasonably likely to become, misleading, deceptive, conflicting with another name (including an existing name of another partnership); (d)the name must not contain words that may suggest a relationship with the AIFCA, the AFSA or any other governmental authority in the AIFC, (i)the word ‘bank’, ‘insurance’ or ‘trust’; (ii)words that suggest that the partnership is engaged in banking, insurance or trust activities; (iii)words that suggest in some other way that it is authorised to conduct Financial Services in or from the AIFC; (f)the name must not contain words that may suggest a connection with, or the patronage of, any Person or organisation, unless the Person or organisation consents in Writing; (g)the name must not be, in the opinion of the Registrar, otherwise undesirable. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
4. AIFC Limited Liability Partnership Rules | |||
2.7 | 2.7. Notification of change in certain registered details of Limited Liability Partnership | 2.7. Notification of change in certain registered details of Limited Liability Partnership | Category 7) of amendments set out in “Key elements of |
2.7.1. If any of the relevant registered details of a Limited Liability Partnership change, the partnership must notify the Registrar of Companies in Writing within 14 days after the day the change happens. | 2.7.1. If any of the relevant registered details of a Limited Liability Partnership change, the partnership must notify the Registrar of Companies in Writing within 14 days after the day the change happens. | proposed amendments” of the Consultation Paper | |
2.7.2. Contravention of this rule is punishable by a fine. | 2.7.2. Contravention of this rule is punishable by a fine. | ||
2.7.3. The maximum fine that may be imposed on a Person for a Contravention of this rule is US$1,000. | 2.7.3. The maximum fine that may be imposed on a Person for a Contravention of this rule is US$1,000. | ||
2.7.4. In this rule: | 2.7.4. In this rule: | ||
relevant registered details, in relation to a Limited Liability Partnership, means information about | relevant registered details, in relation to a Limited Liability Partnership, means information about | ||
the partnership required to be included in the register kept under section 51(1) (Public registers of | the partnership required to be included in the register kept under section 51(1) (Public registers of | ||
limited liability partnerships) of the AIFC Limited Liability Partnership Regulations, other than | limited liability partnerships) of the AIFC Limited Liability Partnership Regulations, other than | ||
any information in relation to which section 26 (Notification of membership changes) of those Regulations applies. | any information in relation to which section 26 (Notification of membership changes) of those | ||
Regulations applies. | |||
2.7.5 The change in registered details notice must be accompanied by the fee prescribed by the Rules from time to time. | |||
5. AIFC NPIO RULES | |||
2.1 | PART 2: INCORPORATED ORGANISATIONS | PART 2: INCORPORATED ORGANISATIONS 2.1.Charter of Organisation 2.1.1For section 13(4) of the AIFC Non- profit Incorporated Organisations Regulations, the provisions of Schedule 1 (Standard Charter) are the model provisions to be known as the Standard Charter. 2.1.2
the application. | Category 2) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
2.1. Charter of Organisation | |||
2.1.1 For section 13(4) of the AIFC Non- profit Incorporated Organisations Regulations, the provisions of Schedule 1 (Standard Charter) are the model provisions to be known as the Standard Charter. | |||
2.1.2 If the proposed Charter of Organisation accompanying an application for the incorporation of an Incorporated Organisation does not adopt the whole of the Standard Charter, the application must set out details of the parts of the Standard Charter that have not been adopted. | |||
2.1.3 The proposed Charter of Organisation accompanying an application for the incorporation of an | |||
Incorporated Organisation must include provision for the following matters: (a) the Authorised Activities to be conducted by the Incorporated Organisation; (b) the calling of meetings of the Founding Members by Founding Members; (c) the proceedings of meetings of the Founding Members, including voting; (d) information to be provided to Founding Members before a meeting of the Founding Members; (e) the maximum number of Founding Members; (f) the appointment and removal of Founding Members; (g) the Functions of Founding Members; (h) appointment of the secretary, if applicable; (i) the keeping of minutes. 2.1.4 An application for the incorporation of an Incorporated Organisation must state that the proposed Charter of the Incorporated Organisation accompanying the application has been adopted by the applicants. | 2.1.3 The proposed Charter of Organisation accompanying an application for the incorporation of an Incorporated Organisation must include provision for the following matters: (a) the Authorised Activities to be conducted by the Incorporated Organisation; (b) the calling of meetings of the Founding Members by Founding Members; (c) the proceedings of meetings of the Founding Members, including voting; (d) information to be provided to Founding Members before a meeting of the Founding Members; (e) the maximum number of Founding Members; (f) the appointment and removal of Founding Members; (g) the Functions of Founding Members; (h) appointment of the secretary, if applicable; (i) the keeping of minutes. 2.1.4 An application for the incorporation of an Incorporated Organisation must state that the proposed Charter of the Incorporated Organisation accompanying the application has been adopted by the applicants. | ||
6. AIFC Fees Rules | |||
Content | 2.3. Filing fee for annual return | 2.3. Filing fee for annual | Category 1) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
2.3 | 2.3. Filing fee for annual return | 2.3. Filing fee for annual | Category 1) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
2.3 | 2.3.1. Fee payable to the Registrar of Companies in respect of filing an annual return. When an annual return is filed under the Companies Regulations, it must be accompanied by the filing fee prescribed by the Registrar from time to time. | 2.3.1. Fee payable to the Registrar of Companies in respect of filing an annual When an annual accuracy of information on register is filed under the Companies Regulations, it must | Category 1) of amendments set out in “Key elements of proposed amendments” of the |
Guidance Section 26(2) of the Companies Regulations specifies that a company’s annual return must be accompanied by the filing fee prescribed by the Registrar of Companies from time to time. | be accompanied by the filing fee prescribed by the Registrar from time to time. Guidance Section 26(2) of the Companies Regulations specifies that a company’s annual to time. | Consultation Paper | |
4. FEES FOR EXTRACTS OF INFORMATION 4.1.Fee for extracts from information held by the Registrar of Companies 4.1.1. General requirement Persons seeking extracts of information or other documentation held by the Registrar of Companies in relation to a Centre Participant or Approved Individual may be required, upon application, to pay a prescribed fee for each specific information request. | 4. FEES FOR EXTRACTS OF INFORMATION 4.1.Fee for extracts from information held by the Registrar of Companies 4.1.1. General requirement Persons seeking extracts of information or other documentation held by the Registrar of Companies in relation to a Centre Participant or Approved Individual may be required, upon application, to pay a prescribed fee specified in Schedule 5-1 for each specific information request | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper | |
New section | 2.4FEES FOR POST- REGISTRATION PROCEDURES 2.4.1.Fee for Post- Registration Procedures Person seeking to proceed with Post- Registration Procedure in relation to a Centre Participant may be required to pay a prescribed fee specified in Schedule 5-1 for each specific procedure. Guidance Section (17) and (148) of the Companies Regulations specifies that the Registrar of Companies may charge a fee for the procedure of change in Registered Details or other Post-Registration Procedures under the Companies Regulations, Rules or any other Legislation administered by the Registrar. | Category 7) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper | |
7. AIFC Special Purpose Company Rules | |||
8.1 | PART 8: ANNUAL RETURNS 8.1 Annual returns Section 26 (Annual returns) of the AIFC Companies Regulations does not apply to a Special Purpose Company. | PART 8: 8.1 apply to a Special Purpose Company | Category 1) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
3.2 | 3.2 Articles of Association 3.2.1The Registrar of Companies may, from time to time, adopt, and publish, model Articles of Association for Special Purpose Companies (model articles). 3.2.2If model articles are in force under subrule 3.2.1 at the time that an application for incorporation of a Special Purpose Company is filed with the Registrar, the company must adopt those model articles as its initial Articles of Association, notwithstanding anything in section 14 (Articles of Association) of the AIFC Companies Regulations. 3.2.3However, the Incorporators may choose to modify the model articles. The Registrar of Companies may object to any modification of the model articles if the Registrar considers that the modification is inappropriate having regard to the nature of a Special Purpose Company and the activities that it is permitted to conduct. 3.2.4If an amendment of the Articles of Association of a Special Purpose Company is submitted to the Registrar of Companies under section 19(2) of the AIFC Companies Regulations, the Registrar may object to the amendment if the Registrar considers that the amendment is inappropriate having regard to the nature of a Special Purpose Company and the activities that it is permitted to conduct. | 3.2 Articles of Association 3.2.1The Registrar of Companies may, from time to time, adopt, and publish, Standard Articles of Association for Special Purpose Companies (model articles). 3.2.2 3.2.3However, the Incorporators may choose to modify the model articles. The Registrar of Companies may object to any modification of the model articles if the Registrar considers that the modification is inappropriate having regard to the nature of a Special Purpose Company and the activities that it is permitted to conduct. 3.2.4If an amendment of the Articles of Association of a Special Purpose Company is submitted to the Registrar of Companies under section 19(2) of the AIFC Companies Regulations, the Registrar may object to the amendment if the Registrar considers that the amendment is inappropriate having regard to the nature of a Special Purpose Company and the activities that itis permitted to conduct. | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
3.3 | 3.3 Incorporation of Special Purpose Companies 3.3.1Notwithstanding section 15(1) (Decision on incorporation application etc.) of the AIFC Companies Regulations, if an application is made under the AIFC Companies Regulations for the incorporation of a Special Purpose Company, the Registrar of Companies must incorporate it as a Special Purpose Company if satisfied that it is eligible to be incorporated as a Special Purpose Company. | 3.3 Incorporation of Special Purpose Companies 3.3.1Notwithstanding section 15(1) (Decision on incorporation application etc.) of the AIFC Companies Regulations, if an application is made under the AIFC Companies Regulations for the incorporation of a Special Purpose Company, the Registrar of Companies must incorporate it as a Special Purpose Company if satisfied that it is eligible to be incorporated as a Special Purpose Company. | Category 4) of amendments set out in “Key elements of proposed amendments” of the Consultation Paper |
3.3.2The certificate of incorporation issued under section 16(1)(a) (Effect of incorporation) of the AIFC Companies Regulations for a Special Purpose Company must state that the company is incorporated as a Special Purpose Company. 3.3.3On the incorporation of a Special Purpose Company and registration of its Articles of Association, the Registrar of Companies must, in addition to entering the name of the company in the Register of Companies under section 16(1)(c) of the AIFC Companies Regulations, enter the name of the company in the Special Purpose Companies Register. 3.3.4For section 204(1) (Public registers) of the AIFC Companies Regulations, the Registrar of Companies must keep and publish a separate register of current and past registrations of Special Purpose Companies (the Special Purpose Companies Register). | 3.3.2The certificate of incorporation issued under section 16(1)(a) (Effect of incorporation) of the AIFC Companies Regulations for a Special Purpose Company must state that the company is incorporated as a Special Purpose Company. 3.3.3On the incorporation of a Special Purpose Company 3.3.4For section 204(1) (Public registers) of the AIFC Companies Regulations, the Registrar of Companies must keep and publish a separate register of current and past registrations of Special Purpose Companies (the Special Purpose Companies Register). |
Annex 3
Proposed amendments to the Schedule 1 of the AIFC Companies Rules
The underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
SCHEDULE 1: STANDARD ARTICLES STANDARD ARTICLES OF ASSOCIATION FOR PRIVATE COMPANIES
Standard Articles for [insert name]
(the “Company”)
A Private Company
1. INTERPRETATION
1.1. In these Articles, unless the contrary intention appears:
Board – means the board of Directors of the Company.
Companies Regulations means the AIFC Companies Regulations and includes the AIFC Companies Rules.
Directors means the Directors for the time being of the Company or, as the case may be, those Directors assembled as a board or as a committee of the board.
Incorporator – means a person who agrees to subscribe for Shares in the Company and to whom Shares are allotted and issued upon incorporation of the Company. or, as the case may be, those directors assembled as a Board or as a committee of the Board.
Ordinary Resolution means a resolution passed by a simple majority of the votes of the Shareholders (or the Shareholders of the relevant class of Shares) who (being entitled to do so) vote in person or, if proxies are allowed, by proxy, at a General Meeting for which notice specifying the intention to propose the resolution has been duly given, and, if the Company is a Private Company, includes an Ordinary Resolution in writing passed under section 100 (Resolution in writing of Private Companies) of the Companies Regulations.
Register of Directors means the Register of Directors of the Company under the Companies Regulations.
Register of Shareholders means the Register of Shareholders of the Company under the Companies Regulations.
Shareholder means a Person entered in the Register of Shareholders as the holder of a Share in the Company.
Special Resolution means a resolution passed by at least 75% of the votes of the Shareholders (or the Shareholders of the relevant class of Shares) who (being entitled to do so) vote in person or, if proxies are allowed, by proxy, at a General Meeting provided that notice specifying the intention to propose the resolution as a Special Resolution has been duly given, and, if the Company is a Private Company, includes a Special Resolution in writing passed under section 100 (Resolutions in writing of Private Companies) of the Companies Regulations.
Secretary – means the secretary of the Company, if any, or any other person appointed to perform the duties of the secretary of the Company, including a joint, assistant or deputy secretary.
Shares – means shares in the Company.
‘the holder’- in relation to Shares means the Shareholder whose name is entered in the Register of Shareholders as the holder of Shares.
‘Transmittee’- a person entitled to a Share by reason of the death or bankruptcy of a Shareholder or otherwise by operation of law.
these Articles means these Articles of Association.
1.2. Terms used in these Articles have the same meanings as they have, from time to time, in the Companies Regulations, or the relevant provisions of the Companies Regulations, unless the contrary intention appears, but excluding any statutory modification thereof not in force when these Articles become binding on the Company.
1.3. In these Articles, words in the singular include the plural and words in the plural include the singular, unless the contrary intention appears.
1.4. In these Articles, words indicating gender include every other gender, unless the contrary intention appears.
1.5. In these Articles, the word may, or a similar term, used in relation to a Function indicates that the Function may be Exercised or not Exercised, at discretion.
1.6. In these Articles, the word must, or a similar term, used in relation to a Function indicates that the Function is required to be Exercised.
1.7. References in these Articles to “writing”, in relation to any document, instrument, certificate, notice, register or communication means a legible form of the information that is capable of being reproduced in tangible form, in any medium (including electronic means). For the avoidance of doubt, the Company may, with the consent of a Shareholder, communicate with that Shareholder by electronic means.
1.8. In these Articles, a reference to Regulations or Rules is a reference to Regulations or Rules of the Astana International Financial Centre and, unless the contrary intention appears, a reference to particular Regulations or Rules includes a reference to those Regulations or Rules as amended from time to time.
1.9. In these Articles, a reference to an amount of money is a reference to the amount in the currency of the United States of America.
1.10. For these Articles, if an Ordinary Resolution is expressed to be required for any purpose, then, subject to the Companies Regulations, a Special Resolution is also effective for that purpose.
2. COMPANY NAME AND TYPE
2.1. The Company’s name is [insert Company name] [insert “Limited” or “Ltd”].
2.2. The Company is [insert type of Company e.g. a Public Company/Private Company].
3. COMPANY REGISTERED OFFICE
The address of the registered office of the Company will be situated in the Astana International Financial Centre, Nur-Sultan, Republic of Kazakhstan, at the address provided in the public register. [insert address in the Astana International Financial Centre].
4. NATURE OF COMPANY’S BUSINESS
The Company’s principal business activities are: is to conduct:
A. [insert description of the nature of the business to be conducted by the Company]; carry on business in pursuit of the activities described under the certificate issued to the Company under the Companies Regulations and Rules; and
B. any other lawful activity for which companies may be incorporated under the AIFC Companies Regulations.
5. LIABILITY OF SHAREHOLDERS
The liability of Shareholders is limited to the amount, if any, unpaid on the Shares held by them in the Company.
6. SHARE CAPITAL
6.1. The authorised share capital of the Company is [Insert the total authorised share capital that the company may issue] Dollars (US$ .00)] divided into [insert total number of Shares the company may issue] [Insert class of share eg Ordinary] Share(s) of [[insert nominal value of each share] Dollars (US$ .00)] each.
6.2. No Share shall be issued for less than its nominal value.
6.3. The initial share capital of the Company is [Insert amount of share capital to be issued to Incorporators in United States Dollars] represented by [Insert number of Shares to be issued to the Incorporators][Insert class of share eg Ordinary] Shares, with a nominal value of [Insert nominal value of each share amount in United States Dollars] each.
6.4. The initial shareholding of the Incorporators is as follows: [Insert details of the initial shareholdings of the Incorporators]:
[Insert (in paragraphs numbered consecutively) the information required for each Incorporator by the Companies Regulations (see section 13(4)(g))]
6.5. [Insert (in paragraphs numbered consecutively) the details required by the Companies Regulations (see section 13(4)(h)) of the individuals who are to serve as the Directors and the Secretary]
6.6. The capital of the Company must be divided into Shares with no par value.
7. COMPANY’S SHARES
7.1. Subject to the provisions of the Companies Regulations and without affecting any rights, entitlements or restrictions attached to existing Shares, a Share may be issued with the rights, entitlements or restrictions that the Company may decide by Ordinary Resolution.
7.2. Subject to the Companies Regulations, the Company may issue, or convert existing non- redeemable Shares, whether allotted or not, into redeemable Shares at the discretion of the board of Directors.
7.3. The Company must not recognise a Person as holding a Share on trust and, except as otherwise provided by these Articles or the Companies Regulations, the Company is not bound by, and must not recognise, any interest in a Share except an absolute right of ownership.
8. CLASSES OF SHARES
8.1 If the share capital of the Company is divided into different classes of Shares, the rights attached to any class may, be varied through a Special Resolutions passed by the holders of the Shares of that class, or any other class of Shares affected by the change.
8.2 The rights attached to any class of Shares issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking equally with the first-mentioned Shares.
9. SHARE CERTIFICATES
9.1. Unless the conditions of the allotment of Shares provide otherwise, on becoming the Shareholder of any Shares, a Person is entitled, free of charge:
(a) to 1 share certificate for all the Shares of each class held by the Person; and
(b) to 1 share certificate for any additional Shares of any class transferred to the Person; and
(c) on transferring a part of the Person’s Shares of any class, to a certificate for the balance of the holding.
9.2. A Shareholder is entitled to additional certificates, each for 1 or more of the Shareholder’s Shares, on payment for every certificate after the first, of the reasonable amount (if any) decided by the Directors of the Company.
9.3. Every share certificate must specify the number, class and distinguishing numbers (if any) of the Shares to which it relates, and the amount or respective amounts Paid-up on them, and the nominal value of the Shares.
9.4. The Company is not required to issue more than 1 certificate for Shares held jointly by 2 or more Persons, and delivery of a certificate to a joint holder is sufficient delivery to all of them.
9.5. If a share certificate is damaged, defaced lost or destroyed, that Shareholder is entitled to be issued with a replacement share certificate in respect of the same Shares, and:
(i) may request a single share certificate or separate share certificates to be issued;
(ii) shall return the damaged or defaced share certificates (if any) to the Company; and
(iii) shall comply with such conditions as to evidence, indemnity and the payment of a reasonable fee as the Directors may determine.
9.6. If a share certificate is lost, stolen or destroyed, the Company may replace it if the Company receives the evidence of the shareholding right that it requires, the indemnity (if any) that it requires, and is paid the reasonable amount (if any) decided by the Directors for the expenses incurred by the Company in investigating the evidence and providing the replacement certificate.
9.7. If a share certificate has become damaged or worn, the Company may replace it if the Company is given the certificate and is paid the reasonable amount (if any) decided by the Directors for the expenses incurred by the Company in providing the replacement certificate.
10. LIEN OVER PARTLY PAID SHARES
10.1 The Company has a lien over every Share that is not fully paid for all amounts payable to the Company (whether presently payable or not) in respect of that Share.
10.2 The Directors may at any time declare any Share to be wholly or partly exempt from the Company’s lien.
10.3 The Company’s lien on a Share:
(i) takes priority over any third party’s interest in that Share; and (ii) extends to any amounts payable in respect of it.
10.4 The Company may sell any Share it has a lien over, if a sum is payable on the Share and is not paid within fourteen (14) days’ from the date on which notice was given to the Shareholder of the Share or to the person entitled to it by reason of the Shareholder’s death, bankruptcy or otherwise, demanding payment and stating that if the notice is not complied with the Shares may be sold.
10.5 The Directors may authorise a person to execute an instrument of transfer of the Shares to the purchaser or a person nominated by the purchaser. The purchaser’s (or its nominee’s) title to the Shares shall not be affected by any irregularity or invalidity in relation to the sale.
10.6 The net proceeds of any such sale, shall be applied in payment of the amounts payable to the Company under the lien at the date of enforcement, and any remainder shall (subject to a like lien for any moneys not presently payable on the Shares before the sale) be paid to the Shareholder entitled to the Shares immediately prior to the sale.
11. CALLS ON SHARES AND FORFEITURE
11.1 Subject to the terms of allotment, the Directors may make calls upon the Shareholders in respect of any moneys unpaid on their Shares and each Shareholder shall (subject to receiving at least fourteen (14) clear days’ notice specifying when and where payment is to be made) pay to the Company, as required by the notice, the amount called on the Shares. A call may be required to be paid by instalments.
11.2 The Directors may, in whole or in part, revoke or postpone a call.
11.3 Shareholders shall remain liable for calls made upon them notwithstanding the subsequent transfer of the Shares in respect of which the call was made.
11.4 A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed.
11.5 The joint holders of a Share shall be jointly and severally liable to pay all calls in respect of the Share.
11.6 If a call remains unpaid after it has become due and payable, the Shareholder is liable to pay interest on the amount unpaid from the day it became due and payable until it is paid, at the rate:
(i) fixed by the terms of allotment of the Share; (ii) specified in the notice of the call; or
(iii) the Directors may determine (which shall not exceed 10% per annum), but the Directors may waive payment of the interest wholly or in part.
11.7 An amount payable in respect of a Share on allotment or at any fixed date, or as an instalment of a call, shall be deemed to be a call and if it is not paid, the provisions of these Articles shall apply as if that amount had become due and payable by virtue of a call duly made and notified.
11.8 The Directors may, on the issue of Shares, differentiate between the Shareholders as to the amount of calls to be paid and the times of payment.
11.9 The Directors may, if they think fit, receive from a Shareholder the whole or a part of the amount remaining unpaid on Shares held by the Shareholder, although no part of that amount has been called up. The Directors may authorise the Company to pay interest on the amount so received, until the amount becomes payable at a rate agreed between the Directors and the Shareholder, which shall not exceed ten per cent (10%) per annum, unless the Company at a general meeting directs otherwise.
12. TRANSFER OF SHARES
12.1. Subject to the Companies Regulations, the instrument of transfer of a Share in the Company may be in any form approved by the Directors of the Company. The instrument of transfer must be executed by or on behalf of the transferor.
12.2. The Company may refuse to register the transfer of a Share in the Company only if the instrument of transfer, the share certificate, and any other evidence that the Directors may reasonably require, are not fully paid or are not duly filed at the registered office of the Company or the office of the agent that maintains the Company’s Register of Shareholders.
12.3. If the Directors refuse to register a transfer of a Share, they shall within fourteen (14) days notify the transferee and transferor accordingly.
12.4. The Directors of the Company may suspend the registration of transfers of Shares in the Company at the times and for the periods (not exceeding 30 days in any year), as decided by them, acting reasonably.
12.5. The Company may charge a reasonable fee for the registration of any instrument of transfer. No fee shall be charged for the registration of any instrument of transfer.
12.6. The transferor remains the holder of a Share until the transferee’s name is entered in the Register of Shareholders as the holder of the Share.
12.7. The Company must keep any instrument of transfer that is registered.
13. TRANSMISSION OF SHARES
13.1. If title to a Share passes to a Transmittee, the Company may only recognise the Transmittee as having any title to that Share.
13.2. A Transmittee who produces such evidence of entitlement to Shares as the Directors may properly require may, subject to these Articles, choose to either:
(i) become the holder of those Shares, in which case the Transmittee shall notify the Company in writing of that wish and once the Transmittee becomes the holder of the Shares has the same rights as the Shareholder had; or
(ii) have them transferred to another person, in which case the Transmittee must execute an instrument of transfer in respect of it in accordance with article 12.
13.3. The Transmittee shall only have the right to attend and vote at a general meeting or agree to a written resolution when the Transmittee becomes the holder of the Shares.
13.4. Any transfer made or executed under this article is to be treated as if it were made or executed by the person from whom the Transmittee has derived rights in respect of the Share, and as if the event which gave rise to the transmission had not occurred.
13.5. If a notice is given to a Shareholder in respect of Shares and a Transmittee is entitled to those Shares, the Transmittee is bound by the notice if it was given to the Shareholder before the Transmittee’s name was entered in the Register of Shareholders.
13.6. If a Shareholder dies, the Shareholder’s Personal Representative, or, if the Shareholder was a joint holder, the survivor or survivors, are the only Persons who may be recognised by the Company as having title to the Shareholder’s Shares.
13.7. If a Person becomes entitled to a Share as a result of the death or bankruptcy of a Shareholder and gives notice to the Company of the entitlement, the Person must be registered as a Shareholder in relation to the Share. On registration, the Person has the same rights as other Shareholders of the same class of Shares.
14. ALTERATION OF SHARE CAPITAL
14.1. The Company may, by Special Resolution:
(a) increase its share capital by creating new Shares of an existing class with the same nominal value, or a new class of Shares of the nominal value it considers appropriate; or
(b) consolidate and divide its share capital (whether allotted or not) into Shares representing a larger nominal value than their existing nominal value; or
(c) subdivide its Shares, or any of them, into Shares representing a smaller nominal value than their existing nominal value, if the proportion between the amount paid and the amount unpaid (if any) on each subdivided Share is the same as it was for the Share from which the sub-divided Share was derived.
(d) cancel Shares which, at the date of the passing of the Special Resolution, have not been taken or agreed to be taken by any person and diminish the amount of the Company’s share capital by the amount of the Shares so cancelled.
14.2. Any fractions of Shares resulting from a consolidation of Shares may be sold by the Directors of the Company on behalf of the Shareholders and the net proceeds distributed proportionately among the Shareholders.
14.3. The Company may, in accordance with the Companies Regulations, reduce its share capital in any way and the terms that it may decide.
15. PURCHASE OF OWN SHARES
13. Subject to the provisions of the Companies Regulations, the Company may purchase its own Shares.
16. GENERAL MEETINGS
16.1 The Directors of the Company may call, General Meetings.
16.2 On a Shareholders’ request under section 95 of the Companies Regulations, the Directors
16.3 or, if appointed, the Secretary, of a Company must promptly call a General Meeting or a meeting of holders of any class of Shares. The meeting must be held as soon as practicable, but not later than 2 months after the day the request is made.
17. REQUISITION AND NOTICE OF GENERAL MEETINGS
17.1. Subject to the Companies Regulations, if the Company is a Public Company, a General Meeting of the Company (other than an Annual General Meeting or adjourned Annual General Meeting) must be called by at least 14 days written notice to all the Shareholders, the Directors and the auditor.
17.2. If the Company is a Public Company, an Annual General Meeting, or adjourned Annual General Meeting, of the Company must be called by at least 21 days Written notice to all the Shareholders, the Directors and the auditor.
17.3. Subject to the Companies Regulations, a notice of a General Meeting must specify the time and place of the meeting, the general nature of any matters to be considered, and any proposed Resolutions of which notice has been duly given. A notice of an Annual General Meeting must state that the meeting is an Annual General Meeting to the Company or to be proposed by the Company and whether any of them is to be proposed as a Special Resolution.
17.4. The proceedings of a General Meeting are not invalid solely because of the inadvertent failure to give notice of the meeting to, or the failure to receive notice of the meeting by, any Person entitled to receive the notice.
18. PROCEEDINGS AT GENERAL MEETINGS
18.1. No General Meeting of the Company may take place unless there is a quorum. Two (2) Shareholders entitled to vote, personally present or represented by proxy are a quorum. Except in the case of the Company having a single Shareholder, in which case resolutions will be adopted in writing by the single Shareholder, no meeting shall take place unless a quorum is present. Two (2) persons entitled to vote shall constitute a quorum.
18.2. If a quorum is not present at a General Meeting within half an hour after the time specified in the notice calling the meeting (the meeting start time), the meeting must be adjourned to a place and time decided by the Directors of the Company. If during the meeting a quorum ceases to be present, the meeting must be adjourned to a place and time decided by the Directors.
18.3. The Chair of the board of Directors of the Company chairs the meeting. However, if the Chair of the board of Directors is not present or willing to act within 15 minutes after the meeting start time, in the absence of a nominee, another Director elected by the Directors present must chair the meeting. If no Directors are present or willing to chair the meeting, the Shareholders present must elect (1) Shareholder present to chair the meeting.
18.4. Every Director of the Company is entitled to attend and speak at any General Meeting and at any separate meeting of the Shareholders of any class of Shares in the Company, whether or not the Director is a Shareholder or a Shareholder of that class of Shares.
18.5. The Person chairing the meeting (the meeting chair) may adjourn the meeting with the consent of the majority of the votes at the meeting. A matter must not be considered at the adjourned meeting if the matter could not have been considered at the meeting had the adjournment not taken place. It is not necessary for notice to be given of the adjourned meeting unless the meeting was adjourned for 14 days or longer. If the meeting was adjourned for 14 days or longer, at least 7 days notice of the meeting must be given. The notice must specify the time and place of the adjourned meeting, the general nature of any matters to be considered, and any proposed Resolutions of which notice has been duly given.
18.6. Unless a poll is demanded, a resolution put to the vote must be decided on a show of hands. A poll may be demanded, before or on the declaration of the result of a vote by show of hands:
(a) by the meeting chair; or
(b) by at least 2 Shareholders having the right to vote at the meeting; or
(c) by a Shareholder representing not less than 5% of the total voting rights of all the Shareholders having the right to vote at the meeting.
18.7. Unless a poll is demanded, the meeting chair may declare that a resolution has been carried or lost by a particular majority. The entry in the minutes of the meeting of that declaration is conclusive evidence of the result of the resolution.
18.8. The meeting chair may consent to the withdrawal of a demand for a poll.
18.9. A poll must be taken in the way the meeting chair directs and the result is the resolution of the meeting at which the poll was demanded.
18.10. A poll demanded on the election of the Person who is to chair the meeting or on an adjournment must be taken immediately. A poll demanded on any other question must be taken as the meeting chair directs, but not more than 30 days after the day the poll is demanded. The demand for a poll does not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll is demanded.
18.11. If a poll demanded at a meeting is not taken at the meeting, at least 7 days Written notice must be given of the time and place at which the poll is to be taken, unless the time and place is announced at the meeting.
18.12. Resolution in writing may be passed in accordance with the Companies Regulations.
19. VOTES OF SHAREHOLDERS
19.1. On a show of hands, every Shareholder present, including the representative of a Body Corporate Shareholder, has 1 vote. On a poll, every Shareholder has 1 vote for every Share held. This Article is subject to any rights or restrictions attached to any Shares.
19.2. Joint Shareholders may only exercise 1 vote or 1 vote per Share, as the case may be. If more than 1 vote is cast by joint Shareholders, only the vote of the joint Shareholder whose name appears first on the Company’s Register of Shareholders may be taken into account.
19.3. If a Shareholder of the Company has a personal representative appointed because of a physical or mental disability or other, the personal representative may exercise the voting rights of the Shareholder if the personal representative has given notice to the Directors in the form of proxy used by the Company and within the time limit for filing proxies before any meeting being held or vote being taken.
19.4. An objection may only be raised at a General Meeting to the right of any Person to vote at the meeting or on a poll arising from the meeting. The meeting chair must rule on the objection unless the objection relates to the meeting chair. The decision of the meeting chair is final.
19.5. A Shareholder may vote on a poll by proxy.
19.6. An instrument appointing a proxy to vote at a General Meeting, or on a poll arising from a General Meeting, must be in Writing in a form approved by the Company and distributed with the notice of a meeting or poll. The form must include a section allowing the Shareholder to direct theproxy on how the proxy must act.
19.7. An instrument appointing a proxy must be deposited at the registered office of the Company at least 48 hours before the General Meeting at which the proxy is to be exercised. For a poll that is not being taken immediately but sometime after it is demanded, an instrument appointing a proxy may be deposited at the poll with the meeting chair, the Secretary or any Director present or at any time before the poll at the registered office of the Company.
19.8. A vote given or poll demanded by proxy is valid despite the revocation of the proxy by the Shareholder who appointed the proxy unless the Company receives notice from the Shareholder before the vote is taken or the poll is demanded.
20. NUMBER OF DIRECTORS
The Company must have at least 1 Director.
21. ALTERNATE DIRECTORS
21.1. The Chair of the board of Directors or another Director of the Company (the appointor) may appoint any other Director, or any other Person approved by the Directors, as the appointor’s alternate (the appointee), and may revoke the appointment at any time. The appointee may Exercise all the Functions of the appointer as a Director and, if the appointor is the Chair of the board of Directors, as the Chair, but is not entitled to remuneration.
21.2. The appointor and appointee must both be given notice of all Directors meetings of which the appointor is entitled to receive notice.
21.3. The appointee is entitled to attend and vote at Directors meetings, and counts towards the quorum, if the appointor is absent.
21.4. The appointee is not the agent of the appointor and the appointor is not responsible for anything
done or omitted to be done by the appointee.
21.5. The appointee holds office for as long as the appointor holds office as a Director unless the appointee’s appointment is revoked by the appointor.
21.6. The appointor must give notice of the appointment of the appointee, and any revocation of the appointment, to the Company.
22. POWERS OF DIRECTORS
22.1. Subject to the Companies Regulations and these Articles, the business of the Company must be managed by the Directors. No amendment of these Articles invalidates any act of a Director or the Directors.
22.2. The Directors of the Company may appoint a Person to be the agent of the Company.
23. SHAREHOLDERS RESERVE POWER
23.1 The Shareholders may, by Special Resolution, direct the Directors to take, or refrain from taking, specified action. No such Special Resolution shall invalidate anything that the Directors have done before the passing of the resolution
24. DELEGATION OF DIRECTORS’ POWERS
24.1. The bBoard of Directors of the Company may delegate any of its powers to a managing Director, executive Director or a committee of Directors, by such means, to such extent, in relations to such matters or territories ad on such terms and conditions as they think fit.
24.2. If the Board so specifies, any such delegation may authorise further delegation of the Directors’ powers by any person or committee to whom they are delegated.
24.3. The Board may revoke any delegation in whole or in part, or alter its terms and conditions.
25. APPOINTMENT AND RETIREMENT OF DIRECTORS
25.1. Any person who is willing to act as a director, and is permitted by Companies Regulations to do so, may be appointed to be a director—
(a) by ordinary resolution, or
(b) by a decision of the directors.
25.2. At the first Annual General Meeting of the Company, all Directors must retire from office. At every subsequent Annual General Meeting at least one third, or number nearest to one third, of the Directors who are subject to retirement by rotation must retire.
25.3. The Directors subject to retirement by rotation are those that have been longest in office since their last appointment. For Directors appointed on the same day, the Director or Directors to retire must be decided by whose name appears first on the Company’s Register of Directors.
25.4. However, a Director remains in office if the Director is willing to remain in office and the Company, at the meeting at which the Director retires by rotation, resolves not to fill the vacancy.
(2) In any case where, as a result of death, the Company has no shareholders and no directors, the personal representatives of the last shareholder to have died have the right, by notice in writing, to appoint a person to be a director.
(3) For the purposes of paragraph (2), where 2 or more shareholders die in circumstances rendering it uncertain who was the last to die, a younger shareholder is deemed to have survived an older shareholder.
25.5. A Person (other than a Director retiring by rotation) must not be appointed a Director of the Company at a General Meeting unless the Person has been recommended by the Directors or a Shareholder and the Person’s details have been included in the notice of meeting at which the appointment is considered. The details must include at least the information that would be included in the Company’s Register of Directors if the Person were to be appointed.
25.6. Additional Directors may be appointed by the Company by resolution if the total number of
Directors does not exceed any maximum number of Directors prescribed by the Companies Regulations or these Articles.
25.7. A Director appointed under subarticle 25.6 holds office only until the next Annual General Meeting. The Director must retire at that meeting, but may be reappointed in accordance with these Articles.
26. DISQUALIFICATION AND REMOVAL OF DIRECTORS
A Director’s office is automatically vacated if the Director:
(a) is prohibited by the Companies Regulations from being a Director; or
(b) becomes bankrupt a bankruptcy order is made against that person; or
(c) is, because of any mental or physical disability, incapable (otherwise than on a temporary basis) of performing the duties of a Director; or
(d) is absent from 3 consecutive meetings of the board of Directors, except on leave of absence given by the board of Directors; or
(e) resigns by Written notice given to the Company; or
(f) is removed by an Ordinary Resolution or a Special Resolution of the Company.
27. REMUNERATION AND EXPENSES OF DIRECTORS
A Director is entitled to be paid the remuneration that the Company determines by Resolution and is entitled to be reimbursed all expenses reasonably incurred in association with carrying out of the duties of a Director.
27.1. Directors may undertake any services for the company that the directors decide.
27.2. Directors are entitled to such remuneration as the directors determine— (a)for their services to the company as directors, and
(b)for any other service which they undertake for the company.
27.3. Subject to the articles, a director’s remuneration may—
(a) take any form, and
(b) include any arrangements in connection with the payment of a pension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of that director.
27.4. The Company may pay any reasonable expenses which the directors properly incur in connection with their attendance at—
(a) meetings of directors or committees of directors,
(b) general meetings, or
(c) separate meetings of the holders of any class of shares or of debentures of the company,
or otherwise in connection with the exercise of their powers and the discharge of their responsibilities in relation to the Company.
28. DIRECTORS’ APPOINTMENTS
Subject to the Companies Regulations, the Directors of the Company may appoint 1 or more Directors to the office of managing Director or to any other executive office under the Company. An appointment may be made on the terms that the Directors determine. Any appointment of a Director to an executive office ends if the Director ceases to be a Director. A managing Director and a Director holding any other executive office are not subject to retirement by rotation.
28. BENEFITS FOR DIRECTORS ETC. (DIRECTORS’ GRATUTIES AND PENSIONS)
The Directors of the Company may provide benefits, including gratuities and pensions, of any kind for any present or past Director, any Shareholder or the family of any present or past Director or any Shareholders.
29. PROCEEDINGS OF DIRECTORS
29.1. Subject to these Articles, the Directors of the Company may conduct their proceedings (including their meetings) as they consider appropriate.
29.2. The board of Directors is to meet at the times and places that it decides.
29.3. However, a Director may, and the Secretary at the request of a Director must, call a meeting of the board of Directors.
29.4. A question arising at a meeting of the bBoard of Directors is to be decided by a majority of Directors present, in person or by alternate, and voting. However, the Person chairing the meeting (the meeting chair) also has a second or a casting vote if the votes on any question are equal.
29.5. Business may be conducted at a meeting of the board of Directors only if a quorum is present. A quorum is 2 or, if the Directors have fixed another number, that number. The quorum for board of Directors may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.
If a Director is required not to vote on a resolution because of a conflict of interest, the Director must not be counted in working out whether there is a quorum in relation to the resolution.
29.6. If the number of Directors of the Company is less than the number fixed as the quorum, the continuing Directors or Director may act only for the purpose of filling vacancies or of calling a General Meeting.
29.7. The Directors of the Company must may appoint (1) Director to be the Chair of the board of Directors and may at any time remove terminate the Chair from that office.
29.8. The Chair of the board of Directors must chair all meetings of the board of Directors at which the Chair is present. If there is no Director holding office as Chair, or if the Chair is unwilling to chair a meeting or is not present, in person or by alternate, within 5 (15) minutes after the time appointed for the meeting, the Directors present may appoint a Director present to chair of the meeting.
29.9. Subject to any decision of the board of Directors, a resolution in Writing signed by all the Directors of the Company (or their alternates) is as valid and effective as if it had been passed at a meeting of the board of Directors of the Company. The resolution may consist of several Documents in the like form each signed by 1 or more Directors (or their alternates).
29.10. A decision of the Directors is taken in accordance with this article when eligible Directors indicate to each other by any means that they share a common view on the matter. Such a decision may take the form of a resolution in writing, copies of which have been signed by each eligible Director or which each eligible Director has otherwise indicated agreement in writing. References in this article to eligible Directors are to Directors who would have been entitled to vote on the matter had it been proposed as a resolution at a Director’s meeting and the eligible Directors would have formed a quorum at such a meeting
29.11. Any Director may validly participate in a Directors meeting through any means approved by the Board, provided that all the Directors participating in the meeting are able to hear and speak to each other during such a meeting. A Director participating (other than in person) shall be deemed to be present in person at the meeting, shall be counted in the quorum and be entitled to vote. Such a meeting shall be deemed to take place where the largest group of participants is assembled, failing which the meeting is deemed to take place where the chairman is physically located.
29.12. A Director shall not be counted in the quorum present at a meeting in relation to a resolution on which he is not entitled to vote
29.13. If in the opinion of the chairman a matter required to be determined by the Directors is sufficiently urgent, the matter may be submitted to the Directors for consideration and provided that Directors constituting a quorum of a duly convened meeting either agree:
(i) with the proposed resolution of the matter; or
(ii) that the matter may be resolved in accordance with the decision of the majority of the Directors constituting a quorum, in the event of disagreement amongst the Directors, and the matter shall be resolved in accordance with those communications (however made).
Any decision made pursuant to this article will be notified to any Director who did not participate in the decision within two (2) days.
29.14. Without limiting the duties of a Director under the Companies Regulations, a Director must not vote at a meeting of Directors on any resolution concerning a matter in which the Director has a direct or indirect conflict of interest. For this subarticle, an interest of a Director includes an interest of any Person who is connected to the Director.
29.15. For the purpose of this article:
(i) a general notice given to the Directors that a Director is to be regarded as having an interest of the nature and extent specified in the notice, in any transaction or arrangement in which the Company is interested, shall be deemed to be sufficient disclosure; and
(ii) an interest of which a Director has no knowledge and of which it is unreasonable to expect the Director to have knowledge shall not be treated as an interest of the Director.
29.16. Subject to the Companies Regulations, the Company may, by an Ordinary Resolution or a Special Resolution, suspend or relax any provision of these Articles prohibiting a Director from voting at a meeting of Directors.
29.17. An objection may only be raised at a meeting of the Directors to the right of any Person to vote at the meeting. The chair of the meeting must rule on the objection unless the objection relates to the meeting chair. The decision of the meeting chair is final and conclusive.
30. SECRETARY
The Secretary (or each joint Secretary) of the Company is to be appointed and removed by the Directors. A Secretary holds office on the terms and conditions of appointment decided by the Directors.
Subject to the Companies Regulations, a Secretary may be appointed and removed by the Directors who shall decide on the terms, remuneration and conditions of appointment.
31. MINUTES
The Directors of the Company must ensure that minutes are kept for recording:
(a) all appointments of oOfficers made by the Directors; and
(b) all proceedings at General Meetings, meetings of Shareholders of any class of Shares of the Company, meetings of the Directors and committees of Directors.
The minutes of a meeting must include the names of the Directors present at the meeting.
32. DIVIDENDS
32.1. Subject to the Companies Regulations, the Company may, by Ordinary Resolution, declare dividends in accordance with the respective rights of the Shareholders, but no dividend may exceed the amount recommended by the Directors of the Company.
32.2. Subject to the Companies Regulations, the Directors of the Company may pay interim dividends if it appears to them that they are justified by the profits of the Company available for Distribution. If the share capital is divided into different classes, no interim dividend may be paid on Shares with deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. If the Directors act in good faith, the Directors do not incur any Liability to Shareholders of Shares with preferred rights for any loss they may suffer by the lawful payment of an interim dividend on any Shares with deferred or non-preferred rights.
32.3. The Directors of the Company may recommend, and a General Meeting may declare, that a dividend may be satisfied completely or partly by the Distribution of assets. If any difficulty arises in relation to the Distribution, the Directors may determine the method of settlement.
32.4. Any dividend or other amount payable by the Company to a Person (or 2 or more Persons) in relation to a Share of the Company may be paid by cheque. Where a dividend or other sum which is a distribution is payable in respect of a share, it must be paid by one or more of the following means:
(a) transfer to a bank or building society account specified by the distribution recipient either in writing or as the Directors may otherwise decide;
(b) sending a cheque made payable to the distribution recipient by post to the distribution recipient at the distribution recipient’s registered address (if the distribution recipient is a holder of the share), or (in any other case) to an address specified by the distribution recipient either in writing or as the Directors may otherwise decide;
(c) sending a cheque made payable to such person by post to such person at such address as the distribution recipient has specified either in writing or as the Directors may otherwise decide; or
(d) any other means of payment as the Directors agree with the distribution recipient either in writing or by such other means as the directors decide.
32.5. If the amount is payable to a single Person (the relevant Person), the cheque must be sent by post to the registered address of the relevant Person or to the Person and to the address that the relevant Person may direct in Writing. If 2 or more Persons (the relevant Persons) are joint holders of the Share or are jointly entitled to it, the cheque must be sent by post to the registered address of whichever of those Persons whose name appears first in the Company’s Register of Shareholders or to the Person and to the address that the relevant Persons may direct in Writing.
32.6. The cheque must be made payable to the order of the relevant Person or relevant Persons or to the other Person that the relevant Person or relevant Persons may direct in Writing.
32.7. Payment of the cheque is a good discharge to the Company.
32.8. Any joint holder or other Person jointly entitled to a Share of the Company may give a receipt for any dividend or other amount payable in relation to the Share.
32.9. No dividend or other amount payable in relation a Share of the Company bears interest unless otherwise provided by the rights attached to the share.
32.10. If any dividend or other amount payable in relation to a Share of the Company has remained unclaimed for 12 years from the day it became due for payment, the Directors of the Company may resolve that the amount is forfeited. If the Directors resolve that any dividend or other amount is forfeited, the dividend ceases to be owing by the Company.
33. INSPECTION OF ACCONTING RECORDS ETC.
33.1. A Shareholder of the Company does not have a right to inspect any Accounting Records, other books or other Documents of the Company except so far as the right is provided to the Shareholder by the law (Companies Regulations) or the inspection is authorised by the Directors or the Company or the Ordinary Resolution of the Company.
33.2. The Company shall appoint auditors to examine the accounts and report on them in accordance with the Law.
34. CAPITALISATION OF PROFITS
14. The Directors may, if they are so authorised by an Ordinary Resolution with the authority of a Resolution of the Company:
(a) subject to this article, resolve to capitalise any undistributed undivided profits of the Company not required for paying any preferential dividend (whether or not they are available for dDistribution) or any amount standing to the credit of the Company’s share premium account or capital redemption reserve; and
(b) appropriate the amount resolved to be capitalised to the Shareholders who would have been entitled to it if it were distributed by way of dividend and in the same proportions and apply the amount on their behalf in allotting any Shares or Debt Securities not issued as fully Paid-up Shares or debentures Debt Securities of the Company of a nominal amount equal to that amount or in payment of any amount unpaid on a share or debentures Debt Security, or (with the consent of the holder of the Shares or debentures Debt Security concerned) partly paid Shares or debentures Debt Securities. The Share premium account, the capital redemption reserve, and any profits which are not available for distribution may, for the purposes of this article, only be applied in allotting Shares issued to Shareholders as fully paid; and
(c) make by payment in cash or otherwise as the Directors decide for Shares or debentures becoming distributable under this article in fractions; and
(d) authorise any Person to enter into a binding agreement with the Company on behalf of all the Shareholders concerned providing for the Allotment to them respectively, credited as fully Paid- up, of any Shares or debentures to which they are entitled on the capitalisation.
15. For paragraph (b), the share premium account, the capital redemption reserve, and any profits that are not available for Distribution may, for the purposes of this article, only be applied in allotting Shares not issued to Shareholders as fully Paid-up.
35. NOTICES
35.1. Any notice under these Articles must be given in wWriting.
35.2. The Company may give any notice to a Shareholder of the Company
(i) personally; or
(ii) by sending it by post in a prepaid envelope addressed to the Shareholder at the Shareholder’s registered address or by leaving it at that address; or
(iii) in electronic form to an address nominated by the Shareholder and is treated as being delivered at the time it was sent; or
(iv) by any other means agreed between the Shareholder and the Company.
either personally, by sending it by post in a prepaid envelope addressed to the Shareholder at the Shareholder’s registered address or by leaving it at that address or electronic form to an address nominated by the Shareholder and is treated as being delivered at the time it was sent. This article does not affect any provision in any law or these Articles requiring notices or documents to be delivered in a particular way.
35.3. For the joint holders of a Share,all notices must be given to the joint holder whose name appears first in the Company’s Register of Shareholders in relation to the joint holding and notice so given is sufficient notice to all the joint holders.
35.4. A Person present, either in person or by proxy, at any meeting is taken to have received notice of the meeting.
35.5. Every Person who becomes entitled to a Share of the Company is bound by any notice in relation to the Share.
35.6. Proof that an envelope containing a notice was properly addressed, prepaid and posted is conclusive evidence that the notice was given 48 hours after it was posted. A notice is taken to be given at the end of 48 hours after the envelope containing it was posted.
35.7. Proof that an electronic transmission was sent is evidence that the notice was delivered at the time it was sent.
35.8. A notice may be given by the Company to the Persons entitled (or claiming to be entitled) to a Share as a result of the death or bankruptcy of a Shareholder by sending it by post to, or leaving it at, the address provided by them to the Company. Until an address has been provided to the Company, a notice may be given by the Company in relation to the Share in any way in which it might have been given if the death or bankruptcy had not happened.
36. INDEMNITY
The Company must indemnify every Person who is or has been Director, other oOfficer or auditor of the Company in relation to any lLiability incurred by the Person in defending any proceeding in relation to the Company to the extent allowed by the Companies Regulations.
37. AMENDMENT OF THESE ARTICLES
These Articles may only be amended by Special Resolution.
Signed by or on behalf of the Incorporators
Consultation Paper No.1 on proposed amendments to the AIFC FEES Rules
PROPOSED AMENDMENTS TO THE AIFC FEES RULES (FEES)
1.This consultation paper is issued by the Astana Financial Services Authority in order to invite public comment on the amendments to AIFC Fees Rules (“FEES”) for Islamic finance business in the AIFC. The proposed amendments to the FEES areset out in the Annex 1 to this paper.This paper summarises the approach taken to drafting amendments to FEES.
2.Comments are invited in relation to any aspect of the proposed amendments to FEES. AFSA may amend the proposals in light of the comments received.
3.The proposals in this consultation paper will be of interest to individuals, financial services companies and investors who are interested in doing business in the AIFC.
BACKGROUND
4.Financial services firms operating in the AIFC are subject to various sets of fees that are payable to the AFSA and/or the Companies Registrar.
5.On10 December 2017 the AFSA Board of Directors approvedthe amendments to the AIFC General Rules, which extended the scope of Regulated Activities in the AIFC. New two types of Regulated Activities included Islamic Banking Business and Providing Islamic Finance.
6.The AFSA analysed the practice of other financial centres in relation to the application of fees for financial services. The most expensive types of financial services are usually Deposit taking and Providing Credit. Given that the Islamic Banking Business activity includes (i) raising, accepting and managing funds or money placements; and/or (ii) managing unrestricted Profit Sharing Investment Accounts, which are similar to deposit-taking activity of conventional banks, the AFSA proposed to set the application fee for Islamic Banking Business activity in the amount of USD 15 000. Since the Providing Islamic Financing is less risky activity from regulatory perspective, the AFSA proposed to set the application fee for Providing Islamic Financing in the amount of USD 10 000.
HOW TO PROVIDE COMMENTS?
7.All comments should be in writingand sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper No 1” in the subject line. You may, if relevant, identifythe organisation you represent in providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise at the time of making comments.
Comments to be addressed by post:
Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Konayev Street, Building B, Astana, Kazakhstan
or emailed to: consultation@afsa.kz Tel: +8 7172 613781
WHAT HAPPENS NEXT?
8.The deadline for providing comments on the proposals is 16 March 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
Consultation paper No.2 Amendments to the AFSA Glossary
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper in order to invite public comments on the AFSA Glossary proposal to set out interpretative provisions of words and expressions used in the AIFC Financial Services Regulations and Rules. A proposed draft of the AFSA Glossary is set out at Annex A to this Paper.
2.The proposals in this Consultation Paper will be of interest to individuals, financial organisations and investors who are interested in doing business in the AIFC.
3.All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 2” in the subject line. You may, if relevant, identify the organisation you represent in providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise at the time of making comments. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4.The deadline for providing comments on the proposals is 13 April 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5.Comments to be addressed by post: Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan
or emailed to: consultation@afsa.kz Tel: +8 7172 613781
Application
6. The AFSA Glossary sets out interpretative provisions of words and expressions used in the following AIFC Financial Services Regulations and Rules:
➢ AIFC Financial Services Framework Regulations (FSFR)
➢ AIFC General Rules (GEN)
➢ AIFC Authorised Market Institutions Rules (AMI)
➢ AIFC Market Rules (MAR)
➢ AIFC Recognition Rules (REC)
➢ AIFC Conduct of Business Rules (COB)
➢ AIFC Representative Office Rules (REP)
➢ AIFC Fees Rules (FEES)
➢ AIFC Anti-Money Laundering, Counter – Terrorist Financing and Sanctions Rules (AML)
➢ AIFC Collective Investment Scheme Rules (CIS)
➢ AIFC Auditor Rules (AUD)
➢ AIFC Prudential Rules for Investment Firms (PRU(INV))
➢ AIFC Prudential Rules for Insurance Intermediaries (PRU (INT)
➢ AIFC Islamic Finance Rules (IFR)
➢ AIFC Islamic Banking Business Prudential Rules (IBB)
ANNEX A
AFSA GLOSSARY
Acting as the Trustee of a Fund | The Regulated Activity as defined in paragraph 9 of Schedule 1 of GEN. |
Admission to Clearing Rules | (In AMI) rules prepared by an Authorised Clearing House in accordance with AMI 4.1. |
Admission to Trading Rules | (In AMI) rules prepared by an Authorised Investment Exchange in accordance with AMI 3.2. |
Advising on Investments | The Regulated Activity as defined in paragraph 10 of Schedule 1 of GEN. |
AFSA | Astana Financial Services Authority |
Affiliate | In relation to a Firm, any entity of which the Firm holds 10% or more but less than a majority of the voting power. |
AIFC | Astana International Financial Centre |
AIFC Court | The court specified under Article 13 of the Constitutional Law. |
AIFC Operation | The PRU Investment Business of an Externally Regulated PRU Investment Firm that is (a) carried on through an establishment in the AIFC or (b) carried on through an establishment outside the AIFC but with customers who are resident in the AIFC. |
AMI | The Authorised Market Institution Rules. |
AML | The Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules. |
AML Return | A report in a prescribed formatto be filedon an annualbasis as described in AML 14.7.1. |
Ancillary Service Provider | A Centre Participant which has beenlicensed by theAFSA to carryon one or more Ancillary Services. |
Ancillary Service | An activity specified of Schedule 2 of GEN. |
Annual Operating Expenditure | The amount determined as such in accordance with PRU(INV) 4.4. |
Approved ECAI | An external credit assessment institution in respect of which the AFSA has given an approval permitted its ratings to be relied on by PRU Investment Firms in relation to PRU(INV) 4. |
Approved Individual | An individual who is approved by the AFSA to carry out a Controlled Function. |
Arranging Custody | The Regulated Activity as defined in paragraph 6 of Schedule 1 of GEN. |
Arranging Deals in Investments | The Regulated Activity as defined in paragraph 11 of Schedule 1 of GEN. |
Assessed Professional Client | Has the meaning given in COB 2.5.1 and 2.5.6. |
Associate | In respect of a Person ‘A’, any Person, including an affiliated company which is: (a) an Undertaking in the same Group as A; or (b)any other person whose business or domestic relationship with A or his Associate might reasonably be expected to give rise to a community of interest between them which may involve a conflict of interest in dealings with third parties. |
Audit Personnel | An individual: (a)who is employed or appointed by an Auditor in connection with the Auditor's business in the AIFC, whether under a contract of service or for services or otherwise; or (b) whose services provided in the AIFC, under an arrangement between the Auditor and a third party, are placed at the disposal and under the control of the Auditor. |
Audit Principal | A natural person who is appointed by an Auditor under AUD 2.12(g). |
Auditor | Has the meaning given in AUD 1. |
Authorised Clearing House | A Centre Participant which has beenlicensed by the AFSA to carryon the Market Activity of Operating a Clearing House. |
Authorised Firm | A Centre Participant which has been licensed by the AFSA to carry on one or more Regulated Activities. |
Authorised Investment Exchange | A Centre Participant which has beenlicensed by the AFSA to carryon the Market Activity of Operating an Investment Exchange. |
Authorised Market Institution | A Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities. |
Authorised Person | Either an Authorised Firm or an Authorised Market Institution |
Authorised Promoter | Has the meaning given in COB 3.3.1. |
Bank | A Regulated Financial Institution that is authorised to accept deposits. |
Base Capital Requirement | the meaning given in PRU(INV) 3.3(3). |
Basel Requirements | the rules and guidance from time to time published by the Basel Committee on Banking Supervision. |
Beneficial owner | The beneficial owner, in relation to a customer, is a natural person: (a) who ultimately controls, directly or indirectly, a customer; |
(b) who, in relation to a customer which is a legal personor arrangement, exercises (whether directly or indirectly) ultimate effective control overthe person or arrangement, or the management of such person or arrangement; (c)who ultimately owns or has an ownership interest in the customer, whether legally or beneficially, directly or indirectly; (d) on whose behalfor for whosebenefit a transaction is being conducted; or (e)on whose instructions the signatories of an account, or any intermediaries instructing such signatories, are for the time being accustomed to act. A person not falling into (a) or (b) is not a beneficial owner by reason of (c) or (d) if, having regard to a risk-based assessment of the customer, the ownership interest is small and in the circumstances poses an insignificant (or no) risk of money laundering. In (a) to (e), a reference to a "customer" includes a customer account, customer assets, and the underlying legal person or arrangements which constitute or make up the customer, customer account, or customer assets. | |
Board | In reference to a corporation, the board of directors of the corporation. |
Body Corporate | Any body corporate, including a limited liability partnership and a body corporate constituted under the law of a country or territory outside the AIFC. |
Branch | A Centre Participant which is incorporated pursuant to the law of a jurisdiction other than the AIFC. |
Business Rules | Rules established and maintained by an Authorised Market Institution in accordance with AMI 2.5.1. |
Capital Resources | In PRU(INV) has the meaning given in PRU(INV) 3.2. In PRU(INT) has the meaning given in PRU(INT) 3.1(1). |
CDD | Customer Due Diligence, as described generally in AML 6 |
Central Counterparty | A legal person that interposes itself between the counterparties to the contracts tradedon one or more financial markets, becoming the buyer to every seller and the seller to every buyer. |
Central Securities Depository | A Person who holds Securities in uncertificated (dematerialised) form so as to act as a repository of ownership entitlements to such Securities to enable book entry transfer of such Securities for the purposes of settlement of transactions. |
Centre Bodies | The bodies identified in Article 9 of the Constitutional Law. |
Centre Participant | As defined in Article 1(5) of the Constitutional Law: “legal entities incorporated pursuant to the acting law of the Centre, and other legal entities accredited by the Centre” |
Certificate | An instrument: |
(a)which confers on the holder contractual or property rights to or in respect of a Share, Debenture or Warrant held by a Person; and (b)the transfer of which may be effected by the holder without the consent of that other Person; but excludes rights under an Option. | |
CIR | The Collective Investment Scheme Rules. |
Client | A Person to whom a Centre Participant provides, intends to provide or has provided a service in the course of carrying on a Regulated Activity, Market Activity or Ancillary Service. |
Client Investment | An investment as defined in COB 8.3.1. |
Client Investment Account | An account as defined in COB 8.3.4. |
Client Investments Auditor's Report | The report specified in COB 8.3.14. |
Client Investments Rule | The Rules contained in COB 8.3. |
Client Money | In COB 8, has the meaning given in Rule 8.2.1; In COB 11, Money of any currency that an Insurance Intermediary receives or holds for, or on behalf of, a Client in the course of, or in connection with, Insurance Intermediation. |
Client Money Account | Has the meaning given in COB 8.2.4 |
Client Money Auditor's Report | The report specified in COB 8.2.19. |
Client Money Distribution Rules | In COB 8, the Rules contained in COB 8.2.1; In COB 11, the Rules contained in COB 11.8.15. |
Client Money Rules | The Rules contained in COB 8.2. |
COB | The Conduct of Business Rules. |
Code of Ethics for Professional Accountants | The code of ethics for accountants issued by the International Ethics Standard Board for Accountants (IESBA) of IFAC. |
Collateral | An Investment which belongs to a Client has been paid for in full by the Client and which is held or controlled by the Authorised Firm under the terms of a deposit, pledge, charge or other security arrangement. |
Company service provider | A company service provider is a person, not captured by (a) to (e) or (g) of the definition of DNFBP that, by way of business, provides any of the following services to a customer: (a) acting as a formation agent of legal persons; |
(b)acting as, or arranging for another person to act as, a director or secretary of a company, a partner of a partnership, or a similarposition in relation to other legal persons; (c)providing a registered office, business address, or accommodation, correspondence or administrative address for a company, a partnership, or any other legal person or arrangement; or (d)acting as, or arranging for another person to act as, a nominee shareholder for another person. | |
Collective Investment Scheme | As defined in section 92 of the Framework Regulations, which is, in summary, any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable Persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income. |
Compliance Officer | The individual performing the Controlled Function identified in GEN 2.2.5. |
Connected Person | In relation to a Person (A), a Person whichhas or has at any relevant time had the following relationship to A: (a) a member of A’s Group; (b) a Controller of A; (c) a member of a partnership of which A is a member; (d) an Employee or former Employee of A; (e) if A is a Body Corporate: (i) an officer or manager of A or of a parent of A; (ii)an agent of A or of a parent of A; (f) if A is a Partnership is or has been a member, manager or agent of A; or (g)if A is an unincorporated association of persons which is not a Partnership, is or has been an officer, manager or agent of A. |
Constitution | The Constitution of a Fund. |
Contingent Liability Transaction | A Derivative under the terms of which the Client will or may be liable to make further payments (other than charges, and whether or not secured by margin) when the transaction falls to be completed or upon the earlier closing out of his position. |
Contract for Differences | (1) Subject to sub‐paragraph (2), rights under— (a) a contract for differences; or (b)any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in— (i) the value or price of property of any description; or (ii)an index or other factor designated for that purpose in the contract. (2) There are excluded from sub‐paragraph (1): |
(a)rights under a contract if the parties intend that the profit is to be secured or the loss is to be avoided by one or more of the parties taking delivery of any property to which the contract relates; (b)rights under a contract under which money is received by way of deposit on terms that any interest or other return to be paid on the sum deposited will be calculated by reference to fluctuations in an index or other factor; (c) rights under a Contract of Insurance. | |
Contravention | The conduct identified in section 119 of the Framework Regulations. |
Controlled Function | A function of an Authorised Person that may only be carried out by an Approved Individual. |
Controller | A Person who, either alone or with any Associate: (a) holds 10% or more of the shares in either the Authorised Person or a Holding Company of that Authorised Person; or (b) is entitled to exercise, or controls the exercise of, 10% or more of the voting rights in eitherthe Authorised Personor a Holding Company of that Authorised Person; or (c)is able to exercise significant influence over the management of the Authorised Person as a resultof holding sharesor being ableto exercise voting rights in the Authorised Person or a Holding Company of that Authorised Person or having a current exercisable right to acquire such shares or voting rights. |
Corporate Governance Principles | The principles prescribed in MAR 2.2. |
Contract of Insurance | Any contract of insurance or contract of reinsurance. |
Credit Conversion Factor | In relation to an off-balance sheet exposure of a PRU Dealing Investment Firm, the percentage specified under PRU(INV) 3.4(9). |
Credit Rating | An opinion regarding the creditworthiness of an entity, Security, debt or other financial obligation which is disseminated to the publicor distributed to a Person by subscription and expressed using an established and defined ranking system regarding the creditworthiness of the rating subject. |
Credit Risk Capital Requirement | the meaning given in PRU(INV) 3.3(4). |
CTF | Counter-Terrorist Financing, as described in AML 1.2(1) |
Customer | Unless otherwise indicated, a customer is: (a) A person where, in relation to a business relationship between the person and a Relevant Person, there is a firmintention or commitment by each party to enter into a contractual relationship or where there is afirm commitment by each party to enter into a transaction, in connection with a product or service provided by the Relevant Person; |
(b) A client of an Authorised Firm; (c)A member, prospective member, or an application for admission of securities to trading on an Authorised Market Institution; or (d)A person with whom a Relevant Person is otherwise establishing or has established a businessrelationship. | |
Dealing in Investments as Agent | The Regulated Activity as defined in paragraph 2 of Schedule 1 of GEN. |
Dealing in Investments as Principal | The Regulated Activity as defined in paragraph 1 of Schedule 1 of GEN. |
Debenture | An instrument creating or acknowledging indebtedness, whether secured or not, but excludes: (a) an instrument creating or acknowledging indebtedness for, or for money borrowed to defray, the consideration payable under a contract for the supply of goods orservices; (b) a cheque orother bill of exchange, a banker’s draftor a letter of credit (but not a bill of exchange accepted by a banker); (c) a banknote, a statement showing a balance on a bank account, or a lease or other disposition of property; and (d)a Contract of Insurance. |
Decision Notice | A notice issuedby the AFSA pursuant to paragraph 5 of schedule 1 of the Framework Regulations. |
Deemed Professional Client | Has the meaning given in COB 2.4.1. |
Default Rules | (In AMI) rules prepared by an Authorised Market Institution in accordance with AMI 3.5 or AMI 4.6. |
Delivery Versus Payment Transaction | A transaction in which the transfer or Investments and the payment of Money between thebuyer and the seller areintended to occuraround the same time. |
Derivative | An Option, a Future or a Contract for Differences. |
Designated Functions | Any of the functions specified in GEN 2.2.2 to 2.2.5. |
Designated Individual | An individual who is appointed by an Authorised Person to carry out a Designated Function |
Direct Electronic Access | Any arrangement, such as the use of the Member's trading code, through which a Member or the clients of that Member are able to transmit electronically orders relating to Securities directly to the facility provided by the Authorised Market Institution and includes arrangements which involve theuse by aPerson of theinfrastructure of the Member or participant or client or any connecting system provided by the Member or |
participant or client, to transmit the orders and arrangements where such an infrastructure is not used by a Person. | |
Direct Electronic Access Rules | (In AMI) the rules prepared by an Authorised Market Institution in accordance with AMI 2.7. |
Director | A Person, by whatever name called, who is: (a) appointed to the position of a director; or (b) appointed to the position of an alternate director, and is acting in that capacity; or (c)not validly appointed as a director, but is acting in the position of a director (i.e. a de-facto director). |
Distribution Event | A distribution event is: (a) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy, over the Authorised Firm or its Nominee Company; (b) the appointment of a liquidator, receiver or administrator, or trustee in bankruptcy, over a Third Party Account Provider of the Authorised Firm or its Nominee Company; or (c) the cominginto force of a direction by the AFSA in respect of all Client Assets held by the AuthorisedFirm. |
DNFBP | Designated Non-Financial Business and Profession. The following class ofpersons whose business or profession is carried on in or from the AIFC constitute DNFBPs: (a) A real estate developer or agency which carries out transactions with a customer involving the buying or selling of real property; (b) A dealer in precious metals or precious stones; (c) A dealer in any saleable item of a price equal to or greater than USD 15,000; (d) A law firm, notary firm, or other independent legal business; (e) An accounting firm, audit firm, or insolvency firm; or (f) A company service provider. A person who is an Authorised Person or a Registered Auditor is not a DNFBP. |
Domestic Fund | A Collective Investment Scheme registered under these Rules that is established or domiciled in the AIFC. |
Domestic Fund Manager | A Fund Manager located in the AIFC. |
EDD | Enhanced Due Diligence, as described in AML 7.1.1. |
Eligible Custodian | A custodian of a Fund's property appointed in accordance with CIS. |
Employee | As defined in the Employment Regulations, an individual who works or will work in the service of another person under an express or implied contract of hire under which the other person has the right to control the |
details of work performance. The other person is the Employee’s Employer. | |
Employee Share Scheme | A scheme or arrangement for encouraging or facilitating the holding of Shares or Debentures in a Company by or for the benefit of: (a)the bona fide Employees or former Employees of the Company, the Company’s subsidiary or Holding Company or a subsidiary of the Company’s Holding Company; or (b)the wives, husbands, widows, widowers or minor children or minor step-children of the individuals referred to in (a). |
Exempt Fund | (In CIR) A Collective Investment Scheme that is registered as an Exempt Fund. |
Exempt Offeror | The Persons identified in MAR 1.2.1. |
Exempt Securities | The Securities listed in MAR 1.2.2. |
Externally Regulated PRU Investment Firm | A Person who is specified as such in a direction made by the AFSA under PRU(INV) 1.3(9). |
Family Member | In relation to an individual: (a) his spouse; (b) his child, step-child, parent, step-parent, brother, sister, step-brother, or step-sister; or (c) a spouse of any individual within (b). |
FATF | Financial Action Task Force, as described in AML 1.4(1). |
FATF Recommendations | The publication entitled the "International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation" as published and amended from time to time by FATF. |
Financial Institution | A regulated or unregulated entity, whose activities are primarily financial in nature. |
Finance Officer | The individual performing the Controlled Function specified in GEN 2.2.4. |
Financial Crime | Any kind of conduct relating to money or to financial services or markets that would amount to criminal conduct under Kazakh law (whether or not such conduct takes place in the Republic of Kazakhstan), including any offence involving:- (a) fraud or dishonesty; or (b) misconduct in, or misuse of information relating to, a financial market; or (c) handling the proceeds of crime; or (d) the financing of terrorism. |
Financial Group | The Persons determined in accordance with PRU(INV) 5.2(2). |
Financial Product | A Contract of Insurance or Investment. |
Financial Promotion | Any communication (made via any medium including brochures, telephone calls and presentations) the purpose or effect of which is: (a) to promote or advertise (i) Investments or (ii) any Regulated Activity; or (b) to invite or induce any Person (i) to enter into an agreement with any Person in relation to a Financial Products or (ii) to engage in any Regulated Activity. |
Financial Service | A Regulated Activity or a Market Activity. |
Financial Services Regulator | A regulator of Financial Services established in a jurisdiction other than the AIFC. |
Foreign Fund | A Collective Investment Scheme registered under CIS that is not established or domiciled in the AIFC. |
Foreign Fund Manager | A Fund Manager not located in the AIFC. |
Framework Regulations | The Financial Services Framework Regulations. |
Fund | A Collective Investment Scheme constituted as a fund and registered under section 93 of the Framework Regulations. |
Fund Property | The property held for or within a Fund. |
Fund Manager | A Person responsible for the management of the property held for or within a Fund and who otherwise operates the Fund. |
Future | An instrument comprising rights under a contract: (a) for the sale of a commodity or property of any other description under which delivery is to be made at a future date and at a price agreed on when the contract is made, and that contract: (i) is made or traded on a regulated exchange; (ii)is made or traded on terms that are similar to those made ortraded on a regulated exchange; or (iii)would, on reasonable grounds, be regarded as made for investment and not for commercial purposes; or (b) where the value of the contract is ultimately determined by reference, wholly or in part, to fluctuations in: (i) the value or price of property of any description; or (ii)an index, interest rate, any combination of these, exchange rate or other factor designated for that purpose in the contract; and which is wholly settled by cash or set-off between the parties but excludes: (iii)rights under a contract where one or more of theparties takes delivery of any property to which the contract relates; |
(iv)a contract under which money is received by way of deposit or an acknowledgement of a debt on terms that any return to be paid on the sum deposited or received will be calculated by reference to an index, interest rate, exchange rate or any combination of these or other factors; or (v) a Contract of Insurance. | |
GEN | The General Rules. |
General Prohibition | The prohibition in section 4 of the Framework Regulations. |
Governing Body | The board of directors, partners, committee of management or other governing body of an Undertaking. |
Group | Means a group of entities which includes an entity (the ‘first entity’) and: (a) any parent of the first entity; and (b)any subsidiaries (direct or indirect) of the parent or parents in (a) or the first entity. |
Holding Company | (As defined in the Companies Regulations) a holding BodyCorporate that is a Company. |
IFAC | The International Federation of Accountants. |
IFR | The Islamic Finance Rules. |
Inside Information | Information of a precise nature which: (a) has not been made public; and (b) relates directly or indirectly, to one or more Issuers or to one or more Securities; and (c) would, if it were made public, be likely to have a significant effect on the prices of those Securities or on the price of related derivative Securities |
Insider Dealing | (a)The use, by a Person who possesses Inside information, of that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, Securities to which that information relates; or (b)the use of Inside Information by cancelling or amending an order concerning a Security to which the information relates where the order was placed before the Person concerned possessed the Inside Information; or (c)the use of recommendations or inducements to engage in Insider Dealing, where the Person using the recommendation or inducement knows or ought to know that it is based on Inside Information. |
Insurance Intermediary | An Authorised Firm whoseLicence authorises it to carryon the Regulated Activity of Insurance Intermediation. |
Insurance Intermediary Audit Report | The report specified in COB 11.8.15. |
Insurance Intermediation | The Regulated Activity as defined in paragraph 13 of Schedule 1 of GEN. |
International Standards on Auditing | The international standards on auditing issued by the International Auditing and Assurance Standards Board (IAASB) of IFAC. |
International Standards on Quality Control | The international standards on quality control issued by the International Auditing and Assurance Standards Board (IAASB) of IFAC. |
Investment | A Security, Unit or a Derivative and a right or interest in the relevant Security, Unit or Derivative. |
Investment Business | The business of: (a) Dealing in Investments as Principal; (b) Dealing in Investments as Agent; (c) Managing Investments; (d) Managing a Collective Investment Scheme; (e) Providing Custody; (f) Arranging Custody; (g) Acting as the Trustee of a Fund; (h) Advising on Investments; (i) Arranging Deals in Investments; (j) Managing a Profit Sharing Investment Account; or (k) Operating an Exchange. |
Investment Research | Research or other information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several Investments or the issuers of Investments, including any opinion as to the present or future value or price of such Investments, intended for distribution channels orfor the public, and in relation to which thefollowing conditions are met: (a) it is labelled or described as investment research or in similar terms, or is otherwise presented as an objective or independent explanation of the matters contained in the recommendation; and (b) if the recommendation in question were to be made by an Authorised Firm to a Client, it would not constitute Advising on Investments. |
Investment Service | The service of: (a) Dealing in Investments as Principal; (b) Dealing in Investments as Agent; (d) Managing Investments; (e) Advising on Investments; or (f) reception and transmission of orders in relation to Investments. |
Islamic Finance Business | Any part of thefinancial business ofan Authorised Personwhich is carried out in accordance with Shari’ah. |
Issuer | In relation to any Security, the Person by whom it is or is to be issued. |
Key Business Document | (In REP) includes: (a)letterhead communications issued by post, fax or electronic means including email; (b) written promotional materials; (c) business cards; and (d) websites, but does not include compliment slips, or text messages. |
Licence | A licence granted by the AFSA under Part 3 of the Framework Regulations. |
Liquid Assets | The amount determined as such in accordance with PRU(INV) 4.3. |
Listing Rules | (In AMI) the rules prepared by an Authorised Investment Exchange in accordance with AMI 3.6. |
Managing a Collective Investment Scheme | The Regulated Activity as defined in paragraph 4 of Schedule 1 of GEN. |
Managing Investments | The Regulated Activity as defined in paragraph 3 of Schedule 1 of GEN. |
Managing a Profit Sharing Investment Account | The Regulated Activity as defined in paragraph 12 of Schedule 1 of GEN. |
Mandate | An arrangement underwhich a Clientgives an Authorised Firm the ability to control the Client's assets or liabilities, including having overan account held with a third party in the Client's own name. |
MAR | The Market Rules. |
Market Abuse | As defined in MAR 5.1: (a) unlawful disclosure of Inside Information; and (b) engaging or attempting to engage in Insider Dealing; and (c) recommending that another Person engage in Insider Dealing; and (d) inducing another Person to engage in Insider Dealing; and (b) engaging or attempting to engage in Market Manipulation; but not: (a)disclosure of Inside Information made in the course of a Market Sounding; and (b) the behaviour described in MAR 5.3.4 to 5.3.6; and (c) accepted market practices established under MAR 5.4.4. |
Market Activity | An activity specified of Schedule 3 of the Framework Regulations, subject to any rules made by the AFSA adding to, removing, or otherwise modifying the activities so specified. |
Market Contract | (a)A contract entered into by an Authorised Investment Exchange or Authorised Clearing Housewith Members to settle theirtransactions; and (b)a contract entered into by a Member of an Authorised Investment Exchange with a Person other than that Authorised Investment Exchange made on, or subject to the rules of, the Authorised Investment Exchange; and (c)a contract entered into by a Recognised Non-AIFC Member of an Authorised Investment Exchange with a person other than thatAuthorised Investment Exchange made on, or subject to the rules of, the Authorised Investment Exchange; and (d) a contract entered into by an Authorised Investment Exchange, in its capacity as such, with a Member, an Authorised Clearing House, or another Authorised Investment Exchange for the purpose of enabling the rights and liabilities of that Member, Authorised Clearing House, or Authorised Investment Exchange under a transaction to be settled; and (e) a contract entered into by an Authorised Investment Exchange with a Member, an Authorised Clearing House, or another Authorised Investment Exchange for the purpose of providing Central Counterparty clearing services to that Member, Authorised Clearing House, or Authorised Investment Exchange. |
Market Counterparty | A Client that meets the requirements for a Market Counterparty in COB 2.7. |
Market Counterparty Business | The following activities carried on by an Authorised Firm with or for a Market Counterparty: (a) Dealing in Investments as Principal; (b) Dealing in Investments as Agent; or (c) receiving and transmitting Client orders. |
Market Making Agreement | (In AMI) a written agreement between an Authorised Investment Exchange and a Member pursuing a Market Making Strategy by using its facilities. |
Market Making Strategy | In relation to an Investment, a strategy by which a Person holds himself out as able and willing to enter into transactions of sale and purchase in Investments of that description at prices determined by him generally and continuously rather than in respect of each particular transaction. |
Market Manipulation | The activities set in MAR 5.4.2 and the conduct set out in MAR 5.4.3. |
Market Risk Capital Requirement | the meaning given in PRU(INV) 3.3(5). |
Market Sounding | The conduct set out in MAR 5.5.1. |
Marketing Material | (in REP) includes any material communicated to a Person in the course of marketing financial services or financial products or making introductions or referrals. |
Member | A Person who is entitled, under an arrangement or agreement between him and an Authorised Market Institution, to use that institution’s facilities. |
Membership Rules | (In AMI) the membership rules of an Authorised Market Institution prepared in accordance with AMI 2.6.3. |
Minimum Capital Requirement | In PRU(INV), the meaning given in PRU(INV) 3.3(2). In PRU(INT), the meaning given in PRU(INT) 3.3(2). |
Money | Any form of money, including cheques and other payable orders. |
Money Laundering Reporting Officer | The individual performing the Designated Function identified at GEN 2.3.4. |
MLRO | Money-Laundering Reporting Officer, as described in AML 13.1 |
Nominee Company | A company incorporated in the AIFC whose business consists solely of acting as a holder of Client Assets where such assets are held by the Nominee Company as agent of an Authorised Firm. |
Non-AIFC Member Recognition Requirements | The requirements for recognition of Recognised Non-AIFC Members set out in section 91 of the Framework Regulations. |
Non-Exempt Fund | (In CIR) A Collective Investment Scheme that is registered as an Non- Exempt Fund. |
Non-PRU(INV) Investment Business | Activities defined as such in PRU(INV) 1.3(7). |
Offer | (1) In relation to Securities other than Units, an Offer of Securities. (2) In relation to Units, an offer of Units. |
Offer of Securities | A communication to anyPerson in anyform or by any means,presenting information on the terms of the offer and the Securities offered, so as to enable an investor to decide whether or not to buy or subscribe to those Securities but excluding: (a)any communication in connection with the trading of Securities admitted to trading on an Authorised Investment Exchange; or (b)any communication made for the purposes of complying with the on- going reporting requirements of the AFSA or an Authorised Market Institution; or (c) any other communication prescribed in the Rules by the AFSA. |
Offering Materials | The offering materials or particulars of a Fund. |
Official List | The Official List of Securities maintained by the AFSA or the relevant Authorised Investment Exchange pursuant to section 64 of the Framework Regulations. |
Operating a Clearing House | The Market Activity as defined in paragraph 2 of Schedule 3 of the Framework Regulations. |
Operating a Representative Office | The Regulated Activity as defined in paragraph 14 of Schedule 1 of GEN. |
Operating an Exchange | The Market Activity as defined in paragraph 1 of Schedule 3 of the Framework Regulations. |
Operational Risk Capital Requirement | the meaning given in PRU(INV) 3.3(6). |
Option | An instrument that confers on the holder, upon exercise, rights of the kind referred to in any of the following: (a) a right to acquire or dispose of: (i) a Security (other than a Warrant) or contractually based investment; (ii) currency of any country or territory; (iii) a commodity of any kind; (b) a right to receive a cash settlement, the value of which is determined by reference to: (i) the value or price of an index, interest rate or exchange rate; or (ii) any other rate or variable; or (c) a right to acquire or dispose of another Option under (a) or (b). |
Partner | In relation to an Undertaking which is a Partnership, a Person occupying the position of a partner, by whatever name called. |
Partnership | Any partnership, including a partnership constituted under the law of a jurisdiction other than the AIFC, but not including a Limited Liability Partnership. |
PEP | Politically Exposed Person. A PEP is a natural person (including a family member or known associate) who is or has been entrusted with a prominent public function, including but not limited to: a head of state or of government, senior politician, member of a legislative or constitutional assembly, senior government official, senior judicial official, senior military officer, ambassador, senior person in an international organisation, senior executive of a state-owned entity, a senior political party official, or an individual who has been entrusted with similar functions such as a director or a deputy director; at an international, national, or regional level. This definition does not include middle-ranking or junior-more individuals in the above categories. |
Person | A Person includes any natural person, Body Corporate or body unincorporated, including a legal person, company, Partnership, unincorporated association, government or state. |
Personal Transaction | A transaction in an Investment executed for or on behalf of a natural person, where at least one of the following criteria are met: (1) that person is acting outside the scope of the activities he carried out in that capacity; (2)the transaction is carried out for the account of any of the following persons: (a) the natural person; (b) the spouse or civil partner of the natural person or any partner of that natural person considered by national law as equivalent to a spouse; (c) a dependent child or stepchild of that natural person; (d)any other relative of that natural person who has shared the same household as thatperson for at least one year on the dateof the personal transaction concerned; (e) any person with whom he has close links; (f)a person whose relationship with that natural person is such that the natural person has a direct or indirect material interest in the outcome of the trade, other than a fee or commission for the execution of the transaction. |
Policyholder | Includes a potential policyholder. |
Preliminary Notice | A notice issuedby the AFSA pursuant to paragraph 4 of schedule 1 of the Framework Regulations. |
Principal Representative | An individual designated by a Representative Office in accordance with REP. |
Private Placement | An Offer made toa Person whois likely to be interested in the Offerhaving regard to: (a)previous contact between the Person making the Offer and that Person; (b)a professional or other connection between the Person making the Offer and that Person; or (c) statements or actions by that Personthat indicate thathe is interested in Offers of thatkind. |
Privileged Communication | A communication attracting a privilege arising from the provision of professional legal advice and any other privilege applicable at law, but does not include a general duty of confidentiality. |
Professional Client | A Client that is either a Deemed Professional Client or an Assessed Professional Client. |
Profit Sharing Investment Account | An account or portfolio in relation to property of any kind, including the currency of any country or territory, held for or within the account or portfolio, which: (a) is managed under the term of an agreement whereby: (i) the investor agreesto share any profit withthe manager of the account or portfolio in accordance with a predetermined specified percentage or ratio; and |
(ii) the investor agrees that he alone will bear any losses in the absence of negligence or breach of contract on the part of the manager; and (b) is held out as being managed in accordance with Shari'a. | |
Prospectus | A document referred to in MAR 1.3. |
Prospectus Summary | The document referred to in MAR 1.4. |
Providing Accountancy Services | The Ancillary Service as defined in paragraph 3 of Schedule 2 of GEN. |
Providing Audit Services | The Ancillary Service as defined in paragraph 2 of Schedule 2 of GEN. |
Providing Consultancy Services | The Ancillary Service as defined in paragraph 4 of Schedule 2 of GEN. |
Providing Custody | The Regulated Activity as defined in paragraph 5 of Schedule 1 of GEN. |
Providing Fund Administration | The Regulated Activity as defined in paragraph 8 of Schedule 1 of GEN. |
Providing Legal Services | The Ancillary Service as defined in paragraph 1 of Schedule 2 of GEN. |
Providing Trust Services | The Regulated Activity as defined in paragraph 7 of Schedule 1 of GEN. |
PRU Dealing Investment Firm | A Person defined as such in PRU(INV) 1.3(3). |
PRU Intermediary Investment Firm | A Person defined as such in PRU(INV) 1.3(4). |
PRU Investment Firm | A Person defined as such in PRU(INV) 1.3(2). |
PRU Investment Business | Activities defined as such in PRU(INV) 1.3(5). |
RBA | Risk-Based Approach, as described in AML 4.1.1. |
Real Property | Any form of direct interest in real estate. |
REC | The Recognition Rules. |
Recognised Jurisdiction | A jurisdiction which has been recognised by the AFSA. |
Recognised Non- AIFC Clearing House | A Person declared by the AFSA to be a Recognised Non-AIFC Clearing House under section 89 of the Framework Regulations. |
Recognised Non- AIFC Investment Exchange | A Person declared by the AFSA to be a Recognised Non-AIFC Investment Exchange under section 89 of the Framework Regulations. |
Recognised Non- AIFC Market Institutions | Either a Recognised Non-AIFC Clearing House or a Recognised Non- AIFC Investment Exchange. |
Recognised Non- AIFC Member | A Person declared by the AFSA to be a Recognised Non-AIFC Member under section 91 of the Framework Regulations. |
Recognition Requirements | The requirements specified in section 89(3) of the Framework Regulations in relation to the declaration by the AFSA of a Person to be either Recognised Overseas Investment Exchange or Recognised Overseas Clearing House. |
Registered Auditor | An auditor or audit firm registered, licensed, or otherwise regulated by the competent Kazakhstan authority. |
Registrar of Companies | The registrar of companies appointed pursuant to the AIFC Companies Regulations. |
Registration Document | In relation to a Prospectus structured as multiple documents, the document referred to in MAR 1.3.1(a)(ii). |
Regulated Activity | An activity specified of Schedule 1 of GEN. |
Regulated Exchange | An exchange regulated by a financial services regulator. |
Regulated Financial Institution | A Person who does not hold a Licence but who is authorised in a jurisdiction other than the AIFC to carry on any financial service by another Financial Services Regulator. |
Regulation | A regulation enacted under Article 4(3) of the Constitutional Law. |
Regulatory Objectives | The objectives of the AFSA identified in section 7(3) of the Framework Regulations. |
Related Party | In MAR has the meaning given in MAR 2.5.2(a). |
Related Party Transaction | In MAR has the meaning given in MAR 2.5.2(b). |
Related Person | A Person (the second Person) is a Related Person of that Firm if: (a)the Firm and the second Person are members of the same Group; (b)the second Person is an individual who is a director or officer of the Firm or of another member of the same Group; (c)the second Person is the spouse or minor child of an individual mentioned in paragraph (b);or (d)the second Person is a company that is subject to significant influence by or from an individual mentioned in paragraph (b) or (c). |
Relevant Person | In AML has the meaning given in AML 1.2(1). |
REP | The Representative Office Rules. |
Reporting Entity | A Person who: (a) has Securities admitted to an Official List of Securities; or (b) is declared by the AFSA to be a Reporting Entity. |
Retail Client | A Client that is not classified as a Professional Client or Market Counterparty. |
Risk-Weight | In relation to an asset or an off-balance sheet exposure of a PRU Dealing Investment Firm, the percentage specified in PRU(INV) 3.4(8), subject to any applicable reduction under PRU(INV) 3.4(10). |
Risk-Weighted Assets Amount | The amount calculated in respect of a PRU Dealing Investment Firm under PRU(INV) 3.4(3). |
Risk-Weighted Exposure Amount | In relation to an asset of a PRU Dealing Investment Firm, the amount calculated under PRU(INV) 3.4(6). In relation to an off-balance sheet exposure of a PRU Dealing Investment Firm, the amount calculated under PRU(INV) 3.4(7). |
Risk-Weights Multiple | 8% or such other percentage as may be specified by the AFSA from time to time in accordance with PRU(INV) 3.4(4). |
Rule | A rule made by the AFSA under Article 4(3) of the Constitutional Law. |
SAR | Suspicious Activity Report. A report in a prescribed format regarding suspicious activity or suspicious transactions made to the AFSA, as described in AML 13.7.2. |
SDD | Simplified Due Diligence, as described in AML 8.1.1. |
Security | (a) a Share; (b) a Debenture; (c) a Warrant; (d) a Certificate; or (e) a Structured Product. |
Securities Note | In relation to a Prospectus structured as multiple documents, the document referred to in MAR 1.3.1(a)(iii). |
Securities Settlement System | A system operated by a Person which enables Investments held in accounts to be transferred and settled by book entryaccording to a set of predetermined multilateral rules. |
Segregated Client | A Client whose assets or Money is required to be held in compliance with either COB 8.2, COB 8.3 or COBS 11.8. |
Senior Executive Officer | The individual performing the Controlled Function specified in GEN 2.2.2. |
Senior Manager | The individual performing the Designated Function specified in GEN 2.3.2. |
Share | a share or stock in the share capital of any Body Corporate or any unincorporated body |
Shell Bank | A bank that has no physical presence in the country in which it is incorporated or licensed and which is not affiliated with a regulated financial group that is subject to effective consolidated supervision, as referenced in AML 10.2.2. |
Skilled Person | A Person appointed to make a report required by the AFSA under section 96 of the Framework Regulations. |
Source(s) of Funds | The origin of the customer's funds which relate to a transaction or service and includes how such funds are connected to a customer's source of wealth. |
Source(s) of Wealth | How the customer's global wealth or net worth is or was acquired or accumulated. |
Structured Product | An instrument comprising rights under a contract where: (a) the gain or loss of each party to the contract is ultimately determined by reference to the fluctuations in the value or price of property of any description, an index, interest rate, exchange rate or a combination of any of these as specified for that purpose in the contract (“the underlying factor”) and is not leveraged upon such fluctuations; (b)the gain or loss of each party is wholly settled by cash or setoff between the parties; (c)each party is not exposed to any contingent liabilities to any other counterparty; and (d) there is readily available public information in relation to the underlying factor; but excludes any rights under an instrument: (e)where one or more of the parties takes delivery of any property to which the contract relates; (f) which is a Debenture; or (g) which is a Contract of Insurance. |
Subsidiary | In accordance with paragraph 1 of Schedule 1 of the Companies Regulations, a Body Corporate (the first Body Corporate) is a Subsidiary of another Body Corporate (the second Body Corporate) if: (a) the second Body Corporate: (i) holds a majority of the voting rights in the first Body Corporate; or (ii)is a shareholder of the firstBody Corporate and has theright to appoint or remove a majority of the board of Directors or managers of the first Body Corporate; or (iii)is a shareholder of the firstBody Corporate andcontrols alone, under an agreement with other shareholders, a majority of the voting rights in the first Body Corporate;or (b) the first Body Corporate is a subsidiary of another Body Corporate that is itself a subsidiary of the second Body Corporate, which is its Holding Company. |
Supplementary Prospectus | An updated or replacement Prospectus produced in accordance with in article 73 of the Framework Regulations. |
Takeover | A takeover or merger transaction however effected, including schemes of arrangements which have similar commercial effect to takeovers and mergers, partialbids, bid by a parentcompany for sharesin its subsidiary and (where appropriate) share repurchases by general bid. |
Takeover Offer | A public offer (other than by the offeree company itself) made to the holders of the Securities of a company to acquire all or some of those Securities, whether mandatory or voluntary, which follows or has as its objective the acquisition of control of the offeree company. |
Takeover Principles | Principles prescribed by the AFSA pursuant to section 88(1)(b) of the Framework Regulations. |
Takeover Rules | Rules prescribed by the AFSA pursuant to section 88(1)(a) of the Framework Regulations. |
Third Party Account Provider | In relation to a Client Money Account or a Client Investment Account, means an Authorised Firm or Regulated Financial Institution (including a bank, custodian, intermediate broker, settlement agent, clearing house, exchange and/or "over the counter" counterparty) that is a separate legal entity from the Authorised Firm that is required under COB to establish the Client Money Account or Client Investment Account. |
Transaction | Any transaction undertaken by an Authorised Firm in the course of carrying on a Financial Service in or from the AIFC. |
Undertaking | (a) a Body Corporate; or (b) Partnership; or (c) an unincorporated association carrying on a trade or business, withor without a view to profit. |
Unit | A unit in or a share representing the rights or interests of a Unitholder in a Fund. |
Unitholder | A Person who participates in a Fund. |
UNSCR | United Nations Security Council Resolutions, as referenced in AML 12.1. |
Unsolicited Real Time Financial Promotion | Has the meaning given in COB 3.4.2. |
Valuer | A valuer of a Fund's property appointed in accordance with CIS. |
Warrant | an instrument that confers on the holder a right entitling the holder to acquire an unissued Share or Debenture |
Consultation Paper No.5 on proposed Banking Business Rules
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed rules intended to establish a sound regulatory framework for the conduct of banking business activities in the AIFC. The proposed rules and the associated guidance to comply with those rules are in full compliance with the AIFC legal and regulatory framework. The proposed rules are also consistent with the Basel standards which form the global standard for banking regulation. The proposed rules and associated guidance are set out at Annexures A & B to this Paper.
2. The proposals in this Consultation Paper will be of interest to Authorised Persons, Designated Non-Financial Business or Professions, Registered Auditors and individuals, financial organizations and investors who are interested in doing business in the AIFC. In particular, the proposed rules presented for consultation by way of this paper will be of interest to any banks or financial institutions or investors interested in potentially setting up a bank in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 5” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 13 July 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the list of key elements of the proposed AIFC BBR Rules;
(c) Annex 1: The draft of proposed rules for the AIFC BBR Rules.
(d) Annex 2: The draft of proposed guidance in the form of Capital Adequacy Guideline (CAG) to the AIFC BBR Rules.
(e) Annex 3: The draft of proposed amendments to AFSA’s GEN, COB and AML rules.
Background
1. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
2. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic finance markets, in the Republic of Kazakhstan;
(4) developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
3. Further development of the AIFC legislation requires the establishment of a comprehensive framework for provision of the full range of financial services in the AIFC. According to Article 2 of the Constitutional Statute, as mentioned above, one of the objectives of AIFC is developing insurance markets, banking services, and Islamic finance markets in the Republic of Kazakhstan.
4. In this regard, the AFSA as financial regulator of the AIFC strives to develop legislation for banking services in the AIFC by drafting and/or amending relevant AIFC Acts to build enabling regulatory framework for operating banks in the AIFC. This consultation paper invites comments from the public on the proposed rules and the associated guidelines to implement the enabling legal and regulatory framework for providing the full range of banking services in the AIFC that will help to achieve the strategy of the AIFC, in a manner consistent with the regulatory objectives of the AFSA.
KEY ELEMENTS OF THE PROPOSED RULES
Objectives
5. The principal objectives for the initiative to develop and implement a regulatory regime for banking business in the AIFC are as follows:
• Establish a proportionate regulatory regime for banking business
• Achieve compliance with the primary global standard for banking business - the Basel framework
• Achieve high degree of safety and soundness for banks operating in AIFC
• Ensure consistency with the overall structure of the AFSA rulebook; and
• Facilitate entry, establishment and sustainable growth of banking business in AIFC.
Overall policy approach
6. The overall policy approach for the development of the proposed regulatory framework for banking services is focussed on ensuring compliance with the Basel standards for banking regulation. A high level of emphasis has been applied on ensuring that the proposed regulatory framework is appropriately calibrated to avoid any undue regulatory burden while enabling the AFSA to achieve safety and soundness in the banks operating in the AIFC. The AFSA has adopted a comprehensive approach towards policy development for banking business in AIFC, with the intention of covering all relevant regulatory aspects applicable to banking business. This Consultation Paper also proposes amendments to other AFSA Rules including GEN, COB and AML to address the complementary elements of the regulatory framework required for the successful development of banking business in the AIFC. Hence, the Consultation Paper and the proposals covered by it are not restricted to the development of prudential and other regulatory rules for banking.
7. The overall policy approach underlying the development of the regulatory regime (the “BBR Rules”) for banking business and related financial services activities in AIFC is based on the following key principles:
• Ensuring that the BBR Rules comply with the Basel framework in a proportionate manner, and in particular comply with Basel IV capital and liquidity requirements
• Ensuring that the BBR Rules comply with relevant Basel Core Principles for Banking Supervision , set out in annexure 1 to this Policy Paper
• Achieving global standards in risk management for banks in AIFC, including but not limited to Basel standards for risk management
• Benchmarking the regulatory standards to globally reputed jurisdictions – especially the DIFC, QFC, MAS, European framework.
• Achieving a high level of consistency with the existing Financial Services Framework and the General Legal Framework, but making any amendments needed for banking business in the AIFC
• Ensuring a level playing field with Islamic Banks
8. The development of the policy approach and drafting of the rules has been benchmarked to the regulations prevailing in established international jurisdictions including successful peer jurisdictions like the Dubai International Financial Centre. The Basel framework, including but not limited to risk management, governance and, prudential standards covering various relevant aspects of banking regulation, as published by the Basel Committee for Banking Supervision (“BCBS”) forms the basis for the detailed rules proposed for this consultation.
Scope of the proposed BBR rules and other amendments
9. This Consultation Paper covers not only rules for prudential regulation of banking activity and resulting risks, but also the rule amendments required in GEN, COB and AML rules of the AFSA, which address the consequential impact of the start of banking business in the AIFC. This consultation covers the regulations for the regulated financial services activities typically carried out as part of banking business, including by credit providers and investment banks. Credit providers are financial services entities which are involved in providing credit but do not accept deposits. Investment banks are typically firms which deal in investments as a principal but not accept deposits. These activities would need to be added to the list in Schedule 1 to the GEN Rules as Regulated Activities in the AIFC. The policy choices consequent on this would form the basis of the proposed BBR Rules.
10. Essentially, the prudential component of the proposed BBR Rules would address only activities which involve prudential risks arising from financial service activities that banks engage in. The definition of scope of the prudential rules for banks is consistent with that adopted for the scope of IBB rules, which ensures consistency and level-playing field between conventional and Islamic banks.
11. The policy approach towards definition of banking business is based on the authorisation for the Regulated Activity of “Accepting Deposits. Proposed amendments to GEN include the definition of this regulated activity in schedule 1 of GEN along with its definition. So, any firm licensed to conduct that regulated activity is defined as a Bank and such Banks would be subject to the rules in BBR, COB and in AML.
12. It is proposed that the regulatory regime would allow the banks operating in the AIFC to provide various banking services to clients who are eligible to be classified as Professional Clients or Market Counterparties, in accordance with the client classification provisions in AIFC COB rules. Banks operating in the AIFC would be prohibited from accepting deposits from retail clients, as defined in AIFC COB rules.
Overview of the amendments to other AFSA Rules
13. This Consultation Paper includes the proposed amendments to the GEN, COB and AML modules of the AFSA rules to address the critical regulatory issues required to regulated banking activity in the AIFC, in an effective manner. The proposed amendments to these rules include, but are not limited to:
• Inclusion of the Regulated Activities of accepting deposits, providing credit, providing money services, advising and arranging credit in Schedule 1 of GEN, along with their definitions.
• Inclusion of a licensed function of Risk Manager for banks in GEN rules;
• Rules prohibiting acceptance of deposits from retail clients in COB rules;
• Enhanced conduct requirements in respect of terms of business for banking products and services in COB rules;
• Rules addressing AML issues for correspondent banking, wire transfers and shell banks.
14. The inclusion of regulated activities like advising and arranging credit would be useful for supporting launch and operation of Fintech activities in the AIFC. The version of GEN, COB and AML rules of the AFSA with the proposed amendments are attached to this Consultation Paper.
Critical elements of the proposed BBR rules
15. The proposed BBR rules cover the following key elements which are essentially structured as independent chapters in the BBR.
• Introduction and definitions
• Principles for regulation of Banking business
• Regulatory reporting requirements
• Capital Adequacy – capital ratios, including eligibility criteria for the different components of capital resources, limits on their use
• Credit risk, credit risk mitigation and concentration risk
• Market risk
• Interest-rate risk in the banking book (IRRBB)
• Operational risk
• Liquidity risk
• Group risk, including consolidated capital requirements
• Pillar II of Basel III – ICAAP and individual capital requirement
• Pillar III of Basel III – disclosure requirements
16. The proposed BBR rules are being supplemented with a detailed guideline, called the Capital Adequacy Guidelines (CAG) which is attached to this Consultation Pape. This CAG provides the detailed descriptions of key concepts, calculation methodologies, formulas, parameters to be used in technical calculations, guidance required for complying with the technical rules involved in BBR and supervisory expectations in regard to various technical rules in the BBR. Banks regulated by the AFSA would be expected to comply with the provisions in the CAG in order to meet the supervisory expectations of the AFSA as well as to demonstrate their full compliance with the rules in the BBR. The CAG does not have any primary regulatory requirements and only provides useful additional information and technical data to facilitate banks in complying with the BBR.
17. The significant components of the proposed BBR rules are explained in the following paragraphs.
Definition of Bank/Banking Business
18. The proposed rules are based on an approach wherein banks are authorised to carry out banking activities on the basis of license they receive from the AFSA for the regulated activity of Accepting Deposits. For this purpose, this regulated activity has been included in the proposed amendment to schedule 1 of GEN rules. Centre Participants authorised to “Accept Deposits” would thus be treated as banks and would have the privilege of carrying out all supplementary or auxiliary banking activities (except other Regulated Activities for which they were not additionally authorised) like cheque clearing and settlement, payment services, money services and foreign exchange services etc.
19. Centre participants authorised to carry out other Regulated Activities like Providing Credit or Dealing in investment as Principal while not carrying the license for accepting deposits would not be allowed to provide the supplementary or auxiliary banking activities listed above. Such regulated entities would be referred as banks in BBR, only for the purpose of simplifying the rules as a majority of the proposed BBR rules would apply to such firms.
Capital Adequacy
20. The proposed BBR rules outlining the capital adequacy requirements in Chapter 4 of the BBR are fully consistent with the Basel III framework, the global standard for prudential regulation of banks. This is consistent with the fundamental policy approach of ensuring consistency with applicable global standards. Consequently, all the detailed rules in Chapter 4 of BBR, implement the components of Basel III diligently.
21. In respect of the prudential regime for banks operating as branches in the AIFC, it is proposed that the capital requirements would not apply to such branches. Instead, the required level of oversight, monitoring and ability to apply capital requirements would be at the discretion of the supervisors of the AFSA. The discretion on applying capital requirement to a branch is expected to be used only in extremely rare cases. The effectiveness of this approach can be enhanced significantly by restricting the jurisdictions from where branches would be allowed and by entering into closer supervisory cooperation with the lead regulators of those jurisdictions.
22. The capital adequacy rules of Basel III include two main components – definition of capital resources (with eligibility criteria) and calculation of capital requirements (based on calculation of Risk-weighted Assets - RWAs). In respect of the first component, a bank’s total Capital Resources is defined as the sum of its Tier 1 Capital and Tier 2 Capital. The proposed rules in chapter 4 of the BBR provide definitions of T1 and T2 capital, the eligibility criteria for inclusion in those categories of capital as well as the limits of usage of the different categories of capital, which are strictly identical to those of the Basel framework.
23. The proposed BBR Rules restrict a bank from reducing its capital resources without the AFSA’s written approval. The AFSA will also be able to require a bank to have capital resources, comply with any other capital requirement or use a different approach to, or method for, capital management. The AFSA will be able to require a firm to carry out stress- testing at any time.
24. In respect of the second component of defining capital requirements, the proposed BBR rules include a minimum base capital requirement (BCR) and risk-based capital (RBC) requirements. The proposed BBR rules require a bank to meet the higher of the two – BCR and RBC requirements. The BCR being minimum also operates as the threshold entry requirement for a new bank and the BCR is expected to be met at the point of licensing. The BCR is required to be met with the common equity capital of the bank.
25. The thresholds proposed for the BCR are as follows:
Bank / Accepting deposits — USD 10 million
Broker Dealer / Dealing in investment as Principal— USD 2 million
Credit Provider / Providing credit only – USD 2 million.
26. The proposed BBR Rules require Banks and other centre participants subject to it (Credit Providers and Broker Dealers) covered by it to meet minimum risk-based capital requirements based on risk exposures in the categories of credit risk, market risk and operational risk. The methodology of measurement of risk exposures in these categories and consequent calculation of capital requirements to address these risk exposures specified in the proposed BBR Rules are fully consistent with the Basel III framework.
27. The basic requirement is for a bank to meet or exceed, at all times, regulatory capital ratios, which are defined as a percentage of the total RWAs of the bank. The proposed BBR rules specify a total capital requirement expressed as a percentage of risk-weighted assets (RWA) at 8% of RWA, which is consistent with Basel framework. The recommended level is also consistent with AFSA’s IBB rules for Islamic banks. This approach would preclude any potential for regulatory arbitrage and ensure level playing field between Islamic and conventional banks operating in the AIFC.
28. The proposed BBR rules include the following regulatory minimum thresholds for the risk-based capital requirements:
4.5% of RWA for CET 1 Capital ratio
6% of RWA for Tier 1 Capital ratio
8% of RWA for Total Capital ratio
RWAs include Credit RWA, Market RWA and Operational RWA
Capital Conservation Buffer at 2.5% of RWA
These thresholds are consistent with those applicable to Islamic Banks in AIFC.
29. The proposed BBR Rules do not allow banks to use their own internal models to measure risk exposures for the purposes of determination of their capital requirements (Advanced approaches or IRB approaches under Basel framework). So, the capital adequacy determination rules would be limited to standardised approach. The use of internal models is restricted to very few limited areas of market risk capital determination and in such cases, internal models proposed for usage would have to be pre-approved by the AFSA.
30. In respect of each of the significant risks faced by a Bank, the BBR rules set out in individual chapters for each of those risks, involve two components:
• Governance, systems and controls requirements; and
• Determination of risk-based capital requirement to support the risk exposures involved, including detailed metrics and methodologies involved.
31. The proposed BBR rules set out detailed requirements for the governance, systems and controls to address and manage each of the key risk categories as illustrated in paragraph 16 above. The chapters 5 to 9 of the proposed BBR address each of those key risk categories. The proposed BBR rules also include specific methodologies for the calculation of RWAs for credit, market and operational risk categories. The proposed BBR rules in these chapters are fully compliant with the Basel framework. The proposed guidelines in CAG includes the methodologies, formulae and parameters to support the process of calculation of RWAs and risk capital requirement as described in paragraph 17 above.
32. The AFSA will have power to specify additional capital requirements in cases where it has a basis to determine that a bank has risk exposures which are beyond those addressed within the BBR Rules or has risk exposures which cannot be measured as part of the RWA. The AFSA will be able to do this either using its general supervisory powers or through the operation of the pillar II process – the ICAAP requirement, being proposed as part of this policy paper.
33. It is proposed that the BBR Rules include provisions which restrict a bank from reducing its capital resources without the AFSA’s written approval. The AFSA will be able to require a bank to have capital resources, comply with any other capital requirement or use a different approach to, or method for, capital management. The AFSA will be able to require a firm to carry out stress-testing at any time.
Managing credit, market and operational risks
34. The proposed BBR Rules impose regulatory requirements on a bank to establish, implement and maintain robust risk management systems and controls, which are appropriate for the nature, scale and complexity of its business and for its risk profile. The proposed rules, guidance and standards for management of all risk categories applicable to banking business, including but not limited to credit, market and operational risks, interest rate risk in the banking book (IRRBB) and liquidity risks, are compliant with the various risk management standards forming part of the Basel III framework.
Capital buffers
35. The Basel III capital adequacy framework contains 2 measures imposing additional capital requirements on Banks through the Capital Conservation Buffer and the Counter-Cyclical Capital Buffer. The Capital Conservation Buffer (CCB) is an additional layer of protection which will prevent banks from breaching minimum capital requirements. CCB acts as preventive alert mechanism by providing a period of time in which the regulator and the bank can take steps to stem the erosion in capital and restore it to healthy levels The Counter-Cyclical Capital Buffer (CCCB) is a macro-prudential tool that can be used when excess aggregate credit growth is judged to be associated with a build-up of a system-wide risk. It is intended to ensure that the banking system has a buffer of capital to protect it against future potential losses.
36. The proposed rules in chapter 4 of the BBR, include provisions requiring a Bank in the AIFC to maintain CCB at all times. These rules require a Bank to have adequate systems and controls to ensure that the amount of distributable profits and maximum distributable amount are calculated accurately. A bank must be able to demonstrate that accuracy if directed by the AFSA. If a bank’s CCB falls below the required minimum, the bank must immediately conserve its capital by restricting its dividend distributions. The proposed BBR Rules are fully compliant with the Basel framework. The proposed BBR rules do not implement the CCCB requirement, given that the CCCB is a macro- prudential measure which is aimed at addressing the accumulation of risks in an economy (Kazakhstan in this case) and has to be applied to all credit providers to be effective in achieving its goals.
Leverage ratio
37. Basel III introduced a non-risk based Leverage Ratio (“LR”) requirement alongside the risk-based capital ratios as a “back-stop” to restrict the build-up of excessive leverage in the banking sector, which was identified as one of the key factors contributing to the global financial crisis. The BCBS issued the LR framework together with the associated disclosure requirements in January 2014. Chapter 4 of the proposed BBR, includes specific requirements for Banks to meet the LR, in a manner fully consistent with the Basel framework.
Liquidity risk management
38. The proposed BBR Rules located in chapter 9 of the BBR and the supporting guidelines in chapter 9 of the CAG include detailed provisions on liquidity risk management covering both systems and controls as well as quantitative risk measurement techniques and control limits, which are consistent with Basel III standards. The proposed rules include provisions to implement LCR and NSFR, two key components of Basel III. The implementation of these two metrics in the proposed BBR rules makes the AIFC’s banking regime compliant with Basel III.
Managing group risk
39. The purpose of group risk requirements under the proposed BBR Rules is to ensure that a bank takes into account the risks related to its membership of any financial group and maintains adequate capital resources so as to exceed its financial group capital requirement. Under the rules a bank may apply to the AFSA for approval to exclude an entity from its financial group. The AFSA will grant such an approval only if the bank satisfies the AFSA that inclusion of the entity would be misleading or inappropriate for the purposes of supervision. The AFSA would consider a range of factors when requiring a Bank to treat another entity as part of its financial group. These factors would include regulatory risk factors, including direct and indirect participation, influence or contractual obligations, interconnectedness, intra-group exposures, intra-group services, regulatory status and legal framework. These proposals are broadly consistent with the overall regulatory objectives of AFSA and related Basel standards. The proposed rules in Chapter 10 of the BBR also extend the application of concentration risk limits applicable to a Bank to its Financial group as well. In that rule, the limits are specified as a percentage of the financial group’s capital and they apply to the credit risk exposures of the financial group as a whole.
Internal Capital Adequacy Assessment Process (ICAAP)
40. The BBR Rules include provisions implementing the pillar II process of Basel III framework, and require a bank to carry out an internal capital adequacy assessment process or ICAAP. The rules located in chapter 11 of the BBR impose requirements on the ICAAP process of a Bank, and the tools involved in the process. These rules also require a bank to demonstrate that it has implemented methods and procedures to ensure, on an ongoing basis, that it has adequate capital resources to support the nature and level of its risks and reflect the nature scale and complexity of operations.
41. The proposed BBR Rules require a Bank to carry out an assessment under the bank’s ICAAP process on an annual basis, and submit a report documenting the outcome of the ICAAP assessment to the AFSA at least once in every 12 month period. The proposed rules also describe the supervisory review and evaluation process (SREP) in which the regulator (AFSA) commits to a process of review and evaluation of the ICAAP report submitted by a bank. The proposed rules also allow the AFSA to impose additional capital requirement on an institution-specific basis in excess of the minimum capital requirements applicable to all banks – Individual Capital Requirements (ICR).
Disclosure requirements
42. The proposed rules in Chapter 12 of the BBR, include provisions implementing the pillar III of Basel III framework, which requires banks to disclose all relevant and material risk information to facilitate the process of market discipline. These rules along with the supporting guidelines in chapter 13 of the CAG require a bank to make detailed disclosures which are specified in a detailed tabular format. These proposed rules are fully consistent with the requirements in pillar 3 of the Basel framework.
Consultation Paper No.8 on proposed AIFC Rules on Safekeeping and Settlement of the Sovereign Bonds in the systems of Non-AIFC Securities Depositaries
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed rules on safekeeping and settlement of the sovereign bonds in the systems of non-AIFC securities depositories. The proposed rules are set out at Annex 1 to this Paper.
2. The proposals in this Consultation Paper will be of interest to Authorised Persons, Designated Non-Financial Business or Professions, individuals, financial organizations who are interested in doing business in the AIFC, state bodies and investors.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 8” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 16 September 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
Background
1. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
2. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic finance markets, in the Republic of Kazakhstan;
(4) developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
3. Further development of the AIFC legislation requires the establishment of a comprehensive framework for provision of the full range of financial services in the AIFC. According to Article 2 of the Constitutional Statute, as mentioned above, one of the objectives of AIFC is developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets.
4. In this regard, the AFSA as financial regulator of the AIFC strives to develop legislation for securities market in the AIFC by drafting and/or amending relevant AIFC Acts.
Annex 1
SAFEKEEPING AND SETTLEMENT OF THE SOVEREIGN BONDS IN THE SYSTEMS OF NON-AIFC SECURITIES DEPOSITORIES RULES
PART 1: INTRODUCTION
1. Short Title
These Rules may be cited as the Sovereign Bonds Safekeeping and Settlement Rules.
2. Commencement
These Rules come into force on .
3. Legislative Authority
(1) These Rules are adopted by the AFSA under Articles 3(2), 12(3) of the Constitutional Statute, Section 12(4) of the AIFC Regulations on AIFC Acts 2017, Sections 6(2), 7(2), 7(3)(a), 8 of the Framework Regulations, Section 43 of the AIFC Personal Property Regulations 2017, [Section 181 of the AIFC Companies Regulations 2017, Section 92 of the AIFC Insolvency Regulations 2017].
4. Application and Scope
(1) These Rules apply within the jurisdiction of the AIFC.
(2) These Rules apply to the Sovereign Bonds which -
(a) are listed on AIX, and
(b) are registered on the books of the Registrar.
(3) Except to the extent that the provisions of these Rules are issued under the legislative authority of the AIFC Personal Property Regulations 2017, the Sovereign Bonds shall not be deemed the Investments specifically for the purposes of the AIFC Personal Property Regulations 2017 and the AIFC Dematerialised Investments Rules 2017, with the effect that the AIFC Personal Property Regulations 2017 and the AIFC Dematerialised Investments Rules 2017 do not apply in respect of the Sovereign Bonds.
(4) Without prejudice to Section 8 of the AIFC Regulations on AIFC Acts 2017, Sections 6(2), 7(2), 7(3)(a), 8 of the Framework Regulations, Section 43 of the AIFC Personal Property Regulations 2017, [Section 181 of the AIFC Companies Regulations 2017, Section 92 of the AIFC Insolvency Regulations 2017], if any other act of the AIFC, other than the Regulations, is inconsistent with the provisions of these Rules, these Rules shall prevail to the extent relevant for the issuance, placement or trading of the Sovereign Bonds in the AIFC.
5. Interpretation
(1) Schedule 1 contains definitions used in these Rules and other interpretative provisions.
(2) Schedule 2 provides a non-exhaustive list of the conflict-of-laws provisions used in these Rules.
PART 2: REGISTRAR
6. Status and Appointment
(1) The Registrar shall be appointed by the Issuer pursuant to an agreement which sets out the rights and responsibilities of the Registrar and the terms and conditions of the appointment of the Registrar.
(2) The bankruptcy, insolvency or winding-up of the Registrar, or any other agent, shall not affect in any manner whatsoever the Sovereign Bonds kept on the books of the Registrar, or the rights or interests of the holders of such Sovereign Bonds. The Sovereign Bonds kept on the books of the Registrar do not form part of the property of the Registrar available for distributions among, or realisation for the benefit of, the creditors of the Registrar in bankruptcy or insolvency proceedings in relation to the Registrar.
(3) The Registrar shall adopt internal rules, forms and, as appropriate from time to time, guidance on the matters related to the activities of the Registrar.
7. Register of the Sovereign Bonds
(1) The Registrar shall establish and maintain the register of the Sovereign Bonds upon instruction of the Issuer in the AIFC.
(2) The Registrar shall increase or decrease the issued amount of the Sovereign Bonds in the register upon the instruction of the Issuer.
(3) The CSD or the Nominee may be registered on the books of the Registrar as the holder of the entire issued amount of each issue of the Sovereign Bonds.
(4) Each of the CSD, the Nominee, which is registered on the books of the Registrar as the holder of the Sovereign Bonds, and the Issuer shall be entitled to request subject to the terms of agreement between the CSD and the Issuer the re-registration of the Sovereign Bonds on the books of the Registrar in the name of the Participants or any other persons specified by such CSD, the Nominee or the Issuer.
(5) The CSD or the Nominee, which is registered on the books of the Registrar as a holder of the Sovereign Bonds, shall not be deemed the beneficial owner of the Sovereign Bonds.
PART 3: CENTRAL SECURITIES DEPOSITORY
8. Safekeeping and Settlement of the Sovereign Bonds
(1) The safekeeping and settlement of the Sovereign Bonds may take place on the facilities maintained either in or outside the AIFC.
(2) The Sovereign Bonds may be held in the omnibus accounts. For the purposes of these Rules, ‘omnibus account’ shall mean any account opened in the name of a person that is not the beneficial owner of the Sovereign Bonds.
(3) The CSD may settle the trades of the Sovereign Bonds in its system. The CSD may, but is not obliged to, engage a local (be it AIFC or Kazakhstani) appropriately authorised financial institution, person or system for the purposes of settlement of trades in the Sovereign Bonds.
(4) The title to the Sovereign Bonds, as well as the transfer of the title to the Sovereign Bonds on the books of the CSD, and the settlement finality rules for the Sovereign Bonds shall in each case be governed by the applicable laws of the jurisdiction in which the CSD is located and (or) operates its other activity.
(5) The Sovereign Bonds kept by the CSD shall not be subject to any attachment by any creditor of the Registrar, or any other agent, or the CSD, or the Nominee, or the beneficiary, or any other party, or any lien, pledge, retention, set-off, or any other similar right, to the detriment of the CSD.
(6) The Sovereign Bonds kept by the CSD shall not be subject to any freeze order or attachment by or, at the request of, any AIFC Body.
9. Lending and Borrowing Programme
(1) The CSD may include the Sovereign Bonds in its lending and borrowing programmes. The services rendered by the CSD and related to its lending and borrowing programmes shall be governed by the laws applicable to such CSD and the internal rules of such CSD.
10. Collateral Management
(1) The services rendered by the CSD related to the collateral transactions with the Sovereign Bonds kept in the system of the CSD shall be governed by the laws applicable to the CSD and the internal rules of such CSD.
11. Reporting and Liability
(1) Without prejudice to an agreement between the AFSA and the CSD as a Recognised Non- AIFC Market Institution, the liability of the CSD, and(or) the Nominee, and(or) the officers of such CSD or the Nominee, shall be governed by the laws applicable to such CSD, and(or) the rules of such CSD, and(or) any agreement entered into by such CSD in connection with its appointment as the CSD for the safekeeping and settlement of the Sovereign Bonds.
(2) Without prejudice to Subsection (1) above and an agreement between the AFSA and the CSD as a Recognised Non-AIFC Market Institution, the CSD, and(or) the Nominee, and(or) their officers, are subject to general provisions on liability of the AIFC if the CSD, the
Nominee or their officers act or omit to act in such a manner that such acts or omissions constitute a contravention under the applicable laws of the AIFC.
(3) The liability of the CSD and the Registrar in connection with the registration, safekeeping and settlement of the Sovereign Bonds vis-à-vis each other shall be stipulated in a bilateral agreement entered into between them.
PART 4: SOVEREIGN BONDS
12. Sovereign Bonds
(1) Only fully fungible, freely transferable uncertificated Sovereign Bonds shall be allowed to be kept by the CSD.
13. Sovereign Bonds Documentation
(1) Draft Terms and Conditions of the Sovereign Bonds shall be available on trading date in English.
(2) Final Terms and Conditions of the Sovereign Bonds shall be available on settlement date in English.
(3) The documentation on the Sovereign Bonds shall provide for the possibility to register the Sovereign Bonds in the name of a person other the beneficial owner of the Sovereign Bonds (nominee registration).
(4) The documentation on the Sovereign Bonds shall provide for the procedure to notify the CSD on the events of default of the Issuer, as well as the appointment of a representative of the holders of the Sovereign Bonds or the conferring of the rights in connection with the events of default to the beneficial owners of the Sovereign Bonds. The CSD shall not act as the representative of the holders of the Sovereign Bonds in connection with the events of defaults of the Issuer.
SCHEDULE: 1
(1) In these Rules the following definitions apply, unless the context requires otherwise:
CSD means a non-AIFC central securities depository which is a legal entity that operates a securities clearing system and(or) a securities settlement system which:
i. has been recognised by the AFSA as a Recognised Non-AIFC Market Institution; and
ii. is appointed as the CSD for the safekeeping and settlement of the Sovereign Bonds pursuant to an agreement entered into by and between such FFI and the Issuer and for the purpose of these Rules.
Issuer means any of the Ministry of Finance of the Republic of Kazakhstan.
Nominee means a nominee company controlled by the CSD.
Participant means any entity which has entered into an agreement to participate in the CSD on the terms and conditions set out in the internal rules of the CSD.
Registrar means a company which is incorporated in the AIFC by AIX and which keeps the register of the Sovereign Bonds in the AIFC.
Sovereign Bonds means debt securities issued by the Issuer.
(2) The capitalised terms used, but not defined in these Rules shall be construed in accordance with the acts of the AIFC, unless the context requires otherwise.
SCHEDULE: 2
(1) For the purposes of these Rules, for the following matters related to the Sovereign Bonds see the applicable laws of the jurisdiction in which the CSD is located and (or) operates its other activity and (or) internal rules of the CSD:
(a) the title to the Sovereign Bonds,
(b) the transfer of the title to the Sovereign Bonds on the books of the CSD,
(c) the settlement finality rules for the Sovereign Bonds kept in the system of the CSD,
(d) the services rendered by the CSD and related to its lending and borrowing programmes,
(e) the services rendered by the CSD related to the collateral transactions with the Sovereign Bonds kept in the system of the CSD,
(f) subject to an agreement between the AFSA and the CSD as a Recognised Non-AIFC Market Institution, the liability of the CSD, and(or) the Nominee, and(or) the officers of such CSD or the Nominee,
(g) any other matters, where applicable.
(2) The list provided for in (1) above is non-exhaustive.
Consultation Paper No.9 on proposed AIFC Rules for Pre-IPO Listings
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed rules for pre-IPO listings. The proposed rules are set out at Annex 1 to this Paper.
2. The proposals in this Consultation Paper will be of interest to Authorised Persons, Designated Non-Financial Business or Professions, individuals, financial organizations who are interested in doing business in the AIFC, state bodies and investors.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 9” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 16 September 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
Background
1. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
2. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic finance markets, in the Republic of Kazakhstan;
(4) developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
3. Further development of the AIFC legislation requires the establishment of a comprehensive framework for provision of the full range of financial services in the AIFC. According to Article 2 of the Constitutional Statute, as mentioned above, one of the objectives of AIFC is developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets.
4. In this regard, the AFSA as financial regulator of the AIFC strives to develop legislation for securities market in the AIFC by drafting and/or amending relevant AIFC Acts.
Annex 1
In respect of Pre-IPO Listings:
1. The AIFC Market Rules (MAR) AIFC Rules No. FR0003 of 2017 shall not apply to Pre-IPO Listings.1
2. With reference to Financial Services Framework Regulations, AIFC Regulations No. 18 of 2017 dated December 20, 2017
(1) Pursuant to section 66(5), a Pre-IPO Listing is a circumstance in which Securities admitted to an Official List of Securities need not comply with the requirement of section 66(3).2
(2) Pursuant to section 82(3), a Pre-IPO Listing is a circumstance in which the requirements of section 82(1)3 do not apply.
(3) Pursuant to section 83(5), a Pre-IPO Listing is a circumstance in which the requirements of section 83(1)4 do not apply.
(4) Chapter 8 (Prevention of Market Abuse) and Chapter 9 (Takeovers) shall not apply to Pre-IPO Listings.
_______________________________________________________________________________________________________________
1 MAR sets out various requirements (e.g., on corporate governance, directors duties, matters requiring shareholder approval, dealings by restricted persons, related party transactions, financial reporting (including semi-annual financial reports), use of sponsors/compliance advisers, market abuse rules, publication of Inside Information), which should not apply to a company with no (or a small percentage of) public shareholders.
2 Section 66(3) states: “Where a Person has any Securities included on an Official List of Securities, such Securities must be admitted to trading on an Authorised Investment Exchange as soon as possible.”
3 Re: corporate governance framework and principles/standards.
4 Re: disclosure to the market of financial information/Inside Information.
Consultation Paper No.10 on proposed amendments to Islamic Finance Rules
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to AIFC Islamic Finance Rules intended to enhance the regulatory framework for Islamic financial institutions.
2. The proposals in this Consultation Paper will be of interest to Authorised Persons, and individuals, financial organizations and investors who are interested in doing business in the AIFC. In particular, the proposed amendments presented for consultation by way of this paper will be of interest to Islamic financial institutions or investors interested in establishing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 10” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 26 October 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) Background to the proposals;
(b) Key elements of the proposed amendments;
(c) Annex 1: The draft of proposed amendments relating to Central Shari’ah Board
(d) Annex 2: The draft of proposed amendments relating to the definition of Islamic Financial Institution
Background
1. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
2. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic financing, in the Republic of Kazakhstan;
(4) developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
3. Further development of the AIFC requires the enhancement of regulatory framework for the provision of the full range of financial services by Islamic financial institutions and ensuring compliance with international standards on Islamic finance.
4. The proposals in this paper result from the recommendations made by AIFC Advisory Council on Islamic Finance (ACIF). The ACIF recommended: (1) amending the Central Supervisory Shariah Board concept in the AIFC Islamic Finance Rules as it contradicted to the Central Shari’ah Board Standard (GSIFI 8) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)” and (2) amending current definition of Islamic Financial Institutions (IFI) as Authorised Firm did not cover capital market players.
KEY ELEMENTS OF THE PROPOSED RULES
A Proposal relating to Central Shari’ah Board
5. In December 2017, the AFSA adopted the Islamic Finance Rules setting special provisions on functions of Central Shari’ah Board in the AIFC, including supervisory functions and providing services to Islamic Financial Institutions.
6. In December 2017, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), an international organisation setting shariah, accounting, governance and ethical standards for Islamic financial institutions, issued a new governance standard No 8 “Central Shari’ah Board” providing guidance on the definition, scope of work, responsibilities, appointments, compositions, independence, terms of reference of a Central Shari’ah Board and other relevant issues.
7. According to the Standard, Central Shari’ah Board (CSB) – a broad level board or similar body of specialised jurists in Islamic commercial jurisprudence and experts in Islamic banking, finance, economics, law, accounting, etc. providing guidance and advice on Shari’ah matters with limited supervision, that is established in a specific country or jurisdiction for providing uniformity and harmony in the products and practices with regard to Islamic finance through Fatwas, rulings and guidelines. The CSB decision are applicable on a broader base in the jurisdiction rather than a single institution. The CSB shall focus on harmony of Islamic banking and finance practices:
(a) globally, through adoption of AAOIFI Shari’ah standards and /or other widely accepted Shari’ah standards, which do not conflict with AAOIFI Shari’ah standards;
(b) locally, by providing principles, rulings, guidelines and other functional support as prescribed in the Standard, primarily considering global practice and having regard to the local context.
The Standard encourages that all CSBs should primarily have advisory function coupled with a limited level of supervisory authority. The function of the Board may be divided in three broad categories which are
(a) advisory and Fatwa;
(b) regulations; and
(c) oversight and limited supervision.
Most of the functions of a CSB related to advisory and Fatwa are passive in nature,
i.e. the board provides Fatwa or advice or guidance only when asked for it by the appointing authority or the regulator. The board shall be proactive in nature when, and only when, the following conditions are met:
(a) it concludes that a major non-compliance of Shari’ah principles and rules has occurred which has not being taken care of by the appointing authority;
(b) it concludes that a perception in the market exists that such non-compliance is in the knowledge of, or with the due approval of, the board; and
(c) it concludes that unless a proactive step is taken with respect to such matter, the larger stakeholders’ interest will be compromised.
8. In this regard, we propose to remove provisions related to supervisory functions of the AIFC Central Shariah Board and Shariah Supervisory Board functions for Islamic Financial Institutions.
9. In addition, considering that Central Shariah Board should perform advisory functions, we propose to include guidance that the AFSA may request the AIFC Central Shari’ah Board to provide guidance or advice on Shari’ah matters. The proposed amendments are presented in Annex 1.
Questions:
(1) Do you have any concerns relating to our proposals to remove provisions related to supervisory functions of the AIFC Central Shariah Board? If so, what are they, and how should they be addressed?
(2) Do you have any concerns relating to our proposals to remove provisions related to Shariah Supervisory Board functions for Islamic Financial Institutions? If so, what are they, and how should they be addressed?
(3) Do you have any concerns relating to our proposals to include guidance that the AFSA may request the AIFC Central Shari’ah Board to provide guidance or advice on Shari’ah matters? If so, what are they, and how should they be addressed?
B Proposal relating to Islamic Financial Institution Definition
10. In December 2017, the AFSA adopted the Islamic Finance Rules where the Islamic Financial Institution is defined as an Authorised Firm whose license or authorisation includes a specific condition that the whole of its business is conducted in a manner fully compliant with Shari’ah. The current definition of Islamic Financial Institutions (IFI) does not cover capital market players as they may conduct both conventional and Islamic businesses.
11. In 2016 Bursa Malaysia (Exchange) launched Bursa Malaysia-i delivering the world’s first end-to-end integrated Islamic securities exchange platform that offers investors the choice to invest and trade Shariah-compliant products via a Shariah- compliant platform. Bursa Malaysia-i incorporates the full range of Shariah- compliant exchange-related services including listing, trading, clearing, settlement and depository services, to underscore Bursa Malaysia’s leadership as the global marketplace for Shariah listing and investments.
12. Considering the international experience, we propose to extend the current definition of Islamic Financial Institutions by including Authorised Market Institutions to regulate Islamic exchanges, Islamic Private E-currency Trading Facility and other market institutions. The proposed amendments are presented in Annex 2.
Question:
(4) Do you have any concerns relating to our proposals to extend the definition of Islamic Financial Institutions by including Authorised Market Institutions? If so, what are they, and how should they be addressed?
Annex 1
In this section, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments to the AIFC Islamic Finance Rules
5.SHARI’AH SUPERVISORY BOARD
5.1Appointment of Shari’ah Supervisory Board (SSB)
(1)An Islamic Financial Institution must appoint a Shari’ah Supervisory Board (SSB).
(2)An Islamic Financial Institution may use the services of a Centralised
Shari’ah Supervisory Board (CSSB) established for addressing the IslamicFinance Business activities in the AIFC and recognised by AFSA, for the purpose of complying with the provisions in this chapter and in this IFR Rules.
(3)For such an Islamic Financial Institution employing the services of the CSSB, for complying with the IFR Rules, all references to Shari’ah Supervisory Board or SSB are to be read as references to the Centralised
Shari’ah Supervisory Board or CSSB, as applicable.
(2) An Islamic Financial Institution must ensure that:
(a)its SSB consists of at least 3 members; and
(b)the members appointed to the SSB are competent to perform their functions as SSB members taking into account their qualifications and previous experience;and
(c)any appointments, dismissals or changes in respect of members of the SSB are approved by the Governing Body of the Islamic Financial Institution; and
(d)no member of the SSB is a director or controller of the Islamic Financial Institution.
Guidance: The AFSA may request the AIFC Central Shari’ah Board to provide guidance
or advice on Shari’ah matters.
5.12.SSB’s relationship withCSSB
(1)An Islamic Financial Institution employing the services of its own dedicated
SSB, must comply with the Shari’ah pronouncements and opinions issued by the CSSB.
(2)In case of a conflict between the opinion or interpretation of the CSSB and the SSB of the Islamic Financial Institution with respect to any Shari’ah matter, the opinion of the CSSB shall prevail.
(3)An Islamic Financial Institution must comply with the Shari’ah rules and
principles as expressed in AAOIFI Shari’ah standards and in the rulings of the CSSB, wherever applicable.
Annex 2
In this section, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments to the AIFC Islamic Finance Rules
1.7 Islamic Financial Institution
(1)An Islamic Financial Institution is an Authorised Firm Person whose license or authorisation includes a specific condition that the whole of its business is conducted in a manner fully compliant with Shari’ah.
(2)An Islamic Financial Institution must ensure that its constitutional documents state that its entire business will be conducted in a manner fully compliant with Shari’ah.
*Consultation Paper No.11 on proposed Insurance and Reinsurance Legislative Framework in the AIFC
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultati on Paper to invite public comments on the proposed AIFC Insurance and Reinsurance legislation, including prudential rules (“PINS”). This paper summarises the approach taken to drafting legislative acts.
2. AIFC (Re)insurance legislation has been drafted with regard to similar legislation in leading international financial centres. The purpose of PINS is to complement the regulatory framework established by the AIFC Financial Services Framework Regulations (“FSFR”) by providing for the prudential regulation of insurance and reinsurance companies. In terms of legislative hierarchy PINS sits beneath the FSFR.
3. The proposals in this Consultation Paper will be of interest to individuals, financial services companies, market institutions and investors who are interested in doing business in the AIFC.
4. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 11” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposals is 8 November 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
7. The remainder of this Consultation Paper contains the following:
(a) Background to the proposals;
(b) Key elements of the proposed legislation;
(c) Annex 1: Draft Insurance and Reinsurance Prudential Rules (PINS);
(d) Annex 2: Proposed Amendments to AIFC General Rules (GEN);
(e) Annex 3: Proposed Amendments to AIFC Conduct of Business Rules (COB).
(f) Annex 4: Proposed Amendments to AIFC Fees Rules (FEEs)
Background
1. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
2. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic financing, in the Republic of Kazakhstan;
(4) developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
3. PINS has been drafted with a view to reflecting international best practice. In particular, the draft reflects the “Insurance Core Principles” (ICP) published by the International Association of Insurance Supervisors (IAIS) and updated most recently in November 2017. In numerous instances guidance provides that the AFSA will have regard to particular parts of the ICP in assessing Insurers’ compliance with the rules in PINS.
4. The FSFR and GEN provide the architecture around which PINS has been constructed. Schedule 1 of GEN has been amended to introduce the new Regulated Activities of “effecting Contracts of Insurance” and “Carrying out Contracts of Insurance” (together, “Insurance Business”).
5. The rules cover both general and long-term insurance and reinsurance. The terms “General Insurance” and “Long Term Insurance” are each defined by reference to a list of categories of insurance that will be encompassed by the term (see Schedules 1 and 2 of PINS). The definition of General Insurance encompasses Accident, Sickness, Land vehicle, Railway rolling stock, Aircraft, Ships, Goods in transit, Fire and natural forces, Damage to property, Motor vehicle liability, Aircraft Liability, Liability of ships, General liability, Credit, Suretyship, Miscellaneous financial loss, Legal expenses and Assistance. Long Term Insurance encompasses Life and annuity, Marriage and birth, Linked long term and Permanent health. The category of “Linked long term” insurance includes investment life insurance or “Life Policies”.
KEY ELEMENTS OF THE PROPOSED RULES
PINS 1 - General provisions
6. PINS 1 introduces a number of key terms and concepts including Insurance Business. It requires Insurers to classify Contracts of Insurance they write by reference to the categories of insurance identified in Schedules 1 and 2.
7. A feature of the leading international insurance regimes is a restriction on insurers combining different kinds of insurance business, and on the combination of insurance and non-insurance business. Such requirements are directed at limiting ‘internal-contagion’ risk. This is the risk that losses or liabilities from one activity might deplete or divert financial resources held to meet liabilities from another activity. PINS, therefore, prohibits Insurers from carrying on both General and Long-Term Insurance Business and requires Insurers to limit non-insurance activities to those that are directly connected with, or carried on for the purposes of, insurance business; guidance explains which activities will normally be considered to be directly connected.
8. PINS 1 also contains guidance as to the more limited extent to which the PINS regime will apply to branches of entities established outside the AIFC. The term AIFC-Incorporated Insurer is used to refer to an Insurer that is incorporated as a legal entity under the laws of the AIFC and thus excludes branches of legal entities incorporated outside the AIFC. PINS 1.5 sets out the core obligations of Insurers by reference to the various chapters of PINS. A number of these obligations are limited to AIFC-Incorporated Insurers.
PINS 2 - Systems and Controls
9. Authorised Persons are already required by GEN 5 to have certain risk management systems and controls. However, PINS 2 contains additional risk management requirements that will apply to all Insurers.
10. PINS 2 requires an Insurer to establish and maintain a risk management functi on and an actuarial function. Insurers are also required to appoint Approved Individuals to the new Controlled Functions of Risk Officer and Internal Auditor. Certain Insurers are also required to appoint an Approved Individual to the Controlled Function of Approved Actuary. The rules in GEN 2.2 relating to Controlled and Designated Functions should be referred to for more information relating to the appointment of Approved Individuals.
PINS 3 - Risk Management Strategy
1.PINS 3 requires an Insurer to establish and maintain a risk management strategy. This should be clearly defined and well documented, and take into account the Insurer’s overall business strategy and its business activities. This strategy contains a number of important components including a Risk Management Policy setting out how all relevant and material categories of financial and non-financi al risk are monitored, measured and managed, both in the Insurer’s business strategy and its day-to-day operations. Schedule 3 sets out in detail what the AFSA would expect to find covered in an Insurer’s Risk Management Policy. An Insurer is also required to prepare a Risk Tolerance Statement which sets out its overall quantitative and qualitative risk tolerance levels.
2.An Insurer’s Risk Management Strategy must be approved by its Governing Body. Any deviation from it must also be approved by its Governing Body and notified to the AFSA.
PINS 4 - Own Risk and Solvency Assessment (ORSA)
13. A feature of the leading international regimes is a requirement that insurers perform an own risk and solvency assessment (ORSA) regularly to assess the adequacy of its risk management and current, and likely future, solvency position.
14. PINS 4 contains a requirement that every AIFC-Incorporated Insurer (i.e. an Insurer which is not a branch) must conduct an ORSA annually (or with greater frequency if preferred by the AFSA), and that such ORSA must be appropriate to the nature, scale and complexity of the insurer’s business. PINS then sets out a detailed explanation of what an ORSA is, its contents, and the matters to which an insurer must have regard in conducting an ORSA. An AIFC-Incorporated Insurer is required to prepare a report after it conducts its ORSA, which is to be reviewed and approved by the insurer’s Governing Body.
PINS 5 - Capital adequacy requirements
15. The amount of capital available to an insurer is fundamental to its financial strength. It provides a buffer against losses that have not been anticipated and, in the event of problems, enables the insurer to continue operating while those problems are addressed or resolved. In this way, the maintenance of adequate capital resources can engender confidence on the part of policyholders, creditors and the market more generally in the financial soundness and stability of the insurer. PINS 5 accordingly requires an AIFC-Incorporated Insurer to calculate its qualifying capital resources (referred to as its Eligible Capital) on an ongoing basis and to monitor the extent to which its Eligible Capital exceeds two benchmarks referred to as the Minimum Capital Requirement (MCR) and the Prescribed Capital Requirement (PCR).
16. Schedule 4 sets out detailed rules for the calculation of Eligible Capital and identifies two types of capital (Tier 1 and Tier 2 Capital) that an AIFC-Incorporated Insurer is permitted to recognise and which it is obliged to hold in specified ratios. Schedule 5 sets out the calculation for the MCR relating to General Insurance Business and Long Term Insurance Business. Schedule 6 identifies a more detailed methodology for calculating the PCR which involves a highly sensitive analysis of the different types of risk engendered by the Insurer’s Insurance Business.
17. PINS 5.3 provides that an AIFC-Incorporated Insurer may be permitted by the AFSA under certain circumstances to use its own internal models to calculate either the whole or a component of the PCR. However, it should be noted that the AFSA does not initially anticipate accepting applications for permission to use internal models.
18. PISN 5.4 sets out the “solvency control levels” which place various obligations upon an Insurer should it become aware that its Eligible Capital has fallen below or close to either level. Guidance sets outs an indicative range of actions that AFSA may take on breach of either the MCR or the PCR.
19. Further provisions limit the circumstances in which an AIFC-Incorporated Insurer is permitted to reduce its Eligible Capital and require an AIFC-Incorporated Insurer to notify the AFSA of all dividends and other distributions to shareholders.
PINS 6 - Investment
20. PINS 6.1 requires Insurers (i.e. all Insurers including branches) to ensure that where they invest in assets they invest in assets that are secure, liquid, appropriately located and suitably diversified. Insurers are required to invest in a manner appropriate to their liabilities and only to invest in assets where they are able to assess and manage the risks involved. PINS 6.2 restricts Insurers from investing in certain high risk assets and PINS 6.3 requires Insurers to maintain written risk policies and procedures.
PINS 7 - Segregation of Long Term Insurance assets and liabilities
21. Because of the long-term nature of insurance liabilities for certain categories of insurance business, it is important that the capital and structure and assets of, for example, a life insurer are well matched against a realistic assessment of its liabilities. This is achieved in PINS 7 by requiring Insurers carrying on Long Term Insurance to segregate the insurance liabilities and matching assets of the various categories of Long Term Insurance and to establish a fund to which Long Term Insurance Contracts are attributed. The effect of this is that such assets may only be used to meet obligations to the policyholders with respect to which the fund has been established. Limitations are placed by PINS 7.4 upon the use of assets in a Long Term Insurance Fund.
PINS 8 - Valuation
22. PINS 8 sets out rules regarding matching of Insurers’ assets to liabilities, on the basis of a consistent and transparent economic valuation of those assets and liabilities. An economic valuation of assets and liabilities reflects the risk-adjusted present values of their cash flows. The basic principle of measurement that an insurer must adopt as the basis of its accounting is specified as the IFRS.
23. PINS 8.1 requires an Insurer to hold supporting assets of a value at least equal to the amount of its liabilities. PINS 8.2 sets out basic principles for the recognition and valuation of such assets and liabilities. PINS 8.3 identifies particular assets relating to General Insurance Business which require special treatment, namely premium liability, future claims payments and expected recoveries. PINS 8.4 takes a similar approach for certain Long Term Insurance assets and liabilities namely policy benefits due before the Solvency Reference Date (i.e. the date of measurement) and the net value of future policy benefits.
PINS 9 - Actuarial reporting
24. PINS 9 elaborates on the requirements for Insurers which are obliged to retain an Approved Actuary, requiring in particular that an Approved Actuary carry out annually an actuarial investigation to enable him to prepare a report about the insurer’s financial condition (a “financial condition report”) which is to be submitted to the AFSA annually at the time of the insurer’s annual regulatory return. The AFSA will also have a power to direct that financial condition reports more frequently than annually, and also to direct an insurer that the Approved Actuary is to carry out an investigation into any matter which the AFSA specifies.
25. PINS 7.2 requires Insurers not required to appoint an Approved Actuary to consider annually whether to commission an independent actuary to report on its business, and to commission such a report at least once every 3 years.
PINS 10 - Insurers that are members of Groups
26. An insurer is exposed to risks through the relationships that it has with other insurance and non-insurance companies in its group. Group membership can be a source of strength, but it can also be a source of weakness. PINS 10 contains additional requirements for Insurers that are members of a group to ensure that:
(i) the insurer is capitalised adequately to protect itself against the risks arising from its membership of the group, and is otherwise protected against those risks;
(ii) it can be properly supervised by the AFSA; (iii) it provides the AFSA with information about the structure and financial position of the group; and (iv) it assesses the effect of, and notifies the AFSA of, certain transactions within the group.
27. The effect of these provisions is broadly as follows. The structure of an insurer’s group is to be transparent with clear governance, controls and reporting lines, and such that it does not hinder the insurer’s stability and solvency. The AFSA has the power to direct that an insurer hold additional capital to cover risks arising because of the insurer’s group membership. Insurers are to ensure that any material transaction with another member of its group is entered into on an ‘arms-length’ basis and on fair and reasonable commercial terms. Certain transactions – such as inter-group loans, guarantees or investments – are not to be entered into unless the insurer’s Governing Body is satisfied that it does not adversely affect the interests of policyholders.
PINS 11 - Transfer of insurance business
28. Chapter 4 of the FSFR currently provides that the AFSA may provide by Rules that the transfer of a business of carrying on specified Regulated Activities by an Authorised Firm (“Relevant Transfer”) may only be made by an order of the AIFC Court or may be made by such an order if the transferor elects. PINS 11 provides that the transfer of insurance business can only be made by an order of the AIFC Court.
29. PINS 11 then sets out various requirements which will apply to application for an order of the AIFC Court effecting an Insurance Business Transfer. These include that a report (“the Scheme Report”) be prepared by an independent actuary. This report is to be put before the AIFC Court and, among other things, must contain: a rationale for the proposed relevant scheme; the categories of business to be transferred; and a confirmation that there will be no materially adverse consequences from the proposed transfer to the policyholders of either the transferor or transferee. Notification of the proposed transfer must also be given to all affected Policyholders.
PINS 12 - Insurers in run-off
30. PINS 15 applies to all AIFC-Incorporated Insurers along with Branches in respect of their AIFC Insurance Business and contains requirements that apply where such insurer has gone into “run-off”. This means that an Insurer has ceased to effect Contracts of Insurance in respect of the whole or a category of its Insurance Business.
31. Insurers that go into run-off will be required to notify the AFSA and provide a run- off plan complying with PINS 12.3, including an explanation of how, or the extent to which, all liabilities to policyholders will be met in full as they fall due. An Insurer in run-off will be required to notify the AFSA of certain contracts and be restricted from making certain distributions.
PINS 13 - Prudential returns
32. PINS 13 requires Insurers to prepare and submit to the AFSA the annual, biannual and quarterly prudential returns set out in Schedule 7 (Prudential returns by Insurers).
PINS 14 - Captive Insurers
33. PINS 14 applies only to Captive Insurers. A Captive Insurer is an Authorised Firm with a Licence to carry on Captive Insurance Business. Captive Insurance Business is defined as the business of effecting or carrying out Contracts of Insurance only for the business or operations of the Group to which the Captive Insurer belongs. Only an Authorised Firm which is incorporated under the laws of the AIFC may apply to the AFSA for a Licence to conduct Captive Insurance Business.
34. A Captive Insurer may take the form of a Protected Cell Company (PCC) - which is a form of legal entity that will be introduced under planned amendments to the Companies Regulations. PCCs consist of a core and one or more cells which are legally segregated for the purposes of insolvency law. A Captive Insurer incorporated as a PCC may maintain multiple cells, but requires the permission of the AFSA to creae a new cell.
35. The requirements of PINS apply to Captive Insurers either in full or with the modifications set out in PINS 14.3 to 14.14. The key modifications are as follows:
a. Systems and controls: A Captive Insurer is permitted to outsource its risk management and actuarial functions to a Captive Insurance Manager. This refers to an Authorised Person carrying on the new regulated activity of Captive Insurance Management.
b. Risk management: A Captive Insurer is required to maintain a Risk Management Strategy and conduct an ORSA in accordance with PINS 3. However, it may apply to the AFSA for a waiver of the requirement to conduct an ORSA.
c. Capital Adequacy: The requirements of PINS 5 apply to Captive Insurers save for a modified Capital Floor (the base requirement of the MCR) and modifications relating to the application of the capital requirements to PCCs.
Question:
Do you have any concerns relating to the proposed regulatory requirements to (re) insurance companies? If so, what are they, and how should they be addressed?
Consultation Paper No.12 on proposed amendments to the AIFC Legal Entities framework
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed rules intended to revise the framework for legal entities in the AIFC. The proposed rules are in full compliance with the AIFC legal and regulatory framework. The proposed rules are also consistent with the relevant OECD, IOSCO and FATF standards. The proposed rules and associated guidance are set out in the Annexures to this Paper.
2. The proposals in this Consultation Paper will be of interest to Authorised Persons, Designated Non-Financial Business or Professions, Registered Auditors and individuals, financial organizations and investors who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 12” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is November 9, 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and Strategy
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the list of key elements of the amended rules;
(c) Annex 1: Proposed amendments to AIFC Companies Regulations.
(d) Annex 2: Proposed amendments to AIFC Companies Rules.
(e) Annex 3: Proposed amendments to AIFC Special Purpose Company Rules.
(f) Annex 4: Proposed amendments to AIFC General Partnership Regulations.
(g) Annex 5: Proposed amendments to AIFC Limited Partnership Regulations.
(h) Annex 6: Proposed amendments to AIFC Non-Profit Incorporated Organisations Regulations.
(i) Annex 7: Proposed amendments to AIFC Market Rules.
(j) Annex 8: Proposed amendments to AIFC Financial Services Framework Regulations.
(k) Annex 9: Proposed amendments to AIFC Insolvency Rules.
Background
The Astana Financial Services Authority (AFSA) intends to enhance the legislative framework governing legal entities in the Astana International Financial Centre (AIFC).
This legislation comprises regulations and rules covering the functioning of the AIFC Registrar of Companies (the Registrar) and the operation of different types of entity within the AIFC (that is, companies, partnerships, and non-profit incorporated organisations).
The AFSA's objectives are to ensure that this framework for legal entities:
(a) reflects a more effective and coherent structure for the Registrar;
(b) meets international standards set by the Organisation for Economic Co-operation and Development (OECD), the Financial Action Task Force (FATF) and the International Organisation of Securities Commissions (IOSCO), including in relation to beneficial ownership, tax transparency, and co-operation and exchange of information between regulators; and
(c) meets the needs of AIFC participants by expanding the range of legal entity types available within the AIFC.
The continued development of the legal entities available in the AIFC, and the introduction of new legal entities to the AIFC, is a key policy focus of the AFSA. The AFSA has considered the views of AIFC participants and other key stakeholders in determining what changes to make to the legal entity framework at this stage in the AIFC's evolution. Consequently it is now consulting on the following changes to the legal entities framework:
(a) the introduction of a Protected Cell Company (PCC) regime for captive insurance business;
(b) the introduction of a Restricted Scope Company (RSC) regime; and
(c) the improvement the Special Purpose Company (SPC) Rules.
In addition to the foregoing, AFSA expects to consult on the addition on the introduction of further legal entities and the development of existing regimes shortly.
KEY ELEMENTS OF THE PROPOSED RULES
1. BENEFICIAL OWNERSHIP REGIME
1.1 The ability to identify the ultimate beneficial owner of a legal entity is crucial to ensuring a transparent financial system, particularly for the purposes of tax transparency, anti-money laundering and counter-terrorist financing.
1.2 AFSA is now consulting on proposed amendments to the Companies Regulations to adopt a regime whereby new and existing entities within the AIFC are required to:
(a) identify their beneficial owners;
(b) provide the Registrar with certain particulars of their beneficial owners;
(c) maintain a register of their beneficial owners containing specified information on each; and
(d) keep a register of Nominee Directors, being directors who are required to act in accordance with the instructions of a third party.
Question 1: Do you agree with the introduction of a beneficial ownership regime in the AIFC?
Question 2: Do you agree that the register of beneficial owners should be provided to the Registrar and kept by the company but not made public?
Question 3: Do you have any comments on the proposed legislation?
2. CORPORATE GOVERNANCE
2.1 In order to ensure a robust, transparent corporate governance regime, the AIFC is proposing certain amendments to:
(a) extend the duty upon directors to act in good faith to include the concept of honesty, to avoid any lack of clarity as to whether this was implied by the existing language for entities less familiar with the concept;
(b) allow the Registrar to punish officers of a company who, whilst not directors, act or fail to act in such a way as to cause a breach of a directors duty by way of compensation order or disqualification order where the Registrar considers this necessary;
(c) provide guidance in the AIFC Market Rules as to the relevant test for the duty to promote the success of a company for entities who are less familiar with the concept;
(d) requiring private companies to provide a copy of the annual return and financial statements to their shareholders on request;
(e) requiring public company accounts to be lodged with the Registrar and be available for searching by the public, for a fee;
(f) extend the requirements for public companies to seek shareholder approval prior to a major transaction such that these provisions include reverse takeovers and fundamental changes of businesses; and
(g) ensuring that all accounting information and underlying documents in particular will remain available after an entity or arrangement ceases to exist.
Question 4: Do you agree with each of the enhancements to the governance requirements of the AIFC legislation as set out above?
3. SUPERVISION AND ENFORCEMENT
3.1 The powers given to the Registrar under the relevant AIFC legislation are broad, and allow it to impose sanctions on companies and partnerships for breaches of law. However, AFSA is now seeking to extend these powers to ensure that the AIFC has an effective, streamlined and efficient process available to it to supervise, investigate and sanction misconduct.
3.2 AFSA is now consulting on amendments introducing provisions:
(a) allowing the Registrar to publish the fact of any undertaking, in the same way it can for a censure or fine, should it consider it appropriate;
(b) enabling the Registrar to restore companies to the register where it is satisfied that the company should now be reinstated;
(c) enabling the Registrar to strike off a company that has failed to file its annual return or pay a fee that is due after a period of 9 months where that company has failed to respond to correspondence with the Registrar;
(d) allowing the Registrar or inspector to have the ability to go to court to test a claim of legal professional privilege where the disclosure of documents is being withheld;
(e) extending the sanction for conducting business in the AIFC without a licence such that a contract between a third party and persons who are knowingly in contravention of this provision is voidable at the option of the third party; and
(f) allow the Registrar to compel disclosure of relevant information to it in considering the affairs of the company from an Auditor or a former auditor of a company.
Question 5: Do you agree with each of the above amendments extending the powers of supervision and enforcement of the Registrar?
4. FRAMEWORK FOR THE REGISTRAR OF COMPANIES
4.1 In Part 15 of the Companies Regulations as is currently drafted some of the obligations on the Registrar are essentially those which are operated under the auspices of the AFSA. For example, there does not need to be separate financial statements for the Registrar because all finances would be covered within the AFSA, nor is there a need to have an obligation in relation to funding because that would come under the AFSA's general obligation.
4.2 As such, AFSA is now proposing the deletion of these provisions in the AIFC Companies Regulations which are, given the structure of the AIFC under the auspices of AFSA, redundant.
Question 6: Do you agree with the deletion of Chapter 2 of Part 15 of the AIFC Companies Regulations?
5. EXTENSION OF THE RANGE OF LEGAL ENTITIES
5.1 Introduction of a Protected Cell Company (PCC) Regime
5.2 AFSA has received feedback from AIFC participants that the availability of a PCC vehicle in the AIFC would facilitate the establishment of captive insurance businesses in the AIFC. PCCs offer the ability to create one or more separately identifiable cells that are legally "ring-fenced" from one another under statute. Consequently, the assets and liabilities of each cell are segregated from those of the other cells and the assets of each cell are therefore protected from the liabilities and creditors of the other cells (notwithstanding the fact that the PCC is a single legal entity).
5.3 The AFSA is therefore proposing to establish a PCC regime in the AIFC for captive insurance businesses.
Question 7: Do you have any concerns in relation to the introduction of a PCC regime in the AIFC?
Question 8: Do you have any comments on the proposed legislation?
5.4 Introduction of a Restricted Scope Company (RSC) Regime
5.5 AFSA has identified an interest from family owned businesses (including single family offices) in establishing themselves in the AIFC. However, AFSA has also identified that such businesses have a strong desire for confidentiality and AFSA wishes to make the AIFC legal framework even more attractive for such businesses in this regard. Consequently, AFSA is proposing to introduce a Restricted Scope Company (RSC) regime. This regime will be open to a private company that is:
(a) a subsidiary of another body corporate that prepares and publishes group accounts under the AIFC Companies Regulations; or
(b) is directly or indirectly wholly-owned by: (i) one person; or (ii) a group of persons who are members of the same family.
5.6 Companies which are registered as Restricted Scope Companies will benefit from a reduced amount of information being available to the public (by way of the public register), compared to other private companies incorporated in the AIFC.
Question 9: Do you have any concerns regarding the introduction of a RSC regime in the AIFC?
Question 10: Do you have any comments on the proposed legislation?
5.7 Improvements to the Special Purpose Company (SPC) Rules
5.8 In order to enhance the utility of the Special Purpose Company regime in the AIFC, AFSA is proposing to make the following changes to the Special Purpose Company Rules:
(a) removing the requirement for a minimum share capital of US$100;
(b) removing the requirement to have at least two Directors, and permitting SPC to have one or more Directors, each of which may be body corporates;
(c) removing the upper limit on the number of Shareholders an SPC may have;
(d) abolishing the requirement for a majority of Directors to be employees of the SPC's Corporate Service Provider;
(e) abolishing the requirement for the Secretary of the SPC to be a Corporate Service Provider or a Subsidiary thereof; and
(f) removing the restriction on which entities can be Shareholders of SPC prior the SPC commencing any activities in order to facilitate the development of a shelf company incorporations for SPC.
Question 11: Do you agree with each of the changes that AFSA is proposing to make to the SPC Rules?
Question 12: In your view, should AFSA consider making any other changes to the SPC Rules to enhance the utility of AIFC Special Purpose Companies?
6. WHISTLEBLOWING
6.1 The AIFC Companies Regulations currently contain protection for whistleblowers. It is proposed that this framework should be strengthened in order to provide greater protection and be better aligned with international standards. In particular, the proposed rules provide that, in addition to the imposition of a fine, compensation should be payable to the whistleblower in the event of a breach, and that a person should not be required to disclose his or her identity in order to be protected by law.
Question 13: Do you agree with the expansion of the whistleblowing regime in the AIFC Companies Regulations?
Question 14: Do you have any comments on the proposed legislation?
7. CO-OPERATION AND EXCHANGE OF INFORMATION
7.1 The exchange of information between the AFSA and other regulators will be critical to allowing centre participants to provide cross-border services. In order to assure that other regulatory authorities are able to provide the AFSA with confidential information, new rules contain a framework to allow the flow of information between the AFSA and other regulators on a bilateral and multilateral basis, including by reference to the IOSCO multilateral framework.
Question 15: Do you have any comments on the proposed framework for co-operation and the exchange of information between the AFSA and other regulatory authorities?
8. COMMON REPORTING STANDARD
8.1 The AFSA proposes to adopt the OECD framework for automatic reporting of tax information, which will become effective in 2020. The AIFC Companies Regulations will be amended to incorporate the text of the model Common Reporting Standard as well as provisions for its enforcement.
Question 16: Do you have any comments on the proposed framework for the Common Reporting Standard?
*Consultation Paper No.13 on proposed Takaful and Retakaful Legislative Framework in the AIFC
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed AIFC Takaful and Retakaful legislation, including prudential rules (TRR). This paper summarises the approach taken to drafting legislative acts.
2. AIFC (Re)Takaful legislation has been drafted with regard to similar legislation in leading international financial centres. The purpose of TRR is to complement the regulatory framework established by the AIFC Financial Services Framework Regulations (“FSFR”) by providing for the prudential regulation of takaful and retakaful companies. In terms of legislative hierarchy TRR sits beneath the FSFR.
3. The proposals in this Consultation Paper will be of interest to individuals, financial services companies, market institutions and investors who are interested in doing business in the AIFC.
4. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 13” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
5. The deadline for providing comments on the proposals is 14 November 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
7. The remainder of this Consultation Paper contains the following:
(a) Background to the proposals;
(b) Key elements of the proposed legislation;
(c) Annex 1: Draft Takaful and Retakaful Rules (TRR);
Background
1. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
2. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(1) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3) developing insurance markets, banking services, and Islamic financing, in the Republic of Kazakhstan;
(4) developing financial and professional services based on international best practice;
(5) achieving international recognition as a financial centre.
3. The purpose of the TRR Rules is to establish the regulatory framework for Authorised Firms carrying out Takaful Business which involve pooling of the risks faced by its participants in a Shari’ah-compliant manner. These rules are based on:
(1) the standards and guidelines issued by the Islamic Financial Services Board on governance, risk management and solvency of Takaful businesses
(2) the standards and guidelines issued by the Islamic Financial Services Board on Retakaful businesses;
(3) the standards and guidelines issued by the IAIS in regard to governance, risk management and solvency of insurance businesses which also apply to Takaful /Retakaful businesses.
KEY ELEMENTS OF THE PROPOSED RULES
TRR 1 - General
TRR 1 introduces a number of key terms and concepts including Takaful Business. It requires Insurers to classify Takaful Contracts they write by reference to the categories of insurance identified in Schedules 1 and 2.
A feature of the leading international insurance regimes is a restriction on Takaful Operators combining different kinds of Takaful business. Such requirements are directed at limiting ‘internal-contagion’ risk. This is the risk that losses or liabilities from one activity might deplete or divert financial resources held to meet liabilities from another activity. TRR, therefore, prohibits TakafulOperators from carryingon both Family Takaful Businessand General Takaful Business and requires Takaful Operators to limit non- insurance activities to those that are directly connected with, or carried on for the purposes of, takaful business; guidance explains which activities will normally be considered to be directly connected.
TRR 1 also contains guidance as to the more limited extent to which the TRR regime will apply to branches of entities established outside the AIFC. The term AIFC-Incorporated Takaful Operator is used to refer to a Takafuloperator that is incorporated as a legal entity under the laws of the AIFC and thus excludes branches of legal entities incorporated outside the AIFC. TRR 1.5 sets out the core obligations of Takaful Operators by reference to the various chapters of TRR. A number of these obligations are limited to AIFC- Incorporated Takaful Operators.
TRR 2 – Governance Framework
A Takaful Operator must ensure the adoption and effective implementation of sound risk management practices, robust Shari’ah governance and high standards of business conduct. The board of directors and senior management of a Takaful Operator are responsible for ensuring such effective governance framework as it is critical for achieving the objectives of the TRR rules.
TRR 3 - Risk Management Strategy
TRR 3 requires a Takaful Operator to establish and maintain a risk management strategy. This should be clearly defined and well documented, and take into account the Takaful Operator’s overall business strategy and its business activities. This strategy contains a number of important components including a Risk Management Policy setting out how all relevant and material categories of financial and non-financial risk are monitored, measured and managed, both in the Takaful Operator’s business strategy and its day-to-day operations. Schedule 3 sets out in detail what the AFSA would expect to find covered in a Takaful Operator’s Risk Management Policy. A Takaful Operator is also required to prepare a Risk Tolerance Statement which sets out its overall quantitative and qualitative risk tolerance levels.
TRR 4 - Own Risk and Solvency Assessment (ORSA)
A feature of the leading international regimes is a requirement that Takaful Operator perform an own risk and solvency assessment (ORSA) regularly to assess the adequacy of its risk management and current, and likely future, solvency position.
TRR 4 contains a requirement that every AIFC-Incorporated Takaful Operator (i.e. an Takaful Operator which is not a branch) must conduct an ORSA annually (or with greater frequency if preferred by the AFSA), and that such ORSA must be appropriate to the nature,scale and complexity of the insurer’s business. TRR then sets out a detailed explanation of what an ORSA is, its contents, and the matters to which an insurer must have regard in conducting an ORSA. An AIFC-Incorporated Takaful Operator is required to prepare a report after it conducts its ORSA, which is to be reviewedand approved by the Takaful Operator’s Governing Body.
TRR 5 - Capital adequacy requirements
The amount of capital available to a Takaful Operator is fundamental to its financial strength. It provides a buffer against losses that have not been anticipated and, in the event of problems, enables the insurer to continue operating while those problems are addressed or resolved. In this way, the maintenance of adequate capital resources can engender confidence on the part of policyholders, creditors and the market more generally in the financial soundness and stability of the insurer. TRR 5 accordingly requires an AIFC- Incorporated Takaful Operator to calculate its qualifying capital resources (referred to as its Eligible Capital) on an ongoing basis and to monitor the extent to which its Eligible Capital exceeds two benchmarks referred to as the Minimum Capital Requirement (MCR) and the Prescribed CapitalRequirement (PCR).
Schedule 4 sets out detailed rules for the calculation of Eligible Capital and identifies two types of capital (Tier 1 and Tier 2 Capital) that an AIFC- Incorporated TakafulOperator is permittedto recognise and which it is obliged to hold in specified ratios. Schedule 5 sets out the calculation for the MCR relating to Family Takaful Business and General Takaful Business. Schedule
6 identifies a more detailed methodology for calculating the PCR which involves a highly sensitiveanalysis of the different types of risk engendered by the Takaful Operator’s Takaful Business.
TRR 5.3 provides that an AIFC-Incorporated Takaful Operator may be permitted by the AFSA under certain circumstances to use its own internal models to calculate either the whole or a component of the PCR. However, it should be noted that the AFSA does not initially anticipate accepting applications for permission to use internal models.
TRR 5.4 sets out the “solvency control levels” which place various obligations upon an Takaful Operator should it become aware that its Eligible Capital has fallen below or close to either level. Guidance sets outs an indicative range of actions that AFSA may take on breach of either the MCR or the PCR.
Further provisions limit the circumstances in which an AIFC- Takaful Operator is permitted to reduce its Eligible Capitaland require an AIFC-Incorporated
Takaful Operator to notify the AFSA of all dividends and other distributions to shareholders.
TRR 6 - Investment
TRR 6.1 requires Takaful Operator i.e. all Takaful Operators including branches) to ensure that where they invest in assets they invest in assets that are secure, liquid, appropriately located and suitably diversified. Takaful Operators are required to invest in a mannerappropriate to their liabilities and only to invest in assets where they are able to assess and manage the risks involved. TRR 6.2 restricts Takaful Operator from investing in certain high risk assets and TRR 6.3 requiresTakaful Operator to maintain writtenrisk policies and procedures.
TRR 7 - Segregation of Family Takaful assets and liabilities
TRR 7 requires Takaful Operator carrying on Family Takaful Business to segregate the takaful liabilities and matching assets of the various categories of Family Takaful and to establish a fund to which Family Takaful Contracts are attributed. The effect of this is that such assets may only be used to meet obligations to the policyholders with respect to which the fund has been established. Limitations are placed by TRR 7.4 upon the use of assets in a Family Takaful Fund.
TRR 8 - Valuation
TRR 8 sets out rules regarding matching of Takaful Operator’s assets to liabilities, on the basis of a consistent and transparent economic valuation of those assets and liabilities. An economic valuation of assets and liabilities reflects the risk-adjusted presentvalues of their cash flows. The basic principle of measurement that a Takaful Operator must adopt as the basis of its accounting is specified as the IFRS.
TRR 8.1 requires a Takaful Operator to hold supporting assets of a value at least equal to the amount of its liabilities. TRR 8.2 sets out basic principles for the recognition and valuation of such assets and liabilities. TRR 8.3 identifies particular assets relating to General Takaful Business which require special treatment, namely premium liability, future claims payments and expected recoveries. TRR 8.4 takes a similarapproach for certainFamily Takaful assets and liabilities namely policy benefits due before the Solvency Reference Date (i.e. the date of measurement) and the net value of future policy benefits.
TRR 9 - Actuarial reporting
TRR 9 elaborates on the requirements for Insurers which are obliged to retain an Approved Actuary, requiring in particular that an Approved Actuary carry out annually an actuarial investigation to enable him to prepare a report about the insurer’s financial condition (a “financial condition report”) which is to be submitted to the AFSA annually at the time of the insurer’s annual regulatory return. The AFSA will also have a power to direct that financial condition reports more frequently than annually, and also to direct an insurer that the Approved Actuary is to carry out an investigation into any matter which the AFSA specifies.
TRR 7.2 requires Takaful Operators not required to appoint an Approved Actuary to consider annually whether to commission an independent actuary to report on its business, and to commission such a report at least once every 3 years.
TRR 10 – Takaful Operators that are members of Groups
A TakafulOperator is exposedto risks throughthe relationships that it has with other companies in its group.Group membership can be a source of strength, but it can also be a source of weakness. TRR 10 contains additional requirements for Takaful Operators that are members of a group to ensure that: (i) the Takaful is capitalised adequately to protect itself against the risks arising from its membership of the group, and is otherwise protected against those risks; (ii) it can be properly supervised by the AFSA; (iii) it provides the AFSA with information about the structure and financial position of the group; and (iv) it assessesthe effect of, and notifiesthe AFSA of, certain transactions within the group.
The effect of these provisions is broadly as follows. The structure of a Takaful Operator’s group is to be transparent with clear governance, controls and reporting lines, and such that it does not hinder the Takaful Operator’s stability and solvency. The AFSA has the power to direct that a Takaful Operator hold additional capital to cover risks arising because of the Takaful Operator’s group membership. Takaful Operators are to ensure that any material transaction with another member of its group is entered into on an ‘arms- length’ basis and on fair and reasonable commercial terms. Certain transactions – such as inter-group loans, guarantees or investments – are not to be entered into unless the Takaful Operator’s Governing Body is satisfied that it does not adversely affect the interests of policyholders.
TRR 11 - Transfer of Takaful business
TRR 11 then sets out various requirements which will apply to application for an order of the AIFC Court effecting an Takaful Business Transfer. These include that a report (“the Scheme Report”) be prepared by an independent actuary. This report is to be put beforethe AIFC Court and, amongother things, must contain: a rationale for the proposed relevant scheme; the categories of business to be transferred; and a confirmation that there will be no materially adverse consequences from the proposed transfer to the policyholders of either the transferor or transferee. Notification of the proposed transfer must also be given to all affected Policyholders.
TRR 12 – Takaful Operators in run-off
TRR 15 applies to all AIFC-Incorporated Takaful Operators along with Branches in respect of their AIFC Takaful Businessand contains requirements that apply where such insurer has gone into “run-off”. This means that an Takaful Operator has ceased to effect Takaful Contracts in respect of the whole or a category of its Takaful Business.
Takaful operator that go into run-off will be required to notify the AFSA and provide a run-off plan complying with TRR 12.3, including an explanation of how, or the extent to which, all liabilities to policyholders will be met in full as they fall due. A Takaful operator in run-off will be required to notify the AFSA of certain contracts and be restricted from making certain distributions.
TRR 13 - Prudential returns
TRR 13 requires Takaful Operators to prepare and submit to the AFSA the annual, biannual and quarterly prudential returns set out in Schedule 7 (Prudential returns by Takaful Operator).
TRR 14 - Captive Takaful Operators
TRR 14 applies only to Captive Takaful Operators. A Captive Takaful Operators is an Authorised Firm with a Licence to carry on Captive Takaful Business. Captive Takaful Business is defined as the business of effecting or carrying out Takaful Contractsonly for the business or operations of the Group to which the Captive Takaful Operators. Only an Authorised Firm which is incorporated under the laws of the AIFC may apply to the AFSA for a Licence to conduct Captive Takaful Business.
A Captive Takaful Operator may take the form of a Protected Cell Company (PCC) - which is a form of legal entity that will be introduced under planned amendments to the Companies Regulations. PCCs consist of a core and one or more cells which are legally segregated for the purposes of insolvency law. A Captive Takaful Operator incorporated as a PCC may maintain multiple cells, but requires the permission of the AFSA to create a new cell.
The requirements of TRR apply to Captive Takaful Operators either in full or with the modifications set out in TRR 14.3 to 14.14. The key modifications are as follows:
Systems and controls: A Captive Takaful Operator is permitted to outsource its risk management and actuarial functions to a Captive Insurance Manager. This refers to an Authorised Person carrying on the new regulated activity of Captive Insurance Management.
Risk management: A Captive Takaful Operators is required to maintain a Risk Management Strategyand conduct an ORSA in accordance with TRR 3. However, it may apply to the AFSA for a waiver of the requirement to conduct an ORSA.
Capital Adequacy: The requirements of TRR 5 apply to Captive Takaful Operators save for a modified CapitalFloor (the base requirement of the MCR) and modifications relating to the application of the capital requirements to PCCs.
Question:
Do you have any concernsrelating to the proposed regulatory requirements to (re) insurance companies? If so, what are they, and how should they be addressed?
1 General
1.1 Introduction
1.1.1 Name of rules
These rules are the AIFC Takaful and Retakaful Rules 2018 (or TRR).
1.1.2 Purpose
The purpose of this TRR Rules is to establish the regulatory framework for Authorised Firms carrying out Takaful Business which involve pooling of the risks faced by its participants in a Shari’ah-compliant manner. These rules are based on:
(a) the standards and guidelines issued by the Islamic Financial Services Board on governance, risk management and solvency of Takaful businesses
(b) the standards and guidelines issued by the Islamic Financial Services Board on Retakaful businesses;
(c) the standards and guidelines issued by the IAIS in regard to governance, risk management and solvency of insurance businesses which also apply to Takaful /Retakaful businesses.
1.1.3 Application of TRR
(1) These rules apply to every Takaful Operator except where otherwise provided.
(2) These rules are also applicable to every Retakaful Operator. Except as stated otherwise, all references to a Takaful Operator in the TRR rules must be read as referring also to a Retakaful Operator. Consequently, all the regulatory requirements imposed by these TRR Rules apply to all entities licensed to carry out Takaful Business as defined in Rule 1.1.6
(1) including Retakaful Operators, except for specific sections or rules wherein their applicability is defined in a particular manner. For clarity, all the regulatory requirements imposed by the TRR Rules apply to Retakaful Operators, unless otherwise specified in the TRR.
1.1.4 Commencement
These rules commence on 1 January 2019.
1.1.5 Effect of definitions, notes, examples and references
A definition in the glossary to these rules also applies to any instructions or document made under these rules.
(a) A note in or to these rules is explanatory and is not part of these rules. However, examples and guidance are part of these rules.
(b) An example is not exhaustive, and may extend, but does not limit, the meaning of these rules or the particular provision of these rules to which it relates.
(c) Unless the contrary intention appears, a reference in these rules to an accord, principle, standard or other similar instrument is a reference to that instrument as amended from time to time.
1.1.6 Key Definitions
(1) Takaful Business is the part of Insurance Business conducted by a Takaful Operator that is Islamic Financial Business as defined in AIFC IFR rule 1.5.
(2) A Takaful Operator is
(a) an Islamic Financial Institution that conducts Takaful Business; or
(b) an AIFC-Incorporated Insurer operating an Islamic Window (within the meaning of AIFC IFR rule 1.8).
(3) A Takaful Fund is a fund established and maintained by a Takaful Operator under Rule , for its Takaful business.
Guidance: Branches
Note that certain of the obligations set out in this rulebook do not apply to Takaful Operators that are Branches of entities established and regulated outside the AIFC. The term AIFC-Incorporated Takaful Operator is used to refer to a Takaful Operator that is incorporated as a legal entity under the laws of the AIFC and thus excludes Branches of legal entities incorporated outside the AIFC.
1.1.7 Principles underlying TRR rules
The TRR rules are based on the following principles:
(a) Ensure compliance with Shari’ah;
(b) Enable better alignment of risk-return objectives of a Takaful Operator consistent with its fiduciary duty to manage its Takaful Business in a sound manner;
(c) Provide incentives for Takaful Operators to manage business in a risk- based manner and adopt prudent practices;
(d) Provide an early warning signal on any deterioration in capital adequacy or solvency levels to enable prompt and pre-emptive actions to be taken by Takaful Operator and the AFSA;
(e) Promote transparency as a means to protect the interests of participants of the Takaful fund; and
(f) Reduce opportunities for regulatory arbitrage with the conventional insurance business and with the rest of the financial sector.
1.2 Takaful Business
1.2.1 Types of Takaful Business
(1) General Takaful Business is Takaful Business in relation to General Insurance Contracts.
(2) Family Takaful Business is Takaful Business in relation to Long Term Insurance Contracts.
1.2.2 Types of Takaful Contracts
(1) A General Takaful Contract is a Shari’ah-Compliant Contract of Insurance that falls within one of the categories set out in Schedule 1.
(2) A Family Takaful Contract is a Shari’ah-Compliant Contract of Insurance that falls within one of the categories set out in Schedule 2.
1.3 Classification of Takaful Contracts
1.3.1 Classification of contracts
A Takaful Operator must, in its own records, classify all Takaful Contracts carried out by it, including all Contracts of Reinsurance entered into by it as cedant, according to the category to which the Takaful Contracts relate.
1.3.2 Classification of contracts falling into two or more categories
Where a Takaful Contract relates to more than one category, the Takaful Operator must record separately the portions of the Takaful Contract that relate to each category, except that immaterial portions need not be separately recorded.
Guidance
A portion of a Takaful Contract insuring a risk of a category other than the principal category to which the contract relates, will not normally be regarded as material if the interest that it insures is both related and subsidiary to the principal interest or interests insured under the contract, and constitutes less than 10% of the gross written premium under the contract.
1.4 Restrictions in respect of Takaful Business
1.4.1 Restriction on combining certain kinds of Takaful Business
A Takaful Operator must not carry on, in or from the AIFC, both Family Takaful Business and General Takaful Business unless the General Takaful Business is restricted to General Takaful Categories 1 (accident) and 2 (sickness).
1.4.2 Restriction on Takaful Operators carrying on non-Insurance Business
(1) A Takaful Operator must not carry on any activity other than Insurance Business unless the activity is directly connected with, or carried on for the purposes of, Insurance Business.
(2) For this rule, managing investments is not an activity directly connected with, or carried on for the purposes of, Insurance Business.
Guidance
1. The following activities will normally be considered to be directly connected with, or carried on for the purposes of, Insurance Business carried on by an Insurer:
a. investing, reinvesting or trading, as investor and for the Insurer’s own account, that of its subsidiary, its holding company or any subsidiary of its holding company but not any other party, in shares, debt instruments, investment accounts, units in collective investment schemes, or other forms of investments that are intended to earn profit or return for the investor;
b. rendering other services related to insurance business operations including actuarial, risk assessment, loss prevention, safety engineering, data processing, accounting, claims handling, loss assessment, appraisal and collection services;
c. acting as agent for another Insurer in relation to Contracts of Insurance in which both Insurers participate;
d. establishing subsidiaries or associates engaged or organised to engage exclusively in 1 or more of the businesses mentioned in a. to c.;
e. insurance mediation.
2. The AFSA may give individual guidance on other business activities that may be taken to be directly connected with, or carried on for the purposes of, Insurance Business carried on by A Takaful Operator.
1.5 Core obligations of Insurers
1.5.1 Obligation to establish and maintain systems and controls
A Takaful Operator must establish and maintain systems and controls in accordance with the requirements of TRR 2 (Governance Framework) and GEN 5 (Systems and Controls).
1.5.2 Obligation to maintain a risk management strategy
A Takaful Operator must establish and implement a Risk Management Strategy in accordance with the requirements of TRR 3 (Risk Management Strategy).
1.5.3 Obligation to conduct Own Risk and Solvency Assessment
An AIFC-Incorporated Takaful Operator must conduct an Own Risk and Solvency Assessment and submit a report thereon to AFSA in accordance with the requirements of TRR 4.
1.5.4 Obligation to maintain Eligible Capital
An AIFC-Incorporated Takaful Operator must at all times maintain Eligible Capital in an amount and of a quality required by TRR 5.
1.5.5 Obligations in respect of Investments
A Takaful Operator must make investments in accordance with the requirements of TRR 6 (Investments).
1.5.6 Obligation to maintain Long Term Takaful Funds
A Takaful Operator carrying on Family Takaful Business must segregate its Family Takaful assets and liabilities in accordance with TRR 7 (Segregation of Family Takaful assets and liabilities)
1.5.7 Obligations in respect of Assets and Liabilities
An AIFC-Incorporated Takaful Operator must value its assets and liabilities in accordance with the requirements of TRR 8 (Valuation).
1.5.8 Obligation to produce actuarial reports
A Takaful Operator must prepare and submit to the AFSA the actuarial reports that it is required to produced pursuant to the requirements of TRR 9 (Actuarial reporting).
1.5.9 Obligations in respect of groups
A Takaful Operator that is a member of a group must comply with the requirements of TRR 10 (Takaful Operators that are members of Groups).
1.5.10 Obligations in respect of Takaful Business Transfers
A Takaful Operator that is party to an Takaful Business Transfer must comply with the requirements of TRR 11 (Transfer of Takaful business).
1.5.11 Obligations in respect of Run-off
A Takaful Operator that is in Run-off must comply with the requirements of TRR 12 (Takaful Operators in run-off).
1.5.12 Obligation to prepare prudential returns
A Takaful Operator must prepare the prudential returns that it is required to produced pursuant to TRR 13 (Prudential returns)
2 Governance Framework
2.1 Overall Governance
A Takaful Operator must ensure the adoption and effective implementation of sound risk management practices, robust Shari’ah governance and high standards of business conduct. The board of directors and senior management of a Takaful Operator are responsible for ensuring such effective governance framework as it is critical for achieving the objectives of the TRR rules.
2.2 Takaful Funds and their Governance
2.2.1 Takaful Funds – establishment & attribution of business
(1) A Takaful Operator must establish and maintain one or more Takaful Funds for its Takaful Business.
(2) A Takaful Operator must attribute all Takaful Business that it conducts to one or more of the Takaful Funds it operates.
2.2.2 Takaful Funds – Allocation of assets
(1) A Takaful Operator must ensure the assets allocated to a particular Takaful Fund are only allocated, apart from the exceptions provided for in the rest of this rule below, for the purposes of the Takaful Fund to which it is attributed and must not be allocated or made available for any other purpose of the Takaful Operator.
(2) Rule 2.1.2 (1) above does not preclude the reimbursement of expenditures borne by the shareholders of the Takaful Operator (in the same or the preceding financial year) in discharging liabilities wholly or partly attributable to a Takaful Fund.
(3) Rule 2.1.2 (1) above does not apply to the payment of management fees by a Takaful Fund to the Takaful Operator or an investment manager to whom management of the Takaful Fund has been delegated, even where the manager is the shareholder of the Takaful Operator, provided that the Shari’a supervisory board of the Takaful Operator has approved those fees.
(4) Rule 2.1.2 (1) above does not prevent a Takaful Operator from exchanging, at fair market value, Takaful business assets of any Takaful Fund for other assets of the Takaful Operator including assets held by another Takaful Fund or assets held by the shareholder of the Takaful Operator.
2.2.3 Takaful Funds – Fair transactions
A Takaful Operator must have adequate arrangements for ensuring that transactions involving assets of the Takaful Operator (other than transactions outside its control) do not operate unfairly between a Takaful Fund established and maintained under rule 2.1.1 and the shareholder assets of the Takaful
Operator or, in the case where the Takaful Operator has more than one Takaful Fund, between those Takaful Funds.
2.2.4 Takaful Funds – Prohibition on making or attributing loans
A Takaful Operator must not make or attribute any loans from a Takaful Fund it operates to another Takaful Fund or to any other party, including but not limited to:
(a) the Takaful Operator;
(b) a person in a controlled function;
(c) a participant (policyholder) in the Takaful Fund; and
(d) a controller or person with close links to the Takaful Operator.
Guidance: systems and controls requirements in GEN
As an Authorised Person, A Takaful Operatoris required to comply with the Systems and Controls requirements in GEN 5. The requirements of this Chapter are in addition to the requirements of GEN 5.
Guidance: Relevance of the IAIS Insurance Core Principles
In assessing A Takaful Operator’s compliance with the systems and controls requirements in GEN 5 and in this Chapter,the AFSA will have regard to the detailed guidance in ICP 8 (Risk Management and Internal Controls). In particular:
·In assessing A Takaful Operator’s compliance with GEN 5.1 (Systems and Controls: general requirements), GEN 5.3 (Corporate Governance) and GEN 5.6 (Conflicts of Interest), the AFSA will have regard to the guidance in ICP 8.1 and 8.2 (Systems for risk management and internal controls) and ICP
- In assessing A Takaful Operator’s compliance with GEN 5.2 (Outsourcing), the AFSA will have regard to ICP 8.8 (Outsourcing of material activities or functions).
- In assessing A Takaful Operator’s compliance with GEN 5.4 (Compliance), the AFSA will have regard to the guidance in ICP 8.5 (Compliance function).
- In assessing A Takaful Operator’s compliance with GEN 5.5 (Internal audit), the AFSA will have regard to the guidance in ICP 8.7 (Internal audit function).
- In assessing A Takaful Operator’s compliance with TRR 2.1.1, the AFSA will have regard to the guidance in ICP 8.4 (Risk management function).
- In assessing A Takaful Operator’s compliance with TRR 2.1.1, the AFSA will have regard to the guidance in ICP 8.6 (Actuarial function).
2.3 Systems for risk management and internal controls
2.3.1 Risk management function
A Takaful Operator must establish and maintain an effective risk management function capable of assisting the Takaful Operator to identify, assess, monitor, mitigate and report on its key risks in a timely way; and to promote and sustain a sound risk culture.
Guidance: additional requirements in GEN
A Takaful Operator is also subject to obligations in respect of operational risk, legal risk and fraud risk pursuant to GEN 5.8 (Management of risks).
2.3.2 Actuarial function
A Takaful Operator must establish and maintain an effective actuarial function capable of evaluating and providing advice regarding, at a minimum, technical provisions, premium and pricing activities, capital adequacy, reinsurance and compliance with related statutory and regulatory requirements.
2.4 Controlled Functions
1.1.1 Designation of roles as Controlled Functions
The following functions are prescribed as Controlled Functions within the meaning of section 20 of the FSFR:
(a) Risk Officer;
(b) Internal Auditor; and
(c) Approved Actuary.
Guidance: relationship with GEN
Rules in this section supplement, and should be read in conjunction with, the Rules in GEN 2.2 (Controlled and Designated Functions). In particular a Takaful Operatorshould note the following requirements of general application to Controlled Functions and the Approved Individuals performing them:
- ·GEN 2.2.6. Application for Approved Individual status
- ·GEN 2.2.7. AFSA discretion to waive requirements
- ·GEN 2.2.8. Modification or withdrawal of an Approved Individual’s registration
- ·GEN 2.2.9. Dismissal or resignation of an ApprovedIndividual
2.4.2 Obligation to appoint Approved Individuals to certain roles
(1) A Takaful Operator must make the following appointments and ensure that they are held by one or more Approved Individuals at all times:
(a) Risk Officer; and
(b) Internal Auditor.
(2) A Takaful Operator must also appoint an Approved Actuary and ensure that such role is held at all times by an Approved Individual if:
(a) it conducts Family Takaful Business; or
(b) it conducts General Takaful Business and;
(i) more than 15% of its gross outstanding liabilities are attributable to Takaful Contracts for General Takaful Business in General Insurance 1 (Accident) or 2 (Sickness); or
(ii) more than 20% of its gross outstanding liabilities are attributable to Takaful Contracts for General Takaful Business in General Insurance Categories 10 (Motor vehicle liability), 11 (Aircraft liability), 12 (Liability of ships), 13 (General liability), 14 (Credit) or 15 (Suretyship).
2.4.3 Risk Officer
The Risk Officer is an individual who has responsibility for the Takaful Operator’s risk management function.
2.4.4 Internal Auditor
The Internal Auditor is an individual who has responsibility:
(a) for the Takaful Operator’s internal audit policies, procedures and controls; and
(b) for taking appropriate steps to ensure the implementation of and compliance with those policies, procedures and controls.
2.4.5 Approved Actuary
(1) The Approved Actuary is an individual who has responsibility:
(a) for the Takaful Operator’s actuarial policies, procedures and controls; and
(b) for taking appropriate steps to ensure the implementation of and compliance with those policies, procedures and controls.
(2) The Approved Actuary must not be an individual who:
(a) exercises the Senior Executive Function for the Takaful Operator or a related body corporate (except a related body corporate that is a subsidiary of the Takaful Operator); or
(b) is an Employee or Director of an auditor for the Takaful Operator.
Consultation Paper No.14 on proposed additional amendments to the AIFC Legal Entities Framework
*Consultation Paper No.15 on proposed Insurance and Reinsurance Legislative Framework in the AIFC
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed additional amendments to the AIFC Acts with the aim at establishing a comprehensive regulatory framework for insurance and reinsurance services in the AIFC.
2. The proposals in this Consultation Paper will be of interest to individuals, financial services companies, market institutions and investors who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 15” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 15 December 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) Background to the proposals;
(b) Annex 1: Proposed Amendments to AIFC Prudential Rules for Insurance Intermediaries and Insurance Managers;
(c) Annex 2: Proposed Amendments to AIFC Glossary.
Background
7. In 2015 Astana was designated by the President of Kazakhstan as the location of the Astana International Financial Centre (“AIFC”). He stated the need to establish the AIFC on the base of the Expo-2017 infrastructure and to confer a special status on the AIFC. The AIFC participants, bodies and organisations will enjoy a special tax regime, special migration regime, special currency exchange regulation regime.
8. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan “On the Astana International Financial Centre” (the “Constitutional Statute”), the purpose of the AIFC is to establish a leading international centre for financial services. The objectives of the AIFC are as follows:
(a) attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(b) developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(c) developing insurance markets, banking services, and Islamic financing, in the Republic of Kazakhstan;
(d) developing financial and professional services based on international best practice;
(e) achieving international recognition as a financial centre.
9. Amendments to AIFC Prudential Rules for Insurance Intermediaries have been drafted with regard to similar legislation in leading international financial centres. The purpose of introducing new regulatory regime is to complement the regulatory framework established by the AIFC Financial Services Framework Regulations (“FSFR”) by providing for the prudential regulation of insurance managers.
10. Amendments to AIFC Glossary have been drafted to set out interpretative provisions of words and expressions used in the AIFC Acts regulating insurance and reinsurance services.
11. We are consulting if there are any concerns relating to the proposed regulatory requirements and provisions within establishing a legislative framework for insurance and reinsurance services in the AIFC. If so, what are they, and how should they be addressed?
*Consultation Paper No.16 on proposed Takaful and Retakaful Legislative Framework in the AIFC
Consultation Paper No.17 on proposed AIFC Preferential Creditor Rules
Consultation Paper No.18 on proposed AIFC Financial Technology Legislative Framework
Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper No. 18 to invite public feedback and comments on the proposed Astana International Financial Centre (“AIFC”) Financial Technology Legislative Framework.
2. The proposed Financial Technology Rules and amendments to the AIFC General Rules and Glossary are set out in Annexes 1-3 to this Paper.
3. This Consultation Paper may be of interest to a Person looking to carry on the FinTech Activities within the FinTech Lab, which is a regulatory environment within the AIFC that allows a Person to Test and/or Develop the FinTech Activities without immediately incurring full set of regulatory requirements envisaged under the AIFC Acts for Regulated and Market Activities.
4. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No. 18” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is 28 December 2018. Once we receive your comments, we shall consider if any refinements are required to the proposed Legislative Framework.
7. Comments to be addressed to: Consultation Paper No. 18 Innovation Policy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan
or emailed to: Fintech.Consultation@afsa.kz, Tel: +7 (7172) 647276
Background
8. The rise of FinTech requires regulators to understand how to best apply regulatory principles to new settings created by new technologies and business models. Unless clear guidelines and precedents are provided or the means for running controlled experiments are allowed, the opportunities created by FinTech can remain unexplored. Therefore, certainty and predictability in legal framework may become the main deal breakers for FinTech innovators.
9. Following the international approach, in 2017 AFSA introduced the FinTech Regulatory Sandbox (“Sandbox”), a tailored regulatory environment where firms can develop and test FinTech innovations under the strict supervision of regulator without immediately incurring all the normal regulatory consequences of engaging in financial services activity and obtaining a Licence from AFSA.
10. However, recognizing the FinTech’s potential to improve efficiency within financial markets and systems, there is a need to further enhance the regulatory environment for FinTech businesses in the AIFC.
11. The proposed framework will maintain the existing Sandbox regime for Testing the FinTech Activities and will introduce a new regime that allows the FinTech firms to Develop their FinTech activities that are currently regulated / or not regulated in the AIFC with minimum expenditures in a phased manner under the new Licence on Developing the FinTech activities.
12. Thus, the regime of Testing the FinTech Activities is a live environment which allows a Person to test the validity of the following types of activities in a cost- effective and time-bound manner under the bespoke individual requirements, in close collaboration with the AFSA:
a) Financial Activities which are similar to those that are already being regulated in the AIFC, where:
i. a different technology or process is being applied; or
ii. the same technology is being applied differently; or
b) Financial Activities not regulated in the AIFC; or
c) Activities likely to be regulated in the AIFC as a financial or an ancillary service.
13. The regime of Developing the FinTech Activities is a live market environment in which a Person can engage into the activities that are currently regulated or not regulated by the AFSA under the light touch (waivers/modifications) requirements, in close collaboration with the AFSA.
14. The regime of Developing the FinTech Activities is tailored in the circumstances where:
a) it is less clear whether the proposed FinTech Activity would have demand in Kazakhstani or regional market (test the waters), or
b) an applicant is a start-up that does not meet full-set of requirements for the regulated activities but seeks to deploy the FinTech Activities and comply with regulatory obligations gradually, or
c) an applicant holds a licence to operate the proposed FinTech Activity in other jurisdiction(s) which is not currently regulated by the AFSA.
Consultation Paper No.19 on proposed amendments to the AIFC Market Rules
Introduction
1.The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Market Rules with the aim at enhancing market infrastructure in the AIFC.
2.The proposals in this Consultation Paperwill be of interest to individuals, financial services companies, market institutions and investors who are interested in doing business in the AIFC.
3.All comments should be in writingand sent to the addressor email specified below. If sending your comments by email, please use “Consultation Paper No 19” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Commentssupported by reasoning and evidence will be given more weight by the AFSA.
4.The deadline for providing comments on the proposals is 27 February 2019. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
41/3 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
Background
1. The proposed amendments are related to the admission of securities without a prospectus that are already listed at a foreign exchange to the listing at AIX.
2. According to sub-rule 1.2.2 (h) of the AIFC Market Rules, an Authorised Investment Exchange may admit Securities to trading without a Prospectus that are already admitted to trading on another Authorised Investment Exchange or Recognised Non-AIFC Market Institution (“the other market”).
AIFC MARKET RULES
1.2 Exemptions (…)
1.2.2 Exempt Securities
An Authorised Investment Exchange may admit the following Securities to trading without a Prospectus:
(h) Securities already admitted to trading on another Authorised Investment Exchange or Recognised Non-AIFC Market Institution (“the other market”), where:
(i) the Securities, or Securities of the same class, have been admitted to trading and continuously traded on the other market for more than 18 months; and
(ii) the ongoing obligations for trading on that other market have been complied with; and
(iii) the Person requesting the admission to trading of the Securities under this exemption makes available to the public in accordance with MAR
1.7 a Prospectus Summary in accordance with MAR 1.4 (Prospectus Summary) in the English language, which is approved by Authorised Investment Exchange and which states where the most recent Prospectus can be obtained and where the financial information published by the Issuer pursuant to its ongoing disclosure obligations is available.
3. Astana International Exchange (AIX) cannot admit securities already listed at foreign exchanges to its listing with simplified procedure. MAR 1.2.2 (h) allows the admission of securities without a prospectus to only another AIFC Authorised Investment Exchange or exchange which is recognised in accordance with AIFC Recognition Rules.
KEY ELEMENTS OF THE PROPOSED AMENDMENTS
1. Amendments to sub-rule 1.2.2 (h) of the AIFC Market Rules to allow admission of securities without a prospectus that are already listed at Equivalent Exchanges to the listing at Astana International Exchange (AIX). The list of such Equivalent Exchanges shall be issued by the AFSA based on the objective criteria of equal or higher standards.
2. DIFC has the model under which the offers of securities, the prospectus for which has been approved by other Regulated exchanges fall under the “exempt offer” rule.
3. According to sub-rule .2.4.1 (i) of DFSA Markets Rules (MKT), Exempt Securities include the securities already admitted to trading on another Authorised Market Institution or Regulated Exchange (“the other market”), provided that:
(i) the Securities, or Securities of the same class, have been admitted to trading and continuously traded on the other market for more than 18 months;
(ii) the ongoing obligations for trading on that other market have been complied with; and
(iii) the Person requesting the admission to trading of the Securities under this exemption makes a summary document in the English language which is approved by the DFSA in accordance with the requirements in section 2.6 (Approval and publication of a prospectus) and published:
(A) containing the information set out in Rule 2.5.2(1)(b) (Key Information relating to risks associated with issuer and the relevant securities; general terms of the offer; whether the securities are to be admitted to trading and if so, the details relating to such admission; reasons for the offer and the proposed use of the proceeds);
(B) stating where the most recent and current prospectus, if any, can be obtained; and
(C) specifying where the financial information published by the issuer pursuant to its ongoing disclosure obligations of the other market is available.
4. According to the DFSA Glossary, Regulated Exchange is an exchange regulated by a Financial Services Regulator.
5. DFSA has a wide approach to cover securities from any regulated exchange. The amendments proposed by the AFSA take the narrow approach to include into the “Exempt offer” category only securities, for which prospectus has been approved by “Equivalent Exchange” and set the criteria for such equivalence.
AIFC MARKET RULES
1.2 Extemptions
1.2.2 Exempt Securities
(1) An Authorised Investment Exchange may admit the following Securities to trading without a Prospectus:
(…)
(…)
(h) Securities already admitted to trading on another Authorised Investment Exchange, or Recognised Non-AIFC Market Institution or other Equivalent Regulated Exchange (“the other market”), where:
(i) the Securities, or Securities of the same class, have been admitted to trading and continuously traded on the other market for more than 18 months; and
(ii) the ongoing obligations for trading on that other market have been complied with; and
(iii) the Person requesting the admission to trading of the Securities under this exemption makes available to the public in accordance with MAR 1.7 a Prospectus Summary in accordance with MAR 1.4 (Prospectus Summary) in the English language, which is approved by Authorised Investment Exchange and which states where the most recent Prospectus can be obtained and where the financial information published by the Issuer pursuant to its ongoing disclosure obligations is available.
(2) For the purposes of MAR 1.2.2 (1)(h):
(a) “Equivalent”, in relation to a Regulated Exchange, means that the AFSA has determined, either on the application of an Issuer or upon its own initiative, that investors in Securities admitted to trading on the facilities of such Regulated Exchange are afforded protection equivalent to that which they would be afforded [if the Issuer were required to comply with MAR 1.1.1(b) without regard to MAR 1.2.2(1)(h)], having regard to the law and practice of the country or territory in which the head office of the Regulated Exchange is situated and to its rules and practice; and
(b) the AFSA may publish a list from time to time identifying Regulated Exchanges it has determined to be Equivalent.
1.The list of such Equivalent Exchanges shall be issued by the AFSA based on the objective criteria of equal or higher standards.
2.Such amendments will provide the conditions for fast-track listing on AIX (as secondary listing) of high-quality issuers, which have their securities admitted on other regulated exchanges (as primary listing), subject such exchanges have the equivalent level of requirements for offer documents.
3.From regulative prospective, these high-quality companies do not requireto undergo burdensome procedure of preparation and submission of full prospectus. This will assist AIX to build liquid and developed market.
4.The adoption of the proposed amendments to Market Rules will facilitate the implementation of the best practices in AIX, which will lead to the development of Kazakhstani capital market and, as a result, international investors will be attracted to Kazakhstan.
Question:
Do you have any concerns relating to the proposed amendments to AIFC Market Rules? If so, what are they, and how should they be addressed?
Consultation Paper No.20 on proposed AIFC Crowdfunding Legislative Framework
Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper No. 28 to invite public feedback and comments on the proposed amendments to the AIFC Market Rules in the context of adoption of the Astana International Financial Centre (“AIFC”) Crowdfunding Legislative Framework.
2. The proposed amendments to the AIFC Market Rules are set out in Annex 1 to this Paper.
3. This Consultation Paper may be of interest to the operators, participants, and investors both institutional and retail, making use of Crowdfunding Platforms within the AIFC.
4. All comments to the AIFC Crowdfunding Legislative Framework should be in writing and sent to the address or email specified below. If sending your
comments by email, please use “Consultation Paper No. 28” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is August 10, 2019. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments to the AIFC Market Rules.
7. Comments to be addressed to: Consultation Paper No. 28 Innovation Policy Division
Astana Financial Services Authority (AFSA)
55/17, Mangylyk El avenue, block C-3.2, Astana, Kazakhstan
or emailed to: Fintech.Consultation@afsa.kz, Tel: +7 (7172) 647276
Background
1. The AIFC Crowdfunding Legislative Framework was designed to enhance the existing regulatory framework to support the adoption of technological innovations in financial services and facilitate smaller companies’ access to capital, whilst ensuring effective investor protection, financial market integrity and financial stability.
2. Crowdfunding Platforms offer smaller companies and individual entrepreneurs valuable opportunities for accessing finance, which may not be available to them through financial institutions or the capital markets. By providing an online marketplace to match investors and investees or lenders and borrowers, investment- and lending-based crowdfunding can bring more competition into retail and capital markets.
3. The AIFC Crowdfunding Legislative Framework has been adopted with an intention to provide regulatory certainty to operators, participants, and investors both institutional and retail, making use of Crowdfunding Platforms.
4. The proposed amendments to the AIFC Market Rules, constituting the AIFC Crowdfunding Framework, are aimed to align of the existing regulatory framework with the newly enacted AIFC Crowdfunding Framework. Thus, it is proposed to extend the current exempt offering regime for the offer of Securities by way of placement to an offer of Securities made on the Authorized Crowdfunding Platform
ANNEX 1
Proposal
AIFC MARKET RULES (MAR)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
1 OFFER OF SECURITIES
1.1.2 Conditions for the offer of Securities by way of placement
…
(2) The conditions mentioned in subsection (1)(b) above are the following:
…
(m) …; or
(n) the offer is made only through the Authorized Crowdfunding Platform to and directed at only Investors or lenders who are Clients of the Authorised Crowdfunding Platform within the limits set out in AMI.
*Consultation Paper No.21 on Implementation of the Common Reporting Standard Framework
Consultation Paper No.22 on amendments to the AIFC Cooperation and Exchange of Information Rules
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to AIFC Cooperation and Exchange of Information Rules (CO-OP Rules) to clarify some provisions related to the AFSA restrictions on regulatory co-operation. The proposed amendments are set out in the Annexure to this Paper.
2. The proposals in this Consultation Paper will be of interest to authorised persons, designated non-financial business or professions who are interested in doing business in the AIFC as well as financial regulators and state authorities who are interested in cooperating and exchanging information with AFSA.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 22” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 18 May 2019. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17, Mangylyk El Avenue, block C-3.2, Nur-Sultan, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposal;
(b) the list of key elements of the proposed amendments;
(c) Annex 1: The proposed amendments to AIFC CO-OP.
Background
7. The Astana Financial Services Authority (AFSA) intends to become the IOSCO MMOU signatory to consult, cooperate, and exchange information with securities regulators - IOSCO signatories.
8. The IOSCO MMoU sets an international benchmark for cross-border co-operation. Established in 2002, it has provided securities regulators with the tools for combating cross-border fraud and misconduct that can weaken global markets and undermine investor confidence.
9. The IOSCO MMoU represents a common understanding among its signatories of how they should consult, cooperate, and exchange information for the purpose of regulatory enforcement regarding securities markets. The MMoU itself sets out the specific requirements for:
(a) what information can be exchanged and how it is to be exchanged;
(b) the legal capacity to compel information;
(c) the types of information that can be compelled;
(d) the legal capacity for sharing information; and
(e) the permissible use of information.
10. It also sets out specific requirements regarding the confidentiality of the information exchanged, and ensures that no domestic banking secrecy, blocking laws or regulations will prevent securities regulators from sharing this information with their counterparts in other jurisdictions.
11. Information requests can be made when authorities are in the process of investigating offences relating to the following activities under the relevant laws and regulations of the jurisdictions in question:
(a) insider dealing and market manipulation;
(b) misrepresentation of material information and other fraudulent or manipulative practices relating to securities and derivatives;
(c) solicitation and handling of investor funds, and customer orders;
(d) the registration, issuance, offer, or sale of securities and derivatives;
(e) the activities of market intermediaries, including investment and trading advisers who are required to be licensed or registered, collective investment schemes, brokers, dealers, and transfer agents; and
(f) the operations of markets, exchanges, and clearing and settlement entities
12. Under the terms of the MMoU, the securities regulators can provide information and assistance, including records:
10
(a) to enable reconstruction of all securities and derivatives transactions, including records of all funds and assets transferred into and out of bank and brokerage accounts relating to these transactions;
(b) that identify the beneficial owner and controller of an account;
(c) for transactions, including the amount purchased or sold; the time of the transaction; the price of the transaction; and the individual and the bank or broker and brokerage house that handled the transaction; and
(d) providing information identifying persons who beneficially own or control companies;
(e) taking or compelling a person’s statement or, where permissible, testimony under oath, regarding the potential offence.
KEY ELEMENTS OF THE PROPOSED AMENDMENTS
13. A framework on cooperation and exchange of information was adopted by the AFSA Board of Directors in December 2018 to ensure that the AFSA meets international standards for co-operation and the exchange of information with regulators, including in particular the IOSCO MMoU and EMMoU.
14. The framework consists of high-level requirements in the AIFC Financial Services Framework Regulations and more detailed requirements in a separate set of rules, the Co-operation and Exchange of Information Rules (CO-OP). The framework specifies:
(a) a general prohibition on the disclosure of confidential information by the AFSA;
(b) a list of authorities to whom confidential information may be disclosed, or who may require assistance from the AFSA; and
(c) legitimate reasons why assistance may be requested.
15. To enhance the framework on cooperation and exchange of information, the AFSA proposes the following amendments to section 2.3 of CO-OP:
(a) Delete the “complying with the request would be so burdensome as to prejudice or disrupt the performance of the AFSA's regulatory functions and duties” provision (2.3(e)) as a ground for refusing a request of the requesting authority;
(b) Add the following provisions: “Where a request for assistance is denied, or where assistance is not available under the Acting Law of the AIFC or laws of the Republic of Kazakhstan, the AFSA will provide the reasons for not granting the assistance and consult pursuant to subsection 2.3.-1 (Consultation Regarding Mutual Assistance and the Exchange of Information).”
(c) Add new sub-section «2.3.-1. Consultation Regarding Mutual Assistance and the Exchange of Information» to meet the requirement of IOSCO MMOU for the Requesting Authority and Requested Authority to consult with one another in matters relating to specific requests made pursuant to the MMOU. Subsection «2.3.-1. Consultation Regarding Mutual Assistance and the Exchange of Information» contains the following provisions:
(i) the AFSA will consult periodically with other authorities, including Financial Services Regulators outside the AIFC, about matters of common concern with a view to improving its operation and resolving any issues that may arise.
(ii) the AFSA will consult with the requesting authority in matters relating to specific requests, including but not limited to requests that would be so burdensome as to prejudice or disrupt the performance of the AFSA's regulatory functions and duties.
Question: Do you have any comments on the proposed amendments to AIFC CO-OP Rules?
Annex 1
1. GENERAL
1.1. Name
These Rules are the AIFC Co-operation and Exchange of Information Rules (CO-OP).
1.2. Commencement
These Rules will commence on 15 December 2018.
1.3. Application of these Rules
These Rules apply within the jurisdiction of the AIFC.
2. FRAMEWORK FOR CO-OPERATION AND EXCHANGE OF INFORMATION
2.1. Arrangements for co-operation and the exchange of information
The AFSA may at its discretion, and in relation to its obligations under Part 11 (Co- operation and Exchange of Information) of the Framework Regulations enter into memoranda of understanding or other arrangements for co-operation and the exchange of information with other authorities, including Financial Services Regulators.
Guidance: Obligation in Part 11 (Co-operation and Exchange of Information) of the Framework Regulations
Part 10 of the Framework Regulations requires the AFSA to:
(a) ensure the confidentiality of information received in the exercise of a regulatory function; and
(b) assist the exercise by specified persons of their regulatory functions.
2.2. Exercise of powers on behalf of other authorities
Subject to subsection 2.3, the AFSA may exercise its powers, including the power to obtain information from Centre Participants, on behalf of other authorities if the request for assistance is made by:
(a) the National Bank of the Republic of Kazakhstan;
(b) a Financial Services Regulator;
(c) a governmental or regulatory authority exercising powers and performing functions relating to anti-money laundering, counter-terrorist financing or sanctions compliance;
(d) a self-regulatory body or organisation exercising and performing powers and functions in relation to Financial Services;
(e) a law enforcement agency; or
(f) a governmental or other regulatory authority including a self-regulatory body or organisation exercising powers and performing functions in relation to the regulation of auditors, accountants or lawyers,
for the purpose of assisting the exercise by any such authority of its regulatory functions.
2.3. Restrictions on regulatory co-operation
The AFSA shall not exercise its powers at the request of an authority listed in subsection 2.2 if:
(a) any exercise of the AFSA's powers would require the AFSA to act in a manner that would violate applicable criminal laws of the Republic of Kazakhstan or Acting Law of the AIFC;
(b) any request is in relation to criminal or enforcement proceedings that have already been initiated in the AIFC or the Republic of Kazakhstan relating to the same facts or same Persons, or the same Persons have already been penalised or sanctioned on substantively the same allegations or charges and to the same degree by the AFSA or the competent authorities in the Republic of Kazakhstan;
(c) the request is prejudicial on the grounds of public or national interest;
(d) the requesting authority refuses to give reciprocal assistance within its jurisdiction in response to a comparable request from the AFSA;
e) -----------------------------------------
(f) the requesting authority fails to demonstrate a legitimate reason for the request.
Where a request for assistance is denied, or where assistance is not available under the Acting Law of the AIFC or laws of the Republic of Kazakhstan, the AFSA will provide the reasons for not granting the assistance and consult pursuant to subsection 2.3.-1 (Consultation Regarding Mutual Assistance and the Exchange of Information).
2.3.-1. Consultation Regarding Mutual Assistance and the Exchange of Information
a) The AFSA will consult periodically with other authorities, including Financial Services Regulators outside the AIFC, about matters of common concern with a view to improving its operation and resolving any issues that may arise.
(b) The AFSA will consult with the requesting authority in matters relating to specific requests, including but not limited to requests that would be so burdensome as to prejudice or disrupt the performance of the AFSA's regulatory functions and duties.
2.4. Legitimate reasons for requesting assistance
In deciding whether to comply with a request for assistance, including a request to disclose confidential information, the AFSA will assess if:
(a) there are legitimate reasons for the request; and
(b) the authority requesting the information has appropriate standards in place for dealing with confidential information.
Guidance: Factors determining legitimate requests
In determining the legitimacy of a request, the AFSA may consider if:
(a) the request will enable the requesting authority to discharge more effectively its regulatory responsibilities to enforce and secure compliance with the financial services laws administered by the requesting authority;
(b) the request is for the purpose of actual or possible criminal, civil or administrative enforcement proceedings relating to a violation of financial services laws administered by the requesting authority;
(c) the requesting authority is governed by laws that are substantially equivalent to those governing the AFSA concerning regulatory confidentiality, data protection, legal privilege and procedural fairness;
(d) the request involves the administration of justice of a law, regulation or requirement that is related to enforcing and securing compliance with the financial services laws of the requesting jurisdiction;
(e) any other authority, governmental or non-governmental, is cooperating with the requesting authority or seeking information from the confidential files of the requesting authority; and
(f) fulfilling the request will foster the integrity of, and confidence in, the financial services industry in the AIFC and the requesting jurisdiction.
2.5. Asset freezing
Subject to the restrictions in subsection 2.3, the AFSA may, where appropriate, freeze or sequester funds or assets in the possession or control of a Centre Participant at the request of a Financial Services Regulator, provided that the AFSA and the Financial Services Regulator shall have entered into an MoU that allows either party to request the freezing or sequestration of such funds or assets.
(….)
*Consultation Paper No.0003 on proposed AIFC Trust Legislative Framework
Consultation Paper No.0005 on proposed amendments to AIFC Market Rules
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Market Rules with the aim at enhancing capital market in the AIFC.
2. The proposals in this Consultation Paper will be of interest to issuers, individuals, financial services companies, market institutions and investors who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 27” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 24 July 2019. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA) 55/17 Mangilik El avenue, block C3.2,
Nur-Sultan, Kazakhstan
or emailed to: consultation@afsa.kz Tel: +8 7172 613781
Background
1. The proposed amendments are related to the appointment of sponsor or compliance adviser and providing working capital statement in the prospectus.
2. According to section 85(1) of the AIFC Financial Services Framework Regulations (FSFR), the AFSA may, where it considers it appropriate to do so, require that a reporting entity or a person that intends to have securities admitted to an official list of securities or admitted to trading on an Authorised Investment Exchange appoints an authorised firm or accredited firm to act as a sponsor or compliance adviser.
3. Section 85(2) of the FSFR empowers the AFSA to make rules related to the appointment of a sponsor or compliance adviser. The rules in section 4 of the AIFC Market Rules (MAR) are made pursuant to article 85.
4. The rules in MAR 4.1 (Sponsors) cover, inter alia, the following:
(a) the procedure relating to the appointment of a sponsor and the independence of the sponsor;
(b) the obligations of the sponsor (including to satisfy itself that the person seeking to have Securities admitted to trading has satisfied the conditions in MAR);
(c) the duty to co-operate with sponsors and the duty to notify the AFSA of the termination of the sponsor’s employment or the sponsor’s resignation.
5. The rules in MAR 4.2 (Compliance Advisers) cover, inter alia, the following:
(a) the procedure relating to the appointment of a compliance adviser and the obligation of Reporting Entities to provide information about the compliance adviser to the AFSA;
(b) the obligation of the Reporting Entity to co-operate with the compliance adviser and the duty to notify the AFSA of the termination of the compliance adviser’s employment or their resignation.
6. MAR does not stipulate when a person or reporting entity will be required to appoint a sponsor or compliance adviser. In this regard, it causes uncertainty for issuers whether the AFSA will oblige them to appoint a sponsor/adviser and if so, on what stage.
7. Pursuant to sub-section 1.5.2 of MAR, the Securities Note must include a statement by the directors of the issuer that in their opinion the working capital is sufficient for the issuer's present requirements, or, if not how it proposes to provide the additional working capital needed (working capital statement). It should be pointed out that MAR does not set any minimum amount of working capital or minimum period for determining the sufficient amount of working capital.
8. In this regard, the AFSA intends to provide the clarity the provisions of MAR concerning appointment of sponsor or compliance adviser and obligation of an issuer to make a working capital statement in the security note.
Proposal
9. On the basis of requirements set out in the UK, Hong Kong, DIFC and AFDGM for issuers (standard listing and AIM, UK) and reporting entities, the AFSA proposes several amendments as set out below.
10. Appointment of Sponsor:
(a) to retain in the FSFR and MAR the provision that the AFSA may, where it considers it appropriate to do so, require that a reporting entity or a person that intends to have securities admitted to an official list of securities or admitted to trading on an Authorised Investment Exchange appoints an authorised firm or accredited firm to act as a sponsor or compliance adviser; and
(b) to incorporate guiding provisions in MAR detailing where the AFSA may require the appointment of a sponsor as follows:
Guidance: The AFSA will not require a Person that intends to have Securities admitted to the Official list of Securities or admitted to trading on an Authorised Investment Exchange to appoint a sponsor if only the Person (a) does not have a proven track record or (b) has been in operation for less than 3 (three) years, but not including cases where such Person meets one of the following criteria:
(i) the Person falls within the definition of Exempt Offerors or Financial Institution; or
(ii) the Securities of the Person have been admitted to the Official List or admitted to trading on an Equivalent Regulated Exchange.
Question 1:
Do you have any concerns relating to the proposed amendments to AIFC Market Rules? If so, what are they, and how should they be addressed?
11. Appointment of Compliance Adviser:
(a) to incorporate guiding provisions in MAR prescribing where the AFSA may require appointing a compliance adviser as follows:
Guidance: The AFSA may require the appointment of a compliance adviser where a Reporting Entity has been held to have breached the Acting Law of the AIFC and/or Authorised Market Institutions Rules.
Question 2:
Do you have any concerns relating to the proposed amendments to AIFC Market Rules? If so, what are they, and how should they be addressed?
12. Working Capital Statement:
(a) to retain in the MAR the provision that the Securities Note must include a working capital statement;
(b) to incorporate a minimum period of 12 months from date of listing that applicant has sufficient working capital;
(c) to exempt the applicants, whose business is entirely or substantially related to the provision of Financial Services, provided that:
(i) the inclusion of such a statement would not provide significant information for investors; and
(ii) the applicant’s solvency and capital adequacy are subject to prudential supervision by Financial Services Regulator.
Question 3:
Do you have any concerns relating to the proposed amendments to AIFC Market Rules? If so, what are they, and how should they be addressed?
Consultation Paper No. 3 on proposed amendments to AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC AML Rules No. FR0008 of 2017. The amendments to the rules are proposed to ensure full compliance of the AIFC legal and regulatory framework with the FATF recommendations. The proposed amendments are set out at Annex A to this Paper.
2. The proposals in this Consultation Paper will be of interest to Authorised Persons, Designated Non-Financial Business or Professions, Registered Auditors and individuals, financial organisations and investors who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 3” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 10 May 2018. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and International Relations
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the list of key amendments to the AIFC AML Rules;
(c) Annex 1: The Comparative table on the proposed amendments with the explanation notes to each of them;
(d) Annex 2: The draft of amendments to the AIFC AML Rules.
Background
1. FATF is the global standard setter in the fight against money laundering and financing of terrorism. It develops Recommendations which set out the legal, regulatory and operational measures that countries should have in place to protect the financial system from misuse. These Recommendations are revised periodically, most recently in 2012, to ensure that countries respond to current money laundering and terrorist financing threats, as well as other threats to the financial system.
2. FATF monitors the progress of its members in implementing these Recommendations, through a Mutual Evaluation on how effective their AML measures are. After a Mutual Evaluation is carried out, a follow-up process provides a framework to monitor progress made to address any need for improvement.
3. In 2020 the FATF-style regional body “Eurasian group on combatting money laundering and terrorist financing” will conduct the Mutual Evaluation of the Republic of Kazakhstan and the AIFC will be a part of that evaluation.
4. During the considered evaluation the approach will be emphasised on assessing technical compliance with the FATF Recommendations, and on assessing whether or how the AML/CTF system is effective.
5. The National Risk Assessment on Money Laundering and Terrorist Financing of the Republic of Kazakhstan is scheduled for 2018 and the AFSA is in a dialogue with the Ministry of Finance of the Republic of Kazakhstan to ensure AFSA’s framework is fit for purpose and will not detract from the overall AML assessment of Kazakhstan.
6. Therefore, the AIFC AML Rules need to be fully aligned with the FATF recommendations.
KEY AMENDMENTS
7. The AFSA identified several areas in the AIFC AML Rules that are proposed to be amended in order to be fully aligned with the FATF recommendations.
8. In this section underlining indicates new text and the striking through indicates deleted text in the proposed amendments to the AIFC AML Rules.
Overview of the AML Rules
9. The reference to the Code on Administrative Offences of the Republic of Kazakhstan No 235-V dated 5 July 2014 (the "Administrative Code")” is to be deleted in Article 1.1.(a) as the article 214 “Breach of the legislation of the Republic of Kazakhstan on counteraction to legalization (laundering) of incomes received by criminal means, and financing of terrorism” of the Administrative Code are not applicable within AIFC. The AFSA view is that the cases of the breach of AML Rules or AML Law by the AIFC Participants should not be considered by the administrative courts of the Republic of Kazakhstan, the cases, according to the AIFC regulations, will be held by the AFSA courts.
10. The paragraph 1.6 “Interpretations” is to be added to clarify the definitions’ location.
Kazakhstan criminal law
11. The reference to the article of Criminal Code is to be removed. All the precise references to the provisions of the external regulatory acts are to be covered in the AIFC AML/CTF Guidelines the approval of which is scheduled for IV quarter of 2018. The purpose of this is to not make AIFC AML Rules dependent on the constant changes of Kazakh domestic regulatory acts.
The Risk Based Approach
Obligation to conduct business and customer risk assessment
12. The Paragraph 4.1.3. is proposed to be expanded in compliance with the FATF Recommendations 1 and 15 as follows:
“In order to identify and assess the risks of money laundering and terrorist financing a Relevant Person must conduct a business risk assessment and must also conduct customer risk assessments in accordance with Chapter 5 and keep these assessments up to date.
The risks of money laundering and terrorist financing that may arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products must be identified and assessed by a Relevant Person prior to the launch or use of such products, practices and technologies.”
Requirements of policies, controls and procedures
13. The Paragraph 4.3.1. is proposed to be expanded for the purpose of the consistency with the paragraph 3 of the Article 11 of the Law of the Republic of Kazakhstan No. 191-IV dated 28 August 2009 on Counteracting legalisation (laundering) of proceeds obtained through criminal means and financing of terrorism (AML Law) as follows:
‘The policies, controls and procedures adopted by a Relevant Person under AML 4.1.1 must be:
(a) proportionate to the nature, scale and complexity of the activities of the Relevant Person’s business;
(b) comprised of, at minimum, organisation of the development and maintenance of the policies, procedures, systems and controls required by AML 4.1.1, risk management, customer identification, transaction monitoring and studying, employees training and awareness programs;
(c) approved by its senior management; and
(d) monitored, reviewed and updated regularly.”
Conduct of the customer risk assessment
14. The Paragraph 5.1.3. is proposed to be expanded in compliance with the FATF Recommendation 10 as follows:
“identify the customer, any beneficial owner(s) and any person acting on behalf of
a customer;”
15. The new Paragraph 5.1.3. (g) is proposed to be added in compliance with the FATF Recommendation 10 as follows:
“consider the beneficiary of a life insurance policy, where applicable; and”
Customer Due Diligence
Undertaking Simplified Due Diligence
16. The Paragraph 6.1.2. is proposed to be expanded in compliance with the FATF Recommendation 10 as follows:
“A Relevant Person may undertake SDD in accordance with AML 8.1.1 by modifying the CDD under AML 6.3.1 for any customer it has assigned as low risk. Simplified measures should not be conducted whenever there is a suspicion of
money laundering and/or terrorist financing.”
Establishing a business relationship before Customer Due Diligence is complete
17. The Paragraph 6.2.3. (b). is proposed to be expanded in compliance with the FATF Recommendation 10 as follows:
“(b) risk management procedures concerning the conditions under which a customer may utilise the business relationship prior to verification have been adopted and are in place; and there is little risk of money laundering occurring and any such risks identified can be effectively managed by the Relevant Person;”
Undertaking Customer Due Diligence
18. The Paragraph 6.3.1. (a) is proposed to be expanded in compliance with the FATF Recommendation 10 as follows:
“verify the identity of the customer, any beneficial owner(s) and any person acting on behalf of a customer, including his authorisation to so act, based on original or properly certified documents, data or information issued by or obtained from a reliable and independent source;”
19. The new Paragraph 6.3.1. (b) is proposed to be added in compliance with the FATF Recommendation 10 as follows:
“(b) obtain information on the purpose and intended nature of the business relationship;”
Customer obligation for life insurance
20. The new Paragraphs 6.3.2. (c) is proposed to be added in compliance with the FATF Recommendation 10 as follows:
“(c) if a beneficiary of the insurance policy who is a legal person or a legal arrangement presents a higher risk, take enhanced measures which should include reasonable measures to identify and verify the identity of the beneficial owner of the beneficiary, at the time of pay-out; and”
21. The new Paragraphs 6.3.2. (d) is proposed to be added in compliance with the FATF Recommendation 12 as follows:
“(d) take reasonable measures to determine whether the beneficiaries of the insurance policy and/or, where required, the beneficial owner of the beneficiary, are PEPs, at the latest, at the time of the pay-out, and, in cases of higher risks, inform senior management before the pay-out of the policy proceeds, conduct enhanced scrutiny on the whole business relationship with the policyholder, and
consider making a suspicious transaction report.”
Guidance on undertaking Customer Due Diligence
22. The Paragraph (c) (vii) is proposed to be expanded in compliance with the FATF Recommendation 10 as follows:
“the identity of the directors, partners, trustees or equivalent persons with executive authority of the legal person or who holds the position of senior managing official; and”
Guidance on identification and verification of beneficial owners
23. The Paragraph (e) is proposed to be changed in compliance with the FATF Recommendation 10 as follows:
“(e) For a retail investment fund, which is widely-held and where the investors invest via pension contributions, the manager of the fund is not expected to look through to underlying investors where there are none with any material control or ownership levels in the fund. However, for a closely-held fund with a small number of investors, each with a large shareholding or other interest, a Relevant Person should identify and verify each of the beneficial owners, depending on the risks identified as part of its risk-based assessment of the customer. ------------------------------------------------------------
24. The new Paragraph (g). is proposed to be added in compliance with the FATF Recommendations 10 as follows:
“(g) Where no natural person is identified as a beneficial owner, the relevant natural person who holds the position of senior managing official should be identified as such and verified.”
Failure to conduct or complete Customer Due Diligence
25. The Paragraph 6.6.1. is proposed to be expanded in compliance with the FATF Recommendation 10 as follows:
“Where, in relation to any customer, a Relevant Person is unable to conduct or complete the requisite CDD in accordance with AML 6.3.1 it must, to the extent relevant:
(a) not carry out a transaction with or for the customer through a bank account or in cash;
(b) not open an account or otherwise provide a service;
(c) not otherwise establish a business relationship or carry out a transaction;
(d) terminate or suspend any existing business relationship with the customer;
(e) return any monies or assets received from the customer; and
(f) consider whether the inability to conduct or complete Customer Due Diligence necessitates the making of a Suspicious Activity Report (see Chapter 13).
A Relevant Person is prohibited from knowingly keeping anonymous accounts or accounts in obviously fictitious names.”
Sanctions
Relevant United Nations resolutions and sanctions
26. The Paragraph 12.1.1. is proposed to be expanded in compliance with the FATF Recommendation 6 as follows:
“A Relevant Person must establish and maintain effective systems and controls to ensure that on an on-going basis it is properly informed as to, and takes reasonable measures to comply with, relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan. A Relevant Person must freeze without delay and without prior notice, the funds or other assets of designated persons and entities pursuant to relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan.”
27. The Paragraph 12.1.2. is proposed to be expanded in compliance with the FATF Recommendation 6 as follows:
“A Relevant Person must report to the Committee on financial monitoring of the Ministry of Finance of the Republic of Kazakhstan any assets frozen or actions taken in compliance with the prohibition requirements of the relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan, including attempted transactions.
A Relevant Person must immediately notify the AFSA when it becomes aware that it is:
(a) carrying on or about to carry on an activity;
(b) holding or about to hold money or other assets; or
(c) undertaking or about to undertake any other business whether or not arising from or in connection with (a) or (b),
for or on behalf of a person, where such carrying on, holding or undertaking constitutes or may constitute a contravention of a relevant sanction or resolution issued by the United Nations Security Council.”
Money Laundering Reporting Officer, Suspicious Transactions and Tipping Off
28. The Paragraph 13.7.2. is proposed to be added in compliance with the Article 2 of the AML Law as follows:
“13.7.2. Threshold Transactions Controls A Relevant Person must establish and maintain procedures, systems and controls to monitor, detect and report transactions above defined thresholds in accordance with the AML Law.”
29. The Paragraph 13.7.4. is proposed to be added in compliance with the FATF Recommendation 21 as follows:
“13.7.4. Immunity from liability for disclosure of information relating to money laundering transactions The disclosure by a Relevant Person to the competent authorities of information relating to money laundering/terrorist financing is not a breach of the obligation of secrecy or non-disclosure or (where applicable) of any enactment by which that obligation is imposed.”
General Obligations
30. The Paragraph 14.1.1. is proposed to be changed in compliance with the FATF Recommendation 18 as follows:
“14.1.1. Training and Other Obligations
A Relevant Person must implement screening procedures to ensure high standards when hiring employees.
A Relevant Person must take appropriate measures to ensure that its employees:
(a) are made aware of the law relating to money laundering and terrorist financing;
(b) ….”
31. The Paragraph 14.1.2. is proposed to be expanded in the purpose of integrating the AIFC AML Regime into the domestic AML Regime as follows:
“In determining what measures are appropriate under AML 14.1.1 Relevant Person must take account of:
(a) the nature of its business;
(b) its size; and
(c) the nature and extent of the risks of money laundering and terrorist financing to which its business is subject.
The AFSA may impose additional training requirements in respect of all, or certain, relevant employees of a Relevant Person.”
Consultation Paper No. 4 on proposed amendments to AIFC Regulations and Rules on Virtual Currencies and Extended Private Placement Regimes
Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper to invite public feedback and comments on the proposed amendments to the Astana International Financial Centre (“AIFC”) Regulations and Rules on regulation of Virtual Currencies, facilities offering trading of Virtual Currencies, and regimes for alternative sources of funding for businesses.
2. The proposed amendments are set out in Annexes 1 – 6 to this Paper.
3. This Consultation Paper may be of interest to a number of parties, including individuals, investors and organisations looking to carry on activities related to Virtual Currencies in or from the AIFC and Authorised Persons, Designated Non-Financial Business or Professions, Registered Auditors, and financial organisations.
4. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No 4” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is 25 June 2018. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments.
7. Comments to be addressed to:
Consultation Paper No 4 Innovation Policy Division
Astana Financial Services Authority (AFSA)
8 Kunayev Street, Building B, Astana, Kazakhstan or emailed to: Fintech.Consultation@afsa.kz
Tel: +7 (7172) 647260
Background
1. The emergence and recent development of the Distributed Ledger Technology (“DLT”) is disrupting financial markets, institutions and regulators around the world. New disruptive technology and innovative products (digital investments) built on it have the potential to transform financial markets across the globe, and place competitive pressure on incumbent service providers.
2. By encouraging the growing trend towards financial disintermediation in the traditional financial industry, DLT has the potential to radically change the way assets are maintained and stored, obligations are discharged and contracts enforced.
3. Today, the digital assets (including Virtual Currencies) market is represented by more than 100 digital asset exchanges and more than 1000 different digital assets, each with varying characteristics and uses. Some digital assets, like Bitcoin, function as a Virtual Currency, while others can represent a right to tangible assets like gold or real estate. Digital assets can also be used in new protocols to create means of internal settlement within a specific platform or represent a share of ownership in a company.
4. The digital assets (including Virtual Currencies) market is growing at a considerable rate, escalating the need for compliance with regulatory standards and mounting concerns about the future of the industry.
5. Over the last few years, a number of financial services regulators have issued comments and consumer alerts setting out their regulatory position on “virtual or crypto-currencies” without first providing their definitions. As regulators around the world begin to grapple with the challenges presented by digital assets, it has become apparent that they lack a definitional vocabulary that accurately reflects the different forms “Virtual Currency” may take.
6. In this regard, following the report of the Financial Action Task Force (FATF) on Virtual Currencies, a handful of places like the USA, Japan, and the Philippines, developed regulatory frameworks governing activities related to Virtual Currency. Others are now considering the introduction of legislation to provide a regulatory framework for Virtual Currency.
Proposed Legislative Framework
Regulatory Approach
1. The Framework is being developed by the AFSA as part of enhancing regulatory policies aimed at facilitating the adoption of technological innovations in the AIFC.
2. Accepting that the law never will completely keep up with the pace of technological developments, it is necessary to adopt legislation that will be flexible and open to future developments, and not favour a particular technology over another.
3. Thus, the central objective of drafting the Framework is to create conditions that foster innovation in the AIFC whilst ensuring that technology neutrality is arguably achieved.
Proposed Amendments
4. The proposed framework will involve amendments to the AIFC’s legislation to:
(a) provide definitions and classification of the various types of Virtual Currencies based on their different business models and methods of operation, as well as definitions of the most important terms related to Virtual Currencies,
(b) introduce a new regulated activity of Operating a Virtual Currency Trading Facility, and extend the current definition of the regulated activity of Providing Custody to include safeguarding and administering Virtual Currencies belonging to another Person,
(c) extend the current exempt offering regime for the offer of Securities by way of placement, whilst ensuring effective investor protection and financial market integrity.
Definition of basic notions related to Virtual Currencies
5. A common set of terms reflecting how Virtual Currencies operate is a crucial first step for regulators, government officials, law enforcement, private sector entities and investors to understand risks and potential benefits they offer.
6. There is no generally recognised definition and classification of Virtual Currencies either in Kazakhstan or internationally. Thus, in categorising Virtual Currencies and defining key terms related to Virtual Currencies, the AFSA bases its approach on definitions provided in the report of the FATF: “Virtual Currencies – Key Definitions and Potential AML/CFT Risks” and legislation of the USA, Philippines and Japan.
Operating a Virtual Currency Business
7. This part outlines the proposed approach to regulate activities of custodians and Virtual Currency exchanges that are involved in trading Virtual Currencies (‘Operators of Virtual Currency Businesses’).
8. Noting that Virtual Currency markets have so far been predominately Retail, in formulating the Framework, the AFSA proposes to limit activities of Operators of Virtual Currency Businesses to trading of digital (non-securities) assets only, which are Virtual Currencies.
9. Given that the activities of Operators of Virtual Currency Businesses have some similarities with activities of Authorised Investment Exchanges and Authorised Custodians, regulatory requirements applying to Operators of Virtual Currency Businesses will be developed on the basis of principles, requirements and provisions of existing AIFC rules, taking into account the specificity of new activities.
10. An applicant that intends to carry on activities of either or both of a Virtual Currency Trading Facility and a custodian for Virtual Currency shall, pursuant to Section 34 of the AIFC Financial Services Framework Regulations (“FSFR”), demonstrate that it:
(a) has adequate and appropriate resources, including financial and technology resources;
(b) is fit and proper;
(c) is capable of being effectively supervised; and
(d) has adequate compliance arrangements, including policies and procedures, that will enable it to comply with all the applicable legal requirements.
11. Once granted a Licence, Operators of Virtual Currency Businesses will be regulated under the FSFR and the AIFC rules as Authorised Persons. They must also comply with all requirements applicable to Authorised Persons in the following AIFC rules, unless the requirements in this chapter or AIFC rules expressly provide otherwise:
(a) the AIFC Conduct of Business Rules (“COB”);
(b) the AIFC General Rules (“GEN”);
(c) the AIFC Anti-Money Laundering, Counter – Terrorist Financing and Sanctions Rules (“AML”);
(d) the AIFC Prudential Rules for Investment Firms (“PRU INV”).
Exempt Offerings / Offerings by Way of Placement
12. The advent of DLT has sparked a new form of fundraising for startups, small and medium-sized enterprises, called “Initial Coin Offerings” (ICOs). The digital assets (tokens) issued during these transactions have different characteristics specific to each transaction, where some of them exhibit the characteristics of equity or debt Securities.
13. For regulatory purposes, issuances of Securities, whether through a DLT platform or other means, should see no difference in their treatment under the AIFC regulatory framework.
14. Therefore, the central objective of drafting amendments to the AIFC Markets Rules is to create a regime to support innovative methods of raising funds that comply with international best practice in the field of Securities regulation. This means ensuring that the rules drafted are broadly in line with the existing AIFC regulatory framework, and are informed by international experience.
15. In developing a new fundraising regime, the AFSA proposes to model its Private Placement regimes of the US (Regulation D), which are considered as one of the most advanced in the world and which foster innovation and entrepreneurship in the USA, and the Abu Dhabi Global Market and the Dubai International Financial Centre (UAE).
16. Because of the risks involved with this type of investing, it is proposed to set limits on the amount that retail investors can invest during any 12-month period in these transactions. The limitation on how much retail investors can invest shall depend on their net worth and annual income.
Risk Mitigation
17. Many of the risks posed by Virtual Currencies and related activities are similar to the risks presented by other operators of exchange, clearing house and custody, but some are specific to operators of a Virtual Currency Trading Facility and issuers of Virtual Currencies.
AML/CTF/Tax
18. One of the main risks associated with Virtual Currency payment products and services is money laundering and terrorist financing (“ML/TF”) risks.
19. According to “the Guidance for a Risk-Based Approach to Virtual Currencies” issued by the FATF, regardless of whether a country opts for prohibiting or regulating Virtual Currencies, additional measures are required to mitigate the overall ML/TF risk.
20. Even if a country decides not to regulate Virtual Currencies with respect to non-ML/TF risks, such as consumer protection, prudential safety and soundness, and network security, it should take prompt action to identify, assess, and apply a risk-based approach to mitigate the ML/TF risks associated with Virtual Currencies under the relevant FATF Recommendations.
21. Prohibition of Virtual Currencies might have a negative impact on the local and global level of ML/TF risks, as prohibition could drive them underground, where they will continue to operate without AML/CFT controls or oversight.
22. In this regard, following an analysis of the risks associated with Virtual Currencies, the FATF recommends that countries should address ML/TF risks associated with Virtual Currencies exchanges and any other types of institutions that act as nodes where convertible Virtual Currencies intersect with the regulated fiat currency financial system, by applying the relevant FATF Recommendations to any of these Virtual Currencies exchanges and any other types of institutions that act as nodes.
23. Accordingly, the proposed Framework involves amendments to the FSFR and GEN to apply requirements and provisions of the existing AIFC AML Rules and Law of Kazakhstan on AML in full to the new market activity of Operating of a Virtual Currency Trading Facility.
24. This includes (without limitation) the submission of reports on suspicious and threshold transactions to the Financial Monitoring Committee of the Ministry of Finance of the Republic of Kazakhstan, conducting proper Know Your Customer and Customer Due Diligence procedures, transaction monitoring, identifying the source of funds and wealth, sanctions monitoring and appointment of a Money Laundering Reporting Officer.
Consumer Protection, Technology Governance
25. Virtual Currencies must comply with not only AML/CFT requirements, but also other regulatory obligations, including consumer protection, prudential safety, and internal and network IT security standards.
26. In general, Operators of a Virtual Currency Trading Facility as an Authorised Market Institution will be regulated in a manner similar to the AFSA’s regulation of Authorised Persons, and will be required, among other requirements, to disclose all material risks associated with Virtual Currencies and their trading, and key information on their operations, internal controls, and safeguards to protect customer assets.
27. Also, customer protection measures will include establishing and maintaining written policies and procedures by Operators to fairly resolve complaints in a timely manner, and setting limits on transactions for retail investors who enter into securities transactions under Exempt Offerings regime for the offer of Securities by way of placement based on their income and net worth.
28. Given the ever-increasing risks to data and cyber-security, besides general requirements in Section 2 of the AIFC Authorised Market Institutions Rules applicable to all Authorised Market Institutions, there will be a new “Rules applicable to Authorised Virtual Currency Trading Facility” with additional requirements, including the implementation of a written cyber security policy setting forth its policies and procedures for the protection of its electronic systems and members and counterparty data stored on those systems, which shall be reviewed and approved by the Authorised Virtual Currency Trading Facility’s governing body at least annually.
Consultation Paper No.28 on proposed amendments to the AIFC Market Rules
Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper No. 28 to invite public feedback and comments on the proposed amendments to the AIFC Market Rules in the context of adoption of the Astana International Financial Centre (“AIFC”) Crowdfunding Legislative Framework.
2. The proposed amendments to the AIFC Market Rules are set out in Annex 1 to this Paper.
3. This Consultation Paper may be of interest to the operators, participants, and investors both institutional and retail, making use of Crowdfunding Platforms within the AIFC.
4. All comments to the AIFC Crowdfunding Legislative Framework should be in writing and sent to the address or email specified below. If sending your
comments by email, please use “Consultation Paper No. 28” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is August 10, 2019. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments to the AIFC Market Rules.
7. Comments to be addressed to: Consultation Paper No. 28 Innovation Policy Division
Astana Financial Services Authority (AFSA)
55/17, Mangylyk El avenue, block C-3.2, Astana, Kazakhstan
or emailed to: Fintech.Consultation@afsa.kz, Tel: +7 (7172) 647276
Background
1. The AIFC Crowdfunding Legislative Framework was designed to enhance the existing regulatory framework to support the adoption of technological innovations in financial services and facilitate smaller companies’ access to capital, whilst ensuring effective investor protection, financial market integrity and financial stability.
2. Crowdfunding Platforms offer smaller companies and individual entrepreneurs valuable opportunities for accessing finance, which may not be available to them through financial institutions or the capital markets. By providing an online marketplace to match investors and investees or lenders and borrowers, investment- and lending-based crowdfunding can bring more competition into retail and capital markets.
3. The AIFC Crowdfunding Legislative Framework has been adopted with an intention to provide regulatory certainty to operators, participants, and investors both institutional and retail, making use of Crowdfunding Platforms.
4. The proposed amendments to the AIFC Market Rules, constituting the AIFC Crowdfunding Framework, are aimed to align of the existing regulatory framework with the newly enacted AIFC Crowdfunding Framework. Thus, it is proposed to extend the current exempt offering regime for the offer of Securities by way of placement to an offer of Securities made on the Authorized Crowdfunding Platform
ANNEX 1
Proposal
AIFC MARKET RULES (MAR)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
1 OFFER OF SECURITIES
1.1.2 Conditions for the offer of Securities by way of placement
(2) The conditions mentioned in subsection (1)(b) above are the following:
…
(m) …; or
(n) the offer is made only through the Authorized Crowdfunding Platform to and directed at only Investors or lenders who are Clients of the Authorised Crowdfunding Platform within the limits set out in AMI.
*Consultation paper No. 0002 on proposed amendments to AIFC Rules and Regulations on repealing Commercial Licence
Consultation paper No. 0004 on Enhancing Financial Services Tax Exemption Framework
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the Order of the AIFC Governor (AIFC Act on Financial Services Exempt from Corporate Income Tax).
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P- CE-2019-0004” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 7 October 2019. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
6. The remainder of this Consultation Paper contains the following:
(a) Background to the proposals
(b) Key elements of the proposed amendments
(c) Annex 1: Draft of proposed amendments
Background
1. The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) brings together over 129 countries and jurisdictions to collaborate on the implementation of the BEPS Package. The BEPS Package provides 15 Actions that equip governments with the domestic and international instruments needed to tackle BEPS.
2. Kazakhstan joined the Inclusive Framework on BEPS in January 2017. By joining the framework, Kazakhstan pledged to adopt and promote the implementation of the four minimum standards designed by the OECD in the BEPS project. Action 5 is one of the four BEPS minimum standards which all Inclusive Framework members have committed to implement. One part of the Action 5 minimum standard relates to preferential tax regimes.
3. From 2018 the AIFC Tax regime has been under review for compliance with Action 5 standard /BEPS by the Forum on Harmful Tax Practices (FHTP) to identify any features of the regime that may facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other jurisdictions. In the course of AIFC Tax Regime review, the FHTP provided recommendations for removing elements raising BEPS risks.
KEY ELEMENTS OF THE PROPOSED AMENDMENTS
4. The proposal is to introduce amendments to the AIFC Act on Financial Services Exempt from Corporate Income Tax.
5. The proposed amendments to the Order of the AIFC Governor (AIFC Act on Financial Services Exempt from Corporate Income Tax) are intended to comply with Action 5 standard under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.
6. The proposed amendments aim to clarify that the Corporate Income Tax exemption only applies to income derived from the tax-exempt services on the conditions that:
• the relevant core income generating activities (CIGA) are conducted in/from the AIFC;
• the AIFC participant employs an adequate number of qualified employees and
• the AIFC participant incurs an adequate amount of operating expenditure.
7. Core Income Generating Activities (CIGA)
CIGA are the key essential and valuable activities that generate the income of the AIFC Participant. It is not necessary for the AIFC Participant to perform all of the CIGA for the particular sector, but it must perform the CIGA that generate the income it has.
In order to meet the substantial activity requirement, the CIGA that generate the income must be performed in/from the territory of the AIFC. Where the CIGA involves making relevant decisions, then the majority of those making the decisions must be present in the territory of the AIFC when the decision is made, otherwise the decision will not be considered to be made in the territory of the AIFC.
8. Employees
For the purposes of the substantial activity requirements, the term “employees” is not limited to individuals that are legally employed by the AIFC Participant itself. It includes:
• employees;
• persons working for the entity being subordinated to it and deemed to be employees under the Acting Law of the AIFC; and
• owner-managers and directors.
The employee count will be based on the number of full-time equivalents (FTEs),
i.e. the number of persons who worked full time within the entity in question, or on its behalf during the entire period under consideration.
If the AIFC Participant outsources, contracts or delegates some or all of its activity, then the resources of the service provider will be taken into consideration when determining whether the adequate people test is met.
The work of persons who have not worked the full year, the work of those who have worked part-time, regardless of duration, and the work of seasonal workers are counted as fractions of an FTE. For this purpose, a standard working week will be considered as 40 hours.
Directors should be counted as a fraction of an FTE commensurate with the time commitment of the role.
When considering what an adequate number of qualified employees is, this must relate to the employees needed to be able to conduct the relevant activity as a whole (not just the CIGA).
The qualifications that are considered to be adequate will depend on the relevant sector that the AIFC Participant has activity in, the CIGA undertaken in/from the territory of the AIFC and the duties performed by those employees.
9. Operating Expenditure
For the purposes of the substantial activity requirements, when considering what an adequate operating expenditure proportionate to the level of activity carried on in/from the AIFC is, this must relate to the expenditure needed to be able to conduct the relevant activity as a whole (not just the CIGA). The amount that is considered to be adequate will depend on the relevant sector that the AIFC Participant has activity in, the CIGA undertaken in/from the AIFC, number of full-time employees and extent of any outsourcing.
Question:
1.Do you have any concerns relating to the proposed amendments to the Order of the AIFC Governor (AIFC Act on Financial Services Exempt from Corporate Income Tax)? If so, what are they, and how should they be addressed
Annex 1
FINANCIAL SERVICES EXEMPT FROM CORPORATE INCOME TAX
In accordance with subparagraph 1-5 of paragraph 3 of article 6 of the Constitutional Statute of the Republic of Kazakhstan On the Astana International Financial Centre and paragraph 9 of article3 of The Structure of the Bodiesof the Astana International Financial Centre, adopted by the Resolution of the Management Council on May 26, 2016 No. 20- 27/1814, as amended by the Resolution of the Management Council, the Amendments and Supplementations to the Structure of the Bodiesof the Astana International Financial Centre, adopted on October 9, 2017 No.17-61-6.2, the Governor of the Astana International Financial Centre (AIFCCentre) ORDERS:
1.In the event aA Centre Participant carries on any service which conducts the relevant core income generating activities for services specified in Schedule 1, hereto in/from the territory of the CentreParticipant in full compliance with the AIFC Regulations and Rules, incurring an adequate amount of operating expenditure with an adequate number of suitably qualified full-time employees, shall not be liable for corporate income tax imposed by the Tax Code of the Republic of Kazakhstan on income or capital resulting from that serviceprovided the serviceis carried on in full compliance with the AIFC Regulations and Rulessuch services1) The list of financial services that are exempt from corporate income tax is specified in Shedule 1 hereof
A Centre Participant which conducts the relevant core income generating activities for services specified in Schedule 1 hereto by means of outsourcing of the core income generating activities outside of the Kazakhstan shall be liable for corporate income tax imposed by the Tax Code of the Republic of Kazakhstan on income or capital resulting from such services.
2.The detailed procedure of application of corporate income tax exemption for income or capital from the provision of services specified in Schedule 1 hereto is to be regulated by the AIFC Acts, which are to be developed.
3. This order comes into effect from the date of its signing.
Schedule 1
Schedule 1: The List of Financial Services that are Exempt from Corporate Income Tax:
a. A Regulated Activity listed in Schedule 1 of and Market Activities and the relevant to them core income generating activities are defined in the AIFC General Rules (GEN).
b.A Market Activity listed in Schedule 3 of the ) and AIFC Financial Services Framework Regulations (FSFR).) (excluding 16 of Schedule 1 of the GEN (Operating a Representative Office).
c. A financial services activity specified in an AIFC FinTech Regulatory Sandbox Permission issued pursuant to the AIFC FinTech Regulatory Sandbox Guidance.
*Consultation paper No. 0012 on proposed Extension of the list of Regulated and Market Activities
*Consultation paper No. 0013 on proposed Guidance on miscellaneous matters relative to the FinTech Lab
*Consultation Paper on Enhancing AIFC Markets and Market Infrastructure Framework
Introduction
1.The Astana FinancialServices Authority (AFSA) has issuedthis Consultation Paper to seek suggestions from the market on ways to enhance AIFC markets and market infrastructure framework.
2.The proposals in this Consultation Paper will be of interestto current and potential issuerson AIFC Authorised Investment Exchange, AIFC participants who are interested in exercising business activities in or from the AIFC, Recognized non-AIFCmembers as well as investors and other interested parties.
3.We invite comments from interested stakeholders on the following proposals:
(i)decreasing base capital requirements for AIFC Authorised Firms Dealing in Investments as Principal and Dealing in Investments as Agent.
(ii) introducing new market segment for Regional Equity Market Segment (REMS);
(iii) amending the regulatory framework for sponsors and advisers;
(iv)amending the compliance framework for the Issuers of the Securities admitted to trading on Equivalent Recognized Exchange;
(v)incorporating certain clarifications and improvements in MAR that were earlier identified with the AIX;
(vi)amending MAR Prospectus requirements to ensure their alignment with the best international practice (UKLA standard listing); and
(vii) introducing miscellaneous amendments.
4.All comments shouldbe in writing and sentto the address or emailspecified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2020-0003” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weightby the AFSA.
5.The deadline for providing comments on the proposals is 10 June 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.
6.Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA) 55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +8 7172 613781
7.The remainder of this Consultation Paper contains the following:
(a)Background.
(b)Summary of the proposal.
(c)Focus Areas.
(d)Annex 1
(e)Annex 2
(f)Annex 3
Background
1. According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan On the Astana International Financial Centre (the “Constitutional Statute”), the purposeof the AIFC is to establisha leading international centre for financialservices. The objectives of the AIFC are as follows:
(1)attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;
(2)developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;
(3)developing insurance markets, bankingservices, and Islamicfinancing, in the Republic of Kazakhstan;
(4)developing financial and professional services based on international best practice;
(5)achieving international recognition as a financial centre.
2. Further development of the AIFC requires the enhancement of regulatory framework for markets and market institutions to best meet the region specificities and the market needs.
3. The Astana Financial Services Authority has a statutory mandate under Article 12 of the Constitutional Statute and Section 7 of the AIFC FinancialServices Framework Regulations to: (a) ensure that financial marketsin the AIFC are fair, efficient, transparent and orderly;
(b) foster and maintain the financial stability of the AIFC’s financial services industry and capital markets, including the reduction of systemic risks; (c) prevent, detect and restrain actions that may cause damage to the reputation of the AIFC or to the financial activities carried out in the AIFC by taking appropriate measures, including by imposing sanctions; (d) protect interests of investors and users of financial services; (e) implement in the AIFC regulatory regime that complies with international standards in the sphere of regulation of financial services.
4. To regulate Offering Securities in the AIFC and establishing requirements for Reporting Entities (corporate governance, financial reports and market disclosure) as well as to clarify what conduct amounting to Market Abuse, in 2017 the AIFC Financial Services Framework regulations and AIFC Market Rules were approved (“Markets Framework”).
5. During 2018-2019, Markets Framework served as a foundation for admission to the Official list of Securities or to trading on an Authorised Investment Exchange and reveled certain ways for its improvements. The areas for enhancing Markets Framework in the AIFC identified by the AFSA along with its stakeholders are discussed in the following sections.
Summary
6. Enhancing AIFC Markets and Market Infrastructure Framework envisages the following steps:
I. Decreasing base capital requirements for AIFC Authorised Firms Dealing in Investments as Principal and Dealing in Investments as Agent.
II. Introducing new market segment for Regional Equity Market Segment (REMS);
III. Amending the regulatory framework for sponsors and advisers;
IV. Amending the compliance framework for the Issuers of the Securities admitted to trading on Equivalent Recognized Exchange;
V. Incorporating certain clarifications and improvements in MAR that were earlier identified with the AIX;
VI. Amending MAR Prospectus requirements to ensure their alignment with the best international practice (UKLA standard listing); and
VII. Introducing miscellaneous amendments.
Decreasing base capital requirements for AIFC Authorised firms Dealing in Investments as Principal and Dealing in Investments as Agent
7. It is proposed to decrease the base capital requirements for AIFC authorised firms as follows:
(a) Dealing in Investments as Principal from USD 2,000,000 to USD 500,000
(b) Dealing in Investments as Agent and from USD 500,000 to USD 50,000.
Introducing new market segment for Regional Equity Market Segment (REMS)
8. It is proposed to define the target issuers of REMS based on their capital needs and capacity of Kazakhstani investor market. The Securities offered by REMS issuers shall be Shares and the total aggregate consideration for the Shares offered shall be more than USD 1,000,000 (or an equivalent amount in another currency) and less than USD 200,000,000 (or an equivalent amount in another currency) calculated over a period of 12 months.
9. It is proposed further to simplify the regulatory requirements for the REMS issuers concerning:
(a) Prospectus requirements by:
- excluding Prospectus Summary from the Prospectus structure;
- excluding the requirement to disclose in the Registration Documents the information about investments, production/sales trend, material contracts and share capital of the issuer; information from the constitution; information about employees, auditors, connected persons, related party transactions; details on research and development and other significant matters relating to the issuer, concurrent offers by directors of the Issuer. REMS issuers will be required to produce audited financial statements covering only one most recent financial year, as opposed for 3 years for the other issuers.
- excluding the requirement to disclose in the Securities Note the information about risk factors of the securities, financial condition, creditworthiness of the Issuer and guarantees; information relating to other rights; full section on other information.
(b) Listing requirements set in Business Rules of an Authorised Investment Exchange by:
- waiving the requirement to demonstrate net profit during the preceding 3 years;
- reducing a minimum free float level to 15 per cent of share capital (from 25 per cent of share capital); and
- waiving the requirements related to controlling shareholder.
(c) Compliance framework by:
- postponing the publication of the first annual report by 2 months.
10. Prospectus shall explicitly demonstrate that it is REMS Prospectus.
Amending the regulatory framework for sponsors and advisers
11. It is proposed to:
(a) replace the current sponsors and compliance adviser’s framework with a single certified adviser framework. MAR shall prescribe the basic principles for certified advisers.
(b) grant the AFSA and an Authorised Investment Exchange power to require a Person that intends to have Securities admitted to the Official list of Securities or admitted to trading on an Authorised Investment Exchange to appoint a certified adviser for guiding the Person through the listing and admission process to an Authorised Investment Exchange and its subsequent ongoing obligations as Reporting Entity;
(c) grant the AFSA and an Authorised Investment Exchange power to require a Reporting Entity that has been held to have breached the Acting Law of the AIFC and/or Authorised Market Institutions Rules to appoint a certified adviser for a specified period to assist the Reporting Entity with its ongoing obligations.
12. The appointment of a certified adviser will not be required for certain types of potential issuers:
(a) Exempt Offerors;
(b) Financial Institution;
(c) the Securities of the Person have been admitted to the Official List or admitted to trading on an Equivalent Regulated Exchange.
13. A person shall be certified as an adviser if he:
(a) has sufficient financial and non-financial resources;
(b) meet fitness and propriety requirements for key officers and directors;
(c) has minimum number of qualified employees who must undertake education and training provided by an Authorised Investment Exchange regarding the respective regulatory requirements;
(d) has systems and controls in place;
(e) has professional indemnity insurance.
Amending the compliance framework for the Issuers of the Securities that have been admitted to trading on Equivalent Recognized Exchange
14. It is proposed to introduce in MAR a provision stipulating that a Reporting Entity, whose Securities or the Securities of the same Class admitted to trading on Equivalent Regulated Exchange is not required to make any additional disclosure under AIFC market disclosure rules and regulations and/or an Authorised Investment Exchange provided that all the following conditions are met:
(a) the Reporting Entity complies with requirements of market disclosure rules and regulations in the jurisdiction of such Equivalent Regulated Exchange and
(b) the same information is released on the Authorised Investment Exchange at the same time as in that other jurisdiction, subject to the manner of market disclosure and English language requirement prescribed in the Business Rules of the Authorised Investment Exchange.
15. Notwithstanding that, AFSA and/or an Authorised Investment Exchange, in their reasonable 5 discretion, will be able to request the Reporting Entity to make additional disclosures when it is necessary to protect the interests of investors or other lawful purposes.
16. The framework for a Reporting Entity, whose Securities or Securities of the same class have been admitted to trading on Equivalent Regulated Exchange shall also envisage that if a Reporting Entity is in breach of the requirements of, or released from disclosure obligations (as a result of delisting or otherwise) under, market disclosure rules and regulations in the jurisdiction of the relevant Equivalent Regulated Exchange, the Reporting Entity must comply with all relevant market disclosure rules set in FSFR and MAR as well as in the Business Rules of the Authorised Investment Exchange.
Incorporating certain clarifications and improvements in MAR that were earlier identified with the AIX
17. It is proposed to incorporate in MAR the following amendments:
(a) to expand the list of Exempt Securities (Prospectus is not required) by including the Securities envisaged for private placement framework (MAR 1.1.2(2)) with the following changes:
(i) specify that the exemption for Retail Offerings (up to 50 investors) is only available for Securities registered in the AIFC;
(ii) set out the threshold of total aggregate consideration for the offer of Securities not more than USD 1 mln, or an equivalent amount in another currency, calculated over a period of 12 months.
For the sake of clarity, the amendments proposed under (i) and (ii) above will not affect MAR 1.1.2(2) itself. The amended provisions will be introduced into MAR 1.2.2 (Exempt Securities).
(b) to allow an Authorized Investment Exchange to approve a Prospectus when it is produced under legislation in a jurisdiction other than the AIFC provided that the Prospectus contains information equivalent to that which is required in FSFR and MAR and the offeror meets all the other requirements relating to a Prospectus as prescribed in FSFR and MAR;
(c) to replace the requirement to sign the annual report by at least 2 Directors of the Reporting Entity with a body competent to decide on such matters under the Reporting Entity’s constitutive documents and/or applicable law;
(a) to extend the validity period of an Expert report on the assets or rights owned by the Issuer from 3 to 6 months (Prospectus requirements for Registration document).
18. Corporate governance issue concerning shareholder approval under MAR 2.3.4 (Reduction of share capital), MAR 2.3.8 (Other matters requiring shareholder approval), and MAR 2.5.3 (Related party transaction procedures) is to be amended based on the consultations with public and results of benchmark analysis of UKLA requirements for standard listing. Consultation process will be held in May – June 2020. The requirement to have shareholder approval could be changed to the approval by the Board (related party transactions), notification of the shareholder or could be deleted if there are no such requirements in the benchmark jurisdiction or compliance with such requirements will be too onerous for the Reporting entities.
Amending MAR prospectus requirements to ensure their alignment with the best international practice (UKLA standard listing)
19. It is proposed to exclude from the MAR the requirement to disclose in the Registration Documents the following information:
(a) details of any major customers, suppliers or other material dependencies of the Issuer;
(b) a summary of the provisions of the constitution of the Issuer including any arrangements by which a single investor or group of investors may exercise significant
influence over the Issuer and any other aspects of the constitution of the Issuer which may be relevant to investors.
(c) directors' powers under the constitution;
(d) any recent events particular to the Issuer and which are to a material extent relevant to the evaluation of the Issuer's solvency; and
(e) the date on which the Prospectus was signed by the Directors of the Issuer.
Introducing miscellaneous amendments
20. The approval and publication of a Prospectus by an Authorized Investment Exchange. It is proposed to add additional provisions stipulating the order and timescales for approval.
21. The time-period for making market disclosure. It is proposed to extend the deadline for submission of annual reports from 120 to 150 days after the end of the financial period and for semi-annual reports from 60 to 75 days after the end of the period to which the report relates.
22. Market disclosure requirements. MAR lists the reports that a Reporting Entity might be required to prepare, including its preliminary financial results. It is proposed to keep mandatory disclosure of financials / annual reports at the MAR level. The rest, including volunatry dislcosure of preliminary financial results shall be regulated by Business Rules of an Authorized Investment Exchange.
Consultation Paper on new approach to waivers, modifications and other reliefs
Introduction
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Regulations and Rules which aim at optimising the process on granting waivers, modifications and other reliefs to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment.
2. The proposals in this Consultation Paper will be of interest to current and potential AIFC Participants who are interested in doing business in the AIFC.
3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2020-0002” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including onits website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposals is 6 March 2020. Once we receive your comments, we shall consider if any refinements are required to the proposals.
5. Comments to be addressed by: post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El avenue, block C3.2, Nur-Sultan, Kazakhstan or emailed to: consultation@afsa.kz
Tel: +7 7172 613626
6. The remainder of this Consultation Paper contains the following:
(a) background to the proposals;
(b) the list of key elements of the proposed amendments;
(c) Annex 1: Draft of proposed amendments to AIFC Financial Services Framework Regulations;
(d) Annex 2: Draft of proposed amendments to AIFC Fees Rules;
Background
The Astana Financial Services Authority ("AFSA") proposes to make amendments to the AIFC Financial Services Framework Regulations (“FSFR”) which aim at optimising the process on granting waivers, modifications and other reliefs to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment.
Currently, the AFSA can only waive and modify provisions of the Rules made pursuant to FSFR, which significantly limits the powers of the AFSA on providing waivers or modifications direction. At this stage of development such approach does not allow AFSA to provide timely and efficient responses to business needs of AIFC participants.
The proposed amendments would allow to change the approach by granting AFSA’s Board of Directors power to enact other types of Rules outside the scope of FSFR and AFSA’s CEO the broader power to waive, modify and provide other types of reliefs in order to avoid constant need to amend legislation.
The proposed amendments are intended to apply generally to the AIFC Participants. It is accordingly proposed to amend each of the following AIFC Acts to give effect to the general legal framework:
1) AIFC Financial Services Framework Regulations
2) AIFC Fees Rules
KEY ELEMENTS OF THE PROPOSED AMENDMENTS
The key aspects of the proposal include:
1. Amendments to the section 8 of the FSFR would provide AFSA’s Board of Directors the power to enact Rules that could extend, exclude, waive or modify the application of provisions of FSFR. These will allow to avoid the need to amend FSFR, when new services and markets, which were not envisaged by FSFR, are developed. The regulatory framework for such new services and markets could be then enacted by the Rules adopted by AFSA’s BoD.
2. Amendments to the section 9 of the FSFR (AFSA Power to modify or waive Rules) would provide AFSA with executive power to waive and modify a provision of FSFR and other Regulations, the Rules, or any other Legislation Administered by the AFSA, or any provision of other Regulations and Rules where AFSA granted with power to waive and modify.
3. Amendments to the AIFC Fees Rules would provide AFSA’s CEO the right to determine the level of fees for consideration of applications for waivers, modifications and other reliefs, depending on their complexity and recourses needed to have thorough review of such applications.
As a result, AFSA will be provided with executive power to waive and modify not only Rules, but Regulations as well, in order to make the regulations much more flexible when it is needed for businesses. Application fees for waivers, modifications and on-action letter will be introduced and such fees shall be determined by the Chief Executive Officer of the AFSA from time to time where he/she considers it appropriate to do so.
In implementing the abovementioned, the AFSA may introduce a public-facing policy on waivers, modifications and other reliefs procedures in the AFSA.
Question
Do you have any concerns related to the proposed amendments to AIFC Rules and Regulations? If so, what are they, and how should they be addressed?
Annex 1
Proposed amendments to AIFC Financial Service Framework Regulations
In this table, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments
8.AFSA power to make Rules
(1)Any provision in these Regulations to the effect that the AFSA may make Rules on a particular issue is withoutprejudice to the general rulemaking power of the AFSA and other CentreBodies under Article 4(3) of the Constitutional Statute.
(2)The Rules may extend, exclude, waive or modify the application of provisions of these Regulations, the Rules or any other legislation administered by the AFSA, with the exception of Part 9 (Enforcement) of these Regulations, if the Board of Directors of the AFSA considers it necessary or desirable in order to facilitate the pursuit of AFSA’s Regulatory Objectives.
9.AFSA power to modify or, waive Rules or grant a relief
(1)The AFSA may, on the application of a Person or on its own initiative, by written notice, direct that a provision of any Rules made pursuant to these Regulations:
(a)1 or more relevant provisions:
(i)appliesy to the Person with the modifications mentioned in the notice; or
(ii)does not apply in relation to the Person.
(b)the AFSA does not intend to take regulatory action over a particular state of affairs or particular conduct.
(2)The AFSA must not make a direction under (1) unless it is satisfied that:
(a)compliance by the Person with the Rules relevant provisions, or with the Rules relevant provisions as unmodified, would be undulyburdensome or would not achievethe purpose for which the Rulesrelevant provisions were made, and
(b)the directionwould not adversely affect the advancement of any of the AFSA’sRegulatory Objectives.
(3)A direction under (1) may be given subject toconditions.
(4)The AFSA, on the application of the Person or on its own initiative, may:
(a)revoke a direction; or
(b)vary it on the application or with the consent of the Person to whom it relates.
(5)In this section:
relevant provision means a provision of these Regulations, the Rules, or any other Legislation Administered by the AFSA, or any provision of other Regulations and Rules declared by the Rules to be a provision to which this section applies.
(6)Unless the AFSA is satisfied that it is inappropriate or unnecessary to do so, it must publish a notice under subsection (1) in a way the AFSA considers appropriate for bringing the notice to the attention of:
(a) Person(s) likely to be affected by it; and
(b)others who may be likely to become subject to a similar notice.
(7)The application for a direction, revocation of a direction or its variation must be accompanied by the filing fee prescribed in the Rules by the AFSA from time to time.
SCHEDULE 1: Decision-making procedures of the AFSA
1.Interpretation
For the purposes of this Schedule “Relevant Person” means a Person in relation to whom the AFSA exercises or proposes to exercise a power.
2.Application of Schedule
This Schedule applies to the AFSA, subject to paragraph 3, where a provision in these Regulations or Rules made thereunder requires or enables the AFSA to make a decision.
3.Decisions to which procedures do not apply
(1)The procedures in this Schedule (other than sub-paragraph (2) of this paragraph) do not apply to a decision by theAFSA:
(a)to withdraw a direction, requirement, restriction or prohibition; or
(b)to withdraw a condition or restriction imposed in relation to a Licence, registration, authorisation or approval; or
(c)in relationto a Person, if the Person has requested, or consented in writing to, the making of the decision; or
(d)to make, revoke and/or vary a direction under section 9.
(2)In the cases referred to in sub-paragraph (1), the AFSA must notifythe Person in writing of the decision and the date on which it is to takeeffect.
(3)If the AFSA makes a decision in relation to a Person after a determination of the AIFC Court relating to the conduct of the Person,the requirement to give the Person an opportunity to make representations under paragraph 4 or 6 (as applicable) does not apply in relation to findings of fact of the AIFC Court.
Annex 2
Proposed amendments to AIFC Fees Rules
In this table, the underlining indicates a new text and the striking throughindicates deleted text in the proposedamendments
APPLICATION FEES PAYABLE TO THE AFSA
Application
This Chapter applies to:
an Authorised Firm, or a Person applying for Authorised Firm status;
an Authorised Market Institution, or a Person applying for Authorised Market Institution status;
an Ancillary Service Provider, or a Person applying for Ancillary Service Providerstatus;
a Recognised Non-AIFC Market Institution or Recognised Non-AIFC Member, or a Person applying for Recognised Non-AIFC Market Institution or Recognised Non-AIFC Member status;
a Centre Participant or Person applying for waivers and/or modifications under AIFC Financial Services Framework Regulations;
a Centre Participant or Person applying for no-action letter under AIFC Financial Services Framework Regulations.
Guidance
FEES 1 deals only with application fees for the AFSA. Centre Participants may also be required to pay application fees to the Registrar of Companies under the Companies Regulations as specified in FEES 2.
Application fees
Application fees payable to the AFSA in respect of Ancillary Services
An applicant seeking to carry on one or more Ancillary Services or an Authorised Firm applying to modify or withdraw a Licence to carry on Ancillary Services, must pay to the AFSA:
the application fees specified in Schedule 3; and
any supplementary fee required by the AFSA in accordance with FEES 6.
Guidance
REC 1.1.1 states that a Person that operates an investment exchange or clearing house outside the AIFC may apply to the AFSA to become a Recognised Non-AIFC Market Institution by providing specified information and records, and by paying the fee prescribed in FEES.
REC 2.1.1 states that a Person located in a jurisdiction other than the AIFC may apply to the AFSA to become a Recognised Non-AIFC Member by completing an application, providing information required, and by paying the fee prescribed in FEES.
Application fees payable in respect of a Recognised Non-AIFC Market Institution or Recognised Non-AIFC Member
An applicant seeking recognition as a Recognised Non-AIFC Market Institution or Recognised Non-AIFC Member must pay:
the application fees specified in Schedule 4; and
any supplementary fee required by the AFSA in accordance with FEES 6.
Application fees payable to the AFSA in respect of Ancillary Services
An applicant seeking to carry on one or more Ancillary Services or an Authorised Firm applying to modify or withdraw a Licence to carry on Ancillary Services, must pay to the AFSA:
the application fees specified in Schedule 3; and
any supplementary fee required by the AFSA in accordance with FEES 6.
Guidance
REC 1.1.1 states that a Person that operates an investment exchange or clearing house outside the AIFC may apply to the AFSA to become a Recognised Non-AIFC Market Institution by providing specified information and records, and by paying the fee prescribed in FEES.
REC 2.1.1 states that a Person located in a jurisdiction other than the AIFC may apply to the AFSA to become a Recognised Non-AIFC Member by completing an application, providing information required, and by paying the fee prescribed in FEES.
Application fees payable in respect of a Recognised Non-AIFC Market Institution or Recognised Non-AIFC Member
An applicant seeking recognition as a Recognised Non-AIFC Market Institution or Recognised Non-AIFC Member must pay:
the application fees specified in Schedule 4; and
any supplementary fee required by the AFSA in accordance with FEES 6.
Application fees payable to the AFSA in respect of waivers and/or modifications
An applicant seeking AFSA decision on waiver and/or modification under the AIFC Financial Services Framework Regulations, must pay to the AFSA:
the application fees specified in Schedule 7; and
any supplementary fee required by the AFSA in accordance with FEES 6.
Application fees payable to the AFSA in respect of no-action letter
An applicant seeking AFSA decision on no-action letter under the AIFC Financial Services Framework Regulations, must pay to the AFSA:
the application fees specified in Schedule 7; and
any supplementary fee required by the AFSA in accordance with FEES 6.
Approved Individuals
Fees are payable in respect of any application for an Approved Individual as specified in Schedules 1, 2, 3 or 4, depending on the nature of the entity on whose behalf the Approved Individual is acting.
Non-refundable nature of application fees
Any application fees paid, whether in respect of an applicant, Authorised Firm or Approved Individual, are non-refundable, regardless of whether the application is successful or not.
Schedule 7: APPLICATION FEES PAYABLE TO THE AFSA IN RESPECT OF WAIVERS, MODIFICATIONS AND OTHER RELIEFS
The Chief Executive Officer of the AFSA may determine the amount of fee specified in 1.2.5 (a) and 1.2.6. (a) from time to time.
*Framework on harmonization of titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan
Introduction
1. The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper AFSA- P-CE-2020-0004 to invite public feedback and comments on the proposed Framework on harmonization of titles used for the cryptocurrencies regulated in the Astana International Financial Centre (“AIFC”) and national legislation of Kazakhstan.
2. The proposed amendments to the AIFC Acts to harmonize the titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan are set out in Annexes 1-7 to this Paper.
3. This Consultation Paper may be of interest to the financial services providers providing or intending to provide custody services and/or services on operating a Private E-currency Trading Facility.
4. All comments to the proposed amendments to the AIFC Acts to harmonize the titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No. AFSA-P-CE-2020-0004” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6. The deadline for providing comments on the proposals is July 13, 2020. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments to the AIFC Acts due to harmonization of titles used for the cryptocurrencies regulated in the AIFC and national legislation of Kazakhstan.
7. Comments to be addressed to:
Consultation Paper No. AFSA-P-CE-2020-0004 Innovation Policy Division
Astana Financial Services Authority (AFSA)
55/17, Mangilik El avenue, block C-3.2, Astana, Kazakhstan or emailed to: r.abdirassilov@afsa.kz, Tel: +7 (7172) 647276
Background
1. To keep up with the fast-growing cryptocurrencies industry, in July 2018, the AFSA has adopted the AIFC Framework on regulation of Private E-currencies and extended private placement regimes for securities, including tokenized securities.
2. To further support the new cryptocurrencies regime, since 2019, the AFSA has been engaged in amending the national legislation of Kazakhstan, the National Bill on Digital Technologies, the Bill, to ensure establishment of favourable legal and tax regimes for exchange transactions with Private E-currencies and conducting ICOs in the AIFC.
3. As part of discussion of the Bill in the Parliament, its lower chamber approved the amendment on the digital assets proposed by the AFSA.
4. Particularly the Bill introduces the following amendment to the Civil Code of Kazakhstan: “(d)efinition and types of the digital assets as well as peculiarities of their circulation is defined by the national laws of Kazakhstan, the AIFC Acts”.
5. Following this, the AFSA has developed the draft amendments to the AIFC Acts with the aim to harmonise the titles used for the cryptocurrencies regulated in the AIFC and the above-mentioned Bill (replacement of words “Private E-currency” with the words “Digital Assets” throughout the text in AIFC Acts).
6. Essentially, the Framework shall:
(a) ensure alignment of used title for the cryptocurrency in the AIFC Framework on the regulation of Private E-currencies with the title envisaged to the cryptocurrency under the Bill (i.e. the “Digital Asset”); and
(b) allow to have two separate regulations on digital assets (including different definitions and types) in Kazakhstan: one – under AIFC acts, and another – under the national law of Kazakhstan on Informatization.
Annex 1
AIFC FINANCIAL SERVICES FRAMEWORK REGULATIONS (FSFR)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
39. Exemption for Authorised Market Institutions
(3) An Authorised Private E-currency Digital Asset Trading Facility is exempt from the General Prohibition in respect of any Reguated Activity:
(a) which is carried on as a part of the Authorised Private E-currency Digital Asset Trading Facility's business as a Private E-currency Digital Asset trading facility; or
(b) which is carried on for the purposes of, or in connection with, the provision by the Authorised Private E-currency Digital Asset Trading Facility of services designed to facilitate the provision of clearing services by another Person.
55. Persons eligible for Membership
(2) An Authorised Person engaged in the activity of Operating a Private E-currency Digital Asset Business may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is either:
57. AFSA power to impose requirements on an Authorised Market Institution
Without limiting the powers available to the AFSA under Part 8 (Supervision of Authorised Persons), the AFSA may direct an Authorised Market Institution to do or not do specified things that the AFSA considers are necessary or desirable or to ensure the integrity of the AIFC financial markets, including but not limited to directions:
(d) excluding the application of any requirements for engaging in the activity of Operating a Private E-currency Digital Asset Business imposed by the Rules; or
(e) imposing on an Authorised Person engaged in the activity of Operating a Private E-currency Digital Asset Business any additional requirements that the AFSA considers appropriate.
58. AFSA power to give directions to an Authorised Market Institution
Without limiting the application of section 95 (Exercise of supervisory powers by the AFSA), the AFSA may direct an Authorised Market Institution to
(c) suspend transactions in Securities, Units in a Listed Fund or Private E-currencies Digital Assets conducted on the market or through the facilities operated by the Authorised Market Institution; or
(d) prohibit trading in loans, Securities, Units in a Listed Fund or Private E-currencies Digital Assets conducted on the market or through the facilities operated by the Authorised Market Institution; or
…
Annex 2
AIFC GENERAL RULES (GEN)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
1.2. Authorised Market Institutions Guidance: Definition of Market Activity
Market Activity is defined in the section 18 of the Framework Regulations as:
(c) Operating a Private E-currency Digital Asset Trading Facility;
…
1.2.6. Effective supervision
In assessing whether an applicant is capable of being effectively supervised by the AFSA for the purposes of section 37(1)(c) of the Framework Regulations, the AFSA will consider:
…
(b) if the applicant seeks a licence to carry on the Market Activity of Operating an Exchange, a Private E-currency Digital Asset Trading Facility, a Loan Crowdfunding Platform or an Investment Crowdfunding Platform, the size, nature and complexity of any markets in respect of which the applicant will offer its facilities in carrying on that Market Activity;
…
1.2.7. Compliance arrangements
In assessing whether an applicant has adequate compliance arrangements for the purposes of section 37(1)(d) of the Framework Regulations, the AFSA will consider whether it has:
(e) if the applicant seeks a licence to carry on the Market Activity of Operating a Private E-currency Digital Asset Trading Facility, effective arrangements to verify that members admitted to trading on its facilities comply with the Conduct of Business Rules and the Authorised Market Institution Rules.
1.4. FinTech Lab Activities
1.4.1. Activities performed in FinTech Lab
(a) the Regulated and/or Market Activities that are specified in Schedules 1 and 4 of GEN can be carried on by a Person subject to the terms and Licence issued under FINTECH.
(b) a Person may apply to the AFSA for a Licence authorising a Centre Participant to carry on activities not specified in (a).
(c) For the purposes of (a) (b), the AFSA may grant a Licence for a Person to carry on activities as specified in the Licence.
SCHEDULE 1: REGULATED ACTIVITIES
5. Providing Custody
Providing Custody means one or more of the following activities:
…
(c) safeguarding and administering Private E-currencies Digital Assets belonging to another Person.
SCHEDULE 4: MARKET ACTIVITIES
3. Operating a Private E-currencies Digital Asset Trading Facility
Operating a Private E-currencies Digital Asset Trading Facility means operating a facility which functions regularly and brings together multiple parties (whether as principal or agent) with a view to the entering into of contracts:
(a) to buy, sell or exchange Private E-currencies Digital Assets for a Fiat currency; and/or
(b) to exchange one Private E-currencies Digital Asset for another Private E-currencies Digital Asset, in its Facility, in accordance with its non-discretionary rules.
Consultation Paper on Proposed Enhancement of the AIFC Legal Entities Framework
Introduction
1) The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on ways to enhance the AIFC Legal Entities framework.
2) The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.
3) All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2021-0001” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4) The deadline for providing comments on the proposals is July 15, 2021. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5) Comments to be addressed by post: Policy and Strategy Division
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz
Tel: +8 7172 613741
6) The remainder of this Consultation Paper contains the following:
- Background to the proposal;
- The list of the key elements of the proposed amendments;
- Annex 1 Proposed Amendments to the AIFC Regulations;
- Annex 2 Proposed Amendments to the AIFC Rules;
- Annex 3 Proposed Amendments to the AIFC Foundations Regulations: Schedule 4 Standard Foundation Charter and Schedule 5 Standard Foundation By-Laws;
- Annex 4 Schedule 3: Standard Partnership Agreement for General Partnerships;
- Annex 5 Schedule 3: Standard Partnership Agreement for Limited Partnerships;
- Annex 6 Schedule 3: Standard Partnership Agreement for Limited Liability Partnerships.
Background
1) The Astana Financial Services Authority ("AFSA") proposes to make amendments to the AIFC Legal Entities Legislation which aim at updating and modernising the legal framework to meet the current needs of business and provide the flexibility needed for companies to operate in an evolving business environment.
2) The amendments introduce a number of changes to simplify and improve the AIFC Legal Entities Framework and to bring it in line with the international best practice and global trends towards increased transparency and accountability. Best practices of the United Kingdom, Singapore, ADGM, DIFC, QFC, Hong Kong, Australia and New Zealand were considered in preparing this proposal.
3) Among the proposed amendments there are obligations imposed on Foundations and Non-profit Incorporated Organisations (NPIOs) in the field of Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT).
The proposed amendments are part of the amendments package to be introduced into the AIFC Acts to comply with the requirements of FATF Recommendations due to the forthcoming mutual evaluation of technical compliance of the legislation of the Republic of Kazakhstan by the Eurasian Group on Combating Money Laundering and Financing of Terrorism (“EAG”) in 2022. As part of this mutual evaluation, the EAG assessors will focus on whether the AIFC jurisdiction has implemented the FATF Recommendations and how successful it is in maintaining a strong AML/CFT system.
In compliance with the requirements of FATF Recommendation 8 (Non-profit organisations), countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse.
4) The proposed amendments are intended to apply generally to the AIFC Participants. It is accordingly proposed to amend each of the following AIFC Acts to give effect to the General Legal Framework:
Regulations
- (1) AIFC Companies Regulations;
- (2) AIFC Foundations Regulations;
- (3) AIFC General Partnership Regulations;
- (4) AIFC Limited Partnership Regulations;
- (5) AIFC Limited Liability Partnership Regulations; and
- (6) AIFC Non-profit Incorporated Organisations Regulations.
Rules
- (1) AIFC Companies Rules;
- (2) AIFC General Partnership Rules;
- (3) AIFC Limited Partnership Rules;
- (4) AIFC Limited Liability Partnership Rules; and
- (5) AIFC Fees Rules.
The list of the key elements of the proposed amendments
1) Issue and Allotment
Amending the AIFC Companies Regulations by revising sections 43, 60 and 98 appropriately to avoid confusion in the use of “issue” and “allotment”. The amendments are based on understanding that "allotment" refers to the basic creation of new shares whereas "issue" refers to the subsequent act of registering the relevant shareholder as the legal owner of those shares.
2) Powers of the directors to issue shares
Extension of the powers of the board of Directors by allowing it to issue new shares in addition to the powers to allot. Given that the amended power of the board of Directors is subject to approval under the Articles of Association and the law provides for the pre-emption rights rule, the shareholders stay protected from involuntary dilution of their ownership stake.
3) Standard Constitutional Documents
Development of a standard foundation charter and by-laws, a standard general partnership agreement, a standard limited partnership agreement and a standard limited liability partnership agreement for developing a more friendly and easier incorporation environment for potential AIFC Participants.
4) Audit requirements
Establishment of the following audit thresholds for Private Companies, LLPs and NPIOs:
- - Private Companies and LLPs whose annual turnover is not more than 5,000,000 USD are subject to audit exemption. The current Shareholders requirement for Private Companies is excluded.
- - NPIOs with gross annual income not more than 500,000 USD are subject to audit exemption.
5) AML/CFT obligations and supervision
Introduction of AML/CFT obligations for Foundations and NPIOs, i.e.:
- - Obligations in respect of payments and transactions;
- - Notification obligations;
- - Reporting and record keeping.
These amendments are part of the amendments package to be introduced into the AIFC Acts to comply with the requirements of FATF Recommendations due to the forthcoming mutual evaluation of technical compliance of the legislation of the Republic of Kazakhstan by the Eurasian Group on Combating Money Laundering and Financing of Terrorism (“EAG”) in 2022.
6) Director Status
Amending the Employee definition in the AIFC Companies Regulations by providing an opportunity to a Company to decide itself if it wants to hire a Director on the basis of a contract of employment or have a Director perform his/her duties without getting into an employment relationship
7) Registration Fees
There are two proposals in relation to the registration fees:
Proposal 1 - to distinguish online and paper-based registration forms and introduce different fees, i.e. 300 USD for online registration and 500 USD for paper-based registration. Thus, by increasing the fee for paper-based registration, we would like to encourage our applicants to file their documents online. However, at the same time we consider 500 USD is a reasonable fee acceptable for business environment. Different fees for online and paper-based registration will be applicable starting from January 1, 2022; and
Proposal 2 - to exclude paper-based registration and keep only online registration.
However, there are several issues that need to be considered if option 2 is to be approved:
- - online registration may be a challenge for companies with the complicated beneficiary structure;
- - Restricted Scope Companies will face difficulties when submitting documents online due to the peculiarities of this type of companies (submission to and maintenance of the confidential/sensitive information by the Registrar of Companies);
- - technical issues.
8) Miscellaneous/technical enhancements
Annex 1 Proposed Amendments to the AIFC Regulations
Proposed amendments to the AIFC Regulations
In this comparative table, the underlining indicates a new text and the striking through indicates the deleted text in the proposed amendments.
No. | Part/Chapter/ Section No. | Current version | Proposed version | Comments | ||
AIFC COMPANIES REGULATIONS | ||||||
1. | PART 1: GENERAL CHAPTER 2 CERTIFICATES Section 8 | 8. Certificates (1) The Registrar may issue a certificate subject to any conditions or restrictions. (2) The AIFC Participant must not Contravene a condition or restriction to which the certificate is subject. (3) The Registrar may suspend the activity of the AIFC Participant or vary the terms of the activity of the AIFC Participant on the Registrar’s own initiative or on the application of the AIFC Participant. (4) The Registrar may exercise a power under subsection (3) in relation to an activity of the AIFC Participant on the Registrar’s own initiative only if the Registrar: (a) complies with the Decision-making Procedures; and (b) either: (i) is satisfied that the AIFC Participant, or an officer, employee or agent of the AIFC Participant, has Contravened, is Contravening or is likely to Contravene these Regulations; or (ii) considers that the exercise of the power is necessary or desirable in the interests of the AIFC. (5) [intentionally omitted] (6) [intentionally omitted] (7) Contravention of subsection (2) is punishable by a fine. | 8. Certificates (1) The Registrar may issue a certificate subject to any conditions or restrictions. (2) The AIFC Participant must not Contravene a condition or restriction to which the certificate is subject. (3) The Registrar may suspend the activity of the AIFC Participant (4) The Registrar may exercise a power under subsection (3) in relation to an activity of the AIFC Participant on the Registrar’s own initiative only if the Registrar: (a) complies with the Decision-making Procedures; and (b) either: (i) is satisfied that the AIFC Participant, or an officer, employee or agent of the AIFC Participant, has Contravened, is Contravening or is likely to Contravene these Regulations; or (ii) considers that the exercise of the power is necessary or desirable in the interests of the AIFC. (5) [intentionally omitted] (6) [intentionally omitted] (7) Contravention of subsection (2) is punishable by a fine. | Item 8 (technical enhancement) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
2. | PART 4: COMPANY FORMATION AND INCORPORATION Section 26 | 26. Annual returns … (1-1) A Company which is subject to subsection (1) must, within 6 months of the end of each financial year, or other date the Registrar considers appropriate, file with the Registrar an annual return containing: (a) its financial statements for the last financial year for which the Company’s accounts have been prepared; and (b) a statement, for each class of Shares in the Company, setting out either: (i) the name and address of each Shareholder who, on the filing date, held\not less than 5% of the Allotted Shares of that class and the number of\Shares of that class held by the Shareholder, together with the number of Shareholders each of whom, on that date, held less than 5% of the Allotted Shares of that class and the total number of Shares held by them; or … | 26. Annual returns … (1-1) A Company which is subject to subsection (1) must, within 6 months of the end of each financial year, or other date the Registrar considers appropriate, file with the Registrar an annual return containing: (a) its financial statements for the last financial year for which the Company’s accounts have been prepared; and (b) a statement, for each class of Shares in the Company, setting out either: (i) the name and address of each Shareholder who, on the filing date, held\not less than 5% of the
… | Item 8 (technical enhancement) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
3. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 2 ALTERATION OF COMPANY TYPE Section 40 | 40. Re-registration of Private Company as Public Company … (3) If Shares are Allotted by the Company in the period between the balance sheet date and the passing of the Special Resolution that the Company be re-registered as a Public Company, and the Shares are Paid-up otherwise than in cash, the Company must (unless the Allotment is in connection with a Share exchange) comply with the requirements of section 46 (Non-cash consideration for Shares in Public Company) in respect of the Allotment. (4) For this section, Shares are Allotted by a Company in connection with a Share exchange if: (a) the consideration for the Allotment is the transfer of Shares in another Body Corporate or the cancellation of Shares in another Body Corporate, and the Allotment is open to all holders (or all of a particular class of holders) of Shares in the other Body Corporate; or … | 40. Re-registration of Private Company as Public Company … (3) If Shares are (4) For this section, Shares are if: (a) the consideration for the Allotment is the transfer of Shares in another Body Corporate or the cancellation of Shares in another Body Corporate, and the Allotment is open to all holders (or all of a particular class of holders) of Shares in the other Body Corporate; or … | Item 8 (technical enhancement) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
4. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 3–SHAREHOLDERS AND SHARES GENERALLY Section 43 | 43. Minimum share capital (1) Each Share in a Company must have a fixed nominal value. A Share may not be Allotted by a Company at less than its nominal value. An Allotment of a Share that does not have a fixed nominal value, or is Allotted at less than its nominal value, is void. … (2) A Private Company must have no minimum share capital. (3) A Public Company: (a) must have an issued and allotted share capital (excluding treasury Shares) of no less than U.S. $100,000 at any time; and (b) must not Allot a Share except as Paid-up at least as to 1/4 of its nominal value. (4) Subsection (3)(b) does not apply to Shares Allotted under an Employee Share Scheme. | 43. Minimum share capital (1) Each Share in a Company must have a fixed nominal value. A Share may not be … (2) A Private Company must have no minimum share capital. (3) A Public Company: (a) must have an (b) must not (4) Subsection (3)(b) does not apply to Shares | Items 1 (issue and allotment) and 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
5. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 3–SHAREHOLDERS AND SHARES GENERALLY Section 44 | 44. Alteration of share capital (1) A Company may, by Resolution, alter its share capital, unless the alteration is prohibited by its Articles of Association or results in the Company not having the share capital required by section 43 (Minimum share capital). (2) A Company may: (a) increase its share capital by creating new Shares of an existing class with the same nominal value, or a new class of Shares of the nominal value it considers appropriate; or (b) consolidate and divide its share capital (whether Allotted or not) into Shares representing a larger nominal value than their existing nominal value; or (c) subdivide its Shares, or any of them, into Shares representing a smaller nominal value than their existing nominal value, if the proportion between the amount paid and the amount unpaid (if any) on each subdivided Share is the same as it was for the Share from which the sub-divided Share was derived. (3) A Company must not alter its share capital: (a) otherwise than by Resolution; or (b) if the alteration, or any alteration of its share capital, is prohibited by its Articles of Association; or (c) if the alteration would result in the Company not having the share capital required by section 43. (4) Contravention of subsection (3) is punishable by a fine. (5) Subject to section 48 (Shareholders’ pre-emption rights), the board of Directors of a Company may, if authorised by the Articles of Association or Ordinary Resolution, exercise a power of the Company: (a) to Allot Shares; or (b) to grant rights to subscribe for or convert any Securities into Shares. | 44. Alteration of share capital (1) A Company may, by Resolution, alter its share capital, unless the alteration is prohibited by its Articles of Association or results in the Company not having the share capital required by section 43 (Minimum share capital). (2) A Company may: (a) increase its share capital by creating new Shares of an existing class with the same nominal value, or a new class of Shares of the nominal value it considers appropriate; or (b) consolidate and divide its share capital (whether (c) subdivide its Shares, or any of them, into Shares representing a smaller nominal value than their existing nominal value, if the proportion between the amount paid and the amount unpaid (if any) on each subdivided Share is the same as it was for the Share from which the sub-divided Share was derived. (3) A Company must not alter its share capital: (a) otherwise than by Resolution or decision of the board of Directors subject to subsection (5) below; or (b) if the alteration, or any alteration of its share capital, is prohibited by its Articles of Association; or (c) if the alteration would result in the Company not having the share capital required by section 43 (Minimum share capital). (4) Contravention of subsection (3) is punishable by a fine. (5) Subject to section 48 (Shareholders’ pre-emption rights), the board of Directors of a Company may, if authorised by the Articles of Association or Ordinary Resolution, exercise a power of the Company: (a) to (b) to grant rights to subscribe for or convert any Securities into Shares. | Items 2 (extension of the powers of the board of Directors) and 8 (technical enhancement) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
6. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 3–SHAREHOLDERS AND SHARES GENERALLY Section 45 | 45. Non-cash consideration for Shares in Private Company (1) A Private Company must not, except as provided under subsection (2), Allot Shares as Paid-up (in part or in full) other than for cash consideration. (2) If a Private Company Allots Shares for consideration other than cash, the board of Directors of the Company must: … | 45. Non-cash consideration for Shares in Private Company (1) A Private Company must not, except as provided under subsection (2), Paid-up (in part or in full) other than for cash consideration. (2) If a Private Company Directors of the Company must: … | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
7. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 3–SHAREHOLDERS AND SHARES GENERALLY Section 46 | 46. Non-cash consideration for Shares in Public Company (1) A Public Company must not Allot Shares as Paid-up (in part or in full) cash unless: (a) the Company has obtained an independent valuation of the consideration in accordance with this section not earlier than 6 months before it Allocates the Shares; and (b) a copy of the valuation report has been given to the proposed allottee; and (c) copies of the valuation report and the relevant resolutions of the board of Directors have been given to the Registrar along with the notice of the Allotment. … | 46. Non-cash consideration for Shares in Public Company (1) A Public Company must not (a) the Company has obtained an independent valuation of the consideration in accordance with this section not earlier than 6 months before it (b) a copy of the valuation report has been given to the proposed allottee; and (c) copies of the valuation report and the relevant resolutions of the board of Directors have been given to the Registrar along with the notice of the Allotment. … | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
8. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 3– SHAREHOLDERS AND SHARES GENERALLY Section 48 | 48. Shareholders’ pre-emption rights … (4) A Company’s Articles of Association may prohibit the Company from Allotting Shares of a particular class in respect of an offer referred to in subsection (1)(a), unless the Company has complied with the equivalent pre-emption rights included in its Articles of Association. Subsection (1) does not apply in such circumstances and the Company may Allot the Shares in accordance with those equivalent pre-emption rights, if an offer is made in accordance with subsection (5). … | 48. Shareholders’ pre-emption rights … (4) A Company’s Articles of Association may prohibit the Company from a particular class in respect of an offer referred to in subsection (1)(a), unless the Company has complied with the equivalent pre-emption rights included in its Articles of Association. Subsection (1) does not apply in such circumstances and the Company may … | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
9. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 5– REGISTERS OF SHAREHOLDERS AND DEBT SECURITY HOLDERS AND SHARE CERTIFICATES Section 58 | 58. Share certificates (1) If a Company Allocates any of its Shares or receives a properly completed transfer for any of its Shares, the Company must, within 14 days after the day it Allocates the Shares or receives the transfer, complete and have ready for delivery a certificate for all the Shares Allocated or transferred, unless title to the Shares is evidenced without a written instrument in accordance the Rules. (2) If title to the Shares or the transfer of the Shares is evidenced without a written instrument, the Company must complete the registration of the Allotment or transfer of the Shares within 14 days after the day the Company Allocates the Shares or receives a properly completed transfer for the Shares. … | 58. Share certificates (1) If a Company (2) If title to the Shares or the transfer of the Shares is evidenced without a written instrument, the Company must complete the registration of the Allotment or transfer of the Shares within 14 days after the day the Company … | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
10. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 6–REDEMPTION AND PURCHASE OF SHARES Section 60 | 60. Power to issue redeemable Shares (1) Subject to section 61 (Power of Company to purchase its own Shares), a Company may, if authorised to do so by its Articles of Association, issue and Allot, or convert existing non-redeemable shares (whether Allotted or not) into, Shares that are to be redeemed, or are liable to be redeemed, either in accordance with their terms or at the option of the Company or the Shareholder. … | 60. Power to issue redeemable Shares (1) Subject to section 61 (Power of Company to purchase its own Shares), a Company may, if authorised to do so by its Articles of Association, issue … | Items 1 (issue and allotment) and 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
11. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 6–REDEMPTION AND PURCHASE OF SHARES Section 62 | 62. Treasury Shares … (7) Any Shares Allotted by a Company as fully paid bonus Shares in respect of Shares held as treasury Shares must be treated as if they were purchased by the Company at the time they were Allotted. … | 62. Treasury Shares … (7) Any Shares … | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
12. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 10–MEETINGS Section 98 | 98. General provisions about meetings and votes The following provisions apply to any General Meeting of a Company or of the holders of any class of Shares in a Company unless the Articles of Association provide otherwise: … (c) at any meeting dealing with a variation of any class rights other than an adjourned meeting, the quorum is the number of Shareholders holding or representing by proxy at least 1/3 in nominal value of the issued and Allotted Shares of the class, and at an adjourned meeting,1 Shareholder holding Shares of the class or the Shareholder’s proxy is a quorum; … | 98. General provisions about meetings and votes The following provisions apply to any General Meeting of a Company or of the holders of any class of Shares in a Company unless the Articles of Association provide otherwise: … (c) at any meeting dealing with a variation of any class rights other than an adjourned meeting, the quorum is the number of Shareholders holding or representing by proxy at least 1/3 in nominal value of the issued Shareholder’s proxy is a quorum; … | Item 1 (issue and allotment) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
13. | PART 7: PRIVATE COMPANIES AND PUBLIC COMPANIES CHAPTER 11–PROTECTION OF MINORITIES IN TAKEOVERS Section 105 | 105. Takeover Offers … (2) In subsection (1): Shares means Shares that: (a) have been Allotted on the date of the offer; or (b) are subsequently Allotted before a date specified in or determined in accordance with the terms of the offer; or … | 105. Takeover Offers … (2) In subsection (1): Shares means Shares that: (a) have been (b) are subsequently … | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
14. | PART 10: ACCOUNTS, REPORTS AND AUDIT CHAPTER 2–ACCOUNTS AND REPORTS Section 131 | 131. Accounts (1) The Directors of every Company must ensure that accounts are prepared in relation to each financial year of the Company and that the accounts comply with the requirements in this section. (2) The accounts must: (a) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar; and (b) show a true and fair view of the profit or loss of the Company for the period and of the state of the Company’s affairs at the end of the period; and (c) comply with any other requirements of these Regulations and the Rules. (3) The Directors of a Company must approve the Company’s accounts and must ensure that they are signed on their behalf by at least 1 Director. (4) The Directors of a Company must ensure that, within 6 months after the end of each financial year of the Company, the accounts for that year are: (a) prepared and approved by the Directors; and (b) examined and reported upon by an Auditor; and (c) if the Company is a Public Company—laid before a General Meeting, together with a copy of the Auditor’s report and Directors’ report, for discussion and, if considered appropriate, approval by the Shareholders; and (d) for all Companies—sent, together with (if applicable) a copy of the Auditor’s report or Directors’ report (or both), to every Shareholder, other than a Shareholder for whom the Company does not have a current postal address. (5) A Company must file with the Registrar, within 14 days after the day subsection (4)(d) is complied with in relation to a financial year, a copy of the accounts and the Auditor’s report for the financial year and, if the Company is a Public Company, a copy of the Directors’ report prepared under section 133 (Directors’ reports for Public Companies) for the financial year. (6) Unless otherwise provided in its Articles of Association, a Private Company and its Directors are not required to comply with subsections (4)(b) and (5) if the Company, during the current year for which the accounts are being prepared and, if the Company has existed for more than 1 financial year, the year immediately before that financial year, has: (a) an annual turnover of not more than U.S. $5,000,000; and (b) an average of not more than 20 Shareholders. (7) However, the Shareholders representing not less than 10% of the nominal value of the share capital of a Private Company to which subsection (6) applies may, by Written notice given to the Company no earlier than the start of any financial year and no later than 1 month before the end of the financial year, require the Company to obtain an audit of its accounts for financial year. The Directors of the Company must ensure that the request is complied with. (8) If a provision of this section requires the Directors of a Company to do something, each of the Directors are severally liable if the thing is not done as required by this section. (9) Contravention of this section is punishable by a fine. | 131. Accounts (1) The Directors of every Company must ensure that accounts are prepared in relation to each financial year of the Company and that the accounts comply with the requirements in this section. (2) The accounts must: (a) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar; and (b) show a true and fair view of the profit or loss of the Company for the period and of the state of the Company’s affairs at the end of the period; and (c) comply with any other requirements of these Regulations and the Rules. (3) The Directors of a Company must approve the Company’s accounts and must ensure that they are signed on their behalf by at least 1 Director. (4) The Directors of a Company must ensure that, within 6 months after the end of each financial year of the Company, the accounts for that year are: (a) prepared and approved by the Directors; and (b) examined and reported upon by an Auditor; and (c) if the Company is a Public Company—laid before a General Meeting, together with a copy of the Auditor’s report and Directors’ report, for discussion and, if considered appropriate, approval by the Shareholders; and (d) for all Companies—sent, together with (if applicable) a copy of the Auditor’s report or Directors’ report (or both), to every Shareholder, other than a Shareholder for whom the Company does not have a current postal address. (5) A Company must file with the Registrar, within 14 days after the day subsection (4)(d) is complied with in relation to a financial year, a copy of the accounts and the Auditor’s report for the financial year and, if the Company is a Public Company, a copy of the Directors’ report prepared under section 133 (Directors’ reports for Public Companies) for the financial year. (6) Unless otherwise provided in its Articles of Association, a Private Company and its Directors are not required to comply with subsections (4)(b) and (5) if the Company
(7) However, the Shareholders representing not less than 10% of the nominal value of the share capital of a Private Company to which subsection (6) applies may, by Written notice given to the Company no earlier than the start of any financial year and no later than 1 month before the end of the financial year, require the Company to obtain an audit of its accounts for financial year. The Directors of the Company must ensure that the request is complied with. (8) If a provision of this section requires the Directors of a Company to do something, each of the Directors are severally liable if the thing is not done as required by this section. (9) Contravention of this section is punishable by a fine. | Item 4 (audit requirements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
15. | PART 10: ACCOUNTS, REPORTS AND AUDIT CHAPTER 3–AUDITORS Section 136. | 136. Appointment and removal of Auditors (1) If a Company is required by these Regulations to have its accounts examined and AIFC reported on by an Auditor, the Company must appoint an Auditor to examine and report on, in accordance with these Regulations and the Rules, the accounts prepared under section 131 (Accounts). (2) A Person, who is not an Auditor, must not: (a) consent to be appointed as an Auditor of a Company; or (b) act as an Auditor of a Company; or (c) prepare any report required by these Regulations and the Rules to be prepared by an Auditor. (3) Contravention of subsection (2) is punishable by a fine. (4) The appointment of a firm as an Auditor of a Company is taken to be an appointment of each Person who is a partner of the firm. (5) A Public Company must, at each Annual General Meeting at which the accounts for the previous financial year are laid, appoint an Auditor to hold office from the conclusion of that meeting to the conclusion of the next Annual General Meeting at which the accounts are laid. (6) A Private Company must, within 6 months after the end of a financial year or, if earlier, before the day the accounts are sent to the Shareholders, appoint an Auditor to hold office from that date until the end of the next period for appointing Auditors. (7) The appointment of an Auditor by a Private Company must be by a resolution of its Directors unless the Shareholders, at a General Meeting, have appointed an Auditor by an Ordinary Resolution. (8) The Directors of a Public Company may, at any time before the first General Meeting at which the accounts for the previous financial year are laid, appoint an Auditor to hold office to the conclusion of the first General Meeting. (9) The Directors of a Company may fill any casual vacancy in the office of Auditor on the terms they consider appropriate. An Auditor appointed to fill a casual vacancy holds office: (a) for a Public Company—until the conclusion of the next General Meeting at which the accounts for the previous financial year are laid; or (b) for a Private Company—until the end of the next period for appointing Auditors. (10) Subject to subsection (9), the Company may, by Ordinary Resolution, fix the Auditor’s remuneration. (11) A Company must not appoint an Auditor under this section unless: (a) the Auditor has, before the appointment, consented in Writing to the Company; and (b) the Company is not, on reasonable inquiry, aware of any matter that should prevent the Auditor from giving the Auditor’s consent under paragraph (a). (12) An Auditor must not consent to an appointment as an Auditor of a Company if: (a) the Auditor has, or may reasonably be perceived to have, a conflict of interest; or (b) the Auditor does not have, or may reasonably be perceived not to have, a requisite degree of independence from the Company; or (c) the Auditor, or any associate of the Auditor in a firm or business undertaking, has acted as an Auditor of the Company within the earlier period or frequency prescribed by the Rules. (13) A Company may, despite anything in any agreement between it and its Auditor, remove the Auditor at any time by Resolution. (14) The Court may, on application made by the Registrar, order the removal of the Auditor of a Company. (15) This section does not deprive an Auditor removed under this section of compensation or damages payable to the Auditor in respect of the termination of the Auditor’s appointment. (16) Every Company and its Officers must take reasonable efforts to provide the information and assistance required by an Auditor for the Exercise of the Auditor’s Functions under these Regulations or the Rules. | 136. Appointment and removal of Auditors (1) If a Company is required by these Regulations to have its accounts examined and AIFC reported on by an Auditor, the Company must appoint an Auditor to examine and report on, in accordance with these Regulations and the Rules, the accounts prepared under section 131 (Accounts). (2) A Person, who is not an Auditor, must not: (a) consent to be appointed as an Auditor of a Company; or (b) act as an Auditor of a Company; or (c) prepare any report required by these Regulations and the Rules to be prepared by an Auditor. (3) Contravention of subsection (2) is punishable by a fine. (4) The appointment of a firm as an Auditor of a Company is taken to be an appointment of each Person who is a partner of the firm. (5) A Public Company must, at each Annual General Meeting at which the accounts for the previous financial year are laid, appoint an Auditor to hold office from the conclusion of that meeting to the conclusion of the next Annual General Meeting at which the accounts are laid. (6) Subject to 131(6), a Private Company must, within 6 months after the end of a financial year or, if earlier, before the day the accounts are sent to the Shareholders, appoint an Auditor to hold office from that date until the end of the next period for appointing Auditors. (7) The appointment of an Auditor by a Private Company must be by a resolution of its Directors unless the Shareholders, at a General Meeting, have appointed an Auditor by an Ordinary Resolution. (8) The Directors of a Public Company may, at any time before the first General Meeting at which the accounts for the previous financial year are laid, appoint an Auditor to hold office to the conclusion of the first General Meeting. (9) The Directors of a Company may fill any casual vacancy in the office of Auditor on the terms they consider appropriate. An Auditor appointed to fill a casual vacancy holds office: (a) for a Public Company—until the conclusion of the next General Meeting at which the accounts for the previous financial year are laid; or (b) for a Private Company—until the end of the next period for appointing Auditors. (10) Subject to subsection (9), the Company may, by Ordinary Resolution, fix the Auditor’s remuneration. (11) A Company must not appoint an Auditor under this section unless: (a) the Auditor has, before the appointment, consented in Writing to the Company; and (b) the Company is not, on reasonable inquiry, aware of any matter that should prevent the Auditor from giving the Auditor’s consent under paragraph (a). (12) An Auditor must not consent to an appointment as an Auditor of a Company if: (a) the Auditor has, or may reasonably be perceived to have, a conflict of interest; or (b) the Auditor does not have, or may reasonably be perceived not to have, a requisite degree of independence from the Company; or (c) the Auditor, or any associate of the Auditor in a firm or business undertaking, has acted as an Auditor of the Company within the earlier period or frequency prescribed by the Rules. (13) A Company may, despite anything in any agreement between it and its Auditor, remove the Auditor at any time by Resolution. (14) The Court may, on application made by the Registrar, order the removal of the Auditor of a Company. (15) This section does not deprive an Auditor removed under this section of compensation or damages payable to the Auditor in respect of the termination of the Auditor’s appointment. (16) Every Company and its Officers must take reasonable efforts to provide the information and assistance required by an Auditor for the Exercise of the Auditor’s Functions under these Regulations or the Rules. | Item 4 (audit requirements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
16. | PART 12: RECOGNISED COMPANIES Section 147 | 147. Requirements of Recognised Company (1) A Recognised Company must: (a) appoint and retain at all times at least 1 Person who is authorised to accept service of any Document or notice on behalf of the Recognised Company and to Exercise any other Function prescribed by the Rules; and (b) have a place of business in the AIFC to which all communications and notices may be addressed; and (c) file with the Registrar, in the form and way required by the Rules, notice of the following: (i) the appointment of Persons authorised to accept service for the Recognised Company; (ii) the address of the principal place of business of the Recognised Company in the AIFC; (iii) details of Persons authorised to accept service and the address of its principal place of business in the AIFC; (iv) details of the Recognised Company’s shareholders or members; (v) details of the Recognised Company’s Directors and Secretary; and (d) give the Registrar a copy of each annual return filed in its jurisdiction of incorporation, within 30 days after the day it files the annual return in that jurisdiction; and (e) comply with any other requirement prescribed by the Rules. (2) The Rules or any other Legislation Administered by the Registrar may: (a) prescribe procedures in relation to the requirements under this Part; and (b) exclude, waive or modify any requirements under this Part in relation to different cases or classes of case. (3) Contravention of this section is punishable by a fine. | 147. Requirements of Recognised Company (1) A Recognised Company must: (a) appoint and retain at all times at least 1 Person who is authorised to accept service of any Document or notice on behalf of the Recognised Company and to Exercise any other Function prescribed by the Rules; and (b) have a place of business in the AIFC to which all communications and notices may be addressed; and (c) file with the Registrar, in the form and way required by the Rules, notice of the following: (i) the appointment of Persons authorised to accept service for the Recognised Company; (ii) the address of the principal place of business of the Recognised Company in the AIFC; (iii) details of Persons authorised to accept service and the address of its principal place of business in the AIFC; (iv) details of the Recognised Company’s shareholders or members; (v) details of the Recognised Company’s Directors and Secretary; and (d) give the Registrar a copy of each annual return or comparable document filed in its jurisdiction of incorporation, within 30 days after the day it files the annual return or comparable document in that jurisdiction; and (e) comply with any other requirement prescribed by the Rules. (2) The Rules or any other Legislation Administered by the Registrar may: (a) prescribe procedures in relation to the requirements under this Part; and (b) exclude, waive or modify any requirements under this Part in relation to different cases or classes of case. (3) Contravention of this section is punishable by a fine. | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
17. | SCHEDULE 1: INTERPRETATION | 4. Definitions for these Regulations Employee, of a Company, means an individual who is appointed or employed by the Company and whose services are provided to, or for the purposes of, the Company, and includes an Officer of the Company. | 4. Definitions for these Regulations Employee, of a Company, means an individual who is appointed or employed by the Company and whose services are provided to, or for the purposes of, the Company, and includes an Officer of the Company. However, with respect to a Director, the Company itself must decide whether its Director is an Employee or not. If this is the case, a contract of employment must be in place. | Item 6 (Director status) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
Incorporator, of a Company (or proposed Company), means a Person to whom Shares in the Company (or proposed Company) are Allotted (or are to be Allocated) on the incorporation of the Company (or proposed Company). | Incorporator, of a Company (or proposed Company), means a Person to whom Shares in the Company (or proposed Company) are | Item 8 (technical enhancements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||||
AIFC FOUNDATIONS REGULATIONS | ||||||
18. | PART 3: ESTABLISHMENT OF AN AIFC FOUNDATION Section 14 | 14. Creation (1) The Founder(s) may apply for the establishment of a Foundation by signing and filing with the Registrar an application for its establishment in the manner prescribed by the Registrar. (2) The application filed with the Registrar under subsection (1) shall be signed by each Founder and shall include: (a) the name of the proposed Foundation; (b) the address of the proposed Foundation’s registered office in the AIFC; (c) the full name, nationality and address of each Founder; (d) the full name, nationality and address of each of the proposed members of the Council of the proposed Foundation; (e) the Charter of the proposed Foundation; (f) the By-laws of the proposed Foundation; (g) the particulars required by Part 16 (Ultimate Beneficial Owners) of the AIFC Companies Regulations; and (h) such other particulars as the Registrar may require. (3) The provisions of section 21 (Prohibition against use of misleading, deceptive or conflicting Company names) of the AIFC Companies Regulations shall apply to a Foundation in respect of the use of misleading, deceptive or conflicting names. … | 14. Creation (1) The Founder(s) may apply for the establishment of a Foundation by signing and filing with the Registrar an application for its establishment in the manner prescribed by the Registrar. (2) The application filed with the Registrar under subsection (1) shall be signed by each Founder and shall include: (a) the name of the proposed Foundation; (b) the address of the proposed Foundation’s registered office in the AIFC; (c) the full name, nationality and address of each Founder; (d) the full name, nationality and address of each of the proposed members of the Council of the proposed Foundation; (e) the Charter of the proposed Foundation (subject to subsections 16(7) and 16(7-1) (Charter); (f) the By-laws of the proposed Foundation (subject to subsections 17(5) and 17(5-1) (By-laws); (g) the particulars required by Part 16 (Ultimate Beneficial Owners) of the AIFC Companies Regulations; and (h) such other particulars as the Registrar may require. (3) The provisions of section 21 (Prohibition against use of misleading, deceptive or conflicting Company names) of the AIFC Companies Regulations shall apply to a Foundation in respect of the use of misleading, deceptive or conflicting names. … | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
19. | PART 3: ESTABLISHMENT OF AN AIFC FOUNDATION Section 16 | 16. Charter … (7) The Board of Directors of the AFSA may prescribe model provisions to be known as the “Standard Charter”, and a Foundation may, for its Charter, adopt the whole or any part thereof as are applicable to that Foundation. … | 16. Charter … (7)
A Foundation may adopt, as its Charter, the whole or any part of the Standard Charter as is applicable to the Foundation.
(7-1) If the Standard Charter is not adopted by a Foundation in its entirety, the Foundation must submit to the Registrar of Companies, before the charter is adopted by the Foundation, a statement by the Founder(s) that the Charter proposed to be adopted by the Foundation complies with the requirements of these Regulations and all other applicable AIFC Regulations and AIFC Rules.
(7-2) If any change to these Regulations or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a Foundation’s Charter and the provisions of these Regulations or any other applicable AIFC Regulations or AIFC Rules: (a) the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b) the Foundation is not required to amend its Charter, unless these Regulations or any other applicable AIFC Regulations expressly require it to do so.
… | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
20. | PART 3: ESTABLISHMENT OF AN AIFC FOUNDATION Section 17 | 17. By-laws … (5) The Board of Directors of the AFSA may prescribe by way of AIFC Acts model provisions to be known as the “Standard By-laws”, and a Foundation may adopt the whole or any part thereof as are applicable to that Foundation. … | 17. By-laws … (5)
A Foundation may adopt, as its By-laws, the whole or any part of the Standard By-laws as are applicable to the Foundation.
(5-1) If the Standard By-laws are not adopted by a Foundation in its entirety, the Foundation must submit to the Registrar of Companies, before the By-laws are adopted by the Foundation, a statement by the Founder(s) that the By-laws proposed to be adopted by the Foundation comply with the requirements of these Regulations and all other applicable AIFC Regulations and AIFC Rules.
(5-2) If any change to these Regulations or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a Foundation’s By-laws and the provisions of these Regulations or any other applicable AIFC Regulations or AIFC Rules: (a) the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b) the Foundation is not required to amend its By-laws, unless these Regulations or any other applicable AIFC Regulations expressly require it to do so.
… | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
21. | PART 10-1: ANTI-MONEY LAUNDERING AND COUNTER TERRORIST FINANCING OBLIGATIONS Sections 59-1, 59-2 and 59-3 | None | PART 10-1: ANTI-MONEY LAUNDERING AND COUNTER TERRORIST FINANCING OBLIGATIONS
59-1. Obligations in respect of payments and transactions
A Foundation must carry out its payments and transactions of the third parties through a banking and financial intermediary (a regulated financial institution) based in the AIFC jurisdiction, Republic of Kazakhstan, or in a jurisdiction that is a FATF member or an equivalent jurisdiction.
59-2. Notification obligations
(1) A Foundation must immediately notify the AFSA when it becomes aware of: (a) complex or unusually large transactions, or an unusual pattern of transactions; (b) transactions which have no apparent economic or legal purpose; and (c) other activity which the Foundation regards as particularly likely by its nature to be related to money laundering or terrorist financing.
(2) A Foundation must inform the AFSA in writing as soon as possible if, in relation to its activities carried on as part of the AIFC or in relation to any of its branches or subsidiaries, it: (a) receives a request for information from a regulator or agency responsible for anti-money laundering and counter-terrorism financing, or sanctions compliance in connection with potential money laundering, terrorist financing, or sanctions breaches; (b) becomes aware, or has reasonable grounds to believe, that a money laundering event has occurred or may have occurred in or through its business; (c) becomes aware of any money laundering or sanctions matter in relation to the Foundation or its branch or subsidiary which could result in adverse reputational consequences to the Foundation; or (d) becomes aware of a significant breach of the AIFC AML regulation framework or a breach of the relevant Kazakhstan legislation by the Foundation or any of its employees. 59-3. Reporting and record keeping
(1) A Foundation must file information about transactions, identified risks of money laundering and terrorist financing and any suspicious activities on request of the AFSA and Financial Intelligence Unit of the Republic of Kazakhstan (FIU). (2) The information must be filed in the form and manner prescribed by the AFSA and FIU and must contain the information required by the AFSA and FIU. (3) A Foundation must maintain the following records: (a) the supporting documents (consisting of the original documents or certified copies) in respect of the customer business relationship, including transactions; (b) suspicious activities and any relevant supporting documents and information, including internal findings and analysis of money laundering and terrorist financing risks; any relevant communications with the FIU; (c) for at least six years from the date on which the notification or report was made, the business relationship ends or the transaction is completed, whichever occurs last. | Item 5 (AML/CFT obligations and supervision) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
22. | SCHEDULE 1 INTERPRETATION | SCHEDULE 1 INTERPRETATION None | SCHEDULE 1 INTERPRETATION … Standard By-laws means standard by-laws prescribed by these Regulations.
Standard Charter means a standard charter prescribed by these Regulations. … | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
23. | None | SCHEDULE 4 STANDARD FOUNDATION CHARTER
| Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | |||
24. | None | SCHEDULE 5 STANDARD FOUNDATION BY-LAWS | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | |||
AIFC GENERAL PARTNERSHIP REGULATIONS | ||||||
25. | PART 2: FORMATION AND REGISTRATION Section 10 | 10. General partnership agreement Each partner of a general partnership formed in the AIFC must enter into a partnership agreement signed by all the partners. | 10. General partnership agreement (1) Each partner of a general partnership formed in the AIFC must enter into a partnership agreement signed by all the partners. (2) A general partnership may adopt, as its partnership agreement, the whole or any part of the Standard Partnership Agreement that is relevant to the general partnership.
(3) If the Standard Partnership Agreement is not adopted by a general partnership in its entirety, the general partnership must submit to the Registrar of Companies, before the partnership agreement is adopted by the general partnership, a statement by the initial partners that the partnership agreement proposed to be adopted by the general partnership complies with the requirements of these Regulations, the Rules and all other applicable AIFC Regulations and AIFC Rules.
(4) If any change to these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a general partnership’s agreement and the provisions of these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules: (a) the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b) the general partnership is not required to amend its partnership agreement, unless these Regulations, the Rules or any other applicable AIFC Regulations expressly require it to do so. | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
26. | SCHEDULE 1: INTERPRETATION 1. Definitions for these Regulations … None … | SCHEDULE 1: INTERPRETATION 1. Definitions for these Regulations … Standard Partnership Agreement means a standard partnership agreement prescribed by the Rules. … | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | |||
AIFC LIMITED PARTNERSHIP REGULATIONS | ||||||
PART 2: FORMATION AND REGISTRATION Section 10 | 10. Partnership agreement of limited partnership formed in AIFC … (3) The partnership agreement must be a Written agreement between the partners about the affairs of the partnership and the conduct of its business, purpose or activity. (4) The partnership agreement must be binding on the initial partners and their assigns, and on subsequent partners and their assigns, in the same way as if they had all executed the agreement. (5) The partnership agreement may be amended only by a Written instrument and all amendments must be binding in the way mentioned in subsection (3). | 10. Partnership agreement of limited partnership formed in AIFC … (3) The partnership agreement must be a Written agreement between the partners about the affairs of the partnership and the conduct of its business, purpose or activity. (4) The partnership agreement must be binding on the initial partners and their assigns, and on subsequent partners and their assigns, in the same way as if they had all executed the agreement. (5) The partnership agreement may be amended only by a Written instrument and all amendments must be binding in the way mentioned in subsection ( (6) A limited partnership may adopt, as its partnership agreement, the whole or any part of the Standard Partnership Agreement that is relevant to the limited partnership.
(7) If the Standard Partnership Agreement is not adopted by a limited partnership in its entirety, the limited partnership must submit to the Registrar of Companies, before the partnership agreement is adopted by the limited partnership, a statement by the initial partners that the partnership agreement proposed to be adopted by the limited partnership complies with the requirements of these Regulations, the Rules and all other applicable AIFC Regulations and AIFC Rules.
(8) If any change to these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a limited partnership’s agreement and the provisions of these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules: (a) the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b) the limited partnership is not required to amend its partnership agreement, unless these Regulations, the Rules or any other applicable AIFC Regulations expressly require it to do so. | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | |||
27. | PART 2: FORMATION AND REGISTRATION Section 12 | 12. Limited Partnerships: registration … (5) A copy of the entire partnership agreement must be filed with the application. … (8) If the Registrar of Companies decides to register the limited partnership, the Registrar must: … (f) register the partnership agreement that accompanied the application for incorporation. | 12. Limited Partnerships: registration … (5) A copy of the entire partnership agreement must be filed with the application along with the statement mentioned in section 10(7) (Partnership agreement of limited partnership formed in AIFC) unless the Standard Partnership Agreement is adopted by a limited partnership in its entirety. … (8) If the Registrar of Companies decides to register the limited partnership, the Registrar must: ... (f) register the partnership agreement that accompanied the application for incorporation unless the Standard Partnership Agreement is adopted by a limited partnership in its entirety. | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
28. | SCHEDULE 1: INTERPRETATION 1. Definitions for these Regulations … None | SCHEDULE 1: INTERPRETATION 1. Definitions for these Regulations … Standard Limited Partnership Agreement means a standard partnership agreement prescribed by the Rules. … | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | |||
AIFC LIMITED LIABILITY PARTNERSHIP REGULATIONS | ||||||
29. | PART 2: FORMATION AND REGISTRATION | 10. Method of formation … (4) A copy of the partnership agreement must be filed with the application. … (7) If the Registrar of Companies incorporates a Limited Liability Partnership, the Registrar must register the partnership agreement that accompanied the application for incorporation. | 10. Method of formation … (4) A copy of the partnership agreement must be filed with the application along with the statement mentioned in section 11(5) (Limited Liability Partnership agreement) unless the Standard Partnership Agreement is adopted by a Limited Liability Partnership in its entirety. … (7) If the Registrar of Companies incorporates a Limited Liability Partnership, the Registrar must register the partnership agreement that accompanied the application for incorporation unless the Standard Partnership Agreement is adopted by a Limited Liability Partnership in its entirety. | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
30. | PART 2: FORMATION AND REGISTRATION | 11. Limited Liability Partnership agreement … (3) If the partnership agreement of a Limited Liability Partnership is amended, the partnership must file with the Registrar of Companies a copy of the amendments and a copy of the agreement as it has been amended. | 11. Limited Liability Partnership agreement … (3) If the partnership agreement of a Limited Liability Partnership is amended, the partnership must file with the Registrar of Companies a copy of the amendments and a copy of the agreement as it has been amended. (4) A limited liability partnership may adopt, as its partnership agreement, the whole or any part of the Standard Partnership Agreement that is relevant to the Limited Liability Partnership.
(5) If the Standard Partnership Agreement is not adopted by a Limited Liability Partnership in its entirety, the Limited Liability Partnership must submit to the Registrar of Companies, before the partnership agreement is adopted by the Limited Liability Partnership, a statement by the initial partners that the partnership agreement proposed to be adopted by the Limited Liability Partnership complies with the requirements of these Regulations, the Rules and all other applicable AIFC Regulations and AIFC Rules.
(6) If any change to these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules results in an inconsistency between the provisions of a Limited Liability Partnership’s agreement and the provisions of these Regulations, the Rules or any other applicable AIFC Regulations or AIFC Rules: (a) the provisions of these Regulations and any other applicable AIFC Regulations and AIFC Rules prevail; and (b) the Limited Liability Partnership is not required to amend its partnership agreement, unless these Regulations, the Rules or any other applicable AIFC Regulations expressly require it to do so. | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
31. | PART 7: ACCOUNTS AND AUDIT CHAPTER 2–ACCOUNTING RECORDS AND ACCOUNTS Section 30 | 30. Accounts of Limited Liability Partnerships (1) The members of a Limited Liability Partnership must ensure that accounts are prepared for the partnership in relation to each financial year of the partnership and that the requirements of this section are complied with in relation to the accounts. (2) The accounts must: (a) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar of Companies; and (b) show a true and fair view of the profit or loss of the Limited Liability Partnership for the financial year and of the state of the partnership’s affairs at the end of the financial year; and (c) comply with any other requirements of these Regulations and the Rules. (3) Within 6 months after the end of the financial year, the accounts for the financial year must be: (a) prepared and approved by all the members; and (b) signed on their behalf by at least 1 of the members; and (c) examined and reported on by an Auditor. (4) The Limited Liability Partnership must file a copy of its accounts for the financial year, and the Auditor’s report on the accounts, with the Registrar of Companies within 7 days after the day the accounts have been reported on by the Auditor. (5) Contravention of this section is punishable by a fine. | 30. Accounts of Limited Liability Partnerships (1) The members of a Limited Liability Partnership must ensure that accounts are prepared for the partnership in relation to each financial year of the partnership and that the requirements of this section are complied with in relation to the accounts. (2) The accounts must: (a) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar of Companies; and (b) show a true and fair view of the profit or loss of the Limited Liability Partnership for the financial year and of the state of the partnership’s affairs at the end of the financial year; and (c) comply with any other requirements of these Regulations and the Rules. (3) Within 6 months after the end of the financial year, the accounts for the financial year must be: (a) prepared and approved by all the members; and (b) signed on their behalf by at least 1 of the members; and (c) examined and reported on by an Auditor subject to section 31 below. (4) The Limited Liability Partnership must file a copy of its accounts for the financial year, and the Auditor’s report on the accounts, if applicable, with the Registrar of Companies within 7 days after the day the accounts have been reported on by the Auditor. (5) Contravention of this section is punishable by a fine. | Item 4 (audit requirements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
32. | PART 7: ACCOUNTS AND AUDIT CHAPTER 2–ACCOUNTING RECORDS AND ACCOUNTS Section 31 | 31. Appointment of Auditors (1) A Limited Liability Partnership must appoint an Auditor to examine and report on, in accordance with these Regulations and the Rules, the accounts prepared under section 30 (Accounts of Limited Liability Partnership). (2) A Person who is not an Auditor must not: (a) consent to be appointed as an Auditor of a Limited Liability Partnership; or (b) act as an Auditor of a Limited Liability Partnership; or (c) prepare any report required by these Regulations and the Rules to be prepared by an Auditor. (3) Contravention of subsection (2) is punishable by a fine. (4) The appointment of a firm as an Auditor of a Company is taken to be an appointment of each Person who is a partner of the firm. | 31. Appointment of Auditors (1) A Limited Liability Partnership must appoint an Auditor to examine and report on, in accordance with these Regulations and the Rules, the accounts prepared under section 30 (Accounts of Limited Liability Partnership), except for the Limited Liability Partnership with the annual turnover of not more than U.S. $5,000,000. (2) A Person who is not an Auditor must not: (a) consent to be appointed as an Auditor of a Limited Liability Partnership; or (b) act as an Auditor of a Limited Liability Partnership; or (c) prepare any report required by these Regulations and the Rules to be prepared by an Auditor. (3) Contravention of subsection (2) is punishable by a fine. (4) The appointment of a firm as an Auditor of a Company is taken to be an appointment of each Person who is a partner of the firm. | Item 4 (audit requirements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
33. | SCHEDULE 1: INTERPRETATION 1. Definitions for these Regulations … None | SCHEDULE 1: INTERPRETATION 1. Definitions for these Regulations … Standard Partnership Agreement means a standard partnership agreement prescribed by the Rules. … | Item 3 (standard constitutional documents) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | |||
AIFC NON-PROFIT INCORPORATED ORGANISATIONS REGULATIONS | ||||||
34. | PART 4: FINANCIAL RESOURCES, ACCOUNTS AND AUDIT Section 22 | 22. Accounts (1) The Founding Members of an Incorporated Organisation must ensure that accounts are prepared in relation to each financial year of the Incorporated Organisation within 6 months after the end of the financial year and that the accounts comply with the requirements of this section. (2) The accounts must: (e) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar of Companies; and (f) show a true and fair view of the financial position of the Incorporated Organisation; and (g) comply with any other requirements of these Regulations and the Rules. (3) The Founding Members must approve the Incorporated Organisation’s accounts and must ensure that they are signed on their behalf by at least 1 of them. (4) The accounts must be examined and reported on by an Auditor. (5) An Incorporated Organisation must file its audited accounts for a financial year with the Registrar of Companies within 7 days after the day the accounts are approved by the Founding Members and reported on by an Auditor. (6) Contravention of this section is punishable by a fine. | 22. Accounts (1) The Founding Members of an Incorporated Organisation must ensure that accounts are prepared in relation to each financial year of the Incorporated Organisation within 6 months after the end of the financial year and that the accounts comply with the requirements of this section. (2) The accounts must: (e) be prepared in accordance with accounting principles or standards prescribed by the Rules or otherwise approved by the Registrar of Companies; and (f) show a true and fair view of the financial position of the Incorporated Organisation; and (g) comply with any other requirements of these Regulations and the Rules. (3) The Founding Members must approve the Incorporated Organisation’s accounts and must ensure that they are signed on their behalf by at least 1 of them. (4) The accounts must be examined and reported on by an Auditor only if the gross annual income of an Incorporated Organisation is more than 500,000 USD. (5) An Incorporated Organisation must file its audited accounts for a financial year with the Registrar of Companies within 7 days after the day the accounts are approved by the Founding Members and reported on by an Auditor. (6) Contravention of this section is punishable by a fine.
| Item 4 (audit requirements) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
35. | PART 8-3: ANTI-MONEY LAUNDERING AND COUNTER TERRORIST FINANCING OBLIGATIONS Sections 34-3, 34-4 and 35-5 | None | PART 8-3: ANTI-MONEY LAUNDERING AND COUNTER TERRORIST FINANCING OBLIGATIONS
34-3. Obligations in respect of payments and transactions
An Incorporated Organisation must carry out its payments and transactions of the third parties through a banking and financial intermediary (a regulated financial institution) based in the AIFC jurisdiction, Republic of Kazakhstan, or in a jurisdiction that is a FATF member or an equivalent jurisdiction.
34-4. Notification obligations
(1) An Incorporated Organisation must immediately notify the AFSA when it becomes aware of: (a) complex or unusually large transactions, or an unusual pattern of transactions; (b) transactions which have no apparent economic or legal purpose; and (c) other activity which an Incorporated Organisation regards as particularly likely by its nature to be related to money laundering or terrorist financing.
(2) An Incorporated Organisation must inform the AFSA in writing as soon as possible if, in relation to its activities carried on as part of the AIFC or in relation to any of its branches or subsidiaries, it: (a) receives a request for information from a regulator or agency responsible for anti-money laundering and counter-terrorism financing, or sanctions compliance in connection with potential money laundering, terrorist financing, or sanctions breaches; (b) becomes aware, or has reasonable grounds to believe, that a money laundering event has occurred or may have occurred in or through its business; (c) becomes aware of any money laundering or sanctions matter in relation to the Incorporated Organisation or its branch or subsidiary which could result in adverse reputational consequences to the Incorporated Organisation; or (d) becomes aware of a significant breach of the AIFC AML regulation framework or a breach of the relevant Kazakhstan legislation by the Incorporated Organisation or any of its employees. 34-5. Reporting and record keeping
(1) An Incorporated Organisation must file information about transactions, identified risks of money laundering and terrorist financing and any suspicious activities on request of the AFSA and Financial Intelligence Unit of the Republic of Kazakhstan (FIU). (2) The information must be filed in the form and manner prescribed by the AFSA and FIU and must contain the information required by the AFSA and FIU. (3) An Incorporated Organisation must maintain the following records: (a) the supporting documents (consisting of the original documents or certified copies) in respect of the customer business relationship, including transactions; (b) suspicious activities and any relevant supporting documents and information, including internal findings and analysis of money laundering and terrorist financing risks; any relevant communications with the FIU; (c) for at least six years from the date on which the notification or report was made, the business relationship ends or the transaction is completed, whichever occurs last. | Item 5 (AML/CFT obligations and supervision) of the amendments set out in “Key Elements of the proposed amendments” of the Consultation Paper | ||
Annex 2 Proposed Amendments to the AIFC Rules
Proposed amendments to the AIFC Rules
In this comparative table, the underlining indicates a new text and the striking through indicates the deleted text in the proposed amendments.
No. | Part/Chapter/ Section No. | Current version | Proposed version | Comments |
AIFC COMPANIES RULES | ||||
36. | PART 4: PRIVATE COMPANIES AND PUBLIC COMPANIES Rule 4.3. | 4.3. Allotment of Shares If a Company Allots Shares in the Company, the Company must, within 14 days after the day that it allots the Shares, notify the Registrar of Companies in Writing of the Allotment of the Shares. | 4.3. Allotment of Shares If a Company that it allots the Shares, notify the Registrar of Companies in Writing of the Allotment of the Shares. | Item 52(8) of the Policy Paper (technical amendments) There is no definition of the “Allott”. |
37. | PART 6: INVESTMENT COMPANIES | 6.7. Investment Companies: Shares and Register of Shareholders … None | 6.7. Investment Companies: Shares and Register of Shareholders … 6.7.8. An Investment Company shall maintain its register of Shareholders in accordance with the requirements: (a) in the AIFC Collective Investment Scheme Rules rule 7.10; and (b) in Chapter 5 of Part 7 of the AIFC Companies Regulations, to the extent that such requirements are not inconsistent with the requirements referred to in (a). | Item 52 (8) of the Policy Paper (technical amendments) The amendments are proposed to harmonise the AIFC Companies Regulations and AIFC Companies Rules and provide clarity in obligations of Investment Companies in keeping the registers of Shareholders. Eg., Regulation 1.9.2 of the DIFC Investment Companies (IC) Regulations |
AIFC GENERAL PARTNERSHIP RULES | ||||
38. | None | SCHEDULE 3: STANDARD PARTNERSHIP AGREEMENT FOR GENERAL PARTNERSHIPS | Item 52(3) of the Policy Paper (development of a standard constitutional document) | |
AIFC LIMITED PARTNERSHIP RULES | ||||
39. | None | SCHEDULE 3: STANDARD PARTNERSHIP AGREEMENT FOR LIMITED PARTNERSHIPS
| Item 52(3) of the Policy Paper (development of a standard constitutional document) | |
AIFC LIMITED LIABILITY PARTNERSHIP RULES | ||||
40. | None | SCHEDULE 3: STANDARD PARTNERSHIP AGREEMENT FOR LIMITED LIABILITY PARTNERSHIPS | Item 52(3) of the Policy Paper (development of a standard constitutional document) |
AIFC FEES RULES | |
41. | Proposal 1 - to distinguish online and paper-based registration forms and introduce different fees, i.e. 300 USD for online registration and 500 USD for paper-based registration. As a result, the following amendments are required to be introduced. |
SCHEDULE 5: FEES PAYABLE TO THE REGISTRAR OF COMPANIES | SCHEDULE 5: FEES PAYABLE TO THE REGISTRAR OF COMPANIES An applicant seeking registration or recognition must pay the following fees to the Registrar of Companies: | SCHEDULE 5: FEES PAYABLE TO THE REGISTRAR OF COMPANIES An applicant seeking registration or recognition must pay the following fees to the Registrar of Companies: | Item 52(7) of the Policy Paper (fees for online registration) New fees are planned to be introduced starting from January 1, 2022. | ||||
Effecting the registration or recognition | Effecting the registration or recognition | ||||||
online** | paper | ||||||
Company Limited by Shares | 300* | Company Limited by Shares | 300* | 500 | |||
Recognised Company | 300* | Recognised Company | 300* | 500 | |||
Partnerships | 300* | Partnerships | 300* | 500 | |||
Recognised Partnership | 300* | Recognised Partnership | 300* | 500 | |||
Non-Profit Incorporated Organisations | 300* | Non-Profit Incorporated Organisations | 300* | 500 | |||
Special Purpose Companies | 300* | Special Purpose Companies | 300* | 500 | |||
Restricted Scope Companies | 300* | Restricted Scope Companies | 300* | 500 | |||
Protected Cell Companies | 300* | Protected Cell Companies | 300* | 500 | |||
Representative offices | 300* | Representative offices | 300* | 500 | |||
NOTE: Applicants registered or recognised after July 5, 2018, but before July 5, 2019 are subject to one single payment of 100 USD within the 12 months period from the date of registration or recognition. * For applicants incorporated after July 5, 2019, but before July 5, 2020 a one-time registration or recognition fee is set out at 300 USD with a possibility of paying 200 USD on the date of submission of application and deferred payment of 100 USD during the next 12 months from the date of registration or recognition | NOTE: Applicants registered or recognised after July 5, 2018, but before July 5, 2019 are subject to one single payment of 100 USD within the 12 months period from the date of registration or recognition. * For applicants incorporated after July 5, 2019, but before July 5, 2020 a one-time registration or recognition fee is set out at 300 USD with a possibility of paying 200 USD on the date of submission of application and deferred payment of 100 USD during the next 12 months from the date of registration or recognition. **Online means submission through the AIFC approved digital systems (excluding email). |
42. | Proposal 2 - to exclude paper-based registration and keep only online registration. If proposal 2 is approved, no amendments to the AIFC Fees Rules will be required. |
Annex 3 Proposed Amendments to the AIFC Foundations Regulations: Schedule 4 Standard Foundation Charter and Schedule 5 Standard Foundation By-Laws
SCHEDULE 4
STANDARD FOUNDATION CHARTER
1.INTERPRETATION
1.1.In this Charter:
‘By-laws’ means the By-laws of the Foundation;
‘Charter’ means this Charter of the Foundation;
‘Council’ means the governing body of the Foundation;
‘Default Recipient’ is [as specified in the application];
‘Founder’ is [as specified in the application] who has transferred the Initial Property to the Foundation at the time of its establishment and has signed this Charter;
‘Guardian’ is [as specified in the application];
‘Qualified Recipient’ is [as specified in the application];
‘Regulations’ means the AIFC Foundations Regulations, as amended from time to time.
1.2.In this Charter, unless the contrary intention appears:
(i) terms have the same meanings as they have in the Regulations but excluding any statutory modification thereof not in force when this Charter becomes binding on the Foundation;
(ii) words in the singular must include the plural and words in the plural include the singular;
(iii) words relating to natural persons must include companies, entities, associations or bodies of persons whether incorporated or not;
(iv) the word “may” must be construed as permissive and the word “must” as imperative; and
(v) the headings herein are for convenience only and must not affect the construction of this Charter.
2.FOUNDATION NAME
The name of the Foundation is [as specified in the application] Foundation (“the Foundation”).
3.FOUNDATION OBJECTS
The objects of the Foundation are [as specified in the application].
4.INITIAL PROPERTY
The initial property of the Foundation is [as specified in the application], which has been agreed to be transferred to the Foundation by the Founder(s).
5.DURATION OF FOUNDATION
Subject to sections 52 and 53 of the Regulations, the Foundation must continue in existence [as specified in the application].
6.DEFAULT RECIPIENT
The Default Recipient must have the entitlements specified in section 18(1) of the Regulations.
7.AMENDMENT AND REVOCATION OF THIS CHARTER AND THE BY-LAWS
Subject to sections 16(11) and 22(2) of the Regulations, this Charter and the By-laws may be amended:
(a)by the Founder (where the Founder is living or in existence) at any time by notice in writing to the Foundation containing the terms of the amendment to the Charter;
(b)at any time when the Founder is not living or in existence, by the Council if its members have unanimously approved the amendment and with the consent of the Guardian; or
(c)by the Court pursuant to section 40 of the Regulations.
8.DECLARATION
Each Founder by signing this Charter declares that it/he/she requests the Council to comply with the terms of this Charter.
Schedule 5
STANDARD FOUNDATION BY-LAWS
1.INTERPRETATION
In these By-laws, unless the contrary intention appears the terms have the same meanings as they have in the Charter and Regulations but excluding any statutory modification thereof not in force when these By-Laws become binding on the Foundation.
2.THE COUNCIL
2.1ESTABLISHMENT OF COUNCIL
The Foundation must have a Council consisting of the Chairman of the Council, and not less than one other member.
2.2POWERS AND FUNCTIONS OF THE COUNCIL
(a)Subject to the Regulations and the Charter, the Foundation must be managed by the Council. No subsequent amendment to the Charter must invalidate any act of a member of the Council or the Council.
(b)The Council may delegate any of its functions or powers to an attorney-in-fact or to a committee of the Council, provided that the extent of such delegation must be clearly stated.
(c)The Council must be in charge of the day-to-day administration of the Foundation and must have full powers to represent the Foundation in the pursuit of its objects. Such powers include but are not limited to the power to:
(i) negotiate, sign, execute all contracts, transactions, arrangements, and deals of whatever kind or nature with third parties, and any authority whatsoever, in the name of the Foundation with right to terminate and amend such contracts and agreements as required from time to time;
(ii) open, close and manage all bank accounts pertaining to the Foundation, to carry out all banking transaction on behalf of the Foundation including without any limitation the right to issue, sign, transfer, obtain loans with or without security, bank facilities and bank guarantees and to complete and sign all applications and documents necessary for the performance of the Foundation’s corporate objectives;
(iii) employ all persons required for the Foundation’s business, to define their salaries, benefits, remunerations and the rules and provisions related to their employment as well as the right to terminate their services;
(iv) sign memoranda of association in terms and conditions as it may deem fit;
(v) claim on behalf of the Foundation, to attach the properties of debtors, refer cases to arbitration, to appoint lawyers; and
(vi) take all legal proceedings for the protection of the Foundation’s interests as plaintiff or defendant or as party to arbitration or otherwise.
(d)Notwithstanding the preceding provisions of this section 2.2, the Council must not dispose of, mortgage or assign the property transferred to the Foundation by the Founder as its initial property.
(e)The Council may accept further contributions to the Foundation from the Founder or any other persons, and must hold such property on such terms as may be agreed between the Foundation and the Founder or other contributor which terms must, if different from those set out in section 4 of these By-laws, be specified in an amendment to these By-laws.
2.3APPOINTMENT AND RETIREMENT OF MEMBERS OF THE COUNCIL
(a)The Founder must appoint the first members of the Council and the Chairman at the time of the establishment of the Foundation, and if the number of members of the Council falls below two, must appoint replacement Councillors so that there are at least two Councillors.
(b)Subject to the preceding clause, additional members of the Council may be appointed by the Council of the Foundation by an ordinary resolution passed by the majority of existing Council members with the consent in writing of each Founder during their lifetime or its existence or, if the Founder(s) is/are no longer alive or in existence, the Guardian.
(c)Any vacancy in the position of Chairman must be filled by election conducted by the members of the Council in such manner as they must determine.
2.4DISQUALIFICATION AND REMOVAL OF MEMBERS OF THE COUNCIL
The office of a member of the Council is automatically vacated if the member:
(i) is prohibited by the Regulations from being a member of the Council;
(ii) becomes bankrupt;
(iii) is, by virtue of any disability, incapable of fulfilling the functions or duties required by the office;
(iv) without permission, does not attend three successive meetings of the Council;
(v) resigns his or her office by notice to the Foundation;
(vi) is removed by the Founder(s); or
(vii) is removed by the Court pursuant to section 44(1) of the Regulations.
2.5REMUNERATION AND EXPENSES OF MEMBERS OF THE COUNCIL
The members of the Council must receive such remuneration as the Council with the approval in writing of the Founder or, if there is no Founder living or in existence, the Guardian (if any) determines by resolution and must receive payment of all expenses incurred in association with the carrying out of their duties as members of the Council.
2.6MEETINGS OF THE COUNCIL
(a)Any member of the Council may call a meeting of the Council.
(b)Subject to the Regulations, a meeting of the Council must be called by at least 14 days’ notice to all the Council members.
(c)Such notice of meeting must specify the time and place of the meeting and the general nature of the matters to be considered.
(d)The members of the Council may unanimously waive notice of any meeting.
(e)The proceedings of a meeting are not invalid solely because of the inadvertent failure to give notice of the meeting to, or the failure to receive notice of a meeting by any person entitled to receive such notice.
2.7PROCEEDINGS OF THE COUNCIL
(a)Subject to the provisions of these By-laws, members of the Council may regulate their proceedings as they think fit.
(b)No meeting must take place unless a quorum is present. The majority of persons entitled to vote must constitute a quorum.
(c)If a quorum is not present, the meeting must be adjourned to a place and time determined by the Chairman. If during the meeting a quorum ceases to be present the meeting must be adjourned to a place and time determined by the members of the Council who are present.
(d)The Chairman must chair the meeting. If the Chairman is not present or willing to act within fifteen minutes of the stated time for commencement of the meeting, and in the absence of a nominee, another member of the Council elected by the rest of the Council present must chair the meeting.
(e)The Chairman may adjourn the meeting with the consent of the majority of the votes at the meeting. No matters must be considered at an adjourned meeting other than matters that might have been considered at the meeting had the adjournment not taken place. It is not necessary to give notice of the adjourned meeting unless the meeting was adjourned for fourteen days or more, in which case at least seven days' notice must be given specifying the time and place of the adjourned meeting and the general nature of the matters to be considered.
(f)Any matters arising at a meeting must be decided by a majority of votes with the Chairman having a second or casting vote in the case of equality of votes.
(g)The quorum for the transaction of the business of the Council must be two or any other number fixed by the Council.
(h)All acts done by a meeting of the Council, or of a committee of Council, or by a person acting as a member of the Council must be valid, notwithstanding any defect in his appointment or his disqualification from holding office, or that he was not entitled to vote, being discovered afterwards.
(i)A resolution in writing signed by all the Council entitled to receive notice of the meeting must be as valid and effectual as if it had been passed at a meeting of the Council. The resolution may consist of several documents in the like form each signed by one or more members of the Council.
(j)A member of the Council must not vote at a meeting on any resolution concerning a matter in which he has a direct or indirect conflict of interest. For the purposes of this clause, an interest of a member of the Council includes an interest of any person who is connected to the member of the Council.
(k)A member of the Council must not be counted in the quorum present at a meeting in relation to a resolution on which he is not entitled to vote.
(l)The Foundation may by resolution suspend or relax any provision of these By-laws prohibiting a member of the Council from voting at a meeting.
(m)The chairman of the meeting must rule on any question arising at a meeting on the right of a member of the Council, other than himself, to vote and his ruling must be final and conclusive.
(n)No objection may be raised to the right of any member of the Council to vote except at the meeting at which the voter is to vote.
2.8MINUTES
The Council must cause minutes to be kept for recording:
(i)all appointments of officers made by the Council; and
(ii)all proceedings at meetings of the Council, and of committees of Council, including the names of the Council present at each such meeting.
3.FOUNDER AND OTHER OFFICERS AND PERSONNEL
3.1THE FOUNDER
The Founder must have the following powers exercisable in accordance with section 22(2) of the Regulations (but subject to section 16(10) of the Regulations, if applicable):
(a) power to amend, revoke or vary the terms of the Charter or these By-laws, or both of them, in whole or in part;
(b) power to remove any member of the Council and appoint a replacement member of the Council in his/her place;
(c) power to remove any Guardian and appoint a replacement Guardian in the place of the former Guardian; and
(d) power to terminate the Foundation.
3.2SECRETARY
Subject to the Regulations, the Council may (but need not) appoint and remove a secretary and must decide on the terms, remuneration and conditions of appointment.
3.3THE GUARDIAN
(a)The Guardian named in section 1 of the Charter must have the powers specified in section 20 of the Regulations. The following powers of the Council require the approval of the Guardian in accordance with section 20(10) of the Regulations if the Founder is not then living:
(i)the making of any application of property of the Foundation; and
(ii)the appointment of further members of the Council of the Foundation pursuant to section 2.3(b) of these By-laws.
(b)The office of Guardian is automatically vacated if the Guardian:
(i)is prohibited by the Regulations from being the Guardian;
(ii)becomes bankrupt or insolvent;
(iii)resigns the office of Guardian by notice to the Foundation provided that a replacement Guardian will be appointed to take office as and from the date of such resignation;
(iv)is removed by the Founder; or
(v)is removed by the Court pursuant to section 44(1) of the Regulations.
4.FOUNDATION PROPERTY AND INCOME
4.1The assets and property of the Foundation must be under the control of the Council. The Council may subject to the approval of the Founder (if living) or the Guardian (if the Founder is not living):
(a)determine how the property of the Foundation is applied or distributed to or, in case of several, amongst the Qualified Recipient(s);
(b)determine whether or not the net income of the Foundation in any year must be distributed to or, in case of several, amongst the Qualified Recipient(s);
(c)subject to the Charter, add or remove a person or class of persons as Qualified Recipients or provide for the exclusion from the category of Qualified Recipient of a person or class of persons, either revocably or irrevocably.
4.2In each year the Council of the Foundation must determine the net income of the Foundation after taking into account all the expenses of the Foundation for that year.
4.3Upon the termination (winding up or dissolution) of the Foundation, the whole of the property then held by the Foundation must be applied, after discharge of any outstanding liabilities of the Foundation, [as specified in the application].
4.4In the exercise of its powers and functions under this section, the Council:
(a)may invite or call for applications from Qualified Recipient(s) in whatever manner it may prescribe;
(b)may act on its own motion in respect of any Qualified Recipient which has not submitted an application; and
(c)may rely upon assessments of applications by employees or others engaged by the Foundation.
5.AMENDMENT OF THESE BY-LAWS
Subject to section 6 of the Charter and sections 16(11) and 22(2) of the Regulations, these By-laws may be amended by:
(a)the Founder (if living or in existence) at any time by notice in writing to the Foundation containing the terms of the amendment to the By-laws;
(b)at any time when the Founder is not living or in existence, by the Council if its members are unanimous and have the consent of the Guardian; or
(c)by the Court pursuant to section 40 of the Regulations.
6.DECLARATION
Each Founder by signing these By-laws declares that it/he/she requests the Council to comply with the terms of these By-laws.
Annex 4 Schedule 3: Standard Partnership Agreement for General Partnerships
SCHEDULE 3: STANDARD PARTNERSHIP AGREEMENT FOR GENERAL PARTNERSHIPS
This General Partnership Agreement (the “Agreement”) is dated [as specified in the application].
The parties to the Agreement are the Partners [as specified in the application].
BACKGROUND
The Partners have agreed to enter into this Agreement to set out the basis on which the general partnership with the name [as specified in the application] (the “Partnership”) is to be organised and their respective rights and obligations as Partners.
Agreed terms
1.Interpretation
1.1The following definitions and rules of interpretation apply in this Agreement.
AIFC Acts means acts adopted by the AIFC Bodies.
Partner means every Person who has entered into this Agreement and is registered as partner of the Partnership.
Person means any natural person or incorporated or unincorporated body, including a company, partnership, unincorporated association, government or state.
Writing means any method of communication that preserves a record of the information contained in it and is capable of being reproduced in tangible form, including by electronic means.
1.2Terms used in this Agreement have the same meanings as they have, from time to time, in the AIFC Acts, unless the contrary intention appears. Section and article headings must not affect the interpretation of this Agreement.
1.3Unless the Agreement otherwise requires, words in the singular include the plural and words in the plural include the singular.
1.4Unless the Agreement otherwise requires, words indicating gender include every other gender.
2.Partnership name and place of business
2.1The name of the Partnership is [as specified in the application].
2.2The registered office of the Partnership is situated in the Astana International Financial Centre, Nur-Sultan, Republic of Kazakhstan, at the address provided in the public register.
3.Commencement and duration
The provisions of this Agreement are deemed to have taken effect from the date the Partnership is registered as a general partnership in the AIFC and must continue on the terms of this Agreement until the date [as specified in the application] or dissolved in accordance with article 14.
4.Nature of the business
The Partnership will carry on business the details of which are [as specified in the application].
5.Capital
5.1The capital of the Partnership is [as specified in the application].
5.2The capital of the Partnership belongs to the Partners in the proportions [as specified in the application].
6.Accounts
6.1The Partners must ensure that the Partnership’s accounts are prepared in relation to each financial year of the Partnership and that the accounts comply with the requirements of the AIFC Acts.
6.2Within 6 months after the end of the Partnership’s financial year, the Partners must approve the Partnership’s accounts and must ensure that they are signed on their behalf by at least 1 of them.
7.Financial year
The Partnership’s financial year is [as specified in the application].
8.Profit Sharing Ratio
The profit sharing ratio of the Partners will be in proportion to their contribution to the capital of the Partnership [as specified in the application].
9.Capital and current accounts
9.1Each Partner must have a capital account, to which their respective capital contributions must be credited. In addition, there must be credited to their capital accounts any further capital contributions made by them, any amounts in respect of a revaluation of assets and their respective share of any capital profits. There must be debited to their capital accounts the amount of any repayment of capital to them and their respective share of any capital loss.
9.2Each Partner must have a current account, to which must be credited any profit share to which each is entitled and any other sums of a current nature, and to which must be debited any drawings.
10.Partnership Property
10.1All Partnership property must be held and applied by the Partners exclusively for the purposes of the Partnership and in accordance with this Agreement.
10.2All Partnership property must be held jointly and severally.
11.Liability of Partners and Partnership
11.1 A Partner is liable, jointly and severally with the other Partners, for all debts and obligations of the Partnership incurred while the Partner is a Partner.
11.2 The Partnership is liable for any wrongful act, omission, loss or injury as a result of any Partner acting in the ordinary course of the business, purpose or activity of the Partnership or with the authority of the other Partners.
12.Management
12.1 Every Partner must take part in the management of the Partnership business, purpose or activity.
12.2 Any difference arising about ordinary matters connected with the Partnership business, purpose and activity will be decided by a majority of the Partners.
12.3 The following matters require the consent of all of the Partners of the Partnership:
(a) change in the nature of the Partnership business, purpose or activity;
(b) change of the Partnership’s name;
(c) any alternation of this Agreement;
(d) admission of a new Partner; and
(e) expulsion of any Partner.
13.Meetings and decision making
13.1Meetings of the Partners of the Partnership must be held at least 1 time every financial year of the Partnership, and may be held at any such time and at any such intervals as may be deemed fit by all the Partners of the Partnership.
13.2Not less than 21 clear days' notice is to be given of a meeting to all those entitled to attend, provided that valid shorter notice is deemed to have been given if all Partners attend the meeting or if it is ratified by the Partners at a subsequent duly convened meeting.
13.3Such notice must specify the place, day and time of the meeting and a statement of the matters to be discussed at the meeting.
13.4At the commencement of any meeting, those in attendance must elect the chairperson of the meeting.
13.5Simple majority of the Partners present in person or by video or telephone conference call or by proxy (which must mean another Partner appointed in writing to attend and vote on behalf of the appointing Partner) must be a quorum for a meeting of the Partners of the Partnership.
13.6The Partners of the Partnership must ensure that all decisions taken by them in meetings are recorded in the minutes and are kept and maintained at the registered office of the Partnership as provided in section 2.2 of this Agreement.
14.Dissolution
14.1The Partnership may be dissolved by any Partner giving Written notice to the others of the Partner’s intention to dissolve the Partnership unless it is entered into for a defined time and for a fixed venture or undertaking.
14.2The Partnership is dissolved on the date mentioned in the notice as the date of dissolution, or, if a date of dissolution is not mentioned, on the day, or the last of the days, the notice is given to the other Partners.
14.3The Partnership may be dissolved in other cases as prescribed by the AIFC Acts.
14.4After the dissolution, the authority of each Partner to bind the Partnership, and the other rights and obligations of the Partners, continue despite the dissolution so far as necessary to wind up the affairs of the Partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.
15.Entire agreement
15.1This Agreement constitutes the entire agreement between the Partners and supersedes and extinguishes all previous agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to its subject matter.
15.2Each party acknowledges that, in entering into this Agreement it does not rely on, and must have no remedies in respect of, any statement, representation, assurance or warranty (whether made innocently or negligently) that is not set out in this Agreement.
15.3No party must have a claim for innocent or negligent misrepresentation (or negligent misstatement) based upon any statement in this Agreement.
15.4Nothing in this clause must limit or exclude any liability for fraud.
16.Notices
16.1Any notice under this Agreement must be given in Writing and sent either:
(a) personally; or
(b) by sending it by post in a prepaid envelope addressed to the Partner at the Partner’s registered address or by leaving it at that address; or
(c) in electronic form to an address nominated by the Partner and such a notice is deemed as being delivered at the time it was sent; or
(d) by any other means agreed between the Partners.
17.Governing law and jurisdiction
This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) must be governed by and construed in accordance with the Acting Law of the AIFC.
This Agreement has been entered into on the date stated at the beginning of it.
Annex 5 Schedule 3: Standard Partnership Agreement for Limited Partnerships
SCHEDULE 3: STANDARD PARTNERSHIP AGREEMENT FOR LIMITED PARTNERSHIPS
This Limited Partnership Agreement (the “Agreement”) is dated [as specified in the application].
The parties to the Agreement are General Partner(-s) and Limited Partner(-s) [as specified in the application].
The General Partner(-s) and Limited Partner(-s) hereinafter collectively referred to as the Partners.
BACKGROUND
The Partners have agreed to enter into this Agreement to set out the basis on which the Limited Partnership with the name [as specified in the application] (the “Partnership”) is to be organised and their respective rights and obligations as Partners.
Agreed terms
1.Interpretation
1.1The following definitions and rules of interpretation apply in this Agreement.
AIFC Acts means acts adopted by the AIFC Bodies.
Exercise a Function includes perform the Function.
Function includes authority, duty and power.
Liability includes any debt or obligation.
Partner means every Person who has entered into this Agreement and is registered as partner of the Partnership.
Person means any natural person or incorporated or unincorporated body, including a company, partnership, unincorporated association, government or state.
Writing means any method of communication that preserves a record of the information contained in it and is capable of being reproduced in tangible form, including by electronic means.
1.2Terms used in this Agreement have the same meanings as they have, from time to time, in the AIFC Acts, unless the contrary intention appears. Section and article headings must not affect the interpretation of this Agreement.
1.3Unless the Agreement otherwise requires, words in the singular include the plural and words in the plural include the singular.
1.4Unless the Agreement otherwise requires, words indicating gender include every other gender.
2.Partnership name and place of business
2.1The name of the Partnership is [as specified in the application].
2.2The registered office of the Partnership is situated in the Astana International Financial Centre, Nur-Sultan, Republic of Kazakhstan, at the address provided in the public register.
3.Commencement and duration
The provisions of this Agreement are deemed to have taken effect from the date the Partnership is registered as a limited partnership in the AIFC and must continue on the terms of this Agreement until the date [as specified in the application] or dissolved in accordance with article 16.
4.Nature of the business
The Partnership will carry on business the details of which are [as specified in the application].
5.Capital
5.1The capital of the Partnership is [as specified in the application].
5.2The capital of the Partnership belongs to the Partners in the proportions [as specified in the application].
6.Accounts
6.1The General Partners must ensure that the Partnership’s accounts are prepared in relation to each financial year of the Partnership and that the accounts comply with the requirements of the AIFC Acts.
6.2Within 6 months after the end of the financial year, the accounts for the financial year must be:
(a)prepared and approved by all the Partners; and
(b) signed on their behalf by at least 1 of the Partners, one of whom must be a General Partner.
7.Financial year
The Partnership’s financial year is [as specified in the application].
8.Profit Sharing Ratio
The profit sharing ratio of the Partners will be in proportion to their contribution to the capital of the Partnership [as specified in the application].
9.Capital and current accounts
9.1 Each Partner must have a capital account, to which their respective capital contributions must be credited. In addition, there must be credited to their capital accounts any further capital contributions made by them, any amounts in respect of a revaluation of assets and their respective share of any capital profits. There must be debited to their capital accounts the amount of any repayment of capital to them and their respective share of any capital loss.
9.2 Each Partner must have a current account, to which must be credited any profit share to which each is entitled and any other sums of a current nature, and to which must be debited any drawings.
10.Partnership Property
10.1The Partnership property must be held and applied by the Partners exclusively for the purposes of the Partnership and in accordance with this Agreement.
10.2The beneficial interest in all Partnership property is shared evenly between the Partners.
11.Management
12.1 Every General Partner must take part in the management of the Partnership business, purpose or activity.
12.2 A Limited Partner must not take part in the conduct or management of the business, purpose or activity of the Partnership, and must not transact the business, purpose or activity of, sign or execute documents for, or otherwise bind, the Partnership.
12.General Partner
12.1 The General Partner of the Partnership has all the rights and powers required to Exercise its Functions as a general partner subject only to the limitations and Liabilities applying to the Partner under the Agreement and the AIFC Acts.
12.2 Subject to the terms of this Agreement, the General Partner must:
(a)show the utmost good faith to the other Partners in all transactions relating to the Partnership and give them a true account of, and full information about, all things affecting the Partnership;
(b) use its best skills and endeavours to promote and carry on the Partnership’s business for the benefit of the Partnership, and conduct itself in a proper and responsible manner;
(c) ensure that it and the Partnership comply with the provisions of the AIFC Acts;
(d) carry out the day-to-day operation of the Partnership’s business and do all acts and things that it may in its absolute discretion consider necessary or desirable to carry out the purposes and objectives of the Partnership;
(e) generally represent the Partnership in all matters, including the protection of the Partnership’s assets;
(f) file, register and publish all such notices, statements or other instruments as may be required under the AIFC Acts to be registered and published;
(g) enter into, make and perform such contracts, agreements and other undertakings and sign, seal, endorse or execute any document for and on behalf of the Partnership and do all such other acts as it may deem necessary or advisable for, or as may be incidental to, the conduct of the Partnership’s business;
(h) generally communicate with the Partners and report to the Partners at such times as it thinks fit or as is required by this Agreement; and
(i) do and perform any such other acts and things as are reasonably incidental to the above duties and execute all such documents and instruments in connection with them.
12.3 Without prejudice to section 12.2, the General Partner must Exercise all the Functions necessary for, and connected with, the conduct of the Partnership’s business, purpose or activity, and must discharge all obligations imposed on a general partner, in the partner’s capacity as a general partner of the Partnership or on the Partnership itself, unless otherwise provided under this Agreement, the AIFC Acts.
12.4 Any Liability incurred by the General Partner of the Partnership in the conduct of the Partnership’s business, purpose or activity is a Liability of the Partnership.
12.5 Each General Partner of the Partnership is liable in the insolvency of the Partnership for all of the Partnership’s Liabilities.
13.Limited Partner
13.1 A Limited Partner has the same rights as a General Partner:
(a) during business hours, to inspect and make copies of, or take extracts from, the Partnership’s books and other Records; and
(b) to be given, on request, true and full information of everything affecting the Partnership and to be given a formal account of the Partnership affairs whenever just and reasonable.
13.2 A Limited Partner is not entitled to dissolve the Partnership by notice.
13.3 A Limited Partner is not liable for the Partnership’s Liabilities.
14.Meetings and decision making
14.1 The General Partner must convene meetings of the Partnership at least 1 time every financial year of the Partnership and may, whenever it thinks fit, convene other meetings of the Partnership.
14.2 Every meeting of the Partners must be governed by the following provisions:
(a) a meeting may be held at such time and place as the General Partner thinks fit;
(b) the General Partner must serve a notice of meeting on all those entitled to attend the meeting and such notice must specify the place, day and time of the meeting and a statement of the matters to be discussed at the meeting;
(c) the General Partner must give not less than 21 days' notice of a meeting to all those entitled to attend, except that valid shorter notice is deemed to have been given if all Partners attend the meeting or if it is ratified by the Partners at a subsequent duly convened meeting;
(d) the quorum for a meeting must be the General Partner and each Limited Partner entitled to vote on any resolution to be put to that meeting present in person or by video or telephone conference call or by proxy (which must mean another Partner appointed in Writing to attend and vote on behalf of the appointing Partner);
(e) the General Partner may count in the quorum and vote at a meeting on a resolution on a matter in which it has a direct or indirect interest or duty which is or may be material and which conflicts or may conflict with the Partnership's interests, if before such resolution is moved it discloses to the meeting the full nature and extent of its interest;
(f) where the appropriate quorum is not present within 15 minutes of the start time stated in the notice of the meeting, any resolution passed at the inquorate meeting is deemed to have been passed if it is ratified later by the required majority in attendance at a duly convened quorate meeting;
(g) a meeting may be conducted by electronic means, such as via telephone or video conference. Partners participating in a meeting via electronic means must be deemed to be present in person at the meetings and must be entitled to be counted in the quorum and to vote; and
(h) a Partner (being a body corporate) may by resolution of its directors or other governing body authorise persons to act as its representative at a meeting and any person so authorised must be entitled to exercise the same powers on behalf of the body corporate that he or she represents as that body corporate could exercise if it were an individual Partner.
14.3 At any meeting of the Partners a decision may be taken by a simple majority, except for the matters stated in article 15.
14.4 The General Partner must ensure that minutes must be prepared of all meetings and must be approved and signed by the General Partner as evidence of the proceedings and they are all kept and maintained at the registered office of the Partnership as provided in section 2.2 of this Agreement.
15.Matters requiring consent of all the Partners
15.1 The General Partner must not, without the prior consent in Writing of all the Limited Partners:
(a) do anything that restricts, in any way, the Partnership’s ability to conduct its business, purpose or activity in accordance with this Agreement; or
(b) use or dispose of any Partnership property, or any rights in the Partnership property, for a purpose other than those permitted under this Agreement, the AIFC Acts, unless immediate action is required in the best interest of all the Partners.
16.Dissolution
16.1Subject to the AIFC Acts, the Partnership must not be dissolved by an act of the Partners until a statement of dissolution signed by all the General Partners has been delivered by a General Partner to the Registrar of Companies.
16.2The Partnership may be dissolved in other cases as prescribed by the AIFC Acts.
17.Entire agreement
17.1This Agreement constitutes the entire agreement between the Parties and supersedes and extinguishes all previous agreements, promises, assurances, warranties, representations and understandings between them, whether in Writing or orally, relating to its subject matter.
17.2The Agreement is binding on the initial partners and their assigns, and on subsequent partners and their assigns, in the same way as if they had all executed the Agreement.
17.3All amendments to the Agreement must be done in Writing and must be binding in the way mentioned in section 11.2.
17.4Each party acknowledges that, in entering into this Agreement it does not rely on, and must have no remedies in respect of, any statement, representation, assurance or warranty (whether made innocently or negligently) that is not set out in this Agreement.
17.5No party must have a claim for innocent or negligent misrepresentation (or negligent misstatement) based upon any statement in this Agreement.
17.6Nothing in this clause must limit or exclude any liability for fraud.
18.Notices
18.1Any notice under this Agreement must be given in Writing and sent either:
(a) personally; or
(b) by sending it by post in a prepaid envelope addressed to the Partner at the Partner’s registered address or by leaving it at that address; or
(c) in electronic form to an address nominated by the Partner and such a notice is deemed as being delivered at the time it was sent; or
(d) by any other means agreed between the Partners.
19.Governing law and jurisdiction
This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) must be governed by and construed in accordance with the Acting Law of the AIFC.
This Agreement has been entered into on the date stated at the beginning of it.
Annex 6 Schedule 3: Standard Partnership Agreement for Limited Liability Partnerships
SCHEDULE 3: STANDARD PARTNERSHIP AGREEMENT FOR LIMITED LIABILITY PARTNERSHIPS
This Limited Liability Partnership Agreement (the “Agreement”) is dated [as specified in the application].
The parties to the Agreement are the Members [as specified in the application].
A Designated Member(-s) is/are [as specified in the application].
BACKGROUND
The Members have agreed to enter into this Agreement to set out the basis on which the Limited Liability Partnership with the name [as specified in the application] (the “Partnership”) is to be organised and their respective rights and obligations as Members.
Agreed terms
1.Interpretation
1.1The following definitions and rules of interpretation apply in this Agreement.
AIFC Acts means Acts adopted by the AIFC Bodies.
Auditor means auditors who are appointed in accordance with this Agreement.
Members means members and/or such other or additional persons as may from time to time be appointed in accordance with this Agreement whose membership of the Partnership has not been determined in accordance with the Agreement.
Person means any natural person or incorporated or unincorporated body, including a company, partnership, unincorporated association, government or state.
Registrar of Companies means the Office of the Registrar of Companies of the AFSA including the individual who is appointed the Registrar of Companies for the time being.
Writing means any method of communication that preserves a record of the information contained in it and is capable of being reproduced in tangible form, including by electronic means.
1.2Terms used in this Agreement have the same meanings as they have, from time to time, in the AIFC Acts, unless the contrary intention appears. Section and paragraph headings must not affect the interpretation of this Agreement.
1.3Unless the Agreement otherwise requires, words in the singular include the plural and words in the plural include the singular.
1.4Unless the Agreement otherwise requires, words indicating gender include every other gender.
2.Partnership name and place of business
2.1The name of the Partnership is [as specified in the application].
2.2The registered office of the Partnership is situated in the Astana International Financial Centre, Nur-Sultan, Republic of Kazakhstan, at the address provided in the public register.
3.Commencement and duration
3.1The provisions of this Agreement are deemed to have taken effect from the date the Partnership is registered as a limited liability partnership in the AIFC and must continue on the terms of this Agreement until the date [as specified in the application] or wound up in accordance with article 14.
4.Nature of the business
The Partnership will carry on business the details of which are [as specified in the application].
5.Capital
5.1The capital of the Partnership is [as specified in the application].
5.2The capital of the Partnership belongs to the Members in the proportions [as specified in the application].
6.Accounts
6.1The Members must ensure that the Partnership’s accounts are prepared in relation to each financial year of the Partnership and that the accounts comply with the requirements of the AIFC Acts.
6.2Within 6 months after the end of the financial year, the accounts for the financial year must be:
(a) prepared and approved by all the Members; and
(b) signed on their behalf by at least 1 of the Members; and
(c) examined and reported on by an Auditor.
7.Financial Year
The Partnership’s financial year is [as specified in the application].
8.Profit Sharing Ratio
The profit sharing ratio of the Members will be in proportion to their capital of the Partnership [as specified in the application].
9.Capital and current accounts
9.1 Each Member must have a capital account, to which their respective capital contributions must be credited. In addition, there must be credited to their capital accounts any further capital contributions made by them, any amounts in respect of a revaluation of assets and their respective share of any capital profits. There must be debited to their capital accounts the amount of any repayment of capital to them and their respective share of any capital loss.
9.2 Each Member must have a current account, to which must be credited any profit share to which each is entitled and any other sums of a current nature, and to which must be debited any drawings.
10.Partnership Property
10.1All property held or created by the Partnership for the purposes of carrying on the business and which has been paid for by the Partnership or contributed to the Partnership by any Member or has otherwise accrued to the Partnership, is owned by the Partnership absolutely and the Members have no individual rights in that property other than by their entitlement to such capital distributions as may be due to them under this Agreement or following liquidation of the Partnership.
11.Members
11.1A Person may become a Member of the Partnership with the agreement of the existing Members.
11.2A Person may cease to be a Member of the Partnership (as well as by death or dissolution) with the agreement of the other Members or, in the absence of agreement with the other Members, by giving reasonable notice to the other Members.
11.3No majority of Members can expel any Member unless a power to do so has been given by express agreement between the Members.
12.Designated Members
12.1The Members must design who and how many Members must be considered as Designated Members of the Partnership.
12.2A Designated Member may cease to be a Designated Member with the agreement of the other Members.
12.3There must, at all times, be at least 1 Designated Member and, if at any time no member is appointed as a Designated Member, every member is taken to be a Designated Member.
12.4The Designated Members must be responsible for ensuring compliance with all registration and other requirements of the AIFC Acts, including, but not limited to:
(a)notifying any change in the Members, including Designated Members, or their names and address to the Registrar of Companies;
(b)notifying any change in the Partnership’s name or registered office to the Registrar of Companies;
(c)signing the annual accounts of the Partnership and filing them with the Registrar of Companies.
13.Meetings and decision making
13.1Meetings of the Members of the Partnership must be held at least 1 time every financial year of the Partnership, and may be held at any such time and at any such intervals as may be deemed fit by all the Members of the Partnership.
13.2Not less than 21 clear days' notice is to be given of a meeting to all those entitled to attend, provided that valid shorter notice is deemed to have been given if all Members attend the meeting or if it is ratified by the Members at a subsequent duly convened meeting.
13.3Such notice must specify the place, day and time of the meeting and a statement of the matters to be discussed at the meeting.
13.4At the commencement of any meeting, those in attendance must elect the chairperson of the meeting.
13.5Simple majority of the Members present in person or by video or telephone conference call or by proxy (which must mean another Member appointed in writing to attend and vote on behalf of the appointing Member) must be a quorum for a meeting of the Members of the Partnership.
13.6The Members must ensure that all decisions taken by them in meetings are recorded in the minutes and are kept and maintained at the registered office of the Partnership as provided in section 2.2 of this Agreement.
14.Winding up
14.1The Partnership can be wound up in the case of unanimous resolution of all the Members of the Partnership or in other cases as prescribed by the AIFC Acts.
14.2In case of the winding up of the Partnership the contribution to the assets of the Partnership, which has been already wounded up is not allowed. Any Person who continues such contribution must be liable.
15.Entire agreement
15.1This Agreement constitutes the entire agreement between the Parties and supersedes and extinguishes all previous agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to its subject matter.
15.2Each party acknowledges that, in entering into this Agreement it does not rely on, and must have no remedies in respect of, any statement, representation, assurance or warranty (whether made innocently or negligently) that is not set out in this Agreement.
15.3No party must have a claim for innocent or negligent misrepresentation (or negligent misstatement) based upon any statement in this Agreement.
15.4Nothing in this clause must limit or exclude any liability for fraud.
16.Notices
16.1Any notice under this Agreement must be given in Writing and sent either:
(a) personally; or
(b) by sending it by post in a prepaid envelope addressed to the Member at the Member’s registered address or by leaving it at that address; or
(c) in electronic form to an address nominated by the Member and such a notice is deemed as being delivered at the time it was sent; or
(d) by any other means agreed between the Members.
17.Governing law and jurisdiction
This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) must be governed by and construed in accordance with the Acting Law of the AIFC.
This Agreement has been entered into on the date stated at the beginning of it.
Consultation Paper on the development of AIFC Digital Assets ecosystem
Introduction
1.The Astana Financial Services Authority (“AFSA”) has issued this Consultation Paper AFSA-G-CE-2021-0004 to invite public feedback and comments on the proposed Framework on implementation of further regulatory measures on the development of AIFC Digital Assets ecosystem.
2.The proposed amendments to the AIFC Acts to introduce limits on buying and trading of Digital Assets on AIFC Authorised Digital Asset Trading Facilities by Retail Clients are set out in Annexes 1-2 to this Paper.
3.This Consultation Paper may be of interest to the financial services providers providing or intending to provide services on operating a Digital Asset Trading Facility.
4.All comments to the proposed amendments to the AIFC Acts to introduce limits on buying and trading of Digital Assets on AIFC Authorised Digital Asset Trading Facilities by Retail Clients should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper No. AFSA-G-CE-2021-0004” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments.
5.The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
6.The deadline for providing comments on the proposals is August 26, 2021. Once we receive your comments, we shall consider if any refinements are required to the proposed amendments to the AIFC Acts due to introduction of limits on buying and trading of Digital Assets on AIFC Authorised Digital Asset Trading Facilities by Retail Clients.
7. Comments to be addressed to:
Consultation Paper No. AFSA-G-CE-2021-0004
FinTech Division
Astana Financial Services Authority (AFSA)
55/17, Mangilik El avenue, block C-3.2, Astana, Kazakhstan
or emailed to: m.abdinaminov@afsa.kz
I. Purpose
1.The proposal aims to ensure a greater client protection level of buyers of Digital Assets and to facilitate the provision of access for Authorised Digital Asset Trading Facilities (cryptoexchanges) to the local banking services, licenced and regulated by the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market (Agency) and the National Bank of Kazakhstan (NBK).
2.Analogously to the existing regulatory limits to invest in crowdfunding and private placement regimes, including initial coin offering (ICO), the proposal envisages the introduction of similar limits on buying Digital Assets on AIFC Authorised Digital Asset Trading Facilities.
II. Background
3.To keep up with the fast-growing cryptocurrencies industry, in July 2018, the AFSA adopted the AIFC framework on the regulation of cryptocurrencies and extended private placement regimes for securities, including tokenized securities.
4.To further support the new cryptocurrencies regime, since 2019, AFSA developed and proposed amendments on digital assets to the national Bill “On digital technologies” (enacted on 7 July 2020), which:
a)allows having two separate regulations on digital assets (including different definitions and types, such as cryptocurrencies) in Kazakhstan: one – under AIFC acts, and another – under the national law of Kazakhstan on Informatization,
b)harmonise the titles used for the cryptocurrencies regulated in the AIFC and the above-mentioned Bill (replacement of the term “Private E-currency” with the term “Digital Assets” throughout the text in AIFC Acts).
5.Following this, the AFSA jointly with the AIFC Authority introduced amendments to the Joint Order of Ministry of Finance (MF), Ministry of National Economy (MNE) and AIFC to exempt financial services relative to cryptocurrencies, including activities of Providing Custody and Operating a Digital Asset Trading Facility, from corporate income and value-added taxes.
6.However, by the Resolution of the Board of the National Bank of Kazakhstan (hereinafter – NBK) dated 12 November 2019 No. 188 “On approval of the Rules for the formation of a risk management and internal control system for second-tier banks” any operations with cryptocurrencies are declared as high-risk for local banks. As a result, local banks do not carry out both their own and client's transactions and operations expressed in cryptocurrencies.
7.Thus, AIFC firms with license operating Digital Asset Business, including cryptoexchanges, and their clients are not able to open bank accounts, including current accounts, at the local banks. As a result, such AIFC firms cannot carry out their activities, which hinders the development of innovations and FinTech within the AIFC.
8.The issue has been escalated by the Government. As the response the Government established the Working Group chaired by the First Deputy Prime Minister of Kazakhstan, Smailov A.A, with representatives from AIFC, NBK, Agency of financial development and regulations, Ministry of Innovation, Ministry of Justice, Ministry of Finance, Ministry of Economy, Ministry of Industry and Infrastructure Development, Ministry of Energy and Blockchain Technologies Association of Kazakhstan. As part of the Working Group discussions, the Roadmap on matters related to opening bank accounts for cryptoexchanges at local banks has been developed.
9.Investments in Digital Assets expose retail investors to significant risks, including but not limited to high price volatility, cyber-attack, market manipulations.
10.AFSA already implemented specific consumer protection measures and now following rules have been introduced to protect clients of Authorised Digital Asset Trading Facilities:
a.According to 6.3.1 of AIFC Authorised Market Institution Rules, an Authorised Digital Asset Trading Facility must make clear and transparent rules concerning the admission of Digital Assets to trading on its facilities.
b.According to 6.3.2 (3) of AIFC Authorised Market Institution Rules, an Authorised Digital Asset Trading Facility must obtain approval of the AFSA in respect of such Digital Asset before admitting any Digital Asset to trading.
c.According to 6.6 of AIFC Authorised Market Institution Rules, an Authorised Digital Asset Trading Facility must comply with additional requirements on technology resources, including cyber-security policy, technology governance, trading controls and settlement and clearing facilitation services.
d.According to 1.1 (h) of AIFC Fintech Rules, if the participant, operating with the FinTech Lab licence, is providing Digital Asset transactions - the participant must have arrangements in place to ensure storage of Client funds on a Hot Digital wallet at most equivalent to 10 Bitcoin (further BTC) or 10% of all Client funds or assets, whichever is greater.
11.With the view to protect citizens of Kazakhstan and by the request of the Agency and NBK, it was agreed to introduce limits on buying and trading of Digital Assets on AIFC Authorised Digital Asset Trading Facilities by retail clients – residents of Kazakhstan. Given that AIFC is international financial centre, clients cannot be discriminated, so proposal is to introduce limits for both residents and non-residents of Kazakhstan.
12. Given that the existing AIFC acts envisage investment limits for ICO and crowdfunding, it is proposed to extend similar limits on investments in Digital Assets through the AIFC Authorised Digital Asset Trading Facilities.
13. Benchmark analysis of regulatory frameworks showed that regulators in the United Kingdom (FCA), Singapore (MAS), France (AMF), Malta (MFSA), UAE (ADGM) and the United States of America did not exercise regulatory measure of imposing limits on investments in Digital Assets. Nevertheless, it is proposed to introduce limits on buying and trading of Digital Assets for retail clients due to significant risks and with the aim to protect citizens of Kazakhstan.
14. The proposal is that an Authorised Digital Asset Trading Facility must maintain effective systems and controls to ensure that a Retail Client using its service does not invest, in respect of Digital Assets in aggregate calculated over a period of one month, an amount which exceeds the greater of:
a)USD 1,000; or
b)the lesser of (i) 10 percent of the annual income; or (ii) 5 percent of the net worth of such Retail Client (excluding the value of the primary residence), up to a maximum aggregate amount of USD100,000.
15.The Retail Client can invest up to USD 1,000 without proof of income or net worth. If the Retail Client intends to invest more than USD 1,000, the Retail Client must provide proof documents and invest up to 10 percent of the annual income or 5 percent of the net worth (but not more than USD 100,000), whichever is less.
16.The proposal does not envisage limits for Professional Clients and Market Counterparties.
17.An Authorised Digital Asset Trading Facility will be responsible for compliance of Retail Clients with proposed limits.
18.The proposed limits have been discussed with Agency of financial development and regulations. Given that limits for investments on crowdfunding platforms by Retail Clients is limited by RUB 600,000 per year in Russian Federation, the Agency suggested to decrease limit for investments in Digital Assets by Retail Clients without proof of income or net worth from USD 2,000 (our initial proposed limit) to USD 1,000.
17.The NBK stated that National risk assessment of money laundering and terrorist financing for the period 2017-2021 should be first reviewed to comment on proposed limits.
National risk assessment of money laundering and terrorist financing is conducted according to article 11-1 of the AML/CFT Law of the Republic of Kazakhstan and the first FATF recommendation, which requires that states identify, assess and understand the money laundering and terrorist financing risks to which they are exposed.
National risk assessment is a process of identifying, assessing, and understanding ML/TF risks as part of the implementation and development of a national anti-money laundering / countering the financing of terrorism (AML/CFT) regime, which includes laws, regulations, enforcement, and other measures to mitigate ML/TF risks.
The Agency for Financial Monitoring of the Republic of Kazakhstan is responsible to conduct National risk assessment in Kazakhstan, which consists of sectoral risk assessment of each supervisory authority, including assessment of money laundering and terrorist financing risks in AIFC.
The National risk assessment for the period 2017-2021 in the framework of preparation to the EAG Mutual Evaluation of Kazakhstan in 2022 is currently in the final stages of development.
18.Currently, Authorised Digital Asset Trading Facilities are authorised only in the AFSA FinTech Lab, where there are additional limits. The maximum size of funds per Client up to which the Client Money Accounts are permitted to be deposited is 0.5 (point five) BTC or equivalent amount in another Digital Asset for Retail Clients (natural persons) and 5 (five) BTC or equivalent amount in another Digital Asset for Retail Clients (Body Corporates). The maximum size of aggregated funds of Clients that a FinTech Lab Participant is permitted to hold without ensuring compensation arrangement (which can be, for instance, in the form of performance assurance or guarantee) at any given instance is 50 (fifty) BTC or equivalent Digital Asset for Retail Clients and 1,250 BTC or equivalent Digital Asset Professional Clients.
III. Legislation
21.The implementation of the proposed framework requires introduction of amendments to AIFC Authorised Market Institutions Rules and AIFC Conduct of Business Rules.
IV. Questions in this Consultation Paper
22.Do you agree that proposed limits are necessary to protect Retail Clients? If not, please explain why.
23.Is our proposed limit set at the right level and, if not, what limit would you propose and what evidence can you provide to support this?
24.Are there other significant consumer protection measures that we haven’t considered?
Annex 1 AMENDMENTS № **TO AIFC AMI RULES
AIFC AUTHORISED MARKET INSTITUTIONS RULES (AMI)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
6. RULES APPLICABLE TO AN AUTHORISED DIGITAL ASSETS TRADING FACILITY
…
6.7. Clients of an Authorised Digital Asset Trading Facility and Investment limits
(1) Members of an Authorised Digital Asset Trading Facility and their clients will be Clients of an Authorised Digital Asset Trading Facility.
(2) An Authorised Digital Asset Trading Facility must maintain effective systems and controls to ensure that a Retail Client using its service does not invest, in respect of all Digital Assets in aggregate calculated over a period of one month, an amount which exceeds the greater of:
- a) USD 1,000; or
- b) the lesser of (i) 10 percent of the annual income; or (ii) 5 percent of the net worth of such Retail Client (excluding the value of the primary residence), up to a maximum aggregate amount of USD100,000.
Annex 2 AMENDMENTS № ** TO AIFC COB RULES
AIFC CONDUCT OF BUSINESS RULES (COB)
In this Appendix, a blue font and underlining indicates new text and strikethrough indicates deleted text, unless otherwise indicated.
1. APPLICATION
…
1.2.2. Exclusions in relation to certain categories of Centre Participant
For the avoidance of doubt, the requirements in COB do not apply to:
(a) a Representative Office;
(b) an Authorised Market Institution (other than an Authorised Crowdfunding Platform and an Authorised Digital Asset Trading Facility), except for COB 3 (Communications with Clients and Financial Promotions); or
(c) an Authorised Crowdfunding Platform, except for COB 3 (Communications with Clients and Financial Promotions), COB 4 (Key Information and Client Agreement), COB 7 (Conflicts of Interest), COB 8 (Client Assets) and COB Schedule 2 (Key Information and Content of Client Agreement); or
(d)an Authorised Digital Asset Trading Facility, except for COB 2 (Client Classification) and COB 3 (Communications with Clients and Financial Promotions).
For the purposes of 1.2.2(c), references in COB 3, COB 4, COB 7, COB 8 and COB Schedule 2 to:
(a) "Authorised Firms" shall be read as if it were a reference to "an Authorised Crowdfunding Platforms";
(b) "Regulated Activities" shall be read as if it were a reference to "Market Activities";
(c) references to "Professional Client" or a "Market Counterparty" shall be read as if they were a reference to "Accredited Lender or Accredited Investor"; and
(d) references to "Retail Client" shall be read as if they were a reference to "Retail Lender or Retail Investor".
For the purposes of 1.2.2(d), references in COB 2 and COB 3 to:
(a) "Authorised Firms" shall be read as if it were a reference to "an Authorised Digital Asset Trading Facility "; and
(b) "Regulated Activities" shall be read as if it were a reference to "Market Activities".
Guidance: Other applicable requirements
Although the Centre Participants listed in COB 1.2.2 are not generally subject to the requirements in COB, they will be subject to requirements in other Rules, which may include but are not limited to requirements in REP, AMI and GEN as applicable.
Consultation Paper on Substantial Presence Rules in the AIFC
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on the proposed Substantial Presence Rules in the AIFC. This consultation has been approved by the Legislative Committee of the Board of AFSA.
Who should read this CP?
2. The proposals in this paper will be of interest to international tax authorities or organisations, relevant government bodies, tax and law firms and AIFC participants.
What are the next steps?
3. We invite comments from interested stakeholders on the proposed Economic Substance Rules. Comments should be preferably provided in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2021-0001 in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposed framework is 10 September 2021. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post:
Policy and Strategy Division (Attention: M Ishaq Burney, MD and CLO)
Astana Financial Services Authority (AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz Tel: +8 7172 613741
Structure of this CP
Introduction
Background
Benchmarking
Proposal
Questions
Annex 1 – Economic Substance Rules
Background
1. The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) brings together over 139 countries and jurisdictions to collaborate on the implementation of the BEPS Package. The BEPS Package provides 15 Actions that equip governments with the domestic and international instruments needed to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.
2. In January 2017, Kazakhstan joined the Inclusive Framework on BEPS under which it commits to comply with the four minimum standards contained in OECD Action 5 (Harmful tax practices), Action 6 (Treaty abuse), Action 13 (Transfer pricing documentation), and Action 14 (Dispute resolution).
3. Action 5 is one of the four BEPS minimum standards which all Inclusive Framework members have committed to implement. One part of the Action 5 minimum standard relates to preferential tax regimes where a peer review is undertaken to identify features of such regimes that can facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other jurisdictions.
4.To comply with the standard of Action 5 (Harmful Tax Practices) and prevent tax base erosion and profit shifting, the AIFC is to implement the “substantial presence” requirements.
Benchmarking
5. The AFSA has conducted best practice analysis of several no or only nominal (noon) tax jurisdictions as well as financial centers with relevant taxable income recognition practices. The Economic Substance Rules of the UAE, Cayman Islands and the Crown Dependencies were studied along with certain practices of Hong Kong, Malaysia and Thailand, respectively.
6. The analysis showed that approaches adopted across noon jurisdictions are somewhat similar and are based on the following principles:
· Economic Substance Test applies to all legal entities that are resident for tax purposes unless they are tax resident elsewhere
· A company must carry out “relevant activities”, which include banking business, distribution and service centre business, financing and leasing business, fund management business, headquarters business, holding company business, insurance business, intellectual property business, shipping business. Investment funds are excluded from this list.
· Relevant entities must conduct their core income generating activities in their respective jurisdictions.
· Relevant entities must be directed and managed in their respective jurisdictions
· Relevant entities must have adequate employees, expenditure and physical assets. There appears to be a move to provide clarity on what criteria is used to determine if such indicia are adequate.
Proposal
7. The proposal is to enact AIFC Rules on the substantial presence of the Centre Participants applying tax incentives for the payment of corporate income tax, value added tax (the “Substance Rules”).
The Substance Rules will apply to the AIFC participants’ income derived from the tax-exempt services. An AIFC participant will be recognized as substantially present on the territory of the AIFC if it simultaneously fulfills the following conditions:
a) Core Income Generating Activities (“CIGA”) are provided from the territory of the Centre. The CIGA are the activities specified in the license of the Centre Participant and established by paragraph 3 of Article 6 of the Constitutional Law and (or) Chapter 3 of the List of Financial Services.
b) has an adequate number of operating expenditures, for which the coefficient of direct expenses is equal or more than the size of the coefficient of direct income;
c) has an adequate number of qualified full-time personnel, for which the coefficient of expenses for qualified personnel is equal or more than the size of the coefficient of direct income;
d) lack of outsourcing / subcontracting of the types of work directly related to the CIGA outside the Republic of Kazakhstan.
8.All tax exempt AIFC participants shall be subject to the economic substance test, as they would all be “residents” of the AIFC for tax purposes.
9.Since the State Revenue Committee, Kazakhstan’s tax authority, will be responsible for implementation of the rules, it is important that the rules have straightforward and unequivocal meaning. Therefore, the Substance Rules are based on formulas rather than principles to provide such clarity to the AIFC participants and the relevant tax authorities.
10.In light of the change in international business practices brought by the pandemic most of the jurisdictions had to temporarily waive the “directed and managed” test to meet the economic substance requirement. With the effects of the pandemic still remaining in the economies and communities, it was decided not to introduce this requirement at this stage of the development of the rules. The Substance Rules were developed after consultation with the international tax organisations like OECD and the tax authorities in other leading financial centres.
11. We expect that the relatively lower cost of operations and availability of highly qualified staff at reasonable wages in Kazakhstan may assist in meeting qualified personnel requirements.
12.An example of calculating the coefficients required by the suggested Economic Substance rules is provided by way guidance in the annex to the Substance Rules to provide clarity on application of the formulas and the acceptable coefficients contained in the draft rules.
Questions
13. The AFSA invites targeted stakeholders to provide their comments on the attached Rules on the substantial presence of participants in the AIFC applying tax incentives for the payment of corporate income tax, value added tax. We set out some of the questions of interest below:
Question 1. Should all AIFC Activities be subject to the Substance Rules, or should some activities be excluded? If so, which activities and why? |
Question 2. The AIFC notes the problems faced by firms in being able to demonstrate the “directed and managed” test particularly in light of the prevailing global pandemic conditions. The AIFC has adopted a specific formula to demonstrate adequate substance. Are the criteria proposed appropriate to the operations of AIFC firms? |
Question 3. Does your business expect the consequences of the prevailing global pandemic to affect its ability to comply with the proposed rules? |
Question 4. If you are (potentially) an international business, how would the proposed requirements compare to economic substance requirements in other jurisdiction(s) where your business resides / plans to operate from? |
Annex 1. Economic Substance Rules
Rules on the substantial presence of participants in the Astana International Financial Centre applying tax incentives for the payment of corporate income tax, value added tax
Chapter 1. General Provisions
1)These Rules on the substantial presence of participants in the Astana International Financial Centre (the “Centre”) applying tax benefits for the payment of corporate income tax, value added tax (“Rules”) are developed on the basis of clause6 of the List of financial services provided by the participants of the Centre exempted from the payment of corporate income tax, value added tax approved by the joint order of the Governor of the Centre dated May 26, 2020 No.126, the Minister of Finance of the Republic of Kazakhstan dated May 29, 2020 No.547 and the Minister of National Economy of the Republic of Kazakhstan dated June 12, 2020 No.118(“List of financial services”).
2)The rules apply to the participants of the Centre and are mandatory for them in the case of the latter Clauses 3 and (or) 8-2 of Article 6 of the Constitutional Law of the Republic of Kazakhstan dated December 7, 2015 "On the Astana International Financial Centre" (“Constitutional Law”).
3)For the purposes of applying the Rules, the basic concepts provided by the Constitutional Law, joint orders, as well as other regulatory legal acts of the Republic of Kazakhstan are used in the part that does not contradict the Constitutional Law.
4)The concepts of tax, civil and other branches of the legislation of the Republic of Kazakhstan, used in the Rules, shall be applied in the meaning in which they are used in these branches of the legislation of the Republic of Kazakhstan, unless otherwise provided by the Rules and the Constitutional Law.
5)Provisions on the fulfilment of tax obligations not established by the Rules are governed by the Code of the Republic of Kazakhstan on taxes and other obligatory payments to the budget (the Tax Code), as amended from time to time, of the Republic of Kazakhstan.
6)If violations of the provisions of these Rules are revealed based on the results of a tax audit or tax monitoring, the amount of corporate income tax will be additionally charged by the state authority responsible for collection of taxes and other obligatory payments to the budget (Tax Authority) in the manner and terms established by the Tax Code of the Republic of Kazakhstan.
Chapter 2. Requirements for substantial presence on the territory of the Centre
7)A participant of the Centre is recognized as substantially present on the territory of the Centre if participant simultaneously fulfils the following conditions:
- a)Core Income Generating Activities (“CIGA”) are provided from the territory of the Centre. The CIGA are the activities specified in the license of the Centre Participant and established by paragraph 3 of Article6 of the Constitutional Law and (or) Chapter 3 of the Listof Financial Services.
- b)with an adequate number of operating expenditures, for which the coefficient of direct expenses is equal or more than the size of the coefficient of direct income;
- c)with an adequate number of qualifiedfull-time personnel, for which the coefficient of expenses for qualified personnel is equal or more than the size of the coefficient of direct income;
- d)lack of outsourcing / subcontracting of the types of work directly related to the CIGA outside the Republic of Kazakhstan.
- 8)The authorized body individually analyses on a case-by-case basis whether the number of qualified full-timepersonnel is adequate to the level of activity carried on in the Centre and the amount of operating expenditure is adequate to the level of activity carried in the Centre.
9)When conducting a tax audit, the Tax Authority analyses the compliance of the coefficients of direct costs and expenses for qualified personnel working full-time with the coefficient of direct income in accordance with these Rules.
Chapter 3. The procedure for determining the coefficient of direct expenses
10)The coefficient of direct expenses is determined as the ratio of direct expenses to the total amount of expenses according to the following formula:
КПР = Рп / РВ,
where:
КПР – coefficient of direct expenses
Рп – direct expenses
РВ – total amount of expenses
11)The following expenses of a participant of the Centre directly related to the implementation of CIGA on the territory of the Centre are recognized as direct expenses (Рп):
1)expenses related to the maintenance and provision of an office on the territory of the Centre, in which workplaces are equipped and the participant of the Centre provides the services provided for in paragraph 3 of Article 6 of the Constitutional Law and (or) Chapter 3 of the List of Financial Services;
2)expenses for employees, reflected in the Declaration on individual income tax and social tax of a legal entity - a participant of the Centre, as income of such employees, taxes and social payments for which, in accordance with the legislation of the Republic of Kazakhstan, are subject to transfer or payment at the location of the Centre;
3)depreciation deductions, determined according to accounting data, calculated for assets used in the provision of services provided for in paragraph 3 of Article 6 of the Constitutional Law and (or) Chapter 3 of the List of Financial Services;
4)other expenses for the purchase of goods, supplies, works, services used in the provision of services provided for in paragraph 3 of Article 6 of the Constitutional Law.
12)The total amount of expenses(РВ) is determined in the amount of the total amount of expenses for the reporting period, reflected in the financial statements of the legal entity -participant of the Centre.
Chapter 4. The procedure for determining the coefficient of expenses for qualified personnel
13)The cost ratio for qualified personnel is defined as the ratio of the cost of qualified full-time personnel to the total cost of all personnel using the following formula:
КРП = РКП / РВП,
where:
КРП – coefficient of expenses for qualified full-timepersonnel
РКП – expenses for qualified full-time personnel
РВП – the total cost of all staff
14)Expenses for qualified full-timepersonnel (РКП) are the expenses of a participant of the Centre in part related to the CIGA incurred by:
1)full-time employment contracts concluded with employees, and reflected in the Declaration on individual income tax and social tax of a legal entity - a participant of the Centre as income of such employees, taxes and social payments for which, in accordance with the legislation of the Republic of Kazakhstan, are subject to transfer or payment at the location of the Centre;
2)contracts for the provision of personnel concluded with residents or non- residents carrying out activities in the Republic of Kazakhstan through a permanent establishment;
3)contracts of a civil nature, the subject of which is the provision of services, performance of work concluded with individuals, and reflected in the Declaration on individual income tax and social tax of a legal entity - a participant of the Centre as income of such individuals, taxes, and social payments on which, in accordance with the legislation of the Republic of Kazakhstan, are subject to transfer or payment at the location of the Centre.
15)The total amount of expenses for all personnel (РВП) is determined in the amount of the total expenses of the Centre participant for employee benefits (including, but not limited to, salaries, income in kind and in the form of material benefits) for the reporting period, reflected in the financial statements of legal entity - participant of the Centre.
Chapter 5. Procedure for determining the coefficient of direct income
16)The coefficient of the direct income is defined as the ratio of direct income to the total amount of income using the following formula:
КД = ДП / ДВ,
where:
КД – coefficient of direct income
ДП – direct income
ДВ – the total amount of income
17)Direct income(ДП) is recognized as income specified in paragraph 3 of Article6 of the Constitutional Law and received from activities from the provision of financial services on the territory of the Centre in accordance with agreements (contracts / transactions) concluded by a participant of the Centre on the territory of the Centre.
18)The total amount of income (ДВ) is determined in the amount of the total amount of income for the reporting period, reflected in the financial statements of the legal entity - participant of the Centre.
Chapter 6. Procedure for applying the Rules
19)The bodies of the Centre, if questions arise regarding the application of the Rules that are not regulated by the Rules, have the right to the extent that does not contradict the Constitutional Law and the provisions of the current Rules:
1)to make changes and additions to the Rules in agreement with the state body in charge, as well as, within the limits stipulated by the legislation of the Republic of Kazakhstan, cross-sectoral coordination in the financial sector (if necessary);
2)within the competence, to clarify and give comments on the application of these Rules;
3)to adopt acts related to the application of the Rules, as agreed by the state body in charge, as well as, within the limits stipulated by the legislation of the Republic of Kazakhstan, cross-sectoral coordination in the financial sphere.
4)to provide assistance to the participants of the Centre and applicants by holding seminars, meetings, in obtaining information on a free basis through Internet resources, posting information using media, information stands, booklets and other printed materials, as well as video, audio and other technical means used to disseminate information.
Example of calculating indicators
The AAA company, a participant of the Centre, providing brokerage and (or) dealer, underwriting services, at the end of the period has the following financial indicators:
1)the total amount of income (ДВ) - 40,000,000 tenge, including:
·direct income received from activities on the territory of the Centre (ДП) - 20,000,000 tenge;
2) the total amount of expenses (РВ) - 8,000,000 tenge, including:
· the total amount of expenses for all personnel (РВП) - 4,000,000tenge;
· direct costs (РП) - 4,000,000 tenge, of which:
·expenses directly related to the implementation of activities on the territory of the Centre, excluding staff costs - 2,000,000 tenge;
·expenses for qualified personnel (РКП) - 2,000,000 tenge. Based on the available data, we calculate the required indicators:
3)the coefficient of qualified expenses(КПР) is (paragraph 10 of the Rules):
КПР = Рп / РВ,
where:
КПР – coefficient of direct expenses
Рп – direct expenses
РВ – total amount of expenses
КПР = 4,000,000 / 8,000,000 = 0.5
4)the coefficient of expenses for qualified personnel(КРП) is (paragraph13 of the Rules):
КРП = РКП / РВП,
where:
КРП – coefficient of expenses for qualified full-timepersonnel
РКП – expenses for qualified full-time personnel
РВП – the total cost of all staff
КРП = 2,000,000/ 4,000,000 = 0.5
5) the coefficient of direct income(КД) is (paragraph 16 of the Rules):
КД = ДП / ДВ,
where:
КД – coefficient of direct income
ДП – direct income
ДВ – the total amount of income
КД = 20,000,000 / 40,000,000 = 0.5
The AAA company is recognized as actually present on the territory of the Centre due to the simultaneous fulfilment of the conditions provided for in paragraph 7 of the Rules:
a)providing the CIGA on the territory of the Centre;
b)the coefficient of direct expenses is "0.5", which is equal to the size of the coefficient of direct income;
c)the coefficient of expenses for qualified personnel is "0.5", equal to the size of the coefficient of direct income;
d)lack of outsourcing / subcontracting of the types of work directly related to the CIGA outside the Republic of Kazakhstan.
Consultation Paper on Proposed changes to the AML Rules
Introduction
Why are we issuing this Consultation Paper (CP)?
1. The Astana Financial Services Authority (the “AFSA”) has issued this CP to seek suggestions from the market on the proposed amendments to the AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules (the “AML Rules”). This consultation has been approved by the Legislative Committee of the AFSA Board.
Who should read this CP?
2. The proposals in this paper will be of interest to the AIFC participants, in particular, Authorised Firms, Authorised Market Institutions, Designated Non-Financial Businesses and Professions (the "DNFBPs"), Registered Auditors and other.
What are the next steps?
3. We invite comments from interested stakeholders on the proposed amendments to the AML Rules. Comments should be provided in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2021-0002” in the subject line. You may, if relevant, identify the organization you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.
4. The deadline for providing comments on the proposed framework is November 19,2021. Once we receive your comments, we shall consider if any refinements are required to this proposal.
5. Comments to be addressed by post:
Policy and Strategy Division (Attention: M Ishaq Burney, MD and CLO) Astana Financial Services Authority(AFSA)
55/17 Mangilik El, building C3.2, Kazakhstan
or emailed to: consultation@afsa.kz Tel: +8 7172 613741
Structure of this CP
Introduction
Background
Proposal
Questions
Consequential amendments
Annex 1 – AML Rules
Background
1.The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. It sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation (AML/CFT), and other related threats to the integrity of the international financial system. The FATF Recommendations are revised periodically, most recently in June 2021, to ensure that countries respond to current money laundering and terrorist financing threats, as well as other threats to the financial system through measures adapted to their particular circumstances.
2.The FATF monitors the progress of its members in implementing these Recommendations through a mutual evaluation on how effective their AML measures are.
3.In 2022, the relevant regional body “Eurasian group on combatting money laundering and terrorist financing” (the “EAG”) will conduct the mutual evaluation of the Republic of Kazakhstan and the AIFC will be a part of that evaluation.
4.During the evaluation, EAG assessors will focus on assessing technical compliance of the AIFC jurisdiction with the FATF Recommendations and on assessing whether or how the AIFC AML/CTF system is effective.
5.The National Risk Assessment on Money Laundering and Terrorist Financing of the Republic of Kazakhstan is scheduled for 2022 and the AFSA is in a dialogue with the Agency of Financial Monitoring of the Republic of Kazakhstan to ensure the AFSA’s framework is fit for purpose and supports the overall AML/CFT assessment of the Republic of Kazakhstan.
6.Therefore, the AML Rules need to be further aligned with the FATF Recommendations.
Key Elements of the proposed amendments
7.The AFSA identified several areas in the AML Rules that are proposed to be amended to enhance the adherence with the FATF Recommendations. Some of the key amendments are highlighted below.
(1) Regulatory and supervision powers
The AFSA’s powers are more clearly defined in terms of regulatory powers, imposing disciplinary sanctions and other actions in case of AML Rules contravention, including regulation and supervision of DNFBPs.
(2) Risk-based approach
The proposed amendments considerably expand the responsibility of Relevant Persons in a risk-proportionate manner. Thus, relevant persons will be responsible for managing and mitigating country-wide risks identified in the published reports and guidance given by the financial intelligence unit regarding the FATF mutual evaluations and follow-up reports and implementing enhanced measures where higher risks are identified. It is also proposed to explicitly require firms to manage and mitigate risks they identify during their risk assessment.
Policies, procedures, systems and controls of firms are also expanded to include representation of compliance function in management, potential employee screening procedures and independent audit function.
(3) Customer due diligence
The proposed amendments specifically underline the need to conduct CDD for occasional transactions the value of which singularly or in several linked operations (whether at the time or later), equal or exceed $15,000 and to conduct enhanced due diligence (EDD) when there are business relationships and transactions with persons from countries with high geographical risk factors. Simplified due diligence (SDD) can only be used when low risk is ensured through adequate risk analysis.
There are changes to conditions when business relationships can be established before completing the verification procedures.
Identification of beneficial owners during identification and verification has been explicitly stressed. When those are not identified, senior management will be identified enhancing the significance of personal accountability.
In addition, when an existing customer of a Relevant Person becomes a politically exposed person (PEP), such Relevant Person must inquire its senior management on whether to continue business with the PEP.
(4) Reliance and outsourcing
Extent of reliance provisions has been amended. It is suggested that a Relevant Person can rely on a third party only if such a third party obtains client and beneficial owner identification and verification documents, as well as the information on the nature and purpose of the business relationship and transactions. It is also proposed that third party’s arrangements must be regularly tested to ensure duly CDD documents retrieve.
It is clearly defined that relationships between a Relevant Person and its agents or outsourcing entities are out of the reliance scope.
The suggested amendments provide that in case a relevant person seek for reliance must obtain from the third party client and beneficial owner identification and verification documents, as well as the information on the nature and purpose of the business relationship and transactions.
As to reliance on a Group member, the Group’s AML policies must adequately mitigate any high geographical risk factors
In addition, when assessing the equivalency of AML procedures of a third party, the AFSA regulated entities will now rely on more defined criteria.
This will help to increase reliance of the AFSA regulated entities on reliable third parties, decreasing money laundering, terrorist financing and proliferation of the financing of weapons of mass destruction risks.
(5) Wire Transfers
This section has been amended by defining obligations of the Authorised Persons when
executing wire transfers and introducing thresholds. Thus, in case a wire transfer is below or exceeds a threshold of USD1,000 or wire transfers from a single payer are bundled in a batch file, Authorised Persons must request certain information on the payer and payee.
A requirement to maintain records on the payee and payee information accompanying wire transfers and identify cross-border wire transfers, that lack the required payer or payee information, was introduced on those Authorised Persons that are ordering, beneficiary and intermediary institutions.
Also, Authorised Persons must establish a protocol when certain information is not available. There must be policies, procedures, systems and controls determining execution, rejection or suspension a wire transfer that lacks the full payer information or required payee information and appropriate follow-up actions.
New sections are proposed on regulation Authorised Persons that are money or value transfer service operators (MVTS). In certain cases, MVTS providers are required to file a Suspicious Transaction Report (STR) and make relevant transaction information available to the Financial Intelligence Unit (FIU) of the Republic of Kazakhstan.
(6) Sanctions
Relevant Persons are explicitly prohibited from conducting transactions with designated persons and entities, as per the obligations set out in the relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan.
Applicable persons are required to independently apply risk proportionate countermeasures whether or not called upon to do so by the FATF.
(7) Money Laundering Reporting Officer and suspicious transactions
Reporting and notification obligations of the Relevant Persons are proposed to be expanded.
The timeframe for submission of the AML Return form is changed to 2 months after the year end.
STRs and TTRs submission obligations and notification of the AFSA of such submissions are defined more clearly.
For the purposes of submitting STRs and TTRs, registration with the FIU of the Republic of Kazakhstan before the business relationship commencement is required.
(8)Group policies
A requirement on the policies and procedures content and information sharing between Group entities is introduced.
Group entities are also required to implement the AML requirements of the AIFC to the extent the host country permits, otherwise apply additional appropriate measures and inform the AFSA.
(9)Employee protection
Employees filing STRs are protected from any civil liability or criminal prosecution under the Kazakhstan law resulting from the submission of any STR.
Questions
8. Here are some questions for your consideration:
Question 1. Are there any new provisions or amendments that are not clear? What are they and what is your interpretation of them? How would you recommend addressing the lack of clarity?
Question 2. How long will your business need to make itself compliant with the proposed amendments?
Question 3. Do you think your existing AML/CFT resources are sufficient to comply with the proposed requirements? If not, would the insufficiency be caused by lack of resources or their qualifications/experience?
Question 4. Will AIFC training courses on preparations for the EAG Mutual Assessment and the AML/CFT regime address these gaps?
Question 5. Do you understand the risk-based approach to AML/CFT?
Consequential amendments
1.To bring the AIFC AML/CFT system in compliance with the FATF Recommendations as part of the EAG mutual evaluation process, there will be some consequential amendments proposed to the Constitutional Statute of the Republic of Kazakhstan on the AIFC and AIFC Acts listed below[1].
Constitutional Statute of the Republic of Kazakhstan on the AIFC
The amendments will clarify the AFSA’s supervisory and enforcement powers in relation to AML/CFT. Thus, it will be more clearly defined that the AFSA has powers to regulate and supervise AIFC Participants’ compliance with the AML/CFT Rules and the AML/CFT legislation of Kazakhstan, including adopting its own regulatory acts.
These changes in themselves are not a pre-requisite to the improvements to the AIFC AML/CFT regime.
AIFC Financial Services Framework Regulations
The suggested amendments will include specification of the AFSA’s powers to impose sanctions over financial institutions for breach of AML/CFT requirements and conduct inspections of financial institutions.
AIFC General Rules
MLRO status as a Designated Individual is proposed to be changed to that of an Approved Individual for Controlled Functions. That means that an individual invited to perform that function must be individually approved by the ASFA on the application by the relevant firm. He/she will need to meet the fit and proper criteria for Approved Individuals and have appropriate level of seniority and independence to act in the role.
[1] The list of the AIFC Acts to be consequentially amended is not exhaustive.
Annex 1. AML Rules
The AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules (AML Rules) No. FR0008 of 2017 approved by the AFSA Board of Directors on 10 December 2017.
In the proposed amendments to the AML Rules the underlining indicates a new text and the striking through indicates deleted text.
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Consultation paper on Proposed Regulatory Guidance on Fitness and Propriety
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Consultation paper on Enhancing AIFC Market and Recognition Frameworks in the AIFC
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Consultation Paper on Proposed Amendments to the AIFC Banking Business Framework
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Consultation Paper on AIFC AML/CFT Framework: Consequential amendments to the AIFC Acts
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Consultation Paper on Amendments to the AIFC Banking Business Framework
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