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.

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:

1. (a)establishing an integrated and efficient payments market within the AIFC;
2. (b)facilitating the development and emergence of new, innovative, and secure e-money and payment services;
3. (c)providing companies and individuals with access to the e-money and payment services market, whilst also ensuring customers' protection; and
4. (d)encouraging effective competition within the market of the AIFC.[1]
5. 
   

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:

1. (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;
2. (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
3. (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:

1. (a)services which enable money to be paid into and out of bank accounts;
2. (b)execution of transactions, such as payments made via payment instruments or devices, direct debits, credit transfers, and debit payments;
3. (c)execution of transactions as above, but where funds are covered by a line of credit, such as an overdraft facility;
4. (d)issuing of payment instruments and/or acquiring of payment transactions;
5. (e)money remittance;
6. (f)account information services (AIS); and
7. (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:

1. (a)payment accounts, meaning accounts held in payment service users' names used for executing payment transactions;
2. (b)payment orders, meaning instructions by a payer or payee to its payment service provider requesting the execution of a payment transaction;
3. (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
4. (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:

1. (a)Participants that rely on exclusions relating to limited networks, electronic communications, or ATM operations must notify the AFSA that they are doing so;
2. (b)Participants providing currency conversion services will need to provide certain information to the AFSA; and
3. (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:

1. (a)a Relevant Authorised Firm (see 3.1.6);
2. (b)a PI[5];
3. (c)an SPI;[6]
4. (d)a RAISP;
5. (e)an EMI; or
6. (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:

1. (a)a description of its business or business plan and of its product/s;
2. (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
3. (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:

1. (a)capital requirements, including:
2. (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
3. (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);
4. (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;
5. (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);
6. (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
7. (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:

1. (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
2. (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:

1. (a)on executing payment transactions:
2. (i)timeframes should be set out for execution, value dating, crediting funds, and displaying these as available to the payee;
3. (ii)payment service providers should distinguish between authorised and unauthorised transactions, with mechanisms for customers to give consent to execute payment transactions;
4. (iii)payment service providers should only debit payments upon receipt of a valid payment order; and
5. (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);
6. (b)on liability:
7. (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);
8. (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
9. (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);
10. (c)on payment instruments, these should not be misused by customers, whilst payment service providers must ensure their security; and
11. (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:

1. (a)general standards and principles of governance imposed by regulators;[8]
2. (b)accountability of senior staff;[9]
3. (c)consumer protection legislation[10], and in particular:
4. (i)dispute resolution mechanisms;
5. (ii)unfair contract terms; and
6. (iii)broader consumer rights;
7. (d)"distance marketing",[11] i.e. online sales;
8. (e)advertising and e-commerce;[12]
9. (f)interchange fees;[13]
10. (g)data protection and cyber security;[14] and
11. (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:

1. (a)the issue and redemption of e-money, as set out at 4.3 (these are specific to issuers); and
2. (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:

1. (a)a Relevant Authorised Firm (see 4.1.6);
2. (b)a SEMI[1]; or
3. (c)an EMI[2].

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:

1. (a)capital requirements, where:
2. (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
3. (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;
4. (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; 
5. (c)allowed activities, where EMIs may – in addition to issuing e-money – carry on activities relating to:
6. (i)providing payment services;
7. (ii)providing operational and closely related ancillary services, such as executing payment transactions, foreign exchange services;
8. (iii)operating payment systems; and
9. (iv)business activities other than issuing electronic money;
10. (d)reporting and notification requirements, which broadly mirror those set out at 3.3.1(c);
11. (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
12. (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:

1. (a)holders of e-money must have the right to redeem the monetary value at any time, and at par value;
2. (b)the issuer must ensure the contract clearly states the conditions for redemption, including any fees;
3. (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);
4. (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
5. (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:

1. (a)amending the list of Regulated Activities in Schedule 1 of GEN to include "Providing Payment Services" and "Issuing Electronic Money"; 
2. (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);
3. (c)adding the definitions introduced by the Framework to GLO;
4. (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;
5. (e)amending the AIFC Insolvency Rules to reflect the safeguarding requirements set out at 5.3.1(b);
6. (f)amending the COB; and
7. (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:

1. (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
2. (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

Schedule 1 – Policy issues (major)

Schedule 2 - Policy issues (non-major)

Schedule 1- Policy issues (non-major)

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

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:

50% reduction is proposed for the following AIFC Participants not holding Client Money/Asset:

20% reduction is proposed for AIFC Participants holding Client Money/Asset:

2.Proposed supervision fees for Market Activities

20% reduction is proposed for AIFC Participants carrying on Market Activities:

3.Proposed supervision fees for Ancillary Services

20% reduction is proposed for AIFC Participants providing Ancillary Services

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

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

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.

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.

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.

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

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.

Please, press "PDF" above to download the document.

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.

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: 

1. Background to the proposal; 
2. The list of the key elements of the proposed amendments; 
3. Annex 1 Proposed Amendments to the AIFC Regulations;  
4. Annex 2 Proposed Amendments to the AIFC Rules;  
5. Annex 3 Proposed Amendments to the AIFC Foundations Regulations: Schedule 4 Standard Foundation Charter and Schedule 5 Standard Foundation By-Laws; 
6. Annex 4 Schedule 3: Standard Partnership Agreement for General Partnerships; 
7. Annex 5 Schedule 3: Standard Partnership Agreement for Limited Partnerships; 
8. 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. (1) AIFC Companies Regulations; 
2. (2) AIFC Foundations Regulations; 
3. (3) AIFC General Partnership Regulations; 
4. (4) AIFC Limited Partnership Regulations; 
5. (5) AIFC Limited Liability Partnership Regulations; and 
6. (6) AIFC Non-profit Incorporated Organisations Regulations. 

Rules 

1. (1) AIFC Companies Rules; 
2. (2) AIFC General Partnership Rules; 
3. (3) AIFC Limited Partnership Rules; 
4. (4) AIFC Limited Liability Partnership Rules; and 
5. (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: 

1. - 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. 
2. - 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.: 

1. - Obligations in respect of payments and transactions; 
2. - Notification obligations; 
3. - 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: 

1. - online registration may be a challenge for companies with the complicated beneficiary structure; 
2. - 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); 
3. - 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.

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.

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.

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