Introduction

Why are we issuing this Consultation Paper (CP)?

1.   The Astana Financial Services Authority (the “AFSA”) has issued this CP to seek suggestions from the market on the proposed amendments to the AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules (the “AML Rules”). This consultation has been approved by the Legislative Committee of the AFSA Board.

Who should read this CP?

2.   The proposals in this paper will be of interest to the AIFC participants, in particular, Authorised Firms, Authorised Market Institutions, Designated Non-Financial Businesses and Professions (the "DNFBPs"), Registered Auditors and other.

What are the next steps?

3.   We invite comments from interested stakeholders on the proposed amendments to the AML Rules. Comments should be provided in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-L-CE-2021-0002” in the subject line. You may, if relevant, identify the organization you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.

4.   The deadline for providing comments on the proposed framework is November 19,2021. Once we receive your comments, we shall consider if any refinements are required to this proposal.

5.   Comments to be addressed by post:

Policy and Strategy Division (Attention: M Ishaq Burney, MD and CLO) Astana Financial Services Authority(AFSA)

55/17 Mangilik El, building C3.2, Kazakhstan

or emailed to: consultation@afsa.kz Tel: +8 7172 613741

Structure of this CP

Introduction

Background

Proposal

Questions

Consequential amendments

Annex 1 – AML Rules

Background

1.The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. It sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation (AML/CFT), and other related threats to the integrity of the international financial system. The FATF Recommendations are revised periodically, most recently in June 2021, to ensure that countries respond to current money laundering and terrorist financing threats, as well as other threats to the financial system through measures adapted to their particular circumstances.

2.The FATF monitors the progress of its members in implementing these Recommendations through a mutual evaluation on how effective their AML measures are.

3.In 2022, the relevant regional body “Eurasian group on combatting money laundering and terrorist financing” (the “EAG”) will conduct the mutual evaluation of the Republic of Kazakhstan and the AIFC will be a part of that evaluation.

4.During the evaluation, EAG assessors will focus on assessing technical compliance of the AIFC jurisdiction with the FATF Recommendations and on assessing whether or how the AIFC AML/CTF system is effective.

5.The National Risk Assessment on Money Laundering and Terrorist Financing of the Republic of Kazakhstan is scheduled for 2022 and the AFSA is in a dialogue with the Agency of Financial Monitoring of the Republic of Kazakhstan to ensure the AFSA’s framework is fit for purpose and supports the overall AML/CFT assessment of the Republic of Kazakhstan.

6.Therefore, the AML Rules need to be further aligned with the FATF Recommendations.

Key Elements of the proposed amendments

7.The AFSA identified several areas in the AML Rules that are proposed to be amended to enhance the adherence with the FATF Recommendations. Some of the key amendments are highlighted below.

(1) Regulatory and supervision powers

The AFSA’s powers are more clearly defined in terms of regulatory powers, imposing disciplinary sanctions and other actions in case of AML Rules contravention, including regulation and supervision of DNFBPs.

(2) Risk-based approach

The proposed amendments considerably expand the responsibility of Relevant Persons in a risk-proportionate manner. Thus, relevant persons will be responsible for managing and mitigating country-wide risks identified in the published reports and guidance given by the financial intelligence unit regarding the FATF mutual evaluations and follow-up reports and implementing enhanced measures where higher risks are identified. It is also proposed to explicitly require firms to manage and mitigate risks they identify during their risk assessment.

Policies, procedures, systems and controls of firms are also expanded to include representation of compliance function in management, potential employee screening procedures and independent audit function.

(3) Customer due diligence

The proposed amendments specifically underline the need to conduct CDD for occasional transactions the value of which singularly or in several linked operations (whether at the time or later), equal or exceed $15,000 and to conduct enhanced due diligence (EDD) when there are business relationships and transactions with persons from countries with high geographical risk factors. Simplified due diligence (SDD) can only be used when low risk is ensured through adequate risk analysis. 

There are changes to conditions when business relationships can be established before completing the verification procedures.  

Identification of beneficial owners during identification and verification has been explicitly stressed. When those are not identified, senior management will be identified enhancing the significance of personal accountability.

In addition, when an existing customer of a Relevant Person becomes a politically exposed person (PEP), such Relevant Person must inquire its senior management on whether to continue business with the PEP.

(4) Reliance and outsourcing

Extent of reliance provisions has been amended.  It is suggested that a Relevant Person can rely on a third party only if such a third party obtains client and beneficial owner identification and verification documents, as well as the information on the nature and purpose of the business relationship and transactions. It is also proposed that third party’s arrangements must be regularly tested to ensure duly CDD documents retrieve.

It is clearly defined that relationships between a Relevant Person and its agents or outsourcing entities are out of the reliance scope.

The suggested amendments provide that in case a relevant person seek for reliance must obtain from the third party client and beneficial owner identification and verification documents, as well as the information on the nature and purpose of the business relationship and transactions.

As to reliance on a Group member, the Group’s AML policies must adequately mitigate any high geographical risk factors

In addition, when assessing the equivalency of AML procedures of a third party, the AFSA regulated entities will now rely on more defined criteria.

This will help to increase reliance of the AFSA regulated entities on reliable third parties, decreasing money laundering, terrorist financing and proliferation of the financing of weapons of mass destruction risks.

(5) Wire Transfers

This section has been amended by defining obligations of the Authorised Persons when

executing wire transfers and introducing thresholds. Thus, in case a wire transfer is below or exceeds a threshold of USD1,000 or wire transfers from a single payer are bundled in a batch file, Authorised Persons must request certain information on the payer and payee.

A requirement to maintain records on the payee and payee information accompanying wire transfers and identify cross-border wire transfers, that lack the required payer or payee information, was introduced on those Authorised Persons that are ordering, beneficiary and intermediary institutions.

Also, Authorised Persons must establish a protocol when certain information is not available. There must be policies, procedures, systems and controls determining execution, rejection or suspension a wire transfer that lacks the full payer information or required payee information and appropriate follow-up actions.

New sections are proposed on regulation Authorised Persons that are money or value transfer service operators (MVTS).  In certain cases, MVTS providers are required to file a Suspicious Transaction Report (STR) and make relevant transaction information available to the Financial Intelligence Unit (FIU) of the Republic of Kazakhstan.

(6) Sanctions

Relevant Persons are explicitly prohibited from conducting transactions with designated persons and entities, as per the obligations set out in the relevant resolutions or sanctions issued by the United Nations Security Council or by the Republic of Kazakhstan.

Applicable persons are required to independently apply risk proportionate countermeasures whether or not called upon to do so by the FATF.

(7) Money Laundering Reporting Officer and suspicious transactions

Reporting and notification obligations of the Relevant Persons are proposed to be expanded.

The timeframe for submission of the AML Return form is changed to 2 months after the year end.

STRs and TTRs submission obligations and notification of the AFSA of such submissions are defined more clearly.

For the purposes of submitting STRs and TTRs, registration with the FIU of the Republic of Kazakhstan before the business relationship commencement is required.  

(8)Group policies

A requirement on the policies and procedures content and information sharing between Group entities is introduced.

Group entities are also required to implement the AML requirements of the AIFC to the extent the host country permits, otherwise apply additional appropriate measures and inform the AFSA.

(9)Employee protection

Employees filing STRs are protected from any civil liability or criminal prosecution under the Kazakhstan law resulting from the submission of any STR.

Questions

8. Here are some questions for your consideration:

Question 1. Are there any new provisions or amendments that are not clear? What are they and what is your interpretation of them? How would you recommend addressing the lack of clarity?

Question 2. How long will your business need to make itself compliant with the proposed amendments?

Question 3. Do you think your existing AML/CFT resources are sufficient to comply with the proposed requirements? If not, would the insufficiency be caused by lack of resources or their qualifications/experience? 

Question 4. Will AIFC training courses on preparations for the EAG Mutual Assessment and the AML/CFT regime address these gaps?

Question 5. Do you understand the risk-based approach to AML/CFT?

Consequential amendments

1.To bring the AIFC AML/CFT system in compliance with the FATF Recommendations as part of the EAG mutual evaluation process, there will be some consequential amendments proposed to the Constitutional Statute of the Republic of Kazakhstan on the AIFC and AIFC Acts listed below[1].

Constitutional Statute of the Republic of Kazakhstan on the AIFC

The amendments will clarify the AFSA’s supervisory and enforcement powers in relation to AML/CFT. Thus, it will be more clearly defined that the AFSA has powers to regulate and supervise AIFC Participants’ compliance with the AML/CFT Rules and the AML/CFT legislation of Kazakhstan, including adopting its own regulatory acts.  

These changes in themselves are not a pre-requisite to the improvements to the AIFC AML/CFT regime.

AIFC Financial Services Framework Regulations

The suggested amendments will include specification of the AFSA’s powers to impose sanctions over financial institutions for breach of AML/CFT requirements and conduct inspections of financial institutions.

AIFC General Rules

MLRO status as a Designated Individual  is proposed to be changed to that of an Approved Individual for Controlled Functions.  That means that an individual invited to perform that function must be individually approved by the ASFA on the application by the relevant firm.  He/she will need to meet the fit and proper criteria for Approved Individuals and have appropriate level of seniority and independence to act in the role.

[1] The list of the AIFC Acts to be consequentially amended is not exhaustive.

Annex 1. AML Rules

The AIFC Anti-Money Laundering, Counter-Terrorist Financing and Sanctions Rules (AML Rules) No. FR0008 of 2017 approved by the AFSA Board of Directors on 10 December 2017.

In the proposed amendments to the AML Rules the underlining indicates a new text and the striking through indicates deleted text.

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