Introduction

1. The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed amendments to the AIFC Financial Services Framework Regulations, AIFC Glossary, AIFC Co-operation and Exchange of Information Rules, and AIFC Conduct of Business Rules.

2. The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.

3. All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P- CE-2019-0011” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.

4. The deadline for providing comments on the proposals is 25 October 2019. Once we receive your comments, we shall consider if any refinements are required to this proposal.

5. Comments to be addressed by post: Policy and Strategy Division

Astana Financial Services Authority (AFSA)

55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz

Tel: +8 7172 613781

6. The remainder of this Consultation Paper contains the following:

(a) Background to the proposals

(b) Key elements of the proposed amendments

(c) Annex 1: Draft of proposed amendments to the AIFC Financial Services Framework Regulations

(d) Annex 2: Draft of proposed amendments to the AIFC Glossary

(e) Annex 3: Draft of proposed amendments the AIFC Co-operation and Exchange of Information Rules

(f) Annex 4: Draft of proposed amendments to the AIFC Conduct of Business Rules

Background

On the proposed amendments to the AIFC Financial Services Framework Regulations and AIFC Glossary concerning the appointment of auditors

1. The current wordings of AIFC Financial Services Framework Regulations (FSFR), AIFC Market Rules (MAR) and AIFC Glossary require the Authorised Person and Reporting Entities to appoint auditors who are Ancillary Service Providers. It is proposed to eliminate the requirement for Authorised Person registered as recognised companies or recognised partnerships and Reporting Entities in the AIFC to appoint an auditor who are Ancillary Services Providers by amending FSFR and Glossary.

On the proposed amendments to the AIFC Co-operation and Exchange of Information Rules

2. The AIFC Co-operation and Exchange of Information Rules (CO-OP) envisage that if the AFSA intends to disclose confidential information received from a Financial Services Regulator to Persons specified in the CO-OP it may give notice to the Person(s) to whom the disclosure relates. Current wording of CO-OP 3.2.8 covers providing notice only in relation to information received from Financial Services Regulator and does not cover the information generated by the AFSA. Therefore, it is proposed to delete the wording “received from a Financial Services Regulator” by amending CO-OP.

On the proposed amendments to the AIFC Conduct of Business Rules

3. Under current definition of the Professional Clients, a minimum threshold for net assets of individual clients is not proportionate to the income level in the country. Analysis of laws and regulatory requirements of the professional client classification in the region shows that AIFC threshold is more than 10 times higher than in Russia and more than 20 times than in Kyrgyzstan. It is proposed to reduce current net assets requirement for Assessed Professional Clients by amending AIFC Conduct of Business Rules (COB).

KEY ELEMENTS OF THE PROPOSED AMENDMENTS

Annex 1

Proposed Amendment

to AIFC Financial Services Framework Regulations

In this document, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments

Chapter 3. Accounting / Auditing

109. Requirement to appoint an auditor Auditor

An Authorised Person must appoint an auditor Auditor who is an Ancillary Service Provider.

Annex 2

Proposed Amendment to AIFC Glossary

In this document, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments

Annex 3

Proposed Amendment

to the AIFC Co-operation and Exchange of Information Rules

In this document, the striking through indicates deleted text in the proposed amendment

3. CONFIDENTIALITY (…)

3.2. Requests to obtain information (…)

3.2.8. Notice of disclosure

If the AFSA intends to disclose confidential information received from a Financial Services Regulator to any of the Persons specified in subsection 2.2, the AFSA may give notice to the Person(s) to whom the disclosure relates in the following circumstances:

(a) the disclosure relates to a Person’s compelled testimony to a law enforcement

(b) agency for the purpose of criminal proceedings against thatPerson;

(c) the disclosure relates to private civil litigation, in order that the Person may challenge the request according to the Rules of the AIFC Court; or

(d) there are serious and legitimate concerns about the appropriateness of the disclosure, including where the body requesting the confidential information does not perform a financial service related regulatory function.

Annex 4

Proposed Amendment

to the AIFC Conduct of Business Rules

In this document, the underlining indicates a new text and the striking through indicates deleted text in the proposed amendments

2.5.1. Assessed Professional Clients: Individual Clients

For the purposes of COB 2.3.1, an Authorised Firm may treat an individual Client as an Assessed Professional Client if:

(a)   the Client has net assets of at least USD 1 million 100,000;

(b)   either:

(i)the Authorised Firm assesses the Client, on reasonable grounds, to have sufficient experience and understanding of relevant Financial Products, Financial Services, Transactions and any associated risks; or

(ii)the Client works or has worked in the previous two years in an Authorised Firm or any other authorised or regulated financial institution, including a bank, securities firm or insurance company, in a position that requires knowledge of the type of Financial Products, Financial Services or Transactions envisaged; and

(c)   the following procedure is followed:

(i)the Client must confirm in writing to the Authorised Firm that it wishes to be treated as a Professional Client either:

(1) generally;

(2) in respect of a specific Financial Product, Financial Service, or Transaction; or

(3) in respect of a type of Financial Product, Financial Service, or Transaction;

(ii)the Authorised Firm must give the Client a clear warning in writing setting out the protections that the Client may lose as a result of giving up its classification as a Retail Client; and

(iii)the Client must confirm in writing, in a separate document from the client agreement or other contract, that it is aware of the consequences of losing such protections.

Guidance: Meaning of an "individual"

For the purposes of COB 2.5.1, an "individual" means a Person who is a natural person and not an Undertaking.