The AIFC participants providing financial services licensable pursuant to the AIFC Acts must file a respective application to AFSA. Services in the financial sphere, for which AFSA issues a license, are divided into 3 groups:
1. Regulated Activities;
2. Market Activities;
3. Ancillary Services.
Please note that the AIFC rules provide for different requirements to issuing of licenses for each of the above groups.
An license issued by the AIFC is effective only in the AIFC territory. If according to applicable legislation (including legislation of Kazakhstan) financial activities are licensable or require obtainment of a special permit from an authorized agency outside the AIFC, the AIFC participant must comply with such requirement when carrying out such types of activities outside the AIFC.
In the future AFSA contemplates to introduce the so-called "passport" agreements with other jurisdictions with respect to provision of financial services.
Regulated Activities
An AIFC participant engaged in regulated activities (as defined below) is called an Authorized Firm .
The regulated activities include, among other, as follows: (1) purchase, sale, subscription or guarantee placement of any investments as a principal or agent; (2) management of investments that belong to another person; (3) provision of custody services; (4) provision of trust services; (4) advice on investment-related matters; (5) Islamic banking; (6) provision of insurance services, insurance management, insurance broking; (7) provision of lending services, from extension of credits to advice on the issues of selecting the type of lending; (8) provision of payment services; (9) opening and maintenance of bank accounts; and (10) payment system management.
To obtain a license an applicant (AIFC participant) must submit not only all required information specified in the AIFC rules and confirming that it meets the established criteria, but also pay a fee. An average fee for 1 type of Regulated Activities is approximately seven thousand US dollars (USD 7,000). If an AIFC participant intends to obtain a license for several Regulated Activities, it is only necessary to pay a fee for the most expensive type of Regulated Activities [1] .
There is a difference in the licensing spheres between the AIFC rules and the general legislation of Kazakhstan. For example, the representation activities of persons who are not the AIFC participants are not typical for the Kazakhstan legislation, while it is licensable by the AIFC. Likewise, advice on investment matters, organization of custody services, provision of services on the issues of selecting the type of lending are the types of activities that do not require licensing under the Kazakhstan legislation, whereas such services are licensable if provided in the AIFC.
MARKET ACTIVITIES
An AIFC participant carrying out these types of activities is called an Authorized Market Institution .
This group of services in the financial sphere includes: (1) stock exchange's activities; (2) clearing house's activities; (3) management of a platform trading in digital assets; (4) management of a borrowing, investment crowdfunding platform or a multi-purpose platform; (5) management of an organized trading platform; (6) management of a private financing platform.
AFSA provides for separate rules for the regulation of activities of the Authorized Market Institutions by securing special requirements to Authorized Market Institutions relating to finances, internal documents, conflict of interests, technical resources and other.
To obtain a license for carrying out the Market Activities an applicant must pay a certain fee. The fee for activities of a stock exchange or a clearing house is one hundred twenty-five thousand US dollars (USD 125,000), while the other types of activities require a fee in the amount of five thousand US dollars (USD 5,000) each. When filing an application for a license with respect to several types of Market Activities, the payment is made in accordance with the procedure stipulated for applications for licenses for the Regulated Activities.
The market institutions authorized by the AIFC (exchanges, clearing houses, etc.) issue binding rules regulating the relations between them and their participants. The principle of operation of these rules is identical to the principle of operation of an agreement between the above entities.
According to the rules regulating the activities of Authorized Market Institutions, professional participants (brokers, etc.) of an exchange and other authorized market institutions of the AIFC may only be the Authorized Firms holding respective licenses or accredited market participants, specifically, non-AIFC participants whose accreditation will be described in detail below.
ANCILLARY SERVICES
An AIFC participant providing ancillary services to other AIFC participants engaged in the provision of financial services is called an Ancillary Service Provider .
General rules of the AIFC secure the exhaustive list of Ancillary Services: (1) provision of legal services; (2) provision of audit services; (3) provision of accounting services; (3) provision of expert knowledge or advice on a specific topic; and (4) credit scoring services.
AFSA issues a license for Ancillary Services and secures special requirements to an applicant. Please note that no requirements to the applicant's financial resources are stipulated. The average fee for obtaining a license for Ancillary Services is two thousand US dollars (USD 2,000). In the event of filing an application for several types of Ancillary Services, the fee is paid for each type of Ancillary Services.
ACCREDITATION
According to the general provisions of the AIFC, a market entity holding a permit or a license for activities of an exchange or services of a clearing house located outside the AIFC jurisdiction may file an application for recognition as a Non-AIFC Market Institution and carry out its activities in the AIFC territory without a necessity to obtain a relevant AIFC license.
A person holding a permit or a license for carrying out of activities outside the AIFC jurisdiction may file an application as a professional exchange participant (broker, dealer, etc.) for recognition as a non-AIFC member (hereinafter, the "Accredited Participant" ) and carry out its activities in the AIFC without obtaining the AIFC license.
It is important to distinguish the authorized participants of the AIFC and accredited market participants (accredited market institutions and accredited exchange participants). Accredited market participants are not the AIFC Participants and they cannot enjoy any tax preferences.
ASTANA INTERNATIONAL EXCHANGE (HEREINAFTER, THE "AIX") AND KEY REQUIREMENTS TO EXCHANGE LISTING
The AIFC serves as a basis for the Astana International Exchange or AIX. The AIX rules provide for certain requirements to market entities wishing to participate in listing on the exchange. In addition to market capitalization of at least USD 1 mln for the issuers of shares and USD 500,000 for the issuers of debt securities as of the moment of listing, the minimum number of shares in free circulation and compliance with the established requirements to the issue prospectus , market entities must also submit the audited financial statements for 3 years prepared in accordance with the International Accounting Standards and other standards acceptable for AIX.
In light of the fact that the AIFC has been recently established, there are companies which have been recently registered with the AIFC, it is difficult for such a company to comply with the requirement on audited financial statements for 3 years. According to the information posted on the official website of the AIFC, each applicant for securities listing on AIX and securities listing on AIX will be considered on a case-by-case basis. In the event of a newly established legal entity, AIX may consider other significant factors (eg history and efficiency of the main business, business nature, etc.). So, the recently established subsidiary companies or holding companies of the existing business (eg recently established company,
In order for securities to be listed on AIX an issuer does not need to be an AIFC participant or an accredited market participant.
COMPARISON OF ORGANIZATIONAL STRUCTURE AND PRINCIPLES OF ACTIVITIES OF KASE AND AIX
Unlike AIX, the official list structure of the Kazakhstan stock exchange KASE, according to the Kazakhstan legislation, is divided into 3 platforms:
1.main platform;
2. alternative market;
3.mixed market.
The platforms include sectors composed of shares, debt securities, bank depository securities, etc. Sectors are additionally subdivided into categories. For example, a share sector is subdivided into premium and standard categories.
KASE establishes separate listing requirements to each platform, sector and category. Accordingly, by way of segmentation KASE offers greater choice and more opportunities for potential issuers.
It is worth mentioning that AIX is developing in a similar direction. Thus, AIX has recently formed the Regional Equity Market Segment (REMS) intended to ensure a better access to equity financing for medium business entities of Kazakhstan and Central Asia.
AIX and AFSA simplified regulation for the REMS companies whose free float market capitalization does not exceed USD 200 mln. The adopted changes allow the REMS issuers preparing a simplified prospectus based on financial statements for one year and without the necessity to demonstrate the historical net profit. The new segment issuers were given two additional months to publish the first annual report. The minimum share ratio in free circulation for REMS companies was reduced up to 15%.
[1] Please see AIFC Fees Rules: https://aifc.kz/files/legals/340/file/fees_v9_fr0007_11.05.2020.pdf
Written by Yelena Manayenko and Iminov Farukh, Partner and Junior Associate, AEQUITAS Law Firm
Contact Information: +7 (727) 3 968 968
Email: [email protected]; [email protected]
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the AIFC Academy of Law, any other AIFC body or entity, or any other agency, organization, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the authors and these views are always subject to change, revision, and rethinking at any time.
