Agreement on foreign exchange regulation: Kazakhstanis will get access to financial services of the AIFC | FinReview
16 November 2021

Agreement on foreign exchange regulation: Kazakhstanis will get access to financial services of the AIFC

What will the adopted Rules of Currency Regulation and Information Exchange in the AIFC give to the residents of the country?


Today, on November 16, the official resources of the National Bank, the Agency for the Regulation and Development of the Financial Market and the Astana International Financial Center, displayed a subtle, but at the same time very important message about the adoption of the AIFC Rules on Currency Regulation and Provision of Information on Currency Transactions in the AIFC. They come into force on December 1, 2021.

The dry language hides a year of well-coordinated work of regulators, whose highest priority was to ensure the stability of the financial system of Kazakhstan and minimize risks. analysts have figured out the details of the adopted document.

How did the work begin?

The need to elaborate an AIFC act on foreign exchange regulation and its coordination with the National Bank was indicated in the Constitutional Law on the AIFC itself. The rules contribute to the implementation of the goals of the financial centre specified in the Constitutional Law on the AIFC, namely, to promote investment in the country’s economy and the development of financial markets in Kazakhstan.

On July 2, 2020, during an expanded meeting of the AIFC Management Council, President of Kazakhstan Kassym-Zhomart Tokayev instructed the Agency for Regulation and Development of the Financial Market, together with the AIFC, to develop a bold new regulatory framework aimed at integrating and developing the domestic securities market.

The Head of State paid special attention to the following aspect:

“It is quite logical that such a world-class financial institution as the AIFC will take an active part in the implementation of the new economic agenda. At the same time, we must all understand that the tools and institutions that brought us to this level must be revised and strengthened to ensure further growth in a new and challenging environment”.

“Obviously, one country may be of little interest to large investors, but the entire region of the Eurasian Union and Central Asia, which are linked by trade and industrial ties, is difficult to ignore. I am convinced that in the current situation, any competition between the countries of the region should be viewed through the prism of mutual reinforcement and motivation for development. Investor interest in one country will inevitably affect the success of others. Thus, the AIFC, with its unique capabilities, can act as a universal platform connecting the countries of the region.”

The adoption of the Rules is one of the important steps towards solving the task set by the President and bringing the AIFC to the regional level.

What is the meaning of the Rules and why was it necessary to accept them?

The rules imply the consolidation of specific agreements between regulators on currency regulation and the conditions for access of AIFC participants to the financial market of Kazakhstan. This is what the Head of State spoke about in the summer following the meeting of the AIFC Management Council.

The specifics are that regulators have agreed on a list of financial services that AIFC participants will be able to provide to residents of Kazakhstan:

Firstly, banking and payment services. Lending to legal entities, opening and maintaining current accounts, Islamic banking, Islamic financing through Islamic banks, etc.

Secondly, insurance. Some types of direct voluntary insurance, reinsurance activities, new types of insurance for specific risks (catastrophic risks, terrorism risks, political, climatic, cyber risks), additional types of insurance (Islamic insurance, insurance of guarantees and sureties, etc.).

Thirdly, investment services. Investment banking services, dealer activities, brokerage services, custody services, investment management (including investment funds), trust services.

What will the adoption of the Rules give to the AIFC participants?

The adoption of the Rules will allow AIFC participants to provide services included in the above list to clients from Kazakhstani jurisdiction without obtaining a license from Kazakhstani regulators.

For example, AIFC banks will now be able to lend to legal entities in Kazakhstan. Before the adoption of the Rules, they could not even open correspondent accounts.

Residents of Kazakhstan will be able to receive financial services from investment funds, insurance companies, Islamic banks, brokerage companies, as well as professional services – legal, accounting, auditing.

AIFC participants will be able to provide some types of financial services in the national currency – tenge. This decision was made to prevent the risks of inflation and pressure on the tenge exchange rate.

What will the adoption of the Rules give to the economy of Kazakhstan?

The robust arrival of the AIFC participants to the Kazakhstani market will allow them invest in the country’s economy, as well as develop the market for financial and professional services.

The adoption of the Rules will allow AIFC banks implement their plans to invest more than 2 billion USD in the national economy.

AIFC participants will offer residents the services that have not been previously provided in Kazakhstan, such as insurance against cyber threats, climatic or catastrophic risks. This will be a serious incentive for the creation of new service markets in Kazakhstan.

Are there any “side effects” of the Rules?

The decision on the access of the AIFC licensed persons to the Kazakhstan market was publicly announced for the first time on July 1, 2021, during a meeting of the AIFC Management Council. Following the meeting of the Council, President of the Republic of Kazakhstan and Chairman of the AIFC Management Council K.Tokayev supported the initiative to provide AIFC licensees with access to the entire financial market of the country, drawing attention to the need to analyze and assess risks for the stability of the financial system. In addition, they noted the need to prevent “holes” in financial, fiscal and currency legislation, through which an uncontrolled capital outflow from the country is possible.

Based on this, ensuring the stability of the financial system of Kazakhstan and minimizing risks was the highest priority in the development of these Rules. The Astana Financial Services Authority (AFSA) emphasizes that the joint work of Kazakhstan’s regulators was aimed at preventing possible negative effects, including the flow of capital from one jurisdiction to another, pressure on the exchange rate and risks to the balance of payments.

The adoption of the Rules will not cause a serious outflow of companies from the Kazakhstani jurisdiction to the AIFC and a reduction in the tax base. Firstly, the AIFC is a platform for companies with a cross-border business model, while most of Kazakhstani companies operate at the local level through a branch network. Secondly, the legal requirements of the AIFC do not allow the abuse of tax privileges.

What next?

It is impossible to fully assess the impact of the adopted document at the moment, for it is necessary to study the practice of Kazakhstanis applying to the services of the AIFC participants.

Moreover, there are a number of types of services that are not covered by the new Rules. For example, these are the services of fintech companies, the conduct of export-import operations by the AIFC banks, services for compulsory types of insurance.

It is important that regulators continue to work well together to improve the Rules, taking into account the assessment of risks and stability of the financial system of Kazakhstan, the interests of citizens of Kazakhstan and business, as well as ensuring the maximum investment attractiveness of Kazakhstan.