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Amendments to Kazakhstan Legislation

20 January 2010

During the fourth quarter of 2009,  the Government of Kazakhstan, the Agency of the Republic of Kazakhstan on the Regulation and Supervision of Financial Market and Financial Organizations (the "FMSA"), and the National Bank of Kazakhstan (the "NBK") introduced a number of amendments to Kazakhstan legislation regulating activities of commercial banks, pension funds and other financial institutions operating in Kazakhstan.

This update contains a brief overview of the most significant changes to such legislation. Some of these new regulations (for example, new provisions in respect of anti-money laundering, transactions with derivatives and investments of pension funds, as summarized below) affect not only domestic activities of Kazakhstan financial institutions, but also their cross-border dealings with foreign counterparties.


Amendments to the Law on Banks and Banking Activity (the "Banking Law") and to the Law on Securities Market (the "Securities Law"), effective 8 March 2010.

The amendments introduced anti-money laundering provisions to the Banking Law and the Securities Law within the general framework of anti-money laundering amendments to a number of Kazakhstan laws and legislative acts. The amendments comprise the following powers of the FMSA:

  • suspension and/or termination of a banking license in the event of regular violations of anti-money laundering requirements or participation by a bank (or a professional securities market participant) in transactions related to money laundering or financing of terrorism; and
  • suspension of operations through bank accounts of any individual or legal entity in certain cases.

The amendments also provide that mandatory notification of the FMSA concerning operations that are subject to financial monitoring to counteract money-laundering and financing of terrorism by the banks shall not be deemed a breach of banking secrecy or commercial secrecy in the securities market.

Amendments to the prudential norms of banks, effective 14 September/1 October 2009.

The amendments introduced changes to k4 ratio (current liquidity ratio), k8 ratio (total liabilities to non-residents to equity) and k9 ratio (total liabilities including issued foreign currency denominated securities to equity) to include certain liabilities of a bank into calculation of these ratios. 

In accordance with the amendments, unsecured guarantees and sureties of a bank issued to secure external borrowings of a bank's subsidiary or affiliated party as well as to secure loans attracted under securitization transactions, where an underlying loan provides for early acceleration by a creditor, shall be included in calculation of k4, k8 and k9 ratios. For k8 and k9 ratios calculation, such guarantees/sureties may be disregarded only if the underlying loans were already included in k8 and k9 calculation.

Amendments to the Rules relating to the purchase of the assets underlying derivatives used in broker-dealer activities of banks on the securities market, effective 16 November 2009.

The amendments bring the Rules in line with the Banking Law, extending provisions of the Rules to cover derivative financial instruments, defined as contracts in the Kazakhstan Civil Code (such as forwards, swaps, etc.), in addition to derivative securities.

The amendments introduced certain requirements in respect of swap contracts entered into by banks. Specifically, the amendments stipulate that Kazakhstan banks can enter into derivative securities transactions and derivative financial instruments, such as credit default swaps and total return swaps, only if the following conditions are met:

  • an underlying asset of the swap is not a liability of the bank;
  • the swap is for hedging purpose only; and
  • the swap is purchased in an organized securities market.

Other amendments to banking legislation.

Other amendments to banking regulations made during the fourth quarter of 2009 include:

  • new requirements for the issue of bank guarantees: obtaining the borrower's written permission to provide information about the borrower and the guarantee to the Credit Bureau, effective of 6 December 2009;
  • requirements for banks to file stress-testing results and stress-scenarios with the FMSA and adopt a risk mitigation action plan for such stress-scenarios, effective of 16 November 2009;
  • a new method for calculation of minimal reserve capital for banks, effective of 10 October 2009;
  • amendments and clarifications to requirements for banks under liquidation, effective of 1 January 2010; and
  • amendments related to standards of financial reporting by banks and maintenance with the NBK of a correspondent account of a bank under restructuring, effective of 9 October 2009, with certain provisions effective of 10 November 2009.

Pension Funds 

A number of regulations adopted by the FMSA as pension funds became effective at the end of 2009 and the beginning of 2010. Other investment regulations of the FMSA will take effect in 2012.  The following investment regulations for pension funds and investment managers of pension assets (the "IMPAs") have been introduced or amended:

New Rules regulating investment operations of the pension funds and IMPAs, effective 29 September 2009.

These Rules set out the types of securities eligible for investment by pension funds and IMPAs and provide the pension funds and IMPAs with general investment guidelines. The new Rules set forth the list of financial instruments eligible for investment, terms and procedures for investment, and the procedure for transfer of pension assets from one IMPA to another. The new Rules also introduce certain requirements in respect of transactions with financial instruments, including derivatives with foreign counterparties. The new Rules contain a revised list of approved financial instruments for pension funds and IMPAs as of 1 January 2012. In accordance with the Rules, as of 1 January 2012 the investment securities portfolios of pension funds and IMPAs must be divided into three categories – conservative, moderate and aggressive. The provisions of the FMSA decree regulating the risk segregation of the portfolio becomes effective 1 January 2012.

Amendments to certain FMSA regulations setting out the prudential norms and their calculation methodology for pension funds and IMPAs, effective 1 January 2010.

The Amendments were made to the FMSA regulations setting out the guidelines and methodology for calculation of prudential norms for pension funds and IMPAs. Additional amendments to take effect from 1 January 2011 determine the amount of the investments that can be made by the pension funds and IMPAs into securities denominated in foreign currency issued by foreign issuers. The main purpose of the amendments is to promote mitigation of the currency risk.


The FMSA recently introduced amendments providing new reporting standards and prudential norms for broker/ dealer,  IMPAs and investment portfolio managing companies, including the following:

  • new requirements for organizations licensed to perform broker and/or dealer activity, IMPAs and investment portfolio managing companies as to reporting of their own assets which are pledged or otherwise encumbered, effective of 8 December 2009;
  • a new calculation methodology for the capital and minimum capital of broker-dealers, securities registrars and investment management organizations, effective of 23 September 2009, with certain provisions effective of 1 July 2010;
  • new provisions extending certain dealer/broker regulations to investment managers of pension funds that engage in broker-dealer activity, establishing personal liability of certain broker-dealer employees, clarifying the legal nature of broker-dealer agreements (commission or agency), setting out additional requirements as to broker-dealer account opening documentation and customer instruction forms, effective of 19 October 2009; and
  • new requirements in respect of internal policies and procedures of a broker-dealer/investment manager relating to general operations, investment committees, internal control and audit units and requirements for the information exchange systems to apply to both broker-dealer organizations and investment fund portfolio managers, effective of 29 March 2010.

Other Actions

A number of amendments and newly-adopted regulations setting out various guidelines, prudential norms, reporting requirements, and internal controls and procedures for the activities at the Kazakhstan financial market became effective in the end of 2009 and beginning of 2010, including the following:

  • new provisions outlining general conditions for issue, placement, circulation and repayment of mid-and long-term indexed and unindexed securities that can be issued by the local authorities, effective of 2 October 2009;
  • requirement for an investment fund to carry out impairment testing of its financial assets and the procedure for performance of such testing, setting out the grades for appraisal of a financial condition of the issuer and the criteria for each grade, effective of 1 July 2010; and 
  • new requirements for currency operations reporting by banks and increase in the threshold of currency operations subject to registration and notification with the NBK from USD 300 thousand to USD 500 thousand, effective of 1 November 2009.


Legal advice and counsel given in connection with engagements in emerging markets are subject to the qualification that the legislation and regulations of Kazakhstan and other emerging markets are often vague, contradictory, and subject to inconsistent, arbitrary interpretation and retroactive application by government authorities.
IRS Circular 230 Notice: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.
This Legal Alert should not be construed as giving Kazakhstan tax advice or legal counsel.  The purpose of this legal alert is to make you aware of certain changes in the laws of Kazakhstan that may affect your organization.  Prior to making any decisions you should consult your legal and tax advisors.