*Consultation Paper on Enhancing AIFC Markets and Market Infrastructure Framework
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*Consultation Paper on Enhancing AIFC Markets and Market Infrastructure Framework

Introduction

1.The Astana FinancialServices Authority (AFSA) has issuedthis Consultation Paper to seek suggestions from the market on ways to enhance AIFC markets and market infrastructure framework.

2.The proposals in this Consultation Paper will be of interestto current and potential issuerson AIFC Authorised Investment Exchange, AIFC participants who are interested in exercising business activities in or from the AIFC, Recognized non-AIFCmembers as well as investors and other interested parties.

3.We invite comments from interested stakeholders on the following proposals:

(i)decreasing base capital requirements for AIFC Authorised Firms Dealing in Investments as Principal and Dealing in Investments as Agent.

(ii)     introducing new market segment for Regional Equity Market Segment (REMS);

(iii)    amending the regulatory framework for sponsors and advisers;

(iv)amending the compliance framework for the Issuers of the Securities admitted to trading on Equivalent Recognized Exchange;

(v)incorporating certain clarifications and improvements in MAR that were earlier identified with the AIX;

(vi)amending MAR Prospectus requirements to ensure their alignment with the best international practice (UKLA standard listing); and

(vii)  introducing miscellaneous amendments.

4.All comments shouldbe in writing and sentto the address or emailspecified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2020-0003” 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 weightby the AFSA.

5.The deadline for providing comments on the proposals is 10 June 2020. Once we receive your comments, we shall consider if any refinements are required to this proposal.

6.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

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

(a)Background.

(b)Summary of the proposal.

(c)Focus Areas.

(d)Annex 1

(e)Annex 2

(f)Annex 3

Background

1.   According to Article 2 of the Constitutional Statute of the Republic of Kazakhstan On the Astana International Financial Centre (the “Constitutional Statute”), the purposeof the AIFC is to establisha leading international centre for financialservices. The objectives of the AIFC are as follows:

(1)attracting investment into the economy of the Republic of Kazakhstan by creating an attractive environment for investment in the financial services sphere;

(2)developing a securities market in the Republic of Kazakhstan and integrating it with international capital markets;

(3)developing insurance markets, bankingservices, and Islamicfinancing, in the Republic of Kazakhstan;

(4)developing financial and professional services based on international best practice;

(5)achieving international recognition as a financial centre.

2.   Further development of the AIFC requires the enhancement of regulatory framework for markets and market institutions to best meet the region specificities and the market needs.

3.   The Astana Financial Services Authority has a statutory mandate under Article 12 of the Constitutional Statute and Section 7 of the AIFC FinancialServices Framework Regulations to: (a) ensure that financial marketsin the AIFC are fair, efficient, transparent and orderly;

(b) foster and maintain the financial stability of the AIFC’s financial services industry and capital markets, including the reduction of systemic risks; (c) prevent, detect and restrain actions that may cause damage to the reputation of the AIFC or to the financial activities carried out in the AIFC by taking appropriate measures, including by imposing sanctions; (d) protect interests of investors and users of financial services; (e) implement in the AIFC regulatory regime that complies with international standards in the sphere of regulation of financial services.

4.   To regulate Offering Securities in the AIFC and establishing requirements for Reporting Entities (corporate governance, financial reports and market disclosure) as well as to clarify what conduct amounting to Market Abuse, in 2017 the AIFC Financial Services Framework regulations and AIFC Market Rules were approved (“Markets Framework”).

5.   During 2018-2019, Markets Framework served as a foundation for admission to the Official list of Securities or to trading on an Authorised Investment Exchange and reveled certain ways for its improvements. The areas for enhancing Markets Framework in the AIFC identified by the AFSA along with its stakeholders are discussed in the following sections.

Summary

6. Enhancing AIFC Markets and Market Infrastructure Framework envisages the following steps:

I. Decreasing base capital requirements for AIFC Authorised Firms Dealing in Investments as Principal and Dealing in Investments as Agent.

II. Introducing new market segment for Regional Equity Market Segment (REMS);

III. Amending the regulatory framework for sponsors and advisers;

IV. Amending the compliance framework for the Issuers of the Securities admitted to trading on Equivalent Recognized Exchange;

V. Incorporating certain clarifications and improvements in MAR that were earlier identified with the AIX;

VI. Amending MAR Prospectus requirements to ensure their alignment with the best international practice (UKLA standard listing); and

VII. Introducing miscellaneous amendments.

Decreasing base capital requirements for AIFC Authorised firms Dealing in Investments as Principal and Dealing in Investments as Agent

7. It is proposed to decrease the base capital requirements for AIFC authorised firms as follows:

(a) Dealing in Investments as Principal from USD 2,000,000 to USD 500,000

(b) Dealing in Investments as Agent and from USD 500,000 to USD 50,000.

Introducing new market segment for Regional Equity Market Segment (REMS)

8. It is proposed to define the target issuers of REMS based on their capital needs and capacity of Kazakhstani investor market. The Securities offered by REMS issuers shall be Shares and the total aggregate consideration for the Shares offered shall be more than USD 1,000,000 (or an equivalent amount in another currency) and less than USD 200,000,000 (or an equivalent amount in another currency) calculated over a period of 12 months.

9. It is proposed further to simplify the regulatory requirements for the REMS issuers concerning:

(a) Prospectus requirements by:

- excluding Prospectus Summary from the Prospectus structure;

- excluding the requirement to disclose in the Registration Documents the information about investments, production/sales trend, material contracts and share capital of the issuer; information from the constitution; information about employees, auditors, connected persons, related party transactions; details on research and development and other significant matters relating to the issuer, concurrent offers by directors of the Issuer. REMS issuers will be required to produce audited financial statements covering only one most recent financial year, as opposed for 3 years for the other issuers.

- excluding the requirement to disclose in the Securities Note the information about risk factors of the securities, financial condition, creditworthiness of the Issuer and guarantees; information relating to other rights; full section on other information.

(b) Listing requirements set in Business Rules of an Authorised Investment Exchange by:

- waiving the requirement to demonstrate net profit during the preceding 3 years;

- reducing a minimum free float level to 15 per cent of share capital (from 25 per cent of share capital); and

- waiving the requirements related to controlling shareholder.

(c) Compliance framework by:

- postponing the publication of the first annual report by 2 months.

10. Prospectus shall explicitly demonstrate that it is REMS Prospectus.

Amending the regulatory framework for sponsors and advisers

11. It is proposed to:

(a) replace the current sponsors and compliance adviser’s framework with a single certified adviser framework. MAR shall prescribe the basic principles for certified advisers.

(b) grant the AFSA and an Authorised Investment Exchange power to require a Person that intends to have Securities admitted to the Official list of Securities or admitted to trading on an Authorised Investment Exchange to appoint a certified adviser for guiding the Person through the listing and admission process to an Authorised Investment Exchange and its subsequent ongoing obligations as Reporting Entity;

(c) grant the AFSA and an Authorised Investment Exchange power to require a Reporting Entity that has been held to have breached the Acting Law of the AIFC and/or Authorised Market Institutions Rules to appoint a certified adviser for a specified period to assist the Reporting Entity with its ongoing obligations.

12. The appointment of a certified adviser will not be required for certain types of potential issuers:

(a) Exempt Offerors;

(b) Financial Institution;

(c) the Securities of the Person have been admitted to the Official List or admitted to trading on an Equivalent Regulated Exchange.

13. A person shall be certified as an adviser if he:

(a) has sufficient financial and non-financial resources;

(b) meet fitness and propriety requirements for key officers and directors;

(c) has minimum number of qualified employees who must undertake education and training provided by an Authorised Investment Exchange regarding the respective regulatory requirements;

(d) has systems and controls in place;

(e) has professional indemnity insurance.

Amending the compliance framework for the Issuers of the Securities that have been admitted to trading on Equivalent Recognized Exchange

14. It is proposed to introduce in MAR a provision stipulating that a Reporting Entity, whose Securities or the Securities of the same Class admitted to trading on Equivalent Regulated Exchange is not required to make any additional disclosure under AIFC market disclosure rules and regulations and/or an Authorised Investment Exchange provided that all the following conditions are met:

(a) the Reporting Entity complies with requirements of market disclosure rules and regulations in the jurisdiction of such Equivalent Regulated Exchange and

(b) the same information is released on the Authorised Investment Exchange at the same time as in that other jurisdiction, subject to the manner of market disclosure and English language requirement prescribed in the Business Rules of the Authorised Investment Exchange.

15. Notwithstanding that, AFSA and/or an Authorised Investment Exchange, in their reasonable 5 discretion, will be able to request the Reporting Entity to make additional disclosures when it is necessary to protect the interests of investors or other lawful purposes.

16. The framework for a Reporting Entity, whose Securities or Securities of the same class have been admitted to trading on Equivalent Regulated Exchange shall also envisage that if a Reporting Entity is in breach of the requirements of, or released from disclosure obligations (as a result of delisting or otherwise) under, market disclosure rules and regulations in the jurisdiction of the relevant Equivalent Regulated Exchange, the Reporting Entity must comply with all relevant market disclosure rules set in FSFR and MAR as well as in the Business Rules of the Authorised Investment Exchange.

Incorporating certain clarifications and improvements in MAR that were earlier identified with the AIX

17. It is proposed to incorporate in MAR the following amendments:

(a) to expand the list of Exempt Securities (Prospectus is not required) by including the Securities envisaged for private placement framework (MAR 1.1.2(2)) with the following changes:

(i) specify that the exemption for Retail Offerings (up to 50 investors) is only available for Securities registered in the AIFC;

(ii) set out the threshold of total aggregate consideration for the offer of Securities not more than USD 1 mln, or an equivalent amount in another currency, calculated over a period of 12 months.

For the sake of clarity, the amendments proposed under (i) and (ii) above will not affect MAR 1.1.2(2) itself. The amended provisions will be introduced into MAR 1.2.2 (Exempt Securities).

(b) to allow an Authorized Investment Exchange to approve a Prospectus when it is produced under legislation in a jurisdiction other than the AIFC provided that the Prospectus contains information equivalent to that which is required in FSFR and MAR and the offeror meets all the other requirements relating to a Prospectus as prescribed in FSFR and MAR;

(c) to replace the requirement to sign the annual report by at least 2 Directors of the Reporting Entity with a body competent to decide on such matters under the Reporting Entity’s constitutive documents and/or applicable law;

(a) to extend the validity period of an Expert report on the assets or rights owned by the Issuer from 3 to 6 months (Prospectus requirements for Registration document).

18. Corporate governance issue concerning shareholder approval under MAR 2.3.4 (Reduction of share capital), MAR 2.3.8 (Other matters requiring shareholder approval), and MAR 2.5.3 (Related party transaction procedures) is to be amended based on the consultations with public and results of benchmark analysis of UKLA requirements for standard listing. Consultation process will be held in May – June 2020. The requirement to have shareholder approval could be changed to the approval by the Board (related party transactions), notification of the shareholder or could be deleted if there are no such requirements in the benchmark jurisdiction or compliance with such requirements will be too onerous for the Reporting entities.

Amending MAR prospectus requirements to ensure their alignment with the best international practice (UKLA standard listing)

19. It is proposed to exclude from the MAR the requirement to disclose in the Registration Documents the following information:

(a) details of any major customers, suppliers or other material dependencies of the Issuer;

(b) a summary of the provisions of the constitution of the Issuer including any arrangements by which a single investor or group of investors may exercise significant

influence over the Issuer and any other aspects of the constitution of the Issuer which may be relevant to investors.

(c) directors' powers under the constitution;

(d) any recent events particular to the Issuer and which are to a material extent relevant to the evaluation of the Issuer's solvency; and

(e) the date on which the Prospectus was signed by the Directors of the Issuer.

Introducing miscellaneous amendments

20. The approval and publication of a Prospectus by an Authorized Investment Exchange. It is proposed to add additional provisions stipulating the order and timescales for approval.

21. The time-period for making market disclosure. It is proposed to extend the deadline for submission of annual reports from 120 to 150 days after the end of the financial period and for semi-annual reports from 60 to 75 days after the end of the period to which the report relates.

22. Market disclosure requirements. MAR lists the reports that a Reporting Entity might be required to prepare, including its preliminary financial results. It is proposed to keep mandatory disclosure of financials / annual reports at the MAR level. The rest, including volunatry dislcosure of preliminary financial results shall be regulated by Business Rules of an Authorized Investment Exchange.