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Kazakhstan will allow the entry of branches of foreign banks, insurance organisations and insurance brokers into its financial markets

Following its recent membership of the World Trade Organisation (WTO), Kazakhstan has introduced certain amendments to its domestic legislation that adapt its rules and regulations to the WTO package.

On 24 November 2015, the President of the Republic of Kazakhstan signed the "Law on Amendments to Certain Legislative Acts as to the Provision of Financial Services and Activities of Financial Organisations" (the "Amending Law"). The vast majority of provisions within the Amending Law became effective on 1 January 2016, while certain other provisions will come into force on 1 July 2016, 1 January 2017 and 16 December 2020, respectively.

Greater market presence for foreign banks, insurance organisations and insurance brokers



The Amending Law introduces significant changes to the Banking Law and Insurance Market Law of Kazakhstan.

Most importantly, for the first time the Amending Law will allow foreign banks, foreign insurance organisations and foreign insurance brokers to open branches in Kazakhstan.

To date, foreign banks, insurance organisations and insurance brokers have only been permitted to take an equitable interest in local banks, insurance organisations and insurance brokers or establish their subsidiaries registered in Kazakhstan, with such subsidiaries of foreign banks, insurance organisations and insurance brokers being regarded as local entities.

However, the opening of branches of foreign banks and insurance organisations will not begin immediately. During the WTO negotiations, Kazakhstan insisted on a transitional period of five (5) years, so that foreign banks, insurance organisations and insurance brokers will be able to open their branches in Kazakhstan not earlier than 16 December 2020.

The transitional period has been agreed to allow the adaptation of the country's legal database regulating the activities of branches of the foreign banks, insurance organisations and insurance brokers, and has the additional aim of enabling local financial organisations to improve their business models and increase their competitiveness. 

Requirements for branches of foreign banks, insurance organisations and insurance brokers

To open a branch in Kazakhstan, a foreign bank, insurance organisation or broker will have to obtain a permit from the National Bank of Kazakhstan (the "NBK"). 

In addition, in order to ensure the integrity and stability of the financial system of Kazakhstan, and for the protection of investors and depositors, the Amending Law provides for the right of the NBK to take prudential measures, including setting up prudential norms and limits and establishing standards for the managerial staff of branches of foreign banks and insurance organisations.

Banks and insurance organisations will also have to comply with certain other prerequisites.

In particular, insurance companies will have to hold aggregate assets with a value of at least US$5bln and have at least ten (10) years' experience in all insurance sectors and classes.

The value of aggregate assets of a foreign bank should be not less than US$20bln.

It is also worth noting that a branch of a foreign bank will be prohibited from accepting deposits from individuals of less than US$120,000. This threshold was negotiated by Kazakhstan in order to preserve local retail banking and provide a funding base for local banks.

No doubt the creation of branches of foreign banks, insurance organisations and insurance brokers will lead to increased competition within the financial markets of Kazakhstan. Customers can expect wider access to capital and better services. This in turn will incentivise local players to become more efficient, more ambitious in reaching out to customers, to offer new financial services and products, and provide better value in order to avoid losing their market share to their new foreign competitors.

For further information on the above issues, please do not hesitate to contact Elena Lee (Elena.Lee@mwp.kzz) at: +7 727 258 48 90.

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