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RESOLUTION OF BOARD OF NATIONAL BANK OF THE REPUBLIC OF KAZAKHSTAN

of August 27, 2013 No. 214

About approval of Rules of forming of risk management system and internal control for the organizations performing broker and dealer activities in the security market, activities for management of investment portfolio

(as amended on 24-09-2021)

According to the Law of the Republic of Kazakhstan of July 2, 2003 "About the security market", the Board of National Bank of the Republic of Kazakhstan DECIDES:

1. Approve the enclosed Rules of forming of risk management system and internal control for the organizations performing broker and dealer activities in the security market, activities for management of investment portfolio.

2. Declare invalid regulatory legal acts according to appendix to this resolution.

3. This resolution becomes effective after ten calendar days after day of its first official publication.

Chairman of National Bank

G. Marchenko

Approved by the Resolution of Board of National Bank of the Republic of Kazakhstan of August 27, 2013 No. 214

Rules of forming of risk management system and internal control for the organizations performing broker and dealer activities in the security market, activities for management of investment portfolio

These rules of forming of risk management system (further - Rules) are developed for the organizations performing broker and dealer activities in the security market, activities for management of investment portfolio according to the Law of the Republic of Kazakhstan of July 2, 2003 "About the security market" (further - the Law on the security market) and establish procedure for forming of risk management system and internal control for the organizations having the license for implementation of broker and dealer activities (further - the broker and (or) the dealer), activities for management of investment portfolio (further - the Managing director).

The requirements to the software and hardware used for maintenance of risk management system, and also to automation of activities of the Managing director, provided by Rules do not extend the action to the relations arising when using information resources of National Bank of the Republic of Kazakhstan based on the relevant agreement signed between Managing and National Bank of the Republic of Kazakhstan.

Chapter 1. General provisions

1. The purpose of Rules is determination of requirements to forming at the broker and (or) the dealer, the Managing director of risk management system.

Requirements of the subitem 3) of Item 42, of subitems 4), 5), 6), and 7) of Item 43, of Items 46, of 48, of 54, of 55, of 56 and 57 Rules do not extend concerning management of gold and exchange assets of National Bank of the Republic of Kazakhstan and the assets of National fund of the Republic of Kazakhstan delivered in trust management of the affiliated organization of National Bank of the Republic of Kazakhstan.

2. The procedure for forming of risk management system for the broker and (or) the dealer, the Managing director includes the following:

1) basic requirements to availability of risk management system;

2) requirements to internal documents of the broker and (or) dealer, Managing director;

3) requirements to the organization of activities for asset management of clients, accepted in investment management, and own assets of the broker and (or) dealer, Managing director;

4) requirements to the organization of activities of the Managing investment committee and the broker and (or) the dealer who is the Managing director;

5) requirements to the organization of monitoring of risks, in the course of investing activities of the Managing director and the broker and (or) the dealer who is the Managing director;

6) requirements to the organization of monitoring of risks in the course of activities of the broker and (or) the dealer or the Managing director who is the broker and (or) the dealer;

7) requirements to the organization of internal control and internal audit;

8) requirements to the organization of information exchange system;

9) requirements to the software and hardware used for maintenance of risk management system.

3. The banks of the second level performing broker and dealer activities in the security market create risk management system according to the resolution of Board of National Bank of the Republic of Kazakhstan of November 12, 2019 No. 188 "About approval of Rules of forming of risk management system and internal control for banks of the second level, branches of nonresident banks of the Republic of Kazakhstan", registered in the Register of state registration of regulatory legal acts at No. 19632.

The insurance companies performing activities in the industries "life insurance" having the license of authorized body on regulation, control and supervision of the financial market and the financial organizations (further - authorized body) on implementation of activities for management of investment portfolio in the security market, create risk management system according to the resolution of Board of National Bank of the Republic of Kazakhstan of August 27, 2018 No. 198 "About approval of Rules of forming of risk management system and internal control for the insurance (reinsurance) organizations, branches of the insurance (reinsurance) nonresident organizations of the Republic of Kazakhstan", registered in the Register of state registration of regulatory legal acts at No. 17462.

Requirements of Rules extend to the insurance companies performing activities in the industries "life insurance" having the license of authorized body for implementation of activities for management of investment portfolio in the security market regarding procedure for adoption of investment decisions concerning the assets created at the expense of part of the insurance premiums (insurance premiums) got from insurers for the purposes of investment and income (losses) gained from their investment according to the insurance contracts providing condition of participation of the insurer in investments, and also procedure for creation and contents of the recommendation and investment decision for such assets.

4. The broker and (or) the dealer or the Managing director who is the broker and (or) the dealer fulfills the requirements established by paragraphs the eighth, ninth and tenth the subitem 3) of Item 11, subitems 9) and 10) of Item 15, paragraphs to the fifth, sixth and seventh part two of Item 28, Items 29 and 30, subitems 2), 8), 9) of Item 68, Items 73, of 74, of 76, of 77, of 78, of 79 and 80 Rules in case of execution of client orders in the absence of enough money and (or) securities at the client on bank and (or) personal account of this broker and (or) dealer or Managing director who is the broker and (or) the dealer for execution of this order.

5. Governing body (the supervisory board - for the broker and (or) the dealer created in other in addition to joint-stock company) and executive body of the broker and (or) dealer, Managing director provide to form of business (further - the supervisory board) compliance of risk management system to requirements of Rules and create conditions for execution by divisions and workers of the broker and (or) dealer, Managing director of the obligations assigned to them in the field of risk management.

6. In Rules the following concepts are used:

1) open foreign exchange position - excess of requirements (obligations) in currency of separate foreign state (group of foreign states) over obligations (requirements) in the same foreign currency;

2) price risk - the risk of emergence of expenses (losses) owing to change in value of financial instruments arising in case of change of conditions of the financial markets influencing market value of financial instruments;

3) the assets of clients accepted by the Managing director in investment management:

the money, securities, financial instruments and other property of physical persons and legal entities accepted by the Managing director in investment (confidential) management;

assets of the investment fund accepted in management of the Managing director;

the pension assets which are in management of the Managing director having license for activities on management of investment portfolio with the right of attraction of voluntary accumulative pension contributions;

the pension assets of the single accumulation pension fund which are in trust management of the Managing director according to article 35-1 of the Law of the Republic of Kazakhstan of June 21, 2013 "About provision of pensions in the Republic of Kazakhstan" (further - the pension assets which are in trust management);

4) reputation risk - risk of emergence of expenses (losses) owing to negative public opinion or decrease in trust to the broker and (or) the dealer, the Managing director;

5) bek-testing - methods of check of efficiency of procedures of risks measurement with use historical yielded and comparison of the calculated results with the current (actual) results from making of the specified transactions;

6) currency risk - the risk of emergence of expenses (losses) connected with change of the foreign exchange rates. Danger of expenses (losses) arises because of revaluation of line items on currencies in value term;

7) gap line item - difference between assets of the client and obligations on the client's assets transferred in investment management or on broker servicing depending on completion dates of these obligations, or difference between own quick assets and obligations of the broker and (or) dealer Managing depending on completion dates of these obligations;

8) country (transfer) risk - risk of emergence of expenses (losses) owing to insolvency or unwillingness of foreign state or resident of foreign state to answer for obligations;

9) service of internal audit - division of the broker and (or) dealer, Managing director whose main function is control of financial and economic activities of the broker and (or) the dealer, the Managing director;

10) internal control system - set of the procedures and the politician of internal control providing implementation by the broker and (or) dealer, Managing director of long-term goals of profitability and maintenance of reliable system of the financial and management reporting promoting compliance with law of the Republic of Kazakhstan about the security market and investment funds, politicians of the broker and (or) the dealer, the Managing director, internal regulations and procedures, to decrease in risk of losses or reputation risk of the broker and (or) dealer, Managing director;

11) internal documents - the documents regulating conditions and procedure for activities of the broker and (or) dealer, Managing director, their bodies, structural divisions (branches, representations), workers;

12) corporate management - the system of strategic and tactical management by the broker and (or) dealer, Managing director representing the complex of relations between the supreme body, governing body (supervisory board), executive body and other bodies of the broker and (or) dealer, Managing director aimed at providing effective functioning of the organization, protection of the rights and interests of its shareholders (participants) and giving to shareholders (participants) opportunity of effective control and monitoring of activities of the broker and (or) dealer, Managing director;

13) credit risk - risk of emergence of expenses (losses) owing to failure to pay or untimely payment by the issuer of the principal debt and remuneration which is due to the investor in the time established by conditions of security issue including also risk of the losses arising in connection with failure to carry out by the partner of obligations in the swaps, options, forwards and other financial instruments subject to credit risk and during settlement of payment under these securities and financial instruments or owing to failure to carry out or the untimely accomplishment by the counterpartner or client of the obligations provided by the agreement or which arose during the conclusion of the transaction;

14) the counterpartner - the legal entity who is rendering services to the broker and (or) the dealer Managing in the course of the conclusion of the transactions with financial instruments made for the asset account of clients and (or) own assets of the broker and (or) dealer, Managing director, having the license or permission granting the right to transactions with the financial instruments received according to the legislation of the state in the territory of which this legal entity is registered as the legal entity;

15) legal risk - risk of emergence of expenses (losses) owing to violation by the broker and (or) dealer, Managing director of requirements of the legislation of the Republic of Kazakhstan on the security market and investment funds or discrepancy of practice of the broker and (or) dealer, Managing director to their internal documents, and in the relations with nonresidents of the Republic of Kazakhstan - legislations of other states;

16) policy of investment of own assets - the document determining the list of investment objects, the purposes, strategy, conditions and restrictions of investing activities on own assets of the broker and (or) the dealer, the Managing director, condition of hedging and diversification of own assets;

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