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RESOLUTION OF BOARD OF NATIONAL BANK OF THE REPUBLIC OF KAZAKHSTAN

of February 26, 2014 No. 29

About approval of Rules of forming of risk management system and internal control for banks of the second level

(The last edition from 29-10-2018)

For the purpose of enhancement of regulatory legal acts 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 banks of the second level.

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

3. This resolution becomes effective since January 1, 2015 and is subject to official publication.

4. To banks of the second level till January 1, 2015 to bring the activities into accord with requirements of this resolution.

Chairman of National Bank

K. Kelimbetov

Approved by the Resolution of Board of National Bank of the Republic of Kazakhstan of February 26, 2014 No. 29

Rules of forming of risk management system and internal control for banks of the second level

These rules of forming of risk management system and internal control for banks of the second level (further - Rules), are developed according to the Law of the Republic of Kazakhstan of August 31, 1995 "About banks and banking activity in the Republic of Kazakhstan" and establish procedure for forming of risk management system and internal control of banks of the second level (further - bank).

1. General provisions

1. The purpose of Rules is determination of requirements to forming at bank of the risk management systems, internal control providing implementation of effective control from the board of directors, bank board behind activities of bank and its financial condition including by providing:

proper practice of corporate management and proper level of business ethics and culture;

observance by bank and its workers of requirements of the legislation and regulatory legal acts of authorized body;

observance by bank and its workers of requirements politician and other internal documents of bank;

effective management of risks of bank by means of their timely identification, measurement, control and monitoring for ensuring compliance of the capital of bank to level accepted by it it is risk;

timely detection and remedial action in activities of bank and its workers;

creations in bank of adequate mechanisms for the solution of unforeseen or emergency situations.

2. Banks quarterly, no later than the 30th following reporting quarter represent to authorized body with use of transport system of the guaranteed delivery of information with cryptographic remedies providing confidentiality and not adjustability of the represented data on form according to appendix 1 to Rules the report on monitoring of the events of operational risk which entailed losses in the amount of 100 000 (hundred thousand) tenges and more.

3. In Rules the following concepts are used:

1) risk of information security - probability of emergence of damage owing to violation of integrity, confidentiality and availability of data assets of the bank which arose owing to deliberate destructive impact from employees of bank and (or) the third parties;

2) risk of information technologies - probability of emergence of damage owing to unsatisfactory creation of the processes connected with development and operation of information technologies by bank;

3) uncharged assets - assets of bank concerning which there are no legal, regulatory or technical obstacles (restrictions) for use in need of the purposes of satisfaction of the available requirements of bank for liquidity;

4) price risk - probability of emergence of financial losses owing to adverse changes in market value of financial instruments, goods;

5) control functions - the functions performed by structural divisions of bank on conducting independent checks and efficiency evaluations of internal control system, risk management systems, information security, reliability of financial accounting and the reporting and some other control functions according to internal documents of bank;

6) risk of loss of reputation - probability of emergence of losses, non receipt of the planned income in result of narrowing of client base, decrease in other indicators of development owing to forming in the society of negative idea of financial reliability of bank, quality of the rendered services or nature of activities of bank in general;

7) bek-testing - method of check of efficiency of procedures of risks measurement with use of historical data on transactions of bank and comparison of settlement results with the actual results from making of the specified transactions;

8) currency risk - probability of emergence of financial losses owing to adverse changes of the foreign exchange rates when implementing of the activities by bank;

9) Gap analysis - method by means of which the bank measures the interest risk and liquidity risk based on comparison of amounts of the assets and liabilities of bank subject to interest rate realignments or due for settlement during certain term;

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