THE RESOLUTION OF BOARD OF THE AGENCY OF THE REPUBLIC OF KAZAKHSTAN ON REGULATION AND SUPERVISION OF THE FINANCIAL MARKET AND THE FINANCIAL ORGANIZATIONS

of September 26, 2009 No. 209

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

List of amending documents

According to subitem 14-2) of article 12 of the Law of the Republic of Kazakhstan of July 4, 2003 "About state regulation and supervision of the financial market and the financial organizations", and also for the purpose of enhancement of the regulatory legal acts regulating broker and dealer activities and activities for management of investment portfolio, Board of the Agency of the Republic of Kazakhstan for regulation and supervision of the financial market and the financial organizations (further - the Agency) 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 the resolution of Board of the Agency of April 30, 2007 No. 129 "About establishment of requirements for availability of risk management systems for professional participants of the security market" (registered in the Register of state registration of regulatory legal acts at No. 4730).

3. Ceased to be valid

4. To the organizations performing broker and dealer activities and activities for management of investment portfolio till March 29, 2010 to bring the internal documents and the used software and hardware into compliance with requirements of the Rules approved by this resolution.

5. This resolution becomes effective since March 29, 2010.

6. To department of supervision of subjects of the security market and accumulation pension funds (Hadzhiyeva M. Zh.):

1) together with Legal department (Sarsenov N. V.) to take measures to state registration in the Ministry of Justice of the Republic of Kazakhstan of this resolution;

2) in ten-day time from the date of state registration in the Ministry of Justice of the Republic of Kazakhstan of this resolution to bring it to the attention of the interested divisions of the Agency, Consolidation of legal entities "The association of financiers of Kazakhstan".

7. To service of the Chairman of the Agency (Kenzhe A. A.) take measures for publication of this resolution in mass media of the Republic of Kazakhstan.

8. To impose control of execution of this resolution on the vice-chairman of the Agency Aldambergen A. U.

 

Approved by the resolution of Board of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations of September 26, 2009 No. 209

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

Rules of forming of risk management system for the organizations performing broker and dealer activities in the security market, activities for management of investment portfolio (further - Rules) are developed according to the laws of the Republic of Kazakhstan of July 2, 2003 "About the security market" (further - the Law on the security market) and of July 4, 2003 "About state regulation, control and supervision of the financial market and the financial organizations" and establish procedure for forming of risk management system and internal control for the organizations having the license of the state body performing regulation, control and supervision of the financial market and the financial organizations (further - authorized body), on implementation of broker and dealer activities (further - the Broker and (or) the dealer), activities for management of investment portfolio (further - the Managing director), requirements to availability of risk management systems.

The procedure for forming of risk management system for the organizations performing broker and dealer activities in the security market, activities for management of investment portfolio includes the following:

1) basic requirements to availability of risk management system;

2) requirements to internal documents of the Broker and (or) dealer and 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 and 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 or 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.

Chapter 1. General provisions

1. The purpose of Rules is determination of requirements to forming in the organization performing broker and dealer activities (further - the Broker and (or) the dealer), the organization performing activities for management of investment portfolio (further - the Managing director), risk management systems, except for the organizations combining the above-stated types of activity with activities for implementation of investment management of pension assets and also banks of the second level.

1-1. The banks of the second level performing broker and dealer activities in the security market create risk management system according to the Instruction about requirements to availability of risk management systems and internal control in banks of the second level approved by the resolution of board of the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations of September 30, 2005 No. 359 (registered in the Register of state registration of regulatory legal acts at No. 3925).

1-2. By terms of the contract on broker servicing, the prisoner Brokerom and (or) the dealer or to the Managing director who are Broker and (or) the dealer, it is provided not to the relevant requirements established by paragraphs the eighth, ninth and tenth the subitem 3) of Item 8, subitems 9) and 10) of Item 11, subitems 4), 5) and 6) of Item 23, Items 23-1 and 23-2, subitems 2), 8), 9) of Item 58, Items 62-1, 62-2, 62-3, 62-4, 62-5, 62-6, 62-7 and 62-8 of Rules that the client order is taken by it to execution only in the presence of money and (or) securities at the client on bank and (or) personal account this Broker and (or) the dealer or the Managing director who is Broker and (or) the dealer in the amount of at least an amount of the money and (or) securities specified in the client order.

2. 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.

3. In Rules the following concepts are used:

1) open foreign exchange position - exceeding 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) 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;

4) 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;

5) 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;

6) 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;

7) 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;

8) 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;

9) internal control system - part of risk management system, the representing set of the procedures and the politician of internal control providing implementation by 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 Brokera and (or) the dealer, the Managing director, internal regulations and procedures, to decrease in risk of losses or reputation risk of Broker and (or) dealer, Managing director;

10) 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;

11) 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;

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) legal risk - risk of emergence of expenses (losses) owing to violation by 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 practicians Brokera and (or) the dealer, the Managing director to their internal documents, and in the relations with nonresidents of the Republic of Kazakhstan - legislations of other states;

15) 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;

16) management of conflict of interest - creation of mechanisms of non-admission of situations in case of which interests of the official or worker Broker and (or) dealer, Managing director can affect objectivity and independence of adoption by them of decisions and fulfillment of duties, and also to conflict to their obligation to act for the benefit of clients of Broker and (or) the dealer, the Managing director and (or) shareholders Broker and (or) the dealer, the Managing director;

17) market risk - risk of emergence of expenses (losses) connected with adverse situation in the financial markets. The market risk has the macroeconomic nature, that is sources of market risks are macroeconomic indicators of financial system;

18) operational risk - risk of emergence of expenses (losses) as a result of shortcomings or mistakes during implementation of internal processes made from employees, functioning of information systems and technologies, and also owing to external events, including the risks connected with:

uncertain and inefficient organizational structure of the Broker and (or) dealer, Managing director, including distribution of responsibility, structure of accountability and management;

inefficient strategy, politicians and (or) standards in information technologies, shortcomings of use of the software;

the untrue information or its inappropriate use;

poor control of personnel and (or) unskilled staff of the Broker and (or) dealer, Managing director;

insufficiently effective creation of processes of implementation of activities of the Broker and (or) dealer, Managing director or weak control of observance of internal regulations;

unexpected or uncontrollable factors of external impact on activities of the Broker and (or) dealer, Managing director;

availability of shortcomings or mistakes of internal documents (rules) regulating activities of the Broker and (or) dealer, Managing director;

the nonprofessional actions of management and personnel of the Broker and (or) dealer, Managing director which entailed narrowing of client base, mistrust or negative perception of the Broker and (or) dealer Managing clients and (or) counterpartners;

19) risk of loss of liquidity - the risk connected with possible failure to carry out or untimely accomplishment of obligations. The risk of loss of liquidity of securities as assets is determined by possibility of their quick sale with low costs and for reasonable prices;

20) interest risk - the risk of emergence of expenses (losses) owing to adverse change of rates of remuneration including the risks connected with:

emergence of expenses (losses) because of discrepancy of terms of return and repayment of the placed assets and the attracted obligations (in case of fixed rates of remuneration);

application of different accrual methods and adjustments of the earned and paid reward on number of tools which with other things being equal have similar price characteristics (basic risk);

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