Regulation on the Procedure for Conducting Certain Banking Operations by Banks of the Kyrgyz Republic in Case of Temporary Administration or Liquidation

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Creation date: 2025-01-27

Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-9-(NPA)

REGULATION

on the procedure for banks to conduct certain banking operations in the event of the introduction of a temporary administration regime or the commencement of liquidation procedures

(As amended by Resolutions of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6, January 17, 2024 No. 2024-P-12/1-3, July 5, 2024 No. 2024-P-12/28-2, January 22, 2025 No. 2025-P-12/2-3-(NFKU))

Chapter 1. General Provisions

1. This Regulation establishes the procedure for conducting certain banking operations, as well as the conditions for recognition by the National Bank of the Kyrgyz Republic (hereinafter - the National Bank) of irrevocable instructions for the transfer of funds and securities, transferred by the bank to the trading and/or payment system in the event of the introduction of a temporary administration regime or the commencement of liquidation procedures in a commercial bank.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated January 17, 2024 No. 2024-P-12/1-3)

2. This Regulation applies to the activities of commercial banks of the Kyrgyz Republic, including those conducting operations in accordance with Islamic principles of banking and financing or having an "Islamic window", taking into account the special terminology used by them in carrying out banking operations licensed by the National Bank (hereinafter - banks), their clients, operators and participants of trading and payment systems of the Kyrgyz Republic.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated July 5, 2024 No. 2024-P-12/28-2)

3. Banks, system operators and participants, as well as depositories and sub-depositories, are responsible for ensuring the timely implementation of the norms of this Regulation, uninterrupted functioning and compliance with the work schedule of trading and payment systems. The responsibility of operators and/or participants of payment and trading systems is established in the corresponding contracts/agreements between operators and participants of systems, as well as between depositories and sub-depositories.

Chapter 2. Basic Concepts

4. Within the framework of this Regulation, it is established that:

1. irrevocable instructions for the transfer of funds and securities, transferred by the bank to a trading and/or payment system recognized as such by the National Bank, have legal force and are binding on third parties in the event of the introduction of a temporary administration regime or the commencement of liquidation procedures in the bank;

2. in the event that the bank transfers irrevocable instructions for the transfer of funds or securities to a trading and/or payment system after the commencement of the temporary administration regime or liquidation of the bank, the instructions do not have legal force and are not binding on third parties only if the temporary administrator or liquidator proves that the system operator was aware of the commencement of the temporary administration regime or liquidation of the bank before the transfer instructions became irrevocable.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

5. Contracts and transactions concluded subject to a suspensive condition before the commencement of the temporary administration regime or liquidation of the bank cannot lead to the cancellation of clearing results performed through a trading and/or payment system recognized as such by the National Bank, due to the commencement of the temporary administration regime or liquidation of the bank.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

6. The system operator, participant, settlement intermediary and clearing center, from the moment they became aware of the commencement of the temporary administration regime or liquidation of the bank, must take all necessary measures to prevent the transfer of funds or securities to the trading and/or payment system.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

7. Additionally, for the purposes of this Regulation, the following definitions are used:

temporary administrator - a person appointed by the National Bank as a temporary administrator or head of temporary administration, for the purpose of implementing the temporary administration regime in the bank;

banknote operations - operations for crediting cash funds to a correspondent account opened in a troubled bank for another bank (an account similar to a "Loro" account), or in another bank in the name of the troubled bank (an account similar to a "Nostro" account);

bank payment card (payment card) - a payment instrument that allows its holder to conduct transactions for the purchase of goods and services, obtaining cash in national and foreign currencies, through terminals or other devices, as well as a means of access to a bank account for managing funds held by its holder in a bank account, including for accounting and conducting transactions with precious metals placed in an unallocated metal account opened with the issuer, in accordance with the legislation of the Kyrgyz Republic and the contract between the cardholder and the issuer;

money transfer without opening a bank account - a transfer of funds, a banking operation carried out by a bank by accepting cash in national or foreign currency from a natural person and further transferring said cash to said natural person (recipient) in the Kyrgyz Republic or abroad through a money transfer system;

government securities depository (hereinafter - GSD) - a legal entity of the Kyrgyz Republic carrying out depository accounting and storage of GSDs, registration of transfer and confirmation of ownership rights to GSDs;

sub-depository - a depository that has concluded a contract with the National Bank to perform functions for accounting for the movement of GSDs and which has a "depo" account in the government securities depository;

depo-account - a record (or a set of records) created for each GSD for the purpose of their accounting and storage;

deposit operation - an operation for the temporary withdrawal by the National Bank of funds in national currency on terms of repayability, costliness and maturity;

final operations - operations that were not executed at the time of the introduction of the temporary administration regime in the bank or the commencement of liquidation procedures in the bank, but are recognized as irrevocable and subject to mandatory execution in the manner established by this Regulation;

client:

1. in relations between banks, the client is the bank concluding a transaction with the troubled bank;
2. in relations between the bank and other persons, the client is the person concluding a transaction with the troubled bank;

conversion operations - currency operations related to the purchase/sale of one currency in exchange for another;

correspondent account - a bank account on which settlements made by one bank at the request and for the account of another are reflected based on a contract;

"clearing" means the transformation into a single net claim or a single net obligation of claims and obligations arising from transfer instructions that one or more participants of the settlement system present to one or more other participants of this system or receive from them, as a result of which only a single net claim or a single net obligation remains;

interbank credit - a credit granted or received by a troubled bank in a transaction with another bank;

refinancing operations of the National Bank - instruments of the monetary policy of the National Bank, within the framework of which credit resources are provided to the bank on terms of maturity, costliness, repayability and, in case of the bank's compliance with the National Bank's requirements for obtaining refinancing loans;

asset exchange - an operation for cashing out (providing non-cash funds in exchange for cash) or decashing (providing cash funds in exchange for non-cash), carried out between banks;

final settlement - settlement conducted on accounts of financial and credit organizations opened at the National Bank through a gross settlement system in real-time mode. Final settlement is unconditional and irrevocable;

payment system operator - a legal entity having a license/registration of the National Bank depending on the type and category of the payment system, ensuring the functioning of the payment system and having concluded a contract with participants on participation in the payment system, according to which the operator and participants of the payment system undertake to carry out their activities within the payment system in accordance with the legislation of the Kyrgyz Republic;

trading system operator - a structural subdivision of the National Bank responsible for the work schedule of trading systems, as well as for the compliance of conducted operations with the existing rules of work in the trading systems of the National Bank;

transfer instruction - a transfer instruction, transferred to a trading and/or payment system, becomes irrevocable at the moment determined by the rules of this system;

troubled bank - a bank in respect of which temporary administration has been introduced or liquidation procedures have been applied (hereinafter - the bank);

rediscount operation - an operation for the purchase by the National Bank of GSDs in the secondary market from banks at a price and maturity established by the National Bank for the acquired GSDs;

retail payments - payments for medium and small amounts, which are non-urgent and/or regular. The amount of retail and regular payments is established by regulatory legal acts of the National Bank;

repo operation - an operation for the purchase/sale of GSDs in the secondary market with an obligation to sell/buy them back on a certain date in the future, at a previously agreed price;

swap operation - an operation for the exchange of one currency for an equivalent amount in another currency with an obligation to reverse the exchange of principal amounts and accrued interest through a previously agreed term;

spot operation - an operation for the purchase/sale of financial assets, the settlement of which is carried out within one to two business days;

participants of the payment system (hereinafter - Participant) are financial and credit organizations, specialized financial and credit organizations, payment system operators and payment organizations and their agents providing payment services to the population on the territory of the Kyrgyz Republic on the basis of concluded contracts;

participant of the trading system (hereinafter - Participant) - a bank having access to the trading systems of the National Bank and having a correspondent (current) account at the National Bank;

forward operations - currency operations providing for the delivery of currency on a certain day in the future at a price agreed upon during the conclusion of a forward contract.

(As amended by Resolutions of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6, January 22, 2025 No. 2025-P-12/2-3-(NFKU))

Chapter 3. General Conditions for Conducting Certain Banking Operations upon Introduction of Temporary Administration Regime in the Bank

8. The decision to introduce a temporary administration regime in the bank is made by the National Bank in accordance with the Law of the Kyrgyz Republic "On Banks and Banking Activity" and regulatory legal acts of the National Bank.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

9. The operating mode of the troubled bank is established in the corresponding decision of the National Bank from the moment of introduction or during the implementation of the temporary administration regime. In the absence of indications of the operating mode in the decision of the National Bank, operations are carried out in accordance with this Regulation.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

10. From the moment of introduction of the temporary administration regime, the National Bank, if necessary, has the right to unilaterally block the correspondent (current) account of the Participant for the purpose of conducting payments and settlements or to establish restrictions in accordance with the legislation of the Kyrgyz Republic. The procedure for conducting payments by the Participant and final settlements is established by this Regulation or in accordance with the decision of the National Bank.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

11. Based on the decision of the National Bank, operators of the payment and trading systems unilaterally, without prior notification, block the Participant, the access of the Participant's users to the system and the signature certificates of the Participant's users in the system, with subsequent notification of other participants.

12. The National Bank, in order to ensure the stable operation of the banking and payment systems, preserve assets in the interests of depositors and other creditors of the bank, has the right, if the bank has sufficient assets, primarily for the purpose of settlements with depositors - natural persons, in addition to conducting final operations, to allow the bank to conduct all or individual types of banking operations.

13. The right to carry out swap and repo operations, deposit operations in national currency, rediscount and conversion operations with the National Bank, as well as operations in the primary and secondary markets of GSDs, may be granted to the troubled bank on the basis of the corresponding decision of the National Bank.

14. In order to preserve assets, the troubled bank may be prohibited from conducting certain operations in the currency market by the decision of the National Bank.

15. In the event that the bank does not have sufficient assets to settle with depositors - natural persons, the bank is allowed to conduct only final operations or individual operations in accordance with the decision of the National Bank.

Chapter 4. Conditions for Recognition of Final Operations as Irrevocable

16. The National Bank recognizes as irrevocable operations, the settlements for which are carried out through a correspondent/current account opened at the National Bank.

17. Operations, the settlements for which are not carried out through a correspondent/current account opened at the National Bank, are recognized as irrevocable in a judicial order in the following cases:

1. if the settlement for this operation has already been fully carried out before the introduction of the temporary administration regime or before the moment the settlement system receives information about the introduction of the temporary administration regime;

2. if the full settlement for this operation has not yet been made, but the claims and instructions for it have already been transferred to the settlement system, which executes settlements in automatic mode, and its cancellation in this system is not provided for the troubled bank or for the person at whose request or instruction the operation is carried out.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

18. Recognition of operations as irrevocable and final is carried out on the basis of requirements established in regulatory legal acts of the National Bank.

19. For the purposes of this Regulation, final operations are considered:

1. execution of instructions of the Participant for the transfer of funds or securities, as well as instructions of other participants for the transfer of funds or securities in favor of the bank, transferred to the trading and/or payment system before the moment the operator receives the notification and the introduction of the temporary administration regime in the bank. These instructions are recognized as irrevocable, have legal force and are binding on third parties. System operators must complete the transaction and make final settlement on all the above-mentioned instructions;

2. settlements with other participants within the framework of settlement systems using bank payment cards, if operations using cards were carried out before the moment of introduction of the temporary administration regime in the bank and became irrevocable. The Participant is obliged to conduct settlements with other participants within the period established by the settlement systems for bank payment cards;

3. settlements on retail payments, including payments to the State Customs Service and/or the State Tax Service, the state budget, as well as to organizations providing utility and communication services, information on payment of which has entered the payment system before the moment of introduction of the temporary administration regime in the bank. Such payments are recognized as irrevocable and settlements on them are carried out within the period established by the regulations of interbank payment systems;

4. settlements on cross-border payments, if payments were carried out before the moment of introduction of the temporary administration regime in the bank and became irrevocable, and the settlement date coincides with the period of introduction of the temporary administration regime in the bank. The Participant is obliged to conduct settlements on them. The procedure and terms for conducting settlements on cross-border payments in the event of the introduction of the temporary administration regime in the bank must be established in the corresponding contract between the operator of this system and the bank-correspondent;

5. settlements with other participants on swap and repo operations, on refinancing operations, on "asset exchange", in the course of conversion transactions, if these transactions were concluded before the introduction of the temporary administration regime in the bank;

6. settlements with other participants within the framework of settlement systems using electronic money, if operations using electronic money were carried out before the moment of introduction of the temporary administration regime in the bank and became irrevocable. The Participant is obliged to conduct settlements with other participants within the period established by the rules of settlement systems for electronic money;

7. settlements on other interbank operations carried out in accordance with the requirements of this Regulation.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

Chapter 5. Features of Conducting Final Operations for "Swap", "Repo", Deposit Operations in National Currency, "Forward", Conversion Operations, Operations for Asset Exchange (Conversion Operations) upon Introduction of Temporary Administration Regime in the Bank

20. If at the moment of introduction of the temporary administration regime the bank has maturity dates for obligations on repo and swap operations, deposit operations in national currency with the National Bank and vice versa, then these obligations must be fulfilled in full in accordance with the concluded contracts (or other documents equivalent to them), unless otherwise established by the decision of the National Bank or other authorized bodies. In the event of non-fulfillment or improper fulfillment by the bank of its obligations on swap operations, repo operations and deposit operations in national currency, as well as on asset exchange (conversion operations), the National Bank has the right to unaccepted (undisputed) debit from the correspondent account of the bank the amount of funds in the amount of unfulfilled obligations. In the event of a situation where the bank does not fulfill its obligations to return funds on swap operations, repo operations, deposit operations in national currency and conversion operations, and it is not possible on the part of the National Bank to unaccepted debit from the correspondent account of the bank the amount of funds in the amount of unfulfilled obligations due to the lack of sufficient volume of funds, disputes between the parties are subject to settlement in accordance with the legislation of the Kyrgyz Republic.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

21. If at the moment of introduction of the temporary administration regime in the bank, in the absence of special indications in the decision of the National Bank in accordance with paragraph 9 of this Regulation, the bank has maturity dates for obligations on "spot", "swap", "forward", "repo", "interbank credit", "asset exchange" (conversion operations), the bank has the right to complete these interbank transactions within the established terms upon fulfillment of the following conditions:

1. the operation is carried out with a bank that is not a troubled bank or a person associated with the troubled bank;

2. the operation does not violate the principle of impartiality established by legislation and regulatory legal acts of the National Bank;

3. according to the terms of the transaction, the troubled bank has already made the delivery of funds to another bank or funds have already been received by the troubled bank;

4. as a result of the operation, the bank will legally and factually only replace the currency of the asset.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

22. In the event of the introduction of the temporary administration regime, the troubled bank does not conduct final operations on "swap" and "repo" contracts with clients (except for banks), if the client has not yet delivered funds to the troubled bank.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

23. In the event of the introduction of the temporary administration regime, the bank is allowed to conduct final operations on "swap" and "repo" contracts, if the client has already delivered funds to the bank, provided that the client is not a person associated with the bank, in respect of which there are no other requirements for a ban on conducting operations or claims of law enforcement agencies.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

24. The temporary administrator has the right to suspend the execution of operations specified in paragraphs 22-23 of this Regulation for a period of up to 7 business days for the purpose of checking the legality of operations and compliance with the requirements of this Regulation.

25. In the event of conducting banknote operations in cases where the troubled bank has opened "Loro" type accounts for a foreign bank and received cash funds for crediting them to these "Loro" accounts, the temporary administrator has the right to cancel the operation and return the funds to the bank-correspondent, provided that the following conditions are met:

1. the funds were not credited before the introduction of the temporary administration regime in the bank, despite the fact that cash funds have already arrived at the building of the troubled bank;

2. in the presence of a corresponding decision of the National Bank in accordance with paragraph 9 of this Regulation;

3. the bank-correspondent appealed with a request to terminate the transaction, despite the fact that the funds have already arrived at the premises of the troubled bank, and undertook to resolve all organizational issues within 1 (one) business day, including on payment of corresponding expenses, on the return and transportation of cash funds from the premises of the troubled bank.

In the event of non-fulfillment of the above-mentioned conditions, the temporary administrator has the right to credit the funds to the "Loro" account of the bank.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

26. When providing services through money transfer systems, conversion into one or another currency is carried out in accordance with the internal procedures of the bank and tariffs established for conducting exchange operations, unless otherwise established by the decision of the National Bank or other authorized bodies for a specific bank.

Chapter 6. Features of Conducting Final Operations for Refinancing Operations of the National Bank upon Introduction of Temporary Administration Regime in the Bank

27. If at the moment of introduction of the temporary administration regime the troubled bank has maturity dates for repayment of refinancing operations of the National Bank, then these obligations must be fulfilled in full in accordance with the concluded General Agreements and/or other contracts/agreements for obtaining credit resources, unless otherwise established by the decision of the National Bank, a court decision or a resolution of the investigator.

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2022 No. 2022-P-12/83-6)

28. If at the moment of introduction of the temporary administration regime the bank cannot carry out repayment of the existing debt on refinancing operations of the National Bank (lack of funds in the correspondent account), then the National Bank has the right to carry out repayment of credit resources at the expense of unaccepted (undisputed) debit from the correspondent account of the bank the amount of funds in the amount of unfulfilled obligations and recourse to the collateral subject in accordance with the legislation