Instruction No. 239 on Requirements for Credit Organizations' Investments in the Capital of Other Legal Entities

"Registered" "Approved"
Ministry of Justice by resolution of the Board of the National Bank of the Republic of Tajikistan dated December 6, 2019, No. 995 on September 27, 2019, No. 121 Amendments and Additions dated November 11, 2021, No. 9951 / dated October 20, 2021, No. 159

Instruction No. 239 "On Requirements for Credit Organizations' Investments in the Capital of Other Legal Entities" Instruction No. 239 "On Requirements for Credit Organizations' Investments in the Capital of Other Legal Entities" (hereinafter – the "Instruction") developed in accordance with the provisions of Part 1 of Article 42 of the Law of the Republic of Tajikistan "On the National Bank of Tajikistan", Parts 1 and 2 of Article 29 of the Law of the Republic of Tajikistan "On Banking Activity" and Part 2 of Article 23 of the Law of the Republic of Tajikistan "On Microfinance Organizations", and establishes the procedure for credit organizations to make long-term investments in shares (stakes) and bonds convertible into shares (stakes) of other legal entities, as well as requirements regarding risk management of such investments, reporting submission, publication and development of investment policy.

CHAPTER 1. GENERAL PROVISIONS

1. A credit organization has the right to make investments in shares (stakes) and bonds convertible into shares (stakes) of other legal entities in its own name for long-term purposes only in accordance with the procedure established by this Instruction.
   The procedure for a credit organization to make investments in equity or debt securities in its own name or on behalf of clients, for the purpose of sale, trading, or holding until maturity, is established in accordance with the requirements of other relevant regulatory legal acts of the National Bank of Tajikistan.
2. Microfinance organizations and microfinance funds are prohibited from making investments in shares (stakes) and bonds convertible into shares (stakes) of other legal entities, including other credit organizations and foreign legal entities.
3. The following basic terms are used in this Instruction:

• investments – independent or through others, or jointly with one or more persons, direct or indirect establishment of a legal entity by a credit organization, acquisition in its own name of shares (stakes) and bonds convertible into shares (stakes), (hereinafter – securities and stakes) of other legal entities for the purpose of long-term capital investment, or carrying out any other action as a result of which the credit organization becomes the owner of such securities and stakes;
• major investment – making investments in securities and stakes of a legal entity or a group of interrelated legal entities, the total volume of which equals or exceeds five percent of the credit organization's regulatory capital;
• empty (shell) company – a company registered and/or holding a license in accordance with the procedure established by law, which, however, does not actually exist, and is not consolidated with any regulated financial group subject to joint supervision;
• the terms "affiliated company" and "subsidiary company" provided for in this Instruction are defined in accordance with their explanations given in the Laws of the Republic of Tajikistan "On Joint-Stock Companies" and "On Limited Liability Companies";
• the terms "controlling interest", "supervisory powers over another legal entity" and "related party" provided for in this Instruction are defined in accordance with their explanations given in the Law of the Republic of Tajikistan "On Banking Activity";
• the term "offshore zone" provided for in this Instruction is defined in accordance with its explanation given in the Law of the Republic of Tajikistan "On Countering Legalization (Money Laundering) of Proceeds Obtained by Criminal Means, Terrorism Financing and Weapons of Mass Destruction Proliferation Financing".

4. A credit organization may not make investments in securities and stakes of other legal entities that are not credit financial organizations in an amount exceeding ten percent of its regulatory capital, except for securities and stakes obtained by the credit organization as a result of carrying out a banking operation. (Resolution of the Board of NBT dated October 20, 2021, No. 159)
5. A banking operation as a result of which a credit organization receives securities and stakes means the acceptance by the credit organization of securities and stakes provided as collateral in place of an overdue obligation.
6. A credit organization may not, without prior permission from the National Bank of Tajikistan, make investments in the following securities and stakes, except for securities and stakes obtained by the credit organization as a result of carrying out a banking operation:

• securities and stakes of another credit financial organization; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• securities and stakes of foreign legal entities (non-residents) within the limit provided for in paragraph 4 of this Instruction;
• securities and stakes of a legal entity that, as a result of making investments within the limits provided for in paragraph 4 of this Instruction, becomes an affiliated or subsidiary company of the credit organization.

7. A credit organization is obliged to sell the following securities and stakes obtained as a result of carrying out a banking operation, provided no losses are incurred, within a period not later than one month, and in any case, not later than one year after acquisition, to unrelated persons of the credit organization: (Resolution of the Board of NBT dated October 20, 2021, No. 159)

• securities and stakes of legal entities, including foreign legal entities, affiliated and subsidiary companies, where their total amount exceeds ten percent of the credit organization's regulatory capital;
• securities and stakes of another credit financial organization, foreign legal entities, for which an application to obtain consent from the National Bank of Tajikistan for retention has not been submitted within one month; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• securities and stakes of legal entities that have become affiliated or subsidiary companies of the credit organization as a result of investment, and for which an application to obtain consent from the National Bank of Tajikistan for retention has not been submitted within one month. (Resolution of the Board of NBT dated October 20, 2021, No. 159)

8. In the event that the securities and stakes provided for in paragraph 7 of this Instruction are not sold within one month, the credit organization, within one month, submits an action plan with specific measures undertaken and indicating their implementation deadlines to the National Bank of Tajikistan for approval.
   The National Bank of Tajikistan evaluates the realism of the action plan and has the right to require amendments to this plan.
9. In cases where the volume of a credit organization's investments complies with the limits provided for in paragraph 4 of this Instruction, however, subsequently as a result of a decrease in the credit organization's regulatory capital, an increase in the value of investments, reorganization of the invested legal entity, or a change in exchange rates, the volume of investments will exceed the established limit, the credit organization must notify the National Bank of Tajikistan about this within five working days.
   The National Bank of Tajikistan establishes a specific period within which the credit organization is obliged to ensure compliance with the established standard.

CHAPTER 2. INVESTMENTS REQUIRING PRIOR CONSENT OF THE NATIONAL BANK OF TAJIKISTAN
10. Based on the prior consent of the National Bank of Tajikistan, a credit organization may make investments in securities and stakes of a foreign legal entity, a credit financial organization or another legal entity, as a result of which such entity becomes an affiliated or subsidiary company of the credit organization (hereinafter – the invested legal entity), if: (Resolution of the Board of NBT dated October 20, 2021, No. 159)

• the financial results of the credit organization are not loss-making and prudential standards established by the National Bank of Tajikistan have been complied with during the last six months;
• making such investment will not lead to non-compliance with any prudential standard established by the National Bank of Tajikistan;
• the invested legal entity or persons holding a controlling interest in it, including their ultimate beneficial owners, are not registered in an offshore zone, or such legal entity is the owner of controlling interests in other legal entities not registered in such zones; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• the invested legal entity, affiliated and subsidiary companies of the invested legal entity and persons holding a controlling interest are not established as an empty company;
• excluded; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• persons holding a controlling interest (except for credit financial organizations), including their ultimate beneficial owners, members of the Supervisory Board (or equivalent body), executive body and chief accountant, and members of the Supervisory Board (or equivalent body), executive body and chief accountant of the invested legal entity or affiliated and subsidiary companies, in accordance with banking legislation are not professionally incompetent and unreliable persons. (Resolution of the Board of NBT dated October 20, 2021, No. 159)

11. An affiliated or subsidiary company of a credit organization has the right to engage only in banking, insurance, leasing, investment activities, credit bureau activities, brokerage or dealer activities in the securities market, trust management of securities, pawnshop operations, providing payment services, processing services, financial agent services, services as a financial consultant or advisor, or financial-credit information services.
    In addition, an affiliated or subsidiary company of a credit organization has the right to engage in any other activity arising from the activities specified in this paragraph. Carrying out any other activities by an affiliated or subsidiary company of a credit organization is prohibited.
12. A credit organization is obliged to submit an application to the National Bank of Tajikistan to obtain consent for retaining securities and stakes of other credit financial organizations, foreign legal entities, its affiliated or subsidiary companies, which were obtained as a result of a banking operation, and whose total amount does not exceed ten percent of the credit organization's regulatory capital within one month after their acquisition. (Resolution of the Board of NBT dated October 20, 2021, No. 159)
13. A credit organization submits an application to the National Bank of Tajikistan for consent to make investments in securities and stakes of the invested legal entity or to retain such securities and stakes obtained as a result of a banking operation (hereinafter – consent), containing the following information:

• a copy of the credit organization's investment policy approved by the Supervisory Board (or equivalent body) of the credit organization;
• the minutes and decision of the Supervisory Board (or equivalent body) or executive body of the credit organization on making investments in a legal entity;
• information on the objectives and terms of investments and their volume;
• analysis and assessment of the financial condition of the invested legal entity, a conclusion on risks associated with the investment and their impact on the credit organization's stability;
• a copy of the charter documents certified by the signature of the head and seal of the invested legal entity, a certificate of its state registration, as well as, in case it carries out activities subject to licensing, a copy of the license issued by the authorized body;
• a description of the ownership structure of the invested legal entity, which contains information on owners of controlling interests, including their beneficial owners, and information on legal entities in which the invested legal entity is a controlling interest owner, including their beneficial owners;
• a list of persons holding a controlling interest in the invested legal entity, including their ultimate beneficial owners, indicating their address and number of shares (stakes);
• information on activities and a copy of the state registration certificate for persons holding a controlling interest in the invested legal entity – in case of legal entities, and a copy of passport, taxpayer identification number – for natural persons;
• information on activities and a copy of the state registration certificate for legal entities in which the invested legal entity holds a controlling interest;
• a description of the organizational structure of the invested legal entity;
• a description of the internal control system of the invested legal entity, which as a result becomes an affiliated or subsidiary company;
• information on persons holding a controlling interest (except for credit financial organizations), including their ultimate beneficial owners, members of the Supervisory Board (or equivalent body), executive body and chief accountant, and members of the Supervisory Board (or equivalent body), executive body and chief accountant of the invested legal entity and affiliated and subsidiary companies of the invested legal entity, indicating surname, name and patronymic, citizenship, place of permanent residence, activity or profession, education, work experience and compliance with the requirements of a professionally competent and reliable person provided by banking legislation, including documents confirming this information; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• a consolidated financial report of the invested legal entity approved by an external auditor for the past year;
• financial statements of the invested legal entity, including its consolidated financial statements as of the last date of the reporting month;
• a forecast consolidated financial report of the credit organization taking into account the invested legal entity for the last reporting month;
• a business plan of the invested legal entity taking into account objectives and types of activities, forecast balance sheet, income and expenses and cash flows for the next three years;
• the planned income of the credit organization from making investments and the accrual method;
• information on debt and other types of financing (paid and current), including guarantees issued by the credit organization to the invested legal entity and its related parties, as well as information on repayment terms;
• information on all legal measures regarding the invested legal entity, including its affiliated and subsidiary companies, persons holding a controlling interest, members of the Supervisory Board (or equivalent body), executive body and chief accountant, applied by judicial, supervisory and other state bodies (domestic and foreign) during the last five years;
• in case of making investments in a foreign legal entity, as a result of which it becomes an affiliated or subsidiary company of the credit organization, consent to make such investments in accordance with the legislation of the foreign country where this legal entity is registered.

14. The National Bank of Tajikistan has the right to request additional information that it considers necessary for making a decision on granting or rejecting the credit organization's application.
15. The National Bank of Tajikistan rejects the credit organization's application for consent if:

• the credit organization provided incomplete, unreliable or false information;
• making investments by the credit organization contradicts the requirements of this Instruction;
• the business plan of the invested legal entity is unrealistic;
• the credit organization's activities do not meet the requirements of the regulatory legal act of the National Bank of Tajikistan on the internal control and risk management system;
• the financial condition of the invested legal entity threatens the stability of the credit organization or the interests of depositors and creditors of the credit organization;
• the activities of an affiliated or subsidiary company of the credit organization do not comply with the provisions of paragraph 11 of this Instruction;
• the invested legal entity and its affiliated or subsidiary companies are members of a group structure that hinders the implementation of effective banking supervision;
• excluded; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• the invested legal entity, its affiliated or subsidiary companies, persons holding a controlling interest, including their ultimate beneficial owners, members of the Supervisory Board (or equivalent body), executive body or chief accountant of the invested legal entity, or affiliated or subsidiary company of the invested legal entity have participated in committing an intentional crime or illegal activity, including related to legalization (money laundering) of proceeds obtained by criminal means, terrorism financing and proliferation financing of weapons of mass destruction, as well as the National Bank of Tajikistan is aware of facts of such actions from available and mass sources used by it; (Resolution of the Board of NBT dated October 20, 2021, No. 159)
• the credit organization is unable to carry out constant monitoring of investments for any reason.

16. The National Bank of Tajikistan makes a decision on granting or refusing consent no later than sixty days from the date of receipt of the application, and the credit organization is notified in writing about such decision within five working days.
    In case of submission by the credit organization of incomplete information or information not meeting the requirements of this Instruction, the application review period starts from the date of submission of complete information in accordance with established requirements.
17. After obtaining consent from the National Bank of Tajikistan, credit organizations notify the National Bank of Tajikistan about any changes in documents submitted for obtaining consent, including alienation of securities and stakes within ten working days.
18. The credit organization is responsible for the compliance of its subsidiary's activities with legislative requirements.

CHAPTER 3. INVESTMENTS REQUIRING NOTIFICATION OF THE NATIONAL BANK OF TAJIKISTAN
19. A credit organization is obliged to notify the National Bank of Tajikistan thirty days before making the following investments, if in accordance with the requirements of this Instruction obtaining consent from the National Bank of Tajikistan is not required:

• major investments;
• investments, as a result of which the credit organization becomes the owner of a controlling interest in a legal entity.

20. When notifying the National Bank of Tajikistan about planned investments provided for in paragraph 19 of this Instruction, the credit organization attaches the following documentation:

• information on objectives, terms and volume of investments;
• forecast of expected income from investment for the next two years;
• general information on the invested legal entity (name, location, organizational-legal form, types of activities, history of market activity, list of owners of controlling interests, Supervisory Board (or equivalent body) and executive body);
• information on loans and other