Regulation on Banks' Operations with Securities

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Creation Date: 2026-01-28

Approved

by the Resolution of the Board of the National Bank of the Kyrgyz Republic of September 14, 2011 No. 52/4

REGULATION

on the work of banks with securities

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of February 15, 2012 No. 8/2, November 16, 2012 No. 43/1, March 11, 2015 No. 16/2, February 10, 2016 No. 7/2, June 15, 2017 No. 2017-P-12/25-12, August 15, 2018 No. 2018-P-33/33-8, August 14, 2019 No. 2019-P-12/42-1, March 24, 2020 No. 2020-P-12/15-5, March 23, 2022 No. 2022-P-12/17-4, December 21, 2022 No. 2022-P-12/81-8, April 29, 2023 No. 2023-P-12/29-1, January 17, 2024 No. 2024-P-12/1-3, April 12, 2024 No. 2024-P-12/17-3, October 23, 2025 No. 2025-P-12/55-4-(NPA), December 19, 2025 No. 2025-P-12/68-2-(NPA))

Chapter 1. General Provisions

1. This Regulation applies to commercial banks of the Kyrgyz Republic and microfinance companies attracting deposits, including banks and microfinance companies attracting deposits, conducting operations in accordance with Islamic principles of banking and financing (hereinafter - banks).

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of January 17, 2024 No. 2024-P-12/1-3)

2. Basic concepts used within the framework of this Regulation:

• state securities are debt obligations issued by the Ministry of Finance of the Kyrgyz Republic on behalf of the Cabinet of Ministers of the Kyrgyz Republic;

• notes of the National Bank of the Kyrgyz Republic are securities issued by the National Bank of the Kyrgyz Republic (hereinafter - National Bank) (hereinafter - notes);

• market securities are securities that are traded on a developed, efficient, transparent securities market, allowing for the determination of the fair value of these securities;

• securities portfolio is a collection of various types of securities owned or managed by the bank;

• broker is a professional participant of the securities market, including a bank, licensed to conduct professional activities in the securities market, executing transactions with securities on behalf, at the expense, and in the interests of clients, based on a corresponding contract;

• dealer is a professional participant of the securities market, including a bank, licensed to conduct professional activities in the securities market, executing transactions with securities in its own name and at its own expense with the aim of obtaining profit from the subsequent resale of securities or other transactions with them;

• securities depository is a professional participant of the securities market, including a bank, licensed to conduct professional activities in the securities market, carrying out registration of rights and/or transfer of rights to securities and accounting, and/or storage of these securities and funds intended for carrying out transactions, as well as proceeds from transactions based on a contract with the owner or nominal holder of these securities (depository agreement);

Islamic securities are securities issued based on Islamic financing principles (Shariah standards), certifying ownership rights to an indivisible share in the established property or business of the issuer.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-12, March 24, 2020 No. 2020-P-12/15-5, December 21, 2022 No. 2022-P-12/81-8, April 29, 2023 No. 2023-P-12/29-1, October 23, 2025 No. 2025-P-12/55-4-(NPA))

3. The Regulation defines the procedure for banks' work with securities, minimum requirements for reporting and internal control systems when working with securities, requirements for the broker/dealer/depository with which the bank conducts operations and transactions with securities, determines the liability of officials and employees of the bank when working with securities, and also establishes the basic rules for developing investment policy.

The bank has the right to conduct operations and transactions with securities provided that the conditions and requirements set forth in this Regulation are met.

Chapter 2. Liability of the Board of Directors and Management of the Bank

4. The Board of Directors and the Management of the bank are responsible for the bank's compliance with the requirements and restrictions established by this Regulation. In banks conducting operations in accordance with Islamic principles of banking and financing, the Shariah Council is responsible for the compliance of the bank's policy on working with securities with Shariah standards.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 24, 2020 No. 2020-P-12/15-5)

5. All members of the Board of Directors, regardless of qualification and assigned functions within the bank, are responsible for fulfilling the requirements established by legislation, including adopting the policy on conducting activities with securities, establishing requirements for the selection of brokers, dealers, depositories, and other counterparties of the bank, and must ensure that relevant bank employees have the necessary risk management skills. For the proper exercise of their functions, the Board of Directors must approve the bank's investment policy, periodically analyze the bank's activities with securities, and establish risk limits. The Board of Directors must be competent in matters of the bank's activities with securities and must ensure independent verification of this activity by conducting an internal audit.

6. The Management of the bank is responsible for the daily management of activities with securities, the presence of competent and well-trained personnel, ensuring the execution of relevant policies and procedures, reporting to the Board of Directors, organizing an internal control system that provides for the separation of duties of employees involved in working with securities, strict compliance with risk limits, and also ensuring an independent assessment of the internal control system. The Management of the bank must approve internal documents (regulations, instructions, procedures, etc.) on the organization and procedure for working with securities (on carrying out operations and transactions with securities, their storage, etc.), on preventing conflicts of interest, and organizing an internal control system with a clear indication of the powers and functional responsibilities of each employee. Bank employees must understand the nature and levels of various risks associated with the bank's operations and transactions, and how these risks align with the bank's overall business strategy.

7. For effective internal control of the bank's activities with securities, the Management of the bank must guide current activities in accordance with the development strategy of the bank approved by the Board of Directors, observing established risk limits.

Risk limits must correspond to the strategic plans of the bank and the general goals of asset/liability management, taking into account the risks of the bank's activities as a whole, the securities portfolio, each security separately, etc. Limits must be established for market risk, credit risk, liquidity risk, and other types of risks, according to the Regulation "On Minimum Requirements for Risk Management in Banks of the Kyrgyz Republic," approved by the Resolution of the Board of the National Bank of June 15, 2017 No. 2017-P-12/25-8-(NPA) (hereinafter - Regulation on Minimum Requirements for Risk Management in Banks of the Kyrgyz Republic).

In banks conducting operations in accordance with Islamic principles of banking and financing, limits must also be established for the risk of non-compliance with Shariah standards and for other types of risks, according to the Regulation "On Minimum Requirements for Risk Management in Banks Conducting Operations in Accordance with Islamic Principles of Banking and Financing," approved by the Resolution of the Board of the National Bank of July 18, 2018 No. 2018-P-12/30-3-(BS) (hereinafter - Regulation on Minimum Requirements for Risk Management in Islamic Banks of the Kyrgyz Republic).

To ensure uninterrupted operational functioning of the bank, the bank's management must also establish proper separation of responsibility for dealer activities (front-office) and accounting processing of transactions (back-office).

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 24, 2020 No. 2020-P-12/15-5)

8. The aggregate limit for operations and transactions with securities is established by the Board of Directors of the bank. Acquisition of securities, the cost of which exceeds the limits established in the bank's investment policy, must be approved by the Management of the bank with subsequent approval by the Board of Directors.

9. The bank's management periodically, but no less than once a year, reviews the policy, regulations, and internal procedures related to the bank's investment activities, work with securities, and internal control system for their compliance with the requirements of the legislation of the Kyrgyz Republic, the bank's activity strategy, taking into account the influence of external and internal factors, and if necessary, takes appropriate corrective measures.

10. The liability of the Board of Directors and the Management of the bank, in banks conducting operations in accordance with Islamic principles of banking and financing, including the Shariah Council, cannot be imposed on other persons, regardless of the availability of professional consultations received by the said governing bodies of the bank.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 24, 2020 No. 2020-P-12/15-5)

Chapter 3. Investment Policy

11. The bank's investment policy must describe the bank's investment and trading strategies and their goal, disclose measures for effective management and control of relevant risks, and must contain, at a minimum, the following:

a) description of the bank's business model for managing securities (for example, holding securities for cash flow, holding securities for cash flow or sale, and other business models) and the purpose of their acquisition (for example, maintaining liquidity, obtaining income, meeting collateral requirements, etc.);

b) procedure for internal limitation of authority to make investment and trading decisions. For these purposes, banks are recommended to create an Investment Committee, which will be endowed with certain powers and degree of responsibility, or to endow the Bank's Asset and Liability Management Committee with these powers and the corresponding degree of responsibility.

At the same time, each member of the authorized committee participating in the decision-making must:

• be aware of the essence of the issue under consideration;

• understand the impact of their decisions on the bank's activities;

• assess the possibility of arising risks and consequences of their decisions.

The opinion of a committee member who has comments and proposals on the issue under consideration and disagrees with the adopted decision must be expressed during voting and reflected in the protocol. The protocol must be signed by all committee members present at the meeting and the committee secretary. Committee members who did not participate in the meeting must be familiarized with the protocol and adopted decisions under signature;

c) definition of the type and quality of securities that should be held in the portfolio (for example, the policy may state: "Investment in government treasury bills and debt securities of private issuers with a credit rating not lower than the 'Wa2' category is allowed");

d) instructions on legal, financial, and qualitative analysis of the bank's investment opportunities taking into account forecast values of financial market indicators, the issuer, the activities of the broker/dealer/depository with which the bank plans to interact, including the types of financial information necessary for the purposes of analysis;

e) requirements for risk diversification by type, quality, issuers, geographic distribution, and for establishing limits on various types of risks according to the Regulation on Minimum Requirements for Risk Management in Banks of the Kyrgyz Republic/Regulation on Minimum Requirements for Risk Management in Islamic Banks of the Kyrgyz Republic;

f) clear distribution of powers and responsibilities of bank employees involved in securities operations;

g) minimum qualification requirements for personnel involved in working with securities. The bank must have personnel capable of analyzing the issuer and providing recommendations for decision-making. Bank employees involved in securities operations must possess reliable and comprehensive information about the type of securities in which the bank has invested or plans to invest funds;

h) requirements for the internal control system, allowing for timely identification and effective management of risks associated with placing funds in securities, with operations and transactions with securities, with interaction with the broker/dealer/depository, other counterparties, and bank clients. In this part of the investment policy, the following must be described:

• procedure for organizing internal control, establishing the powers and responsibilities of bank officials in decision-making, the procedure for interaction and accountability between persons and departments involved in the process of carrying out operations and transactions with securities;

• requirements for the managerial information system for evaluating portfolio efficiency (types of reports and their frequency), aimed at informing the Board of Directors and Management of bank employees about existing shortcomings and problems, about possible risks in the bank's activities related to working with securities;

• procedure for suspending operations and transactions with securities, in the presence of information about the participation of the broker/dealer/depository, other counterparties, and bank clients in operations and transactions that may lead to a violation of the legislation of the Kyrgyz Republic;

• procedure for conducting monitoring and assessment of risks when carrying out operations and transactions with securities;

• procedure for controlling and monitoring the bank's compliance with the legislation of the Kyrgyz Republic;

• measures to prevent possible collusion between participants of the internal control system and the emergence of conflicts of interest;

• establishment of a ban on the same person performing duties simultaneously in front and back offices and departments carrying out risk monitoring;

• procedure for checking the timeliness, correctness, completeness, and accuracy of reflecting conducted transactions with securities in accounting and reporting;

i) basic principles for selecting external brokers, dealers, and depositories.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of February 15, 2012 No. 8/2, June 15, 2017 No. 2017-P-12/25-12, March 24, 2020 No. 2020-P-12/15-5, March 23, 2022 No. 2022-P-12/17-4)

Chapter 4. Internal Control System

12. An internal control system must be organized in the bank in accordance with the requirements of this Regulation. The structure of the bank's internal control is extremely important for reliable and safe implementation of its investment activities. An adequate internal control system contributes to the implementation of effective operations, reliability of financial and regulatory reporting, compliance with legislation and internal documents of the bank.

13. Operations with securities must be functionally divided between executors of trade execution and executors of their accounting processing. Each bank should adhere to, at a minimum, the following recommendations:

a) clearly define the functional separation of dealer activities (front-office) and accounting processing of transactions (back-office). At all stages of trade execution, control, and accounting processing, the "four-eyes" principle must be used, that is, at least two persons must carry out control over the execution of the operation;

b) valuation and analysis of each security must be carried out based on legitimate, reliable, and current information;

c) a front-office employee concluding a transaction does not have the right to unilaterally give instructions for carrying out accounting processing of the transaction without the certifying signature of the controller, exchange confirmations on the concluded transaction with the counterparty, carry out accounting processing of the transaction;

d) a back-office employee does not have the right to conclude a transaction (transactions) for the purchase or sale of securities. The employee carrying out the accounting processing of the transaction must reconcile the terms of the transaction with the confirming documents of the counterparty;

e) back-office employees must obtain independent confirmation from the counterparty for all operations, separate from front-office executors, and reconcile it with the terms of the transaction;

f) clearing and payments for securities must be regularly, with a frequency established by internal regulations (procedures) of the bank, subject to reconciliation and audit, which are carried out by employees not involved in trading operations or their accounting;

g) if the bank acts as a broker: the bank must open an account for each of the clients and keep registration records, including all cases of purchase or sale of securities, types of securities, dates of the transaction, price, and quantity of sold/purchased securities;

h) accounting of securities belonging to the bank must be carried out separately from the accounting of securities belonging to the bank's clients.

14. Bank employees conducting operations with securities cannot use their official position for personal gain by entering into personal relationships with persons who participate in operations with securities conducted by the bank.

15. The acquisition of securities by the bank must be carried out after conducting a preliminary analysis of quotes on the securities market. A thorough analysis of the security, its issuer, and the risks associated with the acquisition and/or ownership of such security must also be conducted, taking into account the requirements of the Regulation on Minimum Requirements for Risk Management in Banks of the Kyrgyz Republic/Regulation on Minimum Requirements for Risk Management in Islamic Banks of the Kyrgyz Republic. Such analysis must be based on current financial information, rating reports, and information on listing at the stock exchange (if any), information presented in relevant information analytical systems (such as Reuters or Bloomberg), and other necessary sources. If it is planned to acquire debt securities of project financing and Islamic securities of project financing of resident issuers of the Kyrgyz Republic (creation, construction, and production of new assets: buildings, structures, etc. assets), the bank must also study the success of the project. However, for the acquisition of highly rated, highly liquid securities included in the listings of stock exchanges, including international ones and traded on developed stock markets (countries included in the Standard & Poor's agency list - The S&P Global BMI (Broad Market Index)), the justification for the investment attractiveness of securities may be based on the analysis of information obtained from third parties (analytical companies, rating agencies, brokerage companies, etc.).

If it is planned to acquire a security issued by an issuer - a non-resident of the Kyrgyz Republic, the analysis must also include a sufficient amount of information about the foreign country and an assessment of country risk. The bank must possess sufficient information for decision-making about the legislation, as well as the regulation practice of the relevant foreign securities markets and the activities of their professional participants in the securities market. If necessary, the bank is recommended to consult with a lawyer and a securities market specialist with experience and knowledge in this area.

In the purchase and sale of state securities and notes, banks must comply with this Regulation insofar as it does not contradict the corresponding normative legal acts of the National Bank and the authorized state body for regulating the securities market.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-12, March 24, 2020 No. 2020-P-12/15-5, October 23, 2025 No. 2025-P-12/55-4-(NPA))

16. A dossier with documents on securities must be formed in the bank, including:

• information on the financial condition of the issuer, confirmed by financial reports with an external audit opinion for the last three annual reports;

• relevant confirming documents on the issuance of each security that is the subject of the transaction, with information on the issuer's obligations on these securities, on the conclusion of a transaction with securities (including the emission prospectus, extracts from the register of security holders, certificates and/or extracts from depository accounts at the depository, sales contract, copy of the payment order);

• analysis of quotes on the securities market and forecast value of the acquired security;

• analysis and assessment of the financial condition of the issuer and the security, risks associated with the acquisition and/or ownership of such security, opportunities for the issuer to fulfill its obligations on securities, taking into account the requirements of the Regulation on Minimum Requirements for Risk Management in Banks of the Kyrgyz Republic/Regulation on Minimum Requirements for Risk Management in Islamic Banks of the Kyrgyz Republic;

• legal opinion on the acquisition of the security;

• conclusion of the official on combating the financing of criminal activities and legalization (money laundering) of criminal proceeds (hereinafter - AML/CFT) regarding the involvement of the issuer and the securities issued by it in operations carrying the risk of financing criminal activities and legalization (money laundering) of criminal proceeds, in accordance with the corresponding normative legal acts in the field of AML/CFT;

Note: the official on AML/CFT is a bank employee (at the level of the head of the compliance control service), appointed for the purpose of organizing internal control on AML/CFT, having access to all information regarding identification, verification, detection, recording, and transmission of data to the financial intelligence agency.

• protocol of the meeting of the Management or the corresponding authorized body of the bank, which must reflect the relevant discussion, including:

description of the characteristics of the acquired securities;

purpose of acquisition/sale;

statement of reasons why the acquisition or sale of these specific securities (papers) best serves the interests of the bank.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of February 10, 2016 No. 7/2, June 15, 2017 No. 2017-P-12/25-12, August 14, 2019 No. 2019-P-12/42-1, March 24, 2020 No. 2020-P-12/15-5, December 19, 2025 No. 2025-P-12/68-2-(NPA))

17. The bank must comply with the normative legal acts of the Kyrgyz Republic regarding registration records of securities and, at a minimum, keep records taking into account the following:

a) each document for the purchase-sale of a security is assigned a unique code (registration number) with parallel keeping of records in the registration journal.

The document must contain the following information:

• whether the security was purchased at the expense of the client or the bank;

• type of operation (sale/purchase);

• transaction price;

• date of receipt of the document for concluding the transaction;

• date of execution of the document for concluding the transaction;

• description of the security (type of security, maturity date, interest rate/yield, issuer, coupon rate, nominal value);

• name of the dealer/broker;

• name (Full Name) of the client;

• instructions for delivery/payment;

• special conditions provided by the bank;

b) each bank must keep journals of registration of transactions with securities containing the following information:

• Full Name of the buyer/seller;

• name and address (country and city name) of the side, which