Resolution of the Board of the National Bank of the Kyrgyz Republic No. 2020-P-12/8-7-(NPA) of 26 February 2020 on Amendments to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

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Creation date: 2020-03-03

Resolution of the Board of the National Bank of the Kyrgyz Republic

of February 26, 2020

No. 2020-P-12/8-7-(NPA)

On Amendments to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

In accordance with Articles 20 and 68 of the Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic, Banks and Banking Activities", the Board of the National Bank of the Kyrgyz Republic resolves:

1. Make amendments to the following regulatory legal acts of the National Bank of the Kyrgyz Republic (attached):

• Resolution of the Board of the National Bank of the Kyrgyz Republic
  "On the Regulation 'On Corporate Governance in Banks of the Kyrgyz Republic Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance' dated November 30, 2011 No. 67/9;

• Resolution of the Board of the National Bank of the Kyrgyz Republic
  "On the Main Requirements for the Audit Committee" dated November 20, 2003 No. 32/7;

• Resolution of the Board of the National Bank of the Kyrgyz Republic
  "On Approval of the Regulation 'On Requirements for the Formation of Financial Reporting of Commercial Banks of the Kyrgyz Republic' dated March 12, 2010 No. 6/2;

• Resolution of the Board of the National Bank of the Kyrgyz Republic
  "On Approval of the Regulation 'On Requirements for the Formation of Financial Reporting of Commercial Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance' dated May 31, 2017 No. 21/13.

2. This resolution enters into force upon the expiration of fifteen days from the day of its official publication.

3. The Legal Department:

• publish this resolution on the official website of the National Bank of the Kyrgyz Republic;

• after official publication, send this resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Regulatory Legal Acts of the Kyrgyz Republic.

4. The Department of Supervision and Licensing Methodology shall bring this resolution to the attention of commercial banks, the Non-State Commercial Partnership "Union of Banks of Kyrgyzstan", the Non-State Commercial Partnership "Association of Islamic Finance", the Joint Stock Company "Financial Company of Credit Unions", the corresponding structural subdivisions, regional departments, and the representative office of the National Bank of the Kyrgyz Republic in the Batken region.

5. Control over the implementation of this resolution is entrusted to the member of the Board of the National Bank of the Kyrgyz Republic, who supervises the Department of Supervision and Licensing Methodology of Banks.

Chairman

T. Abdygulov

Appendix
to the Resolution of the Board of the National Bank of the Kyrgyz Republic of February 26, 2020 No. 2020-P-12/8-7-(NPA)

Amendments to certain regulatory legal acts of the National Bank of the Kyrgyz Republic

1. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On the Regulation 'On Corporate Governance in Banks of the Kyrgyz Republic Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance' dated November 30, 2011 No. 67/9":

in the Regulation "On Corporate Governance in Banks of the Kyrgyz Republic Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance", approved by the aforementioned resolution:

• in the second paragraph of point 5, after the words "Corporate Governance Committee", add the words ", and in the absence thereof, the Audit Committee,";

• rephrase the first sentence of point 19 as follows:

"The Corporate Governance Committee, the main task of which is, first of all, to protect the interests of interested parties (employees, clients, including holders of investment accounts and other depositors, suppliers), other than shareholders, monitors and evaluates the implementation and compliance of the bank's management policy, as well as monitors the implementation of the investment strategy for managing the funds of investment account holders.";

• recognize point 23 as having lost force;

• in point 37, after the words

"Corporate Governance Committee", add the words ", and in the absence thereof, the Audit Committee,";

• rephrase the second sentence of point 46 as follows:

"For a bank having an 'Islamic window', where the share of assets placed in accordance with Islamic principles of banking and finance does not exceed 50% of the balance sheet currency, the activities of the Shariah Council may be regulated by a provision approved by the Board of Directors of the bank, provided that it complies with the requirements of this Regulation and other regulatory legal acts of the National Bank regarding the creation and activities of the Shariah Council.";

• rephrase the first sub-point of point 47 as follows:

"1) organization of the work of the Shariah Council – composition of the council, procedure for holding meetings. At the same time, it should be determined that meetings with the physical presence of the Shariah Council must be held no less than once a year, and the Shariah Council is competent to consider and make decisions on agenda items if 2/3 of the members of the Shariah Council are present at the meeting;";

• in point 60:

rephrase the first sub-point as follows:

"1) the structure of the bank's management bodies and the Shariah Council (composition, qualifications, education and experience, powers, duties, supervised areas, work regulations and membership in committees, including information on the number of committee meetings held, etc.);";

add sub-points 7 and 8 of the following content:

"7) information on the appointment and change of members of the Shariah Council over the last 5 (five) years, indicating the period of their work;

8) the conclusion of the bank's Shariah Council on compliance with Shariah standards. This conclusion may be presented as part of the bank's financial reporting and must contain:

• cases of non-compliance with Shariah standards (procedural errors) that do not entail financial consequences (losses) for the bank and its clients. Disclosure in this area must include information on measures to eliminate cases of non-compliance with Shariah standards and control measures to prevent the recurrence of such cases;

• cases of non-compliance with Shariah standards that have resulted in financial losses for the bank and its clients. Disclosure in this area must include information on income not in accordance with Shariah standards (if any), on how income and expenses not in accordance with Shariah standards are reflected, and corresponding adjustments;

• a statement regarding responsibility for compliance with Shariah standards.

The Bank is recommended to disclose decisions, minutes of the Shariah Council, issued on issues of the bank's compliance with Shariah standards over the last 12 months, as well as the justification in support of these decisions, minutes, and the decision-making process of the Shariah Council. Decisions, minutes, and their justifications must be presented using publicly available terms in a clear, simple, and understandable language and form.".

2. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On the Main Requirements for the Audit Committee" dated November 20, 2003 No. 32/7:

in the Main Requirements for the Audit Committee, approved by the aforementioned resolution:

• rephrase point 1.1 as follows:

"1.1. These Main Requirements apply to commercial banks, including those carrying out operations in accordance with Islamic principles of banking and finance, the Joint Stock Company 'Financial Company of Credit Unions' and the State Development Bank of the Kyrgyz Republic (hereinafter - banks).";

• in point 6.2, after the words "Corporate Governance Committee", add the words "(in case such a committee exists in the bank)".

3. Make the following additions to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Requirements for the Formation of Financial Reporting of Commercial Banks of the Kyrgyz Republic' dated March 12, 2010 No. 6/2":

in the Regulation "On Requirements for the Formation of Financial Reporting of Commercial Banks of the Kyrgyz Republic", approved by the aforementioned resolution:

in point 1:

• in the first paragraph, after the words "commercial banks," add the words "including those having an 'Islamic window',";

• add a fifth paragraph to the point as follows:

"Banks having an 'Islamic window' provide additional (separate) reporting on operations carried out in accordance with Islamic principles of banking and finance, in accordance with the Regulation 'On Requirements for the Formation of Financial Reporting of Commercial Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance', approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated 31.05.2017 No. 21/13.".

4. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Requirements for the Formation of Financial Reporting of Commercial Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance' dated May 31, 2017

No. 21/13":

in the Regulation "On Requirements for the Formation of Financial Reporting of Commercial Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance", approved by the aforementioned resolution:

• add a sentence to point 3 as follows:

"The financial reporting of a bank having an 'Islamic window' is submitted in accordance with Chapter 11 of this Regulation.";

• rephrase points 68, 69, 70 as follows:

"68. The financial reporting of a bank having an 'Islamic window' is submitted in accordance with the Regulation 'On Requirements for the Formation of Financial Reporting of Commercial Banks of the Kyrgyz Republic', approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated 12.03.2010 No. 6/2, taking into account the features specified in this Regulation.

69. The accounting policy of a bank having an 'Islamic window', approved by its Board of Directors and approved by the Shariah Council, must include requirements for the procedure for forming the reporting of the bank's 'Islamic window'. At the same time, the bank's accounting policy must ensure separate accounting of the economic activities of the bank itself and its 'Islamic window', including in terms of capital accounting and profit and loss accounting.

70. A bank having an 'Islamic window' must form and submit additional (separate) reporting on operations carried out in accordance with Islamic principles of banking and finance as an appendix to the bank's financial reporting, which must contain:

1) a report on the financial position of the 'Islamic window';

2) a report on the total income of the 'Islamic window';

3) a report on the cash flows of the 'Islamic window';

4) a report on the sources of formation and use of funds of cards in accordance with Chapter 7 of this Regulation;

5) the conclusion of the Shariah Council in accordance with Chapter 8 of this Regulation;

6) accounting policy and notes to the financial reporting in accordance with Chapter 9 of this Regulation.".

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