Resolution of the Board of the National Bank of the Kyrgyz Republic No. 62/2 of 14 October 2015 on Amending and Supplementing Resolution of the Board of the National Bank of the Kyrgyz Republic No. 19/4 of 28 June 2006 on Certain Regulatory Acts of the National Bank of the Kyrgyz Republic

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of 14 October 2015 No. 62/2

On Amending and Supplementing the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Acts of the National Bank of the Kyrgyz Republic" of 28 June 2006 No. 19/4

In accordance with Articles 7 and 43 of the Law "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. To introduce into the resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Acts of the National Bank of the Kyrgyz Republic" of 28 June 2006 No. 19/4 amendments and supplements (attached).

2. To 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 Normative Legal Acts of the Kyrgyz Republic.

3. This resolution enters into force upon the expiry of fifteen days from the day of official publication.

4. To the Supervision Methodology and Licensing Department: bring this resolution to the attention of microcredit companies, microcredit agencies, the Association of Microfinance Organizations, regional departments and the Representative Office of the National Bank of the Kyrgyz Republic in Batken Oblast.

5. To assign control over the execution of this resolution to the Deputy Chairman of the National Bank of the Kyrgyz Republic L. Orozbaeva.

Chairman

AMENDMENTS AND SUPPLEMENTS to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Acts of the National Bank of the Kyrgyz Republic" of 28 June 2006 No. 19/4

To introduce into the resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Acts of the National Bank of the Kyrgyz Republic" of 28 June 2006 No. 19/4 the following amendments and supplements:

in the Regulation "On Minimum Requirements for Conducting External Audit of Microfinance Organizations in the Kyrgyz Republic", approved by the above-mentioned resolution:

• throughout the text, replace the word "NBKR" with the words "National Bank" in various case forms;

• restate the preamble of the Regulation as follows:

"This Regulation 'On Minimum Requirements for Conducting External Audit of Microfinance Organizations in the Kyrgyz Republic' (hereinafter - the Regulation) has been developed in accordance with the Laws of the Kyrgyz Republic 'On Microfinance Organizations in the Kyrgyz Republic', 'On Audit Activity' and 'On Accounting' and establishes minimum requirements for conducting external audit of annual financial statements of microfinance organizations, including those carrying out operations under Islamic principles of banking and financing, taking into account the specifics of the terminology used, and holding a certificate of the National Bank to carry out activities as a microfinance organization.";

• Chapter 2 and footnote 1 to paragraph 2.1 shall be deemed to have lost force;

• restate paragraph 3.1 as follows:

"3.1. Microcredit companies and microcredit agencies (hereinafter - MCC/MCA) conduct external audit of their activities in accordance with the Law of the Kyrgyz Republic 'On Microfinance Organizations in the Kyrgyz Republic'.

MCA may conduct external audit of their activities.

MCC must conduct external audit of their activities on an annual basis if one of the following criteria is present:

• presence of borrowed funds from creditors, including from financial and credit institutions;

• the average annual value of the loan portfolio is 20 (twenty) million som and above;

• the number of borrowers is 5000 (five thousand) and above.

MCC that do not meet these criteria conduct external audit of their activities once every two years.

When conducting external audit, MCC/MCA must be guided by the requirements for audit activity established by the legislation of the Kyrgyz Republic, international standards on auditing and this Regulation.

When conducting external audit by MCC/MCA carrying out operations in accordance with Islamic principles of banking and financing, the Auditing Standards for Islamic Financial Institutions developed by the Accounting and Auditing Organization for Islamic Financial Institutions may be applied.";

• restate paragraph 3.2 as follows:

"3.2. MCC transforming into microfinance companies must conduct an independent external audit in accordance with the Regulation 'On Minimum Requirements for External Audit of Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic', approved by resolution of the Board of the National Bank of 14 July 2005 No. 22/2.";

• restate paragraph 3.4 as follows:

"3.4. Requirements for the external auditor:

• hold the relevant license/certificate of auditor for the right to carry out audit activity in the territory of the Kyrgyz Republic;

• be independent, objective, avoid situations that give grounds to believe that a conflict of interest exists.

If the external audit is conducted by an individual auditor, then in addition to the above requirements it is necessary to have three years of experience in auditing financial and credit institutions in accordance with international standards on auditing and international financial reporting standards.

Staff or engaged auditors of the audit organization selected for the audit of MCC/MCA must meet the following requirements:

• compliance with the qualification requirements established by the authorized body in accordance with the legislation of the Kyrgyz Republic;

• presence of three years of experience in auditing financial and credit institutions in accordance with international standards on auditing and international financial reporting standards.";

• supplement paragraph 3.8 with the following paragraphs:

"- compliance with the requirements of the legislation of the Kyrgyz Republic, including normative legal acts of the National Bank;

• assessment of the quality of risk management.";

• restate paragraph 3.9 as follows:

"3.9. Upon completion of the external audit, the external auditor provides to the MCC/MCA an audit report drawn up in accordance with the requirements established by the legislation of the Kyrgyz Republic and international standards on auditing, a letter to the management of the MCC/MCA, as well as any reports stipulated in the contract for conducting the external audit.

The National Bank has the right not to accept the conclusion of the external auditor of the MCC/MCA and to require a repeat audit of the MCC/MCA if circumstances are discovered that include:

• identification of facts of concealment of information that, in accordance with Article 11 of the Law of the Kyrgyz Republic 'On Audit Activity in the Kyrgyz Republic', is grounds for conclusions about limitations during the audit;

• revocation of the auditor's qualification certificate/license by the authorized body;

• identification in the activity of the external auditor of facts of non-compliance with the legislation of the Kyrgyz Republic and paragraph 3.4 of this Regulation.

Upon discovery of the above circumstances, the National Bank will send a corresponding requirement to conduct a repeat audit, setting deadlines and providing reasoned grounds, to the MCC/MCA. The MCC/MCA is obliged to conduct a repeat external audit in accordance with the requirements of the legislation of the Kyrgyz Republic and this Regulation. The repeat audit is carried out at the expense of the MCC/MCA.";

• restate paragraph 3.11 as follows:

"3.11. Within 30 days from the moment of receipt of the external auditor's conclusion, but no later than 30 April of the year following the reporting year (period), MCC/MCA must submit to the National Bank (in Chui Oblast and Bishkek - to the External Supervision Department, in other oblasts - to the oblast departments and the representative office of the National Bank) a copy of the audit report, certified by the external auditor in the established manner, with the attachment of the financial statements of the MCC/MCA, including the letter to the management of the MCC/MCA.";

• supplement with paragraph 3.12 as follows:

"3.12. MCC/MCA may publish annual financial statements in mass media of republican and local significance after their confirmation by the external auditor, unless otherwise established by the legislation of the Kyrgyz Republic.".