Resolution of the National Bank of the Kyrgyz Republic No. 2021-P-12/38-3-(NPA) of 14 July 2021 on Amending Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

RESOLUTION OF THE BOARD OF THE NATIONAL BANK OF THE KYRGYZ REPUBLIC

of 14 July 2021 No. 2021-P-12/38-3-(NPA)

On Amending 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. To introduce amendments to the following resolutions of the Board of the National Bank of the Kyrgyz Republic (attached):

• "On Approval of the Regulation 'On Direct Banking Supervision'" of 28 May 2008 No. 22/4;

• "On Approval of the Regulation 'On Pre-Trial Settlement of Disputes between the National Bank of the Kyrgyz Republic and Commercial Banks, Organizations Carrying Out Certain Types of Banking Operations, and Their Founders (Participants), Legal Entities and Individuals'" of 17 May 2017 No. 19/13;

• "On Approval of the Regulation 'On Licensing of Banking Activities'" of 8 June 2017 No. 2017-P-12/23-1-(NPA);

• "On Approval of the Regulation 'On Liquidation of Banks'" of 8 June 2017 No. 2017-P-12/23-5-(NPA);

• "On the Regulation 'On Measures of Influence Applied to Banks Licensed by the National Bank of the Kyrgyz Republic'" of 15 June 2017 No. 2017-P-12/25-4-(NPA);

• "On Approval of the Instruction on the Exercise of Banking Supervision" of 20 June 2018 No. 2018-P-12/24-2-(NPA).

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

3. The Legal Department shall:

• 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 Banking Supervision Methodology and Licensing Department shall bring this resolution to the attention of the Legal Entity Association "Union of Banks of Kyrgyzstan", commercial banks, the State Development Bank of the Kyrgyz Republic, relevant structural subdivisions, regional departments and the representative office of the National Bank of the Kyrgyz Republic in Batken Oblast.

5. The Non-Bank Financial Credit Organizations Supervision Department shall bring this resolution to the attention of OJSC "Financial Company of Credit Unions", credit unions, OJSC "Guarantee Fund", microfinance companies attracting deposits, credit bureaus, exchange bureaus, housing savings credit companies.

6. The Payment Systems Department shall bring this resolution to the attention of payment system operators and payment organizations.

7. Control over the execution of this resolution shall be assigned to the member of the Board of the National Bank of the Kyrgyz Republic supervising the Banking Supervision Methodology and Licensing Department.

	Chairman					T. Abdygulov
							Annex to the Resolution of the Board of the National Bank of the Kyrgyz Republic of 14 July 2021 No. 2021-P-12/38-3-(NPA)

AMENDMENTS to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

1. To introduce the following amendments to the resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Direct Banking Supervision'" of 28 May 2008 No. 22/4:

in the Regulation "On Direct Banking Supervision" approved by the above-mentioned resolution:

• paragraph 2.2.2 shall be restated as follows:

"2.2.2. When exercising direct banking supervision to control the conduct of payment operations of a bank/OPO/PO, if necessary, authorized employees of structural subdivisions, regional departments/representative office of the National Bank in Batken Oblast and employees of the bank/OPO/PO with sufficient experience and knowledge of operations conducted in banks/OPO/PO may be engaged.";

• paragraph 2.3 shall be restated as follows:

"2.3. The resolution of the CPN/CPS on the introduction of direct banking supervision shall specify:

• the grounds for introducing direct banking supervision;

• the term of application of this measure of influence;

• the types and frequency of submission of reports of the bank/OPO/PO and the controller/group of controllers;

• special conditions/operating regime of the bank/OPO/PO (including branches/representative offices/agency network and other separate subdivisions) and the controller/group of controllers (including its powers);

• specimen(s) of signature(s) of the controller(s);

• the obligations of the bank/OPO/PO in relation to the National Bank and the controller/group of controllers.";

• paragraph 2.5 shall be recognized as having lost force;

• paragraph 2.6 shall be restated as follows:

"2.6. When exercising direct banking supervision involving control over settlement and cash operations of a bank, the CPN has the right to establish:

• the requirement that the bank conduct settlement and cash operations (all or certain) only after agreement with the controller and in the presence of the controller's signature, a specimen of which is contained in the CPN resolution;

• the powers of the controller/group of controllers to temporarily suspend certain settlement and cash operations of the bank and the procedure for agreeing the decision on them with the management of the National Bank;

• maximum amounts for settlement and cash operations above which the bank is not entitled to conduct operations without agreement with the controller and without the controller's signature, a specimen of which is contained in the CPN resolution;

• the regime for conducting settlement and cash operations by branches (savings and mobile cash desks) of the bank in which no controller is appointed, indicating the procedure for their agreement with and/or informing the controller exercising direct banking supervision in the bank.";

• to supplement the Regulation with paragraph 2.6-2 as follows:

"2.6-2. The controller/group of controllers may, if necessary, agree the decision on temporary suspension of certain settlement and cash operations of the bank with an authorized person of the National Bank within 3 (three) working days. This period may, if necessary, be extended by an additional 3 (three) working days.

This requirement does not apply to cases of suspension of operations (transactions) in accordance with the norms of legislation on AML/CFT.

In the event of suspension of an operation (transaction) due to the emergence of suspicion that the operation (transaction) is related to legalization (laundering) of criminal proceeds, the suspension of such operation (transaction) shall be carried out in the manner established by legislation on AML/CFT.

The bank is obliged to provide comprehensive assistance to the controller/group of controllers in order to take prompt and correct decisions on the conduct of settlement and cash operations.

In the event of suspension by the controller/group of controllers of certain settlement and cash operations of the bank, the costs/losses incurred in connection with such suspension shall be borne by the bank.";

• paragraph 2.7 shall be restated as follows:

"2.7. Not later than the day of introduction of direct banking supervision and appointment of the controller/group of controllers who will control the operations of the bank/OPO/PO on site, the authorized employee of the National Bank shall provide to the organization in respect of which direct banking supervision has been introduced specimens of signatures of the controllers recorded in the CPN/CPS resolution. When conducting settlements through a remote service system, the PO must provide the controller/head of the group of controllers with the function of approver in the remote service system for the settlements conducted. In the absence of such possibility, the bank servicing the PO must inform the controller/head of the group of controllers about the operations conducted through remote service systems during the introduction of direct banking supervision (this paragraph must be included in the agreement signed between the PO and the bank). Signatures of officials of the bank/OPO/PO are considered invalid in the absence of the signature of the controller, a specimen of which is contained in the CPN/CPS resolution.

The presence of the controller's signature on a document for an agreed operation means the latter's familiarization with the intention of the bank/OPO/PO to conduct the operation and consent to its conduct in accordance with the requirements established by the relevant CPN/CPS resolution.

Responsibility for compliance of the conducted operations with the requirements of the legislation of the Kyrgyz Republic, including regulatory legal acts of the National Bank, shall be borne in full by the bank/OPO/PO.";

• paragraph 2.8 shall be restated as follows:

"2.8. The CPN/CPS establishes the period during which direct banking supervision is exercised in the bank/OPO/PO, and also determines the frequency of reports submitted by the board of the bank/head of the OPO/PO and the head of the group of controllers to the relevant structural subdivision of the National Bank and the CPN/CPS. The CPN/CPS, based on the results of consideration of reports and/or information of the relevant structural subdivision of the National Bank, has the right to extend or cancel (early) the effect of direct banking supervision.";

• in the first sentence of paragraph 2.10, the words "by the group of controllers" shall be replaced by the words "by the controller/group of controllers";

• paragraph 4.2 shall be restated as follows:

"4.2. The CPN determines the powers and duties of the controller/head and members of the group of controllers performing the tasks of direct banking supervision, the main of which are:

• study and analysis of the financial condition and solvency of the bank, the quality of bank management, the state of accounting and reporting and any other areas of activity that carry a potential risk of deterioration of the position;

• constant, targeted and operational monitoring of the financial condition of the bank as a whole, monitoring of operations and actions of the bank and/or its officials;

• control over settlement and cash operations of the bank, including temporary suspension of operations, as well as control over restrictions on operations established by the CPN;

• control over the implementation of measures prescribed by the National Bank and developed by the bank itself to improve the position and restore the financial condition;

• control over the submission of regular reports of the bank provided for in the resolution on the introduction of DBS;

• preparation and submission of regular reports to the relevant structural subdivision of the National Bank and the management of the National Bank;

• regular and prompt informing (in oral and/or written form) of the management of the National Bank about the situation in the bank and the measures taken, immediate notification of actions of the bank and/or its officials threatening its position and financial condition, or of the bank conducting operations in violation of the requirements of the National Bank;

• preparation of proposals to the management of the National Bank regarding further measures and actions in relation to the bank and/or its officials based on the analysis of the effectiveness of the measures taken, the current position, as well as factors and circumstances that may affect the situation in the bank.";

• paragraph 4.4 shall be restated as follows:

"4.4. Under conditions of direct banking supervision, the management of the bank/OPO/PO continues to bear full responsibility for the activities of the bank/OPO/PO, including for the financial condition of the bank/OPO/PO, the correctness of settlements on operations/transactions, compliance with the requirements and recommendations of the National Bank, implementation of measures for financial recovery, risk reduction, elimination of violations and deficiencies in the activities of the bank/OPO/PO, as well as for providing to the National Bank and the controller/group of controllers an action plan to bring the bank/OPO/PO out of the current situation, regular reports and any necessary and/or requested information.";

• paragraph 4.5 shall be restated as follows:

"4.5. The management of the bank/OPO/PO is obliged to assist the controller/group of controllers and provide exhaustive and reliable information and documents, including all materials prepared for meetings of the board of directors (if any) and the board of the bank/executive body of the OPO/PO before they are held.

For the purposes of exercising direct banking supervision, the controller/group of controllers has the right to request any necessary information from the bank/OPO/PO. In case of refusal to provide/non-provision of information or in case of provision of incomplete/unreliable information, as well as untimely provision of information, the controller/group of controllers has the right to demand explanations/justification from the bank/OPO/PO or from the employee/involved persons and their managers.

Refusal to provide/non-provision or provision of incomplete/unreliable information, as well as untimely provision of information, is equated to counteraction to the exercise of direct banking supervision and is grounds for the National Bank to apply appropriate measures of influence.

Also, the bank/OPO/PO is obliged to provide the necessary conditions (premises, computer, communication means, etc.) for the exercise of direct banking supervision in the bank/OPO/PO.

The management of the bank/OPO/PO (members of the board of the bank/executive body of the OPO/PO) is obliged to:

• provide the controller/group of controllers with a separate premises in the bank/OPO/PO in which there are no audio/video devices carrying out audio/video recording;

• suppress any attempts by third parties to install audio/video equipment in the premises provided to the controller/group of controllers;

• ensure the security of storage of documents of the bank/OPO/PO and the controller/group of controllers;

• provide equipment and machinery necessary for the exercise of direct banking supervision;

• ensure full access to external electronic mail;

• ensure compliance with the full confidentiality regime by the bank/OPO/PO and/or employees of the bank/OPO/PO of the computer workstation(s) of the controller/group of controllers.";

• paragraph 4.6 shall be restated as follows:

"4.6. Direct banking supervision over the activities of the bank is exercised on the basis of the bank's accounting data, as well as reports (frequency determined by the CPN) of the bank, including reports and data of the controller/group of controllers containing information on:

• problem (overdue, classified, prolonged, restructured) assets (analysis of the causes of deterioration in asset quality, measures taken to return assets/loans, including amounts on the bank's off-system accounting, data on liquidity and the state of collateral, etc.);

• classification of all assets, including, if necessary, assessment/forecast of changes in the quality and classification of assets in the near term (not more than one week), with identification of assets constituting major risk and assets without collateral, data on the amount of the created reserve to cover potential losses and damages (hereinafter - RPPU).

At the same time, the classification of assets is considered by the controller/group of controllers on a selective basis, based on the bank's risk profile, as well as taking into account the quality of risk management, which, if necessary, must be studied in detail;

• current state of liquidity (structure of assets and liabilities of the bank, forecast for the fulfillment of current obligations, data on sources of financing, analysis of gaps in the maturity of assets/liabilities, etc.);

• ability (inability) of the bank's management, in the performance of their official duties, to ensure safe, reliable and efficient activity in accordance with legislation and requirements of the National Bank.";

• paragraph 4.8 shall be restated as follows:

"4.8. In case of refusal of the bank/OPO/PO and/or its officials to execute the CPN/CPS resolution on the introduction of direct banking supervision or creation of obstacles to the exercise of direct banking supervision, as well as violation of the norms of the CPN/CPS resolution, including individual paragraphs of the CPN/CPS resolution, the controller/group of controllers shall draw up an act on counteraction to direct banking supervision (hereinafter - the act on counteraction), which is signed by the controller/head and all members of the group of controllers (according to Annexes 1 and 2), as well as by the management and employees of the bank/OPO/PO who created obstacles to the implementation of the direct banking supervision regime.

In case of refusal of the bank/OPO/PO to sign the act on counteraction, one copy of the drawn-up act in the bank/OPO/PO without the signature of the representative of the bank/OPO/PO, with a note on refusal to sign, shall be sent to the bank/OPO/PO with a cover letter of the structural subdivision of the National Bank.

The act on counteraction to the exercise of direct banking supervision shall be subject to mandatory registration in the bank/OPO/PO as incoming correspondence indicating the date, incoming number and information about the person who registered this document.

In case of refusal of the bank/OPO/PO to accept and register the act on counteraction as incoming correspondence, the act shall be sent by the group of controllers to the National Bank for taking measures against persons who have counteracted the exercise of direct banking supervision.

The act on counteraction to the exercise of direct banking supervision is an official document of the National Bank evidencing violation of the requirements of the banking legislation of the Kyrgyz Republic and may be used as a basis for applying to the bank/OPO/PO or its officials measures of influence in accordance with the banking legislation of the Kyrgyz Republic.

In case of violation by the bank/OPO/PO of the requirements of this Regulation, regulatory legal acts of the National Bank, as well as the legislation of the Kyrgyz Republic and/or the direct banking supervision regime established by CPN/CPS resolutions (instructions, restrictions), the National Bank has the right to apply to the bank/OPO/PO and its management measures of influence in accordance with banking and payment legislation, including revocation of the license to carry out banking operations.".

2. To introduce the following amendments to the resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Pre-Trial Settlement of Disputes between the National Bank of the Kyrgyz Republic and Commercial Banks, Organizations Carrying Out Certain Types of Banking Operations, and Their Founders (Participants), Legal Entities and Individuals'" of 17 May 2017 No. 19/13:

in the Regulation "On Pre-Trial Settlement of Disputes between the National Bank of the Kyrgyz Republic and Commercial Banks, Organizations Carrying Out Certain Types of Banking Operations, and Their Founders (Participants), Legal Entities and Individuals" approved by the above-mentioned resolution:

• paragraph 4 shall be restated as follows:

"4. Any person in respect of whom a decision of the National Bank has been taken has the right to appeal this decision to the person or body conducting the proceedings in the manner established by this Regulation.";

• in paragraph 11:

subparagraph 1 shall be restated as follows:

"1) name and address, including electronic address of the bank or other legal entity;";

subparagraph 2 shall be restated as follows:

"2) surname, name, patronymic, place of work, position, place of residence of the appellant, electronic address, if he is an individual;";

subparagraph 3 shall be restated as follows:

"3) surname, name, patronymic, work address, electronic address and telephone number of the person representing the interests of the appellant in the proceedings on the basis of a duly executed power of attorney (a copy of the power of attorney is attached to the application, the original power of attorney is provided to the person or body conducting the proceedings);";

• paragraph 16 shall be supplemented with a paragraph as follows:

"The above opinion may be sent to the appellant by electronic mail. Sending the opinion of the responsible structural subdivision and the legal department of the National Bank within the time limits provided for by this paragraph to the electronic address specified by the appellant in the appeal application shall be considered proper communication of information to the appellant.".

3. To introduce the following amendment to the resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Licensing of Banking Activities'" of 8 June 2017 No. 2017-P-12/23-1-(NPA):

in the Regulation "On Licensing of Banking Activities" approved by the above-mentioned resolution:

• paragraph six of paragraph 151 shall be supplemented with a sentence as follows:

"If information about a violation of the legislation of the Kyrgyz Republic by a candidate is contained in other official documents of the National Bank, the period is 1 (one) year from the day of detection of the violation;".

4. To introduce the following amendment to the resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Liquidation of Banks'" of 8 June 2017 No. 2017-P-12/23-5-(NPA):

in the Regulation "On Liquidation of Banks" approved by the above-mentioned resolution:

• paragraph 3 shall be restated as follows:

"3. The liquidator of a bank may be a person meeting the qualification and other requirements established for the liquidator of a bank.".

5. To introduce the following amendments to the resolution of the Board of the National Bank of the Kyrgyz Republic "On the Regulation 'On Measures of Influence Applied to Banks Licensed by the National Bank of the Kyrgyz Republic'" of 15 June 2017 No. 2017-P-12/25-4-(NPA):

in the Regulation "On Measures of Influence Applied to Banks Licensed by the National Bank of the Kyrgyz Republic" approved by the above-mentioned resolution:

• paragraph 19 shall be restated as follows:

"19. Measures of influence of the National Bank may be applied in the form of resolutions of the Board of the National Bank or the Supervisory Committee of the National Bank, instructions or requirements of the deputy chairman/member of the Board of the National Bank supervising the supervisory block, heads of structural subdivisions of the National Bank. At the same time, these documents are mandatory for execution.

The National Bank has the right to apply stricter enforcement measures for non-fulfillment or improper fulfillment of the requirements contained in resolutions of the Board of the National Bank, the Supervisory Committee of the National Bank, instructions or requirements of the Deputy Chairman/member of the Board of the National Bank supervising the supervisory block, and heads of structural subdivisions of the National Bank.";

• paragraph 21 shall be stated in the following wording:

"21. An order is an enforcement measure of the National Bank containing a written instruction that is mandatory for execution within the established timeframes.

An order is applied to eliminate identified violations in the bank's activities, as well as for the purpose of early response, correction and prevention of problems that may arise for the bank if timely measures are not taken to eliminate existing deficiencies in its activities.

The order shall specify concrete references to the provisions of regulatory legal acts of the Kyrgyz Republic, including those of the National Bank, which were violated by the bank, its shareholders and officials, as well as the deadline for their elimination.

Depending on the identified violation, as well as the identified risks threatening the stability and reliability of the bank's activities, the order may contain a requirement:

• to eliminate the violation (to bring the values of mandatory ratios, open currency position limits to the established level; to fulfill obligations to creditors and depositors, and others);

• to bring the bank's activities into compliance;

• to perform certain actions, including those reducing/optimizing the level of risk assumed by the bank when conducting individual operations/transactions.";

• paragraph 23 shall be stated in the following wording:

"23. After sending the order, the responsible structural subdivision of the National Bank shall ensure control over the bank's execution of the order within the established timeframes and shall take immediate follow-up measures, including the application of stricter enforcement measures in the event of its non-execution or improper execution.";

• paragraph 24 shall be stated in the following wording:

"24. A fine is an enforcement measure of the National Bank in the form of a monetary penalty imposed in the event of a violation by a bank/official of a bank of the norms, requirements and restrictions established by the laws of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic, Banks and Banking Activities", "On Combating the Financing of Terrorist Activities and the Legalization (Laundering) of Criminal Proceeds", "On the Protection of Bank Deposits", other regulatory legal acts of the Kyrgyz Republic, regulatory legal acts of the National Bank, as well as for non-execution or improper execution of other enforcement measures of the National Bank.

The Supervisory Committee of the National Bank has the right to impose a fine:

1) in an amount not exceeding ten percent of the minimum charter capital ratio - in respect of a bank;

2) in an amount not exceeding the average annual remuneration, including all types of payments (official salary, bonuses, incentives, etc.), - in respect of an official of a bank.

The amount of the average annual remuneration of an official shall be calculated according to the following formula:

B / 3 / 29.6 * 365, where:

B - remuneration of the official for the last 3 months, including all types of payments (official salary, bonuses, incentives, etc.), less mandatory tax payments and social contributions provided for by the legislation of the Kyrgyz Republic;

3 - number of months;

29.6 - average monthly number of calendar days;

365 - number of days in a year.";

• paragraph 32 shall be stated in the following wording:

"32. A requirement is an enforcement measure of the National Bank obliging the bank to perform an action or measure to:

• conduct measures for the financial rehabilitation, restructuring and/or reorganization of the bank;

• conduct a repeat/special external audit of the bank;

• sell the bank's shares within a period determined by the National Bank;

• reduce administrative expenses;

• change the organizational structure of the bank;

• change the policies, regulations, procedures and other internal regulatory documents of the bank.".

6. To introduce into the resolution of the Board of the National Bank of the Kyrgyz Republic "On approval of the Instruction on the implementation of banking supervision" dated 20 June 2018 No. 2018-P-12/24-2-(NPA) the following amendments:

in the Instruction on the implementation of banking supervision approved by the above-mentioned resolution:

• in paragraph 24:

in the first paragraph, the word "is reported" shall be replaced by the word "reports";

the second paragraph shall be stated in the following wording:

"Representatives of the bank who obstruct an inspection of the bank or fail to provide the required information shall sign an act of obstruction in two copies. One copy of the drawn-up act shall be handed over to the bank, the other copy shall be kept by the inspectors of the National Bank. If the bank refuses to sign the act of obstruction, one copy of the drawn-up act at the bank without the signature of the bank's representative, with a note of refusal to sign, shall be sent to the bank with a cover letter from the structural subdivision of the National Bank. The act of obstruction is an official document of the National Bank evidencing a violation by the bank/its official of the requirements of the banking legislation of the Kyrgyz Republic, and may be used as a basis for applying enforcement measures to the bank or its officials in accordance with the banking legislation of the Kyrgyz Republic