AIFC: local operations and international cooperation

The changing dynamic in current economic trends indicates major shifts in the level of emphasis put upon conventionally known development frameworks. Emerging markets are gaining greater dominance in shaping global economic growth. Kazakhstan has great potential showcasing its competitiveness and attractiveness on the regional and global stage. The geographic and socio-economic aspects of the country set a solid foundation of extensive integration with global markets. Today, the country plays a strategic role in re-creating a trade corridor connecting East and West through the Astana International Financial Centre (AIFC).

Kairat Kelimbetov.

Kairat Kelimbetov.

The establishment of AIFC, initiated by President of the Republic of Kazakhstan Nursultan Nazarbayev as an important component of country-wide economic and institutional reform, plays a key role in enhancing economic growth and further enabling integration into the global financial ecosystem. The AIFC launch features in the 100 Concrete Steps programme aimed at reaching a sustainable and prosperous socio-economic future. In an environment of low commodity prices and global uncertainties in foreign markets, the development of a world-class financial centre is a timely and justified initiative to achieve a new level of growth through diversification and innovation.

The AIFC model is promising with its innovative and efficient platform, which provides services under international standards increasing trading volume and revenue, as well as expanding into new asset classes and revenue diversification in the long run. One of the primary objectives of AIFC is to develop a liquid and well-balanced capital market with a broad range of financial instruments. AIFC is a one-of-a-kind platform in the region, offering access to capital and a wide range of financial services and investment tools. AIFC will help to change the perception of Kazakhstan by the global investment community with its infrastructure, adherence to the best international practice, instruments and an independent legal system. This article will focus on the operations of different structures of the AIFC and how they interact with regional and international partners.

Governance at AIFC

The AIFC is structured into different managerial and operational units. The AIFC Management Council, chaired by President Nazarbayev, is the supreme authority. Its main responsibilities include the definition of the main directions of development, coordination of the activities of the bodies and assistance in creating favourable conditions for establishing a leading international financial centre. Members of the Council ratify the AIFC Development Strategy, which provides an international standard of legal and regulatory regime that will be a catalyst for the development of the AIFC.

The main executive body of the financial centre is the AIFC Authority, the project management office that has been scrupulously working to set everything in place. The main activities of the AIFC Authority include, but are not limited to, development of the overall development strategy, promotion of the AIFC in global markets, attraction of potential participants to the AIFC and recruitment of foreign experts with financial centre experience to the AIFC management.

The core of the AIFC financial market is the Astana International Exchange (AIX), which is set up as a regional platform to attract financial inflows within the framework of the Belt and Road Initiative (BRI). The role of the AIX is to enable domestic and regional development through the mobilisation of domestic resources and foreign portfolio flows.

The exchange encourages healthy competition between local and foreign parties, with equal regulations in place for all participants based on the highest international standards. Securities within the exchange can be denominated in four currencies – Kazakh tenge (KZT), Russian ruble (RUB), American dollar (USD) and Chinese renminbi (RMB). The AIX will offer investors access to national assets, which are to have IPOs on the exchange, as well as government and corporate securities issued from Kazakhstan and other countries. It will also provide sources of income for national institutional investors. A wide range of different asset classes, including equity, debt and derivative instruments, funds, commodities and Islamic financial products, will be available on the AIX.

The newly founded AIX will attract greater financial inflows and connect the world’s leading market players in the East from the Shanghai Stock Exchange and West from Nasdaq, Inc. – the two main strategic AIX partners. The AIX is a high-tech, innovative and efficient platform, which provides services under international standards, increasing trading volume and revenue, as well as expanding into new asset classes and revenue diversification in the long run

The Astana Financial Services Authority (AFSA) is the integrated regulator of all regulated activities, market activities, ancillary services, companies and partnerships in the AIFC. The AFSA’s approach, consistent with the AIFC development strategy, is to provide an international standard of legal and regulatory regime, which will be a catalyst for the development of the AIFC.

AFSA facilitates business by maintaining the safety and soundness of the AIFC financial system and ensuring that financial markets in the AIFC are fair, efficient and transparent, while promoting economic prosperity in a fair and transparent manner and in compliance with rules that treat investors and consumers equally. The AFSA registrar accepts applications and registers AIFC participants and may also recognise non-AIFC members, such as market infrastructures and qualified market participants, to carry out their activities in the centre without having to establish a physical presence in the AIFC.

Another unique AIFC structure is, of course, the AIFC International Court, chaired by the Right Honourable Lord Harry Woolf. The court provides a common law court system for the first time in Eurasia. It will operate to the highest international standards to resolve civil and commercial disputes in the AIFC. It has exclusive jurisdiction over disputes arising out of the activities and operations of the AIFC and jurisdiction in other disputes where all parties agree in writing to give it to the AIFC Court.

The AIFC Court is independent in its activities and is not a part of the judicial system of the Republic of Kazakhstan. The AIFC Court consists of the court of first instance and the court of appeal. To ensure the prompt resolution of insignificance in complexity and amount disputes, the court of first instance includes the small claims court.

Complementary to the AIFC Court is the International Arbitration Centre (AIC). The Court and AIC operate independently, but together can offer a one-stop package for dispute resolution within AIFC. A party may want a full strategic business unit to proceed with a more traditional case management procedure in the International Court, but can also choose to consult the AIC, which is a more common practice for business in international financial centres. Alternatively, they may opt for mediation, which is also a growing alternative to Court designation and Arbitration.

Cost efficiency and timely management will ensure that cases are administered and adjudicated as quickly and appropriately as possible. The decisions of the Court and Arbitration Centre are supported by a robust enforcement system within Kazakhstan.

International cooperation

The main activities within the AIFC will come from our cooperation with regional and international partners. Three dimensions that we have identified as workable tangents of regional cooperation will be the close cooperation with our neighbouring Central Asian states, members of the Eurasian Economic Union and countries involved in the BRI.

Astana is now recognised as one of top ten financial centres in Central Asia and Eastern Europe. It quickly gained recognition as the core of the largest economy in the Central Asian region and top destination for investors. With the AIFC and its uniquely designed platform, Astana will provide the best business environment: tax preferences for financial activities, trust and special purpose vehicle (SPV) regime for project financing and English as the main working language, on top of a trusted and transparent legal system, become key success factors for the financial centre in Astana.

AIFC is launching its operations at a time when modern financial markets are facing major changes that include, for example, the rise of crypto-currencies and blockchain and new payment systems or artificial intelligence (AI). In turn, these developments have the potential to reshape the financial system and the economy as a whole, with the entrance of new (non-financial) actors, increased competition and broader access to financial services. Therefore, the goal of AIFC is to embrace new technology and introduce new instruments to local and regional markets. Flexible regulation written from scratch to reflect the latest trends in financial markets makes AIFC one of the most FinTech-friendly jurisdictions in the greater Eurasian region. AIFC has already launched FinTech regulatory sandbox and its own in-house acceleration programme at the AIFC FinTech hub leveraging on the talent available in the region.

Being one of the founding members of the Eurasian Economic Union, Kazakhstan has access to a large and very attractive market rich with natural resources and excellent human capital. AIFC serves as the gateway to the region, allowing foreign companies to set up businesses and operate in the regional market.

Lastly, AIFC serves as the ideal hub for financial services alongside the Belt and Road projects. While Kazakhstan was identified as one of three key partners for the BRI, Astana is becoming the key infrastructure finance facilitating office for the Silk Road Economic Belt. AIFC is collaborating with key Chinese financial and regulatory institutions and is aiming at becoming an RMB off-shore centre in the medium-term.

Conclusion

Astana, set to become a top destination for investors, is increasingly recognised as a regional financial hub for market participants, attracting greater financial inflows to the country. With its modern infrastructure, distinct architecture, accessible transport links and constantly developing education and healthcare services, Astana has emerged as a contemporary ground for attracting visitors and businesses on an international level. Becoming a global smart city ensures Astana’s urban development based on information and communication technologies with sustainability and improvement of social sectors in mind. The work of the AIFC and its structural units will undoubtedly brand Astana as a truly global city, reaching high rankings in the level of attractiveness of the global investment networks.

One of the youngest and fastest-growing cities in the world is celebrating its 20th anniversary of becoming the capital of Kazakhstan on July 5, 2018. In the past 20 years, Astana has not only become the local administrative, cultural and business centre, but managed to transform the economy of Kazakhstan. This year, we are also celebrating Astana becoming a recognised financial centre with the official launch of the AIFC.

The official launch ceremony at the Astana Finance Days will feature as the keynote event a multi-day conference, which will gather heads of states and multilateral institutions, international policy makers and representatives from private markets, financial experts and heads of large multinational companies and experts from academia and think tanks. At the AIFC, we believe in bringing together the best experts to develop local and regional markets and promote better connectivity and cooperation.

Astana Finance Days will become a historically significant event that will allow us to share our plans and long-term vision and demonstrate our credentials and comparative advantages, as well as engage global industry specialists in the most trending topics’ discussions.

The author is Governor of the Astana International Financial Centre. This opinion was originally published in Issue No. 2 of the Diplomatic Herald of Kazakhstan in June 2018.