Astana International Financial Center: Advanced Opportunities and Emerging Challenges through the prism of real cases (Ramadan Khairullin, CEO Law Council Group)
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Astana International Financial Center: Advanced Opportunities and Emerging Challenges through the prism of real cases
Ramadan Khairullin
CEO
Law Council Group
Introduction
The Astana International Financial Center (AIFC) was established in 2015 with the aim of making Kazakhstan an important financial hub in Central Asia. The main principles underpinning AIFC’s operations include independence, transparency and professionalism. In this article, we will review the key bodies of AIFC, their functions, and analyze real cases that illustrate both the opportunities and challenges faced by different structures of this jurisdiction.
Main bodies of AIFC
AIFC comprises several key bodies, each with its own unique role in ensuring the effective functioning of the center.
1. AIFC Authority
The AIFC Authority is responsible for strategic planning and operational management. It provides support to members, regulates operational processes and ensures compliance with standards. The main functions of the Authority include:
● Formation of a strategic development plan: The Authority is developing a long-term strategy aimed at strengthening Kazakhstan's position as a financial hub in Central Asia and integration into the global financial system. For example, in recent years, emphasis has been placed on the development of green finance, which is in line with global trends.
● Administrative and organizational support for participants: The Authority ensures registration of participants through a special portal, provides advisory support on legal issues and tax regulation, and develops educational initiatives.
● Ensuring interaction between AIFC bodies: The Authority coordinates the activities of other bodies, including AFSA, AIFC Court, IAC and AIX, which allows all entities to work in a unified direction.
2. AIFC Court
The AIFC Court is an independent body that settles civil and commercial disputes between AIFC members. It operates on the basis of English common law, which ensures transparency and predictability of legal decisions. The Court provides participants with the certainty of fair proceedings and actively uses digital technologies such as the eJustice online platform for claims and remote hearings.
3. International Arbitration Center (IAC)
IAC offers alternative dispute resolution methods, including arbitration and mediation. It serves as an effective and accessible platform for resolving commercial conflicts, offering fast, independent and highly professional solutions. IAC's solutions are recognized in more than 160 countries worldwide, making it an important tool for international participants.
4. Astana Financial Services Authority (AFSA)
AFSA is the independent regulator of the AIFC, which is responsible for the licensing, regulation and supervision of financial services. AFSA's main functions include:
● Licensing of AIFC participants: AFSA licenses companies and financial institutions wishing to operate within the AIFC framework, which covers a wide range of organizations from banks to fintech startups.
● Financial regulation: AFSA sets standards to regulate participants in areas such as asset management, banking and insurance, fintech and innovation.
● Compliance monitoring: AFSA ensures that participants comply with regulations, including anti-money laundering and counter-terrorist financing programs.
5. Astana International Exchange (AIX)
AIX is a stock exchange, part of the AIFC ecosystem, designed to attract local and international capital. The exchange provides a platform for listing a variety of financial instruments, including equities, bonds and green finance instruments. AIX is actively involved in Kazakhstan's asset privatization program and supports financial education among local investors.
Successful Cases
Since its inception, AIFC has grown rapidly and now offers cutting-edge opportunities not only for foreign investors but also for local businesses. As an example, consider the possibility of raising debt financing through the AIX exchange by issuing bonds by a Kazakhstani LLP.
Before reviewing the case study below, it will be necessary to review the definitions of the following concepts to better understand the entire process:
● Listing - the process of inclusion of bonds in the list of securities available for trading on the exchange, which takes place at stage 2.
● Issuance - creating and registering bonds to make them available for offering to investors.
● Placement - sale of these bonds to accredited investors.
Step 1: Submitting an application
A company, such as Tarutinskoye LLP or KTZ - Freight Transportation, interested in issuing bonds must meet the AIX listing requirements. These include:
● Submitting an application through the AIFC Authority portal.
● Obtaining the appropriate authorization to issue debt instruments, which is regulated by AIX Market Listing Rules (MLR).
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Step 2: Listing on AIX
After compliance and authorization checks, the company begins the process of preparing for the bond listing.
● Preparation of documentation: Companies provide information on the type of bonds, nominal price, quantity and other parameters (e.g. 50 mln KZT for Tarutinskoye LLP).
● Alignment with AIX: AIX checks the provided data against its requirements. This interaction is facilitated by the integration between AFSA and the exchange.
● Example: In the case of «KTZ - Freight Transportation», the issue of 96,777,500 bonds with a face value of KZT 1,000 each was agreed and registered in June 2020 and their maturity is set for 2034.
Step 3: Issuance and placement of bonds
Once listed, the bonds become available for purchase:
● ● Placement is made only among accredited investors, which complies with the following requirements MLR 18.1.
● Raised funds can be used to finance the company's projects. For example, Tarutinskoye LLP can use the funds to develop agricultural infrastructure, which is in line with their business profile.
Step 4: Interaction with the national legal system
Although the bonds are issued within the jurisdiction of the AIFC, the company retains its obligations to the national legal system:
● Accounting for tax liabilities associated with bond offerings and proceeds.
● Ensuring compliance with Kazakhstani accounting standards.
● If necessary - dispute resolution through national courts or the AIFC Court, depending on the jurisdiction of the disputed issue.
Challenges encountered
In the context of the AIFC, jurisdiction takes on special significance as it is separated from national law and is based on the principles of English common law. This is a unique solution for Kazakhstan aimed at creating a competitive legal environment to attract international capital and strengthen the country's position in the global economic arena. The AIFC jurisdiction not only raises questions about its compliance with the national Constitution, but also raises the broader question of how effective such a system is in a developing economy. As Shaikenov (2024) notes, the creation of parallel legal systems can undermine the uniformity of legislation, which requires special attention to their interaction.
For example, on January 31, 2024, the AIFC Court of Appeals issued a decision in the case of № AIFC-C/CFI/2023/0002, in which the plaintiff was Michael Wilson & Partners Limited and the defendants were CJSC Kazsubton, Kazphosphate LLP and Kazphosphate Limited. The plaintiff, Michael Wilson & Partners Limited, sought recognition and enforcement of judgments that related to substantial sums of money payable under contractual obligations. These obligations arose from commercial transactions in which the defendants failed to fulfill their financial obligations, resulting in losses according to the plaintiff.
Highlights of the proceedings
1. Denial of jurisdiction: The AIFC Court concluded that it did not have jurisdiction to hear the case because it did not fall within the conditions defined by the Constitutional Law and the AIFC Court's regulations. This highlights the complexity of the interaction between different jurisdictions and legal systems. The plaintiff sought to recognize and enforce the judgments of the English High Court against the defendants, but the AIFC Court refused, citing lack of jurisdiction. This decision was made in two judgments dated September 26 and October 31, 2023.
2. Procedural Aspects: The Claimant argued that the Court had not adopted the correct procedures because at common law such cases are usually heard without the participation of other parties at earlier stages. However, the Court rejected this contention, stating that it had no special procedure for such applications and that the Court had correctly determined the question of jurisdiction.
3. Difficulties with the recognition of foreign judgments: The plaintiff also referred to Kazakh law, arguing that foreign judgments could be recognized and enforced in Kazakh courts on the basis of the principle of reciprocity. The Court noted that recognition and enforcement of foreign judgments should not circumvent national laws, which further complicates the situation for companies operating in both jurisdictions.
4. Complex cross-border aspects: In this case, there is a clear problem of interaction between the legal systems of Kazakhstan and AIFC. The denial of jurisdiction of the AIFC Court to enforce foreign judgments highlights the risks faced by companies operating in a cross-border environment and the need for a clear mechanism to resolve such disputes.
5. Decision on costs: The Court also ordered the allocation of court costs in favor of the defendants, which again emphasizes the importance of a correct understanding and application of procedural rules within the jurisdiction.
This case illustrates the complex cross-border disputes arising from the lack of a unified mechanism for the recognition and enforcement of foreign judgments. It highlights the need for companies operating within and outside the AIFC to be mindful of differences in legal systems and to be prepared for potential legal challenges. The case also demonstrates how jurisdiction and enforcement are important in the context of international trade and investment, and the need for a more harmonized legal space to improve the investment climate in Kazakhstan.
Conclusion: lessons and perspectives
AIFC has undoubtedly become an important tool in Kazakhstan's strategy to attract investment and develop the financial sector. However, as real cases have shown, there are challenges that need to be overcome to achieve sustainable success. Only by overcoming these challenges, AIFC will be able to fully realize its potential as an international financial hub and strengthen Kazakhstan's position in the global arena.
Liability exclusion
This material is for general informational purposes only and does not constitute legal or professional advice. No part of this document should be relied upon or used as a substitute for legal consultation. Please note that legal standards and practices may have changed since the publication date. For any questions, feel free to contact us via WhatsApp at +7 (707) 384 83 52 or email at info@lcg.kz.
Reference list:
AIFC Court. (2024). AIFC court decisions. Astana International Financial Centre. https://court.aifc.kz/en/2024
AIX. (2024). Listed companies. Astana International Exchange. https://aix.kz/listings/listed-companies-2-2/
Shaikenov V. & Shaikenov A. (2017). Is the AIFC constitutional and will constitutional amendments help? [Конституционен ли МФЦА и помогут ли поправки в Конституцию?] Forbes.kz. https://forbes.kz/articles/konstitutsionen_li_mftsa_i_pomogut_li_popravki_v_konstitutsiyu