Kazakhstan: the cryptocurrency market is under the radar of regulators

Beginning in 2018, the Kazakh authorities, seeing a threat in the still nascent national cryptocurrency market, immediately intensified their pressure on public and private financial institutions at the interface with cryptocurrencies.

In the Republic of Kazakhstan, the regulatory framework in the field of cryptocurrencies is currently absent as such, although cryptocurrency is not de jure prohibited. Meanwhile, it has no legal status and is neither fiat nor electronic money. Not recognized as an asset or legal tender. Thus, according to the main regulator - National Bank of the Republic of Kazakhstan - commercial banks do not have the right to carry out activities with cryptocurrencies. Accordingly, the use of cryptocurrencies as a means of payment, currency, or financial instrument is contrary to national legislation.

This state of affairs has ceased to suit not only ordinary citizens, but also the regulators themselves, who, since March 2018, have become concerned about making special adjustments to this “Brownian movement", quite reasonably believing that it is better late than never to introduce regulation.

The history of such "concern" on the part of the state begins with official statements of the National Bank of Kazakhstan, which throughout 2017 tried to warn its citizens against investing in dubious ICOs, and later even expressed its fears for the safety of the national currency tenge, banning any exchange transactions in the direction “cryptocurrency-fiat-cryptocurrency.”

Then, in the spring of 2018, a number of significant deputies of the Senate of Kazakhstan expressed the view that “there is an urgent need to ensure the protection of the property rights and freedoms of Kazakhstanis when making transactions with cryptocurrency, as well as the economic and information security of the country.”

But the starting point in the issue of launching a regulatory campaign was the speechat the XI Astana Economic Forum by the President of Kazakhstan Nursultan Nazarbayev. The head of state stated the need to introduce common rules for all countries in the field of cryptocurrency circulation and their further adaptation in national financial systems. For this, the President of Kazakhstan proposed using the G-Global expert discussion format at the UN..

For the first time, the opinion was voiced that legislation for cryptocurrencies, as well as the possibility of creating a national cryptocurrency, will, first of all, reduce the negative background around them, and secondly, will make it possible to use them as an alternative means of payment at the state level.

Nursultan Nazarbayev, at the forum, stated that “society and, in particular, the economy needs the creation of a new financial system. Universal and convenient, which does not depend on constant fluctuations in the rates of gold, oil and others resources that are inaccessible to many countries. It is not a fact that it will be based on Bitcoin (their total number is limited to 21 million units), but Kazakhstan will certainly not remain aloof from new global economic trends."

It was decided to lay the regulatory foundation in the field of cryptocurrency regulation for Kazakhstan with the help of the recently launched (July 5, 2018) Astana International Financial Center (AIFC) for the regulation of financial services (Astana International Financial). Authority, AFSA). The AIFC itself is based on the principles of English law, a preferential tax regime and an independent financial court. This, according to the authorities, will allow attracting large investments from abroad to Astana.

Already on May 25 of this year, an open appeal was published on the AFSA committee website inviting discussion of proposed amendments to regulations on the regulation of virtual currencies and expanded private placement regimes. This document examines the regulation of cryptocurrencies exclusively within the jurisdiction of AFSA.

AFSA in its document proposed the development of a unified glossary of definitions and classifications of types of virtual currencies, based on various business models and features of their functioning. The Committee relied on the definitions set out in the Financial Action Task Force (FATF) report “Virtual Currencies: Key Definitions and Potential Anti-Money Laundering and Anti-Terrorism Financing Risks”, as well as the laws of the United States, the Philippines and Japan...

The regulation developed by AFSA proposes to regulate the activities of any platforms involved in the trading of virtual currencies, so that the operator of virtual currencies has the opportunity to obtain a license within the framework of the requirements and rules established by AFSA.

In addition, the authors of the document openly stated that the ban on virtual currencies could have a negative impact on the pace of the fight against terrorism and money laundering, since it could drive virtual currencies into the shadow economy, where they will continue to operate without proper supervision by regulatory and law enforcement authorities. The proposed bill also includes the introduction of a completely new comprehensive system for informing the Financial Monitoring Committee of the Ministry of Finance of the Republic of Kazakhstan about suspicious transactions, which will include the procedure for identifying clients, monitoring transactions and determining the origin of digital currency.

It is planned that the independent regulatory environment will be based on the principles of British law, providing the possibility of a flexible approach to the formation of special conditions for new projects, which will later form the basis of general regulation.

In the public hearings that started then, until June 25, financial institutions, second-tier banks, law firms, professional associations, fintech companies, as well as private investors and other interested parties were supposed to take part.

It can be assumed that in the very near future we will be able to see the most advanced legal model of cryptocurrency regulation to date, which will give impetus to other countries in the Asian region to begin similar initiatives, but using the example of the Kazakh experience.

Due to the fact that in Kazakhstan business is conducted more flexibly and much simpler than in Russia, the USA and many other countries; it is the Republic of Kazakhstan that has every chance of being ahead of its “Asian brothers”, rightfully taking second place after Japan in the field of cryptocurrency freedom.

According to NUR KZ