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Approved by 

Resolution No. 67/9 of the National Bank 

of the Kyrgyz Republic Board 

as of November 30, 2011 

 

Regulation 

“On Corporate Governance in the Banks  

of the Kyrgyz Republic that Conduct Operations Under the Principles of Islamic Banking and Finance”  

 

(amendments and additions approved by Resolutions of the National Bank Board No.7/2 as of February 10, 2016, No.21/10 as of May 31,2017) 

 

1. GENERAL PROVISIONS 

1. The present Regulation shall apply to the banks conducting operations under the principles of Islamic banking and finance, including banks having an “Islamic window” (hereinafter referred to as the “banks”).  

Effective corporate governance in banks is one of the most important conditions for ensuring stable development of individual banks and the banking system as a whole

The following definitions are used for the purposes of this Regulation: 

- investment accounts are the accounts of customers, which reflect the funds attracted by the bank on the basis of the Mudaraba agreement. Depending on the type of the Mudaraba agreement, the investment account may be unlimited or limited; 

- fiduciary responsibility is the responsibility of: 

a) the bank before its customers on compliance with the rules and principles of the Shariah; 

b) the bank for proper management of the funds of the investment account holders and compliance of the conditions stipulated in the Mudaraba agreements; 

- risk profile is a combination of the banks risk indicators based on collected, analyzed and systematized information that characterizes the banks exposure to risks in the areas of activity, taking into account the existing priorities. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

2. Corporate governance shall be understood to mean a certain system of relationships between shareholders, the Board of Directors, the Shariah Council and the Management of the Bank on overall management of the banks activities with regard to:  

1) ensuring the banks compliance with the Shariah standards and principles; 

2) determining the strategic objectives of the bank, ways of their achievement and control over the achievement of these goals; 

3) achieving a balance between the interests of the banks shareholders, its customers, including the investment account holders and other contributors, suppliers, and stable development of the bank;  

4) creation of incentives for labor activity ensuring that the management bodies and employees of the bank fulfill all the actions necessary to achieve the strategic goals of the banks activities

5) ensuring compliance with the legislation of the Kyrgyz Republic, as well as internal documents of the bank. 

3. The main components of effective corporate governance in banks are: 

1) distribution of powers, issues of competence and accountability between the management bodies of the bank, the organization of effective activities of the Board of Directors, the Shariah Council and the Management of the Bank; 

2) definition and approval of the development strategy of the banks activity, business plan, policies and control over their implementation; 

3) approval of a management policy aimed at implementation of effective and good corporate governance, which determines the strategic roles and functions of shareholders and management bodies of the bank, mechanisms for balancing the banks responsibility before the shareholders and does not contradict with the present Regulation; 

4) approval of the investment strategy for managing the funds of the investment account holders; 

5) prevention of conflicts of interest; 

6) determination and compliance with the professional ethics standards; 

7) ensuring transparency of the banks activities in accordance with the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) (and if there are no certain standards, the bank can use IFRS standards). 

The methodological basis of effective corporate governance in banks and banking groups is the recommendations of the Basel Committee on Banking Supervision and the Council of Islamic Financial Services, which are posted on the website of the Bank for International Settlements (Switzerland) www.bis.org and on the website of the Islamic Financial Services Council (IFSB) www.ifsb.org, as well as OECDs corporate governance principles that are posted on www.oecd.org.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

3-1. The bank can develop internal regulatory documents aimed at implementation of effective corporate governance and are not inconsistent with the present Regulation. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

4. Shareholders, the Board of Directors and the Management of the bank shall bear fiduciary responsibility before the investment account holders. 

Shareholders of the bank and their affiliates, officials of the bank, as well as bank-related parties shall have an impeccable business reputation in accordance with the requirements established by the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, Banks and Banking Activities" (hereinafter referred to as the “Law”) and requirements of the National Bank on licensing the activities of the banks that carry out transactions in accordance with the Principles of Islamic Banking and Finance. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

5. At least once a year the Bank shall conduct an assessment of corporate governance and, in the context of its financial statements and periodic regulatory reporting, disclose information on compliance with the requirements of the present Regulation, on application of the recommendations of the Basel Committee on Banking Supervision and the Council of Islamic Financial Services, on shortcomings identified in corporate governance and planned measures to eliminate these shortcomings, indicating the specific timeframes and the persons responsible for carrying out the necessary actions. At the same time, the bank, based on the internal policy of bank management, shall independently determine the form and content of these disclosures.  

The assessment is conducted by the Corporate Governance Committee and is provided to the Board of Directors for taking measures to eliminate the shortcomings identified, as well as to the Management of the bank - to implement measures to eliminate the deficiencies identified in the banks activities.  

 

2. GENERAL SHAREHOLDERS MEETING 

6. The supreme governing body of the bank is the general shareholders meeting. 

7. Issues referred to the exclusive competence of the general shareholders meeting of the bank shall be defined by the Law and the Law of the Kyrgyz Republic “On Joint Stock Companies”.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

8. Issues referred to the exclusive competence of the general shareholders meeting cannot be transferred to other governing bodies, unless otherwise provided by law. The activities of shareholders that are beyond the scope of competence defined by the Law shall not be allowed.  

9. Shareholders of the bank shall not take actions that harm the interests of the banks customers, including the investment account holders.  

9-1. The powers of the general meeting shareholders of the bank during the period of the temporary administration shall be exercised in accordance with the regulatory legal acts of the National Bank of the Kyrgyz Republic (hereinafter referred to as National Bank)

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

3. BOARD OF DIRECTORS OF THE BANK 

10. The Board of Directors of the bank is the governing body of the bank that carries out general governance of the bank during the period between general shareholders meetings. 

The Board of Directors shall exercise control over governance of the bank and its financial condition and is accountable to the general shareholders meeting of the bank.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

11. Issues referred to the exclusive competence and responsibility of the Board of Directors shall be defined by the Law and include the definition of the banks strategies and policies. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

12. In order to ensure effective corporate governance, the Board of Directors shall: 

1) determine the organizational structure of the bank allowing to establish clear levels of authorities, responsibility and accountability within the organizational structure of the bank; 

2) assess the banks development strategy, business plans and policies for all major activities of the bank periodically (at least once a year) in order to determine their adequacy of the current activities, financial condition of the bank and external economic conditions; 

3) since compliance with the Shariah standards is the main one in ensuring the integrity and reliability of the bank, it is necessary to form the Shariah Council of the bank and establish a department responsible for monitoring over compliance with the Shariah standards (or determine an authorized internal auditor checking compliance with the Shariah standards);  

4) form an effective system of internal control and carry out constant monitoring of the activities of the Management of the bank in order to ensure the adequacy of the internal control system over the size, complexity of operations, structure and risk profile of the bank. In order to organize proper internal control, banks shall be guided by the recommendations of the National Bank on organization of internal control and internal audit in banks; 

5) form an appropriate risk management system meeting the requirements established by the National Bank and periodically (at least once every six months) assess the adequacy of established risk levels, taking into account the results of the banks activities; 

6) form effective corporate governance in the bank and to establish ethical and fair standards of corporate culture within the bank that provide for the special role and importance of internal control at all levels and directions of the banks activities; 

7) assess the current banking activities and financial results from the point of view of achieving the strategic goals of the bank and the forecast indicators of the banks business plans periodically (at least once a quarter); 

8) review the results and take measures based on the results of audits of external, internal auditors and banking supervisors with the establishment of specific deadlines and persons responsible for their implementation;  

9) possess sufficient and reliable information to make objective and competent decisions in order to ensure that the recommendations and proposals of the Board, the Shariah Council, other governing bodies and bank officials are justified and meet the interests of the bank; 

10) assess their activities on a periodic basis, identifying the weaknesses and taking appropriate corrective actions. 

13. The activities of the members of the Board of Directors that go beyond the scope of competence of the Board of Directors shall not be permitted. 

14. The activities of internal and external auditors that comply with the legislation of the Kyrgyz Republic, including with the regulatory legal acts of the National Bank and international audit standard, are necessary to achieve corporate governance in the bank. Audit functions can be strengthened by:  

1) recognition of the organizational structure of the need and importance of the work of auditors at all levels to ensure sustainability of the financial condition and achieve the strategic objectives of the bank; 

2) taking measures that strengthen independence and adequacy of internal audit;  

3) increased attention from the Board of Directors to the reports and recommendations of external and internal auditors based on an independent assessment of the banks activities; 

4) taking corrective measures in due time in relation to the problems identified by auditors. 

15. When choosing an external auditor to be presented to the general shareholders meeting, the Board of Directors shall take into account observance of the balance between the costs of auditing and the need to ensure the proper quality of external audit.  

16. The Board of Directors shall hold regular discussions with the external auditor (at least once a year), the internal auditor (at least once a quarter) and the Shariah Council (at least once a year) to strengthen its controlling functions. 

17. The Board of Directors shall have the right to involve auditors in order to audit the activities of structural units, established committees and bank officials. 

18. The Board of Directors shall establish the following committees in a mandatory manner: 

1) the Risk Management Committee that ensures control over the activities of the Management of the bank in risk management issues, which the bank assumes; 

2) Audit Committee; 

3) Nomination and Remuneration Committee.  

A Corporate Governance Committee, a New Products Committee, a Compliance Control Committee and other committees may also be established in the bank. 

The activities of the committees of the Board of Directors shall comply with the requirements of the National Bank and the internal documents of the bank. 

The bank shall create other committees in order to strengthen corporate governance in the bank, in particular: 

- A Financing Committee that shall take decisions on all issues related to the issue of financing, guarantees, obligations, sureties, other assets and liabilities, which are essentially financial transactions and carrying the risk of credit loss. The activities of the Financing Committee are regulated in accordance with the legislation of the Kyrgyz Republic and the internal regulations on the Committee, which is approved by the Board of Directors. 

- The Banks Assets and Liabilities Management Committee, which controls the overall structure of the banks balance sheet, monitors the structure of assets and liabilities, and ensures compliance with the asset and liabilities management policy established by the Board of Directors. The activity of the Assets and Liabilities Management Committee is regulated in accordance with the legislation of the Kyrgyz Republic and the internal regulations on the Committee, which is approved by the Board of Directors. 

All committees in the bank are headed by the chairmen of these committees. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

19. The Corporate Governance Committee, which main task is to protect the interests of both shareholders and also stakeholders (employees, customers, including investment account holders and other contributors, suppliers), shall monitor and assess the implementation and compliance with bank governance policies, as well as monitor implementation of the investment strategy for managing the funds of investment account holders. In its work, the Corporate Governance Committee interacts with the Audit Committee and the Shariah Council and provides reports and recommendations to the Board of Directors. The Corporate Governance Committee shall consist of at least three members: 

1) a member of the Audit Committee; 

2) Shariah specialist (possibly a member of the Shariah Council); 

3) an independent member of the Board of Directors who is not a shareholder or a founder of the bank having managerial experience and sufficient knowledge and skills, as well as the ability to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the Audit Committee. Preferably, that this member of the Board of Directors would preside in the Corporate Governance Committee. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

20. The goals, tasks and functions of the Corporate Governance Committee shall not duplicate the goals, tasks and functions of the Audit Committee. The activities of the Corporate Governance Committee shall complement the activities of the Audit Committee for certain governance functions, taking into account that: 

1) certain binding requirements have been already established with regard to the Audit Committee, and it is responsible for a wide range of responsibilities; 

2) a conflict of interests may arise between shareholders and investment account holders, in particular in the cases where their funds are combined (mixed), which complicates the work of the Audit Committee. In this case, the responsibilities of the Audit Committee and the Corporate Governance Committee can be clearly divided on the basis that the Audit Committee monitors the activities of the bank, primarily, in terms of the interests of the bank shareholders, while the Corporate Governance Committee carries out monitoring from the perspective of investment account holders; 

3) The Corporate Governance Committee shall focus on the specific nature of the banks activities.  

21. As part of exercising the rights of investment account holders, the Corporate Governance Committee shall be responsible for monitoring the results of investing the funds of the investment account holders by the bank. 

22. In the event of any disagreement between the Corporate Governance Committee and the Audit Committee, the Board of Directors shall have ultimate responsibility for resolving such disputes.  

23. The Committee for Risk Management shall provide control over the activities of the Management of the bank in the issues of risk management the bank assumes.  

The Committee for Asset and Liability Management of the bank monitors the overall structure of the banks balance sheet, monitors assets and liabilities, and controls over compliance with the asset and liability management policy established by the Board of Directors. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

23-1. The following shall be determined in internal documents of the bank regulating the activities of all committees established in the bank:  

- the purpose of establishment and activities of the committee;  

- powers of the committee;  

- procedure for appointing the Chairman of the Committee; 

- procedure for holding meetings;  

- reporting procedure;  

- responsibility of each member of the committee for the decisions made and signed by him. 

Also, these documents shall establish the following requirements for each member of the committee participating in the meeting and making decisions: 

- be aware of the essence of the issue under consideration; 

- be aware of the influence of decisions made by him on the activities of the bank; 

- assess the possibility of risks and the consequences of decisions made by him. 

The opinion of a committee member, who has comments and suggestions on the issue under consideration and who does not agree with the decision taken, shall be expressed in the vote process and reflected in the minutes. The minutes shall be signed by all members of the committee who attended the meeting and by the secretary of the committee. Members of the committee who did not attend the meeting shall be familiar with the minutes and the decisions taken against the signature. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

24. The Board of Directors shall act in the best interests of the bank, observe the principle of equal attitude to all shareholders and shall provide a report to shareholders on its activities at each annual general shareholders meeting of the bank. 

The Chairman and members of the Board of Directors shall be responsible for inaction on the issues, which shall be performed by the Board of Directors. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

25. The high level of responsibility and the broad range of authorities of the Board of Directors imply that the members of the Board of Directors have sufficient knowledge of the main types of the banks activities and the ability to express an opinion that is independent of the opinion of the governing bodies and bank officials. When making decisions, each member of the Board of Directors shall be objective and guided by the interests of the bank, and not by the personal interests or interests of individual shareholders and bank officials. 

The opinion of a member of the Board of Directors who has comments and proposals on the issue under consideration and who does not agree with the adopted decision shall be expressed in the voting and reflected in the minutes. The minutes and verbatim report (detailed written text of the participants speeches) of the meeting of the Board of Directors shall be signed by the chairman and the secretary of the Board after agreement (approval) with the members of the Board of Directors presenting at the meeting. The members of the Board of Directors who did not attend the meeting shall be familiar with the minutes and the decisions taken against the signature. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

26. The members of the Board of Directors shall comply with the minimum qualifying requirements established by the National Bank. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

27. In order to ensure competence, objectivity and independence, independent members of the Board of Directors with a recognized reputation and professional experience in economic, financial, monetary and legal matters shall be elected to the Board of Directors. 

At least one member of the Board of Directors of the bank shall be a citizen of the Kyrgyz Republic, who speaks the state and/or official language. 

At least one third of the Board of Directors of the bank shall be composed of independent members of the Board of Directors. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

4. RIGHTS OF INVESTMENT ACCOUNT HOLDERS 

28. The bank recognizing fiduciary responsibility to the investment account holders shall support their interests in the same degree as the interests of the bank shareholders. 

29. The investment account holders shall have the right to full access to all necessary information regarding their investment accounts that will help them to make a correct and informed decision about their choice of investment accounts to place their funds in the bank. For example, if the bank offers different types of limited investment accounts. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

30. The investment account holders shall be entitled to monitor the result of investing their funds by the bank, which is not an interference with the banks investment management activities. The Bank is obliged to inform the investment account holders of methods for calculating profits, distribution (allocation) of assets, an investment strategy for managing the funds of investment account holders, the actual income received from investments made by the bank in the interests of the investment account holders, and profit adjustment mechanisms. 

31. The bank shall be required to disclose significant and necessary information about the investment accounts it manages and existing policies and practices regarding investment accounts offered by the bank to the investment account holders and the public in due time by publishing a report on investment accounts. At the same time, the disclosed information shall be comparable, clear, accessible for perception and understanding. 

32. The bank shall have internal documents that provide at least the following: 

1) measures to ensure investment protection for investment account holders, including cases where the funds that have been placed on unlimited investment accounts are mixed with shareholders funds; 

2) norms on mandatory and proper disclosure of necessary and essential information to the investment account holders, including those specified in paragraphs 30, 31, 36, 38 hereof; 

3) clear and accurate principles for the distribution of profits and investment policies, which shall be based on the expected risks of investment account holders; 

4) qualification requirements for employees who are responsible for managing the investment accounts of the bank and measures to ensure their professional suitability. 

33. The bank shall adopt a sound investment strategy for managing the funds of investment account holders, which is comparable to the expectations on the risks and return on investment of investment account holders (taking into account the differences between holders of limited and unlimited investment accounts), and which shall be transparent with regard to adjustment mechanisms (distribution) of any income.  

34. In developing an investment strategy for managing the funds of investment account holders, the bank shall carefully examine the expectations on the risks and return on investment of investment account holders, taking into account: 

1) the bank has a "know your customer" policy, the observance of which can effectively reflect different risk profiles and return on investment of holders of limited and unlimited accounts; 

2) availability of qualified investments by managers who fully understand the needs and expectations of investment account holders; 

3) full awareness of the Corporate Governance Committee on the investment strategy adopted by the bank. 

35. The conditions for calculating the profit equalization reserve (hereinafter referred to as “PER”) shall be determined in advance and applied in accordance with the terms of the agreement signed by the investment account holder and the bank. 

36. The bank shall inform the investment account holders on each transfer of profits to the PER and allocation of funds from the PER in order to improve the distribution of profits among the investment account holders. 

37. The Corporate Governance Committee shall verify the proper formation and use of PER and/or the investment risk reserve (if any) and provide appropriate recommendations to the Board of Directors.  

38. Information on the profit equalization reserve and the investment risk reserve shall be periodically reported in the media and in the annual report of the bank. 

 

5. SHARIAH COUNCIL 

 

39. The Shariah Council shall be established in the bank, which is responsible for compliance of the policies and model agreements of the bank with Shariah standards and the department responsible for monitoring compliance with the Shariah standards (or it shall be appointed an authorized internal auditor checking compliance with Shariah standards).  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

39-1. Violation of the fiduciary duties by a member of the Shariah Council can be a ground for the fiduciary (bank and their shareholders) to early termination of his authorities and possible presentation of claims and other legal actions by the bank to him. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

40. In carrying out activities in accordance with the Islamic principles of banking and finance, the terms of all products and model contracts shall be approved by the Shariah Council for compliance with Shariah standards. If significant changes and additions are made to the terms of a particular contract changing the main provisions of the contract, then the Shariah Council shall approve them in advance. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

41. Monitoring compliance with the Shariah standards shall cover such aspects as verification of compliance with the Shariah standards, investment strategy for managing the funds of investment account holders, use of incomes received without observing the Shariah standards, charitable activities, etc. 

42. The department responsible for monitoring compliance with the Shariah standards (or an authorized internal auditor checking compliance with the Shariah standards) shall provide reports on compliance with the Shariah standards to the Board of Directors, the Shariah Council, the Audit Committee and a copy - to the Management of the bank. 

43. Decisions adopted by the Shariah Council shall be accessible, both for the banks client and for the public through publications and other communication channels. The bank shall be obliged to provide, upon request, clarification of any decision of the Shariah Council. At the same time, clarification shall be preliminary agreed with the Shariah Council. 

44. Members of the Shariah Council shall meet the requirements set by the National Bank. Staff of the Department responsible for monitoring compliance with the Shariah standards (or an authorized internal auditor checking compliance with the Shariah standards) shall receive appropriate training to obtain skills in verifying the banks compliance with the Shariah standards.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

45. In carrying out its functions, the Shariah Council and the department responsible for monitoring compliance with the Shariah standards shall be independent of the Management and the Board of Directors of the bank.   

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

46. The activity of the Shariah Council of the bank shall be regulated by a provision approved by the general shareholders meeting. For a bank that has an “Islamic window” where the share of assets does not exceed 50% of the balance currency, the activities of the Shariah Council shall be regulated by a provision approved by the Board of Directors of the bank. The activities of the department responsible for monitoring compliance with the Shariah standards are regulated by a provision approved by the Board of Directors of the bank and agreed by the Shariah Council. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

47. The Provision of the Shariah Council shall determine:  

1) organization of work of the Shariah Council - the composition of the Board, the procedure of meetings;   

2) powers and responsibilities of the Shariah Council;  

3) procedure for interaction with the Board of Directors, the Management and the Committees of the bank.  

The regulation on the department responsible for monitoring compliance with the Shariah standards shall provide for

1) goals, tasks and functions of the department; 

2) authorities and responsibility of the department, rights and duties of employees; 

3) procedure for interaction with the Board of Directors, the Management, the Corporate Governance Committee, the Audit Committee and other structural divisions;  

4) need for coordination with the Shariah Council when appointing, transferring, or dismissing the department's employees.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

6. BANK MANAGEMENT 

 

48. The Management shall manage the current activity of the bank on the basis of the legislation of the Kyrgyz Republic, the internal provision on the Management and shall be accountable to the Board of Directors. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

49. The issues related to the competence and responsibility of the Management shall be determined by the Law and shall include realization of strategies and policies established by the Board of Directors. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

50. In order to ensure effective corporate governance, the Board shall: 

1) ensure compliance of the current activity of the bank with the Shariah standards, legislation of the Kyrgyz Republic, including regulatory legal acts and requirements of the National Bank; 

2) ensure a clear distribution of responsibility, authorities and accountability of structural units, officials and employees of the bank; 

3) establish effective systems for monitoring implementation and compliance of policies and strategies approved by the Board of Directors, Shariah standards, recommendations and decisions of the Shariah Council, procedures and job descriptions at all executive levels of the organizational structure, and periodically assess the adequacy of these systems; 

4) develop and implement policies and procedures in the banks activities for the identification, measurement, monitoring and control over risks in all activities of the bank; 

5) establish reliable information systems that cover all significant areas of the banks activities and operations and ensure proper preparation and timely submission of information (financial, analysis of events and market conditions, etc.) necessary for making managerial decisions; 

6) provide the Board of Directors with timely, substantive and reliable reports on current activities containing actual financial and operating results, allowing to evaluate fulfillment of the forecast indicators of the business plan and the development strategy of the bank;  

7) submit (at least once a year) to the Board of Directors a detailed assessment of the adequacy and effectiveness of the banks internal control system, including on combating the legalization (laundering) of criminal proceeds and financing terrorist or extremist activities, as well as provide recommendations on improving the internal control system;  

8) ensure implementation and maintenance of effective corporate governance in the bank, maintenance and compliance with ethical and fair standards of corporate culture within the bank, which provide for a special role of internal control in all directions of the banks activities; 

9) provide the Board of Directors with reports and recommendations on risk management on a periodic basis that will ensure effectiveness and adequacy of an ongoing risk management process; 

10) immediately inform the Board of Directors on any deterioration in the economic situation of the bank or threat of such situation; 

11) inform the Board of Directors on all revealed violations of legislation, including regulatory legal acts of the National Bank, internal policies approved by the Board of Directors; 

12) take measures to communicate business plans (strategies) and policies, as well as acceptable risk levels approved by the Board of Directors of the bank to the relevant employees of the bank; 

13) take measures to ensure reliability and timeliness of providing information, financial, regulatory and other reports to external users and ensuring security of the banks information systems.  

51. The activities of the members of the Management of the bank, which go beyond the competence of the Board, shall not be permitted. The Chairman and members of the Management shall be responsible for inaction on the issues, which shall be performed by the Board of the Bank. 

52. Members of the Management shall meet the minimum qualification requirements established by the National Bank. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

53. In carrying out its activities, the members of the Management shall be objective and guided, first of all, by the interests of the bank, and not by the personal interests or interests of individual shareholders and bank officials making every effort to ensure healthy and safe banking practices that comply with the Shariah standards.  

The opinion of a member of the Management who has comments and proposals on the issue under consideration and who does not agree with the decision taken shall be expressed in the voting and reflected in the minutes. The chairperson and the secretary of the banks management shall sign the minutes and verbatim report (detailed written text of the participants speeches) of the meeting of the Management after agreement (approval) with the members of the banks management who were present at the meeting. Members of the Management who did not attend the meeting shall be familiarized with the minutes and the decisions taken against the signature. 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

54. The following cases shall not be allowed in the practice of managing activities of the Management of the bank:  

1) the members of the Management who do not have the appropriate authorities in accordance with the functional distribution of duties participate in the decision-making, except when the decision is taken collectively; 

2) the members of the Management do not have the relevant qualifications, necessary skills and knowledge on those issues that fall within their competence;  

3) the members of the Management are not able to control the work of key employees of the bank whose performance results are of great importance to the bank (in terms of generated income, implementation of Islamic banking products, etc.);  

4) decisions are made under the pressure of shareholders and/or bank officials, including on the matters that have not been envisaged by the strategies, business plans and policies of the bank.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

 

7. PROFESSIONAL ETHICS AND PREVENTING CONFLICTS OF INTEREST 

 

55. An important factor in achieving the strategic goals of the bank is the activities of the Board of Directors and the Management aimed at establishing professional ethics standards that determine importance of the following aspects of corporate governance: 

1) ensuring an effective internal control system, including on combating legalization (laundering) of criminal proceeds and financing of terrorist or extremist activities, at all levels of the banks organizational structure; 

2) conducting healthy and safe banking practices; 

3) protection of the banks interests from improper or illegal actions of shareholders, bank officials and other persons having the opportunity to influence the banks activities; 

4) compliance with the Shariah standards, legislation of the Kyrgyz Republic, including regulatory legal acts of the National Bank and internal documents of the bank; 

5) preventing conflicts of interest and identification of situations and areas of activity where conflicts of interest may arise; 

6) establishment of payment for work, remuneration and incentives for employees (including the Board of Directors, the Shariah Council and the Management) taking into account not only the results of the banks activities, but also compliance with strategic objectives and with the standards of professional ethics of the bank;  

7) compliance with the requirements for safety and reliability of the bank when lending to employees and bank officials; 

8) availability of mechanisms that enable employees to express concerns about unlawful, unethical or questionable management actions and to protect employees against possible negative reaction from the management in this case; 

56. Standards of professional ethics shall be communicated to all employees and shall be respected at all levels of the banks organizational structure, including the Board of Directors and the Management in order to ensure their positive impact on the level of corporate governance of the bank. 

57. The bank shall develop mechanisms to ensure compliance with the legislation, including the National Banks regulations on preventing conflicts of interest and regulating transactions with affiliated parties of the bank and related parties, members of the Management, the Board of Directors, other officials, significant participants, as well as with any other individuals associated with these individuals of common interests. 

In order to identify and prevent conflicts of interest, the bank shall make at least the following: 

- develop procedures for informing the Board of Directors and the Management about potential threats to the banks activities related to the conflict of interests; 

- an official of the bank and employees of the bank prior to appointment (election) to the position are obliged to provide the bank with a list of close relatives;  

- in the event of a conflict of interest, an official or a bank employee shall immediately notify the Management and/or the Board of Directors of the bank to the effect; 

- the bank shall maintain a database of conflicts of interest that have occurred; 

- untimely disclosure of a conflict of interests entails responsibility in accordance with the banking legislation of the Kyrgyz Republic.  

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

58. In the field of personnel policy, corporate governance shall imply the mandatory availability and compliance with internal documents relating to: 

1) recruitment and dismissal of employees (including bank officials who shall be recruited based on the results of a competition for a vacant position); 

2) staff movements and career growth;  

3) payment for labour, remuneration and rewards, provision of social benefits and allowances, including the Board of Directors, the Shariah Council and the Management of the bank; 

4) training of employees (including the Board of Directors and the Management); 

5) system of measures for keeping of qualified and competent personnel (including management); 

6) application of measures to the banks employees (including the Board of Directors, the Shariah Council and the Management) for improper performance of their duties, violation of the standards of professional ethics accepted by the bank. 

Herewith, the following shall be taken into consideration: 

1) qualification requirements for the candidate when announcing a competition for a vacant position shall comply with the requirements of the job description corresponding to the vacant position; 

2) job descriptions of key officials of the bank shall be approved by agreement with the Management of the bank.  

 

8. BANK MANAGEMENT TRANSPERANCY 

 

59. Bank management transparency allows shareholders, investment account holders and other depositors and creditors of the bank to monitor the activities of the management bodies, and also maintains the reputation of the bank as the one implementing effective corporate governance. This will help attracting new customers, investors, business partners.  

60. In addition to the requirements established by the legislation of the Kyrgyz Republic on disclosure of the information on the activities of the bank, as well as paragraphs 5, 30, 31, 36, 38, 43 of the present Regulation, effective corporate governance involves disclosure of information, which includes, among others:   

1) structure of the banks management bodies (composition, qualifications and experience, authorities, duties, supervised areas, work regulations and membership in committees, including information on the number of meetings of committees, etc.);  

2) structure of the banks owners (significant shareholders of the bank, the share of foreign investors in the stockholder equity of the bank, the right to vote, etc.);   

3) organizational structure of the bank and, if available, structure of the banking group;  

4) types, conditions and volumes of transactions with affiliated persons and insiders of the bank;  

5) standards of professional ethics;  

6) information on conflicts of interest, remuneration and risk management. 

(As revised in the Resolution of the National Bank KR Board No. 21/10 as of May 31, 2017) 

61. Information that characterizes the corporate management of the bank, including those specified in paragraph 60 hereof, can be placed on the banks official website and published in annual and periodic reports.  

(Notes ceased to be in force in accordance with Resolution of the National Bank KR Management No. 21/10 dated May 31, 2017) 

 

9. BANK CORPORATE SECRETARY 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

62. The Bank Corporate Secretary shall provide and organize the work (meetings and records management) of the general shareholders meeting and the Board of Directors of the bank. 

63. The Corporate Secretary is an official of the bank, appointed and dismissed by the decision of the Board of Directors of the bank.  

64. The Corporate Secretary shall carry out its activities in accordance with the Law, regulatory legal acts of the National Bank, the charter of the bank and internal regulatory legal acts of the bank, as well as decisions of the general shareholders meeting and the Board of Directors of the bank.  

65. Combination of an independent position of the corporate secretary of the bank with performance of other duties in the bank is allowed only with the consent of the Board of Directors of the bank. 

66. The functional duties of the corporate secretary shall be developed by the bank independently in accordance with the legislation of the Kyrgyz Republic and the internal regulatory legal acts of the bank. 

67. The Bank Corporate Secretary shall be obliged to act in good faith and reasonably in the best interests of the bank, which implies compliance with the following fiduciary duties: 

1) fulfill its powers in compliance with the requirements of the banking legislation of the Kyrgyz Republic, the charter of the bank and internal regulatory legal acts of the bank; 

2) use the authorities granted to him; 

3) observe the principle of equality in relation to shareholders and members of the Board of Directors;  

4) meet the requirements of impeccable business reputation in accordance with the legislation of the Kyrgyz Republic. 

68. The Corporate Secretary shall, without fail, carry out the verbatim transcript (detailed written text of the participants speeches) of the meetings of the Board of Directors of the bank and prepare the minutes based on the results, including voting by written interview and using communication facilities. 

The Corporate Secretary shall, in all cases, familiarize all the members of the Board of Directors with the signed minutes, including by using the means of communication. 

 

10. BASIC REQUIREMENTS TO NOMINATION AND REMUNERATION COMMITTEE 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

69. The Nomination and Remuneration Committee is established in the bank irrespective of the types of activities carried out to improve the efficiency of the Board of Directors and optimize the decisions made by it. 

 The activities of the Committee shall be aimed at strengthening control over the nominations and remuneration of the members of the Management, managers and employees of internal audit services, risk management and compliance control, and key employees identified by the bank. 

70. The Nomination and Remuneration Committee shall determine the level of the remuneration paid by the bank, which shall be sufficient to attract, motivate and keep persons having the necessary competence and qualifications for the bank, and the level of remuneration paid by the bank shall not lead to unprofitable activities.  

71. The activities of the Committee shall be regulated by the requirements of the legislation of the Kyrgyz Republic and the internal provision on the Committee, which is approved by the Board of Directors of the bank. 

72. The Committee shall consist of at least three members of the Board of Directors appointed by the shareholders meeting of the bank, one of which shall be independent. 

73. The Committee shall make recommendations to the Board of Directors on nominees for inclusion in the Management composition, managers and employees of internal audit, risk management and compliance-control services, as well as key employees, determined by the bank, taking into account the requirements set by the National Bank. 

74. The Committee shall consider candidatures for the position of the Corporate Secretary, assesse the conformity of candidates to the established requirements and submit its recommendations to the Board of Directors. 

75. Payment of remuneration to the members of the Board of Directors, Management, heads of internal audit services, risk management, compliance control, as well as key employees determined by the bank, shall be carried out in accordance with the internal regulatory legal act on remuneration accepted in the bank. 

An internal regulation on remuneration shall be developed by the Remuneration Committee and approved by the Board of Directors of the bank. The Board of Directors, with the support of the Remuneration Committee, shall ensure control over implementation and realization of the internal regulation on remuneration in the bank and, if necessary, revise and make adjustments. 

76. The level of remuneration provided by the bank to the members of the Board of Directors, the Management, the heads of internal audit, risk management, compliance and key employees determined by the bank shall create sufficient motivation for their effective work, allowing the bank to attract and keep competent and qualified specialists.  

The amount of additional remuneration to the members of the Board of Directors shall be determined by the decision of the general shareholders meeting, taking into account the results of the banks work, following the results of the fiscal year and the effective participation of a member of the Board of Directors in the activities of the Board of Directors. 

77. The wage system shall be consistent with the business strategy, risk management strategy, goals, values ​​and long-term interests of the bank, and shall also include measures to prevent conflicts of interest. The incentive programs shall facilitate the implementation of the accepted risk management culture in which the practice of decision-making meets the established criteria and encourages employees to act in the interests of the bank (taking into account the interests of the customers), and not only for their own interests or for the benefit of their unit. In particular, premiums (bonuses) stipulated in the incentive program shall not encourage employees to take excessive risks. 

78. The amount of remuneration shall directly depend on the ratio of risk to result. The methods of payment of rewards for future income, the period and probability of which are uncertain, shall be carefully weighed on the basis of the qualitative and quantitative measures taken. The remuneration system shall provide for the possibility of changing the amount of premiums (bonuses) paid, taking into account all risks, including violations of risk-appetite limits, internal procedures or regulatory requirements.  

79. Internal regulation on remuneration shall include the following: 

- order and period of payment of premiums (bonuses); 

- a system of premiums (bonuses) repayment criteria, which shall take into account the results of risk management in the long term for the purpose of long-term motivation; 

- the size of premiums (bonuses); 

- if necessary, the conditions for postponing the payment of a significant portion of premiums (bonuses) until achievement of the result of acceptance of a specific risk, taking into account measures to reduce risks (“unreliability/loss”); 

- conditions for reduction or cancellation of premiums (bonuses) based on the results obtained or taking measures before their payment; 

- conditions for compliance with and implementation of work plans/approved budget of the bank;  

- profitability of the bank. 

 

11. BASIC REQUIREMENTS TO NEW PRODUCTS COMMITTEE 

(As amended by Resolution of the National Bank of the Kyrgyz Republic Board No. 21/10 as of May 31, 2017) 

 

80. The New Products Committee may be established in the bank to make a decision on the need to develop new banking products, introduce new products to the banking services market, and to control the process of entering the banks new products into the market in accordance with the requirements of antimonopoly regulation legislation.  

81. The Committee is empowered to make decisions on new banking products to ensure an effective, focused and controlled process for the initial evaluation, subsequent development, testing and introduction of banking products or services within the existing resource limits. 

82. The Committee may determine the degree of involvement of certain departments of the bank in the process of developing new banking products. 

83. When developing and implementing new banking products, the committee shall conduct risk assessment of new banking products and ways to reduce (minimize) them.  

84. The activities of the committee are regulated by the legislation of the Kyrgyz Republic and the Regulation “On the Committee”, which is approved by the Board of Directors of the bank. 

85. The Committee may consist of members of the Board of Directors and/or members of the Management appointed by the shareholders meeting of the bank. 

86. When making a decision on development and introduction of new banking products, the Committee shall comply with the requirements of the legislation of the Kyrgyz Republic and regulatory enactments within its authority.