Approved by 

Resolution No. 2019-П-12/56-3-(НПА)  

of the National Bank 

of the Kyrgyz Republic Board 

as of November 15, 2019 

REGULATION 

“On Transactions of Commercial Banks in Precious Metals, Carried out in accordance with the Principles of Islamic Banking and Finance” 

Chapter 1.   

General Provisions 

1. This Regulation sets the requirements of the National Bank of the Kyrgyz Republic (hereinafter referred to as the National Bank) for commercial banks of the Kyrgyz Republic to carry out transactions in precious metals according to the Principles of Islamic Banking and Finance.   

2. Terms used under this Regulation:   

1) precious metals are:   

- gold in refined standard and weighted bullions;   

- silver in refined standard and weighted bullions;  

2) refined standard bullions of precious metals - produced and labelled bullions of precious metals and meeting the International Quality Standards adopted by the London Association of the Precious Metals Market (Appendix 1); 

3) refined weighted bullions - produced and labelled bullions of precious metals, issued by the National Bank or a refinery certified by the London Bullion Market Association, weighing 1000 grams and less with a chemically pure base metal content of at least 99.95-99.99 percent of the ligature mass of a gold bullion and at least 99.90 percent of the ligature mass of a silver bullion; 

4) ligature (gross) weight - the actual total weight of the alloy containing the precious metal; 

5) one troy ounce is a measure of mass that constitutes 31.1035 g; 

6) sample - the content of a certain precious metal, measured in fractions per thousand units of mass of the alloy; 

7) metal accounts are accounts opened by the bank for customers in order to record and carry out transactions in precious metals; 

8) metal safe custody accounts are customers’ accounts intended for accounting precious metals transferred to the bank with the preservation of their individual characteristics (name, quantity of values, sample, producer, serial number, etc.). 

3. The requirements of this Regulation apply only to refined standard and weighted bullions made of precious metals.   

4. Commercial banks can buy and sell coins of gold and silver, which are a means of payment, without obtaining permission from the National Bank for the right to carry out banking transactions in precious metals.  

5. Transactions that require the preservation of individual characteristics of precious metals for the signed contracts are carried out on precious metal safe custody accounts.  

6. Transactions specified in sub-clauses 2 and 3 of Clause 11 hereof are carried out on precious metal accounts. 

7. Banks are prohibited from carrying out transactions on impersonal metal accounts opened by the bank for accounting precious metals and carrying out transactions on their attraction and placement. 

8. Banks are prohibited: 

- to carry out transactions in precious stones and other forms of precious metals, with the exception of those listed in Clause 11 hereof;  

- to carry out transactions on accepting collateral with types of precious metals that do not fall under the definition of sub-clause 1 of Clause 2 hereof.   

9. In accordance with the international practice of carrying out transactions in precious metals, the transactions in gold are carried out in quantitative units of the pure mass of the metal (in troy ounces or grams), transactions in silver - in quantitative units of the ligature mass of the metal. 

In order to account for precious metals in grams, it is necessary to round them to tenths as follows:    

- if two decimal places are greater than or equal to 5, the decile is increased by 1, all signs following it are excluded;    

- if two decimal places are less than 5, the decile remains unchanged, all signs following it are excluded.   

10. Monetary assets and liabilities denominated in precious metals are subject to revaluation on a daily basis at the London Bullion Market Association at close of business on the day preceding the date of the revaluation.   

At the same time, the revaluation of refined weighted bullions issued by the National Bank is carried out in accordance with the bank’s accounting policy. 

Chapter 2.   

Transactions of Commercial Banks in Bullions 

11. If the bank has transactions in precious metals in the list of permitted banking transactions to the bank’s license for the right to carry out banking transactions, it may carry out the following transactions in precious metals:   

1) Transactions under the terms of the Wadi’ah Yad Amanah contract (transaction):  

- maintaining metal safe custody accounts and attracting precious metals on its own behalf for a specified period from other commercial banks, legal entities and individuals.   

At the same time, the bank does not have the right to dispose the precious metals entrusted to it and to receive profits from their placement.  

The Bank is allowed to charge storage fees, regardless of whether the fee is a fixed amount or a fraction of the value of the precious metal. 

If the precious metal transferred for storage is a guarantee of the repayment of debt by the transferring party, then the payment should not exceed the actual costs of the precious metal custody. 

2) Transactions under the terms of the Murabahah contract (transaction): 

- purchase and sale of precious metals on the basis of spot settlement on its own behalf at the expense of the customer, while payment for the transaction is made immediately;   

- purchase and sale of precious metals on the basis of spot settlement on its own behalf and at its own expense, while payment for the transaction is made immediately. 

3) Transactions under the terms of the Qard Hasan contract (transaction) in cash and non-cash forms: 

- attraction of precious metals as a loan on the terms of guaranteed repayment at the first request of the customer; 

- placement (financing) of precious metals as a loan on the terms of guaranteed repayment at the first request of the bank.  

12. Precious metals, which are used by the banks in transactions within the framework of this Regulation, must meet the following requirements: 

- comply with the International London good delivery quality standards and be produced by refineries listed in the London Bullion Market Association;   

- be produced in the form of weighted bullions, used as addition alloys to standard bullions to express (achieve) weights that meet the contractual terms;   

- be produced in the form of weighted bullions in accordance with the National Standard of the Kyrgyz Republic (Kyrgyz Mamlekettik Standards (KMS) 1281:2015).  

13. Commercial banks carrying out transactions in precious metals in the form of standard and weighted bullions (with the exception of refined weighted bullions of precious metals issued by the National Bank) are obliged to:   

- have weight measuring appliances and balance weights for weighing precious metals certified in accordance with the requirements of the legislation of the Kyrgyz Republic, the weighing error of which does not exceed the limits specified in Appendix 2;   

- and/or if the banks have not such appliances, they shall use the weighing services of third-party organizations, which have weight measuring appliances and balance weights meeting the requirements specified in Appendix 2;   

- have the special equipment listed in Appendix 3 for carrying out an express analysis of the composition of precious metals’ weighted bullions in order to determine the percentage of precious metal and impurities;   

- carry out storage and transportation of precious metals in compliance with the safety requirements established by the legislation.   

14. Banks carrying out transactions in precious metals in the form of standard and weighted bullions should take into account that the readings of precious metals’ bullions may differ from the readings of previous weighing of these values, recorded in accounting or accompanying documents under the influence of geophysical and atmospheric factors and due to the design features of weight measuring appliances (Appendix 4). 

15. The maximum amount of assets in precious metals and the amount of funds for carrying out transactions in precious metals on behalf of customers must in aggregate be no more than 100% of the paid-up authorized capital of the bank. 

16. Precious metals accepted from the customer for safe custody are not attracted funds of the bank and cannot be placed by him on his own behalf and at his own expense. 

17. The services for the sale of precious metals can be provided on metal safe custody accounts, when, only the deposited precious metals are to be sold on behalf of the customer. The accounting of transfers on safe custody accounts is carried out only in physical form. 

18. Precious metals that have passed into the ownership of the bank as a result of the alienation of collateral must be sold in accordance with the legislation.   

19. Import and export of precious metals from the territory of the Kyrgyz Republic is carried out in accordance with the legislation of the Kyrgyz Republic with the consent of the authorized state body.   

20. Commercial banks, when transporting precious metals at their own expense or at the expense of the customer, must provide insurance for the transportation of precious metals properly and in accordance with the Shariah standards. If the insurance of transportation of precious metals in accordance with Shariah standards is not possible, then the transportation of precious metals can be insured using the traditional method, subject to the appropriate approval of the Shariah Council of the bank.   

The transfer of responsibility and rights of ownership during the transportation between the bank, its customer, accompanying persons and the carrier are determined by the relevant agreements. 

21. When transporting precious metals, it is necessary to take measures to prevent the transported bullions from depressions, scratches and other defects that affect their value. 

Chapter 3.   

Organization of Internal Control Over Transactions in Precious Metals 

22. In order to carry out transactions in precious metals, the banks are required to develop an appropriate risk management policy associated with transactions in precious metals and to organize adequate internal control. Appropriate procedures must be developed and approved for each of the transactions carried out.   

23. The procedures should reflect at least the following means of internal control:    

1) differentiation of functional duties of the bank employees in such a way that one employee cannot perform and/or control any process in full, from initiating a transaction to registering it in accounting books;  

2) the use of double control –certain transactions (actions) associated with a high degree of risk require at least two employees;  

3) introduction by the relevant bank’s authorized employees of a clear system of authorizing the entire volume of transactions carried out by the bank; 

4) carrying out periodic planned and sudden inventories of precious metals in order to find out whether the accounting data correspond to the actual availability; 

5) restricting access to assets or information for personnel who do not have the authority to do so. Protection against unauthorized access or unauthorized transactions is provided by such security devices as locking safes, vaults, special doors, video surveillance cameras, double control, management awareness, electronic protection, etc.; 

6) the establishment by the bank of internal limits for an open position in precious metals for each type of precious metal and for all types in general; 

7) the establishment of minimum requirements for information on the reliability of counterparties, depending on the nature and degree of risk of the transactions carried out and the category of the counterparty; 

8) the establishment of requirements for internal audit when conducting inspections of transactions in precious metals; 

9) the establishment of requirements for accounting and reporting on transactions in precious metals for the bank and its branches. 

Chapter 4.  

Limits on Transactions in Precious Metals and Reporting 

24. The calculation of the position limit for precious metals is carried out similarly to the calculation of the position limit for foreign currency.  

25. The National Bank sets limits for commercial banks on an open position in precious metals (for gold and silver separately) in order to regulate purchase and sale transactions in precious metals. In this case, the currency position is calculated for each type of precious metals (gold and silver) separately.   

26. Commercial banks, on a daily basis, submit to the National Bank a balance sheet for each type of precious metal and information on compliance with position limits for precious metals as part of a report on compliance with open currency position limits in accordance with the regulatory legal acts of the National Bank.   

27. The form and frequency of reporting of commercial banks to the authorized state body is established by the latter, and banks are obliged to strictly follow the requirements of the authorized body within the framework of the legislation in force. 

28. The National Bank has the right to apply measures of influence for violation of the set limits by a commercial bank in accordance with the regulatory legal acts of the National Bank. 

29. The National Bank has the right to exclude transactions in precious metals from the list of permitted transactions if the bank: 

- carries out transactions in precious metals that are not specified in the list of permitted banking transactions; 

- systematically (more than two times in consecutive 30 calendar days) violated the position limit for precious metals; 

- if the bank’s activity on transactions in precious metals over the past two years has been unprofitable; 

- if a commercial bank violates the capital adequacy standard. 

INTERNATIONAL QUALITY STANDARDS 

Adopted by the London Bullion Market Association (LBMA) 

The quality standards for precious metals, adopted by the London Bullion Market Association, are designated in the documents of the Association as the London good delivery standard. 

1. The London good delivery gold bullions must meet the following requirements: 

- the mass of pure gold in a bullion must be between 350 and 430 troy ounces (from 10886 g to 13375 g). 

- the weight of each bullion must be expressed in troy ounces and be a multiple of 0.025 ounces. 

The purity of the metal must be at least 995 parts of chemically pure gold per 1000 parts of the ligature mass. The bullion must have the following information as mandatory marks: 

- serial number;   

- sample;   

- producer’s stamp;   

- year of bullion production.   

The bullion should not have pores, depressions or other imperfections; it should be easy to carry and store.   

2. London good delivery silver bullions must meet the following requirements:  

The weight of the bullion must be between 750 and 1100 troy ounces (from 23328 g to 34214 g).   

The weight of each bullion must be expressed in troy ounces and be a multiple of 0.10 ounces.    

The purity of the metal must be at least 999 parts of chemically pure silver per 1000 parts of the ligature mass.   

The bullion must have the following information as mandatory marks:   

- serial number;  

- sample;   

- producer’s stamp;   

- weight in troy ounces or kilograms (the weight of the bullion in kilograms must be converted to troy ounces and meet the above requirements).  

The bullion must have the correct shape, easy to carry and store.    

The bullion surface should not have pores, depressions and other imperfections. Bullion edges must be straight and not sharp.   

A refiner marking gold and silver bullions that meet London good delivery standards must be listed on the LBMA special list (List of Acceptable Melters and Assayers).   

PERMISSIBLE WEIGHING ERRORS  

of the Scales Used 

Permissible weighing errors of the scales used should not exceed the following values (mg) (GOST 24104-88):   

Weighing of gold is carried out with scales of at least the second accuracy class, and silver - with scales of at least the third accuracy class. 

TECHNICAL REQUIREMENTS 

to the Equipment for Express Analysis of Refined Precious Metals’ Weighted Bullions 

1. The readings of weight measuring appliances during weighting of the precious metals’ bullions may differ from the readings of previous weighing of these values, recorded in accounting or accompanying documents under the influence of geophysical and atmospheric factors and due to the design features of weight measuring appliances. The limits of weight discrepancies that may arise when weighing the values are as follows: 

2. Weight discrepancies revealed during weighing of the bullions within the permissible limits between the readings of weight measuring appliances and the data of accompanying or accounting documents, are reflected in (cash) journals without being reflected in accounting books.   

3. Weight discrepancies revealed during weighing of the bullions that exceed the limits of permissible norms between the readings of weight measuring appliances and the data of accompanying or accounting documents must be drawn up as a Certificate of Weight Discrepancies and are reflected in the accounting books.