In the spring of 2018, the Astana International Financial Centre (AIFC) developed and approved the Concept for regulating the virtual assets market and the private placement of securities. Four years later, a pilot project based at the centre was launched, involving bitcoin exchanges and banks that gained the right to legally conduct cryptocurrency transactions.
Kazakhstan aims to become a regional crypto hub; however, to achieve this the country must improve regulatory oversight of the industry and mitigate risks amid shrinking market capitalization and a string of bankruptcies of major international companies.
ForkLog spoke with Yagub Zamanov, director of the Department of Financial Technologies at the AIFC’s Committee for Regulation of Financial Services, about new regulatory acts for bitcoin exchanges, the development of local startups, and the FTX collapse.
ForkLog (FL): Hello, Yagub. In April, the Kazakhstani financial regulator announced the initiative to create and develop exchanges based at the AIFC. How many cryptocurrency-related companies have obtained licenses from the centre so far?
Yagub Zamanov (Y.Z.): As of today we already have nine licensed providers. Most of them are crypto exchanges: ATAIX, Biteeu Eurasia (Intebix), Binance, CaspianEx (Top Line), Upbit, Xignal&MT and Eurasia Blockchain eXchange; crypto broker QuantDART FinTech Limited, and also the tokenized securities exchange Bitfinex Securities.
As for miners, they are not within our regulatory scope.
Many jurisdictions tie the AIFC only to crypto exchanges, but we issue licenses to other participants who work with digital assets. Our task is to create a regulatory regime that takes into account the interests of all players.
FL: Some of the listed trading platforms participate in a pilot project with commercial banks. What does it entail?
Y.Z.: Exchanges have gained access to second-tier banks and can now open bank accounts, accept fiat currencies from clients, exchange them for digital assets and vice versa.
The pilot includes crypto exchanges ATAIX, Intebix, Binance and five banks: Halyk, Freedom, Altyn, Eurasian and NurBank.
Intebix, in cooperation with Eurasian Bank, has announced plans to issue a crypto card. It could be a fairly interesting product for the market.
Overall, the pilot operates under the strict supervision of a working group comprising representatives of the AIFC, the National Bank of Kazakhstan, the МЦРИАП, АРРФР and АФМ. By the end of 2022 we will provide more detailed results of this interaction.
FL: Does access to crypto exchanges mean any Kazakh citizen can participate? Are there limits on investment amounts?
Y.Z.: Within the pilot we distinguish retail and professional investors. Retail investors are further divided into qualified and unqualified.
The first are typically beginner investors in digital assets. For them a monthly limit of $1,000 applies, i.e. $12,000 per year. An unqualified retail investor has the right to deposit assets only within this limit.
To become a qualified retail investor, it is enough to pass a test on the exchange site, show the necessary experience, knowledge and back it up with certificates. For such investors the limits no longer apply.
We consider professional investors to be licensed participants of the crypto market, such as brokers.
FL: Are there Bitcoin terminals on the AIFC premises?
Y.Z.: There are no such terminals on the AIFC territory. But I do not rule out that at some stage of market development they may appear here as well.
FL: Does the AIFC offer tax incentives to its participants? Who do they apply to?
Y.Z.: Licensed market participants are exempt from paying personal income tax until 2066. This was established by a joint act between the AIFC and the Ministry of Finance of Kazakhstan.
These incentives do not apply to ordinary companies registered within the centre as legal entities. A licence is mandatory in such a case.
FL: What other advantages do residents of the centre have?
Y.Z.: Within the AIFC there is a common-law-based legal framework. It is fairly extensive and covers most questions that may arise for providers of digital asset services. In addition, we have the AIFC Court, capable of applying precedent-based law in its proceedings.
Additionally, licensed participants form a community with other market players. Crypto exchanges can stay in touch with one another and present a united front on issues of interest.
FL: Have you noticed interest from traditional financial organisations in cryptocurrencies?
Y.Z.: Operations with digital assets are a new sphere of activity for both the second-tier banks and for the country as a whole. Even by looking at the pilot project, there are more banks involved than crypto exchanges. This allows them to gain knowledge from crypto holders and access to new technologies.
Going forward, after the successful completion of the pilot, we hope to see interest from other traditional financial market participants as well.
FL: How much has Kazakh citizens’ activity in purchasing cryptocurrencies grown?
Y.Z.: Specific figures can be provided after the project results are tallied. But even excluding the AIFC from this equation, interest in cryptocurrencies in Kazakhstan has always existed. It rose especially on the waves of mining popularity.
I am confident that the ability to use one’s bank accounts for official cryptocurrency purchases is a fairly good option for citizens who actively use exchange services.
FL: Has the number of blockchain startups in the country increased?
Y.Z.: If we consider the blockchain technology itself, there could be an absolute multitude of projects, not necessarily tied to financial services. Their teams are typically very progressive and offer innovative products. Interest in developing this area has always been high.
Bitcoin emerged after the 2008 crisis, at a difficult moment for the market of traditional finance. Therefore many people hoped for cryptocurrency to replace money, enable greater decentralisation, and transparent transactions without intermediaries and oversight. But in the end this did not happen, and today Bitcoin is seen more as an investment instrument than as a means of payment.
Perhaps the current crisis in crypto markets will affect the number of crypto startups, but I think this will be more of a filtering than the collapse of the entire industry.
FL: What do you see as the main benefits of developing the crypto market for Kazakhstan’s economy?
Y.Z.: First and foremost, these are new technologies that, with the arrival of larger players and the development of local startups, eventually enter everyday life.
Secondly, jobs. A promising youth that believes in the idea of digital assets now has the opportunity to work for crypto exchanges, major players, local and foreign startups. This is a matter of employment.
Thirdly, despite the existing incentives, tax revenue from employees of cryptocurrency companies still flows into the budget.
And, of course, the second-tier banks, in partnership with bitcoin exchanges, exchange experience and gain new competencies.
I am convinced that in the future we will see other benefits from the digital assets industry.
FL: Does Kazakhstan benefit from the arrival of large players in the market? Perhaps the AIFC has already received new license applications from well-known crypto projects?
Y.Z.: Kazakhstan always benefits when big names appear in a jurisdiction. The arrival of a large investor automatically multiplies all the positive effects listed above. Attracting investments is exactly what the AIFC was created for.
At the same time, the centre gives Kazakh startups the chance to develop and evolve into large companies. It also provides a stimulus to the entire industry.
Information on new license applications cannot be disclosed yet; I would only note that there is interest in the jurisdiction.
FL: Before the pilot launch, the Ministry of Digital Development, Innovations and Aerospace Industry of Kazakhstan stated that its goal was “to develop the country’s potential as a regional crypto hub.” What stage is this work at now?
Y.Z.: To become a regional crypto hub, work must be done, primarily to create favourable regulatory conditions. If these conditions exist, then interest from major investors in the jurisdiction will appear. It will not happen on words alone.
FL: When it comes to regulation, what fresh initiatives is the AIFC preparing regarding the market for crypto assets?
Y.Z.: Since 2018 the centre has continued to strengthen the legal regime and now we are working on a rulebook for digital asset platforms. This is a centralised set of rules for crypto exchanges.
We will conduct market consultations to further refine these rules.
At present we have approved a Policy Paper – a document outlining the main approaches and principles for providing financial services by crypto exchanges based at the AIFC.
Within the next week or two we will publish it on the website for public consultation with the option to leave comments.
FL: The previous months in the crypto market were marked by a series of major bankruptcies, including the FTX collapse. In light of this, what are the main risks the AIFC identifies and how does it plan to counter them?
Y.Z.: The biggest problem with FTX was the absence of adequate regulation, which allowed improper use of client funds for its own purposes. As a result, the exchange lost a lot of assets and eventually filed for bankruptcy.
But the problem of regulating the crypto market will not be long-lasting. Regulators in many jurisdictions have already implemented specialised legislation. For example, in the EU they recently agreed on MiCA, as well as Transfer of Funds Regulation, which covers questions of transfers between service providers.
Nearly all regulatory regimes address risk mitigation questions related to activities involving digital assets.
As for the AIFC, in 2018 the first seeds of a regulatory regime for digital assets appeared. Now, both within the pilot project and within the future regulatory framework, we take international practice into account and seek to anticipate existing risks.
Interview by Lena Jess.
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