The law targets new payment systems and markets and improves the existing payment rules.
In fall 2016, a new Law titled On Payments and Payment Systems (the Law), took effect in Kazakhstan. Upon the Law’s enactment, the previous Law, On Payments and Money Transfers, dated June 29, 1998, was abolished. The Law regulates relations regarding payment systems’ organization and functioning, payment services market regulation, and payments and/or money transfers made in Kazakhstan. The National Bank of Kazakhstan (NBK) is the authority in charge of regulating these issues.
We summarize the Law’s key novelties below.
The major novelties in the Law concern the regulation of payment systems. Such regulation would establish a previously lacking control over the market of instant payments that operators receive from individuals in cash via payment terminals.
a) New Terms
The Law provides for the following new key terms with regard to the payment systems regulation:
- Payment system (PS)—cumulative relations on payments and/or money transfers through interaction between the PS operator and/or PS participants using the procedures, infrastructure, and rules established by the PS operator
- PS operator—a legal entity that maintains PS and performs statutory obligations related to such activity
- PS participant—a bank or entity that carries out certain types of banking operations and is a party to a PS participation agreement with the PS operator
- Payment organization—a Kazakhstan commercial legal entity being eligible under the Law to render payment services
b) The PS Operator’s Activity
When the PS operator establishes its own PS or launches a foreign PS in Kazakhstan, it should notify (while enclosing relevant documents) the NBK. The Law provides a 10-day notification period after the PS establishment / launch in Kazakhstan.
A bank/organization that carries out certain banking operations should notify (enclosing relevant documents) the NBK about the bank/organization’s participation in the PS, including a foreign one, within 10 days of entering into an agreement with the PS operator.
The Law sets out various obligations for the PS operator. For example, a PS operator should furnish the NBK with the information and reports, including information about volumes of payments that major clients of the PS participant made. The PS operator should also arrange for the PS performance review and for the review results to be published on the PS operator’s website.
The Law’s transitional provisions provide that payment organizations and PS operators must comply with the Law within six months from its official publication date (i.e., by February 11, 2017).
c) Types of PSs
The Law establishes the following PS types:
- Systematically important PS—a PS used for payments and/or money transfers relating to monetary obligations of the participants of securities markets and/or foreign exchange markets in Kazakhstan, and for payments and/or money transfers under the NBK’s national monetary policy
- Important PS—a PS that meets any of the criteria established by the Law (mainly, meeting payments’ and/or money transfers’ threshold criteria via the respective PS, as established by the NBK)
- Other PS—a PS that is neither systematically important nor important
PS type is determined by the NBK (based on the PS’s performance review) or by written request from the PS operator. The NBK should, within five working days, enter the PS into the PS register, publish this information on the NBK’s website, and notify the PS operator of its type.
Depending on PS type, PS operators should submit certain reports and information to the NBK. PS operators are also required to publish on their websites the PS performance review to participants’ satisfaction with quality of rendered services, as well as key results of the PS performance self-assessment, which should cover PS compliance with international standards. These efforts will increase transparency of PS operators’ activities. The information about performance and compliance or noncompliance with international standards will stimulate competition at the payment services market. All this will promote development and increase the payment services’ quality.
Payment Services and Payment Service Providers
The Law contains some novelties relating to payment service types’ systematization, sets requirements for payment service providers, and makes it possible to render payment services through agents or subagents (which, ideally, should promote mobile banking market development).
According to the Law, the following providers are eligible to render payment services:
- The NBK
- Organizations that carry out certain banking operations
- Post office operators who make postal money transfers
- Payment organizations
- Paying agents—legal entities that entered into an agency agreement for payment services with a bank, organizations that carry out certain banking operations, or payment organizations
- Paying subagents—legal entities or sole proprietors that entered into an agency agreement for payment services with a paying agent
Payment services in Kazakhstan are provided on the basis of an NBK-issued license (e.g., banks) or through registration with the NBK (all other payment organizations). However, this requirement does not apply, for example, to a paying agent or subagent.
The Law provides for the NBK registration procedure, grounds for refusal of registration, and the deregistration procedure. The registry of the registered payment organizations, and information on removal from the registry, should be published on the NBK’s website.
The NBK classifies a payment service provider that meets certain criteria as an important payment service provider, and the NBK notifies the provider of such classification. The Law imposes further obligations on an important payment service provider. These further obligations include, inter alia, (a) the need to determine a risk-management system with respect to the risks attributable to the activity of the important payment service provider, (b) due reporting to the NBK on rendered payment services, and (c) evaluations of quality of rendered payment services and furnishing the results of evaluation to the NBK.
As a general rule, a payment organization (including payment service providers, as per the catch-all definition of “payment organization” in Article 1(61) of the Law), is not permitted to carry out entrepreneurial activities other than those that the Law permits. In our opinion, the Law is not well developed in this respect, and certain providers interested in the provision of payment services per present-day market trends will encounter obstacles. For example, the list of permitted entrepreneurial activities defined by the Law does not include mobile communication services, which suggests that a mobile operator is not permitted to act as a paying agent. However, once an organization that carries out certain banking operations or any other payment organization enters into an agency agreement for payment services with a bank, the mobile operator will act as a paying agent and will be considered a “payment organization.” This will prevent the operator from further provision of mobile services, because this type of service is not included in the list of permitted entrepreneurial activities for payment organizations.
We assume that the Law’s authors had no intention to exclude the most probable players with an extensive client base, such as mobile operators, from the list of payment service providers. More likely, the terms “payment service provider” and “payment organization” were not meant to be identical, which, however, does not follow from the Law’s new version.
Payments and Money Transfers
In general, the Law preserves old provisions that regulate payments and money transfers. The novelties to note include the following:
- A client may open a bank account (current or savings) in the “escrow account” regime in the name of a third party, restricting the right of such party to make any withdrawals from the bank account until occurrence, or satisfaction by such third party, of conditions that the client specifies. If a third party (in whose name the escrow account is opened) fails to perform those conditions, and upon expiry of the term for occurrence or performance of conditions under the bank account agreement, the bank returns money to the client that has opened the escrow account. The money on the escrow account may be forfeited only in accordance with a court order.
- Introduction of a new type of payment instruction, a “standing order”, to make regular payments and/or money transfers on a fixed date and/or at regular intervals. This type of payment instruction has been used by certain banks before the Law’s enactment. Now the Law regulates its use. The NBK will likely adopt a new regulatory act to determine form and requirements for the contents of a standing order.
- Obligation of banks to submit to state authorities and courts via the e-gov web portal the information about payments and/or transfers to the budget, mandatory pension contributions, mandatory professional pension contributions, social contributions, and public service payments.
- A payment service provider may not unilaterally increase a service fee, except for international payments and/or transfers—the payment service provider should notify the client about the fee change within the terms and in accordance with the procedure provided for in the agreement between them.
- It is prohibited to forfeit the funds held on the bank accounts used for receiving benefits, allowances and social payments from the state budget and/or state social insurance fund, housing payments, funds deposited on the terms and conditions of a notary’s deposit, and funds placed on an account under obligatory savings deposit agreement.
- A bank account may be closed even if it has a balance. In such case, a bank or organization carrying out certain banking operations may transfer the balance amount to the notary’s deposit account and close the client’s bank account.
- The payment order execution period is reduced because of the procedure’s exclusion for its acceptance by the recipient’s bank. The sending bank should execute the payment order in the form of a payment instruction, payment request, payment advice, or payment order within one transaction day after the receipt date, except for the cases stipulated by the Law (starting June 1, 2017, the order should be executed on the same day). Previously, the term for order execution was four transaction days.
- The beneficiary’s bank should return money received in connection with any unauthorized or wrong payments by withdrawing funds from the beneficiary’s bank account, without such beneficiary’s consent. The return should be completed no later than the next transaction day after the fact of unauthorized or wrong payment has been discovered, at the expense of money on the beneficiary’s bank account. In a case where the beneficiary’s bank account has insufficient or a lack of money, funds should be returned by the remitter who has given wrong instruction or made unauthorized payment and/or transfer. This will be done at his or her own expense, within the terms and in the procedure that the NBK established.
The Law’s adoption has caused respective changes and amendments to several other rules and regulations in the Republic of Kazakhstan.