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A number of significant amendments in the regulation of the banking and finance sector of the Republic of Azerbaijan were made in the first half of March 2016.
On 10 March 2016, the President of the Republic of Azerbaijan signed a decree approving the charter (the “Charter”) of the newly established Chamber for Control of Financial Markets (the “Chamber”). The Chamber assumed the functions of the following now-defunct state bodies: the State Committee for Securities, the State Insurance Supervision Service of the Ministry of Finance and the Financial Monitoring Service under the Central Bank.
Under the Charter, the Chamber is a public legal entity that licenses, regulates and supervises participants of the securities market, investment funds, insurance and credit organizations (banks, non-banking credit organizations and postal operators) and payment systems and ensures transparency and flexibility in its supervision.
The Chamber can adopt legal acts regulating the financial markets, issue and revoke licenses of the participants of the financial markets, and carry out inspections of said participants.
The Chamber is exempt from taxes but cannot engage in business activities, and its revenues are used to fund its operation.
The activities of the Chamber are supervised by the Board of Directors, which consists of five members. It is headed by Mr. Rufat Aslanli, former chairman of the now-defunct State Committee for Securities of the Republic of Azerbaijan.
The day-to-day activities of the Chamber are supervised by the Management Board, a six-member panel.
The Central Bank of the Republic of Azerbaijan (the “Central Bank”) has lost the vast majority of its functions. This happened pursuant to the amendments to the law On the Central Bank approved by the President of the Republic of Azerbaijan on 10 March 2016.
The Central Bank has been transformed from a state body to a public legal entity, and its charter capital has been transformed into the charter fund.
The Central Bank's goals have been reduced to the organization and maintenance of the centralized interbank and other payment systems, as well as maintenance of the banking system's stability. The Central Bank, however, continues to participate in state monetary and currency policy.
In addition, the Central Bank has remained the so-called lender of last resort, which means that the Chamber may apply to the Central Bank for a loan for up to six months to maintain the financial solvency of a bank, and the Central Bank must consider this application within two days.
Pursuant to the amendments to the law On Currency Regulation approved by the President of the Republic of Azerbaijan on 9 March 2016, currency regulation functions were passed from the Central Bank to the Chamber.
The amendments also established that the Chamber will adopt rules on opening foreign currency bank accounts outside Azerbaijan for financial markets participants (licensed participants of the securities market, investment funds, insurance and credit organizations), while the Central Bank may adopt such rules for other residents.
Pursuant to the law On Full Insurance of Deposits approved by the President of the Republic of Azerbaijan on 1 March 2016, any amounts of deposits in national or foreign currency are subject to full insurance. The maximum insured interest rate is currently 12 percent for national currency deposits and 3 percent for foreign currency deposits.
Most of the powers for supervision of deposit insurance matters have passed from the Central Bank to the Chamber.
Altay Mustafayev is a partner in Baker & McKenzie's Baku office. He can be reached at Altay.Mustafayev@bakermckenzie.com. Jamil Alizada is an associate in Baker & McKenzie's Baku office. He can be reached at Jamil.Alizada@bakermckenzie.com.
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