A Comprehensive and Large-Scale Reform of Banking Regulation –Dentons on the New Banking Law
Opinion of Vasily Zenov, Partner and Head of the Banking and Finance Practice at the international law firm Dentons, on the draft of the new law on banks and banking activities.
The draft Law of the Republic of Kazakhstan “On Banks and Banking Activities”, currently under consideration by Parliament, represents a major and comprehensive reform of banking regulation aimed at enhancing the stability of the financial system, promoting competition, and introducing advanced international regulatory standards.
The document covers the various key areas of modernization of the banking sector. Among them are the reform of the licensing system and the transition to the principle of proportional regulation, which will make it possible to take into account the scale, specific nature, and risk profile of each bank.
Particular attention is devoted to improving corporate governance, including raising requirements for independent directors and strengthening their role in ensuring transparency and balance in decision-making processes.
The draft law also provides for a significant strengthening of consumer protection in financial services through the introduction of a comprehensive system of conduct supervision designed to prevent unfair practices and enhance the accountability of financial institutions to their clients.
Another important area of reform focuses on digitalization and the introduction of fintech solutions in the banking sector, which will help accelerate technological development and improve overall efficiency.
In addition, the draft law envisages the further development of Islamic finance—in particular, allowing traditional banks to open “Islamic windows”, thereby expanding access for individuals and businesses to products compliant with Sharia principles.
The draft law places particular emphasis on strengthening the mechanisms for preventing and resolving crisis situations in the banking system, including introducing new approaches by the regulator to address insolvent and potentially insolvent banks. It establishes a modern, three-tier framework for responding to (potential) financial instability—ranging from enhanced supervision and measures to restore financial soundness, to full-scale bank resolution procedures.
A key principle of the reform is that shareholders and unsecured creditors should bear losses first in the event of a bank’s insolvency or potential insolvency, reflecting their primary responsibility for the bank’s financial condition.
The law also enshrines the principle of minimal state involvement in the resolution of banking problems. Public support will be allowed only for systemically important banks, and only in exceptional cases where the stability of the entire financial system is at risk.
Furthermore, any state losses incurred in the course of a resolution must subsequently be reimbursed through contributions from the banking sector as a whole. This approach is consistent with international best practices, including, among others, the recommendations of the Financial Stability Board (FSB) set out in its Key Attributes of Effective Resolution Regimes for Financial Institutions.
The adoption and implementation of the new law is expected to bring Kazakhstan’s banking regulatory framework considerably closer in line with global standards of financial stability, strengthen investor confidence in the country’s banking sector, and create a solid foundation for its long-term, sustainable development.