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Simple and Complex Financial Instruments in the AIFC: When and Why to Use Them

30.04.2025

Simple and Complex Financial Instruments in the AIFC: When and Why to Use Them

Ramadan Khairullin

CEO, Law Council Group

Yerbol Nazhmidenov

Legal Adviser, AIFC Legal Services Board

Lawyer and Partner at the Law Council Group law firm

www.lcg.kz


Introduction


The Astana International Financial Centre (AIFC) offers a unique legal and regulatory environment for financial transactions in Kazakhstan. Established by a 2015 Constitutional Law, the AIFC operates as an independent jurisdiction within Kazakhstan, with its own courts and regulations based on English common law. Within this environment, a wide range of financial instruments – from straightforward obligations to sophisticated derivatives – can be utilized by businesses and investors. This article provides a scholarly analysis of simple and complex financial instruments in the AIFC context, examining their definitions under AIFC law, the governing legal/regulatory framework, and practical case studies of key instruments such as guarantees, derivatives, and hedging tools.


AIFC’s Legal and Regulatory Framework


The AIFC’s legal framework is designed to facilitate financial activities with robust legal certainty and investor protection. The AIFC was created as a “special legal regime” within Kazakhstan, underpinned by its own acts and independent judicial system modeled on English common law (Norton Rose Fulbright, 2018). The Astana Financial Services Authority (AFSA) serves as the independent regulator for financial services in the AIFC, empowered to authorize and supervise firms and to administer AIFC regulations and rules (AFSA, 2024a). This framework enables businesses in the AIFC to operate under clear rules akin to those in London or Dubai, including modern regulations for securities, banking, insurance, and fintech. Companies in the AIFC benefit from a regulatory environment based on international best practices, a robust financial framework, and an independent court system for dispute resolution. Crucially, AIFC law allows even non-AIFC transactions to choose AIFC law as the governing law, reflecting its integration into Kazakhstan’s legal system and the confidence it inspires in international investors (Kinstellar, 2024). For legal professionals, this means the AIFC offers a familiar common-law based set of rules and precedents, reducing uncertainty in complex transactions. Within this framework, the AIFC has promulgated a comprehensive set of regulations that distinguish between different types of financial instruments. Among these are the AIFC Conduct of Business (COB) Rules and AIFC Market Rules, which define categories of financial products and set requirements for their use. An important distinction made in AIFC regulation is between non-complex (simple) instruments and complex instruments, especially in the context of investor protection.


Defining Simple vs. Complex Financial Instruments in AIFC


Simple instruments: In AIFC practice, “simple” financial instruments are those deemed non-complex investments under AIFC rules. According to guidance in the AIFC COB Rules, an investment is non-complex if it meets certain criteria: (a) it is not a derivative or a security with embedded derivative features; (b) it is readily realisable – there are frequent opportunities to sell or redeem it at prices publicly available or independently validated; (c) it does not expose the investor to potential liability beyond the cost of acquisition (no margin or leverage risk); and (d) its characteristics are well-understood and publicly disclosed such that an average retail client can make an informed decision (AIFC COB, 2025). Typical examples of simple financial instruments include common shares traded on a stock exchange, plain-vanilla corporate or government bonds and traditional bank deposits or certificates. These instruments have straightforward payoffs and risks, and their values do not depend on complicated contingencies or underlying asset price movements beyond the instrument itself. The AIFC’s regulations consider such instruments appropriate for a broad range of investors, including retail clients, due to their transparency and limited complexity.


Complex Instruments: By contrast, complex financial instruments generally refer to products whose value or payoffs depend on the behavior of underlying variables or involve leveraged risk exposure. In the AIFC, derivatives and certain structured products are complex instruments. The COB Rules explicitly note that contracts “determined by reference to the movement of the value or price of an underlying reference” are complex and carry high risks (2025b). In practice, this category includes instruments like options, futures, forwards, swaps, and any securities that embed derivative components or contingent payoffs. Complex instruments may also encompass certain hedge funds or structured notes that lack the liquidity or transparency of plain stocks and bonds. These products often involve leverage or margin (meaning losses can exceed the initial investment), or they may have limited liquidity and pricing transparency. Because of their nature, AIFC regulators impose additional investor protection measures when complex instruments are offered. For example, AFSA requires that retail clients pass an appropriateness test before trading derivatives, to ensure they understand the risks involved (AIFC COB, 2025). Firms must provide clear risk warnings highlighting that derivative trading “has a high probability of… losing money rapidly” due to leverage and market volatility. In summary, the AIFC aligns with global standards such as MiFID in the EU in classifying any derivative or leveraged product as complex, while treating readily understood investments (equities, non-derivative debt instruments, etc.) as non-complex. This classification guides when and how each instrument can be used and sold in the Centre.


Conclusion


Understanding whether a financial instrument is simple or complex is crucial for legal practitioners because it determines the regulatory requirements and suitability checks that apply. Simple instruments can typically be offered to investors with standard disclosures. Complex instruments, however, trigger stricter rules: detailed disclosures of key features and risks, regulatory approval of offering documents, and limitations on sales to retail investors unless certain conditions are met. Simple instruments – equity, debt, and guarantees – tend to be the building blocks of finance, favored for their clarity and ease of use. They are employed in the AIFC when transparency and straightforward obligations are paramount, and they benefit from the AIFC’s solid legal infrastructure (e.g. enforceable contracts and readily available dispute resolution). Complex instruments – notably derivatives and structured products – offer sophisticated tools for risk management and investment strategy. In the AIFC, their usage is carefully regulated but encouraged within a framework that assures global standards of safety through risk disclosure, appropriateness tests, and netting enforceability. They are chosen when the financial objective requires nuance, such as hedging against market fluctuations or achieving tailored exposures that simple instruments cannot provide. A successful outcome often involves combining simple and complex instruments in a complementary way – for example, using a straightforward loan agreement backed by a derivative hedge and a parent guarantee to comprehensively address a client’s financing and risk management needs. By leveraging the AIFC’s modern legal framework and drawing on case experiences within the Centre, lawyers can guide clients on when to use these instruments and why they add value. In doing so, they contribute to the AIFC’s mission of being a leading financial hub that marries legal certainty with innovative financial solutions.


References


Astana International Financial Centre. (2025). AIFC Conduct of Business Rules (Version 14, in force 01 Jan 2025). Astana: AFSA. (Retrieved from AIFC official website).


Astana International Financial Centre. (2023). AIFC Market Rules (AIFC Rules No. FR0003 of 2017, as amended to 01 Jan 2023). www-aix-kz.s3.eu-central-1.amazonaws.com


Astana Financial Services Authority (AFSA). (2024, December 25). AFSA introduces enhancements to the AIFC Derivatives Framework aifc.kz


AIFC News. Retrieved from https://aifc.kz/news/ (official AIFC website).


Astana Financial Services Authority (AFSA). (2023). Astana International Financial Centre achieves ISDA recognition as a netting-friendly jurisdiction afsa.aifc.kz Retrieved from AFSA website: https://afsa.aifc.kz/ (AFSA News release).


Freedom Holding Corp. (2024, September 12). Guarantee Agreement No. (exhibit to bond offering)
ir.freedomholdingcorp.com
. (Retrieved from Freedom Holding Corp. SEC filings; pertains to AIX-listed bond guaranteed by parent).


Kinstellar. (2024, September). Purpose of the Astana International Financial Centre (AIFC) and application of AIFC Law in Kazakhstan. https://www.kinstellar.com/news-and-insights/detail/2971/purpose-of-the-astana-international-financial-centre-aifc-and-application-of-aifc-law-in-kazakhstan


Norton Rose Fulbright. (2018, April). Inauguration of Astana’s International Financial Centre
nortonrosefulbright.com
. Norton Rose Fulbright Publications. (Provides overview of AIFC legal framework and governance).


International Monetary Fund (IMF). (2002). The Role of Financial Derivatives in Strengthening Financial Markets
elibrary.imf.org
. In IMF Global Financial Stability Report. (Note: Derivatives commonly used to hedge price, FX, interest rate, and credit risks).


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