Uzbekistan is moving towards opening its local debt market up to international investors to create a new source of funding. Similar innovations have already been carried out in several emerging markets in Emerging Europe, with adding Ukraine to the Clearstream international settlements and payments system being the outstanding access. bne IntelliNews talks to Bahodir Atakhanov, the chairman of the National Association of Investment Institutions (NAII) about the progress in carrying out a similar reform for the Uzbek capital markets.

Who is the regulator of the capital market of Uzbekistan?

In September 2023, state regulation of the capital market of Uzbekistan was transferred to the National Agency for Prospective Projects (NAPP), which was formed in April 2022 on the basis of the National Agency for Project Management under the President of Uzbekistan (NAPM). From May 2021 to September 2023, the regulator of the securities market of Uzbekistan was the Ministry of Finance of the Republic of Uzbekistan (later renamed the Ministry of Economy and Finance) .

It is worth noting here that the Central Bank and the State Asset Management Agency (SAMA) also have separate regulatory powers.

In case of disagreements between these three organizations, the final decision is taken at the level of the Cabinet of Ministers or the Administration of the President of Uzbekistan. Very rarely do such disputes become known to the public.

Our association is a non-governmental organization, and our rules are applied only to association members. We hope financial industry associations such as NAII soon will have separate regulatory powers in their sphere, the same as functions granted for associations in auditing, real estate, and appraisal activities. Our vision is to become systemically important organizations following the example of SROs in the USA, the UK, and the EU.

What innovations have been made with the transfer of functions for regulating the securities market to the Agency?

To begin with, I would like to note that in Uzbekistan the legal environment is structured in such a way that most of the regulatory requirements are established by by-laws, i.e. decisions of the President, Government, and ministries and departments. Thus, to enter the Uzbek market it will be absolutely insufficient to know the Constitution, the Civil Code, company law, the law on the securities market, and industry laws.

By the Decree of the President of Uzbekistan dated September 2, 2023, a special legal regime “Regulatory Sandbox” was introduced in the field of the capital market. This Decree defined the basic concepts operating within the framework of this “Regulatory Sandbox”, the rules of activity of foreign participants, as well as mechanisms for ensuring the confidentiality of information about the owners of securities.

At the end of January 2024, the regulator adopted the procedure for providing a special legal regime “Regulatory Sandbox” in the field of the capital market that was developed with the involvement of the Advisory Council created under the regulator (NAPP) and consisting of representatives of the association, the stock exchange, academia, and foreign experts.

Currently, the regulator, together with the Advisory Council, is working to create a procedure for opening and administering individual investment accounts (IIA), where people can accumulate tax-exempt income, to use it to purchase securities on the local stock exchange. The regulator is also taking measures to resolve the problem of delays in the payment of dividends and coupon income on shares and corporate bonds by introducing centralized payment through the Central Securities Depository and nominal holders (brokerage companies) of these shares and corporate bonds.

In pursuance of the President's resolution of September 2023, the former and new capital market regulators are working to develop a procedure for applying the preemptive right of employees to purchase stocks of an employer company when it goes public by having an IPO (ESOP). At the same time, employee funds allocated for the purchase of the company shares are subject to exemption from income tax.

In addition, work is underway to develop a procedure for citizens to direct their pension contributions from their salaries to purchase securities, with the right to dispose of income in the form of dividends (interest) until they reach retirement age. Worth mentioning that the pension system in Uzbekistan is centralized and administered by the Ministry of Finance.

Why are regulatory sandboxes needed and in what areas are they already used in Uzbekistan?

Over the past 7 years, incredible administrative reforms have been undertaken in Uzbekistan that catalyzed all political, economic, and social processes in the country.

The most significant event in recent years has certainly been the provision of an opportunity for open discussion in the media and social networks of the initiatives proposed by the authorities and the reforms being implemented. I think these discussions have made it clear that entrepreneurs and investors are having difficulty adapting to the rapidly changing legal environment. It is obvious that the legislation of Uzbekistan also does not keep up with global trends in some areas, especially in financial technologies and financial engineering.

In this regard, the government decided to widely apply a preferential legal environment. As far as I know, in the period from 1996 to 2022, such preferential treatment applied only to free economic (industrial) zones (currently the number of SEZs and other special industrial zones in Uzbekistan exceeds 700).

According to the amendment to the Law “On the Central Bank of the Republic of Uzbekistan”, introduced in April 2022, the Central Bank has the right to establish a special legal regime “Regulatory Sandbox” (SLR) for testing new financial transactions, technologies, and services by legal entities in a limited controlled environment (coverage area, testing period, number and (or) volume of transactions and services, number of consumers).

But later, the President of Uzbekistan, by his decree dated November 9, 2022, No. UP-244, agreed to the introduction of SLR starting from January 1, 2023, in other industries and areas. He defined that starting from January 1, 2023:

a) within the framework of the SLR, business entities are allowed to:

• not to comply with the norms of certain legal acts within the limited time, territory, and persons;
• carry out activities without licensing and passing permitting procedures, except for licenses and permitting documents containing state secrets and other confidential information;

b) The SLR is introduced separately for each project by signing an agreement between the authorized state body and the project initiator, which defines the terms and conditions for the implementation of the project, a list of legal norms that do not apply to the initiator, as well as evaluation criteria (indicators) of the project results. At the same time, the longest period of validity of the SLR for each project is three years;

c) upon expiration of the validity period of the SLR, the relevant authorized state body, within a month, conducts an analysis regarding the feasibility of introducing proven products and services, and, if necessary, develops and makes proposals for improving legislative acts.

It should be noted that NAPP introduced the SLR as one of the first in the country - back in 2022, and this regime extended to the crypto-asset market. One of the first projects within the SLR is the introduction of NFTs.

What rights do foreign brokerage companies and foreign custodians have within SLR?

Within the framework of a SLR in the field of capital market :

• foreign investment intermediaries can also act as intermediaries in the securities market of Uzbekistan;
• foreign nominee holders carry out their activities in Uzbekistan without obtaining a separate license or corresponding permit, creating a branch or a new legal entity, or without participating in the authorized capital of a local legal entity;
• foreign nominee holders can open accounts for securities and carry out their activities in Uzbekistan directly or through an agent;
• foreign nominee holders, including custodian banks, are allowed to open accounts with the Central Bank of Uzbekistan in foreign and national currency;
• Non-resident legal entities selling (buying) securities at trading systems are allowed to open accounts in national currency in commercial banks of Uzbekistan;
• it is allowed to issue corporate bonds denominated in foreign currencies and make related payments in USD, Euros, or other currencies;
• foreign nominee holders are not considered beneficial owners of securities or funds accounted for in their accounts opened in Uzbekistan;
• transfer of securities from a foreign nominee account (or to a foreign nominee account) by free of-payment transfer of securities (FoP) is not considered a sale of these securities and does not create a tax liability for any of the parties if a beneficial owner of this securities doesn’t change.

May investment companies and foreign investors from any country become participants in the Regulatory Sandbox?

No, the regulator determined that only a legal entity registered in 36 developed and developing countries, including China and separately Hong Kong, as well as Georgia and Armenia, can be a participant in the SLR in the field of capital markets.

Why are Georgia and Armenia included in this list, but Russia, Kazakhstan, and Belarus are not?

Why Russian and Belarusian companies cannot take advantage of the preferential legal regime in the capital market of Uzbekistan is not difficult to understand, given the restrictive political and economic measures imposed by states and international organizations in relation to Russia and Belarus.

Kazakhstan has its own International Financial Centre - “Astana”, where a special legal regime operates. Astana IFC has its special regulator - Astana Financial Services Authority (AFSA) and AIFC Court. The AIFC strives to become a regional financial centre, and thanks to the conditions created companies from other Central Asian countries, including Uzbekistan, began to use services within the AIFC.

As for providing preferential opportunities in the capital market for Georgian and Armenian companies, I think the regulator has its own vision in this regard.

Considering the legal features you mentioned in Uzbekistan, can foreign investors use the mediation or arbitration procedure to resolve emerging disputes as an alternative to proceedings in the economic courts of Uzbekistan?

Certainly. There are three separate Laws of Uzbekistan - on arbitration courts, on mediation, and on international commercial arbitration.

Also, the Law “On Investments and Investment Activities” ( dated December 25, 2019) states that “a dispute related to foreign investment and arising from the investment activity of a foreign investor (investment dispute) in the Republic of Uzbekistan is resolved through negotiations. If the parties to the investment dispute are unable to reach an agreed settlement of the dispute through negotiations, such a dispute should be resolved through mediation”.

In addition, the Law “On the Privatisation of State Property”, signed by the President on February 14, 2024, stipulates that in the event of non-fulfilment or improper fulfilment of obligations under the purchase and sale agreement of privatised state property, the parties have the right to take measures to conduct mediation procedures.

Certain provisions regarding mediation are also envisaged in the Economic Procedure Code of Uzbekistan.