New insurance mechanism for securities purchases to be introduced in Azerbaijan

A new insurance mechanism will be implemented for securities purchases in Azerbaijan, according to Murad Yahyayev, Executive Director of the Azerbaijan Stock Market Participants Association (AFBIA). This announcement was made during a joint event hosted by AFBIA and the Azerbaijan Construction Materials Manufacturers Association (ATMIA), Azernews reports.

Yahyayev explained that proposed legislative changes are in progress to introduce an insurance mechanism similar to deposit insurance for securities transactions. Once enacted, this mechanism will protect investors in the event of a company's bankruptcy, ensuring they can recover their invested funds much like depositors in banks. "This initiative is crucial for stimulating the capital market," Yahyayev noted.

Currently, from April 2021, individual deposits of up to 20,000 manats for entrepreneurs and 100,000 manats for regular citizens are insured. The insurance covers deposits in foreign currency up to an equivalent of 100,000 manats. Since June 1, 2020, the annual insurance rates have been set at 12% for manat deposits and 2.5% for foreign currency deposits.

The draft amendment to the "Insurance of deposits" law aims to extend this insurance to investments in securities and financial instruments, providing protection against the risk of loss from investment companies' insolvency. The new investment insurance mechanism will be developed by the Central Bank and the Deposit Insurance Fund (DFI), with implementation managed by the Financial Insurance Fund (FIF).

Established on August 12, 2007, the Deposit Insurance Fund (DFI) currently has 23 participating banks. These banks pay a one-time membership fee and annual calendar fees based on the average daily balance of protected deposits. The DFI's insurance reserves will influence future fee adjustments, with potential reductions once reserves reach 5% of protected deposits.