Central Bank of the Republic of Azerbaijan (CBAR)

Overview

The Central Bank of the Republic of Azerbaijan (CBAR), originally established as the National Bank of the Republic of Azerbaijan by Presidential Decree on February 11, 1992 (effective February 12, 1992), was renamed the Central Bank of the Republic of Azerbaijan following constitutional amendments in 2009. The institution serves as the primary monetary and financial authority for the Republic of Azerbaijan.

Current Governor: Taleh Kazimov (appointed 2022)

Headquarters: Baku, Azerbaijan

Legal Status: Independent national central bank with constitutional authority over monetary policy and financial regulation.

Basic Identity

Classification

Inclusion Justification

What This Entity Oversees

Founding Legislation

• Presidential Decree on Establishment (February 11, 1992)
• Law of the Republic of Azerbaijan "On the Central Bank of the Republic of Azerbaijan" - amended March 4, 2016
• Constitutional Amendment (March 18, 2009) - renamed from National Bank to Central Bank
• Presidential Decree (November 28, 2019) - expanded authority to financial markets supervision

Primary Mandate

The Central Bank's core mission is to maintain price stability within its constitutional authorities. Key responsibilities include:

1. Monetary Policy Implementation: Setting and implementing monetary policy and exchange rate policy as integrated elements
2. Currency Issuance: Exclusive authority to issue the national currency (Azerbaijani manat)
3. Financial Stability: Safeguarding financial stability and macroeconomic stability
4. Payment Systems: Regulation and development of centralized interbank and licensed payment systems
5. Cash Circulation Management: Organization of cash circulation throughout the economy

Structural Reorganization (2016)

Following amendments to the Law "On the Central Bank of the Republic of Azerbaijan" (March 4, 2016), banking licensing, regulation, and supervision authority was transferred to a newly established financial regulatory body. The Central Bank subsequently focused on:

• Monetary and exchange rate policy
• Macroeconomic and financial stability
• Payment systems regulation
• Cash circulation oversight

Note: A separate financial regulatory authority was established to handle bank licensing and supervision, reflecting international best practices of separating monetary policy from prudential regulation.

Current Supervisory Role

The Central Bank maintains oversight of:

1. Payment Systems: Centralized interbank systems and licensed private payment systems
2. Financial Markets: Following the Decree of November 28, 2019, the CBAR assumed powers previously held by the Financial Markets Supervisory Authority, including:

• Licensing of financial services providers
• Regulation and supervision of securities markets
• Investment fund oversight
• Insurance market regulation
• Consumer protection in financial services
• Investor rights protection

Regulatory Standards

The CBAR operates under international standards and implements:

• Risk-based supervision approaches
• Customer due diligence requirements
• Capital adequacy frameworks
• Liquidity management standards
• Deposit protection mechanisms

Following the November 2019 expansion of CBAR authority, the insurance sector falls under the Central Bank's regulatory framework through the Financial Markets Supervision Authority's mandate (now integrated into CBAR). Responsibilities include:

• Insurance company licensing and authorization
• Prudential supervision of insurers
• Rate and form approval (where required)
• Consumer protection in insurance markets
• Solvency monitoring

Regulatory Framework

The Central Bank of the Republic of Azerbaijan is designated as the primary regulator responsible for ensuring that credit institutions and leasing companies comply with AML/CFT legislation.

Legal Basis

• Azerbaijan's comprehensive AML/CFT legal framework
• FATF Recommendations (40 Recommendations and 9 Special Recommendations)
• Mutual Evaluation Report (MER) findings from March 2023

FATF Compliance Status

Status: Azerbaijan is not listed as a jurisdiction with strategic AML/CFT deficiencies by the Financial Action Task Force (FATF). The country follows FATF Recommendations and is not subject to foreign sanctions.

Recent Evaluation: A comprehensive mutual evaluation was conducted March 1-15, 2023, assessing compliance with all 40 FATF Recommendations and effectiveness of AML/CFT systems.

AML/CFT Requirements

Customer Due Diligence (CDD)

The CBAR implements risk-based approaches to CDD:

• Identity verification of customers and beneficial owners
• Enhanced due diligence for higher-risk relationships
• Beneficial ownership identification and verification
• Transaction monitoring mechanisms
• Record-keeping requirements (minimum 5 years)

Suspicious Transaction Reporting

• Reporting Timeline: Suspicious Transaction Reports (STRs) must be submitted within three business days of receiving an order to execute a suspicious transaction
• Reporting Entities: All credit institutions and leasing companies regulated by CBAR
• Threshold: Applies to transactions raising suspicions or reasonable grounds for suspicion that funds are proceeds of crime or related to terrorism financing

Enhanced Supervision

The Financial Markets Supervision Authority (FMSA), established February 2016, strengthened oversight by:

• Implementing risk-based AML/CFT approaches
• Enhancing licensing and supervision procedures
• Extending supervision to securities markets, investment funds, and insurance

Sanctions and Restrictions

The CBAR implements:

• UN Security Council Resolutions compliance
• Targeted Financial Sanctions (TFS) monitoring
• Proliferation financing prevention measures
• Freezing of assets for designated persons/entities

Current Challenges and Developments

Policy Priorities

1. Price Stability: Managing inflation within target bands
2. Financial System Resilience: Strengthening banking sector stability
3. Payment System Modernization: Digital payment system development
4. AML/CFT Effectiveness: Continued compliance with international standards
5. Regional Coordination: Harmonizing policies with regional partners

Recent Regulatory Actions

• Implementation of enhanced AML/CFT measures following 2023 FATF MER
• Ongoing monetary policy adjustment cycles
• Payment system infrastructure modernization
• Financial market regulatory framework updates

Regulatory Powers

Supervisory Authority

The CBAR exercises:

1. Licensing Authority: Grant, modify, suspend, or revoke licenses
2. Inspection Authority: On-site and off-site examinations of regulated entities
3. Corrective Actions: Issuance of directives for compliance
4. Sanctions: Administrative penalties and fines for violations

Enforcement Actions

The Central Bank can:

• Issue cease-and-desist orders
• Impose civil fines for regulatory violations
• Remove management for cause
• Mandate capital injections or restructuring
• Revoke operating licenses for serious violations

Consumer Protection

• Deposit protection mechanisms
• Investor protection standards
• Consumer complaint resolution processes
• Public disclosure requirements for financial institutions

Regulatory Role and Function

The Central Bank maintains specialized divisions including:

• Monetary Policy Department
• Financial Markets Supervision Directorate
• Payment Systems Regulation Department
• Foreign Exchange Operations Division
• Banking System Analysis Department
• AML/CFT Compliance Division
• International Relations Department
• Legal and Regulatory Affairs Division

Legal Foundation

Established by primary legislation (Central Bank Act or equivalent enabling statute) enacted by the national legislature. Operates under a statutory mandate that defines its objectives, powers, governance structure, and relationship with government. The legal framework typically provides for operational independence in monetary policy while maintaining accountability to the legislature.

Licensing and Authorization Relevance

The Central Bank of the Republic of Azerbaijan (CBAR) is a key licensing authority in Azerbaijan's financial system:

The licensing process typically involves assessment of capital adequacy, fitness and propriety of management, business plan viability, AML/CFT compliance frameworks, and IT systems readiness.

Payments and Money Movement Relevance

Policy Tools and Objectives

The Central Bank employs interest rate corridor mechanisms as primary monetary policy instruments. The CBAR publishes:

• Monetary indicators and policy stance
• Interest rate corridor parameters
• Monetary policy decisions and statements
• Economic and monetary statistics

Exchange Rate Policy

As an integral component of monetary policy, the Central Bank manages:

• Foreign exchange market operations
• Manat stability and valuation
• International reserve management
• Intervention thresholds and mechanisms

Payment System Oversight

The Central Bank maintains a comprehensive framework for payment and settlement systems oversight, including:

• Real-time gross settlement (RTGS) systems
• Automated clearing houses (ACH)
• Interbank payment mechanisms
• Licensed money transmission services

Structural Units

The CBAR's organizational structure includes specialized divisions for:

• Payment systems regulation and supervision
• Financial market oversight
• Banking system monitoring
• Settlement and clearing operations

Manat Policy and Operations

The Central Bank manages:

1. Currency Stability: Maintaining manat stability against major currencies
2. Reserve Management: Managing foreign exchange reserves
3. Market Operations: Foreign exchange intervention and market operations
4. Policy Coordination: Integration of FX policy with broader monetary policy objectives

International Cooperation

The CBAR participates in international financial forums and coordinates with multilateral institutions on exchange rate policy and capital flows.

Payment Systems Governed or Overseen

The CBAR operates and/or oversees the national payment and settlement infrastructure of Azerbaijan. Specific systems include:

Relationship to Other Regulators

Multilateral Memberships

• International Monetary Fund (IMF): Member country; regular Article IV consultations
• World Bank Group: Participant in development finance
• Central Bank Cooperation: Bilateral and regional cooperation with neighboring central banks
• FATF Coordination: Full participation in FATF mutual evaluation and follow-up processes

Regional Engagement

The CBAR participates in:

• Eurasian Economic Union (EAEU) coordination mechanisms
• Black Sea region central bank forums
• Caucasus regional financial stability initiatives
• South Caucasus payment system harmonization

International Standards Adoption

• Basel III capital standards
• IFRS accounting standards
• IMF Special Data Dissemination Standard (SDDS)
• FATF Recommendations implementation

Geography and Jurisdiction Notes

Important Departments and Divisions

Key Public Resources

Central Bank of the Republic of Azerbaijan

• Address: 79 Uzeyir Hajibekov Street, AZ 1000 Baku, Azerbaijan
• Phone: +994 12 596 0200
• Website: https://www.cbar.az
• Email: Available through website contact forms

Notes on Naming and Language