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What changed in Freedom Holding Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Freedom Holding Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+924 added−797 removedSource: 10-K (2023-08-04) vs 10-K (2022-05-31)

Top changes in Freedom Holding Corp.'s 2023 10-K

924 paragraphs added · 797 removed · 479 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

154 edited+114 added−124 removed31 unchanged
Biggest changeOur subsidiaries are as follows: 8 Table of Contents Entity Name Year of Acquisition or Formation Business Activity Jurisdiction of Organization Freedom Finance Europe Limited ("Freedom EU") 2017 Securities Broker-Dealer Cyprus Freedom Finance Technologies Ltd ("Freedom Technologies") 2020 IT Development Company Cyprus Freedom Finance Germany GmbH ("Freedom GE") 2019 Tied Agent of Freedom EU Germany Freedom Prime UK Limited ("Prime UK") 2021 Financial Intermediary Company (pursuing brokerage license) United Kingdom Freedom Finance JSC ("Freedom KZ") 2017 Securities Broker-Dealer Kazakhstan Freedom Finance Global PLC ("Freedom Global") 2020 Securities Broker-Dealer Astana International Financial Centre (Kazakhstan) Bank Freedom Finance Kazakhstan JSC,("Freedom Bank KZ") 2020 Commercial Bank Kazakhstan Freedom Finance Special Purpose Company LTD ("Freedom SPC") 2021 Special Purpose Company Astana International Financial Centre (Kazakhstan) Freedom Finance Commercial LLP ("Freedom Commercial") 2021 Sales Agency Kazakhstan Life Insurance Company Freedom Finance Life JSC ("Freedom Life")* 2022 Life/Health Insurance Kazakhstan Insurance Company Freedom Finance Insurance JSC ("Freedom Insurance") * 2022 Liability Insurance Kazakhstan Freedom Finance Ukraine LLC ("Freedom UA") 2018 Securities Broker-Dealer Ukraine FFIN Securities, Inc.
Biggest changeOur subsidiaries are as follows: Entity Name Year of Acquisition or Formation Business Activity Jurisdiction of Organization Central Asia and Eastern Europe Segment Freedom Finance JSC ("Freedom KZ") 2017 Securities Broker-Dealer Kazakhstan Freedom Finance Global PLC ("Freedom Global") 2020 Securities Broker-Dealer Astana International Financial Centre (Kazakhstan) Bank Freedom Finance Kazakhstan JSC,("Freedom Bank KZ") 2020 Commercial Bank Kazakhstan Freedom Finance Life JSC ("Freedom Life") 2022 Life/Health Insurance Kazakhstan Insurance Company Freedom Finance Insurance JSC ("Freedom Insurance") 2022 Liability Insurance Kazakhstan Freedom Finance Special Purpose Company LTD ("Freedom SPC") 2021 Special Purpose Company Astana International Financial Centre (Kazakhstan) Freedom Finance Commercial LLP ("Freedom Commercial") 2021 Sales Agency Kazakhstan ITS Tech Limited ("ITS Tech") 2022 IT-support company Kazakhstan Freedom Kazakhstan PC Ltd.
Retail Brokerage We offer full-service brokerage services covering a broad array of investment alternatives including exchange-traded and over-the-counter corporate equity and debt securities, money market instruments, exchange traded options and futures contracts, government bonds, and mutual funds. A substantial portion of our revenue is derived from commissions from customers through accounts with transaction-based pricing.
Retail Brokerage We offer full-service retail brokerage services covering a broad array of investment alternatives including exchange-traded and over-the-counter corporate equity and debt securities, money market instruments, exchange traded options and futures contracts, government bonds, and mutual funds. A substantial portion of our revenue is derived from commissions from customers through accounts with transaction-based pricing.
Generally, all financial institutions in Kazakhstan are required to be licensed and regulated by ARDFM. From 2004 to April 2011, licensing and regulation functions were carried out by the Agency of the Republic of Kazakhstan for Regulation and Supervision of the Financial Market and Financial Organizations (including its respective successors).
Generally, all financial institutions in Kazakhstan are required to be licensed and regulated by the ARDFM. From 2004 to April 2011, licensing and regulation functions were carried out by the Agency of the Republic of Kazakhstan for Regulation and Supervision of the Financial Market and Financial Organizations (including its respective successors).
The respective functions had been carried out by the NBK from April 2011 until the end of 2019. Starting January 1, 2020 these functions have been carried out by ARDFM. As a central bank, the NBK has retained its role in developing monetary credit policy, currency regulation and control and payment systems.
The respective functions had been carried out by the NBK from April 2011 until the end of 2019. Starting January 1, 2020 these functions have been carried out by the ARDFM. As a central bank, the NBK has retained its role in developing monetary credit policy, currency regulation and control and payment systems.
Under the Cyprus Securities Market Law, investment activities in the securities market are carried out on the basis of a license to carry out such activities issued by the CySEC. A license for broker and dealer activities includes the right to maintain customer accounts for the purposes of providing services bestowed under the license.
Under the Cyprus Securities Market Law, investment activities in the securities market are carried out on the basis of a license to carry out such activities issued by CySEC. A license for broker and dealer activities includes the right to maintain customer accounts for the purposes of providing services bestowed under the license.
Under the Securities Market Law (and the relevant ARDFM regulations), compliance with the prudential standards is measured based on the following indicators: (i) liquid assets; (ii) balance sheet liabilities; and (iii) minimum amount of equity capital, taking into account the capital adequacy ratio.
Under the Securities Market Law (and the relevant ARDFM regulations), compliance with the prudential standards is measured based on the following indicators: (i) highly liquid and liquid assets; (ii) balance sheet liabilities; and (iii) minimum amount of equity capital, taking into account the capital adequacy ratio.
All trading of U.S. and European exchange traded and OTC securities by all Freedom securities brokerage firms, excluding PrimeEx, are also routed to and executed through Freedom EU. Freedom EU is a member of the Association for Financial Markets in Europe ("AFME").
All trading of U.S. and European exchange traded and OTC securities by all Freedom group securities brokerage firms, excluding PrimeEx, are also routed to and executed through Freedom EU. Freedom EU is a member of the Association for Financial Markets in Europe ("AFME").
Anti-Money Laundering, Anti-Terrorism Funding and Economic Sanctions Laws Anti-money laundering laws, financial record-keeping and reporting laws, and similar legislation and regulations in the jurisdictions where our subsidiaries operate, as well as certain exchanges and self-regulatory organizations impose a variety of rules that require registered broker-dealers to "know your customer" and monitor their customers' transactions for potentially suspicious activities. The U.S.
Anti-Money Laundering, Anti-Terrorism Funding and Economic Sanctions Laws Anti-money laundering laws, financial record-keeping and reporting laws, and similar legislation and regulations in the jurisdictions where our subsidiaries operate, as well as certain exchanges and self-regulatory organizations impose a variety of rules that require registered broker-dealers to "know your customer" and monitor their customers' transactions for potentially suspicious activities.
BUSINESS CONTINUITY PLAN We identify business continuity as the capability to continue the delivery of services to our customers, employees and various business partners and counterparties at acceptable predefined levels following a disruption that may occur in one or more business activities and/or in one or more operating locations due to local, national, regional or worldwide disasters, including pandemics, such as COVID-19, and social unrest and was, such as the Russia/Ukraine Conflict or due to failure of one or more components of information technology infrastructure, including proprietary or self-developed information systems, databases, software and hardware that we operate to provide such service. 17 Table of Contents Since our operations are conducted through our subsidiary companies in different geographic locations, our business continuity plans are developed, tested and managed locally by our subsidiaries to cover key business areas, provide contingency plans for IT infrastructure and communication to employees, customers and counterparties.
BUSINESS CONTINUITY PLAN We identify business continuity as the capability to continue the delivery of services to our customers, employees and various business partners and counterparties at acceptable predefined levels following a disruption that may occur in one or more business activities and/or in one or more operating locations due to local, national, regional or worldwide disasters, including pandemics, such as Covid-19, and social unrest and wars, such as the Russia-Ukraine conflict or due to failure of one or more components of information technology infrastructure, including proprietary or self-developed information systems, databases, software and hardware that we operate to provide such service. 16 Table of Contents Since our operations are conducted through our subsidiary companies in different geographic locations, our business continuity plans are developed, tested and managed locally by our subsidiaries to cover key business areas, provide contingency plans for IT infrastructure and communication to employees, customers and counterparties.
We believe we have a regional competitive advantage with our clients because we are a U.S. corporation subject to the governance and disclosure requirements imposed upon SEC-registered companies trading on the Nasdaq Capital Market. We strive to be a trusted participant in the regulatory framework in each jurisdiction where we operate.
We believe we have a regional competitive advantage with our clients because we are a U.S. corporation subject to the governance and disclosure requirements imposed upon SEC-registered companies trading on the Nasdaq Capital Market. We strive to be a trusted participant in the regulatory framework in each jurisdiction in which we operate.
In addition, PrimeEx is licensed as a broker dealer in six states, requiring it to comply with applicable laws, rules and regulations of each of those states. A state regulator may revoke a license to conduct securities business in its state and fine or otherwise discipline broker dealers and their officers, directors and employees.
In addition, PrimeEx is licensed as a broker dealer in six U.S. states, requiring it to comply with applicable laws, rules and regulations of each of those states. A state regulator may revoke a license to conduct securities business in its state and fine or otherwise discipline broker dealers and their officers, directors and employees.
After classifying the accounts, financial institutions are obligated to regularly present information, including name, taxpayer identification number, and account balance, to the local tax authorities for transfer to the IRS. The agreements also address when financial institutions in these countries are required to withhold taxes to be remitted to the IRS.
After classifying the accounts, financial institutions must regularly present information, including name, taxpayer identification number, and account balance, to the local tax authorities for transfer to the IRS. The agreements also address when financial institutions in these countries are required to withhold taxes to be remitted to the IRS.
Freedom EU is subject to the Markets in Financial Instruments Directive ("MiFID") and/or related regulations and must, when holding funds belonging to customers, make adequate arrangements to safeguard the rights of customers and maintain their records and accounts in a way that ensures their accuracy.
Freedom EU is subject to the European Union Markets in Financial Instruments Directive ("MiFID") and/or related regulations and must, when holding funds belonging to customers, make adequate arrangements to safeguard the rights of customers and maintain their records and accounts in a way that ensures their accuracy.
Cyprus and EU Regulation Our Cyprus operations are conducted in Limassol, Cyprus where we are licensed to receive, transmit and execute customer orders, provide investment advice and portfolio management services, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio.
Our Cyprus operations are conducted in Limassol, Cyprus where we are licensed to receive, transmit and execute customer orders, provide investment advice and portfolio management services, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio.
Repurchase and Reverse Repurchase Agreements We enter into reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions to, among other things, acquire securities to leverage and grow our proprietary trading portfolio, cover short positions and settle other securities obligations, to accommodate customers' needs and to finance our inventory positions.
Repurchase and Reverse Repurchase Agreements We enter into repurchase agreements, reverse repurchase agreements and securities borrowed and securities loaned transactions to, among other things, acquire securities to leverage and grow our proprietary trading portfolio, cover short positions and settle other securities obligations, to accommodate customer needs and to finance our inventory positions.
We are continuing to implement increased uniformity across our subsidiaries to address business operations continuity and expertise by pursuing a standard for business continuity consistent with the standards of ISO 22301 Societal security – Business continuity management systems. HUMAN CAPITAL Our multinational operations, particularly in countries with an integrated multi-ethnic culture, naturally create an ethnically diverse workforce.
We are continuing to implement increased uniformity across our subsidiaries to address business operations continuity and expertise by pursuing a standard for business continuity consistent with the standards of ISO 22301 Societal security – Business continuity management systems. HUMAN CAPITAL Our multinational operations, particularly in countries with integrated multi-ethnic cultures, create a naturally ethnically diverse workforce.
Our securities brokerages also conduct proprietary investment activities, and facilitate repurchase and reverse repurchase agreements, both to support the funding of our proprietary investments and as an intermediary service between third party purchasers and sellers.
Our securities brokerages also conduct proprietary investment activities, and facilitate repurchase and reverse repurchase agreements, both to support the funding of our proprietary investments and to act as an intermediary between third party purchasers and sellers.
We provide continuous, systematic core educational opportunities and many advanced trainings to enable our employees to continue their professional growth, which contributes to higher standards of knowledge and skillsets of our employees. Advanced individual programs are provided based on an array of topics to meet the dynamic interests of our teams.
We provide continuous, systematic core educational opportunities and many advanced trainings to enable our employees to continue their professional growth, which contributes to higher standards of knowledge and skill sets of our employees. Advanced individual programs are provided based on an array of topics to meet the dynamic interests of our teams.
We have agreed to abide by the rules of FINRA (as well as those of the NYSE and other SROs), and FINRA has the power to expel, fine and otherwise discipline PrimeEx and its officers, directors and employees.
PrimeEx has agreed to abide by the rules of FINRA (as well as those of the NYSE and other SROs), and FINRA has the power to expel, fine and otherwise discipline PrimeEx and its officers, directors and employees.
The foreign countries where our subsidiaries operate have similar anti-bribery and anti-corruption laws imposed on our subsidiaries. 22 Table of Contents The anti-bribery provisions make it illegal for us, either directly or through any subsidiary that we may acquire, to bribe any foreign official for the purpose of obtaining business.
The foreign countries where our subsidiaries operate have similar anti-bribery and anti-corruption laws imposed on our subsidiaries. The anti-bribery provisions make it illegal for us, either directly or through any subsidiary that we may acquire, to bribe any foreign official for the purpose of obtaining business.
We leverage competitive advantages we have developed, including our extensive experience in providing local investors access to the U.S. and European securities markets, our ability to deliver high quality analytical information and our focus on providing convenient, high tech user-friendly access to our services and the markets.
We leverage competitive advantages we have developed, including our extensive experience in providing investors in our core markets with access to the U.S. and European securities markets, our ability to deliver high quality analytical information and our focus on providing convenient, high tech user-friendly access to our services and the markets.
Securities Brokerage Services We provide a comprehensive range of securities brokerage services to individuals, businesses and financial institutions seeking to diversify their investment portfolios to manage economic risks associated with political, regulatory, currency, banking, and national uncertainties. Depending on the region, our brokerage services can include: securities trading, margin lending, investment research, and investor education tools.
Securities Brokerage Services We provide a comprehensive range of securities brokerage services to individuals, businesses and financial institutions seeking to diversify their investment portfolios to manage economic risks associated with political, regulatory, currency and banking uncertainties. Depending on the region, our brokerage services may include securities trading, margin lending, investment research, and investor education.
Additionally, we have internal policies, procedures and systems in place for possible compliance related matters related to whistleblowing, improper trading patterns, tax reporting obligations, and other internal policies (e.g., trading company stock or stock of our customers).
Additionally, we have internal policies, procedures and systems in place for possible compliance related matters related to whistleblowing, improper trading patterns, tax reporting obligations, and other internal policies (e.g., trading our own stock or the stock of our customers).
Kazakhstan has a two-tier banking system, with the NBK comprising the first tier and all other commercial banks comprising the second tier (with the exception of the Development Bank of Kazakhstan, which as a state development bank has a special status and belongs to neither tier).
Kazakhstan has a two-tier banking system, with the NBK comprising the first tier and 21 Table of Contents all other commercial banks comprising the second tier (with the exception of the Development Bank of Kazakhstan, which as a state development bank has a special status and belongs to neither tier).
U.S. Regulation U.S. Securities Market Regulation Our U.S. broker dealer subsidiary PrimeEx is registered as a securities broker dealer with the SEC, is a member of various SROs and securities exchanges, including being a blue-line broker dealer on the floor of the NYSE.
U.S. Regulation U.S. Securities Market Regulation Our U.S. subsidiary PrimeEx is registered as a securities broker dealer with the SEC, is a member of various self-regulatory organizations ("SROs") and securities exchanges, including being a "Blue Line" broker dealer on the floor of the NYSE.
We create revenue from these products and services in several ways, including: • fees and commissions earned from our retail brokerage customers; • market making and proprietary trading activities; • securities and margin lending; • fees and commissions from capital markets and investment banking services; • bank service fees; • payment card interchange fees; • interest income; and • insurance premiums.
We generate revenue from these products and services in several ways, including: • fees and commissions earned from our retail brokerage customers; • market making and proprietary trading activities; • securities and margin lending; • fees and commissions from capital markets and investment banking services; • bank service fees; • payment card interchange fees; • interest income; • commissions earned from provision of payment services; and • insurance premiums.
Freedom Insurance has been assigned "B" rating by S&P Global Ratings and "kzBB+" national scale rating: Outlook - "Stable." In 2021 Freedom Insurance was recognized by Global Banking & Finance Review as the Best Online Insurance Company Kazakhstan, Best General Insurance Company Kazakhstan and Best Auto Insurance Company Kazakhstan.
Freedom Insurance has been assigned "B+" rating by S&P Global Ratings and "kzBBB" national scale rating: Outlook - "Stable." In 2021 Freedom Insurance was recognized by online and print magazine Global Banking & Finance Review as the Best Online Insurance Company Kazakhstan, Best General Insurance Company Kazakhstan and Best Auto Insurance Company Kazakhstan.
These services include: • KYC and AML: ID verification, AML screening, and facematch checks for any jurisdiction. • Liveness technology: In-house facial biometrics for fast onboarding and continuous checks. • Video verification: Agent-assisted video verification built to comply with AMLD requirements. • Chargeback prevention: Verification of payment methods before transactions are made.
The services covered by the suite include: • KYC and AML: ID verification, AML screening, and facematch checks for any jurisdiction. • Liveness technology: In-house facial biometrics for fast onboarding and continuous checks. • Video verification: Agent-assisted video verification built to comply with AMLD requirements. • Chargeback prevention: Verification of payment methods before transactions are made.
Freedom Global is subject to Astana International Financial Center business rules and is required to have systems and controls in place to ensure the proper safeguarding of customer assets which includes conducting proper due diligence of the third parties in which customer assets will be held and confirming that the laws and regulations that govern such third parties are appropriate.
Freedom Global is subject to the AIFC business rules and is required to have systems and controls in place to ensure the proper safeguarding of customer assets which includes conducting proper due diligence of the third parties in which customer assets will be held and confirming that the laws and regulations that govern such third parties are appropriate.
Our recent organic growth has been driven by expansion of our network of retail financial advisers and increases in the volume of analysts' reports made available to our customer base, as well as significantly increased trading volume and customer activity stemming from government and bank interventions and other events in response to the COVID-19 pandemic that have resulted in increased market volatility and economic uncertainty.
Our recent organic growth has been driven by expansion of our network of retail financial advisers and increases in the volume of analysts' reports made available to our customer base, as well as significantly increased trading volume and customer activity stemming from government and bank interventions that have resulted in increased market volatility and economic uncertainty.
Compensation and Benefits We provide compensation packages that include competitive pay, bonuses, PTO and benefits with a focus on a performance-based system of incentives and recognition.
Compensation and Benefits We provide compensation packages that include competitive pay, bonuses, paid time off (PTO) and benefits with a focus on a performance-based system of incentives and recognition.
Tradernet provides our customers with trading capabilities and access to monitor multiple markets around the world simultaneously, including KASE, AIX, UX, MOEX, SPBX, NYSE, Nasdaq, the London Stock Exchange, the Chicago Mercantile Exchange, the Hong Kong Stock Exchange and Deutsche Börse and to execute trades electronically in these markets in multiple products from a single trading account.
Tradernet provides our customers with trading capabilities and access to monitoring multiple stock markets around the world simultaneously, including KASE, AIX, UX, MOEX, the SPB Exchange, NYSE, Nasdaq, ATHEX, ITX, the London Stock Exchange, the Chicago Mercantile Exchange, the Hong Kong Stock Exchange and Deutsche Börse and to execute trades electronically in these markets in multiple products from a single trading account.
The department is responsible for establishing compliance controls, policies and procedures to support subsidiary compliance officers and their staff and in-house attorneys in various jurisdictions to discharge compliance obligations under local regulatory requirements.
The department is responsible for establishing compliance controls, policies and procedures to support subsidiary compliance officers and their staff and in-house attorneys in various jurisdictions to discharge compliance obligations under local regulatory 6 Table of Contents requirements.
Our Cyprus operations are conducted in Limassol, Cyprus where we are licensed to receive, transmit and execute customer orders, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio.
In Cyprus, we are licensed to receive, transmit and execute customer orders, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio.
The agreement requires financial institutions in these countries to identify their customers and analyze their products to identify the accounts of customers affected by FATCA and collect all necessary information to classify those accounts in compliance with the requirements of FATCA.
The agreements require financial institutions in these countries to identify their customers and analyze their products to identify the accounts of customers affected by FATCA and collect all necessary information to classify those accounts in compliance with the requirements of FATCA.
Freedom UA is a professional participant on the Ukrainian Exchange ("UX") and Freedom UZ is a professional participant on the Republican Stock Exchange of Tashkent ("UZSE") and the Uzbek Republican Currency Exchange ("UZCE").
Freedom UZ is a professional participant on the Republican Stock Exchange of Tashkent ("UZSE") and the Uzbek Republican Currency Exchange ("UZCE").
Violations of securities, banking, sanctions, anti-money laundering and financing of terrorism laws, rules and regulations can subject us to a broad range of disciplinary actions including imposition of fines and sanctions, other remedial actions, such as cease and desist orders, removal from managerial positions, loss of licensing, and civil and criminal proceedings.
Violations of securities, banking, sanctions, anti-money laundering and financing of terrorism laws, rules and regulations could subject us and our employees to a broad range of disciplinary actions including imposition of fines and 20 Table of Contents sanctions, other remedial actions, such as cease and desist orders, removal from managerial positions, loss of licensing, and civil and criminal proceedings.
Additionally, our U.S. subsidiary, PrimeEx, operates under its own U.S. Sanctions Compliance Policies and Procedures, which governs its own sanctions compliance activities with its institutional customers and with other FRHC subsidiaries.
Additionally, our U.S. subsidiary, PrimeEx, operates under its own U.S. sanctions compliance policies and procedures, which governs its own sanctions compliance activities with its institutional customers and with other group companies.
We employ a diversified and talented team spanning 14 countries. We have well-educated and experienced employees who seek to uphold high business and ethics standards.
We employ a diverse and talented team spanning 15 countries. We have well-educated and experienced employees who seek to uphold high business and ethics standards.
The Sum and Substance suite is currently being used by Freedom EU and Freedom Global and it is currently being implemented at our operations in Kazakhstan, Ukraine and Russia. We plan to roll out the Sum and Substance platform so that it is used by all brokerage companies, banks and other companies within our group of companies.
Our Freedom EU and Freedom Global subsidiaries are currently using the Sum and Substance verification platform, and this platform is currently being implemented at our operations in Kazakhstan and Ukraine. We plan to roll out the Sum and Substance platform so that it is used by all brokerage companies, banks and other companies within our group of companies.
The Banking Law provides for a list of banking operations that cannot be conducted without an appropriate license from ARDFM (its predecessor) and sets forth a list of activities permitted for banks. Freedom Bank KZ holds License No.1.1.260 dated February 9, 2021 for performing banking and other operations.
The Banking Law provides for a list of banking operations that cannot be conducted without an appropriate license from the ARDFM (its predecessor) and sets forth a list of activities permitted for banks. Freedom Bank KZ holds License No.1.2.108/43/250 dated February 1, 2023 for performing banking and other operations.
FRHC has entered into an agreement with Sum and Substance, a third-party service provider, to use the Sum and Substance all-in-one KYC/AML compliance suite that allows companies to stay compliant while ensuring that users can quickly access services digitally.
FRHC has entered into an agreement with Sum and Substance, a third-party service provider, for the use by the Freedom group of the Sum and Substance all-in-one KYC/AML compliance suite. This compliance suite enables companies to stay compliant while ensuring that users can quickly access services digitally.
The Invest card offers features unique to the Kazakhstan market including: integration with the customer's brokerage accounts to allow for convenient instant money transfers to and from the customer's brokerage account; free payments, transfers and exchange operations, and reduced service fees for certain transactions; no fee interbank and peer-to-peer transfers and replenishment of the card in any currency; daily interest payments in U.S. dollars on the outstanding balance on the brokerage account; and improved convenience including the ability to remotely open bank accounts by means of biometric identification and remote execution of account opening documents.
The Invest card offers features unique to the Kazakhstan market including: integration with the customer's brokerage accounts to allow for convenient instant money transfers to and from the customer's brokerage account; no fee interbank and peer-to-peer transfers and replenishment of the card in any currency; daily interest payments in U.S. dollars on the outstanding balance on a savings account; and the ability to remotely open bank accounts by means of biometric identification and remote execution of account opening documents.
We operate under various securities licenses in the jurisdictions making up our Central Asia region, plus we have banking licenses in Kazakhstan that allow us to expand the types of financial services we provide to our Kazakhstan customers. We also own two recently acquired insurance companies offering life insurance and general liability insurance.
We operate under various securities licenses in the jurisdictions making up our Central Asia and Eastern Europe region. We also have banking licenses in Kazakhstan that allow us to provide a wider range of financial services to our Kazakhstan customers. We also own two acquired insurance companies offering life insurance and general liability insurance.
Because we have been offering securities brokerage services for a longer time than our other product and service lines, fee and commission income from securities brokerage has historically been the dominant source of revenue, representing approximately 69%, 70% and 68% of total revenue in the fiscal years ended March 31, 2022, 2021 and 2020, respectively.
Because we have been offering securities brokerage services for a longer time than our other product and service lines, fee and commission income from securities brokerage has historically been our primary source of revenue, representing approximately 36%, 46% and 59% of total revenue from brokerage services in the fiscal years ended March 31, 2023, 2022 and 2021, respectively.
In accordance with the Correspondent Agreement, our subsidiary Freedom EU conducts random checks on a regular basis of trades received from FFIN Brokerage, whereby it is able to obtain information on, and conduct customer checks on, the beneficial owners who are the beneficiaries of the relevant trades.
In accordance with the Cross-Border Correspondent Relationship Agreement, Freedom EU conducts on a regular basis random checks of trades received from FST Belize, whereby it is able to obtain information on, and conduct customer checks on, the beneficial owners who are the beneficiaries of the relevant trades.
Capital Markets/ Investment Banking Services Our capital markets/investment banking business consists of investment banking professionals in Almaty who provide strategic advisory services and capital markets products. Our investment banking team focuses on certain sectors including consumer and business services, energy, financial institutions, real estate, technology, media and communications.
Capital Markets/ Investment Banking Services Our capital markets/investment banking business consists of investment banking professionals in Kazakhstan, Uzbekistan and the United States who provide strategic advisory services and capital markets products. Our investment banking team focuses on multiple sectors including consumer and business services, energy, financial institutions, real estate, technology, media and communications.
The failure to comply with FATCA could result in adverse financial and reputational consequences to us as well as the imposition of sanctions or penalties including responsibility for the taxes on any funds distributed without the proper withholdings set aside.
A failure by our subsidiaries to comply with FATCA could result in adverse financial and reputational consequences to us as well as the imposition of sanctions or penalties, including responsibility for the taxes on any funds distributed without the proper withholdings having been made.
Our office in Germany is a tied agent of Freedom EU, and we have representative offices of Freedom EU in Greece, France and Spain. Prime UK, formed in 2021, is a financial intermediary company in process of procuring necessary licenses to conduct brokerage operations in the UK.
Our office in Germany is a tied agent of Freedom EU, and we have representative offices of Freedom EU in Greece, France and Spain. Prime UK, formed in 2021, is a financial intermediary company which was incorporated for the purposes of obtaining the necessary licenses to conduct brokerage operations in the United Kingdom.
We use the services of third-party U.S.-registered securities broker dealer and clearing firms to execute substantially all of our trades in the U.S. market. As of March 31, 2022, 2021 and 2020, respectively, we had approximately 410,000, 290,000 and 140,000 total brokerage customer accounts, of which more than 55%, 63% and 50% had positive cash or asset account balances.
We use the services of third-party U.S.-registered securities broker dealer and clearing firms to execute substantially all of our trades in the U.S. market. As of March 31, 2023, 2022 and 2021, respectively, we had approximately 370,000, 250,000 and 170,000 total brokerage customer accounts, of which more than 56%, 58% and 71% had positive cash or asset account balances.
As of March 31, 2022, we had approximately 94,000 active accounts, as compared to 73,000 and 41,500 active accounts as of March 31, 2021 and 2020, respectively. 12 Table of Contents We define "active accounts" as those from which at least one transaction occurred in the quarter prior to the date of calculation.
As of 11 Table of Contents March 31, 2023, we had approximately 52,000 active accounts, as compared to 53,000 and 32,000 active accounts as of March 31, 2022 and 2021, respectively. We define "active accounts" as those from which at least one transaction occurred in the quarter prior to the date of calculation.
The goal of this program is to generally expand knowledge about financial literacy and teach the basics of exchange trading so that participants can more knowledgeably trade and reduce the risk of financial mistakes in the future. Freedom Finance Camp is open to Kazakhstan school children ages 10 to 13.
The goal of this program is to generally expand knowledge about financial literacy and teach the basics of exchange trading so that participants can more knowledgeably trade and reduce the risk of financial mistakes in the future.
The ARDFM sets forth standards, formulas and ratios for calculation of the prudential norms. Kazakhstan Banking Regulation Banks in Kazakhstan are subject to numerous laws and regulations governing banking activities as well as a number of laws and regulations that regulate, among other matters, payment services, anti-money laundering, data protection and information security.
Kazakhstan Banking Regulation Banks in Kazakhstan are subject to numerous laws and regulations governing banking activities as well as a number of laws and regulations that regulate, among other matters, payment services, anti-money laundering, data protection and information security.
Our flagship product in Kazakhstan interfaces with government databases to efficiently access relevant information for qualifying customers for state-sponsored mortgage programs and other lending programs we offer. Our technology platform integrates many of our services into an easy to access and qualify suite of complimentary services.
It interfaces with government databases to efficiently access relevant information for qualifying customers for state-sponsored mortgage programs and other lending programs we offer. Our technology platform integrates many of our services into a suite of complementary services that are easy to access and qualify for.
We focus on structuring and distributing private and public debt, for various purposes including buyouts, acquisitions, growth capital financings, and recapitalizations. In addition, we participate in bond financings for both sovereign and corporate emerging market issuers.
In the debt capital markets area, we offer a range of debt capital markets solutions for emerging growth and small market companies. We focus on structuring and distributing private and public debt for various purposes including buyouts, acquisitions, growth capital financings, and recapitalizations. In addition, we participate in bond financings for both sovereign and corporate issuers in the emerging markets.
Segment We entered into the U.S. market in December 2020 with the acquisition of PrimeEx, a New York corporation, that is a registered agency-only execution broker-dealer on the floor of the New York Stock Exchange ("NYSE"). PrimeEx is a member of the NYSE, Nasdaq, the Financial Industry Regulatory Authority ("FINRA") and the Securities Investor Protection Corp ("SIPC").
Markets LLC were added to this segment during fiscal 2023.We entered the U.S. market in December 2020 with the acquisition of PrimeEx, a New York corporation, that is a registered agency-only execution broker-dealer on the floor of the New York Stock Exchange ("NYSE"). PrimeEx is a member of the NYSE, Nasdaq, FINRA and the Securities Investor Protection Corp ("SIPC").
The brokerage sector in Cyprus is highly regulated. 21 Table of Contents The Law of the Republic of Cyprus L. 87(I)/2017 regarding the provision of investment services, the exercise of investment activities and the operation of regulated markets (as amended) (the "Cyprus Securities Market Law") is the main law regulating broker dealer, portfolio management activities in the Republic of Cyprus.
The Law of the Republic of Cyprus L. 87(I)/2017 regarding the provision of investment services, the exercise of investment activities and the operation of regulated markets (as amended) (the "Cyprus Securities Market Law") is the main law regulating broker dealer, portfolio management activities in Cyprus. The Cyprus Securities Market Law is a local implementation in Cyprus of MiFID II.
Our securities brokerage operations in the Central Asia region are conducted through our subsidiaries Freedom KZ, Freedom Global, Freedom UA and Freedom UZ. Freedom KZ is a professional participant on the Kazakhstan Stock Exchange ("KASE") and Astana International Exchange ("AIX").
Our brokerage operations in the Central Asia and Eastern Europe region are conducted through our subsidiaries Freedom KZ, Freedom Global, Freedom UA and Freedom UZ. Freedom KZ and Freedom Global are professional participants on the KASE and the Astana International Exchange ("AIX").
Central Asia Regulation Kazakhstan Securities Market Regulation The Kazakhstan brokerage sector is highly regulated. The Law of the Republic of Kazakhstan No. 461-II "On the Securities Market", dated 2 July 2003 (as amended) (the "Securities Market Law") is the main law regulating the broker and dealer, portfolio management activities in Kazakhstan.
The Law of the Republic of Kazakhstan No. 461-II "On the Securities Market", dated 2 July 2003 (the "Securities Market Law") is the main law regulating the brokerage and dealer activities in the securities market and portfolio management activities in Kazakhstan.
The KDIC insures deposits in the case of liquidation of the bank-member of the Fund. Deposits are insured up to 15 million Kazakhstan tenge (approximately $32 thousand as of March 31, 2022), per customer.
The KDIC insures deposits in the case of liquidation of a bank-member of the KDIC fund. Deposits are insured up to 20 million Kazakhstan tenge (approximately $44.0 million as of March 31, 2023), per customer.
During the fiscal years ended March 31, 2022, 2021 and 2020, the number of our total customer accounts increased by approximately 120,000, 150,000 and 25,000, respectively, as our customer base continued to grow organically and non-organically.
During the fiscal years ended March 31, 2023, 2022 and 2021, the number of our total customer accounts increased by approximately 120,000, 80,000 and 75,000, respectively, as our customer base grew organically and non-organically.
Under the Securities Market Law, broker-dealer and portfolio management activities in the securities market are carried out on the basis of a license to carry out such activities issued by the ARDFM.
It establishes a framework for brokers and dealers, portfolio management activities, registration and licensing requirements, and regulation of such activities by the ARDFM. Under the Securities Market Law, broker-dealer and portfolio management activities in the securities market are carried out on the basis of a license to carry out such activities issued by the ARDFM.
Pursuant to these intergovernmental agreements, our subsidiaries in these countries are required to obtain customer documentation associated with the indicia of his, her, or its U.S. tax residency status as well as related account information in order to report accordingly.
Pursuant to these intergovernmental agreements, our subsidiaries in the relevant countries which are financial institutions are required to obtain customer documentation associated with the indicia of the relevant customer's U.S. tax residency status, as well as related account information, and to report it accordingly.
OFAC also administers a number of comprehensive sanctions and embargoes that target certain countries, governments and geographic regions. Under our U.S. Sanctions Compliance Policies and Procedures, we, and in certain instances our subsidiaries, might be prohibited from engaging in transactions involving any individual, entity, country, region or government that is subject to such sanctions.
Under our U.S. sanctions compliance policies and procedures, we, and in certain instances our subsidiaries, might be prohibited from engaging in transactions involving any individual, entity, country, region or government that is subject to such sanctions.
Our investment banking activities are concentrated in Kazakhstan and Uzbekistan where the governments continue to privatize industries, but commercial banks concentrate their services on large enterprises or state-owned enterprises. In these countries, commercial lending sources also impose loan structures and debt covenants that exclude many companies. This has created growing interest and demand in our services.
Our investment banking activities are concentrated in Kazakhstan and Uzbekistan where commercial banks are currently focusing their financing activities on large enterprises or state-owned enterprises. In these countries, commercial lending sources also impose loan structures and debt covenants that preclude many companies from participating. This has created growing interest in and demand for our services.
In November 2015, we entered into a reverse acquisition agreement with Timur Turlov whereby we agreed to change our name from BMB Munai, Inc. to Freedom Holding Corp. and to acquire 100% ownership interests in FFIN Securities, Freedom EU, and Freedom RU and its wholly owned subsidiary, Freedom KZ, from him.
In December 2004 we redomiciled to the State of Nevada. In November 2015, we entered into a reverse acquisition agreement with Timur Turlov whereby we agreed to change our name from BMB Munai, Inc. to Freedom Holding Corp. and to acquire from him 100% ownership interests in FFIN Securities, Inc.
Cyprus, Kazakhstan, Ukraine and Uzbekistan have entered into Model 1 intergovernmental agreements with the U.S. containing provisions regulating the process for financial institutions in these countries to collect information on U.S. taxpayer accounts and provide that information to the IRS. In general, the requirements of the agreements concern the analysis of new and existing customer accounts to identify U.S. taxpayers.
Cyprus, Kazakhstan, Ukraine, Uzbekistan, Turkey, Azerbaijan, and the United Arab Emirates have entered into Model 1 intergovernmental agreements with the U.S. containing provisions regulating the process for financial institutions in these countries to collect information on U.S. taxpayer accounts and provide that information to the IRS.
Our commercial banking services are offered as a complementary service to our securities brokerage operations. We generate banking service fees by providing services that include lending operations, deposit services, money transfers, opening and maintaining correspondent accounts, renting safe deposit boxes, e-commerce money transfer services for legal entities, tender guarantees, and payment card services.
We generate banking service fees by providing services that include lending operations, deposit services, money transfers, opening and maintaining correspondent accounts, renting safe deposit boxes, e-commerce money transfer services for legal entities, tender guarantees, and payment card services. Payment Cards We are an authorized Visa and MasterCard issuer.
We teach practical job skills that yield job satisfaction for our employees, and by extension, strong Company performance. We provide internal mentoring and training programs to enable new hires to quickly adapt to our work culture and demands. Our mentorship program helps foster relationships within our companies that engender loyalty and unity in our work.
We provide internal mentoring and training programs to enable new hires to quickly adapt to our work culture and demands. Our mentorship program helps foster relationships within our companies that engender loyalty and unity in our work.
MONETARY POLICY Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the governments of Kazakhstan, Kyrgyzstan, Russia, Uzbekistan, Ukraine, Azerbaijan, Cyprus and the U.S. The monetary policies of these countries may have a significant effect upon our operating results.
MONETARY POLICY Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the governments of the jurisdictions in which we operate, including Kazakhstan, the European Union, Kyrgyzstan, Uzbekistan, Ukraine, Azerbaijan, Armenia and the United States. The monetary policies of these countries may have a significant effect upon our operating results.
Central Asia region securities brokerage services As of March 31, 2022, our Central Asia region brokerage offices consisted of 46 offices that provide brokerage and financial services, investment consulting and education, including offices in Kazakhstan, Ukraine, Uzbekistan and Kyrgyzstan.
Central Asia and Eastern Europe region securities brokerage services As of March 31, 2023, in our Central Asia and Eastern Europe region we had 56 offices that provided brokerage and financial services, investment consulting and education, including offices in Kazakhstan, Ukraine, Uzbekistan and Kyrgyzstan.
Freedom Insurance is the leader in online insurance in Kazakhstan and offers various general insurance products in property (including automobile), casualty, civil liability, personal insurance and reinsurance.
Freedom Insurance Freedom Insurance operates in the "general insurance" industry, was established in 2009 and was acquired by Timur Turlov in 2019. Freedom Insurance is the leader in online insurance in Kazakhstan and offers various general insurance products in property (including automobile), casualty, civil liability, personal insurance and reinsurance.
FFIN Brokerage has its own agreement with Sum and Substance and has already implemented digital onboarding via its website in the scope of liveness, facematch and AML screening. However, we do not currently have direct access to FFIN Brokerage's customer check systems.
FST Belize has its own agreement with Sum and Substance and has already implemented digital onboarding via its website in the scope of liveness, facematch and AML screening. However, we do not currently have direct access to FST Belize's customer check systems. In addition, we maintain omnibus brokerage accounts for certain other institutional brokerage clients, including certain Russian institutions.
We focus on development of our compliance control, operations, and internal audit activities to ensure each compliance activity meets our risk management standards and industry standards.
We focus on development of our compliance control, operations, and internal audit activities to ensure each compliance activity meets our risk management standards and industry standards. OUR REGIONAL SEGMENTS We conduct our business through a number of subsidiaries, organized into four regional segments.
Our securities, banking and insurance business activities are subject to extensive regulation and oversight by the stock exchanges, central/national banks, governmental and self-regulatory authorities in the foreign jurisdictions where we conduct business activities. We operate under various securities, banking and insurance licenses and we must maintain our licenses in order to conduct our operations.
The securities, banking, payment services and insurance business activities of our subsidiaries are subject to extensive regulation and oversight by the stock exchanges, central/national banks, governmental and self-regulatory authorities in the foreign jurisdictions where we 19 Table of Contents conduct business activities.
As of March 31, 2022, the aggregate net capital requirements of our subsidiaries was approximately $27.6 million. In the event we fail to maintain minimum/adequate net capital, we may be subject to fines and penalties, suspension of operations, and disqualification of our management from working in the industry. Our subsidiaries are also subject to rules and regulations regarding liquidity ratios.
In the event one or more of our subsidiaries fails to maintain minimum/adequate net capital, we may be subject to fines and penalties, suspension of operations, and disqualification of our management from working in the relevant industry. Our subsidiaries are also subject to rules and regulations regarding liquidity ratios.
These regulations cover a broad range of practices and procedures, including: • minimum net capital and capital adequacy requirements; • the use and safekeeping of customers' funds and securities; • recordkeeping and reporting requirements; • customer identification, clearance and monitoring to identify and prevent money laundering and funding of terrorism, OFAC and other non-U.S. sanctions violations, to follow FATF recommendations; • tax reporting obligations under QI, FATCA and CRS regulations; • supervisory and organizational procedures intended to monitor and assure compliance with relevant laws and regulations and to prevent improper trading practices; 19 Table of Contents • employee-related matters, including qualification and certification of personnel; • provision of investment and ancillary services, clearance, and settlement procedures; • maximum loan and bank guarantees concentration issued to shareholders; • credit risk requirements; • liquidity risk requirements; • acquisitions; • qualification of firm management; and • risk detection, management, and correction.
Department of Treasury's Office of Foreign Assets Control ("OFAC") and other non-U.S. sanctions violations, to follow FATF recommendations; • tax reporting obligations under QI, FATCA and CRS regulations; • supervisory and organizational procedures intended to monitor and assure compliance with relevant laws and regulations and to prevent improper trading practices; • employee-related matters, including qualification and certification of personnel; • provision of investment and ancillary services, clearance, and settlement procedures; • maximum loan and bank guarantees concentration issued to shareholders; • credit risk requirements; • liquidity risk requirements; • acquisitions; • qualification of firm management; and • risk detection, management, and correction.
Freedom KZ currently holds the following licenses: • No. 3.2.238/15 dated October 2, 2018 (initially issued on March 21, 2007) for performance of activity on the securities market, particularly (i) broker-dealer activity with the right to maintain customer accounts as a nominal holder, and (ii) portfolio management without the right to attract voluntary pension contributions; and • No. 4.3.12 dated February 4, 2020 (initially issued on April 4, 2019) for performance of banking operations in foreign currency, particularly exchange operations with foreign currency, except for exchange operations with foreign cash. 20 Table of Contents Under the Securities Market Law (and the relevant ARDFM regulations), the following prudential standards are applied for broker and dealer, portfolio management companies, among others: the capital adequacy ratio, which daily indicator shall be at least 1; and the liquidity ratio, which daily indicator shall be not less than 1.4.
Freedom KZ currently holds the following licenses: • No. 3.2.238/15 dated October 2, 2018 (initially issued on March 21, 2007) for performance of activity on the securities market, particularly (i) broker-dealer activity with the right to maintain customer accounts as a nominal holder, and (ii) portfolio management without the right to attract voluntary pension contributions; and • No. 4.3.12 dated February 4, 2020 (initially issued on April 4, 2019) for performance of exchange operations with foreign currency, except for exchange operations with foreign cash.
In calendar year 2021 we were acknowledged as the largest market maker on the KASE and the leading placement agent of sovereign and quasi-sovereign debt in terms of the number of issuers, offerings and total funds placed. We have 770 securities brokerage employees in our Central Asia region, including 312 full time employees.
For the 2022 and 2021 calendar year we were acknowledged as the largest market maker on the KASE and the leading placement agent of sovereign and quasi-sovereign debt in terms of the number of issuers, offerings and total funds placed.
Central Asia region banking services In Kazakhstan we have 10 office locations that provide banking services to our customers. We have 777 banking employees in our Central Asia region, all of which are full time employees. In Kazakhstan, the Kazakhstan Deposit Insurance Fund ("KDIC") administers the deposit insurance system.
Central Asia and Eastern Europe region banking services In Kazakhstan we have 13 office locations that provide banking services to our customers. As of March 31, 2023, we had 1,534 banking employees in our Central Asia and Eastern Europe region, all of which were full-time employees. In Kazakhstan, the Kazakhstan Deposit Insurance Fund ("KDIC") administers the deposit insurance system.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Our Securities and Banking Business Activities : • Failure to meet capital adequacy and liquidity guidelines could affect the financial condition and operations of our subsidiaries. • We may suffer significant losses from credit exposures. • Our businesses have been and may in the future be adversely affected by disruptions or lack of liquidity in the credit markets, including reduced access to credit and higher costs of obtaining credit. • Reductions in our credit ratings or an increase in our credit spreads may adversely affect our business, liquidity and cost of funding. • Our investments can expose us to a significant risk of capital loss. • We may need to raise additional capital, and we cannot be sure that additional financing will be available or available on attractive terms. • We are dependent upon our relationships with third party U.S.-registered securities broker-dealer and clearing firms to receive and transmit securities and funds internationally. • We rely on our relationship with FFIN Brokerage for a significant percentage of our revenue, and as a result of the Russia/Ukraine Conflict the future prospects of FFIN Brokerage are uncertain. • We may suffer significant loss from changes in the KASE's requirements related to the discount coefficients on the securities in securities repurchase transactions. • Our measures to prevent money laundering, terrorist financing, and sanction violations may not be completely effective.
Biggest changeRisks Related to Our Business and Operations : • Our relatively limited operational history has coincided with sustained market growth which may not be predictive of future operating results. • We may not be able to manage our growth effectively. • We anticipate that acquisitions will continue to play a key role in our growth strategy, but we may be unable to identify, acquire, close or integrate acquisition targets successfully. • We rely on our relationship with FST Belize for a significant percentage of our revenue, which exposes us to a number of risks. • Competition in the markets in which we operate may result in a decrease in our market share and/or profitability. • We could suffer significant losses from credit exposure. • Our ability to meet our obligations, and the cost of funds to do so, depend on our ability to access identified sources of liquidity at a reasonable cost. • We may need to raise additional capital, and we cannot be sure that additional financing will be available or available on attractive terms. • Reduction in our credit ratings or an increase in our credit spreads could adversely affect our business, liquidity and cost of funding. • Our investments expose us to a significant risk of capital loss. • We are dependent upon our relationships with third-party U.S.-registered securities broker-dealer and clearing firms to receive and transmit securities and funds internationally. • We may suffer significant loss from changes in the KASE's requirements related to the discount coefficients on the securities in securities repurchase transactions. • Our modeling and assumptions used in assessing risks in our insurance business may differ materially from actual r esults . • In our insurance business, we may not be able to obtain reinsurance at required levels or prices, or otherwise collect on reinsurance, which could increase our exposure or limit our ability to write new policies. • We are dependent on our executive management team, particularly Timur Turlov, and our ability to hire and retain skilled personnel. • Extraordinary events beyond our control could negatively impact our business. • The Covid-19 has impacted and could continue to impact the global economy, global financial markets and our business, financial condition, and results of operations.
As a condition of maintaining our licenses to conduct brokerage and banking activities, some of our subsidiaries must meet ongoing capital and liquidity standards, which are subject to evolving rules and qualitative judgments by government regulators regarding the adequacy of their capital and internal assessment of their capital needs.
As a condition to maintaining our licenses to conduct brokerage and banking activities, some of our subsidiaries must meet ongoing capital and liquidity standards, which are subject to evolving rules and qualitative judgments by government regulators regarding the adequacy of their capital and internal assessment of their capital needs.
On November 24, 2016, the OECD published the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS ("MLI") which introduces new provisions to existing double tax treaties limiting the use of tax benefits provided thereby.
On November 24, 2016, the OECD published the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the "MLI") which introduces new provisions to existing double tax treaties limiting the use of tax benefits provided thereby.
Kazakhstan is not a party to any multilateral or bilateral treaties with the UK or the U.S. (or most other western jurisdictions) for the mutual enforcement of court judgments, and, accordingly, there is a risk that a judgment obtained from a court in England or New York would not be enforceable in Kazakhstan courts.
Kazakhstan is not a party to any multilateral or bilateral treaties with the U.S. or the UK (or most other western jurisdictions) for the mutual enforcement of court judgments, and, accordingly, there is a risk that a judgment obtained from a court in New York or England would not be enforceable in Kazakhstan courts.
Each of Kazakhstan, the UK and the U.S. are, however, parties to the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards (the "Convention"), and, accordingly, an arbitral award under the Convention should generally be recognized and enforceable in Kazakhstan provided the conditions to enforcement set out in the Convention and applicable Kazakhstan laws are met.
Each of Kazakhstan, the U.S. and the UK are, however, parties to the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards (the "Convention"), and, accordingly, an arbitral award under the Convention should generally be recognized and enforceable in Kazakhstan provided the conditions to enforcement set out in the Convention and applicable Kazakhstan laws are met.
For example, an increase in interest rates, a general decline in debt or equity markets, an inability to properly and cost effectively hedge, economic slowdowns, delays in timing of anticipated events, an inability to identify and engage suitable counterparties, or other market conditions adverse to entities or investments of the type in which we invest or for which we make markets, or other world events, such as wars, including the Russia/Ukraine Conflict, natural disasters or the outbreak of a pandemic like COVID-19, could result in a decline in the value of our investments.
For example, an increase in interest rates, a general decline in debt or equity markets, an inability to properly and cost effectively hedge, economic slowdowns, delays in timing of anticipated events, an inability to identify and engage suitable counterparties, or other market conditions adverse to entities or investments of the type in which we invest or for which we make markets, or other world events, such as wars, including the Russia-Ukraine conflict, natural disasters or the outbreak of a pandemic such as Covid-19, could result in a decline in the value of our investments.
The occurrence of such extraordinary events, including the emergence of pandemics or other widespread health emergency (or concerns over the possibility of such an emergency); persistent or recurring endemics; political discord and civil unrest; terrorist attacks; cyber attacks; war and armed conflict (including but not limited to the Conflict); extreme weather events or other natural disasters; failure of, or loss of access to, technology or operational systems, including any resulting loss of critical data; power, telecommunications or internet outages; or shutdowns of mass transit, could create, and in the case of COVID-19, civil unrest in Kazakhstan in January 2022, and the Russia/Ukraine Conflict, have created, and may continue to create, economic, governmental and financial disruptions, and could lead to operational difficulties (including shutdowns of our offices, quarantine, shelter in place and travel limitations) that could impair our ability to operate our business.
The occurrence of such extraordinary events, including the emergence of pandemics or other widespread health emergency (or concerns over the possibility of such an emergency); persistent or recurring endemics; political discord and civil unrest; terrorist attacks; cyber attacks; war and armed conflict (including but not limited to the Russia-Ukraine conflict); extreme weather events or other natural disasters; failure of, or loss of access to, technology or operational systems, including any resulting loss of critical data; power, telecommunications or internet outages; or shutdowns of mass transit, could create, and in the cases of Covid-19, civil unrest in Kazakhstan in January 2022, and the Russia-Ukraine conflict, have created, and may continue to create, economic, governmental and financial disruptions, and could lead to operational difficulties (including shutdowns of our offices, quarantine, shelter in place and travel limitations) that could impair our ability to operate our business.
Minimum standards and duties according to the anti-money laundering legislation in Russia, Kazakhstan, Cyprus, the EU, the U.S. and other jurisdictions where we operate include customer identification, analysis of the customer's economic profile, record keeping, suspicious activity reporting, employee training, an audit function and designation of a compliance officer.
Minimum standards and duties according to the anti-money laundering legislation in Kazakhstan, Cyprus, the EU, the U.S. and other jurisdictions where we operate include customer identification, analysis of the customer's economic profile, record keeping, suspicious activity reporting, employee training, an audit function and designation of a compliance officer.
As such, significant mortgage defaults in Kazakhstan could adversely affect our banking operations and the ultimate success of our digital mortgage product. We have exposure to credit risk associated with our proprietary investments. We rely on the use of credit arrangements as a significant component of our trading strategy.
As such, significant mortgage defaults in Kazakhstan could adversely affect our banking operations and the ultimate success of our digital mortgage product. We also have exposure to credit risk associated with our proprietary investments. We rely on the use of credit arrangements as a significant component of our trading strategy.
In particular, our ability to operate our business, and specifically our proprietary electronic trading platform, Tradernet, depends on our ability to protect the computer systems, networks and databases that we operate and use from unauthorized intrusions of third parties, including cyber attacks.
In particular, our ability to operate our business, and specifically our electronic trading platform, Tradernet, depends on our ability to protect the computer systems, networks and databases that we operate and use from unauthorized intrusions of third parties, including cyber attacks.
The local authorities may order our subsidiaries to temporarily shut down their entire network or part or all of our networks may be shut down due to actions relating to military conflicts, social unrest or a nationwide strike.
The local authorities may order our subsidiaries to temporarily shut down their entire networks or part or all of our networks may be shut down due to actions relating to military conflicts, social unrest or a nationwide strike.
Summary of Risk Factors The following is a summary of some of the principal risks that could affect our businesses and should be read with the more complete discussion of risks and uncertainties set forth below it.
Summary of Risk Factors The following is a summary of the principal risks that could affect our businesses and should be read with the more complete discussion of risks and uncertainties set forth below it.
While in recent years Kazakhstan has sought to diversify its economy and, in particular, to increase export of manufacturing products, Kazakhstan continues to remain heavily reliant on the oil and gas industry and on hydrocarbon exports.
While in recent years Kazakhstan has sought to diversify its economy and, in particular, to increase exports of manufacturing products, Kazakhstan continues to remain heavily reliant on the oil and gas industry and on hydrocarbon exports.
However, we will continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position, expand our customer base or enhance our existing service offerings.
We will continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position, expand our customer base or enhance our existing service offerings.
Investors in emerging markets should be aware that these markets are subject to greater risk than more mature markets, including in some cases significant political, economic and legal risks, including: • difficulties in enforcing legal rights; • corruption in certain countries; • economic volatility and sustained economic downturns; • restrictive changes in securities brokerage, financial services and banking laws; • differing and sometimes conflicting legal and regulatory regimes; • unpredictable, uncertain and potentially adverse changes to tax regimes; • difficulties in developing, staffing, and simultaneously managing a number of international operations; • risks related to government regulation; • uncertain protection and enforcement of our intellectual property rights; • uncertain and changing judicial and regulatory environments and requirements; • currency exchange rate fluctuations and currency exchange controls; • procuring adequate insurance; and • political or social unrest, including domestic protests such as occurred in Kazakhstan in January 2022 and international conflicts, such as the Russia/Ukraine Conflict in February 2022.
Investors in emerging markets should be aware that these markets are subject to greater risk than more mature markets, including in some cases significant political, economic and legal risks, including: • difficulties in enforcing legal rights; • corruption in certain countries; • economic volatility and sustained economic downturns; • restrictive changes in securities brokerage, financial services and banking laws; • differing and sometimes conflicting legal and regulatory regimes; • unpredictable, uncertain and potentially adverse changes to tax regimes; • difficulties in developing, staffing, and simultaneously managing a number of international operations; • risks related to government regulation; • uncertain protection and enforcement of our intellectual property rights; 44 Table of Contents • uncertain and changing judicial and regulatory environments and requirements; • currency exchange rate fluctuations and currency exchange controls; • procuring adequate insurance; and • political or social unrest, including domestic protests such as occurred in Kazakhstan in January 2022 and international conflicts, such as the Russia-Ukraine conflict.
Over the last two decades, the Russian economy has experienced and may continue to experience at various times: • significant volatility in its GDP; • the impact of international sanctions; • high levels of inflation; • increases in, or high, interest rates; • sudden price declines in oil and other natural resources; • instability in the local currency market; • lack of reform in the banking sector and a weak banking system providing limited liquidity to Russian enterprises; • budget deficits; • the continued operation of loss-making enterprises due to the lack of effective bankruptcy proceedings; • capital flight; and • significant increases in poverty rates, unemployment and underemployment.
Over the last two decades, the Russian economy has experienced and may continue to experience at various times: • significant volatility in its GDP; • the impact of international sanctions; • high levels of inflation; 46 Table of Contents • increases in, or high, interest rates; • sudden price declines in oil and other natural resources; • instability in the local currency market; • lack of reform in the banking sector and a weak banking system providing limited liquidity to Russian enterprises; • budget deficits; • the continued operation of loss-making enterprises due to the lack of effective bankruptcy proceedings; • capital flight; and • significant increases in poverty rates, unemployment and underemployment.
The infrastructure upon which our operations and IT systems depend, including electrical communications and internet, and transportation and other services, are vulnerable to damage or disruptions from events outside our control, including natural disasters, military conflicts, power, telecommunications and internet unavailability or outages, terrorist acts, riots, government shutdown orders, changes in government regulation, equipment or system failures or an inability to access or operate such equipment or systems, human error or intentional wrongdoings, cyber-attacks or any other types of information technology security threats.
The infrastructure upon which our operations and IT systems depend, including electrical communications and internet, and transportation and other services, are vulnerable to damage or disruptions from events outside our control, 42 Table of Contents including natural disasters, military conflicts, power, telecommunications and internet unavailability or outages, terrorist acts, riots, government shutdown orders, changes in government regulation, equipment or system failures or an inability to access or operate such equipment or systems, human error or intentional wrongdoings, cyber-attacks or any other types of information technology security threats.
If our arrangement with any third-party is terminated, we may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms. This could have a material adverse effect on our business, financial condition and results of operations.
If our arrangement with any third-party is terminated, we may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which could reduce our profitability, particularly in our businesses that involve investing, lending and market making.
If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, either of which could reduce our profitability, particularly in our businesses that involve investing, lending and market making.
Timur Turlov also owes fiduciary duties to the Company as a board member and officer. However, Nevada corporate law can be viewed as more protective of officers and directors than the corporate laws of other U.S. state jurisdictions, and therefore may not provide the same level of redress as other U.S. state corporate laws.
Turlov also owes fiduciary duties to the Company as a board member and officer. However, Nevada corporate law can be viewed as more protective of officers and directors than the corporate laws of other U.S. state jurisdictions, and it therefore may not provide the same level of redress as other U.S. state corporate laws.
Further, any insurance that we may purchase to mitigate certain risks may not cover all losses. In addition, the computers and data centers that process trades and payments are located in the same locale. If a catastrophic event were to occur at that locale it may result in permanent data loss.
Further, any insurance that we may purchase to mitigate certain risks may not cover all losses. In addition, the computers and data centers that process our trades and payments are located in the same locale. If a catastrophic event were to occur at such a locale it may result in permanent data loss.
In certain circumstances, the Russian tax authorities may apply the transfer pricing rules and methods in cases where the rules are formally not applicable, claiming additional tax charges calculated using the transfer rules but based on other tax concepts (e.g., anti-avoidance rules, lack of economic justification of expenses, etc.).
In certain circumstances, the local tax authorities may apply the transfer pricing rules and methods in cases where the rules are formally not applicable, claiming additional tax charges calculated using the transfer rules but based on other tax concepts (e.g., anti-avoidance rules, lack of economic justification of expenses, etc.).
These pose increasingly complex compliance challenges, which may increase compliance costs, and compliance failures could result in significant fines, penalties and liability. We have previously encountered cyber security incidents which breached our information systems, but these were contained by our response teams and generated negligible impacts.
These pose increasingly complex compliance challenges, which may increase compliance costs, and compliance failures could result in significant fines, penalties and liability. We have previously experienced cyber security incidents which breached our information systems, but these were contained by our response teams and generated negligible impacts.
Emerging market governments and judiciaries often exercise broad, unchecked discretion and are susceptible to abuse and corruption. Investors should also note that emerging economies such as the economies of Russia and Kazakhstan are subject to rapid change and that the information set out herein may become outdated relatively quickly.
Emerging market governments and judiciaries often exercise broad, unchecked discretion and are susceptible to abuse and corruption. Investors should also note that emerging economies such as Kazakhstan are subject to rapid change and that the information set out herein may become outdated relatively quickly.
Among other tax benefits, there is an exemption from corporate income tax of commission income earned by the AIFC-registered member from rendering defined financial services in the AIFC. It is currently unclear whether an AIFC-registered member is eligible for the tax benefits if, for example, it renders services online through employees working outside the AIFC.
Among other tax benefits, there is an exemption from corporate income tax on commission income earned by an AIFC-registered member from rendering defined financial services in the AIFC. It is currently unclear whether an AIFC-registered member is eligible for the tax benefits if, for example, it renders services online through employees working outside the AIFC.
In addition, new and expanding data privacy laws and regulations (such as the GDPR, as discussed above in this Item 1A at " We operate in highly regulated industries" ) are, or soon will be, in effect in many of the jurisdictions where we conduct business.
In addition, new and expanding data privacy laws and regulations (such as the GDPR, as discussed above in this Item 1A under " We operate in highly regulated industries" ) are, or soon will be, in effect in many of the jurisdictions where we conduct business.
U.S. economic sanctions also include “secondary” sanctions that make certain activities of non-U.S. companies sanctionable under U.S. statutes such as the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). These sanctions are administered by OFAC and/or the U.S. Department of State.
U.S. economic sanctions also include “secondary” sanctions that make certain activities of non-U.S. companies sanctionable under U.S. statutes such as the Countering America’s Adversaries Through Sanctions Act (CAATSA). These sanctions are administered by OFAC and/or the U.S. Department of State.
In addition, changes to laws, rules and regulations or changes in the enforcement of existing laws, rules or regulations, could: • limit the lines of business we conduct; • require us to reduce our ownership stake in a subsidiary; 34 Table of Contents • compel us to terminate certain lines of business in affected jurisdictions; • result in material cost increases including our cost of capital; • otherwise adversely affect our ability to compete effectively with other institutions that are not similarly impacted; • require us to modify existing business practices; • force us to relocate operations or personnel; • require us to invest significant management attention and resources and legal costs to evaluate and make necessary changes to our compliance, risk management, treasury and operations functions; • make it uneconomical for us to provide certain services in particular countries; and • influence how we manage our capital and liquidity.
In addition, changes to laws, rules and regulations or changes in the enforcement of existing laws, rules or regulations, could: • limit the lines of business we conduct; • require us to reduce our ownership stake in a subsidiary; • compel us to terminate certain lines of business in affected jurisdictions; • require us to reduce our investment position in a particular instrument; • result in material cost increases including our cost of capital; • otherwise adversely affect our ability to compete effectively with other institutions that are not similarly impacted; • require us to modify existing business practices; • force us to relocate operations or personnel; 33 Table of Contents • require us to invest significant management attention and resources and legal costs to evaluate and make necessary changes to our compliance, risk management, treasury and operations functions; • make it uneconomical for us to provide certain services in particular countries; and • influence how we manage our capital and liquidity.
Our revenue and profitability could be affected by changes to rules and regulations that impact the business and financial communities generally, including changes to the laws governing foreign ownership, electronic commerce, customer privacy and security of customer data.
Our revenue and profitability could be affected by changes to rules and regulations that impact the business and financial sectors generally, including changes to the laws governing foreign ownership, electronic commerce, customer privacy and security of customer data.
Risks Related to our Business in Emerging Markets : • Emerging markets, such as many of the markets in which we operate, are subject to greater risks than more mature markets, including significant political, economic and legal risks. • We are exposed to foreign currency fluctuation risks. • We face interest rate change risks. • The economies of Kazakhstan and other countries in which we operate are vulnerable to external shocks and fluctuations in the global economy. • Kazakhstan's economy is vulnerable to internal social/political unrest. • Economic and political instability in the Russian Federation could have an adverse effect on our business.
Risks Related to Our Operations in Emerging Markets : • Emerging markets, such as many of the markets in which we operate, are subject to greater risks than more mature markets, including significant political, economic and legal risks. • We are exposed to foreign currency fluctuation risks. • We face interest rate change risks. • The economies of Kazakhstan and other countries in which we operate are vulnerable to external shocks and fluctuations in the global economy. • Kazakhstan's economy is vulnerable to internal political and social unrest. • Economic and political instability in Russia could have an adverse effect on our business.
We operate through subsidiaries in Kazakhstan, Russia, Ukraine, Kyrgyzstan, Uzbekistan, Azerbaijan, Armenia, the EU, UAE, UK and U.S., Germany, and Cyprus including representative offices of our Cyprus broker in Greece, France and Spain.
We operate through subsidiaries in Kazakhstan, Ukraine, Kyrgyzstan, Uzbekistan, Azerbaijan, Armenia, the EU, the UAE, the U.S., Germany, and Cyprus including representative offices of our Cyprus broker in Greece, France and Spain.
Any technical or other breaches of the anti-money laundering laws and regulations by us could have a material adverse effect on our business, results of operations, and financial condition.
Any technical or other breaches of the anti-money laundering laws and regulations by us could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Because we have employees in a number of cities in Russia, Kazakhstan, Ukraine, Uzbekistan, Kyrgyzstan, Azerbaijan, Germany, Spain, Greece, France. the UAE, the UK, the U.S. and Cyprus, all of whom need to work and communicate as an integrated team, the functionality of the infrastructure affects our ability to conduct business.
Because we have employees in a number of locations in Kazakhstan, Ukraine, Uzbekistan, Kyrgyzstan, Azerbaijan, Germany, Spain, Greece, France, the UAE, the UK, the U.S. and Cyprus, all of whom need to work and communicate as an integrated team, the functionality of the infrastructure affects our ability to conduct business.
Risks Related to Information Technology and Cyber Security Our broker-dealer, financial services, and banking operations are highly dependent on the continued and proper functioning of our information technology systems. Our broker-dealer, financial services and banking businesses are highly dependent on processing, on a daily basis, a large number of communications and increasingly complex transactions across diverse markets, in various languages.
Risks Related to Information Technology and Cyber Security Our brokerage, financial services, and banking operations are highly dependent on the continued and proper functioning of our information technology systems. Our brokerage, financial services and banking businesses are highly dependent on processing, on a daily basis, a large number of communications and increasingly complex transactions across diverse markets, in various languages.
We may suffer significant loss from changes in the KASE's requirements related to the discount coefficients on the securities in securities repurchase transactions. 38 Table of Contents As part of our investment activities, both as an intermediary between borrowers and lenders and on a proprietary basis, we raise funds through repurchase transactions on the KASE.
We may suffer significant loss from changes in the KASE's requirements related to the discount coefficients on the securities in securities repurchase transactions. As part of our investment activities, both as an intermediary between borrowers and lenders and on a proprietary basis, we raise funds through repurchase transactions on the KASE.
Our internal policies and those of our subsidiaries provide for training and compliance with all applicable anti-corruption laws and regulations. Despite our training and compliance programs, it is possible that our employees, agents or independent contractors may cause us or a subsidiary to violate applicable laws.
Our internal policies and those of our 32 Table of Contents subsidiaries provide for training and compliance with all applicable anti-corruption laws and regulations. Despite our training and compliance programs, it is possible that our employees, agents or independent contractors may cause us or a subsidiary to violate applicable laws.
Our relatively limited operational history has coincided with sustained market growth which may not be predictive of future operating results. Our legacy brokerage operations were merged into the Company, which is a Nevada-incorporated holding company, in several stages between November 2015 and 2017, and we have grown rapidly over the last several years.
Risk Related to our Business and Operations Our relatively limited operational history has coincided with sustained market growth which may not be predictive of future operating results. Our legacy brokerage operations were merged into our holding company, which is a Nevada-incorporated company, in several stages between November 2015 and 2017, and we have grown rapidly over the last several years.
As a result of internet shutdowns (or limited access to it) and the state of emergency declared by the president of Kazakhstan, our Kazakhstan subsidiaries, along with other financial institutions in Kazakhstan, were unable to conduct operations or operated with limited functionality during the unrest.
As a result of shutdowns (or restrictions on access to) the internet and the state of emergency declared by the president of Kazakhstan, our Kazakhstan subsidiaries, along with other financial institutions in Kazakhstan, were unable to conduct operations or operated with limited functionality during the unrest.
Risks Related to Information Technology and Cyber Security : • Our broker-dealer, financial services, and banking operations are highly dependent on the continued and proper functioning of our information technology systems. • We interact with large volumes of sensitive data that exposes us to IT breach and other data security risks and liabilities. • The infrastructure on which our IT systems depend is subject to events that could interrupt our ability to operate. • Failure of third-party systems and operations on which we rely could adversely affect our business. • To remain competitive, we must keep pace with rapid technological change.
Risks Related to Information Technology and Cyber Security : • Our brokerage, financial services, and banking operations are highly dependent on the continued and proper functioning of our information technology systems. 27 Table of Contents • We interact with large volumes of sensitive data that exposes us to IT breach and other data security risks and liabilities. • The infrastructure on which our IT systems depend is subject to events that could interrupt our ability to operate. • Failure of third-party systems and operations on which we rely could adversely affect our business. • To remain competitive, we must keep pace with rapid technological change.
Application of the MLI could potentially limit tax benefits granted by double tax treaties of Russia, Cyprus and Kazakhstan. Frequent tax law changes in regions where we conduct operations could adversely affect our business and the value of investments.
Application of the MLI could potentially limit tax benefits granted under the double tax treaties of Cyprus and Kazakhstan. Frequent tax law changes in regions where we conduct operations could adversely affect our business and the value of investments.
Weaknesses in the global economy, or a future external economic crisis, may have a negative effect on economies or investors' confidence in the markets where we operate. Such developments could have a material adverse effect on our business, financial condition, and results of operations. 41 Table of Contents Kazakhstan's economy is vulnerable to internal social/political unrest.
Weaknesses in the global economy, or a future external economic crisis, may have a negative effect on economies or investors' confidence in the markets where we operate. Such developments could have a material adverse effect on our business, financial condition, cash flows and results of operations. Kazakhstan's economy is vulnerable to internal political and social unrest.
In connection with the Russia/Ukraine Conflict, the Russian authorities have placed increased restrictions on access to the internet, including limiting global internet connections for Russian users, restricting access to certain internet sites and imposing regulations governing various information technology service providers.
In connection with the Russia-Ukraine conflict, the Russian authorities have placed increased restrictions on access to the internet, including limiting global internet connections for Russian users, restricting access to certain internet 43 Table of Contents sites and imposing regulations governing various information technology service providers.
As a matter of practice, we enforce real-time margin compliance monitoring and liquidate customers' positions if their equity falls below established margin requirements. We also have exposure to credit risk from our digital mortgage program.
As a matter of practice, we enforce real-time margin compliance monitoring and liquidate customers' positions if their equity falls below established margin requirements. In addition, we have exposure to credit risk from our digital mortgage program in Kazakhstan.
Deterioration in the financial condition, earnings or cash flow of our subsidiaries for any reason, including the risks discussed herein as applicable or the occurrence of such events to any such subsidiary, could limit or impair their ability to pay such distributions to us.
Deterioration in the financial condition, earnings or cash flow of our subsidiaries for any reason, including the risks discussed herein as applicable or the occurrence of such events to any such subsidiary, could limit or impair their ability to pay such distributions to Freedom Holding Corp.
Risks Related to Our Business in Emerging Markets 39 Table of Contents Emerging markets, such as many of the markets in which we operate, are subject to greater risks than more mature markets, including significant political, economic and legal risks. Generally, investments in emerging markets are only suitable for sophisticated investors who fully appreciate the significance of the risks involved.
Risks Related to Our Operations in Emerging Markets Emerging markets, such as many of the markets in which we operate, are subject to greater risks than more mature markets, including significant political, economic and legal risks. Generally, investments in emerging markets are only suitable for sophisticated investors who fully appreciate the significance of the risks involved.
Among the factors that could affect our stock price are: • the Russia/Ukraine Conflict and related sanctions; • geopolitical and civil unrest in any of the markets in which we operate; • pandemic and epidemic disease; • our planned disposition of our Russian subsidiaries; • new regulatory pronouncements and changes in regulatory guidelines; 50 Table of Contents • actual or anticipated fluctuations in our quarterly operating results; • changes in market valuations or earnings of similar companies; • any future sales of our common stock or other securities; • material breaches of our regulatory compliance by our employees; • changes in securities analysts' estimates of our financial performance or lack of research coverage and reports by industry analysts; • investigations, lawsuits, enforcement actions, and other claims by third parties or governmental authorities; • domestic and international economic factors unrelated to our performance; • announcements by us of significant impairment charges; • investor perception of us and our industry; • announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships; and • speculation in the press or investment community.
Among the factors that could affect our stock price are: • the Russia-Ukraine conflict and related sanctions and their direct and indirect effects; • geopolitical and civil unrest in any of the markets in which we operate; • planned or completed acquisitions or disposals; • pandemic and epidemic disease; • investigations, lawsuits, enforcement actions, and other claims by third parties or governmental authorities; • new regulatory pronouncements and changes in regulatory guidelines; • actual or anticipated fluctuations in our quarterly operating results; • changes in market valuations or earnings of similar companies; • any future sales of our common stock or other securities; • material breaches of regulations by our employees; • changes in securities analysts' estimates of our financial performance or lack of research coverage and reports by industry analysts; • domestic and international economic factors unrelated to our performance; • announcements by us of significant impairment charges; 51 Table of Contents • investor perception of us and our industry; • announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships; and • speculation in the press or investment community.
The above developments in terms of global information exchange could complicate tax planning as well as related business decisions and could possibly expose us to significant fines and penalties and to enforcement measures, despite our best efforts at compliance, and could result in a greater than expected tax burden.
The foregoing developments regarding global information exchange could complicate our tax planning as well as related business decisions and could possibly expose us to significant fines and penalties and to enforcement measures, despite our best efforts at compliance, and could result in a greater than expected tax burden.
Taxation Risks Related to our International Operations : 28 Table of Contents • Global anti-offshore measures could adversely impact our business. • Frequent tax law changes in the regions where we conduct operations could affect our business in and the value of our investments. • Russian transfer pricing legislation may require pricing adjustments and impose additional tax liabilities. • Russian anti-offshore measures expose us to tax liability risks. • Uncertainties and ongoing changes in Kazakhstan's tax regime may have an adverse impact on our business. • Changes in regulations related to taxes on stock transfers and other financial transactions could reduce the volume of market transactions and impact our business.
Taxation Risks Related to Our International Operations : • Global anti-offshore measures could adversely impact our business. • Frequent tax law changes in the regions where we conduct operations could affect our business in and the value of our investments. • Kazakhstan transfer pricing legislation may require pricing adjustments and impose additional tax liabilities. • Uncertainties and ongoing changes in Kazakhstan's tax regime may have an adverse impact on our business. • Changes in regulations related to taxes on stock transfers and other financial transactions could reduce the volume of market transactions and impact our business..
Enforcement officials generally interpret anti-corruption laws to prohibit, among other things, improper payments to government officials such as those of the CBR, the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (the "ARDFM"), the Cyprus Securities and Exchange Commission (the "CySEC"), Federal Financial Supervisory Authority ("BaFIN") the Center for Coordination and Development of Securities Market of the Republic of Uzbekistan and the National Commission on Securities and Stock Market of Ukraine, the Financial Industry Regulatory Authority ("FINRA") which are the principal regulatory bodies that control and monitor our operations in the respective countries in which we operate.
Enforcement officials generally interpret anti-corruption laws to prohibit, among other things, improper payments to government officials such as those of the ARDFM, CySEC, FINRA, the Federal Financial Supervisory Authority of Germany ("BaFIN") the Center for Coordination and Development of Securities Market of the Republic of Uzbekistan and the National Commission on Securities and Stock Market of Ukraine, which are the principal regulatory bodies that control and monitor our operations in the respective countries in which we operate.
Our investments can expose us to a significant risk of capital loss. We use a significant portion of our capital to engage in a variety of investment activities for our own account, as well as in our exchange-based market making activities.
Our investments expose us to a significant risk of capital loss. 38 Table of Contents We use a significant portion of our capital to engage in a variety of investment activities for our own account, as well as in our exchange-based market making activities.
The countrywide unrest in Kazakhstan in January 2022 resulted in major interruptions to Kazakhstan's financial market.
The countrywide unrest in Kazakhstan that occurred in January 2022 resulted in major interruptions to Kazakhstan's financial market.
Extraordinary events beyond our control could negatively impact our business. Our business and operations could be seriously disrupted and our reputation could be harmed, by events or contributing factors that are wholly or partially beyond our control.
Our business and operations could be seriously disrupted and our reputation could be harmed, by events or contributing factors that are wholly or partially beyond our control.
Additionally, to the extent our subsidiaries are restricted from making such distributions under applicable laws or regulations or under the terms of financing arrangements or are otherwise unable to provide funds to the extent of our needs, there could be a material adverse effect on our business, financial condition, and results of operations.
Additionally, to the extent our subsidiaries are restricted from making such distributions under applicable laws or regulations or under the terms of financing arrangements or are otherwise unable to provide funds to the extent of Freedom Holding Corp.'s needs, there could be a material adverse effect on our business, financial condition, cash flows and results of operations.
Our operations are conducted primarily through our subsidiaries and our ability to generate cash to fund our operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans.
Our operations are conducted primarily through the subsidiaries of Freedom Holding Corp., and Freedom Holding Corp.'s ability to generate cash to fund its operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans.
These restrictions increase the risks that we will not be able to adequately or timely communicate with customers and vendors in Russia in order to provide our services, and could result in the loss of such business. To remain competitive, we must keep pace with rapid technological change.
These restrictions increase the risks that we will not be able to adequately or timely communicate with customers who are Russian person in order to provide our services, and could result in the loss of such business. To remain competitive, we must keep pace with rapid technological change.
Our PrimeEx subsidiary is not a licensed clearing firm. We rely on the services of a limited number of third-party U.S.-registered securities broker dealer and clearing firms to execute these trades. In executing purchase transactions, we transmit the funds invested by our customers to the relevant U.S.-registered securities broker-dealer and clearing firms, which execute the purchases of the securities.
We rely on the services of a limited number of third-party U.S.-registered securities broker dealer and clearing firms to execute these trades. In executing purchase transactions, we transmit the funds invested by our customers to the relevant U.S.-registered securities broker-dealer and clearing firms, which execute the purchases of the securities.
As a minimum standard MLI implements principle purposes test, under which treaty benefits are disallowed if one of the principle purposes of the transaction or the structure was to obtain a tax benefit. The MLI was ratified by Russia on May 1, 2019, by Cyprus on January 22, 2020 and by Kazakhstan on February 20, 2020.
As a minimum standard, the MLI implements a principal purposes test, under which treaty benefits are disallowed if one of the principal purposes of the transaction or the structure was to obtain a tax benefit. The MLI was ratified by Cyprus on January 22, 2020 and by Kazakhstan on February 20, 2020.
The current geopolitical crisis and responses to it have materially and adversely impacted the macroeconomic climate in Russia and the surrounding region, resulting in significant currency rate volatility, the imposition of currency controls, capital flight, materially increased interest rates and inflation, and the withdrawal of or reduction of business by a number of Western businesses from the Russian market, which may lead to reduced investment confidence and investment spending by affected Russians.
The Russia-Ukraine conflict and responses to it have materially and adversely impacted the macroeconomic climate in Russia and the surrounding region, resulting in significant currency rate volatility, the imposition of currency controls, capital flight, materially increased interest rates and inflation, and the withdrawal of or reduction of business by a number of Western businesses from the Russian market, any of which may lead to reduced investment confidence and investment spending by affected Russian persons.
We are exposed to credit risk, primarily from institutions and individuals through the brokerage services we offer. We incur credit risk in a number of areas, including margin lending. We extend margin loans to our customers. As of March 31, 2022, we had margin lending receivables in the amount of $349.2 million.
We are exposed to credit risk, primarily from institutions and individuals through the brokerage services we offer. We incur credit risk in a number of areas, including margin lending. We extend margin loans to our customers. As of March 31, 2023, we had margin lending receivables in the amount of $376.3 million.
For example, the tenge experienced a significant depreciation against the U.S. dollar in 2018 mainly due to significant deterioration of external factors, such as depreciation of the Russian ruble and the decrease in crude oil prices (starting from October 2018) due to increased oil reserves and oil production by principal exporters.
For example, the tenge depreciated significantly relative to the U.S. dollar in 2018 mainly due to significant deterioration of external factors, such as depreciation of the Russian ruble and the decrease in crude oil prices (starting from October 2018) due to increased oil reserves and oil production by principal exporters.
Our measures to prevent money laundering, terrorist financing, and sanctions violations may not be completely effective. Notwithstanding the anti-money-laundering (“AML”) regulations that are in place in Russia, Kazakhstan, Cyprus, the EU, the U.S. and other jurisdictions in which we operate, the risk remains that financial institutions in such jurisdictions could be used as vehicles for money laundering.
Our measures to prevent money laundering and terrorist financing violations may not be completely effective. Notwithstanding the anti-money-laundering (“AML”) regulations that are in place in Kazakhstan, the EU, the U.S. and other jurisdictions in which we operate, we are subject to the risk that our subsidiaries that are financial institutions could be used as vehicles for money laundering.
As a result, the Russian tax authorities may challenge the level of prices applied by us under the "controlled" transactions (including certain intercompany transactions) or challenge the methods used to prove prices applied by us, and as a result accrue additional tax liabilities.
As a result of such audits, the tax authorities could challenge the level of prices applied by us under "controlled" transactions (including certain intercompany transactions) or challenge the methods used to prove prices applied by us, and as a result we may accrue additional tax liabilities.
The outbreak of the COVID-19 pandemic has impacted and the ongoing endemic might continue to impact the global economy, global financial markets and our business, financial condition, and results of operations. The COVID-19 pandemic has created financial disruption and impacted the economies of every country in which we operate.
The Covid-19 has pandemic impacted and could continue to impact the global economy, global financial markets and our business, financial condition, and results of operations. The Covid-19 has created financial disruption and impacted the economies of every country in which we operate.
Because we are a U.S. domiciled holding company that operates through our subsidiaries, we are obliged to comply with Ukraine/Russia-related sanctions imposed by the U.State., but those sanctions do not apply to the fully independent activities of our non-U.S. subsidiaries where there is no U.S. nexus.
Because Freedom Holding Corp. is a U.S.-domiciled holding company that operates through its subsidiaries, we are obliged to comply with Ukraine-Russia conflict-related sanctions imposed by the United States, but those sanctions do not apply to the fully independent activities of our non-U.S. subsidiaries where there is no U.S. nexus.
In the case of suspicious transactions, internal suspicion reports (ISRs) are submitted to the local compliance departments for initial internal investigation. In case of confirmed suspicious transactions, such transactions are reported immediately to the relevant local financial intelligence unit (FIU). We have a U.S.
In the case of suspicious transactions, internal suspicion reports (ISRs) are submitted to the local compliance departments for initial internal investigation. In the case of confirmed suspicious transactions, such transactions are reported immediately to the relevant local financial intelligence unit (FIU).
For instance, in Kazakhstan we have developed an online-based platform that integrates Kazakhstan government databases with our services, making our service offerings faster and more convenient than services without this integration. We do not control these government databases and cannot guarantee that we will always have access to these databases or proper functionality with these databases.
For example, in Kazakhstan we have developed an online-based platform that integrates Kazakhstan government databases with our services, making our service offerings faster and more convenient than services without such integration. We do not control the relevant government databases and cannot guarantee that we will always have access to such databases or proper functionality with such databases.
Pursuing solutions for this problem, the OECD and G20 countries adopted a 15-point Action Plan to Base Erosion and Profit Shifting ("BEPS"). 42 Table of Contents The BEPS package of measures represents a substantial renovation of the international tax rules.
Pursuing solutions to this problem, the OECD and G20 countries adopted a 15-point Action Plan to Base Erosion and Profit Shifting ("BEPS"). The BEPS package of measures represents a substantial revision of international tax rules.
Failures or substantial delays in funds transfers could impair our customer relationships. Damage to or the loss of our relationships with these U.S. registered securities broker-dealer and clearing firms could also impair our ability to continue to offer such services to our customers which could have a material adverse impact on our business, results of operations and financial condition.
Damage to or the loss of our relationships with these U.S. registered securities broker-dealer and clearing firms could also impair our ability to continue to offer such services to our customers which could have a material adverse impact on our business, results of operations, financial condition and cash flows.
If we fail to compete effectively with other retail brokerage and financial services firms, or potential new entrants to the market, this could have a material adverse effect on our business, results of operations, and financial condition.
If we fail to compete effectively with other retail brokerage and financial services firms, or potential new entrants to the market, this could have a material adverse effect on our business, results of operations, financial condition and cash flows. We could suffer significant losses from credit exposure.
For us to expand this sort of integrated product outside of Kazakhstan, we are also reliant on similar databases being available and able to integrate with our systems in the jurisdictions to which we expand, the availability of which will likely vary greatly between jurisdictions.
For us to expand this type of integrated product outside of Kazakhstan, we would be reliant on similar databases being available and able to integrate with our systems in the jurisdictions to which we expand, the availability of which will likely vary greatly among jurisdictions.
Further, there is a risk that new international sanctions and new countersanctions measures may curtail the ability of our Russian investors to trade through foreign accounts or in foreign securities, or our ability to facilitate any trading through our non-Russian subsidiaries or FFIN Brokerage.
In addition, there is a risk that new international sanctions and new countersanctions measures may curtail the ability of our Russian brokerage customers to trade through non-Russian accounts or in non-Russian securities, or our ability to facilitate any trading through our non-Russian subsidiaries or FST Belize.
Under Nasdaq rules, a company of which more than 50% of the voting power is held by one individual is a "controlled company" and may elect not to comply with certain corporate governance standards, including the requirements that: • a majority of its board of directors consist of independent directors; • its audit committee, nominating and corporate governance committee and compensation committee be composed entirely of independent directors; • each committee have a written charter addressing such committee's purpose and responsibilities; and • an annual evaluation of the nominating and corporate governance committee and compensation committee be performed. 45 Table of Contents We currently utilize an exemption to allow Timur Turlov to sit on our nominating and corporate governance committee and our risk committee.
Under Nasdaq rules, a company of which more than 50% of the voting power is held by one individual is a "controlled company" and may elect not to comply with certain corporate governance standards, including the requirements that: • a majority of its board of directors consist of independent directors; • its nominating and corporate governance committee and compensation committee be composed entirely of independent directors; • each committee have a written charter addressing such committee's purpose and responsibilities; and • an annual evaluation of the nominating and corporate governance committee and compensation committee be performed.
The Convention on Mutual Administrative Assistance in Tax Matters developed by the Council of Europe and the OECD in 1988 and amended by Protocol in 2010 is now signed by 141 jurisdictions (Russia, Cyprus, Kazakhstan are among the signatories).
The Convention on Mutual Administrative Assistance in Tax Matters developed by the Council of Europe and the OECD in 1988 and amended by Protocol in 2010 has now been signed by 141 jurisdictions (including Kazakhstan, Cyprus and Russia).
See " Risk Factors – Risks Related to Our Securities and Banking Business Activities – We are dependent upon our relationships with third party U.S.-registered securities broker-dealer and clearing firms to receive and transmit securities and funds internationally ." 49 Table of Contents Our success also depends on the continued availability, development and maintenance of the internet infrastructure globally and particularly in the countries in which we operate.
See " We are dependent upon our relationships with third party U.S.-registered securities broker-dealer and clearing firms to receive and transmit securities and funds internationally ." above. Our success also depends on the continued availability, development and maintenance of the internet infrastructure globally and particularly in the countries in which we operate.
We are monitoring closely the developing sanctions environment, including Russian countersanctions, and utilizing dedicated corporate governance structures and in-house and outside advisors as and when required to ensure our continued compliance.
We are monitoring closely the developing sanctions environment, including Russian countersanctions, and utilizing dedicated corporate governance structures and in-house and outside advisors as and when required to ensure our continued compliance. However, we cannot assure that we can remain in compliance with all sanctions and countersanctions.
Another tax risk is associated with the concept of "corporate tax residency." Notably, when an entity is recognized as a Russian tax resident it is obligated to register with the Russian tax authorities, calculate and pay Russian tax on its worldwide income and comply with other tax-related rules established for Russian entities.
Notably, when an entity is recognized as a Kazakhstan tax resident it is obligated to register with the Kazakhstan tax authorities, calculate and pay Kazakhstan income tax on its worldwide income and comply with other tax-related rules established for Kazakhstan entities.
We could experience negative publicity and reputational damage as a result of investigations, lawsuits, claims or regulatory actions, in addition to potential significant costs incurred to defend ourselves or settle claims, fines, penalties and judgments. This could have a material adverse impact on our business, financial condition and results of operations.
We could experience negative publicity and reputational damage as a result of lawsuits or claims, in addition to potential significant costs incurred to defend ourselves or settle claims and judgments. Any of the foregoing could have a material adverse impact on our business, financial condition results of operations and cash flows.
Under relevant AML/CTF laws, penalties and other enforcement actions could be brought against us due to breaches of those laws and regulations, economic sanctions and similar laws by FFIN Brokerage despite the fact that we have no direct control over the activities or policies of FFIN Brokerage.
Due to our omnibus brokerage arrangement with FST Belize, penalties and other enforcement actions could be brought against us under relevant AML/CTF laws due to breaches by FST Belize of those laws and regulation and similar laws despite the fact that we have no direct control over the activities or policies of FST Belize.
With the exception of OFAC’s Iran and Cuba sanctions programs these prohibitions apply to U.S. Persons, including companies organized under the laws of the United States and their overseas branches, but do not apply to non-U.S. subsidiaries of U.S. Persons.
U.S. economic sanctions include prohibitions (“primary” sanctions) that are generally administered and enforced by OFAC. With the exception of OFAC’s Iran and Cuba sanctions programs these prohibitions apply to U.S. persons, including companies organized under the laws of the United States and their overseas branches, but do not apply to non-U.S. subsidiaries of U.S. persons.
There is no guarantee that our common stock will appreciate in value or even maintain its current value. 51 Table of Contents Payments of dividends, if any, are at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.
Payments of dividends, if any, are at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive offices are located at “Esentai Tower BC, Floor 7, 77/7 Al Farabi Ave. Almaty, Kazakhstan 050040. We lease this space under an operating lease agreement. We currently lease office space for 108 retail, executive, administrative and operational facilities in Kazakhstan, Russia, Ukraine, Uzbekistan, Cyprus, Germany, Armenia, Spain, France, Kyrgyzstan and Azerbaijan.
Biggest changeItem 2. Properties We lease and own a number of properties across our four geographic segments, through which we conduct our operations. 52 Table of Contents We currently lease office space for 158 retail, executive, administrative and operational facilities in Kazakhstan, the United States, Ukraine, Cyprus, Germany, Spain, France, Greece, Armenia, Uzbekistan, Kyrgyzstan and Azerbaijan.
For additional information regarding our office lease commitments see Note 26 " Leases" to our consolidated financial statements contained in Part II Item 8 of our annual report.
For additional information regarding our office lease commitments see Note 28 " Leases " in the notes to our consolidated financial statements contained in Part II Item 8 of this annual report.
Removed
We also have one leased office location in New York. Our total aggregate leased square footage is approximately 245,000 square feet (32,000 square meters) for which we incur rent expense of approximately $970,000 per month. Our leases expire at various times through December 2031, subject to various renewal options.
Added
Our total aggregate leased square footage is approximately 416,600 square feet (38,700 square meters). In our Central Asia and Eastern Europe segment we own 16 buildings consisting of approximately 118,370 square feet. As of March 31, 2023, the area of leased offices in our Central Asia and Eastern Europe segment was 371,920 square feet.
Removed
Our total aggregate leased square footage in our Russia region is approximately 169,000 square feet (15,700 square meters) for which we incur rent expense of approximately $550,000 per month. We consider our properties to be in good condition.
Added
Our Central Asia and Eastern Europe segment properties include our principal executive offices, which are located at "Esentai Tower" BC, Floor 7, 77/7 Al Farabi Ave. Almaty, Kazakhstan 050040, and which are leased.
Added
Our principal property in our Europe segment is our office building located at Christaki Kranou 20, Freedom Tower, 5th floor, 4041 Limassol, Cyprus with an area of 854 square meters (approximately 9,190 square feet), which we own. As of March 31, 2023, the aggregate area of leased offices in our Europe segment was 22,062 square feet.
Added
On May 10, 2023, our subsidiary Freedom EU signed a contract for the construction of Elysium Tower, a building in Limassol, Cyprus, which is planned to be a new office building for our Freedom EU subsidiary. We do not own any properties in our United States segment.
Added
As of March 31, 2023, the area of leased offices in our United States segment, which consisted of our offices located at 40 Wall Street, 57th and 58th floor, New York, was 15,250 square feet. We do not own any properties in our Middle East / Caucasus segment.
Added
As of March 31, 2023, the area of leased offices in our Middle East / Caucasus segment was 7,366 square feet. We consider our properties to be in good condition.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest change(the predecessor to Freedom Holding Corp.) and an aggregate of 250,079 shares of common stock of the Company (the “Assets”) belonging to Toleush Tolmakov, who was a shareholder of the Company at the time he died in 2011, and Simage Limited, a now defunct British Virgin Islands corporation, in which Mr.
Biggest change(the predecessor to Freedom Holding Corp.) and shares of common stock of the Company belonging to Toleush Tolmakov, who was a shareholder of the Company at the time he died in 2011, and a now defunct British Virgin Islands corporation, in which Mr. Tolmakov may have had an interest. The Company has held the relevant assets since Mr.
Tolmakov's death because it does not know to whom they should be distributed and no party has yet established legal right of ownership of the Assets. The Company does not dispute that the Assets are owed to the rightful heirs of Mr. Tolmakov and Simage Limited.
Tolmakov's death because it does not know to whom they should be distributed and no party has yet established legal right of ownership of the assets.
Estate of Toleush Tolmakov Litigation The Estate of Toleush Tolmakov (the “Estate”) has commenced a legal action against Freedom Holding Corp., and our subsidiary FFIN Securities, Inc. in the Third Judicial District Court of Salt Lake County, State of Utah. A Summons and Complaint were served on the Company and FFIN on December 22, 2021.
Estate of Toleush Tolmakov Litigation The Estate of Toleush Tolmakov (the “Estate”) commenced a legal action against Freedom Holding Corp., and our subsidiary FFIN Securities, Inc. in the Third Judicial District Court of Salt Lake County, State of Utah in December 2021. This proceeding relates to cash distributions arising from the 2011 sale of a subsidiary of BMB Munai, Inc.
Mine Safety Disclosures Not applicable. 54 Table of Contents PART II
We do not believe that the outcome of this litigation could be material to our financial condition. Item 4. Mine Safety Disclosures Not applicable. 54 Table of Contents PART II
Removed
This proceeding relates to cash distributions arising from the 2011 sale of Emir Oil, LLP, then a subsidiary of BMB Munai, Inc.
Added
On October 21, 2022, in accordance with an order entered into by the Third Judicial District Court of Salt Lake County, we deposited an amount of $8.4 million into the registry of the court, representing the amount of cash distributions 53 Table of Contents claimed by the Estate. The Company continues to deny any and all liability in this matter.
Removed
Tolmakov may have had an interest and therefore the Assets belonging to Simage Limited may be part of the Estate. Since the 2011 death of Mr.
Removed
Tolmakov, his putative heirs have litigated various disputes in Kazakhstan's courts related to which of the putative heirs actually are heirs, the proper distribution of the estate and other matters, but without a conclusive final order regarding the distribution of the Assets. 53 Table of Contents Since 2011, the Company has received several inconsistent claims to the Assets.
Removed
In addition, the legal status of the portion of the Assets belonging to Simage is unclear because as a defunct entity, Simage Limited is unable to act. The Company has held the Assets since Mr.
Removed
As the Estate has not cooperated to facilitate the distribution of Assets to the Estate, the Company has held the distribution funds in a segregated account for a number of years and holds 247,664 shares of the 250,079 shares.
Removed
In addition to the dispute regarding the Assets, the Estate has asserted claims for alleged breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, conversion and constructive trust and is seeking delivery of the cash distributions in an amount no less than $8,377,626, plus the amount of any interest or appreciation earned there on and delivery of 250,079 shares of Company common stock, plus in the event the Court finds the Company converted the Assets, any special damages incurred as a result of Defendant’s conversion, including all previously unawarded attorney fees incurred to recover the Assets, as well attorney fees in connection with this action.
Removed
The Estate, the Company and FFIN have agreed to mediate the dispute. The Company and FFIN intend to vigorously defend this matter if mediation is unsuccessful. The Company and FFIN deny all liability for claims of alleged breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, conversion and constructive trust. Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeInformation used in the graph was obtained from RDG Filings, a source we believe to be reliable, but we are not responsible for any errors or omissions in such information. 55 Table of Contents 3/17 3/18 3/19 3/20 3/21 3/22 Freedom Holding Corp. 100 2,192 2,774 4,544 17,075 19,072 S&P 500 100 114 125 116 182 210 S&P 500 Diversified Financials 100 122 116 105 170 206 The performance graph and table shall not be deemed "soliciting material" or to be "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act.
Biggest changeThe stock price performance shown in the graph and table below is not necessarily indicative of, nor is it intended to forecast, the future performance of our common stock. 55 Table of Contents 3/18 3/19 3/20 3/21 3/22 3/23 Freedom Holding Corp. 100 128 209 785 876 1,066 S&P 500 100 107 107 150 172 156 S&P 500 Diversified Financials 100 94 83 133 159 139 The performance graph and table shall not be deemed "soliciting material" or to be "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act.
Stock Performance Graph The graph and table below matches our cumulative 5-year total shareholder return on common stock with the cumulative total returns of the S&P 500 index and the S&P 500 Diversified Financials index.
Stock Performance Graph The graph and table below compares our cumulative 5-year total shareholder return on common stock with the cumulative total returns of the S&P 500 index and the S&P 500 Diversified Financials index.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the Nasdaq Capital Market under the symbol "FRHC". Our common stock also trades on the KASE under the symbol "US_FRHC" and on the SPBX under the symbol "FRHC".
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the Nasdaq Capital Market under the symbol "FRHC". Our common stock also trades on the KASE under the symbol "US_FRHC" and on the SPB Exchange under the symbol "FRHC".
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 3/31/2017 to 3/31/2022. The comparisons shown in the graph and table below are based upon historical data.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from March 31, 2018 to March 31, 2023. The comparisons shown in the graph and table below are based upon historical data.
Dividends We have not declared or paid a cash dividend on our common stock during the past three fiscal years.
Dividends We have not declared or paid a cash dividend on our common stock for the past two fiscal years.
Recent Sales of Unregistered Equity Securities During fiscal 2022, we did not sell any unregistered shares of our equity securities. Issuer Repurchases of Equity Securities We did not repurchase any equity securities of the Company during fiscal 2022.
Recent Sales of Unregistered Equity Securities During fiscal 2023, we did not sell any unregistered shares of our equity securities. Issuer Repurchases of Equity Securities We did not repurchase any equity securities of the Company during fiscal 2023. Item 6. [Reserved]
Securities Authorized for Issuance Under Equity Compensation Plans Information regarding securities authorized for issuance under our equity compensation plans is set forth under the heading "Securities Authorized for Issuance Under Equity Compensation Plans" in "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in Item 12 of this annual report.
Securities Authorized for Issuance Under Equity Compensation Plans See " Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters " in Part III Item 12 of this annual report for our equity compensation plan information.
Removed
Holders As of May 27, 2022, we had approximately 423 shareholders of record.
Added
Holders As of August 1, 2023, we had approxima tely 429 shareh olders of record.
Removed
The stock price performance shown in the graph and table below is not necessarily indicative of, nor is it intended to forecast, the future performance of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

115 edited+191 added−96 removed27 unchanged
Biggest changeYear ended March 31, 2022 2021 Amount Change % Change 2020 Amount Change % Change Fee and commission income $ 431,938 $ 271,939 $ 159,999 59 % $ 92,668 $ 179,271 193 % Net gain on trading securities 77,671 46,186 31,485 68 % 14,923 31,263 209 % Interest income 91,801 30,873 60,928 197 % 12,134 18,739 154 % Net (loss)/gain on foreign exchange operations (37,693) 3,428 (41,121) (1,200) % 2,315 1,113 48 % Net gain/(loss) on derivatives 946 125 821 657 % (138) 263 (191) % Total revenue, net $ 564,663 $ 352,551 $ 212,112 60 % $ 121,902 $ 230,649 189 % Year ended March 31, 2022 2021 2020 Fee and commission income 77 % 77 % 76 % Net gain on trading securities 14 % 13 % 12 % Interest income 16 % 9 % 10 % Net (loss)/gain on foreign exchange operations (7) % 1 % 2 % Net gain/(loss) on derivatives — % — % — % Total revenue, net 100 % 100 % 100 % 62 Table of Contents During fiscal 2022, we realized total net revenue of $564,663, a 60% increase compared to fiscal 2021.
Biggest changeYear ended March 31, 2023 2022 (Recasted) 2021 (Recasted) Fee and commission income 41 % 49 % 62 % Net gain on trading securities 9 % 22 % 8 % Interest income 37 % 18 % 12 % Insurance underwriting income 14 % 10 % 18 % Net gain on foreign exchange operations 7 % 1 % — % Net (loss)/gain on derivatives (8) % — % — % Total revenue, net 100 % 100 % 100 % For fiscal 2023, we realized total net revenue of $795.7 million, a 15% increase compared to fiscal 2022.
Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements and the related notes thereto contained in Part II Item 8 as well as the information set forth in Part I Item 1 "Business" of this annual report.
Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements and the related notes thereto contained in Part II Item 8 of this annual report as well as the information set forth in Part I Item 1 "Business" of this annual report.
Net Capital Requirements A number of our subsidiaries are required to satisfy minimum net capital and capital adequacy requirements to conduct their brokerage, banking and insurance operations in the jurisdictions in which they operate. This is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions.
NET CAPITAL AND CAPITAL REQUIREMENTS A number of our subsidiaries are required to satisfy minimum net capital and capital adequacy requirements to conduct their brokerage, banking and insurance operations in the jurisdictions in which they operate. This is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions.
Although we operate with levels of net capital and capital adequacy substantially greater than the minimum established thresholds, in the event we fail to maintain minimum net capital or capital adequacy levels, we may be subject to fines and penalties, suspension of operations, revocation of licensure and disqualification of our management from working in the industry.
Although we operate with levels of net capital and capital adequacy substantially greater than the minimum established thresholds, in the event we were to fail to maintain minimum net capital or capital adequacy levels, we may be subject to fines and penalties, suspension of operations, revocation of licensure and disqualification of our management from working in the industry.
Loan losses are charged against the allowance when management believes the collectability of an account receivable balance is doubtful. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past accounts receivable loss experience, the nature and volume, information about specific counteragent situation and estimated collateral values, economic conditions, and other factors.
Loan losses are charged against the allowance when management believes the collectability of an account receivable balance is doubtful. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past accounts receivable loss experience, the nature and volume, information about specific counterparties situation and estimated collateral values, economic conditions, and other factors.
A net gain or loss is comprised of both realized and unrealized gains and losses during the period being presented. Realized gains or losses are recognized when we close an open position in a security and recognize a gain or a loss on that position. U.S.
A net gain or loss is comprised of both realized and unrealized gains and losses during the period. Realized gains or losses are recognized when we close an open position in a security and recognize a gain or a loss on that position. U.S.
For additional information regarding these risks and uncertainties, see the disclosure under the heading "Risk Factors" in Part I Item 1A of this annual report. This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during fiscal 2022, 2021 and 2020.
For additional information regarding these risks and uncertainties, see the disclosure under the heading "Risk Factors" in Part I Item 1A of this annual report. This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources for fiscal 2023, 2022 and 2021.
This discussion contains certain forward-looking statements that involve known and unknown risks, uncertainties, and other factors as described under the heading "Special Note about Forward-Looking Information" in this annual report. Actual results could differ materially from those projected in any forward-looking statements.
This discussion contains certain forward- 56 Table of Contents looking statements that involve known and unknown risks, uncertainties, and other factors as described under the heading "Special Note About Forward-Looking Information" in this annual report. Actual results could differ materially from those projected in any forward-looking statements.
As a result, such subsidiaries may be restricted in their ability to transfer cash between different jurisdictions and to FRHC. Additionally, transfers of cash between international jurisdictions may have adverse tax consequences that could discourage such transfers. These minimum net capital and capital adequacy requirements range from approximately $22 to $21,480 and fluctuate depending on various factors.
As a result, such subsidiaries may be restricted in their ability to transfer cash between different jurisdictions and to FRHC. Additionally, transfers of cash between international jurisdictions may have adverse tax consequences that could discourage such transfers. These minimum net capital and capital adequacy requirements range from approximately $2 thousand to $22 million and fluctuate depending on various factors.
Through a series of agreements entered into with Freedom UA that obligate us to guarantee the performance of all Freedom UA obligations, provide Freedom UA adequate funding to cover its operating losses and net capital requirements, provide the management competence and operational support and ongoing access to our significant assets, technology resources and expertise in exchange for 90% of all net profits of Freedom UA after tax, we account for Freedom UA as a variable interest entity.
Due to a series of agreements we have entered into with Freedom UA that obligate us to guarantee the performance of all Freedom UA obligations, provide Freedom UA adequate funding to cover its operating losses and net capital requirements, provide the management competence and operational support and ongoing access to our significant assets, technology resources and expertise in exchange for 90% of all net profits of Freedom UA after tax, we have determined that Freedom UA is a variable interest entity.
Fee and Commission Income Fee and commission income consists principally of brokerage fees from customer trading, including fees charged for providing margin lending and related banking services, and fees for underwriting, market making and consulting services. A substantial portion of our revenue is derived from commissions from customers through accounts with transaction based pricing.
Fee and Commission Income Fee and commission income consists principally of brokerage fees from customer trading, related banking services, and fees for underwriting, market making and consulting services. A substantial portion of our revenue is derived from commissions from customers through accounts with transaction-based pricing.
Any payment of cash dividends on stock in the future will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual and legal restrictions and other factors deemed relevant by our board of directors. Indebtedness Short-term Securities Repurchase Arrangements .
DIVIDENDS Any payment of cash dividends on our common stock in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual and legal restrictions and other factors deemed relevant by our Board of Directors.
Net cash used in operating activities resulted primarily from changes in operating assets and liabilities.
Net cash used in operating activities during fiscal 2023 resulted primarily from changes in operating assets and liabilities.
During fiscal 2022 we anticipate continuing efforts to expand the footprint of our business on a scale similar to fiscal 2021, while at the same time divesting our Russian subsidiaries. While our active growth strategy has led to revenue growth it also results in increased expenses and greater need for capital resources.
During fiscal 2024, we anticipate continuing efforts to expand the footprint of our business on a scale similar to fiscal 2023. While our active growth strategy has led to revenue growth it also results in increased expenses and greater need for capital resources.
Foreign Currency Translation Adjustments, Net of Tax The functional currencies of our operating subsidiaries are the Russian ruble, the Kazakhstan tenge, the euro, the U.S. dollar, the Ukrainian hryvnia, the Uzbekistani som, the Kyrgyzstani som, the UK pound sterling, the Azerbaijani manat and the Armenian dram. Our reporting currency is the U.S. dollar. Pursuant to U.S.
Foreign Currency Translation Adjustments, Net of Tax The functional currencies of our operating subsidiaries are the Kazakhstan tenge, the euro, the U.S. dollar, the Ukrainian hryvnia, the Uzbekistan som, Kyrgyzstani som, the Azerbaijani manat, the Armenian dram, the British pound sterling and the United Arab Emirates dirham. Our reporting currency is the U.S. dollar. Pursuant to U.S.
During fiscal 2021 total revenue, net increased across each of our regional operating segments.
During fiscal 2022, total revenue, net increased across each of our regional operating segments as compared to fiscal 2021.
The main contributing factors to the increase in realized net gain on trading securities during fiscal 2022, compared to fiscal 2021, was the sale of those SPBX ETF units and other SPBX shares we held. As a result, in fiscal 2022 we recognized realized net gain on trading securities sold of $179,216.
The main contributing factors to the increase in realized net gain on trading securities during fiscal 2022, as compared to fiscal 2021, was the sale of those SPB Exchange ETF units and other SPB Exchange shares we held.
This increase was the result of a $163,113 increase in fees and commission from brokerage services primarily as a result of growth in client accounts through non-organic and organic efforts including expansion of our retail financial advisers and increases in the volume of analysts' reports made available to our customer base, and significantly increased trading volume and client activity stemming from government and bank interventions and other events in response to the COVID-19 pandemic and the resulting increased market volatility and economic uncertainty.
This increase was the result of a $114.5 million increase in fee and commission income from brokerage services primarily as a result of an increase in the number of client accounts resulting from non-organic and organic efforts including expansion of our retail financial adviser network, an increase in the volume of analysts' reports made available to our customer base, and significantly increased trading volume and client activity stemming from government and bank interventions and other events in response to the Covid-19 pandemic and the resulting increased market volatility and economic uncertainty.
Our effective tax rate during fiscal 2022 decreased to 10.8%, from 17.4% during fiscal 2021 as a result of changes in the composition of the revenues we realized from our operating activities and the tax treatment of those revenues in the various foreign jurisdictions where our subsidiaries operate along with the incremental U.S. tax on GILTI.
Our effective tax rate for fiscal 2023 increased to 18.1%, from 10.6% during fiscal 2022 as a result of changes in the composition of the revenues we realized from our operating activities and the tax treatment of those revenues in the various jurisdictions where our subsidiaries operate along with the incremental U.S. tax on GILTI.
Further, we realized a net loss on foreign exchange operations affected by the purchase and sale of foreign currency of $12,378 as a result of higher volume of currency exchange transactions.
Further, we realized a net gain on foreign exchange operations affected by the purchase and sale of foreign currency of $7.8 million as a result of higher volume of currency exchange transactions.
The increase in interest expense is primarily attributable to a $36,929, or 253% increase in the volume of short-term financing through securities repurchase agreements, and a $11,327 increase in interest on customer deposits. During fiscal 2022 we increased our volume of short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio.
The increase in interest expense is primarily attributable to a $47.3 million, or 433% increase in the volume of short-term financing through securities repurchase agreements, and a $9.0 million increase in interest on customer deposits. During fiscal 2022 we increased our volume of short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio.
Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, actual future tax consequences relating to uncertain tax positions may be materially different than our determinations or estimates.
There are many transactions and 79 Table of Contents calculations for which the ultimate tax determination is uncertain. As a result, actual future tax consequences relating to uncertain tax positions may be materially different than our determinations or estimates.
Our processes and accounting policies for evaluating impairments are further described in Note 2 " Summary of Significant Accounting Policies " to our consolidated financial statements contained in Part II Item 8 of our annual report.
Our processes and accounting policies for evaluating impairments are further described in Note 2 " Summary of Significant Accounting Policies " to our consolidated financial statements contained in Part II Item 8 of our annual report. As of March 31, 2023, the Company had goodwill of $14.2 million.
For additional information see Note 1 " Description of Business " and Note 28 " Segment Information" in the Notes to our consolidated financial statements contained in Part II Item 8 and " Business" in Part I Item 1 of this annual report.
Acquisitions and divestitures may have a material effect on our business and financial results. For additional information see Note 1 " Description of Business " and Note 32 " Segment Information " in the notes to our consolidated financial statements contained in Part II Item 8 and " Business " in Part I Item 1 of this annual report.
As a result, we might realize significant swings in net gains and losses realized on our trading securities year-over-year and quarter-to-quarter. Interest Income We earn interest income from trading securities, reverse repurchase transactions, and loans to customers.
As a result, we might realize significant swings in net gains and losses realized on our trading securities year-over-year and quarter-to-quarter.
We reflect our ownership of Freedom UA as a non-controlling interest in our Consolidated Statements of Financial Condition, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows.
Non-controlling interest We reflect Askar Tashtitov's 91% ownership of Freedom UA as a non-controlling interest in our Consolidated Statements of Financial Condition, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows, and we have determined that Freedom UA is a variable interest entity (VIE).
Our subsidiaries are also subject to other various rules and regulations, including liquidity and capital adequacy ratios. Our operations that require the intensive use of capital would be limited to the extent necessary to meet all our regulatory requirements. Over the past several years, we have pursued an aggressive growth strategy both through acquisitions and organic growth efforts.
Our operations that require the intensive use of capital would be limited to the extent necessary to meet all our regulatory requirements. 78 Table of Contents Over the past several years, we have pursued an aggressive growth strategy both through acquisitions and organic growth efforts.
Fee and commission income as a percentage of our total revenue was 77%, 77% and 76% in the fiscal year ended March 31, 2022, 2021 and 2020, respectively.
Fee and commission income as a percentage of our total revenue was 41%, 49% and 62% in the fiscal years ended March 31, 2023, 2022 and 2021, respectively.
On November 16, 2021, Freedom SPC commenced a best efforts underwritten public offering of up to US $66,000 aggregate principal amount of its 5.50% US dollar denominated bonds due October 21, 2026 (the "Freedom SPC Bonds"), which are listed on the A IX.
Long-term Freedom SPC Bonds . On November 16, 2021, Freedom SPC commenced an offering of up to $66 million aggregate principal amount of its 5.5% U.S. dollar denominated bonds due October 21, 2026 (the "Freedom SPC Bonds"), which are listed on the A IX .
With the planned restructuring of our operations and divestiture of our Russian subsidiaries, coupled with our continued expansion, we have elected to reorganize our operations geographically into five regional segments: Central Asia, Europe, United States, Middle East/Caucasus, and Russia (until completion of the planned divestiture).
With the restructuring of our operations and the divestiture of our Russian subsidiaries, coupled with our continued expansion, during the fourth quarter of fiscal 2022 we elected to reorganize our operations geographically into five regional segments: Central Asia and Eastern Europe (formerly referred to as Central Asia), Europe,excluding Eastern Europe, United States, Russia and Middle East/Caucasus.
At March 31, 2022, the aggregate net capital requirements of our subsidiaries was approximately $27,585. Each of our subsidiaries that are subject to net capital or capital adequacy requirements exceeded the minimum required amount at March 31, 2022.
At March 31, 2023, the aggregate net capital requirements of our subsidiaries was $61.6 million. Each of our subsidiaries that is subject to net capital or capital adequacy requirements exceeded the minimum required amount at March 31, 2023.
Expenses increased with the growth of our business during fiscal 2021 primarily in connection with corresponding administrative costs and fees from the growth in our revenue generating activities and integrating our acquisition targets. 65 Table of Contents Fee and commission expense Fee and commission expense increased by $8,131, or 11%, during fiscal 2022 as compared with fiscal 2021.
Expenses increased with the growth of our business generally during fiscal 2022 primarily in connection with corresponding administrative costs and fees from the growth in our revenue generating activities and integrating our acquisition targets. Fee and commission expense Fee and commission expense decreased by $20.2 million, or 24%, for fiscal 2023 as compared to fiscal 2022.
Largely as a result of the Russia/Ukraine Conflict and its impacts on the securities markets we had unrealized net losses on open trading positions of $101,545. As a result of the foregoing, during fiscal 2022 we recognized a net gain on trading securities o f $77,671 as shown in the table above.
Largely as a result of the Russia-Ukraine conflict and its impacts on the securities markets we had unrealized net losses on open trading positions of $51.0 million. As a result of the foregoing, during fiscal 2022 we recognized a net gain on trading securities of $155.3 million.
Despite the decrease in our effective tax rate, as a result in the increase of our net income before income tax by $63,872, our income tax expense increased by $4,573 during the fiscal 2022.
Despite decrease in our net income before income tax by $127.8 million, as a result of the increase in our effective tax rate, our income tax expense increased by $4.2 million for fiscal 2023.
Expenses increased with the increase of interest expense and the growth of our business primarily in connection with increases in administrative costs and fees from the growth in our revenue generating activities and integrating our acquisition targets. During fiscal 2021 we incurred total expenses of $179,529, a 91% increase compared to fiscal 2020.
The increase was due to an increase in interest expense and the growth of our business generally, primarily in connection with increases in administrative costs and fees from the growth in our revenue generating activities and integrating our acquisition targets. For fiscal 2022 we incurred total expense of $326.1 million, a 67% increase compared to fiscal 2021.
Key Factors Affecting Our Results of Operations Our operations have been, and may continue to be, affected by certain key factors as well as certain historical events and actions.
The operating results for any period are not necessarily indicative of the results that may be expected for any future period. Key Factors Affecting Our Results of Operations Our operations have been, and may continue to be, affected by certain key factors as well as certain historical events and actions.
Fee and commission income generated from FFIN Brokerage accounted for approximately 54% of our total revenue for the year ended March 31, 2022, as compared to approximately 55% of our total revenue for the year ended March 31, 2021, and 62% of our total revenue for the year ended March 31, 2020.
Fee and commission income generated from FST Belize accounted for approximately 60% of our total fee and commission income for the year ended March 31, 2023, as compared to approximately 82% of our total fee and commission income for the year ended March 31, 2022, and 31% of our total fee and commission income for the year ended March 31, 2021.
We recognized a net loss attributable to non-controlling interest of $6,566 for the fiscal year 2022 as compared to a net income attributable to non-controlling interest of $631 for the fiscal year 2021.
We recognized income attributable to non-controlling interest of $446.0 thousand for fiscal 2023 as compared to a net loss attributable to non-controlling interest of $6.6 million for fiscal 2022.
Moving forward after completion of the divestiture of our Russian subsidiaries, we will manage our operations in four regional segments. These operating segments are based on how our CODM will be making decisions about allocating resources and assessing performance.
As a result of the divestiture of our Russian subsidiaries, which was completed in February 2023, we now have four regional segments. These operating segments are based on how our CODM will be making decisions about allocating resources and assessing performance.
Foreign currency translation adjustments, net of tax Due to the depreciation of the Russian ruble by 11% against the U.S. dollar and depreciation of Kazakhstan tenge by 9.4% against the U.S. dollar for fiscal year 2022 as compared to fiscal year 2021, we realized a foreign currency translation loss of $17,245 for fiscal year 2022, compared to a foreign currency translation gain of $1,857 for fiscal year 2021.
Foreign currency translation adjustments, net of tax Due to the appreciation of the Russian ruble by 5% against the U.S. dollar and appreciation of the Kazakhstan tenge by 4.4% against the U.S. dollar at fiscal 2023 year-end as compared to fiscal 2022 year-end, we realized a foreign currency translation loss of $5.2 million for fiscal year 2023, as compared to a foreign currency translation loss of $20.6 million for fiscal year 2022.
During fiscal 2020, we realized a foreign currency translation loss of $14,851 as a result of the depreciation of the Russian ruble by 20% and the Kazakhstan tenge by 18% against the U.S. dollar. Segment Results of Operations We have historically operated as a single operating segment.
For fiscal 2021, we realized a foreign currency translation gain of $2.8 million as a result of the appreciation of the Russian ruble by 2.6% and the Kazakhstan tenge by 4.8% against the U.S. dollar. Segment Results of Operations We have historically operated as a single operating segment.
During the year ended March 31, 2022, we realized a net loss on foreign exchange operations of $37,693 compared to a net gain of $3,428 during the year ended March 31, 2021.
Net gain/(loss) on foreign exchange operations For the fiscal year ended March 31, 2023, we realized a net gain on foreign exchange operations of $52.2 million compared to a net gain of $3.8 million for the fiscal year ended March 31, 2022.
We believe that the interventions from banks and governments in response to the COVID-19 pandemic and increased time people spent at home during the pandemic, led to an opportunity and optimism in opening investment accounts and investing in financial markets worldwide, particularly in the U.S. capital markets, and in the non-U.S. markets where we operate.
Impact of Covid-19 We believe that the interventions from banks and governments in response to the Covid-19 and the increase in the amount of time people spent at home during the pandemic led to an increases in the opening of investment accounts and investing in securities worldwide.
Fee and commission expense consists of expenses related to brokerage, banking, stock exchange, clearing, and depository services. Generally, we expect fee and commission expense to increase and decrease corresponding to increases and decreases in fee and commission income.
Generally, we expect fee and commission expense from brokerage and banking activities to increase and decrease corresponding to increases and decreases in fee and commission income.
The Freedom SPC Bonds are guaranteed by FRHC and the proceeds from the issuance of the Freedom SPC Bonds have been and will be, as the case may be, transferred to FRHC pursuant to an intercompany loan agreement that bears interest at a rate of 5.50% per annum.
As of March 31, 2023 , there were $58.6 million i n principal amount of the Freedom SPC Bonds outstanding . The Freedom SPC Bonds are guaranteed by FRHC and the proceeds from the issuance of the Freedom SPC Bonds are transferred to FRHC pursuant to an intercompany loan agreement that bears interest at a rate of 5.5% per annum.
Interest Expense Interest expense includes the expenses associated with our short-term and long-term financing, which consist of interest on securities repurchase agreement obligations, customer accounts and deposits, debt securities issued, and loans received.
Interest Expense Interest expense includes the expenses associated with our short-term and long-term financing, which consist of interest on securities repurchase agreement obligations, customer accounts and deposits, debt securities issued, and loans received. Payroll and bonuses Payroll and bonuses represent the costs incurred by a company in compensating its employees for their services and providing performance-based incentives.
The increase in fees from underwriting services was driven mainly by increases in the volume and size of debt capital market transactions arranged by Kazakhstan brokerage companies, and the unique market opportunities created by the COVID-19 pandemic. 63 Table of Contents Net gain on trading securities Net gain on trading securities was $77,671 for fiscal 2022 as compared to $46,186 for fiscal 2021.
The increase in fees from underwriting and market-making services from fiscal 2022 to fiscal 2023 was driven mainly by increases in the volume and size of debt capital market transactions arranged by us and the unique market opportunities created by the Covid-19 pandemic.
Governmental Policies Our earnings are and will be affected by the monetary, fiscal and foreign policies of the governments of Kazakhstan, Cyprus, and Russia. The monetary policies of these countries may have a significant effect upon our operating results. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.
Governmental Policies Our earnings are and will be affected by the monetary, fiscal and foreign policies of the governments of the jurisdictions in which we operate, in particular Kazakhstan, the European Union and the United States. The monetary policies of these countries may have a significant effect upon our operating results.
Non-controlling interest We reflect our ownership of Freedom UA as a non-controlling interest in our Consolidated Statements of Financial Condition, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows.
We reflect Askar Tashtitov's ownership of Freedom UA as a non-controlling interest in our Consolidated Statements of Financial Condition, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows. As from October 19, 2022, Freedom UA's operations were suspended following its inclusion on the Ukrainian sanctions list.
We expect this trend to continue in the future, including the planned acquisitions discussed in " Acquisitions " above in this Item 7. 60 Table of Contents Key Income Statement Line Items Revenue We derive revenue primarily from fee and commission income earned from our retail brokerage and banking customers, fee and commission income from investment banking services, our proprietary trading activities and interest income.
Key Income Statement Line Items Revenue We derive revenue primarily from fee and commission income earned from our retail brokerage and banking customers, fee and commission income from investment banking services, interest income and our proprietary trading activities.
This increase in interest income was the result of an increase in the total size of our trading portfolio and an increase in the amount of bonds we held as a percentage of our total trading portfolio. During fiscal 2022 we shifted more of our portfolio from equity to debt to take advantage of a profitable bond market.
The increase in interest income was primarily attributable to an increase in interest income from trading securities, which was the result of an increase in the total size of our trading portfolio between the two fiscal years and an increase in the amount of bonds we held as a percentage of our total trading portfolio between the two fiscal years.
This increase was driven by an increase in fee and commission income due to an increase in the number of clients and the volume of transactions they made.
This growth was driven by an increase in fee and commission income in fiscal 2022 due to an increase in the size of our client base in this segment and the volume of transactions per client.
This increase of interest expense was primarily impacted by growth of interest paid on securities repurchase agreements and customer deposits. Moreover, this segment was significantly affected by the increase in operating expenses due to the growth of payroll and bonuses and administrative expenses.
The increase was primarily attributable to an increase in interest expense, mainly interest paid on securities repurchase agreements and customer deposits. In addition, the increase in total expenses, net in this segment was attributable to an increase in payroll and bonuses, general and administrative expenses, and advertising expenses.
All of our transactions with FFIN Brokerage are conducted in the ordinary course of business. Such transactions are conducted on substantially the same terms as those prevailing at the time for comparable transactions with similarly situated unaffiliated third parties. Acquisitions Historically we have been active in pursuing non-organic growth through mergers and acquisitions.
Our transactions with FST Belize are performed in the ordinary course of our brokerage and banking businesses and such transactions are made on substantially the same terms and conditions as those prevailing at the time for comparable transactions with similarly situated unaffiliated third parties.
Dividends We have not declared or paid a cash dividend on our common stock during the past three fiscal years. We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends on common stock in the foreseeable future.
We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future. INDEBTEDNESS Short-term Securities Repurchase Arrangements . Our short-term financing is primarily obtained through securities repurchase arrangements conducted through stock exchanges.
This increase was mainly driven by the increase of interest income. This increase of interest income was primarily impacted by growth of interest received from securities held in our trading portfolio and an increase in interest accrued from loans issued.
The increase was mainly attributable to an increase in interest income, which was primarily due to interest received on securities held in our trading portfolio and interest accrued on bank loans to customers.
Other expense During fiscal 2022, we incurred an 8,813% increase of other expense, net as com pared to fiscal 2021. This was due to economic uncertainty during our fourth fiscal quarter stemming from the Russia/Ukraine Conflict, where we recognized a $2,300 impairment losses on goodwill of Freedom Bank RU, Zerich, and Freedom UA.
This increase was due to economic uncertainty during fiscal 2022 stemming from the Russia-Ukraine conflict, which began in the fourth quarter of fiscal 2022, as a result of which we recognized impairment loss on goodwill in respect of Freedom UA.
As of March 31, 2022, the Company had goodwill of $5,388. 73 Table of Contents Income taxes We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities.
Income taxes We are subject to income taxes in both the United States and numerous non-U.S. jurisdictions. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. Significant judgement is required in determining the provision for income tax.
There was also a large increase in revenue due to the growth of net gain on trading securities as a result of realized gain from the sale of the SPBX ETF and SPBX shares for our investment portfolio.
The increase in total revenue, net was also attributable to a net gain on trading securities in fiscal 2022 as a result of a realized gain from the sale of SPB Exchange ETF units and SPB Exchange shares in our proprietary investment portfolio. • Total revenue, net in our U.S. segment increased by $3.9 million or 43% for fiscal 2023 as compared to fiscal 2022.
We believe that our current cash and cash equivalents, cash expected to be generated from operating activities, and forecasted returns from our proprietary trading, combined with our ability to raise additional capital will be sufficient to meet our present and anticipated financing needs. 72 Table of Contents Off-Balance Sheet Financing Arrangements For a discussion of off-balance sheet financing arrangements of the Company as of March 31, 2022, see Note 27 " Commitments and Contingencies " to our consolidated financial statements contained in Part II Item 8 of our annual report.
We believe that our current cash and cash equivalents, cash expected to be generated from operating activities, and forecasted returns from our proprietary trading, combined with our ability to raise additional capital will be sufficient to meet our present and anticipated financing needs. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S.
Revenue during fiscal 2022 was higher than fiscal 2021 primarily due to increased fee and commission income, net gain on trading securities and interest income, which was partially offset by a net loss on foreign exchange operations. During fiscal 2021 we realized total net revenue of $352,551, a 189% increase compared to fiscal 2020.
Revenue for fiscal 2023 increased compared to fiscal 2022 primarily due to increased interest income, net gain on foreign exchange operations and insurance underwriting income, which increases were partially offset by a decrease in net gain on trading securities and by a net loss on derivatives.
In addition, we recognized a $4,348 or 751% increase in interest income from new loans issued to customers of Freedom Bank KZ.
During fiscal 2022 we shifted more of our portfolio from equities to debt to take advantage of a profitable bond market. In addition, we recognized a $4.2 million or 1,102% increase in interest income from new loans issued to customers of Freedom Bank KZ.
Largely as a result of the Russia/Ukraine Conflict and its impacts on the securities markets where Freedom UA held most of its open securities positions, we recognized an unrealized net loss on open trading positions of $5,471. We own a 9% interest in Freedom UA. The remaining 91% interest is owned by Askar Tashtitov, the president of our Company.
The change was largely a result of the acute situation in the Russia-Ukraine conflict in fiscal 2022 and its impact on the securities markets where Freedom UA held most of its open securities positions, as a result of which we recognized an unrealized net loss on open trading positions in fiscal 2022, whereas the relevant securities markets gradually improved in fiscal 2023.
Additional growth and expansion, or the costs associated with divestiture of our Russian subsidiaries and the impacts of that action, may require greater capital resources than we currently possess, which could require us to pursue additional equity or debt financing from outside sources.
Additional growth and expansion may require greater capital resources than we currently possess, which could require us to pursue additional equity or debt financing from outside sources. There can be no assurance that such financing will be available to us on acceptable terms, or at all, at the time it is needed.
For additional information regarding our securities repurchase agreement obligations see Note 12 " Securities Repurchase Agreement Obligations " to our consolidated financial statements contained in Part II Item 8 of our annual report. Long-term FRHC 7.00% Notes due December 2022 .
For additional information regarding our transactions with FST Belize, see Note 25 " Related Party Transactions " in the notes to our consolidated financial statements contained in Part II Item 8 of this annual report.
While the overall impact of COVID-19 has been largely positive for our business during the fiscal years ended March 31, 2022 and 2021, its future impacts on our business, operational and financial performance is uncertain. We expect a return to more traditional levels of customer interest in investing as we enter into a less critical endemic period.
While the overall impact of Covid-19 was positive for our business during the fiscal years ended March 31, 2022 and 2021, following the end of the critical Covid-19 period, including during the fiscal year ended March 31, 2023, we believe that the levels of customer interest in investing have largely stabilized.
By comparison, at March 31, 2021, we had cash and cash equivalents of $698,828, of which $248,946, or 36%, were subject to reverse repurchase agreements. 69 Table of Contents The amount of cash and cash equivalents is subject to minimum levels set by regulatory bodies to comply with required rules and regulations, including adequate capital and liquidity levels for each entity.
The amount of cash and cash equivalents we hold is subject to minimum levels set by regulatory bodies to comply with required rules and regulations, including adequate capital and liquidity levels for each entity. (2) Consists of cash and cash equivalents, trading securities, and margin lending, brokerage and other receivables, net of securities repurchase agreement obligations.
The increased interest expense is primarily attributable to a $7,434 increase in volume of short-term financing through securities repurchase agreements, a $5,671 increase in interest on client deposits, and a $1,914 increase in interest expense on debt securities issued. We increased our volume of short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio.
In fiscal 2023 , we increased the volume of our short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio. The increase in interest on customer deposits was a result of growth of our banking client base due to the expansion of the operations of Freedom Bank KZ between the two fiscal years.
We did not form our UAE subsidiary until April 2022 and are still in process of establishing its operations. • Total revenues, net in our Russia segment decreased by $86,804, or 100%, generating negative net revenue of ($249) for fiscal year 2022, as compared to $86,555 during fiscal year 2021.
We did not recognize revenue in our Middle East/Caucasus segment during fiscal 2022 or fiscal 2021, as we started the process of forming our Azerbaijani and Armenian subsidiaries and establishing their operations in fiscal 2023. We did not form our UAE subsidiary until April 2022 and are still in process of establishing its operations.
Interest income on trading securities consists of interest earned from investments in debt securities and dividends earned on equity securities held in our proprietary trading account. Fee and Commission Expense We incur fee and commission expense for operations within our brokerage and banking activities.
Interest income on trading securities consists of interest earned from investments in debt securities and dividends earned on equity securities held in our proprietary trading account. Net Gain/(Loss) on Trading Securities Net gain/(loss) on trading securities reflects the change in value of the securities held in our proprietary trading portfolio during the relevant period.
The following sets out certain information regarding our assets as of the dates presented: As of March 31, 2022 2021 Cash and cash equivalents (1) $ 625,547 $ 698,828 Trading securities $ 1,203,479 $ 736,188 Total assets $ 2,921,009 $ 2,018,645 Net liquid assets (2) $ 2,212,300 $ 1,519,719 (1) Of the $625,547 in cash and cash equivalents we held at March 31, 2022, $278,463, or approximately 45%, were subject to reverse repurchase agreements.
The following sets out certain information regarding our assets as of the dates presented: As of March 31, 2023 2022 (Recasted) Cash and cash equivalents (1) $ 581,417 $ 225,464 Trading securities $ 2,412,556 $ 1,158,377 Total assets $ 5,084,558 $ 3,230,347 Net liquid assets (2) $ 1,852,886 $ 691,276 (1) Of the $581.4 million in cash and cash equivalents we held at March 31, 2023, $29.8 million, or approximately 5%, were subject to reverse repurchase agreements.
The net cash outflow during fiscal 2022 was primarily attributable to an increase in brokerage and other receivables over that period, which resulted from larger amounts of margin receivables.
The net cash used in operating activities in fiscal 2023 was primarily attributable to net cash outflows attributable to increases in trading securities and increases in margin lending, brokerage and other receivables, which increases were offset in part by an increase in brokerage customer liabilities over that period, which resulted from the increase in the number of customer accounts at our Freedom Global subsidiary.
The increase in total expenses for fiscal 2022 compared to fiscal 2021, and fiscal 2021 compared to fiscal 2020, was driven by the following: • Total expense in our Central Asia segment increased by $77,684, or 224%, to $112,316 for fiscal 2022, as compared to $34,632 during fiscal 2021. This increase was driven by the increase in interest expense.
The changes in total expenses for fiscal 2023 compared to fiscal 2022, and fiscal 2022 compared to fiscal 2021, were driven by the following: • Total expense, net in our Central Asia and Eastern Europe segment increased by $192.6 million, or 93%, to $400.2 million for fiscal 2023, as compared to $207.6 million for fiscal 2022.
Total revenue, net in our Europe segment increased $137,407, or 215%, to $201,188 for fiscal 2021, as compared to $63,781 during fiscal 2020.
Total revenue, net in our Europe, excluding Eastern Europe segment increased by $260.0 million, or 132%, to $457.7 million for fiscal 2022, as compared to $197.7 million during fiscal 2021.
Within these regions, through our subsidiaries, we engage in a broad range of activities in the securities industry, including securities dealing, market making, retail securities brokerage, investment research, investment counseling, investment banking and underwriting services, and in Kazakhstan and Russia we have operated commercial banking services that complement our other financial services.
OVERVIEW Freedom Holding Corp. is organized under the laws of the State of Nevada and acts as a holding company for all of our operating subsidiaries. Our subsidiaries engage in a broad range of activities in the securities industry, including retail securities brokerage, securities dealing, market making, investment research, investment counseling, investment banking and underwriting services.
Net income 66 Table of Contents As a result of the foregoing factors, for fiscal 2022 we had net income of $211,369 as compared to $142,924 for fiscal 2021, an increase of 48%. For fiscal 2020 we had net income of $22,130.
Net income As a result of the foregoing factors, for fiscal 2023 we had net income of $205.6 million as compared to $220.9 million for fiscal 2022, a decrease of 7%, and for fiscal 2022 we had net income of $220.9 million as compared to $150.3 million for fiscal 2021, an increase of 47%.
The key factors affecting our business and the results of operations include, in particular: the Russia/Ukraine Conflict (including but not limited to related sanctions and countersanctions), the planned divestiture of our Russian subsidiaries and corporate restructuring discussed above, the business environment in which we operate, the growth of retail brokerage activity in our key markets, the impact of COVID-19, governmental polices, and acquisitions.
The key factors affecting our business and the results of operations include, in particular: the effects of the Russia-Ukraine conflict, market and economic conditions, the growth of retail brokerage activity in our key markets, acquisitions and divestitures, our transactions with our affiliate FST Belize, governmental policies and the impact of Covid-19.
During fiscal 2021 we also realized a $5,163 increase in related banking service fees, and a $5,985 increase in fees for underwriting services.
We also realized a $6.2 million increase in related banking service fees in fiscal 2022 as compared to fiscal 2021.
This growth was driven by an increase in commission income for the year due to an increase in the size of our customer base and the volume of transactions they make. • Total revenue, net in our U.S. segment was stable during fiscal 2022 and increased only by $53 or 1% as compared to fiscal year 2021.
For fiscal 2022, total revenue, net in our U.S. segment was $9.1 million as compared to $9.1 million for fiscal 2021, an increase by $53.0 thousand or 1%. • We had total revenue, net in the Middle East/Caucus segment of $43.0 thousand for fiscal 2023. This revenue was attributable to interest income and net gain on foreign exchange operations.
The increase in total net revenues for fiscal 2022 compared to fiscal 2021, and fiscal 2021 compared to fiscal 2020, was driven by the following: • Total revenue, net in our Central Asia segment increased $62,345, or 112%, to 118,067 for fiscal 2022, as compared to $55,722 during fiscal 2021.
The changes in total revenue, net for fiscal 2023 compared to fiscal 2022, and fiscal 2022 compared to fiscal 2021, were driven by the following: 73 Table of Contents • Total revenue, net in our Central Asia and Eastern Europe segment increased by $343.1 million, or 154%, to $566.1 million for fiscal 2023, as compared to $223.0 million for fiscal 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

17 edited+5 added−5 removed24 unchanged
Biggest changeWe may also enter into foreign currency forward, swap and option contracts with financial institutions to mitigate foreign currency exposures associated with certain existing assets and liabilities, firmly committed transactions and forecasted future cash flows An analysis of the March 31, 2022 and 2021, balance sheets estimates the net impact of a 10% percent adverse change in the value of the U.S. dollar relative to all other currencies, would have resulted in an decrease of net income before income tax in the amount of $8,724 and increase of $42,904, respectively. 75 Table of Contents Equity price risk Our equity investments are susceptible to market price risk arising from uncertainties about future values of such investment securities.
Biggest changeAn analysis of our March 31, 2023 and 2022, balance sheets estimates the net impact of a 10% percent adverse change in the value of the U.S. dollar relative to all other currencies, would have resulted in an decrease of net income before income tax in the amount of $88.7 million and increase of $282.0 thousand, respectively.
The activities and accumulated earnings in our foreign subsidiaries are exposed to fluctuations in foreign exchange rate between our functional currencies and our reporting currency, which is the U.S. dollar.
The activities and accumulated earnings in our non-U.S. subsidiaries are exposed to fluctuations in foreign exchange rate between our functional currencies and our reporting currency, which is the U.S. dollar.
To the extent inflation result in rising interest rates and has adverse impacts upon securities markets, it may adversely affect our results of operations and financial condition. 77 Table of Contents
To the extent inflation result in rising interest rates and has adverse impacts upon securities markets, it may adversely affect our results of operations and financial condition. 84 Table of Contents
The Conflict has resulted in the imposition by many countries of economic sanctions and export controls against certain Russian industries, companies and individuals. In response, Russia has implemented its own countermeasures against countries, businesses and investors deemed "unfriendly".
The Russia-Ukraine conflict has resulted in the imposition by many countries of economic sanctions and export controls against certain Russian industries, companies and individuals. In response, 83 Table of Contents Russia has implemented its own countermeasures against countries, businesses and investors deemed "unfriendly".
Based on investment positions as of March 31, 2022 and 2021, a hypothetical 100 basis point increase in interest rates across all maturities would have resulted in $48,703 and $31,055 incremental decline in the fair market value of the portfolio, respectively. Such losses would only be realized if we sold the investments prior to maturity.
Based on investment positions as of March 31, 2023 and 2022, a hypothetical 100 basis point increase in interest rates across all maturities would have resulted in $80.9 million and $55.2 million incremental decline in the fair market value of the portfolio, respectively. Such losses would only be realized if we sold the investments prior to maturity.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk Market risk The following information, together with information included in the Management's Discussion and Analysis of Financial Condition and Results of Operations, describe our primary market risk exposures.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk Market Risk The following information, together with information included in " Overview " in " Management's Discussion and Analysis of Financial Condition and Results of Operations " in Part II Item 7 of this annual report, describes our primary market risk exposures.
An analysis of the March 31, 2022 and 2021, balance sheets estimates a decrease of 10% on the equity price would have reduced the value of the equity securities or instrument we held by approximately $9,125 and $4,734, respectively.
An analysis of the March 31, 2023 and 2022, balance sheets estimates that a decrease of 10% on the equity price would have reduced the value of the equity securities or instrument we held by approximately $6.6 million and $7.2 million, respectively.
The amount of risk to which we are exposed from the margin lending we extend to our customers and from short sale transactions by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potential significant and undeterminable rise or fall in stock prices.
As of March 31, 2023, we had $361.7 million in margin lending receivables from our customers, a significant portion of which was due from FST Belize. 82 Table of Contents The amount of risk to which we are exposed from the margin lending we extend to our customers and from short sale transactions by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potential significant and undeterminable rise or fall in stock prices.
Operational Risk Operational risk generally refers to the risk of loss, or damage to our reputation, resulting from inadequate or failed operations or external events, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes including cyber security incidents. 76 Table of Contents For descriptions of related risks, see the information under the heading " Risks Related to Information Technology and Cyber Security " in " Risk Factors " in Part I Item 1A of this annual report.
Operational Risk Operational risk generally refers to the risk of loss, or damage to our reputation, resulting from inadequate or failed operations or external events, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes including cyber security incidents.
Interest Rate Risk Our exposure to changes in interest rates relates primarily to our investment portfolio and outstanding debt. While we are exposed to global interest rate fluctuations, we are most sensitive to fluctuations in Kazakhstan and Russian interest rates.
Interest Rate Risk Our exposure to changes in interest rates relates primarily to our investment portfolio and outstanding debt. While we are exposed to global interest rate fluctuations, we are most sensitive to fluctuations in interest rates in Kazakhstan. Changes in interest rates in Kazakhstan may have significant effect on the fair value of our securities.
For more information regarding the financial impact to our operations from Russian subsidiaries for the fiscal year ended March 31, 2022 please see Note 28 " Segment Reporting " of our consolidated financial statements contained in Part II Item 8 of our annual report.
For more information regarding the financial impact to our operations from the Russia-Ukraine conflict for the fiscal year ended March 31, 2023 please refer to " Russia-Ukraine conflict " section in " Management's Discussion and Analysis of Financial Condition and Results of Operations " in Part II Item 7 and Note 32 " Segment Reporting " in the notes to our consolidated financial statements in Part II Item 8 of this annual report.
The risks associated with margin credit increase during periods of fast market movements, or in cases where collateral is concentrated and market movements occur.
Margin lending is subject to various regulatory requirements of MiFID and of the AFSA and the NBK. Margin loans are collateralized by cash and securities in the customers' accounts. The risks associated with margin lending increase during periods of fast market movements, or in cases where collateral is concentrated and market movements occur.
Changes in Kazakhstan and Russian interest rates may have significant effect on the fair value of our securities. 74 Table of Contents Our investment policies and strategy are focused on preservation of capital and supporting our liquidity requirements. We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.
Our investment policies and strategy are focused on preservation of capital and supporting our liquidity requirements. We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investment policies generally require securities to be investment grade and limit the amount of credit exposure to any one issuer.
Equity price risk results from fluctuations in price and level of the equity securities or instruments we hold. We also have equity investments in entities where the investment is denominated in a foreign currency, or where the investment is denominated in U.S. dollars but the investee primarily makes investments in foreign currencies.
We also have equity investments in entities where the investment is denominated in a foreign currency, or where the investment is denominated in U.S. dollars but the investee primarily makes investments in foreign currencies. The fair values of these investments are subject to change at the spot foreign exchange rate between these currencies and our functional currency fluctuates.
The fair values of these investments are subject to change at the spot foreign exchange rate between these currencies and our functional currency fluctuates. We attempt to manage the risk of loss inherent in our equity securities portfolio through diversification and by placing limits on individual and total equity instruments we hold.
We attempt to manage the risk of loss inherent in our equity securities portfolio through 81 Table of Contents diversification and by placing limits on individual and total equity instruments we hold. Reports on our equity portfolio are submitted to our management on a regular basis.
A hypothetical 100 basis point decrease in interest rates across all maturities would have resulted in a $53,404 and $32,906 incremental rise in the fair market value of the portfolio, respectively.
A hypothetical 100 basis point decrease in interest rates across all maturities would have resulted in a $87.0 million and $61.0 million incremental rise in the fair market value of the portfolio, respectively. Foreign Currency Exchange Risk We have a presence in Kazakhstan, Cyprus, Ukraine, Uzbekistan, Germany, Kyrgyzstan, the United States, Azerbaijan, Armenia and the United Kingdom.
Reports on our equity portfolio are submitted to the management on a regular basis. As of March 31, 2022, and 2021, our exposure to equity investments at fair value was $91,254 and $47,340, respectively.
As of March 31, 2023, and 2022, our exposure to equity investments at fair value was $65.7 million and $72.4 million, respectively.
Removed
Our investment policies generally require securities to be investment grade and limit the amount of credit exposure to any one issuer.
Added
We may also enter into foreign currency forward, swap and option contracts with financial institutions to mitigate foreign currency exposures associated with certain existing assets and liabilities, firmly committed transactions and forecasted future cash flows.
Removed
The table below presents our issuers' current credit ratings as of March 31, 2022 and 2021: March 31, 2022 >BB Not rated Total Corporate equity $ 23,970 $ 3,287 $ 63,996 $ 91,254 Corporate debt 673,322 54,832 10,240 738,394 Non-U.S. sovereign debt 298,217 56,823 2,031 357,071 U.S. sovereign debt 10,306 — — 10,306 Exchange traded notes — — 6,454 6,454 Total $ 1,005,815 $ 114,942 $ 82,721 $ 1,203,479 March 31, 2021 >BB Not rated Total Corporate debt $ 321,660 $ 8,731 $ 4,372 $ 334,763 Non-U.S. sovereign debt 327,280 6,339 — 333,619 U.S. sovereign debt 10,828 — — 10,828 Exchange traded notes — — 9,638 9,638 Total $ 659,768 $ 15,070 $ 14,010 $ 688,848 Foreign currency exchange risk We have business operations in the Kazakhstan, Russia, Cyprus, Ukraine, Uzbekistan, Germany, Kyrgyzstan, U.S., Azerbaijan, Armenia and the UK.
Added
Equity Price Risk Our equity investments are susceptible to market price risk arising from uncertainties about future values of such investment securities. Equity price risk results from fluctuations in price and level of the equity securities or instruments we hold.
Removed
Margin lending receivables risk We extend margin loans to our customers. Margin lending is subject to various regulatory requirements of the MiFID and the CBR. Margin loans are collateralized by cash and securities in the customers' accounts.
Added
We also incur credit risk in connection with the securities in our proprietary portfolio.
Removed
As of March 31, 2022, we had $349,179 margin lending receivables from our customers, a significant portion of which was due from FFIN Brokerage.
Added
The table below presents the current credit ratings of issuers of securities in our portfolio as of March 31, 2023 and 2022: March 31, 2023 >BB Not rated Total Corporate equity $ 58,511 $ 503 $ 6,727 $ 65,741 Corporate debt 1,167,769 92,279 9,831 1,269,879 Non-U.S. sovereign debt 1,018,255 11,216 386 1,029,857 U.S. sovereign debt 45,022 — — 45,022 Exchange traded notes — — 2,057 2,057 Total $ 2,289,557 $ 103,998 $ 19,001 $ 2,412,556 March 31, 2022 >BB Not rated Total Corporate equity $ 25,480 $ 2,952 $ 43,922 $ 72,354 Corporate debt $ 660,246 $ 50,760 $ 1,128 $ 712,134 Non-U.S. sovereign debt 313,838 45,557 1,175 360,570 U.S. sovereign debt 10,435 — — 10,435 Exchange traded notes — 89 2,795 2,884 Total $ 1,009,999 $ 99,358 $ 49,020 $ 1,158,377 Margin lending receivables risk We extend margin loans to our customers.
Removed
Since the outbreak of the Conflict we have been focused on restructuring our operations to dispose of our Russian subsidiaries, while continuing to facilitate the legal activities of our customers.
Added
For a description of related risks, see the information under the heading " Risks Related to Information Technology and Cyber Security " in " Risk Factors " in Part I Item 1A of this annual report.

Other FRHC 10-K year-over-year comparisons