Freedom Holding (FRHC) risk factors, FY2025 10-K

Risks Related to our Business and Operations

1. 01Our relatively limited operational history has coincided with sustained market growth, which may not be predictive of future operating results
2. 02We may not be able to manage our growth effectively
3. 03We anticipate that acquisitions will continue to play a key role in our growth strategy, but we may be unable to identify, acquire, complete or integrate acquisition targets successfully
4. 04that businesses acquired will perform in accordance with our expectations or that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove to be correct
5. 05We have engaged in related party transactions and arrangements, in particular with companies controlled by our Chief Executive Officer Timur Turlov, and we expect to continue to do so from time to time going forward
6. 06We plan to incur losses in our new telecommunications and media businesses
7. 07We may be unable to implement our digital fintech ecosystem strategy successfully
8. 08We could suffer significant losses from credit exposure
9. 09tifiable, as the risk is dependent upon analysis of a potential significant and undeterminable increase or fall in stock prices
10. 10Our revenues are concentrated in certain customers and products, which may materially adversely affect our business, financial condition, results of operations and cash flows
11. 11Approximately 88%, 93% and 91% of our trading income in the fiscal years ended March 31, 2025, 2024 and 2023, respectively, was derived from interest income on Kazakhstan government or quasi-government debt securities
12. 12Risks related to our business relationships with third-party broker-dealers, clearing firms and market makers could result in reduced profitability, increased compliance costs, regulatory violations and negative publicity
13. 13We are subject to potential losses as a result of our clearing and execution activities
14. 14A breakdown or interruption in our operational systems or processes may adversely affect our reputation, customers, business activities, operational outcomes, and financial stability
15. 15Our 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
16. 16We may need to raise additional capital, and we cannot be sure that additional financing will be available or available on attractive terms
17. 17The sale of additional equity securities could result in dilution to our stockholders and adversely impact the price of our stock, and additional indebtedness would result in increased debt service costs and obligations and could impose operating and financial covenants that would further restrict our operations
18. 18Reductions in our credit ratings or an increase in our credit spreads could adversely affect our business, liquidity and cost of funding
19. 19Our investments expose us to a significant risk of capital loss
20. 20We may suffer significant loss from changes in the KASE's requirements related to the discount coefficients on the securities in securities repurchase transactions
21. 21Our risk management framework may not be effective in mitigating risks and/or losses to us
22. 22Our modeling and assumptions used in assessing risks in our business may differ materially from actual results
23. 23In 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
24. 24We are dependent on our executive management team, particularly Timur Turlov, and our ability to hire and retain skilled personnel
25. 25Extraordinary events beyond our control could negatively impact our business
26. 26Our financial results depend on interest rate volatility
27. 27We are exposed to foreign currency fluctuation risks
28. 28Damage to our reputation could harm our business
29. 29We may fail to adequately obtain, maintain, enforce and protect our intellectual property and similar proprietary rights, which may harm our business and competitive position

Risks Related to the Global Political, Regulatory and Economic Environment

1. 30Our business and operations may be materially adversely affected by the ongoing Russia-Ukraine conflict
2. 31Sanctions imposed by Ukraine on our Chief Executive Officer and our former Ukrainian subsidiary could have a material adverse effect on us
3. 32We are committed to compliance with all applicable economic sanctions, including those related to the Russia-Ukraine conflict
4. 33Emerging 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
5. 34The economies of Kazakhstan and other countries in which we operate are vulnerable to external shocks and fluctuations in the global economy
6. 35Kazakhstan's economy is vulnerable to internal political and social unrest
7. 36Continuing inflation has driven up the cost of goods and services and may further increase our expenses, weaken our competitive position, or lower consumer spending power
8. 37Changes in U.S. or other countries trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations

Risks Related to Legal and Regulatory Matters

1. 38We are subject to extensive regulation, and the failure to comply with laws and regulations could subject us to monetary penalties or sanctions
2. 39As we introduce new products and services and expand existing product and service offerings we may become subject to additional regulations, restrictions, licensing requirements, reporting and related regulatory oversight
3. 40Financial services firms have been subject to increased regulatory scrutiny increasing the risk of financial liability and reputational harm resulting from adverse regulatory actions
4. 41As a U.S. public company listed on Nasdaq we have substantial regulatory reporting obligations
5. 42We are subject to risks related to anti-corruption laws in effect in the United States and the non-U.S. jurisdictions where we conduct business
6. 43A failure by our subsidiaries or our company to meet capital adequacy and liquidity requirements could affect our business, financial condition, results of operations and cash flows
7. 44The countries in which we operate have changing regulatory regimes, regulatory policies, and interpretations
8. 45Notwithstanding 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
9. 46If we violate securities laws, or are involved in litigation in connection with a violation, our reputation and results of operations may be adversely affected
10. 47We are subject to risks related to potential litigation and arbitration

Risks Related to Information Technology and Cybersecurity

1. 48Our operations are highly dependent on the continued and proper functioning of our information technology systems and infrastructure
2. 49Our 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
3. 50We interact with large volumes of sensitive data that expose us to data breaches and other cybersecurity risks and liabilities
4. 51The infrastructure on which our IT systems depend is subject to events that could interrupt our ability to operate
5. 52Failure or compromise of third-party systems operations or security could adversely affect our business and expose us to data breaches and cyber-attacks
6. 53To remain competitive, we must keep pace with rapid technological change
7. 54Other businesses we currently operate, or that we will establish in the future pursuant to our digital fintech ecosystem strategy, are also subject to rapid technological change
8. 55Incorporating AI technologies into some of our products and processes may present business, compliance, and reputational risks
9. 56Reliance on centralized infrastructure and cloud services increases our exposure to larger scale service disruptions and cyber-attacks
10. 57Global anti-offshore measures could adversely impact our business
11. 58OECD's Inclusive Framework's agreement on Pillar-Two solutions impacts our business
12. 59jurisdictions, significantly reforms international tax rules to ensure multinational enterprises ("MNEs") pay a fair minimum level of tax in each jurisdiction where they operate
13. 60Frequent tax law changes in regions where we conduct operations could adversely affect our business and the value of investments
14. 61Transfer pricing legislation in certain jurisdictions where we operate may require pricing adjustments and impose additional tax liabilities
15. 62Uncertainties and ongoing changes in Kazakhstan's tax regime may have an adverse impact on our business

Risks Related to Our Corporate Structure and Internal Operations

1. 63As a diversified holding company with few operations of its own, FRHC is reliant on the operations of our subsidiaries to fund its holding company operations
2. 64As a "controlled company" under Nasdaq rules, we qualify for exemptions from certain corporate governance requirements that may adversely affect our stock price
3. 65The interests of our controlling shareholder may conflict with those of other shareholders
4. 66If our controlling shareholder, Timur Turlov, sold, or there is a perception that he may sell, large amounts of shares of our common stock, this could cause the market price of our common shares to decline
5. 67Civil liability may be difficult or impossible to enforce against us
6. 68We have identified material weaknesses in our internal control over financial reporting in the past, and we may identify material weaknesses in the future or fail to establish and maintain effective internal control over financial reporting, which could have a material adverse effect on our business and stock price
7. 69A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis

Risks Related to Ownership of Our Securities

1. 70The price of our common stock has fluctuated historically and may be volatile
2. 71Future offerings of securities which would rank senior to our common stock may adversely affect the market price of our common stock
3. 72We do not intend to pay dividends on our common stock for the foreseeable future and, consequently, our stockholders' ability to achieve a return on their investment will depend on appreciation in the price of our common stock