Banking Regulations: New Rules to Enforce Transparency and Accountability
The Central Bank of Iraq (CBI) has introduced new regulations to ensure that all businesses, products, and services using the word “bank” or its derivatives without a banking license or permit are brought into compliance.
Prohibition on Using the Term “Bank”
Effective immediately, the new rules prohibit any person from using the term “bank” or its derivatives in any language without a valid banking license or permit issued by the CBI. This includes:
- Refraining from using the word “bank” in names of representative offices, except in cases where it forms an integral part of the name of the foreign bank they belong to.
On-Site Inspections and Examinations
The CBI has been empowered to conduct on-site inspections and examinations of any person suspected of engaging in activities incompatible with these provisions. Law enforcement officials will assist the CBI in gaining access to premises and examining records if necessary.
Micro and Small Business Credit Access
The new regulations permit micro and small business credit access or similar grant programs by entities other than banks, as authorized by entities exercising governmental authority. Such activities are exempt from the application of this law, provided that:
- The entities providing these services notify and report to the CBI periodically.
Licensing and Permits
Establishing a bank in Iraq, including as a majority or wholly-owned subsidiary of a foreign bank or bank holding company, will require the prior issuance of a banking license by the CBI. A permit is required for establishing a branch or representative office of a foreign bank.
- Licenses and permits granted under this law are non-transferable and must be renewed annually.
- The CBI has discretion to modify or revoke licenses and permits if the holder fails to comply with the terms and conditions of their issuance.
Foreign Ownership
The regulations introduce new restrictions on foreign ownership of banks in Iraq. The total number of licenses for banks controlled by foreign persons is limited to six banks until December 31, 2008, after which there will be no limit. Foreigners can own up to 50% of an existing or new domestic bank without counting towards the limitation.
Application Process
The application process for banking licenses and permits has been streamlined. Applications must be submitted in writing to the CBI and include:
- Detailed information about the applicant, including its business plan, organizational structure, and internal control systems.
- The CBI will review applications carefully before issuing a license or permit.
These new regulations aim to promote transparency and accountability in the banking sector, ensuring that all businesses operating as banks are subject to the same standards and requirements. The CBI is committed to maintaining the integrity of the financial system and protecting the interests of depositors and investors.