Financial Crime World

Iraq Financial Services Regulatory Bodies Overhaul Custodian Instructions to Boost Foreign Investment and Economic Growth

Introduction

In a bid to increase foreign investment in the Iraq Stock Exchange (ISX) and sustain economic recovery, the Iraqi government has overhauled its custodian instructions. The new regulations aim to make it more accessible for foreign investors to become licensed and strengthen current financial institutions.

Broadened Scope of Licensing

According to the revised instructions, Custodian Instructions No. 17 of 2012 as amended in 2021, the scope for financial institutions to be licensed under the act has been broadened, aligning with international practices and data protection laws. The regulations also govern the method of safekeeping client monies and assets, extending protection to cover both local and foreign/international assets.

Requirements for Custodians

The new requirements for custodians include:

  • Ensuring greater transparency by providing clients with regular reports on transactions and balances
  • Exercising discretion to maximize returns for clients
  • Maintaining confidentiality of client data

To be licensed as a custodian, financial institutions must meet certain conditions, including:

  • Having a separate department for conducting custodian services
  • Securing approval from the Central Bank of Iraq
  • Demonstrating expertise and experience in providing custodian services

Application Process

Applications for licensing must include detailed information about the financial institution, its registered share capital, and the individuals authorized to perform custodian services. The Iraqi Securities Commission (ISC) will review applications, conduct due diligence, and issue a decision on approval or decline.

Consequences of Non-Compliance

The new regulations also provide for the cancellation of licenses in cases where conditions are no longer met, there is a material breach of obligations, default in paying annual fees, or a judicial decision is issued for bankruptcy against the financial institution.

Expected Impact

The overhauled custodian instructions are expected to boost foreign investment in the ISX and promote economic growth by providing greater accessibility to finance for listed companies. The Iraqi government aims to encourage participation from international investors, introducing best practices at local financial institutions, and increasing transparency and accountability.

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