Financial Crime World

Iraq’s Central Bank Approves Sweeping Changes to Banking Compliance and Audit Procedures for SME Financing

Introduction

In a move aimed at bolstering financial stability and transparency, Iraq’s Central Bank has officially approved the Regulation on Financing Medium, Small, and Micro Enterprises by Companies (New Regulation), effective April 28, 2024. The new rules replace the previous instructions governing small and medium enterprise financing companies and introduce significant changes to banking compliance and audit procedures.

Key Changes

  • Eligibility: Only joint-stock companies are permitted to engage in SME financing, blocking limited companies from this activity.
  • Capital Requirements:
    • Joint-stock companies: IQD 100 billion (up from IQD 2 billion)
    • Limited companies: IQD 1 billion
  • Payment Terms: Companies can make an initial payment of IQD 40 billion and settle the remainder in three equal annual installments.

Regulatory Changes

The New Regulation introduces a range of new requirements for regulated companies, including:

  • Establishment of administrative departments overseeing:
    • Financial management
    • Risk management
    • Compliance monitoring
    • Credit management
    • Anti-money laundering and counter-terrorism financing
    • Internal audit
    • Financial awareness
    • Public protection
    • Complaint processing
    • Information technology
    • Legal management
  • Loan Contracts:
    • Conclusion of loan contracts with clients
    • Submission of periodic financial statements
    • Establishment of an online system for registering loan applications
    • Allocation of funds to mitigate risks
    • Appointment of an auditor
  • Loan contracts must include details such as:
    • Client information
    • Loan duration and payment method
    • Interest amounts
    • Client-provided insurances
    • Loan purpose

Transition Period

Companies licensed prior to the issuance of the New Regulation have a three-year grace period to align their operations with the new requirements. The decision has been in force since April 28, 2024, and licensed companies must comply within this timeframe.

Expertise at Al Tamimi & Company

At Al Tamimi & Company, our Iraq office is dedicated to guiding clients through these significant legislative changes, ensuring compliance with the New Regulation and providing accurate and timely legal advice to help navigate these changes effectively.