Financial Crime World

Iraq’s New Banking Regulations: A Major Shift in the Financial Landscape

Strengthening the Financial Sector through Regulation

The Central Bank of Iraq (CBI) has introduced new regulations governing banking activities in the country, aimed at strengthening the financial sector and protecting investors from unscrupulous practices.

Key Requirements for Establishing a Bank or Representative Office

  • Any entity seeking to establish a bank or representative office in Iraq must first obtain a permit from the CBI.
  • This includes foreign banks and their subsidiaries, as well as microfinance institutions and other organizations providing credit services.
  • The regulations prohibit the use of the word “bank” by unlicensed entities, unless they are established under international agreements or recognized by law.

Inspections and Enforcement

  • The CBI has been empowered to inspect the accounts and records of any entity suspected of engaging in illegal activities.
  • Law enforcement officials will assist the bank in gaining access to premises and conducting examinations if necessary.

Exemptions and Requirements for Microfinance Institutions and Organizations Providing Credit Services

  • Certain microfinance institutions and organizations providing credit services are exempt from licensing requirements, but must provide periodic reports to the CBI detailing their activities.

Licensing and Permit Requirements

  • Companies seeking a banking license or permit must have a minimum capital requirement of $42 million (50 billion dinars) and be established in the form of a juridical person under Iraqi law.
  • Foreign banks seeking to establish branches or representative offices in Iraq must demonstrate that they are subject to comprehensive supervision or regulation by a supervisory authority in their home country.

Limits on Foreign Ownership of Banks in Iraq

  • The total number of licenses for banks controlled by foreign persons is capped at six until December 31, 2008, after which there will be no limit.
  • Foreign individuals can own up to 50% of an existing or new domestic bank without counting towards the limitation.

Application Process and Guidelines

  • The CBI has issued detailed guidelines on the application process for banking licenses and permits.
  • Applicants must submit a comprehensive business plan, including information on their organizational structure, internal control systems, and financial projections.

Expected Outcomes

The introduction of these regulations is expected to enhance the stability and transparency of Iraq’s financial sector, while also protecting investors from unscrupulous practices.