Financial Crime World

Financial Institutions’ Due Diligence in Iraq: A New Era of Transparency and Global Reach

The financial sector in Iraq has undergone significant changes in recent years, with the introduction of the Custodian Instructions 2021 aimed at increasing foreign investment and strengthening local financial institutions.

Enhanced Transparency and Data Protection

The new regulations require custodians to ensure greater transparency and reduce the risk of investing in the Iraqi Stock Exchange (ISX). Custodians must:

  • Inform clients of every decision, procedure, transfer, or transaction taken on their behalf
  • Provide monthly audited reports of transactions and balances
  • Maintain confidentiality of client data

Licensing Requirements for Financial Institutions

To be licensed as a custodian under the new act, financial institutions must meet several conditions, including:

  • Designation of a separate department for conducting custodian services
  • Approval from the Central Bank of Iraq
  • Full payment of share capital
  • Expertise in carrying out custodian services

The licensing process has been streamlined compared to previous regulations, which required providing sureties and guarantees.

Global Reach and Protection

The Custodian Instructions 2021 have introduced new requirements for licensed custodians, including the ability to hold assets globally and extend protection to foreign and international assets. This is a significant improvement from the previous regulations, which limited custodians’ reach to local assets only.

Disciplinary Action

The ISX has discretion to cancel licenses in cases of non-compliance with licensing conditions or breach of obligations under the Custodian Instructions 2021. However, the act does not stipulate a timeframe for ISC’s decision on approval or decline of applications, nor provides information on potential appeal procedures or reapplication possibilities.

Conclusion

The Custodian Instructions 2021 have brought about significant improvements to Iraq’s custodian licensing system, enhancing transparency, global reach, and investor confidence. Al Tamimi & Company’s Banking and Finance team advises on financial agreements and transactions, providing expert guidance on the new regulations. For further information, please contact: