The final Law Update of 2022 is here, and it’s packed full of articles. The double edition features two focus areas, first is a spotlight on Energy and Resources and second we feature a collection of articles on Transport and Logistics. The developments occurring in these sectors in the MENA region are unprecedented and our lawyers cover vast themes for you.
The Energy and Resources focus features topics such as diversifying energy resources, solar PV, mining in the Middle East, renewable energy and green hydrogen. From a transport perspective, we draw attention to the Bahrain metro project, discuss the challenges and remedies associated with the repossession of an aircraft, and there is advice on what to consider should a party vary the terms of a shipping contract.
This edition navigates you through updates from across jurisdictions such as, Oman, Jordan, Saudi Arabia, Egypt, Iraq, Qatar, and the UAE. Each article is timely and provides insights into legal issues and cases that are affecting these sectors across the region.Read the full edition
Carla Nocerino - Trainee Lawyer
The dynamics of the financial industry are constantly changing to stay abreast with modern business practices. Iraq had introduced its custodianship system in 2012 via the Custodian Instructions No. (17) of 2012 (the “Custodian Instructions 2012”) in an attempt to increase foreign investment in the Iraq Stock Exchange (“ISX”) and sustain its economic recovery. A custodian is essentially a regulated financial entity that holds customers’ assets for safekeeping and servicing, with the aim to reduce the possibility of misappropriation, misuse, theft, or loss. Following the recommendations of the White Paper in 2020 and via a decision from the Cabinet of Ministers, the Custodian Instructions 2012 have undergone an overhaul via the introduction of the Custodian Instructions No. (17) of 2012 (as amended in 2021) (the “Custodian Instructions 2021”). These changes have made it more accessible for foreign investors to become licensed under the new act in order to strengthen current Iraqi financial institutions, encourage participation from international investors into the ISX, which in turn will incentivize the introduction of best practices at local financial institutions, and provide greater accessibility to finance for companies already listed on the ISX.
The Custodian Instructions 2021 have broadened the scope for financial institutions to be licensed under the act and have aligned such Custodian Instructions and restrictions with recognised international practices and data protection laws. The new amendments also regulate the method of safekeeping client monies ad assets, including extending the protection to cover not only local assets, but also foreign and international assets.
The Custodian Instructions 2012 limited custodians from global reach which is a significant setback especially for clients or investors with international assets who would require a custodian with the ability to hold assets around the world and not just locally in Iraq. The Custodian Instructions 2021 have therefore broadened the scope of obligations for a custodian allowing for international reach and have extended the functions of a licensed custodian as follows.
Firstly, by ensuring greater transparency and therefore reducing the risk in investing in the ISX, a custodian must:
Secondly, by allowing the custodian to exercise discretion to ensure higher returns for clients or investors by:
The custodian must, whilst performing his/her services ensure the confidentiality of the data of his clients and not disclose any confidential information relating to his clients or their assets (unless requested by the ISX or ISC), use the latest technology in accordance with accounting standards and keep copies of all records.
In order to be licensed as a custodian as per the Custodian Instructions 2021, the following conditions must be satisfied:
In order to apply for licensing as a custodian, in addition to meeting the abovementioned the requirements, the financial institution must submit an application to the ISX containing the following information:
The ISX shall review the application and shall inform the financial institution if further documentation is required or if the application is missing some document and will conduct the necessary due diligence to ensure the accuracy of the information provided by the financial institution. The ISX will then transfer the application to the ISC so that it may either be accepted or declined.
Further, the ISX along with the approval of the ISC reserve the discretion to cancel the license of any financial institution in any of the following events:
The Custodian Instructions 2021 do not stipulate the period that ISC must issue their decision of approval or decline for obtaining custodian licensing, nor do they stipulate if the ISC provides the unsuccessful applicant of the reasons as to why their application was declined, potential appeal procedures, or the possibility of reapplication.
All in all, the Custodian Instructions 2021 are a massive improvement to the custodian licensing system in Iraq as it (i) broadens the scope of investing in the ISX from local investors to international investors, (ii) enables custodians to have global reach (to local and international assets), (iii) offers greater transparency for investors, and (iv) ensures the confidentiality of information relating to the client and the client’s accounts and dealings. The licensing procedure is also in itself, less complex and restricting compared to the Custodian Instructions 2012 which required providing sureties and guarantees to the market.
Al Tamimi & Company’s Banking and Finance team regularly advises on financial agreements and transactions. For further information please contact Dana Abduljaleel (D.Abduljaleel@tamimi.com) or Carla Nocerino (C.Nocerino@tamimi.com).