The regional real estate, construction and hospitality sectors have been turned upside down over the last two years, with Covid-19 bringing these sectors to a halt. The impact of the pandemic remains, however, the resurrection of these vital sectors across the region is a welcome relief because they support the development of modern cities, which in turn have attracted commerce and tourism to the Middle East and North Africa.
This latest edition of Law Update, provides vital insights, updates and commentary on the latest trends taking shape across the real estate, construction, hotels and leisure sectors. The articles within this edition cover a broad range of topics, from what’s next for real estate in Dubai, to commentary on Saudi real estate, a market that is set to become the main bedrock of the region for years ahead. You will find articles on reforming real estate laws in Qatar, foreign investment and ownership in Oman, and mitigating risks on hotel construction projects and the lessons learnt from Covid.Read the full report
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).