Iraq’s digital payments market is growing quickly, driven by government efforts to reduce reliance on cash. Foreign fintech companies, card schemes and payment platforms see strong potential in the market. However, payment services are regulated activities in Iraq. Offering them without Central Bank of Iraq approval can lead to enforcement action and the loss of access to the Iraqi banking system.
Legal Framework
The Electronic Payment Services Regulation No. 2 of 2024 was issued by the Central Bank of Iraq. It governs the provision of electronic payment services and the companies that provide them. It forms part of the Central Bank’s wider effort to develop a modern, secure payments system.
The regulation is issued under the Central Bank’s powers over payment systems in the Central Bank Law No. 56 of 2004. It operates alongside the Banking Law, the Anti-Money Laundering and Counter-Terrorist Financing Law and the Electronic Signature and Electronic Transactions Law. Detailed requirements are often set out in Central Bank instructions and circulars issued under the regulation.
Key Points for Foreign Companies
Licensing Is Required
Providing electronic payment services in Iraq requires a licence from the Central Bank. This applies whether the provider is Iraqi or foreign-owned. Foreign companies should not onboard Iraqi merchants or users before the licensing position is clear.
Activities That May Be Covered
The regulation addresses a range of electronic payment activities. Depending on the business model, these may include:
- electronic wallets and stored value;
- payment processing and gateways;
- card issuing and acquiring;
- electronic money transfer services.
The exact scope of each licence category should be confirmed against the regulation and current Central Bank instructions.
Capital and Financial Soundness
Licensed providers must meet capital and financial requirements set by the Central Bank. Requirements may differ by licence type. Investors should confirm current figures directly before planning their capital structure.
Local Presence and Ownership
The Central Bank generally expects licensed providers to have a proper legal presence in Iraq. Foreign companies should consider whether to establish a local company or partner with an existing licensed provider. Ownership changes may require prior Central Bank approval.
Protection of Customer Funds
The regulation addresses the safeguarding of customer funds held by payment providers. Providers are expected to keep customer funds separate from their own and hold them with licensed banks. Product design should reflect these safeguarding duties from the outset.
Technology, Security and Data
Providers must maintain secure systems and adequate risk management. The Central Bank may set requirements on information security, business continuity and data handling. Foreign providers should check whether any data or systems must be hosted or accessible in Iraq.
Anti-Money Laundering Duties
Payment providers are subject to Iraq’s anti-money laundering legislation. They must carry out customer due diligence, monitor transactions and report suspicious activity. Transaction limits for less verified customers may apply under Central Bank instructions.
Supervision and Enforcement
The Central Bank supervises licensed providers, may request reports and may conduct inspections. Breaches can lead to sanctions, including suspension or revocation of the licence. Clear communication with the regulator helps resolve issues early.
Practical Recommendations
- Map your business model against the regulation’s licence categories before entering the Iraqi market.
- Engage with the Central Bank early to confirm licensing, capital and local presence requirements.
- Build fund safeguarding and anti-money laundering controls into your product design from the start.
- Review data hosting and information security requirements before finalising your technology architecture.
- Track Central Bank instructions and circulars, which frequently add detail to the regulation.
Conclusion
The Electronic Payment Services Regulation No. 2 of 2024 sets the entry conditions for Iraq’s growing digital payments market. Foreign companies that secure the right licence and build compliant systems from the start will be well placed to grow.
This article provides general information only and does not constitute legal advice. For advice on electronic payment regulation in Iraq, contact Etihad Law team.