Majlis Passes Key Financial Transparency Measures

Lawmakers approved measures on Saturday requiring the Central Bank of Iran to prepare the grounds for undertaking constant oversight over the banking sector by establishing an online supervisory system.

The measure was embedded in Article 20 of the sixth five-year development plan (2016-21), which was passed by a vote of 149 to 17 with the abstention of three lawmakers. A total of 214 members were present, Banker.ir reported.

According to the first clause of the article, the central bank is obligated to establish an online supervisory system in the first year of the Sixth Plan (2017-18). The goal will be to pave the way for sustained and preemptive supervision in the banking system to prevent potential violations.

Five-year development plans have been designed by the government to help achieve sustainable growth. The Sixth Plan stipulates the utilization of the country’s full capacities and resources to achieve sustainable and rapid economic growth at an annual average rate of 8%.

Clause two of Article 20 legally binds the CBI to create an electronic platform to be used by banks and non-bank credit institutions for inquiries concerning credit scoring and tax arrears, among other things.

The online platform will make it possible for lenders to receive information from authorities in related organizations.

Lawmakers also obliged all related bodies that banks and non-bank credit institutions potentially contact for credit assessment of customers to cooperate with them.

Fiscal Discipline

They also approved Article 19 of the development plan with 155 in favor, seven against and three abstentions from a total of 203 votes. The article prohibits "any usage of assets belonging to the central bank, banks and non-government credit institutions (with the exception of interest-free loans) in the annual spending budget in the upcoming five years of the development plan".

It also states that all bank accounts, including rial and foreign exchange accounts for ministries, institutions, companies and government organizations and universities, must strictly be opened through the Treasury with the CBI. This is reportedly to increase the speed and efficiency of government finances, revenue and expenditure.  

This, the legislation states, would increase the transparency of administrative accounts, create the possibility of online supervision and reduce the negative repercussions of the government's financial operations in the banking system.

All the aforementioned entities are, therefore, obligated by lawmakers to make their transactions only though accounts opened with the Central Bank of Iran. Any violations would be met with disciplinary action.

CBI's Governor Valiollah Seif has announced that the bank's grand plan to overhaul its financial oversight regime over the banking system will be unveiled soon.

According to Seif, the main thrust of the plan is the “new operational model of supervision over the banks”, which has been devised by employing the latest in international experience while completely localizing its components.

Iranian lenders, isolated by years of sanctions from international engagement, have been lagging behind regulatory and accounting standards, prompting the central bank and the government to launch a comprehensive reform plan to upgrade the key banking sector.

Insurance Privatization

Iranian lawmakers on Sunday required the government to forgo its shares in insurance companies, except for the Central Insurance of Iran–the industry's regulator–and Iran Insurance Company–the sole insurance firm totally owned by the state. The new mandate was ratified as part of the Sixth Plan.

The government is now obliged to divest its remaining shares in insurance firms by listing them in the capital market by the end of the plan’s second year (March 2019, according to the parliament's news service, ICANA.

The move is line with Article 44 of the Iranian Constitution, which obliged the government to transfer 80% shares of the companies to public ownership.

The article was passed in 2005, requiring the government to sell shares in downstream oil and gas industries, large mines, government banks, post and telecommunications, aviation and shipping organizations, insurance companies, power provision companies and all government companies, except those in which the government is entitled to a monopoly.

The government sold 80% of shares in Dana Insurance, Asia Insurance and Alborz Insurance based on the plan but kept the ownership of Iran Insurance Company. Many plans have been developed in recent years to gradually reduce the government’s share in insurance firms from 20% to 5%, though none of them was successful.

Abdolnasser Hemmati, CII’s head, has been reportedly holding intense talks with lawmakers to persuade them to vote in favor of the law. He was heading the industry when privatization took off.

“However, I personally believe that these companies are not [fully] private. I call them ‘quasi-governmental’ because their board members are still appointed by the government,” he said back in August.

The Insurance industry has managed to improve relations with lawmakers in recent months, raising hopes for implementing long-awaited plans.

Earlier in December, Mohmmad Reza Pourebrahimi, the head of Majlis Economic Commission, unveiled plans for forming a working group in the parliament specifically for addressing insurance industry’s issues.

Currently, taxes and duties are insurers’ main challenges. The parliament has shown interest in helping the insurers solve their problems.

The parliament also seeks to implement structural reforms in the industry, mainly to promote the role of insurance industry in the economy, especially in commercial categories.

Lawmakers on Saturday required CII to take measures for increasing the insurance penetration rate to 7% by the end of the sixth five-year development plan (2016-21).

Boosting the share of life insurance to at least 50% of the industry’s total premium income, revising regulations on insurance companies’ reserve calculations and investments, and introducing new insurance categories to cover risks in production and trade sectors are among other tasks of the CII in the next five years.