Foreign investment in the Iranian stock exchange is also hampered by ambiguities. The Central Securities Depository of Iran (CSDI) performs the function of a local custodian bank, guaranteeing the clearing and settlement process for member stockbrokers for both buy and sell sides in securities transactions.
However, the CSDI is not acknowledged and relied upon by large foreign institutional investors, as its intermediary tasks are usually undertaken by large and internationally known custodian banks. Thus, foreign investors are unsurprisingly not keen on stepping into a market replete with ambiguities.
The Know Your Customer challenge is another key obstacle to foreign investment. Major institutional investors are faced with excessive red tape when seeking shareholding licenses from the Securities and Exchange Organization, which acts as Iran’s sole capital market regulator. The licensing process must be carried out in compliance with Iran’s 2008 Anti-Money Laundering Act.
In this vein, the verification of submitted paperwork is greatly time-consuming — possibly due to complications stemming from the unfamiliarity with documents submitted by foreign applicants. Slow mandatory background checks of shareholding license applicants add to existing strains.
Nontransparency and inconsistencies in data published by listed companies is another Achilles’ heel for Iran. During the sanctions era, many Iranian firms refrained from following International Financial Reporting Standards regulations. This greatly complicates necessary due diligence on behalf of foreign investors, additionally delaying their entrance.