I get this error when I run create-stack for a cloudformation template that contains IAM policies.
aws cloudformation create-stack --stack-name iam-stack --template-body file://./iam.yml --capabilities CAPABILITY_IAM --profile dev
An error occurred (InsufficientCapabilitiesException) when calling the CreateStack operation: Requires capabilities : [CAPABILITY_NAMED_IAM]
Change --capabilities to CAPABILITY_NAMED_IAM
If you have IAM resources with custom names, you must specify CAPABILITY_NAMED_IAM. If you don't specify this parameter, this action returns an InsufficientCapabilities error.
https://docs.aws.amazon.com/AWSCloudFormation/latest/APIReference/API_CreateStack.html
As per AWS docs, If you specify a Role name in cloud formation, you must specify the CAPABILITY_NAMED_IAM value to acknowledge your template's capabilities Link
So your command should be
aws cloudformation create-stack --stack-name iam-stack --template-body file://./iam.yml --capabilities CAPABILITY_NAMED_IAM --profile dev
If you are using AWS CodePipeline to deploy an EC2 using a CloudFormation stack, there is an option called "Capabilities" from which you can select CAPABILITY_NAMED_IAM.