Yes, it needs to have a standard timed thermal barrier against ignition to meet code. Half inch gypsum board works.
Before you close it all up:
Are the seams in the foam panels air sealed with can-foam or caulk or something?
How thick is the foam?
How much of the foundation wall extends above grade?
Code min performance for foundations in most of MD (US climate zone 4A, except Garrett County, which is zone 5A) is R10 continuous insulation. While technically that could be met with 2" of blue XPS from a labeled-R point of view, it's long term performance is closer to R8.5. For at least the top half of the wall (down to a couple feet below grade) it's probably worth adding batt insulation even if it's 2" foam. If it's thinner than 2" adding batts is advised too. Only unfaced batts or kraft faced, not foil faced, and DON'T install interior side vapor retarders other than standard latex paint on the half-inch wallboard.
If there is any chance at all of a flood you may want to stop the batt insulation above the anticipated high-water mark.