Bahrain Cracks Down on Financial Crime in Cryptocurrency Market
The Central Bank of Bahrain (CBB) has issued new regulations aimed at combating financial crime and protecting investors in the rapidly growing cryptocurrency market. The changes come after a consultation process with industry stakeholders and aim to enhance investor protection while keeping pace with best practices in the sector.
New Regulations for Digital Token Offerings
Under the new regulations, digital token offerings that exhibit characteristics of security will be subject to strict regulation by the CBB. To determine whether a digital token qualifies as a security, the bank will examine its underlying economic purpose, structure, characteristics, and attached rights.
- Economic Purpose: The CBB will consider the primary intention behind issuing the digital token.
- Structure: The complexity of the digital token’s design and functionality will be evaluated.
- Characteristics: The token’s features, such as its divisibility, fungibility, and scarcity, will be assessed.
- Attached Rights: The rights granted to holders of the digital token, including voting rights or ownership claims, will be examined.
Enhanced Investor Protection
The CBB has introduced new requirements aimed at safeguarding clients’ assets and providing high levels of protection for investors. These measures include:
- Client Asset Segregation: Crypto-assets licensees must segregate client assets from their own funds to prevent commingling.
- Risk Management: Licensees are required to implement effective risk management policies to mitigate potential losses.
- Transparency: Clear and concise disclosure of fees, risks, and investment opportunities is mandatory.
Additional Activities for Crypto-Assets Licensees
Crypto-assets licensees will be allowed to engage in additional activities after obtaining approval from the CBB. These may include:
- Investment Advice: Licensees can provide advice on digital asset investments.
- Portfolio Management: They can offer portfolio management services for clients’ digital assets.
- Market Making: Licensees can participate in market making activities to ensure liquidity.
Abeer Al Saad’s Statement
“We are committed to regulating the cryptocurrency market in a fair and transparent manner,” said Abeer Al Saad, Director of the Capital Markets Supervision Directorate at the CBB. “Our risk-based regulatory approach is designed to provide adequate safeguards for investors without stifling innovation.”
Conclusion
The new regulations reflect the CBB’s ongoing efforts to maintain the competitiveness of the sector while keeping pace with the latest developments in the field. The move is a significant step towards regulating the cryptocurrency market and providing a secure environment for investors. As the industry continues to evolve, the CBB will continue to review its regulatory framework to ensure it remains effective in combating financial crime.