Financial Crime World

Bahrain Cracks Down on Cryptocurrency Scams with Final Rules from Central Bank

Manama, Bahrain - A Move Towards Regulatory Control

In a bid to prevent financial crime and ensure the growth of its burgeoning cryptocurrency market, the Central Bank of Bahrain (CBB) has released final rules governing crypto-asset services and exchanges. These regulations aim to bring these activities under comprehensive oversight, aligning with global innovations in the financial sector.

Introduction of Final Rules by CBB

The CBB’s executive director for banking supervision, Khalid Hamad, emphasized that the bank is committed to keeping pace with global innovations in the financial sector. “Our introduction of rules relating to crypto-assets aligns with our goal of developing a robust framework for Bahrain’s FinTech ecosystem,” he said.

Key Aspects of the Regulations

The new regulations cover key aspects such as:

  • Licensing: Requirements for obtaining licenses for crypto-asset services and exchanges
  • Governance: Compliance with corporate governance principles, including board composition and risk management
  • Capital Requirements: Minimum capital requirements for licensed entities
  • Risk Management: Implementation of robust risk management practices to mitigate potential risks
  • Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT): Adherence to AML/CFT regulations and guidelines
  • Standards of Business Conduct: Compliance with standards for business conduct, including transparency and fairness
  • Cybersecurity: Implementation of robust cybersecurity measures to protect against potential threats

Additional Rules for Licensed Crypto-Asset Exchanges

For licensed crypto-asset exchanges, the CBB has introduced additional rules covering:

  • Order Matching: Ensuring fair and transparent order matching processes
  • Transparency: Providing clear information on market activity and trading conditions
  • Market Manipulation Prevention: Implementing measures to prevent market manipulation and other unfair practices
  • Conflict of Interest Mitigation: Ensuring that entities take steps to mitigate conflicts of interest

Guidelines for Enhanced Due Diligence and Safe Custody

In recognition of the emerging nature of these activities and associated risks, the CBB has included specific measures in its guidelines. These include:

  • Enhanced due diligence for new clients: Conducting thorough background checks on new clients to ensure compliance with regulations
  • Prohibition on encrypted safe custody accounts or “wallets” that cannot be retrieved: Ensuring that customers can access their funds and assets at all times
  • Mandatory insurance covers to mitigate keyman risks: Implementing insurance policies to protect against potential risks associated with key personnel
  • Clear instructions and education provided to clients for using safe custody wallets: Educating customers on the proper use of safe custody wallets and ensuring that they understand their responsibilities

Major Step in Combating Financial Crime

The move is seen as a major step in Bahrain’s efforts to combat financial crime and maintain its position as a leading financial hub in the Middle East and North Africa (MENA) region. By introducing these regulations, the CBB has demonstrated its commitment to protecting investors and maintaining market integrity in the face of growing cryptocurrency activity.