Bahrain Introduces Regulations for Crypto-Asset Service Providers
The Bahrain Central Bank (CBB) has recently introduced regulations for the licensing and operation of crypto-asset service providers in the country. These regulations aim to provide a framework for the safe and secure provision of crypto-related services, while also promoting innovation and growth in the industry.
Key Aspects of the Regulations
Licensing Categories
The CBB has established four licensing categories for crypto-asset service providers:
- Category 1: The most basic level of licensure, with minimum capital requirements of BHD 25,000.
- Category 2: Requires a minimum capital requirement of BHD 50,000 and demonstrates a higher level of expertise in cryptocurrency operations.
- Category 3: Demands a minimum capital requirement of BHD 100,000 and includes more advanced services such as trading and investment advice.
- Category 4: The most advanced level of licensure, with a minimum capital requirement of BHD 300,000 and requires the highest level of expertise in cryptocurrency operations.
Minimum Capital Requirements
Each category has a corresponding minimum capital requirement, ranging from BHD 25,000 to BHD 300,000. This ensures that crypto-asset service providers have sufficient financial resources to operate safely and securely.
Approved Persons
The CBB requires written approval for individuals assuming “controlled functions” such as:
- Directors: Individuals who serve on the board of directors or equivalent positions.
- Chief Executives: The top executive responsible for overseeing the operations of the crypto-asset service provider.
- Heads of Functions: Senior staff members responsible for key functions within the organization.
Accepted Crypto-assets
The CBB pre-approves crypto-assets based on various factors, including:
- Technological Experience: Demonstrated expertise in the development and operation of cryptocurrency-related technology.
- Anti-Money Laundering Systems: Effective systems in place to prevent and detect money laundering activities.
- Cybersecurity Controls: Robust security measures to protect against cyber threats.
Eligible Investors
Eligible investors must be a legal entity or a natural person above the age of 21, ensuring that only mature and responsible individuals can engage with crypto-asset service providers.
Regulated Services
Regulated services can only be carried out with eligible investors after entering into an agreement that stipulates various terms, including:
- Fees: Clear and transparent fee structures.
- Costs: Accurate disclosure of costs associated with services.
- Conflict of Interest Provisions: Measures to prevent conflicts of interest.
Additional Provisions
The regulations also set out provisions relating to professional indemnity coverage, technology standards, cyber security risk requirements, counterparty risk, reporting and notification requirements, and more.