Crypto license in Bahrain

The Directive outlines key licensing parameters, including eligibility requirements for obtaining and retaining CBB licenses. It also establishes minimum capital adequacy standards, along with robust client or customer protection safeguards. Technological benchmarks incorporating cybersecurity risk management protocols are mandated, along with defined disclosing obligations and authorization prerequisites. Finally, the Directive emphasizes adherence to protocols designed to prevent marketplace misconduct and manipulation.

The rule came into effect after the CBB launched its legislative sandbox in June 2017. Since the sandbox's inception, numerous organizations providing blockchain-based solutions have capitalized on this chance and stepped into the sandbox, as a result, collaborating tightly with the Central Bank of Bahrain to iterate on and enhance their inventive resolutions and platforms employing cutting-edge technologies within a regulated digital space.

Public hearings were held by the CBB in January 2019 regarding the initial guidelines. Subsequently, in February, the ultimate rules were published. The main stipulations of the Regulations, particularly the aspects of authorizing cryptographic businesses in Bahrain, are outlined below.

Cryptocurrency oversight in Bahrain: important terms defined in the new Regulation

Pursuant to the Directive, no organization is allowed to participate in the offering or execution of business operations, domestic or international, engaging in supervised cryptocurrency service provision, without securing permission from the CBB.

Cryptocurrencies are described as intangible or electronic possessions, functioning on a blockchain-related framework and safeguarded by cryptographic methods. Tokens are subdivided into:

• Payment
• Service
• Asset
• Hybrid

If you are inclined towards getting a certificate for cryptocurrency exchange within this jurisdiction, please note that actions involving controlled cryptocurrency assets could encompass any of the pursuing realizations:

1. Acquiring and disseminating orders for digital assets;
2. Accomplishment of customer requests for cryptocurrency money;
3. Engaging in the deal of cyber assets using personal funds;
4. Overseeing customer portfolios of digital resources;
5. Safekeeping of crypto-assets for clients;
6. Offering tailored guidance on investments in digital currencies;
7. Managing an authorized digital currency trading platform.

Obviously, in the governing structure instituted by the CBB, a licensee is essentially any individual or organization that has been granted authorization to offer approved cryptocurrency services within Bahrain's regulatory purview. More specifically, whatever activity pertaining to digital assets that is physically conducted within Bahrain's borders or started from Bahrain is included in our definition of "within or from the Kingdom of Bahrain," regardless of the location of the actual transactions or operations. This classification guarantees that any party involved in cryptocurrency-related operations in Bahrain, or utilizing Bahrain as a center for such operations, is under the regulatory monitoring of the CBB.

• Part of the Kingdom;
• Utilizes a Bahrain-based address for its communication;
• Offers services directly to customers from this nation.

Crypto permit in Bahrain: licensing prerequisites

To engage in cryptocurrency-related activities, whether domestically or internationally, companies are necessitated to secure a digital currency permit from the CBB.

Bahraini permit requests have to follow the format given by the CBB and contain the next records:

• Corporate strategy indicating the type of activity;
• Application forms for all stakeholders and branches;
• Application papers for all "regulated roles."

Companies, if their cryptocurrency activities fit into the same category and don't present a core clash of interests, can merge various permissions to acquire a digital currency accreditation from the CBB. Annually, certificate owners must pay a licensing charge amounting to 0.25% of their operational expenditures. The guidelines mandate a 60-day timeline for the CBB to make a decision on the certificate request.

For the procurement of a cryptocurrency certificate, the applicant has to be:

• enrolled as a Bahraini JSC;
• branch of an intercontinental company.

The monitoring framework allows entities engaged in cryptocurrency undertakings and integrated elsewhere to request for a Bahrain certificate to trade cryptocurrencies and function as solution for non-native digital asset suppliers. The CBB will provide a rigorous due diligence procedures for requests from foreign entities seeking to create a subsidiary, scrutinizing the company's governance framework, monetary affairs, activities, and the statutory climate (in the holding company's jurisdiction of incorporation) pertaining to virtual currency operations.

Cryptocurrency license: financial prerequisites

In Bahrain, regulations mandate that all crypto-asset service providers should meet minimum financial requirements, which differ based on their licensing category as outlined in a table. This ensures financial stability and accountability within the crypto sector while accommodating various types of service suppliers.

CBB may, at its choice, ask the license holder to maintain additional funds in the specified quantity and format as determined necessary to guarantee the monetary resilience of the license holders' activities.

Approved persons

If someone is going to be performing "controlled functions" for a firm, they need to get written permission from the CBB before requesting a license for digital currency in Bahrain. They comprise:

• Director;
• Chief executive or managing director;
• Principal data protection expert;
• Compliance Officer;
• AML Reporting Officer.

Foreign licensors should get approval from the CBB in advance to oversee operations at a subsidiary (or similar entity) in Bahrain, alongside fulfilling the same "controlled functions" criteria outlined earlier. Moreover, such licensors are mandated to uphold a regional leadership presence, possess property in Bahrain, and secure CBB authorization if any of their employees executing "controlled functions" do not live in the country.

Accepted crypto assets and acceptable investors

According to the rules, the Central Bank will approve cryptocurrency applications in advance after taking a number of variables into account, including:

• The issuer's technological capabilities, past performance, and current development team composition;
• The entity deploys frameworks and mitigation strategies against financial crime, aiming to deter money laundering and address illicit financial activities. It also safeguards against cybersecurity breaches;
• The architecture and cryptographically secured ledger (i.e., whether it makes use of a reputable blockchain for network influences and harmonies or initiates an autonomous blockchain with a fresh network).

Apart from the previously mentioned elements, CBB will consider features like protection, monitoring, problem-solving procedures, geographic dispersion, integration choices, market variability, kind of distributed ledger used, creativity, and functionality.

Applicants seeking a cryptocurrency permit granted by the CBB should furnish comprehensive specifications regarding every cryptographic resource recommended for utilization within their overseen support. The utilization of said crypto assets must receive sanction within the conventional application process.

In order to provide cryptocurrency-related monetary solutions in Bahrain, investors must ensure conformance with regulatory stipulations, encompassing receiving a certificate for a digital asset trading platform. This typically entails formulating and finalizing arrangements that delineate the parameters of the services provided, along with guaranteeing adherence to AML and Know Your Customer regulations. These contracts should cover essential aspects such as user agreements, privacy policies, risk disclosures, dispute resolution mechanisms, and regulatory conformity protocols. Additionally, they should address issues related to custody of assets, security protocols, and measures to prevent fraud and cyberattacks. Obtaining a license involves fulfilling specific criteria set forth by the regulatory authorities, which may include demonstrating financial stability, implementing robust security measures, and establishing effective governance structures. Adhering to these stipulations is crucial to guarantee lawful functioning and establish confidence with clientele and regulatory authorities within the cryptocurrency sector:

• Title and location of the permit holder or parent corporation (if the permit holder is situated abroad);
• Legitimate standing of the permit holder;
• Terms for completing, terminating, and altering a clientele treaty;
• Breakdown of charges and reasons for their imposition;
• An explanation of the commodities and goods that the permit user is selling;
• Disclosure of prospect confrontations of interest;
• Processes for addressing complaints and resolving conflicts;
• Disclosure of peculiarities about the pitfalls connected with cryptographic finances.

The Regulations also establish mandates for professional liability coverage, industry benchmarks, controls around cybersecurity risks, third-party risk, disclosure protocols, and so forth.

Conclusion

Bahrain's adoption of new guidelines reflects its readiness to streamline the entry process for fintech companies, facilitating their growth and fostering a conducive environment for startups in the GCC region. This move holds significant promise for advancing blockchain technology within the region, opening doors to numerous opportunities for innovation and development.

For further details regarding the article's topic, you can seek guidance on cryptocurrency regulations and enlist support in securing a license in Bahrain from specialists within our firm.