Reported by: banking|Updated: November 12, 2020
Bahrain, the smallest of the Gulf kingdoms, is poised to become a leader in the use of blockchain technology:
Bahrain, though the smallest of the countries in the Middle East, is today taking the lead in blockchain-related projects, especially crypto assets. It is on the verge of enacting regulations for cryptocurrency and becoming a pioneer in blockchain in the region. The country has some 116 licensed banks, 151 insurance companies, and a number of investment institutions that together account for one-fourth of its GDP.
Bahrain’s Economic Development Board had endorsed blockchain in 2017, giving formal approval for 28 blockchain enterprises and also continuing to expand the fintech capital flows from other GCC countries, as well as from China, India, and the UK. The Central Bank of Bahrain had also formulated rules regarding licensing, governance, and cybersecurity.
Besides, there has also been a regulatory sandbox to help boost fintech and blockchain-related businesses. The regulatory sandbox functions under the fintech and innovation unit of the Central Bank of Bahrain. There are some 35 firms in the sandbox and 2 have already graduated to ‘full license’ status. UK company Fasset, a provider of blockchain-powered platforms, has been mandated to test its solutions for the tokenisation of hard assets in the regulatory sandbox. The authorization is the first of its kind in the world.
In addition, the University of Bahrain has recently introduced blockchain-based digital diplomas to students, becoming one of the first universities globally to have digital diplomas. Another effort is KYC based on blockchain introduced by the country’s Electronic Network for Financial Transactions (BENEFIT). Financial institutions that subscribe to BENEFIT are able to instantly complete KYC and Anti-Money Laundering (AML) compliance procedures.
The most noteworthy blockchain-related effort in the kingdom is the FinTech Bay, which is the largest fintech hub in the Middle East and African region. Today, it has more than 50 partners from local and international organizations. It provides a dedicated fintech co-working space, with innovation labs, acceleration programs, curated activities, and educational opportunities.
The applications of blockchain in Bahrain are not just confined to some key frontline industries. The petroleum industry is one of those using blockchain and cryptocurrency-based systems as the country strives to offset the slump in crude oil prices and reliance on petroleum exports.
FINAL RULES BY CENTRAL BANK
The Central Bank of Bahrain has issued the final rules on a range of activities relevant to crypto-assets. These rules – covering crypto-assets operating under blockchain/ distributed ledger systems are aimed at ensuring that the related activities are brought within the regulatory perimeter and are subject to comprehensive regulatory and supervisory measures. These rules deal with licensing, governance, minimum capital, control environment, risk management, AML/CFT, standards of business conduct, avoidance of conflicts of interest, reporting, and cybersecurity for crypto-asset services. They also cover supervision and enforcement standards including those provided by a platform operator as a principal, agent, portfolio manager, adviser, and as a custodian within or from the Kingdom of Bahrain.
Bahrain’s Arab Banking Corporation, or ABC, was the first to join the R3 distributed ledger consortium in the MENA region way back in 2017. The bank also operates in Algeria, Egypt, Tunisia, and Jordan.
Bahrain is the first fully integrated port in the region within IBM’s TradeLens platform, a blockchain-based digital platform that empowers businesses and authorities along the supply chain with a single, secure source of shipping data, enabling more efficient global trade.
As Bahrain has started adopting open banking regulations in June 2019, becoming one of the first countries to mandate open banking, blockchain technology will have a major role in interconnecting banking services and provide value-added services
Bahrain is a known crypto-friendly country. Nearly half of the companies approved for the regulatory sandbox are either crypto exchanges or other crypto businesses including ATMs. The kingdom has been trying to attract businesses to its crypto-friendly environment. The Bahrain Economic Development Board had invited Indian firms to take advantage of the opportunities in the country.
The central bank has come out with a consultation paper on directives for services provided by crypto-asset platform operators, which provides for a regulatory framework for licensing and supervision of crypto-asset services to fall under the CBB Rulebook. For those licensed by the central bank as crypto-asset exchanges, the regulatory framework also contains rules relevant to order matching, pre and post-trade transparency, measures to avoid market manipulation and market abuse, and conflicts of interest.