Back in December 2016, the Central Bank of Bahrain heard from Dr. Chris Chan, Associate Dean of Ivey Business School, that the arrival of fintech marked the “Uber moment for banks”. While acknowledging the sentiments expressed by the Dean, the Chairman of the Waqf Fund and Executive
Director of Banking Supervision, Mr. Khalid Hamad announced the intentions of the Central Bank of Bahrain to introduce regulations on FinTech and invited technology companies to come to Bahrain to set up their offices and use it as a base to serve the entire GCC and Middle East Region.
On 3rd April, 2017, in a meeting with BNP Paribas Bank, the governor of Central Bank of Bahrain, Mr. Rasheed M. Al-Maraj, announced the introduction of new products for the Retail Banking sector that were aimed at avoiding any blockage to the implementation of new technologies. The Bank had issued a whitepaper for consultation on a Regulatory Sandbox for Fintech where new companies can test their FinTech solutions. The Bank also issued draft rules on Crowdfunding platforms for both conventional and shariah complaint services.
On June 14th 2017, the Central Bank of Bahrain announced new regulations to create a regulatory sandbox that will allow start-ups and fintech firms to test and experiment with their banking ideas and solutions. One of the strategic reasons behind the development of the regulatory sandbox was positioning of Bahrain as a fintech centre in the GCC and MENA region.
The regulatory sandbox has a number of qualifying requirements which include a demonstration of innovation, customer benefit, technical testing and intention to deploy in Bahrain on the expiration of the sandbox period. The CBB clarified that the Sandbox may not be suitable in cases such as the following:
- The FinTech solution is assessed by the CBB to be similar to those already offered in Bahrain;
- The Applicant fails to satisfy the CBB that it has done sufficient due diligence and technical testing of the proposed solution in a lab environment or has obtained external third-party validation for the solution;
- The Applicant has no intention to deploy the solution in Bahrain on a broader scale after exiting the Sandbox.
On 15th January, 2018, the CBB announced the authorization three Regulatory Sandbox applications, namely Wahed Inc., BitArabia and Belfrics, allowing them to test their Financial Technology (“Fintech”) solutions in Kingdom of Bahrain. On 14th June, Palmex Exchange tweeted that it has become the first cryptocurrency exchange in the MENA region to receive a regulatory Sandbox license from CBB.
Concurrent to these efforts, a group of leading financial houses and technology companies joined the Bahrain Economic Development Board (EFB) and FinTech Consortium in establishing one of the leading FinTech hubs in the region – Bahrain FinTech Bay (BFB). The hub in the Arcapita Building provides a physical hub to incubate insightful, scalable and impactful FinTech initiatives through innovation labs, accelerator programs, curated activities, educational opportunities and collaborative platforms.
On 10th August 2017, the Central Bank of Bahrain (CBB) released landmark regulations for both conventional and Shari’a compliant financing-based Crowdfunding businesses that enable small and medium-sized businesses in Bahrain and in the region to raise financing through Crowdfunding.
The key highlights of the Crowdfunding regulations are as follows:
- The minimum capital requirement for Crowdfunding platform operators is BD 50,000.
- Only Person to Business (P2B) lending/financing is permitted.
- Small and medium-sized businesses with paid-up capital not exceeding BD 250,000 can raise funds through Crowdfunding platforms.
- These SMEs may be based in Bahrain or outside; however, in case of foreign SMEs the platform operators have to clearly mention the cross-border and jurisdictional risk financiers have to take.
- It is the responsibility of the lenders/financiers to perform their own creditworthiness assessment on borrowers/fundraisers.
- Crowdfunding platform operators have to comply with the CBB rules on Anti Money Laundering, Combating Financing of Terrorism (AML/CFT), consumer protection, etc.
- Only Expert and Accredited investors are allowed to provide financing through these platforms; they can lend up to 10% of their net assets to a single borrower/fundraiser (and sign a self-declaration form to this effect).
- Retail investors are not permitted to participate given the high-risk nature.
- Platform operators have to clearly and publicly disclose their fees, charges, and commissions.
- Platform operators may provide financing to borrowers/fundraisers who use the platform subject to obtaining the required license from the CBB to provide credit and adequate disclosure.
- If a borrower/fundraiser is unable to raise at least 80% of its Crowdfunding offer size the attempt would be considered unsuccessful and any monies received would have to be refunded within seven calendar days.
- A borrower/fundraiser can raise a maximum of BD 100,000 through Crowdfunding in a year; the financing tenor should not exceed 5 years.
CBB FinTech Unit
On 22nd October the CBB established a dedicated FinTech Unit that will be responsible for the approval process to participate in the Regulatory Sandbox, supervision of licensed companies’ activities and operations, including cloud computing, payment and settlement systems, and monitoring and regulatory developments in the fintech field.