The Central Bank of Bahrain (CBB) has promulgated regulatory rules in the form of a Directive governing “crypto assets.” The rules contained in the CBB’s Directive cover licensing requirements, the conditions for the issuance and holding the CBB license, minimum capital requirements, measures to safeguard client or customer interests, technology standards and in particular the cyber security risk management requirements, reporting, notifications and approval requirements, conduct of business obligations, prevention of market abuse and manipulation, enforcement and the powers under the CBB Law for inspections and access.
Under the Directive, no person may market or undertake the activities, by way of business, within or from the Kingdom of Bahrain, comprised of regulated crypto-asset services without obtaining a license from the CBB.
Regulated crypto-asset services are defined to include the conduct of any or any combination of the following types of activities:
- Reception and Transmission of order: The reception from a client of an order to buy and/or sell one or more accepted crypto-assets and the transmission of that order to a third party for execution.
- Execution of orders on behalf of clients: Acting to conclude agreements to buy and/or sell for one or more accepted crypto- assets on behalf of the clients.
- Dealing on own account: Trading against proprietary capital resulting in conclusion of transactions in one or more accepted crypto-assets.
- Portfolio Management: Managing or agreeing to manage accepted crypto-assets belonging to a client and the arrangement for their management are such that the licensee managing or agreeing to manage those accepted crypto-assets has a discretion to invest in one or more accepted crypto-assets.
- Crypto-asset Custodian: safeguarding, storing, holding, maintaining custody of or arranging on behalf of clients for accepted crypto-assets. Investment Advice: Giving, offering or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investors or potential investor, a personal recommendation in respect of one or more transactions relating to one or more accepted crypto-assets.
- For the purposes of Paragraph CRA-1.1.6(f), a “personal recommendation” means a recommendation presented as suitable for the client to whom it is addressed, or which is based on a consideration of the circumstances of that person, and must constitute a recommendation to buy, sell, exchange, exercise or not to exercise any right conferred by a particular accepted crypto-asset, or hold a particular accepted crypto-asset. A recommendation is not a “personal recommendation” if it is issued exclusively through distribution channel or to the public.
Crypto-asset related activities are deemed to be undertaken ‘within or from the Kingdom of Bahrain’, if, for example, the person concerned:
- Is incorporated in the Kingdom of Bahrain;
- Uses an address situated in the Kingdom of Bahrain for its correspondence; or
- Directly solicits clients within the Kingdom of Bahrain.
The following activities are excluded from regulated crypto-asset services:
- the creation or administration of crypto assets;
- the development, dissemination or use of software for the purpose of creating or mining a crypto asset; or
- a loyalty programme.