BAHRAIN: An Introduction to Corporate & Finance
A Positive Future for Bahrain: From Digital Tokens to Artificial Intelligence (AI)
An introduction to Bahrain’s new regulatory framework for digital tokens by the Central Bank
Given the recent global demand for crypto-assets, the Central Bank of Bahrain (CBB) issued amendments to the Crypto-Asset Module (“CRA Module”) Volume 6 (Capital Markets) Rulebook in April 2023. The amendments aim to enhance regulatory clarity, investor protection, and market integrity. The following amendments include key changes such as the introduction of definitions, the addition of a chapter on digital token offerings, issuance of a whitepaper, and enhancements to the cyber security requirements.
Furthermore, the amendments establish licensing categories for crypto-asset services, with different minimum capital requirements for each category. The expansion of definitions now includes “digital tokens” which encompass asset or utility tokens meeting the criteria for securities under CBB laws. The licensing categories range from receiving and transmitting orders, to operating a licensed crypto-asset exchange, with specific services assigned to each category. Licensees must meet minimum capital requirements and submit a business plan and application forms for shareholders, subsidiaries, and controlled functions. The amendments also address cybersecurity risks associated with crypto-assets and incorporate measures to mitigate such risks. The ongoing evolution of the digital market in Bahrain is expected to be driven by technological advancements, changing consumer preferences, and further regulatory developments.
Buy now pay later (BNPL): the CBB enabling short-term financing
The CBB aims to enhance the fintech ecosystem and enable financing of companies through the various regulations issued under its Rulebook. Recently, the CBB Rulebook was amended under Type 3 (Financing Companies) of Volume 5 (Specialised Licensees) to include the fintech innovation of BNPL platforms. BNPL is short-term lending without interest that allows consumers to purchase certain goods or services and pay over time.
Through these amendments, the CBB enables new and pioneering business models relating to financing consumer products. The provisions governing BNPL allow for quick financing activities, bridging the gap between the financial sector and consumer needs for prompt financial services. BNPL platforms are widely used as alternative payment methods and have become a popular solution to financing issues. These amendments to the CBB regulatory framework demonstrate the continuous development of the Bahraini market, where regulations enable innovations and simultaneously empower companies and consumers.
Platinum and gold: long-term residency visas enhancing investment in Bahrain
Bahrain introduced two long-term residency visas, which align with the strategic plans to support direct investment in the country. The Kingdom introduced the Golden Visa and the Platinum Visa, granting investors and expatriates rights to permanently reside in Bahrain.
The Golden Residency Visa is offered to investors with specific qualifications, highly talented individuals, and retirees who are residents or non-residents in Bahrain. The Golden Residency Visa is a prerequisite for the Platinum Residency Visa. Foreign nationals who have resided in the Kingdom for a minimum of 15 years are granted additional rights to the Golden Residency Visa. This edict issued by the Bahraini government aims to attract potential economic growth to the country.
The Golden Residency Visa allows the holder to reside in the Kingdom for ten years, subject to renewal, and provides visa holders with the opportunity to obtain additional work permits. This encourages the development of multiple industries in Bahrain and supports the visa holder to permanently be established in the Kingdom (provided they continuously meet the eligibility criteria). The benefits of the Platinum Residency Visa include purchasing properties in Bahrain without restriction to the location and sponsoring parents, spouses, and children. Generally, without the Platinum Residency Visa, investors are limited to purchasing property in specific areas in Bahrain, whereas Platinum Residency Visa holders are given more freedom in real estate projects.
Bahrain and Japan enter into a bilateral investment agreement
In June 2023, Bahrain entered into a ten-year agreement with Japan, the “Agreement between Japan and the Kingdom of Bahrain for the Reciprocal Promotion and Protection of Investment” (the “Agreement”). The primary objective of this agreement is to enhance the protection and promotion of investment between the two countries. It outlines various provisions related to the treatment of investments and investment activities, including national treatment, most-favoured-nation treatment, fair and equitable treatment, expropriation and compensation conditions, freedom of transfers, and procedures for dispute settlement.
Bahrain offers a relatively favourable investment environment, and Japanese companies have made significant contributions in manufacturing, finance, and trade. With the expectation of further Japanese investment in Bahrain, including large-scale projects, an ongoing focus is to support these companies. The Agreement is anticipated to encourage an improved investment environment, ultimately strengthening the economic relations between Japan and Bahrain.
Recent global trends: AI in corporate and finance
The rise of technology and its disruption to industries worldwide has impacted countries significantly. The emergence of new AI software creates a need for change in legislation. Bahrain grasped the significant opportunity to capitalise on this by establishing the Shaikh Nasser AI Research and Development Centre.
AI presents significant opportunities for the legal sector of the Bahraini market. It can revolutionise legal research by providing comprehensive answers to plain language queries, saving time, and empowering in-house counsel to focus on problem analysis. In litigation analysis, AI can leverage available data to predict outcomes, helping in-house lawyers assess their chances of winning a claim. Additionally, AI streamlines due diligence reviews by automating document analysis, expediting the identification of legal issues, and improving efficiency in corporate transactions. Embracing AI can enhance capabilities, decision-making, and workflow optimisation for Bahraini legal professionals looking forward to the upcoming developments spearheaded by the Shaikh Nasser AI Research and Development Centre.