As the GCC looks to ensure that it has a financial sector that can innovate while also preserving the overall stability of the financial system there are many factors that play an important role – but few as important as regulation.
Of course, regulation is not a ‘one size fits all’ issue – each country needs to find the solutions that work best for it and it needs to evolve as the industry itself evolves. In Bahrain, our financial regulatory system is tried and tested and has been proven to both enable innovation while also maintaining the stability of one of the major sectors of the economy.
We have a single regulator for financial services – the Central Bank of Bahrain – and the same regulations apply across Bahrain, with no regulatory free zones. This approach has ensured consistent regulation and a holistic approach that has been able to manage risk across the financial sector. It also gives businesses the freedom to locate anywhere in Bahrain, helping to reduce operating costs.
As well as a decades-long track record of ensuring a stable operating environment, our regulatory system has also played a key role in enabling innovation.
It was this forward-thinking regulatory approach that allowed Bahrain to become the first regional hub for wholesale banking in the 1970s. Regulation also allowed Bahrain to become a pioneer in the regional funds and insurance sectors. The Central Bank of Bahrain has also been at the heart of the growth of the global Islamic finance sector, helping to develop the standards and regulations that have turned it into a $2tn industry.
Of course, innovation is not something that happens just once – and the last year has seen a number of developments, particularly around FinTech.
For example, we introduced a regulatory sandbox (which has already seen its first six entrants), which allows firms to experiment with new FinTech products and services in a controlled manner. We also introduced new regulations to enable crowdfunding in both conventional and shari’a-compliant finance – helping to provide a new potential source of funding for startups and SMEs – and enabled financial institutions to store data on the Cloud, enhancing data security and reducing cost.
We have also introduced new regulations to enable a range of additional company structures, including investment limited partnerships, a protected cell company law and an enhanced Trust law that puts Bahrain on a par with established international financial centres such as Singapore, Hong Kong and Jersey. Bahrain is the only country in the Middle East and North Africa (MENA) region with onshore and nationwide Trust Laws, first introduced in 2006, more than ten years ago.
Building on last year’s work, we continue to look to new regulatory and legal reforms that can enhance financial stability and open new opportunities for investors. Among our priorities are:
- Enhancements to our existing crowdfunding regulations
- New rules to enhance compliance, reduce cost and support regtech through enabling electronic fulfilment of Know Your Customer requirements
- New bankruptcy law to make it easier for entrepreneurs to experiment
- Regulations to support development of blockchain