The Central Bank of Bahrain (“CBB”) has conducted a comprehensive review of its Collective Investment Undertakings (“CIU”) regulations governing the mutual funds industry as part of the CBB’s wider strategy to conduct a comprehensive review to the whole financial sector regulatory framework. The new framework acknowledges the demands placed by the fast-paced changes in the fund management industry and therefore aims at lightning the administrative processes and simplifying the authorisation requirements for establishing and marketing CIUs.
The amendments to the regulations focus on dividing CIUs into two broad categories, the first category is targeting retail investors and the second category is targeting accredited and affluent investors. The regulations pertaining to the first category of CIUs contain details regarding the nature of investment in the CIUs and require receiving CBB’s prior approval whereas the second category only requires notification to the CBB by the placement agent.
The CIUs targeting retail investors are low risk with proper diversification and risk management, while CIUs targeted towards accredited and affluent investors contain high risk investments with the aim of delivering high returns.
The new regulations emphasize on the importance of key areas such as the corporate governance requirements, high standards of business conduct, safeguarding and segregation of investors’ money, and disclosure standards in line with international best practices.
Bahrain has had a thriving funds industry since the 1980s. Since then, the mutual funds industry in Bahrain experienced further growth and developments. As at the end of February 2022, the number of mutual funds stood at 1664, with a net asset value (NAV) of US$ 10.6 billion.
Commenting on the new regulations, Ms. Ebtisam Al Arrayed, Director of Financial Institutions Supervision Directorate at the CBB, said “The fund industry in Bahrain has established a long-standing track record, and the CBB is fully supportive to the industry. The enhanced regulatory framework forms part of CBB’s Financial Services Development Strategy (2022-2026) and will set the environment for the growth and progress of the industry. Local, Regional, and international fund operators and global investors will find the Kingdom attractive for fund domiciliation as well as for using Bahrain as a launchpad for serving global markets”
Ms. Shireen Al Sayed, Director of Regulatory Policy Unit at the CBB said “The CBB embarked on a comprehensive revision of the CIU regulations under CBB Rulebook – Volume 7 as part of a larger initiative to simplify and revise all the CBB Rulebook Volumes. The new CIU regulations are now combined under a single Module making it simpler and market friendly. They are largely principles-based leaving room for the industry to pave the way for building a sound funds ecosystem thereby boosting growth of the asset management industry.”
Mr. Musab Abdulla, Executive Director of Investment Development – Financial Services, Technology & Innovation – at the Bahrain Economic Development Board, said, “Bahrain’s forward-looking regulations have always been a key competitive advantage that enabled our financial sector to expand and has always attracted new FS companies. These revised regulations are another step forward which will enable us to attract further investments into the Kingdom, in line with the strategies put forward under the Economic Recovery Plan.”
Ms. Najla Al Shirawi, Chief Executive Officer of SICO B.S.C. (c), has also commented on the enhanced regulations stating that “The updated collective investment undertaking regulations are a game-changer for local, regional, and global funds seeking an international jurisdiction to domicile their structures with a very flexible framework yet still within a solid regulatory environment overseen by the Central Bank of Bahrain. Some of the benefits of these regulations include significantly reduced setup and ongoing processes which reduce operating costs, all factors that are prominent decision-making criteria in a manager’s choice of domicile. Furthermore, the simplification of the regulations simultaneously provides a lot more flexibility on key fund terms including asset class, investor categories, service provider requirements and legal structure”
Mr. Brian Howard, Partner and Head of the International Funds Team at Trowers & Hamlins said “Following market consultation, the Central Bank of Bahrain’s new collective investment undertakings regulations offer speed, simplicity and flexibility and should make Bahrain the leading jurisdiction of choice in the region for the establishment of investment funds. Bahrain now makes a wide spectrum of investment fund structures available to prospective managers following a simplified notification process to the Central Bank of Bahrain.”