The Central Bank of Bahrain introduces a new regulatory framework for Digital Tokens in Bahrain

In March 2023, the Central Bank of Bahrain (“CBB”) issued amendments to the crypto asset module (“CRA Module”) of Volume 6 (Capital Markets) of the CBB rulebook.

The amendments include:

1. the addition of the following new definitions, namely: ‘Asset Token’, ‘Digital Token’, ‘Digital Token Issuer’, ‘Digital Token Advisor’, ‘Whitepaper’, ‘Soft-Cap’ and ‘Utility Token’;
2. the amendment to the definitions of ‘Crypto Assets’. ‘Founders’ and ‘Securities’;
3. the deletion the definition of ‘Accepted Crypto-Assets’;
4. the addition of a new chapter in the CRA Module on digital token offerings;
5. the issuance of a whitepaper template for Digital Tokens Offerings that prescribes content requirements for offering Digital Tokens; and
6. enhancements to the cyber security requirements.

With the new amendments, the CRA Module introduces a regulatory framework governing the offerings of “Digital Tokens” (that are defined as “asset or utility tokens that satisfy the definition of securities under the CBB law, its implementing rules and regulations.”) in or from Bahrain. The CBB’s definition of Securities now includes an additional limb that provides “crypto-assets which exhibit characteristics similar to securities such as (i) a crypto-asset which gives right to a financial entitlement, either in form of a pre-determined cash flow (similar to bonds) or a share in profit (similar to equities); (ii) a crypto-asset which grants decision power in a project to its holders (similar to voting rights) or (iii) a crypto-asset which represents a monetary claim on the issuer.” In determining whether a Digital Token qualifies as a security, the CBB will examine the underlying economic purpose of the Digital Token, its structure, characteristics, as well as the rights attached to the Digital Token.

The amendments to the CRA Module also include the introduction of cyber security control guidelines to enhance the protection of clients’ assets.

The amendments also permit crypto-assets licensees to engage in additional activities, which are not within the stipulated regulated crypto-asset services after obtaining the CBB’s approval.

The changes to the CRA Module should further develop the crypto-asset in Bahrain by catering to the ongoing developments in the crypto-assets markets and complying with the industry best practices while protecting customers interests.

How can we help?

Al Tamimi and Company’s Banking and Finance team regularly advises on regulatory matters and is well placed to assess the opportunities derived from these amendments. If you would like to further discuss the contents of this article and find out what it means for your business, please contact Al Tamimi and Company in Bahrain.