Bahrain issues draft rules to regulate cryptocurrencies

The central bank has set December 31 as the deadline for feedback on the proposed regulations

Bahrain will introduce the VAT on January 1 next year, leaving Oman, Kuwait and Qatar still to do so. Reuters

Bahrain's central bank has issued draft rules on the trade in cryptocurrencies for consultation, setting up a framework to regulate virtual currencies as GCC countries look to increasingly tap into such assets.

"This regulatory framework will address the demand from the market for these services and the need to also recognise this innovation in financial services. The CBB's [Central Bank of Bahrain] experience with the participants within the Regulatory Sandbox was insightful in shaping these rules," said Khalid Hamad, executive director of banking supervision in a statement on the Bahrain News Agency.

The "sandbox" refers to Bahrain FinTech Bay where companies can test ideas under lighter regulations with the aim of boosting the number of such companies as part of diversification efforts to reduce government expenditure through technology.

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The FinTech Bay, inaugurated in February, is home to about 30 firms working on cryptocurrencies, blockchain, digital payments and other financial technology. Abu Dhabi and Dubai are investing to boost the growth of FinTech start-ups. The number of MENA startups is expected to more than double by 2020 from 2015, according to Wamda Research Lab.

The comprehensive framework introduced by the CBB will cover requirements for licensing, financial resources, as well as measures to safeguard client or customer interests, technology standards and cyber security risk manage measures, the statement added.

The draft consultation paper is available for viewing on the central bank's website. The CBB is open to feedback on the draft rules until year-end.