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

Technology

Bahrain issues draft rules to regulate cryptocurrencies

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

Jennifer Gnana
Jennifer Gnana

December 14, 2018

  • English
  • Arabic

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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Read more:

Bitcoin isn't quite the gold rush it once was, but cryptocurrencies are here to stay
FinTech offers "huge" opportunity for Islamic banks to serve unbanked people
Quicktake: what is FinTech?

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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.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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