Since 2014, the six members of the Gulf Cooperation Council — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — have been weaving Shariah-compliant blockchain technology and bitcoin into their existing financial and legal infrastructure, while transforming them all at the same time.
Bahrain is the smallest member of the oil-rich Gulf Cooperation Council but serves as GCC’s finance hub, with nearly 20 percent of its GDP coming from the financial sector and 75 percent from hydrocarbon deposits.
For several decades, Bahrain has played the same role as a financial center in the Arabian Gulf as Hong Kong does to China. (Recently, however, Bahrain discovered new hydrocarbon deposits of at least 80 billion barrels of tight oil and between 10 and 20 trillion cubic feet of deep natural gas.)
The vast network of Bahrain’s financial sector includes 116 licensed banks, 18 money changers, and several other investment institutions, including 151 insurance organizations which are undertaking fintech initiatives coordinated by the Bahrain FinTech Bay, a government-supported accelerator for the fintech sector.
In October 2017, the CEO of Bahrain’s Economic Development Board endorsed blockchain as a “huge opportunity” for the country. Last year the country’s Institute of Banking and Finance launched its Blockchain Academy, which offers courses in blockchain development, implementation and strategy.
On January 21 this year, the Central Bank of Bahrain issued the GCC’s first draft regulations to allow blockchain and crypto companies to work in the country on a trial basis for nine months. These regulations were finalized on February 21, 2019.
The new crypto rules concern licensing, governance, risk management, AML, and Counter-Terrorist Financing (CTF) measures, business conduct, conflict of interest avoidance, reporting and cybersecurity.
The regulations also establish new supervision and enforcement standards.
In an early review, the 38-member Financial Action Task Force said that while Bahrain has the foundation for an effective regime to combat AML/CTF, it needs to develop enhanced risk measures due to its geographical location in the Middle East and convenience as a transit point for illicit proceeds of foreign origin that transit the country.
Nonetheless, in a bid to attract blockchain talent as Bahrain’s economy strives to offset mounting debt in the aftermath of a slump in crude oil prices in 2014, so far 28 blockchain companies have been approved, including a Shariah-compliant cryptocurrency exchange. At the same time, the Economic Development Board continues to expand Bahrain’s fintech capital flows from other GCC countries, as well as from China, India, and the UK.
Selva Ozelli, Esq., CPA, pictured above, is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes and the OECD.