Centralized exchange in Bahrain

VASP: CASP License from CBB: Category 1 (Exchange): BHD 100,000 (~$265K USD) + BHD 50,000 reserve. Category 2 (Brokerage): BHD 25,000. Category 3 (Custodian): BHD 100,000 + BHD 50,000 reserve. Category 4 (Advisory): BHD 25,000. 3-6 months. CBB pragmatic and accessible.

EXCHANGE: Category 1 Crypto Exchange license — BHD 100,000 minimum capital + BHD 50,000 reserve. Rain Financial was first licensed exchange. Valued as regulatory testbed for GCC.

CUSTODY: Category 3 Crypto Custodian license — BHD 100,000 minimum capital + BHD 50,000 reserve. Client asset segregation. Minimum insurance.

CBB — Crypto-Asset Service Provider licensing (4 categories), prudential supervision — first MENA jurisdiction with comprehensive crypto framework (2019)

CBB Rulebook Volume 6 — Crypto-Asset Module (2019) — Comprehensive crypto exchange, custody, brokerage, advisory licensing. Shariah-compliant crypto product guidance available.

Virtual asset service providers in Bahrain are regulated under the Central Bank of Bahrain Rulebook, specifically through the Crypto-Asset (CRA) Module in Volume 6 (Capital Markets), which sets out licensing categories, prudential, conduct, technology, and ongoing compliance requirements for crypto-asset service providers operating in or from Bahrain, alongside cross‑referenced modules (e.g., AML/CFT, outsourcing, conduct) in the wider CBB Rulebook.

Module RA (Risk Management Module) - Specifically, RA-6 Virtual Asset Regulatory Framework: This module (introduced in 2019) is the cornerstone of VA regulation in Bahrain. It provides specific licensing requirements, operational standards, technological governance, and crucial AML/CFT measures tailored for VASPs. It categorizes virtual assets and defines various VASP activities (e.g., exchange, custody, portfolio management, advisory).

Module FC (Financial Crime) sets out core AML/CFT requirements for specific categories of CBB licensees, with separate FC Modules issued in different CBB Volumes (e.g., for conventional banks, Islamic banks, insurance licensees). VASPs, where regulated by the CBB, must comply with those FC provisions expressly applicable to their licensee category, including requirements on CDD, EDD, suspicious transaction reporting, record‑keeping, and internal controls, rather than a single generic FC module covering all CBB licensees uniformly.

Obtain name, permanent address, date of birth, nationality, and an official identification number (e.g., CPR/National ID, passport number).

Verify identity using reliable, independent source documents (e.g., government-issued photo ID, passport) and proof of address (e.g., utility bill).

Legal Entities (Companies, Partnerships, etc.):

Identify and verify the identity of the beneficial owner(s) (any natural person owning or controlling 10% or more of shares/voting rights, or otherwise exercising control).

Understand the ownership and control structure.

Understand the purpose and intended nature of the business relationship or the occasional transaction.

Assess and, on an ongoing risk‑based and event‑driven basis, reassess the customer’s risk profile using collected and updated customer information, including beneficial ownership information, as part of the institution’s customer due diligence obligations.

The regulation regarding 'Source of Funds and Source of Wealth (SoF/SoW)' in Bahrain has been updated, reflecting more robust risk assessment methodologies.

Legal Entity: Must be incorporated in Bahrain.

Absolute Segregation: Crypto-asset platform operators must ensure that client crypto-assets are held separate from their own crypto-assets and are clearly identifiable as client assets (CRY-5.1.1).

No Commingling: Client crypto-assets must not be commingled with the operator's proprietary assets (CRY-5.1.2).

Trust Arrangement: Client crypto-assets must be held in trust for the clients (CRY-5.1.3).

Prohibition on Use: Operators are prohibited from using client crypto-assets for their own account or for the benefit of any other client without explicit, written client consent and regulatory approval (CRY-5.1.4).

Reconciliation: Regular reconciliation of client crypto-assets with internal records is mandated (CRY-5.1.5).

Significant Proportion in Cold Storage: This includes the use of cold storage (offline storage) for a significant proportion of client assets (CRY-4.2.1).

A crypto-asset platform operator should maintain appropriate risk management and, where required by its business model, adequate insurance or equivalent financial protections for client-asset safekeeping risks such as cyber incidents, theft, fraud, and operational failures; current U.S. regulatory guidance emphasizes safe-and-sound operations and broader risk controls rather than a universal standalone insurance mandate.

Directors and senior management of CBB licensees must meet the Central Bank of Bahrain’s fit and proper criteria as set out in the standalone Fit and Proper Requirements Module (Module FP), rather than EN-1.2.1.

The CBB expects the coverage to be commensurate with the scale and nature of the operator's business and the value of assets under custody. Specific monetary amounts are not typically fixed in the rulebook but are assessed on a case-by-case, risk-based approach.

Travel Rule: The CBB has implemented the FATF's "Travel Rule," requiring VASPs to obtain and transmit originator and beneficiary information for crypto transfers above a certain threshold. This enhances the ability to identify cross-border transactions involving high-risk jurisdictions or sanctioned entities.

Mandatory Screening: Licensed VASPs must screen all customers (initial onboarding and ongoing), beneficial owners, and transactions against:

UN Sanctions Lists: Specifically the Consolidated List maintained by the UNSC 1267/1989/2253 ISIL (Da'esh) & Al-Qaida Sanctions Committee and the UNSC 1988 Taliban Sanctions Committee List, as well as other relevant UN sanctions lists.

National Sanctions Lists of Bahrain: This includes lists of designated terrorists and terrorist organizations issued by the Kingdom of Bahrain's competent authorities.

Ongoing Monitoring: Screening is not a one-time event. VASPs must conduct ongoing monitoring to identify if existing clients or parties to transactions subsequently appear on sanctions lists.

Risk-Based Approach (FATF Recommendations): VASPs must implement a risk-based approach to customer due diligence (CDD). Higher-risk jurisdictions (e.g., those identified by FATF as having strategic AML/CFT deficiencies) will trigger enhanced due diligence measures. If the risks cannot be mitigated, the VASP may choose to restrict or prohibit business relationships with customers or transactions originating from/destined for such regions.

Sanctions Compliance: Transactions involving jurisdictions subject to comprehensive UN (and implicitly, OFAC/EU) sanctions (e.g., Iran, North Korea, Syria, certain regions of Russia) are effectively prohibited due to sanctions regimes. VASPs must block or reject such transactions and report them.

Fines (can be substantial).

Suspension or revocation of the VASP's license.

Imprisonment for individuals found responsible for serious AML/CFT breaches, including facilitating sanctioned transactions.

Confiscation of assets.

While Bahraini law does not directly mandate compliance with OFAC or EU sanctions for entities purely operating within Bahrain and not involving US or EU persons/funds, in practice, due to the global nature of financial services and cryptocurrencies, most VASPs operating internationally or dealing with international partners will screen against these lists.

Non-compliance with OFAC sanctions can lead to secondary sanctions, loss of access to the USD clearing system, and reputational damage for any entity (including a VASP) facilitating transactions with sanctioned parties, regardless of its location. Similarly, EU sanctions have extraterritorial reach in certain circumstances.

Travel Rule adopted — threshold: BHD 500

The CBB Rulebooks are now primarily hosted and maintained on the Thomson Reuters–powered platform at cbben.thomsonreuters.com (accessed via links from the CBB Laws & Regulations/Rulebook section), rather than being directly and comprehensively published at https://www.cbb.gov.bh/rulebooks/ as a standalone main page of substantive rulebook content.