Crypto-funded debit card 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 (Capital Markets): This is the main volume.

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.

Legal Entities (Companies, Partnerships, etc.):

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).

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).

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

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.

Regulatory requirements concerning the “purpose and intended nature of the business relationship” are no longer treated as a one‑time, static checkbox but as a continuing, risk‑based customer due diligence obligation that must be understood, reassessed, and updated over the life of the relationship, in conjunction with beneficial ownership and ongoing transaction monitoring.

Bahraini law and Central Bank of Bahrain (CBB) regulations require financial institutions, including VASPs, to comply with UN Security Council sanctions and with Bahrain’s own AML/CFT and terrorism‑financing measures, which include domestic designations and restrictions. This framework obliges institutions to freeze assets and prohibit transactions involving individuals and entities designated under applicable UN resolutions and corresponding Bahraini laws, ministerial orders, and CBB directives, not just UN lists alone.

Under the Central Bank of Bahrain Rulebook, Volume 6 (Capital Markets), the relevant sanctions/terrorism‑financing obligation is contained in Module AML: Anti‑Money Laundering & Combating of Financial Crime, not in a separate Module FC. The Module AML imposes requirements on Capital Market Service Providers to implement effective AML/CFT measures in line with FATF recommendations, including compliance with applicable UN Security Council resolutions on terrorism, proliferation, and related asset freezing; however, there is no Section FC‑1.1.1 (UN Sanctions) in a Volume 6 'Module FC (Financial Crime)' as cited.

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.

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.

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.

Fines (can be substantial).

In the Central Bank of Bahrain Rulebook Volume 6 (Capital Markets), the Crypto-Asset Module (CRA) remains in force and governs crypto-asset services, but stablecoin activities are now subject to an additional, dedicated Stablecoin Issuance and Offering (SIO) Module that operates alongside the CRA rather than being covered solely under the CRA.

For Bahraini fiat‑backed stablecoins, the primary regime is now the dedicated Stablecoin Issuance and Offering (SIO) Module under CBB Rulebook Volume 6; the Volume 1 E‑Money Module (EMO) may still apply only where a licensed conventional bank issues a stablecoin that also meets the definition of e‑money, but it is no longer the main or default framework for stablecoin regulation.

Asset-Referenced Tokens: This is the most common classification for stablecoins under the CRA Module. These are defined as tokens that aim to maintain a stable value by referencing other assets (e.g., fiat currency, a basket of currencies, commodities). The CRA Module specifically addresses the requirements for issuers of such tokens.

E-Money Tokens: If a stablecoin meets the definition of electronic money (i.e., electronically stored monetary value representing a claim on the issuer, issued on receipt of funds for the purpose of making payment transactions, and accepted by persons other than the e-money issuer), it might be regulated under the E-Money Module (EMO) of the CBB Rulebook, typically issued by licensed e-money institutions. This would be for fiat-backed stablecoins pegged 1:1 to a single fiat currency.

Crypto-Asset Services Provider (CASP) License: Issuing crypto-assets (including stablecoins) is one of the regulated activities under the CRA Module. Entities wishing to perform this function must obtain a CASP license from the CBB.

CRA-1.1.2: Defines crypto-assets and includes "stablecoins."

Bahrain introduced Value Added Tax (VAT) at a standard rate of 5% on 1 January 2019 and subsequently increased the standard VAT rate to 10% with effect from 1 January 2022.

Services related to Crypto: Generally, the supply of services related to virtual assets, such as exchange fees, custodian fees, transaction fees charged by crypto-asset service providers (CASPs), or other commission-based services, are likely to be subject to VAT at the standard 10% rate, provided the service is supplied in Bahrain by a VAT-registered entity.

Supply of the Virtual Asset Itself: The treatment of the underlying virtual asset (e.g., Bitcoin, Ethereum) itself is more complex. Many jurisdictions consider the supply of virtual assets to be either: