Custodial wallet / SaaS in Bahrain

Authorization: Obtain a license from the CBB.

Legal Entity: Must be incorporated in Bahrain.

Minimum Capital: Maintain adequate financial resources. For a Class 4 (Custody) license, the minimum paid-up capital is BD 50,000 (approx. USD 132,600), plus additional operational risk capital requirements based on a risk assessment (CR-1.3.1).

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).

Robust Security: Operators must implement robust security measures for the custody of crypto-assets (CRY-4.2.1).

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).

Policy & Procedures: Operators are required to have documented policies and procedures for determining the appropriate proportion of assets to be held in cold storage, taking into account factors such as asset type, liquidity needs, and the overall risk profile (CRY-4.2.2).

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.

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.

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.

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

Bahrain’s primary AML/CFT statute is Decree‑Law No. (4) of 2001 on the Prohibition and Combating of Money Laundering and Terrorist Financing, as amended, most recently by Decree‑Law No. (36) of 2025.

Identification and Verification:

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 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.

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.

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.

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.

Fines (can be substantial).

VASP Best Practice: Given the interconnectedness of the crypto ecosystem and the potential for severe penalties, prudent VASPs in Bahrain handling international transactions or onboarding international clients will incorporate OFAC, EU, and other major international sanctions lists into their screening processes.

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.