Stablecoin issuer / redeemer in Bahrain

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.

In Bahrain, e-money and stablecoin-related activities are now governed under Volume 6 (Crypto-Asset Module) of the CBB Rulebook, not under a 'Volume 1 – Conventional Banks' or an 'EMO – E-Money Module'.

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.

Full Backing: Issuers must ensure that their stablecoins are fully backed by reserve assets.

Segregation: The reserve assets must be held separately from the issuer's operational funds and other assets, ensuring they are bankruptcy-remote.

CBB-Licensed Custodian: The reserve assets must be held in custody by a CBB-licensed custodian (or a custodian approved by the CBB, adhering to CBB's standards).

Under the GENIUS Act framework for U.S. payment stablecoins, issuers must provide independent third‑party monthly reserve attestations and, for large issuers, annual PCAOB‑standard financial statement audits; these requirements focus on verifying reserve existence and composition and enhancing transparency, but comprehensive, in‑depth audits are not uniform across all issuers and occur annually rather than on the same regular cadence as attestations.

Permitted Reserve Assets: The CBB specifies the types of assets that can constitute reserves, typically highly liquid, low-risk assets like fiat currency (held in segregated bank accounts), short-term government securities, or other highly rated financial instruments.

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.

Capital: Minimum capital requirements are stipulated.

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.

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.

Authorization: Obtain a license from the CBB.

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).

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

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.

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.

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.

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.

Bahrain currently does not impose a general corporate income tax on most non‑oil‑and‑gas businesses, and there is no standalone capital gains tax on such businesses’ profits from crypto asset disposals; however, Bahrain has enacted a new 10% Corporate Income Tax regime (on taxable income exceeding BHD 200,000) that is scheduled to apply to Bahrain businesses from 1 January 2027, which will introduce broad-based corporate taxation going forward.

Identification and Verification:

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

Legal Entities (Companies, Partnerships, etc.):

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.