Bahrain Crypto Asset Service Provider License

Bahrain Crypto Asset Service Provider License

• Tetra Consultants assists international clients with the process of applying for a Bahrain crypto asset service provider license. In a time where the digital universe is widely connected with the corporeal, a degree of misunderstanding surrounds the digital sphere with its rapid character. The financial and legal sectors have both been impacted by the exponential rise of cryptocurrencies. Few people are aware of the legality of digital currencies, but many are curious. So, it is essential to comprehend the rationale behind virtual money and seek protection from it through the legal system.

• In order to clarify more on what actually cryptocurrencies are, our team of licensing experts has defined cryptocurrency as a type of digital money that uses blockchain technologies to simplify the production and exchange of new units. Digital currencies are decentralized forms of money, which means they are free from third-party influence and cannot be distributed or controlled by a government or other central authority. Ironically, a blockchain is a collection of “blocks” that store transactional data. Blockchains are databases made up of a series of entries known as blocks. They have the unique property that any effort to change one of its entries will change the chain as a whole.

• In Bahrain, the Central Bank of Bahrain (‘CBB’) has announced extensive legislation to oversee and license ‘Regulated crypto-asset services’ in line with its ambition to become the top FinTech center in the region. The volume 6 of the CBB Rulebook that oversees capital markets comprises the regulatory regime for the same. Since the establishment of the regulatory sandbox, a number of cryptocurrency-related entities have taken advantage of the chance and joined the sandbox, working in conjunction with the CBB to evaluate and refine their technologically innovative products, services, and systems in a governed simulated space without being instantly encumbered by the customary regulatory and financial prerequisites that normally pertain to such entities.

What are the advantages of obtaining a Bahrain Crypto Asset Service Provider License?

Obtaining a crypto asset service provider license in Bahrain can have several advantages, including:

• Legitimacy and credibility: Obtaining a license from a reputable regulatory authority like the Central Bank of Bahrain (CBB) can enhance the credibility of a crypto asset service provider (CASP) and signal to potential clients and investors that the company is operating in a regulated and secure environment.

• Access to a regulated market: Bahrain is positioning itself as a hub for fintech and crypto assets in the Middle East, and obtaining a CASP license can provide access to a rapidly growing and regulated market.

• Business opportunities: With a CASP license, a company can offer a range of crypto-related services, including trading, custody, and exchange services. This can provide new business opportunities and revenue streams for the company.

• Enhanced security measures: The CBB has specific requirements for CASPs related to cybersecurity, anti-money laundering (AML), and counter-terrorism financing (CTF), which can enhance the security and safety of crypto asset transactions for customers.

• Competitive advantage: Obtaining a CASP license can give a company a competitive advantage over other non-licensed crypto asset service providers, especially in a market where regulations are becoming increasingly important.

Who is the regulatory and issuing body of a Bahrain Crypto Asset Service Provider License?

• The regulatory and issuing body of the Bahrain crypto asset service provider (CASP) license is the Central Bank of Bahrain (CBB). The CBB is the primary regulatory authority responsible for overseeing and regulating financial institutions in Bahrain, including those that provide crypto asset services.

• The CBB introduced regulations for crypto asset service providers in 2019, which established a regulatory framework for the licensing and supervision of such providers. The regulations cover a range of activities, including crypto asset exchange services, wallet services, and other related activities.

• To obtain a Bahrain CASP license, applicants must submit an application to the CBB and meet a range of requirements related to capital, governance, risk management, and compliance. The CBB will also assess the applicant’s ability to operate in a safe and sound manner and will conduct a thorough review of the applicant’s business plan, financial statements, and other relevant information.

• Once the CBB approves the application, the licensee is required to comply with ongoing regulatory requirements, including reporting and disclosure obligations, and is subject to periodic reviews and inspections by the CBB. Overall, the CBB is the primary regulatory and issuing body for Bahrain CASP licenses and plays a key role in ensuring the safety and soundness of the crypto asset industry in Bahrain.

What are the legislations governing a Bahrain Crypto Asset Service Provider License?

• In line with its goal of becoming the leading Blockchain hub in the region, Bahrain’s Central Bank of Bahrain (the “CBB”) stated in 2019 that it will establish a legal framework to supervise and manage “Regulated crypto-asset services” in Bahrain. The regulatory framework is currently part of Volume 6 of the CBB Rulebook, which governs the financial markets.

• The CBB Crypto-asset rules cover regulations for crypto-asset services’ licensing, governance, minimum capital, control environment, risk management, AML/CFT, standards of corporate behavior, avoidance of conflicts of interest, reporting, and cyber security. Moreover, they address the supervision and enforcement requirements for platform operators acting as principals, agents, portfolio managers, advisers, and custodians inside or from the Kingdom of Bahrain.

Key definitions concerning the regulation of cryptocurrency and issuance of a crypto asset service provider license in Bahrain under the Handbook of CBB Volume 6 on Capital Market:

• The term “crypto-assets” refers to virtual or digital assets (also known as “tokens”) that operate on a blockchain network and are encrypted. Tokens can also be divided into asset tokens (debt or equity claims on the issuer), utility tokens (for specialized applications), payment/exchange tokens (cryptocurrencies), and hybrid tokens (mixed features of the above-mentioned tokens). Accordingly, A payment token (or cryptocurrency) that has been approved by the CBB for use by a Crypto-asset service licensee to conduct a Regulated crypto-asset service has been classified as an accepted crypto-asset.

• Regulated crypto-asset services include any one of the following activities, separately or in combination: 
  • Order Reception and Transmission: This involves receiving an order to buy, sell, or exchange one or more accepted crypto-assets from a client and transmitting that order to a third party for execution.
  • Executing orders on the client’s behalf: Entails acting to secure agreements for the purchase and/or sale of one or more recognized crypto-assets.
  • Dealing on one’s own behalf: Trading using one’s own funds to complete transactions involving one or more recognized crypto assets.
  • Portfolio Management: Managing or offering to manage accepted crypto assets belonging to a client in a manner that gives the licensee managing or agreeing to manage those accepted crypto assets the option to invest in one or more accepted crypto assets at their discretion.
  • Crypto-asset Custodian: securing, keeping, retaining, preserving custody of, or making arrangements for, accepted crypto-assets on behalf of customers.
  • Investment Advice: Making personal advice on one or more transactions involving one or more recognized crypto assets to individuals acting as investors, potential investors, or agents for such individuals.
  • Crypto-asset exchange, i.e., a CBB-licensed exchange operating in Bahrain where Approved crypto-assets are traded, converted or exchanged in compliance with the exchange’s rules.
  • Any promotion, offer, announcement, advertisement, broadcast, or other kinds of communication used to encourage the purchase, exchange, or acquisition of financial services in exchange for money or other benefits mostly referred to as marketing.

• A person or institution that has been granted permission by the CBB to conduct regulated crypto-asset services in Bahrain is known as a crypto-asset service licensee.

What are the categories of a Bahrain Crypto Asset Service Provider License? 

• Applicant entities who intend to operate the regulated cryptocurrency services must obtain a Bahrain crypto asset service provider license to do so from the CBB, in order to participate and service a cryptocurrency division, such entities are required to apply to the CBB under one of the four categories listed below:

• Category 1 – Reception and transmission of orders and providing investment advice

• Category 2 – Trading in accepted crypto assets as an agent, portfolio management & Crypto-asset custody service as well as proving investment advice.

• Category 3 – Trading in Accepted crypto assets as an agent, trading in Accepted crypto assets as a principal, portfolio management, keeping custody of crypto-asset as well as providing investment advice.

• Category 4 – Operate a licensed crypto-asset exchange and crypto-asset custody service.

What are the regulatory requirements for obtaining a Bahrain Crypto Asset Service Provider License?

1. Bahrain legal entity: 

• In order to be licensed as a Crypto-asset service licensee, an applicant must be either:
  • A Bahraini joint stock company or 
  • A Bahrain-based branch of a foreign business that has been legitimately incorporated under the rules of its home country.

• The Guidelines also allow individuals and/or businesses who deal in crypto assets and are based in foreign countries the ability to apply for a license and conduct business in Bahrain as “Overseas crypto-asset service licensees.” An Overseas Crypto-Asset Service Licensee’s application to open a branch will facilitate the CBB to investigate the licensee’s shareholders, management structure, financial situation, operations, and regulations (in its home country) that control its crypto-related activities.

• The possibility for applicants to choose a representative or professional consultancy firm like Tetra Consultants to prepare and submit applications on their behalf is a crucial component of the licensing process. As Tetra Consultants’ team of licensing experts has years of experience with the process of applying for cryptocurrency licenses in Jurisdiction including Bahrain in order to accurately navigate you through the licensing requirements and system. 

2. Capital Requirements

• All Crypto-asset service licensees in Bahrain must maintain a minimum capital requirement that varies according to the licensing category (specified above):

• The CBB may, in its discretion, require a licensee to hold additional capital in an amount and form it specifies if it is deemed necessary to ensure the financial integrity of the licensee’s operations.

• An Overseas crypto-asset service licensee must also calculate its minimum capital requirements in accordance with those that would apply to it if it were a Bahraini joint stock company.

3. Controlling position 

• Persons assuming ‘controlled functions’ in a CBB regulated Crypto-asset service licensee require the CBB’s written approval. ‘Controlled functions’ include:
• Director;
• Chief executive or General Manager;
• Head of functions;
• Chief Information Security Officer;
• Compliance Officer; and
• Money Laundering Reporting Officer.
• For Overseas crypto-asset service licensees, prior approval from the CBB is required for the branch manager (or equivalent) in Bahrain in addition to the same ‘controlled functions’ described above.

• The Overseas crypto-asset service licensee must maintain a local management presence, have its premises in Bahrain, and be required to seek CBB approval if some of its personnel undertaking the ‘controlled functions’ are not residing in Bahrain. Tetra Consultants can assist with the provision of nominee director services as well as provide services pertaining to the positions of local compliance officer and money laundering reporting officer.

• The Central Bank of Bahrain’s regulations do not explicitly require controlling persons of a crypto asset service provider (CASP) to be residents of Bahrain. However, the regulations do require that the service provider is managed and operated by individuals who are competent and have relevant knowledge and experience in managing a crypto asset service provider.

• In practice, the Central Bank of Bahrain may consider the residency status of controlling persons and management team members when assessing the company’s ability to comply with the regulatory requirements, including anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. The Central Bank of Bahrain may also consider the residency status of individuals in the context of operational risks, such as the ability of the regulatory authorities to exercise oversight and take enforcement action.

4. Accepted crypto-assets

• The CBB will permit Crypto-asset service licensees (including Overseas crypto-asset service licensees) to perform services only for Approved crypto-assets in accordance with the Rules. The CBB will consider a number of considerations before pre-approving crypto assets, including:

• Cybersecurity, anti-money laundering, and combating the financing of terrorism systems and controls of the issuer; 

• The issuer’s technological expertise, track record, and reputation;

• If a trustworthy multi-signature hardware wallet solution is available for the asset;

• Protocol and the blockchain technology’s underlying infrastructure (i.e. whether it is a separate blockchain with a new architecture system and network or it leverages an existing blockchain for synergies and network effects).

• In addition to the factors listed above, the CBB will consider security, traceability/monitoring, resolution mechanisms, geographical distribution, connectivity, market demand/volatility, the type of distributed ledger used, the relevant consensus pool of the distributed ledger, innovation, and practical applicability/functionality, and whether the crypto-asset has been traded on any Dark-net marketplaces.

• Applicants applying for a Bahrain crypto asset service provider license must provide information on each crypto-asset that will be utilized for their regulated crypto-asset service. As part of the official application procedure, the usage of these crypto assets must be approved.

5. Eligible investors

• Crypto-asset service licensees can undertake transactions with/on behalf of persons/establishments only after they have been registered as clients. Eligible investors (or prospective clients) must be a legal entity duly incorporated in Bahrain (or in accordance with laws of the home jurisdictions), or a natural person above the age of 21.

• Regulated crypto-asset services can be carried out only if the crypto-asset license and their clients (i.e. the investors) enter into an agreement that stipulates the following (amongst other aspects):

• The name and address of the crypto-asset service licensee or the parent company (in the case of an overseas crypto-asset service licensee);

• The regulatory status of the crypto-asset service licensee;

• The terms of entering into, terminating and amending the client agreement;

• Details of fees, costs and other charges and the basis upon which such costs will be imposed;

• Details of the services and products to be provided by the crypto-asset service licensee;

• Details of conflict of interests;

• Provisions for complaints handling procedures and/or dispute resolution procedures; and the crypto-asset risk disclosure (as mandated by the CBB under these Regulations).

6. Other requirements

• The Rules also lay forth regulations pertaining to professional indemnity coverage, technological standards, cyber security risk requirements, counterparty risk, reporting and notification obligations, etc.

• The implementation of these regulations signals that Bahrain is now flexible for business to fintech firms dealing in crypto-assets from around the world, and it opens the door for these companies and startups to enter the GCC region, which provides a multitude of untapped potential in the domain of blockchain technology.

• Establishing operations: The licensee must commence operations within six months after gaining CBB permission or risk having the authorization rescinded. Following authorization from the CBB, the licensee will have to contract with a third party to create a readiness assessment report that comprises the licensee’s risk management system, capital adequacy, organizational structure, operational manuals, information technology, and information system security policies.

• Information Security: Companies must have adequate measures in place to protect their systems and customers’ information from unauthorized access and data breaches.

• Risk Management: Companies must have effective risk management policies and procedures in place to identify, assess, monitor, and manage risks associated with their crypto asset services.

• Internal Controls and Governance: Companies must have effective internal controls and governance arrangements in place to ensure the safety and soundness of their operations.

• Compliance Function: Companies must establish a dedicated compliance function responsible for overseeing and implementing their compliance with regulatory requirements.

• Financial Crime Compliance: Companies must have effective procedures in place to detect, prevent, and report financial crimes, including fraud, money laundering, and terrorist financing.

How to apply for a Bahrain Crypto Asset Service Provider License?

• Tetra Consultants is ready to provide you with excellent solutions for providing crypto asset services, including the possibility to process cryptocurrency license applications remotely, with no physical presence required in Bahrain. Our team of professional consultants will take care of all procedures on your behalf but it is always recommended to be thorough with the steps to be taken to obtain the cryptocurrency license in Bahrain. 

• Our team of experts has summarized the prevalent steps normally undertaken during the engagement process of obtaining the Bahrain Crypto Asset Service Provider License from the respective authorities. 

Step 1: Formation of a legal entity in Bahrain

• To start with the procedure for acquiring a cryptocurrency license in Bahrain, you need to have a legal entity registered in the country. But before moving forward with the procedure of registering a company Tetra Consultants’ team of experts will first understand your business needs and goals. 

• Once understood, Tetra Consultants will suggest the best-suited form of business entity for your cryptocurrency business in Bahrain. Accordingly, a Bahraini joint stock company or a Bahrain-based branch of a foreign business that has been legitimately incorporated under the rules of its home country is the most popular form of entity for cryptocurrency business in the country.  

• At this stage of engagement, Tetra Consultants will need you to provide the necessary KYC documents of the prospective directors and members of the company for internal due diligence. Once the documents are provided, we will send a power of attorney to be signed to enable us to carry on the procedure on your behalf. 

Step 2: Reserve the company name 

• Next, you will have to pick your preferred name for your company. Tetra Consultants will then reserve this with the Bahrain Ministry of Industry Commerce and Tourism (MOICT).

Step 3: Preparation of the necessary documents required for company registration 

• We will then proceed to assist you with preparing the documents needed to register company in Bahrain, including the article of incorporation, business plan, company constitution, and personal information of directors and shareholders. 

• Tetra Consultants will then assist you to carry out the notarization of the founding documents at the office of a registered notary, which is necessary before submitting them for official incorporation.

• Since for Bahraini company registration, there is a requirement for companies to have a registered office (Virtual or Physical) in the country, Tetra Consultants will provide you with the same for furthering the incorporation process of your Lithuanian company. 

Step 4: Filing for registration with Bahrain authorities 

• After the above steps have been completed, Tetra Consultants will then submit the necessary incorporation documents to the Bahrain Ministry of Industry Commerce and Tourism (MOICT) for processing and approval. 

• After receiving approval, Tetra Consultants will courier the Certificate of Incorporation, memorandum and articles of association, and other corporate documents to your preferred address.

Step 5: Corporate bank account opening

• Simultaneously with the Bahraini company registration, Tetra Consultants will proceed to open a crypto-friendly corporate bank account company within 4 weeks with reputable local or international banks. By engaging our services, you can leverage our full portfolio of banking partners.

• Upon the successful corporate bank account opening process and securing a crypto-friendly bank account for your entity, we will be able to inject the minimum capital required for the final approval of the cryptocurrency license application at a later stage. 

Step 6: Preparation and submission of relevant documents for license application

• Tetra Consultants will then proceed with the application for your company’s cryptocurrency license. You will be required to send us documents such as passport, proof of address, CVs, and non-criminal records of individual directors, shareholders, and Ultimate Beneficial Owners, as well as a copy of the certificate of incorporation, and a copy of the memorandum and articles of association of a corporate shareholder.

• Our team of experts will prepare the required AML/CFT procedures and company internal regulations for handling cryptocurrencies.

Step 7: Meeting local economic substance requirements

• To obtain a Bahrain Crypto Asset Service Provider License and start the cryptocurrency business in the country, CBB, the regulatory body requires you to have economic substance in the form of having an AML/CFT Compliance Officer, Tetra Consultants will assist you in meeting them. Our team will assist with the recruitment of local qualified employees to join the team.

• Tetra Consultants’ HR team will undertake candidate shortlisting and preliminary interviews for respective employees, including the compliance officer. Following that, you can narrow down the final list of prospects to choose who is best suited to join the team. Tetra Consultants will assist in the preparation of an employment contract with the agreed terms once the candidate has been selected.

• Tetra Consultants team will also train such employees in customer identification requirements under the Law on Prevention of Money Laundering and Financing of Terrorism. It should be noted that the selected employee will be a member of your company only, which is in accordance with the non-competitive clause and will represent it with the regulator.

Step 8: Submission of license application 

• Once the above is completed, Tetra Consultants will submit the application to the CBB. Depending on the completeness of your application, you may be required to attend an interview with the regulator prior to license approval. In this case, Tetra Consultants will prepare you for the interview and assist with the follow-up actions required by regulatory authorities.

• If all goes well, your entity will receive the Bahrain Crypto Asset Service Provider License and will be required to start business operations within the stipulated time frame to maintain the license.

What are the tax implications of obtaining a Bahrain Crypto Asset Service Provider License?

• Crypto asset service providers (CASP) operating in Bahrain are subject to taxation on their income and profits, in accordance with Bahraini tax laws and regulations.

• The tax implications on crypto asset service providers in Bahrain can vary depending on the nature of the activities conducted by the licensee. For instance, income generated from providing crypto asset exchange services may be subject to a different tax rate than income earned from providing crypto asset custody services.

• In Bahrain, the corporate income tax rate is currently set at 0% for most businesses. However, businesses that operate in the oil and gas sector or those with foreign ownership may be subject to income tax at a rate of 46%. The income tax rate for financial institutions is generally set at 28%.

• Bahrain also imposes a value-added tax (VAT) on the supply of goods and services at a standard rate of 5%. As of September 2019, the Bahrain Ministry of Finance and National Economy announced that crypto assets will be treated as taxable goods and services for VAT purposes. Therefore, CASPs providing taxable services related to crypto assets, such as trading, brokerage, and custody services, may be required to charge VAT to their clients.

• Furthermore, the tax laws and regulations related to crypto assets are still evolving in many jurisdictions, and there may be significant uncertainty regarding the tax implications of providing crypto asset services. Therefore, it is important for CASPs to seek advice from experienced tax advisors to ensure that they are complying with all applicable tax laws and regulations in Bahrain.

How much does it cost to apply for a Bahrain Crypto Asset Service Provider License?

• In Bahrain, the fees for a CASP license include an application fee of BD 1,000 (approximately USD 2,650), an initial license fee of BD 5,000 (approximately USD 13,250), and an annual license renewal fee of BD 2,500 (approximately USD 6,625).

• In addition to these fees, there may be additional costs associated with legal and regulatory advice, compliance procedures, and ongoing operational costs, such as maintaining adequate capital reserves, performing regular audits, and implementing effective anti-money laundering and counter-terrorist financing policies and procedures.

• It is important to note that these costs are subject to change, and it is recommended that you seek professional advice to determine the specific costs associated with obtaining a CASP license in Bahrain.

How much time does it take to apply for a Bahrain Crypto Asset Service Provider License?

• The time it takes to obtain a crypto asset service provider (CASP) license in Bahrain can vary depending on several factors, including the completeness of your application, the complexity of your business model, and the volume of applications being processed by the Central Bank of Bahrain (CBB) at the time.

• Generally, the CBB aims to process applications within 60 days of receipt, but the actual processing time may be longer or shorter depending on the factors mentioned above. It is important to note that the CBB may also request additional information or documentation during the application review process, which can also impact the processing time.

• Therefore, it is difficult to provide a specific timeline for obtaining a CASP license in Bahrain. It is recommended to consult with a legal or regulatory expert in Bahrain to understand the specific requirements and the estimated time frame for the application process. 

• Prior to the start of the engagement, Tetra Consultants will send you a project plan with the timelines stipulated for company registration, preparation of documents as well as license application. This is to ensure that all parties are clear on the upcoming project.

Our services 

• Tetra Consultants provides comprehensive corporate services under one roof, allowing clients to plan and prioritize their chosen business strategy to expand their business and obtain cryptocurrency licenses in countries like Bahrain in a very short time and with limited resources. We offer a wide range of services, including consultancy, legal services, and company formation, which focus on the optimal implementation of business strategies.

• You will receive legal and management consultancy services of the highest caliber, thanks to the many years of experience of our highly qualified professionals. Each client receives comprehensive assistance with business development and support. Every task is tailored to the client’s needs, the specifics of the business, and the legislation of the particular country.

• In addition, Tetra Consultants can also assist with attaining other offshore financial licenses depending on your long-term business goals.

Find out more!

Contact us to find out more about how to get a Bahrain Crypto Asset Service Provider License. Our team of experts will revert within the next 24 hours.

FAQ

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