Islamic Finance - Bahrain Regulatory Framework on Islamic Finance
Amiri Decree No. 23 (1973) created the Central Bank of Bahrain (CBB), formerly the Bahrain Monetary Agency (BMA), as the nation's central bank and guardian of the financial system. Its duties included carrying out monetary policy, monitoring and controlling the banking industry, and serving as the government's fiscal agent. It was tasked with making Bahrain a significant global financial hub starting in 1975. The BMA is also in charge of overseeing the kingdom's foreign currency cash reserves. The BMA's authority was widened in 2002, and it now serves as Bahrain's sole financial institutions regulator. The BMA's area of responsibilities was now expanded to include the supervision and regulation of the insurance and capital markets industries. A comprehensive set of regulatory reforms to modernize and reinforce the licensing structure for banks operating in the kingdom were detailed by the BMA on June 28, 2006. The regulation changes, which became effective on July 1, 2006, allow the BMA to grant licenses based on categories established by regulated activities rather than institution kinds. As a result, the new framework is made more adaptable and inclusive, and it also enables the licensed institutions to respond to market developments more effectively. The integrated new framework's five fundamental licensee groups include conventional banks, Islamic banks, insurance companies, investment firms, and specialized licensees. The streamlining of the existing categories of onshore and offshore banking licenses is a crucial component of the updated framework for banks. This makes it possible for offshore banks to conduct controlled onshore commerce. "Retail bank" will take the place of the current bank license subcategory "full commercial bank." A single, streamlined "wholesale bank" license sub-category will replace the two previous offshore sub-categories of offshore banking unit and investment banking license. In terms of deposit taking and credit provision, wholesale banks are now allowed to conduct individual onshore transactions above BD7 million (US$18.62 million), and above US$250,000 for investment business transactions, including the sale of an investment. According to the Central Bank of Bahrain and Financial Institutions Law of 2006, the BMA became the CBB on September 7, 2006. The BMA's extensive range of additional functions are transferred to the CBB, which continues to be in charge of the Kingdom's monetary and financial regulation. It administers the nation's payments and settlement systems and carries out the Kingdom's monetary and foreign exchange rate policies. It also manages the government's reserves and debt issuance. The CBB oversees all aspects of banking, insurance, investment business, and capital markets as Bahrain's primary financial sector regulator. The CBB ensures regulatory effectiveness within the financial sector as the exclusive financial authority for both conventional and Islamic financial services. The CBB will need to give guidance to focus on the IFSI's dynamism, nonetheless, given the rising proliferation of IFS. Allowing offshore banks to operate domestically is part of Bahrain's ambition to lead the globalization of the Islamic finance sector. Bahrain's regulatory policies and initiatives to advance the IFSI have been integrated under a dual system and a single piece of law. Additionally, the CBB has created a variety of industry-leading legislative and regulatory efforts to improve the environment for businesses that provide financial services. The Prudential Information and Regulations for Islamic Banks, which were created and released by this central bank as the first in the world particularly for Islamic banks (PIRI). The CBB is distinctive in that it has stated in the open that its rules are designed to adhere to those set forth by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). In addition, a new trust statute that provided a legal framework for the establishing of trusts was released in August 2006. This has immediate application to the issuance of Sukuks, which are primarily built using the trust concept to safeguard the interests of Sukuk investors.
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