CBB upgrading regulatory framework for investment funds industry

New regulations to be issued soon will provide for higher risk and volatile instruments, which will see the emergence of a home-grown industry of hedge funds, derivatives and other alternative investment instruments, said Mr. Anwar Khalifa Al Sadah.

He was speaking as he delivered an Introductory Address at a Bloomberg Discussion Forum on Shari'a Alternative Asset Management. The event, organized with the support of Bahrain Financial Services Development, was held at the Bahrain International Circuit.

The event was particularly timely, being held against a backdrop of an extremely positive macro-environment in the region, said Mr. Al Sadah.

A combination of high liquidity and moves towards structural reforms has generated high growth rates and, for the first time, significant levels of intra-regional investment.

"Not surprisingly, this buoyant macro-economic environment has benefited the financial sector and within this overall picture, the Islamic financial sector has continued to develop strongly, beyond its niche status," said Mr. Al Sadah.

Increasingly, regional investors are looking to invest in a Shari'a-compliant manner, providing the products are competitive. They are also being joined by international investors, looking for diversification.

Buoyed by strong investor demand, Islamic investment funds currently represent a fast growing element within the Islamic financial sector, albeit from a low base. Products have proliferated in recent years, with investors now able to place their savings in a wide range of Shari'a-compliant funds, including equity, commodity, real estate and Ijara (leasing) funds.

In Bahrain, the Islamic fund industry has been growing at an annual pace exceeding 20% with Islamic funds currently representing some US$1 billion in assets, out of the $9 billion plus invested in CBB-registered funds.

Within this broad picture, the outlook for alternative asset management in the region also looks positive.

"The CBB has long supported the investment funds industry in Bahrain, and we are currently working to ensure that the regulatory framework is suited to today's environment," he said.

In the 1990s, Bahrain was the first regional jurisdiction to create a credible regulatory framework for the regulation and supervision of collective investment schemes.

Bahrain's success to date as the region's leading funds centre is a testament to that commitment. As of end-April 2007, nearly 2,300 funds were authorized by the CBB, of which 102 were locally domiciled funds - by far and away the largest concentration of locally domiciled funds in the GCC.

In recent years, various initiatives have been undertaken to facilitate the continued development of this sector.

These have included the streamlining of the authorization and commercial registration process for mutual funds; and the creation in 2004 of a new corporate vehicle - the so-called Special Purpose Vehicle (SPV) - that was better suited to mutual funds than the corporate vehicles previously available. In 2006, a new investment business rulebook was issued, creating a comprehensive and up to date framework for investment business licensees, one better adapted to activities such as asset management, funds administration and custody services.

This year, the CBB has been working on updating the regulations governing collective investment schemes. A key objective of the new regulations, has been to widen the range of schemes permitted. Besides retail schemes, the new regulations will also authorize expert schemes, which will be subject to less restrictive investment guidelines but will be subject to some limitations as to their investor base.

Other areas of recent CBB initiatives have included the enactment of Bahrain's first-ever Trust Law, to govern trustees and trust administration business, and the introduction of CBB's Insurance Rulebook, which comprises a comprehensive regulatory framework for insurance business as well as Islamic insurance (takaful).

"We, at the CBB, continue to work to ensure that our regulatory framework remains the best and most straightforward in the region, enabling operators to make the most of these opportunities and best serve investors' needs," said Mr. Al Sadah.

Today's event is the first of its kind to be organized in Bahrain by Bloomberg. It was attended by senior representatives of asset and fund management industry from the region and beyond.