BMA modernises bank licensing framework

The reforms come into effect on 1 July 2006 and complete the BMA's drive to create a clearer, more modern bank licensing regime, whilst strengthening Bahrain's position as the leading international finance centre in the Gulf.

Similar licensing reforms have already been implemented for the insurance and investment business sectors, in April 2005 and April 2006 respectively.

Under the revised banking regulations, all regulated banking activities are clearly defined, giving clarity and legal certainty for banking licensees and their customers.

License categories are defined by regulated activity, rather than institution type, making the new framework flexible and inclusive and able to respond to market changes. The five basic licensee categories under the integrated new framework are: conventional bank, Islamic bank, insurance, investment business and specialized licensees.

A key feature of the revised framework for banks is the simplification of existing categories of onshore and offshore banking licenses, enabling offshore banks to undertake onshore business in a controlled manner.

The existing bank license sub-category of 'Full Commercial Bank' is replaced by Retail Bank'. Meanwhile, the two-existing offshore sub-categories of Offshore Banking Unit and Investment Banking License are to be merged and replaced with one unified 'Wholesale Bank' license sub-category.

For the first time, wholesale banks will be permitted to undertake individual onshore transactions: above BD 7 million in respect of deposit taking and the provision of credit, and above US$250,000 for investment business transactions, including the sale of an investment product.

The announcement follows extensive consultation between the BMA and Bahrain's banking industry. The new framework is in line with International Monetary Fund (IMF) recommendations, and will be incorporated into July's regular BMA Rulebook update.

Commenting on the announcement, Mr. Rasheed Mohammed Al Maraj, Governor of the BMA, said: "The clarity and consistency of the new framework provides a more competitive environment for banking in the Kingdom.

"By enabling international banks to offer onshore banking to Bahraini residents, we anticipate further growth and investment in the sector, as well as the advent of greater customer choice in banking services."

Khalid Hamad, Executive Director of Banking Supervision, added: "We have clearly defined all regulated activities in line with leading international practice. We have created a fully flexible and modern system that focuses on the regulated services undertaken, and one that will be familiar to institutions operating in other major financial centres. Its flexibility will accommodate future market developments, without requiring frequent changes to our license categories.

"We will be monitoring the impact of the new system closely during the coming months and have set the minimum transaction thresholds for wholesale banks on-shore business at a conservative level, in order to allow our on-shore banks already operating in the Kingdom, time to adjust."