The Bahrain Monetary Agency (BMA) is developing a new, modernized licensing framework that better serves the needs of financial firms doing business in and from Bahrain.
The proposed new framework will cover the entire financial services industry, comprising the banking, insurance and capital markets sectors. It is based on licensing activities, rather than types of institutions.
The new framework, which is planned for implementation later this year, is a major initiative by the BMA to further enhance Bahrain’s position as the location of choice for financial firms wishing to do business in the Middle East region.
“Since assuming responsibility in 2002 for regulating all financial services sectors, the BMA has been working on priority basis to upgrade the infrastructure and ensure greater transparency and consistency of approach,” said Mr. Rasheed Al Maraj, Governor of the BMA.
“The increasing convergence of financial services requires a new and flexible approach to licensing, which meets the evolving and increasingly sophisticated and complex needs of the industry.”
The objectives of proposed new approach are to define clearly the precise scope of regulated activities; create a single, more coherent framework covering the full range of financial services activities across the different sectors; and provide for a better alignment between a licensee’s activities, its licensee status and its regulatory requirements.
The new framework organises all financial services activities in five broad groups or ‘blocks’ of regulated services, as follows:
Block 1: Regulated deposit-taking services
Block 2: Regulated Islamic finance services
Block 3: Regulated insurance services
Block 4: Regulated investment services
Block 5: Regulated specialised services
Licensees would be able to pick different combinations from the above menu of services, subject to certain restrictions. For example, Blocks 1,2 and 3 services may not be combined with each other, but services from Blocks 1 or 2 could be combined with services from Block 4 and most of the services under Block 5. Thus, a licensee would be allowed to undertake both deposit taking and investment service activities such as dealing in investments as principal, but it could not also underwrite insurance.
The new framework will reduce the restrictions on offshore banking units (OBUs) in dealing in the local market by offering OBUs and investment banks the option of selecting the activity of wholesale deposit taking under Block 1.
For most existing licensees, the new framework would essentially represent a re-labelling rather than a fundamental change in how they would operate. Nor would licensees be obliged to changed their current business activities.
For Bahrain’s insurance sector as well, the changes will be minimal, as BMA’s new insurance regulatory framework, issued in April 2005, anticipates the new licensing approach.
The basic license categories are aligned with the five volumes of the BMA Rulebook, which are being progressively issued during 2004/05.
“The BMA believes that the new framework would mark a significant improvement on the current approaches to licensing,” said Mr. Al Maraj.
The BMA is working with the financial services industry in drafting the new licensing framework. A consultation paper was issued earlier this year and, currently, BMA is reviewing industry submissions with a view to issuing near-final proposals in the coming weeks.
