7 days ago
Central Bank of Bahrain launches framework for Stablecoin regulation
Bahrain - In a landmark move that positions Bahrain at the forefront of digital asset regulation in the region, the Central Bank of Bahrain (CBB) launched the Stablecoin Issuance and Offering (SIO) Framework under Rulebook Volume 6, effective July 2025, establishing a comprehensive licensing and regulatory regime for stablecoin issuers.
As of July, the Kingdom of Bahrain joins a select group of jurisdictions that have enacted comprehensive regulatory frameworks for stablecoin issuers.
A stablecoin refers to a type of crypto-asset that is often tied one-to-one to a specific currency or asset in the material world. To illustrate, this means that a stablecoin linked to the American dollar would be worth $1. True to its name, this assurance in the form of collateral intends to be stable in value, in comparison to other cryptocurrencies.
Currently, there are four variations: namely, algorithmic, commodity-backed, crypto-backed, and fiat-backed stablecoins.
In the Bahraini legal context, approved stablecoins means single-currency fiat-backed stablecoins issued by a licensee under the SIO Module. Generally, fiat-backed stablecoins seek to maintain stable value through reserve assets, referenced to a single fiat currency or multi-currency. Accordingly, reserve assets are held as security by stablecoin issuers.
The SIO Module establishes a licensing regime which shall be read and applied in conjunction with Volume 6 of the CBB Rulebook, including but not limited to, the Anti-Money Laundering and Combating Financial Crime Module (AML), the Fit and Proper Requirements Module (FM), and the High-Level Controls Module (HC). Under Volume 6 of the CBB Rulebook, licensing and regulatory procedures for crypto-asset services were also previously established.
The SIO Framework extensively addresses the governing, enforcement and redressal mechanism for stablecoin issuance and offering. Chapters SIO-2 and SIO-3 encompass licensing procedures and conditions. Paragraph SIO-2.1 comprehensively outlines the requirements for the applicant, to be submitted by the potential licensee. This is paired with a non-refundable licence application fee of BD100 (One Hundred Bahraini Dinars).
In line with SIO-1.1.6, a licensed stablecoin issuer's eligibility follows a two-pronged assessment.
1. Type of stablecoin that may be issued
Stablecoin issuers may issue single-currency fiat-backed stablecoins pegged to the Bahraini Dinar (BD), United States Dollar (USD), and or any other fiat currency upon obtaining approval of the CBB. As a prerequisite, the value of the reserve assets backing the approved stablecoin–with a minimum requirement of equal to par value–is to be observed by the stablecoin issuer.
2. Requirements relating to the eligibility and obligations of the stablecoin issuer
Chapter SIO-3 lays down eight core licensing conditions to be met. A key point of clarification hereunder is the requisite for the stablecoin issuer to be locally incorporated as a Bahraini Joint Stock Company (BSC) with financial resources that are always equal or exceeding the minimum requirement as prescribed in Chapter 4 of the SIO Module, and compliant with pre-operational and licensing requirements.
The CBB shall issue a decision regarding a completed application within 60 calendar days, in accordance with Articles 44 to 47 of the CBB Law.
Chapter SIO-6 of the SIO Module necessitates the specific composition, custody and management of reserve assets. These reserve assets are to be held with a third party – a bank, investment firm or custodian – arranged by a written contract.
Outside of the general powers and obligations awarded to stablecoin issuers, Chapter SIO-6 also addresses holders of the approved stablecoins. Briefly summarised, the key characteristics are as follows:
(i) grants the direct legal right to redeem the approved stablecoin for the pegged fiat currency, at par value;
(ii) mandates legitimate redemption requests to be processed at par value and completed within five business days;
(iii) discourages high fees or charges that may deter clients from exercising their right to redemption, as well as requires a reasonable basis for any imposition;
(iv) requires the establishment and implementation of relevant policies and procedures for redemption, and sets disclosure requirement for redemption policy and procedure; and
(v) on issuance or offering yield from interest or reward from the investment of reserve assets.
In further interest of potential holders of such an approved stablecoin, Chapter SIO-7 provides for the preparation of a non-technical reliable and accurate stablecoin whitepaper–aside from its guidelines on marketing, following whitepaper publication–intended to enable potential clients to make a well-informed decision.
Reflecting a spirit of risk-based oversight and investor protection, the framework includes custody arrangements, recovery plans, and the adherence to global best practices in financial stability – wherein the CBB places prudential requirements, issues stringent reporting measures, contingent to scale and risk, imposes limitations and/or restrictions, and classifies an approved stablecoin as a 'significant stablecoin'.
This is further reflected in its approach to technology governance, requiring secure infrastructure and standard cybersecurity controls. Preparatory measures, including the addressing of planned and unplanned system outages, are efficiently incorporated.
The CBB retains enforcement powers, pursuant to Part 11 of the CBB Law, including the authority to impose administrative sanctions, financial penalties, as detailed in Appendix E of the SIO Module, and, where applicable, criminal sanctions for serious violations, in accordance with the CBB Law.
Licensees must notify the CBB and, where required under the SIO Module, obtain prior written approval from the CBB for any material change to their business operations or management structure.
To conclude, the SIO Module provides a clear, rigorous and trustworthy framework which requires an extensive pre-approval process and substantial documentation.
Resultantly, such an approach promotes transparency, effectively reducing ambiguity and accountability, given the legal certainty and clarity.
By implementing these measures, Bahrain not only stands out as a regional leader in stablecoin regulation but also sets a benchmark for other countries aiming to integrate stablecoins into their financial systems while ensuring regulatory compliance and consumer protection.
(Al Doseri Law is a specialist Bahraini law firm built on established and trusted client relationships.)
