Corporate and banking legislative structure in Bahrain
Tim Bell
Trowers & Hamlins
Manama
Tim Bell (Bio)
Bahrain, in its position as a leading banking hub in the Gulf region, has taken a positive and forward-thinking view in recent decades regarding its corporate and banking legislative. In particular it has strived to ensure that the standards of integrity, transparency and regulation are second-to-none in the region to maintain its position as an international leader in trade and banking. This article gives summary details of the laws and institutions that exist to ensure that the corporate marketplace in Bahrain meets international expectations.
Governmental bodies
The two governmental bodies which oversee the commercial agenda in Bahrain are the Ministry of Industry and Commerce (MoIC) and the Central Bank of Bahrain (CBB). The MoIC is the registrar of companies, and maintains online in Arabic and English a reliable and freely-available list of all nationally registered companies, along with their shareholders and directors. In conjunction with the Bahrain Economic Development Board it is also responsible for promotion of foreign trade and encouraging inward investment.
The CBB replaced the Bahrain Monetary Agency in 2006 as Bahrain's central bank and financial regulator (pursuant to the Central Bank of Bahrain and Financial Institutions Law 2006). It is responsible for the financial stability of Bahrain and dictates its monetary policy. In its role as regulator it maintains a vigilant eye over the banking, insurance, investment and capital market sectors.
Legislation
The main legislative instruments which control the corporate and banking markets in Bahrain are as follows:
- Bahrain Stock Exchange Law of 1987 - established the Bahrain Stock Exchange (BSE). The BSE runs as an independent organisation whose board is chaired by the Governor of the CBB. Foreigners are entitled to buy and trade bonds, mutual funds and warrants, and may own up to 49% of domestic companies' equities if they have been resident in Bahrain for over a year.
- Anti-Money Laundering Law 2001 - in keeping with Bahrain's endeavours to remain a market leader in the banking sector, Bahrain was the first country in the Gulf region to enact anti-money laundering legislation.
- Commercial Companies Law 2001 (CCL) - legislates for the various types of corporate entity which exist in Bahrain, including limited liability private companies, publicly traded companies, partnerships and limited liability partnerships. The CCL also details the incorporation, management and accounting requirements for Bahrain registered companies.
- Bahrain Financial Trust Law 2006 - Bahrain was one of the first countries in the region to give legal power to the concept of trusts and trust administration. The concentration of high-net-worth individuals in the Gulf and the significant number of collective investment undertakings registered or regulated in Bahrain gives rise to an expanse of opportunity in this area which Bahrain is keen to capitalise on to strengthen its reputation as the leading banking and investment centre in the Gulf region.
- The Corporate Governance Code - jointly introduced by the MoIC and CBB in 2010 with the intention that the highest standards of governance should be met by all companies in Bahrain. Legislation of this nature will be familiar to many jurisdictions around the world following the events of recent years and is a further sign of the significance which Bahrain places on the reputation of its corporate and banking marketplace. A number of major corporations in Bahrain have publically shown their support for the code, including large banking and telecommunications companies.
- The CBB Rulebook - sets out in detail the financial services regulatory framework in Bahrain. The Rulebook is split into six sections, each relating to a separate regulated industry:
(i) Conventional banks.
(ii) Islamic banks - this is an increasingly important sector, not just in the Islamic world but globally. Islamic finance continues to grow by approximately 15% per year worldwide, and is expected to continue to do so. Bahrain is currently rated sixth in the world by shariah compliant assets under management and the CBB has issued licences to 27 Islamic banks.
(iii) Insurance.
(iv) Investment business.
(v) Specialised Licensees - covering Money Changers (foreign currency exchanges), Representative Offices, Financing Companies (i.e. providers of credit for goods), Administrators, Trust Service Providers and Micro-Finance Institutions.
(vi) Capital markets.
- CBB Capital Markets Regulations - these include guidelines on debt securities, disclosure, insider trading and AML requirements in the capital markets.
Bahrain Centre for Dispute Resolution
It is worth noting the significant change to litigation procedure in Bahrain brought about be the introduction of the Bahrain Centre for Dispute Resolution (BCDR). Created with the assistance of the American Arbitration Association, the BCDR aims to bring a more efficient method of dispute resolution to the Middle East. The courts of Bahrain may refer cases that exceed a value of BD500,000 ($1.3million) to the BCDR, or alternately parties can choose to bring their disputes before the BCDR for arbitration. The main advantage of the BCDR is a significantly reduced timescale over the traditional civil court system (e.g. there is a statutory 30 day timescale to respond to claims and counterclaims).
The marketplace in Bahrain has continued to flourish over the last few years, evidence of which can be seen in the balance sheets for both Islamic and retail banks which have respectively doubled and nearly tripled over the last five years. Overall Bahrain has the legislative and regulatory framework, capacity and experience to meet the requirements of banks and other corporate bodies, and it continues to perform excellently in its role as a leader in the Gulf region.