The establishment of the Central Bank of Bahrain (CBB), to succeed the Bahrain Monetary Agency (BMA), will further contribute to Bahrain’s strengths as the region’s leading financial centre.
The CBB, which carries the full range of tasks previously undertaken by the BMA, is endowed with strong operational independence and a wider range of enforcement powers. This will help the CBB maintain clean markets, a feature that has been one of the strengths of Bahrain’s financial system, said Mr. Anwar Khalifa Al Sadah, Deputy Governor of the CBB.
He was speaking today at a press conference, organized by the CBB, to officially launch the new entity.
The CBB came into existence on 7 September 2006, following the enactment of the new Central Bank of Bahrain and Financial Institutions Law (CBB Law), which governs the activities of the Central Bank of Bahrain (CBB).
The CBB Law, issued by Decree No. 64 of 2006, has replaced the BMA Law of 1973 as well as the Insurance Law (Legislative Decree No. 17 of 1987).
The enactment of the CBB Law does not, however, affect the CBB’s responsibilities, which were previously carried out by the BMA. Nor does it affect the existing currency in circulation, which will continue to remain legal tender.
“The new Law consolidates into a single piece of legislation the full scope of CBB’s responsibilities, as a central bank and regulator of Bahrain’s financial services industry,” said Mr. Al Sadah.
“Legally, the CBB, as the successor organization of the BMA, assumes all the rights and obligations of the now-defunct BMA. As such, the existing currency in circulation also remains a legal tender.”
The CBB Law was, in part, necessitated by an expansion of BMA’s role as regulator of Bahrain’s financial services industry. In 2002, the BMA assumed responsibility for regulating the insurance and capital market sectors, in addition to the banking industry.
“The new Law modernizes and amalgamates the different laws, which previously governed the various segments of the financial services industry, into a single, comprehensive document. It also marks the final stage in the creation of a single regulator for the financial services industry,” said Mr. Al Sadah.
A highlight of the CBB Law is that it provides enhanced enforcement powers to the CBB as well as reinforces its operational independence. Other highlights include:
• The establishment of the CBB with an authorized capital of BD500 million (US$1.3 billion), of which BD200 million (US$532 million) will be paid up, as stated in Part 1 of the CBB Law. This section also stipulates that the Governor of the CBB will hold ministerial rank and will be appointed for a 5-year term, which is renewable.
• Two sections (Part 4 & 5) on the capital market and the offering of securities. The provisions of the two sections detail the process for listing and dealing in securities and also make insider trading and market abuse statutory offences.
• For the first time, provides a legal basis under Bahrain law for close-out netting to settle all contracted but not yet due liabilities to and claims on an institution, as per the provisions stipulated in Part 6, which relates to netting and collateral.
• An entire section (Part 8) on confidential information and its disclosure.
• An entire section (Part 9) on investigations and administrative proceedings available at the CBB’s disposal to ensure compliance of rules and regulations by licensees.
“The enactment of the CBB Law and the creation and establishment of the CBB is yet another ground-breaking move to maintain Bahrain’s leadership as an international financial centre. It marks a milestone in Bahrain’s current efforts to modernize the infrastructure for the country’s financial services industry,” said Mr. Al Sadah.
The CBB is committed to carrying forward the sterling work of the BMA in maintaining a sound and stable financial system and in fostering the growth of Bahrain’s financial services industry, which has, in turn, supported the growth and development of the national economy.
“Over the past 33 years, the BMA has stood for financial strength, stability, integrity and a steadfast adherence to international best practice, all of which earned the Bahrain its status as the region’s leading financial centre and the Agency its reputation of being the most highly regarded and innovative regulator in the Middle East,” said Mr. Al Sadah.
This has enabled the country’s financial services industry to become the top contributor to the national economy. The sector’s contribution to gross domestic product (GDP) amounted to BD965.7 million (US$2.6 billion) in 2005, which represented 27.6% of a total GDP of BD3.5 billion (US$9.3 billion).
Bahrain enjoys a foreign currency debt rating of ‘A’ from leading international rating agency Standard & Poor’s (S&P), he pointed out.
Bahrain’s banking system is ranked on a par with developed countries by FitchRatings, in the Fitch Banking System Indicator (BSI). Bahrain has been ranked in Category B of the BSI, which is a measure of intrinsic banking system quality or strength. The total assets of banks operating in and from Bahrain totaled US$163 billion at June-end 2006.
The country’s financial system was also commended by the International Monetary Fund (IMF) and World Bank in their Bahrain Financial Sector Assessment Programme (FSAP) report, which described the country’s financial system as “robust”. The FSAP review, which is an assessment of the stability of national financial systems, is a key international commendation.
The Bahrain FSAP also noted that Bahrain’s financial sector is enjoying “strong performance” and is likely to remain a major contributor to overall growth.
The expansion of the financial services industry is evidenced by the continued growth in financial sector employment, a key indicator of the overall performance of the sector. During 2005, the financial services industry, comprising banking, insurance and the capital market, added 677 new jobs, which represented a 9% increase over 2004. Employment in the industry totaled 8,219 jobs in 2005.
The number of financial institutions licensed by the CBB currently stands at 373, of which 210 are banks and banking related institutions, 154 are insurance and insurance related firms and 14 stock brokers.
Recent major initiatives include the introduction of a new, modernized licensing framework for the financial services industry. License categories are now 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.
The new changes to the licensing system have been complemented by a comprehensive package of regulatory reforms aimed at ensuring that regulations governing financial institutions remain fully compliant with the latest international standards. The BMA Rulebook, being issued progressively since 2004, will comprise five separate volumes corresponding to the five license categories.
A new Trust Law, issued in August 2006, has further broadened the scope of financial services from Bahrain by creating a well-regulated environment for trustees and trust administration services.
“The CBB is dedicated to carrying forward and building on this solid foundation, which has served so well in establishing Bahrain as the premier international financial centre in the Middle East region,” said Mr. Al Sadah.
“We have worked hard to make a smooth transition and I would like to assure all our peers, partners and the public-at-large that it is business-as-usual at the CBB.”
