Framework provides a virtual space for companies to test their technology-based innovative solutions, and is open to existing CBB licensees and other local and foreign firms.

The Central Bank of Bahrain (CBB) announced new regulations to create a regulatory sandbox that will allow startups and Fintech firms to test and experiment their banking ideas and solutions. The creation of the regulatory sandbox provides an opportunity for Fintech businesses around the world to expand and thrive in the Gulf, and strengthens Bahrain’s position as a Fintech and financial services hub in the GCC.

The framework provides a virtual space for companies to test their technology-based innovative solutions, and is open to existing CBB licensees and other local and foreign firms. The testing duration is nine months, with a maximum extension of three months.

“We are about to announce the first approved applicant for the sandbox,” said David Parker, Executive Director-Financial Services, Bahrain Economic Development Board. “The sandbox is an environment to get the balance right between regulation and innovation. Prior to launching the sandbox, there were only two options for innovators looking at partnerships in Bahrain. One was to look at some existing licensing or regulation in place. And if there wasn't one, then the Central Bank of Bahrain wasn't in a position to deal with it.”

Parker explained that the sandbox allows banks to test something during a finite period, and to look at whether it fits with any of the existing regulation or licenses. If no regulation is available for that,
the Central Bank will start to deploy a regulation, taking into account a similar practice elsewhere in the world.

In order to be eligible, solutions need to demonstrate innovation, customer benefit, technical testing, and an intention to be deployed in Bahrain after the sandbox period ends.

The CBB recently issued the Regulatory Sandbox Framework directive, which includes the eligibility criteria, filing requirements and timeline for the process. This may be found on Bahrain Startup website (www.startup.bh) and CBB’s website: www.cbb.gov.bh/page-p-regulatory_sandbox_en.htm. 

This is in line with the Kingdom’s efforts to further develop the ecosystem in place to encourage growth in the Fintech industry. 

There are efforts to connect with Fintech communities elsewhere in the world. Most recently, the Bahrain Economic Development Board (EDB) announced a partnership with Fintech incubator and ecosystem builder Singapore Fintech Consortium and asset management and advisory firm Trucial
Investment Partners, to develop a Fintech ecosystem and regulatory framework for the Kingdom. The agreement includes support in developing the related commercial and legal infrastructure required to initiate, nurture and sustain Bahrain’s Fintech ecosystem. It will pave the way for increased interaction between Fintech firms in the Middle East via Bahrain and those in ASEAN via
Singapore and will facilitate the entry of Singaporean Fintech companies into the Kingdom.

H.E. Rasheed Mohammed Al Maraj, Governor of the CBB, said: “These new initiatives are a continuation of the CBB’s efforts to provide the right mix of policies and products to develop and enhance the quality and competitiveness of services in the financial sector. We are living in an era of unprecedented changes mainly brought about by technological advancement, where we are witnessing how technology is defining financial services and CBB remains at the forefront of these developments to enable the industry to advance similarly.”

H.E. Khalid Al Rumaihi, Chief Executive of the EDB, said: “The launch of the regulatory sandbox is an initiative that follows on the directives of HRH the Crown Prince to prioritise innovation that supports sustainable high value job creation in the Kingdom. In order to grow the Fintech
industry, we know we need to create an ecosystem in which entrepreneurs can innovate and test their ideas – and the introduction of Sandbox regulations is one of the key steps towards ensuring that environment. Bahrain has always been an attractive proposition for Fintech - particularly due to our unique offering in areas such as Islamic finance and payments, and we are looking forward to
welcoming more local, regional, and international Fintech firms.”

“The regulatory sandbox will enable industry players to apply innovative Fintech products while maintaining the overall safety and soundness of the financial system; We are pleased with the introduction of this regulation, which sets a very forward-looking policy that adapts with the
times,” said Mr. Khalid Hamad, Executive Director of Banking Supervision.  

Bahrain provided greater opportunities for Fintech businesses in 2014, when the CBB initiated two new license types - payment services and card processing services - marking the entry of non-banking companies into banking services. To date Bahrain has issued 14 licenses for these two activities. 

“We are hoping to launch a fund later this year that will enable Fintech entrepreneurs from around the world to get finance. We also want to reach out to startups internationally, including those in India,” said Parker.