Legal Update: New Financial Obligations for Commercial Entities in Bahrain
Our associate Nawra Abdulla, highlights Bahrain’s new Ministerial Resolution No. 43/2024 and its impact on financial transactions for commercial entities.
Nawra Abdulla ([email protected]) – Associate
The Kingdom of Bahrain has recently introduced a new regulation under Ministerial Resolution No. 43/2024 aimed at enhancing the transparency, efficiency and security of financial transactions conducted by commercial entities. The resolution requires all commercial entities to handle their financial transactions exclusively though formal business banks ensuring that all payments are processed through licensed financial institutions. It also emphasizes the adoption of electronic payment systems. This article provides a comprehensive overview of the key provisions of the resolution, its legal context and its implications for businesses operating in Bahrain.
Background and Legal Context
The resolution is a part of Bahrain’s ongoing efforts to streamline the commercial operations and reduce risks associated with informal or unregulated financial transactions. Alongside key existing laws and regulations governing commercial activities in Bahrain including:
- Legislative Decree No. 7/1987 Promulgating the Law of Commerce,
- Legislative Decree No. 21/2001 Promulgating the Commercial Companies Law,
- Legislative Decree No.27/2015 with respect to The Commercial Registrar,
- Law No. 35/2012 with respect to The Consumer Protection,
- Law No.64/2006 with respect to Promulgating the Central Bank of Bahrain and Financial Institutions.
Together, these laws and regulations aim to modernize Bahrain’s financial infrastructure, mitigate risks associated with cash-based transactions and enhance overall transparency in the commercial sector. By mandating that all commercial payments be processed through licensed banks, the Bahraini government is aligning with global best practices and fostering a more secure business environment with the oversight of anti-financial crimes to combat money laundering. The resolution is particularly crucial for improving Bahrain’s business climate, attracting foreign investments and increasing the trust of consumers in the financial sector.
Key Provisions of Resolution No. 43/2024
- Mandatory Business Bank Account (Article 2)
Under Article 2, all commercial entities registered with a commercial registry (CR) with the MOIC are required to open a dedicated business bank account in a licensed bank in Bahrain. This applies to individual establishments and commercial companies (excluding limited partnership companies and branches of foreign companies). In cases where a company has multiple branches, the regulation allows a single bank account to serve all branches to simplify the process of financial oversight. This provision ensures that all financial transactions -whether in cash, bank transfers, or electronic payments- are traceable and properly documented, preventing money laundering and facilitating the implementation of anti-financial crime policies.
- Electronic Payment Services (Article 4)
The resolution also mandates that businesses provide electronic payment options to promote the use of digital payment systems, aligning with global trends towards cashless economies. By encouraging electronic transactions, Bahrain aims to further enhance the convenience, speed and security of payments for both businesses and consumers. This provision will foster a more efficient and modern payment landscape making it easier for customers to make payments via credit cards, mobile wallets and other digital methods.
- Penalties for Non-Compliance (Article 5)
Businesses that fail to comply with the provisions of the resolution will be subject to penalties as outlined in Article 20 of the Commercial Registry Law. Penalties can include fines, suspension of business registration, deletion of commercial registration and other legal consequences to ensure that businesses adhere to the new legal regulation and reinforce Bahrain’s commitment to financial transparency and accountability.
- Transitional Provisions (Article 6)
Businesses that were already operating before the resolution came into effect are given a six-month grace period to comply with the new requirements. This transitional period allows businesses time to open the necessary bank accounts, implement electronic payment systems and make any necessary adjustments to their operations.
- Implementation and effectiveness (Article 7)
Article 7 designates the MOIC as the authority responsible for the implementation and oversight of the resolution. This regulation will come into effect on 13 December 2024, six months following its official publication in the Official Gazette.
Concluding Remarks
Resolution No.43/2024 is a significant step in modernizing the business landscape in Bahrain with a clear focus on transparency, digital transformation and compliance with international financial standards. By requiring businesses to conduct all financial transactions through licensed banks and adopt electronic payment methods, the regulation aims to create a more efficient and secure business environment to ensure all commercial transactions are conducted through formal and traceable channels. Businesses operating in Bahrain will need to comply with these new requirements, alongside the existing regulations. By doing so, this regulation is expected to foster a greater trust and stability in the financial sector and improve the overall business climate in Bahrain and attract more foreign investments.
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