Legal Update: Licensing Conditions and Procedures for Trusteeship Activities
Our Associate Nawra Abdulla examines Bahrain’s new regulatory framework for trustee licenses under Decision No. 43/2024, highlighting key provisions, governance standards, and compliance requirements.
Nawra Abdulla ([email protected]) – Associate
The kingdom of Bahrain has recently introduced new conditions in relation to trustee’s license, marking a significant update to the regulatory framework governing the trust services in the kingdom. Decision No. 43/2024 provides a clear guideline for the new requirements to obtain and maintain a license to operate as a trustee in Bahrain. This decision outlines various categories of licensed trustees, legal structures, governance requirements, operational standards and capital requirements. This regulation aims to ensure compliance with anti-money laundering and anti-terrorism financing measures.
Key provisions of Decision No.43/2024
1- Categories of Trustees: Trustees will be classified into three categories, each category has specific regulatory requirements, including the scope of services they are allowed to provide
- Category A: Full service trustees licensed to offer all trust services, as defined by the CBB’s regulatory framework for financial institutions.
- Category B: Joint trustees allowed to operate only in collaboration with a fully licensed trustee, offering all trust services in partnership with another licensed entity by the CBB.
- Category C: trustees who can operate under a contractual agreement with an authorized trustee for administrative and operational support. In this arrangement, the Category C trustee is managed and controlled by the parenting entity for supervision.
2- Legal Form
- Custodian trustees from Category A must operate as either a Bahraini-registered company or a branch of a foreign company.
- Custodian trustees from Categories B and C must be incorporated as Bahraini companies.
This ensures that entities operating in the trust sector are subject to Bahraini laws and regulatory oversight.
3- Application for Licensing
- Category A applicants must submit their licensing request to the CBB in line with the regulations outlined in resolution No. 34/2011 CBB licensing guidelines.
- Category B applicants are exempt from submitting certain documents, simplifying the application process.
- Category C applicants must submit a certified approval from the partnering custodian for managing their administrative and operational tasks.
This ensures that entities involved in custodial services meet the requisite legal and operational standards before obtaining a license.
4- Additional Requirements for Licensing
When evaluating an application for a custodian trustee license, the CBB will consider several factors, These factors are crucial in determining whether an entity is fit to carry out trust activities in Bahrain. including:
-
- Reputation: The applicant’s reputation and the reputation of its parent or affiliated companies.
- Regulatory Standing: The regulatory stance in the applicant’s home country, ensuring that the entity is in good standing with its local financial authorities.
- Financial Status: The financial health of the applicant and their ability to sustain operations, with particular attention to capital adequacy and financial solvency.
- Track Record: The applicant’s history, especially regarding reliability and ethical operations.
5- Minimum Capital Requirements
- Category A custodians must have a minimum capital of 75,000 Bahraini Dinars (or its equivalent in other accepted currencies).
- Categories B and C custodians must have a minimum capital of 1,000 Bahraini Dinars.
These capital thresholds aim to ensure that custodians have the financial strength to operate securely and manage potential risks effectively.
6- Governance and Operational Requirements
- Custodian trustees from Category A must be managed by a board of directors and an executive management team, both of which must meet CBB’s requirements for suitability and functional fit.
- Custodians from Categories B and C need to have a board of directors that satisfies the same requirements.
Additionally, custodians must maintain highly qualified personnel, with at least one senior staff member having over five years of experience in the trust services sector and two others with at least three years of experience.
7- Recordkeeping and Compliance
- Category A custodians are required to maintain an appropriate physical office in Bahrain and to keep all records, including financial records, in that office.
- Category B and C custodians must retain their records in the offices of the licensed custodian with whom they have a contractual arrangement.
All custodians are required to apply robust risk management systems, compliance measures, and anti-money laundering (AML) and counter-financing of terrorism (CFT) procedures.
8- Transitional and Repeal Provisions
- The decision provides for the continued validity of custodians’ existing licenses issued under the former regulations (2018 Decision No. 33). These licenses will be considered in line with the new categories and regulatory framework.
- The previous Decision No. 33 of 2018 is repealed, and all conflicting provisions are annulled.
9- Implementation
The decision will come into effect the day after its publication in the official gazette, with the relevant departments within the CBB responsible for its implementation.
Concluding Remarks
Decision No. 43 of 2024 introduces a comprehensive regulatory framework for trustees, enhancing the professionalism, transparency, and operational integrity of trust services in Bahrain. By establishing clear categories, capital requirements, governance standards, and compliance measures, the decision aims to safeguard Bahrain’s financial system while promoting a secure environment for trustees’ operations. With these new provisions, the update seeks to strengthen the Kingdom’s reputation as a well-regulated financial hub in the region, ensuring that licensed entities meet the highest standards of operational and ethical practice.
For more information, please contact us on [email protected].