Bahrain Central Bank Issues New Regulations Applicable to Crowdfunding Platform Operators

Bahrain's Central Bank has established new rules governing crowdfunding activities, as the country seeks to open up more financing opportunities for small businesses and expand its liquidity pool.

The issuance of the new regulations follows a comprehensive review of existing rules and contains regulations on both equity and financial crowdfunding, which were introduced in 2017.

According to CBB Media Centre, the new regulations include principles governing the conduct of operations by the platform, rules on platform offers and disclosures, avoiding conflicts of interest, due diligence of borrowers/issuers through Know Your Customer (KYC), segregation of client money from platform operators and other measures to ensure safe operation of the activity. In addition, the new regulations require the crowdfunding platform operators to ensure suitability of the products being offered on the platform to retail clients.

Crowdfunding is a way of raising small amounts of money from numerous investors through a digital platform. Small businesses or start-ups usually use this alternative funding approach to start new ventures or provide growth capital to scale up.

This method of financing is gaining popularity in the Gulf countries. For example, last year Saudi Arabia's Central Bank established new rules governing crowdfunding activities. In March, the UAE Cabinet approved the use of crowdfunding in the public and private sectors to fund new projects.