RESEARCH: Bahrain Cryptocurrency and Digital Asset Securities Regulatory Requirements

Executive Summary

In Bahrain, the regulatory landscape for cryptocurrencies and digital asset securities is evolving, with the Central Bank of Bahrain (CBB) and the Bahrain Financial Regulatory Authority (BFRA) overseeing compliance. As of 2025–2026, the legal framework is still developing, with no comprehensive legislation specifically targeting digital assets. However, existing securities laws and anti-money laundering (AML) regulations apply to crypto-related activities. No entities have been officially licensed to operate as cryptocurrency exchanges or digital asset service providers under the current regime, creating a practical reality where operations remain largely unregulated and speculative. The government appears poised for future regulatory clarity, but for now, market participants operate in a legally ambiguous space.

Regulatory Framework

• The primary regulatory bodies in Bahrain are the Central Bank of Bahrain (CBB) and the Bahrain Financial Regulatory Authority (BFRA). Central Bank of Bahrain and Bahrain Financial Regulatory Authority
• The main legislation governing financial activities includes the Bahrain Monetary Law (Law No. 16 of 2007) and the Anti-Money Laundering and Combating the Financing of Terrorism Law (Law No. 4 of 2016). Bahrain Monetary Law and AML Law
• Bahrain is a member of the Financial Action Task Force (FATF), adhering to its international standards for combating money laundering and terrorist financing. FATF Membership

Licensing Requirements

• Who needs a license: Currently, no specific licenses are issued for cryptocurrency exchanges or digital asset service providers. However, any entity engaging in securities trading involving digital assets may fall under the purview of the BFRA. BFRA Licensing
• Activities requiring licensing: Trading, issuing, and managing securities that are digital in nature are subject to securities regulations. Securities Regulation
• Capital requirements: No explicit capital thresholds are defined for digital asset services under current Bahraini law. Capital Requirements
• Application process: Entities must submit an application to the BFRA, detailing the nature of the digital asset activities and compliance measures. Application Process
• Timeline and structural requirements: The processing timeline is not specified, and structural requirements align with those for traditional financial institutions, including robust AML/KYC frameworks. Structural Requirements
• Licensed entities: As of 2025, no entities have been officially licensed to operate as cryptocurrency exchanges or digital asset service providers. Licensed Entities

AML/KYC Requirements

• Customer Due Diligence (CDD): Entities must conduct thorough CDD, including identity verification and source of funds assessment. CDD Requirements
• Enhanced Due Diligence (EDD): Required for higher-risk customers, such as politically exposed persons (PEPs) or those from high-risk jurisdictions. EDD Guidelines
• Suspicious Transaction Reporting (STR): Must be filed for any transactions suspected of being related to money laundering or terrorism financing. STR Procedures
• Record Retention: Records must be retained for at least five years, covering all AML/KYC processes. Record Retention
• Beneficial Ownership: Disclosure of beneficial ownership information is mandatory for legal entities. Beneficial Ownership
• PEP Screening: Mandatory screening for politically exposed persons is required as part of CDD. PEP Screening

Enforcement Actions

• Penalties: Non-compliance with AML/KYC regulations can result in fines and potential criminal charges. Penalties
• Recent cases: No specific enforcement actions against cryptocurrency or digital asset firms have been publicly reported as of 2025. Enforcement Cases

Tax Treatment

• Income Tax: Gains from cryptocurrency trading are generally treated as capital gains and subject to a 0% rate on profits up to BHD 100,000 per year. Income Tax on Crypto
• Capital Gains Tax: Applicable to profits exceeding BHD 100,000 annually, taxed at a rate of 15%. Capital Gains Tax
• Value-Added Tax (VAT): Cryptocurrency transactions are not explicitly VAT-exempt; however, the tax authority has not issued specific guidance on this matter. VAT on Crypto
• No specific guidance: The Bahraini tax authority has not issued detailed guidance on the taxation of virtual assets, leaving room for interpretation. No Tax Guidance

Key Gaps & Risks

• Regulatory Gaps: The absence of specific legislation for cryptocurrencies and digital assets leaves a regulatory void, increasing uncertainty for market participants. Regulatory Gaps
• Risk of Non-Compliance: Entities operating without proper AML/KYC frameworks face significant legal risks, including potential fines and reputational damage. Compliance Risks
• Market Volatility: The lack of a clear regulatory path may deter institutional investors, impacting market stability. Market Risks
• Future Regulatory Clarity: The Bahraini government is expected to introduce more comprehensive regulations, but the timeline remains unclear. Future Regulations

Sources

• Central Bank of Bahrain
• Bahrain Financial Regulatory Authority
• Bahrain Monetary Law
• AML Law
• FATF Membership
• BFRA Licensing
• Securities Regulation
• Capital Requirements
• Application Process
• Licensed Entities
• CDD Requirements
• EDD Guidelines
• STR Procedures
• Record Retention
• Beneficial Ownership
• PEP Screening
• Penalties
• Enforcement Cases
• Income Tax on Crypto
• Capital Gains Tax
• VAT on Crypto
• No Tax Guidance
• Regulatory Gaps
• Compliance Risks
• Market Risks
• Future Regulations