Bahrain Introduces Framework for Stablecoin Regulation

The Central Bank of Bahrain (CBB) has introduced a comprehensive framework for the regulation of stablecoins, marking a significant milestone in the country's digital asset landscape. The Stablecoin Issuance and Offering (SIO) Module, which became operational this week, aims to provide a structured and compliant environment for entities wishing to issue or offer stablecoins within the Kingdom.

The SIO Module is part of a broader initiative by the CBB to enhance electronic financial solutions while adhering to regulatory standards. It outlines governing principles, asset backing, redemption processes, and auditing requirements that stablecoin issuers must adhere to. Additionally, the module ensures compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) protocols, fostering a secure environment for both issuers and users of digital currencies pegged to fiat assets.

Under the SIO Module, any entity seeking to issue, offer, or facilitate transactions in stablecoins must undergo a rigorous licensing process with the CBB. This includes submitting detailed business plans, audited financials, and clear disclosures about the assets backing the stablecoin. The framework mandates that stablecoins must be fully backed by high-quality liquid assets such as cash or cash equivalents, with periodic disclosures to ensure transparency. Issuers must also maintain separate customer funds and provide documentation of 1:1 backing, supported by externally recognized audit reports to minimize the risks of depegging or collapse.

The launch of the SIO Module is a testament to Bahrain's commitment to regulating financial technologies without stifling innovation. By extending its supervisory capacity to cover stablecoin-related activities, the CBB is responding to the increasing adoption of stablecoins among both retail and institutional investors. This move aligns with Bahrain's broader efforts to control financial technologies while fostering a conducive environment for digital finance institutions.

Prior to the introduction of the stablecoin module, the CBB had already approved the operations of Binance subsidiary, BPay Global, as a licensed payment service provider. This approval allowed BPay Global to offer digital payment solutions under the CBB’s supervision, demonstrating the regulator's readiness to engage with large digital finance institutions. The company's approval followed compliance with customer protection, anti-money laundering, and operational risk management requirements, further solidifying Bahrain's position as a forward-thinking regulator in the digital asset space.