Bahrain Central Bank Releases Stablecoin Regulations

The Central Bank of Bahrain (CBB) has officially rolled out its comprehensive stablecoin regulatory framework, marking a pivotal development in the Gulf region’s evolving digital asset landscape. Originally introduced as a consultation paper in October 2024, the final regulations were published on July 2, 2025, establishing a clear, structured path for licensed issuance of fiat-backed stablecoins within the Kingdom of Bahrain.

This regulatory milestone positions Bahrain as a forward-thinking financial hub in the Middle East, offering a robust compliance framework that balances innovation with financial stability and investor protection. The new rules are now integrated into Volume 6 of the CBB Rulebook, specifically under the SIO Module and its appendices, and are effective immediately.

Licensing Framework for Stablecoin Issuers and Custodians

Under the newly enacted framework, the CBB grants licenses to both stablecoin issuers and custodians, enabling them to legally issue and manage stablecoins backed by fiat currencies. Permitted reserve currencies include:

• The Bahraini Dinar (BHD)
• The US Dollar (USD)
• Any other legal tender approved by the CBB

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This licensing requirement applies to all entities—whether new market entrants or existing licensed financial institutions. Even current CBB-licensed firms must obtain prior written approval before launching stablecoin services. They are required to submit detailed documentation covering:

• A full description of the proposed stablecoin service
• Required operational and technological resources
• Governance and risk management frameworks

The CBB emphasizes that all service providers must secure formal authorization before any public offering or operational deployment of stablecoins.

Introduction of Yield-Bearing Stablecoins

One of the most innovative aspects of the new regulations is the explicit allowance of yield-bearing stablecoins—a feature not commonly found in regional frameworks.

Stablecoin issuers may now offer passive returns to users through:

• Interest generated from reserve asset investments
• Sharia-compliant rewards (for Islamic finance-aligned stablecoins)

However, the CBB imposes strict safeguards. Issuers must ensure that:

• Yield rates remain reasonable and sustainable
• Returns do not jeopardize the price stability of the stablecoin
• The financial health and going concern status of the issuer remains intact

This provision opens doors for DeFi-integrated financial products while maintaining regulatory oversight to prevent systemic risk.

Stringent Requirements for Issuers and Reserve Management

To qualify for a license, applicants must meet rigorous criteria designed to ensure transparency, solvency, and operational resilience.

Key Eligibility Conditions:

• Minimum of three years of experience in stablecoin issuance or crypto asset operations
• Robust systems for managing supply (minting/burning mechanisms)
• Clear governance structure with defined roles for compliance and risk oversight

Reserve Asset Standards:

The CBB mandates that reserves must be held in high-quality, liquid assets, including:

• Cash
• Bank deposits with institutions rated AA- or equivalent
• Central bank-held debt securities
• Repurchase agreements backed by short-term government money market funds

These requirements ensure that every issued stablecoin is fully backed by reliable, low-risk assets—minimizing counterparty and liquidity risks.

Additionally, the CBB reserves the right to reject any application if it determines that the proposed stablecoin could:

• Undermine national economic interests
• Harm stablecoin holders or retail investors
• Create unacceptable levels of concentration or credit risk

This discretionary authority strengthens the central bank’s ability to maintain macroprudential stability.

Fees and Ongoing Compliance Obligations

The CBB has implemented a variable annual licensing fee model tied to operational costs:

• Minimum fee: 5,000 BHD (~$13,250 USD)
• Maximum fee: 12,000 BHD (~$31,800 USD)
• Rate: 0.25% of relevant operational expenses

This scalable structure ensures proportionality for both startups and established institutions.

Beyond capital and reserves, issuers must adhere to comprehensive governance and compliance obligations, particularly in anti-financial crime controls.

Anti-Money Laundering (AML) & Counter-Terrorist Financing (CTF):

Stablecoin issuers must comply with Volume 6’s AML/CFT module of the CBB Rulebook, requiring them to implement:

• Customer due diligence (CDD) and Know Your Customer (KYC) procedures
• Transaction monitoring systems
• Suspicious activity reporting mechanisms
• Independent audit functions

These measures align Bahrain’s digital asset regime with international FATF standards, reinforcing trust in its financial ecosystem.

How Bahrain’s Rules Compare to UAE’s Stablecoin Framework

While both Bahrain and the United Arab Emirates are advancing digital asset regulation, Bahrain’s approach is notably more comprehensive and flexible than that of the UAE Central Bank.

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This contrast highlights Bahrain’s ambition to become a regional leader in Islamic fintech and cross-border digital payments, while the UAE focuses primarily on domestic transaction efficiency.

Frequently Asked Questions (FAQ)

1. Can foreign companies apply for a stablecoin license in Bahrain?

Yes, foreign entities can apply, provided they meet all licensing criteria, establish a local presence if required, and comply with AML/CFT and governance standards set by the CBB.

2. Are algorithmic or crypto-collateralized stablecoins permitted under this framework?

No. The current regulations only allow fiat-backed stablecoins with fully reserved, high-quality liquid assets. Algorithmic or crypto-collateralized models are not included at this stage.

3. How does the CBB ensure reserve transparency?

Issuers must undergo regular audits by independent firms and submit periodic reports to the CBB confirming full backing. Reserves must be segregated and protected from creditor claims.

4. Is there a cap on the supply of stablecoins an issuer can circulate?

There is no fixed supply cap, but issuers can only mint tokens proportional to their verified reserve holdings. Overissuance constitutes a regulatory violation.

5. Can stablecoins be used for cross-border remittances?

Yes, licensed stablecoins can facilitate international transfers, especially given the allowance of USD-backed instruments—making Bahrain an attractive node in global payment networks.

6. What happens if a stablecoin issuer becomes insolvent?

Reserve assets must be legally segregated, ensuring holders have priority claim. The CBB may step in to oversee an orderly wind-down or transfer of operations to protect users.

Final Thoughts: Bahrain Emerges as a Regulatory Pioneer

With this landmark regulation, the Central Bank of Bahrain has positioned itself as one of the most progressive regulators in the Middle East for digital assets. By permitting multi-currency, yield-generating, and Sharia-compliant stablecoins, while enforcing strict reserve and compliance standards, Bahrain offers a balanced model that fosters innovation without compromising stability.

As global demand for trusted digital currencies grows, jurisdictions like Bahrain are setting benchmarks for responsible regulation—one that other Gulf nations may soon follow.

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