Shariah compliant cryptocurrency exchange graduates from Bahrain fintech sandbox

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1. IFN SECTOR CORRESPONDENT Shariah compliant cryptocurrency exchange graduates from Bahrain ϐintech sandbox LAW By Dr Nicolas Bremer In June 2017, the Central Bank of Brahrain (CBB) introduced its fintech sandbox. This regulatory framework aims to create a space for established and start-up fintech businesses to test and develop products or services. With the sandbox, the CBB created a virtual space where innovators can develop technologies without being immediately burdened by the strict regulatory and financial requirements commonly imposed on the financial industry. The sandbox is open to firms licensed by the CBB as well as businesses — Bahraini and foreign — that are currently not licensed by the CBB. Both licensed and non-licensed businesses may apply for access to the sandbox to the CBB. To be deemed eligible, applicants will have to demonstrate to the CBB that their products or services are innovative and significantly different to existing solutions available in the Bahraini market and offer tangible benefits to customers. Furthermore, applicants have to show that their solutions are ready for regulatory testing and that the applicants intend and are able to deploy their solutions in Bahrain post-testing. The strategy and approach for testing and post-testing deployment have to be outlined in a testing and a post-testing plan. Once approved, applicants are granted access to the regulatory sandbox and may commence testing of their products or services. The CBB has made arrangements with other relevant Bahraini government authorities — such as the Ministry of Industry Commerce and Tourism and the Labor Market Regulatory Authority — to enable participating businesses to hire staff and sponsor visas of expatriate employees during their term in the sandbox. The sandbox provides a comparatively liberal regulatory framework under which participating businesses © can conduct their testing activities. Participating businesses will have to adhere to CBB regulations concerning know your customer, anti-money laundering and countering financing of terrorism screening. Furthermore, businesses active in the sandbox have to identify themselves as such when dealing with third parties. Where a participating business as part of its sandbox testing receives funds from volunteer customers, such funds may only be handled by CBB-licensed retail banks. Businesses will be granted access to the sandbox for a period of nine months to conduct testing and refine their products or services. Upon request, the CBB may at its sole and absolute discretion grant a one-time extension of three months. At the end of the designated sandbox period, businesses will exit the regulatory sandbox and may apply for those CBB licenses required for their activities. While the sandbox is open to both conventional and Islamic finance businesses, we have seen a growing interest for the CBB sandbox among fintech businesses developing Islamic finance solutions. Most notably the Bahrain-based Shariah compliant cryptocurrency exchange Rain, which completed the sandbox at the end of February 2019. Rain, which is the first digital currency exchange to graduate from the CBB sandbox, further announced that it has been issued a Shariah compliance certificate from the Shariyah Review Bureau. IFN Sector Correspondents CROWDFUNDING: Craig Moore CEO, Beehive DEBT CAPITAL MARKETS: Imran Mufti partner, Hogan Lovells EDUCATION: Dr Kamola Bayram, project director for training and research at the International Council of Islamic Finance Educators ISLAMIC LEASING: Shoeb Sharieff president, ijara CDC, ijara Community Development Corp LAW: Dr Nicolas Bremer partner, Alexander & Partner MERGERS & ACQUISITIONS: Burak Gencoglu partner, Gencoglu & Ergun Law Firm MICROFINANCE: Mohammed R Kroessin head of Islamic microfinance, Islamic Relief Worldwide PRIVATE EQUITY & VENTURE CAPITAL: James R Stull, partner, King & Spalding REAL ESTATE: Philip Churchill founder partner, 90 North Real Estate Partners RETAIL ASSET MANAGEMENT: Muzzammil Dhedhy, chief operating officer, Hejaz Financial Services RISK MANAGEMENT: Ali Khokha senior manager of PwC Luxembourg SHARIAH & CORPORATE GOVERNANCE: Prof Dr Mohamad Akram Laldin executive director, International Shariah Research Academy for Islamic Finance SRI ETHICAL & GREEN: Dr Mohamed Wail Aaminou, general manager, Al Maali Consulting Group TAKAFUL & RE-TAKAFUL (ASIA): Marcel Omar Papp head of Retakaful, Swiss Re Retakaful TAKAFUL & RE-TAKAFUL (EUROPE): Ezzedine Ghlamallah director, Solutions Insurance and Islamic Finance (SAAFI) TAKAFUL & RE-TAKAFUL (MIDDLE EAST): Dr Sutan Emir Hidayat assistant professor, head of Business Administration and Humanities Department, University College of Bahrain TAX: Dhana Pillai head, real estate, tax and project finance, Al Hashmi Law Firm IFN Correspondents are experts in their respective fields and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact sasikala.thiagaraja@redmoneygroup.com The Shariyah Review Bureau found that Rain’s sale, purchase and custody services comply with Islamic finance principles. The certificate covers the cryptocurrencies bitcoin, ethereum and litecoin confirming that Rain serves as a Shariah compliant exchange for these cryptocurrencies. businesses. In late February, the CBB launched a specific regulatory sandbox for blockchain and crypto businesses. Moreover, the CBB issued a cryptocurrency regulation addressing licensing, governance, risk management and reporting obligations for the crypto market. This venture into the cryptocurrency market was taken up by the CBB, which further refined its offering for crypto Dr Nicolas Bremer is a partner at Alexander & Partner. He can be contacted at nb@ alexander-partner.com. 20 10th April 2019