New collective investment scheme rules introduced by the Central Bank of Bahrain are set to give a major boost to the Gulf emirate's leading role in the regional funds industry, according to Bahrain Financial Services Development, which acts as a promotion agency for the country's financial centre.
Bahrain already has 102 locally domiciled funds and more than 2,600 registered with the regulator, making it by far the largest funds market in the Middle East, the agency says.
As part of the ongoing development of the six-volume CBB Rulebook, which has been issued progressively since 2004, the central bank has now launched a revision of its regulatory framework for investment schemes with the publication of its Collective Investment Undertakings rules.
The new rules introduce categories that will allow a wider range of assets to be included in funds, and are expected to see the emergence of a Bahrain-based industry for hedge funds and other alternative investments.
'With more than 2,600 funds, we already have a thriving funds industry and hold the leading position in the region,' says Jane Dellar, managing director of Bahrain Financial Services Development. 'These updated rules will help us build and sustain that lead by reflecting global product development trends in what has become the fastest-growing financial market.
'The new rules broaden the range of investment options permitted in Bahrain, as well as including a wider range of jurisdictions that are recognised by the CBB, such as the British Crown Dependencies and the Cayman Islands.'
Bahrain first introduced collective investment scheme rules 15 years ago. The Collective Investment Undertakings rules represents a major revision to take account of developments in global markets, and cover three categories of funds - retail, expert and exempt - with different requirements for each.
Retail funds, which are open to anyone, are subject to relatively detailed requirements to protect the retail investor, including diversification rules and restrictions on the types of financial instruments or assets that may be held in the fund.
Expert funds may only be offered to expert investors and have a minimum investment of USD10,000 or equivalent. They are subject to less restrictive requirements than retail funds, notably in terms of asset class and diversification rules. These looser investment restrictions allow them, for example, to invest in additional asset classes such as real estate, commodities and unlisted securities, and to offer funds of hedge funds.
Exempt funds are largely unregulated and need only to register with the CBB. These can only be offered to accredited investors making a minimum initial investment of USD100,000 or equivalent. They are not subject to any restrictions on investment policy and registration approval will be made within 15 calendar days of the receipt of completed applications.
'With the high liquidity in the region, we have seen an increasing appetite for more sophisticated fund products, and the time was absolutely right for the enhancement of our rules to facilitate this,' Dellar says. 'The categories ensure that Bahrain is in line with all the major international centres and well placed for market developments.'
The CBB's new rules also update the rules regarding overseas-domiciled funds. Henceforth retail and expert funds domiciled in recognised jurisdictions will be required only to register with the central bank, rather than go through a more detailed authorisation process. Recognised jurisdictions include European Economic Area member states, the US, the Cayman Islands and the Crown Dependencies.
Dellar adds: 'The extended list of recognised jurisdictions gives us a clear edge over some of our competitors by opening the market and encouraging all aspects of the industry as well as increasing the offering available in the region.' The new rules are available directly from the Central Bank of Bahrain and through the Bahrain Financial Services Development web site at www.bahrainfs.com .