MANAMA, 5 March 2007 — The Central Bank of Bahrain (CBB) disclosed yesterday that it has issued a new set of regulations to govern trust business in the Gulf island.
The new regulations lay down capital and other licensing requirements for trustees and the documentation required for registering a financial trust.
The regulations follow the enactment of Bahrain’s first Trust Law, which was enacted in August 2006.
“The Trust Law provides a firm legal foundation for the creation and administration of financial trusts in Bahrain,” said the director of financial institutions supervision at the CBB Mohammed Ayman Al-Tajer.
“The CBB has, since, been issuing regulations to provide further guidance on the implementation of the law.”
A resolution related to the documents and information required to register financial trusts provides the official application form for registering a trust with the CBB.
A separate resolution related to the licensing procedures and conditions for undertaking financial trustee activities allows for the establishment of locally-incorporated or branches of foreign companies to offer trustee services.
The minimum capital required for financial trust companies is BD75,000 ($199,500).
Licensed trustees must be managed by a board of directors and executive management team, who meet the CBB’s requirements related to “fit and proper” criteria. Firms are also required to maintain full books and records in Bahrain and to apply effective policies, procedures and controls, including a risk management framework.
Firms providing Islamic trust services are required to employ the services of a Shariah Supervisory Committee and ensure their accounts are audited in accordance with standards issued by the Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI).
“As the trustee, whether an individual or organization, holds the legal title to the trust assets, the CBB criteria is aimed at ensuring that these duties are carried out properly, so that the interests of the beneficiary or beneficiaries are protected,” Al- Tajer said.
Trust assets can be any tangible and intangible assets, moveable or immoveable, including property, art, stock options provided that transfer of such assets does not violate any other existing Bahraini laws.
“Utilization of a trust vehicle is particularly beneficial to high net worth individuals and institutions, both financial and non-financial,” Al-Tajer noted.
He added that while trusts are a widely used mode of wealth preservation in developed countries, this is a fairly new phenomenon in the Middle East.
He pointed out that the potential for growth, however, is tremendous as the region boasts the world’s highest concentration of high net worth individuals and family businesses, whose collective wealth is estimated at over $1.3 trillion.
“We also see a big and immediate opportunity for a variety of institutions to utilize the trust mechanism for pools of funds, such as savings schemes, to protect the interests of their employees from risks associated with the company’s normal business,” he said. “The establishment of a trust, in a well-regulated environment such as Bahrain, will considerably broaden the available options for the transfer of assets as well as for the development of more innovative products and investment solutions.”
