CBB Issues new crowdfunding platform operators regulations

Manama, April 28 (BNA): The Central Bank of Bahrain has issued new regulations applicable to crowdfunding platform operators after a comprehensive review of the existing regulations, which were first issued in 2017.

The new regulations contain rules regarding equity crowdfunding and fundraising crowdfunding and are addressed within the Crowdfunding Platform Operators Module (CFP Module). The CFP module can be found within the CBB Rulebook – Volume 5: Type 7 – Ancillary Service Providers.

The new regulations include principles governing the conduct of operations through the platform, rules for platform offerings and disclosures, avoidance of conflicts of interest, due diligence for borrowers/issuers through Know Your Customer (KYC), separation of client funds from platform operators and other measures to ensure the safe operation of the business. In addition, new regulations require crowdfunding platform operators to ensure the suitability of products offered on the platform to retail customers.

Commenting on the new regulation, the Director of the Regulatory Policy Unit – Ms. Sherine El-Sayed, said:

The Central Bank of Bahrain seeks to continuously review all regulations and directives related to the provision of financial services in the Kingdom of Bahrain in order to update and enhance them in line with developments in the financial sector. Moreover, due to the increasing demand to introduce new financing products to serve SMEs and start-ups, the Central Bank of Bahrain has made sure to revise the regulations of the crowdfunding platform operator to align with the economic recovery plan for the financial sector in terms of providing an enabling environment for crowdfunding platform operators. Evolving business models such as crowdfunding are likely to provide new alternative sources of funding for new companies and start-ups and act as a catalyst for the growth of such businesses. The new regulations are principle-based, simple and easy to understand and contain minimal safeguards to ensure that crowdfunding platforms do not pose excessive risks to the financial sector.”

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Commenting on the new directives, Ms. Yasmine Al Sharaf, Director of the FinTech and Innovation Unit, said: “Crowdfunding provides a viable alternative to tap into a new source of funding for start-ups and new businesses. FinTech solutions have the potential to enhance capital flows into the economy in line with their growth and expansion plans. The CBB will continue to explore and develop new financial tools for emerging business models to keep pace with the needs of the local market, in addition to supporting and encouraging efforts to create new services commensurate with the evolving trends in the field of financial technology.”

Many international jurisdictions view crowdfunding as an innovative way to facilitate financing for small and medium-sized enterprises and seed capital for start-ups, with the aim of promoting economic growth. In addition, other benefits of crowdfunding may include:

The suitability of the Internet platform.

Low cost of capital / high returns.

The cost-effectiveness of a relatively simple infrastructure;

Portfolio diversification. And

Increased competition in a place traditionally dominated by a small number of service providers.

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