The Kingdom of Bahrain is witnessing burgeoning trends in the finance & technology(Fintech) sphere in a much steadfast and robust manner currently. The country has evolved into a flourishing hotspot for Fintech activities across the region, thanks to the proactive zest in its governing bodies who aim to upsurge Bahrain as the hub of financial and technological outbursts. The arrival of the Amazon Web Services(AWS the first of its kind in the region) in 2017 in Bahrain sealed the country’s intent to support fintechs and attract others from overseas to promote greater connectivity and international collaboration, and ever since, the country is pacing towards constant development fostering future oriented fintech innovations.

Striding a major role in empowering this forum is the Central Bank of Bahrain(CBB) that acts as a sole regulator ensuring utmost financial stability and controlling the monetary policies of the Kingdom of Bahrain. However, due to digital transformation and the way technology is changing the paradigm of the financial services sector, the CBB has realized that as a regulator, it is essential to involve and deduct innovation as part of its agenda and ensure to remain as a thriving financial hub. In light of this, Yasmeen Al sharaf, Head of Fintech Unit, Central Bank of Bahrain, states “It is extremely important for us (the CBB) to move inline with the digital movement and innovation to retain our position, and the way for us to do that is via regulatory forms, fostering Fintech and innovation, simultaneously ensuring that the financial stability is not hindered.

Showcasing rigorous commitment to adopt innovation, Bahrain established a dedicated fintech and innovation unit aiming to disrupt the market and mandate financial institutions to adopt innovations as well. The unit is an embodiment of thorough research and development to carve a niche atop latest trends in fintech and further recommend necessary permutations within CBBs regulatory framework fostering innovation. It was then that in 2017 country launched its first on shore regulatory sandbox in the MENA region.

The Regulatory Sandbox Approach
The sandbox is a regulatory approach that enables startups as well as existing financial institutions to test out their innovative financial solutions in a controlled time bound environment directly with volunteer customers under supervision. It possesses benefits for both startups & financial institutions to test their feasibility and viability of their solutions. Yasmeen avers, “We think that the sandbox is a great way for SMEs to scale up their business in an agile manner. It acts as a virtual space that will enable anyone to test out their Fintech or financial innovation in a controlled environment with live customers. I would say our journey has been very successful in the sandbox, and ever since we launched it up until now, we have admitted 35 companies, out of which two have graduated successfully and have movedon to receive full licensing”.

While most regulations emerge from the results witnessed in the sandbox, the CBB has mandated all regional banks to be fully compliant with the open bank regulations

When it comes to ‘who can be a part of it?’ Bahrain’s model some what mirrors renowned jurisdictions like the UKs that includes specific modifications to meet local market requirements. The much liberal styled sandbox doesn’t hold prerequisites when it comes to the requirement of having a pre technical testing of solution. Thus, making it possible for any one with just merely an idea to be admitted into the sandbox and utilize its platform for conceptualizing their ideas and build a prototype and test it on customers. Moreover it takes about 15 days for the central bank to respond to any applicant applying to the regulatory sandbox that is open on international scales. So, the composition of the sandbox at present includes companies from all around the world.

“Theirs should be a product or solution to support the financial sector in general that is solving a specific pain point or innovation that will support the financial sector anywhere in the world. So, companies can use Bahrain as their test bed through the sandbox and then scale up. Our role is to supervise them, to ensure we place thresholds on these applicants in terms of the number of volunteer customers that they test their solutions during the sandbox period. We also control the size of transactions just to ensure they are not hindering the security of the financial system,” added Yasmeen.

Being one of the first initiatives taken by the CBB, the bank has issued regulations to support further innovation, and specific regulations for digital financial advisory involving the use of algorithms to provide financial advice to end customers based on customer’s behaviours and market trends. Never theless, while most regulations emerge from the results witnessed in the sandbox, the CBB has mandated all regional banks to be fully compliant with the open bank regulations. Looking forward to an era of digitization that is going to bardown borders, Yasmeen attests that collaboration and sharing of learned information will aid in harmonizing regulations, thereby ensuring international financial security is not compromised. The Indian jurisdiction stands among Bah¬rain’s most researched countries and the CBB lies in the process of establishing talks with numerous Indian companies to boost collaborations.