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Bahrain’s Trusts Law: leading the region in providing stability for business

FinanceRegulation

Bahrain has implemented a number of initiatives in recent years, aimed at making it easier to do business in the Kingdom. Among the most prominent of these is the new Trusts Law – putting Bahrain on par with many of the world’s leading international financial centers and opening a range of new opportunities for individuals and businesses.

The law was promulgated in 2016 and replaces Bahrain Financial Trusts Law 2006, which had previously governed trust formation and related activities.

Bahrain was one of the first countries in the MENA region to recognize and introduce a trusts law through the Central Bank of Bahrain (CBB), one of the Middle East’s most advanced financial regulators. The Trusts Law applies across Bahrain and is not restricted to free zones.

This sophisticated statute was developed to be equivalent with international best practice.  It covers all forms of trust structures and is designed to facilitate a range of transactions across a number of sectors, including estate planning, charitable activities and financial activities.

Previously, individuals in the region were faced with limited options with regards to their local assets. The establishment of a trust instrument as a long-term holding structure contributes to providing continuity and reducing risk, and provides a local solution for local assets – such as family businesses.

The law also contains a mechanism that formally recognizes trusts established and governed by laws of a foreign jurisdiction. This freedom of contract allows parties to a trust agreement to agree upon the law governing the trust and its ultimate dissolution.

This would mean that a country’s laws other than Bahraini Law can be chosen to govern the manner in which trustees may be appointed, resigned and removed.  This would further include the manner in which assets are invested, managed, and distributed.  The new mechanism removes any risk of uncertainty investors may have when looking at setting up local trusts in the region.

As well as creating opportunities itself, the Trusts Law also reflects the approach that makes Bahrain’s tried-and-trusted regulatory framework effective. Following its promulgation in 2016, the CBB has continued to consult with the industry and has already made refinements to its procedures to ensure the law remains effective and the environment is as business-friendly as possible.

The Trusts Law represents a significant step forward – and as Bahrain looks to cement its position as a leading international business hub we expect to see a number of additional reforms in the months to come.