The Central Bank of Bahrain (CBB) has announced that it has released Volume 7 of its Rulebook, called Collective Investment Undertakings (CIU).

The new volume provides comprehensive rules and regulations pertaining to the authorisation/registration and supervision of mutual funds domiciled and/or offered for sale in Bahrain, a statement from CBB said. 

The introduction of Volume 7 followed an industry-wide consultation that took place in October 2011, and incorporates the comments and feedback received, the statement said.

Abdul Rahman Al Baker, executive director, financial institutions supervision, CBB, said: “The amount of detail that has been added to the existing CIU regulations, and the fact that the area of mutual funds is increasingly attracting regional and international interest from specialised financial institutions that are actively involved in the structuring of mutual funds products, necessitated the issuance of the revamped regulations within a separate volume.”

“The new regulatory framework is aimed at enabling fund sponsors/managers and service providers to capitalise on the opportunities that best serve investors’ needs.”

The first Collective Investments Schemes rules were issued by the CBB in 1992 and subsequently revamped in June 2007, when the CIU Module within CBB Rulebook Volume 6 was issued.

Since then, the mutual funds industry in Bahrain has experienced further growth and developments.

As at the end of December 2011, the number of mutual funds stood at 2838, of which 127 funds were Bahrain domiciled. The net asset value (NAV) of those funds totalled $8.4 billion, with $5 billion being invested by locally incorporated funds.

When markets began to slowly recover after the financial crisis, investors immediately identified the investment opportunities in the region and there was instant demand for new, innovative investment products. 

“This, coupled by the fact that the mutual funds industry in Bahrain had matured to a certain extent, made it necessary for the CBB to undergo the exercise of revamping the regulatory framework of mutual funds, to keep pace with the current international and regional developments and best market practice,” Al Baker said.

Mohammed Ayman Al Tajer, director, financial institutions supervision, CBB, said: “Recently, we have been observing a new trend in the applications for Bahraini domiciled funds, in the sense that such applications are submitted with a pre-defined investment target and a very specific objective, unlike the previous norm which entailed subscribing to a blind pool that would search for available opportunities.”    

In drafting the new regulations, CBB recognised the importance of expanding key areas such as the corporate governance framework, and the roles and responsibilities of each relevant party to a fund. 

It also expands the variety of funds that can be established in Bahrain, by introducing rules and regulations governing Bahrain Real Estate Investment Trusts (B-REITs), in line with best international practices, yet tailored to serve the needs of the local and regional markets. 

Volume 7 additionally introduces rules for a newly established category called Private Investment Undertakings (PIUs). PIUs are a new breed of mutual funds with a high degree of flexibility in structuring, aimed to facilitate private investments, like club deals, single investor, family-held investments or a single investment type.

Due to the investment risk characteristics it may exhibit, such can only be initiated /offered to high net-worth individuals and institutional investors.

“The fact that Bahrain domiciled CIU vehicles have established a reasonably tested efficiency and operational track record, has made it attractive for operators to utilise CBB’s CIU regulatory framework for the establishment of their CIU investment vehicles. This comes in addition to the fact that most of the mutual funds domiciled in Bahrain are focused on investments based in the region,” Al Baker said.

“The CBB is fully supportive of the mutual funds industry and our revamped regulatory framework addresses investor needs through profiling mutual funds by category, that is retail, expert, exempt and private, each with a separate set of rules, observing the type of targeted investors and their level of sophistication, and applying the appropriate level of supervision on such basis,” Al Tajer said. “The application of such framework is crucial for the industry to grow and progress in a healthy manner.”

All CIUs’ authorised/ registered by the CBB prior to April 2012, are required to meet the provisions of Volume 7 by December 31, and rules are effective immediately for any newly established CIU. – TradeArabia News Service