Monday 03, April 2017 by Jessica Combes

Bahrain unveils new law to support growing financial sector

Bahrain has become the first country in the GCC region to introduce an Investment Limited Partnership Law and integrate it in the country’s legal system.

 

The new move allows investors to establish limited partnerships nationwide, as oppose to only in identified free zones. The law offers new financing structures that complement the existing opportunities available in the Kingdom. It is expected to provide a strong boost to the financial sector, supporting growth in real estate funds, private equity funds, venture capital and technology funds, start-ups, and Shariah-compliant funds, as well as captive insurance. 

“We see great potential in the GCC for investors looking for strong returns – and the development of the local funds industry can play an important role in facilitating that investment. These reforms will provide a strong boost to the sector, support growth in a number of areas and help to make Bahrain a highly competitive location for those looking to access the opportunities around the Gulf,” said Khalid Al Rumaihi, Chief Executive of the Bahrain Economic Development Board (EDB). 

The ILP will have its own legal personality while allowing investors to contribute to the investment fund without taking an active management role, which will be mostly filed by banks and investment firms with a Category one or two licence. The new legislation will allow new ILPs to be incorporated and permits existing partnerships to convert to an ILP. 

Activities within the newly introduced law include collective investment undertakings, private investment undertakings, securitisation and insurance captives. The flexibility to develop tailored investment terms is expected to be welcomed by investors as a more cost effective option than in other GCC economies, which currently only offer it through ‘free zones.’ 

The new law joins two others, the Trusts Law and Protected Cells Companies Law, to be highlighted in an outreach programme by the EDB and the CBB that focuses on the importance of recent changes to the regulatory environment in Bahrain. 

“The outreach programme will facilitate an ongoing dialogue with industry to discuss opportunities of further boosting Bahrain’s position as a financial hub,” said Abdulrahman Al Baker, Executive Director of Financial Institutions Supervision at the CBB. “The Kingdom has a strong and mature financial sector that is only growing in par with international markets, and we at the CBB are looking for ways to nurture this growth with the joint support of the EDB, our main partner.” 

The new law provides an extra degree of flexibility for companies structuring investment in different areas in Bahrain. With partnership laws being a longstanding staple within Common Law jurisdictions such as in London, New York and Singapore, the new law will allow financial firms to be able to operate within a familiar legal framework. The Law will also support financial firms in establishing financial investment funds, and grant them access to new funding mechanisms. 

“The addition of the new investment limited partnership law, the protected cell companies law and the new trusts law in Bahrain, opens the door to many new lines of business and investment structures not previously available and brings Bahrain's structuring options in line with the best modern international examples. The Kingdom of Bahrain is the first country in the GCC region to introduce such structures into its mainland legislative framework and we know that investors and institutions have been looking forward to the new opportunities these laws present. We are delighted to have been able to support the Central Bank of Bahrain, the Economic Development Board and the Kingdom of Bahrain in these developments,” said Brian Howard, Partner at Trowers & Hamlins.

  

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