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Bahrain is moving to significantly tighten oversight of its financial sector, with MPs approving a decree-law introducing tougher penalties – including possible jail terms and fines of up to BD1 million – for unlicensed financial activities.
The proposed amendment to Article 161 of the Central Bank of Bahrain (CBB) and Financial Institutions Law comes as the kingdom steps up efforts to align with international standards and safeguard its reputation as a regional financial hub.
CBB Governor Khalid Humaidan stressed that strict penalties are in line with global practices, noting that unlicensed financial services in jurisdictions such as the UK, Singapore and several Gulf countries are punishable by imprisonment.
“Bahrain is committed to maintaining the highest regulatory standards,” he told MPs, underlining the need for robust enforcement tools to deter violations and protect the integrity of the financial system.
Under the amendment, violations of Articles 40 and 41 – which govern financial activities requiring a licence – would carry imprisonment and fines of up to BD1m, or either penalty, in addition to any harsher punishment under other laws.
The move specifically targets individuals and entities offering financial or virtual asset services without obtaining the required licence from the CBB.
Officials said the amendment would also close legal gaps by clearly extending criminal liability to both natural persons and legal entities, eliminating ambiguity that has previously led to differing interpretations.
Parliament’s financial and economic affairs committee described it as a necessary step ahead of Bahrain’s upcoming evaluation by the Financial Action Task Force (FATF).
Committee chairman MP Ahmed Al Salloom warned that failure to act could expose the kingdom to serious risks.
“Failure to enact the necessary legal measures could potentially lead to Bahrain being placed on the FATF ‘grey list’, which would negatively affect the kingdom’s financial reputation and investment climate,” he said.
He emphasised that the amendment comes at a critical juncture, as Bahrain works to reinforce its anti-money laundering and counter-terrorism financing framework.
Mr Al Salloom said the introduction of custodial sentences alongside financial penalties would mark a significant shift in enforcement.
“The addition of custodial penalties alongside fines ensures stronger enforcement and provides judges with the necessary discretion to impose penalties proportional to the seriousness of the violation,” he said.
“This will help curb unlicensed financial activities that could harm investors, customers and the wider economy.”
He added that Bahrain remains ready to adopt further legislative measures to protect its high international standing and strengthen investor confidence.
During its review, the committee consulted multiple bodies, including the Interior Ministry, the CBB, the Bahrain Chamber and the Bahrain Association of Banks.
The Interior Ministry backed the proposal, highlighting ongoing co-ordination with the National Centre for Financial Intelligence to enhance anti-money laundering legislation ahead of the FATF review.
The Bahrain Chamber supported the amendment while calling for clear guidance and awareness programmes to help businesses comply with regulatory requirements.
Meanwhile, the Bahrain Association of Banks said stronger enforcement would protect the kingdom’s financial system from illicit activities and reinforce confidence in Bahrain as a trusted financial centre.
CBB officials told MPs that the reforms bring Bahrain in line with international legislative practices, where imprisonment is commonly used alongside fines to deter financial crimes.
The move forms part of a broader national strategy to enhance transparency, tighten regulatory oversight and ensure the resilience of the financial sector.
With the FATF evaluation looming, legislators are expected to prioritise the measure as Bahrain seeks to reinforce its position as a compliant, competitive and well-regulated financial hub.
The legislation has been referred to the Shura Council for review.
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