Comparative Legal Analysis of Virtual Asset Licensing and Registration: Bahrain and UAE

The regulation of virtual asset service providers (VASPs) and crypto-asset service providers (CASPs) has become a defining factor in the evolution of financial technology and blockchain adoption. Both Bahrain and the UAE have implemented legal frameworks governing virtual assets, but their approaches vary significantly.

Bahrain has opted for a centralized regulatory model, placing all virtual asset activities under the Central Bank of Bahrain (CBB). The UAE, on the other hand, has adopted a multi-regulator system, where virtual assets fall under different authorities based on activity type and jurisdiction.

A comparison of these frameworks reveals key insights into how businesses, investors, and regulatory bodies can navigate these regimes. This article provides a comprehensive, legally grounded comparison, offering an analysis of licensing requirements, compliance obligations, AML enforcement, consumer protection, and market restrictions in both jurisdictions.

1. Regulatory Authorities and Jurisdictional Scope

The most fundamental difference between Bahrain and the UAE in virtual asset regulation is the structure of oversight.

Bahrain: Centralized Regulation Under the Central Bank of Bahrain (CBB)

Bahrain follows a single regulatory model, where all crypto-related businesses must be licensed under the CBB’s Crypto-Asset Module (CRA-1 to CRA-15).

Key Features of Bahrain’s Crypto Regulation

1. Unified framework under a single regulator (CBB).
2. Crypto-asset exchanges, custodians, portfolio managers, and brokers are licensed directly by the CBB.
3. Crypto payments are permitted but require regulatory approval.
4. Licensing and compliance rules align with FATF’s guidelines.

A key advantage of Bahrain’s system is regulatory certainty. Since all crypto-related activities fall under one authority, businesses benefit from clear licensing processes and a consistent compliance framework. However, this also means limited flexibility in structuring businesses to fit specific regulatory needs.

UAE: Multi-Regulator Model Based on Activity and Location

Unlike Bahrain, the UAE has several regulatory authorities, each responsible for different aspects of virtual asset regulation.

Regulatory Bodies Governing Virtual Assets in the UAE

1. VARA (Dubai Virtual Asset Regulatory Authority) – Governs VASPs in Dubai (excluding DIFC).
2. CBUAE (Central Bank of the UAE) – Regulates stablecoins and payment token issuers.
3. SCA (Securities and Commodities Authority) – Governs crypto trading, brokerage, and investment services across the UAE.
4. ADGM FSRA (Abu Dhabi Global Market Financial Services Regulatory Authority) – Covers crypto financial services in ADGM.
5. DIFC DFSA (Dubai International Financial Centre Dubai Financial Services Authority) – Regulates security tokens and digital financial instruments.

Key Features of UAE’s Virtual Asset Regulation

1. Separate licensing requirements for different activities (e.g., crypto trading, custody, payment tokens).
2. Businesses can select the most appropriate financial free zone for their operations.
3. Stablecoin issuers must comply with strict reserve requirements set by CBUAE.
4. Non-AED stablecoins are restricted for payment use.

The main advantage of the UAE’s multi-regulator approach is flexibility. Businesses can choose the most suitable jurisdiction based on their business model. However, this can also complicate compliance, as companies must ensure they are operating within the correct regulatory framework.

Opinion Based on Legal Provisions

Bahrain’s centralized licensing provides clarity and regulatory predictability, while the UAE’s segmented approach allows for greater specialization and tailored regulatory oversight. For a business focused on stablecoins, the UAE’s rules are more advanced, whereas Bahrain provides a more straightforward approach for companies dealing in broader virtual asset services.

2. Licensing and Registration Requirements

Bahrain: Unified Licensing Under the CBB Crypto-Asset Module

Bahrain’s licensing model is structured around four key business categories, all of which require approval from the CBB.

Types of Licenses Issued by CBB

1. Crypto-Asset Exchange License – Required for trading platforms facilitating virtual asset transactions (CRA-1.1.6).
2. Crypto-Asset Custodian License – Required for entities offering storage and wallet services (CRA-8.1).
3. Crypto-Asset Portfolio Management License – Required for investment firms managing virtual asset portfolios.
4. Crypto-Asset Brokerage and Advisory License – Required for firms offering crypto advisory services.

Key Licensing Requirements

1. Minimum Capital Requirements: Determined based on business model and risk exposure (CRA-3).
2. Local Incorporation: Licensees must be registered in Bahrain (CRA-2.2).
3. Regulatory Supervision: VASPs must submit quarterly compliance reports (CRA-4).
4. AML and KYC Obligations: Firms must adhere to CBB’s AML rules (CRA-4.4, CRA-4.5).

Bahrain’s system ensures regulatory clarity but may be less flexible for businesses seeking jurisdictional arbitrage options.

UAE: Multi-Licensing Approach Based on Regulator and Business Activity

Unlike Bahrain, the UAE has different licensing requirements based on the regulatory body overseeing the activity.

Licensing Categories in the UAE

1. VARA Virtual Asset License – Required for VASPs operating in Dubai.
2. CBUAE Payment Token Issuer License – Required for AED-backed stablecoin issuers.
3. SCA Exchange and Brokerage License – Required for crypto exchanges and trading platforms.
4. ADGM and DIFC Virtual Asset Licenses – Required for financial institutions offering digital asset investment services.

Key Licensing Requirements in the UAE

1. Capital Requirements: Varies by regulatory authority and business type.
2. Stablecoin Reserve Requirements: CBUAE mandates fully backed reserves (CBUAE Payment Token Regulation, Article 22).
3. AML and KYC Compliance: Firms must comply with UAE’s AML Law No. 20 of 2018.

Opinion Based on Legal Provisions

The UAE’s multi-layered licensing approach allows businesses to optimize their regulatory environment, but it requires careful jurisdictional selection. Bahrain’s simplified licensing structure is easier to navigate but may not offer the same level of specialization as UAE free zones.

3. AML, Consumer Protection, and Compliance Obligations

Bahrain and UAE both have strong AML measures, but UAE’s framework imposes stricter stablecoin reserve requirements.

AML Compliance in Bahrain

1. VASPs must conduct detailed KYC verifications (CRA-4.4).
2. Quarterly reporting and ongoing transaction monitoring are mandatory.

AML Compliance in UAE

1. All VASPs must comply with UAE’s AML Law (Federal Decree No. 20 of 2018).
2. Stablecoin issuers must provide reserve transparency and financial reporting.

Opinion Based on Legal Provisions

Bahrain’s AML rules focus on transaction monitoring, while UAE enforces additional requirements for stablecoin issuers. Businesses dealing in payment tokens may find Bahrain’s framework more lenient, whereas UAE regulations impose stricter financial oversight.

  Conclusion

Both Bahrain and the UAE offer comprehensive regulatory frameworks, but their strengths cater to different business models.

1. Bahrain’s system offers clarity and predictability through a single regulatory body.
2. The UAE’s segmented system provides flexibility, allowing businesses to choose their regulatory environment strategically.

Businesses should assess their compliance burden, operational flexibility, and licensing costs before selecting a jurisdiction. For payment token issuers, the UAE’s rules are more advanced, while Bahrain may be preferable for companies seeking a single regulatory authority.