BAHRAIN MONETARY AGENCE BECOMES CENTRAL BANK

C O N F I D E N T I A L MANAMA 001680 SIPDIS E.O. 12958: DECL: 09/20/2016 TAGS: EFIN ECON BAECTRD OFFICIALS SUBJECT: BAHRAIN MONETARY AGENC BECOMES CENTRAL BANK Classified By: AmbassadorWilliam T. Monroe for reasons 1.4 (b) and (d) 1 (C) During a September 10 meeting with a Departmet of Treasury delegation led by Assistant Secretry for Terrorist Financing and Financial Crimes 'Brien, the Ambassador asked Governor Rasheed Maraj about recent news that his organization had changed from the Bahrain Monetary Agency (BMA) to the Central Bank of Bahrain (CBB). Maraj confirmed the transformation, saying it had been necessary because the 1973 law that governed the BMA was almost outdated. The law had been conceived when the financial sector in Bahrain was in its infancy. The law did not cover non-banking financial services like insurance, resulting in a fragmented legal and regulatory structure. The new law, called the Central Bank of Bahrain and Financial Institutions Law, entered into force on September 7. ¶2. (C) Maraj said the law enhances the independence of the CBB and gives the Central Bank more authority and a clear mandate to regulate all financial activities. He commented he hopes that the GOB views the CBB as an independent institution and that the two entities develop a "streamlined" working relationship. He noted that Saudi Arabia is now the only GCC country that does not have a formal central bank. ¶3. (U) In an interview published in the September 14 Gulf Daily News, Deputy Governor Anwar Khalifa Al Sadah said the CBB has "strong operational independence and a wider range of enforcement powers." The CBB was established with authorized capital of BD 500 million ($1.325 billion),of which BD 200 million ($530 million) is paid up. Al Sadah said the CBB law consolidates into a single piece of legislation the full scope of the Bank's responsibilities as a central bank and regulator of Bahrain's financial services industry. The law stipulates that the CBB Governor will hold ministerial rank and will be appointed for a renewable five-year term. Two sections of the law on the capital market and the offering of securities describe the process for listing and dealing in securities, and also make insider trading and market abuse statutory offenses. The law does not affect existing currency in circulation, which remains legal tender. ¶4. (C) Comment: Modern and efficient management and regulation of the financial sector, which in 2005 contributed BD 966 million ($2.56 billion) to the economy, and which represented the single largest sector of the economy at 27.6 percent, is a key strategic objective of the government. Recognizing that updating the BMA was a critical requirement for Bahrain to maintain its regional comparative advantage in finance, the government moved quickly to promulgate the new law. With new financial centers growing in the region, most prominently in Dubai and Qatar, Bahrain hopes that the establishment of the Central Bank of Bahrain allows it to stay one step ahead of its rivals in regulating and providing oversight of the financial sector. ********************************************* ******** Visit Embassy Manama's Classified Website: http://www.state.sgov.gov/p/nea/manama/ ********************************************* ******** MONROE