Bahrain enacts new trust law

The trust law, issued by Royal Decree No. 23 of 2006, provides comprehensive guidance and lays down rules related to the creation and administration of financial trusts.

"The law is aimed at providing a firm legal foundation for trust business, which is showing potential for growth in the Middle East," said Abdul Rahman Al Baker, Executive Director, Financial Institutions Supervision, at the BMA.

While trusts are a widely used mode of wealth preservation in developed countries, this is a fairly new phenomenon in the Middle East, he said. The potential for growth, however, is tremendous as the region boasts the world's highest concentration of high net worth individuals, whose collective wealth is estimated at over $1.3 trillion.

"The establishment of a trust, in a well-regulated environment, will broaden the available options for the transfer of business, property or other assets from one generation to another. It will also enable the Bahrain-based wealth management industry to develop and extend more innovative products and solutions," said Al Baker.

Bahrain is one of the first countries in the Middle East to put in place such a legal framework and the move will reinforce the Kingdom's appeal as an international financial centre, he pointed out.

The new trust law is modern and provides for the appropriate levels of confidentiality required to conduct this business.

The new legislation provides for a trust to be established for a duration of a maximum of 100 years.

It requires a trust, to be registered with the BMA. The trust property may comprise any form of property, moveable or immoveable, tangible or intangible.

A trust may have one or more trustees, i.e. the person or persons to whom ownership of the trust property is transferred and who manages the trust assets. A licence from the BMA is required for exercising the functions of a trustee.

The trust law also details the obligations of the trustee, in order to provide adequate protection to the beneficiaries and ensures that the trust is managed in accordance with the terms and conditions set by the Settler, i.e. the person creating the trust fund.

The law also expressly provides for high levels of confidentiality for the execution and administration of the trust fund. It provides that the trustee and his representative or employees or any other person involved in the execution of the trust must uphold the secrecy of the operation.

The trust law provides for the establishment of a register of financial trusts by the BMA and obliges the BMA to maintain complete confidentiality of all information recorded in the Register.

"The trust law broadens the range of specialised services that can be offered by financial institutions. It will also enhance the development of investment products, both conventional and Islamic, that could be offered using the trust mechanism, such as real estate investment trusts and private pension schemes," said Al Baker.