Cryptocurrency innovation and regulation is a mixed bag in the Arabian Gulf, except may be in a few places like Bahrain. While certain governments in the region have completely banned the use of this digital asset that is designed to work as a medium of exchange, a few have taken a positive stance toward it.
Some of the Middle Eastern countries that have deemed cryptocurrencies illegal include Oman, Saudi Arabia, Qatar, Jordan, Kuwait, and Lebanon. They have cited risks of using virtual currencies for money laundering and supporting terrorism as well as the volatility of bitcoin, the world’s biggest cryptocurrency and its involvement in financial crimes and cyberattacks as some of the reasons behind their decision.
However, some countries like Qatar and Saudi Arabia have shown their willingness to explore blockchain, the technology that enables the existence of cryptocurrency. For instance, in Saudi Arabia, a few government agencies have tied up with American companies to foster the development of blockchain in the country. Riyadh Municipality’s technology partner, Elm Company has partnered with IBM to allow placing government services and transactions on the blockchain.
Meanwhile, some Middle Eastern countries have been supportive of both blockchain and cryptocurrency. These include Bahrain, Iran, Israel, Turkey and the UAE. While some of these countries have already planned or plan to, setup a legal framework for cryptocurrencies, most of them are said to have also shown their willingness to explore blockchain, as well.
Bahrain however stands out among these countries for being the most proactive and for taking several initiatives towards such a financial digital transformation. Specifically with regards to the cryptocurrency, its most recent initiative includes, issuing the final rules on a range of activities related to such digital assets. A CBB statement in this regard said, “Crypto-assets operating under block chain distributed ledger systems have drawn much regulator attention globally, and the CBB rules are aimed at ensuring that the related activities are brought within the regulatory perimeter and are subject to comprehensive regulatory and supervisory measures.”
Such support at the government level has led to the burgeoning of several blockchain and a few cryptocurrency startups in the region across different verticals. According to a July 2019 statement, it said, “We are happy to announce that Rain has acquired the Crypto-Asset Module (CRA) licence from the Central Bank of Bahrain (CBB). Rain is the first crypto-asset brokerage to earn a regulatory licence in the Middle East and joins an elite group of brokerages internationally. In addition to the licensure, we are also pleased to announce that we have closed a seed round of $2.5 million.”
In an exclusive interview with International Finance, Yehia Badawy, co-founder of Rain tells more about the challenges faced by Rain and the innovations that the company plans to introduce.
International Finance: What are the challenges faced by Rain since its founding it in 2016?
Yehia Badawy: The Rain team was united by the belief that bitcoin and other cryptocurrencies will lead to a financial system that is fast, inexpensive, and accessible to everyone. We hail from the cryptocurrency industry having spent time at Abra, BitGulf, Bitquick, Digital Cotton, Glidera, and Kraken. In order for bitcoin and cryptocurrencies to reach mainstream adoption, the industry needs brokerages all around the world to provide access to the network. Through our research, we found many companies serving this function around the world. However, it became clear the Middle East was underserved.
Over the last three years we have spoken with regulators, banks, and built meetup communities in the Middle East to help legitimise this new technology. It took a considerable amount of effort and perseverance to meet with the different regulatory bodies in the region, and align on a shared vision. After conversations with many regional regulators, it was clear to us that the Kingdom of Bahrain is the best home for an early crypto-asset brokerage in the region. We began working closely with the CBB, as well as other forward thinking institutions, such as the Economic Development Board (EDB) and Bahrain Fintech Bay (BFB). In September of 2017, we were invited to join the CBB’s regulatory sandbox, starting our journey towards being the first licenced cryptocurrency exchange in the Middle East.
International Finance: What does being the first company in the whole of Middle East to receive a CRA licence mean for the company?
Yehia Badawy: By receiving the crypto-asset licence, Rain has demonstrated that we comply with the Central Bank of Bahrain requirements around capital adequacy, cyber security, insurance, reporting, corporate governance, and a number of other factors that ensure that our company is prepared to serve institutional and retail customers.
International Finance: What significance does receiving this licence have on Bahrain and the Middle East as a whole?
Yehia Badawy: We believe Bahrain is a major fintech hub in the region, and this new development will further cement its position. Cryptocurrency companies and enthusiasts now have a clearer path to success.
International Finance: Which are the other regions where Rain has applied for a licence? When do you expect to receive them?
Yehia Badawy: We believe in regulatory redundancy, and are constantly working with regulators in the region to increase awareness, and become as compliant as possible.
International Finance: What is the outlook for innovation in cryptocurrency in the Middle East?
Yehia Badawy: We are proud to have led the way for a cryptocurrency hub in the GCC. We are confident that more companies will emerge in Bahrain and the region.
International Finance: How does Rain plan to use artificial intelligence?
Yehia Badawy: We are constantly looking to make our service more secure and user-friendly, so we are open to implementing new technologies that will assist us in achieving those objectives. One application of AI is in our compliance system that monitors transactions and ensure they are adhering to our policies.
International Finance: How will Rain utilise the $2.5 million it raised recently?
Yehia Badawy: With a licence secured and our initial seed capital raised, we believe that this is the foundation of a company that will last for decades. Rain will maintain focus on our mission to create a top international exchange and provide a way to buy, sell, and store cryptocurrency in a regulated, secure, and compliant way. We also plan on expanding the team to meet growing customer support and engineering needs, as well as invest in new technology.
International Finance: What are the ways in which cryptocurrencies can be misused? How will Rain curtail these possibilities?
Yehia Badawy: We embarked on a journey to become a licenced and regulated company to work with regulators and make sure that best practices are being applied to all facets of our business. We apply best in class technologies to ensure that we are enabling legitimate use of cryptocurrencies only.
International Finance: What are Rain’s future plans over the next three years?
Yehia Badawy: We are already serving clients in Bahrain, UAE, Saudi Arabia, Kuwait, and Oman where our client base continues to grow on a daily basis. Rain clients can buy, sell and store bitcoin, ethereum, litecoin, and ripple via our website www.rain.bh or our iOS or Android application. As a brokerage, our clients buy from Rain and sell to Rain. We plan to launch an exchange soon, where clients can buy and sell from each other. Through the brokerage, we will be offering lower transaction fees, similar to the global standard. We expect the exchange to be available by the end of 2019. We think this is the right timing as the region matures, with increased liquidity and demand.
International Finance: How does Rain serve institutional clients?
Yehia Badawy: Through Rain Desk, institutional clients, family offices, and HNWIs receive a bespoke service tailored to their specific needs, in addition to the facilitation of over-the-counter transactions. Rain Desk offers clients a dedicated account manager, deep liquidity, and secure custody options.
International Finance: Is Rain’s only source of revenue, the transaction fee it charges on cryptocurrency purchases?
Yehia Badawy: Yes, that is correct.
International Finance: How many individual and institutional clients does Rain have? Where do you see this number in three years?
Yehia Badawy: We have seen increased demand from retail and institutional clients, especially in the past year. We see this number growing consistently as the regulatory environment matures, and more companies are established in this space.