Stablecoin Regulation in the GCC: Bahrain, UAE and Saudi

The rapid adoption of digital assets across the Gulf Cooperation Council (GCC) has placed stablecoins at the centre of regulatory attention. As businesses and governments explore blockchain-based payments, settlement systems, and tokenised assets, the legal framework governing stablecoins has become a critical concern for market participants. This article provides a comprehensive examination of stablecoin regulation in the GCC, focusing on Bahrain, the United Arab Emirates, and Saudi Arabia. It covers the foundational concept of stablecoins, the Central Bank of Bahrain’s stablecoin framework, the UAE’s evolving approach under the Securities and Commodities Authority (SCA) and the Central Bank of the UAE (CBUAE), the Saudi Capital Market Authority’s (CMA) cautious stance, and the key regulatory pillars of reserve requirements, redemption rights, disclosure obligations, and cross-border stablecoin arrangements.

What Are Stablecoins?

Stablecoins are a category of cryptocurrency designed to maintain a stable value by pegging the token to an underlying reserve asset, most commonly a fiat currency such as the US dollar or the UAE dirham. Unlike volatile cryptocurrencies such as Bitcoin or Ether, stablecoins aim to provide the benefits of digital assets – fast settlement, programmability, and borderless transfer – without the price fluctuations that make speculative crypto assets unsuitable for everyday payments or store-of-value functions.

Stablecoins can be classified into four primary types:

• Fiat-collateralised stablecoins – Backed one-to-one by fiat currency held in reserve accounts (e.g. USDC, USDT).
• Commodity-collateralised stablecoins – Backed by physical assets such as gold or silver.
• Crypto-collateralised stablecoins – Over-collateralised by other cryptocurrencies (e.g. DAI).
• Algorithmic stablecoins – Maintained through algorithmic supply adjustments without direct collateral (e.g. the failed TerraUSD).

Why Stablecoin Regulation Matters in the GCC

The GCC states are actively diversifying their economies beyond hydrocarbons, and digital financial infrastructure is a key pillar of national transformation strategies such as Saudi Vision 2030, UAE Centennial 2071, and Bahrain Economic Vision 2030. Stablecoins present both an opportunity and a risk. On the one hand, they promise cheaper remittances, efficient cross-border trade settlement, and financial inclusion for the unbanked. On the other hand, inadequate regulatory oversight can lead to consumer losses, monetary policy disruption, and threats to financial stability. The collapse of TerraUSD in 2022 underscored the dangers of poorly designed stablecoins, prompting regulators worldwide – and within the GCC – to accelerate rulemaking.

Central Bank of Bahrain: The GCC’s First Comprehensive Stablecoin Framework

Bahrain has positioned itself as the GCC’s most progressive jurisdiction for digital assets. The Central Bank of Bahrain (CBB) introduced its Stablecoin Regulatory Framework under Module CRA (Crypto-Asset Regulation) of the CBB Rulebook, making Bahrain one of the first jurisdictions in the Middle East to establish a dedicated stablecoin regime.

Scope and Applicability

The CBB framework applies to any person or entity issuing, trading, or providing custody services for stablecoins within or from the Kingdom. The regime distinguishes between two types of stablecoins:

• Fiat-referenced stablecoins – Tokens pegged to a single fiat currency, which must be fully backed by reserves of the same currency held with a CBB-licensed bank.
• Asset-referenced stablecoins – Tokens pegged to a basket of assets (multiple currencies, commodities, or other instruments), subject to more stringent capital and disclosure requirements.

Licensing Requirements

Any entity seeking to issue a stablecoin in Bahrain must obtain a Crypto-Asset Service Provider (CASP) licence from the CBB. The licensing process includes:

• Submission of a detailed business plan and risk assessment.
• Fit and proper assessment of senior management and beneficial owners.
• Minimum capital requirements, set at BHD 500,000 for stablecoin issuers.
• Establishment of a Bahrain-based legal entity with physical presence.

Reserve Requirements

The CBB imposes strict reserve management obligations. Issuers must hold reserves equal to 100% of the outstanding stablecoin value at all times. Reserves must be held in a segregated trust account with a CBB-licensed bank, and the issuer must appoint an independent auditor to certify the reserve position monthly. Public disclosure of reserve composition and attestation reports is mandatory.

UAE Stablecoin Regulation: A Dual-Regulator Approach

The UAE adopts a dual-regulator model for stablecoins, reflecting its federal structure. The Securities and Commodities Authority (SCA) regulates digital assets at the federal level, while financial free zones – the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) – operate their own regulatory regimes. In addition, the Central Bank of the UAE (CBUAE) oversees stablecoins used for payment and settlement purposes.

CBUAE Payment Token Regulation

The CBUAE issued its Payment Token Service Regulation in 2024, which provides a dedicated framework for fiat-referenced stablecoins used as payment instruments. Key requirements include:

• Full backing by AED or other CBUAE-approved fiat currency.
• One-to-one reserve requirement with daily reconciliation.
• Prohibition on algorithmic stablecoins.
• Issuers must obtain a Payment Token Service Provider licence.
• Mandatory redemption rights for token holders.

ADGM and DIFC Regimes

Both the ADGM’s Financial Services Regulatory Authority (FSRA) and the DIFC’s Dubai Financial Services Authority (DFSA) have published rulebooks for crypto assets that include stablecoin-specific provisions. The ADGM framework categorises stablecoins as ‘Digital Securities’ or ‘Fiat-Referenced Tokens’ depending on their structure. The DIFC has taken a more restrictive approach, limiting stablecoin issuance to DIFC-licensed entities and requiring that all stablecoins be fully collateralised by highly liquid assets.

The table below compares the key features of stablecoin regulation across GCC jurisdictions:

Saudi Arabia: The CMA and SAMA’s Cautious Approach

Saudi Arabia has adopted a more measured approach to stablecoin regulation compared to Bahrain and the UAE. The Capital Market Authority (CMA) and the Saudi Central Bank (SAMA) have not yet issued a dedicated stablecoin framework. However, several important developments signal the direction of future regulation.

The CMA has published its Securities Token Regulation, which covers tokenised securities but explicitly excludes payment tokens and stablecoins from its scope. SAMA, meanwhile, is conducting a digital currency pilot programme in collaboration with the UAE central bank under the ‘Aber’ project, which explores the use of central bank digital currencies (CBDCs) for cross-border settlement. Industry observers expect Saudi Arabia to introduce stablecoin regulation once the CBDC pilot concludes and the CMA completes its broader digital asset framework review.

In the interim, the Saudi Arabian Monetary Authority has warned consumers and businesses against dealing with unlicensed stablecoin issuers and has reiterated that only SAMA-licensed financial institutions may issue digital payment instruments. This has created a de facto prohibition on retail stablecoin issuance in the Kingdom, though institutional experimentation under regulatory sandboxes is permitted.

Reserve Requirements and Custody of Reserves

A core pillar of stablecoin regulation across the GCC is the requirement for issuers to maintain high-quality liquid reserves equal to the outstanding value of tokens in circulation. The table below summarises reserve and custody requirements across the three jurisdictions:

Reserve requirements are designed to ensure that stablecoin holders can always redeem their tokens at par value. Regulators mandate that reserves be held independently of the issuer’s operational funds to protect token holders in the event of insolvency.

Redemption Rights

All GCC stablecoin regulations confer a statutory right of redemption on token holders. Issuers must honour redemption requests within a specified timeframe, typically one to five business days depending on the jurisdiction and the size of the redemption. Key redemption provisions include:

• Redemption at par value without discount (except for reasonable transaction fees).
• Timely processing – Bahrain mandates T+1 redemption for retail holders and T+5 for institutional holders.
• Prohibition on redemption suspensions unless expressly authorised by the regulator during a market emergency.
• Clear disclosure of redemption terms in the issuer’s white paper and terms of service.

The table below compares redemption timeframes and restrictions:

Disclosure Obligations

Transparency is a hallmark of GCC stablecoin regulation. Issuers must publish comprehensive disclosures covering:

• White paper – Detailed description of the stablecoin’s mechanism, peg stability, reserve composition, and risk factors.
• Reserve reports – Audited attestation of reserve holdings, published monthly or quarterly.
• Terms and conditions – Clear articulation of redemption rights, fees, and suspension conditions.
• Risk warnings – Prominent disclosure of risks, including technology risk, regulatory risk, and potential loss of peg.
• Conflict of interest – Disclosure of any relationship between the issuer, reserve custodians, and related parties.

Failure to comply with disclosure obligations can result in licence suspension, monetary penalties, and criminal liability in cases of fraud or misrepresentation.

Cross-Border Stablecoins

Stablecoins designed for cross-border payments present unique regulatory challenges. GCC regulators have taken a coordinated approach through the Gulf Cooperation Council’s Committee for Financial Cooperation. A unified stablecoin framework is under discussion, with the following principles being considered:

• Mutual recognition of stablecoin licences across GCC states.
• Harmonised reserve and custody requirements to prevent regulatory arbitrage.
• Information-sharing mechanisms between central banks and securities regulators.
• Common anti-money laundering (AML) and counter-terrorism financing (CTF) standards for stablecoin transactions.

Until a unified framework is adopted, cross-border stablecoin issuers must comply with the requirements of each jurisdiction in which they operate. This creates compliance costs for multi-jurisdictional issuers but also provides a competitive advantage to firms that can demonstrate regulatory compliance across the region.

Practical Implications for Businesses

For businesses considering stablecoin issuance or usage in the GCC, the following action points are essential:

• Conduct a jurisdiction-by-jurisdiction regulatory mapping exercise before selecting a domicile for issuance.
• Engage with regulators early through sandbox programmes and pre-licensing consultations.
• Establish robust reserve management and reconciliation infrastructure from day one.
• Prepare comprehensive white papers and disclosure materials that satisfy the highest regulatory standard across target jurisdictions.
• Implement AML/CTF screening and transaction monitoring tailored to stablecoin payment flows.
• Monitor the GCC-wide harmonisation process and prepare for potential mutual recognition of licences.

Frequently Asked Questions

What is the difference between a stablecoin and a central bank digital currency?

A stablecoin is a privately issued digital token backed by reserve assets, whereas a CBDC is a direct liability of the central bank. CBDCs are regulated as currency, while stablecoins are regulated as crypto assets or payment instruments.

Which GCC country has the most favourable stablecoin regulation?

Bahrain currently offers the most comprehensive and established stablecoin regulatory framework, with the CBB providing clear licensing pathways and operational requirements. The UAE is rapidly catching up through its CBUAE Payment Token Regulation and the ADGM/DIFC frameworks.

Are algorithmic stablecoins permitted in the GCC?

No. All GCC jurisdictions that have issued stablecoin regulations prohibit algorithmic stablecoins due to the systemic risks demonstrated by the TerraUSD collapse.

Can I issue a stablecoin in Saudi Arabia?

Not at present. Saudi Arabia has not yet opened its stablecoin licensing regime. Issuance of unlicensed digital payment instruments is prohibited.

What are the capital requirements for a stablecoin issuer in the GCC?

Minimum capital requirements vary: BHD 500,000 in Bahrain, AED 5,000,000 under the CBUAE regime, and USD 500,000 in ADGM. These amounts may change as the regulatory landscape evolves.

Do stablecoins fall under securities regulation in the GCC?

It depends on the structure. Fiat-referenced payment stablecoins are typically regulated as payment instruments, whereas asset-referenced or investment-linked stablecoins may be classified as digital securities and fall under securities regulation.

Conclusion

Stablecoin regulation in the GCC is evolving rapidly, with Bahrain leading through its comprehensive CBB framework, the UAE developing a sophisticated dual-regulator model, and Saudi Arabia taking a deliberate wait-and-see approach. The key regulatory themes – full reserve backing, mandatory redemption rights, transparent disclosure, and prohibition of algorithmic stablecoins – are consistent across the region and aligned with international standards set by the Financial Stability Board and the International Organization of Securities Commissions. Businesses that engage proactively with regulators and invest in compliant infrastructure will be best positioned to capitalise on the growing demand for stablecoin-based financial services in the GCC.