Bahrain: Law changes to enhance financial security backed

Zawya

14-04-2025

Bahrain - The Shura Council yesterday unanimously approved landmark amendments to the country's four-decade-old commercial law to enhance financial transparency, improve banking operations and protect consumers.
The changes to the 1987 Commercial Law, which focus heavily on cheque regulations, have now been referred to His Majesty King Hamad for ratification.
The move follows parliamentary approval in March and has the backing of key institutions including the Central Bank of Bahrain (CBB), the ministries of Industry and Commerce and Justice, Islamic Affairs and Endowments, the Bahrain Chamber and the Bahrain Businessmen's Association.
These amendments address long-standing issues related to cheque misuse, joint account management and the legal enforcement of financial obligations.
'The move is a critical step forward in protecting both consumers and businesses from common financial pitfalls,' said Shura Council financial and economic affairs committee chairman Khalid Al Maskati.
A central provision of the updated law is the prohibition of blank cheques being used as a form of credit security – a common practice that has resulted in numerous disputes and legal cases over the years.
Another most impactful amendment is the option of partial cheque payments.
If a drawer's account does not have sufficient funds to cover the entire cheque, the bank is now allowed – and in some cases obligated – to release available funds to the beneficiary.
This partial payment mechanism is designed to reduce the number of bounced cheques and lessen the legal burden on recipients.
The CBB has been granted the authority to determine the exact mechanism for implementing partial cheque settlements.
The law states that once a cheque is certified, the corresponding amount must be frozen in the issuer's account until the cheque is presented. If there's a dispute, the amount remains frozen until the issue is resolved.
Committee rapporteur Sadiq Al Rahma said the move allows for greater flexibility and reinforces the cheque's value as a trusted financial instrument.
The amendments also introduce regulations surrounding joint bank accounts – particularly in the event of a co-holder's death or legal incapacitation.
Banks will be required to freeze the deceased's share of the funds within 10 days of notification, ensuring rightful heirs receive their due without delay or legal ambiguity.
During a debate on the amendments, several council members raised important implementation-related concerns.
First vice-chairman Jamal Fakhro questioned whether partial cheque settlements were common practice internationally or a region-specific innovation to address rising cheque defaults.
'We need clarity on when the law will take effect and how beneficiaries can recover funds efficiently,' he said, also raising concerns about the complexity of freezing joint accounts and determining responsibility.
Council member Abdulla Al Nuaimi stressed the need for a unified regulatory framework.
'The Bahrain Chamber's call to expand consumer protection authorities' role in cheque-related issues is valid, but this must be under the supervision of the CBB,' he argued.
Council member Ali Al Aradi noted that while the CBB will issue a decision on the phased implementation of partial cheque payments, more clarity is needed on how such payments would be treated legally.
'The law recognises a cheque as a payment instrument, not a debt instrument,' he said.
'There needs to be a clear mechanism to convert a partial payment into an enforceable legal document.'
The Bahrain Chamber emphasised the importance of strict penalties for cheque fraud and called for access to the national credit rating system to enable businesses to assess financial risk more accurately.
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