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  • LR-2 LR-2 Licensing Conditions

    • LR-2.1 LR-2.1 Condition 1: Legal Status

      • LR-2.1.1

        The legal status of a conventional bank licensee must be:

        (i) a Bahraini joint stock company (BSC); or
        (ii) a branch resident in Bahrain of a conventional bank incorporated under the laws of its territory of incorporation and authorized as a bank in that territory.

      • LR-2.1.2

        Where the conventional bank licensee is a branch of an overseas bank, in deciding whether to grant a license, the BMA will pay close regard to its activities elsewhere and how these activities are regulated. If the conventional bank licensee is not regulated elsewhere or in a jurisdiction not substantially compliant with Basel Core Principles or FATF standards, then an application for licensing can only be considered after exhaustive enquiries into the bank's shareholders, management structure and financial position.

    • LR-2.2 LR-2.2 Condition 2: Mind and Management

      • LR-2.2.1

        Conventional bank licensees with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom. Overseas conventional bank licensees must maintain a local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.

      • LR-2.2.2

        In assessing the location of a conventional bank licensee's Head Office, the BMA will take into account the residency of its Directors and senior management. The BMA requires the majority of key decision makers in executive management — including the Chief Executive Officer — to be resident in Bahrain. In the case of overseas conventional bank licensees, the BMA requires the branch or subsidiary of a foreign owned company to have a substantive presence, demonstrated by a level of staff and other resources sufficient to ensure adequate local scrutiny and control over business booked in the Bahrain branch or subsidiary.

    • LR-2.3 LR-2.3 Condition 3: Controllers

      • LR-2.3.1

        Conventional bank licensees must satisfy the BMA that their controllers are suitable and pose no undue risks to the licensee. Conventional bank licensees must also satisfy the BMA that their group structures do not prevent the effective supervision of the conventional bank licensee by the BMA and otherwise pose no undue risks to the licensee.

      • LR-2.3.2

        Chapter GR-5 contains the BMA's requirements and definitions regarding controllers.

      • LR-2.3.3

        In summary, controllers are persons who directly or indirectly are significant shareholders in a conventional bank licensee, or who are otherwise able to exert significant influence on the conventional bank licensee. The BMA seeks to ensure that controllers pose no significant risks to the licensee. In general terms, controllers are assessed in terms of their financial standing, their judicial and regulatory record, and standards of business and (where relevant) personal probity.

      • LR-2.3.4

        As regards group structures, the BMA seeks to ensure that these do not prevent adequate consolidated supervision being applied to financial entities within the group, and that other group entities do not pose any material financial, reputational or other risks to the licensee.

      • LR-2.3.5

        In all cases, when judging applications from existing groups, the BMA will have regard to the reputation and financial standing of the group as a whole. Where relevant, the BMA will also take into account the extent and quality of supervision applied to overseas members of the group and take into account any information provided by other supervisors in relation to any member of the group.

    • LR-2.4 LR-2.4 Condition 4: Board and Employees

      • LR-2.4.1

        Those nominated to carry out controlled functions must satisfy the BMA's approved persons requirements.

      • LR-2.4.2

        The definition of controlled functions is contained in HC-2.1, whilst HC-2.2 sets out the BMA's approved persons requirements.

      • LR-2.4.3

        The conventional bank licensee's staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of the licensee in a sound and prudent manner. Conventional bank licensees must ensure their employees meet any training and competency requirements specified by the BMA.

    • LR-2.5 LR-2.5 Condition 5: Financial Resources

      • Capital Adequacy

        • LR-2.5.1

          Conventional bank licensees must maintain a level of financial resources, as agreed with the BMA, adequate for the level of business proposed. The level of financial resources held must at all times meet the minimum risk-based requirements contained in Module CA (Capital Adequacy), as specified for the category of banking license held.

        • LR-2.5.2

          Conventional bank licensees must maintain a minimum level of paid-up capital of BD 20,000,000 (or its equivalent in foreign currency, where legally permitted and agreed with the BMA).

        • LR-2.5.3

          Persons seeking a license as a conventional bank licensee must submit a 3-year business plan, with financial projections. Their proposed level of paid-up capital must be sufficient to cover expected regulatory capital requirements over that period, based on projected activities.

        • LR-2.5.4

          In practice, applicants seeking a conventional bank license are likely to be required to hold significantly more capital than the minimum paid-up capital specified in Rule LR-2.5.2.

        • LR-2.5.5

          Overseas banking applicants are required to provide written confirmation from their head office that the head office will provide financial support to the branch sufficient to enable it to meet its obligations as and when they fall due. Overseas banking applicants must also demonstrate that the bank as a whole is adequately resourced for the amount of risks underwritten, and that it and its group meet capital adequacy standards applied by its home supervisor.

        • LR-2.5.6

          For Bahraini conventional bank licensees, deposit liabilities must not exceed 20 times their capital and reserves. For overseas conventional wholesale bank licensees, endowment capital may be required.

        • LR-2.5.7

          Factors taken into account in setting endowment capital for branches includes the financial strength of the parent company, the quality of its risk management, and the nature and scale of the Bahrain operations of the branch.

      • Liquidity

        • LR-2.5.8

          Conventional bank licensees must maintain sufficient liquid assets to meet their obligations as they fall due in the normal course of their business. Conventional bank licensees must agree a liquidity management policy with the BMA.

        • LR-2.5.9

          The BMA would normally expect the mark-to-market value of assets that could be readily realized at short-notice to exceed 25% of deposit liabilities at all times. Liquidity arrangements may vary, however, particularly for overseas conventional banks, as agreed with the BMA and documented in the liquidity management policy.

      • Reserve Requirements

        • LR-2.5.10

          Conventional bank licensees must maintain a minimum daily cash reserve balance with the BMA, equivalent to 5% of its total non-bank Bahraini Dinar deposits and Bahraini Dinar denominated Certificates of Deposit.

    • LR-2.6 LR-2.6 Condition 6: Systems and Controls

      • LR-2.6.1

        Conventional bank licensees must maintain systems and controls that are, in the opinion of the BMA, adequate for the scale and complexity of their activities. These systems and controls must meet the minimum requirements contained in Modules HC and OM.

      • LR-2.6.2

        Conventional bank licensees must maintain systems and controls that are, in the opinion of the BMA, adequate to address the risks of financial crime occurring in the licensee. These systems and controls must meet the minimum requirements contained in Module FC, as specified for the category of license held.

      • LR-2.6.3

        Applicants will be required to demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. Applicants may be asked to provide an independent assessment of the appropriateness of their systems and controls to the BMA, as part of the license approval process.

    • LR-2.7 LR-2.7 Condition 7: External Auditors

      • LR-2.7.1

        Conventional bank licensees must appoint external auditors, subject to the BMA's prior approval. The minimum requirements regarding auditors contained in Module AU (Auditors and Accounting Standards) must be met.

      • LR-2.7.2

        Applicants must submit details of their proposed external auditors to the BMA as part of their license application.

    • LR-2.8 LR-2.8 Condition 8: Other Requirements

      • Books and Records

        • LR-2.8.1

          Conventional bank licensees must maintain comprehensive books of accounts and other records, and satisfy the minimum record keeping requirements contained in Module GR. Books of accounts must comply with IAS. Audited accounts must be submitted to the BMA within 3 months of the licensee's financial year-end.

      • Provision of Information

        • LR-2.8.2

          Conventional bank licensees must act in an open and cooperative manner with the BMA. Conventional bank licensees must meet the regulatory reporting and public disclosure requirements contained in Modules BR and PD respectively.

      • General Conduct

        • LR-2.8.3

          Conventional bank licensees must conduct their activities in a professional and orderly manner, in keeping with good market practice. Conventional bank licensees must comply with the general standards of business conduct contained in Module PB, as well as the standards relating to treatment of customers contained in Modules BC and CM.

      • License fees

        • LR-2.8.4

          Conventional bank licensees must comply with any license fee requirements applied by the BMA.

        • LR-2.8.5

          The BMA's license fees are set out in Chapter GR-8.

      • Additional conditions

        • LR-2.8.6

          Conventional bank licensees must comply with any other specific requirements or restrictions imposed by the BMA on the scope of their license.

        • LR-2.8.7

          Bank licensees are subject to the provisions of the BMA Law 1973. These include the right of the BMA to impose such terms and conditions, as it may deem necessary when issuing a license. Thus, when granting a license, the BMA specifies the regulated banking services that the licensee may undertake. Licensees must respect the scope of their license. LR-3.2 sets out the process for varying the scope of an authorisation, should a licensee wish to undertake new activities.

        • LR-2.8.8

          In addition, the BMA may impose additional restrictions or requirements, beyond those already specified in Volume 1, to address specific risks. For instance, a license may be granted subject to strict limitations on intra-group transactions.

        • LR-2.8.9

          Conventional retail bank licensees are subject to the deposit protection scheme of eligible deposits held with the Bahrain offices of the licensee (see Chapter CP-2).