LR-1 LR-1 Requirement to Hold a License
LR-1.1 LR-1.1 Conventional Bank Licensees
General Prohibitions
LR-1.1.1
No person may:
(a) Undertake (or hold themselves out to undertake)regulated banking services within or from the Kingdom of Bahrain unless duly licensed by the CBB;(b) Hold themselves out to be licensed by the CBB unless they have as a matter of fact been so licensed; or(c) Market anyfinancial services in the Kingdom of Bahrain unless:(i) Allowed to do by the terms of a license issued by the CBB;(ii) The activities come within the terms of an exemption granted by the CBB by way of a Directive; or(iii) Has obtained the express written permission of the CBB to offerfinancial services .Amended: January 2013
Amended: October 2010
October 2007LR-1.1.1A
In accordance with Resolution No.(16) for the year 2012 and for the purpose of Subparagraph LR-1.1.1(c), the word 'market' refers to any promotion, offering, announcement, advertising, broadcast or any other means of communication made for the purpose of inducing recipients to purchase or otherwise acquire
financial services in return for monetary payment or some other form of valuable consideration.Added: January 2013
LR-1.1.1B
Persons in breach of Subparagraph LR-1.1.1(c) are considered in breach of Resolution No.(16) for the year 2012 and are subject to penalties under Articles 129 and 161 of the CBB Law (see also Section EN-10.3).
Added: January 2013
LR-1.1.2
According to Article 41(a) of the CBB Law, only persons licensed to undertake
regulated banking services (orregulated Islamic banking services ), may use the term 'bank' in their corporate or trading names, or otherwise hold themselves out to be a bank.October 2007LR-1.1.3
Licensees are not obliged to include the word 'bank' in their corporate or trading names; however, they are required to make clear their regulatory status in their letter heads, customer communications, website and so on.
Amended: July 2012
October 2007LR-1.1.4
For the purposes of Rule LR-1.1.2, persons will be considered in breach of this requirement if they attempt to operate as, or incorporate a bank in Bahrain with a name containing the word "bank" (or the equivalents in any language), without holding the appropriate CBB license or obtaining the prior approval of the CBB.
October 2007Licensing
LR-1.1.5
Persons wishing to be licensed to undertake
regulated banking services within or from the Kingdom of Bahrain must apply in writing to the CBB.October 2007LR-1.1.6
An application for a license must be in the form prescribed by the CBB and must contain:
(a) A business plan specifying the type of business to be conducted;(b) Application forms for allcontrollers ; and(c) Application forms for allcontrolled functions .Amended: October 2010
October 2007LR-1.1.7
The CBB will review the application and duly advise the applicant in writing when it has:
(a) Granted the application without conditions;(b) Granted the application subject to conditions specified by the CBB; or(c) Refused the application, stating the grounds on which the application has been refused and the process for appealing against that decision.Amended: October 2010
October 2007LR-1.1.8
Detailed rules and guidance regarding information requirements and processes for license applications can be found in Section LR-3.1. As specified in Paragraph LR-3.1.14, the CBB will provide a formal decision on a license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB.
October 2007LR-1.1.9
In granting new licenses, the CBB will specify the specific types of
regulated banking service for which a license has been granted, and on what basis (i.e.conventional retail bank orconventional wholesale bank ).October 2007LR-1.1.10
All applicants for
conventional bank licenses must satisfy the CBB that they meet, by the date of their license, the minimum conditions for licensing, as specified in Chapter LR-2. Once licensed,conventional bank licensees must maintain these criteria on an on-going basis.October 2007LR-1.1.11
Conventional bank licensees must not carry on any commercial business in the Kingdom of Bahrain or elsewhere other than banking business and activities directly arising from or incidental to that business.October 2007LR-1.1.12
Rule LR-1.1.11 is intended to restrict bank licensees from undertaking any material non-financial business activities. The Rule does not prevent a bank undertaking commercial activities if these directly arise from their financial business: for instance, in the context of Islamic contracts, such as murabaha, ijara and musharaka, where the bank may hold the physical assets being financed or leased. Nor does it restrict a bank from undertaking commercial activities if, in the judgment of the CBB, they are incidental and do not detract from the financial nature of the bank's operations: for example, a bank may rent out spare office space in its own office building, and provide services associated with the rental (e.g. office security or cleaning).
October 2007LR-1.1.13
Rule LR-1.1.11 applies to the legal entity holding the bank license. A bank may thus own subsidiaries that undertake non-financial activities, although the CBB generally does not support the development of significant commercial activities within a banking group. Capital invested in such subsidiaries by a bank would be deducted from the bank's capital base under the CBB's capital rules (see Module CA). In addition, the CBB may impose restrictions — such as dealings between the bank and its commercial subsidiaries — if it was felt necessary to limit the bank's exposure to non-financial risks.
October 2007LR-1.2 LR-1.2 License Sub-Categories
Retail vs. Wholesale
LR-1.2.1
Depending on the nature of activities undertaken,
conventional bank licensees must be licensed either as aconventional retail bank or as aconventional wholesale bank .October 2007LR-1.2.2
The nature of activities allowed under each license sub-Category is specified below (cf. Rule LR-1.2.4 and the following Paragraphs). The
conventional retail bank Category replaces the Full Commercial Bank (conventional principles) Category that existed prior to July 2006; theconventional wholesale bank Category replaces the Offshore Banking Unit and Investment Bank License (conventional principles) categories.Amended: July 2012
October 2007LR-1.2.3
Banks licensed prior to the introduction of these new license categories in July 2006 are not required to reapply for their license. Rather, their new license Category is to be confirmed by an exchange of letters with the CBB, and the issuance of a new license certificate. Where (prior to July 2006) the same legal entity holds multiple licenses, the CBB will agree transitional measures aimed at rationalizing the number of licenses held.
October 2007Conventional Retail Banks
LR-1.2.4
Conventional retail banks are allowed to transact with both residents and non-residents of the Kingdom of Bahrain, and in both Bahrain Dinar and foreign currencies.October 2007LR-1.2.5
To qualify as a
conventional retail bank , the person concerned must undertake (as a minimum), the activities of deposit-taking and providing credit (as defined in Rules LR-1.3.16 and LR-1.3.18). The activity of providing credit must be a significant part of the bank's business, relative to other activities.October 2007LR-1.2.6
When assessing the significance of credit-related activities, in the context of Rule LR-1.2.5, the CBB would normally expect to see loans and other credit-related activity (such as overdraft facilities, loan commitments, letters of credit, guarantees and other activities falling under the definition of providing credit), to constitute at least 20% of the total assets of the institution. Other activities and criteria may also be taken into account, if the CBB believes they are of a credit-related nature, and that such activities constitute a significant share of the bank's overall business.
October 2007LR-1.2.7
In the case of new applicants, the above assessment is made based on the financial projections and business plan provided as part of the license application. Where existing licensees fail to satisfy the condition contained in Rule LR-1.2.5, the CBB will initiate discussion with the licensee as to the appropriateness of their license category: this may result in the licensee being required to change its license category. A branch of an overseas bank may nonetheless be allowed to hold a bank license in Bahrain, even if it fails to undertake the activities specified in Rule LR-1.2.5, providing that it undertakes other regulated banking services in Bahrain and its head office is licensed as a bank in its home country.
October 2007LR-1.2.8
The purpose of Rule LR-1.2.5 is to ensure that, besides deposit-taking, the core banking activity of providing credit forms part of the definition of
conventional retail banks , and accounts for a significant share of their business, in keeping with their intermediation function.October 2007Conventional Wholesale Banks
LR-1.2.9
Conventional wholesale banks are allowed to transact with residents of the Kingdom of Bahrain (irrespective of currency), and in Bahrain Dinar (irrespective of the location of the counterparty), subject to the conditions and exemptions specified in Rules LR-1.2.11, LR-1.2.13, LR-1.2.16 and LR-1.2.18. Foreign currency transactions with non-residents are not subject to these conditions.October 2007LR-1.2.10
The effect of Rule LR-1.2.9 is to limit the on-shore/Bahrain Dinar customer business of
conventional wholesale banks to larger transactions. By definition, their on-shore client base is therefore wholesale in nature (i.e. large corporates and high net-worth individuals).Amended: July 2012
October 2007LR-1.2.11
To qualify as a
conventional wholesale bank , the person concerned must undertake (as a minimum), the activities of deposit-taking and providing credit (as defined in Rules LR-1.3.16 and LR-1.3.18).October 2007LR-1.2.12
The purpose of Rule LR-1.2.11 is to ensure that the core banking activities of deposit taking and providing credit form part of the definition of
conventional wholesale banks . However, unlikeconventional retail banks , there is no requirement that the activity of providing credit must be a significant part of the bank's business, relative to other activities. This is to allowconventional wholesale banks greater flexibility as to the nature of their activities; it also recognises that, because of the wholesale nature of their client base, there is less need to limit the scale of non-credit related risks to which their depositors may be exposed. Rule LR-1.2.11 does not in any way preventconventional wholesale banks from developing the provision of credit as a major activity, should they wish to. The Guidance provided in Paragraph LR-1.2.7 with regards to overseas banks is also applicable to Rule LR-1.2.11.October 2007LR-1.2.13
Conventional wholesale banks may transact with residents of Bahrain and/or in Bahrain Dinar, with respect to the activities (a) to (e) listed in Rule LR-1.3.1, only where the individual transaction is BD 7 million or above (or its foreign currency equivalent).October 2007LR-1.2.14
To comply with Rule LR-1.2.13, the initial amount taken as a deposit must be BD 7 million or above (or its equivalent in foreign currency); however, subsequent additions and withdrawals from that deposit account may be for any amount. The initial amount taken as deposit may be split between different types of accounts (e.g. call, 3-month and 6-month accounts) — providing at least BD 7 million is taken from the customer on the same day and the bank's records can demonstrate this. Where subsequent withdrawals lead to a zero balance on an account (or the aggregate of accounts where more than one was originally opened), then a further BD 7 million must be deposited to re-start the 'wholesale' relationship, before additional deposits for smaller amounts may be made.
October 2007LR-1.2.15
Similarly, with respect to credit-related transactions, the initial facility amount advised must be for BD 7 million or above (or its equivalent); but drawdowns (and repayments) under the facility may be for any amount, as may any subsequent changes to the facility amount. If the facility is fully repaid, then a further BD 7 million transaction must be agreed in order to re-start the 'wholesale' relationship.
October 2007LR-1.2.16
Conventional wholesale banks may transact with residents of Bahrain and/or in Bahrain Dinar, with respect to the activities (f) to (l) listed in Rule LR-1.3.1, only where the individual transaction is US$ 100,000 or above (or its foreign currency equivalent).October 2007
Amended: April 2008LR-1.2.17
With respect to activities (f) and (g) (dealing in
financial instruments as principal / agent), the threshold refers to the individual transaction size. With respect to activities (h) and (i) (managing / safeguardingfinancial instruments ), the threshold refers to the initial investment amount. With respect to activity (j) (operating acollective investment scheme ), the threshold refers to the minimum investment required for participation in the scheme. With respect to activities (k) and (l) (arranging deals in / advising onfinancial instruments ), the threshold refers to the size of the deal arranged or of the investment on which advice is being given.October 2007LR-1.2.18
Note that the threshold with respect to activities (h) and (i) applies to the initial investment amount: where a subsequent distribution to a client or a reduction in the mark to market value of the investment reduces the initial investment amount below US$ 100,000 it is still considered a wholesale transaction. The threshold in Rule LR-1.2.16 applies to a client even if the same client satisfies the BD 7m threshold in Rule LR-1.2.13, with respect to deposit/credit activities. Finally, the initial amount taken as an investment may be split between two or more investment products — providing at least US$ 100,000 is taken from the customer on the same day and the bank's records can demonstrate this.
Amended: April 2008
October 2007LR-1.2.19
Conventional wholesale bank licensees may only undertake activities (m) and (n) listed in Rule LR-1.3.1, on behalf of residents of Bahrain and/or in Bahrain Dinar, where the customer concerned meets either of the thresholds specified in LR-1.2.13 or LR-1.2.16 (in which case, activities (m) and (n) may be undertaken for any amount).October 2007LR-1.2.20
Notwithstanding Rules LR-1.2.13, LR-1.2.16 and LR-1.2.19,
conventional wholesale banks are allowed to transact in Bahrain Dinar (or any other currency) for any amount with the Government of Bahrain, Bahrain public sector entities (as defined in the Guidelines for completion of the Prudential Information Reports), and CBB bank licensees.Conventional wholesale banks may also transact in Bahrain Dinar for any amount, where required to fund their normal operating expenses; or when investing for their own account in securities listed on alicensed exchange .Amended: January 2014
October 2007LR-1.2.20A
Conventional wholesale bank licensees may undertake activity (o) listed in Rule LR-1.3.1, on behalf of residents and/or non-residents of the Kingdom of Bahrain and/or in Bahrain Dinar or foreign currency, where the customer concerned meets either of the thresholds specified in LR-1.2.13 or LR-1.2.16.Added: October 2018LR-1.2.21
Any transactions entered into prior to 1 July 2006 which may be in breach of the conditions specified in Rules LR-1.2.13, LR-1.2.16 and LR-1.2.19 must be notified to the CBB. These transactions will be allowed to mature.
October 2007LR-1.2.22
Since the
conventional wholesale bank regime represents an easing of the restrictions on on-shore business that previously applied to offshore bank licensees (i.e. OBUs and IBLs), there should be few transactions of the type specified in Rule LR-1.2.21 — they are likely to exist only where individual ad-hoc exemptions may have been previously granted by the CBB, and these exemptions went further than those now being applied across the Board to allconventional wholesale bank licensees .October 2007LR-1.2.23
Conventional wholesale banks must seek prior written CBB approval if they wish to undertake transactions of the type specified in Rules LR-1.2.13, LR-1.2.16, LR-1.2.19 and LR-1.2.20A if the transactions are below the thresholds mentioned in LR-1.2.13 or LR-1.2.16.Amended: October 2018
Amended: October 2009
October 2007LR-1.2.24
The approval requirement in Rule LR-1.2.23 only has to be made once, prior to the licensee starting to undertake such transactions. Its purpose is to allow the CBB to monitor the initiation of such business by
conventional wholesale bank licensees , and to check that adequate systems and controls have been in place, so that such transactions are likely to be well managed. In addition, it is to allow, where relevant, for the necessary arrangements to be made to ensure thatconventional wholesale banks comply with the CBB's reserve requirements (which apply to deposit liabilities denominated in Bahraini Dinars — see LR-2.5.10).October 2007Shari'a Compliant Transactions
LR-1.2.27
Conventional bank licensees may not hold themselves out as an Islamic bank.Conventional bank licensees may only enter into activities (c) to (e) listed in Rule LR-1.3.1, in accordance with the conditions outlined in Section LR-1.4.October 2007LR-1.2.28
[This paragraph was deleted in October 2007]
LR-1.2.29
Conventional bank licensees may freely deal infinancial instruments or operate acollective investment scheme that happens to be Shari'a compliant (because of the nature of thefinancial instruments concerned).October 2007LR-1.3 LR-1.3 Definition of Regulated Banking Services
LR-1.3.1
Regulated banking services are any of the following activities, carried on by way of business:(a) Deposit-taking;(b) Providing Credit;(c) Accepting Shari'a money placements/deposits;(d) Managing Shari'a profit/loss sharing investment accounts;(e) Offering Shari'a Financing Contracts;(f) Dealing infinancial instruments as principal;(g) Dealing infinancial instruments as agent;(h) Managingfinancial instruments ;(i) Safeguardingfinancial instruments ;(j) Operating aCollective Investment Undertaking ;(k) Arranging deals infinancial instruments ;(l) Advising onfinancial instruments ;(m) Providing money exchange/remittance services;(n) Issuing/administering means of payment;(o) Providing Trust Services;(p) Providing account information services; and(q) Providing payment initiation services.Amended: July 2021
Amended: October 2018
Amended: October 2010
October 2007LR-1.3.1A
Where licensees are undertaking regulated activities in accordance with Shari'a, all transactions and contracts concluded by
conventional bank licensees must comply with Sharia standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The validity of the contract or transaction is not impacted, if at a later date, the relevant AAOIFI Sharia standards are amended.Added: October 2020LR-1.3.1B
A
conventional bank licensee that wishes to undertakeregulated banking services which were not included in its application for licence must obtain CBB’s written approval prior to offering such services. In such situations, CBB may impose additional conditions that it deems necessary for the provision of such services.Added: July 2021LR-1.3.1C
For the purposes of Paragraph LR-1.3.1B,
conventional bank licensees must submit the following minimum information in relation to the provision of such services:a) Description of the services/products;b) Proposed fees and charges;c) Experience of resources responsible for such services and their details;d) Policies and procedures for such services;e) Enhancements to its risk management framework to capture, monitor, measure, control and report risks arising from the activity; andf) Relevant staff training plans.Added: January 2022LR-1.3.2
Upon application, the CBB may exclude specific transactions from the definition of
regulated banking services .October 2007LR-1.3.3
The CBB will normally only consider granting such an exemption when a Bahrain resident is unable to obtain a specific product in Bahrain and it would be unreasonable to require the overseas provider of that product to be licensed for that specific transaction, and the provider has no intention of regularly soliciting such business in Bahrain.
October 2007LR-1.3.4
For the purposes of Rule LR-1.3.1, carrying on a
regulated banking service by way of business means:(a) Undertaking the regulated banking service of (a), plus any of the activities (b) to (o), as defined in Section LR-1.3, for commercial gain;(b) Holding oneself out as willing and able to engage in such activities; or(c) Regularly soliciting other persons to engage in transactions constituting such activities.Amended: October 2018
Amended: October 2010
October 2007LR-1.3.5
Licensees should note that they may still undertake activities falling outside the definition of
regulated banking services , such as investing in physical commodities — subject to Rule LR-1.1.11. The fact that an activity is not included in the definition ofregulated banking services does not mean that it is prohibited. In transitioning to the new licensing framework, the CBB will be closely liaising with licensees to ensure that no disruption occurs to their legitimate business activities.October 2007LR-1.3.6
Licensees should note that the same legal entity cannot combine
regulated banking services with other regulated services, such asregulated insurance services . However, different legal entities within the same group may of course each hold a different license (e.g. banking and insurance).October 2007General Exclusions
LR-1.3.7
A person does not carry on an activity constituting a
regulated banking service if the activity:(a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of financial services;(b) May reasonably be regarded as a necessary part of any other services provided in the course of that business; and(c) Is not remunerated separately from the other services.Amended: October 2010
October 2007LR-1.3.8
For example, the taking of a deposit in connection with the rental of a property would not be considered a regulated banking service, since it satisfies the criteria in Rule LR-1.3.7.
October 2007LR-1.3.9
A person does not carry on an activity constituting a
regulated banking service if the person is a body corporate and carries on that activity solely with or for other bodies corporate that are members of the same group.October 2007LR-1.3.10
A person does not carry on an activity constituting a
regulated banking service if such person carries on an activity with or for another person, and they are both members of the samefamily .October 2007LR-1.3.11
A person does not carry on an activity constituting a
regulated banking service if the sole or main purpose for which the person enters into the transaction is to limit any identifiable risks arising in the conduct of his business, providing the business conducted does not itself constitute a regulated activity.October 2007LR-1.3.12
For example, an industrial company entering into an interest rate swap to switch floating-rate borrowings for fixed rate borrowings, in order to manage interest rate risk, would not be considered to be dealing in financial instruments as principal, and would not therefore be required to be licensed as a conventional bank.
Amended: October 2010
October 2007LR-1.3.13
A person does not carry on an activity constituting a
regulated banking service if that person enters into that transaction solely as a nominee for another person, and acts under instruction from that other person.October 2007LR-1.3.14
A person does not carry on an activity constituting a
regulated banking service if that person is a government body charged with the management offinancial instruments on behalf of a government or public body.October 2007LR-1.3.15
A person does not carry on an activity constituting a
regulated banking service if that person is an exempt person, as specified by Royal decree.October 2007Deposit-taking
LR-1.3.16
Deposit-taking is defined as receiving a sum of money paid on terms under which it will be repaid in full, with or without interest or a premium, and either on demand or in circumstances agreed by the parties involved. It excludes sums referable to the giving of security or as a fee paid in advance for goods or services. It also excludes money received by a person in consideration for debt instruments issued by the same person, or money received by a person entering into a loan or other financing agreement.
October 2007LR-1.3.17
The above definition, therefore, includes savings, current, notice, fixed and time deposits.
October 2007Providing Credit
LR-1.3.18
Providing credit is defined as the provision of credit to a person in his capacity as borrower or potential borrower. This includes consumer and mortgage credit; and providing credit by way of finance leases, factoring, forfaiting, and reverse repo transactions. It also includes the issuance or endorsement of letters of credit; the issuance of letters of guarantee and other contingent credit activities (such as the underwriting of loans); the purchase on the secondary market of loans and other contracts of credit (that do not otherwise fall under the definition of
financial instruments ); and the provision of ancillary credit-related activities, such as advising on or arranging loans. It excludes money advanced to a person in consideration for debt instruments issued by the same person.Amended: January 2013
October 2007Accepting Shari'a Money Placements/Deposits
LR-1.3.19
Accepting Shari'a money placements is defined as the acceptance of sums of money for safe-keeping ('al-wadia', 'q'ard') in a Shar'ia compliant framework, under which it will be repaid, either on demand or in circumstances agreed by the parties involved, and which is not referable to the giving of security.
October 2007Offering Shari'a Financing Contracts
LR-1.3.20
Offering Shari'a financing contracts is defined as entering into, or making arrangement for another person to enter into, a contract to provide finance in accordance with Shari'a principles, such as murabaha, bay muajjal, bay salam, ijara wa iktina and istisna'a contracts.
Managing Shari'a Profit Sharing Investment Accounts
LR-1.3.21
Managing a Shari'a profit sharing investment account is defined as managing an account, portfolio or fund, whereby a sum of money is placed with the service provider on terms that a return will be made according to an agreed Shari'a compliant profit-sharing arrangement, based either on a mudaraba or musharaka partnership.
October 2007Dealing in Financial Instruments as Principal
LR-1.3.22
Dealing in
financial instruments as principal means buying, selling, subscribing for or underwriting anyfinancial instrument on one's own account.October 2007LR-1.3.23
Rule LR-1.3.22 includes the underwriting of equity and other
financial instruments . The underwriting of loans comes under the activity of providing credit (see Rule LR-1.3.18). It also includes the temporary sale of a financial instrument through a repo transaction.October 2007LR-1.3.24
A person does not carry on an activity specified in Rule LR-1.3.22 if the activity relates to the person issuing his own shares/debentures, warrants or bonds.
October 2007Dealing in Financial Instruments as Agent
LR-1.3.25
Dealing in
financial instruments as agent means buying, selling, subscribing for or underwritingfinancial instruments on behalf of a client.October 2007LR-1.3.26
A licensee that carries on an activity of the kind specified by Rule LR-1.3.25 does not determine the terms of the transaction and does not use its own financial resources for the purpose of funding the transaction. Such a licensee may however receive or hold assets in connection with the transaction, in its capacity as agent of its client.
October 2007Managing Financial Instruments
LR-1.3.27
Managing
financial instruments means managing on a discretionary basisfinancial instruments on behalf of another person.October 2007LR-1.3.28
The activities included under the definition of Rule LR-1.3.27 include activities such as asset management.
October 2007Safeguarding Financial Instruments (i.e. Custodian)
LR-1.3.29
Safeguarding
financial instruments means the safeguarding offinancial instruments for the account of clients.October 2007LR-1.3.30
A person does not carry on an activity specified in Rule LR-1.3.29 if the person receives documents relating to a
financial instrument for the purpose of onward transmission to, from, or at the direction of the person to whom thefinancial instrument belongs; or else is simply providing a physical safekeeping service such as a deed box.October 2007LR-1.3.31
A person does not carry on an activity specified in Rule LR-1.3.29 if a third person, namely a
qualifying custodian , accepts responsibility with regard to thefinancial instrument .October 2007LR-1.3.32
A "
qualifying custodian " means a person who is:(a) A licensee who has permission to carry on an activity of the kind specified in Rule LR-1.3.29; or(b) An exempt person in relation to activities of that kind.Amended: October 2010
October 2007LR-1.3.33
A person does not carry on an activity specified in Rule LR-1.3.29 if they are managing a central depository, which is part of an exchange recognised by the CBB.
October 2007LR-1.3.34
The following are examples of activities, which when taken in isolation, are unlikely to be regarded as an activity of the kind specified under Rule LR-1.3.29:
(a) Providing information as to the number of units or the value of any assets safeguarded; and(b) Converting currency.Amended: October 2010
October 2007LR-1.3.35
A person undertaking an activity of the kind specified under Rule LR-1.3.29 may also be engaged in the administration of the
financial instruments , including related services such as cash/collateral management.October 2007Operating a Collective Investment Undertaking
LR-1.3.36
Operating a
collective investment undertaking ('CIU') means operating, establishing or winding up acollective investment undertaking .Amended: January 2013
October 2007LR-1.3.37
For the purposes of LR-1.3.36, a CIU is defined in Volume 7 Paragraph ARR-B.1.1
Amended: January 2013
October 2007LR-1.3.38
[This Paragraph was deleted in January 2013].
Deleted: January 2013LR-1.3.39
[This Paragraph was deleted in January 2013].
Deleted: January 2013Arranging Deals in Financial Instruments
LR-1.3.40
Arranging deals in
financial instruments means making arrangements with a view to another person, whether as principal or agent, buying, selling, or subscribing for, or underwriting deals in,financial instruments .October 2007LR-1.3.41
A person does not carry on an activity specified in Rule LR-1.3.40 if the arrangement does not bring about the transaction to which the arrangement relates.
October 2007LR-1.3.42
A person does not carry on an activity specified in Rule LR-1.3.40 if a person's activities are limited solely to introducing clients to
licensees .October 2007LR-1.3.43
The exclusion in Rule LR-1.3.42 does not apply if the agent receives from any person, other than the client, any pecuniary reward or other advantage, which he does not account to the client, arising out of his entering into the transaction. Thus, if A receives a commission from B for arranging credit or deals in investment for C, the exclusion in Rule LR-1.3.42 does not apply.
October 2007LR-1.3.44
A person does not carry on an activity specified in Rule LR-1.3.40 merely by providing the means of communication between two parties to a transaction.
October 2007LR-1.3.45
A person does not carry on an activity specified in Rule LR-1.3.40 if they operate an exchange, duly recognised and authorised by the CBB.
October 2007LR-1.3.46
Negotiating terms for an investment on behalf of a client is an example of an activity which may be regarded as an activity of the kind specified in Rule LR-1.3.40.
October 2007LR-1.3.47
The following are examples of activities, which when taken in isolation, are unlikely to be regarded as an activity of the kind specified in Rule LR-1.3.40:
(a) Appointing professional advisers;(b) Preparing a prospectus/business plan;(c) Identifying potential sources of funding;(d) Assisting investors/subscribers/borrowers to complete and submit application forms; or(e) Receiving application forms for processing/checking and/or onward transmission.Amended: October 2010
October 2007Advising on Deals in Financial Instruments
LR-1.3.48
Advising on
financial instruments means giving advice to an investor or potential investor (or a person in his capacity as an agent for an investor or potential investor) on the merits of buying, selling, subscribing for or underwriting a particularfinancial instrument or exercising any right conferred by such afinancial instrument .October 2007LR-1.3.49
The following are examples of activities, which may be regarded as an activity as defined by Rule LR-1.3.48:
(a) A person may offer to tell a client when shares reach a certain value on the basis that when the price reaches that value it would be a good time to buy or sell them;(b) Recommendation on the size or timing of transactions; and(c) Advice on the suitability of thefinancial instrument , or on the characteristics or performance of thefinancial instrument concerned.Amended: October 2010
October 2007LR-1.3.49A
For the purpose of Rule LR-1.3.48, advising on
financial instruments includes givingdigital financial advice also known as 'robo-advice' or 'automated advice' using a computer program and algorithm to generate the advice.Added: April 2019LR-1.3.50
A person does not carry on an activity specified in Rule LR-1.3.48 by giving advice in any newspaper, journal, magazine, broadcast services or similar service in any medium if the principal purpose of the publication or service, taken as a whole, is neither that of:
(a) Giving advice of the kind mentioned in Rule LR-1.3.48; nor(b) Leading or enabling persons to buy, sell, subscribe for or underwrite afinancial instrument .Amended: October 2010
October 2007LR-1.3.51
The following are examples of activities, which when taken in isolation, are unlikely to be regarded as an activity as defined by Rule LR-1.3.48:
(a) Explaining the structure, or the terms and conditions of afinancial instrument ;(b) Valuingfinancial instruments for which there is no ready market;(c) Circulating company news or announcements;(d) Comparing the benefits and risks of onefinancial instrument to another; and(e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, afinancial instrument or on the effect of contractual terms and their commercial consequences or on terms that are commonly accepted in the market.Amended: October 2010
October 2007Providing Money Exchange / Remittance Services
LR-1.3.52
Means providing exchange facilities between currencies, and the provision of wire transfer or other remittance services.
October 2007Issuing / Administering Means of Payment
LR-1.3.53
Means the selling or issuing of payment instruments, or the selling or issuing of stored value (e.g. credit cards, travellers' cheques, electronic purses).
October 2007Providing Trust Services
LR-1.3.54
Providing trust services is defined as:
(a) Establishment of trusts;(b) Administration of trusts in accordance with the provisions of the trust deed;(c) Providing related ancillary services to trusts in accordance with the provisions of the trust deed; and(d) Providing financial advisory services to trust business clients only.Added: October 2018LR-1.3.55
The related ancillary services under sub-paragraph LR-1.3.54(c) include providing directorship services, company secretarial services, providing a registered address and/or acting as a shareholder to the company holding the assets of a trust.
Added: October 2018LR-1.3.56
Conventional bank licensees must ensure that the trust services in Paragraph LR-1.3.54 are handled by an independent trust service department within the bank.Added: October 2018LR-1.3.57
Conventional bank licensees must comply with the legislative Decree No. (23) of 2016 with regards to Trust, and CBB's resolutions and directives issued in this regard.Added: October 2018Account Information Service and Payment Initiation Services
LR-1.3.58
Providing
account information services (AIS) means the activity of obtaining access and the provision of information tocustomers about their transactions and account balances with otherlicensees (banks, financing companies or payment service providers) and the handling of communication or electronic documents between thecustomer and otherlicensees using an online portal, mobile devices or applications.Added: July 2021LR-1.3.59
Providing
payment initiation services (PIS) means the activity of initiating payment or fund transfers for thecustomer from an account he holds with otherlicensees .Added: July 2021LR-1.3.60
Conventional bank licensees undertaking AIS and/or PIS activities must comply with the requirements in the Open Banking Module (OB Module) included in the CBB Rulebook Volume 5 – Ancillary Service Providers.Added: July 2021LR-1.3.61
Conventional retail bank licensees that wish to offer AIS or PIS services must ensure that an independent review is conducted prior to commencement of AIS or PIS services to confirm compliance with the Operational Guidelines, Security Standards and Guidelines, Open Banking Application Program Interface (API) Specifications and Customer Journey Guidelines included in the Bahrain Open Banking Framework available on the CBB website. Such a review must be conducted by a third-party consultant, other than the external auditor.Added: July 2021LR-1.4 LR-1.4 Shari'a Compliant Transactions
General Requirements for all Conventional Banks
LR-1.4.1
Conventional bank licensees may not hold themselves out as an Islamic bank.Conventional bank licensees are allowed to enter into activities (c) to (e) listed in Rule LR-1.3.1 under the conditions outlined in the remainder of this section, subject to the thresholds and conditions outlined in Section LR-1.2 (concerning facilities offered to Bahrain residents and facilities in Bahrain Dinar in particular).October 2007LR-1.4.2
Shari'a compliant financing facilities provided by
conventional bank licensees are treated as normal risk-weighted assets in the PIR and are not subject to the risk-weighting treatment under Volume 2.October 2007LR-1.4.3
When offering any of the Shari'a compliant activities (c) to (e) listed in Rule LR-1.3.1,
conventional bank licensees must have staff trained in Shari'a compliant banking business. The bank must also disclose in the notes to its Annual Report/Financial Statement all quantitative and qualitative disclosures on its Shari'a compliant business as required by AAOIFI accounting and auditing standards.October 2007LR-1.4.4
Conventional bank licensees may invest in Shari'a compliantfinancial instruments for their own account or make an investment in a Shari'a compliant syndication where the bank's role is limited to provide the funding for such investment and the bank has not participated in the structuring nor the preparation of any documentation in relation to this investment.Amended: January 2016
October 2007Additional requirements for conventional retail banks
LR-1.4.5
Conventional retail bank licensees may provide Shari'a compliant activities (c) to (e) listed in Rule LR-1.3.1 in any amount and in any currency to customers subject to the following conditions:(a) Shari'a compliant financing and funding to be undertaken through a special counter or branch as deemed necessary by the bank;(b) The bank must maintain separate books for Shari'a compliant banking activities to ensure no co-mingling of conventional and Islamic funds;(c) The bank must have a dedicated treasurer or senior trader for Shari'a compliant business and must also have a Shari'a compliance reviewer; and(d) The bank must establish a Shari'a Supervisory Board with a minimum of three board members. The board may have global authority for all Shari'a compliant business or may have authority purely for Islamic business booked in Bahrain.Amended: April 2015
April 2011
October 2007Additional Requirements for the Financing of Land or Property in Bahrain by way of Shari'a Compliant Financing Contracts
LR-1.4.6
Retail bank branches of foreign banks may provide Shari'a compliant financing (activity (e) listed in Rule LR-1.3.1) in any amount and in any currency to customers for the purpose of purchasing land or properties in Bahrain subject to the conditions below:
(a) The branch must secure the CBB's prior written approval for offering such financing;(b) The purpose of ownership of the concerned land or property by the bank must be for the purpose of the subsequent resale to the customer under a Shari'a compliant financing contract;(c) The period of legal ownership of the concerned land or property by the branch must be limited only to the financing phase of the Shari'a compliant financing contract; and(d) In the case of default by the customer and repossession by the branch, the land or property must be disposed of within one year of the date of the termination of the Shari'a compliant financing contract. Branches may approach the CBB to extend this period for a maximum of one additional year.Added: July 2011
