UG-A.1.1

The Central Bank of Bahrain ("CBB"), in its capacity as the regulatory and supervisory authority for all financial institutions in Bahrain, issues regulatory instruments that licensees and other specified persons are legally obliged to comply with. These regulatory instruments are contained in the CBB Rulebook. Much of the Rulebook's substantive content was previously issued by the Bahrain Monetary Agency ('the BMA'), and was carried forward when the CBB replaced the BMA in September 2006.

UG-A.1.2

The Rulebook is divided into 7 Volumes, covering different areas of financial services activity. These volumes are being progressively issued. Volumes 1 and 2, covering conventional bank licensees and Islamic bank licensees respectively, were issued in July 2004 and January 2005; Volume 3, covering insurance licensees, was issued in April 2005. Volume 4 was issued in April 2006. Volume 5 (covering specialised licensees), and Volume 6 (capital markets), are being issued progressively. Volume 7 on collective investment undertakings (CIU) was issued in May 2012.

UG-A.1.3

This Users' Guide provides guidance on (i) the status and application of the Rulebook, with specific reference to Volume 1 (Conventional Banks); (ii) the structure and design of the Rulebook; and (iii) its maintenance and version control.

UG-A.1.4

Volume 2 (Islamic banks) covers Islamic Bank Licensees. It contains prudential requirements (such as rules on minimum capital and risk management). Collectively, these requirements are aimed at ensuring the safety and soundness of CBB-licensed Islamic banks and providing an appropriate level of protection to the clients of such banks.

UG-A.1.5

This Module contains the CBB's Directive (as amended from time to time) regarding the User's Guide for Volume 2, of the CBB Rulebook, and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all Islamic bank licensees (including their approved persons).

UG-A.1.6

For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

UG-1.1.1

Volume 2 (Islamic banks) of the CBB Rulebook is issued by the CBB pursuant to the Central Bank of Bahrain and Financial Institutions Law 2006 ('the CBB Law'). The CBB Law provides for two formal rulemaking instruments: Regulations (made pursuant to Article 37) and Directives (made pursuant to Article 38). Other articles in the CBB Law also prescribe various specific requirements (for example, requirements relating to licensing (Articles 44 to 49), or the notification and approval of controllers of licensees (Articles 52 to 56)).

UG-1.1.2

The Purpose Section of each Module specifies in all cases the rulemaking instrument(s) used to issue the content of the Module in question, and the legal basis underpinning the Module's requirements.

UG-1.1.3

Islamic bank licensees that are members of the Bahrain Stock Exchange are reminded that they are also subject to the membership and operating rules of that exchange. These rules are issued by the Bahrain Stock Exchange under powers given the Exchange under the Bahrain Stock Exchange Law, Decree No. 4 of 1987 (as amended by Decree No. 21 of 2002). These rules are additional to the requirements contained in Volume 2 (Islamic banks).

UG-1.1.4

Regulations are made pursuant to Article 37 of the CBB Law. These instruments have general application throughout the Kingdom and bind all persons ordinarily affected by Bahraini legislative measures (i.e. residents and/or Bahraini persons wherever situated).

UG-1.1.5

Because Regulations have wide general application, they are subject to two important safeguards: (i) the CBB is under a duty to consult with interested parties and to review and consider their comments; and (ii) the finalised Regulations only become effective after they are published in the Official Gazette.

UG-1.1.6

Where Regulations are used to support Rulebook requirements, their contents are included in the CBB Rulebook, as well as published in the Official Gazette. They only have legal effect, however, when published in the Official Gazette.

UG-1.1.7

Directives are made pursuant to Article 38 of the CBB Law. These instruments do not have general application in the Kingdom, but are rather addressed to specific licensees (or categories of licensees), approved persons or registered persons. Directives are binding on those to whom they are addressed.

UG-1.1.8

Unlike Regulations, there is no duty on the CBB to either consult with addressees or publicise a Directive by publishing it in the Official Gazette (save that an addressee must obviously have actual or constructive notice of a Directive). However, as a matter of general policy, the CBB also consults on Rulebook content issued by way of a Directive.

UG-2.1.1

The Rulebook is divided into 7 Volumes, covering different areas of financial services activity, as follows:

UG-2.1.2

Volume 5 (Specialised Activities), covers money changers; financing companies; representative offices; administrators; trust service providers, micro-finance institutions and providers of ancillary services to the financial sector.

UG-2.1.3

Except for Volumes 5, 6 and 7, the basic structure of each Rulebook is the same. Each Volume starts with a contents page and User's Guide. Subsequent material is organised underneath the following headings:

UG-2.1.4

Volume 5 is organised by the Category of specialised firm concerned, whilst Volume 6 by subject area (authorised exchanges; issuers of securities etc).

UG-2.1.5

The material in Volumes 1-4 is contained in Modules, each covering a specific area of requirements (e.g. High-level Controls). In turn, each Module is divided into Chapters, Sections and Paragraphs, as detailed below.

UG-2.1.6

Each Volume has its own appendix Volume containing relevant reporting and authorisation forms; a glossary; and any supplementary information. In all cases, the main Volume is called "Part A" and the appendix Volume is called "Part B".

UG-2.2.1

Rulebook Volumes are subdivided into Modules, arranged in groups according to their subject matter, underneath the headings listed in Paragraph UG 2.1.3 above.

UG-2.2.2

Each Module in a Volume is referenced using a two- or three-letter code which is usually a contraction or abbreviation of its title. These codes are used for cross-referencing within the text.

UG-2.2.3

Each Module consists of Chapters, categorised into two types:

UG-2.2.4

The introductory Chapter summarises the purpose of the Module, its history (in terms of changes made to its contents). A separate introductory Chapter also prescribes the scope of application of the Module's requirements.

UG-2.2.5

Chapters are further sub-divided into Sections (numbered consecutively after the Chapter number: e.g. FC 1.1, FC 1.2, FC 1.3 etc). In turn, Sections are sub-divided into Paragraphs (numbered consecutively after the Chapter and Section numbers: e.g. FC 1.1.1, FC 1.1.2, FC 1.1.3 etc.). Where appropriate, sub-Section headings may be used, to guide the reader through a Section: sub-Section headings are italicised and unnumbered, and act purely as an indicator (without limitation as to the status of the Paragraphs that follow.

UG-2.2.6

Each Volume's contents page lists all the Modules contained within it (Part A), and the information contained in the relevant appendix Volume (Part B).

UG-2.2.7

The contents page of each Module lists the Chapters, Sections and the latest version date of each Section in issue.

UG-2.3.1

The top of each page in the Rulebook identifies the Volume, Module and Chapter in question. Each Module is a separate document. New Chapters start on a fresh page.

UG-2.3.2

The bottom of each page in the Rulebook (on the left hand side) identifies the Module in question, its Section and page number. Page numbering starts afresh for each Section: the total number of pages in each respective Section is shown as well as the individual page number. The bottom right hand side shows an end calendar quarter issue date. The Contents Page for each Module, and each Section in a Module, are each given their own issue date. In addition, the Module contents page lists the latest issue date for each Section in that Module. The Contents page thus acts as a summary checklist of the current issue date in force for each Section. Further explanation is provided in Section UG-3.1 below.

UG-2.3.3

Defined terms used in the Rulebook are underlined. Each Volume has its own glossary listing defined terms and giving their meaning. Definitions of terms used apply only to the Volume in question. It is possible for the same term to be used in a different Volume with a different meaning.

UG-2.3.4

Any cross-references given in a text state the Module code, followed (where appropriate) by the numbering convention for any particular Chapter, Section or paragraph being referred to. For example, the cross-reference FC-1.2.3 refers to the third Paragraph in the second Section of the first Chapter of the Financial Crime Module. Many references will be quite general, referring simply to a particular Module, Chapter or Section rather than a specific Paragraph.

UG-2.3.5

Each Paragraph is assigned a complete reference to the Module, Chapter, and Section, as well as its own Paragraph number, as explained in UG-2.3.4 above. The format of the Paragraph reference and Paragraph text indicates their status as either a Rule or Guidance, as explained in UG-1.2.4 above.

UG-2.3.6

When cross-referring to specific Paragraphs, and it is important to make clear the status of the Paragraph in question as a Rule or Guidance, then the words 'Rule' or 'Guidance' may be used instead of 'Paragraph', followed by the reference number (e.g. 'As required by Rule FC-1.1.1, licensees must...').

UG-3.1.1

Any changes to the Rulebook are generally made on a quarterly cycle (the only exception being when changes are urgently required), in early January, April, July and October. When changes are made to a Module, the amended Sections are given a new version date, in the bottom right-hand page.

UG-3.1.2

The contents page for each amended Module is also updated; the table of contents is changed to show the new version date for each amended Section (in the 'Date Last Changed' Column), and the contents page itself is also given its own new version date in the bottom right-hand corner. The Module contents pages thus act as a checklist for hard-copy users to verify which are the current version dates for each Section in that Module.

UG-3.1.3

A summary of any changes made to a Module is included in the 'Regulation history' Section of each Module. The table summarises the nature of the change made, the date of the change and the Module components and relevant pages affected.

UG-3.1.4

Hard-copy users of the CBB Rulebook can check that they have the latest copy of each Module's contents pages, by referring to the overall table of contents for each Volume. The Volume table of contents lists the date each Module was last changed; users can use this table to check the date showing in the bottom right-hand corner of each Module's contents page.

UG-3.1.5

The website version of the Rulebook acts at all times as the definitive version. The updates are posted to the CBB website, together with a summary of changes for that quarter. Licensees are in addition e-mailed the summary of each quarter's changes. Hard-copy users are required to print off the updated pages from the website to incorporate in their Rulebook in order to keep it current.

UG-3.1.6

In order to limit the knock-on impact of inserting or deleting text on the numbering of text that follows the change, the following conventions apply:

UG-3.1.7

Where many such changes have built up over time, then the CBB may reissue the whole Section, Paragraph, Chapter or even Module concerned, consolidating all these changes.

UG-3.2.1

The Rulebook is available on the CBB website.

UG-3.2.2

Questions regarding the administration of the Rulebook (e.g. website availability, the updating of material etc) should be addressed to the Rulebook Section of the Regulatory Policy Unit:

Rulebook Section
Regulatory Policy Unit
Central Bank of Bahrain
PO Box 27
Manama
Kingdom of Bahrain

Tel: + 973 - 17 54 7413
E-mail: rulebook@cbb.gov.bh
Web: www.cbb.gov.bh

Questions regarding interpretation of the policy and requirements contained in the Rulebook should be addressed to the licensee's regular supervisory point of contact within the CBB.

LR-A.1.1

The Licensing Requirements Module sets out the Central Bank of Bahrain's (CBB's) approach to licensing providers of regulated Islamic banking services in the Kingdom of Bahrain.

LR-A.1.2

This Module contains the CBB's Regulations, Resolutions and Directive (as amended from time to time) relating to Licensing Requirements and is issued under the powers available to the CBB under Articles 37 to 42, 44 to 48 and 180 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). It also includes the requirements contained in Resolution No (1) of 2007 (as amended from time to time) with respect to determining fees categories due for licensees and services provided by the CBB. The Module also contains requirements under Regulation No (1) of 2007 pertaining to the CBB's regulated services issued under Article 39 of the CBB Law and those governing the conditions of granting a license for the provision of regulated services as prescribed under Resolution No.(43) of 2011 and issued under the powers available to the CBB under Article 44(c). The Module contains requirements under Resolution No.(16) for the year 2012 including the prohibition of marketing financial services pursuant to Article 42 of the CBB Law. This Module contains the prior approval requirements for approved persons under Resolution No (23) of 2015. The Directive and Resolutions in this Module are applicable to all Islamic bank licensees (including their approved persons).

LR-A.1.2A

For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

LR-A.1.3

Persons wishing to undertake regulated Islamic banking services are required to be licensed by CBB as an Islamic bank licensee. Regulated Islamic banking services consist of three determinant activities — the acceptance of Shari'a money placements/deposits, the managing of Shari'a profit-sharing investment accounts, and the offering of Shari'a financing contracts. In addition, various supplementary activities may also be undertaken. These activities are defined in Rule LR-1.3.1. Islamic bank licensees must operate all their operations in compliance with Shari'a economic principles; and only Islamic bank licensees may hold themselves out to be a fully Shari'a-compliant institution.

LR-A.1.4

In other words, to be licensed as an Islamic bank, a person must undertake the activity of accepting Shari'a money placements/deposits, and/or managing Shari'a profit-sharing investment accounts. In addition, the activity of offering Shari'a financing contracts must also be undertaken. In addition, they may undertake any of the other activities falling within the definition of regulated Islamic banking services.

LR-A.1.5

Islamic bank licensees are divided into two sub-categories: Islamic retail banks and Islamic wholesale banks. Certain specific regulatory requirements may differ between these two sub-categories, where appropriate to address their different risk profiles. (See Section LR-1.2).

LR-A.1.6

Islamic retail banks may undertake transactions in any currency, with both Bahraini residents and non-residents. To qualify as an Islamic retail bank, the activity of offering Shari’a financing contracts must account for a significant portion of the institution’s business (defined, broadly, as accounting for over 20% of an institution’s assets).

LR-A.1.7

Islamic wholesale banks may also undertake transactions without restriction, when dealing with the Government of Bahrain and its agencies; CBB bank licensees; and non-residents. However, they may only undertake transactions denominated in Bahraini Dinar and/or with a resident of the Kingdom of Bahrain, if these are wholesale in nature. Wholesale transactions are defined in terms of transaction size (broadly, BD 7 million or more for the activities of accepting Shari'a money placements/deposits, and offering Shari'a financing contracts, and US$ 100,000 or more for any of the other activities falling within the definition of regulated Islamic banking services).

LR-A.1.8

Collectively, licensed providers of regulated Islamic banking services are called Islamic bank licensees. Bahrain-incorporated Islamic bank licensees are called Bahraini Islamic bank licensees. Islamic bank licensees that are incorporated in an overseas jurisdiction and operate via a branch presence in the Kingdom of Bahrain are called Branches of Foreign Islamic bank licensees. The same naming convention applies to the two sub-categories of Islamic bank license: thus, Bahraini Islamic retail banks and Bahraini Islamic wholesale banks are those incorporated in Bahrain, whilst retail branches of foreign banks and wholesale branches of foreign banks are those incorporated in an overseas jurisdiction and operating in Bahrain via a branch presence.

LR-A.1.9

Islamic bank licensees are subject to 8 licensing conditions, mostly specified at a high level in Module LR, and further expanded in underlying subject Modules (such as Module CA). These licensing conditions are broadly equivalent to the standards applied in other Volumes of the CBB Rulebook, to other license categories, and are consistent with international good practice, such as relevant Basel Committee and IFSB (Islamic Financial Services Board) standards.

LR-A.1.10

The requirements contained in Chapter LR-2 represent the minimum conditions that have to be met in each case, both at the point of licensing and on an on-going basis thereafter, in order for licensed status to be retained.

LR-A.1.11

Chapter LR-3 specifies the processes and information requirements that have to be followed for applicants seeking an Islamic bank license, as well as existing licensees seeking to vary the scope of their license, by adding new regulated activities. It also covers the voluntary surrender of a license, or its cancellation by CBB.

LR-A.1.12

Representative offices of Islamic banks and providers of ancillary services to the financial sector are not covered in Volume 2 (Islamic Banks) of the Rulebook. Requirements covering representative offices (for all financial services firms) and providers of ancillary services to the financial sector are included in Volume 5.

LR-A.1.13

Representative offices of Islamic banks are subject to the requirements contained in Volume 5 (Specialised Licensees), common Modules and specific Modules for representative offices. Until such time as all parts of Volume 5 (Specialised Licensees) of the CBB Rulebook is issued, providers of ancillary services to the financial sector remain subject to the requirements contained in the CBB's "Standard Conditions and Licensing Criteria".

LR-A.1.14

[This paragraph was merged with paragraph LR-1.1.12 above in October 2007]

LR-A.1.15

[This paragraph was merged with paragraph LR-1.1.13 above in October 2007]

LR-A.1.16

This paragraph was deleted in October 2007.

LR-A.2.1

This Module (Module LR — "Licensing and Authorisation Requirements") was first issued in January 2005, as part of the initial release of Volume 2 of the CBB Rulebook. It was subsequently reissued in full in July 2006 (and renamed "Licensing Requirements").

LR-A.2.2

The reissued Module was one of several Modules modified to reflect the introduction of the CBB's new integrated license framework. Module LR was amended to reflect the new Islamic bank licenses introduced by the framework, and to more closely align its presentation with that found in other CBB Rulebook volumes.

LR-A.2.3

The reissued Module is dated July 2006. All subsequent changes were dated with the month and year when the change was made, at the base of the relevant page and in the Table of Contents. Chapter 3 of Module UG provides further details on Rulebook maintenance and control.

LR-A.2.3.A

When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 2 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

LR-A.2.4

A list of recent changes made to this Module is provided below:

LR-A.2.5

[This paragraph was deleted in October 2007]

LR-1.1.1

No person may:

LR-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.

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).

LR-1.1.2

According to Article 41(a) of the CBB Law, only persons licensed to undertake regulated Islamic banking services (or regulated banking services), may use the term ‘bank’ in their corporate or trading names, or otherwise hold themselves out to be a bank.

LR-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.

LR-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.

LR-1.1.5

Persons wishing to be licensed to undertake regulated Islamic banking services within or from the Kingdom of Bahrain must apply in writing to the CBB.

LR-1.1.6

An application for a license must be in the form prescribed by the CBB and must contain:

LR-1.1.7

The CBB will review the application and duly advise the applicant in writing when it has:

LR-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.

LR-1.1.9

In granting new licenses, CBB will specify the specific types of regulated Islamic banking service for which a license has been granted, and on what basis (i.e. Islamic retail bank or Islamic wholesale bank).

LR-1.1.10

All applicants for an Islamic bank license 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, Islamic bank licensees must maintain these criteria on an ongoing basis.

LR-1.1.11

Islamic 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.

LR-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).

LR-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.

LR-1.2.1

Depending on the nature of activities undertaken, Islamic bank licensees must be licensed either as an Islamic retail bank or as an Islamic wholesale bank.

LR-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 Islamic retail bank Category replaces the Full Commercial Bank (Islamic principles) Category that existed prior to July 2006; the Islamic wholesale bank Category replaces the Offshore Banking Unit and Investment Bank License (Islamic principles) categories.

LR-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 CBB, and the issuance of a new license certificate. Where (prior to July 2006), the same legal entity holds multiple licenses, CBB will agree transitional measures aimed at rationalizing the number of licenses held.

LR-1.2.4

Islamic 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.

LR-1.2.5

To qualify as an Islamic retail bank, the person concerned must undertake (as a minimum), the activity of accepting Shari'a money placements/deposits, and/or managing Shari'a profit-sharing investment accounts, as well as the activity of offering Shari'a financing contracts (as defined in Rules LR-1.3.16, LR-1.3.17A and B and LR-1.3.18). The activity of offering Shari'a financing contracts must be a significant part of the bank's business, relative to other activities.

LR-1.2.6

When assessing the significance of Shari'a financing contracts, in the context of Rule LR-1.2.5, the CBB would normally expect to see such contracts 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 financing-related nature, and that such activities constitute a significant share of the bank's overall business.

LR-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 cease to satisfy the condition contained in Rule LR-1.2.5, the CBB will initiate discussion with the licensee as to the appropriateness of its license category; this may result in the licensee being required to change its license category.

LR-1.2.8

The purpose of Rule LR-1.2.5 is to ensure that, besides the activity of accepting Shari'a money placements/deposits, and managing Shari'a profit-sharing investment accounts, that the core banking activity of providing finance also forms part of the definition of Islamic retail banks, and accounts for a significant share of their business, in keeping with their intermediation function.

LR-1.2.9

Islamic wholesale banks are allowed to transact with residents of the Kingdom of Bahrain (irrespective of currency), and in Bahraini Dinar (irrespective of the location of the counterparty), subject to the conditions and exemptions specified in Rules LR-1.2.13, LR-1.2.15, LR-1.2.17 and LR-1.2.19. Foreign currency transactions with non-residents are not subject to these conditions.

LR-1.2.10

The effect of Rule LR-1.2.9 is to limit the on-shore/Bahrain Dinar customer business of Islamic wholesale banks to larger transactions. By definition, their onshore client base is therefore wholesale in nature (i.e. large corporates and high net-worth individuals).

LR-1.2.11

To qualify as an Islamic wholesale bank, the person concerned must undertake (as a minimum), the activity of accepting Shari'a money placements/deposits and/or managing Shari'a profit-sharing investment accounts (as defined in Rules LR-1.3.16 and LR-1.3.17A and B), together with the activity of offering Shari'a financing contracts (as defined in Rule LR-1.3.18).

LR-1.2.12

The purpose of Rule LR-1.2.11 is to ensure that the core Islamic banking activities of accepting Shari'a money placements/deposits, and managing Shari'a profit-sharing investment accounts, form part of the definition of Islamic wholesale banks. However, unlike Islamic retail banks, there is no requirement that the activity of providing Shari'a financing contracts must be a significant part of the bank's business, relative to other activities. This is to allow Islamic 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 and profit-sharing investors may be exposed. Rule LR-1.2.11 does not in any way prevent Islamic wholesale banks from providing Shari'a-compliant finance as a major activity, should they wish to.

LR-1.2.13

Islamic wholesale banks may transact with residents of Bahrain and/or in Bahrain Dinar, with respect to the activities (a), (b) and (c) listed in Rule LR-1.3.1, only where the individual transaction is BD 7 million or above (or its foreign currency equivalent).

LR-1.2.14

To comply with Rule LR-1.2.13, the initial amount taken as a placement/deposit must be BD 7 million or above (or its equivalent in foreign currency); however, subsequent additions and withdrawals from the account may be for any amount. The initial amount taken as placement/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.

LR-1.2.15

Similarly, with respect to Shari'a financing transactions, the initial facility amount advised must be 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.

LR-1.2.16

Islamic wholesale banks may transact with residents of Bahrain and/or in Bahrain Dinar, with respect to the activities (d) to (j) listed in Rule LR-1.3.1, only where the initial transaction is US$ 100,000 or above (or its foreign currency equivalent).

LR-1.2.17

With respect to activity (c) (managing Unrestricted Shari'a profit-sharing investment accounts), the threshold refers to the initial amount placed as an investment. With respect to activities (d), (e) and (f) (managing Restricted Shari'a profit sharing investment accounts, and dealing in financial instruments as principal / agent), the threshold refers to the individual transaction size. With respect to activities (g) and (h) (managing / safeguarding financial instruments), the threshold refers to the initial investment amount. With respect to activity (i), (operating a collective investment scheme), the threshold refers to the minimum investment required for participation in the scheme. With respect to activities (j) and (k) (arranging / advising on deals in financial instruments) the threshold refers to the size of the deal arranged or of the investment on which advice is being given.

LR-1.2.18

Note that the threshold with respect to activities (d), (e) and (f) 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 money placement /financing 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.

LR-1.2.19

Islamic wholesale bank licensees may only undertake activities (l) and (m) listed in Rule LR-1.3.1, on behalf of residents of Bahrain and/or in Bahrain Dinar, where the transactions concerned meets either of the thresholds specified in LR-1.2.13 or LR-1.2.16 (in which case, activities (l) and (m) may be undertaken for any amount).

LR-1.2.20

Notwithstanding Rules LR-1.2.13, LR-1.2.16 and LR-1.2.19, Islamic 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 PIRI Form), and CBB bank licensees. Islamic wholesale banks may also transact in Bahrain Dinar for any amount, where required to fund their normal operating expenses; when investing for their own account in securities listed on a licensed exchange.

LR-1.2.20A

Islamic wholesale bank licensees may undertake activity (n) 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.

LR-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.

LR-1.2.22

Since the Islamic 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 CBB, and these exemptions went further than those now being applied across the Board to all Islamic wholesale bank licensees.

LR-1.2.23

Islamic 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.

LR-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 Islamic 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 that Islamic wholesale banks comply with the CBB’s reserve requirements (which apply to deposit liabilities denominated in Bahrain Dinars — see LR-2.5.10).

LR-1.2.25

Islamic wholesale banks unclear about the interpretation of the conditions specified in Rules LR-1.2.13, LR-1.2.16 and LR-1.2.19 must consult the CBB, prior to undertaking the transaction concerned.

LR-1.2.26

CBB may publish additional interpretative guidance on the above conditions, in response to licensees' queries. The minimum thresholds specified under Rules LR-1.2.13 and LR-1.2.16 will be kept under review by CBB and may be amended in response to market developments.

LR-1.3.7

A person does not carry on an activity constituting a regulated Islamic banking service if the activity:

LR-1.3.8

For example, the holding of money as a rent-guarantee in connection with the rental of a property would not be considered a regulated Islamic banking service, since it satisfies the exemptions in Rule LR-1.3.7.

LR-1.3.9

A person does not carry on an activity constituting a regulated Islamic 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.

LR-1.3.10

A person does not carry on an activity constituting a regulated Islamic banking service if such person carries on an activity with or for another person, and they are both members of the same family.

LR-1.3.11

A person does not carry on an activity constituting a regulated Islamic 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.

LR-1.3.12

For example, commercial companies entering into bay salam or istisna transactions in order to protect themselves against future fluctuations in the price of their products, would not be considered to be dealing in financial instruments as principal, and would not therefore require to be licensed as an Islamic bank.

LR-1.3.13

A person does not carry on an activity constituting a regulated Islamic banking service if that person enters into that transaction solely as a nominee for another person, and acts under instruction from that other person.

LR-1.3.14

A person does not carry on an activity constituting a regulated Islamic banking service if that person is a government body charged with the management of financial instruments on behalf of a government or public body.

LR-1.3.15

A person does not carry on an activity constituting a regulated Islamic banking service if that person is an exempt person, as specified by Royal decree.

LR-1.3.16

Accepting Shari'a money placements is defined as the acceptance of sums of money for safe-keeping ('al-wadia', 'q'ard') in a Shari'a 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.

LR-1.3.17A

Managing an Unrestricted 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, such as a mudaraba or musharaka partnership without the customer laying down any restrictions as to where, how and for what purpose the funds should be invested. Such equity of unrestricted investment account holders shall be recorded in the books of the bank (see AAOIFI Standard FAS6).

LR-1.3.17B

Managing a Restricted 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, such as a mudaraba or musharaka partnership where the customer imposes certain restrictions as to where, how and for what purpose the funds should be invested. Such assets and liabilities relating to the equity of restricted investment account holders shall be treated separately from the bank's assets and liabilities (see AAOIFI Standard FAS6).

LR-1.3.17C

With effect from 1^st January 2013, banks are no longer allowed to issue or open new profit sharing investment arrangements in the form of 'restricted investment accounts' where the bank acts as mudarib or trustee with the exception of accounts referred to in Paragraph LR-1.3.17D. Any new restricted Shari'a profit sharing investment relationships in the bank's own structured products may only be opened in the form of units or shares in a collective investment undertaking and will be subject to the Rules and Guidance contained in Volume 7 and relevant sections of Module BC Chapter 9 (Volume 2). Banks should also refer to Paragraphs LR-1.3.33 to LR-1.3.34 of this Module. All existing restricted Shari'a profit sharing investment accounts may continue to be kept open, however banks may not accept any new funds into such accounts.

LR-1.3.17D

Banks will be allowed to open RIAs for investments initiated by the investor at his own discretion, where the investor specifies what he wants to invest into and at what time (non-discretionary asset management), including short term investments in the interbank market. This permission is applicable to an investor on an individual basis but not to a group of investors.

LR-1.3.18

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.

LR-1.3.19

Dealing in Shari'a-compliant financial instruments as principal means buying, selling, subscribing for or underwriting any Shari'a-compliant financial instrument on own account.

LR-1.3.20

Rule LR-1.3.19 includes the underwriting of equity and other financial instruments. It also includes the temporary sale of a financial instrument through a repo transaction.

LR-1.3.21

A person does not carry on an activity specified in Rule LR-1.3.19 if the activity relates to the person issuing his own financial instrument.

LR-1.3.22

Dealing in Shari'a-compliant financial instruments as agent means buying, selling, subscribing for or underwriting Shari'a-compliant financial instruments on behalf of a client.

LR-1.3.23

A licensee that carries on an activity of the kind specified by Rule LR-1.3.22 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.

LR-1.3.24

Managing Shari'a-compliant financial instruments means managing on a discretionary basis Shari'a-compliant financial instruments on behalf of another person.

LR-1.3.25

The activities included under the definition of Rule LR-1.3.24 include activities such as asset management.

LR-1.3.26

Safeguarding Shari'a-compliant financial instruments means the safeguarding of Shari'a-compliant financial instruments for the account of clients.

LR-1.3.27

A person does not carry on an activity specified in Rule LR-1.3.26 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 the financial instrument belongs; or else is simply providing a physical safekeeping service such as a deed box.

LR-1.3.28

A person does not carry on an activity specified in Rule LR-1.3.26 if a third person, namely a qualifying custodian, accepts responsibility with regard to the financial instrument.

LR-1.3.29

A "qualifying custodian" means a person who is:

LR-1.3.30

A person does not carry on an activity specified in Rule LR-1.3.26 if they are managing a central depository, which is part of an exchange recognised by CBB.

LR-1.3.31

The following are examples of activities, when taken in isolation, are unlikely to be regarded an activity of the kind specified under Rule LR-1.3.26:

LR-1.3.32

A person undertaking an activity of the kind specified under Rule LR-1.3.26 may also be engaged in the administration of the financial instruments, including related services such as cash/ collateral management.

LR-1.3.33

Operating a collective investment undertaking ('CIU') means operating, establishing or winding up a CIU.

LR-1.3.34

For the purposes of Paragraph LR-1.3.33, a CIU is defined in Volume 7 Paragraph ARR-B.1.1.

LR-1.3.35

[This Paragraph was deleted in January 2013.]

LR-1.3.36

[This Paragraph was deleted in January 2013.]

LR-1.3.37

Arranging deals in Shari'a-compliant financial instruments means making arrangements with a view to another person, whether as principal or agent, buying, selling, subscribing for or underwriting deals in Shari'a-compliant financial instruments.

LR-1.3.38

A person does not carry on an activity specified in Rule LR-1.3.37 if the arrangement does not bring about the transaction to which the arrangement relates.

LR-1.3.39

A person does not carry on an activity specified in Rule LR-1.3.37 if a person's activities are limited solely to introducing clients to licensees.

LR-1.3.40

The exclusion in Rule LR-1.3.39 does not apply if the agent receives from any person, other than the client, any pecuniary reward or other advantage, for 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.

LR-1.3.41

A person does not carry on an activity specified in Rule LR-1.3.37 merely by providing the means of communication between two parties to a transaction.

LR-1.3.42

A person does not carry on an activity specified in Rule LR-1.3.37 if they operate an exchange, duly recognised and authorised by the CBB.

LR-1.3.43

Negotiating terms for an investment on behalf of a client is an example of an activity which maybe regarded as activities of the kind specified in Rule LR-1.3.37.

LR-1.3.44

The following are examples of activities, when taken in isolation, are unlikely to be regarded as an activity of the kind specified in Rule LR-1.3.37:

LR-1.3.45

Advising on Shari'a-compliant 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 particular Shari'a-compliant financial instrument or exercising any right conferred by such a financial instrument.

LR-1.3.46

The following are examples of activities, which may be regarded as an activity as defined by Rule LR-1.3.45:

LR-1.3.46A

For the purpose of Rule LR-1.3.45, advising on financial instruments includes giving digital financial advice also known as 'robo-advice' or 'automated advice' using a computer program and algorithm to generate the advice.

LR-1.3.47

A person does not carry on an activity specified in Rule LR-1.3.45 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:

LR-1.3.48

The following are examples of activities, when taken in isolation, are unlikely to be regarded as an activity as defined by Rule LR-1.3.45:

LR-1.3.49

Means providing exchange facilities between currencies, and the provision of wire transfer or other remittance services.

LR-1.3.50

Means the selling or issuing of payment instruments, or the selling or issuing of stored value (e.g. credit cards, travellers' cheques, electronic purses).

LR-1.3.51

Providing trust services is defined as:

LR-1.3.52

The related ancillary services under sub-paragraph LR-1.3.51(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.

LR-1.3.53

Islamic bank licensees must ensure that the trust services in Paragraph LR-1.3.51 are handled by an independent trust service department within the bank.

LR-1.3.54

Islamic 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.

LR-1.3.58

Providing account information services (AIS) means the activity of obtaining access and the provision of information to customers about their transactions and account balances with other licensees (banks, financing companies or payment service providers) and the handling of communication or electronic documents between the customer and other licensees using an online portal, mobile devices or applications.

LR-1.3.59

Providing payment initiation services (PIS) means the activity of initiating payment or fund transfers for the customer from an account he holds with other licensees.

LR-1.3.60

Islamic 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.

LR-1.3.61

Islamic 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.

LR-1A.1.1

All persons wishing to undertake a controlled function in an Islamic bank licensee must be approved by the CBB prior to their appointment (subject to the variations contained in Rule LR-1A.1.3).

LR-1A.1.2

Controlled functions are those functions occupied by board members and persons in executive positions and include:

LR-1A.1.3

Prior approval is required for all controlled functions in relation to Bahrain operations. Controlled functions (g) and (h) may be combined, however (see also FC-4.1, regarding the MLRO function).

LR-1A.1.4

Approval under Rule LR-1A.1.1 is only granted by the CBB, if it is satisfied that the person is fit and proper to hold the particular position in the licensee concerned. 'Fit and proper' is determined by the CBB on a case-by-case basis. The definition of 'fit and proper' and associated guidance is provided in Sections LR-1A.2 and LR-1A.3 respectively.

LR-1A.1.5

Board members collectively are responsible for the business performance and strategy of the Islamic bank licensee, as outlined in more details in Section HC-1.2.

LR-1A.1.6

When taken as a whole, the board of directors of an Islamic bank licensee must be able to demonstrate that it has the necessary skills and expertise, as outlined in Paragraph HC-1.2.10.

LR-1A.1.7

The Chief Executive or General Manager means a person who is responsible for the conduct of the licensee (regardless of actual title). The Chief Executive or General Manager must be resident in Bahrain. The scope of authority of the CEO and his deputies is outlined in more detail in Subparagraph HC-6.3.2 (a).

LR-1A.1.8

The head of risk management is responsible for the management and control of all risk exposures arising from the activities of the Islamic bank licensee.

LR-1A.1.9

The head of internal audit is responsible for providing independent and objective review on the adequacy and effectiveness of the holistic internal control environment within the Islamic bank licensee. The duties of the head of internal audit are outlined in more detail in Subparagraph HC-6.3.2 (d).

LR-1A.1.9A

The Shari'a Officer in an Islamic bank licensee is responsible for the product design / development stage to assist the Shari'a Supervisory Board (SSB) in the issuance of Shari'a pronouncements / resolutions, Fatawas, guidelines and instructions about the products and services offered. He is also responsible for assisting the management in implementing the Fatawa and rulings of the SSB in the day to day functioning of the licensee. The Shari'a Officer must also assist the Human Resources department in arranging for Shari'a training of the licensee's employees. Refer to SG-3.1 and SG-3.2 for a detailed description of his responsibilities.

LR-1A.1.10

All banks must appoint a senior member of staff with responsibility for the management of compliance risk as their Compliance Officer/Manager.

LR-1A.1.11

The compliance function must be independent (i.e. it must not be placed in a position where its other duties or responsibilities may cause a conflict of interest with its compliance risk management responsibilities). Therefore the compliance function must be separate from the internal audit function. The compliance officer or manager may however, perform other limited related compliance roles (e.g. the MLRO or legal advisor), subject to the CBB's prior approval.

LR-1A.1.12

The compliance function must have adequate resources to carry out its functions effectively.

LR-1A.1.13

The bank must also outline how the compliance function fits into the bank's senior management reporting structure, and must give details of relevant reporting lines within the bank.

LR-1A.1.14

In the case of locally incorporated banks, the compliance officer/manager must have access to the Board of Directors in addition to the senior management.

LR-1A.1.14A

The Head of Internal Shari'a Audit function is responsible for examining and evaluating the extent of the licensee's compliance with the following:

LR-1A.1.15

Heads of other functions, where risk acquisition or control is involved, are responsible for tracking specific functional performance goals in addition to identifying, managing, and reporting critical organisational issues upstream. Certain functions require dealing directly with clients while others do not. Both categories of functions, however, require specific qualifications and experience to meet the objectives as well as compliance requirements of the Islamic bank licensee.

LR-1A.1.16

Where a firm is in doubt as to whether a function should be considered a controlled function it must discuss the case with the CBB.

LR-1A.1.17

Islamic bank licensees must obtain CBB's prior written approval before a person is formally appointed to a controlled function; the request for CBB approval must be made by submitting to CBB a duly completed Form 3 (Application for Approved Person status) and Curriculum Vitae after verifying that all the information contained in Form 3, including previous experience, is accurate. Form 3 is available under in Volume 2 Part B Authorisation Forms of the CBB Rulebook.

LR-1A.1.18

When the request for approved person status forms part of a license application, the Form 3 must be marked for the attention of the Director, Licensing Directorate. When the submission to undertake a controlled function is in relation to an existing Islamic bank licensee, the Form 3 must be marked for the attention of the Director, Islamic Financial Institutions Supervision. In the case of the MLRO or DMLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.

LR-1A.1.18A

When submitting Form 3, Islamic bank licensees must ensure that the Form 3 is:

LR-1A.1.18B

Islamic bank licensees seeking to appoint Board Directors must seek CBB approval for all the candidates to be put forward for election/approval at a shareholders' meeting, in advance of the agenda being issued to shareholders. CBB approval of the candidates does not in any way limit shareholders' rights to refuse those put forward for election/approval.

LR-1A-1.18C

For existing Islamic bank licensees applying for the appointment of a Board Director or the Chief Executive/General Manager, the authorised representative should be the Chairman of the Board or a Director signing on behalf of the Board. For all other controlled functions, the authorised representative should be the Chief Executive/General Manager, or a suitably senior representative of the bank.

LR-1A.1.19

[This Paragraph was deleted in January 2016.]

LR-1A.1.20

[This Paragraph was moved to Paragraph LR-1A.1.18B in January 2016.]

LR-1A.1.20A

The CBB shall review and assess the application for approved person status to ensure that it satisfies all the conditions required in Paragraph LR-1A.2.6 and the criteria outlined in Paragraph LR-1A.2.7.

LR-1A.1.20B

For purposes of Paragraph LR-1A.1.20A, licensees should give the CBB a reasonable amount of notice in order for an application to be reviewed. The CBB shall respond within 15 business days from the date of meeting all required conditions and regulatory requirements, including but not limited to, where referral to an overseas supervisor is required and receiving the application complete with all the required information and documents as well as verifying references and interviewing the applicant. The CBB will advise the Islamic bank licensee once the application is considered complete.

LR-1A.1.20C

The CBB reserves the right to refuse an application for approved person status if it does not satisfy the conditions provided for in Paragraph LR-1A.2.6 and does not satisfy the CBB criteria in Paragraph LR-1A.2.7. A notice of such refusal is issued by registered mail to the licensee concerned, setting out the basis for the decision.

LR-1A.1.21

[This Paragraph was deleted in January 2016.]

LR-1A.1.21A

Islamic bank licensees or the nominated approved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application for approved person status. The CBB shall decide on the appeal and notify the licensee of its decision within 30 calendar days from the date of submitting the appeal.

LR-1A.1.21B

When notification of the CBB's decision to grant a person approved person status is not issued within 15 business days from the date of meeting all required conditions and regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, Islamic bank licensees or the nominated approved person may appeal to the Executive Director, Banking Supervision of the CBB provided that the appeal is justified with supporting documents. The CBB shall decide on the appeal and notify the Islamic bank licensee of its decision within 30 calendar days from the date of submitting the appeal.

LR-1A.1.22

Islamic bank licensees must immediately notify the CBB when an approved person, for whatever reason, ceases to hold the controlled function for which they have been approved (i.e. transferred to another function within the bank, or to another group entity, or else has resigned, been suspended or dismissed). The notification must include the reasons for the action taken.

LR-1A.1.23

[Rule moved to Paragraph BR-5.1.17 in April 2014.]

LR-1A.1.24

[This Paragraph was deleted in April 2014.]

LR-1A.1.25

If a controlled function falls vacant, the Islamic bank licensee must appoint a permanent replacement (after obtaining CBB approval), within 120 calendar days of the vacancy occurring. Pending the appointment of a permanent replacement, the Islamic bank licensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of the controlled function affected. These interim arrangements must be approved by the CBB.

LR-1A.1.26

Islamic bank licensees must immediately notify the CBB should they become aware of information that could reasonably be viewed as calling into question an approved person's compliance with CBB's 'fit and proper' requirement (see LR-1A.2).

LR-2.5.1

Islamic bank licensees must maintain a level of financial resources, as agreed with the CBB, 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

This paragraph was deleted in April 2017.

LR-2.5.2A

All Bahraini Islamic retail bank licensees must maintain a minimum total shareholders' equity of BD 100 million.

LR-2.5.2B

All Bahraini Islamic wholesale bank licensees must maintain a minimum total shareholders' equity of US$100 million.

LR-2.5.3

Persons seeking a license as an Islamic 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 an Islamic 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

Foreign bank 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. Foreign bank 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 Islamic retail bank licensees, funds placed with the bank by way of call and/or unrestricted investment accounts (or similar) must not exceed 20 times their capital and reserves.

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.

LR-2.5.8

Islamic bank licensees must maintain sufficient liquid assets to meet their obligations as they fall due in the normal course of their business.

LR-2.5.9

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

LR-2.5.10

Islamic bank licensees must maintain a minimum daily cash reserve balance with the CBB, set as a ratio of their total non-bank Bahrain Dinar funds, whether placed by way of call or unrestricted investment accounts (or similar), as well as taken through the issuance of Bahrain Dinar denominated Islamic investment certificates. The current required ratio is 5% and may be varied by the CBB at its discretion.

LR-2.8.1

Article 59 of the CBB Law requires that Islamic bank licensees must maintain comprehensive books of accounts and other records, and satisfy the minimum record-keeping requirements contained in Article 60 of the pre-mentioned Law and in Module OM. Books of accounts must comply with the Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), or with International Financial Reporting Standards (IFRS) / International Accounting Standards (IAS), where no relevant AAOIFI standard exists.

LR-2.8.2

Articles 58, 111, 114 and 163 of the CBB Law require that Islamic bank licensees and their staff must act in an open and cooperative manner with the CBB. Islamic bank licensees must meet the regulatory reporting and public disclosure requirements contained in Modules BR and PD respectively. As per Article 62 of the CBB Law, annual audited financial statements must be submitted to the CBB within 3 months of the licensee's financial year-end.

LR-2.8.3

Islamic bank licensees must conduct their activities in a professional and orderly manner, in keeping with good market practice. Islamic 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.

LR-2.8.4

[This paragraph has been moved to chapter LR-4 in October 2007]

LR-2.8.5

[This paragraph has been deleted in October 2007]

LR-2.8.6

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

LR-2.8.7

Bank licensees are subject to the provisions of the CBB Law. These include the right of the CBB to impose such terms and conditions, as it may deem necessary when issuing a license, as specified in Article 45 of the pre-mentioned Law. Thus, when granting a license, the CBB 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 CBB may impose additional restrictions or requirements, beyond those already specified in Volume 2, to address specific risks. For instance, a license may be granted subject to strict limitations on intra-group transactions.

LR-2.8.9

Islamic retail bank licensees are subject to the deposit protection scheme of eligible deposits held with the Bahrain offices of the licensee, with respect to certain of their liabilities (see Chapter CP-2). This Rule is supported by Article 177 of the CBB Law.