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  • LR-A LR-A Introduction

    • LR-A.1 LR-A.1 Purpose

      • LR-A.1.1

        The Licensing Requirements Module sets out the BMA's approach to licensing Islamic bank licensees.

      • LR-A.1.2

        The Module builds on the legal requirements contained in Decree Law No. (23) of 1973 (the BMA Law 1973). The Module is issued under legal powers granted to the BMA under the BMA Law 1973, notably Articles 56 to 69.

      • Licensing Requirement

        • LR-A.1.3

          Persons wishing to undertake regulated Islamic banking services are required to be licensed by BMA 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. All 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 licensee, 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, providing these are in conformity with Shari'a economic principles.

      • License Categories

        • LR-A.1.5

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

        • LR-A.1.6

          Islamic retail bank licensees may undertake transactions in any currency, with both Bahraini residents and non-residents. To qualify as an Islamic retail bank licensee, 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 bank licensees may also undertake transactions without restriction, when dealing with the Government of Bahrain and its agencies; BMA 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 (in summary, BD 7 million or more for the activities of taking Shari'a money placements/deposits, and offering Shari'a financing contracts, and US$ 250,000 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 overseas Islamic bank licensees. The same naming convention applies to the two sub-categories of Islamic bank license: thus, Bahraini Islamic retail bank licensees and Bahraini Islamic wholesale bank licensees are those incorporated in Bahrain, whilst overseas Islamic retail bank licensees and overseas Islamic wholesale bank licensees are those incorporated in an overseas jurisdiction and operating in Bahrain via a branch presence.

      • Licensing Conditions

        • 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 BMA Rulebook, to other license categories, and are consistent with international good practice, such as relevant Basel Committee and IFSB (Islamic Financial Services Board) standards.

      • Retaining Licensed Status

        • 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.

      • Information Requirements and Processes

        • 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 BMA.

      • Representative Offices and Ancillary Services Providers

        • LR-A.1.12

          Representative offices of overseas Islamic bank licensees are not covered in Volume 2 (Islamic Banks) of the Rulebook. Requirements covering Representative Offices (for all financial services firms) will instead be included in Volume 5, to be issued in 2007.

        • LR-A.1.13

          Until such time as Volume 5 (Specialised Activities) of the BMA Rulebook is issued, representative offices of overseas Islamic bank licensees remain subject to the requirements contained in the BMA's "Standard Conditions and Licensing Criteria" applicable to representative offices of foreign banks, and relevant existing Circulars.

        • LR-A.1.14

          Providers of ancillary services to the financial sector are not covered in Volume 2 (Islamic Banks) of the Rulebook. Requirements covering ancillary services providers will instead be included in Volume 5, to be issued in 2007.

        • LR-A.1.15

          Until such time as Volume 5 (Specialised Activities) of the BMA Rulebook is issued, ancillary services providers remain subject to the requirements contained in the BMA's "Standard Conditions and Licensing Criteria" applicable to providers of ancillary services to the financial sector, and relevant existing Circulars.

      • Updating the BMA Rulebook

        • LR-A.1.16

          Unless the context suggests otherwise, references elsewhere in Volume 2 to Full Commercial Bank should be taken as referring to Islamic retail bank licensees, and references to Offshore Banking Units and Investment Bank Licensees should be taken as referring to Islamic wholesale bank licensees. References to the previous bank license categories that applied prior to 1 July 2006 will be gradually updated over time, across the rest of Volume 2.

    • LR-A.2 LR-A.2 Module History

      • Evolution of Module

        • 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 BMA 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 BMA'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 BMA 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.2.4

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

          Module Reference Change Date Description of Changes
          Whole Module 07/2006 Whole Module reissued to reflect integrated license framework: new license categories and updated licensing conditions introduced.
               

      • Superseded Requirements

        • LR-A.2.5

          The initial January 2005 version of this Module superseded various circulars and other requirements relating to licensing. Some of these circulars were combined in 1997 into a licensing folder ("Part 1: Licensing", which formed part of the three volume information pack, "The Establishment, regulations and supervision of banks and other financial institutions in Bahrain"). The requirements contained in these circulars were transposed into the initial January 2005 version of this Module unchanged, as follows:

          Circular Reference Date of Issue Module Ref.
          (July 2004 version)          		 Circular Subject
          5/77 08/03/77 LR-B.1.1, LR-3.3 Permitted Business Transactions with residents
          OG/16/90 10/01/90 LR-2.3, LR-3.3 Dealing with Residents
          OG/192/98 16/06/98 LR-4 Financial Trust Regulation
          No reference 04/81 LR-5 Precious Metals and Commodities
          BS/07/04 06/05/04 LR-6 Record Keeping Requirements