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  • LR-3 LR-3 Information Requirements and Processes

    • LR-3.1 LR-3.1 Licensing

      • LR-3.1.1

        The application process for an Islamic bank license consists of two parts: Phase 1 and Phase 2. For Phase 1, applicants for a license must submit a duly completed Form 1 (Phase 1) (Application for a License), under cover of a letter signed by an authorized signatory of the applicant marked for the attention of the Director, Licensing and Policy Directorate. The application must be accompanied by the documents listed in Paragraph LR-3.1.5, unless otherwise directed by the BMA.

      • LR-3.1.2

        If, after submission of a duly completed Form 1 (Phase 1) and associated documents, an applicant is granted a conditional (in principle) approval for a license, the applicant must submit Form 1 (Phase 2), together with the documents referred to in Paragraph LR-3.1.10.

      • LR-3.1.3

        When referring to the applicant, reference is made to the proposed licensee seeking an Islamic bank license. The applicant may choose to have an authorized representative, acting on its behalf. In instances where the applicant uses an authorized representative, the application form should provide all details regarding the authorized representative and is to be signed by both the applicant and authorized representative.

      • LR-3.1.4

        Islamic bank licensees, who were licensed prior to the publication of the new LR Module of Volume 2, do not need to resubmit an application for a license. Their license category, and the scope of their authorization, will be confirmed in an exchange of letters, and by re-issuing their license certificate.

      • LR-3.1.5

        Unless otherwise directed by the BMA, the following documents must be provided as Part of Phase 1 in support of a license application:

        (a) a duly completed Form 2 (Application for Authorisation of Controller) for each controller of the proposed licensee;
        (b) a duly completed Form 3 (Application for Approved Person status), for each proposed Director of the proposed licensee;
        (c) a comprehensive business plan for the application, addressing the matters described in LR-3.1.6;
        (d) for overseas banks, a copy of the bank's current commercial registration or equivalent documentation;
        (e) where the applicant is a registered institution, a copy of the applicant's commercial registration;
        (f) where the applicant is a corporate body, a certified copy of a Board resolution of the applicant, confirming its decision to seek a BMA Islamic bank license;
        (g) in the case of applicants that are part of a regulated group, a letter of non-objection to the proposed license application from the applicant's home supervisor, together with confirmation that the group is in good regulatory standing and is in compliance with applicable supervisory requirements, including those relating to capital adequacy and solvency requirements;
        (h) in the case of overseas branch applicants, a letter of non-objection to the proposed license application from the applicant's home supervisor, together with confirmation that the applicant is in good regulatory standing and is in compliance with applicable supervisory requirements, including those relating to capital adequacy requirements;
        (i) in the case of branch applicants, copies of the audited financial statements of the applicant (head office) for the three years immediately prior to the date of application; and
        (j) in the case of other applicants, copies of the audited financial statements of the applicant's major shareholder and/or group (as directed by the BMA), for the three years immediately prior to the date of application.

      • LR-3.1.6

        The business plan submitted in support of an application should explain:

        (a) an outline of the history of the applicant and its shareholders;
        (b) the reasons for applying for a license, including the applicant's strategy and market objectives;
        (c) the proposed type of activities to be carried on by the applicant in/from the Kingdom of Bahrain;
        (d) the proposed Board and senior management of the applicant and the proposed organisational structure of the applicant;
        (e) an assessment of the risks that may be faced by the applicant, together with the proposed systems and controls framework to be put in place for addressing those risks and to be used for the main business functions; and
        (f) an opening balance sheet for the applicant, together with a three-year financial projection, with all assumptions clearly outlined, demonstrating that the applicant will be able to meet applicable capital adequacy and liquidity requirements.

      • LR-3.1.7

        The applicant's memorandum and articles of association must explicitly provide for it to undertake the activities proposed in the licensed application, and must preclude the applicant from undertaking other commercial activities, unless these arise out of its banking activities or are incidental to those.

      • LR-3.1.8

        In the case of a new bank's capital being financed by a private placement, the Private Placement Memorandum must also be submitted to BMA for its approval as part of the Phase 2 documentation.

      • LR-3.1.9

        The purpose of Rule LR-3.1.8 is to allow BMA to verify that the contents of the Private Placement Memorandum are consistent with other information supplied to BMA, notably in the business plan, and otherwise meets any applicable regulatory requirements with respect to PPM documents. The BMA's review of the PPM does not in any way constitute an approval or endorsement as to any claims it may contain as to the future value of the proposed bank.

      • LR-3.1.10

        As part of Phase 2 of the licensing application process, unless otherwise directed by the BMA, the following documents and information must be provided:

        (a) a duly completed Form 3 (Application for Approved Person status), for each individual, (other than for Directors, submitted as part of Phase 1) applying to undertake controlled functions in the applicant;
        (b) a draft copy of the applicant's memorandum and articles of association, addressing the matters described in LR-3.1.7;
        (c) a letter of guarantee from the applicant's major shareholder, confirming its willingness to support the proposed licensee in case of need; and
        (d) in the case of overseas branch applicants, a letter of guarantee from the applicant's head office, confirming responsibility for all of the liabilities of the proposed branch, together with evidence of the power to give such a guarantee.

      • LR-3.1.11

        All documentation provided to the BMA as part of an application for a license must be in either the Arabic or English languages. Any documentation in a language other than English or Arabic must be accompanied by a certified English or Arabic translation thereof.

      • LR-3.1.12

        Any material changes or proposed changes to the information provided to the BMA in support of an authorisation application that occurs prior to authorisation must be reported to the BMA.

      • LR-3.1.13

        Failure to inform BMA of the changes specified in LR-3.1.12 is likely to be viewed as a failure to provide full and open disclosure of information, and thus a failure to meet licensing condition LR-2.8.2.

      • LR-3.1.14

        As part of the Phase 1 review of application process, the BMA 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 BMA. Once an "in principal" approval has been granted for Phase 1, the applicant must submit within 6 months of the "in principal" approval, all requirements for Phase 2 as outlined in Paragraph LR-3.1.10. The BMA will provide a final decision within 30 calendar days of all Phase 2 documentation having been submitted in a form acceptable to the BMA. Applicants are encouraged to approach the BMA to discuss their application at an early stage, so that any specific questions can be dealt with prior to the finalisation of the application.

      • LR-3.1.15

        Within 6 months of the license being issued, the new licensee must provide to the BMA:

        (a) a detailed action plan for establishing the operations and supporting infrastructure of the bank, such as the completion of written policies and procedures, and recruitment of remaining employees (having regard to the time limit set by Article 66 of the BMA Law 1973);
        (b) the registered office address and details of premises to be used to carry out the business of the proposed licensee;
        (c) the address in the Kingdom of Bahrain where full business records will be kept;
        (d) the licensee's contact details including telephone and fax number, e-mail address and website;
        (e) a description of the business continuity plan;
        (f) a description of the IT system that will be used, including details of how IT systems and other records will be backed up;
        (g) a copy of the auditor's acceptance to act as auditor for the applicant;
        (h) a copy of the Ministry of Industry & Commerce commercial registration certificate; and
        (i) other information as may be specified by the BMA.

      • LR-3.1.16

        Applicants issued new licenses by the BMA must start operations within 6 months of the license being issued, as per Article 66 of the BMA Law 1973.

      • LR-3.1.17

        Applicants who are refused a license have a right of appeal under the provisions contained in Article 68 of the BMA Law 1973.

    • LR-3.2 LR-3.2 Variations to a License

      • LR-3.2.1

        Islamic bank licensees must seek prior BMA approval before undertaking new regulated Islamic banking services.

      • LR-3.2.2

        Failure to secure BMA approval prior to undertaking a new regulated activity may lead to enforcement action being taken against the licensee concerned.

      • LR-3.2.3

        In addition to any other information requested by the BMA, and unless otherwise directed by the BMA, an Islamic bank licensee requesting BMA approval to undertake a new regulated Islamic banking service must provide the following information:

        (a) a summary of the rationale for undertaking the proposed new activities;
        (b) a description of how the new business will be managed and controlled;
        (c) an analysis of the financial impact of the new activities; and
        (d) a summary of the due diligence undertaken by the Board and management of the Islamic bank licensee on the proposed new activities.

    • LR-3.3 LR-3.3 Withdrawal of a License

      • Voluntary Surrender

        • LR-3.3.1

          All requests for the voluntary surrender of a license are subject to BMA approval. Such requests must be made in writing to the Executive Director of Banking Supervision, setting out in full the reasons for the request and how the voluntary surrender is to be carried out.

        • LR-3.3.2

          Islamic bank licensees must satisfy BMA that their customers' interests are to be safeguarded during and after the proposed voluntary surrender.

        • LR-3.3.3

          The BMA will only approve a voluntary surrender where it has no outstanding regulatory concerns and any relevant customers' interests would not be prejudiced. A voluntary surrender will not be accepted where it is aimed at pre-empting supervisory actions by the BMA. Also, a voluntary surrender will only take effect once the licensee, in the opinion of the BMA, has discharged all its regulatory responsibilities to customers.

      • Cancellation

        • LR-3.3.4

          Cancellation of a license requires BMA to issue a formal notice of cancellation to the person concerned. The notice of cancellation must describe the BMA's rationale for the proposed cancellation.

        • LR-3.3.5

          Failure to meet the relevant conditions contained in Chapter LR-2 can lead to cancellation of a license. The BMA generally views cancellation of a license as appropriate only in the most serious of circumstances, and generally tries to address supervisory concerns through other means beforehand. Further guidance is contained in Module EN (Enforcement), regarding BMA's approach to enforcement and on the process for issuing a notice of cancellation and the recipient's right to appeal the notice.

        • LR-3.3.6

          Normally, where cancellation of a license has been confirmed by BMA, BMA will only effect the cancellation once a licensee has discharged all its regulatory responsibilities to customers. Until such time, BMA will retain all its regulatory powers with regards to the licensee, and will direct the licensee such that no new regulated banking activity may be undertaken whilst the licensee discharges its obligations to customers.