• EN EN Enforcement

    • EN-A EN-A Introduction

      • EN-A.1 EN-A.1 Application

        • EN-A.1.1

          Chapters EN-1 to EN-4 and EN-6 to EN-9 inclusive apply to licensees. Chapters EN-2 to EN-5 and EN-10 apply to the Directors and employees of licensees.

      • EN-A.2 EN-A.2 Purpose

        • EN-A.2.1

          This module sets out the Agency's approach to enforcement, and the mechanisms used by the Agency to address failures by licensees to comply with its regulatory requirements. The purpose of such measures is to encourage a high standard of compliance by the Agency licensees, thus reducing risk to their customers and the rest of the financial system.

        • EN-A.2.2

          This module provides support for all other modules of the Rulebook.

      • EN-A.3 EN-A.3 Regulation history

        • EN-A.3.1

          This module was first issued on 1st January 2005 as part of the Islamic principles volume. All regulations in this volume have been effective since this date. All subsequent changes are dated with the month and year at the base of the relevant page and in the Table of Contents. Chapter UG-3 of Module UG provides further details on Rulebook maintenance and control.

        • EN-A.3.2

          A list of the most recent changes made to this module are detailed in the table below:

          Summary of changes

          Module Ref. Change Date Description of Changes
          EN-7 01/07/06 Addition of procedures for "Appointed Experts" (relocated from AU-4)
               
               
               
               

        • Evolution of the Module

          • EN-A.3.3

            The module incorporates the requirements set out under Circular No. ODG/249/2004 dated 22 July 2004 relating to the Agency's approach to enforcement.

        • Effective date

          • EN-A.3.4

            The contents in this module are effective from 1st September 2004. However, the contents of other modules referred to herein are effective from the dates specified in those respective modules.

    • EN-1 EN-1 General procedures

      • EN-1.1 EN-1.1 The Agency's approach to enforcement

        • EN-1.1.1

          The Agency favours an open, pragmatic and collaborative relationship with its licensees, within the boundaries set by the law and BMA regulations. Whilst the Agency wishes to avoid a legalistic and confrontational style of supervision, it believes that effective supervision requires effective enforcement of its requirements. Should licensees fail to cooperate, then the Agency will use the means described in this module to achieve compliance.

        • EN-1.1.2

          In the Agency's view, it is generally neither practical nor effective to prescribe in detail the exact regulatory response for each and every potential contravention. There are a large number of potential contraventions. Moreover, individual circumstances are unlikely to be identical in all cases, and may warrant different responses.

        • EN-1.1.3

          In deciding any given regulatory response, the Agency will nonetheless consistently assess the individual circumstance of each contravention against the principles described in this module. The Agency's overall approach is to take into account:

          (a) the seriousness of the contravention concerned (including the risks posed to the licensee's customers and other market participants);
          (b) the compliance track record of the licensee concerned (including the extent to which the contravention reflects systemic weaknesses or reckless behaviour); and
          (c) which measures are most likely to achieve the desired result of remedying the contravention.

        • EN-1.1.4

          Such an approach reduces the risk of inappropriate enforcement actions, by allowing regulatory measures to be tailored to individual circumstances. By taking into account a licensee's compliance record and attitude, it also creates positive incentives and encourages an open and collaborative approach. By assessing individual cases against the same broad principles, the Agency also aims to achieve an overall consistency in its regulatory actions.

        • EN-1.1.5

          Underlying the Agency's approach outlined in paragraph EN-1.1.3 is the fundamental principle of proportionality. The enforcement measures contained in this module are of varying severity, and will be used accordingly in keeping with the Agency's assessment of the contravention. Thus, the Agency will reserve its most serious enforcement measures — such as cancellation of license or withdrawal of "fit and proper" status — for the most serious contraventions.

        • EN-1.1.6

          In keeping with the proportionality principle, and to the extent consistent with the Agency's enforcement approach in paragraph EN-1.1.3, the Agency will usually opt for the least severe of appropriate enforcement measures. In most cases, the Agency expects to use a Formal Notice before resorting to more severe measures; the need for further measures will then usually be dependent on the response of the licensee or individual concerned.

        • EN-1.1.7

          Where a significant element of judgment is required to assess compliance with a requirement, then the Agency will usually discuss the matter with the licensee or individual concerned, before using one of this module's enforcement mechanisms. This is likely to be the case, for example, with respect to requirements for adequate systems and controls. Conversely, where there are clear-cut contraventions of the BMA's requirements, then the Agency will usually move immediately to one or more of the enforcement mechanisms outlined in this module. This is more likely to occur in cases where quantitative requirements — such as those relating to capital and/or large exposures — are concerned. In most such cases, though, the Agency also expects to continue an active dialogue with the licensee or individual concerned, aimed at remedying the contravention.

        • EN-1.1.8

          Except in the limited circumstances outlined below, the Agency will usually only apply an enforcement measure after the licensee or person concerned has been given a suitable opportunity to make representations. In the case of measures described in chapters EN-8 to EN-10, certain procedures are set out in the 1973 BMA Decree — Law No. (23) of 1973.

      • EN-1.2 EN-1.2 Prohibition on insurance

        • EN-1.2.1

          To help the Agency achieve the purpose of this module, licensees may not enter into or make a claim under a contract of insurance that is intended to, or has the effect of, indemnifying them from the fines provided for in this module.

      • EN-1.3 EN-1.3 Publicity

        • EN-1.3.1

          The Agency will not as a matter of general policy publicise individual cases when it uses the measures set out in chapters EN-2 to EN-7. However, in such cases the Agency may inform the licensee's external auditors and — in the case of licensees with overseas operations — relevant overseas regulators.

        • EN-1.3.2

          In exceptional circumstances, the Agency may decide to publicise individual cases when the measures set out in chapters EN-2 to EN-7 are used, where there is a strong case that doing so would help achieve the Agency's supervisory objectives. In such instances, the Agency will usually allow the licensee or individual concerned the opportunity to make representations to the Agency before a public statement is issued.

        • EN-1.3.3

          With respect to the financial penalties provided for in chapter EN-6, licensees are required to disclose in their annual reports the amount of any such penalties paid to the Agency, together with a factual description of the reason(s) given by the Agency for the penalty.

        • EN-1.3.4

          Without prejudice to the above policy, the Agency may from time to time publish aggregate information on its use of measures set out in chapters EN-2 to EN-7, without identifying the licensees or individuals concerned, unless their identities have previously been disclosed as provided for in paragraphs EN-1.3.2 or EN-1.3.3.

        • EN-1.3.5

          By their nature, the penalties in chapters EN-8 to EN-10 inclusive are public acts, once applied. The Agency will in these instances generally issue a public statement explaining the circumstances of the case.

    • EN-2 EN-2 Formal warnings

      • EN-2.1 EN-2.1 BMA policy

        • EN-2.1.1

          Formal Warnings are clearly identified as such and represent the Agency's first level formal enforcement measure. They are intended to clearly set out the Agency's concerns to a licensee or an individual regarding an issue, and should be viewed by the recipient with the appropriate degree of seriousness.

        • EN-2.1.2

          As indicated in section EN-1.1, the Agency will usually discuss concerns prior to resorting to a formal enforcement measure, especially where a significant element of judgment is required in assessing compliance with a regulatory requirement.

        • EN-2.1.3

          Where such discussions fail to resolve matters to the Agency's satisfaction, then it may issue a Formal Warning. Failure to respond adequately to a Formal Warning will lead the Agency to consider more severe enforcement measures. However, more severe measures do not require the prior issuance of a Formal Warning — depending on its assessment of the circumstances, Agency may decide to have immediate recourse to other measures. Similarly, there may be circumstances where Agency issues a Formal Warning without prior discussion with the licensee or person concerned: this would usually be the case where a clear-cut compliance failing has occurred.

        • EN-2.1.4

          When considering whether to issue a Formal Warning, the criteria taken into consideration by the Agency therefore include the following:

          (a) the seriousness of the actual or potential contravention, in relation to the requirement(s) concerned and the risks posed to the licensee's customers, market participants and other stakeholders;
          (b) in the case of an actual contravention, its duration and/or frequency of the contravention; the extent to which it reflects more widespread weaknesses in controls and/or management; and the extent to which it was attributable to deliberate or reckless behaviour; and
          (c) the extent to which the Agency's supervisory objectives would be better served by issuance of a Formal Notice as opposed to another type of regulatory action.

      • EN-2.2 EN-2.2 Procedure for issuing Formal Warnings

        • EN-2.2.1

          Proposals to issue Formal Warnings are carefully considered against the criteria listed in Section EN-2.1. They require approval of a Director or more senior BMA official, and include the statement "This is a Formal Warning as defined in Chapter EN-2 of the BMA Rulebook".

        • EN-2.2.2

          Depending on the issue in question, recipients of a Formal Warning may be required to respond to the contents of the Warning. (In other cases, recipients may also respond should they wish to.) Given its nature, there is no provision for recipients to challenge the issuance of a Warning.

    • EN-3 EN-3 Directions

      • EN-3.1 EN-3.1 BMA policy

        • EN-3.1.1

          The Agency may issue Directions to licensees or individuals under supervisory powers granted to it by the BMA Decree — Law No. 23 of 1973 ("BMA Law"). These powers are broad in nature, and effectively allow the Agency to issue whatever Directions it reasonably believes are required to achieve its statutory objectives.

        • EN-3.1.2

          The types of Directions that the Agency may issue in practice vary and will depend on the individual circumstances of a case. Generally, however, Directions require a licensee or individual to undertake specific actions in order to address or mitigate certain perceived risks. They may also include restrictions on a licensee's activities until those risks have been addressed — for instance, a ban on the acceptance of new customers.

        • EN-3.1.3

          The Agency is conscious of the powerful nature of a Direction and, in the case of a licensee, the fact that it subordinates the role of its Board and management on a specific issue. The Agency will carefully consider the need for a Direction, and whether alternative measures may not achieve the same end. Where feasible, the Agency will try to achieve the desired outcome through persuasion, rather than recourse to a Direction.

        • EN-3.1.4

          In considering whether to issue a Direction, the criteria taken into consideration by the Agency include the following:

          (a) the seriousness of the actual or potential contravention, in relation to the requirement(s) concerned and the risks posed to the licensee's customers, market participants and other stakeholders;
          (b) in the case of an actual contravention, its duration and/or frequency of the contravention; the extent to which it reflects more widespread weaknesses in controls and/or management; and the extent to which it was attributable to deliberate or reckless behaviour; and
          (c) the extent to which the Agency's supervisory objectives would be better served by issuance of a Direction as opposed to another type of regulatory action.

      • EN-3.2 EN-3.2 Procedure for issuing Directions

        • EN-3.2.1

          Proposals to issue Directions are carefully considered against the criteria listed in section EN-3.1. They require approval of an Executive Director or more senior official of the Agency, and include the statement "This is a formal Direction as defined in Chapter EN-3 of the BMA Rulebook".

        • EN-3.2.2

          The subject of the Direction will normally be given 10 business days from the Direction's date of issuance in which to make representations to the Agency concerning the actions required. This must be done in writing, and addressed to the issuer of the original notification. Should a representation be made, the Agency will make a final determination, again normally within 10 business days of the date of the representation. Where urgent action is required, the Agency may reduce the period allowed for representations.

        • EN-3.2.3

          In extreme circumstances, where the Agency believes that immediate action is required to prevent real damage to Bahrain's financial markets, its users or to customers of the licensee concerned, it may not be practical to allow a right of representation. In such cases, the Agency must state a justification for the withdrawal of the right to make representations.

    • EN-4 EN-4 Formal requests for information

      • EN-4.1 EN-4.1 Procedure

        • EN-4.1.1

          As part of its on-going supervision, the Agency may specifically request information or temporary reporting from a licensee or individual. Recipients of such requests are bound to respond to such requests under the terms of their license. Such requests are in effect a type of Direction.

        • EN-4.1.2

          Henceforward, to clearly identify such requests, they will always be made in writing, under signature of a Director or more senior official of the Agency; will include the statement "This is a formal request for information as defined in Chapter EN-4 of the BMA Rulebook"; and will state the deadline by which the information is to be communicated to the Agency.

        • EN-4.1.3

          Failure to respond to such formal requests within the deadline set will be viewed as a significant breach of regulatory requirements and will incur a Formal Warning or other enforcement measure, as decided by the Agency depending on the circumstances of the case.

        • EN-4.1.4

          The deadline set in the request will vary depending on individual circumstances, but will in all cases be reasonable. A recipient may submit a case for an extension to the deadline, providing the request is made before the original deadline has passed. The Agency will respond before the original deadline has passed; if it fails to do so, then the requested extension will apply. Whilst waiting for a reply, the recipient must assume that the original deadline will apply.

        • EN-4.1.5

          The above procedures do not prevent individual Agency supervisors making oral requests for information as part of their day-to-day interaction with licensees. The Agency expects licensees to maintain their cooperative response to such requests; however, in the interests of clarity, the Agency will not view failures to respond to oral requests as a breach of regulatory requirements.

    • EN-5 EN-5 Adverse "fit and proper" findings

      • EN-5.1 EN-5.1 Requirements for individuals

        • EN-5.1.1

          Article 85 of the BMA Decree — Law No. 23 of 1973 ("BMA Law") provides that any Director, manager or official responsible for the direction or management of a licensee, is to be considered removed from office should he be convicted by a court for a crime affecting his honesty; is declared bankrupt by a court; or if a court rules that his legal capacity is totally or partially impaired.

        • EN-5.1.2

          The Agency's standard conditions and licensing criteria, issued pursuant to Article 59 of the BMA Law, require that management and staff of a licensee should be adequately qualified and experienced.

        • EN-5.1.3

          In addition, chapter HC-2 specifies that all persons wishing to hold or holding the position of Director, Chief Executive/General Manager or Manager in a licensee must be assessed by the Agency as "fit and proper" to hold such a position. The chapter specifies various factors that the Agency takes into account when reaching such a decision.

        • EN-5.1.4

          In interpreting the term "manager" for the purposes of Article 85 of the BMA Decree — Law No. 23 of 1973, the Agency uses the definition given in chapter HC-2. The same definition applies when the term "manager" is used in other modules, unless a different definition is explicitly provided for in the module concerned.

      • EN-5.2 EN-5.2 BMA policy

        • EN-5.2.1

          The Agency is conscious of the impact that assessing someone as not "fit and proper" may have on an individual. Such assessments are carefully reviewed in the light of all relevant facts. The criteria used in reaching a decision include the following:

          (a) the extent to which the factors set out in the BMA Law and chapter HC-2 have not been met;
          (b) the extent to which the person has deliberately or recklessly breached requirements of the BMA Law or BMA regulations;
          (c) the person's past compliance record and conduct following any such contravention;
          (d) the length of time since factors indicating a lack of fitness or propriety occurred; and
          (e) the risk the person poses to licensees and their customers.

        • EN-5.2.2

          In assessing evidence, the Agency applies a lower threshold than is applied in a criminal court of law, reflecting the administrative nature of the sanction. The Agency may also take into account the cumulative effect of factors which, when considered individually, may not in themselves be sufficient to justify an adverse "fit and proper" finding.

        • EN-5.2.3

          The Agency may also take into account the particular function being undertaken in the licensee by the individual concerned, and the size and nature of the licensee itself, particularly when assessing the suitability of a person's experience or qualifications. Thus, the fact that a person was deemed "fit and proper" for a particular position in a particular firm does not necessarily mean he would be suitable in a different position or in a different firm.

      • EN-5.3 EN-5.3 Procedure for issuing an adverse finding

        • EN-5.3.1

          All proposals for issuing an adverse "fit and proper" finding are subject to a thorough review by the Agency of all relevant facts, assessed against the criteria outlined in section EN-5.2. In some instances, it may be appropriate for the Agency to request the licensee or person concerned to provide further information, in order to help reach a decision.

        • EN-5.3.2

          All adverse findings have to be approved by an Executive Director of the Agency. A notice of intent is issued to the person concerned, and copied to the Board/senior management of the licensee as appropriate, setting out the circumstances and the basis for the Agency's proposed adverse finding. The person has 30 calendar days from the date of the notice in which to make written representations, addressed to the Executive Director concerned, failing which a final notice is issued by the Agency.

        • EN-5.3.3

          If representations are made, then the Agency has 30 days from the date of the representation in which to consider any mitigating evidence submitted and make a final determination.

    • EN-6 EN-6 Financial penalties

      • EN-6.1 EN-6.1 BMA Policy

        • EN-6.1.1

          The Agency may on a very selective basis impose financial penalties on licensees. Their use is generally limited to situations where major breaches of regulatory requirements have taken place and a licensee has failed to respond in an acceptable manner to the concerns expressed by the Agency. Financial penalties are thus normally preceded by the issuance of a Formal Notice and/or Direction.

        • EN-6.1.2

          The level of financial penalty applied is determined by the nature of the contravention and the amount of additional supervisory attention and resources taken up by a licensee's behaviour. The maximum penalty, however, is capped at BD 20,000. The Agency intends that the impact of a penalty should derive more from its signaling effect than from the actual amount of money involved.

        • EN-6.1.3

          As indicated in section EN-1.3, the Agency requires disclosure by licensees in their annual reports of any financial penalties served on them, together with a factual description of the reasons given by the Agency for applying the penalty. In addition, the Agency may publicise the issuance of a financial penalty notice, where there is a strong case that doing so would help achieve the Agency's supervisory objectives. In such instances, the Agency will usually allow the licensee concerned the opportunity to make representations to the Agency before a public statement is issued.

        • EN-6.1.4

          Examples of the types of compliance failings that may lead to the serving of a financial penalty notice include (but are not limited to):

          (a) Failures to address persistent delays and/or significant inaccuracies in regulatory reporting to the Agency;
          (b) Repeated failures to respond to formal requests for information from the Agency, within the deadlines set;
          (c) The submission of information to the Agency known to be false or misleading; and
          (d) Major failures in maintaining adequate systems and controls in accordance with the Agency's requirements, subjecting depositors and other customers to significant risk of financial loss.

        • EN-6.1.5

          In assessing whether to serve a financial penalty notice, the Agency takes into account the following criteria:

          (a) the seriousness of the contravention, in relation to the requirement(s) concerned;
          (b) the duration and/or frequency of the contravention, and the extent to which it reflects more widespread weaknesses in controls and/or management;
          (c) the extent to which the contravention was deliberate or reckless;
          (d) the licensee's past compliance record and conduct following the contravention; and
          (e) the scope of any other action taken by the BMA or other regulators against the licensee, in response to the compliance failures in question.

        • EN-6.1.6

          The imposition of a financial penalty does not preclude the BMA from also using other enforcement measures to remedy the same violation (for instance, a Direction).

      • EN-6.2 EN-6.2 Money laundering regulation

        • EN-6.2.1

          In addition to the circumstances set out in section EN-6.1, a financial penalty of up to BD 20,000 may be applied by the Agency in cases where a licensee fails to comply with any of the requirements in module FC.

        • EN-6.2.2

          As with the imposition of financial penalties in response to breaches of other regulatory requirements, the Agency will apply financial penalties with respect to the regulations set out under module FC on a very selective basis only. The same criteria set out in section EN-6.1 will be taken into account by the Agency when considering imposing a financial penalty. Financial penalties applied under this Section are also subject to the same disclosure requirements as described in section EN-6.1.

        • EN-6.2.3

          A failure to comply with the requirements in module FC that warrants a financial penalty would not trigger also a financial penalty under section EN-6.1.

        • EN-6.2.4

          Any financial penalties applied by the Agency as regards the implementation of its regulations set out under module FC, are without prejudice to the criminal sanctions available to the Bahraini courts under the Decree — Law No. 4 of 2001, with respect to the prevention and prohibition of the laundering of money. As with other financial penalties, the imposition of a financial penalty with regards to breaches of the regulation in module FC does not prevent the Agency from also using other enforcement measures to remedy the same violation (for instance, a Direction).

      • EN-6.3 EN-6.3 Procedures for financial penalties

        • EN-6.3.1

          A written financial penalty notice will be addressed to the Chief Executive Officer or General Manager of the licensee concerned. This written notification will describe the contravention concerned, the Agency's evidence supporting a financial penalty, and the factors justifying the level of penalty proposed. Only an Executive Director or more senior member of the Agency's management may sign the notification.

        • EN-6.3.2

          The licensee has 15 business days from the notification's date of issuance to submit any representations it wishes to make to the Agency, in writing and addressed to the issuer of the original notification. If the licensee decides not to submit representations, it has 30 calendar days from the notification's date of issuance in which to pay the penalty.

        • EN-6.3.3

          Should the licensee make representations challenging the proposed penalty, the Agency has 15 business days from the issuance of those representations in which to re-examine the facts of the case and its conclusions. If the Agency confirms application of a penalty, payment is required within 30 calendar days of a final notice being issued. However, the licensee has the right to lodge a further written appeal within those 30 days, addressed to H.E. the Governor. In such cases, H.E. the Governor makes a final determination within 15 business days of the date of the written appeal. If H.E. the Governor confirms application of a penalty, then payment is required within 30 calendar days of H.E. the Governor's written confirmation.

        • EN-6.3.4

          Failure to pay a penalty within the required deadlines will be considered a breach of the Agency's regulatory requirements, and will also result in other measures being considered, as described elsewhere in this Module.

      • EN-6.4 EN-6.4 Remedying a compliance failure

        • EN-6.2B EN-6.2B Financial Penalties for Non-compliance with Blocking /Unblocking Requirements

          • EN-6.4.1 EN-6.4.1

            Payment of a financial penalty does not by itself absolve a licensee from remedying the compliance failure concerned. The Agency will expect the licensee to address the contravention within a reasonable timescale, to be agreed on a case-by-case basis. Failure to do so will result in other measures being considered.

            • EN-6.2B.1

              The financial penalty for late execution of blocking/unblocking orders issued by the Court/Public Prosecution is BD 100 per day per customer account. Such financial penalties will be deducted directly from the Islamic bank licensee's clearing account at the CBB or charged through billing on a weekly basis.

              Added: April 2021

    • EN-7 EN-7 Investigations

      • EN-7.1 EN-7.1 Legal source

        • EN-7.1.1

          Article 82 of the BMA Decree — Law No. 23 of 1973 ("BMA Law") empowers the Agency to order investigations of licensees, in order to help it assess a licensee's compliance with the provisions of the BMA Law. Such investigations may be carried out either by its own officials or auditors appointed for such a purpose by the Agency. Article 83 requires licensees to make available to the Agency's inspectors its books and other records, and to provide all relevant information within the time limits deemed reasonable by the inspectors.

        • EN-7.1.2

          Article 87 of the BMA Law provides for criminal sanctions where false or misleading statements are made to the Agency, or an investigation by the Agency is otherwise obstructed (see section EN-10.3).

      • EN-7.2 EN-7.2 BMA Policy

        • EN-7.2.1

          The BMA uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, the BMA may commission special investigations of licensees in order to help it assess their compliance with BMA requirements. Such investigations may be carried out either by the BMA's own officials, by duly qualified experts appointed for the purpose by the BMA ("Appointed Experts"), or a combination of the two.

        • EN-7.2.2

          Failure by licensees to cooperate fully with the BMA's inspectors, or to respond to their examination reports within the time limits specified, will be treated as demonstrating a material lack of cooperation with the Agency which will result in other enforcement measures being considered, as described elsewhere in this module.

        • EN-7.2.3

          The BMA may appoint an individual or a firm as an Appointed Expert. Examples of Appointed Experts are reporting accountants, lawyers and expert witnesses. The appointment of Appointed Experts is not necessarily indicative of a contravention of BMA requirements or suspicion of such a contravention. For instance, an Appointed Expert may be commissioned to provide an expert opinion on a technical matter.

        • EN-7.2.4

          Appointed Experts report in a form and within a scope defined by the BMA, and are solely responsible to the BMA for the work they undertake in relation to the investigation concerned. The report produced by the Appointed Experts is the property of the BMA (but is usually shared by the BMA with the firm concerned). The cost of the Appointed Experts' work must be borne by the licensee concerned.

        • EN-7.2.5

          In selecting an Appointed Expert, the BMA will take into account the level of fees proposed and aim to limit these to the lowest level consistent with an adequate review of the matters at hand, given the qualifications, track record and independence of the persons concerned. Because the cost of such investigations are met by the licensee, the BMA makes only selective use of Appointed Experts, when essential to supplement BMA's other supervisory tools and resources.

        • EN-7.2.6

          The BMA will not, as a matter of general policy, publicise the appointment of Appointed Experts, although it reserves the right to do so where this would help achieve its supervisory objectives. Both the Appointed Experts and the BMA are bound to confidentiality provisions restricting the disclosure of confidential information with regards to any such information obtained in the course of the investigation.

        • EN-7.2.7

          Unless the Agency otherwise permits, Appointed Experts may not be the same firm appointed as external auditors of the bank.

        • EN-7.2.8

          Compliance by Appointed Experts with the contents of this chapter will not, of itself, constitute a breach of any other duty owed by them to a particular bank (i.e. create a conflict of interest).

        • EN-7.2.9

          The Agency may commission reports, which require Appointed Experts to review information from another company within the reporting bank's group even where that other company is not itself subject to any Agency requirements.

        • EN-7.2.10

          Banks must provide all relevant information and assistance to Appointed Experts on demand.

        • EN-7.2.11

          The Agency may appoint one or more of its officials to work on the Appointed Experts' team for a particular bank.

      • EN-7.3 EN-7.3 The required report

        • EN-7.3.1

          The scope of the required report will be determined and detailed by the Agency in the appointment letter. Commissioned Appointed Experts will normally be required to report on one or more of the following aspects of a bank's business:

          (a) accounting and other records;
          (b) internal control systems;
          (c) returns of information provided to the Agency;
          (d) operations of certain departments; and/or
          (e) other matters specified by the Agency.

        • EN-7.3.2

          Appointed Experts will be required to form an opinion on whether, during the period examined, the bank is in compliance with the relevant provisions of the BMA Law and the Agency's relevant requirements, as well as other requirements of Bahrain Law and, where relevant, industry best practice locally and/or internationally.

        • EN-7.3.3

          The Appointed Experts report must follow the format set out in Appendix EN 1.

        • EN-7.3.4

          Unless otherwise directed by the Agency or unless the circumstances described in section EN-7.3 apply, the report should be discussed with Board of Directors and/or senior management in advance of it being sent to the Agency.

        • EN-7.3.5

          Where the report is qualified by exception, the report must clearly set out the risks which the bank runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected. Appointed Experts will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.

        • EN-7.3.6

          If the Appointed Experts conclude, after discussing the matter with the bank, that they will give a negative opinion (as opposed to one qualified by exception) or that the issue of the report will be delayed, they must immediately inform the Agency in writing giving an explanation in this regard.

        • EN-7.3.7

          The report must be completed, dated and submitted, together with any comments by Directors or management (including any proposed timeframe within which the bank has committed to resolving any issues highlighted by the report), to the Agency within the timeframe applicable.

      • EN-7.4 EN-7.4 Other notifications to the Agency

        • EN-7.4.1

          Appointed Experts must communicate to the Agency, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the Agency, including the criteria for licensing a bank (see Module LR), are not or have not been fulfilled, or that there has been a material loss or there exists a significant risk of material loss in the concerned bank, or that the interests of customers are at risk because of adverse changes in the financial position or in the management or other resources of a bank. Notwithstanding the above, it is primarily the bank's responsibility to report such matters to the Agency.

        • EN-7.4.2

          The Agency recognises that Appointed Experts cannot be expected to be aware of all circumstances which, had they known of them, would have led them to make a communication to the Agency as outlined above. It is only when Appointed Experts, in carrying out their duties, become aware of such a circumstance that they should make detailed inquiries with the above specific duty in mind.

        • EN-7.4.3

          If Appointed Experts decide to communicate directly with the Agency in the circumstances set out in paragraph EN-7.4.1 above, they may wish to consider whether the matter should be reported at an appropriate senior level in the bank at the same time and whether an appropriate senior representative of the bank should be invited to attend the meeting with the Agency.

    • EN-8 EN-8 Administration

      • EN-8.1 EN-8.1 Legal source

        • EN-8.1.1

          Article 93 of the BMA Decree — Law No. 23 of 1973 ("BMA Law") empowers (but does not oblige) the Agency to assume the administration of a licensee in certain circumstances, subject to the approval of the Minister of Finance. These circumstances are where:

          (a) the licensee has become insolvent;
          (b) its liquidity or solvency are in jeopardy;
          (c) its continued activity is detrimental to the rights of depositors; or
          (d) it commits serious contraventions of the provisions of the BMA Law.

        • EN-8.1.2

          Article 94 of the BMA Law provides that where the Agency assumes the administration of a licensee, the licensee concerned may appeal to the Minister of Finance and, subsequently, the courts, in order to challenge its administration by the Agency.

        • EN-8.1.3

          Articles 95 to 99 of the BMA Law set down the operating parameters of an administration.

      • EN-8.2 EN-8.2 BMA Policy

        • EN-8.2.1

          The Agency views the administration of a licensee as a very powerful sanction, and will generally only pursue this option if less severe measures are unlikely to achieve its supervisory objectives.

        • EN-8.2.2

          Although Article 93 of the BMA Law specifies the circumstances in which the Agency may pursue an administration, it does not oblige the Agency to administer a licensee. Faced with the circumstances described, the Agency may pursue other courses of action, if it considers that these are more likely to achieve the supervisory outcomes sought. Because an administration is likely to send a negative signal to the markets about the status of a licensee, other supervisory actions may in fact be preferable in terms of protecting the interests of those with a claim on the licensee.

        • EN-8.2.3

          The criteria used by the Agency in deciding whether to seek an administration of a licensee include the following:

          (a) the extent to which the interests of the market, its users and those who have a claim on the licensee would be best served by the administration of the license, for instance because of the potential impact on asset values arising from an administration;
          (b) the extent to which other regulatory actions could reasonably be expected to achieve the Agency's desired supervisory objectives (such as restrictions on the licensee's operations, including limitations on new business and asset disposals);
          (c) the extent to which the liquidity or solvency of the licensee is in jeopardy; and
          (d) the extent to which the licensee has contravened the conditions of the BMA Law, including the extent to which the contraventions reflect more widespread or systemic weaknesses in controls and/or management.

      • EN-8.3 EN-8.3 Procedure for implementing an administration

        • EN-8.3.1

          All proposals for assuming the administration of a licensee are subject to a thorough review by the Agency of all relevant facts, assessed against the criteria outlined in section EN-8.1. After being assessed at Executive Director level, proposals are submitted to H.E. the Governor and subsequently the Minister of Finance and National Economy for their respective approvals.

        • EN-8.3.2

          Once approved by the Minister of Finance and National Economy, a formal notice of administration is issued to the licensee concerned and copies posted in every place of business of the licensee. As soon as practicable thereafter, the notice is also published in the Official Gazette and in local newspapers. The term "in administration" should be clearly marked in all the bank's correspondence and on its website, next to the bank's name.

        • EN-8.3.3

          Article 94 of the BMA Law allows a licensee 10 days following the administration taking effect in which to appeal to the Minister of Finance. If the Minister refuses the appeal, the licensee has a further 10 days from the date of the refusal in which to lodge an appeal at the courts. So as to reduce the potential damage of an administration order being applied and then withdrawn on appeal, where feasible the Agency will give advance notice to a licensee's Board of its intention to seek an administration, and allow the Board the right of appeal prior to an administration notice being formally served.

    • EN-9 EN-9 Cancellation of license

      • EN-9.1 EN-9.1 Legal source

        • EN-9.1.1

          Article 66 of the BMA Decree — Law No. 23 of 1973 ("BMA Law") empowers the Agency to cancel a license under certain circumstances. These include cases where a licensee has:

          (a) contravened the conditions of its license;
          (b) repeatedly violated the provisions of the BMA Law; or
          (c) failed to follow BMA regulations regarding the merger or other major restructurings of its operations.

        • EN-9.1.2

          Article 66 of the BMA Law also requires the Agency to give the licensee concerned reasonable time to object to any proposed cancellation of its license.

      • EN-9.2 EN-9.2 BMA policy

        • EN-9.2.1

          The Agency generally views canceling a license as appropriate only in extreme circumstances, when faced with the gravest of contraventions or when left with no other reasonable means of successfully addressing the regulatory failings in question.

        • EN-9.2.2

          The criteria used by the Agency in assessing whether to seek cancellation of a license include:

          (a) the extent to which the interests of the market, its users and those who have a claim on the licensee would be best served by the cancellation of the license;
          (b) the extent to which other regulatory penalties could reasonably be expected to achieve the Agency's desired supervisory objectives;
          (c) the extent to which the licensee has contravened the conditions of its license and/or the BMA Law, including the seriousness, duration and/or frequency of the contravention(s) concerned, and the extent to which the contraventions reflect more widespread or systemic weaknesses in controls and/or management;
          (d) the extent to which the licensee has been involved in financial crime or other criminal conduct; and
          (e) the licensee's past compliance record and conduct following the contravention(s).

      • EN-9.3 EN-9.3 Procedure for cancellation of license

        • EN-9.3.1

          All proposals for canceling a license are subject to a thorough review by the Agency of all relevant facts, assessed against the criteria outlined in section EN-9.2. After being assessed at Executive Director level, proposals are submitted to H.E. the Governor for approval.

        • EN-9.3.2

          Once approved within the BMA, a formal notice of cancellation is issued to the licensee concerned. The notice of cancellation will describe the factual circumstances of the contraventions concerned, and the Agency's rationale for the proposed cancellation, as measured against the criteria outlined in section EN-9.2.

        • EN-9.3.3

          The licensee has 30 calendar days from the date of the notice in which to lodge an appeal. The appeal should be addressed to the Board of the BMA, and copied to H.E. the Governor of the BMA.

        • EN-9.3.4

          If an appeal is lodged, the Board of the BMA will make a final ruling within 60 calendar days of its date of issuance.

    • EN-10 EN-10 Criminal sanctions

      • EN-10.1 EN-10.1 Overview

        • EN-10.1.1

          The BMA Decree — Law No. 23 of 1973 ("BMA Law") provides for a number of criminal sanctions in cases where certain of its provisions are contravened. This section provides a summary of those sanctions most relevant to licensees, their Directors and employees. What follows is not a complete list of all sanctions provided for in the BMA Law, nor is it a substitute for reading the Law and being fully aware of its provisions.

        • EN-10.1.2

          Licensees, their Directors and employees should also be aware of the criminal sanctions provided for under other relevant Bahraini laws, such as the Decree — Law No. 4 of 2001, with respect to the prevention and prohibition of the laundering of money.

        • EN-10.1.3

          In all cases to do with criminal sanctions, the Agency can only refer the matter to the Office of Public Prosecutor. The Agency has no authority to apply such sanctions without recourse to the courts.

      • EN-10.2 EN-10.2 BMA policy

        • EN-10.2.1

          Because of their criminal status, and their provision for custodial sentences, the sanctions provided for under the BMA Law are viewed by the Agency as very powerful measures, to be pursued sparingly. In most situations, the Agency will seek to address regulatory failures through administrative sanctions, as outlined in preceding sections, rather than by pursuing the criminal sanctions outlined here.

        • EN-10.2.2

          Where, however, the nature of the offence is such that there is strong evidence of a reckless or intentional breach of the BMA Law relevant to the following Articles, then the Agency will usually refer the matter to the Office of Public Prosecutor.

      • EN-10.3 EN-10.3 Article 87

        • EN-10.3.1

          Article 87 of the BMA Law provides for a term of imprisonment of up to two years, and/or a fine of up to BD 5,000, without prejudice to any other penalty prescribed in any other law, in case of conviction of a Director, manager, official, agent or representative of any licensee who:

          (a) makes false or misleading statements with fraudulent intent;
          (b) omits, with fraudulent intent, to make any statement or any entry in the books or accounts of the banking firm;
          (c) obstructs the performance of the auditor's duties; and
          (d) obstructs an investigation conducted by inspectors appointed by the Agency.

      • EN-10.4 EN-10.4 Article 88

        • EN-10.4.1

          Article 88 provides for a term of imprisonment of up to six months, and/or a fine of up to BD 1,000, for any Director, manager or official responsible for the direction or management of a licensee, who deliberately neglects to ensure the implementation of the provisions of the BMA Law.

      • EN-10.5 EN-10.5 Article 92

        • EN-10.5.1

          Article 92 C provides for a term of imprisonment of up to two years, and/or a fine of up to BD 5,000, for any Director, manager, official or employee, who receives or approves the acceptance of deposits although he is aware — or ought to be aware by reason of the nature of his duties — of the insolvency of his bank.