Executive Summary

Legal Basis

PB-A.2.1

This Module was first issued on 1st January 2005 by the BMA as part of the Islamic principles volume. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made; Chapter UG-3 provides further details on Rulebook maintenance and version control.

PB-A.2.2

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.

PB-A.2.3

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

PB-B.1.1

The 10 Principles of Business apply to all CBB Islamic bank licensees, in accordance with Paragraph PB-B.1.2. Principles 1-8 (Paragraphs PB-1.1 to PB-1.8 inclusive) also apply to all approved persons, in accordance with Paragraph PB-B.1.3.

PB-B.1.2

Principles 1 to 10 apply to activities carried out by the Islamic bank licensee, including activities carried out through overseas branches (if any). Principles 9 and 10 also take into account any activities of other members of the group of which the Islamic bank licensee is a member.

PB-B.1.3

Principles 1 to 8 apply to approved persons in respect of the controlled function for which they have been approved.

PB-B.1.4

Principles 1 to 8 do not apply to behaviour by an approved person with respect to any other functions or activities they may undertake. However, behaviour unconnected to their controlled function duties may nonetheless be relevant to an assessment of that person's fitness and propriety.

PB-B.1.5

The CBB's requirements regarding approved persons and controlled functions are located in Module LR (Licensing Requirements).

PB-B.2.1

Breaching a Principle of Business makes the Islamic bank licensee or approved person concerned liable to enforcement action. In the case of a licensee, this may call into question whether they continue to meet the licensing conditions (see Chapter LR-2). In the case of an approved person, this may call into question whether they continue to meet the "fit and proper" requirements for the function for which they have been approved (see Section HC-2.2).

PB-B.2.2

Module EN (Enforcement) sets out the CBB's policy and procedures on enforcement action.

PB-1.1.1

Islamic bank licensees and approved persons must observe high standards of integrity and fair dealing. They must be honest and straightforward in their dealings with customers, and provide full disclosure of all relevant information to customers, as required by the CBB's Regulations and Directives. Banks' management must safeguard not only the interests of shareholders of the bank, but also those of the Profit Sharing Investment Account (PSIA) holders.

PB-1.1.2

Islamic bank licensees and approved persons must take all reasonable steps to identify, and prevent or manage, conflicts of interest that could harm the interests of a customer. Again the bank's management must bear in mind the interests of shareholders and PSIA holders.

PB-1.1.3

Islamic bank licensees and approved persons must act with due skill, care and diligence.

PB-1.1.4

Islamic bank licensees and approved persons must observe in full any obligations of confidentiality, including with respect to customer information. This requirement does not over-ride lawful disclosures.

PB-1.1.5

Islamic bank licensees and approved persons must observe proper standards of market conduct, and avoid action that would generally be viewed as improper.

PB-1.1.6

Islamic bank licensees and approved persons must take reasonable care to safeguard the assets and deposits of customers for which they are responsible.

PB-1.1.7

Islamic bank licensees and approved persons must pay due regard to the legitimate interests and information needs of their customers and communicate with them in a fair and transparent manner. Islamic bank licensees and approved persons, when dealing with customers who are entitled to rely on their advice or discretionary decisions, must take reasonable care to ensure the suitability of such advice or decisions.

PB-1.1.8

Islamic bank licensees and approved persons must act in an open and co-operative manner with the CBB and other regulatory/supervisory bodies under whose authority they come under. They must take reasonable care to ensure that their activities comply with all applicable laws and regulations.

PB-1.1.9

Islamic bank licensees must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner.

PB-1.1.10

Islamic bank licensees' Boards of Directors and Shari'a Boards (where applicable) and management must take reasonable care to ensure that their affairs are managed effectively and responsibly, with appropriate systems and controls in relation to the size and complexity of their operations. Islamic bank licensees' systems and controls, as far as is reasonably practical, must be sufficient to manage the level of risk inherent in their business and ensure compliance with the CBB Rulebook. In particular, the CBB requires that banks comply with all AAOIFI issued accounting standards as well as the Shari'a pronouncements issued by the Shari'a Board of AAOIFI.