• LR LR Licensing Requirements

    • LR-A LR-A Introduction

      • LR-A.1 LR-A.1 Purpose

        • Executive Summary

          • 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.

            Amended: July 2012
            October 2007

        • Legal Basis

          • 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).

            Amended: January 2016
            Amended: January 2013
            Amended: July 2012
            Amended: October 2011
            Amended: January 2011
            Amended October 2010
            October 2007

          • LR-A.1.2A

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

            Adopted: January 2011

        • Licensing Requirement

          • 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.

            October 2007

          • 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.

            Amended: July 2012
            October 2007

        • License Categories

          • 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).

            October 2007

          • 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).

            October 2007

          • 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).

            Amended: July 2012
            October 2007

          • 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.

            Amended: July 2017
            October 2007

        • 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 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.

            October 2007

          • 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.

            October 2007

        • 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 CBB.

            October 2007

        • Representative Offices and Ancillary Services Providers

          • 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.

            Amended: July 2017
            Amended: July 2012
            October 2007

          • 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".

            Amended: July 2017
            Amended: July 2012
            October 2007

          • 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 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 CBB Rulebook. It was subsequently reissued in full in July 2006 (and renamed "Licensing Requirements").

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.
            LR-A.1.2 10/2007 New Rule LR-A.1.2 introduced, categorising this Module as a Directive.
            LR-2.8 10/2007 Changes to provision of information requirements as result of CBB Law
            LR-3 10/2007 Revised requirements due to new CBB Law
            LR-4 10/2007 New Chapter LR-4 on application and license fees (incorporating material on fees, previously contained in Module GR).
            LR-2.5.10 04/2008 New 7% reserve reqt.
            LR-1.2.16 04/2008 Lower threshold of $100,000 for investment business transactions for wholesale banks
            LR-2.5.10 07/2009 Minimum daily cash reserve balance with the CBB brought back to 5% from 7%.
            LR 10/2010 Various minor amendments to ensure consistency in formatting of CBB Rulebook.
            LR-A.1.2 10/2010 Revised legal basis.
            LR-1A 10/2010 New Chapter on Approved Persons moved from Section HC-1.2 and from Paragraphs in Section HC-1.5.
            LR-3.1.12A 10/2010 Added new paragraph, requiring capital to be injected prior to license being issued.
            LR-3.1.15 10/2010 Additional details pertaining to information required, within 6 months of a license being issued.
            LR-3.1.15A 10/2010 Transition rule added to comply with new requirement under Subparagraph HC-3.1.15(j).
            LR-4.2.13 10/2010 Amendment to guidance.
            LR 01/2011 Various minor amendments to ensure consistency in formatting of CBB Rulebook.
            LR-A.1.2 01/2011 Clarified legal basis.
            LR-3.1.5 and 3.1.5A 01/2011 Clarified the use of letters of guarantee as part of the licensing process.
            LR-4.2.9A 01/2011 Added the requirement for annual fees for SPV's to be in line with the requirements of Resolution No (1) of 2007.
            LR-3.1.3 04/2011 Clarified the appointment of a representative as part of the licensing process.
            LR-3.1.5(l) 04/2011 Deleted reference to Phase 1.
            LR-4.2.9A 04/2011 Clarified the payment of annual license fees for SPVs.
            LR-2.8.1 07/2011 Corrected due date of audited financial statements to be in line with Article 62 of the CBB Law and Module BR requirements.
            LR-A.1.2 10/2011 New reference added to reflect the issuance of Resolution No.(43) of 2011.
            LR-3.3 10/2011 Clarified language on cancellation of a license or closure of a branch to be in line with other Volumes of the CBB Rulebook.
            LR-1A.1.23 04/2012 Last sentence of Paragraph deleted as cross reference no longer applies.
            LR-A.1.2 07/2012 Added reference to Regulation No 1 of 2007 pertaining to regulated services.
            LR-A.1.1, LR-A.1.4, LR-A.1.7, LR-B.1.1, LR-1.1.3, LR-1.2.2, LR-1.2.15, LR-1.2.16, LR-1.3.17A, LR1A.1.18, LR-3.3.6 07/2012 Minor corrections.
            LR-A.1.12 and LR-A.1.13 07/2012 Amended Paragraphs to reflect updates for Volume 5.
            LR-B.1.3 07/2012 Corrected cross-reference.
            LR-1.2.10 07/2012 Reference to other banks deleted.
            LR-1A.1.20 07/2012 Changed Guidance to Rule.
            LR-1A.2.4 07/2012 Added cross-reference.
            LR-1A.3.3 07/2012 Corrected cross-reference.
            LR-2.8.1 and LR-2.8.2 07/2012 Attributed reference to CBB Law to correct Paragraph.
            LR-3.1.18 07/2012 Corrected cross-reference.
            LR-4.2.5 07/2012 Corrected last sentence of Guidance.
            LR-4.2.9B 07/2012 Added guidance regarding annual fees of SPVs of Bahrain domiciled CIUs.
            LR-A.1.2 01/2013 Updated legal basis.
            LR-B.1.1 01/2013 Updated prohibition as per issuance of Resolution No.(16) for the year 2012.
            LR-1.1 01/2013 References added to requirements under Resolution No.(16) for the year 2012.
            LR-1.3.17C, LR-1.3.17D, LR-1.3.33, LR-1.3.34, LR-1.3.35 and LR-1.3.36 01/2013 Various amendments to reflect the changes in RIAs as a result of issuing Volume 7 on collective investment undertaking ("CIU").
            LR-1A.1.3 01/2013 Clarified approval requirements for controlled functions for Bahrain operations.
            LR-4.2 07/2013 Amended due date and collection process for annual license fee.
            LR-1A.1 10/2013 Aligned controlled functions with Module TC.
            LR-4.2.9A 10/2013 Clarified annual license fees for newly established SPVs.
            LR-1.2.20 01/2014 Updated to refer to licensed exchange.
            LR-1A.1.3 01/2014 Correction made to clarify which controlled functions are in relation to Bahrain operations.
            LR-1A.1.17 01/2014 Amended requirement for notification for appointment of financial instrument trader and moved requirement to Paragraph BR-5.1.7.
            LR-1A.1 04/2014 Amended Rule on notification requirements dealing with approved persons.
            LR-A.1.2 01/2016 Legal basis updated to reflect Resolution No (23) of 2015.
            LR-1A.1 01/2016 Amended to reflect the issuance of Resolution No. (23) of the year 2015 dealing with approved persons.
            LR-1A.1.20B 04/2016 Clarified approval process for applicants for approved persons.
            LR-1A.1.18C 07/2016 Clarified Guidance on authorised representative for approval of controlled functions.
            LR-3.1.11 10/2016 Added definition of Certification.
            LR-2.5.2 04/2017 Deleted Paragraph on minimum paid up capital requirement.
            LR-2.5.2A 04/2017 Added new paragraph on minimum capital requirement for locally incorporated retail banks.
            LR-2.5.2B 04/2017 Added new paragraph on minimum capital requirement for locally incorporated wholesale banks.
            LR-2.5.6 04/2017 Amended Paragraph to delete the requirement of endowment capital for overseas wholesale banks.
            LR-1A.1.7 07/2017 Amended paragraph.
            LR-2.2.2 07/2017 Amended paragraph.
            LR-3.4 07/2017 Added new Section on Publication of the Decision to Grant, Cancel or Amend a License.
            LR 07/2017 Changed the term "Overseas" to "foreign branches".
            LR-1A.1.18 04/2018 Amended Paragraph.
            LR-3.1.1 04/2018 Amended Paragraph.
            LR-1.2.20A 10/2018 Added new Paragraph on Providing Trust Services.
            LR-1.2.23 10/2018 Amended Paragraph.
            LR-1.3.1 10/2018 Amended Paragraph adding — Providing Trust Services.
            LR-1.3.51 — LR-1.3.54 10/2018 Added new Sub-section on providing Trust Services.
            LR-1A.1.2 10/2018 Amended a controlled function title and added a new controlled function.
            LR-1A.1.9A 10/2018 Amended Paragraph on Shari'a Officer responsibilities.
            LR-1A.1.14A 10/2018 Added new Paragraph on the responsibilities of the Head of Internal Shari'a Audit function.
            LR-2.5.2A 10/2018 Amended Paragraph on minimum total shareholders' equity maintained by retail bank licensees.
            LR-2.5.2B 10/2018 Amended Paragraph on minimum total shareholders' equity maintained by wholesale bank licensees.
            LR-1.3.46A 04/2019 Added a new Paragraph on robo advice.
            LR-3.1.1 07/2019 Amended Paragraph to remove references to hardcopy Form 1 submission to online submission.
            LR-3.2.4 10/2019 Changed from Rule to Guidance.
            LR-3.4.1 10/2019 Changed from Rule to Guidance.
            LR-1.3.1A 10/2020 Added a new Paragraph on compliance with AAOIFI Shari’a Standards.
            LR-1.3.1 07/2021 Amended Paragraph.
            LR-1.3.1B 07/2021 Added a new Paragraph on obtaining approval for services not included in its application.
            LR-1.3.58 – LR-1.3.61 07/2021 Added new Paragraphs on Account Information Service and Payment Initiation Services.

          • LR-A.2.5

            [This paragraph was deleted in October 2007]

    • LR-B LR-B Scope of Application

      • LR-B.1 LR-B.1 Scope and Prohibitions

        • LR-B.1.1

          The licensing requirements in Chapter LR-1 have general applicability, in that they prevent any person from providing (or seeking to provide) regulated Islamic banking services within or from the Kingdom of Bahrain, unless they have been licensed as a Islamic bank licensee by the CBB or marketing any financial services unless specifically allowed to do so by the CBB (see Rule LR-1.1.1).

          Amended: January 2013
          Amended: July 2012
          October 2007

        • LR-B.1.2

          In addition, no one may use the term ‘bank’ in their trading or corporate name, or otherwise hold themselves out to be a bank in Bahrain, unless they hold the appropriate license from the CBB (see Rule LR-1.1.2).

          October 2007

        • LR-B.1.3

          The remaining requirements in Chapters LR-1 to LR-4 (besides those mentioned in Section LR-B.1 above) apply to all those licensed by CBB as an Islamic bank licensee, or which are in the process of seeking such a license. They apply regardless of whether the person concerned is incorporated in the Kingdom of Bahrain, or in an overseas jurisdiction, unless otherwise specified.

          Amended: July 2012
          October 2007

        • LR-B.1.4

          These remaining requirements prescribe the types of license offered; their associated operating conditions; the licensing conditions that have to be satisfied in order to secure and retain a license; and the processes to be followed when applying or varying a license, or when a license is withdrawn.

          October 2007

        • LR-B.1.5

          The Rules referred to above are supported by statutory restrictions contained in the CBB Law 2006 (cf. Articles 39 to 41).

          October 2007

      • LR-B.2 [This section was merged with section LR-B.1 in October 2007]

    • LR-1 LR-1 Requirement to Hold a License

      • LR-1.1 LR-1.1 Islamic Bank Licensees

        • General Prohibitions

          • LR-1.1.1

            No person may:

            (a) Undertake (or hold themselves out to undertake) regulated Islamic banking services within or from the Kingdom of Bahrain unless duly licensed by the CBB;
            (b) Hold themselves out to be licensed by the CBB unless they have as a matter of fact been so licensed; or
            (c) Market any financial services in the Kingdom of Bahrain unless:
            (i) Allowed to do by the terms of a license issued by the CBB;
            (ii) The activities come within the terms of an exemption granted by the CBB by way of a Directive; or
            (iii) Has obtained the express written permission of the CBB to offer financial services.
            Amended: January 2013
            Amended October 2010
            October 2007

          • 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.

            Amended: January 2013
            Amended October 2010
            October 2007

          • 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).

            Amended: January 2013
            Amended October 2010
            October 2007

          • 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.

            October 2007

          • 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.

            Amended: July 2012
            October 2007

          • 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.

            October 2007

        • Licensing

          • 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.

            October 2007

          • LR-1.1.6

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

            (a) A business plan specifying the type of business to be conducted;
            (b) Application forms for all controllers; and
            (c) Application forms for all controlled functions.
            Amended October 2010
            October 2007

          • LR-1.1.7

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

            (a) Granted the application without conditions;
            (b) Granted the application subject to conditions specified by the CBB; or
            (c) Refused the application, stating the grounds on which the application has been refused and the process for appealing against that decision.
            Amended October 2010
            October 2007

          • 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.

            Amended October 2010
            October 2007

          • 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).

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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).

            October 2007

          • 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.

            October 2007

      • LR-1.2 LR-1.2 License Sub-Categories

        • Retail vs. Wholesale

          • 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.

            October 2007

          • 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.

            Amended: July 2012
            October 2007

          • 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.

            October 2007

        • Islamic Retail Banks

          • 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.

            October 2007

          • 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.

            Amended: July 2012
            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

        • Islamic Wholesale Banks

          • 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.

            October 2007

          • 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).

            Amended: July 2012
            October 2007

          • 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).

            Amended: July 2012
            October 2007

          • 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.

            October 2007

          • 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).

            Amended: July 2012
            October 2007

          • 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.

            October 2007

          • 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.

            Amended: July 2012
            October 2007

          • 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).

            Amended: July 2012
            Amended: April 2008
            October 2007

          • 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.

            Amended: July 2012
            October 2007

          • 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.

            Amended: July 2012
            October 2007

          • 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).

            Amended: July 2012
            Amended: October 2009
            October 2007

          • 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.

            Amended: January 2014
            October 2007

          • 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.

            Added: October 2018

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            Amended: October 2018
            Amended: October 2009
            October 2007

          • 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).

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

      • LR-1.3 LR-1.3 Definition of Regulated Islamic Banking Services

        • LR-1.3.1

          Regulated Islamic banking services are any of the following activities, carried on by way of business:

          (a) Accepting Shari'a money placements/deposits;
          (b) Offering Shari'a Financing Contracts;
          (c) Managing Unrestricted Shari'a profit-sharing investment accounts;
          (d) Managing Restricted Shari'a profit sharing investment accounts;
          (e) Dealing in Shari'a-compliant financial instruments as principal;
          (f) Dealing in Shari'a-compliant financial instruments as agent;
          (g) Managing Shari'a-compliant financial instruments;
          (h) Safeguarding Shari'a-compliant financial instruments;
          (i) Operating a Shari'a-compliant Collective Investment Undertaking;
          (j) Arranging deals in Shari'a-compliant financial instruments;
          (k) Advising on Shari'a-compliant financial instruments;
          (l) Providing money exchange/remittance services;
          (m) Issuing/ administering means of payment;
          (n) Providing Trust Services;
          (o) Providing account information services; and
          (p) Providing payment initiation services.
          Amended: July 2021
          Amended: October 2018
          Amended: July 2012
          Amended October 2010
          October 2007

        • LR-1.3.1A

          All transactions and contracts concluded by Islamic bank licensees must comply with Sharia standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The validity of the contract or transaction is not impacted, if at a later date, the relevant AAOIFI Sharia standards are amended.

          Added: October 2020

        • LR-1.3.1B

          An Islamic bank licensee that wishes to undertake regulated banking services which were not included in its application for licence must obtain CBB’s written approval prior to offering such services. In such situations, CBB may impose additional conditions that it deems necessary for the provision of such services.

          Added: July 2021

        • LR-1.3.2

          Upon application, the CBB may exclude specific transactions from the definition of regulated Islamic banking services.

          October 2007

        • LR-1.3.3

          The CBB will normally only consider granting such an exemption when a Bahrain resident is unable to obtain a specific product in Bahrain and it would be unreasonable to require the overseas provider of that product to be licensed for that specific transaction, and the provider has no intention of regularly soliciting such business in Bahrain.

          October 2007

        • LR-1.3.4

          For the purposes of Rule LR-1.3.1, carrying on a regulated Islamic banking service by way of business means:

          (a) Undertaking for commercial gain, at a minimum, either or both of the activities of accepting Shari'a money placements/deposits and managing Shari'a profit-sharing investment accounts, together with the activity of offering Shari'a financing contracts; in addition, any of the remaining activities specified in Rule LR-1.3.1 may also be undertaken;
          (b) Holding oneself out as willing and able to engage in such activities; or
          (c) Regularly soliciting other persons to engage in transactions constituting such activities.
          Amended October 2010
          October 2007

        • LR-1.3.5

          Licensees should note that they may still undertake activities falling outside the definition of regulated Islamic banking services, such as investing in physical commodities — subject to Rule LR-1.1.11. The fact that an activity is not included in the definition of regulated Islamic banking services does not mean that it is prohibited. In transitioning to the new licensing framework, CBB will be closely liaising with licensees to ensure that no disruption occurs to their legitimate business activities.

          October 2007

        • LR-1.3.6

          Licensees should note that the same legal entity cannot combine regulated Islamic banking services with other regulated services, such as regulated insurance services. However, different legal entities within the same group may of course each hold a different license (e.g. banking and insurance).

          October 2007

        • General Exclusions

          • LR-1.3.7

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

            (a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of financial services;
            (b) May reasonably be regarded as a necessary part of any other services provided in the course of that business; and
            (c) Is not remunerated separately from the other services.
            Amended October 2010
            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            Amended October 2010
            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

        • Accepting Shari'a Money Placements/Deposits

          • 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.

            October 2007

        • Managing Unrestricted Shari'a Profit-Sharing Investment Accounts

          • 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).

            Amended: July 2012
            October 2007

        • Managing Restricted Shari'a Profit Sharing Investment Accounts

          • 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).

            Added: July 2012

          • LR-1.3.17C

            With effect from 1st 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.

            Added: January 2013

          • 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.

            Added: January 2013

        • Offering Shari'a Financing Contracts

          • 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.

            October 2007

        • Dealing in Shari'a-Compliant Financial Instruments as Principal

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

        • Dealing in Shari'a-Compliant Financial Instruments as Agent

          • 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.

            October 2007

          • 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.

            October 2007

        • Managing Shari'a-Compliant Financial Instruments

          • 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.

            October 2007

          • LR-1.3.25

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

            October 2007

        • Safeguarding Shari'a-Compliant Financial Instruments (i.e. Custodian)

          • LR-1.3.26

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

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • LR-1.3.29

            A "qualifying custodian" means a person who is:

            (a) A licensee who has permission to carry on an activity of the kind specified in Rule LR-1.3.26; or
            (b) An exempt person in relation to activities of that kind.
            Amended October 2010
            October 2007

          • 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.

            October 2007

          • 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:

            (a) Providing information as to the number of units or the value of any assets safeguarded; and
            (b) Converting currency.
            Amended October 2010
            October 2007

          • 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.

            October 2007

        • Operating a Collective Investment Undertaking

          • LR-1.3.33

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

            Amended: January 2013
            October 2007

          • 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.

            Amended: January 2013
            October 2007

          • LR-1.3.35

            [This Paragraph was deleted in January 2013.]

            Deleted: January 2013

          • LR-1.3.36

            [This Paragraph was deleted in January 2013.]

            Deleted: January 2013

        • Arranging Deals in Shari'a-Compliant Financial Instruments

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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:

            (a) Appointing professional advisers;
            (b) Preparing a prospectus/business plan;
            (c) Identifying potential sources of funding;
            (d) Assisting investors/subscribers/borrowers to complete and submit application forms; or
            (e) Receiving application forms for processing/checking and/or onward transmission.
            Amended October 2010
            October 2007

        • Advising on Deals in Shari'a-Compliant Financial Instruments

          • 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.

            October 2007

          • 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:

            (a) A person may offer to tell a client when shares reach a certain value on the basis that when the price reaches that value it would be a good time to buy or sell them;
            (b) Recommendation on the size or timing of transactions; and
            (c) Advice on the suitability of the financial instrument, or on the characteristics or performance of the financial instrument or credit facility concerned.
            Amended October 2010
            October 2007

          • 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.

            Added: April 2019

          • 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:

            (a) That of giving advice of the kind mentioned in Rule LR-1.3.45; nor
            (b) That of leading or enabling persons to buy, sell, subscribe for or underwrite a financial instrument.
            Amended October 2010
            October 2007

          • 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:

            (a) Explaining the structure, or the terms and conditions of a financial instrument or credit facility;
            (b) Valuing financial instruments for which there is no ready market;
            (c) Circulating company news or announcements;
            (d) Comparing the benefits and risks of one financial instrument to another; and
            (e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, a financial instrument or on the effect of contractual terms and their commercial consequences or on terms that are commonly accepted in the market.
            Amended October 2010
            October 2007

        • Providing Money Exchange / Remittance Services

          • LR-1.3.49

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

            October 2007

        • Issuing / Administering Means of Payment

          • 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).

            October 2007

        • Providing Trust Services

          • LR-1.3.51

            Providing trust services is defined as:

            (a) Establishment of trusts;
            (b) Administration of trusts in accordance with the provisions of the trust deed;
            (c) Providing related ancillary services to trusts in accordance with the provisions of the trust deed; and
            (d) Providing financial advisory services to trust business clients only.
            Added: October 2018

          • 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.

            Added: October 2018

          • 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.

            Added: October 2018

          • 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.

            Added: October 2018

        • Account Information Service and Payment Initiation Services

          • 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.

            Added: July 2021

          • 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.

            Added: July 2021

          • 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.

            Added: July 2021

          • 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.

            Added: July 2021

    • LR-1A LR-1A Approved Persons

      • LR-1A.1 LR-1A.1 CBB Notification and Approval

        • General Requirement

          • 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).

            October 2010

          • LR-1A.1.2

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

            (a) Board Member;
            (b) Chief Executive or General Manager and their Deputies;
            (c) Chief Financial Officer and/or Financial Controller
            (d) Head of Risk Management;
            (e) Head of Internal Audit;
            (f) Shari'a Officer;
            (g) Compliance officer;
            (h) Money Laundering Reporting Officer;
            (i) Deputy Money Laundering Reporting Officer;
            (j) Head of Internal Shari'a Audit; and
            (k) Heads of other Functions.
            Amended: October 2018
            Amended: January 2016
            Amended: October 2013
            October 2010

          • 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).

            Amended: January 2014
            Amended: October 2013
            Amended: January 2013
            October 2010

        • Basis for Approval

          • 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.

            October 2010

        • Definitions

          • 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.

            Amended: October 2013
            October 2010

          • 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.

            Amended: October 2013
            October 2010

          • 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).

            Amended: July 2017
            Amended: October 2013
            October 2010

          • 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.

            Amended: October 2013
            October 2010

          • 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).

            Amended: October 2013
            October 2010

          • 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.

            Amended: October 2018
            Added: October 2013

        • Compliance Officer

          • 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.

            October 2010

          • 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.

            October 2010

          • LR-1A.1.12

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

            Amended: January 2016
            October 2010

          • 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.

            Amended: January 2016
            October 2010

          • 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.

            October 2010

          • 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:

            (a) Shari'a principles;
            (b) The SSB's Fatawa, guidelines, pronouncements and instructions/recommendations;
            (c) Shari'a related regulations, resolutions and directives issued by the CBB;
            (d) Shari'a standards issued by AAOIFI; and
            (e) Shari'a related policies and procedures of the Bahraini Islamic bank licensee.
            Added: October 2018

          • 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.

            Amended: October 2013
            October 2010

          • 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.

            October 2010

        • Prior Approval Requirements and Process

          • 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.

            Amended: January 2016
            Amended: January 2014
            October 2010

          • 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.

            Amended: April 2018
            Amended: January 2016
            Amended: July 2012
            October 2010

          • LR-1A.1.18A

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

            (a) Submitted to the CBB with a covering letter signed by an authorised representative of the licensee, seeking approval for the proposed controlled function;
            (b) Submitted in original form;
            (c) Submitted with a certified copy of the applicant's passport, original or certified copies of educational and professional qualification certificates (and translation if not in Arabic or English) and the Curriculum Vitae; and
            (d) Signed by an authorised representative of the licensee and all pages stamped on with the licensee's seal.
            Added: January 2016

          • 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.

            Added: January 2016

          • 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.

            Amended: July 2016
            Added: January 2016

          • LR-1A.1.19

            [This Paragraph was deleted in January 2016.]

            Deleted: January 2016
            October 2010

          • LR-1A.1.20

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

            Amended: January 2016
            Amended: July 2012
            October 2010

        • Assessment of Application

          • 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.

            Added: January 2016

          • 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.

            Amended: April 2016
            Added: January 2016

          • 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.

            Added: January 2016

          • LR-1A.1.21

            [This Paragraph was deleted in January 2016.]

            Deleted: January 2016
            October 2010

        • Appeal Process

          • 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.

            Added: January 2016

          • 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.

            Added: January 2016

        • Notification Requirements and Process

          • 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.

            Amended: April 2014
            October 2010

          • LR-1A.1.23

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

            Amended: April 2014
            Amended: April 2012
            October 2010

          • LR-1A.1.24

            [This Paragraph was deleted in April 2014.]

            Deleted: April 2014
            October 2010

          • 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.

            October 2010

          • 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).

            October 2010

      • LR-1A.2 LR-1A.2 Approved Persons Conditions: 'Fit and Proper' Requirement

        • LR-1A.2.1

          Islamic bank licensees seeking an approved person authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake the controlled function in question.

          Amended: January 2016
          October 2010

        • LR-1A.2.2

          Each applicant applying for approved person status and those individuals occupying approved person positions must comply with the following conditions:

          (a) Has not previously been convicted of any felony or crime that relates to his/her honesty and/or integrity unless he/she has subsequently been restored to good standing;
          (b) Has not been the subject of any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud;
          (c) Has not been adjudged bankrupt by a court unless a period of 10 years has passed, during which the person has been able to meet all his/her obligations and has achieved economic accomplishments;
          (d) Has not been disqualified by a court, regulator or other competent body, as a director or as a manager of a corporation;
          (e) Has not failed to satisfy a judgement debt under a court order resulting from a business relationship;
          (f) Must have personal integrity, good conduct and reputation;
          (g) Has appropriate professional and other qualifications for the controlled function in question (see Appendix TC-1 in Module TC (Training and Competency)); and
          (h) Has sufficient experience to perform the duties of the controlled function (see Appendix TC-1 in Module TC (Training and Competency)).
          Amended: January 2016
          October 2010

        • LR-1A.2.3

          In assessing the conditions prescribed in Rule LR-1A.2.2, the CBB will take into account the criteria contained in Paragraph LR-1A.2.4. The CBB reviews each application on a case-by-case basis, taking into account all relevant circumstances. A person may be considered 'fit and proper' to undertake one type of controlled function but not another, depending on the function's job size and required levels of experience and expertise. Similarly, a person approved to undertake a controlled function in one Islamic bank licensee may not be considered to have sufficient expertise and experience to undertake nominally the same controlled function but in a much bigger licensee.

          Amended: January 2016
          October 2010

        • LR-1A.2.4

          In assessing a person's fitness and propriety, the CBB will also consider previous professional and personal conduct (in Bahrain or elsewhere) including, but not limited to, the following:

          (a) The propriety of a person's conduct, whether or not such conduct resulted in a criminal offence being committed, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;
          (b) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;
          (c) Any adverse finding in a civil action by any court or competent jurisdiction, relating to misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;
          (d) Whether the person, or any body corporate, partnership or unincorporated institution to which the applicant has, or has been associated with as a director, controller, manager or company secretary been the subject of any disciplinary proceeding, investigation or fines by any government authority, regulatory agency or professional body or association;
          (e) The contravention of any financial services legislation;
          (f) Whether the person has ever been refused a license, authorisation, registration or other authority;
          (g) Dismissal or a request to resign from any office or employment;
          (h) Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners have been declared bankrupt whilst the person was connected with that partnership;
          (i) The extent to which the person has been truthful and open with supervisors; and
          (j) Whether the person has ever entered into any arrangement with creditors in relation to the inability to pay due debts.
          Added: January 2016

        • LR-1A.2.5

          With respect to Paragraph LR-1A.2.4, the CBB will take into account the length of time since any such event occurred, as well as the seriousness of the matter in question.

          Amended: January 2016
          October 2010

        • LR-1A.2.6

          Approved persons undertaking a controlled function must act prudently, and with honesty, integrity, care, skill and due diligence in the performance of their duties. They must avoid conflicts of interest arising whilst undertaking a controlled function (refer to Chapter HC-2).

          Amended: January 2016
          Amended: July 2012
          October 2010

        • LR-1A.2.7

          In determining whether a conflict of interest may arise, factors that may be considered include whether:

          (a) A person has breached any fiduciary obligations to the company or terms of employment;
          (b) A person has undertaken actions that would be difficult to defend, when looked at objectively, as being in the interest of the licensee; and
          (c) A person has failed to declare a personal interest that has a material impact in terms of the person's relationship with the licensee.
          Amended: January 2016
          October 2010

        • LR-1A.2.8

          Further guidance on the process for assessing a person's 'fit and proper' status is given in Module EN (Enforcement): see Chapter EN-5.

          Amended: January 2016
          Amended: July 2012
          October 2010

      • LR-1A.3 LR-1A.3 [This Section was deleted in January 2016]

        Deleted: January 2016

        • LR-1A.3.1

          [This Paragraph was deleted in January 2016]

          Deleted: January 2016
          October 2010

    • LR-2 LR-2 Licensing Conditions

      • LR-2.1 LR-2.1 Condition 1: Legal Status

        • LR-2.1.1

          The legal status of an Islamic bank licensee must be:

          (i) A Bahraini joint stock company (BSC); or
          (ii) A branch resident in Bahrain of an Islamic bank incorporated under the laws of its territory of incorporation and authorised as a bank in that territory.
          Amended October 2010
          October 2007

        • LR-2.1.2

          Where the Islamic bank licensee is a branch of a foreign bank, in deciding whether to grant a license, the CBB will pay close regard to its activities elsewhere and how these activities are regulated. If the Islamic bank licensee is not regulated elsewhere or in a jurisdiction not substantially compliant with Basel Core Principles or FATF standards, then an application for licensing can only be considered after exhaustive enquiries into the bank's shareholders, management structure and financial position.

          Amended: July 2017
          October 2007

      • LR-2.2 LR-2.2 Condition 2: Mind and Management

        • LR-2.2.1

          Islamic bank licensees with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom. Branches of foreign Islamic bank licensees must maintain a local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.

          Amended: July 2017
          October 2007

        • LR-2.2.2

          In assessing the location of an Islamic bank licensee's Head Office, the CBB will take into account the residency of its Directors and senior management. The CBB requires the majority of key decision makers in executive management — including the Chief Executive Officer — to be resident in Bahrain. In the case of branches of foreign bank licensees, the CBB requires the branch to have a substantive presence, demonstrated by a level of staff and other resources sufficient to ensure adequate local scrutiny and control over business booked in the Bahrain branch or subsidiary.

          Amended: July 2017
          October 2007

      • LR-2.3 LR-2.3 Condition 3: Controllers

        • LR-2.3.1

          Islamic bank licensees must satisfy the CBB that their controllers are suitable and pose no undue risks to the licensee. Islamic banks must also satisfy the CBB that their group structures do not prevent the effective supervision of the Islamic bank licensee by the CBB and otherwise pose no undue risks to the licensee.

          October 2007

        • LR-2.3.2

          Chapter GR-5 contains the CBB's requirements and definitions regarding controllers.

          October 2007

        • LR-2.3.3

          In summary, controllers are persons who directly or indirectly are significant shareholders in an Islamic bank licensee, or who are otherwise able to exert significant influence on the Islamic bank licensee. The CBB seeks to ensure that controllers pose no significant risks to the licensee. In general terms, controllers are assessed in terms of their financial standing, their judicial and regulatory record, and standards of business and (where relevant) personal probity.

          October 2007

        • LR-2.3.4

          As regards group structures, the CBB seeks to ensure that these do not prevent adequate consolidated supervision being applied to financial entities within the group, and that other group entities do not pose any material financial, reputational or other risks to the licensee.

          October 2007

        • LR-2.3.5

          In all cases, when judging applications from existing groups, the CBB will have regard to the reputation and financial standing of the group as a whole. Where relevant, the CBB will also take into account the extent and quality of supervision applied to overseas members of the group and take into account any information provided by other supervisors in relation to any member of the group.

          October 2007

      • LR-2.4 LR-2.4 Condition 4: Board and Employees

        • LR-2.4.1

          Those nominated to carry out controlled functions must satisfy CBB's approved persons requirements. This Rule is supported by Article 65 of the CBB Law.

          Amended October 2010
          October 2007

        • LR-2.4.2

          The definition of controlled functions is contained in Paragraph LR-1A.1.2, whilst Section LR-1A.2 sets out CBB's approved persons requirements.

          Amended October 2010
          October 2007

        • LR-2.4.3

          The Islamic bank licensee's staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of the licensee in a sound and prudent manner. Islamic bank licensees must ensure their employees meet any training and competency requirements specified by the CBB.

          October 2007

      • LR-2.5 LR-2.5 Condition 5: Financial Resources

        • Capital Adequacy

          • 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.

            October 2007

          • LR-2.5.2

            This paragraph was deleted in April 2017.

            Deleted: April 2017
            October 2007

          • LR-2.5.2A

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

            Amended: October 2018
            Added: April 2017

          • LR-2.5.2B

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

            Amended: October 2018
            Added: April 2017

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            Amended: July 2017
            October 2007

          • 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.

            Amended: April 2017
            October 2007

          • 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.

            October 2007

        • Liquidity

          • 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. Islamic bank licensees must agree a liquidity management policy with the CBB.

            October 2007

          • 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.

            Amended: July 2017
            Amended: January 2011
            October 2007

        • Reserve Requirements

          • 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.

            Amended July 09
            Amended April 08
            October 2007

      • LR-2.6 LR-2.6 Condition 6: Systems and Controls

        • LR-2.6.1

          Islamic bank licensees must maintain systems and controls that are, in the opinion of the CBB, adequate for the scale and complexity of their activities. These systems and controls must meet the minimum requirements contained in Modules HC, CM and OM.

          October 2007

        • LR-2.6.2

          Islamic bank licensees must maintain systems and controls that are, in the opinion of the CBB, adequate to address the risks of financial crime occurring in the licensee. These systems and controls must meet the minimum requirements contained in Module FC, as specified for the Category of license held.

          October 2007

        • LR-2.6.3

          Applicants will be required to demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. Applicants may be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB, as part of the license approval process.

          October 2007

      • LR-2.7 LR-2.7 Condition 7: External Auditor

        • LR-2.7.1

          Article 61 of the CBB Law requires that Islamic bank licensees must appoint an external auditor, subject to the CBB's prior approval. The minimum requirements regarding external auditors contained in Module AU (Auditors and Accounting Standards) must be met.

          Amended October 2010
          October 2007

        • LR-2.7.2

          Applicants must submit details of their proposed external auditors to the CBB as part of their license application.

          October 2007

      • LR-2.8 LR-2.8 Condition 8: Other Requirements

        • Books and Records

          • 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.

            Amended: July 2012
            Amended: July 2011
            Amended: October 2009
            October 2007

        • Provision of Information

          • 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.

            Amended: July 2012
            October 2007

        • General Conduct

          • 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.

            October 2007

          • 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]

        • Additional Conditions

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            October 2007

          • 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.

            Amended October 2010
            October 2007

    • LR-3 LR-3 Information Requirements and Processes

      • LR-3.1 LR-3.1 Licensing

        • LR-3.1.1

          Applicants for a license must fill in the Application Form 1 (Application for a License) online, available on the CBB website under E-services/online Forms. The applicant must upload scanned copies of supporting documents listed in Paragraph LR-3.1.5, unless otherwise directed by the CBB.

          Amended: July 2019
          Amended: April 2018
          October 2007

        • LR-3.1.2

          [This paragraph was deleted in October 2007]

        • LR-3.1.3

          References to applicant mean the proposed licensee seeking authorisation. An applicant may appoint a representative — such as a law firm or professional consultancy — to prepare and submit the application. However, the applicant retains full responsibility for the accuracy and completeness of the application, and is required to certify the application form accordingly. The CBB also expects to be able to liaise directly with the applicant during the authorisation process, when seeking clarification of any issues.

          Added: April 2011

        • LR-3.1.4

          [This paragraph was deleted in October 2007]

        • LR-3.1.5

          Unless otherwise directed by the CBB, the following documents must be provided together with the covering letter referred in LR-3.1.1 above 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 branches of foreign banks, a copy of the bank's current commercial registration or equivalent documentation;
          (e) Where the applicant is an existing institution, a copy of the applicant's commercial registration;
          (f) Any relevant Private Placement Memoranda or public offering documents (if funds are to be raised by external shareholders);
          (g) Where the applicant is a corporate body, a certified copy of a Board resolution of the applicant along with minutes of the concerned meeting, confirming the board's decision to seek a CBB Islamic bank license;
          (h) 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;
          (i) In the case of branches of foreign banks 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;
          (j) 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;
          (k) In the case of applicants for a licence for a locally incorporated bank, copies of the audited financial statements of the applicant's major shareholder and/or group (as directed by the CBB), for the three years immediately prior to the date of application;
          (l) A duly completed Form 3 (Application for Approved Person status), for each individual, (other than for Directors covered in item (b) above) applying to undertake controlled functions in the applicant; and
          (m) A draft copy of the applicant's (and parent's where applicable) memorandum and articles of association, addressing the matters described in LR-3.1.7.
          Amended: July 2017
          Amended: April 2011
          Amended: January 2011
          Amended October 2010
          October 2007

        • LR-3.1.5A

          The CBB, in its complete discretion may ask for a guarantee from the applicant's controlling or major shareholders on a case by case basis as it deems appropriate/necessary as part of the required documents to be submitted as mentioned in Paragraph LR-3.1.5 above.

          Adopted: January 2011

        • 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.
          Amended October 2010
          October 2007

        • LR-3.1.7

          The applicant’s (and where applicable, its parent’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.

          October 2007

        • 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 CBB for its approval as part of the Phase 2 documentation.

          October 2007

        • LR-3.1.9

          The purpose of Rule LR-3.1.8 is to allow CBB to verify that the contents of the Private Placement Memorandum are consistent with other information supplied to CBB, notably in the business plan, and otherwise meets any applicable regulatory requirements with respect to PPM documents. The CBB'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.

          October 2007

        • LR-3.1.10

          [This paragraph was deleted in October 2007]

  • LR-3.1.11

    All documentation provided to the CBB 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. Certification must be performed by an official of the concerned licensee (if already licensed), a lawyer, or a Government body such as an Embassy or Ministry. The certification must include the words “original sighted” together with a date and signature of the concerned authorised official (along with corporate stamp where applicable). The certifier's contact details should be clearly available (e.g. business card) with the certification.

    Amended: October 2016
    October 2007

  • LR-3.1.12

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

    October 2007

  • LR-3.1.12A

    Before the final approval is granted to a licensee, confirmation from a retail bank addressed to the CBB that the licensee's capital (injected funds) — as specified in the business plan submitted under Rule LR-3.1.5 — has been paid in must be provided to the CBB.

    October 2010

  • LR-3.1.13

    Failure to inform the CBB 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.

    October 2007

  • LR-3.1.14

    As part of the application process, 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, as specified in Article 44 (e) of the CBB Law. The applicant must submit within 6 months of the application date, all remaining requirements or otherwise has to submit a new application to the CBB. Applicants are encouraged to approach the CBB to discuss their application at an early stage, so that any specific questions can be dealt with prior to the finalisation of the application.

    October 2007

  • LR-3.1.15

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

    (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 48 (c) of the CBB Law);
    (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 applicant's notarised memorandum and articles of association, addressing the matters described in Paragraph LR-3.1.7;
    (i) A copy of the Ministry of Industry & Commerce commercial registration certificate in Arabic and in English;
    (j) A copy of the bank's business card and any written communication (including stationery, website, e-mail, business documentation, etc.) including a statement that the bank is licensed by the CBB specifying whether it is licensed either as an Islamic wholesale or Islamic retail bank; and
    (k) Other information as may be specified by the CBB.
    Amended October 2010
    October 2007

  • LR-3.1.15A

    With respect to the requirement under Subparagraph LR-3.1.15(j), Islamic bank licensees must ensure that they comply with this Rule by 31st March 2011.

    October 2010

  • LR-3.1.16

    Applicants issued new licenses by the CBB must start operations within 6 months of the license being issued, as per Article 48 (c) of the CBB Law. Failure to comply with this rule lead to enforcement action being taken against the licensee concerned, as specified in Article 128 of the CBB Law. Islamic bank licensee must at all times keep an approved copy of the licence displayed in a visible place on the Licensee’s premises in the Kingdom, as per Article 47 (b) of the CBB Law.

    October 2007

  • LR-3.1.17

    Applicants who are refused a license have a right of appeal under the provisions contained in Article 46 of the CBB Law, which shall not be less than thirty days from the date of the decision. The Central Bank will decide on the appeal made by the applicant and notify him of its decision within thirty days from the date of submission of the appeal.

    October 2007

  • LR-3.1.18

    Applicants may not publicise in any way the application for a licence for, or formation of a bank before the formal decision referred to in Paragraph LR-3.1.14 is provided to the applicant or the concerned agent.

    Amended: July 2012
    October 2007

  • LR-3.2 LR-3.2 Variations to a License

    • LR-3.2.1

      As per Article 48 of the CBB Law of 2006, Islamic bank licensees must seek prior CBB approval before undertaking new regulated Islamic banking services.

      October 2007

    • LR-3.2.2

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

      October 2007

    • LR-3.2.3

      In addition to any other information requested by the CBB, and unless otherwise directed by the CBB, an Islamic bank licensee requesting CBB 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.
      Amended October 2010
      October 2007

    • LR-3.2.4

      The CBB may amend or revoke a license in any of the following cases:

      (a) If the licensee fails to satisfy any of the license conditions;
      (b) If the licensee violates the terms of this regulations or any of the Volume's directives;
      (c) If the licensee fails to start business within six months from the date of the licence;
      (d) If the licensee ceases to carry out the licensed activity in the Kingdom; and
      (e) The legitimate interests of the customers or creditors of a licensee required such amendment or cancellation.
      Amended: October 2019
      Amended October 2010
      October 2007

    • LR-3.2.5

      The CBB’s procedures for amending or revoking a license are outlined in detail in the Enforcement Module (EN).

      October 2007

  • LR-3.3 LR-3.3 Withdrawal of a License or Closure of a Branch

    • Voluntary Surrender of a License or Closure of a Branch

      • LR-3.3.1

        In accordance with Article 50 of the CBB Law, all requests for the voluntary surrender of a license or closure of a branch are subject to the CBB's prior written approval, before ceasing such activities. 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 of the license or branch closure is to be carried out.

        Amended: October 2011
        October 2007

      • LR-3.3.2

        Islamic bank licensees must satisfy the CBB that their customers' interests are to be safeguarded during and after the proposed voluntary surrender or closure of the branch. The requirements contained in Chapter GR-7 regarding cessation of business must be satisfied.

        Amended: October 2011
        October 2007

      • LR-3.3.3

        The CBB 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 CBB. Also, a voluntary surrender will only take effect once the licensee, in the opinion of the CBB, has discharged all its regulatory responsibilities to customers.

        October 2007

    • Cancellation of a License by the CBB

      • LR-3.3.3A

        As provided for under Article 48 (c) of the CBB Law, the CBB may itself move to cancel a license. The CBB generally views the cancellation of a license as appropriate only in the most serious of circumstances, and generally tries to address supervisory concerns through other means beforehand. See also Chapter EN-9, regarding the cancellation or amendment of licenses, including the procedures used in such instances and the licensee's right to appeal the formal notice of cancellation issued by the CBB.

        October 2011

      • LR-3.3.4

        Cancellation of a license requires the CBB to issue a formal notice of cancellation to the person concerned. The notice of cancellation describes the CBB's rationale for the proposed cancellation, as specified in Article 48 (d) of the CBB Law.

        Amended: July 2012
        Amended: October 2011
        October 2007

      • LR-3.3.5

        [This Paragraph was deleted in October 2011.]

        Deleted: October 2011

      • LR-3.3.6

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

        Amended: July 2012
        Amended: October 2011
        October 2007

  • LR-3.4 LR-3.4 Publication of the Decision to Grant, Cancel or Amend a License

    • LR-3.4.1

      In accordance with Articles 47 and 49 of the CBB Law, the CBB must publish its decision to grant, cancel or amend a license in the Official Gazette and in two local newspapers, one in Arabic and the other in English.

      Amended: October 2019
      Added: July 2017

    • LR-3.4.2

      For the purposes of Paragraph LR-3.4.1, the cost of publication must be borne by the Licensee.

      Added: July 2017

    • LR-3.4.3

      The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.

      Added: July 2017

  • LR-4 LR-4 License Fees

    • LR-4.1 LR-4.1 License Application Fees

      • LR-4.1.1

        With immediate effect, applicants seeking an Islamic bank license from the CBB must pay a non-refundable license application fee of BD 100 at the time of submitting their formal application to the CBB.

        October 2007

      • LR-4.1.2

        There are no application fees for those seeking approved person status.

        October 2007

    • LR-4.2 LR-4.2 Annual License Fees

      • LR-4.2.1

        Islamic bank licensees must pay the relevant annual license fee to the CBB on 1st of December of the previous year for which the fees are due.

        Amended: July 2013
        October 2007

      • LR-4.2.2

        Islamic retail bank licensees must pay a variable annual licensing fee based on 1% of their total annual operating expenses by way of an annual license fee, subject to a floor of BD30,000 and a cap of BD240,000.

        Amended: July 2013
        October 2007

      • LR-4.2.3

        Bahraini Islamic wholesale bank licensees must pay a variable annual licensing fee based on 0.5% of their total annual operating expenses by way of an annual license fee, subject to a floor of BD13,000 and a cap of BD100,000.

        Amended: July 2013
        October 2007

      • LR-4.2.4

        Wholesale branches of foreign banks licensees must pay a variable annual licensing fee based on 0.25% of their total annual operating expenses by way of an annual license fee, subject to a floor of BD13,000 and a cap of BD100,000.

        Amended: July 2017
        Amended: July 2013
        October 2007

      • LR-4.2.5

        The fees due on 1st December are those covering the following calendar year and are calculated on the basis of the Islamic bank's latest audited financial statements for the previous calendar year: i.e. the fee payable on 1st December 2013 for the 2014 year (for example) is calculated using the audited financial statements for 2012, assuming a 31st December year end. Where a licensee does not operate its accounts on a calendar-year basis, then the most recent audited financial statements available are used instead.

        Amended: July 2013
        October 2007

      • LR-4.2.6

        Relevant operating expenses are defined as the total operating expenses of the licensee concerned, as recorded in the most recent audited financial statements available, subject to the adjustments specified in Rule LR-4.2.7.

        October 2007

      • LR-4.2.7

        The adjustments to be made to relevant operating expenses are the exclusion of the following items from total operating expenses:

        (a) Training fees;
        (b) Charitable donations;
        (c) Previous year's CBB fees paid; and
        (d) Non-executive Directors' remuneration.
        Amended: July 2013
        October 2007

      • LR-4.2.8

        For the avoidance of doubt, operating expenses for the purposes of this Section, do not include items such as depreciation, provisions, profits payable to Investment Account Holders, and dividends.

        October 2007

      • LR-4.2.9

        The CBB would normally rely on the audited accounts of a licensee as representing a true and fair picture of its operating expenses. However, the CBB reserves the right to enquire about the accounting treatment of expenses, and/or policies on intra-group charging, if it believes that these are being used artificially to reduce a license fee.

        October 2007

      • LR-4.2.9A

        Islamic bank licensees must pay a fixed annual fee of BD 1,000 for each locally incorporated SPV in Bahrain which is under the control of and/or providing an actual business function, service or activity (whether actively or passively) for the bank and/or others at the bank's direction or having been established under the bank's direction for that purpose. The CBB approval for any new SPV will only be granted, once the annual fee has been paid. The full amount of the BD 1,000 annual fee is due in the year the SPV is set up and it is not prorated for the number of months remaining in the year.

        Amended: October 2013
        Amended: April 2011
        Adopted: January 2011

      • LR-4.2.9B

        Paragraph LR-4.2.9A does not apply to SPVs of Bahrain domiciled CIUs. In the case of Bahrain domiciled CIUs, banks should refer to the relevant Chapter in Module ARR of Volume 7, depending on the classification of the Bahrain domiciled CIU.

        Added: July 2012

      • LR-4.2.10

        Islamic Bank licensees must complete and submit Form ALF (Annual License Fee) to the CBB 15th October of the preceding year for which the fees are due.

        Amended: July 2013
        October 2007

      • LR-4.2.10A

        All Islamic bank licensees are subject to direct debit for the payment of the annual fees and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September, available under Part B of Volume 2 (Islamic Banks) CBB Rulebook on the CBB Website.

        Added: July 2013

      • LR-4.2.11

        For new licensees, their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount specified for Islamic bank licensees, reduced on a pro-rata basis such that they are charged only for the number of complete months left in the current calendar year.

        October 2007

      • LR-4.2.12

        For example, if an Islamic retail bank is issued a license on 6 June 2007, then it would be asked to pay an annual license fee that same month, covering the remaining period left for the calendar year 2007. The fee would be calculated as BD30,000 (the minimum amount payable by an Islamic retail bank licensee, multiplied by 6/12 (the number of complete months left in the year, i.e. July to December inclusive, divided by the total number of months in the year), giving a fee liability of BD 15,000. For the following year (2008) annual fee, the licensee would submit a Form ALF by 15th October 2007, and calculate its fee as the floor amount. For future years, the licensee would submit a Form ALF by 15th October of the preceding year for which the fees are due and calculate its fee using its last audited financial statements (or alternative arrangements as agreed with CBB, should its first set of accounts cover an 18-month period).

        Amended: July 2013
        October 2007

      • LR-4.2.13

        Where a license is cancelled (whether at the initiative of the firm or the CBB), no refund is paid for any months remaining in the calendar year in question, should a fee have been paid for that year.

        Amended October 2010
        October 2007

      • LR-4.2.14

        Islamic bank licensees failing to comply with this Section may be subject to financial penalties for date sensitive requirements as outlined in Section EN-6.2A or may have their licenses withdrawn by the CBB.

        Added: July 2013