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  • 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.