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  • 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-1.3.1C

        For the purposes of Paragraph LR-1.3.1B, Islamic bank licensees must submit the following minimum information in relation to the provision of such services:

        a) Description of the services/products;
        b) Proposed fees and charges;
        c) Experience of resources responsible for such services and their details;
        d) Policies and procedures for such services;
        e) Enhancements to its risk management framework to capture, monitor, measure, control and report risks arising from the activity; and
        f) Relevant staff training plans.
        Added: January 2022

      • 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