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  • 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