C4-A.1.6

This Module contains the CBB’s Directive, Regulation and Resolutions (as amended from time to time) applicable to category 4 investment firms under Volume 4 of the CBB Rulebook. It 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 includes the requirements contained in Resolution No (1) of 2007 with respect to determining fees categories due for licensees and services provided by the CBB, Regulation No (1) of 2007 pertaining to the CBB’s regulated services issued under Article 39 of the CBB Law and contains requirements 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.

C4-A.2.1

This Module was first issued in September 2021 as part of Volume 4 (Investment Business). Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

C4-A.2.2

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

Mind and Management

Controllers

Board and Employees

Financial Resources

Systems and Controls

External Auditors

Books and Records

Provision of Information

General Conduct

License Fees

C4-1.2.1

Applicants for a license must fill in the application for authorisation online, available on the CBB website under E-services/online Forms. The applicant must also upload PDF copies/scanned copies of the following supporting documents:

C4-1.2.2

The CBB, at 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.

C4-1.2.3

The business plan submitted in support of an application must include:

C4-1.2.4

The applicant’s memorandum and articles of association must explicitly provide for it to undertake the activities proposed in the license application and must preclude the applicant from undertaking other regulated services, or commercial activities, unless these arise out of its investment activities or are incidental to those.

C4-1.2.5

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.

C4-1.2.6

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.

C4-1.2.7

Articles 44 to 47 of the CBB Law govern the licensing process. This prescribes a single stage process, with the CBB required to take a decision within 60 calendar days of an application being deemed complete (i.e. containing all required information and documents). All applicants are strongly encouraged to contact the CBB at an early stage to discuss their plans, for guidance on the CBB’s requirements.

C4-1.2.8

The CBB recognises that applicants may find it difficult to complete all the incorporation procedures in the absence of preliminary assurances regarding the likelihood of obtaining a license. Therefore, CBB may provide an initial ‘in principle’ confirmation that the applicant appears likely to meet the CBB’s licensing requirements, subject to the remaining information and documents being assessed as satisfactory. The ‘in principle’ confirmation will also list all outstanding documents required before an application can be considered complete and subject to formal consideration. An ‘in principle’ confirmation does not constitute a license approval, nor does it commit the CBB to issuing a license. The applicants can later complete their applications for final approval.

C4-1.2.9

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

C4-1.2.10

Should a license be granted, the CBB will notify the applicant in writing of the fact; the CBB will also publish its decision to grant a license in the Official Gazette and in two local newspapers (one published in Arabic, the other in English).

C4-1.2.11

The CBB may refuse to grant a license if in its opinion:

C4-1.2.12

Where the CBB proposes to refuse an application for a license, it will give the applicant a written notice to that effect. Applicants will be given a minimum of 30 calendar days from the date of the written notice to appeal the decision.

C4-1.2.13

Before the final approval is granted to a licensee, confirmation from a retail bank addressed to the CBB that the licensee’s capital as specified in the business plan has been paid in must be provided to the CBB.

C4-1.2.14

Within 6 months of the license being issued, the new licensee must provide to the CBB (if not previously submitted):

C4-1.2.15

New licensees must start their operations within 6 months of being granted a license by the CBB, failing which the CBB may cancel the license, as per the powers and procedures set out in Article 48 of the CBB Law.

C4-1.2.16

Category 4 investment firms wishing to vary the scope of their license must obtain the CBB’s written approval, before effecting any such change. Such changes include whenever a licensee wishes to add or cease undertaking a regulated service, or to vary a condition imposed on their license. Licensees requesting CBB approval to undertake a new regulated service must provide the following:

C4-1.2.17

In accordance with Article 50 of the CBB Law, category 4 investment firms wishing to cancel their license or cease activities must obtain the CBB’s written approval, before ceasing their activities. All such requests must be made in writing and include the following in support of the request:

C4-1.2.18

Category 4 investment firms, after receiving the CBB’s in-principle approval for cessation of business, must invite the CBB to the Extraordinary General Meeting (EGM) held to seek the shareholder’s approval on the following:

C4-1.2.19

Once the shareholders give their approval to cease business, the licensee must publish a notice of its intention to cease business in two local daily newspapers (one in Arabic, the other in English). Notices must also be displayed in the premises (including any branch offices) of the licensee concerned. These notices must be given not less than 30 calendar days before the cessation is to take effect and must include such information as the CBB may specify including a statement that written representations concerning the liquidation may be submitted to the CBB before a specified day, which shall not be later than thirty calendar days after the day of the first publication of the notice. Prior to publication, the draft notices will be reviewed by the CBB.

C4-1.2.20

Upon completion of the period specified in Paragraph C4-1.2.19, category 4 investment firms must request the CBB’s final approval on the cessation and provide the proposed cut-off date. Licensees must also confirm in their request that either no objections to the cessation were received and/or any objections received have been adequately dealt with. The CBB will then grant the final approval to proceed with liquidation.

C4-1.2.21

Upon completion of the liquidation process, the liquidator must provide the CBB with the following:

C4-1.2.22

The category 4 investment firm must continue to comply with all applicable CBB requirements until such time as it is formally notified by the CBB that its obligations have been discharged and a final written notice of license cancellation is issued.

C4-1.2.23

As provided for under Article 48 (c) of the CBB Law, the CBB may itself move to cancel a license, for instance if a licensee fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licensee requires a cancellation. 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-7, 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.

C4-1.2.24

In accordance with Articles 47 and 49 of the CBB Law, the CBB will 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, the cost of which is borne by the licensee. The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.

C4-1.2.25

Category 4 investment firms must seek prior written approval from the CBB before transferring any of its business to a third party.

C4-1.2.26

Paragraph C4-1.2.25 is intended to apply to circumstances where a category 4 investment firm wishes to sell all or part of its business to a third party. It does not apply where a category 4 investment firm is simply allocating client assets to a third party, on instruction from the client concerned or managing client assets through another asset manager.

C4-1.2.27

In the case of a Bahraini category 4 investment firm, business transfer requirements apply both to its business booked in Bahrain and in the firm’s overseas branches. In the case of an overseas category 4 investment firm, the requirements only to business booked in the firm’s Bahrain branch.

C4-1.2.28

In all cases, CBB approval to transfer business will only be given where:

C4-1.2.29

In assessing the criteria outlined in Paragraph C4-1.2.28, the CBB will, amongst other factors, take into account the financial strength of the transferee; its capacity to manage the business being transferred; its track record in complying with applicable regulatory requirements; and (where applicable) its track record in treating customers fairly. The CBB will also take into account the impact of the transfer on the transferor, and any consequences this may have for the transferor’s remaining customers.

C4-1.2.30

Category 4 investment firms seeking to obtain the CBB’s permission to transfer business must provide the following information in their request:

C4-1.2.31

Licensees intending to apply to transfer business are advised to contact the CBB at the earliest possible opportunity, prior to submitting a formal application, in order that the CBB may determine the nature and level of documentation to be provided and the need for an auditor or other expert opinion to be provided to support the application.

C4-1.2.32

At its discretion, the CBB may require that a notice of proposed transfer of business be published in the Official Gazette, and/or in at least two local daily newspapers (one in Arabic, the other in English), in order to give affected customers, the right to comment on the proposed transfer. Where such a requirement has been imposed, the CBB’s decision on the application will also be published in the Official Gazette and in at least two local daily newspapers. In all such cases, the costs of publication must be met by the transferor.

C4-1.2.33

As specified in Articles 51 and 57 of the CBB Law, a Bahraini category 4 investment firm must seek CBB approval and provide adequate information for its intention to:

C4-1.2.34

Bahraini category 4 investment firms wishing to establish or acquire a subsidiary undertaking must submit the following information to the CBB as part of the approval process:

C4-1.2.35

Bahraini category 4 investment firm wishing to establish a branch or a representative office in a jurisdiction other than the Kingdom of Bahrain, must submit the following information to the CBB as part of the approval process:

C4-1.3.1

Category 4 investment firms must obtain the CBB’s prior written approval for any person wishing to undertake a controlled function in the licensee.

C4-1.3.2

Controlled functions are those of:

C4-1.3.3

Prior approval is required for all controlled functions mentioned in Paragraph C4-1.3.2. Minimum controlled functions required to be appointed and their combinations are subject to the requirements contained Chapter C4-2 of this Module.

C4-1.3.4

Director is any person who is a member of the licensee’s Board of Directors, and is individually, and collectively with other Directors responsible for directing the affairs and overseeing the activities of the licensee.

C4-1.3.5

The Chief Executive, General Manager, Managing Partner or Co-CEO means a person who is responsible for the conduct of the licensee (regardless of actual title) and its executive management and performance, within the framework of delegated authorities set by the Board.

C4-1.3.6

Compliance officer or head of compliance function is responsible to ensure that the licensee is in compliance with the applicable legal and regulatory requirements of the CBB and any other relevant regulator/authority.

C4-1.3.7

The controlled functions of Money Laundering Reporting Officer/Deputy Money Laundering Reporting Officer are defined under Chapter FC-3.

C4-1.3.8

Head of function means a person who exercises major managerial responsibilities, is responsible for a significant business or operating unit, or has senior managerial responsibility for maintaining accounts or other records of the licensee.

C4-1.3.9

An investment consultant or investment adviser refers to the function of advising a client or potential client with respect to buying, selling, subscribing for or underwriting a particular financial instrument or exercising any right conferred by such a financial instrument.

C4-1.3.10

Category 4 investment firms 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. Each applicant applying for approved person status and those individuals occupying approved person positions must comply with the following conditions:

C4-1.3.11

For the purposes of sub-paragraph C4-1.3.17(g), category 4 investment firms should satisfy the CBB that the controllers, managing partners and the CEO collectively have adequate experience in the related fields, including venture capital, angel investing and entrepreneurship / start-ups for operators of venture capital CIUs.

C4-1.3.12

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.

C4-1.3.13

Category 4 investment firms 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 the CBB the approved persons’ section of the application for authorisation and Curriculum Vitae after verifying that all the information provided is accurate. The following additional documents must be attached with the application:

C4-1.3.14

The CBB approval for the Board of director candidates of category 4 investment firms must be obtained prior to issuance of the notice/agenda of the shareholder’s meeting in which the candidates are put forward for election/approval. CBB approval of the candidates does not in any way limit the shareholders’ rights to refuse those put forward for election/approval.

C4-1.3.15

The CBB will review and assess the application for approved person status to ensure that it satisfies CBB’s ‘fit and proper’ requirements and respond within 15 business days from the date of receiving the application complete with all the required information and documents. The CBB reserves the right to refuse an application for approved person status if it does not satisfy the CBB’s requirements.

C4-1.3.16

Category 4 investment firms 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 submitting the appeal.

C4-1.3.17

Category 4 investment firms must immediately notify the CBB when:

C4-1.3.18

If a controlled function falls vacant, the category 4 investment firm 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 licensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of the controlled function affected, provided that such arrangements do not pose a conflict of duties. These interim arrangements must be approved by the CBB.

C4-1.3.19

Category 4 investment firms must assess individuals as competent when they have demonstrated the ability to apply the knowledge and skills required to perform a specific controlled function without supervision.

C4-1.3.20

Category 4 investment firms must annually determine the training needs of individuals undertaking controlled functions. It must develop a training plan to address these needs and ensure that training is planned, appropriately structured and evaluated. The training plan of category 4 investment firms must include a programme for continuous professional development training (“CPD”) for their staff.

C4-1.3.21

Category 4 investment firms should make and retain updated records of:

C4-2.1.2

All directors should understand the Board’s role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:

C4-2.1.3

The Board’s role and responsibilities include but are not limited to:

C4-2.1.4

The directors are responsible both individually and collectively for performing these responsibilities. Although the Board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place.

C4-2.1.5

The category 4 investment firm should have a written appointment agreement with each director which recites the directors’ powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, his remuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

C4-2.1.6

The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.

C4-2.1.7

The Board should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints. Category 4 investment firms may appoint non-executive directors or a separate advisory board to obtain expert guidance.

C4-2.1.8

The Board must encourage participation by management regarding matters the Board is considering. Non-executive directors or where applicable advisory board members should have free access to the category 4 investment firm’s management beyond that provided in Board meetings.

C4-2.1.9

The Board must appoint senior management whose authority must include management and operation of current activities of the category 4 investment firm, reporting to and under the direction of the Board. The Board must make adequate arrangements, at a minimum for the below functions/positions:

C4-2.1.10

For the purposes of Paragraph C4-2.1.9 and as per Paragraph C4-1.1.4, the Board is required to appoint at least two senior executives that are resident in Bahrain, one of who is the CEO, but the category 4 investment firm, with the approval of the CBB, may outsource other functions provided the following conditions are met:

C4-2.1.11

The Board and CEO should prescribe each senior manager’s title, authorities, duties and internal reporting responsibilities. The Board may also specify any limits on the authority of the CEO or other senior managers, such as monetary maximums for transactions which they may authorise without separate Board approval.

C4-2.1.12

At least annually, the Board should review and concur in a succession plan addressing the policies and principles for selecting a successor to the CEO, both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to the CEO.

C4-2.1.13

Each approved person should understand that under the Law he is personally accountable to the category 4 investment firm and the shareholders and if he violates his legal duty of loyalty to the licensee, and that he can be personally sued by the licensee or the shareholders for such violations.

C4-2.1.14

Each approved person should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the category 4 investment firm. This includes not using licensee’s information it for his personal profit, not to take business opportunities of the licensee for himself, and not to compete in business with the category 4 investment firm. The Board should also have in place a policy on the employment of relatives of the approved persons.

C4-2.1.15

Approved persons must inform the Board of conflicts of interest as they arise and abstain from voting on the matter in accordance with the relevant provisions of the Law.

C4-2.1.16

The category 4 investment firm should communicate with shareholders, encourage their participation, and respect their rights. The Board should observe both the letter and the intent of the Commercial Company Law’s requirements for shareholder meetings.

C4-2.1.17

The category 4 investment firm must remunerate approved persons fairly and responsibly.

C4-2.1.18

Remuneration of approved persons should be sufficient enough to attract, retain and motivate persons of the quality needed to run the category 4 investment firm successfully, but the licensee should avoid paying more than is necessary for that purpose.

C4-2.2.1

Category 4 investment firms must obtain prior written approval from the CBB before appointing or re-appointing their auditors.

C4-2.2.2

Where a licensee fails to appoint an external auditor within four months from the beginning of the financial year, Article 61 (b) of the CBB Law provides the CBB with the power to appoint the external auditor.

C4-2.2.3

Category 4 investment firms must notify the CBB immediately if they intend to remove their auditors, with an explanation of their decision, or when their auditors resign. The licensee must appoint the replacement auditor as soon as practicable but no later than three months.

C4-2.2.4

In accordance Article 63 of the CBB Law, auditors of category 4 investment firms must inform the CBB in writing, if they resign or their appointment as auditor is terminated, within 30 calendar days, of the event occurring, setting out the reasons for the resignation or termination.

C4-2.2.5

Unless otherwise exempted by the CBB, category 4 investment firms must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession. Licensees must notify the CBB of any change in audit partner.

C4-2.2.6

Before a category 4 investment firm appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of the licensee. For an auditor to be considered independent, it must, among things, comply with the restrictions in this Section.

C4-2.2.7

If a category 4 investment firms becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact. The CBB may require the appointment of a new auditor if the issue is not resolved within a reasonable timeframe.

C4-2.2.8

Category 4 investment firms must not provide regulated services to their auditors or outsource their internal audit function to the same firm that acts as their external auditors.

C4-2.2.9

A partner, director or manager on the engagement team of auditing a category 4 investment firms may not serve on the Board or in a controlled function of the licensee, for two years following the end of their involvement in the audit, without prior authorisation of the CBB.

C4-2.2.10

The Bahrain Commercial Company’s Law and the CBB Law provide further requirements with regards to the licensee’s relationship with auditors.

C4-2.2.11

Category 4 investment firms must waive any duty of confidentiality on the part of their auditors, such that their auditors may report to the CBB any concerns held regarding material failures by the licensee to comply with CBB requirements.

C4-2.2.12

In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint appointed experts to undertake on-site examinations or report by way of investigations on specific aspects of a category 4 investment firm’s business. External auditors may be called upon to be appointed experts and should be aware of their role in that capacity by referring to Section C4-5.3.

C4-2.2.13

Outsourcing agreements between category 4 investment firms and outsourcing providers must ensure that the licensee’s internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.

C4-2.2.14

Category 4 investment firms that hold or control client assets must arrange for their external auditors to report on the licensee’s compliance with the requirements contained in Appendix CL – (i) at least once a year. The report must be in the form agreed by CBB and must be submitted to the CBB within three months of the licensee’s financial year-end.

C4-3.1.2

Category 4 investment firms must only provide services to accredited investors who are defined as:

C4-3.1.3

Before providing any regulated investment services to any client, a category 4 investment firm must take reasonable steps to obtain appropriate information to establish whether that client is an accredited investor. Such classification must be communicated to the client along with an explanation of the implications of such classification. Licensees must also keep records of the classification established for each client, including sufficient information to support such classification.

C4-3.1.4

Category 4 investment firms must take all reasonable steps to identify conflicts of interest between themselves (or any person directly or indirectly linked to them by control) and their clients, which may arise in the course of providing a regulated investment service. Any such conflict of interest must be disclosed to the client and take reasonable steps to obtain the client’s no objection.

C4-3.1.5

Category 4 investment firms must establish policies and procedures to manage conflicts to interest, including where appropriate information barriers, Chinese walls etc. If the licensee is unable to manage a conflict of interest it must decline to act for the client. The policies must also cover an employee’s personal account transactions.

C4-3.1.6

Category 4 investment firms must establish controls, policies and procedures to ensure that neither they, nor any of their employees, offer, give, solicit or accept any inducement which is likely to conflict significantly with any duty that they owe to their clients.

C4-3.1.7

Category 4 investment firms must satisfy the CBB that its professional indemnity coverage is adequate for the nature, size and risk profile of its business.

C4-3.3.7

Category 4 investment firms must hold all client money in a client bank account.

C4-3.3.8

For the purposes of C4-3.3.7, a client bank account is an account holding client money of one or more clients in a bank account designated as such in accordance with the terms of agreement with the client/clients.

C4-3.3.9

Client bank accounts in respect of Bahrain domiciled CIUs may only be opened with banks licensed to do business in the Kingdom of Bahrain unless approved by CBB for any given justifiable circumstances.

C4-3.3.10

If the bank holding client money is located outside the Kingdom of Bahrain, category 4 investment firms should take reasonable steps to establish that the bank is appropriate considering, among other factors, the following:

C4-3.3.11

Category 4 investment firms may only pay, or permit to be paid, client money into an account other than the client bank account if that account is an eligible third party.

C4-3.3.12

Eligible third parties are recognised exchanges, clearing houses and third-party intermediaries (such as brokers), that are duly authorised or licensed by the appropriate regulatory oversight body.

C4-3.3.13

For the purposes of C4-3.3.11, the category 4 investment firm must assess the suitability of an eligible third party before allowing it to hold or control client money. This assessment must include, at a minimum, the information included below:

C4-3.3.14

Category 4 investment firms may allow an eligible third party, such as an exchange, a clearing house or an intermediate broker, to hold or control client money, only if the licensee transfers the client money:

C4-3.3.15

Category 4 investment firms must not hold money other than client money in a client bank account unless it is:

C4-3.3.16

Category 4 investment firm may pay into a client bank account money of its own to protect client money if it is prudent to do so, and that money will then become client money for the purposes of the client asset protection rules in this Module until the licensee retrieves it.

C4-3.3.17

If a category 4 investment firm receives a mixed remittance (that is part client money and part other money), it must:

C4-3.3.18

Category 4 investment firms should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agencies or over the counter (OTC) counterparties; it should be held in a client bank account.

C4-3.3.19

Category 4 investment firms must ensure that a system is implemented to perform reconciliations of both client bank accounts and eligible third-party accounts in which client money is held. These reconciliations must be carried out on a regular basis, sufficient to ensure the accuracy of its records (but at a minimum, on a monthly basis as at the last business day of each calendar month).

C4-3.4.4

“How and where to complain” must be well publicised to customers and other interested parties, in both English and Arabic languages. The complaints handling process must be easily accessible to all customers and must be free of charge.

C4-3.4.5

Category 4 investment firms must promptly acknowledge a customer complaint and in no case, later than within 5 working days of receipt. Licensees must also promptly respond to a customer complaint in accordance with their urgency, and in no case, later than 4 calendar weeks of receiving the complaint, explaining their position and how they propose to deal with the complaint, including any redress. Until the complaint is resolved, the customers must be kept informed of the progress of their complaint.

C4-3.4.6

If a customer is not satisfied with a category 4 investment firm’s response or redress options, the licensee must advise the customer on how to take the complaint further within the organisation, including, the option to refer the matter to the Consumer Protection Unit at the CBB.

C4-3.4.7

Complaints must be addressed in an equitable, objective, unbiased and efficient manner. The following measures must be implemented in this respect:

C4-3.4.8

Category 4 investment firms must maintain a record of all customers’ complaints. The record of each complaint must include:

Such records must be retained by the licensee for a period of 5 years from the date of receipt of the complaint.

C4-3.4.9

Category 4 investment firms must electronically submit to the CBB’s Consumer Protection Unit at complaint@cbb.gov.bh, a quarterly report summarising the following:

C4-3.4.10

Where no complaints have been received by the licensee within the quarter, a ‘nil’ report should be submitted to the CBB’s Consumer Protection Unit.

C4-4.2.4

Category 4 investment firms must have policies and procedures for valuation of assets under management. Wherever possible, the licensee must use mark to market approach for valuation purposes. Where mark to model approach is not used due to lack of market prices, licensees must follow internationally recognised standards for valuation. Licensees must also utilise independent valuation experts to verify accuracy of valuation models.

C4-4.2.5

Category 4 investment firms must maintain a business continuity plan (BCP) appropriate to the size and complexity if its operations. The BCP must include procedures for ensuring that critical systems, functions and operations can be maintained or recovered in a timely manner in the event of a disruption

C4-4.2.6

Category 4 investment firms must establish mechanisms, including internal audits, to verify that controls, once established, are being followed.

C4-4.3.9

Category 4 investment firms must undertake a thorough risk assessment of an outsourcing proposal, before formally submitting the request for approval to the CBB and committing itself to an agreement.

C4-4.3.10

Before entering into, or significantly changing, an outsourcing arrangement, a licensee should:

C4-4.3.11

In negotiating its contract with a service provider, a licensee should have regard to:

C4-4.3.12

Category 4 investment firms must maintain and regularly review contingency plans to enable them to set up alternative arrangements with minimum disruption to business should the outsourcing contract be terminated, or the outsourcing provider fail. This may involve the identification of alternative outsourcing providers or the provision of the service in-house. These plans must consider how long the transition would take and what interim arrangements would apply.

C4-4.3.13

All material outsourcing arrangements by a category 4 investment firm must be the subject of a legally enforceable outsourcing agreement. The contractual liabilities and obligations of the outsourcing provider and licensee must be clearly specified in an outsourcing agreement. Where the outsourcing provider interacts directly with a licensee’s customers, the contract must, where relevant, reflect the licensee’s own standards regarding client care. Once an outsourcing agreement has been entered into, licensees must regularly review the suitability of the outsourcing provider, and the on-going impact of the agreement on their risk profile and systems and controls framework.

C4-4.3.14

Category 4 investment firms must ensure that the outsourcing arrangement is in compliance with the Personal Data Protection Law (PDPL) and the outsourcing provider implements adequate safeguards and procedures to protect client data confidentiality. Category 4 investment firms must ensure that they retain title under any outsourcing agreements for data, information and records that form part of the prudential records of the licensee.

C4-4.3.15

Category 4 investment firms must ensure that its internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.

C4-4.3.16

Category 4 investment firms must also ensure that the CBB inspectors and appointed experts have timely access to any relevant information they may reasonably require to fulfil its responsibilities under the law. Such access must allow the CBB to conduct on-site examinations of the outsourcing provider, if required.

C4-4.3.17

Termination under any other circumstances allowed under the agreement must give category 4 investment firms a sufficient notice period in which they can affect a smooth transfer of the service to another provider or bring it back in-house.

C4-4.3.18

Category 4 investment firms must not outsource their internal audit function to the same firm that acts as their external auditors.

C4-4.3.19

Board and management of licensees must retain responsibility for ensuring that an adequate internal audit programme is implemented, and will be held accountable in this respect by the CBB.

C4-5.2.1 C4-5.2.1

Category 4 investment firms must notify the CBB if any of the following has occurred, may have occurred or may occur in the near future:

C4-5.2.5

Category 4 investment firms must obtain prior written approval from the CBB for the following

C4-5.3.7

The CBB uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission reports on matters relating to the business of licensees in order to help it assess their compliance with CBB requirements. Inspections may be carried out either by the CBB’s own officials, by duly qualified appointed experts appointed for the purpose by the CBB, or a combination of the two.

C4-5.3.8

Appointed experts will be appointed in writing, through an appointment letter, by the CBB. In each case, the CBB will decide on the range, scope and frequency of work to be carried out by appointed experts.

C4-5.3.9

Appointed experts will report directly to and be responsible to the CBB in this context and will specify in their report any limitations placed on them in completing their work (for example due to the licensee’s group structure). The report produced by the appointed experts is the property of the CBB (but is usually shared by the CBB with the licensee concerned).

C4-5.3.10

The appointed experts’ report should follow the format set out in Appendix BR-1, in part B of the CBB Rulebook.

C4-5.3.11

Where the report is qualified by exception, the report must clearly set out the risks which the licensee runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected. Appointed experts will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.

C4-5.3.12

If the appointed experts conclude, after discussing the matter with the licensee, that they will give a negative opinion (as opposed to one qualified by exception) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.

C4-5.3.13

The report must be completed, dated and submitted, together with any comments by directors or management (including any proposed timeframe within which the licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.

C4-5.3.14

Appointed experts must communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, are not or have not been fulfilled, or that there has been a material loss or there exists a significant risk of material loss in the concerned licensee, or that the interests of customers are at risk because of adverse changes in the financial position or in the management or other resources of a licensee. Notwithstanding the above, it is primarily the licensee’s responsibility to report such matters to the CBB.

C4-5.3.15

Appointed experts must keep information obtained during their arrangement confidential and not divulge it to a third party except with the CBB’s permission and/or unless required by Bahrain Law.

C4-5.3.16

The CBB may, at its discretion, call for a trilateral meeting(s) to be held between the CBB and representatives of the relevant category 4 investment firm licensee and the appointed experts. This meeting will provide an opportunity to discuss the appointed experts’ examination of and report on the licensee.