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  • C4-2 C4-2 High-Level Controls

    • C4-2.1 C4-2.1 Board and Management Structure

      • C4-2.1.1

        Category 4 investment firms must be headed by an effective, collegial and informed Board of Directors.

        Added: January 2022

      • Board Role and Responsibilities

        • 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:

          (a) The Board’s role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and
          (b) The Board’s fiduciary duties of care and loyalty to the category 4 investment firm and the shareholders.
          Added: January 2022

        • C4-2.1.3

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

          (a) The overall business performance and strategy for the category 4 investment firm;
          (b) Causing financial statements to be prepared which accurately disclose the category 4 investment firm’s financial position;
          (c) Monitoring management performance;
          (d) Convening and preparing the agenda for shareholder meetings;
          (e) Monitoring conflicts of interest and preventing abusive related party transactions; and
          (e) Assuring equitable treatment of shareholders including minority shareholders.
          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Board Composition

        • 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.

          Added: January 2022

      • Directors’ Communication with Management

        • 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.

          Added: January 2022

      • Management Structure

        • 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:

          (a) A CEO, General Manager (or CO-CEO, Managing Partner etc.);
          (b) Financial control;
          (c) Compliance;
          (d) Risk management;
          (e) Asset management;
          (f) Internal audit; and
          (g) Anti-Money Laundering (AML).
          Added: January 2022

        • 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:

          (a) The Board and senior management take responsibility for the outsourced activities and maintain oversight and control over the operations of the outsourced service provider;
          (b) The licensee satisfies the CBB that adequate arrangements are in place to fulfill the role’s responsibilities;
          (c) The core business of asset management is carried out internally although the firm may utilise third-parties for managing the related processes; and
          (d) Compliance and AML functions (which may be combined) must have on-site presence (either in-house or on a secondment basis).
          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Approved Persons Accountability

        • 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.

          Added: January 2022

      • Conflicts of Interest

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Communication between Board and Shareholders

        • 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.

          Added: January 2022

      • Remuneration of Approved Persons

        • C4-2.1.17

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

          Added: January 2022

        • 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.

          Added: January 2022

    • C4-2.2 C4-2.2 Auditor Requirements

      • Appointment of Auditors

        • C4-2.2.1

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

          Added: January 2022

        • 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.

          Added: January 2022

      • Resignation or Removal of Auditors

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Audit Partner Rotation

        • 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.

          Added: January 2022

      • Auditor Independence

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • CBB Access to 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Auditor Access to Outsourcing Providers

        • 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.

          Added: January 2022

      • Report on Compliance with Client Asset Rules

        • 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.

          Added: January 2022