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  • C4-3 C4-3 Operating Requirements

    • C4-3.1 C4-3.1 Overarching Principles

      • C4-3.1.1

        Category 4 investment firms must:

        (a) Act with due skill, care and diligence in all dealings with clients;
        (b) Provide services without any discrimination based on gender, nationality, origin, language, faith, religion, physical ability or social standing;
        (c) Act fairly and reasonably in all dealings with clients;
        (d) Identify clients’ specific requirements in relation to the products and services about which they are enquiring and take adequate measures to avoid mis-selling and mis-representation;
        (e) Ensure that any advice to clients is aimed at the clients’ interests and based on adequate standards of research and analysis;
        (f) Provide sufficient information to enable clients to make informed decisions when purchasing investment products and services offered to them;
        (g) Provide sufficient and timely documentation to clients to confirm that their investment arrangements are in place and provide all necessary information about their products, rights and responsibilities;
        (h) Maintain fair treatment of clients through the lifetime of the client relationships, and ensure that clients are kept informed of important events;
        (i) Ensure complaints from clients are dealt with fairly and promptly;
        (j) Ensure that all information provided to clients is clear, fair and not misleading, and appropriate to clients’ information needs; and
        (k) Take appropriate measures to safeguard any money and property handled on behalf of clients and maintain confidentiality of client information.
        Added: January 2022

      • Client Classification

        • C4-3.1.2

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

          (a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 1,000,000, excluding that person’s principal place of residence;
          (b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 1,000,000; or
          (c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).
          Added: January 2022

        • 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.

          Added: January 2022

      • Conflicts of Interest

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Professional Indemnity Insurance

        • 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.

          Added: January 2022

    • C4-3.2 C4-3.2 Disclosure Requirements

      • C4-3.2.1

        Category 4 investment firms must provide (with respect to regulated investment services), comprehensible information to clients or potential clients on:

        (a) Itself and the types of services that it can provide;
        (b) Fees, costs and associated charges such as:
        (i) The basis or amount of its charges, remuneration and commission for conducting regulated investment services; and
        (ii) The nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to that regulated investment service;
        (c) Proposed CIU structures, investments and strategies and appropriate guidance on and warnings of the risks associated with those investments and strategies; and
        (d) Information about methods of redress.
        Added: January 2022

      • C4-3.2.2

        For the purpose of Subparagraph C4-3.2.1 (b), category 4 investment firms must disclose any remuneration that the operator/manager is eligible to receive such as carried interest and employee share option plans (ESOP) to its clients in the prospectus or other offering document.

        Added: January 2022

      • C4-3.2.3

        Category 4 investment firms must provide periodic statements and updates, at least on a semi-annual basis, to their clients on the status of their investments.

        Added: January 2022

      • C4-3.2.4

        For the purposes of Paragraph C4-3.2.3, information provided to clients may include the following, where applicable:

        (a) Updates on status of the CIU, the underlying assets and future strategies and plans;
        (b) Value of the client’s investments (for example total and net asset value of the CIU);
        (c) Any debt, pledges on the CIU assets, and resulting costs such as interested payments;
        (d) Fees and charges paid during the period and their nature;
        (e) Details of remuneration of the operator/manager;
        (f) Details of any income received during the period such as dividends etc.; and
        (g) Any material changes to the structure of the CIUs, the licensee, the management etc.
        Added: January 2022

    • C4-3.3 C4-3.3 Client Assets

      • C4-3.3.1

        Category 4 investment firms must ensure they have made adequate arrangements for safeguarding client assets comprising money or financial instruments belonging to clients which are held or controlled by the licensee in connection with its business activities.

        Added: January 2022

      • C4-3.3.2

        For the purpose of C4-3.3.1 client assets are held or controlled by the category 4 investment firm on behalf of a client if they are:

        (a) Directly held by the licensee;
        (b) Held in an account in the name of the licensee;
        (c) Held by a person, or in an account in the name of a person, controlled by the licensee; or
        (d) Held in an account with another person, controlled by the licensee; or
        (e) The account is operated in accordance with the instructions of the licensee.
        Added: January 2022

      • C4-3.3.3

        Category 4 investment firms must ensure that client assets are held separately from assets belonging to the licensees and that they disclose the arrangements for custody of the client assets in their prospectus and agreements with the clients.

        Added: January 2022

      • C4-3.3.4

        Category 4 investment firms must ensure the following in respect of custody of assets of the CIUs:

        (a) Undertake an appropriate risk assessment of that custodian and document the same;
        (b) That the client will assume the unsecured credit risk of the custodian or third party with whom the licensee places the client assets that it holds;
        (c) If applicable, that client assets may be held in a jurisdiction outside the Kingdom of Bahrain;
        (d) Agree with the client the details of any claims or set offs which the licensee may have in client assets held on behalf of the client in satisfaction of a default by the client or otherwise, and any rights which the licensee may have to closeout or liquidate contracts or positions in respect of any of the client assets, without the client’s prior instruction or consent; and
        (e) Obtain clients’ consent in writing for the arrangements for custody in a document which gives clear information on:
        i. The terms governing the way in which the client assets will be held and the obligations and responsibilities of the licensee and/or of the third-party custodian (where applicable), the clients (including the terms for the restitution of the financial instruments);
        ii. The risks involved; and
        iii. Whether interest on client money held is payable to the client and, if so, the terms and frequency of such payments.
        Added: January 2022

      • C4-3.3.5

        Category 4 investment firms must require that if a safe custody financial instrument is recorded in an account with a custodian, the custodian makes it clear in the title of the account that the financial instrument belongs to one or more clients of the licensee.

        Added: January 2022

      • C4-3.3.6

        Category 4 investment firms that hold custody of financial instruments with a custodian are expected to establish and maintain a system for assessing the appropriateness of the selection of the custodian and to assess the continued appointment of that custodian periodically as often as is reasonable in the relevant market. The licensee is also expected to make and retain a record of the grounds on which it satisfies itself as to the appropriateness of its selection or, following a periodic assessment, continued appropriateness of the custodian.

        Added: January 2022

      • Client Money

        • C4-3.3.7

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

          Added: January 2022

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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:

          (a) Whether it is a duly licensed bank in good regulatory standing in the jurisdiction it operates;
          (b) The capital adequacy of the bank is reasonable;
          (c) The amount of client money to be placed, as a proportion of the bank’s capital and deposits is not disproportionate; and
          (d) The credit rating of the bank, if available is good.
          Added: January 2022

      • Transfer of Money to Eligible Third Parties

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

        • 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:

          (a) The eligible third party’s credit rating, capital and financial resources;
          (b) The regulatory and insolvency regimes of the jurisdiction in which the eligible third party is located;
          (c) The eligible third party’s reputation;
          (d) Its regulatory status and history; and
          (e) The other members of the eligible third party’s group and their activities.
          Added: January 2022

        • 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:

          (a) For the purpose of a transaction for a client through or with that eligible third party; or
          (b) To meet a client’s obligations to provide collateral for a transaction.
          Added: January 2022

        • C4-3.3.15

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

          (a) A minimum sum required to open the account or to keep it open;
          (b) Money temporarily held in the account in accordance with the mixed remittance requirements in Paragraph C4-3.3.17; or
          (c) Interest credited to the account which exceeds the amount due to clients as interest and which has not yet been withdrawn by the licensee.
          Added: January 2022

        • 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.

          Added: January 2022

        • 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:

          (a) Pay the full sum into a client bank account; and
          (b) Pay the money that is not client money out of the client bank account within one business day.
          Added: January 2022

        • 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.

          Added: January 2022

      • Reconciliation

        • 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).

          Added: January 2022

    • C4-3.4 C4-3.4 Customer Complaints Procedures

      • C4-3.4.1

        Category 4 investment firms must have adequate customer complaints handling procedures and systems for effective handling of complaints made by customers. The procedures must be documented appropriately, and the customers must be informed of their availability.

        Added: January 2022

      • C4-3.4.2

        Category 4 investment firms should assign the responsibility to handle customer complaints and be the contact point for the customers to a senior level employee and publicise his/her contact details. The position may be outsourced to a third-party with the CBB’s prior approval.

        Added: January 2022

      • C4-3.4.3

        For the purposes of Paragraph C4-3.4.1, customer complaints handling procedures must include the following:

        (a) The procedures and policies for:
        (i) Receiving and acknowledging complaints;
        (ii) Investigating complaints;
        (iii) Responding to complaints within appropriate time limits;
        (iv) Recording information about complaints;
        (v) Identifying recurring system failure issues.
        (b) The types of remedies available for resolving complaints; and
        (c) The periodic reporting of customer complaints and concerns to the Board and senior management.
        Added: January 2022

      • Visibility and Accessibility

        • 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.

          Added: January 2022

      • Responsiveness

        • 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.

          Added: January 2022

        • 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.

          Added: January 2022

      • Objectivity

        • 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:

          (a) Impartiality:
          i. Measures must be taken to protect the person the complaint is made against from bias;
          ii. The investigation must be carried out by a person independent of the person complained about.
          (b) Confidentiality:
          i. Ensure confidentiality for staff who have a complaint made against them and the details must only be known to those directly concerned;
          ii. Customer information must be protected and not disclosed, unless the customer consents otherwise; and
          iii. Protect the customer and customer’s identity as far as is reasonable to avoid deterring complaints due to fear of inconvenience or discrimination.
          Added: January 2022

      • Records of Complaints

        • C4-3.4.8

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

          (a) The identity of the complainant;
          (b) The substance of the complaint;
          (c) The status of the complaint, including whether resolved or not, and whether redress was provided; and
          (d) All correspondence in relation to the complaint.

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

          Added: January 2022

      • Reporting of Complaints

        • 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:

          (a) The number of complaints received;
          (b) The substance of the complaints;
          (c) The number of days it took the licensee to acknowledge and to respond to the complaints; and
          (d) The status of the complaint, including whether resolved or not, and whether redress was provided.
          Added: January 2022

        • 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.

          Added: January 2022