C4-1.1 C4-1.1 Licensing Conditions
Legal Status
Mind and Management
C4-1.1.1 C4-1.1.1
The legal form of a
category 4 investment firm must be:(i) A Bahraini joint stock company (BSC); or(ii) A branch resident in Bahrain of anoperator ofCIUs domiciled in an overseas jurisdiction and authorised to carry out such activity in that jurisdiction.Added: January 2022C4-1.1.3
Category 4 investment firms must maintain their head office in the Kingdom.Overseas category 4 investment firms must maintain local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.Added: January 2022C4-1.1.4 C4-1.1.4
Category 4 investment firms must appoint at least two senior executives who are resident in the Kingdom of Bahrain and at least one of the senior executives must be the CEO, GM, Co-CEO, Managing Partner, or Senior Executive Officer of thelicensee .Added: January 2022C4-1.1.2
Where the
category 4 investment firm is a branch of anoverseas investment firm , an application for licensing will be considered after extensive enquiries into the firm’s shareholders, management structure, financial position, its activities and how these activities are regulated.Added: January 2022Controllers
C4-1.1.5
A
controller is a natural or legal person who, either alone or with his associates:(a) Holds 10% or more of the issued and paid-up capital in thelicensee orparent undertaking ; or(b) Is able to exercise more than 10% of the voting power over thelicensee or theparent undertaking .Added: January 2022C4-1.1.6
For the purposes of Paragraph C4-1.1.5, ‘associate’ includes:
(a) In the case of natural persons, a member of thecontroller’s family ;(b) If thecontroller is a legal person, aDirector , an employee, a partner of thecontroller , a subsidiary of thecontroller , or aDirector of anysubsidiary undertaking of thecontroller ; and(c) Any other person or undertaking with which thecontroller has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in thelicensee , or under which they undertake to act together in exercising their voting power in relation to thelicensee. Added: January 2022C4-1.1.7
Bahraini category 4 investment firms must obtain prior approval from the CBB for any of the following changes to theircontrollers :(a) A newcontroller ;(b) An existingcontroller increasing its holding from 10% to 20%;(c) An existingcontroller increasing its holding from below 20% to 30%;(d) An existingcontroller increasing its holding from below 30% to 40%;(e) An existing controller increasing its holding to above 40% forlicensees not listed on any exchange in Bahrain or abroad; and(f) An existingcontroller reducing its holding to below 10%.Added: January 2022C4-1.1.8
For the purposes of Subparagraph C4-1.1.7(a),
licensees must submit information required in the controller section of Category 4 Investment Firm Authorisation Form (see Part B of the CBB Rulebook Volume 4) and must satisfy the CBB that the newcontroller is suitable and poses no undue risks to thelicensee .Added: January 2022C4-1.1.9
In assessing the suitability of
controllers the CBB will consider the track record of the proposedcontrollers , including adequate experience, financial strength, any record of disciplinary proceedings or conviction by a court or competent authority etc.Added: January 2022C4-1.1.10
Overseas category 4 investment firms must notify the CBB of any new significant ownership in excess of 50% of the issued and paid-up capital of the concernedlicensee’s directparent undertaking as soon as thelicensee becomes aware of the change. Theoverseas category 4 investment firm must provide a copy of the relevant approval by thehome supervisor of the parent (if applicable).Added: January 2022C4-1.1.11
Category 4 investment firms must immediately notify the CBB in case of any material change to the information provided to the CBB for approval for acontroller .Added: January 2022C4-1.1.12
The percentage of direct or indirect control of a natural person or an unregulated legal person in a
Bahraini category 4 investment firm must not exceed one-third of the issued and paid up capital. This limit does not apply to operators of venture capitalCIUs .Added: January 2022Board and Employees
C4-1.1.13
Those nominated to carry out
controlled functions must satisfy CBB’sapproved persons requirements which are set out in Section C4-1.3 of this Module.Added: January 2022Financial Resources
C4-1.1.14
Category 4 investment firms must maintain a level of financial resources, as agreed with the CBB, adequate for the level of business proposed. In all cases,category 4 investment firms must maintain a minimum capital of:(a) BD 100,000 if it operatesexempt CIUs andPIUs ; and(b) BD 25,000 if it only operates/manages venture capitalCIUs .Added: January 2022C4-1.1.15
The CBB may require
category 4 investment firms to maintain higher capital and liquidity than those specified in Paragraph C4-1.1.14 depending on the nature, size and profile of thelicensee on a case by case basis.Added: January 2022C4-1.1.16
An investment by a
category 4 investment firm into aCIU it operates (or directly into any company underlying aCIU it operates) must only be made out of the capital it holds in excess of its minimum capital.Added: January 2022C4-1.1.17
For the purposes of Paragraph C4-1.1.14, capital is defined as the shareholder’s equity or the net assets of the
licensee .Added: January 2022C4-1.1.18
In the event that a
category 4 investment firm fails to meet the minimum capital requirements, it must, on becoming aware that it has breached these requirements, immediately notify the CBB in writing. Unless otherwise directed, thelicensee must in addition submit to the CBB, within 30 calendar days of its notification, a plan demonstrating how it will achieve compliance with these requirements.Added: January 2022C4-1.1.19
Category 4 investment firms must maintain adequate liquid funds representing 25% of operating expenses incurred in the preceding financial year at all times in the form of cash or liquid assets that can be converted to cash in the short-term to cover its operating expenses.Added: January 2022C4-1.1.20
For the purposes of Paragraph C4-1.1.15,
Category 4 investment firms in their first year of operation should use the estimated forecasted operating expenses as per the business plan submitted to the CBB at the time of obtaining the CBB license as the basis of computation of liquid funds.Added: January 2022C4-1.1.21
Overseas applicants must provide a written confirmation from their head office that they will provide sufficient financial support to the branch to enable them to meet their obligations as and when they fall due. Overseas applicants must also demonstrate that the company as a whole will be adequately resourced at all times to cater to the risks and their obligations.
Added: January 2022Systems and Controls
C4-1.1.22
Category 4 investment firms must maintain systems and controls that are, in the opinion of the CBB, commensurate with the scale and complexity of their activities. These systems and controls must meet the minimum requirements contained in this Module and with respect to financial crime risks, Module FC (Financial Crime).Added: January 2022C4-1.1.23
As part of the licensing approval process, applicants must demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. They must also address risks, including liquidity, credit, market or investment risks, operational risks and other material risks to investors associated with assets under management in CIUs. Applicants may also be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB.
Added: January 2022External Auditors
C4-1.1.24
Category 4 investment firms must appoint external auditors, subject to prior CBB approval. The minimum requirements set out in Section C4-2.2 of this Module must be met.Added: January 2022Books and Records
C4-1.1.25
Category 4 investment firms must maintain comprehensive books of accounts and other records (whether in electronic or hard copy form), which must be available for inspection within the Kingdom of Bahrain by the CBB, or persons appointed by the CBB, at any time.Licensees must maintain books and records sufficient to produce financial statements and show a complete record of the business undertaken and must retain such record for at least ten years. Foroverseas investment firms these requirements only apply to the business booked in their branch in Bahrain.Added: January 2022C4-1.1.26
Category 4 investment firms must keep completed transaction records for as long as they are relevant for the purposes for which they were made with a minimum period in all cases of five years from the date when the transaction was terminated. Records of terminated transactions must be kept whether in hard copy or electronic format as per the Legislative Decree No. (54) of 2018 with respect to Electronic Transactions “The Electronic Communications and Transactions Law” and its amendments.Added: January 2022C4-1.1.27
Category 4 investment firms must maintain the following records in original, hard copy or digital form at their premises in Bahrain:(a) Internal policies, procedures and operating manuals;(b) Corporate records, including minutes ofshareholders ',Directors ' and management meetings;(c) Correspondence with the CBB and records relevant to monitoring compliance with CBB requirements;(d) Correspondence with their investors, andrelated parties ;(e) Reports prepared by thecategory 4 investment firm’s internal and external auditors and compliance officer; and(f) Employee training manuals and records.Added: January 2022C4-1.1.28
Unless otherwise agreed to by the CBB in writing, records must be kept in either English or Arabic. Any records kept in languages other than English or Arabic must be accompanied by a certified English or Arabic translation. Records must be kept current. The records must be sufficient to allow an audit of the
licensee's business or an on-site examination of thelicensee by the CBB.Added: January 2022Provision of Information
General Conduct
C4-1.1.30
Category 4 investment firms must conduct their activities in a professional and orderly manner, in keeping with good market practice standards.Licensees must comply with the general standards of business conduct contained in Module PB, as well as the standards relating to treatment of customers contained in Chapter C4-3.Added: January 2022License Fees
C4-1.1.31
Applicants seeking a
category 4 investment firm license must pay a non-refundable license application fee of BD 100 at the time of submitting their formal application to the CBB.Added: January 2022C4-1.1.32
Category 4 investment firms must pay a variable annual licensing fee based on 0.25% of theirrelevant operating expenses , subject to:(a) a minimum (‘floor’) of BD 750 and a maximum (‘cap’) of BD 2,000 foroperators of venture CapitalCIUs ; and(b)a minimum (‘floor’) of BD 2,000 and a maximum (‘cap’) of BD 6,000 foroperators of otherCIUs .Added: January 2022C4-1.1.33
Relevant operating expenses are defined as the total operating expenses of thelicensee concerned, as recorded in the most recent audited financial statements available, excluding the following items:(a) Training costs;(b) Charitable donations;(c) CBB fees paid; and(d) Non-executiveDirectors ’ remuneration.Added: January 2022C4-1.1.34
For the avoidance of doubt, operating expenses for the purposes of this Section, do not include items such as depreciation, provisions, interest expense, and dividends.
Added: January 2022C4-1.1.35
Category 4 investment firms must pay the relevant annual license fee to the CBB on the 1st of December of the preceding year for which the fees are due.Added: January 2022C4-1.1.36
Category 4 investment firms must complete and submit Form ALF (Annual License Fee) to the CBB, no later than 15th October of the preceding year for which the fees are due.Added: January 2022C4-1.1.37
Category 4 investment firms are subject to direct debit for the payment of the annual fee and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September available under Part B of Volume 4 (Investment Business) CBB Rulebook on the CBB Website.Added: January 2022C4-1.1.38
For new
Category 4 investment firms , their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount.Added: January 2022C4-1.1.39
For the first full year of operation for
category 4 investment firms , the licensee would calculate its fee as the floor amount. For subsequent years, thelicensee would submit a Form ALF by 15th October of the preceding year for which the fees are due and calculate its fee using its last audited financial statements (or alternative arrangements as agreed with CBB, should its first set of accounts cover an 18-month period).Added: January 2022C4-1.1.40
Where a license is cancelled (whether at the initiative of the firm or the CBB), no refund is paid for any months remaining in the calendar year in question.
Added: January 2022
