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  • HC-5.1 HC-5.1 Governance of Group Structures

    • HC-5.1.1

      The Board of a Bahraini Islamic bank licensee which acts as a parent must:

      (a) Have the overall responsibility for the group and exercise adequate oversight over subsidiaries and overseas branches while respecting the independent legal and governance responsibilities that might apply to subsidiary Boards;
      (b) Establish, subject to CBB’s approval, a group structure (including the legal entity and business structure) and a group corporate governance framework with clearly defined roles and responsibilities at both the parent bank’s and the subsidiaries’ level as may be appropriate based on the complexity, risks and significance of the subsidiaries;
      (c) Set adequate and comprehensive criteria for composing Boards at subsidiaries’ level;
      (d) Have a clear strategy and group policy for establishing new structures and legal entities, and ensure that they are consistent with the policies and interests of the group;
      (e) Have sufficient resources at group and subsidiaries levels to monitor risks and compliance at the level of the group and its subsidiaries;
      (f) Pay special attention and due care to any significant subsidiary based on its risk profile or systemic importance or due to its size relative to the parent bank;
      (g) Assess and discuss material risks and issues that might affect the group and its subsidiaries and overseas branches;
      (h) Establish effective group functions at the parent bank, including but not limited to, internal audit, compliance, risk management and financial controls to whom the relevant subsidiaries’ functions must report;
      (i) Maintain an effective relationship, through the subsidiary Board or direct contact, with the regulators of all subsidiaries and overseas branches; and
      (j) ensure that:
      i. The group has appropriate policies and controls to identify and address potential intragroup conflicts of interest, such as those arising from intragroup transactions;
      ii. The group is governed and operating under clear group strategies, business policies and specific set of group policies on risk management, internal audit, compliance and financial controls;
      iii. There are no barriers to exchanging information between the subsidiaries and the parent bank and that there are robust systems in place to facilitate the exchange of information to enable the parent bank to effectively supervise the group and manage its risks; and
      iv. Adequate authority is available to each subsidiary pursuant to local legislations.
      Added: April 2023

    • Subsidiaries’ Boards

      • HC-5.1.2

        Boards and senior management of subsidiaries of Bahraini Islamic bank licensees must remain responsible for developing effective governance and risk management framework for their entities and must clearly understand the reporting obligations they have to the parent bank.

        Added: April 2023

      • HC-5.1.3

        The strategy, business plan, policies, risk governance framework, corporate values and corporate governance framework of each subsidiary must align with group strategy and policies, and the subsidiary Board must make necessary adjustments where a group policy conflicts with an applicable legal or regulatory provision or prudential rule or would be detrimental to the sound and prudent management of the subsidiary.

        Added: April 2023

      • HC-5.1.4

        Material risk-bearing subsidiaries and overseas branches must be captured by the bank-wide risk management system and must be part of the overall risk governance framework.

        Added: April 2023

    • Complex or Opaque Structures

      • HC-5.1.5

        The Board and senior management of the parent bank must be cognisant of the challenges arising from operating under complex or opaque structures, including special purpose vehicles, and must act to avoid or mitigate these by:

        (a) Avoiding setting up complicated structures that lack economic substance or business purpose;
        (b) Continually maintaining and reviewing appropriate policies, procedures and processes governing the approval and maintenance of those structures or activities, including fully vetting the purpose, the associated risks and the bank’s ability to manage those risks prior to setting up new structures and initiating associated activities;
        (c) Having a centralised process for approving the creation of new legal entities and subsidiaries based on established criteria, including the ability to monitor and fulfil each entity’s regulatory, tax, financial reporting, governance and other requirements and for the dissolution of dormant subsidiaries;
        (d) Establishing adequate policies, procedures and processes to identify and manage all material risks arising from these structures, including lack of management transparency, operational risks introduced by interconnected and complex funding structures, intragroup exposures, trapped collateral and counterparty risk, etc. The bank must only approve structures if the material risks can be properly identified, quantified, monitored and mitigated; and
        (e) Ensuring that the activities, controls and structures are subject to periodic reviews by compliance, internal audit and risk management functions as well as external audit to ensure effectiveness and consistency with Board-approved strategy and policies.
        Added: April 2023