HC-3 Board’s Structure and Practices
HC-3.1 Organisation and Assessment of the Board
HC-3.1.1
The Board of a
Bahraini investment firm licensees must:(a) Adopt a formal Board charter specifying matters which are reserved for it, which must include, but are not limited to, the specific requirements and responsibilities of directors stipulated in this Module and the Commercial Companies Law;(b) Structure itself in terms of leadership, size and the use of committees so as to effectively carry out its oversight role and other responsibilities. This includes ensuring that the Board has the time and means to cover all necessary subjects in sufficient depth and have a robust discussion of key issues;(c) Maintain and periodically update its governance structure, organisational rules, by-laws and other similar documents setting out its organisation, rights, responsibilities and key activities; and(d) Carry out annual evaluation and assessments – alone or with the assistance of external experts – of the Board, its committees and individual Board members. This must include:i. Assessing how the Board operates in terms of the requirements of the CBB Rulebook and the Commercial Companies Law;ii. Evaluating the performance of each committee considering its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;iii. Reviewing each director's work, their attendance at Board and committee meetings, and their independence and constructive involvement in discussions and decision making;iv. Reviewing the Board’s current structure, size, composition as well as committees’ structures and composition in order to maintain an appropriate balance of skills, diversity and experience and for the purpose of planned and progressive refreshing of the Board; andv. Recommendations for new directors to replace long-standing members or those members whose contribution to the Board or its committees is not adequate.Added: July 2023HC-3.1.2
Where the Board has serious reservations about the performance or integrity of a Board member, or he ceases to be qualified, the Board must take appropriate action and inform the CBB accordingly.
Added: July 2023HC-3.1.3
The Board must report to the shareholders, at each annual shareholder meeting, that evaluations have been done and report its findings.
Added: July 2023HC-3.1.4
Executive directors must provide the Board with all relevant business and financial information within their knowledge and must recognise that their role as a director is different from their role as a member of management.
Added: July 2023HC-3.1.5
Non-executive directors must be fully independent of management and must constructively scrutinise and challenge management and executive directors.
Added: July 2023HC-3.1.6
The Board must maintain appropriate records of meeting minutes, including key points of discussions held, recommendations made, decisions taken and dissenting opinions (if any).
Added: July 2023HC-3.1.7
The Board must meet at least four times a year to enable it to discharge its responsibilities effectively, and half of all Board meetings in any financial year must be held in the Kingdom of Bahrain.
Added: July 2023HC-3.1.8
Individual Board members must attend at least 75% of all Board meetings in a given financial year, whether in-person or virtually (if needed) so as to enable the Board to discharge its responsibilities effectively (see table below). Voting and attendance proxies for Board meetings are prohibited.
Meetings per year 75% Attendance requirement 4 3 5 4 6 5 7 5 8 6 9 7 10 8 Added: July 2023HC-3.1.9
The absence of Board members at Board and committee meetings must be noted in the relevant meeting minutes. In addition, Board attendance percentage must be reported during any general assembly meeting when Board members stand for re-election (e.g. Board member XYZ attended xx% of scheduled meetings this year).
Added: July 2023HC-3.1.10
If a Board member has not attended at least 75% of Board meetings in any given financial year, the
licensee must notify the CBB, within one month from its financial year-end, indicating which member has failed to satisfy this requirement, their level of attendance and the reason for non-attendance. The CBB shall then consider the matter and determine whether enforcement action pursuant to Article 65 of the CBB Law is appropriate.Added: July 2023HC-3.1.11
Board governance framework should require members to step down if they are not actively participating in Board meetings.
Added: July 2023HC-3.2 Board Chairperson
HC-3.2.1
The Chairperson of the Board of the
Bahraini investment firm licensees must:(a) Not be an executive director;(b) Not be the same person as the CEO. This applies also to the deputy chairperson;(c) Commit sufficient time to perform their role effectively;(d) Play a critical role in promoting mutual trust, efficient functioning of the Board, open discussion, constructive dissent from decisions and constructive support for decisions after they have been made;(e) Ensure that all directors receive an agenda, minutes of prior meetings and adequate background information on each agenda item in writing well before each Board meeting;(f) Encourage and promote critical and objective discussion and ensure that dissenting views can be freely expressed, discussed and recorded in the minutes of the Board meeting; and(g) Ensure that Board decisions are taken on sound and well-informed basis.Added: July 2023HC-3.3 Board Committees
HC-3.3.1
Bahraini investment firm licensees must comply with the requirements of this Section for each of the Board committees it establishes. The Board must at minimum establish an Audit Committee.Added: July 2023HC-3.3.2
Objectivity and independence must be ensured by the selection of appropriate Board members in each committee.
Added: July 2023HC-3.3.3
Committees may be combined provided that no conflict of interest arises between the duties of such committees, and subject to the CBB’s prior approval.
Added: July 2023HC-3.3.4
Every committee must have a formal written charter or other instrument which sets out its roles and responsibilities, how the committee will report to the Board, what is expected of committee members and any tenure limits for serving on the committee.
Added: July 2023HC-3.3.5
Each committee must have the resources and the authority necessary to discharge its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of external legal, accounting or other advisors as it deems necessary.
Added: July 2023HC-3.3.6
Each Board committee must maintain appropriate records of their deliberations and decisions in their meeting minutes, including key points of discussions held, recommendations made, decisions taken (and update on their subsequent implementation) and dissenting opinions (if any).
Added: July 2023HC-3.3.7
Each committee must prepare and review with the Board an annual performance evaluation of the committee and its members and must recommend to the Board any improvements deemed necessary or desirable to the committee’s charter or composition. The report must be in the form of a written report presented at any regularly scheduled Board meeting.
Added: July 2023HC-3.3.8
Members of each committee must exercise judgment free from any personal conflicts of interest or bias.
Added: July 2023HC-3.3.9
The Board should consider occasional rotation of membership and chair of the Board committees provided that doing so does not impair the collective skills, experience and effectiveness of these committees.
Added: July 2023HC-3.4 Audit Committee
HC-3.4.1
The audit committee of the
Bahraini investment firm licensee must have at least three directors of which the majority must be independent and have no conflict of interest with any other duties they have.Added: July 2023HC-3.4.2
The Chairperson of the audit committee must:
(a) Be independent; and(b) Not be the chairperson of the board, unless he is considered independent.Added: July 2023HC-3.4.3
The CEO and other senior management of the
Bahraini investment firm licensee must not be members of the audit committee.Added: July 2023HC-3.4.4
The audit committee members must have sufficient experience in audit practices, financial reporting and accounting.
Added: July 2023HC-3.4.5
The audit committee must meet:
(a) At least four times a year.(b) At least twice a year with the external auditor.(c) At least once a year in the absence of the CEO and any executive management, but in presence of the Head of Compliance, Internal Auditor and CRO.Added: July 2023HC-3.4.6
The audit committee must, at minimum:
(a) Ensure that thelicensee has effective and adequate policies covering all its business activities, internal audit, financial reporting, compliance, risk management, prevention of frauds and cyber security breaches, etc.;(b) Oversee the financial reporting process;(c) Oversee and interact with thelicensee’s internal and external auditors;(d) Review the integrity of thelicensee’s financial statements;(e) Recommend to the Board, based on a Board approved objective criteria, the appointment, remuneration, dismissal and rotation of external auditors;(f) Review and approve the internal and external audit and compliance scope;(g) Receive internal and external audit and compliance reports and ensure that senior management is taking necessary corrective actions in a timely manner to address any control weaknesses, non-compliance with policies, laws and regulations, and other problems identified by auditors, the head of compliance and other control functions;(h) Assess once a year the extent to which thelicensee is managing its compliance risk effectively;(i) Ensure that the agenda for their meetings includes compliance and internal audit issues at least every quarter;(j) Recommend the appointment and dismissal of the heads of internal audit and compliance functions. Thelicensee must also discuss the reasons for their dismissal with the CBB.(k) Make a determination, at least once a year, of the external auditor’s independence;(l) Review and supervise the implementation and enforcement of thelicensee's code of conduct, unless such mandate is delegated to another committee such as the Governance Committee; and(m) Ensure that senior management establishes and maintains an adequate and effective internal control systems, procedures and processes for the business of thelicensee .Added: July 2023HC-3.4.7
In case the
licensee has a different board committee overseeing and monitoring compliance issues, then all of the above compliance-related requirements in Paragraph HC-3.4.6 can be handled by such committee instead.Added: July 2023HC-3.5 Risk Committee
HC-3.5.1
Where a
Bahraini investment firm licensee establishes a Board risk committee, such committee should have at least three directors of which the majority, including the chairperson should be independent. In addition, the committee members should have experience in risk management issues and practices and have no conflict of interest with any other duties they may have.Added: July 2023HC-3.5.2
There should be effective communication and coordination between the audit committee and the risk committee to facilitate the exchange of information and effective coverage of all risks, including emerging risks, and any needed adjustments to the risk governance framework of the
licensee .Added: July 2023HC-3.6 Remuneration Committee
HC-3.6.1
Where a
Bahraini investment firm licensee establishes a Board remuneration committee, such committee should have at least three directors.Added: July 2023HC-3.6.2
Members of the remuneration committee should be independent of any risk-taking function or committee.
Added: July 2023HC-3.6.3
The remuneration committee should include only independent directors or, alternatively, only non-executive directors of whom a majority are independent directors and the chairperson should be an independent director.
Added: July 2023HC-3.6.4
The remuneration committee should meet at least twice a year.
Added: July 2023HC-3.6.5
The remuneration committee should:
(a) Recommend to the Board:i. An appropriate remuneration policy designed to reduce employees’ incentives to take excessive and undue risk, which must be approved by the shareholders; andii. A fair and internally transparent remuneration system, which includes relevant performance measures and effective controls;(b) Ensure on an annual basis that the remuneration policy and its implementation:i. Are in full compliance with CBB requirements;ii. Are consistent with thelicensee’s strategy, culture, long-term business objectives, risk appetite, performance and control environment; andiii. Are creating the desired incentives for managing risk, capital and liquidity.(c) Work closely with the risk committee in evaluating the incentives created by the remuneration system. The risk committee must, without prejudice to the tasks of the remuneration committee, examine whether incentives provided by the remuneration system take into consideration risk, capital, liquidity and the likelihood and timing of earnings;(d) Approve the remuneration package and amounts for eachapproved person and material risk-taker, as well as the total variable remuneration to be distributed based on the results of the performance evaluation system and taking account of total remuneration including salaries, fees, expenses, bonuses and other employee benefits;(e) Regularly review remuneration outcomes, risk measurements, and risk outcomes for consistency with Board’s approved risk appetite;(f) Question payouts for income that cannot be realised or whose likelihood of realisation remains uncertain at the time of payout;(g) Recommend Board member remuneration based on their attendance and in compliance with the Commercial Companies Law;(h) Evaluate practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain by means of both quantitative and qualitative key indicators. It must demonstrate that its decisions are consistent with the assessment of thelicensee’s financial condition and future prospects; and(i) Obtain feedback on performance evaluation of the Chief Risk Officer, Chief Internal Auditor and Head of Compliance from the designated Board committee responsible for oversight of these functions.Added: July 2023HC-3.7 Corporate Governance Committee
HC-3.7.1
The
Bahraini investment firm licensee should assign to one of its senior management the role of a corporate governance officer who is responsible for the tasks of verifying thelicensee’s compliance with corporate governance rules and regulations.Added: July 2023HC-3.7.2
The Board should establish a corporate governance committee for developing and recommending changes from time to time in the
licensee ’s corporate governance policy framework. Such committee should have at least three directors of which the majority should be independent.Added: July 2023HC-3.7.3
The corporate governance committee should:
(a) Oversee and monitor the implementation of the governance policy framework by working with the management and the Audit Committee; and(b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.Added: July 2023HC-3.7.4
The responsibilities of the corporate governance officer may be assumed by the head of compliance and should include, at minimum:
(a) Coordinating and following up on thelicensee’s compliance with corporate governance requirements;(b) Ensuring that the corporate governance policies, their implementation and related internal controls are consistent with the regulatory and legal requirements;(c) Working closely with the Board and/or the relevant Board committee to improve the governance framework of thelicensee ; and(d) Reviewing the annual corporate governance disclosure to ensure that its contents are in conformity with thelicensee’s internal policies and the CBB rulebook requirements.Added: July 2023
