HC-1.1.1

The board of directors (“Board”) of the licensee must:

HC-1.1.2

The Board may, where appropriate, delegate some of its functions, but not its responsibilities, to the Board committees.

HC-1.1.3

The members of the Board must exercise their fiduciary and other duties of care, candor and loyalty to the licensee in accordance with local laws and regulations.

HC-1.1.4

Each director must:

HC-1.2.1

In order to promote a sound corporate culture, the Board must:

HC-1.2.2

Employees must be encouraged and be able to communicate, confidentially and without the risk of reprisal, legitimate concerns about illegal, unethical or questionable practices. This must be facilitated through a well communicated and Board approved whistleblowing policy and adequate procedures and processes, consistent with applicable laws. This includes the escalation of material concerns to the CBB.

HC-1.2.3 HC-1.2.3

The Board must:

HC-1.3.1

The Board must exercise proper oversight of senior management against formal performance and remuneration standards consistent with the long-term strategic objectives and the financial soundness of the licensee. In doing so, the Board must:

HC-2.1.1

The Board must comprise of individuals with a balance of skills, diversity and expertise, who individually and collectively possess the necessary qualifications commensurate with the size, complexity and risk profile of the licensee. The Board must have a sufficient number of independent directors.

HC-2.1.2

In case of a Bahraini conventional bank licensee with a controller, at least one-third of the Board must be independent.

HC-2.1.3

If the Bahraini conventional bank licensee has a controller or a group of controllers acting in concert, such person(s) must recognise their specific responsibility to the minority shareholders as Board members have responsibilities to the licensee’s overall interests, regardless of who appoints them.

HC-2.1.4

At least half of a Bahraini conventional bank licensee’s Board should be non-executive directors and at least three of those persons should be independent directors.

HC-2.1.5

The CBB may call upon each independent director at its discretion to have a general discussion on the affairs of the Bahraini conventional bank licensee.

HC-2.2.1

The Board must have a clear and rigorous process for identifying, assessing and selecting Board candidates. The Board, and not management, must nominate the candidates for shareholders’ approval.

HC-2.2.2

Board candidates must:

HC-2.2.3

Board candidates should not hold more than three directorships in public companies in Bahrain. In case such directorships exist, there must be no conflict of interest, and the Board must not propose the election or re-election of any director where such conflict of interest exists.

HC-2.2.4

Nominated directors of a Bahraini conventional bank licensee must possess the requisite experience and competencies specified in Module TC (Training and Competency).

HC-2.2.5

A CEO of a Bahraini conventional bank licensee who has resigned or retired, must not be appointed as an independent director of the same bank unless a period of three years has passed from the date of his/her resignation/ retirement. Additionally, where a CEO is terminated from his/her position, he/she must not be appointed or retained as a Board member of the same bank.

HC-2.2.6

Each proposal by the Board to the shareholders for election or re-election of a director must be accompanied by a recommendation from the Board, a summary of the advice of the Nomination Committee and the following specific information:

HC-2.2.7

Newly appointed non-executive directors must be made aware of their duties before their nomination, particularly as to the time commitment required.

Board Members’ Appointment

Board Members’ Induction

HC-3.1.1

The Board of a Bahraini conventional bank licensee must:

HC-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.

HC-3.1.3

The Board must report to the shareholders, at each annual shareholder meeting, that evaluations have been done and report its findings.

HC-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.

HC-3.1.5

Non-executive directors must be fully independent of management and must constructively scrutinise and challenge management and executive directors.

HC-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).

HC-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.

HC-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.

HC-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).

HC-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.

HC-3.1.11

Board governance framework should require members to step down if they are not actively participating in Board meetings.

HC-3.1.12

Non-executive directors should have free access to the Bahraini conventional bank licensee’s management beyond that provided in Board meetings. Such access should be through the chairperson of the Audit Committee or the CEO. The Board should make this policy known to management to alleviate any management concerns about a director’s authority in this regard.

HC-3.2.1

The Chairperson of the Board of the Bahraini conventional bank licensee must:

HC-3.2.2

The chairperson of a Bahraini conventional bank licensee should be an independent Board member.

HC-3.3.1

The Board of the Bahraini conventional bank licensee must establish Audit, Risk, Remuneration and Nomination Committees described elsewhere in this Module.

HC-3.3.2

Objectivity and independence must be ensured by the selection of appropriate Board members in each committee.

HC-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.

HC-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.

HC-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.

HC-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).

HC-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.

HC-3.3.8

Members of each committee must exercise judgment free from any personal conflicts of interest or bias.

HC-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.

HC-3.4.1

The audit committee of the Bahraini conventional bank 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.

HC-3.4.2

The Chairperson of the audit committee must:

HC-3.4.3

The CEO and other senior management of the Bahraini conventional bank licensee must not be members of the audit committee.

HC-3.4.4

The audit committee members must have sufficient experience in audit practices, financial reporting and accounting.

HC-3.4.5

The audit committee must meet:

HC-3.4.6

The audit committee must, at minimum:

HC-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.

HC-3.5.1

The risk committee of the Bahraini conventional bank licensee must have at least three directors of which the majority must be independent. In addition, the committee members must have experience in risk management issues and practices and have no conflict of interest with any other duties they may have.

HC-3.5.2

The chairperson of the risk committee must:

HC-3.5.3

The CEO and other senior management must not be members of the risk committee.

HC-3.5.4

The licensee must have a strong and appropriate risk governance framework which:

HC-3.5.5

The Bahraini conventional bank licensee’s RAS must:

HC-3.5.6

Conventional Bank licensees must avoid organisational silos that can impede effective sharing of risk information across the organisation and can result in decisions being taken in isolation from the rest of the bank. Accordingly, the Board, senior management and control functions must re-evaluate established practices in order to encourage greater communication.

HC-3.5.7

The risk committee must, at minimum:

HC-3.5.8

There must 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 bank.

HC-3.6.1

The remuneration committee of the Bahraini conventional bank licensee must have at least three directors.

HC-3.6.2

Members of the remuneration committee must be independent of any risk-taking function or committee.

HC-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.

HC-3.6.4

The remuneration committee should meet at least twice a year.

HC-3.6.5

The remuneration committee must, at minimum:

HC-3.7.1

The nomination committee of the Bahraini conventional bank licensee must have at least three independent directors, or alternatively, three non-executive directors of whom the majority must be independent directors including its chairperson.

HC-3.7.2

The committee should meet at least twice a year.

HC-3.7.3

The nomination committee must, at minimum:

HC-3.8.1

The Bahraini conventional bank licensee must assign to one of its senior management the role of a corporate governance officer who is responsible for the tasks of verifying the bank's compliance with corporate governance rules and regulations.

HC-3.8.2

The Board should establish a corporate governance committee for developing and recommending changes from time to time in the conventional bank licensee’s corporate governance policy framework. Such committee should have at least three directors of which the majority should be independent.

HC-3.8.3

The corporate governance committee should:

HC-3.8.4

The responsibilities of the corporate governance officer may be assumed by the head of compliance and should include, at minimum:

HC-4.1.1

Bahraini conventional bank licensees must comply with the following with respect to any shareholders’ meeting:

HC-5.1.1

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

Subsidiaries’ Boards

Complex or Opaque Structures

HC-6.1.1

All approved persons and material risk-takers must be remunerated fairly and responsibly. More specifically, the remuneration must be sufficient to attract, retain and motivate persons.

HC-6.1.2

The performance evaluation and remuneration of senior management and staff of the conventional bank licensees must be based, among other factors, on their adherence to all relevant laws, regulations and CBB rulebook requirements, including but not limited to AML/CFT requirements in the FC module.

HC-6.1.3

For approved persons and material risk-takers whose total annual remuneration (including all benefits) is in excess of BD100,000:

HC-6.1.4

As a minimum, 50% of total variable remuneration (including both the deferred and undeferred portions) must be awarded in shares or share-linked instruments or where appropriate, other non-cash instruments. The remaining portion of the deferred remuneration can be paid as cash remuneration vested over a minimum 3-year period.

HC-6.1.5

Remuneration, based on both quantitative measures and human judgement, must be adjusted for all types and magnitudes of risks, including intangible and other risks managed by the approved person and material risk-taker, and remuneration outcomes must be symmetric with risk outcomes.

HC-6.1.6

The mix of cash, equity and other forms of remuneration must be consistent with risk alignment. The mix will vary depending on the employee’s position and role and the licensee must document the rationale for its mix.

HC-6.1.7

Employees’ incentive payments must be linked to the contribution of the individual and business to such performance.

HC-6.1.8

Remuneration systems must link the size of the bonus pool to the overall performance of the licensee.

HC-6.1.9

Awards in shares or share-linked instruments must be subject to a minimum share retention policy of 6 months from the time the shares are awarded, unless the licensee’s policy requires a longer period.

HC-6.1.10

The only instance where deferred remuneration can be paid out before the end of the vesting period is in the case of the death of the employee where the beneficiaries would receive any unpaid deferred remuneration.

HC-6.1.11

Licensees must not provide any form of guaranteed variable remuneration as part of the overall remuneration package. Exceptional minimum variable remuneration must only occur in the context of hiring new staff and limited to the first year.

HC-6.1.12

For Bahraini conventional bank licensees, where fixed or variable remuneration include common shares, licensees must limit the shares awarded to an annual aggregate limit of 10% of the total issued shares outstanding of the licensee, at all times.

HC-6.1.13

For Bahraini conventional bank licensees, all share incentive plans must be approved by the shareholders.

HC-6.1.14

Approved persons and other staff of risk management, financial controls, internal audit, operations, internal Shari’a audit, Shari’a coordination and implementation, AML/ CFT, compliance, human resources, information technology and legal functions must be remunerated based principally on the achievement of the objectives and targets of their functions. As such the mix of fixed and variable remuneration for these functions’ personnel must be skewed toward fixed remuneration.

HC-6.1.15

The size of the variable remuneration pool and its allocation within the licensee must not compromise the financial soundness of the licensee and must take into account the full range of current and potential risks, including:

HC-6.1.16

Existing contractual payments related to a termination of employment must be re-examined and kept in place only if there is a clear basis for concluding that they are aligned with long-term value creation and prudent risk-taking. Prospectively, any such payments must be related to performance achieved over time and designed in a way that does not reward failure.

HC-6.1.17

Licensees must have an appropriate compliance mechanism to ensure that their employees commit themselves not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements.

HC-6.1.18

Bonuses must either be reduced or be deferred in the event of poor licensee, divisional or business unit performance. Subdued or negative financial performance of the licensee must lead to contraction of the licensee’s total variable remuneration, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus and clawback arrangements. Recognition of staff who have achieved their targets or better, may take place by way of deferred compensation, which may be paid once the licensee’s performance improves.

HC-6.1.19

If the licensee and/or relevant line of business is incurring losses in any year during the vesting period, any unvested portions must be subject to malus. Accrual and deferral of variable remuneration does not oblige the licensee to pay the variable remuneration, particularly when the anticipated outcome has not materialised.

HC-6.1.20

Approved persons, including those appointed as members of the Board of special purpose vehicles or other operating companies, are not permitted to take any benefits (commission, fees, shares, consideration in kind, or other remuneration or incentives in respect of the performance of the project or investment) from any projects or investments which are managed by the conventional bank licensee or promoted to its customers or potential customers except for Board related remuneration linked to their fiduciary duties to the investors of the project/investment.

HC-6.1.21

Remuneration of non-executive directors must not include performance-related elements such as grants of shares, share options or other deferred stock-related incentive schemes, bonuses, or pension benefits.

HC-6.1.22

If a senior manager is also a director, his remuneration as a senior manager must take into account compensation received in his capacity as a director.

HC-7.1.1

The Board must establish an adequate organisational structure that promotes accountability and transparency and facilitates effective decision-making and good governance throughout the licensee. This includes clarity on the role, authority and responsibility of the various positions within senior management, including that of the CEO.

HC-7.1.2

Senior management must:

HC-7.1.3

Conventional bank licensee’s CEO and chief financial officer must state in writing to the audit committee and the Board that the conventional bank licensee’s interim and annual financial statements present a true and fair view, in all material respects, of the conventional bank licensee’s financial condition and results of operations in accordance with applicable accounting standards.

HC-8.1.1

Conventional bank licensees must have an effective and independent risk management function commensurate with the bank’s size, complexity and risk profile, under the direction of a chief risk officer (CRO) or equivalent, with sufficient stature, independence and skilled resources.

HC-8.1.2

Branches of foreign bank licensees have the choice of having an in-house risk management function in Bahrain, or subject to the CBB’s approval to outsource such role to their regional or head office.

HC-8.1.3

The risk management function must:

HC-8.1.4

Key activities of the risk management function must include:

HC-8.1.5

Licensees must have adequate risk management and approval processes for new or expanded products or services, lines of business and markets, outsourcing arrangements as well as for large and complex transactions. If such processes are not in place, a new product, service, business line or third-party relationship or major transaction must be delayed. There must also be a process to assess risk and performance relative to initial projections and to adapt the risk management treatment accordingly as the business matures. The risk management function must provide input on risks as part of such processes and on the outsourcer’s ability to manage risks and comply with legal and regulatory obligations. Such processes must entail the following:

HC-8.1.6

Licensees must appoint a chief risk officer (CRO) or equivalent with an overall responsibility for the licensee’s risk management function.

HC-8.1.7

The CRO must:

HC-9.1.1

The Board must:

HC-9.1.2

The compliance function and the internal audit function must be separate.

HC-9.1.3

The Board, Audit Committee or the designated Board committee and senior management must:

HC-9.1.4

Licensees must appoint a head of compliance with overall responsibility for the licensee’s compliance function.

HC-9.1.5

In banking groups:

HC-9.1.6

Subject to the CBB’s approval, the role of head of compliance may be combined with the head of risk if the size and nature of the conventional bank licensee justify the same.

HC-9.1.7

The head of compliance must:

HC-9.1.8

The compliance function must:

HC-9.1.9

The compliance function staff must:

HC-9.1.10

The CBB may at its own discretion communicate directly with the Head of Compliance to discuss issues of material concerns related to compliance risk.

HC-10.1.1

Conventional bank licensees must establish an effective and independent internal audit function (IAF).

HC-10.1.2

The Audit Committee remains ultimately responsible for the IAF regardless of whether internal audit activities are outsourced.

HC-10.1.3

The Board, Audit Committee and senior management must:

HC-10.1.4

All Bahraini conventional bank licensees must have an internal audit charter which must be drawn up and reviewed annually by the head of internal audit and approved by the Board or Audit Committee. It must be available to all internal stakeholders, and to external stakeholders in case of a listed bank.

HC-10.1.5

The internal audit charter must establish, at a minimum:

HC-10.1.6

The IAF must:

HC-10.1.7

Licensees must appoint a head of internal audit who shall:

HC-10.1.8

The head of IAF should, whenever practicable and without jeopardising competence and expertise, periodically rotate internal audit staff within the internal audit function.

HC-10.1.9

The CBB may at its own discretion communicate directly with the head of the IAF to discuss issues of material concerns related to risks, compliance and internal controls.

HC-10.1.10

Internal audit reports must be provided to the audit committee without management filtering.

HC-10.1.11

All internal audit staff must: