UG-A.1.1

The Central Bank of Bahrain ("the CBB"), in its capacity as the regulatory and supervisory authority for all financial institutions in Bahrain, issues regulatory instruments that licensees and other specified persons are legally obliged to comply with. These regulatory instruments are contained in the CBB Rulebook. Much of the Rulebook’s substantive content was previously issued by the Bahrain Monetary Agency (‘the BMA’), and was carried forward when the CBB replaced the BMA in September 2006.

UG-A.1.2

The Rulebook is divided into 7 Volumes, covering different areas of financial services activity. These Volumes are being progressively issued. Volumes 1 and 2, covering conventional bank licensees and Islamic bank licensees respectively, were issued in July 2004 and January 2005; Volume 3, covering insurance licensees, was issued in April 2005. This Volume (Volume 4), was issued in April 2006. Volume 5 (covering specialised licensees), and Volume 6 (capital markets) are being issued progressively. Volume 7 on collective investment undertakings (CIUs) was issued in May 2012.

UG-A.1.3

This User's Guide provides guidance on (i) the status and application of the Rulebook, with specific reference to Volume 4 (Investment Business); (ii) the structure and design of the Rulebook; and (iii) its maintenance and version control.

UG-A.1.4

Volume 4 (Investment Business) covers investment firm licensees, i.e. those CBB licensees that solely undertake regulated investment services. It contains prudential requirements (such as rules on minimum capital and risk management); and conduct of business requirements (such as rules on the giving of investment advice and the treatment of client money). Collectively, these requirements are aimed at ensuring the safety and soundness of CBB-licensed investment firms, and providing an appropriate level of protection to the clients of such firms.

UG-A.1.5

For the sake of clarity, Volume 4 (Investment Business) does not cover requirements that are generally applicable to participants in Bahrain's capital markets, irrespective of whether they are a CBB licensee or not, such as disclosure standards with regards to the issuance of securities or rules against insider trading or other forms of market abuse. Nor does it cover requirements applicable to recognised exchanges (such as the Bahrain Stock Exchange) and their related infrastructure (such as central clearing and depository systems), or the membership rules applicable to members of such exchanges. These other requirements are currently issued separately, in the form of individual instruments issued by the CBB's Capital Markets Supervision Directorate, and the Bahrain Stock Exchange; those issued by the CBB’s Capital Markets Supervision Directorate will be re-issued in 2007/08 as Volume 6 of the CBB Rulebook (see Paragraph UG-A.1.2 above).

UG-A.1.6

This Module contains the CBB's Directive (as amended from time to time) regarding the User's Guide for Volume 4 of the CBB Rulebook, and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to all investment firm licensees.

UG-A.1.7

For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.

UG-A.2.1

This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

UG-A.2.2

When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

UG-A.2.3

A list of recent changes made to this Module is provided below:

UG-A.2.3

UG-A.2.4

Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

UG-1.1.1

Volume 4 (Investment Business) of the CBB Rulebook is issued by the CBB pursuant to the Central Bank of Bahrain and Financial Institutions Law 2006 (‘the CBB Law’). The CBB Law provides for two formal rulemaking instruments: Regulations (made pursuant to Article 37) and Directives (made pursuant to Article 38). Other articles in the CBB Law also prescribe various specific requirements (for example, requirements relating to licensing (Articles 44 to 49), or the notification and approval of controllers of licensees (Articles 52 to 56)).

UG-1.1.2

The Purpose Section of each Module specifies in all cases the rulemaking instrument(s) used to issue the content of the Module in question, and the legal basis underpinning the Module’s requirements.

UG-1.1.3

Investment firm licensees that are members of the Bahrain Stock Exchange are reminded that they are also subject to the membership and operating rules of that exchange. These rules are issued by the Bahrain Stock Exchange under powers given the Exchange under the Bahrain Stock Exchange Law, Decree No. 4 of 1987 (as amended by Decree No. 21 of 2002). These rules are additional to the requirements contained in Volume 4 (Investment Business).

UG-1.1.4

Regulations are made pursuant to Article 37 of the CBB Law. These instruments have general application throughout the Kingdom and bind all persons ordinarily affected by Bahraini legislative measures (i.e. residents and/or Bahraini persons wherever situated).

UG-1.1.5

Because Regulations have wide general application, they are subject to two important safeguards: (i) the CBB is under a duty to consult with interested parties and to review and consider their comments; and (ii) the finalised Regulations only become effective after they are published in the Official Gazette.

UG-1.1.6

Directives are made pursuant to Article 38 of the CBB Law. These instruments do not have general application in the Kingdom, but are rather addressed to specific licensees (or categories of licensees), approved persons or registered persons. Directives are binding on those to whom they are addressed.

UG-1.1.7

Unlike Regulations, there is no duty on the CBB to either consult with addressees or publicise a Directive by publishing it in the Official Gazette (save that an addressee must obviously have actual or constructive notice of a Directive). However, as a matter of general policy, the CBB also consults on Rulebook content issued by way of a Directive.

UG-1.1.8

All of the content of the CBB Rulebook has the legal status of at least a Directive, issued pursuant to Article 38 of the CBB Law. Certain of the requirements contained in the CBB Rulebook may also have the status of a Regulation, in which case they are also separately issued pursuant to Article 37 of the CBB Law and published in the Official Gazette. Where this is the case, then the Rulebook cross-refers to the Regulation in question and specifies the requirements concerned.

UG-1.1.9

In keeping with the nature of these regulatory instruments, Regulations are used to supplement the CBB Rulebook, either where explicitly required under the CBB Law, or where a particular requirement needs to have general applicability, in addition to being applied to licensees, approved persons or registered persons.

UG-2.1.1

The Rulebook is divided into 7 Volumes, covering different areas of financial services activity, as follows:

UG-2.1.2

Volume 5 (Specialised Activities), covers money changers; financing companies; representative offices; administrators; trust service providers, micro-finance institutions and ancillary services providers.

UG-2.1.3

Except for Volumes 5, 6 and 7, the basic structure of each Rulebook is the same. Each Volume starts with a contents page and an introduction containing a User's Guide and Executive Summary. Subsequent material is organised underneath the following headings:

UG-2.1.4

Volume 5 is organised by the Category of specialised firm concerned, whilst Volume 6 by subject area (authorised exchanges; issuers of securities etc).

UG-2.1.5

The material in Volumes 1–4 is contained in Modules, each covering a specific area of requirements (e.g. capital). In turn, each Module is divided into Chapters, Sections and Paragraphs, as detailed below.

UG-2.1.6

Each Volume has its own appendix Volume containing relevant reporting and authorisation forms; a glossary; and any supplementary information. In all cases, the main Volume is called "Part A" and the appendix Volume is called "Part B".

UG-2.2.1

Rulebook Volumes are subdivided into Modules, arranged in groups according to their subject matter, underneath the headings listed in Paragraph UG-2.1.3 above.

UG-2.2.2

Each Module in a Volume is referenced using a two-or three-letter code, which is usually a contraction or abbreviation of its title. These codes are used for cross-referencing within the text.

UG-2.2.3

Each Module consists of Chapters, categorised into two types:

UG-2.2.4

The introductory Chapters summarise the purpose of the Module, its history (in terms of changes made to its contents) and, where relevant, lists previously issued circulars and regulations that were replaced by the Rulebook Module. A separate introductory Chapter also prescribes the scope of application of the Module's requirements.

UG-2.2.5

Chapters are further sub-divided into Sections: these extend the Chapter numbering (e.g. FC-1.1, FC-1.2, FC-1.3 etc). In turn, Sections are sub-divided into Paragraphs; these extend the Chapter and Section numbering (e.g. FC-1.1.1, FC-1.1.2, FC-1.1.3 etc.). Where appropriate, sub-section headings may be used, to guide the reader through a Section; sub-Section headings are italicised and unnumbered, and act purely as an indicator (without limitation) as to the contents of the Paragraphs that follow.

UG-2.2.6

Each Volume's contents page lists all the Modules contained within it (Part A) and the information contained in the relevant appendix Volume (Part B).

UG-2.2.7

The contents page of each Module lists the Chapters and Sections it contains, and the latest version date of each Section in issue.

UG-2.3.1

The top of each page in the Rulebook identifies the Volume, Module and Chapter in question.

UG-2.3.2

The bottom of each page in the Rulebook (on the left hand side) identifies the Module in question, its section and page number. Page numbering starts afresh for each Section: the total number of pages in each Section is shown as well as the individual page number. The bottom right hand side shows an end-calendar quarter issue date. The contents page for each Module, and each Section in a Module, are each given their own issue date. In addition, the Module contents page lists the latest issue date for each Section in that Module. The contents page thus acts as a summary checklist of the current issue date in force for each Section. Further explanation is provided in Section UG-3.1 below.

UG-2.3.3

Defined terms used in the Rulebook are underlined. Each Volume has its own glossary listing defined terms and giving their meaning. Definitions of terms used apply only to the Volume in question. It is possible for the same term to be used in a different Volume with a different meaning.

UG-2.3.4

Any cross-references given in a text state the Module code, followed (where appropriate) by the numbering convention for any particular chapter, section or paragraph being referred to. For example, the cross-reference FC-1.2.3 refers to the third Paragraph in the second Section of the first Chapter of the Financial Crime Module. Many references will be quite general, referring simply to a particular Module, Chapter or Section, rather than a specific Paragraph.

UG-2.3.5

Each Paragraph is assigned a complete reference to the Module, Chapter, and Section, as well as its own paragraph number, as explained in Paragraph UG-2.3.4 above. The format of the Paragraph reference and text indicates its status as either a Rule or Guidance, as explained in Paragraph UG-1.2.4 above.

UG-2.3.6

When cross-referring to specific Paragraphs, and it is important to make clear the status of the Paragraph in question as a Rule or Guidance, then the words 'Rule' or 'Guidance' may be used instead of 'Paragraph', followed by the reference number (e.g. 'As required by Rule FC-1.1.1, licensees must...').

UG-3.1.1

Any changes to the Rulebook are generally made on a quarterly cycle (the only exception being when changes are urgently required), in early January, April, July and October. When changes are made to a Module, the amended Sections are given a new version date, in the bottom right-hand page.

UG-3.1.2

The contents page for each amended Module is also updated: the table of contents is changed to show the new version date for each amended Section (in the ‘Date Last Changed’ column), and the contents page itself is also given its own new version date in the bottom right-hand corner. The Module contents pages thus act as a checklist for hard-copy users to verify which are the current version dates for each Section in that Module.

UG-3.1.3

A summary of any changes made to a Module is included in the Module History section of each Module. The table summarises the nature of the change made, the date of the change, and the Module components and relevant pages affected. The Module History can thus be used to identify which pages were updated within individual Sections.

UG-3.1.4

Hard-copy users of the CBB Rulebook can check that they have the latest copy of each Module’s contents pages, by referring to the overall table of contents for each Volume. The Volume table of contents lists the date each Module was last changed; users can use this table to check the date showing in the bottom right-hand corner of each Module’s contents page.

UG-3.1.5

The website version of the Rulebook acts at all times as the definitive version of the Rulebook. Any changes are automatically posted to the CBB website, together with a summary of those changes. Licensees are in addition e-mailed every quarter, to notify them of any changes (if any). Hard-copy users are invited to print off the updated pages from the website to incorporate in their Rulebook in order to keep it current.

UG-3.1.6

In order to limit the knock-on impact of inserting or deleting text on the numbering of text that follows the change, the following conventions apply:

UG-3.1.7

Where many such changes have built up over time, then the CBB may reissue the whole Section, Paragraph, Chapter or even Module concerned, consolidating all these changes.

UG-3.2.1

The Rulebook is available on the CBB website.

UG-3.2.2

Questions regarding the administration of the Rulebook (e.g. website availability, the updating of material etc) should be addressed to the Rulebook Section of the Regulatory Policy Unit:

Rulebook Section
Regulatory Policy Unit
Central Bank of Bahrain
P.O. Box 27
Manama
Kingdom of Bahrain

Tel: +973-17 547 413
Fax: +973-17 530 228
E-mail: rulebook@cbb.gov.bh
Web: www.cbb.gov.bh

Questions regarding interpretation of the policy and requirements contained in the Rulebook should be addressed to the licensee's regular supervisory point of contact within the CBB.

ES-A.1.1

The purpose of this Module is to:

ES-A.1.2

The Central Bank of Bahrain ('CBB'), in its capacity as the regulatory and supervisory authority for all financial institutions in Bahrain, has as its mission:

ES-A.1.3

As the single regulator, the CBB ensures the consistent application of regulatory standards in banking, insurance and capital markets, as well as encourages an open and cooperative approach in dealing with financial institutions.

ES-A.1.4

The supervision of the investment business sector in the Kingdom pays particular regard to the standards set by the International Organisation of Securities Commissions (IOSCO). The CBB plays an important role in meeting stakeholders' expectations — the principal stakeholders of the CBB are the Government of the Kingdom of Bahrain, regulated financial institutions, their clients, IOSCO and other relevant international organisations.

ES-A.1.5

To carry out its responsibilities in relation to the investment business sector, the CBB has four supervisory objectives, namely to:

ES-A.1.6

This Module contains the CBB's Directive (as amended from time to time) relating to transition rules and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to all investment firm licensees (including their approved persons).

ES-A.1.7

For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.

ES-A.2.1

This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business). Any material changes that have subsequently been made to this Module are annotated with the end calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

ES-A.2.2

When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued for Module ES where the update necessitated changes to substance (as opposed to merely updating 'BMA' to 'CBB', and similar references).

ES-A.2.3

A list of recent changes made to this Module is provided below:

ES-A.2.4

This Module does not supersede any previously issued circulars or other regulatory instruments.

ES-A.2.5

Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Chapter ES-2.

AU-A.1.1

The Authorisation Module sets out the Central Bank of Bahrain's (CBB) approach to licensing providers of regulated investment services in the Kingdom of Bahrain. It also sets out CBB requirements for approving persons in those providers.

AU-A.1.2

Persons who provide any of the following regulated investment services within or from the Kingdom of Bahrain, and are not otherwise licensed by CBB as a bank, are required to be licensed by CBB as an investment firm licensee:

AU-A.1.3

Three categories of investment firm license are provided for, depending on the type of regulated investment services undertaken. The requirements in Volume 4 (Investment Business) are tailored in certain respects, according to the license category concerned, in order to address the specific features and risks associated with each type of regulated investment service.

AU-A.1.4

Collectively, licensed providers of regulated investment services are called investment firm licensees. Bahrain-incorporated investment firm licensees are called Bahraini investment firm licensees. Investment firm licensees that are incorporated in an overseas jurisdiction and operate via a branch presence in the Kingdom of Bahrain are called overseas investment firm licensees. The same naming convention applies to the various sub-categories of investment firms (e.g. Bahraini Category 1 investment firm, overseas Category 1 investment firm etc).

AU-A.1.5

Regulated investment services are defined in Section AU-1.4. Their definition excludes operating a recognised exchange (such as the Bahrain Stock Exchange) and related infrastructure (such as central clearing and depository systems). These activities are separately addressed, in the form of individual regulations issued by the CBB's Capital Markets Supervision Directorate, and the Bahrain Stock Exchange.

AU-A.1.6

Persons undertaking certain functions in relation to investment firm licensees require prior CBB approval. These functions (called 'controlled functions') include Directors and members of senior management. The controlled functions regime supplements the licensing regime by ensuring that key persons involved in the running of investment firm licensees are fit and proper. Those authorised by the CBB to undertake controlled functions are called approved persons.

AU-A.1.7

The requirements set out in Chapters AU-2 and AU-3 represent the minimum conditions that have to be met in each case, both at the point of authorisation and on an on-going basis thereafter, in order for authorised status to be retained.

AU-A.1.8

Neither representative offices of foreign investment firms, nor ancillary services providers, are covered in Volume 4 (Investment Business). Requirements covering these types of activities will instead be included in Volume 5.

AU-A.1.9

Volume 5 (Specialised Activities) of the CBB Rulebook issued in December 2010 deals with representative offices of foreign investment firms.

AU-A.1.10

Until such time as Volume 5 (Specialised Activities) of the CBB Rulebook is issued, ancillary services providers remain subject to the requirements contained in the CBB's 'Standard Conditions and Licensing Criteria', dealing with providers of ancillary services to the financial sector.

AU-A.1.11

This Module contains the CBB's Directive, Regulation and Resolutions (as amended from time to time) regarding authorisation under Volume 4 of the CBB Rulebook. It is applicable to all investment firm licensees (as well as to approved persons), and is issued under the powers available to the CBB under Articles 37 to 42, 44 to 48 and 180 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). It includes the requirements contained in Resolution No (1) of 2007 with respect to determining fees categories due for licensees and services provided by the CBB. The Module also contains requirements under Regulation No (1) of 2007 pertaining to the CBB's regulated services issued under Article 39 of the CBB Law and contains requirements governing the conditions of granting a license for the provision of regulated services as prescribed under Resolution No. (43) of 2011 and issued under the powers available to the CBB under Article 44(c). The Module contains requirements under Resolution No.(16) for the year 2012 including the prohibition of marketing financial services pursuant to Article 42 of the CBB Law. This Module contains the prior approval requirements for approved persons under Resolution No (23) of 2015.

AU-A.1.12

For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

AU-A.2.1

This Module was first issued in April 2006, as part of the first phase of Volume 4 (Investment Business) to be released. It is dated April 2006. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

AU-A.2.2

When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB, as well as other policy changes. However, new calendar quarter dates were only issued where these involved changes in the substance of Rules.

AU-A.2.3

A list of recent changes made to this Module is provided below:

AU-A.2.4

This Module supersedes the following provisions contained in circulars or other regulatory instruments:

AU-A.2.5

Further guidance on the implementation and transition to Volume 4 (Investment business) is given in Module ES (Executive Summary).

AU-1.1.12

For the purposes of Volume 4 (Investment Business), regulated investment services may be undertaken under three categories of investment firms as follows:

Category 1

Category 2

Category 3

AU-1.1.19

Investment firm licensees may combine two or more regulated investment services, providing these fall within the permitted list of services for their investment firm category, and such combinations are not restricted by Module BC (Business Conduct).

AU-1.1.20

Module BC (Business Conduct) may restrict licensees from undertaking certain combinations of activities, where such combinations potentially create conflicts of interest that could compromise the interests of customers. See Chapter BC-2.

AU-1.1.21

[This Paragraph was deleted in January 2011].

AU-1.1.22

[This Paragraph was deleted in January 2011].

AU-1.1.22A

As per Article 48 of the CBB Law, investment firm licensees must seek CBB’s prior written approval before undertaking new regulated investment services.

AU-1.1.22B

Investment firm licensees wishing to undertake the activity of Arranging Credit and Advising on Credit must satisfy the CBB that they have sufficient expertise to undertake this activity and must obtain the CBB’s prior written approval for undertaking the same.

AU-1.1.22C

For purposes of Paragraph AU-1.1.22B, investment firm licensees must ensure that the officer responsible for dealing with the customers for Arranging Credit and Advising on Credit is competent and has demonstrated his competence through appropriate qualifications and experience to carry out such function.

AU-1.1.23

Investment firm licensees may deal in both conventional and Islamic financial instruments. Only those investment firm licensees whose operations are fully shari'a compliant, however, may hold themselves out to be an Islamic investment firm.

AU-1.1.24

Islamic investment firms are required to comply with relevant AAOIFI standards (see Section AA-4.1).

AU-1.1.24A

In accordance with Paragraph HC-9.2.1, Category 1 and 2 Islamic investment firms must maintain a Shari'a Supervisory Board, comprised of at least 3 Shari'a board members, to verify that their operations are Shari'a compliant.

AU-1.1.24B

Category 3 Islamic investment firms must appoint a minimum of one Shari'a advisor or scholar to verify that their operations are Shari'a compliant.

AU-1.1.25

Investment firm licensees (whether conventional or Islamic) may not accept shari'a money placements or deposits. They may not enter into shari'a financing contracts (except where it is an incidental part of assisting a client to buy, sell, subscribe for or underwrite a financial instrument). Finally, they may not offer Shari'a Profit Sharing Investment Accounts (whether restricted or unrestricted).

AU-1.1.26

Shari'a money placements or deposits include money taken under q'ard or al-wadia contracts. Shari'a financing contracts include contracts such as murabaha, bay muajjal, bay islam, ijara wa iktina and istisna'a. Profit sharing investment accounts include those accounts undertaken under mudaraba and musharaka contracts.

AU-1.1.27

The transactions prohibited under Rule AU-1.1.25 may only be undertaken by bank licensees.

AU-1.2.1

Investment firm licensee must obtain the CBB's prior written approval for any person wishing to undertake a controlled function in an investment firm licensee. The approval from the CBB must be obtained prior to their appointment, subject to the variations contained in Paragraphs AU-1.2.3 to AU-1.2.5.

AU-1.2.2

Controlled functions are those of:

AU-1.2.3

In the case of Bahraini investment firm licensees, prior approval is required for all of the above controlled functions. Combination of the above controlled functions is subject to the requirements contained in Modules HC and RM.

AU-1.2.4

In the case of overseas investment firm licensees, prior approval is required for controlled functions (b), defined as the 'Branch Manager' of the Bahrain branch (however titled by the licensee), (c), (d), (e), (f), (h) and (i). Combination of the above controlled functions is subject to the requirements contained in Modules HC and RM.

AU-1.2.5

[This Paragraph was deleted in January 2021].

AU-1.2.6

Approval under Paragraph AU-1.2.1 is only granted by the CBB, if it is satisfied that the person is fit and proper to hold the particular position in the licensee concerned. 'Fit and proper' is determined by the CBB on a case-by-case basis. The definition of 'fit and proper' and associated guidance is provided in Sections AU-3.1 and AU-3.2 respectively.

AU-1.2.7

Director is any person who is a member of the licensee's Board of Directors, and is individually, and collectively with other Directors responsible for directing the affairs and overseeing the activities of the licensee, as detailed in section HC-1.2.

AU-1.2.8

The fact that a person may have 'Director' in their job title does not of itself make them a Director within the meaning of the definition noted in Paragraph AU-1.2.7. For example, a 'Director of Marketing', is not necessarily a member of the Board of Directors and therefore may not fall under the definition of Paragraph AU-1.2.7.

AU-1.2.9

Investment firm licensees must appoint a person to undertake the function of Chief Executive, General Manager or Managing Director. The Chief Executive or General Manager means a person who is responsible for the conduct of the licensee (regardless of actual title). The Chief Executive or General Manager must be resident in Bahrain. This person is responsible for the conduct of the whole of the firm, or, in the case of an overseas investment firm licensee, for all of the activities of the branch (ref. HC-6.3.4).

AU-1.2.9A

A licensee may appoint a Director on the Board to undertake the responsibility of the Chief Executive or General Manager, i.e a Managing Director, in which case the appointment of a Chief Executive or General Manager in addition to the Managing Director will not be permitted.

AU-1.2.9B

The Chief Executive, General Manager or Managing Director of the licensee:

AU-1.2.9C

The Chairman of the Board may not undertake any executive role, including that of Chief Executive, General Manager or Managing Director.

AU-1.2.9D

The Chief Executive Officer or Managing Director are not permitted, at any time to assume Chairmanship or Deputy Chairmanship of the Board.

AU-1.2.9E

Residency requirements apply to Chief Executives, General Managers or Managing Directors: see Section AU-2.2.

AU-1.2.10

Head of function means a person who exercises major managerial responsibilities, is responsible for a significant business or operating unit, or has senior managerial responsibility for maintaining accounts or other records of the licensee.

AU-1.2.11

Whether a person is a head of function will depend on the facts in each case and is not determined by the presence or absence of the word in their job title. Examples of head of function might include, depending on the scale, nature and complexity of the business, a deputy Chief Executive; heads of departments such as Risk Management, Compliance or Internal Audit; or the Chief Financial Officer.

AU-1.2.12

Financial Instruments Trader means a person who is engaged in buying or selling financial instruments.

AU-1.2.13

An investment consultant or investment adviser refers to the function of advising a client or potential client with respect to buying, selling, subscribing for or underwriting a particular financial instrument or exercising any right conferred by such a financial instrument.

AU-1.2.13A

If a person is merely responsible for maintaining a client relationship and providing administrative support without giving advice, such person is not considered an investment consultant nor an investment adviser and need not be approved by the CBB, as such a function would not be considered a controlled function.

AU-1.2.13B

Any other staff of an investment firm licensee must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13. Other approved persons, must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13, unless such approved person has been specifically approved by the CBB as an investment consultant or investment adviser, in addition to their initial controlled function.

AU-1.2.14

Where a firm is in doubt as to whether a function should be considered a controlled function it must discuss the case with the CBB.

AU-1.2.15

The controlled function of compliance officer is defined in accordance with the compliance function under Section HC-6.5. The controlled functions of Money Laundering Reporting Officer/Deputy Money Laundering Reporting Officer are defined under Chapter FC-3.

AU-1.2.16

All investment firm licensees must designate an employee, of appropriate standing and resident in Bahrain, as compliance officer. The duties of the compliance officer include:

AU-1.4.3

A person does not carry on an activity constituting a regulated investment service if the activity:

AU-1.4.4

A person does not carry on an activity constituting a regulated investment service if the person is a body corporate and carries on that activity solely with or for other bodies corporate that are members of the same group.

AU-1.4.5

A person does not carry on an activity constituting a regulated investment service if such person carries on an activity with or for another person, and they are both members of the same family.

AU-1.4.6

A person does not carry on an activity constituting a regulated investment service if the sole or main purpose for which the person enters into the transaction is to limit any identifiable risks arising in the conduct of his business, providing the business conducted does not itself constitute a regulated activity.

AU-1.4.7

For example, an industrial company entering into an interest rate swap to switch floating-rate borrowings for fixed rate borrowings, in order to manage interest rate risk, would not be considered to be dealing in financial instruments as principal, and would not therefore be required to be licensed as an investment firm.

AU-1.4.8

A person does not carry on an activity constituting a regulated investment service if that person enters into that transaction solely as a nominee for another person, and acts under instruction from that other person; or is an employee or Director of a person who is an investment firm licensee.

AU-1.4.9

A person does not carry on an activity constituting a regulated investment service if that person is a government body charged with the management of financial instruments on behalf of a government or public body.

AU-1.4.10

A person does not carry on an activity constituting a regulated investment service if that person is an exempt person, as specified by Royal decree.

AU-1.4.11

Dealing in financial instruments as principal means buying, selling, subscribing for or underwriting any financial instrument on own account, including underwriting transactions.

AU-1.4.11A

Only Category 1 investment firms are permitted to underwrite the issuance of financial instruments. However, the CBB will only permit such activity if the licensee has the financial ability to absorb the size of the commitment.

AU-1.4.11B

In assessing the financial ability of a licensee, the CBB will consider, amongst other factors, the licensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Any underwriting activities require the prior approval of the CBB's Capital Market Supervision Directorate and are subject to Module OFS (Offering of Securities) of Volume 6 of the CBB Rulebook.

AU-1.4.12

A person carries on an activity specified in Rule AU-1.4.11 only if he is a market maker or deals on own account on an organised, frequent and systematic basis by providing a system accessible to third parties in order to engage in dealings with them.

AU-1.4.13

A licensee that carries on an activity of the kind specified by Rule AU-1.4.11 is authorised to act as a market maker and has the ability to deal in financial instruments on terms determined by it. Such a licensee undertakes such an activity using its own financial resources, but may also control client assets or liabilities in the course of its designated investment business.

AU-1.4.14

A person does not carry on an activity specified in Rule AU-1.4.11 if the activity relates to the person issuing his own shares/debentures, warrants or bonds.

AU-1.4.15

The activity specified in Rule AU-1.4.11 may also include providing credit, where it is an incidental part of buying, selling, subscribing for or underwriting financial instruments. However, the amount provided as credit must be paid out of the investment firm licensee's capital and not out of clients' assets.

AU-1.4.16

Examples of the type of 'incidental' credit activity provided for under Rule AU-1.4.15 include the provision of margin facilities on trading accounts or credit elements intrinsic to a structured or leveraged financial product.

AU-1.4.17

Dealing in financial instruments as agent means buying, selling, subscribing for or underwriting financial instruments on behalf of a client.

AU-1.4.18

A licensee that carries on an activity of the kind specified by Rule AU-1.4.17 is not a market maker, does not have the ability to deal in financial instruments on terms determined by it and does not use its own financial resources for the purpose of buying, selling, subscribing for or underwriting financial instruments. Such a licensee may however receive or hold client assets in connection with a client transaction, in its capacity as agent.

AU-1.4.19

Arranging deals in financial instruments means making arrangements on behalf of another person, whether as principal or agent, buying, selling or subscribing for deals in financial instruments. This activity does not include the execution of a deal for which the arrangement has been made.

AU-1.4.19A

For Category 3 Investment Firms, the activity of arranging the deals is limited to handling the administration arrangements only.

AU-1.4.20

A person does not carry on an activity specified in Rule AU-1.4.19 if the arrangement does not bring about the transaction to which the arrangement relates.

AU-1.4.21

A person does not carry on an activity specified in Rule AU-1.4.19 if a person's activities are limited solely to introducing clients to licensees.

AU-1.4.22

The exclusion in Rule AU-1.4.21 does not apply if the agent receives from any person, other than the client, any pecuniary reward or other advantage, for which he does not account to the client, arising out of his entering into the transaction. Thus, if A receives a commission from B for arranging credit or deals in investment for C, the exclusion in Rule AU-1.4.21 does not apply.

AU-1.4.23

A person does not carry on an activity specified in Rule AU-1.4.19 merely by providing the means of communication between two parties to a transaction.

AU-1.4.24

A person does not carry on an activity specified in Rule AU-1.4.19 if they operate an exchange, duly recognised and authorised by the CBB.

AU-1.4.25

The BFX, as a licensed exchange, is not therefore classed as an investment firm licensee subject to Volume 4 (Investment Business). It is subject to separate rules issued by the CBB (see Volume 6 of the CBB Rulebook).

AU-1.4.26

Negotiating terms for an investment on behalf of a client is an example of an activity which may be regarded as activities of the kind specified in Rule AU-1.4.19.

AU-1.4.27

The following are examples of activities which, when taken in isolation, are unlikely to be regarded as an activity of the kind specified in Rule AU-1.4.19:

AU-1.4.28

The activity specified in Rule AU-1.4.19 may also include arranging credit, where it is an incidental part of assisting a client to buy, sell, subscribe for or underwrite any financial instrument.

AU-1.4.29

Under Rule AU-1.4.28, arranging credit is an activity specified in Rule AU-1.4.19, only where it forms part of other arrangements to assist a client to buy, sell, subscribe for or underwrite a financial instrument. The activity of solely arranging credit is not a regulated activity for the purposes of Rule AU-1.4.19.

AU-1.4.30

Managing financial instruments means managing on a discretionary basis financial instruments on behalf of another person.

AU-1.4.31

Activities involving initiating and carrying out investment transactions on behalf of a client on a discretionary basis are included under the definition of Rule AU-1.4.30.

AU-1.4.32

Safeguarding financial instruments means the safeguarding of financial instruments for the account of clients.

AU-1.4.33

A person undertaking an activity of the kind specified under Rule AU-1.4.32 may also be engaged in the administration of financial instruments as defined in CBB Rulebook Volume 5 Module AU (Administrators) Paragraphs AU-1.1.11 and AU-1.1.12, including related services such as cash/collateral management, given that strict adherence to segregation of duties is observed.

AU-1.4.34

A person undertaking an activity of the kind specified under Rule AU-1.4.32 cannot execute negotiable instruments such as cheques on behalf of a client.

AU-1.4.35

A person does not carry on an activity specified in Rule AU-1.4.32 if the person receives documents relating to a financial instrument for the purpose of onward transmission to, from or at the direction of the person to whom the financial instrument belongs; or else is simply providing a physical safekeeping service such as a deed box.

AU-1.4.36

A person does not carry on an activity specified in Rule AU-1.4.32 if a third person, namely a qualifying custodian, accepts responsibility with regard to the financial instrument.

AU-1.4.37

A 'qualifying custodian' is a licensee who has permission to carry on an activity of the kind specified in Rule AU-1.4.32.

AU-1.4.38

A person does not carry on an activity specified in Rule AU-1.4.32 if they are managing a central depository, which is part of an exchange recognised by the CBB.

AU-1.4.39

The following are examples of activities which, when taken in isolation, are unlikely to be regarded as an activity of the kind specified under Rule AU-1.4.32:

AU-1.4.40 [This Paragraph deleted 07/2007.]

AU-1.4.41

Advising on financial instruments means giving advice to an investor or potential investor (or a person in his capacity as an agent for an investor or potential investor) on the merits of buying, selling, subscribing for or underwriting a particular financial instrument or exercising any right conferred by such a financial instrument.

AU-1.4.41A

For the purpose of Rule AU-1.4.41, advising on financial instruments includes giving digital financial advice also known as 'robo-advice' or 'automated advice' using a computer program and algorithm to generate the advice.

AU-1.4.42

The activity defined in Rule AU-1.4.41 above does not include advising on mergers and acquisitions, unless otherwise agreed with the CBB on a case by case basis.

AU-1.4.43

[This Paragraph was deleted in July 2020].

AU-1.4.44

The following are examples of activities, which may be regarded as an activity as defined by Rule AU-1.4.41:

AU-1.4.45

A person does not carry on an activity specified in Rule AU-1.4.41 by giving advice in any newspaper, journal, magazine, broadcast services or similar service in any medium if the principal purpose of the publication or service, taken as a whole, is neither:

AU-1.4.46

The following are examples of activities which, when taken in isolation, are unlikely to be regarded as an activity as defined by Rule AU-1.4.41:

AU-1.4.47

A person undertaking an activity of the kind specified under Rule AU-1.4.41 cannot accept or hold client assets or execute negotiable instruments such as cheques on behalf of a client.

AU-1.4.47A

Arranging Credit means making arrangements for a borrower, to enter into a credit facility with a credit provider.

AU-1.4.47B

An investment firm licensee may only arrange for, or advise on credit facilities with a credit provider licensed to provide such facilities.

AU-1.4.47C

Activities that constitute Arranging Credit includes:

AU-1.4.47D

Advising on Credit means giving advice to a borrower, a potential borrower, or a person in his capacity as an agent of a borrower or a potential borrower, on the merits of entering into a particular credit facility.

AU-1.4.47E

For the purposes of Paragraphs AU-1.4.47A to AU-1.4.47D, a borrower is:

AU-1.4.47F

For purposes of Subparagraph AU-1.4.47E (a), investment firm licensees are prohibited from dealing with retail clients and/or expert investors.

AU-1.4.47G

Investment firm licensees are encouraged to consider and give priority to CBB licensed credit providers when arranging for, or advising on credit facilities.

AU-1.4.48

Operating a collective investment undertaking ('CIU') means operating, establishing or winding up a collective investment undertaking.

AU-1.4.49

For the purposes of Rule AU-1.4.48, a collective investment undertaking is an undertaking the sole object of which is the collective investment of capital raised from the public in financial instruments or other assets and which operates on the basis of risk-spreading; and the holdings of which are re-purchased or redeemed, directly or indirectly, out of those undertakings' assets.

AU-1.4.50

A person does not carry on an activity specified in Rule AU-1.4.48 if the activity relates to the person establishing or winding up a collective investment undertaking, and that activity may be reasonably regarded as a necessary in the course of providing legal services or providing accounting services.

AU-1.4.51

In the case of CIUs whose holdings are listed and traded on a stock exchange (such as a closed-ended fund), actions taken by the CIU to align the stock exchange value of its holdings and its net asset value is taken as equivalent to the repurchase or redemption specified in Rule AU-1.4.49. The definition in Rule AU-1.4.49 thus recognises both open-ended funds and closed-ended funds: unit trusts, investment trusts, mutual funds, SICAV and collective investment schemes are all examples of CIUs. CIUs may also be constituted under contract law (as common funds managed by management companies); trust law (as unit trusts); or under statute (as investment companies).

AU-1.4.52

See Volume 7 (CIU) of the CBB Rulebook, for the rules that apply to CIUs domiciled in Bahrain or domiciled in an overseas jurisdiction, and offered to investors resident in Bahrain. These rules also contain requirements that apply to the operators of such CIUs.

AU-1.4.53

[Paragraph deleted 07/2006.]

AU-1.4.54

[Paragraph deleted 07/2006.]

AU-1.5.1

Those classes of securities which are negotiable, with the exception of instruments of payment. Transferable securities include:

AU-1.5.2

Those financial instruments — as defined elsewhere in Section AU-1.5 — that are shari'a compliant.

AU-1.5.3

Those classes of instruments which are normally dealt in on the money market, such as treasury bills and commercial papers and excluding instruments of payment.

AU-1.5.4

Rights or interests (however described) of the participants in a collective investment undertaking.

AU-1.5.5

Options, futures, forwards, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivative instruments, financial indices or financial measures which may be settled physically or in cash.

AU-1.5.6

Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event).

AU-1.5.7

Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled.

AU-1.5.8

Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in Rule AU-1.5.7 above and not being for commercial purposes, which have the characteristics of other derivative financial instruments.

AU-1.5.9

Over the counter derivative instruments, which provide for the transfer of credit risk.

AU-1.5.10

Comprise rights under a contract for differences, or any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in:

AU-1.5.11

The following are excluded from this definition of contracts for differences:

AU-1.5.12

Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments.

AU-1.5.13

Any financial instrument giving right to or interests in real estate property other than owner occupied properties. This excludes the taking of charges over real estate property.

AU-1.5.14

Certificates or other instruments which confer contractual or property rights:

AU-1.5.15

Rights to or interests in all financial instruments under section AU-1.5.

AU-2.1.1

The legal status of a Category 1 or Category 2 investment firm licensee must be:

AU-2.1.2

The legal status of a Category 3 investment firm licensee must be:

AU-2.1.3

Where the investment firm licensee is a branch of an overseas 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.

AU-2.8.1

Investment firm licensees must maintain comprehensive books of accounts and other records, which must be available for inspection within the Kingdom of Bahrain by the CBB, or persons appointed by the CBB, at any time. Investment firm licensees must comply with the minimum record-keeping requirements contained in Module GR. Books of accounts must comply with IAS (and relevant AAOIFI) standards.

AU-2.8.2

Investment firm licensees must act in an open and cooperative manner with the CBB. Investment firm licensees must meet the regulatory reporting and public disclosure requirements contained in Modules BR and PD respectively.

AU-2.8.3

Investment firm licensees must conduct their activities in a professional and orderly manner, in keeping with good market practice standards. Investment firm 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 Module BC.

AU-2.8.4

Investment firm licensees must comply with any license fee requirements applied by the CBB.

AU-2.8.5

License fee requirements are contained in Chapter AU-6.

AU-2.8.6

Investment firm licensees must comply with any other specific requirements or restrictions imposed by the CBB on the scope of their license.

AU-2.8.7

When granting a license, the CBB specifies the regulated investment services that the licensee may undertake and the category of investment firm license granted. Licensees must respect the scope of their license. AU-5.4 sets out the process for varying the scope of an authorisation, should a licensee wish to undertake new regulated investment services.

AU-2.8.8

In addition, the CBB may vary existing requirements or impose additional restrictions or requirements, beyond those already specified in Volume 4, to address specific risks.

AU-4.5.1

Administrators must maintain comprehensive books of accounts and other records, which must be available for inspection within the Kingdom of Bahrain by the BMA, or persons appointed by the BMA, at any time. Administrators must comply with the minimum record-keeping requirements contained in Module GR.

AU-4.5.2

Administrators must act in an open and cooperative manner with the BMA.

AU-5.1.1

Applicants for a license must fill in the Application Form 1 (Application for a License) online, available on the CBB website under E-services/online Forms. The applicant must upload scanned copies of supporting documents listed in Paragraph AU-5.1.5, unless otherwise directed by the CBB.

AU-5.1.2

Articles 44 to 47 of the CBB Law govern the licensing process. This prescribes a single stage process, with the CBB required to take a decision within 60 calendar days of an application being deemed complete (i.e. containing all required information and documents). See below, for further details on the licensing process and time-lines.

AU-5.1.3

References to applicant mean the proposed licensee seeking authorisation. An applicant may appoint a representative — such as a law firm or professional consultancy — to prepare and submit the application. However, the applicant retains full responsibility for the accuracy and completeness of the application, and is required to certify the application form accordingly. The CBB also expects to be able to liaise directly with the applicant during the authorisation process, when seeking clarification of any issues.

AU-5.1.4

This Paragraph was deleted in January 2016.]

AU-5.1.5

Unless otherwise directed by the CBB, the following documents must be provided in support of a Form 1:

AU-5.1.5A

The CBB, in its complete discretion may ask for a guarantee from the applicant's controlling or major shareholders on a case by case basis as it deems appropriate/necessary as part of the required documents to be submitted as mentioned in Paragraph AU-5.1.5 above.

AU-5.1.6

The business plan submitted in support of an application must include:

AU-5.1.7

In the case of applicants seeking to raise capital (refer to AU-5.1.5(m)), the CBB's review is aimed at checking that the proposed private placement complies with applicable capital markets laws and regulations, and that the information contained in the private placement memorandum ('PPM') is consistent with the information provided in the license application. The CBB's review does not in any way constitute an approval or endorsement as to any claims made in the PPM regarding the future value of the company concerned. Note also that the CBB will not license applicants without a core group of sponsoring shareholders (who can demonstrate a strong business track record with relevant expertise), and where failure of the private placement to raise its targeted amount would leave the institution unable to comply with the CBB's minimum capital requirements. The CBB will normally expect core shareholders to account for at least 40% of the applicant's initial proposed total capital.

AU-5.1.7A

The PPM must comply with the requirements contained under Module OFS (Offering of Securities) of Volume 6 of the CBB Rulebook and is subject to the CBB's Capital Market Supervision Directorate's prior approval.

AU-5.1.8

The applicant's memorandum and articles of association must explicitly provide for it to undertake the activities proposed in the license application, and must preclude the applicant from undertaking other regulated services, or commercial activities, unless these arise out of its investment activities or are incidental to those.

AU-5.1.9

All documentation provided to the CBB as part of an application for a license must be in either the Arabic or English languages. Any documentation in a language other than English or Arabic must be accompanied by a certified English or Arabic translation thereof.

AU-5.1.10

Any material changes or proposed changes to the information provided to the CBB in support of an authorisation application that occurs prior to authorisation must be reported to the CBB.

AU-5.1.11

Failure to inform the CBB of the changes specified in Rule AU-5.1.10 is likely to be viewed as a failure to provide full and open disclosure of information, and thus a failure to meet licensing condition Rule AU-2.8.2.

AU-5.1.12

By law, the 60 day time limit referred to in Paragraph AU-5.1.2 only applies once the application is complete and all required information (which may include any clarifications requested by the CBB) and documents have been provided. This means that all the items specified in Rule AU-5.1.5 have to be provided, before the CBB may issue a license.

AU-5.1.12A

The CBB recognises, however, that applicants may find it difficult to secure suitable senior management (refer AU-5.1.5(b) above) in the absence of preliminary assurances regarding the likelihood of obtaining a license.

AU-5.1.12B

Therefore, applicants may first submit an unsigned Form 1 in draft, together with as many as possible of the items specified in Rule AU-5.1.5. This draft application should contain at least items AU-5.1.5(a); AU-5.1.5(b), with respect to proposed Directors (but not necessarily senior management); AU-5.1.5(c); AU-5.1.5(d); and AU-5.1.5(g) to AU-5.1.5(m) inclusive.

AU-5.1.12C

On the basis of the information specified in Paragraph AU-5.1.12B, the CBB may provide an initial 'in principle' confirmation that the applicant appears likely to meet the CBB's licensing requirements, subject to the remaining information and documents being assessed as satisfactory. The 'in principle' confirmation will also list all outstanding documents required before an application can be considered complete and subject to formal consideration.

AU-5.1.12D

An 'in principle' confirmation does not constitute a license approval, nor does it commit the CBB to issuing a license. However, it provides sufficient assurance for an applicant to complete certain practical steps, such as securing suitable executive staff that satisfy CBB's 'fit and proper' requirements. Once this has been done, the applicant may finalise its application, by submitting the remaining documents required under Rule AU-5.1.1 and, once assessed as complete by the CBB, a signed and dated final version of Form 1. However, a Bahraini company proposing to undertake financial services activities would not be eligible to obtain a Commercial Registration from the Ministry of Industry and Commerce unless it receives the final approval from the CBB.

AU-5.1.12E

Regardless of whether an applicant submits a draft application or not, all potential applicants are strongly encouraged to contact the CBB at an early stage to discuss their plans, for guidance on the CBB's license categories and associated requirements. The Licensing Directorate would normally expect to hold at least one pre-application meeting with an applicant, prior to receiving an application (either in draft or in final).

AU-5.1.12F

Potential applicants should initiate pre-application meetings in writing, setting out a short summary of their proposed business and any issues or questions that they may have already identified, once they have a clear business proposition in mind and have undertaken their preliminary research. The Central Bank can then guide the applicant on the specific areas in the Rulebook that will apply to them and the relevant requirements that they must address in their application.

AU-5.1.12G

At no point should an applicant hold themselves out as having been licensed by the CBB, prior to receiving formal written notification of the fact in accordance with Rule AU-5.1.12H below. Failure to do so may constitute grounds for refusing an application and result in a contravention of Articles 40 and 41 of the CBB Law (which carries a maximum penalty of BD 1 million).

AU-5.1.12H

To be granted a license, an applicant must demonstrate compliance with the applicable requirements of the CBB Law and this Module. Should a license be granted, the CBB will notify the applicant in writing of the fact; the CBB will also publish its decision to grant a license in the Official Gazette and in two local newspapers (one published in Arabic, the other in English). The license may be subject to such terms and conditions as the CBB deems necessary for the additional conditions being met.

AU-5.1.12I

The CBB may refuse to grant a license if in its opinion:

AU-5.1.12J

Where the CBB proposes to refuse an application for a license, it will give the applicant a written notice to that effect. Applicants will be given a minimum of 30 calendar days from the date of the written notice to appeal the decision, as per the appeal procedures specified in the notice; these procedures will comply with the provisions contained in Article 46 of the CBB Law.

AU-5.1.12K

Before the final approval is granted to a licensee, confirmation from a retail bank addressed to the CBB that the licensee's capital (injected funds) — as specified in the business plan submitted under Rule AU-5.1.5) — has been paid in must be provided to the CBB.

AU-5.1.13

Within 6 months of the license being issued, the new licensee must provide to the CBB (if not previously submitted):

AU-5.1.14

New licensees must start their operations within 6 months of being granted a license by the CBB, failing which the CBB may cancel the license, as per the powers and procedures set out in Article 48 of the CBB Law.

AU-5.1.15

The procedures for amending or cancelling licenses are contained in Sections AU-5.4 and AU-5.5 respectively.

AU-5.2.1

Investment firm licensees must obtain CBB's prior written approval before a person is formally appointed to a controlled function. The request for CBB approval must be made by submitting to the CBB a duly completed Form 3 (Application for Approved Person status) and Curriculum Vitae after verifying that all the information contained in the Form 3, including previous experience, is accurate. Form 3 is available under Volume 4 Part B Authorisation Forms of the CBB Rulebook.

AU-5.2.2

When the request for approved person status forms part of a license application, the Form 3 must be marked for the attention of the Director, Licensing Directorate. When the submission to undertake a controlled function is in relation to an existing investment firm licensee, the Form 3, except if dealing with a MLRO, must be marked for the attention of the Director, Financial Institutions Supervision Directorate. In the case of the MLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.

AU-5.2.3

When submitting Form 3, investment firm licensees must ensure that the Form 3 is:

AU-5.2.3A

Investment firm licensees seeking to appoint Board Directors must seek CBB approval for all the candidates to be put forward for election/approval at a shareholders' meeting, in advance of the agenda being issued to shareholders. CBB approval of the candidates does not in any way limit shareholders' rights to refuse those put forward for election/approval.

AU-5.2.4

For existing licensees applying for the appointment of a Director or the Chief Executive/General Manager, the authorised representative should be the Chairman of the Board or a Director signing on behalf of the Board. For all other controlled functions, the authorised representative should be the Chief Executive/General Manager.

AU-5.2.5

[This Paragraph was deleted in July 2015.]

AU-5.2.6

[This Paragraph was moved to Paragraph AU-5.2.3A in July 2015.]

AU-5.2.6A

The CBB shall review and assess the application for approved person status to ensure that it satisfies all the conditions required in Paragraph AU-3.1.3 and the criteria outlined in Paragraph AU-3.1.5.

AU-5.2.6B

For purposes of Paragraph AU-5.2.6A, investment firm licensees should give the CBB a reasonable amount of notice in order for an application to be reviewed. The CBB shall respond within 15 business days from the date of meeting all regulatory requirements, including but not limited to receiving the application complete with all the required information and documents, as well as verifying references.

AU-5.2.6C

The CBB reserves the right to refuse an application for approved person status if it does not satisfy the conditions provided for in Paragraph AU-3.1.3 and does not satisfy the CBB criteria in Paragraph AU-3.1.5. A notice of such refusal is issued by registered mail to the licensee concerned, setting out the basis for the decision.

AU-5.2.7

[This Paragraph was deleted in January 2016.]

AU-5.2.7A

Investment firm licensees or the nominated approved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application for approved person status. The CBB shall decide on the appeal and notify the investment firm licensee of its decision within 30 calendar days from submitting the appeal.

AU-5.2.7B

Where notification of the CBB's decision to grant a person approved person status is not issued within 15 business days from the date of meeting all regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, investment firm licensees or the nominated approved persons may appeal to the Executive Director, Financial Institutions Supervision of the CBB provided that the appeal is justified with supporting documents. The CBB shall decide on the appeal and notify the investment firm licensee of its decision within 30 calendar days from the date of submitting the appeal.

AU-5.2.8

Investment firm licensees must immediately notify the CBB when an approved person ceases to hold a controlled function together with an explanation as to the reasons why (see Paragraph AU-5.5.5). In such cases, their approved person status is automatically withdrawn by the CBB.

AU-5.2.9

Investment firm licensees must immediately notify the CBB in case of any material change to the information provided in a Form 3 submitted for an approved person.

AU-5.2.10

Investment firm licensees must immediately notify the CBB when they become aware of any of the events listed in Paragraph EN-8.2.3, affecting one of their approved persons.

AU-5.4.1

Investment firm licensees wishing to vary the scope of their authorisation must obtain the CBB's written approval, before effecting any such change. Approval must be sought whenever a licensee wishes to add or cease undertaking a regulated investment service, or to vary a condition imposed on their license.

AU-5.4.2

Failure to secure the CBB approval prior to effecting such changes is likely to be viewed as a serious breach of a licensee's regulatory obligations, and may constitute a breach of Article 40(a), as well as Article 50(a), of the CBB Law.

AU-5.4.3

In addition to any other information requested by the CBB, and unless otherwise directed by the CBB, an investment firm licensee requesting CBB approval to undertake a new regulated investment service must provide the following documentation:

AU-5.4.4

The CBB will only agree to amend a license if doing so poses, in its judgement, no unacceptable risks to customers. As provided for under Article 48 of the CBB Law, the CBB may itself move to amend a license, for instance if a licensee fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licensee requires such a change. See also Chapter EN-7, regarding the cancellation or amendment of licenses, including the procedures used in such instances.

AU-5.4.5

Investment firm licensees must seek prior CBB approval before an approved person may move from one controlled function to another within the same licensee.

AU-5.4.6

In such instances, a new Form 3 (Application for Approved Person status) should be completed and submitted to the CBB. Note that a person may be considered ‘fit and proper’ for one controlled function, but not for another, if for instance the new role requires a different set of skills and experience. Where an approved person is moving to a controlled function in another licensee, the first licensee should notify the CBB of that person’s departure (see Rule AU-5.5.5), and the new licensee should submit a request for approval under Rule AU-1.2.1.

AU-5.5.1

In accordance with Article 50 of the CBB Law, investment firm licensees wishing to cancel their license or cease activities for a branch must obtain the CBB's written approval, before ceasing their activities. All such requests must be made in writing to the Director, Financial Institutions Supervision, setting out in full the reasons for the request and how the business is to be wound up.

AU-5.5.2

Investment firm licensees must satisfy the CBB that their customers' interests are to be safeguarded during and after the proposed cancellation. The requirements contained in Module GR regarding cessation of business must be satisfied.

AU-5.5.3

Failure to comply with Rule AU-5.5.1 constitutes a breach of Article 50(a) of the CBB Law. The CBB will only approve such a request where it has no outstanding regulatory concerns and any relevant customer interests would not be prejudiced. A voluntary surrender of a license will not be accepted where it is aimed at pre-empting supervisory actions by the CBB. A voluntary surrender will only be allowed to take effect once the licensee, in the opinion of the CBB, has discharged all its regulatory responsibilities to customers.

AU-5.5.4

As provided for under Article 48(c) of the CBB Law, the CBB may itself move to cancel a license, for instance if a licensee fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licensee requires a cancellation. The CBB generally views the cancellation of a license as appropriate only in the most serious of circumstances, and generally tries to address supervisory concerns through other means beforehand. See also Chapter EN-7, regarding the cancellation or amendment of licenses, including the procedures used in such instances and the licensee's right to appeal the formal notice of cancellation issued by the CBB.

AU-5.5.4A

Cancellation of a license requires the CBB to issue a formal notice of cancellation to the licensee concerned. The notice of cancellation describes the CBB's rationale for the proposed cancellation, as specified in Article 48(d) of the CBB Law.

AU-5.5.4B

Where the cancellation of a license has been confirmed by the CBB, the CBB will only effect the cancellation once a licensee has discharged all its regulatory responsibilities to clients. Until such time, the CBB will retain all its regulatory powers towards the licensee and will direct the licensee so that no new regulated investment services may be undertaken whilst the licensee discharges its obligations to its clients.

AU-5.5.5

In accordance with Paragraph AU-5.2.8, investment firm licensees must promptly notify the CBB in writing as soon as they become aware, when a person undertaking a controlled function will no longer be carrying out that function. If a controlled function falls vacant, the investment firm licensee must appoint a permanent replacement (after obtaining CBB approval), within 120 calendar days of the vacancy occurring. Pending the appointment of a permanent replacement, the investment firm licensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of the controlled function affected, provided that such arrangements do not pose a conflict of duties. These interim arrangements must be approved by the CBB.

AU-5.5.6

The explanation given for any such changes should simply identify if the planned move was prompted by any concerns over the person concerned, or is due to a routine staff change, retirement or similar reason.

AU-5.5.7

The CBB may also move to declare someone as not 'fit and proper', in response to significant compliance failures or other improper behaviour by that person: see Chapter EN-8 regarding the cancellation of 'fit and proper' approval.