Central Bank of Bahrain Volume 4—Investment Business
Part A
Introduction
UG UG User's Guide
UG-A UG-A Introduction
UG-A.1 UG-A.1 Purpose
Executive Summary
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.
Amended: January 2007UG-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 andIslamic bank licensees respectively, were issued in July 2004 and January 2005; Volume 3, coveringinsurance licensees , was issued in April 2005. This Volume (Volume 4), was issued in April 2006. Volume 5 (coveringspecialised licensees ), and Volume 6 (capital markets) are being issued progressively. Volume 7 on collective investment undertakings (CIUs) was issued in May 2012.Amended: July 2012
Amended: January 2008
Amended: January 2007UG-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.
Amended: January 2007UG-A.1.4
Volume 4 (Investment Business) covers
investment firm licensees , i.e. those CBB licensees that solely undertakeregulated 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 ofclient 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.Amended: January 2007
Amended: January 2008UG-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).
Amended: January 2007Legal Basis
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 .Amended: January 2011
Amended: January 2008
Added: January 2007UG-A.1.7
For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.
Added: January 2007UG-A.2 UG-A.2 Module History
Evolution of Module
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.
Amended: January 2007UG-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.
Added: January 2007UG-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes UG-A.1 07/2007 Updated to reflect new CBB Law: various references changed and new Rule A.1.6 introduced categorising this Module as a Directive. UG-1.2 07/2007 New Rules UG-1.2.6 and UG-1.2.7 to reflect the CBB Law; other material reordered as a consequence. UG-A.1.6 01/2008 Corrected that this Module applies only to investment firm licensees (including their approved persons). UG-3.2.1 01/2008 Updated CBB policy re distribution of hard copies of Volumes of Rulebook. Order Form 01/2008 Amended Order Form to reflect new policy re hard copy availability. UG-A.1.6 01/2011 Clarified legal basis. UG-2.1.2 01/2011 Updated to reflect structure of Volume 5. UG-A.1.2, UG-1.2.1 and UG-2.1 07/2012 Various minor corrections to reflect structure of Rulebook, including issuance of Volume 7. UG-1.2.1, UG-1.2.7, UG-2.1.2, UG-2.1.3 and UG-2.2.2 10/2012 Various minor amendments. UG-3.2 and Annex 01/2013 Amended as CBB Rulebook only now available on CBB Website. UG-1.3.4 10/2016 Add section to clarify reference to 'he' 'his' 'she' and 'her'. UG-3.2.2 04/2020 Amended Paragraph. Superseded Requirements
UG-A.2.3
Deleted: January 2007UG-A.2.4
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
UG-1 UG-1 Rulebook Status and Application
UG-1.1 UG-1.1 Legal Basis
General
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)).
Amended: January 2007UG-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.
Amended: January 2007UG-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).Amended: January 2007CBB's Rulemaking Instruments
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).
Added: January 2007UG-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.
Added: January 2007UG-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 oflicensees ),approved persons orregistered persons . Directives are binding on those to whom they are addressed.Added: January 2007UG-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.
Added: January 2007UG-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.
Added: January 2007UG-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 orregistered persons .Added: January 2007UG-1.2 UG-1.2 Status of Provisions
UG-1.2.1
The contents of the CBB Rulebook are categorised either as Rules or as Guidance. Rules have a binding effect. If a licensee breaches a Rule to which it is subject, it is liable to enforcement action by the CBB and, in certain cases, criminal proceedings by the Office of the Public Prosecution.
Amended: October 2012
Amended: July 2012
Amended: January 2007UG-1.2.2
Where relevant, compliance with Guidance will generally lead the CBB to assess that the rule(s) to which the Guidance relates has been complied with. Conversely, failure to comply with Guidance will generally be viewed by the CBB as tending to suggest breach of a Rule.
Amended: January 2007UG-1.2.3
The categorisation of each Paragraph within the Rulebook is identified by its text format, as follows:
• Rules are in bold, font size 12. The Paragraph reference number is also highlighted in a coloured box.• Guidance is in normal type, font size 11.Amended: January 2007UG-1.2.4
Where there are differences of interpretation over the meaning of a Rule or Guidance, the CBB reserves the right to apply its own interpretation.
Amended: January 2007UG-1.2.5
Rule UG-1.2.4 does not prejudice the rights of an authorised person to make a judicial appeal, should it believe that the CBB is acting unreasonably or beyond its legal powers.
Amended: January 2007UG-1.2.6
All Rulebook content has the formal status of at least a Directive. Some Rulebook content may also have the status of Regulations. Rulebook content that is categorised as a Rule is therefore legally mandatory and must be complied with by those to whom the content is addressed.
Amended: January 2007UG-1.2.7
[This Paragraph was deleted in October 2012].
Deleted: October 2012UG-1.2.8
The CBB’s enforcement powers and processes are set out in Module EN.
Amended: January 2007UG-1.3 UG-1.3 Application
UG-1.3.1
Volume 4 of the CBB Rulebook for the most part applies only to
investment firm licensees , and to individuals undertaking key functions in those licensees (so-called 'approved persons '). (Representative offices are subject to the relevant requirements in Volume 5 of the CBB Rulebook.) Most of the content of Volume 4 therefore only has the formal status of a Directive.Amended: January 2007
Amended: January 2008UG-1.3.2
A few Rules and Guidance have general applicability (and thus also have the formal status of a Regulation): for instance, no one may carry on investment business within or from Bahrain without the appropriate license, and
controllers ofinvestment firm licensees are also subject to various requirements.Amended: January 2007
Amended: January 2008UG-1.3.3
Each Module in Volume 4 (except those listed under the 'Introduction' and 'Sector Guides' headings) contains a Scope of Application Chapter, setting out which Rules and Guidance apply to which particular type of
investment firm licensee or person, for the Module concerned. In addition, each Rule (or Section containing a series of Rules) is drafted such that its application is clearly highlighted for the user. Finally, each Module, in its Purpose Section, 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.Amended: January 2007UG-1.3.4
All references in this Module to 'he' or 'his' shall, unless the context otherwise requires, be construed as also being references to 'she' and 'her'.
Added: October 2016UG-1.4 UG-1.4 Effective Date
UG-1.4.1
Volume 4 (Investment Business) of the CBB Rulebook was first issued in April 2006. Its contents have immediate effect, subject to any specific transition arrangements that may be specified.
Amended: January 2007UG-1.4.2
Module ES (Executive Summary) contains details of the implementation and transition arrangements for Volume 4 (Investment Business).
UG-2 UG-2 Rulebook Structure and Format
UG-2.1 UG-2.1 Rulebook Structure
Rulebook Volumes
UG-2.1.1
The Rulebook is divided into 7 Volumes, covering different areas of financial services activity, as follows:
Volume 1 Conventional BanksVolume 2 Islamic BanksVolume 3 InsuranceVolume 4 Investment BusinessVolume 5 Specialised ActivitiesVolume 6 Capital MarketsVolume 7 Collective Investment UndertakingsAmended: July 2012
Amended: January 2007UG-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.Amended: October 2012
Amended: January 2011
Amended: January 2008Rulebook Contents (Overview)
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:
(a) High-level Standards;(b) Business Standards;(c) Reporting Requirements;(d) Enforcement and Redress; and, where appropriate,(e) Sector Guides.Amended: October 2012
Amended: July 2012
Amended: January 2008
Amended: January 2007UG-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).
Amended: January 2007UG-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 UG-2.2 Volume Structure
Modules
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.
Amended: October 2012Chapters
UG-2.2.3
Each Module consists of Chapters, categorised into two types:
• Standard introductory Chapters (referenced with a letter: e.g. UG-A); andUG-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.
Amended: January 2007Sections and Paragraphs
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.
Amended: January 2007Table of Contents
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.
Amended: January 2007UG-2.3 UG-2.3 Format and Page Layout
Headers
UG-2.3.1
The top of each page in the Rulebook identifies the Volume, Module and Chapter in question.
Footers
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.
Defined terms
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.
Cross-references
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.
Text format
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...').
Amended: January 2007UG-3 UG-3 Rulebook Maintenance and Access
UG-3.1 UG-3.1 Rulebook Maintenance
Quarterly Updates
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.
Amended: January 2007UG-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.
Amended: January 2007UG-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.
Amended: January 2007UG-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.
Amended: January 2007Changes to Numbering
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:
(a) Where a new Paragraph is to be included in a Section, such that it would impact the numbering of existing text that would follow it, the Paragraph retains the numbering of the existing Paragraph immediately preceding it, but with the addition of an 'A'; a second inserted Paragraph that follows immediately afterwards would be numbered with a 'B', and so on.
For example, if a new Paragraph needs to be inserted after UG-3.1.6, it would be numbered UG-3.1.6A; a second new Paragraph would be numbered UG-3.1.6B, and so on. This convention avoids the need for renumbering existing text that follows an insertion. The same principle is applied where a new Section or a new Chapter needs to be inserted: for example, UG-3.1A (for a new Section), and UG-3A (for a new Chapter).(b) Where a Paragraph is deleted, then the numbering of the old Paragraph is retained, and the following inserted in square brackets: '[This Paragraph was deleted in April 2006.]' (The date given being the actual end-calendar quarter date of the deletion.) The same principle is applied with respect to Sections and Chapters.Amended: January 2007UG-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.
Amended: January 2007UG-3.2 UG-3.2 Rulebook Access
Availability
UG-3.2.1
The Rulebook is available on the CBB website.
Amended: January 2013
Amended: January 2008
Amended: January 2007Queries
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.bhQuestions 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.
Amended: April 2020
Amended: January 2013
Amended: January 2007CBB Rulebook Order Form [This form was deleted in January 2013]
Deleted: January 2013ES ES Executive Summary
ES-A ES-A Introduction
ES-A.1 ES-A.1 Purpose
Executive Summary
ES-A.1.1
The purpose of this Module is to:
(a) Provide an overview of the structure of Volume 4 (Investment Business);(b) Provide a summary of each Module; and(c) Outline the transition rules for the implementation of Volume 4.Amended: January 2007ES-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:
(a) To ensure monetary and financial stability in the Kingdom of Bahrain; and(b) To regulate, develop and maintain confidence in the financial sector.Amended: January 2007ES-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.
Amended: January 2007ES-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.
Amended: January 2007ES-A.1.5
To carry out its responsibilities in relation to the investment business sector, the CBB has four supervisory objectives, namely to:
(a) Promote the stability and soundness of the sector;(b) Provide an appropriate degree of protection to investors and clients ofinvestment firms ;(c) Promote transparency and market discipline; and(d) Reduce the likelihood ofinvestment firms being used for financial crime (including money laundering activities).Amended: January 2007Legal Basis
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 theirapproved persons ).Amended: January 2011
Amended: October 2009
Amended: January 2007ES-A.1.7
For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.
Added: January 2007ES-A.2 ES-A.2 Module History
Evolution of Module
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.
Amended: January 2007ES-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).
Added: January 2007ES-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes ES-A.1 07/2007 New Rule ES-A.1.6 introduced, categorising this Module as a Directive. ES-1.2 07/2007 Text amended to reflect changes to Module UG. ES-1.3 07/2007 Text amended to reflect changes to Module AU. ES-1.4 07/2007 Text amended to reflect changes to Module PB. ES-1.5 07/2007 Updated to reflect issue of Module HC in July 2007. ES-1.11 07/2007 Updated to reflect issue of Module RM in July 2007. ES-1.15 07/2007 Updated to reflect issue of Module BR in July 2007. ES-2.1, ES-2.3 &
ES-2.407/2007 Changes to reflect slight delay in release of Phase 2 contents of Volume 4: implementation deadline for Modules HC, RM and BR — released in July 2007 — now set as 1 January 2008. ES-2.4.1A 07/2008 Further transition period granted for requirements of Chapter BR-1, Prudential Reporting. ES-A.1.6 10/2009 Reference to registered administrators removed. ES-1.1.1 10/2009 Reference to administrator removed. ES-1.1.5 10/2009 Updated to reflect issue of Modules. ES-1.3 10/2009 Updated to reflect changes to Module AU. ES-1.3.9 10/2009 Reference to registration of administrators removed. ES-1.8 10/2009 Updated to reflect changes to Module CA. ES-2.4.1A 10/2009 Updated to reflect issue of Form QPR. ES-1.1, ES-1.3, ES-1.5.3, ES-1.6.1, ES-1.7, ES-1.15-3, ES-2.2.7, ES-2.3.2 07/2010 Updated and corrected typos. ES-1.13 07/2010 Updated to reflect the issuance of Module TC ES-2.5 07/2010 New section added to reflect transition rules for Module TC. ES-A.1.6 01/2011 Clarified legal basis. ES-1.5 04/2011 Amended to reflect new structure of Module HC. ES-1.6.1 01/2012 Deleted reference to reporting accountants to be in line with October 2011 amendment. ES-1.6.3 01/2012 Deleted reference to Module FC. ES-1.14 01/2012 Deleted Section on Module GS (Group Supervision). ES-1.18 01/2012 This Section was deleted as it is included in Chapter BC-3. ES-2.6 01/2012 Added Section on transitional Rules for Section BC-3 dealing with customer complaints procedures. ES-1.3.6 10/2013 Removed reference to Deputy Money Laundering Officer to be aligned with the Rule under Paragraph AU-1.2.2 that was amended in January 2011. ES-1.7.1, ES-1.13.1 and ES-2.5.2 10/2013 Removed reference to appointed representatives. ES-1.8.5 10/2014 Added new guidance for capital for underwriting purposes. Superseded Requirements
ES-A.2.4
This Module does not supersede any previously issued circulars or other regulatory instruments.
Amended: January 2007ES-A.2.5
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Chapter ES-2.
Amended: January 2007ES-1 ES-1 Structure and Summary of Volume 4
ES-1.1 ES-1.1 Structure of Volume 4 (Investment Business)
ES-1.1.1
Volume 4 of the Rulebook covers the investment business sector, i.e. the provision of
regulated investment services byinvestment firm licensees . It also includes requirements regardingapproved persons .Amended: October 2009ES-1.1.2
Volume 4 excludes representative offices of
overseas investment firm licensee , andancillary services providers : these activities are covered by separate regulations (see AU-A.1.11 and AU-A.1.12). These regulations will later be incorporated into Volume 5 (Specialised Activities) of the CBB Rulebook, to be released later.Amended: July 2010
Amended: January 2007ES-1.1.3
Volume 4 is made up of two volumes: Part A is the main Volume (comprising a range of Modules that contains all applicable Rules and Guidance), whilst Part B is an appendix Volume (containing a glossary of defined terms, CBB authorisation forms, CBB reporting forms and supplementary information).
Amended: July 2010
Amended: January 2007ES-1.1.4
Part A of Volume 4 is organised under the following headings:
• Introduction• High Level Standards• Business Standards• Reporting Requirements• Enforcement and Redress; and• Sector GuidesAmended: July 2010ES-1.1.5
Including this Executive Summary Module, there are plans to issue 23 Modules for inclusion in Part A of Volume 4 (Investment Business). It is planned to release Volume 4 in two phases: the first phase release was in April 2006, and comprised 11 Modules, including most of the key requirements. Remaining Modules will be issued later.
Amended: July 2010
Amended: October 2009
Amended: January 2007ES-1.1.6
Each Module covers a particular subject area — such as capital or conduct of business. The requirements are tailored according to the three categories of
investment firm licensee provided for under the authorisation rules, reflecting the different risk profiles of these categories. Sector Guide Modules, to be released as part of the second phase release, will summarise the key elements of the requirements for each of these 3 categories of investment firm, as well as summarise the additional requirements applicable to those investment firms operating purely on a Shari'a compliant basis.Amended: January 2007ES-1.1.7
Part B of Volume 4 is organised under the following headings:
• Glossary• Authorisation Forms• Reporting Forms• Supplementary InformationAmended: July 2010ES-1.1.8
Defined terms used in the Rulebook are underlined; their definitions can be found in the Glossary. Each Volume has its own Glossary, as 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.
ES-1.1.9
There are three authorisation forms, comprising (i) Form 1 (application for a license); (ii) Form 2 (application for the authorisation of a
controller ); and (iii) Form 3 (application forapproved person status); and (iv) Form 4 (application for registration).Amended: January 2007ES-1.1.10
When completed, Volume 4 will also contain 4 reporting forms: (i) Form QPR (Quarterly Prudential Return); (ii) Form AGR (Annual Group Return); and (iii) Form STR (Suspicious Transaction Report) and (iv) Form ALF (Annual Licence Fee).
Amended: July 2007ES-1.1.11
Finally, space is provided in Part B of Volume 4 for any supplementary information that may be of use to users of the Rulebook. For the time being, Part B contains various additional documents relevant to the Financial Crime Module, notably a copy of Bahrain's anti-money laundering legislation (Amiri Decree Law No. 4 of 2001). It also includes information related to the Client Assets Module (CL) and Enforcement Module (EN).
Amended: July 2010ES-1.2 ES-1.2 Module UG (User's Guide)
ES-1.2.1
The User's Guide Module contains introductory material relevant to users of Volume 4. Specifically, it covers (i) the status and application of the Rulebook (with specific reference to Volume 4); (ii) the structure and design of the Rulebook; and (iii) its maintenance, version control and access. These topics are covered in Chapters UG-1 to UG-3 respectively.
ES-1.2.2
The Module contains mostly Guidance material — that is, material that is not binding on licensees, but instead simply helps inform particular Rules or provides other general information. Most of the Guidance material in Module UG consists of general information.
ES-1.2.3
The only Rules are contained in Sections UG-A.1, UG-1.2 and UG-1.4. Amongst other things, these specify that the Module has the legal status of a Directive, that Rules have a binding effect, and that the contents of Volume 4 apply from its date of issue in April 2006, subject to any transition arrangements specified in Module ES (see Chapter ES-2).
Amended: July 2007ES-1.3 ES-1.3 Module AU (Authorisation)
ES-1.3.1
Module AU covers (i) the licensing of persons undertaking
regulated investment services ; and (ii) the approval of persons undertakingcontrolled functions in licensees ('approved persons ').Amended: January 2007ES-1.3.2
The Module sets out when these two types of authorisation are required, and the associated authorisation conditions that have to be satisfied in order for authorisation to be granted.
Amended: January 2007ES-1.3.3
With respect to licensing, an
investment firm license is required by all persons undertaking, by way of business,regulated investment services within or from the Kingdom of Bahrain.Regulated investment services are fully defined in Section AU-1.4, but in summary they cover the following activities:(a) Dealing infinancial instruments as principal;(b) Dealing infinancial instruments as agent;(c) Arranging deals infinancial instruments ;(d) Managingfinancial instruments ;(e) Safeguardingfinancial instruments (i.e. acustodian );(f) Advising onfinancial instruments ; and(g) Operating acollective investment undertaking (i.e. anoperator ).Amended: January 2007ES-1.3.4
There are 3 categories of
investment firm license , determined by theregulated investment services undertaken.Category 1 investment firms may undertake allregulated investment services .Category 2 investment firms may undertake allregulated investment services , except the activity of dealing infinancial instruments as principal. Finally,Category 3 investment firms may only undertake the activities of arranging or advising onfinancial instruments . OnlyCategory 1 and 2 investment firms may holdclient assets .ES-1.3.5
A licensee may hold itself out as an
Islamic investment firm , but only if all its activities are Shari'a compliant. Islamic investment firms are required to comply with certain additional requirements, such as the need to appoint a Shari'a supervisory board.Amended: July 2007ES-1.3.6
Module AU also deals with the requirements and conditions for
approved persons , i.e. those wishing to undertake acontrolled function in aninvestment firm licensee .Controlled functions are those of:(a)Director ;(b)Chief Executive orgeneral manager ;(c)Head of function ;(d) Compliance officer;(e) Money Laundering Reporting Officer;(f) [This Subparagraph was deleted in October 2013];(g) Member of Shari'a Supervisory Board;(h)Financial instruments trader ; and(i)Investment consultant orinvestment adviser .Amended: October 2013
Amended: October 2009
January 2007ES-1.3.7
The conditions for authorisation of
approved persons are set out in Chapter AU-3.ES-1.3.8 [This Paragraph deleted 07/2007.]
Deleted: July 2007ES-1.3.9
The Module also outlines (in Chapter AU-5) the information requirements and procedures that must be followed as part of the process for:
(a) Licensing;(b)Approved persons .Amended: July 2010
Amended: October 2009
Amended: January 2007ES-1.3.10
Chapter AU-6 covers the license application fees as well as the annual license fees.
Added: July 2010ES-1.4 ES-1.4 Module PB (Principles of Business)
ES-1.4.1
The 10 Principles of Business covered in Module PB are a general statement of the fundamental obligations of all CBB
investment firm licensees andapproved persons . They have the status of Rules; and provide a basis for other, more detailed Rules elsewhere in Volume 4.Amended: January 2007ES-1.4.2
Principles 1 to 10 apply to activities carried out by
licensees , including activities carried out through overseas branches. Principles 1 to 8 also apply toapproved persons , in respect of thecontrolled functions for which they have been approved. Principles 9 and 10 also take into account any activities of other members of the group of which thelicensee is a member.Amended: January 2007Deleted: July 2007ES-1.4.3
The Principles of Business are:
Principle 1 — Integrity
Principle 2 — Conflicts of Interest
Principle 3 — Due Skill, Care and Diligence
Principle 4 — Confidentiality
Principle 5 — Market Conduct
Principle 6 — Customer Assets
Principle 7 — Customer Interests
Principle 8 — Relations with Regulators/Supervisors
Principle 9 — Adequate Resources
Principle 10 — Management, Systems and ControlsES-1.5 ES-1.5 Module HC (High-level Controls)
ES-1.5.1
Module HC outlines the requirements that must be met by
investment firm licensees with respect to:(a) Corporate governance principles issued by the Ministry of Industry and Commerce as The Corporate Governance Code; and(b) Related high-level controls and policies.Amended: April 2011
Amended: July 2007ES-1.5.1A
The Principles referred to in this Module are in line with the Principles relating to the Corporate Governance Code issued by the Ministry of Industry and Commerce.
Added: April 2011ES-1.5.2
The requirements distinguish between different Categories of
investment firm licensee . Because of their limited business activities, and consequent lesser risk to customers,Category 3 investment firms are subject to applicable Guidance Paragraphs included in Chapter HC-10.Amended: April 2011
Amended: July 2007ES-1.5.3
Module HC applies to
Bahraini investment firm licensees , including their overseas branches (where either the same or equivalent provisions to those in Module HC should apply).Overseas investment firm licensees must demonstrate that the same or equivalent arrangements are in place at the parent entity level, and that these arrangements provide for effective high-level controls over activities conducted in the Bahrain branch.Amended: April 2011
Amended: July 2010
Added: July 2007ES-1.6 ES-1.6 Module AA (Auditors and Auditing Standards)
ES-1.6.1
Module AA contains requirements regarding the appointment and functions of auditors of
investment firm licensees . It also contains requirements dealing with accounting standards to be applied byinvestment firm licensees .Amended: January 2012
Amended: July 2010
Amended: January 2007ES-1.6.2
The auditor requirements deal with:
(a) The appointment of auditors;(b) The removal and resignation of auditors;(c) Audit partner rotation;(d) Auditor independence; and(e) Restrictions on the relationship between a licensee and its auditor.Amended: January 2007ES-1.6.3
The Module also covers the CBB's requirements regarding access to auditors as well as auditors' access to outsourcing providers. In addition, the Module outlines requirements for licensees to arrange for their auditors to review their quarterly prudential returns, and compliance with Module CL (Client Assets).
Amended: January 2012
Amended: January 2007ES-1.7 ES-1.7 Module GR (General Requirements)
ES-1.7.1
Module GR covers requirements dealing with areas not covered in other Modules. The areas covered are:
(a) Books and records;(b) Corporate and trade names;(c) Dividends;(d) Business transfers;(e)Controllers ;(f)Close links ;(g) Cessation of business;(h) [This Subparagraph was deleted in October 2013]; and(i) Professional indemnity coverage.Amended: October 2013
Amended: July 2010
Amended: January 2007ES-1.7.2
The above requirements apply to all categories of investment firm licensee, except for the requirements related to the payment of dividends, which apply to
Category 1 investment firms andCategory 2 investment firms and the professional indemnity requirement, which applies toCategory 2 investment firms andCategory 3 investment firms only.Amended: July 2010ES-1.8 ES-1.8 Module CA (Capital Adequacy)
ES-1.8.1
Module CA contains requirements on the minimum levels of capital that must be held by
investment firm licensees , as well as what constitutes capital for regulatory purposes. These requirements are tailored to fit the different risk profiles of the different categories ofinvestment firm licensees . The requirements apply to bothBahraini investment firm licensees and overseasinvestment firm licensees (see Section CA-B.1)Amended: January 2007ES-1.8.2
Investment firm licensees are required to maintain theirregulatory capital in excess of theirregulatory capital requirements at all times. For Category 1 and 2 firms, theirregulatory capital requirement is the higher of theirMinimum Capital Requirement and theirRisk-based Capital Requirement . For Category 3 firms, theirregulatory capital requirement is simply theirMinimum Capital Requirement .Amended: October 2009ES-1.8.3
Minimum Capital Requirements are as follows:(a)Category 1 investment firms : BD 1,000,000(b)Category 2 investment firms : BD 1,000,000 if undertaking the activity of safeguardingfinancial instruments (i.e.custodian ), BD 250,000 in all other cases; and(c)Category 3 investment firms : BD 125,000.Amended: October 2009
July 2007ES-1.8.4
Risk-based Capital Requirements comprise the sum of a firm's Expenditure Requirement, Position Risk Requirement, Counterparty Risk Requirement and Foreign Exchange Risk Requirement. The actual amount of capital that is required to be held varies depending on the size of an institution's cost base and its various exposures. In practice, theRisk Based Capital Requirement ofCategory 2 investment firms , because they are not allowed to deal infinancial instruments as principal (and thus incur position risk), would largely be determined by its Expenditure Requirement (and any currency mismatches between its assets and liabilities).Amended: January 2007ES-1.8.5
In assessing the financial ability of a
Category 1 investment firm licensee tounderwrite transactions, the CBB will consider, amongst other factors, thelicensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Anyunderwriting 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.Amended: October 2014
Amended: January 2007ES-1.9 ES-1.9 Module BC (Business Conduct)
ES-1.9.1
This Module set out minimum standards of good practice to be applied by
investment firm licensees , when dealing with theirclients . These comprise certain base requirements, supplemented by more detailed requirements in the form of an Investment Business Code of Practice.Amended: January 2007ES-1.9.2
The Investment Business Code of Practice covers various matters, relevant to contact throughout a
client relationship. They are:(a) Overarching principles;(b)Client classification;(c) Marketing and promotion;(d) Accepting clients;(e) Suitability;(f) Disclosure of information;(g) Dealing and managing;(h) Reporting to clients;(i) Complaints;(j) Conflicts of interest;(k) Confidentiality; and(l) An appendix, covering various specific matters to be addressed in promotional material, transaction confirmations and the like.Amended: January 2007ES-1.9.3
These requirements may be modified or supplemented over time, in response to evolving market practices or as issues arise.
ES-1.10 ES-1.10 Module CL (Client Assets)
ES-1.10.1
This Module provides detailed Rules and Guidance with respect to the holding of
client assets byinvestment firm licensees . They are aimed at ensuring the proper protection of such assets, to restrict the risk ofclient assets being commingled withinvestment firm licensee assets (without clients' consent), or otherwise misused.Amended: January 2007ES-1.10.2
As a general rule,
client assets are required to be segregated from a firm's own assets, andclient money must be held in aclient bank account . Various other restrictions and protections apply toclient money , whilst the rules also apply certain reconciliation and reporting requirements.ES-1.10.3
Finally, the Module also contains certain requirements relating to the provision of custody services (Chapter CL-2), the treatment of assets when held as collateral (Chapter CL-3), controls surrounding the application of client
mandates (Chapter CL-4), and rules regarding third party related distribution events (Chapter CL-5).ES-1.11 ES-1.11 Module RM (Risk Management)
ES-1.11.1
Module RM provides detailed requirements on risk management systems and controls required for
investment firm licensees . It builds on the high-level controls requirements contained in Module HC.Amended: July 2007ES-1.11.2
The Module obliges firms to identify the range of risks that they face and to put in place appropriate systems to address those risks. It also requires the establishment of an appropriate framework for identifying, monitoring and managing risks across an
investment firm licensee's operations.Amended: July 2007ES-1.11.3
Module RM applies to
Bahraini investment firm licensees , including their overseas branches (where either the same or equivalent provisions to those in Module RM should apply).Overseas investment firm licensees must demonstrate that the same or equivalent arrangements apply to the whole company, and that these arrangements provide for effective risk management of activities conducted in the Bahrain branch.Added: July 2007ES-1.12 ES-1.12 Module FC (Financial Crime)
ES-1.12.1
Module FC implements the Financial Action Task Force (FATF) recommendations on money laundering and special recommendations on terrorism financing that are relevant to the investment business sector in Bahrain.
ES-1.12.2
The Module contains detailed requirements relating to:
(a) Customer identification;(b) Reporting;(c) Staff awareness and training;(d) The appointment of a money laundering reporting officer;(e) Compliance monitoring;(f) Record-keeping arrangements;(g) Segregation of duties;(h) Special measures for non-cooperative countries; and(i) Contact with relevant authorities.Amended: January 2007ES-1.12.3
Item FC (iv) in Part B of Volume 4 (Investment Business) provides further examples of transactions that may be suspicious or unusual.
ES-1.12.4
In addition, Module FC has a chapter dealing with financial fraud, which imposes certain basic systems and control, and reporting requirements, in this area. These requirements apply to
Category 1 investment firms andCategory 2 investment firms only.Amended: July 2007ES-1.13 ES-1.13 Module TC (Training and Competency)
ES-1.13.1
Module TC contains requirements that have to be met by
investment firm licensees with respect to training and competency of individuals undertakingcontrolled functions (i.e.approved persons ).Amended: October 2013
Amended: July 2010
Amended: January 2007ES-1.13.2
Module TC provides Rules and Guidance to
investment firm licensees to ensure satisfactory levels of competence, in terms of an individual's knowledge, skills, experience and professional qualifications.Amended: July 2010
Amended: January 2007ES-1.13.3
Module TC applies in full to all three categories of
investment firm licensees authorised in Bahrain.Added: July 2010ES-1.13.4
The requirements in the Module cover the recruitment and assessing of competence as well as the training and maintenance of competence. In addition, it includes appendices providing guidance on qualifications and core competencies for
controlled functions as well professional bodies and qualifications.Added: July 2010ES-1.14 ES-1.14 [This Section was deleted in January 2012]
ES-1.14.1
[This paragraph was deleted in January 2012]
Deleted: January 2012ES-1.14.2
[This paragraph was deleted in January 2012]
Deleted: January 2012ES-1.15 ES-1.15 Module BR (CBB Reporting)
ES-1.15.1
Module BR sets out requirements regarding prudential reporting to the CBB, as well as certain pre- and post-notification requirements. It also describes the information gathering powers of the CBB.
Amended: July 2007ES-1.15.2
Module BR, amongst other things, prescribes quarterly prudential reporting to the CBB (Form QPR). All
investment firm licensees are required to submit these: however,Category 3 investment firms are only required to complete a subset of the sections included in Form QPR.Amended: July 2007ES-1.15.3
Module BR also obliges all
investment firm licensees to seek prior approval for certain events, including proposed changes in thelicensee's name, legal status andcontrollers , as well as other events such as carrying out newregulated investment services or opening new offices overseas.Amended: July 2010
Added: July 2007ES-1.15.4
Finally, Module BR also requires the post-notification of various events, such as breaches of CBB requirements; legal, regulatory or other proceedings being taken against the
licensee ; or instances of fraud, errors or other irregularities occurring, that could have a material impact on thelicensee .Added: July 2007ES-1.16 ES-1.16 Module PD (Public Disclosure)
ES-1.16.1
This Module is to be issued as part of the second phase release of Volume 4.
Amended: January 2007ES-1.16.2
When finalised, the Module will contain certain provisions relating to public disclosures, such as the need to publish annual accounts.
ES-1.17 ES-1.17 Module EN (Enforcement)
ES-1.17.1
This Module outlines enforcement powers and processes that may be applied by the CBB to address failures by
investment firm licensees ,approved persons or registered persons. The purpose of such measures is to encourage a high standard of compliance by all those authorised by the CBB, thus reducing risk to licensees' clients, counterparties and the financial system.Amended: January 2007ES-1.17.2
The enforcement measures contained in the Module are of varying severity and will be used in keeping with the CBB's assessment of the contravention, reserving the most serious enforcement measures for the most serious of contraventions.
Amended: January 2007ES-1.17.3
The CBB's enforcement mechanisms include:
(a) Formal requests for information;(b) Investigations;(c) Formal warnings;(d) Directions;(e) Financial penalties;(f) Administration;(g) Cancellation of license; and(h) Cancellation of 'fit and proper' approval.Amended: July 2007ES-1.17.4
A reminder of criminal sanctions contained in the CBB Law is also set out in Chapter EN-10.
Amended: January 2007ES-1.18 ES-1.18 [This Section was deleted in January 2012 as it is included in Chapter BC-3]
ES-1.18.1
[This paragraph was deleted in January 2012 as it is included in Chapter BC-3]
Deleted: January 2012ES-1.18.2
[This paragraph was deleted in January 2012 as it is included in Chapter BC-3]
Deleted: January 2012ES-1.19 ES-1.19 Module CP (Compensation)
ES-1.19.1
This Module provides space, for possible inclusion at a later date, for a description of any investor protection scheme, should such a scheme be developed in cooperation with the industry.
Amended: January 2007ES-1.20 ES-1.20 Sector Guides (Modules C1, C2, C3 and IF)
ES-1.20.1
These Modules will be issued as part of the second phase release of Volume 4.
Amended: January 2007ES-1.20.2
When finalised, these Modules will provide a summary — consisting solely of Guidance material — highlighting the key requirements applicable to the different categories of
investment firm licensees , as well as to thoseinvestment firm licensees that operate solely on Islamic principles.Amended: July 2007ES-2 ES-2 Implementation and Transition Rules
ES-2.1 ES-2.1 30 April 2006
ES-2.1.1
Investment firm licensees issued a license after 30 April 2006 must comply with the requirements contained in the first phase release of Volume 4 (Investment Business) from the date of issue of their license.Amended: January 2007ES-2.1.2
The earliest effective date of Volume 4 (Investment Business), therefore, is 30 April 2006.
ES-2.2 ES-2.2 1 July 2006
ES-2.2.1
Unless otherwise agreed to in writing with the CBB,
investment firm licensees issued a license before 30 April 2006 must comply with the requirements contained in the first phase release of Volume 4 (Investment Business) by 1 July 2006, with the exceptions of Modules CA, BC and CL.Amended: January 2007ES-2.2.2
Therefore, for
investment firms already licensed when Volume 4 was first issued in April 2006, the first implementation date (unless additional transition arrangements have been agreed with in writing with the CBB) is 1 July 2006. A later implementation deadline is given for Modules CA, BC and CL, on account of the wide scope of their requirements: see Section ES-2.3Amended: January 2007ES-2.2.3
The first phase release of Volume 4 comprises Modules ES, UG, AU, PB, AA, GR, CA, BC, CL, FC and EN.
ES-2.2.5
On an exceptional basis, the CBB may provide for grandfathering or additional transitional measures for certain firms, where these are faced with difficulties in meeting their implementation deadlines, provided such arrangements do not cause excessive risk to investors or other licensees.
Amended: January 2007ES-2.2.6
Investment firm licensees who were licensed prior to the publication of Volume 4 (Investment Business) do not need to resubmit an application for a license.ES-2.2.7
Investment firm licensees licensed prior to 30 April 2006 will have their license category, and the scope of their authorisation, confirmed in an exchange of letters.
Amended: July 2010ES-2.3 ES-2.3 1 January 2007
ES-2.3.1
Unless otherwise agreed to in writing,
investment firm licensees issued a license before 30 April 2006 must comply with the requirements contained in Modules CA, BC and CL by 1 January 2007.ES-2.3.2
In other words,
investment firm licensees licensed prior to the introduction of Volume 4 in April 2006 are required to comply with the first phase release of Volume 4 by 1 July 2006, except for Modules CA, BC and CL which have to be complied with from 1 January 2007 onwards (cf. Rules ES-2.2.1 and ES-2.3.1).Investment firm licensees licensed after the introduction of Volume 4 in April 2006, are required to comply with the first phase release of Volume 4 from the date of issue of their license (cf. Rule ES-2.1.1).Amended: July 2010
Amended: July 2007ES-2.3.3 [This Paragraph deleted 07/2007.]
Deleted: July 2007ES-2.3.4 [This Paragraph deleted 07/2007.]
Deleted: July 2007ES-2.4 ES-2.4 1 January 2008
ES-2.4.1
Investment firm licensees licensed prior to 1 July 2007 must comply with the requirements contained in Modules HC, RM and BR by 1 January 2008.Licensees issued a license after 1 July 2007 must comply with these Modules (as well as other content of Volume 4 of the CBB Rulebook), from the date of issue of their license.Amended: July 2007ES-2.4.1A
As the reporting forms under Chapter BR-1, Prudential Reporting, other than the Quarterly Prudential Report which has been issued in March 2009, are under development,
investment firm licensees benefit from a further transition period from the requirements of this Chapter. Licensees will be informed at a later date of the implementation date of Chapter BR-1.Amended: October 2009
Added: July 2008ES-2.5 ES-2.5 Module TC — Training and Competency
ES-2.5.1
The requirements of Module TC for
investment firm licensees are effective from 1st July 2010.Adopted: July 2010ES-2.5.2
Where
approved persons holdingcontrolled functions within theinvestment firm licensee , do not meet the qualifications and core competencies outlined in Appendix TC-1 at the time of the issuance of Module TC, theinvestment firm licensee must ensure that such individuals will meet the requirements of Module TC by 31st December 2011 at the latest.Amended: October 2013
Adopted: July 2010ES-2.6 ES-2.6 Module BC — Business Conduct
ES-2.6.1
The requirements of Chapter BC-3, customer complaints procedures, for
investment firm licensees are effective from 31st March 2012.Added: January 2012
High Level Standards
AU AU Authorisation
AU-A AU-A Introduction
AU-A.1 AU-A.1 Purpose
Executive Summary
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.Amended: January 2011
Amended: July 2007AU-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 aninvestment firm licensee :a) Dealing infinancial instruments as principal;b) Dealing infinancial instruments as agent;c) Arranging deals infinancial instruments ;d) Managingfinancial instruments ;e) Safeguardingfinancial instruments (i.e. acustodian );f) Advising onfinancial instruments ; andg) Operating acollective investment undertaking (i.e. anoperator )Amended: July 2007AU-A.1.3
Four categories of
investment firm license are provided for under the CBB Rulebook, depending on the type ofregulated 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 ofregulated investment service .Amended: January 2022
Amended: July 2007AU-A.1.4
Collectively, licensed providers of
regulated investment services are calledinvestment firm licensees . Bahrain-incorporatedinvestment firm licensees are calledBahraini 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 calledoverseas 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).Amended: July 2007AU-A.1.5
Regulated investment services are defined in Section AU-1.4. Their definition excludes operating a recognised exchange (such as the Bahrain Bourse) 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 Bourse.Amended: January 2022
Amended: July 2007AU-A.1.6
Persons undertaking certain functions in relation to
investment firm licensees require prior CBB approval. These functions (called 'controlled functions ') includeDirectors and members of senior management. Thecontrolled functions regime supplements the licensing regime by ensuring that key persons involved in the running ofinvestment firm licensees are fit and proper. Those authorised by the CBB to undertakecontrolled functions are calledapproved persons .Amended: July 2007Retaining Authorised Status
Representative Offices and Ancillary Services Providers
AU-A.1.8
Neither
representative offices of foreign investment firms, norancillary services providers , are covered in Volume 4 (Investment Business). Requirements covering these types of activities will instead be included in Volume 5.Amended: July 2007AU-A.1.9
Volume 5 (Specialised Activities) of the CBB Rulebook issued in December 2010 deals with
representative offices of foreign investment firms.Amended: October 2011
Amended: July 2007AU-A.1.10
[This Paragraph has been deleted in January 2022].
Deleted: January 2022
Amended: July 2007Legal Basis
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 toapproved 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.Amended: July 2015
Amended: January 2013
Amended: October 2011
Amended: January 2011
Adopted: July 2007AU-A.1.12
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Adopted: July 2007AU-A.1.2
The Module builds on the legal requirements contained in Legislative Decree No. 23 of 1973, with respect to financial and investment organisations ("the BMA Law 1973"). The Module is issued under legal powers granted to the BMA by the BMA Law 1973, contained in articles 14(d), 14(g) and 41.
Licensing
Approved Persons
Registered Administrators
AU-A.1.8
Persons carrying on the business of an administrator require prior registration by the BMA. Administrators are persons who administer financial instruments and related services such as cash/collateral management. They must satisfy certain basic conditions in order to be registered, following which they are subject to only a few on-going requirements. Unlike licensees,
registered administrators are not subject to detailed on-going supervision or extensive regulation. Those authorised by the BMA to carry on administration services are calledregistered administrators .AU-A.2 AU-A.2 Module History
Evolution of Module
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.
Amended: July 2007AU-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.
Adopted: July 2007AU-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes AU-A.1.3 07/2006 Deletion of reference to 'acting as a trust service provider'. AU-1.1.13 07/2006 Deletion of reference to 'acting as a trust service provider'. AU-1.1.14 07/2006 Clarification of scope of exemption. AU-1.4.50 07/2006 Deletion of paragraph relating to 'acting as a trust service provider'. AU-1.4.51 07/2006 Deletion of paragraph relating to 'acting as a trust service provider'. AU-A.1 07/2007 Changes to reflect new CBB Law and reclassification of administrators asancillary services providers (i.e.licensees , to be subject to Volume 5 of the CBB Rulebook).AU-1.3 07/2007 Deletion of this Section to reflect reclassification of administrators asancillary services providers (i.e.licensees , to be subject to Volume 5 of the CBB Rulebook).AU-1.4 07/2007 Clarification of exemption in Rule AU-1.4.8; and minor change to definition of collective investment undertaking (to align with new Module CIU, Volume 6).AU-4 07/2007 Chapter deleted to reflect reclassification of administrators asancillary services providers (i.e.licensees , to be subject to Volume 5 of the CBB Rulebook).AU-5.1 07/2007 Section amended to reflect new procedures reflecting CBB Law. AU-5.3 07/2007 Deleted following reclassification of administrators asancillary services providers (i.e.licensees , to be subject to Volume 5 of the CBB Rulebook).AU-5.4 07/2007 Amended to reflect new CBB Law procedures. AU-5.5 07/2007 Amended to reflect new CBB Law procedures. AU-6 07/2007 New Chapter AU-6 on application and license fees (old material on fees, previously contained in Module GR, deleted). AU-5.1.5 and 5.1.5A 01/2008 Clarified CBB's requirements for letters of comfort and/or letters of guarantee. AU-5.1.13 01/2008 Clarified CBB's requirements for items that must be in place within 6 months of a new license being issued. AU-1.1.18 04/2008 Clarified that Category 3 investment firms must be independent.AU-5.2.2 04/2008 Clarified to whom Form 3 should be sent to if dealing with a request for an appointment of MLRO from an existing investment firm licensee. AU-5.5.5 04/2008 Outlined CBB's requirements in instances where a controlled function becomes vacant. AU-5.2.5 07/2008 Clarified that the refusal decision by the CBB to grant a person 'approved person' status is issued to the investment firm licensee AU-5.2.6 07/2008 Added cross reference. AU-1.1.18 10/2009 Clarified that Category 3 investment firms must refrain from receiving fees or commissions from parties other than clients. AU-1.1.24 10/2009 Paragraph changed from Guidance to Rule. AU-1.2 10/2009 Amended to reflect requirements of Modules HC and RM. AU-1.2.2 10/2009 Controlled function of Deputy MLRO added. AU-1.2.15 10/2009 New Rule added to clarify definition of Compliance Officer and MLRO/Deputy MLRO. AU-1.4.11 10/2009 Clarified that dealing in financial instruments as principal includes underwriting and private placement. AU-1.4.19 10/2009 Clarified that dealing in financial instruments as agent does not include execution of deals. AU-2.3 10/2009 Updated to include CBB's requirements for controllers. AU-5.1.5 10/2009 Clarified that copy of commercial registration certificate is required for existing Bahraini companies only. AU-5.2 10/2009 Updated to include CBB's information requirements for the appointment of approved persons. AU-B.1.3, AU-2.5.2 and AU-2.7.2 07/2010 Paragraphs deleted. AU-B.2 and AU-5.5.5 07/2010 Amended heading. AU-1.2.9 and AU-5.5.1 07/2010 Added cross reference. AU-1.4.33 and AU-1.4.37 07/2010 Paragraphs changed from Guidance to Rules and amended to clarify definition of safeguarding financial instruments. AU-1.4.42 and AU-1.4.43 07/2010 New rules added to clarify definition of advising on financial instruments. AU-1.4.49, AU-1.4.50, AU-1.4.51 and AU-5.5.5 07/2010 Amended cross reference. AU-1.2.9, AU-1.4.49, AU-1.4.50, AU-1.4.51, AU-2.3.5, AU-5.1.6, AU-5.1.12A, AU-5.1.12B, AU-5.1.12D and AU-6.1.1 07/2010 Paragraphs amended. AU-5.1.5A 07/2010 Paragraphs amended and changed to Rule. AU-5.1.12K 07/2010 Paragraph added to require confirmation that capital has been paid in before the final approval for a license. AU-5.1.13 07/2010 Updated to include new requirement to be submitted within six months of the license being issued. AU-6.2 07/2010 Updated to include CBB's annual license fee requirements. AU-A.1.11 01/2011 Clarified legal basis. AU-1.1.2 01/2011 Clarified guidance. AU-1.1.21, AU-1.1.22 and AU-1.2.1(f) 01/2011 Paragraphs deleted for consistency in CBB Rulebook. AU-1.2 01/2011 Amended as requirements moved from Module HC to Module AU. AU-1.4.25 01/2011 Amended guidance to reflect new definitions related to licensed exchange(s). AU-5.1.13(j) 01/2011 Added language requirements for commercial registration certificate. AU-5.1.5A 01/2011 Amended CBB's requirements concerning letters of guarantee to be submitted with licensing application. AU-5.1.13 01/2011 Added requirement to submit copy of licensee's business card and any written communication including a statement that the investment firm is licensed by the CBB. AU-5.5.3 01/2011 Clarified guidance. AU-1.2.16 04/2011 Added a definition Paragraph for the compliance officer. AU-5.1.5(m) 04/2011 Corrected typo and added clarification to requirements dealing with private placements. AU-6.2.9A 04/2011 Added the requirement for annual fees for SPV's to be in line with the requirements of Resolution No (1) of 2007. AU-A.1.9 10/2011 Guidance Paragraph amended as Volume 5_Representative Offices was issued in December 2010. AU-A.1.11 10/2011 Legal basis updated to reflect all Articles of the CBB Law covered by this Module as well as applicable Resolutions. AU-5.5 10/2011 Clarified language on cancellation of a license to be in line with other Volumes of the CBB Rulebook. AU-1.1.14, AU-1.4.11A and AU-1.4.11B 01/2012 Guidance in AU-1.1.14 amended and changed to Rule and moved to AU-1.4.11A and additional guidance added as AU-1.4.11B. AU-1.4.19 and AU-1.4.19A 01/2012 Clarified Rule AU-1.4.19 and added guidance for Category 3 investment firms. AU-1.4.33 01/2012 Added reference to Volume 5 (Administrators) and amended Rule. AU-2.2.2 and AU-2.2.3 01/2012 Restructured and amended guidance into two Paragraphs, including one guidance and one Rule. AU-2.3.2 01/2012 Clarified application of Rule for Category 1 and 2 investment firm licensees. AU-5.5.5 01/2012 Clarified Rule. AU-6.2.9B 01/2012 Guidance added to clarify the non application of fees for SPVs established for the purpose of setting up a locally domiciled CIU. AU-1.2.13, AU-1.2.13A and AU-1.2.13B 07/2012 Clarified Rule and added Paragraphs on investment consultant and investment adviser. AU-1.4.2 and AU-5.5.4A 10/2012 Corrected cross reference. AU-1.1.25, AU-1.2.13, AU-1.4.11, AU-1.4.11A, AU-1.4.15, AU-1.4.17., AU-1.4.18, AU-1.4.28, AU-1.4.29, AU-1.4.41 and AU-1.4.45 10/2012 The term 'underwrite/underwriting' has now been defined and included in the Glossary under Part B of Volume 4. AU-1.4.15 10/2012 Clarified Rule dealing with providing credit. AU-1.4.52 10/2012 Reference updated to reflect the issuance of Volume 7 (CIU). AU-A.1.11 01/2013 Updated legal basis. AU-B.1.1 01/2013 Updated prohibition as per issuance of Resolution No.(16) for the year 2012. AU-1.1 01/2013 References added to requirements under Resolution No.(16) for the year 2012. AU-1.1.24 04/2013 Added cross reference. AU-6.2 07/2013 Amended due date and collection process for annual license fees. AU-1.1.24, AU-1.1.24A and AU-1.1.24B 10/2014 Amended requirements to have a Shari'a Supervisory Board based on the category of investment firm licensee. AU-1.4.11 and AU-1.4.11B 10/2014 Clarified the meaning of dealing in financial instruments as a principal and added cross reference to approval from CBB's Capital market Supervision Directorate as well as requirements under Module OFS of Volume 6 of the CBB Rulebook. AU-5.1.7A 10/2014 Clarified that any PPM issued to raise capital must comply with module OFS and is subject to the CBB's Capital Market Supervision Directorate's prior approval. AU-A.1.11 07/2015 Legal basis updated to reflect Resolution No (23) of 2015. AU-3.2.1 07/2015 Added cross reference to Module TC. AU-5.2 07/2015 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons. AU-5.5.5 07/2015 Clarified interim arrangements for replacement of approved person. AU-1.2 01/2016 Clarified general requirements for approved persons. AU-3 01/2016 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons. AU-5.1.4 01/2016 Paragraph deleted as no longer applicable. AU-5.2 01/2016 Minor amendments to be aligned with other Volumes of the CBB Rulebook. AU-1.1.18 10/2016 Added subparagraph (d) AU-1.1.18A 10/2016 Changed 'not limited' to 'in relation' AU-1.1.18B 10/2016 Deleted subparagraph (f) AU-5.2.3 10/2016 Added to Rule new subparagraph (e) AU-5.6 07/2017 Added new Section on Publication of the Decision to Grant, Cancel or Amend a License AU-1.2.2 04/2018 Amended Paragraph AU-5.1.1 04/2018 Amended Paragraph AU-5.1.12E 04/2018 Amended Paragraph AU-5.2.2 04/2018 Amended Paragraph AU-1.4.41A 04/2019 Added a new Paragraph on digital investment advice. AU-1.2.7 07/2019 Amended definition of a Director. AU-1.4.33 07/2019 Amended Paragraph. AU-5.1.1 07/2019 Amended Paragraph to remove references to hardcopy Form 1 submission to online submission. AU-5.1.12H 10/2019 Changed from Rule to Guideline. AU-5.1.12I 10/2019 Changed from Rule to Guideline. AU-5.1.12J 10/2019 Changed from Rule to Guideline. AU-5.6.1 10/2019 Changed from Rule to Guideline. AU-1.1.13 07/2020 Added new sub-paragraph (ff). AU-1.1.17 07/2020 Added new sub-paragraph (c). AU-1.1.22A, AU-1.1.22B, AU-1.1.22C 07/2020 Added new Paragraphs on Arranging Credit and Advising on Credit suitability. AU-1.4.43 07/2020 Deleted Paragraph. AU-1.4.47A, AU-1.4.47B, AU-1.4.47C, AU-1.4.47D, AU-1.4.47E, AU-1.4.47F, AU-1.4.47G 07/2020 Added new Paragraphs on Arranging Credit and Advising on Credit definitions. AU-1.1.13A 10/2020 Added a new Paragraph on compliance with AAOIFI Shari’a Standards. AU-1.2.2 01/2021 Deleted Sub-paragraph (g). AU-1.2.5 01/2021 Deleted Paragraph. AU-2.2.3 01/2021 Amended Paragraph on approved persons occupying controlled functions. AU-A.1.3 01/2022 Amended Paragraph. AU-A.1.5 01/2022 Amended Paragraph. AU-A.1.10 01/2022 Deleted Paragraph. AU-B.1.2 01/2022 Amended Paragraph. AU-1.1.6 01/2022 Amended Paragraph. AU-1.1.8 01/2022 Amended Paragraph. AU-1.1.13A 01/2022 Paragraph moved to AU-1.1.24. AU-1.1.18C 01/2022 Added a new Paragraph on Category 4 Investment Firms. AU-1.1.18D 01/2022 Added a new Paragraph on Category 4 Investment Firms. AU-1.1.18E 01/2022 Added a new Paragraph on Category 4 Investment Firms. AU-1.1.18F 01/2022 Added a new Paragraph on Category 4 Investment Firms. AU-1.1.24 01/2022 Amended Paragraph. AU-1.1.24B 01/2022 Amended Paragraph. AU-1.4.48 01/2022 Amended Paragraph. AU-5.4.1 01/2022 Amended Paragraph. AU-1.1.22D – AU-1.1.22J 01/2024 Added new Paragraphs on regulated investment services involving crypto-assets requirements. Appendix AU-1 01/2024 Added a new appendix on the Requirements for Regulated Investment Services Involving Crypto Assets. Superseded Requirements
AU-A.2.4
This Module supersedes the following provisions contained in circulars or other regulatory instruments:
Circular/other reference Provision Subject Standard Conditions and Licensing Criteria: investment advisers/brokers. All articles Scope of license and licensing conditions. Standard Conditions and Licensing Criteria: broking company All articles Scope of license and licensing conditions. Standard Conditions and Licensing Criteria: stockbrokerage All articles Scope of license and licensing conditions. Circular BC/11/98, dated 27/7/98 All articles Appointment and suitability of Directors and senior managers ('fit and proper'). Amended: July 2007AU-A.2.5
Further guidance on the implementation and transition to Volume 4 (Investment business) is given in Module ES (Executive Summary).
Amended: July 2007AU-B AU-B Scope of Application
AU-B.1 AU-B.1 The Public
AU-B.1.1
The Authorisation requirements in Chapter AU-1 are generally applicable to the public, in that they prevent a person (whether legal or natural) from undertaking certain specified activities if they do not hold the appropriate authorisation from CBB or marketing any
financial services unless specifically allowed to do so by the CBB (see Rule AU-1.1.1). In addition, those applying for authorisation are also required to comply with the relevant requirements and procedures contained in this Module.Amended: January 2013
Amended: July 2007AU-B.1.2
Three types of authorisation are prescribed:
(i) Any person seeking to provide aregulated investment service within or from the Kingdom of Bahrain must hold the appropriate CBB license (see AU-1.1);(ii) Any person seeking to act as “controller” of the person who holds a CBB license; and(iii) Natural persons wishing to perform acontrolled function in aninvestment firm licensee also require prior CBB approval, as anapproved person (see AU-1.2).Amended: January 2022
Amended: July 2007AU-B.1.3
[This Paragraph deleted 07/2010.]
Deleted: July 2010AU-B.2 AU-B.2 Licensees and Authorised Persons
AU-B.2.1
Various requirements in Chapters AU-2 to AU-5 inclusive also apply to persons once they have been authorised by the CBB (whether as
licensees orapproved persons ).Amended: July 2007AU-B.2.2
Chapter AU-2 applies to
investment firm licensees (not just applicants), since licensing conditions have to be met on a continuous basis bylicensees . Similarly, Chapter AU-3 applies toapproved persons on a continuous basis; it also applies toinvestment firm licensees seeking anapproved person authorisation. Chapter AU-5 contains requirements applicable tolicensees , with respect to the starting up of their operations, as well as tolicensees andapproved persons , with respect to the amendment or cancellation of their authorised status. Finally, Section AU-6.2 imposes annual fees onlicensees .Amended: July 2007AU-1 AU-1 Authorisation Requirements
AU-1.1 AU-1.1 Licensing
AU-1.1.1
No person may:
(a) Undertake (or hold themselves out to undertake)regulated investment services , by way of business, within or from the Kingdom of Bahrain unless duly licensed by the CBB;(b) Hold themselves out to be licensed by the CBB unless they have as a matter of fact been so licensed; or(c) Market anyfinancial services in the Kingdom of Bahrain unless:(i) Allowed to do by the terms of a license issued by the CBB;(ii) The activities come within the terms of an exemption granted by the CBB by way of a Directive; or(iii) Has obtained the express written permission of the CBB to offerfinancial services .Amended: January 2013
Amended: July 2007AU-1.1.2
For the purposes of Rule AU-1.1.1(a), please refer to Section AU-1.4 for the definition of '
regulated investment services ' and 'by way of business'. Such activities will be deemed to be undertaken within or from the Kingdom of Bahrain if, for example, the person concerned:(a) Is incorporated in the Kingdom of Bahrain;(b) Uses an address situated in the Kingdom of Bahrain for its correspondences; or(c) Directly solicits clients.Amended: January 2011
Amended: July 2007AU-1.1.3
For the purposes of Rule AU-1.1.1(b), persons would be considered in breach of this requirement if they were to trade as, or incorporate a company in Bahrain with a name containing the words (or the equivalents in any language) 'adviser', 'consultant', or 'manager' in combination with 'investment', or 'portfolio', without holding the appropriate CBB license or the prior approval of the CBB.
Amended: July 2007AU-1.1.3A
In accordance with Resolution No.(16) for the year 2012 and for the purpose of Subparagraph AU-1.1.1(c), the word 'market' refers to any promotion, offering, announcement, advertising, broadcast or any other means of communication made for the purpose of inducing recipients to purchase or otherwise acquire
financial services in return for monetary payment or some other form of valuable consideration.Added: January 2013AU-1.1.3B
Persons in breach of Subparagraph AU-1.1.1(c) are considered in breach of Resolution No.(16) for the year 2012 and are subject to penalties under Articles 129 and 161 of the CBB Law (see also Section EN-10.2A).
Added: January 2013AU-1.1.4
Where a person is licensed under Volumes 1 or 2, i.e. as a bank, then a separate license under Volume 4 is not required in order to undertake activities of the kind specified under Section AU-1.4.
AU-1.1.5
Persons licensed as banks by the CBB may also undertake the specific activities covered by the definition of
regulated investment services (such as trading infinancial instruments as principal), since these specific activities also form part of the definition ofregulated banking services (orregulated Islamic banking services in the case of Islamic banks). In such cases, banks are not required to hold a separateinvestment firm license .Amended: July 2007AU-1.1.6
Depending on the type of
regulated investment services that a person wishes to undertake, applicants must seek to be licensed either as aCategory 1 , aCategory 2 , aCategory 3 or a Category 4investment firm .Amended: January 2022AU-1.1.7
Persons wishing to be licensed to undertake
regulated investment services within or from the Kingdom of Bahrain must apply in writing to the CBB.Amended: July 2007AU-1.1.8
An application for a license must be in the form prescribed by the CBB and must contain, inter alia:
(a) A business plan specifying the type of business to be conducted;(b) Application for authorisation of allcontrollers ; and(c) Application for authorisation of allcontrolled functions .Amended: January 2022
Amended: July 2007AU-1.1.9
The CBB will review the application and duly advise the applicant in writing when it has:
(a) Granted the application without conditions;(b) Granted the application subject to conditions specified by the CBB; or(c) Refused the application, stating the grounds on which the application has been refused and the process for appealing against that decision.Amended: July 2007AU-1.1.10
Detailed rules and guidance regarding information requirements and processes for licenses can be found in Section AU-5.1. As specified in Paragraph AU-5.1.12, the CBB will provide a formal decision on a license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB.
Amended: July 2007AU-1.1.11
All applicants seeking an
investment firm license must satisfy the CBB that they meet, by the date of authorisation, the minimum criteria for licensing, as contained in Chapter AU-2. Once licensed,investment firm licensees must maintain these criteria on an on-going basis.Amended: July 2007Investment Firm License Categories
AU-1.1.12
For the purposes of Volume 4 (Investment Business),
regulated investment services may be undertaken under three categories ofinvestment firms as follows:Amended: July 2007Category 1
AU-1.1.13
For the purposes of Volume 4 (Investment Business),
Category 1 investment firms may undertake (subject to Rule AU-1.1.19) anyregulated investment service , as listed below:(a) Dealing infinancial instruments as principal;(b) Dealing infinancial instruments as agent;(c) Arranging deals infinancial instruments ;(d) Managingfinancial instruments ;(e) Safeguardingfinancial instruments (i.e. acustodian ;(f) Advising onfinancial instruments ;(ff) Arranging Credit and Advising on Credit; and(g) Operating acollective investment undertaking (i.e. anoperator ).Amended: July 2020
Added: July 2007AU-1.1.13A
[This Paragraph has been moved to AU-1.1.24].
Amended: January 2022
Added: October 2020AU-1.1.14
[This Paragraph was moved and amended to Paragraph AU-1.4.11A in January 2012].
Amended: January 2012
Amended: July 2007Category 2
AU-1.1.15
For the purposes of Volume 4 (Investment Business),
Category 2 investment firms may undertake (subject to Rule AU-1.1.19) anyregulated investment service (as listed in Rule AU-1.1.13), except that of 'dealing infinancial instruments as principal'.AU-1.1.16
A
Category 2 investment firm cannot, therefore, trade infinancial instruments for its own account ('dealing infinancial instruments as principal'), but it may conduct all other types ofregulated investment services , including holdingclient assets .Amended: July 2007Category 3
AU-1.1.17
For the purposes of Volume 4 (Investment Business),
Category 3 investment firms may undertake (subject to Rules AU-1.1.18 and AU-1.1.19) the followingregulated investment services only:(a) Arranging deals infinancial instruments ;(b) Advising onfinancial instruments ; and(c) Arranging Credit and Advising on Credit.Amended: July 2020
Added: July 2007AU-1.1.18
When undertaking either of the
regulated investment services listed under Rule AU-1.1.17,Category 3 investment firms :a) Must be independent;b) May not hold anyclient assets ;c) Must refrain from receiving any fees or commissions from any party other than theclient ; and(d) Must not have an 'agency' relationship (tied agent) with an investment provider.Amended: October 2016
Amended: October 2009
April 2008
Amended: July 2007AU-1.1.18A
In assessing the independence of a
Category 3 investment firm , the CBB will take into account theregulated investment services offered in relation to financial instruments of a related party.Amended: October 2016
Adopted: April 2008AU-1.1.18B
For the purpose of Paragraph AU-1.1.18A, a related party of a
Category 3 investment firm includes:(c) An associate of acontroller as defined in Module GR;(d) The extended family of acontroller including a father, mother, father-in-law, mother-in-law, brother, sister, brother-in-law, sister-in-law, or grandparent;(e) A corporate entity, whether or not licensed or incorporated in Bahrain, where any of the persons identified in Sub-Paragraphs (c) and (d) is a Director or would be considered acontroller were the definition of controller set out in Paragraph GR-5.2.1 applied to that corporate entity; and(f) [This Subparagraph has been deleted].Amended: October 2016
Adopted: April 2008Category 4
AU-1.1.18C
For the purposes of Volume 4 (Investment Business),
category 4 investment firms are permitted to provide the followingregulated investment services toaccredited investors :a) Operating acollective investment undertaking (CIU ); andb) In respect of venture capitalCIUs that thecategory 4 investment firm operates/manages, act ascustodian (i.e. safeguardingfinancial instruments ).Added: January 2022AU-1.1.18D
While
category 1 investment firms andcategory 2 investment firms can operate/manage all types ofCIUs , targetingretail clients ,expert investors andaccredited investors ,category 4 investment firm license caters to the business models of specialist fund managers who operate/manageCIUs targeted ataccredited investors only. Examples of suchCIUs are private equity funds, hedge funds, structured funds, real estate funds, venture capital funds and other alternative investment funds. Anoperator ofCIUs who markets or manages aCIU targeted atretail clients orexpert investors would not be eligible to obtain acategory 4 investment firm license.Category 4 investment firms also act asplacement agents ofoverseas domiciled CIUs they operate/manage.Added: January 2022AU-1.1.18E
Category 4 investment firms must appoint independentcustodians to safeguardclient assets . However, in accordance with Sub-paragraph AU-1.1.18C(b),category 4 investment firms may be authorised by the CBB to act ascustodians of the venture capitalCIUs they operate/manage provided they meet the requirements stipulated in Section C4-3.3 of the CBB Rulebook, Volume 4 regarding the safeguarding ofclient assets andclient money . This entails thatcategory 4 investment firms can safeguard the illiquid assets of the venture capitalCIUs , butclient money must be kept in aclient bank account .Added: January 2022AU-1.1.18F
Category 4 investment firms are only subject to Sections AU-1.1, AU-1.4, AU-1.5 and the provisions of Modules PB, C4, FC and EN.Category 4 investment firms must also comply with CBB Rulebook Volume 7 requirements for authorisation/registration/filing of CIUs to be offered toaccredited investors .Added: January 2022Combining Regulated Investment Services
AU-1.1.19
Investment firm licensees may combine two or moreregulated 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).Suitability
AU-1.1.21
[This Paragraph was deleted in January 2011].
Deleted: January 2011
Amended: July 2007AU-1.1.22
[This Paragraph was deleted in January 2011].
Deleted: January 2011
Amended: July 2007AU-1.1.22A
As per Article 48 of the CBB Law,
investment firm licensees must seek CBB’s prior written approval before undertaking newregulated investment services .Added: July 2020AU-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.Added: July 2020AU-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.Added: July 2020AU-1.1.22D
Investment firm licensees wishing to undertake the followingregulated investment services involvingcrypto-assets that fall under the definition offinancial instruments must seek the CBB’s prior approval before undertaking such activity:(a) Dealing infinancial instruments as agent;(b) Arranging deals infinancial instruments ;(c) Managingfinancial instruments ;(d) Safeguardingfinancial instruments (i.e. acustodian );(e) Advising onfinancial instruments ; and(f) Operating acollective investment undertaking (i.e. anoperator ).Investment firm licensees must not undertake the activity of dealing incrypto-assets as principal.Added: January 2024AU-1.1.22E
Investment firm licensees offering theregulated investment services referred to in Paragraph AU-1.1.22D must comply with the requirements stipulated in Appendix AU-1, as applicable.Added: January 2024AU-1.1.22F
Investment firm licensees undertaking theregulated investment service involving safe custody ofcrypto-assets (custody service), whether through “in house” arrangement or through a “third party”, remain responsible for safeguarding, storing, holding or maintaining custody ofcrypto-assets and must have systems and controls in place to:(a) Ensure the proper safeguarding ofcrypto-assets ;(b) Ensure that such safe custody ofcrypto-assets is identifiable and secure at all times; and(c) Ensure protection against the risk of loss, theft or hacking.Added: January 2024AU-1.1.22G
For the purpose of Paragraph AU-1.1.22F,
investment firm licensees may implement the following three types of custodial arrangements or any other type of custodial arrangement that is acceptable to the CBB:(a) Thelicensee is wholly responsible for custody of client’scrypto-assets and provides this service “in-house” through its owncrypto-assets wallet solution. Such an arrangement includes scenarios where alicensee provides its own inhouse proprietary wallet for clients to store anycrypto-assets bought through thatlicensee or transferred into the wallet from other sources.(b) Thelicensee is wholly responsible for the custody of client’scrypto-assets but outsources this service to a third partycrypto-asset custodian . Such an arrangement includes the scenario where alicensee uses a third-party service provider to hold all its clients’crypto-assets (e.g., all or part of the clients’ private keys).(c) Thelicensee wholly allows clients to “self-custodise” theircrypto-assets . Such an arrangement includes scenarios wherelicensees require clients to self-custodise theircrypto-assets . Suchlicensees only provide the platform for clients to buy and sellcrypto-assets . Clients are required to source and use their own third partycrypto-asset custodians (which thelicensee have no control over or responsibility for). This arrangement also includes the scenario wherelicensees provide an in-house wallet service for clients, but also allow clients to transfer theircrypto-assets out of this wallet to another wallet from a third-party wallet provider chosen by the client (and which thelicensee does not control).Added: January 2024AU-1.1.22H
Where
investment firm licensees provide a third-partycrypto-asset custodian to a client it must undertake an appropriate risk assessment of thatcrypto-asset custodian .Licensees must also retain ultimate responsibility for safe custody ofcrypto-assets held on behalf of clients and ensure that they continue to meet all their regulatory obligations with respect tocrypto-asset custody service and outsourced activities.Added: January 2024AU-1.1.22I
Investment firm licensees offering theregulated investment services referred to in Paragraph AU-1.1.22D must provide a report from an independent third-party expert that they have established adequate policies, procedures, systems and controls to manage the associated risks and undertake such activities in compliance with the requirements of Chapter FC-11 and Appendix AU-1. In addition,licensees must satisfy the CBB that they have sufficient competence and expertise to undertake the activities.Added: January 2024AU-1.1.22J
For purpose of Paragraph AU-1.1.22D,
investment firm licensees must submit a board resolution to undertake the activity together with the following information:(a) Description of the services/products;(b) Changes to organisation structure and framework (if any);(c) Experience of resources responsible for such services and their details; and(d) Enhancements to its risk management framework to capture, monitor, measure, control and report risks arising from the activity.Added: January 2024Conventional and Islamic Investment Firms
AU-1.1.23
Investment firm licensees may deal in both conventional and Islamicfinancial instruments . Only thoseinvestment firm licensees whose operations are fully shari'a compliant, however, may hold themselves out to be anIslamic investment firm .Amended: July 2007AU-1.1.24
Where
licensees are undertaking regulated activities in accordance with Shari'a, all transactions and contracts concluded byinvestment firm licensees must comply with Shari’a standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The validity of the contract or transaction is not impacted, if at a later date, the relevant AAOIFI Shari’a standard are amended.Amended: January 2022
Amended: October 2014
Amended: April 2013
Amended: October 2009
July 2007AU-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.Added: October 2014AU-1.1.24B
Category 3 and Category 4
Islamic investment firms must appoint a minimum of one Shari'a advisor or scholar to verify that their operations are Shari'a compliant.Amended: January 2022
Added: October 2014AU-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 orunderwrite a financial instrument). Finally, they may not offer Shari'a Profit Sharing Investment Accounts (whether restricted or unrestricted).Amended: October 2012
Amended: July 2007AU-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 AU-1.2 Approved Persons
General Requirement
AU-1.2.1
Investment firm licensee must obtain the CBB's prior written approval for any person wishing to undertake acontrolled function in aninvestment 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.Amended: January 2016
Amended: July 2007AU-1.2.2
Controlled functions are those of:(a)Director ;(b)Chief Executive orGeneral Manager ;(c)Head of function ;(d) Compliance officer;(e) Money Laundering Reporting Officer;(f) [Subparagraph deleted in January 2011];(g) [Subparagraph deleted in January 2021];(h)Financial Instruments Trader ; and(i)Investment consultant orinvestment adviser .Amended: January 2021
Amended: April 2018
Amended: January 2016
Amended: January 2011
Amended: October 2009
July 2007AU-1.2.3
In the case of
Bahraini investment firm licensees , prior approval is required for all of the abovecontrolled functions . Combination of the abovecontrolled functions is subject to the requirements contained in Modules HC and RM.Amended: October 2009
July 2007AU-1.2.4
In the case of
overseas investment firm licensees , prior approval is required forcontrolled 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 abovecontrolled functions is subject to the requirements contained in Modules HC and RM.Amended: October 2009
July 2007AU-1.2.5
[This Paragraph was deleted in January 2021].
Amended: January 2021
Amended: October 2009Basis for Approval
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.
Amended: July 2007Definitions
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.Amended: July 2019
Amended: July 2007AU-1.2.8
The fact that a person may have '
Director ' in their job title does not of itself make them aDirector 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 ofDirectors and therefore may not fall under the definition of Paragraph AU-1.2.7.Amended: July 2007AU-1.2.9
Investment firm licensees must appoint a person to undertake the function ofChief Executive ,General Manager orManaging Director . TheChief Executive orGeneral Manager means a person who is responsible for the conduct of the licensee (regardless of actual title). TheChief Executive orGeneral Manager must be resident in Bahrain. This person is responsible for the conduct of the whole of the firm, or, in the case of anoverseas investment firm licensee , for all of the activities of the branch (ref. HC-6.3.4).Amended: January 2011
Amended: July 2010AU-1.2.9A
A licensee may appoint a
Director on the Board to undertake the responsibility of theChief Executive orGeneral Manager , i.e aManaging Director , in which case the appointment of aChief Executive orGeneral Manager in addition to theManaging Director will not be permitted.Amended: April 2011
Adopted: January 2011AU-1.2.9B
The
Chief Executive ,General Manager orManaging Director of thelicensee :(a) Should be fully responsible for the executive management and performance of thelicensee , within the framework of delegated authorities set by the Board;(b) Must devote full-time working hours to thelicensee ; and(c) Must not be employed at any other firm.Adopted: January 2011AU-1.2.9C
The Chairman of the Board may not undertake any executive role, including that of
Chief Executive ,General Manager orManaging Director .Adopted: January 2011AU-1.2.9D
The
Chief Executive Officer orManaging Director are not permitted, at any time to assume Chairmanship or Deputy Chairmanship of the Board.Adopted: January 2011AU-1.2.9E
Residency requirements apply to
Chief Executives ,General Managers orManaging Directors : see Section AU-2.2.Adopted: January 2011AU-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 ofhead of function might include, depending on the scale, nature and complexity of the business, a deputyChief 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 sellingfinancial instruments .Amended: July 2007AU-1.2.13
An
investment consultant orinvestment adviser refers to the function of advising a client or potential client with respect to buying, selling, subscribing for orunderwriting a particularfinancial instrument or exercising any right conferred by such afinancial instrument .Amended: October 2012
Amended: July 2012
Amended: July 2007AU-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 aninvestment adviser and need not be approved by the CBB, as such a function would not be considered acontrolled function .Added: July 2012AU-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. Otherapproved persons , must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13, unless suchapproved person has been specifically approved by the CBB as aninvestment consultant orinvestment adviser , in addition to their initialcontrolled function .Added: July 2012AU-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.Amended: July 2007AU-1.2.15
The
controlled function of compliance officer is defined in accordance with the compliance function under Section HC-6.5. Thecontrolled functions of Money Laundering Reporting Officer/Deputy Money Laundering Reporting Officer are defined under Chapter FC-3.Amended: January 2011
Amended: October 2009AU-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:(a) Having responsibility for oversight of the licensee's compliance with the requirements of the CBB; and(b) Reporting to the licensee's Board in respect of that responsibility.Amended: July 2012
Adopted: April 2011AU-1.3 AU-1.3 [This Section deleted 07/2007]
Deleted: July 2007AU-1.3.1
A person may not carry on the business of an administrator without being registered as such with the BMA.
AU-1.3.2
For the purposes of Rule AU-1.3.1, administrators are defined as persons who administer financial instruments and related services such as cash/ collateral management.
AU-1.3.3
Acting as an administrator refers to administering certain specified functions in relation to
financial instruments that include the following:a) legal and fund management accounting services;b) client inquiries;c) valuation and pricing (including tax returns);d) regulatory compliance monitoring;e) maintenance of unit-holder register;f) distribution of income;g) unit issues and redemption;h) contract settlements (including certificate dispatch); andi) record-keeping.AU-1.3.4
An application for registration must be in the form prescribed by the BMA in Section AU-5.3.
AU-1.3.5
A registered administrator may not undertake any
regulated investment services .AU-1.4 AU-1.4 Definition of Regulated Investment Services
AU-1.4.1
For the purposes of Volume 4 (Investment Business),
regulated investment services are any of the activities listed under Paragraph AU-1.1.13, as further defined in this Section, carried on by way of business.Amended: July 2007AU-1.4.2
For the purposes of Volume 4 (Investment Business), carrying on a
regulated investment service by way of business means:(a) Undertaking one or more of the activities listed under Paragraph AU-1.1.13 on a professional basis and for commercial gain;(b) Holding oneself out as willing and able to engage in that activity; or(c) Regularly soliciting other persons to engage in transactions constituting that activity.Amended: October 2012
Amended: July 2007General Exclusions
AU-1.4.3
A person does not carry on an activity constituting a
regulated investment service if the activity:(a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of a regulated activity;(b) May reasonably be regarded as a necessary part of any other services provided in the course of that business; and(c) Is not remunerated separately from the other services.Amended: July 2007AU-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 samefamily .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.Amended: July 2007AU-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.Amended: July 2007AU-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 orDirector of a person who is aninvestment firm licensee .Amended: July 2007AU-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 offinancial 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.Dealing in Financial Instruments as Principal
AU-1.4.11
Dealing in
financial instruments as principal means buying, selling, subscribing for orunderwriting anyfinancial instrument on own account, includingunderwriting transactions.Amended: October 2014
Amended: October 2012
Amended: October 2009AU-1.4.11A
Only
Category 1 investment firms are permitted tounderwrite the issuance offinancial instruments . However, the CBB will only permit such activity if thelicensee has the financial ability to absorb the size of the commitment.Amended: October 2014
Amended: October 2012
Added: January 2012AU-1.4.11B
In assessing the financial ability of a
licensee , the CBB will consider, amongst other factors, thelicensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Anyunderwriting 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.Amended: October 2014
Added: January 2012AU-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 controlclient assets or liabilities in the course of its designated investment business.Amended: July 2007AU-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 theinvestment firm licensee's capital and not out of clients' assets.Amended: October 2012AU-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.
Dealing in Financial Instruments as Agent
AU-1.4.17
Dealing in
financial instruments as agent means buying, selling, subscribing for orunderwriting financial instruments on behalf of aclient .Amended: October 2012AU-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 infinancial instruments on terms determined by it and does not use its own financial resources for the purpose of buying, selling, subscribing for orunderwriting financial instruments . Such alicensee may however receive or holdclient assets in connection with a client transaction, in its capacity as agent.Amended: October 2012
Amended: July 2007Arranging Deals in Financial Instruments
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 infinancial instruments . This activity does not include the execution of a deal for which the arrangement has been made.Amended: January 2012
Amended: October 2009AU-1.4.19A
For
Category 3 Investment Firms , the activity of arranging the deals is limited to handling the administration arrangements only.Added: January 2012AU-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.
Amended: July 2007AU-1.4.25
The BFX, as a
licensed exchange , is not therefore classed as aninvestment 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).Amended: January 2011
Amended: July 2007AU-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:
(a) Appointing professional advisers;(b) Preparing a prospectus/business plan;(c) Identifying potential sources of funding;(d) Assisting investors/subscribers/borrowers to complete and submit application forms; or(e) Receiving application forms for processing/checking and/or onward transmission.Amended: July 2007AU-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 anyfinancial instrument .Amended: October 2012AU-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 afinancial instrument . The activity of solely arranging credit is not a regulated activity for the purposes of Rule AU-1.4.19.Amended: October 2012Managing Financial Instruments
AU-1.4.30
Managing
financial instruments means managing on a discretionary basisfinancial 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.
Safeguarding Financial Instruments (i.e. Custodian)
AU-1.4.32
Safeguarding
financial instruments means the safeguarding offinancial 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.Amended: July 2019
Amended: January 2012
Amended: July 2010AU-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.
Amended: July 2010
Amended: July 2007AU-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 thefinancial instrument belongs; or else is simply providing a physical safekeeping service such as a deed box.Amended: July 2010
Amended: July 2007AU-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 thefinancial instrument .Amended: July 2010AU-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.Amended: July 2010
Amended: July 2007AU-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.
Amended: July 2010
Amended: July 2007AU-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:
(a) Providing information as to the number of units or the value of any assets safeguarded; and(b) Converting currency.Amended: July 2010
Amended: July 2007AU-1.4.40 [This Paragraph deleted 07/2007.]
Deleted: July 2007Advising on Financial Instruments
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 orunderwriting a particularfinancial instrument or exercising any right conferred by such afinancial instrument .Amended: October 2012AU-1.4.41A
For the purpose of Rule AU-1.4.41, advising on
financial instruments includes givingdigital financial advice also known as 'robo-advice' or 'automated advice' using a computer program and algorithm to generate the advice.Added: April 2019AU-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.
Added: July 2010AU-1.4.43
[This Paragraph was deleted in July 2020].
Deleted: July 2020
Added: July 2010AU-1.4.44
The following are examples of activities, which may be regarded as an activity as defined by Rule AU-1.4.41:
(a) A person may offer to tell a client when shares reach a certain value on the basis that when the price reaches that value it would be a good time to buy or sell them;(b) Recommendation on the size or timing of transactions; and(c) Advice on the suitability of thefinancial instrument , or on the characteristics or performance of thefinancial instrument or credit facility concerned.Amended: July 2010
Amended: July 2007AU-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:
(a) That of giving advice of the kind mentioned in Rule AU-1.4.41; nor(b) That of leading or enabling persons to buy, sell, subscribe for orunderwrite afinancial instrument .Amended: October 2012
Amended: July 2010
Amended: July 2007AU-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:
(a) Explaining the structure or the terms and conditions of afinancial instrument or credit facility;(b) Valuingfinancial instruments for which there is no ready market;(c) Circulating company news or announcements;(d) Comparing the benefits and risks of onefinancial instrument to another; and(e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, afinancial instrument or on the effect of contractual terms and their commercial consequences or on terms that are commonly accepted in the market.Amended: July 2010
Amended: July 2007AU-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.Amended: July 2010
Amended: July 2007Arranging Credit and Advising on Credit
AU-1.4.47A
Arranging Credit means making arrangements for a borrower, to enter into a credit facility with a credit provider.
Added: July 2020AU-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.Added: July 2020AU-1.4.47C
Activities that constitute Arranging Credit includes:
(a) Introducing potential borrowers to a credit provider (refer to Rule AU-1.4.47B);(b) Providing the required assistance to potential borrowers to obtain credit, such as the completion of application forms and other processes relevant to such transactions;(c) Negotiating terms of credit, including fees and charges;(d) Arranging for collaterals or other types of assurances required to be provided by the potential borrower to obtain credit; and(e) Arranging for corporate structuring and financing such as the acquisition, disposal, structuring, restructuring, financing or refinancing of a legal entity.Added: July 2020AU-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.
Added: July 2020AU-1.4.47E
For the purposes of Paragraphs AU-1.4.47A to AU-1.4.47D, a borrower is:
(a) A natural person who is anaccredited investor ; or(b) A legal person who is anaccredited investor orexpert investor , and the credit facility in question is provided for use in the business activities of:(i) the legal person;(ii) a controller of the legal person;(iii) any member of the group to which the legal person belongs; or(iv) a joint venture of a legal person referred to in (i) – (iii).Added: July 2020AU-1.4.47F
For purposes of Subparagraph AU-1.4.47E (a),
investment firm licensees are prohibited from dealing withretail clients and/orexpert investors .Added: July 2020AU-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.Added: July 2020Operating a Collective Investment Undertaking (i.e. operator)
AU-1.4.48
Operating a
collective investment undertaking ('CIU') means operating, managing, establishing or winding up acollective investment undertaking .Amended: January 2022
Amended: July 2010
Amended: July 2007AU-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 infinancial 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.Amended: July 2010
Amended: July 2007AU-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.Amended: July 2010AU-1.4.51
In the case of
CIUs whose holdings are listed and traded on a stock exchange (such as aclosed-ended fund ), actions taken by theCIU 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 bothopen-ended funds andclosed-ended funds : unit trusts, investment trusts, mutual funds, SICAV and collective investment schemes are all examples ofCIUs .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).Amended: July 2010
Adopted: July 2007AU-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.Amended: October 2012
Amended: July 2010
Adopted: July 2007AU-1.4.53
[Paragraph deleted 07/2006.]
Amended: July 2010AU-1.4.54
[Paragraph deleted 07/2006.]
Amended: July 2010AU-1.5 AU-1.5 Definition of Financial Instruments
For the purposes of Volume 4, a
financial instrument means any of the following:Amended: July 2007Transferable Securities
AU-1.5.1
Those classes of securities which are negotiable, with the exception of instruments of payment. Transferable securities include:
(a)Shares in companies and other securities equivalent toshares in companies, partnerships or other entities, and depositary receipts in respect ofshares ;(b)Bonds or other forms of securitised debt, including depositary receipts in respect of such securities;(c)Warrants ;(d) Any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures.Amended: July 2007Islamic Financial Instruments
AU-1.5.2
Those
financial instruments — as defined elsewhere in Section AU-1.5 — that are shari'a compliant.Amended: July 2007Money-market Instruments
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.
Holdings in Collective Investment Undertakings
AU-1.5.4
Rights or interests (however described) of the participants in a
collective investment undertaking .Amended: July 2007Derivative Contracts other than Commodity Derivatives
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.Derivative Contracts relating to Commodities Settled 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).Derivative Contracts Relating to Commodities
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 derivativefinancial instruments .Amended: July 2007Credit Derivatives
AU-1.5.9
Over the counter derivative instruments, which provide for the transfer of credit risk.
Financial Contracts for Differences
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:
(a) The value or price of investment orproperty of any description;(b) Any currency;(c) The rate of interest in any currency or any index of such rates (including interest rateoptions );(d) The level of any index which is derived for the prices of an investment or physical commodity (including indexoptions ); or(e) Any combination of the above.Amended: July 2007AU-1.5.11
The following are excluded from this definition of contracts for differences:
(a) Contracts where the parties intend that the profit is to be secured or the loss to be avoided by taking delivery ofproperty ; and(b) Contracts under which money is received by way of deposit on terms that any return to be paid on the sum deposited will be calculated by reference to an index, interest rate, exchange rate or other factor.Amended: July 2007Other Derivative Contracts
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 derivativefinancial instruments .Interests in Real Estate Property
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.Certificates Representing Certain Securities
AU-1.5.14
Certificates or other instruments which confer contractual or
property rights:(a) In respect of any investment held by someone other than the person on whom the rights are conferred by the certificate or other instrument; and(b) The transfer of which may be effected without requiring the consent of that person.Amended: July 2007Rights or Interests in Financial Instruments
AU-1.5.15
Rights to or interests in all
financial instruments under section AU-1.5.AU-2 AU-2 Licensing Conditions
AU-2.1 AU-2.1 Condition 1: Legal Status
Category 1 and 2 Investment Firms
AU-2.1.1
The legal status of a Category 1 or Category 2
investment firm licensee must be:(i) A Bahraini joint stock company (BSC); or(ii) A branch resident in Bahrain of a company incorporated under the laws of its territory of incorporation and (where local regulation so requires) authorised as market-maker in that territory.Amended: July 2007Category 3 Investment Firms
AU-2.1.2
The legal status of a Category 3
investment firm licensee must be:(i) A Bahraini joint stock company (BSC);(ii) A Bahraini company with limited liability ('WLL'); or(iii) A branch resident in Bahrain of a company incorporated under the laws of its territory of incorporation and (where local regulation so requires) authorised as market-maker in that territory.Amended: July 2007AU-2.1.3
Where the
investment firm licensee is a branch of anoverseas investment firm , an application for licensing will be considered after extensive enquiries into the firm's shareholders, management structure, financial position, its activities and how these activities are regulated.Amended: July 2007AU-2.2 AU-2.2 Condition 2: Mind and Management
AU-2.2.1
Investment firm licensees with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom.Overseas investment firm licensees must maintain a local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.AU-2.2.2
In assessing the location of an
investment firm licensee's Head Office, the CBB will take into account the residency of its Directors and senior management.Amended: January 2012
Amended: July 2007AU-2.2.3
The CBB requires that all
approved persons occupyingcontrolled functions outlined in Paragraph AU-1.2.2, except for Subparagraph (a) director, be resident in Bahrain.Amended: January 2021
Added: January 2012AU-2.3 AU-2.3 Condition 3: Controllers and Close Links
AU-2.3.1
Investment firm licensees must satisfy the CBB that theircontrollers are suitable and pose no undue risks to thelicensee .Investment firm licensees must also satisfy the CBB that theirclose links do not prevent the effective supervision of theinvestment firm licensee by the CBB and otherwise pose no undue risks to thelicensee .Amended: July 2007AU-2.3.2
For Category 1 and Category 2
investment firm licensees , at least one of thecontrollers of aninvestment firm licensee must be a reputable financial institution of financial soundness, operating within a regulated jurisdiction, with a legal structure, all of which must be acceptable to the CBB.Amended: January 2012
Amended: October 2009
July 2007AU-2.3.3
Chapters GR-5 and GR-6 contain the CBB's requirements and definitions regarding
controllers andclose links .Amended: October 2009AU-2.3.4
In summary,
controllers are persons who directly or indirectly are significant shareholders in aninvestment firm licensee , or who are otherwise able to exert significant influence on theinvestment firm licensee . The CBB seeks to ensure thatcontrollers pose no significant risks to thelicensee . In general terms,controllers are assessed in terms of their financial standing, their judicial and regulatory record, and standards of business and (where relevant) personal probity.Amended: October 2009
July 2007AU-2.3.5
An
investment firm licensee hasclose links with its subsidiaries, with its parent undertakings, and with subsidiaries of its parent undertakings. It also hasclose links with any entity in which the licensee, its subsidiaries, its parent undertakings, and the subsidiaries of its parent undertakings has an equity interest of more than 20% (either in terms of capital or voting rights). The CBB seeks to ensure that these closely linked entities do not pose any material financial, reputational or other risks to thelicensee . The CBB also seeks to ensure that the structure and geographical spread of the group is such that it is subject to adequate scrutiny at group level.Amended: July 2010
Amended: October 2009
Amended: July 2007AU-2.3.6
In all cases, when judging applications from existing groups, the CBB will have regard to the reputation and financial standing of the group as a whole. Where relevant, the CBB will also take into account the extent and quality of supervision applied to overseas members of the group and take into account any information provided by other supervisors in relation to any member of the group.
Amended: October 2009
July 2007AU-2.4 AU-2.4 Condition 4: Board and Employees
AU-2.4.1
Those nominated to carry out
controlled functions must satisfy CBB'sapproved person's requirements.Amended: July 2007AU-2.4.2
The definition of
controlled functions is contained in AU-1.2, whilst AU-3 sets out CBB'sapproved persons requirements. Applications forapproved person status must be submitted using the prescribedapproved persons form.Amended: July 2007AU-2.4.3
The
investment firm licensee's staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of thelicensee in a sound and prudent manner.Investment firm licensees must ensure their employees meet any training and competency requirements specified by the CBB.Amended: July 2007AU-2.4.4
The CBB's training and competency requirements are contained in Module TC (Training and Competency).
Amended: July 2007AU-2.5 AU-2.5 Condition 5: Financial Resources
AU-2.5.1
Investment firm licensees must maintain a level of financial resources, as agreed with the CBB, adequate for the level of business proposed. The level of financial resources held must exceed at all times the minimum requirements contained in Module CA (Capital Adequacy), as specified for the category of investment license held.Amended: July 2007AU-2.5.2
[This Paragraph deleted 07/2010.]
Deleted: July 2010AU-2.5.3
Overseas applicants are required to provide written confirmation from their head office that the head office will provide financial support to the branch sufficient to enable it to meet its obligations as and when they fall due. Overseas applicants must also demonstrate that the company as a whole is adequately resourced for the amount of risks undertaken.
Amended: July 2007AU-2.6 AU-2.6 Condition 6: Systems and Controls
AU-2.6.1
Investment firm licensees must maintain systems and controls that are, in the opinion of the CBB, adequate for the scale and complexity of their activities. These systems and controls must meet the minimum requirements contained in Modules HC (High Level Controls) and RM (Risk Management), as specified for the category ofinvestment firm license held.Amended: July 2007AU-2.6.2
Investment firm licensees must maintain adequate segregation of responsibilities in their staffing arrangements, to protect against the misuse of systems or errors. Such segregation should ensure that no single individual has control over all stages of a transaction.AU-2.6.3
Investment firm licensees must maintain systems and controls that are, in the opinion of the CBB, adequate to address the risks of financial crime occurring in the licensee. These systems and controls must meet the minimum requirements contained in Module FC (Financial Crime), as specified for the category ofinvestment firm license held.Amended: July 2007AU-2.6.4
As part of the licensing approval process, applicants must demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. Applicants may also be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB.
Amended: July 2007AU-2.6.5
Investment firm licensees must, in connection with anyclient assets received in the course of their business, establish and maintain separateclient accounts, segregated from those used for their own funds, as required in Module CL.Amended: July 2007AU-2.7 AU-2.7 Condition 7: External Auditors
AU-2.7.1
Investment firm licensees must appoint external auditors, subject to prior CBB approval. The minimum requirements regarding auditors contained in Module AA (Auditors and Accounting Standards) must be met.Amended: July 2007AU-2.7.2
[This Paragraph deleted 07/2010.]
Deleted: July 2010AU-2.8 AU-2.8 Condition 8: Other Requirements
Books and Records
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.Amended: July 2007Provision of Information
General Conduct
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.License Fees
AU-2.8.4
Investment firm licensees must comply with any license fee requirements applied by the CBB.Amended: July 2007AU-2.8.5
License fee requirements are contained in Chapter AU-6.
Amended: July 2007Additional Conditions
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.Amended: July 2007AU-2.8.7
When granting a license, the CBB specifies the
regulated investment services that thelicensee may undertake and the category ofinvestment 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 alicensee wish to undertake newregulated investment services .Amended: July 2007AU-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.
Amended: July 2007AU-3 AU-3 Approved Persons Conditions
AU-3.1 AU-3.1 Condition 1: 'Fit and Proper'
AU-3.1.1
Licensees seeking anapproved person authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake thecontrolled function in question.Amended: July 2007AU-3.1.2
The authorisation requirement for persons nominated to carry out
controlled functions is contained in Section AU-1.2. The authorisation process is described in Section AU-5.2.Amended: July 2007AU-3.1.3
Each applicant applying for
approved person status and those individuals occupyingapproved person positions must comply with the following conditions:(a) Has not previously been convicted of any felony or crime that relates to his/her honesty and/or integrity unless he/she has subsequently been restored to good standing;(b) Has not been the subject of any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud;(c) Has not been adjudged bankrupt by a court unless a period of 10 years has passed, during which the person has been able to meet all his/her obligations and has achieved economic accomplishments;(d) Has not been disqualified by a court, regulator or other competent body, as a director or as a manager of a corporation;(e) Has not failed to satisfy a judgement debt under a court order resulting from a business relationship;(f) Must have personal integrity, good conduct and reputation;(g) Has appropriate professional and other qualifications for thecontrolled function in question (see Appendix TC-1 in Module TC (Training and Competency)); and(h) Has sufficient experience to perform the duties of thecontrolled function (see Appendix TC-1 in Module TC (Training and Competency)).Amended: January 2016
Amended: July 2007AU-3.1.4
In assessing the conditions prescribed in Rule AU-3.1.3, the CBB will take into account the criteria contained in Section AU-3.2. The CBB reviews each application on a case-by-case basis, taking into account all relevant circumstances. A person may be considered 'fit and proper' to undertake one type of
controlled function but not another, depending on the function's job size and required levels of experience and expertise. Similarly, a person approved to undertake acontrolled function in oneinvestment firm licensee may not be considered to have sufficient expertise and experience to undertake nominally the samecontrolled function but in a much bigger licensee.Amended: July 2007AU-3.1.5
In assessing a person's fitness and propriety, the CBB will also consider previous professional and personal conduct (in Bahrain or elsewhere) including, but not limited to, the following:
(a) The propriety of a person's conduct, whether or not such conduct resulted in a criminal offence being committed, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;(b) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;(c) Any adverse finding in a civil action by any court or competent jurisdiction, relating to misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;(d) Whether the person, or any body corporate, partnership or unincorporated institution to which the applicant has, or has been associated with as a director, controller, manager or company secretary been the subject of any disciplinary proceeding, investigation or fines by any government authority, regulatory agency or professional body or association;(e) The contravention of any financial services legislation;(f) Whether the person has ever been refused a license, authorisation, registration or other authority;(g) Dismissal or a request to resign from any office or employment;(h) Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners have been declared bankrupt whilst the person was connected with that partnership;(i) The extent to which the person has been truthful and open with supervisors; and(j) Whether the person has ever entered into any arrangement with creditors in relation to the inability to pay due debts.Added: January 2016AU-3.1.6
With respect to Paragraph AU-3.1.5, the CBB will take into account the length of time since any such event occurred, as well as the seriousness of the matter in question.
Added: January 2016AU-3.1.7
Approved persons undertaking acontrolled function must act prudently, and with honesty, integrity, care, skill and due diligence in the performance of their duties. They must avoid conflicts of interest arising whilst undertaking acontrolled function .Amended: January 2016
Amended: July 2007AU-3.1.8
In determining where there may be a conflict of interest arising, factors that may be considered will include whether:
(a) A person has breached any fiduciary obligations to the company or terms of employment;(b) A person has undertaken actions that would be difficult to defend, when looked at objectively, as being in the interest of the licensee; and(c) A person has failed to declare a personal interest that has a material impact in terms of the person's relationship with the licensee.Amended: January 2016
Amended: July 2007AU-3.1.9
Further guidance on the process for assessing a person's 'fit and proper' status is given in Module EN (Enforcement): see Chapter EN-8.
Added: January 2016AU-3.2 AU-3.2 [This Section was deleted in January 2016]
AU-3.2.1
[This Paragraph was deleted in January 2016.]
AU-3.2.2
[This Paragraph was deleted in January 2016.]
AU-3.2.3
[This Paragraph was moved to Paragraph AU-3.1.9 in January 2016.]
AU-4 AU-4 [This Chapter deleted 07/2007]
Deleted: July 2007AU-4.1 AU-4.1 Condition 1: Relevant Expertise
AU-4.1.1
Administrators seeking registration must satisfy the BMA that they have relevant expertise. They must hold appropriate professional qualifications from a relevant, recognised professional body.AU-4.1.2
In the case of corporate persons wishing to provide administration services, the BMA expects management and other staff collectively to have sufficient appropriate expertise to ensure a professional level of service.
AU-4.2 AU-4.2 Condition 2: General Suitability
AU-4.2.1
Administrators seeking registration must satisfy the BMA that they are generally suitable to operate as such.AU-4.2.2
The Agency will have regard to the fitness and propriety of the person seeking registration to operate as Administrators, using the rules and guidance contained in Sections AU-3.1 and AU-3.2.
AU-4.2.3
The Agency will have regard to the person's reputation, financial soundness, and business conduct. The BMA will also review closely linked entities against the same criteria, using the definition of close links contained in Module GR (General Requirements).
AU-4.3 AU-4.3 Condition 3: Systems and Controls
AU-4.3.1
Administrators seeking registration must maintain systems and controls that are, in the opinion of the BMA, adequate for the scale and complexity of their activities.AU-4.3.2
Administrators seeking registration must maintain systems and controls that are, in the opinion of the BMA, adequate to address the risks of financial crime occurring. These systems and controls must meet the minimum requirements contained in Module FC (Financial Crime)AU-4.4 AU-4.4 Condition 4: External Auditors
AU-4.4.1
Administrators seeking registration must appoint external auditors, subject to prior BMA approval. The minimum requirements regarding auditors contained in Module AA (Auditors and Accounting Standards) must be met.AU-4.4.2
Administrators seeking registration must submit details of their proposed external auditors to the BMA.AU-4.5 AU-4.5 Condition 5: Other requirements
Books and Records
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.Provision of Information
AU-4.5.2
Administrators must act in an open and cooperative manner with the BMA.AU-5 AU-5 Information Requirements and Processes
AU-5.1 AU-5.1 Licensing
Application Form and Documents
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.Amended: July 2019
Amended: April 2018
Amended: July 2007AU-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.
Amended: July 2007AU-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.Amended: July 2007AU-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:
(a) A duly completed Form 2 (Application for Authorisation of Controller) for each controller of the proposed licensee;(b) A duly completed Form 3 (Application for Approved Person status), for each individual proposed to undertakecontrolled functions (as defined in Rule AU-1.2.2) in the proposedlicensee ;(c) A comprehensive business plan for the application, addressing the matters described in AU-5.1.6;(d) For overseas companies, a copy of the company's current commercial registration or equivalent documentation;(e) Where the applicant is an existing Bahraini company, a copy of the applicant's commercial registration certificate;(f) A certified copy of a Board resolution of the applicant, confirming its decision to seek a CBBinvestment firm license ;(h) In the case of applicants that are part of a regulated group, a letter of non-objection to the proposed license application from the applicant'slead supervisor , together with confirmation that the group is in good regulatory standing and is in compliance with applicable supervisory requirements, including those relating to capital requirements;(i) In the case of branch applicants, a letter of non-objection to the proposed license application from the applicant's home supervisor, together with confirmation that the applicant is in good regulatory standing and the company concerned is in compliance with applicable supervisory requirements, including those relating to capital;(j) In the case of branch applicants, copies of the audited financial statements of the applicant (head office) for the three years immediately prior to the date of application;(k) In the case of applicants that are part of a group, copies of the audited financial statements of the applicant's group, for the three years immediately prior to the date of application;(l) In the case of applicants not falling under either (j) or (k) above, copies of the audited financial statements of the applicant's major shareholder (where they are a legal person), for the three years immediately prior to the date of application;(m) In the case of applicants seeking to raise part of their capital through a private placement, a draft of the relevant private placement memorandum, together with a formal, independent legal opinion confirming that the memorandum complies with all applicable capital markets laws and regulations;(n) A copy of the applicant's memorandum and articles of association (in draft form for applicants creating a new company) addressing the matters described in AU-5.1.8;(o) [Subparagraph deleted in January 2008]; and(p) [Subparagraph deleted in January 2008].Amended: April 2011
Amended: October 2009
Amended: January 2008
Amended: July 2007AU-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.
Amended: January 2011
Amended: July 2010
Added: January 2008AU-5.1.6
The business plan submitted in support of an application must include:
(a) An outline of the history of the applicant and its shareholders;(b) The reasons for applying for a license, including the applicant's strategy and market objectives;/div>(c) The proposed type of activities to be carried on by the applicant in/from the Kingdom of Bahrain;(d) The proposed Board and senior management of the applicant and the proposed organisational structure of the applicant;(e) An independent assessment of the risks that may be faced by the applicant, together with the proposed systems and controls framework to be put in place for addressing those risks and to be used for the main business functions; and(f) An opening balance sheet for the applicant, together with a three-year financial projection, with all assumptions clearly outlined, demonstrating that the applicant will be able to meet applicable capital adequacy requirements.Amended: July 2010
Amended: July 2007AU-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.
Amended: July 2007AU-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.
Added: October 2014AU-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.
Amended: July 2007AU-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.
Amended: July 2007AU-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.
Amended: July 2007Licensing Process and Timelines
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.
Amended: July 2007AU-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.
Amended: July 2010
Adopted: July 2007AU-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.Amended: July 2010
Adopted: July 2007AU-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.
Adopted: July 2007AU-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.
Amended: July 2010
Amended: April 2008
Adopted: July 2007AU-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).
Amended: April 2018
Adopted: July 2007AU-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.
Adopted: July 2007AU-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).
Adopted: July 2007Granting or Refusal of License
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.
Amended: October 2019
Adopted: July 2007AU-5.1.12I
The CBB may refuse to grant a license if in its opinion:
(a) The requirements of the CBB Law or this Module are not met;(b) False or misleading information has been provided to the CBB, or information which should have been provided to the CBB has not been so provided; or(c) The CBB believes it necessary in order to safeguard the interests of potential customers.Amended: October 2019
Adopted: July 2007AU-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.
Amended: October 2019
Adopted: July 2007AU-5.1.12K
Before the final approval is granted to a
licensee , confirmation from a retail bank addressed to the CBB that thelicensee'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.Added: July 2010Starting Operations
AU-5.1.13
Within 6 months of the license being issued, the new
licensee must provide to the CBB (if not previously submitted):(a) The registered office address and details of premises to be used to carry out the business of the proposedlicensee ;(b) The address in the Kingdom of Bahrain where full business records will be kept;(c) Thelicensee's contact details including telephone and fax number, e-mail address and website;(d) A copy of its business continuity plan;(e) A description of the IT system that will be used, including details of how IT systems and other records will be backed up;(f) A copy of the auditor's acceptance to act as auditor for the applicant;(g) [Sub paragraph deleted July 2010];(h) A copy of thelicensee's professional indemnity insurance policy or confirmation that a deposit to an amount specified by the CBB has been placed in escrow in an account at a bank licensed in the Kingdom of Bahrain (see Section GR-9.1); and(i) A copy of the applicant's notarised memorandum and articles of association, addressing the matters described in Paragraph AU-5.1.8;(j) A copy of the Ministry of Industry and Commerce commercial registration certificate in Arabic and in English;(k) An updated organisation chart showing the reporting lines, committees (if any) and including the names of the persons undertaking thecontrolled functions .(l) A copy of thelicensee's business card and any written communication (including stationery, website, e-mail, business documentation, etc.) including a statement that the investment firm is licensed by the CBB; and(m) Any other information as may be specified by the CBB.Amended: January 2011
Amended: July 2010
Amended: January 2008
Amended: July 2007AU-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.
Amended: July 2007AU-5.2 AU-5.2 Approved Persons
Prior Approval Requirements and Process
AU-5.2.1
Investment firm licensees must obtain CBB's prior written approval before a person is formally appointed to acontrolled 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.Amended: January 2016
Amended: July 2015
Amended: October 2009
July 2007AU-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 acontrolled function is in relation to an existinginvestment 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.Amended: April 2018
Amended: April 2008
Amended: July 2007AU-5.2.3
When submitting Form 3,
investment firm licensees must ensure that the Form 3 is:(a) Submitted to the CBB with a covering letter signed by an authorised representative of theinvestment firm licensee , seeking approval for the proposedcontrolled function ;(b) Submitted in original form;(c) Submitted with a certified copy of the applicant's passport, original or certified copies of educational and professional qualification certificates (and translation if not in Arabic or English) and the Curriculum Vitae; and(d) Signed by an authorised representative of thelicensee and all pages stamped with thelicensee's seal.(e) Submitted with the existing organisation chart or a proposed organisation chart (if the existing organisation chart is to be amended) reflecting the reporting line of the applicant. This is for all controlled functions listed in Rule AU-1.2.2 except a & e.Amended: October 2016
Amended: July 2015
Amended: October 2009AU-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.Added: July 2015AU-5.2.4
For existing licensees applying for the appointment of a
Director or theChief Executive /General Manager , the authorised representative should be the Chairman of the Board or aDirector signing on behalf of the Board. For all othercontrolled functions , the authorised representative should be theChief Executive /General Manager .Amended: July 2015
Amended: October 2009AU-5.2.5
[This Paragraph was deleted in July 2015.]
Deleted: July 2015AU-5.2.6
[This Paragraph was moved to Paragraph AU-5.2.3A in July 2015.]
Amended: July 2015
Amended: October 2009
Amended: July 2007Assessment of Application
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.Amended: January 2016
Added: July 2015AU-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.Amended: January 2016
Added: July 2015AU-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 thelicensee concerned, setting out the basis for the decision.Amended: January 2016
Added: July 2015AU-5.2.7
[This Paragraph was deleted in January 2016.]
Appeal Process
AU-5.2.7A
Investment firm licensees or the nominatedapproved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application forapproved person status. The CBB shall decide on the appeal and notify theinvestment firm licensee of its decision within 30 calendar days from submitting the appeal.Added: July 2015AU-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 nominatedapproved 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 theinvestment firm licensee of its decision within 30 calendar days from the date of submitting the appeal.Amended: January 2016
Added: July 2015Notification Requirements and Process
AU-5.2.8
Investment firm licensees must immediately notify the CBB when anapproved person ceases to hold acontrolled function together with an explanation as to the reasons why (see Paragraph AU-5.5.5). In such cases, theirapproved person status is automatically withdrawn by the CBB.Amended: October 2009
Amended: July 2008
Amended: April 2008
Amended: July 2007AU-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 anapproved person .Amended: October 2009AU-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 theirapproved persons .Amended: October 2009AU-5.3 AU-5.3 [This Section deleted 07/2007]
Deleted: July 2007AU-5.3.1
Persons wishing to be registered as an
administrator must submit a duly completed Form 4 (Application for Registration). The form must be marked for the attention of the Director, Licensing and Policy Directorate.AU-5.3.2
BMA aims to respond to applications for registration within 2 weeks of receipt of a Form 4, although in some cases, where referral to an overseas supervisor is required, the response time is likely to be longer.
AU-5.3.3
All refusals by the BMA to grant a person registered person status have to be reviewed and approved by an Executive Director of the BMA. A notice of intent is issued to the person concerned, setting out the basis for the decision. The person has 30 calendar days from the date of the notice in which to appeal the decision. The BMA then has 30 calendar days from the date of the representation in which to make a final determination. See also Chapter EN-10.
AU-5.4 AU-5.4 Amendment of Authorisation
Licenses
AU-5.4.1
Investment firm licensees wishing to vary the scope of their license must obtain the CBB's written approval, before effecting any such change. Approval must be sought whenever alicensee wishes to add or cease undertaking aregulated investment service , change license category, or to vary a condition imposed on their license.Amended: January 2022
Amended: July 2007AU-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.Amended: July 2007AU-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 newregulated investment service must provide the following documentation:(a) A summary of the rationale for undertaking the proposed new service;(b) A description of how the new service will be managed and controlled; and(c) An analysis of the financial impact of the new service.Amended: July 2007AU-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 thelicensee requires such a change. See also Chapter EN-7, regarding the cancellation or amendment of licenses, including the procedures used in such instances.Amended: July 2007Approved Persons
AU-5.4.5
Investment firm licensees must seek prior CBB approval before anapproved person may move from onecontrolled function to another within the samelicensee .Adopted: July 2007AU-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 anapproved person is moving to acontrolled function in anotherlicensee , the firstlicensee should notify the CBB of that person’s departure (see Rule AU-5.5.5), and the newlicensee should submit a request for approval under Rule AU-1.2.1.Adopted: July 2007AU-5.5 AU-5.5 Cancellation of Authorisation
Voluntary Surrender of a License or Closure of a Branch
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.Amended: October 2011
Amended: July 2010
Amended: July 2007AU-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.Amended: July 2007AU-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.Amended: January 2011
Amended: July 2007Cancellation of a License by the CBB
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 thelicensee 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 thelicensee's right to appeal the formal notice of cancellation issued by the CBB.Amended: October 2011
Amended: July 2007AU-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.Amended: October 2012
Adopted: October 2011
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 toclients . Until such time, the CBB will retain all its regulatory powers towards thelicensee and will direct thelicensee so that no newregulated investment services may be undertaken whilst thelicensee discharges its obligations to itsclients .Adopted: October 2011Cancellation of Approved Person Status
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 acontrolled function will no longer be carrying out that function. If acontrolled function falls vacant, theinvestment 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, theinvestment firm licensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of thecontrolled function affected, provided that such arrangements do not pose a conflict of duties. These interim arrangements must be approved by the CBB.Amended: July 2015
Amended: January 2012
Amended: July 2010
Amended: April 2008
Amended: July 2007AU-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.
Amended: July 2007AU-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.
Amended: July 2007AU-5.6 AU-5.6 Publication of the Decision to Grant, Cancel or Amend a License
AU-5.6.1
In accordance with Articles 47 and 49 of the CBB Law, the CBB will publish its decision to grant, cancel or amend a license in the Official Gazette and in two local newspapers, one in Arabic and the other in English.
Amended: October 2019
Added: July 2017AU-5.6.2
For the purposes of Paragraph AU-5.6.1, the cost of publication must be borne by the Licensee.
Added: July 2017AU-5.6.3
The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.
Added: July 2017AU-6 AU-6 License Fees
AU-6.1 AU-6.1 License Application Fees
AU-6.1.1
Applicants seeking an
investment firm license from the CBB must pay a non-refundable license application fee of BD 100 at the time of submitting their formal application to the CBB.Amended: July 2010
Adopted: July 2007AU-6.1.2
There are no application fees for those seeking
approved person status.Adopted: July 2007AU-6.2 AU-6.2 Annual License Fees
AU-6.2.1
Investment firm licensees must pay the relevant annual license fee to the CBB, on the 1st of December of the preceding year for which the fees are due.Amended: July 2013
Adopted: July 2007AU-6.2.2
The relevant fees are specified in Rules AU-6.2.3 to AU-6.2.5 below: different fees are specified for Category 1, Category 2 and
Category 3 investment firms . The fees due on 1st December are those due for the following calendar year, and are calculated on the basis of the firm's latest audited financial statements for the previous calendar year: i.e. the fee payable on 1st December 2013 for the 2014 year (for example) is calculated using the audited financial statements for 2012, assuming a 31st December year end. Where alicensee does not operate its accounts on a calendar-year basis, then the most recent audited financial statements available are used instead.Amended: July 2013
Adopted: July 2007AU-6.2.3
Category 1 investment firms must pay a variable annual licensing fee based on 0.25% of theirrelevant operating expenses , subject to a minimum ('floor') of BD 6,000 and a maximum ('cap') of BD 24,000.Amended: July 2013
Adopted: July 2007AU-6.2.4
Category 2 investment firms must pay a variable annual licensing fee based on 0.25% of theirrelevant operating expenses , subject to a minimum ('floor') of BD 4,000 and a maximum ('cap') of BD 12,000.Amended: July 2013
Adopted: July 2007AU-6.2.5
Category 3 investment firms must pay a variable annual licensing fee based on 0.25% of theirrelevant operating expenses , subject to a minimum ('floor') of BD 1,000 and a maximum ('cap') of BD 4,000.Amended: July 2013
Adopted: July 2007AU-6.2.6
Relevant operating expenses are defined as the total operating expenses of the licensee concerned, as recorded in the most recent audited financial statements available, subject to the adjustments specified in Rule AU-6.2.7.Adopted: July 2007AU-6.2.7
The adjustments to be made to
relevant operating expenses are the exclusion of the following items from total operating expenses:(a) Training costs;(b) Charitable donations;(c) CBB fees paid; and(d) Non-executiveDirectors' remuneration.Adopted: July 2007AU-6.2.8
For the avoidance of doubt, operating expenses for the purposes of this Section, do not include items such as depreciation, provisions, interest expense, and dividends.
Adopted: July 2007AU-6.2.9
The CBB would normally rely on the audited accounts of a
licensee as representing a true and fair picture of its operating expenses. However, the CBB reserves the right to enquire about the accounting treatment of expenses, and/or policies on intra-group charging, if it believes that these are being used artificially to reduce a license fee.Adopted: July 2007AU-6.2.9A
Investment firm licensees must pay a fixed annual fee of BD 1,000 for each locally incorporated SPV in Bahrain which is under the control of and/or providing an actual business function, service or activity (whether actively or passively) for the licensee and/or others at the licensee's direction or having been established under the licensee's direction for that purpose.Adopted: April 2011AU-6.2.9B
The annual fee for SPVs stipulated in Paragraph AU-6.2.9A does not apply to SPVs of
Bahrain domiciled CIUs . In the case ofBahrain domiciled CIUs ,investment firm licensees should refer to the relevant Chapter in Module ARR of Volume 7, depending on the classification of theBahrain domiciled CIU .Amended: July 2013
Added: January 2012AU-6.2.10
Investment firm licensees must complete and submit Form ALF (Annual License Fee) to the CBB, no later than 15th October of the preceding year for which the fees are due.Amended: July 2013
Adopted: July 2007AU-6.2.10A
All licensees are subject to direct debit for the payment of the annual fee and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September available under Part B of Volume 4 (Investment Business) CBB Rulebook on the CBB Website.
Added: July 2013
AU-6.2.11
For new
licensees , their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount specified for their category of license.Amended: July 2010
Adopted: July 2007AU-6.2.12
For the first full year of operation for
investment firm licensees , thelicensee would calculate its fee as the floor amount. For future years, thelicensee would submit a Form ALF by 15th October of the preceding year for which the fees are due and calculate its fee using its last audited financial statements (or alternative arrangements as agreed with CBB, should its first set of accounts cover an 18-month period).Amended: July 2013
Deleted: July 2010
Adopted: July 2007AU-6.2.13
Where a license is cancelled (whether at the initiative of the firm or the CBB), no refund is paid for any months remaining in the calendar year in question.
Amended: July 2010
Adopted: July 2007AU-6.2.14
Investment firm licensees failing to comply with this Section may be subject to financial penalties for date sensitive requirements as outlined in Section EN-5.3A or may have their licenses withdrawn by the CBB.Added: July 2013Appendix AU-1: Requirements for Regulated Investment Services Involving Crypto Assets
Introducing/Offering Crypto-assets to Clients
1.Licensees must establish a policy which lays down the internal procedure and risk assessment that alicensee must undertake prior to introducing acrypto-asset for trading by its clients. The policy must be approved by the board and reviewed periodically.2. Prior to introducing acrypto-asset , alicensee must notify the CBB of its intent to introduce thecrypto-asset , provide the findings of the risk assessment undertaken in accordance with Point 8 below along with the board resolution approving thecrypto-asset .3.Licensees must provide a list of all thecrypto-assets listed on its platform no later than 10 days from the end of each quarter to the CBB.4.Licensees must have necessary blockchain monitoring capability (e.g. via monitoring systems, internal monitoring control etc.) in place before introducing thecrypto-asset on its platform.5.Licensees must not introducecrypto-assets that facilitates or may facilitate the obfuscation or concealment of the identity of a customer or counterparty orcrypto-assets that are designed to or substantially used to circumvent laws and regulations.Licensees must ensure that they only introducecrypto-assets to which they have in place the necessary AML monitoring capabilities.6.
Licensees must ensure that:(a) any actual or potential conflicts of interest in connection with the review and decision-making process have been assessed and effectively addressed, whether such actual or potential conflicts of interest are related to thelicensee’s board members, shareholders employees, their families, or any other party; and(b) records are maintained of thelicensee’s due diligence of eachcrypto-asset . This includes the final approval for introducing acrypto-asset , the documents the board of directors reviewed including an assessment of all associated material risks in connection with eachcrypto-asset approval or disapproval, such as reviews and sign-offs by various departments of thelicensee , such as the legal, compliance, cybersecurity, and operations department etc.7. Where the CBB determines that undertaking regulated services in acrypto-asset may be detrimental to the financial sector of the Kingdom of Bahrain and/or it may affect the legitimate interest of clients Thelicensees , based on the instruction of the CBB, must remove thecrypto-asset from its platform. In such scenarios, thelicensee shall remain responsible for orderly settlement of trade and any liability arising due to removing thecrypto-asset .Added: January 2024Risk Assessment
8.
Licensees must establish criteria and undertake a comprehensive risk assessment of thecrypto-assets that it intends to offer on its platform. The risks to be assessed must include, but are not limited to, the following:(a)
Licensees must conduct a thorough due diligence process to ensure that thecrypto-asset is created or issued for lawful and legitimate purposes, and not for evading compliance with applicable laws and regulations (e.g., by facilitating money laundering or other illegal activities) and that the process is subject to a strong governance and control framework.Licensees must consider the following factors while undertaking the due diligence:(i) The technological experience, track record and reputation of the issuer and its development team;(ii) The availability of a reliable multi-signature hardware wallet solution;(iii) The protocol and the underlying infrastructure, including whether it is: (1) a separate blockchain with a new architecture system and network or it leverages an existing blockchain for synergies and network effects, (2) scalable, (3) new and/or innovative or (4) thecrypto-asset has an innovative use or application;(iv) The relevant consensus protocol;(v) Developments in markets in which the issuer operates;(vi) The geographic distribution of thecrypto-asset and the relevant trading pairs, if any;(vii) Whether thecrypto-asset has any in-built anonymization functions;(viii)crypto-asset exchanges on which thecrypto-asset is traded.(b) Operational risks associated with acrypto-asset . This includes the resulting demands on thelicensee’s resources, infrastructure, and personnel, as well as its operational capacity for continued client on-boarding and client support based on reasonable forecasts considering the overall operations of thelicensee ;(c) Risks associated with any technology or systems enhancements or modification requirements necessary to ensure timely adoption or offering of any newcrypto-asset ;(d) Risks related to cybersecurity: Whether thecrypto-asset is and will be able to withstand, adapt and respond to, cyber security vulnerabilities, including size, testing, maturity, and ability to allow the appropriate safeguarding of secure private keys;(e) Traceability/Monitoring of thecrypto-asset : Whetherlicensees are able to demonstrate the origin and destination of the specificcrypto-asset , whether thecrypto-asset enables the identification of counterparties to each trade, and whether transactions in thecrypto-asset can be adequately monitored.(f) Market risks, including minimum market capitalisation, price volatility, concentration ofcrypto-asset holdings or control by a small number of individuals or entities, price manipulation, and fraud;(g) Risks relating to code defects and breaches and other threats concerning acrypto-asset and its supporting blockchain, or the practices and protocols that apply to them;(h) Risks relating to potential non-compliance with the requirements of the licensee’s condition and regulatory obligations as a result of the offering of newcrypto-asset ;(i) Legal risks associated with the newcrypto-asset , including any pending or potential civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of the newcrypto-asset ; and(j) Type of distributed ledger: whether there are issues relating to the security and/or usability of a distributed ledger technology used for the purposes of the crypto-asset; whether thecrypto-asset leverages an existing distributed ledger for network and other synergies; whether this is a new distributed ledger that has been demonstrably stress tested.Added: January 2024Periodic Monitoring
9.
Licensees must have policies and procedures in place to monitor thecrypto-assets to ensure that continued use of thecrypto-asset remains prudent. This includes:(a) Periodic re-evaluation ofcrypto-assets , including whether material changes have occurred, with a frequency and level of scrutiny tailored to the risk level of individualcrypto-assets , provided that the frequency of re-evaluation must at a minimum be annual;(b) Implementation of control measures to manage risks associated with individualcrypto-assets ; and(c) The existence of a process for removing ofcrypto-assets on its platform, including notice to affected customers and counterparties.Added: January 2024Disclosure
10.
Licensees must make adequate disclosures, which are easily accessible and prominently visible to clients, for each crypto-asset, containing at a minimum, the following information:(a) Details about the crypto-asset: the type of crypto-asset (payment token, asset token, utility token, stablecoin etc.), its function and details about the asset(s) where acrypto-asset is backed by asset(s);(b) The risks related to the specific crypto-asset such as, but not limited to, price volatility and cyber-security; and(c) Any other information that would assist clients to make an informed investment decision.11. Licensees must prominently display on their platform the following statement, “THE CENTRAL BANK OF BAHRAIN HAS NEITHER REVIEWED NOR APPROVED THE CRYPTO-ASSETS.”Added: January 2024Crypto-asset Custody
12. Alicensee intending to offercrypto-asset custody service must provide to the CBB, for prior written approval, details of custodial arrangement put in place to safeguard, store, hold or maintain custody ofcrypto-assets .13. To the extent alicensee stores, holds, or maintains custody or control ofcrypto-assets on behalf of a client, suchlicensee must holdcrypto-assets of the same type and amount as that which is owed or obligated to such other client.14. Alicensee is prohibited from selling, transferring, assigning, lending, hypothecating, pledging, or otherwise using or encumberingcrypto-assets stored, held, or maintained by, or under the custody or control of, suchlicensee on behalf of a client except for the sale, transfer, or assignment of suchcrypto-asset at the direction of the client.15. Alicensee that undertakescrypto-asset custody service through a third partycrypto-asset custodian , must establish and maintain a system for assessing the appropriateness of its selection of thecrypto-asset custodian and assess the continued appointment of thatcrypto-asset custodian periodically as often as is reasonable. Thelicensee must make and retain a record of the grounds on which it satisfies itself as to the appropriateness of its selection or, following a periodic assessment, continued appropriateness of thecrypto-asset custodian .16. Alicensee that maintains custody or control ofcrypto-assets on behalf of a client must store, at a minimum, 90% of client’scrypto-assets in cold wallets to minimise exposure to losses arising from a compromise or hacking. The requirement to hold 90% of client’scrypto-assets in cold wallet is to be calculated separately for eachcrypto-asset that is offered on thelicensee’s platform and not at aggregate level.17. Alicensee must have a documented policy detailing the mechanism for the transfer ofcrypto-assets between hot, cold and other storage. The scope of authority of each function designated to perform any non-automated processes in such transfers must be clearly specified in the policy document.18. Alicensee that maintains custody or control ofcrypto-assets must not, at any time, permit arrangements whereby just a party or signatory is able to completely authorise the movement, transfer or withdrawal ofcrypto-assets held under custody on behalf of clients. In particular,licensees must not have custody arrangements whereby only a sole person can fully access the private key or keys for the crypto assets held under custody by thelicensee .19.licensees that maintain custody or control ofcrypto-assets are required to have policies and procedures in place that clearly describe the process that will be adopted in the event that the licensee comes to know or suspects that thecrypto-assets it is holding under custody on behalf for clients have been compromised, such as in the event of a hacking attack, theft or fraud. Such policies and procedures must detail the specific steps thelicensee will take to protect client’scrypto-assets in the event of such incidents.Licensees must also have the ability to immediately halt all further transactions with regard to thecrypto-assets .20.licensees must have written procedures for dealing with events such as forks (hard, soft or temporary forks) or air drops from an operational and technical point of view.21. Where a licensee supports a new protocol, it must ensure that changes in the underlying protocol of acrypto-asset that result in a fork are managed and tested proactively. This includes temporary forks which should be managed for reverse compatibility for as long as required. Where alicensee supports a new protocol, alicensee must ensure that their clients are able to deposit and withdrawcrypto-assets in and out of the wallet as and when requested before and after a fork (except during go-live). Clients must be notified well in advance of any periods of time when deposits and withdrawals are not feasible.22. Where the underlying protocol of acrypto-asset is changed, and the older version of thecrypto-asset is no longer compatible with the new version and/or there is an entirely new and separate version of the crypto asset (hard fork),licensees must ensure that client balances on the old version are reconciled with the new version of thecrypto-asset . This includes availability of reverse compatibility for as long as required.Licensees maintain transparent lines of communication with their clients on how they are managing clientscrypto-asset holdings in such a scenario.23. In the case of a hard fork, alicensee , where it supports a new protocol, must proactively manage any discrepancy between the balances recorded on the previous version versus the new version by engaging with the entity which is responsible for updating and supporting the underlying protocol of the relevantcrypto-asset . Additionally,licensees must ensure that, where they seek to offer services in relation to thecrypto-asset associated with the new version of the underlying protocol, this new crypto-asset meets the requirements for acrypto-asset and that they notify the CBB well in advance of offering the new crypto-asset as part of its activities.24. In compliance with Paragraph AU-1.1.22H, when undertaking an appropriate risk assessment of the third party
crypto-asset custodian,licensees should take into account the following:(a) The expertise and market reputation of the third partycrypto-asset custodian, and once acrypto-asset has been lodged by thelicensee with the third partycrypto-asset custodian, thecrypto-asset custodian’s performance of its services to thelicensee ;(b) The arrangements, including cyber security measures, for holding and safeguardingcrypto -assets;(c) An appropriate legal opinion as to the protection ofcrypto-assets in the event of insolvency of the custodian;(d) Whether the third partycrypto-asset custodian is regulated and by whom;(e) The capital or financial resources of the third partycrypto-asset custodian ;(f) The credit rating of the third partycrypto-asset custodian ; and(g) Any other activities undertaken by the third partycrypto-asset custodian and, if relevant, any affiliated company.25.
Licensees should consider, at the minimum, the following two types ofcrypto-asset wallets:(a) Custodial Wallet: the custodial wallet provider holdscrypto-assets (e.g., the private keys) as an agent on behalf of clients and has at least some control over these crypto-assets.Licensees that holdcrypto-assets on behalf of their clients should generally offer custodial wallets and may even offer multi-signature wallets. Clients using custodial wallets do not necessarily have full and sole control over their crypto-assets. In addition, there is a risk that should the custodial wallet provider cease operations or get hacked, clients may lose their crypto-assets; and(b) Non-Custodial (Self-Custody) Wallets: the non-custodial wallet provider, typically a third-party hardware add/or software company, offers the means for each client to hold theircrypto-assets (and fully control private keys) themselves. The non-custodial wallet provider does not control client’scrypto-assets – it is the client that has sole and full control over theircrypto-assets . Hardware wallets, mobile wallets, desktop wallets and paper wallets are generally examples of non-custodial wallets. Clients using non-custodial wallets have full control of and sole responsibility for theircrypto-assets , and the non-custodial wallet provider does not have the ability to effect unilateral transfers of clients’crypto-assets without clients’ authorisation.In addition to the two main crypto-asset wallet types described above, the CBB recognises that there may be alternativecrypto-asset wallet models in existence, or which may emerge in future.Licensees seeking to provide such alternative types ofcrypto-asset wallets and who are unsure of the regulatory obligations they may attract, are encouraged to contact the CBB.Only entities providing the custodial wallets as described in above are considered to be carrying out the regulated activity of safeguarding, storing, holding, maintaining custody of or arranging custody on behalf of clients forcrypto-assets . With respect to the non-custodial wallets as described above, the wallet provider is merely providing the technology; it is the wallet user himself who has full control of and responsibility for hiscrypto-assets .26.Licensees must assess the risks posed to each storage method in view of the new developments in security threats, technology and market conditions and must implement appropriate storage solutions to ensure the secure storage ofcrypto-assets held on behalf of clients. Wallet storage technology and any upgrades should be tested comprehensively before deployment to ensure reliability. Alicensee must implement and must ensure that its third-partycrypto-asset custodian implements, measures to deal with any compromise or suspected compromise of all or part of any seed or private key without undue delay, including the transfer of all clientcrypto-assets to a new storage location as appropriate.27.
Licensees must have, or where thelicensee uses the service of a third partycrypto-asset custodian must ensure that the third party crypto-asset custodian has, adequate processes in place for handling deposit and withdrawal requests forcrypto-asset to guard against loss arising from theft, fraud and other dishonest acts, professional misconduct or omissions. In this regard, alicensee must:(a) continuously monitor major developments (such as technological changes or the evolution of security threats) relevant to allcrypto-assets included for trading. There must be clear processes in place to evaluate the potential impact and risks of these developments, as well as for handling fraud attempts specific to distributed ledger technology (such as 51% attacks), and these processes should be proactively executed;(b) ensure that client IP addresses as well as wallet addresses used for deposit and withdrawal are whitelisted, using appropriate confirmation methods;(c) have clear processes in place to minimise the risks involved with handling deposits and withdrawals, including whether deposits and withdrawals are performed using hot or cold storage, whether withdrawals are processed on a real-time basis or only at certain cut-off times, and whether the withdrawal process is automatic or involves manual authorisation;(d) ensure that any decision to suspend the withdrawal ofcrypto-assets is made on a transparent and fair basis, and is communicated without delay to all its clients; and(e) ensure that the above processes include safeguards against fraudulent requests or requests made under duress as well as controls to prevent one or more officers or employees from transferring assets to wallet addresses other than the client’s designated wallet address.28. A
licensee must at least every calendar month:(a) reconcile allcrypto-assets held by thelicensee , or its third-partycustodian , and reconcile the result to the records of thelicensee ; and(b) reconcile individual client balances with thelicensee’s records ofcrypto-assets balances held in client accounts; and(c) where thelicensee discovers discrepancies after carrying out the above reconciliations, it must maintain a record of such discrepancies and the measures taken to remedy such discrepancies.Added: January 2024Key Management and Wallet Storage
29. Alicensee must establish and document keyman risk management measures that include arrangements in place should individuals holding encryption keys or passcodes to stored assets, including wallets, or information be unavailable unexpectedly due to death, disability or other unforeseen circumstances.30. Alicensee must ensure that it maintains no encrypted accounts that cannot be retrieved in the future for any reason. It must also advise its clients who maintain wallets with firms outside Bahrain (i.e. not CBB licensees) and not licensed by the CBB about any associated risks.31.Licensees must implement robust procedures and protective measures to ensure the secure generation, storage, backup and destruction of both public and private keys.32. In order to access crypto assets, the device on which the private key is held needs access to a network (which, in most cases is through the internet). A wallet where the private key is held on a network attached device is called a hot wallet. Hot wallets are vulnerable to hacking attempts and can be more easily compromised by viruses andmalware .33.Crypto assets that do not need to be immediately available must be held offline, in a ‘cold wallet’.34. Both hot and cold wallets must be password protected and encrypted. The key storage file that is held on the online or offline device must be encrypted. The user is therefore protected against theft of the file (to the degree the password cannot be cracked). However,malware on the machine may still be able to gain access (e.g., a keystroke logger to capture the password).35.Licensees must use multi-signature wallets (e.g., where multiple private keys are associated with a given public key and a subset of these private keys, held by different parties, are required to authorise transactions). Noting that there is no way to recover stolen or lost private keys unless a copy of that key has been made, multi-signature walletsmayoffer more security because a user can still gain access to itscrypto-assets when two or more Private Keys remain available.36. To mitigate the risks associated with hot wallets, private keys can be stored in a cold wallet, which is not attached to a network.
Licensees should implement cold wallet key storage where possible if they are offering wallet services to their Clients.Wallets may also be stored on a secondary device that is never connected to a network. This device, referred to as an air-gapped device, is used to generate, sign, and export transactions. Care should be taken not to infect the air-gapped device withmalware when, for example, inserting portable media to export the signed transactions. Hardware security modules emulate the properties of an air gap. A proper policy must be created to describe the responsibilities, methods, circumstances and time periods within which transactions can be initiated. Access and control of single private keys should be shared by multiple users to avoid transactions by a single user.Some wallet solutions enable cryptographic keys to be derived from a user-chosen password (the “seed”) in a “deterministic” wallet. The most basic version requires one password per key pair. A Hierarchical Deterministic wallet derives a set of keys from a given seed. The seed allows a user to restore a wallet without other inputs.37.Licensees offering deterministic wallet solutions must ensure that users are provided with clear instructions for situations where keys, seeds or hardware supporting such wallet solutions are lost.38. A
licensee must establish and implement strong internal controls and governance procedures for private key management to ensure all cryptographic seeds and private keys are securely generated, stored and backed up. Alicensee using a third party crypto-asset custodian must ensure that the third-party custodian establishes and implements such controls and procedures. These include the following:(a) The generated seed and private key must be sufficiently resistant to speculation or collusion. The seed and private key must be generated in accordance with applicable international security standards and industry best practices, so as to ensure that the seeds (where Hierarchical Deterministic Wallets, or similar processes, are used) or private keys (if seed are not used) are generated in a non-deterministic manner which ensures randomness and thus are not reproducible. Where practicable, seed and private key must be generated offline and kept in a secure environment, such as a Hardware Security Module (HSM), with appropriate certification for the lifetime of the seeds or private keys;(b) Detailed specifications for how access to cryptographic devices or applications is to be authorised, covering key generation, distribution, use and storage, as well as the immediate revocation of a signatory’s access as required;(c) Access to seed and private key relating tocrypto-assets is tightly restricted amongapproved persons , no singleapproved person has possession of information on the entirety of the seed, private key or backup passphrases, and controls are implemented to mitigate the risk of collusion among authorised personnel; and(d) Distributed backups of seed or private key is kept so as to mitigate any single point of failure. The backups need to be distributed in a manner such that an event affecting the primary location of the seed or private key does not affect the backups. The backups should be stored in a protected form on external media (preferably HSM with appropriate certification). Distributed backups should be stored in a manner that ensures seed and private key cannot be regenerated based solely on the backups stored in the same physical location. Access control to the backups needs to be as stringent as access control to the original seed and private key.39.
Licensees must establish, maintain and implement a private key storage policy to ensure effective and prudent safekeeping of the seed and private key at all times. In particular, such policy must address:(a) the keyman risk associated with the storage of seed and private key is appropriately addressed;(b) the seed and private key can be retrieved at a short notice without excessive reliance on one or more individuals who may be unavailable due to death, disability or other unforeseen circumstances; and(c) where alicensee maintains a physical copy of the seed and private key, the physical copies of seed and private key must be maintained in Bahrain in a secure and indestructible manner and the same can be used to access the wallets if need arises.The private key storage policy along with other documents and evidences confirming that the seed and private key are held securely must be made available to the CBB upon request.Added: January 2024Transaction with Counterparties
40.
Licensees must use appropriate technology and wherever appropriate third-party services to identify the situations referred to below, and other additional mitigating or preventive actions as necessary to mitigate the money laundering and terror financing risks involved:(a) the use of proxies, any unverifiable or high-risk IP geographical locations, disposable email addresses or mobile numbers, or frequently changing the devices used to conduct transactions; and(b) transactions involving tainted wallet addresses such as “darknet” marketplace transactions and those involving tumblers.(c) where an applicant’s IP address is masked alicensee must take reasonable steps to unmask the IP address or decline to provide services to that applicant.41.
Licensees must establish and maintain adequate and effective systems and processes, including suspicious transaction indicators to monitor transactions with a client or counterparty involvingcrypto- assets and conduct appropriate enquiry and evaluation of potentially suspicious transactions identified. In particular:(a) identify and prohibit transactions with wallet addresses or their equivalent which are compromised or tainted; and(b) employ technology solutions which enable the tracking ofcrypto-assets through multiple transactions to more accurately identify the source and destination of thesecrypto-assets .For the purposes of (b), a wallet address is compromised or tainted where there is reasonable suspicion that it is used for the purpose of conducting fraud, identity theft, extorting ransom or any other criminal activity.Alicensee should take reasonable measures to avoid transactions with anothercrypto-asset entity, infrastructure or service provider where the counterparty is unknown or anonymous (e.g., via certain peer to peer or decentralised exchanges) at any stage of its business process.Added: January 2024Disclosure to Clients
42. As part of establishing a relationship with a
client , and prior to entering into an initial transaction with such client,licensee must disclose in clear, conspicuous, and legible writing in both Arabic and English languages, all material risks associated withcrypto-asset products and services including at a minimum, the following:(a) acrypto-asset is not a legal tender and is not backed by the government;(b) legislative and regulatory changes or actions at national level or international level may adversely affect the use, transfer, exchange, and value ofcrypto-assets ;(c) transactions incrypto-assets may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable;(d) somecrypto-asset transactions may be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that theclient initiates the transaction;(e) the value ofcrypto-assets may be derived from the continued willingness of market participants to exchangefiat currency forcrypto-asset , which may result in the potential for permanent and total loss of value of a particularcrypto-asset should the market for thatcrypto-asset disappear;(f) the volatility and unpredictability of the price ofcrypto-assets relative tofiat currency may result in significant loss over a short period of time;(g) cybersecurity risks associated withcrypto-assets including the risk of partial or full loss of crypto-assets in the event of a cyber-attack, and measures that have been put in place to mitigate the cyber security risks;(h) the nature ofcrypto-assets means that any technological difficulties experienced by thelicensee may prevent the access or use of a client’scrypto-assets ;(i) any investor protection mechanism;(j) the rights and entitlements of aclient when events such as, but not limited to, forks and airdrops occur;(k) how they execute and routeclient’s order and source liquidity (e.g. whether they pass or route orders to an exchange to execute). Where thelicensee routesclient orders to one or more crypto-asset exchanges for execution, it must disclose details of all the crypto-asset exchanges; and(l) how it determines the prices of thecrypto-assets it quotes to clients.Added: January 2024Prevention of Fraud
43.
Licensees must take reasonable steps to detect and prevent fraud, including by establishing and maintaining a written anti-fraud policy. The anti-fraud policy must, at a minimum, include:(a) the identification and assessment of fraud-related risk areas;(b) procedures and controls to protect against identified risks;(c) allocation of responsibility for monitoring risks and establish real-time/near real-time fraud risk monitoring and surveillance system; and(d) procedures for the periodic evaluation and revision of the anti-fraud procedures, controls, and monitoring mechanisms.44. Licensees must, as a minimum, have in place systems and controls with respect to the following:
(a) Crypto-asset Wallets: Procedures describing the creation, management and controls of crypto-asset wallets, including:
(i) wallet setup/configuration/deployment/deletion/backup and recovery;(ii) wallet access privilege management;(iii) wallet user management;(iv) wallet Rules and limit determination, review and update; and(v) wallet audit and oversight.(b) Private keys: Procedures describing the creation, management and controls of private keys, including:
(i) private key generation;(ii) private key exchange;(iii) private key storage;(iv) private key backup;(v) private key destruction; and(vi) private key access management.(c) Origin and destination of
crypto-assets : Systems and controls to mitigate the risk of misuse ofcrypto-assets , setting out how:(i) the origin ofcrypto-asset is determined, in case of an incoming transaction; and(ii) the destination ofcrypto-asset is determined, in case of an outgoing transaction.Added: January 2024Professional Indemnity Insurance
45.
Licensees must ensure that professional indemnity insurance, inter alia:(a) Covers any legal liability in consequence of any negligent act, error or omission in the conduct of thelicensee’s business by thelicensee or any person employed by it or otherwise acting for it, including consultants under a contract for service with thelicensee ;(b) Covers legal defence costs which may arise in consequence of any negligent act, error or omission in the conduct of thelicensee’s business by thelicensee or any person employed by it or otherwise acting for it, including consultants under a contract for service with thelicensee ;(c) Covers any legal liability in consequence of any dishonest, fraudulent, criminal or malicious act, error or omission of any person at any time employed by thelicensee , or otherwise acting for it, including consultants under a contract for service with thelicensee ; and(d) Covers loss of and damage to documents and records belonging to the licensee or which are in the care, custody or control of thelicensee or for which thelicensee is responsible; including also liability and costs and expenses incurred in replacing, restoring or reconstructing the documents or records; including also consequential loss resulting from the loss or damage to the documents or records.Added: January 2024PB PB Principles of Business
PB-A PB-A Introduction
PB-A.1 PB-A.1 Purpose
Executive Summary
PB-A.1.1
The Principles of Business are a general statement of the fundamental obligations of all Central Bank of Bahrain (‘CBB’)
investment firm licensees andapproved persons . They serve as a basis for other material in Volume 4 (Investment Business), and help address specific circumstances not covered elsewhere in the Rulebook.Amended: January 2007PB-A.1.2
The Principles of Business have the status of Rules and apply alongside other Rules contained in Volume 4 (Investment Business). However, these other Rules do not exhaust the fundamental obligations contained in the Principles. Compliance with all other Rules, therefore, does not necessarily guarantee compliance with the Principles of Business.
Legal Basis
PB-A.1.3
This Module contains the CBB's Directive (as amended from time to time) relating to Principles of Business 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 theirapproved persons ).Amended: January 2011
Added: January 2007PB-A.1.4
For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.
Added: January 2007PB-A.2 PB-A.2 Module History
Evolution of Module
PB-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.
Amended: January 2007PB-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.
Added: July 2007PB-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes PB-A.1 07/2007 New Rule PB-A.1.3 introduced, categorising this Module as a Directive. PB-1.1.1 07/2007 Small expansion of Principle 1 to refer to disclosure of all relevant information to customers, as required by CBB Regulations and Directives. PB-A.1.3 01/2011 Clarified legal basis. PB-A.2.4
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Superseded Requirements
PB-A.2.5
This Module does not supersede any previously issued circulars or other regulatory instruments.
Amended: January 2007PB-A.2.6
[This Paragraph was deleted in April 2008]
Deleted: April 2008PB-B PB-B Scope of Application
PB-B.1 PB-B.1 Scope of Application
PB-B.1.1
The 10 Principles of Business apply to all CBB
investment firm licensees , in accordance with Paragraph PB-B.1.2. Principles 1–8 (Paragraphs PB-1.1 to PB-1.8 inclusive) also apply to allapproved persons , in accordance with Paragraph PB-B.1.3.Amended: January 2007PB-B.1.2
Principles 1 to 10 apply to activities carried out by the licensee, including activities carried out through overseas branches (if any). Principles 9 and 10 also take into account any activities of other members of the group of which the licensee is a member.
PB-B.1.3
Principles 1 to 8 apply to
approved persons in respect of thecontrolled function for which they have been approved.PB-B.1.4
Principles 1 to 8 do not apply to behaviour by an
approved person with respect to any other functions or activities they may undertake. However, behaviour unconnected to theircontrolled function duties may nonetheless be relevant to an assessment of that person's fitness and propriety.PB-B.1.5
The CBB's requirements regarding
approved persons andcontrolled functions are located in Module AU (Authorisation).Amended: January 2007PB-B.2 PB-B.2 Non-compliance
PB-B.2.1
Breaching a Principle of Business makes the
investment firm licensee orapproved person concerned liable to enforcement action. In the case of a licensee, this may call into question whether they continue to meet the licensing conditions (see Chapter AU-2). In the case of anapproved person , this may call into question whether they continue to meet the "fit and proper" requirements for the function for which they have been approved (see Chapter AU-3).PB-B.2.2
Module EN (Enforcement) sets out the CBB's policy and procedures on enforcement action.
Amended: January 2007PB-1 PB-1 The Principles
PB-1.1 PB-1.1 Principle 1 — Integrity
PB-1.1.1
Investment firm licensees andapproved persons must observe high standards of integrity and fair dealing. They must be honest and straightforward in their dealings withclients , and disclose fully all relevant information toclients , as required by the CBB's Regulations and Directives.Amended: January 2007PB-1.2 PB-1.2 Principle 2 — Conflicts of Interest
PB-1.2.1
Investment firm licensees andapproved persons must take all reasonable steps to identify, and prevent or manage, conflicts of interest that could harm the interests of aclient .PB-1.3 PB-1.3 Principle 3 — Due Skill, Care and Diligence
PB-1.3.1
Investment firm licensees andapproved persons must act with due skill, care and diligence.PB-1.4 PB-1.4 Principle 4 — Confidentiality
PB-1.4.1
Investment firm licensees andapproved persons must observe in full any obligations of confidentiality, including with respect to client information. This requirement does not over-ride lawful disclosures.PB-1.5 PB-1.5 Principle 5 — Market Conduct
PB-1.5.1
Investment firm licensees andapproved persons must observe proper standards of market conduct, and avoid action that would generally be viewed as improper.PB-1.6 PB-1.6 Principle 6 — Customer Assets
PB-1.6.1
Investment firm licensees andapproved persons must take reasonable care to safeguard the assets ofcustomers for which they are responsible.Amended: January 2007PB-1.7 PB-1.7 Principle 7 — Customer Interests
PB-1.7.1
Investment firm licensees andapproved persons must pay due regard to the legitimate interests and information needs of theirclients and communicate with them in a fair and transparent manner.Investment firm licensees andapproved persons , when dealing withclients who are entitled to rely on their advice or discretionary decisions, must take reasonable care to ensure the suitability of such advice or decisions.PB-1.8 PB-1.8 Principle 8 — Relations with Regulators/Supervisors
PB-1.8.1
Investment firm licensees andapproved persons must act in an open and co-operative manner with the CBB and other regulatory/supervisory bodies under whose authority they come under. They must take reasonable care to ensure that their activities comply with all applicable laws and regulations.Amended: January 2007PB-1.9 PB-1.9 Principle 9 — Adequate Resources
PB-1.9.1
Investment firm licensees must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner.PB-1.10 PB-1.10 Principle 10 — Management, Systems & Controls
PB-1.10.1
Investment firm licensees must take reasonable care to ensure that their affairs are managed effectively and responsibly, with appropriate systems and controls in relation to the size and complexity of their operations.Investment firm licensees' systems and controls, as far as is reasonably practical, must be sufficient to manage the level of risk inherent in their business and ensure compliance with the CBB Rulebook.Amended: January 2007HC High-Level Controls
HC-A Introduction
HC-A.1 Executive Summary
Purpose
HC-A.1.1
The purpose of this Module is to:
(a) Explicitly reinforce the collective oversight and risk governance responsibilities of the board;(b) Emphasise key components of risk governance such as risk culture, risk appetite and their relationship to alicensee’s risk capacity;(c) Delineate the specific roles of the board, board committees, senior management, chief financial officer, internal auditor, chief risk officer and head of compliance; and(d) Strengthenlicensees’ overall checks and balances.Added: July 2023HC-A.1.2
All references in this Module to ‘he’ or ‘his’ shall, unless the context otherwise requires, be construed as also being references to ‘she’ and ‘her’.
Added: July 2023Legal Basis
HC-A.1.3
This Module contains the CBB’s Directive (as amended from time to time) relating to high-level controls 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
licensees (including theirapproved persons ).Added: July 2023HC-A.1.4
All Rulebook content that is categorised as a Rule must be complied with by those to whom the content is addressed. Other parts of this Module are Guidance paragraphs which are considered best market practices and
licensees are encouraged to implement the same.Added: July 2023Effective Date
HC-A.1.5
The new requirements in this amended Module are effective from January 2024 on which date the existing Module HC will become redundant, and any exemptions allowed under the existing Module will be subject to grandfathering requirements unless the relevant requirement has undergone change within this amended Module.
Added: July 2023HC-A.2 Module History
HC-A.2.1
This Module was first issued in July 2007. Following the issuance of the Corporate Governance Code by the Ministry of Industry and Commerce in March 2010, the Module was amended in January 2011 to be in line with the new Code and to include previous requirements that were in place in the originally issued Module HC. 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.
Added: July 2023HC-A.2.2
A list of recent changes made to this Module is detailed in the table below:
Module Ref. Change Date Description of Changes Full Module HC 07/2023 New restructured HC Module supersedes the previous version. HC-A.2.3
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Added: July 2023HC-B Scope of Application
HC-B.1 Scope of Application
HC-B.1.1
The contents of this Module, unless otherwise stated, apply to Category 1, Category 2 and Category 3
investment firm licensees . The requirements in this Module must, however, be treated as guidance for Category 3investment firm licensees , except for Paragraphs HC-1.1.3, HC-2.2.3, HC-2.3.3, HC-3.1.6, HC-7.1.1, HC-8.1.1, HC-9.1.1 and HC-9.1.2, which must be treated as Rules.Added: July 2023HC-B.1.2
The implementation of the rules in this Module should be commensurate with the size, complexity, structure, economic significance, risk profile and business model of the
licensee and the group to which it belongs, if any. In cases of certainlicensees (e.g. overseasinvestment firm licensees , smaller and limited scope firms where CBB assesses that certain specific rules in this Module are less relevant or too cumbersome to apply, it will be willing to consider alternative governance arrangement.Added: July 2023HC-B.1.3
For
overseas investment firm licensees , all references in this Module to the board of directors or a board sub-committee should be interpreted as references to the Head Office (HO), Regional Office (RO) or the relevant function(s) at HO or RO (as applicable).Added: July 2023HC-B.1.4
Overseas investment firm licensees should satisfy the CBB that equivalent or similar arrangements are in place at either the branch or theparent entity level, and that such arrangements provide for effective high-level controls over activities conducted by the branch, commensurate with the size, complexity, nature and the risk profile of the branch. If the branch is unable to satisfy the CBB that the governance arrangements are equivalent, the CBB will assess the potential impact of risks and require that thelicensee satisfy that compensating alternative arrangements are in place to address any risks relevant to the Bahrain operations.Added: July 2023HC-B.2 Subsidiaries and overseas Branches of Bahraini Investment Firm Licensees
HC-B.2.1
Licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their subsidiaries and overseas branches. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.Added: July 2023HC-B.2.2
Where a
licensee is unable to satisfy the CBB that itssubsidiaries and overseas branches are subject to the same or equivalent arrangements, the CBB will assess the potential impact of risks to thelicensee arising from inadequate high-level controls. In such instances, the CBB may impose certain restrictions on thelicensee . Where weaknesses in controls are assessed by the CBB to pose a major threat to the financial soundness of thelicensee and/or the financial stability in the Kingdom, then its license may be called into question.Added: July 2023HC-1 Board’s Overall Responsibilities
HC-1.1 Responsibilities of the Board
HC-1.1.1
The board of directors (“Board”) of the
licensee must:(a) Set the “tone at the top” and play a leading role in establishing thelicensee’s corporate culture and values, and oversee management’s role in fostering and maintaining a sound corporate and risk culture;(b) Ensure that no individual or group of directors dominates the Board’s decision-making and no individual or group has unfettered powers of decision;(c) Approve and oversee the development of thelicensee’s strategy, business plans and budget, and monitor their implementation;(d) Actively engage in the affairs of thelicensee , keep up with material changes in thelicensee’s business and the external environment and act in a timely manner to protect the long-term interests of thelicensee ;(e) Convene and prepare the agenda for shareholder meetings;(f) Approve, and oversee the implementation of, thelicensee’s governance framework, risk management framework and all policies, and review the relevant parts of these as well as review key controls in case a new business activity is considered, or in case of material changes to thelicensee’s size, complexity, business strategy, markets or regulatory requirements, or the occurrence of a major failure of controls;(g) Establish, along with senior management and the chief risk officer, thelicensee’s risk appetite, considering thelicensee’s strategy, competitive and regulatory landscape, thelicensee’s long-term interests, risk exposure and ability to manage risk effectively, and oversee thelicensee’s adherence to the risk appetite statement, risk policy and risk limits;(h) Ensure that:i. Adequate systems, controls, processes and procedures are implemented by senior management in line with the Board approved policies;ii. Thelicensee has adequate processes to ensure full compliance with the requirements of the CBB Law, other relevant laws and the pertinent rulebooks;iii. Thelicensee has a robust finance function responsible for accounting and financial data;iv. The risk management, compliance and internal audit functions are properly positioned, staffed and resourced and carry out their responsibilities independently, objectively and effectively; andv. Senior management maintains an effective and transparent relationship with the CBB;(i) Approve the annual financial statements and, where applicable, the interim financial statements;(j) At minimum, approve the selection and oversee the performance of the chief executive officer (CEO), chief financial officer and heads of the risk management, compliance and internal audit functions;(k) Actively oversee the remuneration system’s design and operation forapproved person s and monitor and review executive compensation and assess whether it is aligned with thelicensee’s remuneration policy, risk culture and risk appetite; and(l) Consider the legitimate interests of shareholders and other relevant stakeholders in their decision-making process.Added: July 2023HC-1.1.2
The Board may, where appropriate, delegate some of its functions, but not its responsibilities, to the Board committees.
Added: July 2023HC-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.Added: July 2023HC-1.1.4
Each director must:
(a) Understand the Board’s role and responsibilities pursuant to the CBB Rulebook, the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time;(b) Consider themselves as representing all shareholders and must act accordingly; and(c) Ensure that they receive adequate and timely information before each meeting and must study it carefully.Added: July 2023HC-1.2 Corporate Culture and Values
HC-1.2.1
In order to promote a sound corporate culture, the Board must:
(a) Approve an appropriate code of conduct/ ethics that must outline the acceptable practices that all Board members, senior management and other staff must follow in performing their duties, and the unacceptable practices/ conduct that must be avoided;(b) Set and adhere to corporate values that create expectations that the business must be conducted in a legal, professional and ethical manner, and oversee the adherence to such values by Board members, senior management and other employees;(c) Promote risk awareness within a strong risk culture, convey the Board’s expectation that it does not support risk-taking beyond the risk appetite and risk limits set by the Board, and that all employees are responsible for ensuring that thelicensee operates within the established risk appetite and risk limits;(d) Ensure that the corporate values, professional standards and codes of conduct it sets, together with supporting policies, are adequately communicated throughout thelicensee ; and(e) Ensure that all directors, senior management and other staff are aware that appropriate disciplinary or other actions will follow unacceptable behaviour, practices and transgressions.Added: July 2023HC-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.
Added: July 2023HC-1.2.3
The Board of the
investment firm licensees must:(a) Have oversight of the whistleblowing policy mechanism and ensure that senior management addresses legitimate issues that are raised;(b) Take responsibility for ensuring that staff who raise concerns are protected from detrimental treatment or reprisals, and that their rights are not undermined;(c) Approve and oversee how and by whom legitimate material concerns shall be investigated and addressed such as by an objective and independent internal or external body, senior management and/or the Board itself; and(d) Ensure that, after verifying the validity of the allegations, the person responsible for any misconduct is held accountable and is subjected to an appropriate disciplinary measure.Added: July 2023HC-1.2.4
The Board must establish a conflict of interest policy on identifying and managing potential conflicts of interest related to all
approved persons . The policy must include:(a) Anapproved person ’s duty to:i. Avoid, to the extent possible, activities that could create conflicts of interest or the appearance of conflicts of interest. Anapproved person shall be considered to have a “personal interest” in a transaction with a company if they themselves, or a member of their family (i.e. spouse, father, mother, sons, daughters, brothers or sisters), or another company of which they are a director or controller, are a party to the transaction or have a material financial interest in the transaction or are expected to derive material personal benefit from the transaction (transactions and interests which are de minimis in value should not be included);ii. Promptly disclose any matter that may result, or has already resulted, in a conflict of interest;iii. Abstain from getting involved in or voting on any matter where they may have a conflict of interest or where their objectivity or ability to properly fulfil duties to thelicensee may be otherwise compromised. Any decision to enter into a transaction in which anapproved person appears to have a material conflict of interest must be formally and unanimously approved by the entire Board;iv. Act with honesty, integrity and care for the best interest of thelicensee and its shareholders and other stakeholders;v. Not use properties of thelicensee for their personal needs;vi. Not misuse or misappropriate thelicensee’s assets or resources;vii. Not disclose confidential information of thelicensee or use it for their personal profit or interest;viii. Make every practicable effort to arrange their personal and business affairs to avoid a conflict of interest with thelicensee ;ix. Not take business opportunities of thelicensee for themselves; andx. Not compete in business with thelicensee or serve thelicensee’s interest in any transaction with a company in which they have a personal interest.(b) Examples of where conflict of interest may arise when serving as anapproved person ;(c) A rigorous review and approval process forapproved persons to follow before they engage in certain activities (such as serving on another Board) so as to ensure that such activity will not create a conflict of interest;(d) Adequate requirements that transactions with related parties must be made on an arm’s length basis;(e) Sufficient restrictions on and/or a robust and transparent process for the employment of relatives ofapproved persons ;(f) Requirements for properly managing and disclosing conflict of interest that cannot be prevented;(g) Requirements for allapproved persons to annually declare in writing all their other interests in other enterprises or activities (whether as a shareholder of above 5% of the voting capital of a company, a manager or other form of significant participation) to the Board or a designated Board committee; and(h) The way in which the Board will deal with any non-compliance with the policy.Added: July 2023HC-1.2.5
Where there is a potential for conflict of interest, or there is a need for impartiality, the Board must assign a sufficient number of independent Board members capable of exercising independent judgement, to address the conflict.
Added: July 2023HC-1.2.6
The CEO/General Manager of the
investment firm must disclose to the Board of directors on an annual basis those individuals who are occupyinglicensee scontrolled functions and who are relatives of any otherapproved person within thelicensee .Added: July 2023HC-1.3 Oversight of Senior Management
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:(a) Meet regularly with senior management;(b) Subject senior management to annual performance assessment and document such assessments;(c) Ensure thatapproved persons ’ collective knowledge and expertise remain appropriate given thelicensee’s nature of business and risk profile;(d) Ensure that senior management’s actions are in full compliance with applicable laws and regulations and consistent with the strategy, business plan and policies approved by the Board, including risk appetite;(e) Question, challenge and critically review the explanations and information provided by senior management; and(f) Ensure that appropriate succession plans are in place for allapproved persons within senior management (provided that such plans are subject to review in case of any changes toapproved persons within senior management).Added: July 2023HC-2 Board Formation
HC-2.1 Board Composition
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 .Added: July 2023HC-2.1.2
The Board must have a sufficient number of independent directors. In case of a
Bahraini investment firm licensees with a controller, at least one-third of the Board must be independent.Added: July 2023HC-2.1.3
If the
Bahraini investment firm 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 thelicensee’s overall interests, regardless of who appoints them.Added: July 2023HC-2.1.4
The CBB may call upon each independent director at its discretion to have a general discussion on the affairs of the
Bahraini investment firm licensee .Added: July 2023HC-2.2 Board Member Selection
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.
Added: July 2023HC-2.2.2
Board candidates must:
(a) Possess the knowledge, skills, experience and, particularly in the case of non-executive directors, independence of mind necessary to discharge their responsibilities on the Board in light of thelicensee’s business and risk profile;(b) Have a record of integrity and good repute;(c) Have sufficient time to fully carry out their responsibilities;(d) Not have any conflicts of interest that may impede their ability to perform their duties independently and objectively and subject them to undue influence from:
i. Otherapproved persons , controllers or other connected parties;ii. Past or present positions held; oriii. Personal, professional or other economic relationships with otherapproved persons (or with other entities within the group); and(e) Not have more than two directorships of financial institutions inside Bahrain. However, two directorships ofinvestment firm licensees would not be permitted.Investment firm licensees may approach the CBB for exemption from this limit where the directorships concern financial institutions within the same group.Added: July 2023HC-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
Added: July 2023HC-2.2.4
Nominated directors of a
Bahraini investment firm licensee must possess the requisite experience and competencies specified in Module TC (Training and Competency).Added: July 2023HC-2.2.5
A CEO of a
Bahraini investment firm licensee who has resigned or retired, may serve as a Board member of the samelicensee but not as an independent director.Added: July 2023HC-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 and the following specific information:
(a) The term to be served, which may not exceed three years;(b) Biographical details and professional qualifications;(c) In the case of an independent director, a statement that the Board has determined that the applicable rules and criteria for independent director have been met;(d) Any other directorships held;(e) Particulars of other positions which involve significant time commitments; and(f) Details of relationships (if any) between:i. the candidate and thelicensee , andii. the candidate and otherapproved persons of thelicensee .Added: July 2023HC-2.2.7
Newly appointed directors must be made aware of their duties before their nomination, particularly as to the time commitment required.
Added: July 2023HC-2.3 Board Members’ Appointment and Induction
Board Members’ Appointment
HC-2.3.1
The chairperson of the Board must confirm to shareholders when proposing re-election of a director that, following a formal performance evaluation, the person’s performance continues to be effective and they continue to demonstrate commitment to the role.
Added: July 2023HC-2.3.2
Where an independent director has served three consecutive terms on the Board, such director will lose his independence status and must not be classified as an independent director if reappointed.
Added: July 2023HC-2.3.3
Bahraini investment firm licensees must have a written appointment agreement with each director which recites the directors’ powers, duties and responsibilities, accountability, term, the time commitment envisaged, the committee assignment (if any), remuneration, expense reimbursement entitlement and their access to independent legal or other professional advice at the expense of thelicensee when needed to discharge their responsibilities as directors.Added: July 2023Board Members’ Induction
HC-2.3.4
The Board must ensure that:
(a) Sufficient time, budget and other resources are allocated annually for the Board members’ induction programmes;(b) Each new director receives a formal and tailored induction and has access to ongoing training on relevant issues which may involve internal or external resources to ensure their effective contribution to the Board from the beginning of their term; and(c) The induction programmes include meetings with senior management, visits to theinvestment firm licensee’s facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, and meetings with internal and external auditors and legal counsel.Added: July 2023HC-2.3.5
Board members must understand their oversight and corporate governance role and be able to exercise sound, objective judgment about the affairs of the
investment firm licensee .Added: July 2023HC-2.3.6
All continuing directors must be invited to attend orientation meetings and all directors must continually educate themselves as to the
licensee ’s business and corporate governance.Added: July 2023HC-3 Board’s Structure and Practices
HC-3.1 Organisation and Assessment of the Board
HC-3.1.1
The Board of a
Bahraini investment firm licensees must:(a) Adopt a formal Board charter specifying matters which are reserved for it, which must include, but are not limited to, the specific requirements and responsibilities of directors stipulated in this Module and the Commercial Companies Law;(b) Structure itself in terms of leadership, size and the use of committees so as to effectively carry out its oversight role and other responsibilities. This includes ensuring that the Board has the time and means to cover all necessary subjects in sufficient depth and have a robust discussion of key issues;(c) Maintain and periodically update its governance structure, organisational rules, by-laws and other similar documents setting out its organisation, rights, responsibilities and key activities; and(d) Carry out annual evaluation and assessments – alone or with the assistance of external experts – of the Board, its committees and individual Board members. This must include:i. Assessing how the Board operates in terms of the requirements of the CBB Rulebook and the Commercial Companies Law;ii. Evaluating the performance of each committee considering its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;iii. Reviewing each director's work, their attendance at Board and committee meetings, and their independence and constructive involvement in discussions and decision making;iv. Reviewing the Board’s current structure, size, composition as well as committees’ structures and composition in order to maintain an appropriate balance of skills, diversity and experience and for the purpose of planned and progressive refreshing of the Board; andv. Recommendations for new directors to replace long-standing members or those members whose contribution to the Board or its committees is not adequate.Added: July 2023HC-3.1.2
Where the Board has serious reservations about the performance or integrity of a Board member, or he ceases to be qualified, the Board must take appropriate action and inform the CBB accordingly.
Added: July 2023HC-3.1.3
The Board must report to the shareholders, at each annual shareholder meeting, that evaluations have been done and report its findings.
Added: July 2023HC-3.1.4
Executive directors must provide the Board with all relevant business and financial information within their knowledge and must recognise that their role as a director is different from their role as a member of management.
Added: July 2023HC-3.1.5
Non-executive directors must be fully independent of management and must constructively scrutinise and challenge management and executive directors.
Added: July 2023HC-3.1.6
The Board must maintain appropriate records of meeting minutes, including key points of discussions held, recommendations made, decisions taken and dissenting opinions (if any).
Added: July 2023HC-3.1.7
The Board must meet at least four times a year to enable it to discharge its responsibilities effectively, and half of all Board meetings in any financial year must be held in the Kingdom of Bahrain.
Added: July 2023HC-3.1.8
Individual Board members must attend at least 75% of all Board meetings in a given financial year, whether in-person or virtually (if needed) so as to enable the Board to discharge its responsibilities effectively (see table below). Voting and attendance proxies for Board meetings are prohibited.
Meetings per year 75% Attendance requirement 4 3 5 4 6 5 7 5 8 6 9 7 10 8 Added: July 2023HC-3.1.9
The absence of Board members at Board and committee meetings must be noted in the relevant meeting minutes. In addition, Board attendance percentage must be reported during any general assembly meeting when Board members stand for re-election (e.g. Board member XYZ attended xx% of scheduled meetings this year).
Added: July 2023HC-3.1.10
If a Board member has not attended at least 75% of Board meetings in any given financial year, the
licensee must notify the CBB, within one month from its financial year-end, indicating which member has failed to satisfy this requirement, their level of attendance and the reason for non-attendance. The CBB shall then consider the matter and determine whether enforcement action pursuant to Article 65 of the CBB Law is appropriate.Added: July 2023HC-3.1.11
Board governance framework should require members to step down if they are not actively participating in Board meetings.
Added: July 2023HC-3.2 Board Chairperson
HC-3.2.1
The Chairperson of the Board of the
Bahraini investment firm licensees must:(a) Not be an executive director;(b) Not be the same person as the CEO. This applies also to the deputy chairperson;(c) Commit sufficient time to perform their role effectively;(d) Play a critical role in promoting mutual trust, efficient functioning of the Board, open discussion, constructive dissent from decisions and constructive support for decisions after they have been made;(e) Ensure that all directors receive an agenda, minutes of prior meetings and adequate background information on each agenda item in writing well before each Board meeting;(f) Encourage and promote critical and objective discussion and ensure that dissenting views can be freely expressed, discussed and recorded in the minutes of the Board meeting; and(g) Ensure that Board decisions are taken on sound and well-informed basis.Added: July 2023HC-3.3 Board Committees
HC-3.3.1
Bahraini investment firm licensees must comply with the requirements of this Section for each of the Board committees it establishes. The Board must at minimum establish an Audit Committee.Added: July 2023HC-3.3.2
Objectivity and independence must be ensured by the selection of appropriate Board members in each committee.
Added: July 2023HC-3.3.3
Committees may be combined provided that no conflict of interest arises between the duties of such committees, and subject to the CBB’s prior approval.
Added: July 2023HC-3.3.4
Every committee must have a formal written charter or other instrument which sets out its roles and responsibilities, how the committee will report to the Board, what is expected of committee members and any tenure limits for serving on the committee.
Added: July 2023HC-3.3.5
Each committee must have the resources and the authority necessary to discharge its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of external legal, accounting or other advisors as it deems necessary.
Added: July 2023HC-3.3.6
Each Board committee must maintain appropriate records of their deliberations and decisions in their meeting minutes, including key points of discussions held, recommendations made, decisions taken (and update on their subsequent implementation) and dissenting opinions (if any).
Added: July 2023HC-3.3.7
Each committee must prepare and review with the Board an annual performance evaluation of the committee and its members and must recommend to the Board any improvements deemed necessary or desirable to the committee’s charter or composition. The report must be in the form of a written report presented at any regularly scheduled Board meeting.
Added: July 2023HC-3.3.8
Members of each committee must exercise judgment free from any personal conflicts of interest or bias.
Added: July 2023HC-3.3.9
The Board should consider occasional rotation of membership and chair of the Board committees provided that doing so does not impair the collective skills, experience and effectiveness of these committees.
Added: July 2023HC-3.4 Audit Committee
HC-3.4.1
The audit committee of the
Bahraini investment firm licensee must have at least three directors of which the majority must be independent and have no conflict of interest with any other duties they have.Added: July 2023HC-3.4.2
The Chairperson of the audit committee must:
(a) Be independent; and(b) Not be the chairperson of the board, unless he is considered independent.Added: July 2023HC-3.4.3
The CEO and other senior management of the
Bahraini investment firm licensee must not be members of the audit committee.Added: July 2023HC-3.4.4
The audit committee members must have sufficient experience in audit practices, financial reporting and accounting.
Added: July 2023HC-3.4.5
The audit committee must meet:
(a) At least four times a year.(b) At least twice a year with the external auditor.(c) At least once a year in the absence of the CEO and any executive management, but in presence of the Head of Compliance, Internal Auditor and CRO.Added: July 2023HC-3.4.6
The audit committee must, at minimum:
(a) Ensure that thelicensee has effective and adequate policies covering all its business activities, internal audit, financial reporting, compliance, risk management, prevention of frauds and cyber security breaches, etc.;(b) Oversee the financial reporting process;(c) Oversee and interact with thelicensee’s internal and external auditors;(d) Review the integrity of thelicensee’s financial statements;(e) Recommend to the Board, based on a Board approved objective criteria, the appointment, remuneration, dismissal and rotation of external auditors;(f) Review and approve the internal and external audit and compliance scope;(g) Receive internal and external audit and compliance reports and ensure that senior management is taking necessary corrective actions in a timely manner to address any control weaknesses, non-compliance with policies, laws and regulations, and other problems identified by auditors, the head of compliance and other control functions;(h) Assess once a year the extent to which thelicensee is managing its compliance risk effectively;(i) Ensure that the agenda for their meetings includes compliance and internal audit issues at least every quarter;(j) Recommend the appointment and dismissal of the heads of internal audit and compliance functions. Thelicensee must also discuss the reasons for their dismissal with the CBB.(k) Make a determination, at least once a year, of the external auditor’s independence;(l) Review and supervise the implementation and enforcement of thelicensee's code of conduct, unless such mandate is delegated to another committee such as the Governance Committee; and(m) Ensure that senior management establishes and maintains an adequate and effective internal control systems, procedures and processes for the business of thelicensee .Added: July 2023HC-3.4.7
In case the
licensee has a different board committee overseeing and monitoring compliance issues, then all of the above compliance-related requirements in Paragraph HC-3.4.6 can be handled by such committee instead.Added: July 2023HC-3.5 Risk Committee
HC-3.5.1
Where a
Bahraini investment firm licensee establishes a Board risk committee, such committee should have at least three directors of which the majority, including the chairperson should be independent. In addition, the committee members should have experience in risk management issues and practices and have no conflict of interest with any other duties they may have.Added: July 2023HC-3.5.2
There should be effective communication and coordination between the audit committee and the risk committee to facilitate the exchange of information and effective coverage of all risks, including emerging risks, and any needed adjustments to the risk governance framework of the
licensee .Added: July 2023HC-3.6 Remuneration Committee
HC-3.6.1
Where a
Bahraini investment firm licensee establishes a Board remuneration committee, such committee should have at least three directors.Added: July 2023HC-3.6.2
Members of the remuneration committee should be independent of any risk-taking function or committee.
Added: July 2023HC-3.6.3
The remuneration committee should include only independent directors or, alternatively, only non-executive directors of whom a majority are independent directors and the chairperson should be an independent director.
Added: July 2023HC-3.6.4
The remuneration committee should meet at least twice a year.
Added: July 2023HC-3.6.5
The remuneration committee should:
(a) Recommend to the Board:i. An appropriate remuneration policy designed to reduce employees’ incentives to take excessive and undue risk, which must be approved by the shareholders; andii. A fair and internally transparent remuneration system, which includes relevant performance measures and effective controls;(b) Ensure on an annual basis that the remuneration policy and its implementation:i. Are in full compliance with CBB requirements;ii. Are consistent with thelicensee’s strategy, culture, long-term business objectives, risk appetite, performance and control environment; andiii. Are creating the desired incentives for managing risk, capital and liquidity.(c) Work closely with the risk committee in evaluating the incentives created by the remuneration system. The risk committee must, without prejudice to the tasks of the remuneration committee, examine whether incentives provided by the remuneration system take into consideration risk, capital, liquidity and the likelihood and timing of earnings;(d) Approve the remuneration package and amounts for eachapproved person and material risk-taker, as well as the total variable remuneration to be distributed based on the results of the performance evaluation system and taking account of total remuneration including salaries, fees, expenses, bonuses and other employee benefits;(e) Regularly review remuneration outcomes, risk measurements, and risk outcomes for consistency with Board’s approved risk appetite;(f) Question payouts for income that cannot be realised or whose likelihood of realisation remains uncertain at the time of payout;(g) Recommend Board member remuneration based on their attendance and in compliance with the Commercial Companies Law;(h) Evaluate practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain by means of both quantitative and qualitative key indicators. It must demonstrate that its decisions are consistent with the assessment of thelicensee’s financial condition and future prospects; and(i) Obtain feedback on performance evaluation of the Chief Risk Officer, Chief Internal Auditor and Head of Compliance from the designated Board committee responsible for oversight of these functions.Added: July 2023HC-3.7 Corporate Governance Committee
HC-3.7.1
The
Bahraini investment firm licensee should assign to one of its senior management the role of a corporate governance officer who is responsible for the tasks of verifying thelicensee’s compliance with corporate governance rules and regulations.Added: July 2023HC-3.7.2
The Board should establish a corporate governance committee for developing and recommending changes from time to time in the
licensee ’s corporate governance policy framework. Such committee should have at least three directors of which the majority should be independent.Added: July 2023HC-3.7.3
The corporate governance committee should:
(a) Oversee and monitor the implementation of the governance policy framework by working with the management and the Audit Committee; and(b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.Added: July 2023HC-3.7.4
The responsibilities of the corporate governance officer may be assumed by the head of compliance and should include, at minimum:
(a) Coordinating and following up on thelicensee’s compliance with corporate governance requirements;(b) Ensuring that the corporate governance policies, their implementation and related internal controls are consistent with the regulatory and legal requirements;(c) Working closely with the Board and/or the relevant Board committee to improve the governance framework of thelicensee ; and(d) Reviewing the annual corporate governance disclosure to ensure that its contents are in conformity with thelicensee’s internal policies and the CBB rulebook requirements.Added: July 2023HC-4: Group Structures
HC-4.1 Governance of Group Structures
HC-4.1.1
The Board of a
Bahraini investment firm licensee which acts as aparent must:(a) Have the overall responsibility for the group and exercise adequate oversight over subsidiaries and overseas branches while respecting the independent legal and governance responsibilities that might apply to subsidiary Boards;(b) Establish, subject to CBB’s approval, a group structure (including the legal entity and business structure) and a group corporate governance framework with clearly defined roles and responsibilities at both theparent licensee’s and the subsidiaries’ level as may be appropriate based on the complexity, risks and significance of the subsidiaries;(c) Set adequate and comprehensive criteria for composing Boards at subsidiaries’ level;(d) Have a clear strategy and group policy for establishing new structures and legal entities, and ensure that they are consistent with the policies and interests of the group;(e) Have sufficient resources at group and subsidiaries levels to monitor risks and compliance at the level of the group and its subsidiaries;(f) Pay special attention and due care to any significant subsidiary based on its risk profile or systemic importance or due to its size relative to theparent licensee ;(g) Assess and discuss material risks and issues that might affect the group and its subsidiaries and overseas branches;(h) Establish effective group functions at theparent licensee , including but not limited to, internal audit, compliance, risk management and financial controls to whom the relevant subsidiaries’ functions must report;(i) Maintain an effective relationship, through the subsidiary Board or direct contact, with the regulators of all subsidiaries and overseas branches; and(j) ensure that:i. The group has appropriate policies and controls to identify and address potential intragroup conflicts of interest, such as those arising from intragroup transactions;ii. The group is governed and operating under clear group strategies, business policies and specific set of group policies on risk management, internal audit, compliance and financial controls;iii. There are no barriers to exchanging information between the subsidiaries and theparent licensee and that there are robust systems in place to facilitate the exchange of information to enable theparent licensee to effectively supervise the group and manage its risks; andiv. Adequate authority is available to each subsidiary pursuant to local legislations.Added: July 2023Subsidiaries’ Boards
HC-4.1.2
Boards and senior management of subsidiaries of
Bahraini investment firm licensees must remain responsible for developing effective governance and risk management framework for their entities and must clearly understand the reporting obligations they have to theparent licensee .Added: July 2023HC-4.1.4
Material risk-bearing subsidiaries and overseas branches must be captured by the
licensee -wide risk management system and must be part of the overall risk governance framework.Added: July 2023HC-4.1.3
The strategy, business plan, policies, risk governance framework, corporate values and corporate governance framework of each subsidiary must align with group strategy and policies, and the subsidiary Board must make necessary adjustments where a group policy conflicts with an applicable legal or regulatory provision or prudential rule or would be detrimental to the sound and prudent management of the subsidiary.
Added: July 2023HC-5 Remuneration of Approved Persons
HC-5.1 Remuneration of Approved Persons
HC-5.1.1
Bahraini investment firm licensees must have in place a Board approved remuneration policy.Licensees must ensure that allapproved persons are remunerated fairly and responsibly. More specifically, the remuneration must be sufficient to attract, retain and motivate persons.Added: July 2023HC-5.1.2
The performance evaluation and remuneration of senior management and staff of the
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.Added: July 2023HC-5.1.3
Remuneration ofnon-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.Added: July 2023HC-6 Senior Management
HC-6.1 Senior Management
HC-6.1.1
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.Added: July 2023HC-6.1.2
Senior management must:
(a) Be selected through an appropriate promotion or recruitment process which considers the qualifications and competencies required for the position in question;(b) Have the necessary experience, competencies, personal qualities and integrity to manage the businesses and employees under their supervision;(c) Be subject to regular training to maintain and enhance their competencies and stay up to date on developments relevant to their areas of responsibility;(d) Act within the scope of their responsibilities which must be clearly defined;(e) Independently assess and question the policies, processes and procedures of thelicensee , with the intent to identify and initiate management action on issues requiring improvement;(f) Not interfere in the independent duties of the risk management, compliance and internal audit functions;(g) Carry out and manage thelicensee’s activities in compliance with all laws and regulations, and in a manner consistent with the business strategy, risk appetite, business plans and remuneration and other policies approved by the Board;(h) Have a robust governance framework for all management committees;(i) Not primarily control the remuneration system in thelicensee ;(j) Actively communicate and consult with the control functions on management’s major plans and activities so that the control functions can effectively discharge their responsibilities; and(k) Provide the Board and its committees with timely, complete, accurate and understandable information and documents so that they are equipped for upholding their responsibilities, and keep them adequately informed and updated on a timely basis about material issues including:i. Changes in the implementation of business strategy, risk strategy and risk appetite;ii. Thelicensee’s performance and financial condition;iii. Breaches of risk limits or regulations;iv. Internal control failures, frauds and cyber-security incidents;v. Legal or regulatory concerns;vi. Customer complaints; andvii. Issues raised as a result of thelicensee’s whistleblowing policy.Added: July 2023HC-7 Compliance
HC-7.1 Compliance
HC-7.1.1
The Board must:
(a) Oversee the management of thelicensee’s compliance risk;(b) Establish an independent compliance function and approve an appropriate compliance framework for thelicensee based on its size and complexity of its operations;(c) Set priorities for the management of its compliance risk in a way that is consistent with its risk management strategy and structures; and(d) Approve thelicensee’s compliance policy for identifying, assessing, monitoring, reporting and advising on compliance risk.Added: July 2023HC-7.1.2
The compliance function and the internal audit function must be separate.
Added: July 2023HC-7.1.3
The Board, Audit Committee or the designated Board committee and senior management must:
(a) Ensure that, based on an agreed remedial action plan, all compliance findings are resolved within a reasonable period of time to be set based on level and magnitude of risk;(b) Not restrict the compliance function from reporting any irregularities or breaches that are identified as a result of its work or investigations, and must ensure that such reporting can be done without fear of retaliation or disfavour from management, board members or other staff members;(c) Ensure that the head of compliance and his staff are not placed in a position where there is a possible conflict of interest between their compliance responsibilities and any other responsibilities they may have;(d) Not consider the compliance function as a cost center; instead it should be viewed as an activity that helps thelicensee avoid enforcement action for non-compliance, enhances thelicensee’s reputation and promotes the right environment for better financial performance; and(e) Ensure the compliance function’s right to:i. Have unrestricted access to any records or files necessary to carry out its responsibilities, and the corresponding duty oflicensee staff to co-operate in supplying this information;ii. Conduct investigations of possible breaches of the applicable laws, regulations and the compliance policy; andiii. Appoint, subject to audit committee’s approval, outside experts to perform a specific task, if appropriate.Added: July 2023HC-7.1.4
Licensees must appoint a head of compliance with overall responsibility for thelicensee’s compliance function.Added: July 2023HC-7.1.5
In groups (applicable to Category 1 investment firms):
(a) The audit committee and senior management, with assistance of the group head of compliance, should ensure that adequate resources, commensurate with the scale and complexity of operations, are assigned for compliance activities at the head office, subsidiaries and overseas branches; and(b) The group head of compliance should ensure that:i. Adequate reports and information are received from subsidiaries and overseas branches on compliance related issues and must report the same to the audit committee; andii. It conducts annual compliance testing on subsidiaries and overseas branches whose total revenue represents 20% or more of the group’s total revenue and every two years for other overseas operations.Added: July 2023HC-7.1.6
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
licensee justify the same.Added: July 2023HC-7.1.7
The head of compliance must:
(a) Report to the Audit Committee or the designated Board committee and administratively to the CEO. In the case ofoverseas investment firm licensees , the reporting must be to the Group or Regional Head of Compliance and administratively to the CEO/GM of the branch;(b) Establish the operating compliance procedures and processes for identifying, assessing, monitoring, reporting and advising on compliance risk;(c) Establish written guidance to thelicensee’s staff on the appropriate implementation of laws and regulations;(d) Conduct, under the sponsorship of the CEO, awareness sessions for thelicensee’s staff on compliance policy requirements and issues; and(e) Report to the Audit Committee or the designated Board Committee:i. On a quarterly basis, thelicensee’s management of its compliance risk, in such a manner as to assist committee members to make an informed judgment on whether thelicensee is managing its compliance risk effectively; andii. Immediately any material compliance failures as they arise (e.g. failures that may attract a significant risk of legal or regulatory sanctions, material financial loss, or loss of reputation).Added: July 2023HC-7.1.8
The compliance function must:
(a) Have a formal status with sufficient authority within thelicensee ;(b) Carry out its responsibilities under a risk-based compliance programme that sets out its planned activities, such as the implementation and review of specific policies and procedures, compliance risk assessment and compliance testing;(c) Assess in cooperation with the relevant functions, in case of new regulations, the appropriateness of thelicensee’s relevant policies as well as the compliance policy and related procedures and processes. It must promptly follow up regarding any identified deficiencies, and, where necessary, formulate proposals for amendments in cooperation with the relevant functions;(d) On a proactive basis, identify, measure, document and assess the compliance risks associated with thelicensee’s business activities including the development of new products and business practices, proposed establishment of new types of business or customer relationships, or material changes in the nature of such relationships. If thelicensee has a new products and services committee, the compliance function staff must be represented on the committee;(e) Monitor and test compliance by performing sufficient and representative compliance testing. The results of such testing must be reported to the Audit Committee ;(f) Advise the audit committee and senior management on all relevant laws, regulations and standards in all jurisdictions in which thelicensee conducts its business and inform them on developments on the subject;(g) Must provide to the CBB a compliance assessment report on every application/request for approval to the CBB confirming that all related legal and regulatory requirements pertaining to the request have been thoroughly checked, including the impact of such request on thelicensee’s financial position and compliance status, and a reference must be made to any previously approved arrangements by the CBB. In cases where the requests have a potential financial impact on thelicensee , a report from the financial control function in consultation with external auditors must also be submitted as part of the compliance assessment report, whereas in case of any legal implication of such a request a legal opinion on the matter must be submitted;(h) Act as a contact point within thelicensee for compliance queries from staff members; and(i) Have sufficient and appropriate resources to carry out its functions effectively, commensurate with the size and complexity of thelicensee .Added: July 2023HC-7.1.9
The compliance function staff must:
(a) Have the necessary qualifications, experience and professional and personal qualities to enable them to carry out their specific duties;(b) Have a sound understanding of applicable laws, regulations and standards and their practical impact on thelicensee’s business activities and operations; and(c) Be subject to regular and systematic training to remain up-to-date with developments in laws, regulations and standards.Added: July 2023HC-7.1.10
The CBB may at its own discretion communicate directly with the Head of Compliance to discuss issues of material concerns related to compliance risk.
Added: July 2023HC-8 Internal Audit
HC-8.1 Internal Audit
HC-8.1.1
Investment firm licensees must establish an effective and independent internal audit function (IAF).Added: July 2023HC-8.1.2
The Audit Committee remains ultimately responsible for the IAF regardless of whether internal audit activities are outsourced.
Added: July 2023HC-8.1.3
The Board, Audit Committee and senior management must:
(a) Promote a strong and robust internal control environment within thelicensee ;(b) Provide the IAF staff full and unconditional access to all files, records, data, documents, systems, properties, subsidiaries and overseas branches of thelicensee ;(c) Require that all internal audit findings and recommendations are resolved within a reasonable period of time to be set based on level and magnitude of risk;(d) Allocate sufficient annual budget to support the IAF’s activities and plans; and(e) Inform the IAF of new developments, initiatives, projects, products and operational changes.Added: July 2023HC-8.1.4
All
Bahraini investment firm 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 investment firm.Added: July 2023HC-8.1.5
The internal audit charter must establish, at a minimum:
(a) The IAF’s standing within thelicensee , its authority, responsibilities and relations with other control functions in a manner that promotes the effectiveness of the function;(b) The purpose and scope of the IAF;(c) The obligation of the internal auditors to communicate the results of their engagements and a description of how and to whom this must be done (reporting line);(d) The criteria for when and how the IAF may outsource some of its engagements to external experts;(e) The terms and conditions according to which the IAF can be called upon to provide consulting or advisory services or to carry out other special tasks without creating a conflict with its core function;(f) The responsibility and accountability of the head of internal audit;(g) The requirement to comply with the international standard on internal audit issued by The Institute of Internal Auditor; and(h) Procedures for the coordination of the IAF with the external auditor.Added: July 2023HC-8.1.6
The IAF must:
(a) Be independent of all functions;(b) Have sufficient standing and authority within thelicensee ;(c) Have sufficient skilled resources to be able to judge outcomes and make an impact at the highest level of the organization;(d) Be able to perform its assignments on its own initiative in all areas and functions of thelicensee based on the audit plan established by the head of the IAF and approved by the audit committee;(e) Be free to report its findings and assessments internally;(f) Independently review and evaluate the effectiveness and efficiency of all functions, internal controls, risk management, internal risk and finance models, governance framework, policies, procedures, systems and processes, including thelicensee’s outsourced activities and its subsidiaries (including SPVs) and local and overseas branches, and must ensure adequate coverage of matters of regulatory interest within the audit plan;(g) Develop an independent and informed view of the risks faced by thelicensee based on its access to alllicensee records and data, its enquiries and its professional competence;(h) Discuss its views, findings and conclusions directly with the audit committee and, if necessary, with the board of directors at their routine quarterly meetings; and(i) Not be involved in designing, selecting, implementing or operating specific internal control measures. However, the independence of the IAF must not prevent senior management from requesting input from the IAF on matters related to risk and internal controls. Nevertheless, the development and implementation of internal controls must remain the responsibility of management.Added: July 2023HC-8.1.7
Licensees must appoint a head of internal audit who shall:(a) Report directly to the Audit Committee and administratively to the CEO;(b) Demonstrate appropriate leadership and have the necessary personal characteristics and professional skills to fulfil his responsibility for maintaining the function’s independence and objectivity;(c) Inform senior management of all significant findings so that timely corrective actions can be taken, and subsequently, he must follow up with senior management on the outcome of those corrective measures;(d) Report quarterly to the Audit Committee the status of pending findings;(e) Arrange appropriate ongoing training for the internal audit staff to meet the growing technical complexity of thelicensee ’s activities and the increasing diversity of tasks that need to be undertaken as a result of the introduction of new products and processes and other developments in the financial sector;(f) Establish an annual internal audit plan approved by the audit committee. The plan must be based on a robust risk assessment, including direct or indirect input from the board, audit committee and senior management;(g) Develop and maintain appropriate tools to assess the quality of the IAF; and(h) Define, in a group structure, the group’s internal audit strategy, determine the organisation of the internal audit function both at theparent ’s and the subsidiary’s level (in consultation with these entities’ respective audit committees and in accordance with local laws) and formulate the internal audit principles, the audit methodology and quality assurance measures. He must also determine the audit scope for every internal audit exercise, by the parent’s internal audit function, for every subsidiary on an annual basis in compliance with local regulations and incorporate local knowledge and experience.Added: July 2023HC-8.1.8
The head of IAF should, whenever practicable and without jeopardising competence and expertise, periodically rotate internal audit staff within the internal audit function.
Added: July 2023HC-8.1.9
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.
Added: July 2023HC-8.1.10
For purposes of Paragraph HC-8.1.7,
licensees may outsource the IAF.Added: July 2023HC-8.1.11
Internal audit reports must be provided to the audit committee without management filtering.
Added: July 2023HC-8.1.12
All internal audit staff must:
(a) Apply the care and skills expected of a reasonably prudent and competent professional. Due professional care does not imply infallibility. Internal auditors having limited competence and experience in a particular area must be appropriately supervised by more experienced staff;(b) Avoid conflicts of interest. Internal auditors appointed from within thelicensee must not engage in auditing activities for which they have had previous responsibility before a one year “cooling off” period has elapsed;(c) Act with integrity (being straightforward, honest and truthful);(d) Be diligent in the protection of information acquired in the course of their duties and must not use it for personal gain or malicious action;(e) Adhere to the code of ethics of thelicensee , the institute of internal auditors and any other relevant professional or standard setting body;(f) Collectively be competent to examine all areas in which thelicensee operates; and(g) Adhere to international professional standards established by the institute of internal auditors.Added: July 2023HC-9 Islamic Investment Firm Licensees
HC-9.1 Governance and Disclosure per Shari’a Principles
HC-9.1.1
Companies which refer to themselves as “Islamic” must follow the principles of Islamic Shari’a.
Added: July 2023HC-9.1.2
Category 1 andCategory 2 investment firm licensees , which are guided by the principles of Islamic Shari’a have additional responsibilities to their stakeholders.Investment firm licensees which refer to themselves as “Islamic” are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari’a Principles. In ensuring compliance with Shari’a principles, suchlicensees must establish a Shari’a Supervisory Board consisting of at least three Shari’a board members.Category 3 investment firm licensees , which are guided by the principles of Islamic Shari'a and refer to themselves as “Islamic” must appoint a minimum of one Shari’a advisor or scholar to verify that their operations are Shari’a compliant.Added: July 2023HC-9.1.3
In addition to its duties outlined in Section HC-3.4, the Audit Committee shall communicate and co-ordinate with the
investment firm licensee’s Corporate Governance Committee and the Shari’a Supervisory Board (“SSB”) (where applicable) to ensure that information on compliance with Islamic Shari’a rules and principles is reported in a timely manner.Added: July 2023HC-9.1.4
The Board shall set up a Corporate Governance Committee (see also Paragraph HC-3.7.2). In this case, the Committee shall comprise at least three members to co-ordinate and integrate the implementation of the governance policy framework.
Added: July 2023HC-9.1.5
The Corporate Governance Committee established under Chapter HC-9 shall comprise at a minimum of:
(a) Anindependent director to chair the Corporate Governance Committee. The Chairman of the Corporate Governance Committee should not only possess the relevant skills, such as the ability to read and understand financial statements, but should also be able to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the Audit Committee;(b) A Shari’a scholar who is an SSB member for the purpose of leading the Corporate Governance Committee on Shari’a-related governance issues (if any), and also to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the SSB; and(c) Anindependent director who can offer different skills to the committee, such as legal expertise and business proficiency, which are considered particularly relevant by the Board of directors for cultivating a good corporate governance culture, and deemed “fit and proper” by the CBB.Added: July 2023HC-9.1.6
The Corporate Governance Committee shall be empowered to:
(a) Oversee and monitor the implementation of the governance policy framework by working together with the management, the Audit Committee and the SSB; and(b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.Added: July 2023AA AA Auditors and Accounting Standards
AA-A AA-A Introduction
AA-A.1 AA-A.1 Purpose
Executive Summary
AA-A.1.1
This Module presents requirements that have to be met by
investment firm licensees with respect to the appointment of external auditors. This Module also sets out certain obligations that external auditors have to comply with, as a condition of their appointment byinvestment firm licensees .AA-A.1.2
This Module is issued under the powers given to the Central Bank of Bahrain (‘CBB’) under Decree No. (64) of 2006 with respect to promulgating the Central Bank of Bahrain and Financial Institutions Law 2006 (‘CBB Law’). It supplements Article 61 of the CBB Law, which requires
licensees to appoint an external auditor acceptable to the CBB.Amended: January 2007Legal Basis
AA-A.1.3
This Module contains the CBB's Directive (as amended from time to time) relating to auditors and accounting standards used by
investment firm licensees , and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to allinvestment firm licensees .Amended: January 2011
Added: January 2007AA-A.1.4
For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.
Added: January 2007AA-A.2 AA-A.2 Module History
Evolution of Module
AA-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.
Amended: January 2007AA-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.
Added: January 2007AA-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes AA-A.1 07/2007 New Rule AA-A.1.3 introduced, categorising this Module as a Directive. AA-1.2 07/2007 Rule AA-1.2.3 redrafted to clarify reporting obligation AA-1.5 07/2007 Paragraphs AA-1.5.4 and AA-1.5.6 updated to reflect CBB Law requirements on auditor independence. AA-3.1.1 04/2008 Clarified that auditor's review is to be attached to the QPR. AA-1.5 10/2009 Paragraphs AA-1.5.2 and AA-1.5.3 updated to clarify outsourcing of internal audit function. AA-3.1.1 10/2009 Updated to reflect requirement in Module BR. AA-5 07/2010 New Chapter added regarding Reporting Accountants .AA-A.1.3 01/2011 Clarified legal basis. AA-1.1.1A 01/2011 Added Guidance referring to the CBB's power to appoint an external auditor should the investment firm licensee fail to do so. AA-5 10/2011 Chapter amended and content moved to Section BR-3.5 and retitled as Role of External Auditor as Appointed Expert. AA-3.3 01/2012 Deleted Section on Compliance with Financial Crime Rules. AA-4.1 10/2014 Clarified the application of accounting standards for investment firms based on whether they undertake conventional and/or Shari'a compliant activities. AA-3.1 07/2016 Clarified that this requirement only applies to Category 1 and Category 2 investment firm licensees. AA-3.2.1 10/2017 Amended Paragraph to clarify that licensees are to formally declare in writing that they do not possess any Client assets. AA-3.2.2 04/2018 Amended Paragraph. Superseded Requirements
AA-A.2.4
This Module supersedes the following provisions contained in circulars or other regulatory instruments:
Circular / other reference Provision Subject Standard Conditions and Licensing Criteria: investment advisers/brokers. Article 7 Auditors Standard Conditions and Licensing Criteria: broking company Article 6 Auditors Standard Conditions and Licensing Criteria: stockbrokerage Article 6 Auditors AA-A.2.5
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
AA-B AA-B Scope of Application
AA-B.1 AA-B.1 Investment Firm Licensees
AA-B.1.1
The contents of this Module — unless otherwise stated — apply to all
investment firm licensees .AA-B.2 AA-B.2 Auditors
AA-B.2.1
Certain requirements in this Module indirectly extend to auditors, by virtue of their appointment by
investment firm licensees . Auditors appointed byinvestment firm licensees must be independent (cf. Sections AA-1.4 and AA-1.5). Auditors who resign or are otherwise removed from office are required to inform the CBB in writing of the reasons for the termination of their appointment (cf. Sections AA-1.2). Other requirements are contained in Sections AA-1.3 (Audit partner rotation) and AA-3.1 (Auditor reports).Amended: January 2007AA-1 AA-1 Auditor Requirements
AA-1.1 AA-1.1 Appointment of Auditors
AA-1.1.1
Investment firm licensees must obtain prior written approval from the CBB before appointing or re-appointing their auditors.Amended: January 2007AA-1.1.1A
Where an
investment firm licensee fails to appoint an external auditor within four months from the beginning of the financial year, Article 61 (b) of the CBB Law provides the CBB with the power to appoint the external auditor.Adopted: January 2011AA-1.1.2
As the appointment of auditors normally takes place during the course of the firm's annual general meeting,
investment firm licensees should notify the CBB of the proposed agenda for the annual general meeting in advance of it being circulated toshareholders . The CBB's approval of the proposed auditors does not limit in any wayshareholders' rights to subsequently reject the Board's choice.Amended: January 2007AA-1.1.3
The CBB, in considering the proposed (re-) appointment of an auditor, takes into account the expertise, resources and reputation of the audit firm, relative to the size and complexity of the
licensee . The CBB will also take into account the track record of the audit firm in auditinginvestment firm licensees within Bahrain; the degree to which it has generally demonstrated independence from management in its audits; and the extent to which it has identified and alerted relevant persons of significant matters.Amended: January 2007AA-1.1.4
In the case of
overseas investment firm licensees , the CBB will also take into account who act as the auditors of the parent firm. As a general rule, the CBB does not favour different parts of an investment group having different auditors.Amended: January 2007AA-1.2 AA-1.2 Removal or Resignation of Auditors
AA-1.2.1
Investment firm licensees must notify the CBB as soon as they intend to remove their auditors, with an explanation of their decision, or as soon as their auditors resign.Amended: January 2007AA-1.2.2
Investment firm licensees must ensure that a replacement auditor is appointed (subject to CBB approval as per Section AA-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.Amended: January 2007AA-1.2.3
In accordance with the powers granted to CBB under Article 63 of the CBB Law, auditors of
investment firm licensees must inform the CBB in writing, should they resign or their appointment as auditor be terminated, within 30 calendar days, of the event occurring, setting out the reasons for the resignation or termination.Amended: January 2007AA-1.3 AA-1.3 Audit Partner Rotation
AA-1.3.1
Unless otherwise exempted by the CBB,
investment firm licensees must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.Amended: January 2007AA-1.3.2
Investment firm licensees must notify the CBB of any change in audit partner.Amended: January 2007AA-1.4 AA-1.4 Auditor Independence
AA-1.4.1
Before an
investment firm licensee appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of thelicensee .Amended: January 2007AA-1.4.2
For an auditor to be considered independent, it must, among things, comply with the restrictions in Section AA-1.5.
AA-1.4.3
If an
investment firm licensee becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact.Amended: January 2007AA-1.4.4
If in the opinion of the CBB, independence has not been achieved within a reasonable timeframe, then the CBB may require the appointment of a new auditor.
Amended: January 2007AA-1.5 AA-1.5 Licensee/Auditor Restrictions
Financial Transactions with Auditors
AA-1.5.1
Investment firm licensees must not provideregulated investment services to their auditors.Outsourcing to Auditors
AA-1.5.2
Investment firm licensees may not outsource their internal audit function to the same firm that acts as their external auditors.Amended: October 2009
Amended: January 2007AA-1.5.3
Further Guidance on this issue is provided in the Risk Management Module.
Amended: October 2009
Amended: January 2007Other Relationships
AA-1.5.4
Investment firm licensees and their auditors must comply with the restrictions contained in Article 217(c) of the Commercial Companies Law (Legislative Decree No. (21) of 2001), as well as in Article 61(d) of the CBB Law.Amended: January 2007AA-1.5.5
Article 217(c) prohibits an auditor from (i) being the chairman or a member of the Board of
Directors of the company he/she audits; (ii) holding any managerial position in the company he/she audits; and (iii) acquiring any shares in the company he/she audits, or selling any such shares he/she may already own, during the period of his audit. Furthermore, the auditor must not be a relative (up to the second degree) of a person assuming management or accounting duties in the company.Amended: January 2007AA-1.5.6
Article 61(d) prohibits an auditor from (i) being the chairman or a member of the Board of
Directors of the company he/she audits; (ii) acting as a managing director, agent or representative of the company concerned; and (iii) taking up any administrative work in the company, or supervising its accounts, or having a next of kin in such a position.Added: January 2007AA-1.5.7
The restriction in Paragraph AA-1.5.4 applies to
overseas investment firm licensees as well asBahraini investment firm licensees .AA-1.5.8
A partner,
Director or manager on the engagement team of auditing aninvestment firm licensee may not serve on the Board or in acontrolled function of thelicensee , for two years following the end of their involvement in the audit, without prior authorisation of theCBB .Amended: January 2007AA-1.5.9
Chapter AU-1.2 sets out the CBB's "
controlled functions " requirements.Amended: January 2007Definition of 'Auditor'
AA-1.5.10
For the purposes of Section AA-1.5, 'auditor' means the partners,
Directors and managers on the engagement team responsible for the audit of theinvestment firm licensee .Amended: January 2007AA-2 AA-2 Access
AA-2.1 AA-2.1 CBB Access to Auditors
AA-2.1.1
Investment firm licensees must waive any duty of confidentiality on the part of their auditors, such that their auditors may report to the CBB any concerns held regarding material failures by theinvestment firm licensee to comply with CBB requirements.Amended: January 2007AA-2.1.2
The CBB may, as part of its on-going supervision of
investment firm licensees , request meetings with alicensee's auditors. If necessary, the CBB may direct that the meeting be held without the presence of thelicensee's management orDirectors .Amended: January 2007AA-2.2 AA-2.2 Auditor Access to Outsourcing Providers
AA-2.2.1
Outsourcing agreements between
investment firm licensees and outsourcing providers must ensure that thelicensee's internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.Amended: January 2007AA-2.2.2
Further Rules and Guidance on outsourcing will be contained in Module RM (Risk Management), to be issued later in 2007.
Amended: January 2007AA-3 AA-3 Auditor Reports
AA-3.1 AA-3.1 Review of Quarterly Prudential Returns
AA-3.1.1
In accordance with Paragraph BR-1.1.8, Category 1 and Category 2
investment firm licensees must arrange for their auditors to review the licensee's Quarterly Prudential Return for the quarter ending 30 June (or semi-annually depending on the licensee's financial year-end) prior to its submission to the CBB, unless otherwise exempted in writing by CBB. Auditors must complete the prescribed form attesting to their review, which must be attached to the Quarterly Prudential Return.Amended: July 2016
Amended: October 2009
Amended: April 2008
Amended: January 2007AA-3.1.2
Investment firm licensees are required to submit a Quarterly Prudential Return (QPR). Category 1 and Category 2investment firm licensees may apply in writing to CBB for an exemption from the requirement that the QPR be reviewed by thelicensee's external auditors: this exemption would normally only be given where thelicensee had established a track record of accurate and timely reporting, and there were no other supervisory issues of concern. Further details on the CBB's reporting and related requirements, including the precise scope of the auditor's review and attestation, will be contained in Module BR (CBB Reporting).Amended: July 2016
Amended: January 2007AA-3.2 AA-3.2 Report on Compliance with Client Asset Rules
AA-3.2.1
Investment firm licensees that hold or controlclient assets must arrange for their external auditors to report on thelicensee's compliance with the requirements contained in Module CL (Client Assets), at least once a year.Investment firm licensees Category 1 andInvestment firm licensees category 2 which do not hold or control Client Assets are obligated to confirm the same annually.Amended: October 2017
Amended: January 2007AA-3.2.2
The report must be in the form agreed by CBB, and must be submitted to the CBB within three months of the
licensee's financial year-end.Amended: April 2018
Amended: January 2007AA-3.2.3
Further information on the above can be found in Section CL-1.5.
AA-3.3 AA-3.3 [This Section was deleted in January 2012]
AA-3.3.1
[This paragraph was deleted in January 2012]
Deleted: January 2012AA-3.3.2
[This paragraph was deleted in January 2012]
Deleted: January 2012AA-3.3.3
[This paragraph was deleted in January 2012]
Deleted: January 2012AA-4 AA-4 Accounting Standards
AA-4.1 AA-4.1 General Requirements
AA-4.1.1
Investment firm licensees which deal only in conventional financial instruments must comply with International Financial Reporting Standards / International Accounting Standards.Amended: October 2014AA-4.1.1A
Investment firm licensees that undertake both conventional finance and Shari'a compliant transactions must comply with International Financial Reporting Standards / International Accounting Standards and, to the extent that they undertake Shari'a compliant activities, relevant standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Such firms must also apply AAOIFI Financial Accounting Standard 18, "Islamic Financial Services Offered by Conventional Financial Institutions".Added: October 2014AA-4.1.2
Overseas investment firm licensees that do not, at the parent company level, apply IFRS/IAS are still required under Paragraph AA-4.1.1 to produce pro-forma accounts for the Bahrain branch in conformity with these standards. Where this requirement is difficult to implement, theoverseas investment firm licensee should contact the CBB in order to agree to a solution.Amended: April 2014
Amended: January 2007AA-4.1.3
Investment firm licensees that operate exclusively on a Shari'a compliant basis must comply with Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). For products and activities not covered by AAOIFI, International Financial Reporting Standards (IFRS) / International Accounting Standards (IAS) must be followed.Amended: October 2014
Amended: January 2007AA-5 AA-5 Role of External Auditor as Appointed Expert
AA-5.1 AA-5.1 General Requirements
AA-5.1.1
In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint
appointed experts to undertake on-site examinations or report by way of investigations on specific aspects of aninvestment firm licensee's business. External auditors may be called upon to beappointed experts and should be aware of their role in that capacity by referring to Section BR-3.5.[The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]
Amended: October 2011
Amended: July 2010AA-5.1.2
The purpose of the contents of this chapter is to set out the roles and responsibilities of
reporting accountants when appointed pursuant to Article 114 of the CBB Law (see EN-2). This Article empowers the CBB to assign some of its officials or others to inspectlicensees' orlisted companies' businesses.Adopted: July 2010AA-5.1.3
The CBB uses its own inspectors to undertake on-site examinations of
licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission reports on matters relating to the business oflicensees in order to help it assess their compliance with CBB requirements, as contained in Article 114 of the CBB Law. Such inspections may be carried out either by the CBB's own officials, by duly qualified “Reporting Accountants ” appointed for the purpose by the CBB, or a combination of the two. Article 111 requireslicensees to make available to the CBB's inspectors, their books and other records, and to provide all relevant information within the time limits deemed reasonable.Adopted: July 2010AA-5.1.4
Investment firm licensees must provide all relevant information and assistance toreporting accountants on demand as required by Articles 111 and 114 of the CBB Law. Failure bylicensees to cooperate fully with the CBB's inspectors orreporting accountants , or to respond to their examination reports within the time limits specified, will be treated as demonstrating a material lack of cooperation with the CBB which will result in other enforcement measures being considered, as described elsewhere in EN Module. This rule is supported by Article 114(a) of the CBB Law.Adopted: July 2010AA-5.1.5
Article 163 of the CBB Law provides for criminal sanctions where false or misleading statements are made to the CBB or any person/
reporting accountant appointed by the CBB to conduct an inspection on the business of thelicensee or thelisted company .Adopted: July 2010AA-5.1.6
The CBB will not, as a matter of general policy, publicise the appointment of
reporting accountants , although it reserves the right to do so where this would help achieve its supervisory objectives. Both thereporting accountants and the CBB are bound to confidentiality provisions restricting the disclosure of confidential information with regards to any such information obtained in the course of the investigation.Adopted: July 2010AA-5.1.7
Unless the CBB otherwise permits,
reporting accountants should not be the same firm appointed as external auditors of thelicensee .Adopted: July 2010AA-5.1.8
Reporting accountants will be appointed in writing, through an appointment letter, by the CBB. In each case, the CBB will decide on the range, scope and frequency of work to be carried out byreporting accountants .Adopted: July 2010AA-5.1.9
Reporting accountants will report directly to and be responsible to the CBB in this context and will specify in their report any limitations placed on them in completing their work (for example due to the relevantlicensee's group structure). The report produced by thereporting accountants is the property of the CBB (but is usually shared by the CBB with the firm concerned).Adopted: July 2010AA-5.1.10
Compliance by
reporting accountants with the contents of this chapter will not, of itself, constitute a breach of any other duty owed by them to a particularlicensee (i.e. create a conflict of interest).Adopted: July 2010AA-5.1.11
The CBB may appoint one or more of its officials to work on the
reporting accountants' team for a particularlicensee .Adopted: July 2010AA-5.2 AA-5.2 The Required Report
[The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]
AA-5.2.1
Commissioned
reporting accountants would normally be required to report on one or more of the following aspects of alicensee's business:(a) Accounting and other records;(b) Internal control systems;(c) Returns of information provided to the CBB;(d) Operations of certain departments; and/or(e) Other matters specified by the CBB.Adopted: July 2010AA-5.2.2
Reporting accountants will be required to form an opinion on whether, during the period examined, thelicensee is in compliance with the relevant provisions of the CBB Law and the CBB's relevant requirements, as well as other requirements of Bahrain Law and, where relevant, industry best practice locally and/or internationally.Adopted: July 2010AA-5.2.3
The
reporting accountants' report should follow the format set out in Appendix EN 1.Adopted: July 2010AA-5.2.4
Unless otherwise directed by the CBB or unless the circumstances described in section AA-5.3 apply, the report should be discussed with the board of directors and/or senior management in advance of it being sent to the CBB.
Adopted: July 2010AA-5.2.5
Where the report is
qualified by exception , the report should clearly set out the risks which thelicensee runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected.Reporting accountants will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.Adopted: July 2010AA-5.2.6
If the
reporting accountants conclude, after discussing the matter with thelicensee , that they will give a negative opinion (as opposed to onequalified by exception ) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.Adopted: July 2010AA-5.2.7
The report should be completed, dated and submitted, together with any comments by directors or management (including any proposed timeframe within which the
licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.Adopted: July 2010AA-5.3 AA-5.3 Other Notifications to the CBB
[The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]
AA-5.3.1
Reporting accountants should communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, are not or have not been fulfilled. These may include:(a) Criteria for licensing (see Module AU);(b) Material loss or significant risk of a material loss; or(c) Client interest at risk because of adverse changes in the financial position, management or other resources of thelicensee .Notwithstanding the above, it is primarily the
licensee's responsibility to report such matters to the CBB.Adopted: July 2010AA-5.3.2
The CBB recognises that
reporting accountants cannot be expected to be aware of all circumstances which, had they known of them, would have led them to make a communication to the CBB as outlined above. It is only whenreporting accountants , in carrying out their duties, become aware of such a circumstance that they should make detailed inquiries with the above specific duty in mind.Adopted: July 2010AA-5.3.3
If
reporting accountants decide to communicate directly with the CBB in the circumstances set out in paragraph AA 5.3.1 above, they may wish to consider whether the matter should be reported at an appropriate senior level in thelicensee at the same time and whether an appropriate senior representative of thelicensee should be invited to attend the meeting with the CBB.Adopted: July 2010AA-5.4 AA-5.4 Permitted Disclosure by the CBB
[The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]
AA-5.4.1
Information which is confidential and has been obtained under, or for the purposes of, this chapter or the CBB Law may only be disclosed by the CBB in the circumstances permitted under the Law. This will allow the CBB to disclose information to
reporting accountants to fulfil their duties. It should be noted, however, thatreporting accountants must keep this information confidential and not divulge it to a third party except with the CBB's permission and/or unless required by Bahrain Law.Adopted: July 2010AA-5.5 AA-5.5 Trilateral Meeting
[The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]
AA-5.5.1
The CBB may, at its discretion, call for a
trilateral meeting (s) to be held between the CBB and representatives of the relevantlicensee and thereporting accountants . This meeting will provide an opportunity to discuss thereporting accountants' examination of, and report on, thelicensee .Adopted: July 2010GR GR General Requirements
GR-A GR-A Introduction
GR-A.1 GR-A.1 Purpose
Executive Summary
GR-A.1.1
The General Requirements Module presents a variety of different requirements that are not extensive enough to warrant their own stand-alone Module, but for the most part are generally applicable. These include requirements on books and records; on the use of corporate and trade names; and on
controllers andclose links . Each set of requirements is contained in its own Chapter: a table listing these and their application tolicensees is given in Chapter GR-B.Amended: July 2007Legal Basis
GR-A.1.2
This Module contains the Central Bank of Bahrain ('CBB') Directive (as amended from time to time) regarding general requirements applicable to
investment firm licensees , 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'). This Module contains the requirements governing control ininvestment firm licensees under Resolution No (27) of 2015. Requirements regarding transfers of business (see Chapter GR-4) are also included in Regulations, to be issued by the CBB.Amended: October 2015
Amended: January 2011
Adopted: July 2007GR-A.1.3
For an explanation of the CBB's rule-making powers and different regulatory instruments, see section UG-1.1.
Adopted: July 2007GR-A.2 GR-A.2 Module History
Evolution of Module
GR-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.
Amended: July 2007GR-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.
Adopted: July 2007GR-A.2.3
A list of recent changes made to this Module is detailed in the table below:
Module Ref. Change Date Description of Changes GR-A.1.2 07/2007 New Rule, classifying this Module as a Directive. GR-B.1.2 07/2007 Reference to GR-10 in table removed, to reflect deletion of this Chapter (the contents of which have been moved to Module AU). GR-4 07/2007 Amendments made to align the Chapter with the requirements of the CBB Law. GR-5.1 07/2007 Minor changes to align controller requirements with the CBB Law. GR-5.2 07/2007 Clarification of definition of controller. GR-5.3 07/2007 Clarification of criteria for assessing suitability of controllers. GR-5.4 07/2007 Alignment of procedures for approving controllers with CBB Law. GR-7 07/2007 Amendments made to align the Chapter with the requirements of the CBB Law. GR-1.2.1 01/2008 Clarified the record retention period for customer and transaction records in line with Article 60 of the CBB Law. GR-9.1.1A 04/2008 Added Guidance concerning limitations on indemnification coverage. GR-B.1 10/2009 Corrected to reflect applicability of Chapter GR-3. GR-5.3.3 10/2009 Paragraph changed from Guidance to Rule. GR-5.3.5 10/2009 Paragraph changed from Guidance to Rule. GR-5.4.2 10/2009 Amended to read notices of refusal. GR-7.1 10/2009 Updated to include additional requirements for cessation of business. GR-9 10/2009 Amended heading to read Key Provisions GR-9.1.1 10/2009 Amended to include reference to Form PIIR. GR-9.1.4 10/2009 New rule added regarding professional indemnity insurance needs of licensees. GR-9.1.7 10/2009 Prior approval changed to prior notification GR-1 07/2010 Updated and amended to include cross reference and new paragraph regarding books and records. GR-2.2 07/2010 New section added regarding publication of documents by the licensee. GR-3.1.1 07/2010 Updated to include requirement for dividends. GR-A.1.2 01/2011 Clarified legal basis. GR-3.1.3 01/2011 Expanded guidance dealing with dividends. GR-5.1.4A 01/2011 Added a new Rule related to changes in shareholding when legal person is a controller. GR-5.1.5 01/2011 Clarified rule. GR-5.3.6 01/2011 Corrected minor typo. GR-10 04/2011 Added a new Chapter on Subsidiaries, Branches and Representative Offices. GR-3.1.3 10/2011 Clarified guidance Paragraph on CBB's non-objection for dividends to be in line with other Volumes of the CBB Rulebook. GR-5.3 10/2011 Amended to be in line with other Volumes of the CBB rulebook and to reflect the issuance of Resolution No.(43) of 2011. GR-7 10/2011 Clarified language on cessation of business to be in line with other Volumes of the CBB Rulebook. GR-1.3.1(d) 01/2012 Added reference to reports from the compliance officer. GR-1.1.3 04/2013 Corrected reference to 'transaction' records. GR-4.1.12 04/2013 Corrected cross reference to CBB Law. GR-B.1.2 07/2013 Added the reference to Chapter GR-10 under the scope of application. GR-10.1 07/2013 Various corrections and amendments. GR-B.1.2 and GR-8 10/2013 The Chapter on appointed representatives was deleted. GR-A.1.2, GR-B.1.2 and GR-5 10/2015 Updated to reflect issuance of Resolution No. (27) of 2015 governing control in investment firm licensees. GR-2.2 04/2016 Clarified Rule on publication of documents by the licensee. GR-10.1.8B 10/2016 Added reference to Module BR GR-5.1.5 01/2017 Consistency of notification timeline rule on controllers with other Volumes of the CBB Rulebook. GR-1.2.1 07/2017 Amended paragraph according to the Legislative Decree No. (28) of 2002. GR-1.2.2 07/2017 Deleted paragraph. GR-3.1.3 10/2017 Added additional requirement to submit when requesting no-objection letter for propose dividend. GR-5.1.1A 04/2019 Added a new Paragraph on exposure to controllers. GR-5.1.1B 04/2019 Added a new Paragraph on exposure to controllers. GR-3.1.1 07/2019 Amended Paragraph. GR-1.2.1 01/2020 Amended Paragraph. GR-7.1.8 04/2020 Amended Paragraph. GR-2.1.1 01/2022 Amended Paragraph on licensee legal and corporate name. GR-2.1.3 01/2022 Amended Paragraph on change in licensee legal name. Superseded Requirements
GR-A.2.3
This Module supersedes the following provisions contained in circulars or other regulatory instruments:
Circular Ref. Module Ref. Subject BS/07/2004 GR-1 Record-keeping requirements BC/8/2000 GR-5 Controllers of, and holdings and transfers of significant ownership or controlling interests in Agency licensees Standard Conditions & Licensing Criteria for Licensing for Investment Advisor/Broker GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance Standard Conditions & Licensing Criteria for Licensing Investment Advisor/Consultants GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance; License Fees. Standard Conditions & Licensing Criteria for Licensing Stockbroking Company GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance; License Fees. Standard Conditions & Standard Criteria for Licensing Broking Company GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance; License Fees. GR-A.2.4
Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
GR-B GR-B Scope of Application
GR-B.1 GR-B.1 Investment Firm Licensees
GR-B.1.1
The requirements in Module GR (General Requirements) apply to all
investment firm licensees , with the exception of Chapter GR-3, which applies toCategory 1 investment firms andCategory 2 investment firms and Chapter GR-9, which applies toCategory 2 investment firms andCategory 3 investment firms only.Amended: October 2009
Amended: July 2007GR-B.1.2
The scope of application of Module GR (General Requirements) is as follows:
Chapter Bahraini Investment Firm Licensee Overseas Investment Firm Licensee
GR-1 GR-1.1 and GR-1.3 apply to the whole firm; GR-1.2 applies to business booked in Bahrain only. Applies to the Bahrain branch only. GR-2 Applies to the whole firm. Applies to the Bahrain branch only. GR-3 Applies to Category 1 investment firms andCategory 2 investment firms .Doesn't apply. GR-4 Applies to the whole firm. Applies to the Bahrain branch only. GR-5 GR-5.1 to GR-5.4 apply to the whole firm. Only GR-5.5 applies. GR-6 Applies to the whole firm. Applies to the whole firm. GR-7 Applies to the whole firm. Applies to the Bahrain branch only. GR-8 [Chapter deleted in October 2013] [Chapter deleted in October 2013] GR-9 Applies to Category 2 investment firms andCategory 3 investment firms , with respect to Bahrain business.Applies to the Bahrain branch only. GR-10 Applies to the whole firm. Does not apply. Amended: October 2015
Amended: October 2013
Amended: July 2013
Amended: October 2009
Amended: July 2007GR-B.1.3
In the case of
Bahraini investment firm licensees , certain requirements apply to the whole firm, irrespective of the location of its business; other requirements apply only in respect to business booked in Bahrain. In the case ofoverseas investment firm licensees , the requirements of Module GR mostly only apply to business booked in the Bahrain branch.GR-1 GR-1 Books and Records
GR-1.1 GR-1.1 General Requirements
GR-1.1.1
In accordance with Articles 59 of the CBB Law, all
investment firm licensees must maintain books and records (whether in electronic or hard copy form) sufficient to produce financial statements and show a complete record of the business undertaken by alicensee . These records must be retained for at least ten years according to Article 60 of the CBB Law.Amended: July 2010
Amended: July 2007GR-1.1.2
GR-1.1.1 includes accounts, books, files and other records (e.g. trial balance, general ledger, nostro/vostro statements, reconciliations, list of counterparties). It also includes records that substantiate the value of the assets, liabilities and off-balance sheet activities of the
licensee (e.g. client activity files and valuation documentation).Amended: July 2007GR-1.1.3
Separately, Bahrain Law currently requires other transaction records to be retained for at least five years (see Ministerial Order No. 23 of 2002, Article 5(2), made pursuant to the Amiri Decree Law No. 4 of 2001).
Amended: April 2013
Added: July 2010GR-1.1.4
Unless otherwise agreed to by the CBB in writing, records must be kept in either English or Arabic. Any records kept in languages other than English or Arabic must be accompanied by a certified English or Arabic translation. Records must be kept current. The records must be sufficient to allow an audit of the
licensee's business or an on-site examination of thelicensee by the CBB.Amended: July 2010
Amended: July 2007GR-1.1.5
Translations produced in compliance with Rule GR-1.1.4 may be undertaken in-house, by an employee or contractor of the
licensee , providing they are certified by an appropriate officer of thelicensee .Amended: July 2010
Amended: July 2007Location of Books and Records
GR-1.1.6
Records must be accessible at any time from within the Kingdom of Bahrain, or as otherwise agreed with the CBB in writing.
Amended: July 2010
Amended: July 2007GR-1.1.7
Where older records have been archived, or in the case of records relating to overseas branches of
Bahraini investment firm licensees , the CBB may accept that records be accessible within a reasonably short time frame (eg. within 5 business days), instead of immediately. The CBB may also agree similar arrangements foroverseas investment firm licensees , as well asBahraini investment firm licensees , where elements of record retention and management have been centralised in another group company, whether inside or outside of Bahrain.Amended: July 2010
Amended: July 2007GR-1.2 GR-1.2 Transaction Records
GR-1.2.1
Investment firm licensees must keep completed transaction records for as long as they are relevant for the purposes for which they were made (with a minimum period in all cases of five years from the date when the transaction was terminated). Records of terminated transactions must be kept whether in hard copy or electronic format as per the Legislative Decree No. (54) of 2018 with respect to Electronic Transactions “The Electronic Communications and Transactions Law”and its amendments.Amended: January 2020
Amended: July 2017
Amended: July 2010
Amended: January 2008GR-1.2.2
[This Paragraph has been deleted in July 2017].
Deleted: July 2017
GR-1.2.3
Rule GR-1.2.1 applies only to transactions relating to business booked in Bahrain by the
licensee . It does not relate to transactions relating to business booked in overseas branches or subsidiaries of thelicensee .Amended: July 2007GR-1.2.4
In the case of
overseas investment firm licensees , Rule GR-1.2.1 therefore only applies to business booked in the Bahrain branch, not in the rest of the company.GR-1.3 GR-1.3 Other Records
Corporate Records
GR-1.3.1
Investment firm licensees must maintain the following records in original form or in hard copy at their premises in Bahrain:(a) Internal policies, procedures and operating manuals;(b) Corporate records, including minutes ofshareholders' ,Directors' and management meetings;(c) Correspondence with the CBB and records relevant to monitoring compliance with CBB requirements;(d) Reports prepared by theinvestment firm licensee's internal and external auditors and compliance officer; and(e) Employee training manuals and records.Amended: January 2012
Amended: July 2007GR-1.3.2
In the case of
Bahraini investment firm licensees , these requirements apply to thelicensee as a whole, including any overseas branches. In the case ofoverseas investment firm licensees , all the requirements of Chapter GR-1 are limited to the business booked in their branch in Bahrain and the records of that branch (see GR-1.1.7).Amended: July 2007Customer Records
GR-1.3.3
Record-keeping requirements with respect to customer records, including customer identification and due diligence records, are contained in Module FC (Financial Crime).
GR-2 GR-2 Corporate and Trade Names
GR-2.1 GR-2.1 Vetting of Names
GR-2.1.1
Investment firm licensees must obtain CBB’s prior written approval for any change in their legal name.Licensees must notify the CBB of any change in their corporate name at least one week prior to effecting the proposed change.Amended: January 2022
Amended: July 2007GR-2.1.2
GR-2.1.1 applies to
overseas investment firm licensees only with respect to their Bahrain branch.GR-2.1.3
In approving a change in a legal name, the CBB seeks to ensure that it is sufficiently distinct as to reduce possible confusion with other unconnected businesses, particularly those operating in the financial services sector. The CBB also seeks to ensure that names used by unregulated subsidiaries do not suggest those subsidiaries are in fact regulated.
Amended: January 2022
Amended: July 2007GR-2.2 GR-2.2 Publication of Documents by the Licensee
GR-2.2.1
Any written communication, including website, email, stationery, business cards or other business documentation published by the
licensee , or used by its employees must include a statement that thelicensee is regulated by the Central Bank of Bahrain, the type and category of license and the legal status. Additionally, written communication (stationery) should state the authorised and paid up capital of thelicensee . Alllicensees should comply with this requirement by 31st December 2010 at the latest.Amended: April 2016
Added: July 2010GR-3 GR-3 Dividends
GR-3.1 GR-3.1 CBB Non-Objection
GR-3.1.1
Bahraini investment firm licensees must obtain a letter of no-objection from the CBB to pay any dividend proposed, before announcing the proposed dividend by way of press announcement or any other means of communication and prior to submitting a proposal for a distribution of profits to ashareholder vote.Amended: July 2019
Amended: July 2010
Amended: July 2007GR-3.1.2
The CBB will grant a no-objection letter where it is satisfied that the level of dividend proposed is unlikely to leave the
licensee vulnerable — for the foreseeable future — to breaching the CBB's financial resources requirements, taking into account (as appropriate) trends in thelicensee's business volumes, expenses, trend performance and investment environment.Amended: July 2007GR-3.1.3
To facilitate the prior approval required under Paragraph GR-3.1.1,
investment firm licensees subject to Paragraph GR-3.1.1 must provide the CBB with:(a) The licensee's intended percentage and amount of proposed dividends for the coming year;(b) A letter of no objection from thelicensee's external auditor on such profit distribution; and(c) A detailed analysis of the impact of the proposed dividend on the capital adequacy requirements outlined in Module CA (Capital Adequacy) and liquidity position of the licensee.Amended: October 2017
Amended: October 2011
Amended: January 2011
Amended: July 2007GR-4 GR-4 Business Transfers
GR-4.1 GR-4.1 CBB Approval
GR-4.1.1
An
investment firm licensee must seek prior written approval from the CBB before transferring any of its business to a third party.Amended: July 2007GR-4.1.2
Rule GR-4.1.1 is intended to apply to circumstances where an
investment firm licensee wishes to sell all or part of its business to a third party. It does not apply where aninvestment firm licensee is simply transferringclient assets to a third party, on instruction from the client concerned.Amended: July 2007GR-4.1.3
In the case of a
Bahraini investment firm licensee , Chapter GR-4 applies both to its business booked in Bahrain and in the firm's overseas branches. In the case of anoverseas investment firm licensee , Chapter GR-4 applies only to business booked in the firm's Bahrain branch.Amended: July 2007GR-4.1.4
In all cases, CBB approval to transfer business will only be given where:
(a) The transfer of business will not damage or otherwise prejudice the legitimate interests of thelicensee's customers;(b) The transferee is duly licensed to undertake the business which it is to receive; and(c) The CBB is satisfied that the transfer will not breach any applicable laws or regulations, and would not create any supervisory concerns.Amended: July 2007GR-4.1.5
In assessing the criteria outlined in Paragraph GR-4.1.4, the CBB will, amongst other factors, take into account the financial strength of the transferee; its capacity to manage the business being transferred; its track record in complying with applicable regulatory requirements; and (where applicable) its track record in treating customers fairly. The CBB will also take into account the impact of the transfer on the transferor, and any consequences this may have for the transferor's remaining customers.
Adopted: July 2007GR-4.1.6
Investment firm licensees seeking to obtain the CBB's permission to transfer business must apply to the CBB in writing, in the form of a covering letter together with supporting attachments. Unless otherwise directed by the CBB, the application must provide:(a) Full details of the business to be transferred;(b) The rationale for the proposed transfer;(c) If applicable, an assessment of the impact of the transfer on any customers directly affected by the transfer, and any mitigating factors or measures;(d) If applicable, an assessment of the impact of the transfer on the transferor's remaining business and customers, and any mitigating factors or measures; and(e) Evidence that the proposed transfer has been duly authorised by the transferor (such as a certified copy of a Board resolution approving the transfer).Adopted: July 2007GR-4.1.7
Firms intending to apply to transfer business are advised to contact the CBB at the earliest possible opportunity, prior to submitting a formal application, in order that the CBB may determine the nature and level of documentation to be provided and the need for an auditor or other expert opinion to be provided to support the application. The documentation specified in Paragraph GR-4.1.6 may be varied by the CBB, depending on the nature of the proposed transfer, such as the materiality of the business concerned and its impact on customers.
Amended: July 2007GR-4.1.8
The CBB's approval may be given subject to any conditions deemed appropriate by the CBB. In all cases where additional requirements are imposed, the CBB shall state the reasons for doing so.
Adopted: July 2007GR-4.1.9
At its discretion, the CBB may require that a notice of proposed transfer of business be published in the Official Gazette, and/or in at least two local daily newspapers (one in Arabic, the other in English), in order to give affected customers the right to comment on the proposed transfer. Where such a requirement has been imposed, the CBB's decision on the application will also be published in the Official Gazette and in at least two local daily newspapers. In all such cases, the costs of publication must be met by the transferor.
Adopted: July 2007GR-4.1.10
Publication under paragraph GR-4.1.9 will generally only be required where a proposed transfer involves a large number of customers or is otherwise deemed necessary in order to protect customer interests.
Adopted: July 2007GR-4.1.11
Investment firm licensees are also reminded of the requirements regardingclient assets contained in Module CL (Client Assets).Amended: July 2007GR-4.1.12
The requirements in this Chapter are based on the powers available to the CBB in Article 68 of the CBB Law.
Amended: April 2013
Adopted: July 2007GR-5 GR-5 Controllers
GR-5.1 GR-5.1 Key Provisions for Bahraini Investment Firm Licensees
GR-5.1.1
Bahraini investment firm licensees must obtain prior approval from the CBB for any of the following changes to theircontrollers (as defined in Section GR-5.2):(a) A newcontroller ;(b) An existingcontroller increasing its holding from 10% to 20%;(c) An existingcontroller increasing its holding from below 20% to 30%;(d) An existingcontroller increasing its holding from below 30% to 40%;(e) An existing controller increasing its holding to above 40% forlicensees not listed on any exchange in Bahrain or abroad; and(f) An existingcontroller reducing its holding to below 10%.Amended: October 2015
Amended: July 2007GR-5.1.1A
Licensees must not incur or otherwise have an exposure (either directly or indirectly) to theircontrollers , includingsubsidiaries and associated companies of suchcontrollers .Added: April 2019GR-5.1.1B
For the purpose of Paragraph GR-5.1.1A,
licensees that already have an exposure tocontrollers must have an action plan agreed with the CBB's supervisory point of contact to address such exposures within a timeline agreed with the CBB.Added: April 2019GR-5.1.2
Articles 52 to 56 of the CBB Law require notification to the CBB of all
controllers oflicensees and of listed companies; it further gives the CBB the right to refuse approval ofcontrollers if deemed damaging to the interests of the market, customers, or in contravention of the criteria set by the CBB.Amended: July 2007GR-5.1.3 [This Paragraph deleted 07/2007.]
Deleted: July 2007GR-5.1.4
Requests for approval under Paragraph GR-5.1.1 must be made by submitting a duly completed Form 2 (Application for Authorisation of Controller) to the CBB.
Amended: October 2015
Amended: July 2007GR-5.1.4A
Where the direct
controller of aBahraini investment firm licensee is not theultimate parent undertaking of thelicensee , the CBB will require that Form 2 be completed by theultimate parent undertaking and that the details be provided of the structure of the group, clearly detailing the relationship between thelicensee and theultimate parent undertaking (e.g. by providing an organisational structure of the group).Added: October 2015GR-5.1.4B
Bahraini investment firm licensees must immediately notify the CBB in case of any material change to the information provided in a Form 2 submitted for acontroller .Added: October 2015GR-5.1.4C
Where a
controller is a legal person, any change in its shareholding must be notified to the CBB at the earlier of:(a) When the change takes effect; and(b) When thecontroller becomes aware of the proposed change.Amended: October 2015
Adopted: January 2011GR-5.1.5
If, as a result of circumstances outside the
Bahraini investment firm licensee's knowledge and/or control, one of the changes specified in Paragraph GR-5.1.1 is triggered prior to CBB approval being sought or obtained, theBahraini investment firm licensee must notify the CBB no later than 15 calendar days from the date on which those changes have occurred (see Paragraph BR-2.2.23).Amended: January 2017
Amended: October 2015
Amended: January 2011
Amended: July 2007GR-5.1.6
For approval under Rule GR-5.1.1 to be granted, the applicant must satisfy the CBB that the proposed change in
controller poses no undue risks to thelicensee or its customers, and is not damaging to the interests of the market, as defined in the suitability criteria forcontrollers , contained in Section GR-5.3.Adopted: July 2007GR-5.1.7
An approval of
controller is valid for the period specified in the approval letter issued by the CBB. The CBB may impose any restrictions that it considers necessary to be observed when granting its approval.Amended: October 2015
Amended: July 2007GR-5.1.7A
The approval process is specified in Section GR-5.4.
Adopted: July 2007GR-5.2 GR-5.2 Definition of Controller of a Bahraini Investment Firm Licensee
GR-5.2.1
A
controller of aBahraini investment firm licensee is a natural or legal person who, either alone or with his associates:(a) Holds 10% or more of the issued and paid up capital in thelicensee orparent undertaking ; or(b) Is able to exercise more than 10% of the voting power over thelicensee or theparent undertaking .Amended: October 2015
Amended: July 2007GR-5.2.2
For the purposes of Paragraph GR-5.2.1, 'associate' includes:
(a) In the case of natural persons, a member of thecontroller's family ;(b) An undertaking of which acontroller is aDirector ;(c) A person who is an employee or partner of thecontroller ;(d) If thecontroller is a legal person, aDirector of thecontroller , a subsidiary of thecontroller , or aDirector of anysubsidiary undertaking of thecontroller ; and(e) Any other person or undertaking with which thecontroller has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in theinvestment firm licensee , or under which they undertake to act together in exercising their voting power in relation to theinvestment firm licensee .Amended: October 2015
Amended: July 2007GR-5.2.3
In addition to the provisions of this Chapter, listed companies and their
controllers shall be bound by the CBB s regulatory requirements for capital markets stipulated in the CBB s Rulebook related to changes in the ownership of shares in listed companies. Foroverseas investment firm licensees , Section GR-5.5 shall apply.Amended: October 2015
Amended: July 2007GR-5.2.4
The restrictions set forth in this Chapter shall apply to any changes in the legality of the shares ownership of the
controllers in thelicensees , or to the voting powers thecontrollers are entitled to in thelicensees . Failure to comply with such restrictions shall result in the imposition of penalties as indicated in Module EN (Enforcement) of the CBB Rulebook. The imposition of such penalties shall not affect the CBB s right to impose other penalties and to take any other administrative measures against thecontroller in accordance with the provisions of the Law including preventing thecontroller from exercising his voting right or transferring of shares.Added: October 2015GR-5.3 GR-5.3 Suitability of Controllers for Bahraini Investment Firm Licensees
GR-5.3.1
Bahraini investment firm licensees must satisfy the CBB of the suitability of their proposedcontrollers .Amended: October 2015
Amended: October 2011
Amended: July 2007GR-5.3.1A
[This Paragraph was deleted in October 2015.]
Deleted: October 2015
Adopted: October 2011Natural Persons
GR-5.3.2
The percentage of direct or indirect control of a natural person in a
Bahraini investment firm licensee must not exceed 30% of the issued and paid up capital. This limit does not apply tocategory 3 investment firms .Added: October 2015GR-5.3.3
In assessing the suitability of
controllers who are natural persons, the CBB will consider the following:(a) Whether the approval or refusal of acontroller is or could be detrimental to thelicensee , Bahrain's financial sector and the national interest of the Kingdom of Bahrain;(b) The legitimate interests of clients, creditors, non-controlling interests, and all other stakeholders of thelicensee ;(c) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;(d) Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;(e) Whether the person has been the subject of any disciplinary proceeding by any government authority, regulatory agency or professional body or association;(f) The contravention of any financial services legislation or regulation;(g) Whether the person has ever been refused an authorisation ascontroller , a license to undertake regulated activities by the CBB or any other regulator in another jurisdiction;(h) Dismissal or a request to resign from any office or employment;(i) Disqualification by a court, regulator or other competent body, as aDirector or as a manager of a corporation;(j) Whether the person has been aDirector , partner or manager of a corporation or partnership which has gone into liquidation or declared bankrupt or one or more of its partners or managers have been declared bankrupt;(k) The extent to which the person has been truthful and open with regulators;(l) Whether the person has ever been adjudged bankrupt, entered into any arrangement with creditors in relation to the inability to pay due debts, or failed to satisfy a judgement debt under a court order or has defaulted on any debts;(m) The track record as acontroller in another company or investor in a financial institution, whether in the Kingdom of Bahrain or abroad;(n) The financial resources of the person and the stability of their shareholding;(o) Existing Directorships or ownership of more than 20% of the issued or paid up capital in any financial institution in the Kingdom of Bahrain or elsewhere, and the potential for conflicts of interest that such Directorships or ownership may imply;(p) The ability of the person to deal with existingshareholders and the Board in a constructive and co-operative manner; and(q) The propriety of a person's conduct, whether or not such conduct resulted in conviction for a criminal offence, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings.Amended: October 2015
Amended: July 2007Unregulated Legal Persons
GR-5.3.3A
The percentage of direct or indirect control of an unregulated legal person in a
Bahraini investment firm licensee must not exceed 30% of the issued and paid up capital.Added: October 2015GR-5.3.4
In assessing the suitability of
controllers who are unregulated legal persons, the CBB will consider the following:(a) Whether their approval or refusal of acontroller is or could be detrimental to thelicensee , Bahrain's financial sector and the national interest of the Kingdom of Bahrain;(b) The legitimate interests of investors, creditors, non-controlling interests and all other stakeholders of thelicensee ;(c) The financial strength of thecontroller , its parent(s) and its subsidiaries, its implications for theinvestment firm licensee and the likely stability of thecontroller's shareholding in theinvestment firm licensee ;(d) Whether the unregulated legal person or any of its subsidiaries or any of its shareholders have ever been adjudged bankrupt, or failed to satisfy a judgement debt under a court order, or have defaulted on any debts, or entered into any arrangement with creditors in relation to the inability to pay due debts;(e) Thecontroller's jurisdiction of incorporation, location of Head Office, group structure andclose links , and the implications for theinvestment firm licensee as regards effective supervision of theinvestment firm licensee and potential conflicts of interest;(f) Thecontroller's (and other subsidiaries') propriety and general standards of business conduct, including the contravention of any laws or regulations related to financial services, or the institution of disciplinary proceedings by a government authority, regulatory agency or professional body;(g) Any conviction related to fraud, misfeasance or other misconduct;(h) Whether the unregulated legal person or any of its subsidiaries has been subject to any disciplinary proceeding whether by court order any proceeding by a specialised body, and whether the unregulated legal person is sued in any court;(i) The extent to which thecontroller or its subsidiaries have been truthful and open with regulators and supervisors;(j) Whether the unregulated legal person has ever been refused an authorisation ascontroller , a license to undertake regulated activities by the CBB or any other regulator in another jurisdiction;(k) The track record as acontroller or investor in financial institutions;(l) The ability of the unregulated legal person to deal with existingshareholders and the Board in a constructive and co-operative manner;(m) Directorships in the Kingdom of Bahrain or elsewhere or ownership of more than 20% of the capital or voting rights of any financial institution, and the potential for conflicts of interest that such directorships or ownership may imply; and(n) Whether the unregulated legal person or any of its subsidiaries have ever entered into any arrangement with creditors in relation to the inability to pay due debts.Amended: October 2015
Amended: July 2007Regulated Legal Persons
GR-5.3.5
The percentage of direct or indirect control of a regulated legal person in a
Bahraini investment firm licensee must not exceed 40% of the issued and paid up capital.Added: October 2015GR-5.3.6
The 40% limit referred to in Paragraph GR-5.3.5 does not apply to
Bahraini investment firm licensees not listed on alicensed exchange or an exchange abroad, or to mergers or acquisitions which have been approved by the CBB.Added: October 2015GR-5.3.7
Subject to the discretion of the CBB, regulated financial institutions may be allowed to own or control holdings of voting capital of listed licensees in excess of the abovementioned 40% level, if such control is not detrimental to the
licensee , Bahrain s financial sector and the national interest of the Kingdom of Bahrain.Added: October 2015GR-5.3.8
Regulated financial institutions wishing to acquire more than 40% of the voting capital of a
Bahraini investment firm licensee must observe the criteria set forth in Guidance GR-5.3.4 related to unregulated legal persons, in addition to the conditions set forth under Guidance GR-5.3.9.Added: October 2015GR-5.3.9
In assessing the suitability of
controllers who are regulated legal persons, the CBB will consider the following:(a) The person must be subject to effective consolidated supervision by a supervisory authority which effectively implements the Basel Committee on Banking Supervision Core Principles, or the IOSCO Core Principles or the IAIS Core Principles as well as the FATF Recommendations on Money Laundering and the financing of terrorism & proliferation;(b) Thehome supervisor of the person must give its formal written prior approval for (or otherwise raise no objection to) the proposed acquisition of theBahraini investment firm licensee ;(c) Thehome supervisor of the person must confirm to the CBB that it will require the person to consolidate the activities of the concernedBahraini investment firm licensee for regulatory and accounting purposes if the case so requires;(d) Thehome supervisor of the person must formally agree to the exchange of customer information between the person and its prospective Bahraini subsidiary/acquisition for AML/CFT purposes and for Large Exposures monitoring purposes;(e) Thehome supervisor of the person and the CBB must conclude a Memorandum of Understanding in respect of supervisory responsibilities, exchange of information and mutual inspection visits; and(f) The person must provide an acceptably worded letter of guarantee to the CBB in respect of its obligation to support thelicensee , should such letter be requested.Added: October 2015GR-5.4 GR-5.4 Approval Process for Bahraini Investment Firm Licensees
GR-5.4.1
Within 3 months of receipt of an approval request under Paragraph GR-5.1.1, with the complete documentation requirements to the satisfaction of the CBB, the CBB will issue a written notice of approval or of refusal by registered mail, to the
Bahraini investment firm licensee and the applicant. Where an approval notice is given, it will specify the period for which it is valid and any conditions that may be applied.Amended: October 2015
Amended: July 2007GR-5.4.1A
The CBB may refuse an application for approval if the applicant does not meet the criteria set forth in Section GR-5.3. The notice of refusal will specify the reasons for the objection and specify the applicant s right of appeal.
Added: October 2015GR-5.4.2
Article 53 of the CBB Law allows the CBB up to 3 months in which to respond to an application, although the CBB normally aims to respond within 30 calendar days. Notices of refusal have to be approved by the concerned Executive Director of the CBB.
Amended: October 2015
Amended: October 2009
Adopted: July 2007Appeal Process
GR-5.4.2A
The applicant has 30 calendar days from the date of a notice in which to appeal a decision to refuse the application or any conditions imposed as a condition of approval. The CBB then has 30 calendar days from the date of the appeal in which to consider any mitigating evidence submitted and make a final determination.
Added: October 2015GR-5.4.3
Where a person has become a
controller by virtue of their shareholding in contravention of Paragraph GR-5.1.1, or a notice of refusal has been served on them under Paragraph GR-5.4.1 and the period of appeal has expired, the CBB may, by notice in writing served on the person concerned, instruct the person concerned to transfer such shares, or refrain from exercising voting rights in respect of such shares.Amended: July 2007GR-5.4.4
If the person concerned fails to take the action specified under Paragraph GR-5.4.3, then the CBB may seek a court order to take appropriate measures: these may include forcing the person to sell their shares.
Adopted: July 2007GR-5.4.5
[This Paragraph was deleted in October 2015.]
Deleted: October 2015
Adopted: July 2007GR-5.4.6
In addition to the above requirements,
Bahraini investment firm licensees are encouraged to notify the CBB as soon as they become aware of events that are likely to lead to major changes in theircontrollers . Any supervisory implications of such changes can then be discussed prior to the filing of a formal approval request.Amended: October 2015
Adopted: July 2007GR-5.4.7
The CBB may contact references and supervisory bodies in connection with any information provided to support an application for
controller . The CBB may also ask for further information, in addition to that provided in the Form 2, if required to satisfy itself as to the suitability of the applicant.Added: October 2015GR-5.4.8
In accordance with Paragraph EN-8.2.6, and where a
controller is a natural person, the CBB may, depending on the seriousness of a situation, impose enforcement measures, which may include disqualification from being acontroller of any licensed firm.Added: October 2015GR-5.5 GR-5.5 Key Provisions for Overseas Investment Firm Licensees
GR-5.5.1
In the case of
overseas investment firm licensees , thelicensee must notify the CBB of any new significant ownership in excess of 50% of the issued and paid up capital of the concernedlicensee s directparent undertaking as soon as thelicensee becomes aware of the change (see Paragraph BR-2.2.23A). Theoverseas investment firm licensee must provide a copy of the relevant approval by thehome supervisor of the parent. The CBB will take the appropriate action in such case.Added: October 2015GR-5.5.2
In assessing the suitability of a
controller of the parent of anoverseas investment firm licensee , the CBB will take into regard that the change in control poses no undue risks to thelicensee or its customers, and is not damaging to the interests of the market.Added: October 2015GR-5.5.3
Overseas investment firm licensees must submit, within 3 months of their financial year-end, a report on theircontrollers . This report must identify allcontrollers of the branch, and details of the type of control (See BR-1.4.1).Added: October 2015GR-5.5.4
For
overseas investment firm licensees , thecontroller is the directparent undertaking . Any material changes as outlined in Paragraph GR-5.5.1, to the control of the directparent undertaking must be filed through submission of an updated Form 2 to the CBB.Added: October 2015GR-6 GR-6 Close Links
GR-6.1 GR-6.1 Key Provisions
GR-6.1.1
Condition 3 of the CBB's licensing conditions specifies, amongst other things, that
investment firm licensees must satisfy the CBB that theirclose links do not prevent the effective supervision of thelicensee and otherwise pose no undue risks to thelicensee . (See Paragraph AU-2.3.1).Amended: July 2007GR-6.1.2
Applicants for an
investment firm license must provide details of theirclose links , as provided for under Form 1 (Application for a License). (See Paragraph AU-5.1.1).GR-6.1.3
Investment firm licensees must submit to the CBB, within 3 months of their financial year-end, a report on theirclose links . The report must identify all undertakings closely linked to thelicensee , as defined in Section GR-6.2.Amended: July 2007GR-6.1.4
Investment firm licensees may satisfy the requirement in Paragraph GR-6.1.3 by submitting a corporate structure chart, identifying all undertakings closely linked to thelicensee .Amended: July 2007GR-6.1.5
Investment firm licensees must provide information on undertakings with which they are closely linked, as requested by the CBB.Amended: July 2007GR-6.2 GR-6.2 Definition of Close Links
GR-6.2.1
An
investment firm licensee ('L') has close links with another undertaking ('U'), if:(a) U is aparent undertaking of L;(b) U is asubsidiary undertaking of L;(c) U is asubsidiary undertaking of aparent undertaking of L;(d) U, or any other subsidiary undertaking of its parent, owns or controls 20% or more of the voting rights or capital of L; or(e) L, any of its parent or subsidiary undertakings, or any of the subsidiary undertakings of its parent, owns or controls 20% or more of the voting rights or capital of U.Amended: July 2007GR-6.3 GR-6.3 Assessment Criteria
GR-6.3.1
In assessing whether an
investment firm licensee's close links may prevent the effective supervision of the firm, or otherwise poses no undue risks to theinvestment firm licensee , the CBB takes into account the following:(a) Whether the CBB will receive adequate information from theinvestment firm licensee , and those with whom thelicensee hasclose links , to enable it to determine whether thelicensee is complying with CBB requirements;(b) The structure and geographical spread of thelicensee , its group and other undertakings with which it hasclose links , and whether this might hinder the provision of adequate and reliable flows of information to the CBB, for instance because of operations in territories which restrict the free flow of information for supervisory purposes;(c) In the case of anoverseas investment firm licensee , whether theinvestment firm licensee and its group will be subject to supervision on a consolidated basis (for example, if a financial resources requirement is determined for the group as a whole); and(d) Whether it is possible to assess with confidence the overall financial position of the group at any particular time, and whether there are factors that might hinder this, such as group members having different financial year ends or auditors, or the corporate structure being unnecessarily complex and opaque.Amended: July 2007GR-7 GR-7 Cessation of Business
GR-7.1 GR-7.1 CBB Approval
GR-7.1.1
As specified in Article 50 of the CBB Law, an
investment firm licensee wishing to cease to provide or suspend all or any of its licensed regulated services, completely or at any of its branches, must obtain prior written approval from the CBB.Amended: October 2011
Amended: July 2007GR-7.1.2
If the
investment firm licensee wishes to transferclient assets to a third party, it must also comply with the requirements contained in Chapter GR-4.Amended: July 2007GR-7.1.2A
If the
investment firm licensee wishes to liquidate its business, the CBB will revise its license to restrict the firm from entering into new business. The licensee must continue to comply with all applicable CBB requirements until such time as it is formally notified by the CBB that its obligations have been discharged and that it may surrender its license.Adopted: October 2011GR-7.1.3
In the case of a
Bahraini investment firm licensee , Chapter GR-7 applies both to its business booked in Bahrain and in the firm's overseas branches. In the case of anoverseas investment firm licensee , Chapter GR-7 applies only to business booked in the firm's Bahrain branch.Adopted: July 2007GR-7.1.4
Investment firm licensees seeking to obtain the CBB's permission to cease business must apply to the CBB in writing, in the form of a formal request together with supporting documents. Unless otherwise directed by the CBB, the following requirements must be provided in support of the request:(a) Full details of the business to be terminated;(b) The rationale for the cessation;(c) How thelicensee proposes to cease business;(d) Notice of an Extraordinary Meeting setting out the agenda to discuss and approve the cessation, and inviting the CBB for such meeting;(e) Evidence that the proposed cessation has been duly authorised by thelicensee (such as a certified copy of a Board resolution approving the cessation).(f) Formal request to the CBB for the appointment of a liquidator acceptable to the CBB;(g) A cut-off date by which thelicensee will stop its operations;(h) If theinvestment firm licensee wishes to cease its whole business, confirmation that thelicensee will not enter into new business with effect from the cut-off date;(i) Once the CBB has given its approval to an application to cease business, thelicensee must publish a notice of its intention to cease business in two local daily newspapers (one in Arabic, the other in English). Notices must also be displayed in the premises (including any branch offices) of thelicensee concerned. These notices must be given not less than 30 calendar days before the cessation is to take effect, and must include such information as the CBB may specify;(j) The audited accounts of thelicensee as of the last date on which it stopped operations. The commencement of such accounts should be the beginning of the financial year of thelicensee ;(k) If applicable, an assessment of the impact of the cessation on any customers directly affected by the cessation, and any mitigating factors or measures;(l) If applicable, an assessment of the impact of the cessation on thelicensee's remaining business and customers, and any mitigating factors or measures; and(m) The final liquidator's report of thelicensee .Amended: October 2011
Amended: October 2009
Adopted: July 2007GR-7.1.5
Licensees intending to apply to cease business are advised to contact the CBB at the earliest possible opportunity, prior to submitting a formal application, in order that the CBB may determine the nature and level of documentation to be provided and the need for an auditor or other expert opinion to be provided to support the application. The documentation specified in Paragraph GR-7.1.4 may be varied by the CBB, depending on the nature of the proposed cessation, such as the materiality of the business concerned and its impact on customers.Adopted: July 2007GR-7.1.6
Approval to cease business will generally be given where adequate arrangements have been made to offer alternative arrangements to any affected customers. The CBB's approval may be given subject to any conditions deemed appropriate by the CBB. In all cases where additional requirements are imposed, the CBB shall state the reasons for doing so.
Adopted: July 2007GR-7.1.7 [Deleted]
Deleted: October 2009GR-7.1.7
The notice referred to in Subparagraph GR-7.1.4(i) must include a statement that written representations concerning the liquidation may be submitted to the CBB before a specified day, which shall not be later than thirty calendar days after the day of the first publication of the notice. The CBB will not decide on the application until after considering any representations made to the CBB before the specified day.
Amended: October 2011
Amended: October 2009
Adopted: July 2007GR-7.1.8
Upon satisfactorily meeting the requirements set out in GR-7.1.4, the
investment firm licensee must surrender the original license certificate issued by the Licensing Directorate at the time of establishment, and submit confirmation of the cancellation of its commercial registration from the Ministry of Industry and Commerce.Amended: April 2020
Amended: October 2011
Amended: October 2009
Amended: July 2007GR-7.1.9
Where the CBB has given its approval to cancel or amend a license, then it will also publish its decision in the Official Gazette, as well as in two local daily newspapers (one in Arabic, the other in English), once this decision has been implemented.
Amended: October 2011
Amended: October 2009
Adopted: July 2007GR-7.1.9A
The publication cost of these notices mentioned in Paragraph GR-7.1.9 is to be met by the
investment firm licensee concerned.Adopted: October 2011GR-7.1.10
The
investment firm licensee must continue to comply with all applicable CBB requirements until such time as it is formally notified by the CBB that its obligations have been discharged.Amended: October 2011
Adopted: October 2009GR-7.1.11
An
investment firm licensee in liquidation must continue to meet its contractual and regulatory obligations to customers and creditors.Amended: October 2009
Amended: July 2007GR-7.1.11A
If no objections to the liquidation are upheld by the CBB, the CBB may then issue a written notice of approval for the surrender of the license.
Adopted: October 2011GR-7.1.12
If a
Category 2 investment firm or aCategory 3 investment firm applies to the CBB for voluntary surrender of its authorisation, it must ensure that suitable arrangements are in place for professional indemnity coverage, to continue in respect of any unreported claims arising from past sales or advice, in accordance with Rule GR-9.1.8.Amended: October 2011
Adopted: October 2009GR-7.1.5
Once the
investment firm licensee believes that it has discharged all its remaining contractual obligations to clients and creditors, it must publish a notice in two national newspapers in Bahrain approved by the BMA (one being in English and one in Arabic), stating that is has settled all its dues and wishes to leave the market.GR-7.1.6
The notice referred to in Paragraph GR-7.1.5 must include a statement that written representations concerning the liquidation may be sent to the BMA before a specified day, which shall not be earlier than sixty days after the day of the first publication of the notice. The BMA will not decide on the application until after considering any representations made to the BMA before the specified day.
GR-7.1.7
If no objections to the liquidation are upheld by the BMA, then the BMA may issue a written notice of approval for the surrender of the license.
GR-8 GR-8 Appointed Representatives [This Chapter was deleted in October 2013]
GR-8.1 GR-8.1 Key Provisions [This Section was deleted in October 2013]
GR-8.1.1
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.2
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.3
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.4
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.5
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.6
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.7
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.8
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.9
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.10
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.11
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.12
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-8.1.13
[This Paragraph was deleted in October 2013].
Deleted: October 2013GR-9 GR-9 Professional Indemnity Coverage
GR-9.1 GR-9.1 Key Provisions
GR-9.1.1
Category 2 investment firms andCategory 3 investment firms must maintain professional indemnity coverage. The professional indemnity coverage must be obtained from an insurance firm acceptable to the CBB and licensed in the Kingdom of Bahrain.Category 2 investment firms andCategory 3 investment firms must submit a Professional Indemnity Insurance Return (Form PIIR) on a quarterly basis as part of the Quarterly Prudential Return Form (ref. BR-1.1). Additionally, they must provide, upon request, evidence to the CBB of the coverage in force.Amended: October 2009
Amended: July 2007GR-9.1.1A
In accordance with Paragraph EN-B.3.1,
investment firm licensees may not enter into or make a claim under a contract of insurance that is intended to, or has the effect of, indemnifying them from the financial penalties provided for in Module EN.Adopted: April 2008GR-9.1.2
The requirement to maintain professional indemnity coverage will normally be met by the
investment firm licensee concerned obtaining an insurance policy from an insurance firm. The CBB may also accept an insurance indemnity policy issued at group level, e.g. issued with respect to the parent of theinvestment firm licensee , provided the terms of the policy explicitly provide indemnity coverage with respect to theinvestment firm licensee . Similarly,overseas investment firm licensees may provide evidence of professional indemnity coverage maintained by their head office, providing that the coverage of the professional indemnity extends to the operations of the branch operating in Bahrain.Amended: April 2008
Amended: July 2007GR-9.1.3
Upon written application to the CBB, the requirement in Rule GR-9.1.1 may instead be met by the
investment firm licensee depositing with a retail bank licensed to operate in the Kingdom of Bahrain, an amount, specified by the CBB, to be held in escrow against future claims. This amount will not be less than the minimum required policy limit.Amended: July 2007GR-9.1.4
An
investment firm licensee must assess its insurance needs with respect to professional indemnity to ensure its adequacy to the level of business undertaken, notwithstanding the minimum limit of indemnity.Adopted: October 2009GR-9.1.5
The minimum limit of indemnity is BD 100,000 for
Category 2 investment firms and BD 75,000 forCategory 3 investment firms .Amended: October 2009GR-9.1.6
The maximum excess or deductible allowable under the policy shall be BD 15,000.
Amended: October 2009GR-9.1.7
Unless otherwise agreed in writing with the CBB, the policy must contain a clause that it may not be cancelled or lapsed without the prior notification of the CBB. The policy must also contain a provision for an automatic extended reporting period in the event that the policy is cancelled or lapsed, such that claims relating to the period during which the policy was in force may subsequently still be reported.
Amended: October 2009
Amended: July 2007GR-9.1.8
If a
Category 2 investment firm orCategory 3 investment firm applies to the CBB for a voluntary surrender of its authorisation, it must ensure that suitable arrangements are in place for professional indemnity coverage to continue in respect of any unreported claims arising from past sales or advice.Amended: October 2009
Amended: July 2007GR-9.1.9
The CBB will not allow a voluntary surrender of authorisation to take effect until the
investment firm licensee , in the opinion of the CBB, has discharged all its regulatory responsibilities to itsclients . See also Section AU-5.5, on the cancellation of authorisation.Amended: October 2009
Amended: July 2007GR-9.1.10
As provided for in Module ES, professional indemnity coverage requirements must be met by
Category 2 investment firms andCategory 3 investment firms , which were licensed prior to the introduction of Volume 4 (Investment Business) in April 2006, by December 31, 2006.Category 2 investment firms andCategory 3 investment firms licensed after April 2006 are required to comply with the CBB's professional indemnity coverage requirements, from the point they are given a license.Amended: October 2009
Amended: July 2007GR-9.1.11
Category 2 investment firms andCategory 3 investment firms must prominently display in their premises a notice stating that they have in place professional indemnity coverage that meets the minimum requirements of the CBB and the period of coverage, such that claims relating to the period during which the policy was in force may subsequently still be reported.Amended: October 2009
Amended: July 2007GR-9.1.12
The above notice may either be issued by the insurance company on behalf of the
investment firm licensee , or by thelicensee itself. The notice should specify the main features of the coverage maintained (or, where relevant, the amount of funds placed in escrow, in accordance with Rule GR-9.1.3). It should also specify the procedures for submitting a claim under the coverage maintained.Amended: October 2009
Amended: July 2007GR-10 GR-10 [This Chapter deleted 07/2007.]
Deleted: July 2007GR-10.1 GR-10.1 Annual License Fees
GR-10.1.1
Investment firm licensees must pay the relevant annual license fee to the BMA, upon the issuance of their license and thereafter on 1 January each year. The annual license fee charged upon issuance of a license is charged on a pro-rata basis, proportionate to the period remaining between the issuance of the license and the end of the calendar year in question.GR-10.1.2
The annual license fee payable is as follows:
—Category 1 investment firms : BD 4,000—Category 2 investment firms : BD 1,000—Category 3 investment firms : BD 500GR-10.1.3
The above fee structure is temporary, pending the development of an integrated license fee structure covering all BMA licensees. Such a system, which will be the subject of consultation prior to implementation, is to be finalized for implementation in January 2007. The guiding principles of the new system will be (i) to remain internationally competitive in terms of direct costs imposed on licensees; (ii) to be relatively simple and straightforward to calculate and apply; and (iii) to align more closely the level of fees charged with the scale and likely complexity of a licensee.
GR-10 GR-10 Branches, Subsidiaries and Representative Offices
GR-10.1 GR-10.1 General Requirements
GR-10.1.1
As specified in Articles 51 and 57 of the CBB Law, a
Bahraini investment firm licensee incorporated in Bahrain must seek CBB approval and give reasonable advance notice of its intention to:(a) Enter into a merger with another undertaking;(b) Enter into a proposed acquisition, disposal or establishment of a newsubsidiary undertaking ;(c) Open a new place of business as asubsidiary undertaking or abranch within the Kingdom of Bahrain or other jurisdiction; or(d) Open arepresentative office in another jurisdiction.Amended: July 2013
Added: April 2011GR-10.1.1A
The Rules in this Section apply to all
Bahraini investment firm licensees proposing to establish a new subsidiary undertaking, either directly by way of holding majority shareholding or having majority voting control by virtue of direct ownership or indirectly, by proxy/nominee arrangements, or through a management agreement.Added: July 2013GR-10.1.2
Rule GR-10.1.1 applies whether or not the
Bahraini investment firm licensee is required to be regulated locally in the jurisdiction where it proposes to undertake the investment business.Amended: July 2013
Added: April 2011GR-10.1.3
The CBB will consider as one of its criteria to approve, impose additional requirements on the
Bahraini investment firm licensee or refuse an application under Paragraph GR-10.1.1, the information related to Paragraph GR-10.1.2.Amended: July 2013
Added: April 2011GR-10.1.4
Bahraini investment firm licensees will also need to consider the implications of a merger, acquisition, disposal or establishment of a newsubsidiary undertaking in the context of thecontrollers andclose links rules set out in Sections GR-5 and GR-6.Added: April 2011GR-10.1.5
[This Paragraph was deleted in July 2013]
Deleted: July 2013
Added: April 2011Establishment of a Subsidiary
GR-10.1.6
The purpose and objectives of a
subsidiary undertaking referred to in Rule GR-10.1.1 must be limited to the permissible activities within the scope of the investment business license as defined underregulated investment services in Section AU-1.4.Added: April 2011GR-10.1.7
Bahraini investment firm licensees wishing to establish or acquire asubsidiary undertaking must submit the following information to the CBB as part of the approval process referred to in Paragraph GR-10.1.1:(a) Proposed name of subsidiary;(b) Country of incorporation;(c) Legal structure;(d) Proposed paid-up capital;(e) Proposed shareholding structure;(f) Purpose of establishing or acquiring the subsidiary;(g) Draft incorporation documents of the subsidiary;(h) Board Resolution approving the establishment or acquisition of the subsidiary;(i) Names of the board members of the proposed subsidiary and the relationship of the board member to theinvestment firm licensee ;(j) Names of the authorised signatories of the proposed subsidiary;(k) An undertaking from the board of theinvestment firm licensee that the board will be held ultimately responsible for any misconduct or action committed by the proposed subsidiary; and(l) Any other information or documentation as required by the CBB.Amended: July 2013
Added: April 2011GR-10.1.7A
Any change in the criteria listed under Rule GR-10.1.7, including any changes to the incorporation documents, are subject to the CBB prior written approval, prior to the change taking place.
Added: July 2013GR-10.1.8
Bahraini investment firm licensees referred to in Paragraph GR-10.1.7 must comply with Paragraphs GR-6.1.3 (reporting requirements for close links), RM-B.2.2 (risk management of subsidiaries), CA-1.2.9 and CA-2.1.13 (impact of investment in subsidiaries on capital adequacy).Amended: July 2013
Added: April 2011GR-10.1.8A
Bahraini investment firm licensees must ensure that the scope of their internal audit extends to the activities of their subsidiaries, to satisfy themselves of the compliance of the subsidiaries with all relevant internal and regulatory rules and regulations.Added: July 2013
GR-10.1.8B
Bahraini investment firm licensees must submit to the CBB audited financial statements of theirsubsidiaries within 3 months of the year end of thesubsidiary (ref. BR 1.4.6A).Amended: October 2016
Added: July 2013
Establishment of a Branch or Representative Office
GR-10.1.9
Investment firm licensees wishing to establish abranch or arepresentative office in a jurisdiction other than the Kingdom of Bahrain, must submit the following information to the CBB as part of the approval process referred to in Paragraph GR-10.1.1:(a) Name of thehost supervisor ;(b) Proposed license type of thebranch ;(c) Purpose of establishing the branch orrepresentative office ;(d) Board Resolution approving the establishment of thebranch orrepresentative office ;(e) The minimum requirements of the host jurisdiction; and(f) Any other information or documentation as required by the CBB.Added: April 2011Business Standards
CA CA Capital Adequacy
CA-A CA-A Introduction
CA-A.1 CA-A.1 Purpose
Executive Summary
CA-A.1.1
This Module lays down requirements that apply to all
investment firm licensees , with respect to the minimum level of capital they must maintain.Category 1 investment firms are also required to make their own assessment of the appropriate level of capital that they need to hold.Amended: January 2007CA-A.1.2
Principle 9 of the Principles of Business requires that
investment firm licensees maintain adequate human, financial and other resources, sufficient to run their business in an orderly manner (see Section PB-1.9). In addition, Condition 5 of the Central Bank of Bahrain's ('CBB') Licensing Conditions (Section AU-2.5) requiresinvestment firm licensees to maintain financial resources in excess of the minimum requirements specified in Module CA (Capital Adequacy).Amended: January 2011
Amended: January 2007CA-A.1.3
The requirements specified in this Module vary according to the category of
investment firm licensee concerned, their inherent risk profile, and the volume and type of business undertaken. The purpose of such requirements is to ensure thatinvestment firm licensees hold sufficient capital to provide some protection against unexpected losses, and otherwise allow investment firms to effect an orderly wind-down of their operations, without loss to their customers or those of other firms. The minimum capital requirements specified here are not sufficient to absorb all unexpected losses.Legal Basis
CA-A.1.4
This Module contains the CBB's Directive (as amended from time to time) relating to the capital adequacy of
investment firm licensees , and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to allinvestment firm licensees .Amended: January 2011
Adopted: January 2007CA-A.1.5
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Adopted: January 2007CA-A.2 CA-A.2 Module History
Evolution of Module
CA-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. 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.
Amended: July 2007CA-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.
Adopted: July 2007CA-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes CA-A.1 07/2007 New Rule CA-A.1.4 introduced, categorising this Module as a Directive. CA-1.1 07/2007 Minor change to notification period in Rule CA-1.1.4. CA-2.1.5 01/2008 Clarified the definition of Tier 1 capital re preference shares. CA-2.1.8 01/2008 Clarified definition of Tier 2 capital CA-B.1 10/2009 New Rules CA-B.1.4 and CA-B.1.3 introduced to clarify calculation of regulatory capital for overseas investment firm licensees. CA-1.1 10/2009 New Rule CA-1.1.4 introduced regarding CBB's requirements for maintaining capital in Bahrain. CA-1.2 and CA-2.1.5 10/2009 Amended terminology. CA-2.1.8 10/2009 Clarified definition of Tier 2 capital. CA-3.4 10/2009 Clarified definition of foreign exchange requirement. CA-A.1.4 01/2011 Clarified legal basis. CA-B.1 01/2011 New title given to this section. CA-1 01/2011 Restructured by moving Paragraphs in Section CA-B.1 and categorised capital adequacy requirements for different legal forms of investment firms (Bahraini and Overseas) and added new Rule on the booking of assets and liabilities. CA-1.1.5A 01/2011 Added Guidance on alternative to increase capital. CA-1.2.11 and CA-1.2.12 01/2011 Paragraphs relocated from Section CA-1.1. CA-2.1.8 01/2011 Added dated subordinated term debt with an original term of over 5 years to Tier 2 capital instruments. CA-1.2.9 and CA-1.2.9A 04/2011 Clarified notification requirements where investment firm licensees do not meet certain requirements. CA-3.1 04/2011 Provided new Rule to deal with newly established investment firm licensees. CA-A.2.3 01/2012 Corrected typo. CA-2.2.3 01/2012 Corrected cross reference. CA-1.2.9A 10/2012 Clarified Rule. CA-1.1.5A to CA-1.1.5C 01/2013 Updated Rules and Guidance dealing with issuance of subordinated debt. CA-2.2.2 01/2013 Corrected typo and added cross reference. CA-3.1.3 10/2013 Removed reference to appointed representatives. CA-4.1 10/2014 Added new guidance for capital for underwriting purposes. CA-1.1.7 and CA-1.1.8 07/2015 Guidance paragraphs deleted as reference is out of date. CA-1.1.5A and CA-2.1.14 01/2016 Corrected cross references. CA-2.1.3 01/2016 Clarified Rule on type of capital that can be used to satisfy the regulatory capital requirement. CA-2.1.8 01/2016 Corrected numbering of Subparagraphs. CA-1.1.1 10/2019 Amended Paragraph on the obligation to maintain adequate capital. CA-1.1.4 10/2019 Amended Paragraph on minimum capital requirement. CA-2.1.3 10/2019 Amended Paragraph on eligible components. CA-3.2.1 10/2019 Added new PRR in Schedule 1 for claims on sovereigns, PSEs, International Organisations and MDBs. CA-3.2.2 10/2019 Added a new Paragraph on PRR for claims on sovereigns to governments and central banks. CA-3.2.3 10/2019 Added a new Paragraph on PRR for Bahraini PSEs, International Organisations and MDBs. CA-1.2.7 04/2023 Amended minimum capital requirement for Category 3 Investment firms. CA-1.2.7A 04/2023 Added a new Paragraph on minimum liquid funds required to be maintained by Category 3 investment firms. Superseded Requirements
CA-A.2.4
This Module supersedes the following provisions contained in circulars or other regulatory instruments:
Circular/other reference Provision Subject Standard Conditions and Licensing Criteria: investment advisers/brokers. Article 1 Capital Funds Standard Conditions and Licensing Criteria: broking company Article 1 Minimum Capital Standard Conditions and Licensing Criteria: stockbrokerage Article 1 Minimum Capital CA-A.2.5
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
CA-B CA-B Scope of Application
CA-B.1 CA-B.1 Scope
CA-B.1.1
This Module applies to both
Bahraini investment firm licensees andoverseas investment firm licensees .CA-B.1.2 [deleted]
[This Paragraph was moved to CA-1.1.A].
Deleted: January 2011CA-B.1.3 [deleted]
[This Paragraph was moved to CA-1.1A.3].
Deleted: January 2011CA-B.1.4 [deleted]
[This Paragraph was moved to CA-1.1A.1].
Deleted: January 2011CA-B.1.5 [deleted]
[This Paragraph was moved to CA-1.1A.2].
Amended: January 2011CA-1 CA-1 Capital Adequacy Requirements
CA-1.1 CA-1.1 Bahraini Investment Firm Licensees
Obligation to Maintain Adequate Capital
CA-1.1.A
Bahraini investment firm licensees must calculate theirRegulatory Capital based on their shareholders' equity (and other eligible components ofRegulatory Capital , as defined in Chapter CA-2).Adopted: January 2011CA-1.1.1
In accordance with Principle of Business 9 (cf. Section PB-1.9),
investment firm licensees must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner. This includes meeting the minimum capital requirements specified in Section CA-1.2 onwards and maintaining, at all times, a level of financial resources commensurate with the nature, size and complexity of their business.Amended: October 2019CA-1.1.2
In addition to the minimum capital requirements specified in Section CA-1.2 onwards, the CBB may, at its discretion, require
investment firm licensees to hold additional capital, should this be necessary (in the CBB's view) to meet additional risks that are not sufficiently addressed in either theRisk-based Capital Requirement or theMinimum Capital Requirement .Amended: October 2009
Amended: January 2007CA-1.1.3
The CBB would typically invoke Rule CA-1.1.2 in rare circumstances — for instance, where in its assessment a licensee was running high levels of operational risk because of a particularly weak controls environment.
Amended: January 2007CA-1.1.4
Investment firm licensees are required to deposit the initial capital specified in Section AU-5.1.12K in a retail bank licensed to operate in the Kingdom of Bahrain. Assets equivalent to theminimum capital requirement are required to be maintained, at all times, free from any pledge or any other restriction.Amended: October 2019
Adopted: October 2009CA-1.1.5
In the event that an
investment firm licensee fails to meet any of the requirements specified in this Module, it must, on becoming aware that it has breached these requirements, immediately notify the CBB in writing. Unless otherwise directed, the licensee must in addition submit to CBB, within 30 calendar days of its notification, a plan demonstrating how it will achieve compliance with these requirements.Amended: October 2009
Amended: January 2007CA-1.1.5A
Should the CBB direct an
investment firm licensee to inject additional working capital in order to maintain the minimum capital requirements for its category of license, theinvestment firm licensee may inject cash in the form of a subordinated loan from the shareholders, subject to the CBB's prior approval. Such amount will be included as Tier 2 capital and must have a minimum original fixed term to maturity of more than 5 years (See Rule CA-2.1.8(h)).Amended: January 2016
Amended: January 2013
Adopted: January 2011CA-1.1.5B
Subject to the CBB's prior approval, an
investment firm licensee may settle a subordinated debt, partially or in full, prior to the end of its term.Added: January 2013
CA-1.1.5C
Where Paragraph CA-1.1.5B applies, the CBB will take into consideration whether the
investment firm licensee has received confirmation from its external auditor that theinvestment firm licensee's financial position has improved and its capability to repay the debt (see Paragraph BR-2.3.27B).Added: January 2013
CA-1.1.6
Should an
investment firm licensee fail to comply with the requirements of this Module, the CBB may impose enforcement measures, as described in Module EN.Amended: October 2009
Amended: January 2007CA-1.1.7
[This Paragraph was deleted in July 2015.]
Deleted: July 2015
Amended: October 2009CA-1.1.8
[This Paragraph was deleted in July 2015.]
Deleted: July 2015
Amended: October 2009
Amended: January 2007[deleted]
Deleted: January 2011CA-1.1.9 [deleted]
[This Paragraph was amended and moved to CA-1.2.11].
Deleted: January 2011CA-1.1.10 [deleted]
[This Paragraph was amended and moved to CA-1.2.12].
Deleted: January 2011Booking of Assets and Liabilities
CA-1.1.9
Bahraini investment firm licensees must not book any obligation/liabilities in their books, without booking the corresponding asset in Bahrain.Adopted: January 2011CA-1.1A CA-1.1A Overseas Investment Firm Licensees
Obligation to Maintain Adequate Capital
CA-1.1A.1
Overseas investment firm licensees must calculate theirRegulatory Capital based on the audited net assets booked in the Bahrain branch, determined in accordance with accounting standards that would be applicable if they were a joint stock company incorporated in Bahrain.Overseas investment firm licensees must ensure that theirRegulatory Capital meets the minimum capital requirements specified in Section CA-1.2 onwards.Adopted: January 2011CA-1.1A.2
While the capital adequacy requirements for
Bahraini investment firm licensees and foroverseas investment firm licensees are identical (and are defined in CA-1 and CA-3), the calculation of the licensee's regulatory capital varies, according to whether theinvestment firm licensee is locally incorporated or a branch operation.Adopted: January 2011Booking of Assets and Liabilities
CA-1.1A.3
Overseas investment firm licensees must book in Bahrain all assets pertaining to the operations of the Bahrain branch.Adopted: January 2011CA-1.1A.4
Overseas investment firm licensees must not book any obligation/liabilities in their Bahrain branch, without booking the corresponding asset in Bahrain.Adopted: January 2011CA-1.2 CA-1.2 Initial and Risk-Based Capital Requirements
Key Requirements
CA-1.2.1
Investment firm licensees must ensure that, at all times, theirRegulatory Capital is in excess of theirRegulatory Capital Requirement . They must monitor compliance with this requirement on an on-going basis.CA-1.2.2
For
Category 1 andCategory 2 investment firms , theirRegulatory Capital Requirement is defined as the higher of theirRisk-based Capital Requirement and theirMinimum Capital Requirement .Amended: October 2009CA-1.2.3
For
Category 3 investment firms , theirRegulatory Capital Requirement is theirMinimum Capital Requirement .Amended: October 2009CA-1.2.4
The above requirements reflect the different risk profiles of the 3 investment firm categories.
Risk-based Capital Requirements vary according to the level of position and other risks undertaken, and the size of the firm (measured in terms of adjusted annual expenditure). For larger firms, or those exposed to relatively higher levels of risk,Risk-based Capital Requirements are therefore likely to exceed the relevantMinimum Capital Requirement . Because of the limited nature of their activities, which pose limited risks to counterparties or customers,Category 3 investment firms are not required to applyRisk-based Capital Requirements . They are only required to comply with theirMinimum Capital Requirement .Amended: October 2009Definitions
CA-1.2.5
For
Bahraini investment firm licensees ,Regulatory Capital is capital held by the firm that satisfies the criteria set out in Chapter CA-2. Foroverseas investment firm licensees ,Regulatory Capital is defined as audited net assets booked in the Bahrain branch, determined in accordance with accounting standards that would be applicable if they were a joint stock company incorporated in Bahrain.Amended: July 2007CA-1.2.6
See Section CA-B.1 above, regarding scope of application. Overseas investment firms are also required to provide information — and meet certain requirements — with respect to the capital adequacy of their parent entity and — where relevant — their wider group. See Module GS (Group Supervision).
CA-1.2.7
Minimum Capital Requirements are:(a)Category 1 investment firms : BD 1,000,000;(b)Category 2 investment firms : BD 1,000,000 if undertaking the activity of safeguarding financial instruments (i.e. custodian), BD250,000 in all other cases; and(c)Category 3 investment firms : BD25,000.Amended: April 2023
Amended: October 2009
Amended: January 2007CA-1.2.7A
Category 3 investment firms must maintain adequate liquid funds representing 25% of operating expenses incurred in the preceding financial year at all times in the form of cash or liquid assets that can be converted to cash in the short-term to cover its operating expenses.Added: April 2023CA-1.2.8
The
Risk-based Capital Requirement is the sum of a firm's Expenditure Requirement, Position Risk Requirement (PRR), Counterparty Risk requirement (CRR), and Foreign Exchange Risk Requirement (FER), as defined in Chapter CA-3.Notification Requirements
CA-1.2.9
Category 1 and 2 investment firms must notify the CBB if:(a) The ratio ofRegulatory Capital to theirRegulatory Capital Requirement falls below 110% (see Paragraph CA-1.1.5);(b) Any single probable contingency, financial commitment or large exposure exceeds 25% of theirRegulatory Capital ; and(c) Any instrument, transaction or situation does not appear to be catered for under Module CA.Amended: April 2011
Amended: January 2007CA-1.2.9A
Investment firm licensees must submit to the CBB, within 30 calendar days of the event occurring, a plan demonstrating how it will:(a) Raise itsregulatory capital to bring it to a level in excess of itsregulatory capital requirement (refer to Paragraph CA-1.2.1); or(b) Reduce the single contingency, financial commitment or large exposure to below 25% of theregulatory capital .Amended: October 2012
Added: April 2011Group Risks
CA-1.2.10
Investment firm licensees that are members of a wider group are also subject to additional requirements, aimed at addressing group risks: see Module GS (Group Supervision).Firm Assessment
CA-1.2.11
Investment firm licensees must regularly carry out their own assessment of their capital needs, appropriate to their risk profile, and maintain a process for monitoring and maintaining their actual capital in line with their assessment.Adopted: January 2011CA-1.2.12
Rule CA-1.2.12 is in addition to the other requirements in Module CA. If a firm's own assessment suggests its required capital is less than the regulatory minima specified in this Module, the latter must still be complied with. Where a firm's assessment suggests that a higher level of capital should be held, the CBB would expect firms to hold capital in line with their assessment. The CBB is not prescribing the detailed form such assessments should take, in order to give firms flexibility to develop their own approaches. Nonetheless, the CBB would expect the sophistication of such assessments to match the risk profile of the firm concerned.
Adopted: January 2011CA-2 CA-2 Definition of Regulatory Capital
CA-2.1 CA-2.1 Eligible Components
CA-2.1.1
Regulatory Capital is the sum of the following three components (as defined in Rules CA-2.1.5 to CA-2.1.13), subject to the restrictions set out in Section CA-2.2:(a) Tier 1: Core capital;(b) Tier 2: Supplementary capital; and(c) Tier 3: Ancillary capital.CA-2.1.2
Limits apply to the proportion of Tier 2 and 3 capital allowed, relative to Tier 1. Any excess held is not taken into account in calculating total
Regulatory Capital held. See Section CA-2.2.CA-2.1.3
Except as limited under Paragraph CA-2.2.1, Tiers 1 and 2 can be used to satisfy all elements of the
Regulatory Capital Requirement . Tier 3 capital can only be used to meet the Position Risk Requirement (as defined in Section CA-3.2).Amended: October 2019
Amended: January 2016
Amended: January 2007CA-2.1.4
Any Tier 3 capital held in excess of the Position Risk Requirement, therefore, is not taken into account when calculating total
Regulatory Capital held. See Section CA-2.2.Tier 1 Capital
CA-2.1.5
Tier 1 capital comprises:
(a) Paid-up ordinary shares (net of treasury shares);(b) Share premium reserve;(c) Perpetual non-cumulative preference shares;(d) General reserves, including statutory reserves, but excluding revaluation reserves;(e) Unappropriated retained earnings brought forward;(f) Audited retained profits net of declared dividends and tax expenses;(g) Current year appropriations including statutory reserves, general reserves and other appropriations; and(h) Minority interests, arising on consolidation, in the equity of subsidiaries which are less than wholly owned.LESS:
(i) Goodwill; and(j) Current year's cumulative net losses which have been reviewed or audited as per the International Standards on Auditing (ISA) by external auditors.Amended: October 2009
Amended: January 2008
Amended: January 2007CA-2.1.6
Tier 1 capital elements included under Paragraph CA-2.1.5(a) to (c) can only be so included if:
(a) They are issued by theinvestment firm licensee ;(b) They are fully paid (only that portion of the shares for which payment has been received may be included);(c) They:(i) Cannot be redeemed or can only be redeemed on a winding up of theinvestment firm licensee ; or(ii) They are only redeemable at the option of theinvestment firm licensee and comply with any conditions applicable to joint stock companies in Bahrain;(d) Any coupon is non-cumulative, and can only be paid out of accumulated realised profits;(e) They are able to absorb losses;(f) They rank for repayment, upon winding up, no higher than a share of a company incorporated under the Joint Stock companies law of Bahrain; and(g) The proceeds of the issue are immediately and fully available to theinvestment firm licensee .Amended: January 2007CA-2.1.7
An
investment firm licensee must not redeem any Tier 1 instrument that it has included in itsRegulatory Capital for the purpose of satisfying itsRegulatory Capital Requirement without the prior written approval of the CBB.Amended: January 2007Tier 2: Supplementary Capital
CA-2.1.8
Tier 2 capital comprises:
(a) Interim retained profits reviewed by external auditors in accordance with International Standards on Auditing (ISA);(b) Limited life redeemable preference shares with an original term of at least five years;(c) Asset revaluation reserves, comprising:(i) the revaluation of fixed assets to reflect changes in market values, that are reflected in the balance sheet as a revaluation reserve; and(ii) hidden or 'latent' revaluation reserves represented by long-term holdings of equity securities valued in the balance sheet at the historical cost of acquisition; and(iii) 'latent' revaluation reserves represented by revaluation of 'available for sale' securities to reflect changes in the market value.(d)Dated subordinated debt with anoriginal term of over 5 years.
All types of revaluation reserve may be included, with the concurrence of the external auditor, provided that the assets are prudently valued, fully reflecting the possibility of price fluctuation and forced sale. In the case of 'latent' revaluation reserves, a discount of 55% must be applied to the difference between the historical cost book value and the market value to reflect the potential volatility of this form of unrealized capital;(e) General provisions held against future, presently unidentified losses, providing these are freely available to meet losses that subsequently materialise, subject to a maximum of 1.25% of Tier 1 capital. Provisions ascribed to impairment of particular assets or known liabilities are excluded;(f) Cumulative preference shares;(g) Hybrid instruments, that combine characteristics of equity capital and of debt, and which meet the requirements in CA-2.1.9 and CA-2.1.10;(h) Subordinated term debt, comprising conventional unsecured borrowing subordinated (in respect of both interest and principal) to all other liabilities of theinvestment firm licensee except the share capital and limited life redeemable preference shares. To be eligible for inclusion in Tier 2 capital, subordinated debt capital instruments must have a minimum original fixed term to maturity of over five years. During the last five years to maturity, a cumulative discount (or amortisation) factor of 20% per year will be applied to reflect the diminishing value of these instruments as a continuing source of strength. Unlike instruments included in item (f) above, these instruments are not normally available to participate in the losses of aninvestment firm licensee which continues trading. For this reason, these instruments will be limited to a maximum of 50% of tier 1 capital; and(i) 45% of unrealised gains on equity securities held as available-for-sale (on an aggregate net-basis).Amended: January 2016
Amended: January 2011
Amended: October 2009
Amended: January 2008CA-2.1.9
A hybrid capital instrument may only be included in
Regulatory Capital , as a Tier 2 component, if it meets the following conditions:(a) It is unsecured, subordinated and fully paid-up;(b) It is not redeemable at the initiative of the holder, nor without the prior consent of the CBB;(c) It is available to participate in losses without theinvestment firm licensee being obliged to cease trading (unlike conventional subordinated debt); and(d) Although the capital instrument may carry an obligation to pay interest that cannot permanently be reduced or waived (unlike dividends on ordinary shareholders' equity), it allows such obligations to be deferred (as with cumulative preference shares) where the profitability of theinvestment firm licensee would not support payment.Amended: January 2007CA-2.1.10
In addition to those contained in Rule CA-2.1.9, the following conditions also apply:
(a) The only events of default must be non-payment of any amount falling due under the terms of the instrument or the winding-up of theinvestment firm licensee ;(b) The remedies available to the subordinated creditor in the event of non-payment or other breach of the written agreement or instrument must be limited to petitioning for the winding up of theinvestment firm licensee or proving the debt in a liquidation of theinvestment firm licensee ;(c) Any events of default and any remedy described in (b) must not prejudice the matters in (a);(d) The debt must not become due and payable before its stated final maturity date (if any) except on an event of default complying with (a);(e) The debt agreement or terms of the instrument are governed by the laws of Bahrain;(f) To the fullest extent permitted under the laws of the relevant jurisdictions, creditors must waive their right to set off amounts they owe theinvestment firm licensee against subordinated amounts included in theinvestment firm licensee's capital resources owed to them by theinvestment firm licensee ;(g) The terms of the instrument must be set out in a written agreement that contains terms that provide for the conditions set out in (a) to (f); and(h) Theinvestment firm licensee has obtained an external legal opinion stating that the requirements in (a) to (g) have been met.Amended: January 2007Tier 3: Ancillary Capital
CA-2.1.11
Tier 3 capital consists of short-term subordinated debt that meets the following conditions:
(a) It is unsecured, subordinated and fully paid up;(b) It has an original maturity of at least two years;(c) It is not repayable before the agreed repayment date; and(d) It is subject to a lock-in clause which stipulates that neither interest nor principal may be paid (even at maturity) if such payment means that theinvestment firm licensee's Regulatory Capital would fall below itsRegulatory Capital Requirement .Amended: January 2007Deductions, etc.
CA-2.1.12
No value, for
Regulatory Capital purposes, may be attributed to any other instrument or resource, without the CBB's written consent. Without limiting the generality of this rule, no value is attributed to any of the following:(a) Any implicit items (which relate to future profits and hidden reserves); and(b) The unpaid element of any issued shares some or all of which are not 'fully paid' shares.Amended: January 2007CA-2.1.13
Significant investments in and lending of a capital nature to subsidiaries and associated companies engaged in financial activities must be deducted from the sum of Tiers 1 and 2.
CA-2.1.14
For the purposes of CA-2.1.13, 'significant investments' are investments where the investment firm licensee holds more than 20% of the share capital of the investee company. The underlying assets associated with those investments are not included in the investment firm's assets for the purpose of computing its
Regulatory Capital Requirement . See also Module GR (Group Supervision).Amended: January 2016CA-2.2 CA-2.2 Limits on Components
Tier 1: Core Capital
CA-2.2.1
Tier 1 capital must constitute at least half of total
Regulatory Capital , i.e. the sum of Tier 2 and Tier 3 capital must not exceed total Tier 1 capital.Tier 2: Supplementary Capital
CA-2.2.2
Long-term subordinated term debt may not comprise more than 50% of Tier 1 (see Paragraph CA-1.1.5A).
Amended: January 2013
CA-2.2.3
Rule CA-2.1.8(h) sets out the requirements regarding long-term subordinated debt.
Amended: January 2012Tier 3: Ancillary Capital
CA-2.2.4
Tier 3 capital may only be used to satisfy an investment firm's Position Risk Requirement (PRR). It is limited to 250% of the portion of Tier 1 capital also used to meet the Position Risk Requirement (PRR).
CA-2.2.5
Tier 2 elements may be substituted for Tier 3 up to the Tier 3 limit of 250% (cf. Rule CA-2.2.4), in so far as eligible Tier 2 capital does not exceed total Tier 1 capital, and long-term subordinated debt does not exceed 50% of Tier 1 capital.
CA-2.2.6
Investment firm licensees may hold capital elements in excess of the above limits, but any excess is ignored for the purposes of calculatingRegulatory Capital .CA-3 CA-3 Calculation of Risk-Based Capital Requirements
CA-3.1 CA-3.1 Expenditure Requirement
CA-3.1.1
The Expenditure Requirement is equal to one quarter of the relevant annual expenditure.
CA-3.1.2
Except in instances noted under Paragraph CA-3.1.2A, relevant annual expenditure equals the total annual expenditure (based on audited financial statements) less those items of expenditure that could be reduced or eliminated within a short period of time if required. Subject to prior CBB written approval, exceptional items of expenditure may also be excluded.
Amended: April 2011
Amended: January 2007CA-3.1.2A
For newly established
investment firm licensees , for the first year of operations, the total annual expenditure is based on the projected annual expenditure figure for the first year as stated in the business plan submitted during the authorisation stage in accordance with Paragraph AU-5.1.6.Added: April 2011CA-3.1.3
Items that could be reduced or eliminated within a short period for the purposes of Rule CA-3.1.2 are:
(a) Bonuses paid out of the relevant year's profits which have not been guaranteed;(b) Profit shares and other appropriations of profit, except for fixed or guaranteed remuneration which is payable even if theinvestment firm licensee makes a loss for the year;(c) Paid commissions shared, other than to employees or Directors of theinvestment firm licensee ;(d) Fees, brokerage and other charges paid to clearing houses, clearing firms, exchanges, and intermediate brokers for the purposes of executing, registering or clearing transactions;(e) Interest payable to counterparties; and(f) Interest payable on borrowings to finance theinvestment firm licensee's investment firm and associated firm.Amended: October 2013
Amended: January 2007CA-3.2 CA-3.2 Position Risk Requirement (PRR)
CA-3.2.1
An
investment firm licensee's Position Risk Requirement is the sum of its individual Position Risk Requirements, calculated as a percentage of the market or realisable value of each financial instrument held, as specified in Schedule 1 below:Schedule 1 — Position Risk Requirement (a) Claims on Sovereigns, Public Sectors Entities, International Organisations, and Multilateral Development Banks Includes: 1. Claims on governments of GCC member states and their central banks;2. Claims on other sovereigns and their central banks where such claims are denominated and funded in the relevant domestic currency of that sovereign/central bank;3. Claims on Bahraini Public Sectors Entities listed in Appendix CA-1;4. Claims on International Organisations and Multilateral Development Banks listed in Appendix CA-1.0% (b) Debt <90 days 90 days–1 yr 1–5 yrs >5 yrs OECD 2% x MV 2% x MV 5% x MV 10% x MV Issued or accepted by banks 2% x MV 2% x MV 5% x MV 10% x MV Other marketable financial instruments 10% x MV 10% x MV 20% x MV 30% x MV Floating rate notes <20 yrs 5% x MV >20 yrs 10% x MV (c) Equities Listed on a regulated financial instrument exchange 25% x MV Listed on Bahrain Stock Exchange 25% x MV Traded on a regulated financial instrument exchange 35% x MV Traded on Bahrain Stock Exchange 35% x MV Other 100% x MV (d) Commodities Stock positions in physical commodities associated with an investment firm licensee's investment firm30% of realisable value (e) Futures, options and contracts for differences Exchange traded futures and written options 4 x initial margin requirement Off exchange futures and written options The appropriate percentage shown in a, b and c above should be applied to the value of the underlying position. Purchased options As for off exchange written options but limited to the current value of the option. Contracts for differences 20% of the market value of the contract. (f) Other investments Single premium unit linked bonds and units in a regulated collective investment scheme unless covered below 25% of realisable value Units in a regulated scheme which is a geared futures and options fund, or a property fund, or a warrant fund 50% of realisable value With profit life policies 20% of surrender value Any other investments 100% of amount of asset Amended: October 2019CA-3.2.2
With reference to Paragraph CA-3.2.1(a), claims on sovereigns means receivables from a sovereign government or its central bank, generally in the form of sovereign debt (such as bonds, sukuk etc.). Position Risk Requirement (PRR) of 0% applies to claims on the governments of GCC member states and their central banks. Claims on the governments of other sovereign states and their central banks also attract a PRR of 0% provided such claims are denominated and funded in the relevant domestic currency of that sovereign/central bank. PRR of 0% for claims on GCC/other sovereigns and their central banks will apply only if the relevant supervisor of that jurisdiction also provides a similar relief on claims on its government and central bank.
Added: October 2019CA-3.2.3
With reference to Any claims on Bahraini Public Sectors Entities listed in Appendix CA-1 are treated as claims on the government of Bahrain and are eligible for a PRR of 0%. Similarly, claims on International Organisations and Multilateral Development Banks listed in Appendix CA-1 are also eligible for a PRR of 0%.
Added: October 2019CA-3.3 CA-3.3 Counterparty Risk Requirement (CRR)
CA-3.3.1
An
investment firm licensee's Counterparty Risk Requirement is the sum of its individual Counterparty Risk Requirements, calculated in accordance with Schedule 2 below:Schedule 2 — Counterparty Risk Requirement (a) Cash against document transactions Where an investment firm licensee has unsettled deals in any securities it must calculate the price difference to which it is exposed and then multiply this by the appropriate percentage below to calculate the CRR for each separate unsettled deal.Calendar days after settlement Percentage 0–15 Nil 16–30 25% 31–45 50% 46–60 75% Over 60 100% (b) Free deliveries Where an investment firm licensee makes payment or delivers securities to a counterparty without receiving the certificate/good title or payment respectively, it must calculate a CRR for each free delivery by applying the appropriate percentage below:Where free delivery has been made to: Business days since delivery 0–3 4–15 >15 A manager, underwriter or member of a selling syndicate to whom payment for securities has been made 0% 0% 100% An investment firm licensee to whom securities have been delivered or payment has been made with the expectation that market practice will result in a settlement date longer than three days from delivery date.15% 15% 100% Any other counterparty 0% 100% 100% (c) Options purchased for a counterparty Where an investment firm licensee has purchased an option on behalf of a counterparty on terms which do not impose on the purchaser any actual or contingent margin requirement or liability to make any payment other than the initial purchase price of the option, and the counterparty has not paid the price by three days after trade date, the CRR is the amount by which the purchase price exceeds the current realisable value of the option.
Where aninvestment firm licensee has purchased a traditional option for its own account or on behalf of a counterparty that has not paid theinvestment firm licensee , then, if theinvestment firm licensee has paid the option premium to the writer, it must calculate a CRR equal to the option premium.(d) Amounts owed in respect of exchange traded margined transactions (i) Where, as a result of a traded margined transaction, a counterparty of the investment firm licensee has an initial margin and/or variation margin requirement and has not met it fully with cash, acceptable collateral or a positive equity balance not used to meet variation margin, aninvestment firm licensee must calculate a CRR by multiplying the shortfall (or the relevant part of the shortfall) by the appropriate percentage contained in the schedule below:Initial and variation margin percentage schedule Business days since shortfall occurred
Where the shortfall is for the account of:0–3 days 4 days and over A. A market counterparty who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 5% 5% B. A client who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 10% 10% C. A market counterparty or client not within A or B above, or to the extent that he is not within A or B (the shortfall then being limited to the excess). 0% 100% (ii) Local or traded option market makers. An investment firm licensee must calculate a 100% CRR for amounts of initial and variation margin not met with acceptable collateral or a positive equity balance and owed to it by a local (or by a traded option market maker) in respect of a traded margined transaction from the date of any shortfall, unless theinvestment firm licensee treats the local's (or market maker's) position as if it were its own (in which case the PRR rules under Section CA-3.2 will apply instead).(iii) Sums owed on closed out exchange traded margined transactions. When, as a result of a traded margined transaction which has been closed out, a counterparty of the investment firm licensee owes any amounts to it arising out of losses on those transactions, and has not fully met that amount through the deposit of cash, acceptable collateral or a positive equity balance not otherwise used, theinvestment firm licensee must after three days from the date of crystallisation of the loss calculate a CRR equal to the unpaid amount.(iv) Margin percentages. An investment firm licensee may, with the prior approval of the CBB, opt to calculate the CRR using a higher or the highest initial margin or variation margin percentage, in order to avoid undue complication.(e) Concentrated risk to one counterparty If the total amount due to a licensee for free deliveries or other debts attracting a CRR from a single counterparty (or a group of closely related counterparties) exceeds 25% of the licensee's capital available, it must calculate CRR by applying the appropriate percentage below: Amount of capital available Additional CRR 0–25% Nil 25.01–50% 15% (or the entire excess if less) Over 50% 40% (or the entire excess if less) (f) Repurchase and reverse repo transactions, including sale and buy back and securities lending An investment firm licensee shall notify the CBB if it has counterparty exposures in these investments.(g) Swaps, forward contracts, over the counter options, contracts for differences and off-exchange futures An investment firm licensee shall notify the CBB if it has counterparty exposures in these investments.(h) Loans to counterparties (including free delivery payments) An investment firm licensee must calculate a 100% CRR on the amount by which a loan to a counterparty is not properly secured, or offset against an amount owed by theinvestment firm licensee to the counterparty (provided there is an agreement in writing that theinvestment firm licensee deems to be legally enforceable and effective to secure such set-off).(i) Other receivables and accrued income Other receivables and accrued income not covered elsewhere attract 100% CRR from the time that they become due. Amended: January 2007CA-3.4 CA-3.4 Foreign Exchange Risk Requirement (FER)
CA-3.4.1
The foreign exchange requirement is 10% of the net open foreign currency position.
Amended: October 2009CA-3.4.2
For each foreign currency (that is, any other currency other than that in which the
investment firm licensee's financial statements are presented) in which theinvestment firm licensee has monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in that currency, theinvestment firm licensee should calculate the net open position (netting assets and liabilities). This should be converted into the presentation currency. Where the price of an investment is quoted in more than one currency, a position in the investment shall be treated as an asset or a liability in the currency of the country in which the main or principal market in the investment is based. (Options included in the position risk requirement are to be excluded from these calculations).Amended: October 2009CA-3.4.3
Monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in currencies of Gulf Cooperation Council countries or United States dollar are exempted for the purposes of calculating regulatory capital requirement.
Amended: October 2009
Amended: January 2007CA-3.4.4
An
investment firm licensee's foreign exchange risk calculation must include the following items regardless of whether they are trading or non-trading positions(a) All spot positions in foreign currency (that is, all asset items less all liability items, including accrued interest, in the foreign currency in question); and(b) All forwards positions in foreign currency (net present value in respect of notional position).Amended: October 2009CA-3.4.5
An
investment firm licensee's foreign exchange risk calculation shall not include the following:(a) Foreign currency assets which have been deducted in full from the firm's capital resources under the calculation under the capital resources table;(b) Position hedging where it is of a non trading or structural nature;(c) Positions of a non trading or structural nature that a firm has deliberately taken in order to hedge against the adverse effect of the exchange rate on the ratio of its capital resources to its capital resources requirements; and(d) Transactions to the extent that they fully hedge net future foreign currency income or expenses which are known but not yet accrued.Amended: October 2009CA-3.4.6
Where an
Investment firm licensee does not include position hedging in its foreign exchange risk calculation, it shall:(a) Notify the CBB before such exclusion and the terms on which the relevant item will be excluded;(b) Document its policy in the use of that exclusion in its trading book policy statement.Adopted: October 2009CA-3.4.7
The net overall position is the sum of all the spot and forward positions. (Note that all the positions should be converted into the presentation currency)
Adopted: October 2009CA-3.4.8
Spot net position is calculated as the difference between the gross spot assets and gross spot liabilities. Forward net position is calculated as the difference between the gross forward purchases and gross forward sales
Adopted: October 2009CA-4 CA-4 Underwriting
CA-4.1 CA-4.1 General Requirements
CA-4.1.1
In assessing the financial ability of a
Category 1 investment firm licensee tounderwrite transactions, the CBB will consider, amongst other factors, thelicensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Anyunderwriting 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.Added: October 2014BC BC Business Conduct
BC-A BC-A Introduction
BC-A.1 BC-A.1 Purpose
Executive Summary
BC-A.1.1
This Module contains requirements that have to be met by
investment firm licensees with regards to their dealings withclients .BC-A.1.2
The Rules contained in this Module aim to ensure that
investment firm licensees deal with theirclients in a fair and open manner, and address theirclients' information needs.Amended: January 2007BC-A.1.3
The Rules build upon several of the Principles of Business (see Module PB (Principles of Business)). Principle 1 (Integrity) requires
investment firm licensees to observe high standards of integrity and fair dealing, and to be honest and straightforward in their dealings withclients . Principle 3 (Due skill, care and diligence) requiresinvestment firm licensees to act with due skill, care and diligence when acting on behalf of theirclients . Principle 7 (Client Interests) requiresinvestment firm licensees to pay due regard to the legitimate interests and information needs of theirclients , and to communicate with them in a fair and transparent manner.Amended: January 2007BC-A.1.4
The Rules contained in this Module are largely principles-based and focus on desired outputs rather than on prescribing detailed processes. This gives
investment firm licensees flexibility in how to implement the basic standards prescribed in this Module.Amended: January 2007Legal Basis
BC-A.1.5
This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) on business conduct by
investment firm licensees , 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 allinvestment firm licensees .Amended: January 2011
Adopted: January 2007BC-A.1.6
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Adopted: January 2007BC-A.2 BC-A.2 Module History
Evolution of the Module
BC-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.
Amended: January 2007BC-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.
Adopted: January 2007BC-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes BC-A.1 07/2007 New Rule BC-A.1.5 introduced, categorising this Module as a Directive. BC-2.8.14 and 2.12.2(k) 04/2008 Clarified the record retention period to be in line with Article 60 of the CBB Law. BC-A.1.3 07/2008 Corrected reference to read investment firm licensee. BC-2.2 07/2008 Added reference and definition of accredited investor and expert investor to client classification. BC-2.2 10/2009 Updated client classification and definitions. BC-2.7 10/2009 Corrected to read accredited investors. BC-2.8.6 07/2010 Paragraph amended. BC-2.9.1 and BC-2.9.2 07/2010 Updated to include requirements regarding complaints. BC-2.11.1 07/2010 Updated to be in line with Article 117 of the CBB Law. BC-A.1.6 01/2011 Clarified legal basis. BC-2.3.15 01/2001 Cross reference added to Section GR-2.2 BC-B.1.3 10/2011 Updated scope of application to reflect new Chapter BC-3. BC-2.9 and BC-3 10/2011 Updated consumer complaints Section in line with results of consultation. BC-3.2 and BC-3.3 01/2012 Minor corrections to correct typos and clarify language. BC-3.3.9 01/2012 Deleted Paragraph as it repeats what is in Paragraph BC-3.3.7. BC-3.1.3A 07/2012 Added guidance on the appointment of the customer complaints officer. BC-2.7.14 and BC-2.7.16 07/2013 Clarified Rules on allocations. BC-3.7 07/2013 Additional details provided on reporting of complaints. BC-1.1.4 10/2013 Clarified language. BC-2.3.15 and BC-2.3.17 10/2013 Clarified the application of these two Paragraphs to the employees of the investment firm licensee. BC-2.10.2, BC-2.10.9 and BC-2.10.10 07/2015 Removed reference to corporate finance to be in line with Paragraph AU-1.4.43. BC-2.4.11 10/2017 Additional requirement on signed client agreement. BC-2.13 01/2019 Added a new Section on Brokerage Fees. BC-3.3.15 04/2020 Amended Paragraph adding reference to CBB consumer protection. BC-3.5.6 04/2020 Amended Paragraph adding reference to CBB consumer protection. BC-3.7.1 - BC-3.7.3 04/2020 Amended Paragraph adding reference to CBB consumer protection. BC-C 10/2020 Added a new Chapter on Provision of Financial Services on a Non-discriminatory Basis. Superseded Requirements
BC-A.2.4
This Module supersedes the following provisions contained in circulars or other regulatory requirements:
Document Ref. Date of Issue Module Ref. Document Subject OG/274/95 28 Aug 1995 Provision of investment and other financial services BC/15/98 6 Sept 1998 Code of Conduct for Investment advisory companies BC/83/96 19 May 1996 Minimum requirements for Terms and Conditions standard form BC/73/96 1 May 1996 Promotional Schemes BC-A.2.5
Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
BC-B BC-B Scope of Application
BC-B.1 BC-B.1 License Categories and Overseas Offices
License Categories
BC-B.1.1
This Module applies to all categories of
investment firm licensees (i.e. categories 1, 2 and 3) with regards toregulated investment services undertaken by them.Client Categories
BC-B.1.2
This Module provides for three categories of
clients , and applies different levels of protection to each, depending on their level of sophistication.BC-B.1.3
The scope of application of this Module with regards to
client categories is as follows:Section Subject Matter Client Category BC-2.1 Overarching Principles All categories. BC-2.2 Client Classification All categories. BC-2.3 Marketing and Promotion All categories; BC-2.3.18 applies to retail clients only. BC-2.4 Accepting Clients Retail clients only. BC-2.5 Suitability Retail clients only. BC-2.6 Disclosure of Information All categories; BC-2.6.5 to BC-2.6.12 apply to retail clients only. BC-2.7 Dealing and Managing All categories; various Rules apply to retail clients only. BC-2.8 Reporting to Clients All categories. BC-2.9 Complaints [Deleted in October 2011] BC-2.10 Conflicts of Interest All categories. BC-2.11 Confidentiality All categories. BC-2.12 Appendix All categories; various Paragraphs apply to retail clients only. BC-3 Customer Complaints Procedures All categories Amended: October 2011Overseas Branches and Subsidiaries
BC-B.1.4
Investment firm licensees must ensure that their branches and subsidiaries operating in foreign jurisdictions comply, at a minimum, with local conduct of business standards and regulatory requirements (where applicable).BC-B.1.5
Where conduct of business standards applied by overseas branches and subsidiaries of an
investment firm licensee fall below the standards set out in this Module, theinvestment firm licensee must notify the CBB of the fact.Amended: January 2007BC-B.1.6
CBB encourages its
investment firm licensees to apply — with respect to its overseas branches and subsidiaries — conduct of business standards at least equivalent to those set out in this Module. Where this is not the case, then CBB will consider any potential risk to theinvestment firm licensee that may arise through adverse reputational or other consequences.Amended: January 2007BC-C BC-C Provision of Financial Services on a Non-discriminatory Basis
BC-C.1 BC-C.1 Provision of Financial Services on a Non-discriminatory Basis
BC-C.1.1
Investment Firm Licensees must ensure that all regulated financial services are provided without any discrimination based on gender, nationality, origin, language, faith, religion, physical ability or social standing.Added: October 2020BC-1 BC-1 Base Requirements
BC-1.1 BC-1.1 General Rules
BC-1.1.1
This Module applies to the
regulated investment services of allinvestment firm licensees .BC-1.1.2
This Module aims to encourage high standards of business conduct, which are broadly applicable to all
investment firm licensees , all types ofregulated investment services , and all types ofclients . The CBB, nevertheless, recognises thatclients' level of sophistication and understanding of risks underlying financial instruments vary. Accordingly, the level of safeguards provided for in the business conduct requirements for retail clients, for instance, are different from those for professional clients.Amended: January 2007BC-1.1.3
Investment firm licensees must comply with theInvestment Business Code of Practice ('the Code') throughout the lifetime of their relationship with aclient .BC-1.1.4
Investment firm licensees must take responsibility for compliance with theCode when carrying outregulated investment services .Investment firm licensees must put in place appropriate measures across all their business operations and distribution channels to ensure compliance with theCode .Amended: October 2013BC-1.1.5
The Investment Business Code of Practice comprises a number of overarching principles of business conduct, with respect to the conduct of
regulated investment services byinvestment firm licensees ; these cover the various stages of the life of aclient relationship.Amended: January 2007BC-1.1.6
Investment firm licensees must maintain adequate records to demonstrate compliance with theCode .BC-1.1.7
The
Code focuses on desired outcomes, rather than prescribing detailed measures to achieve those outcomes.BC-1.1.8
The CBB will monitor compliance with the
Code and business conduct standards. If required, the CBB may develop more detailed rules and guidance to supplement the existingCode .Amended: January 2007BC-2 BC-2 The Investment Business Code of Practice
BC-2.1 BC-2.1 Overarching Principles
BC-2.1.1
In the course of
regulated investment services ,licensees must:(a) Act with due skill, care and diligence in all dealings withclients ;(b) Act fairly and reasonably in all dealings withclients ;(c) Identifyclients' specific requirements in relation to the products and services about which they are enquiring;(d) Ensure that any advice toclients is aimed at theclients' interests and based on adequate standards of research and analysis;(e) Provide sufficient information to enableclients to make informed decisions when purchasing investment products and services offered to them;(f) Provide sufficient and timely documentation toclients to confirm that their investment arrangements are in place and provide all necessary information about their products, rights and responsibilities;(g) Maintain fair treatment ofclients through the lifetime of theclient relationships, and ensure thatclients are kept informed of important events;(h) Ensure complaints fromclients are dealt with fairly and promptly;(i) Ensure that all information provided toclients is clear, fair and not misleading, and appropriate toclients' information needs; and(j) Take appropriate measures to safeguard any money and property handled on behalf ofclients and maintain confidentiality ofclient information.Amended: January 2007BC-2.2 BC-2.2 Client Classification
BC-2.2.1
An
investment firm licensee must classify the persons with or for whom it intends to carry onregulated investment services , in accordance with the requirements in this section, and communicate its classification to the person concerned.BC-2.2.2
The purpose of the classification is to ensure that an
investment firm licensee's clients are appropriately categorised so that regulatory protections are focused on those classes ofclient that need them most.BC-2.2.3
Before conducting
regulated investment services with or for anyclient , aninvestment firm licensee must take reasonable steps to obtain appropriate information to establish whether thatclient is aretail client ,expert investor oraccredited investor .Amended: October 2009
Amended: July 2008BC-2.2.4
The treatment of an
investment firm licensee's clients must be in accordance with the classification it has established for the purpose of Rule BC-2.2.3.BC-2.2.5
Where specific rules do not exist for a particular class of
clients , the CBB requires appropriate treatment in accordance with the overarching principles set forth in theCode .Amended: January 2007BC-2.2.6
Entities classified as
expert investors oraccredited investors under Rules BC-2.2.9 and BC-2.2.10 may request alternative treatment, in which caseinvestment firm licensees must agree to treat them asretail clients .Amended: October 2009
Amended: January 2007BC-2.2.7 [Deleted]
Deleted: October 2009BC-2.2.7
A
retail client , as defined in Rule BC-2.2.8, may voluntarily elect to be treated as anexpert investor , in which case theinvestment firm licensee must obtain a signed declaration to that effect prior to any provision ofregulated investment services and must satisfy itself that the client qualifies as anexpert investor .Amended: October 2009Retail Client
BC-2.2.8 [Deleted]
Deleted: October 2009BC-2.2.8
For the purposes of Rule BC-2.2.3 a
retail client means aclient who is not classified as anexpert investor or anaccredited investor under Rules BC-2.2.9 and BC-2.2.10.Amended: October 2009BC-2.2.9 [Deleted]
Deleted: October 2009Expert Investor
BC-2.2.9
Expert investors are:(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 100,000, excluding that person's principal place of residence;(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 100,000; or(c) Governments, supranational organisations, central banks or other national monetary authorities, local authorities and state organisations.Amended: October 2009
Added: July 2008Accredited Investor
BC-2.2.10
Accredited investors are:(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 1,000,000, excluding that person's principal place of residence;(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 1,000,000; or(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest infinancial instruments (such as state pension funds).Amended: October 2009
Added: July 2008Records
BC-2.2.11
An
investment firm licensee must make a record of the classification established for eachclient , including sufficient information to support such classification.Amended: October 2009BC-2.3 BC-2.3 Marketing and Promotion
BC-2.3.1
Investment firm licensees must ensure that all advertising and promotional material that is sent to any class ofclient is fair, clear and not misleading.Amended: January 2007BC-2.3.2
With respect to
retail clients , in ensuring that the description of the product or the service in the promotional material is fair, clear and not misleading, theinvestment firm licensee should, among other precautionary measures, ensure that:a) The purpose, and to the extent practicable, the content, of the information or communication are likely to be understood by the average member of the group to whom the communication is addressed;b) Key items contained in the information are given due prominence;c) The method of presentation in the information does not disguise, diminish, or obscure important risks, warnings or information; andd) The communication does not omit information that is material to ensure it is fair, clear and not misleading.Amended: January 2007BC-2.3.3
In ensuring that the description of the product or the service in the promotional material is fair, the
investment firm licensee should avoid exaggerating the potential benefits of the investment service orfinancial instrument in any communication with aretail client or potentialretail client .BC-2.3.4
In ensuring that the description of the product or the service in relation to promotional material directed at
retail clients is adequate, theinvestment firm licensee should ensure that the promotional material contains a balanced description of the main characteristics of thefinancial instrument and/or service to which it relates, including the nature of the financial commitment and risks involved; whether or not thefinancial instruments involved are illiquid, and traded in a recognised exchange or market; the existence or absence of any right of withdrawal or cancellation and, where such a right exists, its duration and the conditions for exercising it, including information on any amount that theretail client may be required to pay to exercise that right; and if the communication relates to afinancial instrument or service of a person other than theinvestment firm licensee , the name of the person.BC-2.3.5
Investment firm licensees must ensure that the accuracy of all material statements of fact in promotional materials is supported by adequate evidence.BC-2.3.6
Investment firm licensees must not, in any form of communication with an individualclient or any class ofclient , attempt to limit or avoid any duty or liability it may have to that individualclient or class ofclient in relation toregulated investment services .BC-2.3.7
Investment firm licensees that underwrite or marketpublic offerings must ensure that their promotional material complies with the relevant capital markets disclosure standards of the CBB.Amended: January 2007BC-2.3.8
Capital markets disclosure standards are currently contained in the Disclosure Standards Regulation of 3 December 2003.
Content of Promotions
BC-2.3.9
Before an
investment firm licensee communicates any promotional material to aclient or a potentialclient it must ensure the promotional material at the very least contains the information laid out in Paragraph BC-2.12.1.BC-2.3.10
Investment firm licensees must not make use of the name of the CBB in any promotion in such a way that would indicate endorsement or approval of its products or services.Amended: January 2007Records
BC-2.3.11
Investment firm licensees must maintain a record of all promotional materials issued by them or on their behalf.Real Time Promotions
BC-2.3.12
Investment firm licensees must not make areal time promotion unless theclient has been notified of the fact in advance and agreed to receivereal time promotion .Amended: January 2007BC-2.3.13
For the purposes of Paragraph BC-2.3.12, a
real time promotion is a promotion made in the course of a personal visit, telephone conversation or other interactive dialogue.BC-2.3.14
Consent to receive
real time promotions could be, for instance, at the time of the initial client profiling, by means of signing a form clearly indicating such consent.BC-2.3.15
An employee of the
investment firm licensee must, on making contact for the first time with aclient , and again at any time when asked to do so by theclient :(a) Identify himself as being an employee of theinvestment firm licensee ;(b) State the name of theinvestment firm licensee ; and(c) Present theclient with a business card on meeting thatclient , unless he has given him such a card at a previous meeting. The business card must include the information specified in Section GR-2.2.Amended: October 2013
Amended: January 2011
January 2007BC-2.3.16
For the purposes of Rule BC-2.3.15(c), the statement on the business card should make clear the authorised status of the
investment firm licensee ; however it should not lead the client to believe that the product being offered has been approved by the CBB.Amended: January 2007BC-2.3.17
In oral communications with a
retail client , whether in person or by telephone, the employee of theinvestment firm licensee must:(a) State the genuine purpose of the call at the commencement of the conversation;(b) Ascertain whether or not theclient wishes him to proceed with the conversation if the time of the conversation was not previously agreed by theclient ;(c) Explain clearly thefinancial instruments or other services which he is authorised to arrange;(d) Recognise and respect the right of theclient to terminate the call at any time; and(e) If he requests another appointment and theclient refuses, shall accept that refusal courteously and in such a manner as to cause no embarrassment to theclient .Amended: October 2013
Amended: October 2011
Amended: January 2007Records
BC-2.3.18
Investment firm licensees must keep sufficient records ofreal time promotions made by them, or on their behalf by other persons, for CBB's supervision purposes.Amended: January 2007BC-2.3.19
These records should include evidence that
clients have been notified in advance and agreed to receivereal time promotions , as required under Rule BC-2.3.12.Amended: January 2007BC-2.4 BC-2.4 Accepting Clients
Applicability
BC-2.4.1
This section applies to
retail clients only.Terms of Business
BC-2.4.2
Investment firm licensees must provide theirretail clients with theirterms of business , setting out the basis on which theregulated investment services are to be conducted.BC-2.4.3
The
terms of business in relation to providingregulated investment services to aretail client must take the form of aclient agreement .BC-2.4.4
The
terms of business must include the rights and obligations of parties to the agreement, as well as other terms relevant to theregulated investment services . Theterms of business must include, but are not limited to, the items included in Paragraph BC-2.12.2.BC-2.4.5
An application form in relation to
regulated investment services will be deemed to be aclient agreement , provided the form includes the principal terms and conditions of the service, such that theclient is provided sufficient information to allow him to understand the basis on which the service is to be conducted.Amended: January 2007BC-2.4.6
The
client agreement must be provided in good time prior to providing theregulated investment service , and it must set out or refer to, among other matters, the rights and obligations of the parties to the agreement, and the terms on which the service is to be conducted.BC-2.4.7
For the purposes of Rule BC-2.4.6, "good time" should be taken to mean sufficient time to enable the
client to consider properly the service orfinancial instrument on offer before he is bound.Client Understanding and Acknowledgement
BC-2.4.8
Investment firm licensees must not enter into aclient agreement unless they have taken reasonable care to ensure that theirretail client has had a proper opportunity to consider the terms.BC-2.4.9
Investment firm licensees must obtain theirretail client's consent to the terms of theclient agreement as evidenced by a signature or an equivalent mechanism.BC-2.4.10
The equivalent mechanism refers to instances where a
client may have signed a mandate letter or other document accompanying the terms of theclient agreement .Amended: January 2007BC-2.4.11
The
client agreement must contain the signature of both parties to the agreement. If the agreement is signed by only theclient , copies of the signed agreement must be provided by theinvestment firm licensee to theclient . A copy of the signedclient agreement must be provided by theInvestment firm licensee to the client.Amended: October 2017Records
BC-2.4.12
Investment firm licensees must keep sufficient records ofclient agreements and any documents referred to in theclient agreement as soon as the agreement comes into force, for CBB's supervision purposes.Amended: January 2007BC-2.5 BC-2.5 Suitability
Applicability
BC-2.5.1
This section applies to
retail clients only.Information and Communication
BC-2.5.2
Investment firm licensees must seek information from theirretail clients (and potentialretail clients ) about their needs, circumstances and investment objectives (including their risk appetite), relevant to the services to be provided.Amended: January 2007BC-2.5.3
For the purposes of Rule BC-2.5.2, the
investment firm licensee , when providing the regulated investment services, should ask theclient or potentialclient to provide information regarding his knowledge and experience in the investment field relevant to the specific type offinancial instrument or service offered or demanded so as to enable the licensee to assess whether thefinancial instrument or service is appropriate to theclient . The evaluation of theclient's needs, circumstances and investment objectives (including risk appetite) can be done through a structured questionnaire.BC-2.5.4
For the purposes of satisfying the requirement under Rule BC-2.5.2,
investment firm licensees must ensure that the information and facts they hold about theirclients are accurate, complete and up to date.BC-2.5.5
Where an
investment firm licensee is managingfinancial instruments for aclient , it must assess whether theclient's portfolio or account remains suitable over the lifetime of theclient relationship and advise theclient if it is no longer suitable.BC-2.5.6
Where an
investment firm licensee has pooled aclient's assets with those of others, with a view to taking common discretionary management decisions, theinvestment firm licensee must take reasonable steps to ensure that the transaction is suitable for the related clients having regard to their stated investment objectives.Records
BC-2.5.7
Investment firm licensees must keep a record of each recommendation made toretail clients , and be able to demonstrate to the CBB compliance with this Section.Amended: January 2007BC-2.6 BC-2.6 Disclosure of Information
Applicability
BC-2.6.1
This section applies to
investment firm licensees in relation to their dealings with all categories ofclients , except when stated otherwise.Initial Disclosure Requirement
BC-2.6.2
Investment firm licensees must provide (with respect toregulated investment services ), comprehensible information toclients or potentialclients on:a) Itself and the types of services that it can provide;b) Whether it is acting as agent or principal;c) Fees, costs and associated charges such as:i. The basis or amount of its charges, remuneration and commission for conducting regulated investment services andii. The nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to that regulated investment service;d)Financial instruments and proposed strategies and appropriate guidance on and warnings of the risks associated with thosefinancial instruments and strategies; ande) Information about methods of redress.Amended: January 2007BC-2.6.3
The purpose of BC-2.6.2 is to ensure that
clients are reasonably able to understand the nature and risks of the investment service and type offinancial instrument that is being offered and, consequently, to take investment decisions on an informed basis. This information may be provided in standard format.Risks
BC-2.6.4
Investment firm licensees must disclose adequate information to all classes ofclients about risks underlying thefinancial instrument that are not readily apparent and which relate to theregulated investment service being provided.BC-2.6.5
Without prejudice to the scope of the requirement under Rule BC-2.6.2(c),
investment firm licensees must provideretail clients with appropriate guidance on, and warnings of, relevant risks when providingregulated investment services , in relation to:a) Transactions in illiquid financial instruments;b) Leveraged transactions, including asset portfolios or collective investment schemes that have embedded leverage;c) Financial instruments subject to high volatility in normal market conditions;d) Securities repurchase agreements or securities lending agreements;e) Transactions which involve credit, margin payments, or deposit of collateral;f) Transactions involving material foreign exchange riskg) Interests in real estate; and/orh) Islamicfinancial instruments .Amended: January 2007BC-2.6.6
In relation to transactions involving warrants or derivatives,
investment firm licensees must provideretail clients with a written statement that includes explanations of their characteristics, in particular their leverage effect, liquidity and price volatility.BC-2.6.7
To satisfy Rule BC-2.6.6, with respect to warrants,
investment firm licensees should provideretail clients with a statement that includes, at a minimum, the information contained in Paragraph BC-2.12.3.BC-2.6.8
To satisfy Rule BC-2.6.6, with respect to futures contracts,
investment firm licensees should provideretail clients with a statement that includes, at a minimum, the information contained in Paragraph BC-2.12.4.BC-2.6.9
To satisfy Rule BC-2.6.6, with respect to option transactions,
investment firm licensees should provide retail clients with a statement that includes, at a minimum, the information contained in Paragraphs BC-2.12.5 and BC-2.12.6.BC-2.6.10
In relation to a transaction in a
financial instrument that is not readily realisable,investment firm licensees must:(a) Warn theretail client that there is a restricted market for suchfinancial instruments , and that it may therefore be difficult to deal in thefinancial instrument or to obtain reliable information about its value; and(b) Disclose any position knowingly held by theinvestment firm licensee or any of its associates in thefinancial instrument or in a relatedfinancial instrument .Amended: January 2007BC-2.6.11
The risk warning given to a
retail client or potentialretail client must be given due prominence in all related materials and must not be concealed or masked in any way by the wording, design or format of the information provided.BC-2.6.12
Risk warnings provided to a
retail client or potentialretail client about warrants or derivatives must make clear that the instrument can be subject to sudden and sharp falls in value. Where theretail client may not only lose his entire investment but may also be required to pay more later, he must also be warned about this fact and the possible obligation to provide extra funding.Cancellation and Withdrawals
BC-2.6.13
Investment firm licensees must disclose in their terms of business the existence or absence of a right to cancel as per the provisions of Paragraph BC-2.4.2.BC-2.6.14
Investment firm licensees must pay due regard to the interests of theirclients and treat them fairly.Records
BC-2.6.15
Investment firm licensees must keep a record of statements issued in compliance with Rule BC-2.6.6, and of other information or recommendations provided to theirclients , and be able to demonstrate to the CBB compliance with this Section.Amended: January 2007BC-2.7 BC-2.7 Dealing and Managing
BC-2.7.1
Investment firm licensees must apply the requirements contained in this Section to allclient categories.Best and Timely Execution
BC-2.7.2
Investment firm licensees must take all reasonable steps to obtain, when executing orders, the best possible result forclients taking into account price, costs, speed, likelihood of execution and settlement, and any other consideration relevant to the execution of the order.BC-2.7.3
Investment firm licensees must establish and implement effective arrangements for complying with Rule BC-2.7.2:a) Execution policies for each class offinancial instrument ;b) Maintenance and disclosure toclients of information regarding execution venues and arrangements for disclosure toclients if orders are to be executed outside regulated markets;c) Monitoring of effectiveness of the order execution arrangements and execution policies in order to identify and, where appropriate, correct any deficiencies; andd) Maintenance of audit trails to demonstrate to theirclients that orders were executed in accordance with the relevant execution policy.Amended: January 2007BC-2.7.4
Investment firm licensees are not required to provide best execution where they have agreed with theclient in writing that they will not provide best execution.BC-2.7.5
In determining whether an
investment firm licensee has taken reasonable care to provide the best overall price for aclient in accordance with Rules BC-2.7.2 to BC-2.7.4, the CBB will take into account whether aninvestment firm licensee has:(a) Executed orders promptly and sequentially;(b) Discounted any fees and charges previously disclosed to theclient ;(c) Disclosed the price at which an order is executed; and(d) Taken into account the available range of price sources for the execution of itsclients' transactions. In the case where theinvestment firm licensee has access to prices of different regulated financial markets or alternative trading systems, it must execute the transaction at the best overall price available having considered other relevant factors.Amended: January 2007BC-2.7.6
Investment firm licensees may only postpone the execution of a transaction if it is in the best interests of theclient , and the prior consent of theclient has been given, or when circumstances are beyond its control. Theinvestment firm licensee must maintain a record of all postponements together with the reasons for the postponement.Amended: January 2007BC-2.7.7
Factors relevant to whether the postponement of an existing
client order may be in the best interests of theclient include where:(a) Theclient order is received outside of normal trading hours;(b) A foreseeable improvement in the level of liquidity in thefinancial instrument is likely to enhance the terms on which theinvestment firm licensee can execute the order; or(c) Executing the order as a series of partial executions over a period of time is likely to improve the terms on which the order as a whole is executed.Amended: January 2007Non-market Price Transactions
BC-2.7.8
Investment firm licensees must not enter into a non-market price transaction in any capacity, with or for aclient , if it has reasonable grounds to suspect that theclient is entering into the transaction for an illegal or improper purpose.BC-2.7.9
For the purposes of Paragraph BC-2.7.8, a non-market price transaction is one where the price paid by the
investment firm licensee , or itsclient , differs from the prevailing market price. With respect to transactions infinancial instruments traded on the Bahrain Stock Exchange, licensees are reminded that in Bahrain the law prohibits off-market transactions.Amended: January 2007BC-2.7.10
For the purposes of Paragraph BC-2.7.8, examples of improper purposes for transactions include:
(a) The perpetration of a fraud;(b) The disguising or concealment of the nature of a transaction or of profits, losses or cash flows;(c) Transactions which amount to market abuse;(d) High-risk transactions under the Anti Money Laundering Regulations; and(e) "Window dressing", in particular around the year end, to disguise the true financial position of the person concerned.Amended: January 2007BC-2.7.11
Rule BC-2.7.8 does not apply to a non-market-price transaction if it is subject to the rules of a recognised investment exchange.
Aggregation and Allocation
BC-2.7.12
Investment firm licensees may only aggregate an order for aclient with an order for otherclients , or with an order for its own account, where:(a) It is unlikely that the aggregation will disadvantage theclients whose orders have been aggregated; and(b) It has disclosed to eachclient concerned in writing that it may aggregate orders, where these work to theclient's advantage.Amended: January 2007BC-2.7.13
If an
investment firm licensee has aggregated orders ofclients , it must make a record of the intended basis of allocation and the identity of eachclient before the order is effected.BC-2.7.14
Where an allocation takes place, prices must not be marked up or marked down, so that no customer, broker or the
investment firm licensee is advantaged over any change.Amended: July 2013BC-2.7.15
Investment firm licensees must have written policies on aggregation and allocation which are consistently applied; these must include the policy that will be adopted when only part of the aggregated order has been filled.BC-2.7.16
Where an
investment firm licensee has aggregated aclient order with an order for otherclients or with an order for its own account, and part or all of the aggregated order has been filled, it must:(a) Promptly allocate thefinancial instruments concerned;(b) Allocate thefinancial instruments in accordance with its stated policy;(c) Ensure the allocation is done fairly and uniformly by not giving undue preference to itself or to any of those for whom it dealt;(d) Give priority to satisfyingclient orders where the aggregation order combines aclient order and an own account order, if the aggregate total of all orders cannot be satisfied, unless it can demonstrate on reasonable grounds that without its own participation it would not have been able to execute those orders on such favourable terms, or at all; and(e) Make and maintain a record of:(i) The date and time of the allocation;(ii) The relevantfinancial instruments ;(iii) The identity of eachclient concerned;(iv) The amount allocated to eachclient and to theinvestment firm licensee ; and(v) The price of each financial instrument and allocation.Amended: July 2013
Amended: January 2007Excessive Dealing
BC-2.7.17
Investment firm licensees must not advise anyclient to transact with a frequency or in amounts that might result in those transactions being deemed excessive in light of historical volumes, market capitalisation, client portfolio size and related factors. This Rule does not apply toclients classified asaccredited investors .Amended: October 2009
Amended: January 2007Right to Realise a Retail Client's Assets
BC-2.7.18
Investment firm licensees must not realise aretail client's assets, unless it is legally entitled to do so, and has either:(a) Set out in the terms of business:(i) The action it may take to realise any assets of theretail client ;(ii) The circumstances in which it may do so;(iii) The asset (if relevant) or type or class of asset over which it may exercise the right; or(b) Given theretail client written or oral notice of its intention to exercise its rights before it does so.Amended: January 2007Lending to Retail Clients
BC-2.7.19
Investment firm licensees providing credit pursuant to Paragraph AU-1.4.15, must not lend money or grant credit to aretail client (or arrange for any other person to do so) unless:(a) They have made and recorded an assessment of theretail client's financial standing, based on information disclosed by theretail client ;(b) They have taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by theretail client , for the type of investment agreement proposed or which theretail client is likely to enter into; and(c) Theretail client has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit.Amended: January 2007Margin Requirements
BC-2.7.20
Before conducting a transaction with or for a
retail client ,investment firm licensees must notify theclient of:(a) The circumstances in which theclient may be required to provide any margin;(b) The form in which the margin may be provided;(c) The steps theinvestment firm licensee may be required or entitled to take if theclient fails to provide the required margin, including:(i) The fact that theclient's failure to provide margin may lead to theinvestment firm licensee closing out his position after a time limit specified by the firm;(ii) The circumstances in which theinvestment firm licensee will have the right or duty to close out theclient's position; and(d) The circumstances, other than failure to provide the required margin, that may lead to theinvestment firm licensee closing out theclient's position without prior reference to him.Amended: January 2007BC-2.7.21
Investment firm licensees must close out aretail client's open position if thatclient has failed to meet a margin call within five business days following the date on which the obligation to meet the call accrues, unless:(i) Theinvestment firm licensee has received confirmation from a relevant third party (such as a clearing firm) that theretail client has given instructions to pay in full; or(ii) Theinvestment firm licensee has taken reasonable care to establish that the delay is owing to circumstances beyond theretail client's control.Amended: January 2007BC-2.7.22
For the purposes of Rule BC-2.7.21,
investment firm licensees may require the closing of aretail client's open position in less than five business days, for their own risk management purposes.Programme Trading
BC-2.7.23
Before an
investment firm licensee executes a programme trade, it must disclose to itsclient whether it will be acting as a principal or agent. Aninvestment firm licensee must not subsequently act in a different capacity from that which is disclosed without the prior consent of theclient .BC-2.7.24
The term "programme trade" describes a single transaction or series of transactions executed for the purpose of acquiring or disposing, for a
client , of all or part of a portfolio or a large basket offinancial instruments .BC-2.7.25
Investment firm licensees must ensure that neither they, nor an associate, execute an own account transaction in anyfinancial instrument included in a programme trade, unless they have notified theclient in advance that they may do this, or can otherwise demonstrate that they have provided fair treatment to theclient concerned.Records
BC-2.7.26
Investment firm licensees must keep a record of each step they undertake in relation to each transaction to demonstrate to the CBB compliance with Section BC-2.7.Amended: January 2007BC-2.8 BC-2.8 Reporting to Clients
BC-2.8.1
Section BC-2.8 applies to all
client categories.Confirmation of Transactions
BC-2.8.2
When an
investment firm licensee executes a transaction in afinancial instrument for aclient , it must promptly despatch to theclient , or a designated agent of theclient , a written confirmation note recording the essential details of the transaction and essential information regarding the carrying out of his order.BC-2.8.3
For the purposes of Rule BC-2.8.2, the essential details of the transaction and essential information regarding the carrying out of the order include:
(a) Execution price;(b) Charges; and(c) Time of execution.Amended: January 2007Periodic Statements
BC-2.8.5
Investment firm licensees must promptly and at suitable intervals provide their clients with a written statement when they:(a) Undertake the activity of managingfinancial instruments ; or(b) Operate aclient's account containingfinancial instruments .Amended: January 2007BC-2.8.6
Investment firm licensees must provide a periodic statement:(a) Monthly, if theclient is aretail client and theretail client's portfolio includes derivative transactions in highly volatile classes offinancial instruments or leveraged transactions; or(b) At least semi-annually in other cases.Amended: July 2010
Amended: January 2007BC-2.8.7
Periodic statements, issued in accordance with Rule BC-2.8.5, must contain, at the very least, the information contained in Paragraph BC-2.12.8, as at the end of the period covered.
BC-2.8.8
Where an
investment firm licensee undertakes the activity of managingfinancial instruments on a discretionary basis, the periodic statements, issued in accordance with Rule BC-2.8.5, must also include at the very least the information included in Paragraph BC-2.12.9.BC-2.8.9
In addition to Rules BC-2.8.7 and BC-2.8.8, where the
retail client may not only lose his entire investment but may also be required to pay more later,investment firm licensees must also include the additional information included in Paragraph BC-2.12.10.Records
BC-2.8.10
Investment firm licensees must immediately record the essential elements of all orders that are received.BC-2.8.11
For the purposes of Rule BC-2.8.10, essential elements of orders received include the particulars of the
client and order, time, price of execution, and number of instruments.BC-2.8.12
Investment firm licensees must record the essential elements of all:(a) Orders executed;(b) Transactions executed for their own account;(c) Non-market price transactions entered into by theinvestment firm licensee ; and(d) Orders that have been aggregated with their basis of allocation.Amended: January 2007BC-2.8.13
For purposes of Rule BC-2.8.12,
investment firm licensees should include, at the very least, the information provided in Paragraph BC-2.12.9.BC-2.8.14
Investment firm licensees must make a copy of any confirmation of a transaction or periodic statement provided to aclient , and retain it for at least ten years from the date on which it was provided.Amended: April 2008BC-2.9 BC-2.9 [This section was deleted in October 2011]
BC-2.9.1
[This paragraph was deleted in October 2011]
Deleted: October 2011
Amended: July 2010
Amended: January 2007BC-2.9.2
[This paragraph was deleted in October 2011]
Deleted: October 2011
Amended: July 2010
Amended: January 2007BC-2.9.3
[This paragraph was deleted in October 2011]
Deleted: October 2011
Amended: January 2007[Deleted]
Deleted: October 2011BC-2.9.4
[This paragraph was deleted in October 2011]
Deleted: October 2011BC-2.9.5
[This paragraph was deleted in October 2011]
Deleted: October 2011
Amended: January 2007BC-2.10 BC-2.10 Conflicts of Interest
BC-2.10.1
Investment firm licensees must undertake all reasonable steps to identify conflicts of interest between themselves (or any person directly or indirectly linked to them by control) and theirclients , which may arise in the course of providing aregulated investment service .BC-2.10.2
Where conflicts arise,
investment firm licensees must:(a) Disclose any material interest or conflict of interest to theclient in writing (which may include a disclosure in theinvestment firm licensee's terms of business) either generally or in relation to a specific transaction, and take reasonable steps to ensure that theclient does not object;(b) Establish information barriers between activities such as proprietary trading and portfolio management; and(c) Produce a written policy of independence, which requires an employee to disregard any conflict of interest or material interest when advising aclient or exercising discretion.Amended: July 2015
Amended: January 2007BC-2.10.3
If an
investment firm licensee determines that it is unable to manage a conflict of interest or material interest using one of the methods described in Rule BC-2.10.2 it must decline to act for theclient .Personal Account Transactions
BC-2.10.4
Investment firm licensees must establish and maintain adequate policies and procedures, to ensure that:(a) An employee does not undertake apersonal account transaction unless:(i) Theinvestment firm licensee has, in a written notice, drawn to the attention of the employee the conditions upon which the employee may undertake personal account transactions and that the contents of such a notice are made a term of his contract of employment or services;(ii) Theinvestment firm licensee has given its written permission to that employee for that transaction or to transactions generally infinancial instruments of that kind; and(iii) The transaction will not conflict with theinvestment firm licensee's duties to itsclients ;(b) It receives prompt notification or is otherwise aware of each employee'spersonal account transactions ; and(c) If an employee'spersonal account transactions are conducted with theinvestment firm licensee , each employee's account must be clearly identified and distinguishable from otherclients' accounts.Amended: January 2007BC-2.10.5
The written notice in sub-Paragraph BC-2.10.4(a)(i) must make it explicit that, if an employee is prohibited from undertaking a
personal account transaction , he must not, except in the proper course of his employment:(a) Procure another person to enter into such a transaction; or(b) Communicate any information or opinion to another person if he knows, or ought to know, that the person will as a result, enter into such a transaction or procure some other person to do so.Amended: January 2007BC-2.10.6
Where an
investment firm licensee has taken reasonable steps to determine that an employee will not be involved to any material extent in, or have access to information about, theinvestment firm licensee's investment business, then the conditions or restrictions onpersonal account transactions , in Rule BC-2.10.4, need not be applied to that employee.BC-2.10.7
Investment firm licensees must establish and maintain procedures and controls so as to ensure that aninvestment analyst does not undertake apersonal account transaction in afinancial instrument if theinvestment analyst is preparing investment research:(a) On that investment or its issuer; or(b) On a related investment, or its issuer;until the
investment research is published or made available to theinvestment firm licensee's clients .Amended: January 2007Investment Research
BC-2.10.8
Where an
investment firm licensee issuesinvestment research , its conflicts policy must specify the types ofinvestment research issued by it. Aninvestment firm licensee that prepares and publishes investment research must have adequate procedures and controls to ensure:(a) The effective supervision ofinvestment analysts by following at the very least the items listed in Paragraph BC-2.12.11;(b) That any actual or potential conflicts of interest are managed in accordance with Rule BC-2.10.1; and(c) That the investment research issued toclients is not biased.Amended: January 2007BC-2.10.9
Investment firm licensees that publishinvestment research must take reasonable steps to ensure that theinvestment research :(a) Identifies the types ofclients for which it is principally intended;(b) Distinguishes fact from opinion or estimates, and includes references to sources of data used;(c) Specifies the date when it was first published;(d) Specifies the period the ratings or recommendations are intended to cover;(e) Contains a clear and unambiguous explanation of the rating or recommendation system used;(f) Includes a price chart or line graph depicting the performance of thefinancial instrument for the period that theinvestment firm licensee has assigned a rating or recommendation for thatfinancial instrument , which must also show the dates on which the ratings were revised; and(g) Includes a distribution of the different ratings or recommendations, in percentage terms for allfinancial instruments in respect of which the investment business licensee publishes investment research.Amended: July 2015
Amended: January 2007BC-2.10.10
Investment firm licensees must take reasonable steps to ensure that when it publishes investment research, disclosure is made of the following matters:(a) Any financial interest or material interest that theinvestment analyst or a close relative has, which relates to thefinancial instrument ;(b) Any shareholding by theinvestment firm licensee or its associate of 1% or more of the total issued share capital of the issuer;(c) Whether theinvestment firm licensee or its associate acts as corporate broker for the issuer;(d) Any material shareholding by the issuer in theinvestment firm licensee ;(e) [This Subparagraph was deleted in July 2015]; and(f) Whether theinvestment firm licensee is a market maker in thefinancial instrument .Amended: July 2015
Amended: January 2007BC-2.10.11
If an
investment firm licensee acts as a manager or co-manager of an initial public offering or a secondary offering it must take reasonable steps to ensure that it does not publish investment research relating to thefinancial instrument during the period beginning on the day of publication of the listing particulars or a prospectus relating to the offering of thatfinancial instrument and ending on the 30th calendar day after the day on which thefinancial instrument is admitted to trading.BC-2.10.12
Investment firm licensees and their associates must not knowingly execute an own account transaction in afinancial instrument , which is the subject of investment research, prepared either by theinvestment firm licensee or its associate, until theclients for whom the investment research was principally intended have had a reasonable opportunity to act upon it.BC-2.10.13
The restriction in Rule BC-2.10.11 does not apply if:
(a) Theinvestment firm licensee or its associate is a market maker in the relevantfinancial instrument ;(b) Theinvestment firm licensee or its associate executes an unsolicited transaction for aclient ; or(c) It is not expected to materially affect the price of thefinancial instrument .Amended: January 2007Inducements
BC-2.10.14
Investment firm licensees must have systems and controls, policies and procedures to ensure that neither they, nor any of their employees, offer, give, solicit or accept any inducement which is likely to conflict significantly with any duty that they owe to theirclients .BC-2.10.15
Investment firm licensees may only accept goods and services under asoft dollar agreement if:(a) The goods and services do not constitute an inducement;(b) The goods and services are reasonably expected to assist in the provision of regulated investment activities to theinvestment firm licensee's clients ;(c) The agreement is a written agreement for the supply of goods or services described in Rule BC-2.10.14, and these goods and services do not take the form of, or include, cash or any other direct financial benefit; and(d) Theinvestment firm licensee makes adequate disclosures regarding the use ofsoft dollar agreements .Amended: January 2007BC-2.10.16
For the purpose of Sub-Paragraph BC-2.10.15(d), Paragraph BC-2.12.12 sets out the minimum disclosure requirements.
Amended: January 2007BC-2.10.17
A
soft dollar agreement is an agreement in any form under which aninvestment firm licensee receives goods or services in return for investment business put through or in the way of another person.BC-2.10.18
Before an
investment firm licensee enters into a transaction for aclient , either directly or indirectly, with or through the agency of another person, under asoft dollar agreement which theinvestment firm licensee has, or knows that another member of its group has, with that other person, it must disclose to itsclient :(a) The existence of thesoft dollar agreement ; and(b) Theinvestment firm licensee's or its group's policy relating tosoft dollar agreements .Amended: January 2007BC-2.10.19
If an
investment firm licensee has asoft dollar agreement under which theinvestment firm licensee deals for aclient , theinvestment firm licensee must provide thatclient with information as set out in Paragraph BC-2.12.12.BC-2.11 BC-2.11 Confidentiality
BC-2.11.1
Investment firm licensees must ensure that any information obtained from theirclients is not used or disclosed unless:(a) They have theclient's consent; or(b) Disclosure is made in accordance with thelicensee's regulatory obligations.(c) Thelicensee is legally obliged to disclose the information in accordance with Article 117 of the CBB Law.Amended: July 2010
Amended: January 2007BC-2.11.2
Investment firm licensees must take appropriate steps to ensure the security of any information handled or held on behalf of theirclients .BC-2.12 BC-2.12 Appendix
BC-2.12.1
The minimum information that should be contained in promotional material includes:
(a) The name of theinvestment firm licensee communicating the promotional material;(b) Theinvestment firm licensee's category of license;(c) Theinvestment firm licensee's address;(d) A description of the main characteristics of thefinancial instrument involved or service offered;(e) Suitable warning regarding the risks of thefinancial instrument involved and/or service offered; and(f) A clear statement indicating that, if aretail client (as defined in Section BC-2.2) is in any doubt about the suitability of the agreement which is the subject of the promotion, he should consult his own financial adviser, or else theinvestment firm licensee .Amended: January 2007BC-2.12.2
The minimum information that should be contained in terms of business includes:
(a) The regulatory status of theinvestment firm licensee ;(b) A statement that the licensee is bound by the CBB's regulation and licensing conditions;(c) The licensee's name, address, e-mail and telephone number;(d) A statement of the products and services provided by the licensee, as permitted by the CBB;(e) The total price to be paid by theclient to theinvestment firm licensee for its services, or, where an exact price cannot be indicated, the basis for the calculation of the price enabling theclient to verify it;(f) Information on any rights the parties may have to terminate the contract early or unilaterally under its terms, including any penalties imposed by the contract in such cases;(g) Where appropriate, theclient's investment objectives;(h) Where appropriate, the extent to which theinvestment firm licensee will consider theclients' personal circumstances when considering suitability (as required under Section BC-2.5) and the details of such matters that will be taken into account;(i) Any conflict of interest disclosure as required by Section BC-2.10;(j) Any disclosure ofsoft dollar agreements under Section BC-2.10;(k) A statement that clearly indicates the following:(i) Theclient's right to obtain copies of records relating to his business with the licensee; and(ii) Theclient's record will be kept for 10 years or as otherwise required by Bahrain Law; and(l) The name and job title, address and telephone number of the person in theinvestment firm licensee to whom any complaint should be addressed (in writing) by theclient .Amended: April 2008
Amended: January 2007BC-2.12.3
The minimum information that should be contained in a notice in relation to a warrant includes:
"A warrant is a time-limited right to subscribe for shares or debentures and is exercisable against the original issuer of the underlying securities. A relatively small movement in the price of the underlying security results in a disproportionately large movement, unfavourable or favourable, in the price of the warrant. The prices of warrants can therefore be volatile. It is essential for anyone who is considering purchasing warrants to understand that the right to subscribe which a warrant confers is invariably limited in time, with the consequence that if the investor fails to exercise this right within the predetermined time-scale then the investment becomes worthless. You should not buy a warrant unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges."
BC-2.12.4
The minimum information that should be contained in a notice in relation to a futures transaction includes:
"Transactions in futures involve the obligation to make, or to take, delivery of the underlying asset of the contract at a future date, or in some cases to settle the position with cash. They carry a high degree of risk. The 'gearing' or 'leverage' often obtainable in futures trading means that a small deposit or down payment can lead to large losses as well as gains. It also means that a relatively small movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you. Futures transactions have a contingent liability, and you should be aware of the implications of this, in particular the margining requirements."
BC-2.12.5
The minimum information that should be contained in a notice in relation to a purchased option includes:
"Buying options: buying options involves less risk than selling options because, if the price of the underlying asset moves against you, you can simply allow the option to lapse. The maximum loss is limited to the premium, plus any commission or other transaction charges. However, if you buy a call option on a futures contract and you later exercise the option, you will acquire the future. This will expose you to the risks associated with 'futures' and 'contingent liability investment transactions'."
BC-2.12.6
The minimum information that should be contained in a notice in relation to a written option includes:
"Writing options: if you write an option, the risk involved is considerably greater than buying options. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received. By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you, however far the market price has moved away from the exercise price. If you already own the underlying asset which you have contracted to sell (when the options will be known as 'covered call options') the risk is reduced. If you do not own the underlying asset ('uncovered call options') the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure."
BC-2.12.7
The minimum information that should be included in a transaction confirmation includes:
(a) Theinvestment firm licensee's name and address;(b) Whether theinvestment firm licensee executed the transaction as principal or agent;(c) Theclient's name, account number or other identifier;(d) Where relevant, a description of the collective investment undertaking or fund, including the amount invested or number of units involved;(e) Whether the transaction was a sale or purchase;(f) The price or unit price at which the transaction was executed;(g) If applicable, a statement that the transaction was executed on an execution only basis;(h) The date and time of the transaction or a statement that the time of execution will be provided on request;(i) Due date and procedure for settlement of transaction and the bank account;(j) The amount theinvestment firm licensee charges in connection with the transaction, including commission charges and the amount of any mark-up or mark-down, fees, taxes or duties;(k) The amount or basis of any charges shared with another person or statement that this will be made available on request;(l) For collective investment undertakings, a statement that the price at which the transaction has been executed is on a historic price or forward price basis, as the case may be;(m) The regulated market on which the transaction was carried out or the fact that the transaction was undertaken outside a regulated market; and(n) Whether theretail client's counterparty was theinvestment firm licensee itself or any other person in the investment firm group.Amended: January 2007BC-2.12.8
The minimum information that should be included in a periodic statement includes:
(a) The number, description and value of eachfinancial instrument ;(b) The amount of cash held;(c) The total value of the portfolio; and(d) A statement as to the basis on which the value of eachfinancial instrument was calculated.Amended: January 2007BC-2.12.9
The minimum information that should be included in a periodic statement, where the relationship includes portfolio management, includes:
(a) A statement of whichfinancial instruments , if any, were at the closing date loaned to any third party and whichfinancial instruments , if any, were at that date charged to secure borrowings made on behalf of the portfolio;(b) The aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period;(c) A management report on the strategy implemented (provided at least yearly);(d) Total amount of fees and charges incurred during the period and an indication of their nature;(e) Information on any remuneration received from a third party and details of calculation basis;(f) Total amount of dividends, interest and other payments received during the period in relation to theclients' portfolio;(g) Details of each transaction which have been entered into for the portfolio during the period;(h) The aggregate of money and details of allfinancial instruments transferred into and out of the portfolio during the period;(i) The aggregate of any interest payments, including the dates of their application and dividends or other benefits received by theinvestment firm licensee from the portfolio for its own account during that period;(j) A statement of the aggregate charges of theinvestment firm licensee and its associates; and(k) A statement of the amount of any remuneration received by theinvestment firm licensee or its associates or both from a third party.Amended: January 2007BC-2.12.10
The minimum information that should be included in periodic statements, where the relationship includes contingent liability investment transactions, includes:
(a) The aggregate of money transferred into and out of the portfolio during the valuation period;(b) In relation to each open position in the account at the end of the account period, the unrealised profit or loss to theclient (before deducting or adding any commission which would be payable on closing out);(c) In relation to each transaction executed during the account period to close out aclient's position, the resulting profit or loss to theclient after deducting or adding any commission;(d) The aggregate of each of the following in, or relating to, theclient's portfolio at the close of business on the valuation date:(i) Cash;(ii) Collateral value;(iii) Management fees; and(iv) Commissions;(e)Option account valuations in respect of each openoption contained in the account on the valuation date stating:(i) Theshare , orfuture or otherfinancial instrument involved;(ii) The trade price and date for the opening transaction, unless the valuation statement follows the statement for the period in which theoption was opened;(iii) The market price of the contract; and(iv) The exercise price of the contract.Amended: January 2007BC-2.12.11
The minimum requirements that should be met where the
investment firm licensee prepares and publishes investment research include:(a) Analysts must not trade in securities or related derivatives ahead of publishing research on the issuer of these securities;(b) Analysts must not trade in securities or related derivatives of any issuer that they review in a manner contrary to their existing recommendations except in special circumstances subject to pre-approval by compliance or legal personnel;(c) Analysts must not accept inducements by issuers or others with a material interest in the subject matter of investment research; and(d) Investment firms must not promise issuers favorable research coverage, specific ratings or specific target prices in return for a future or continued business relationship, service or investment.Amended: January 2007BC-2.12.12
The minimum requirements that should be met where the
investment firm licensee has asoft dollar agreement under which it deals with clients includes:(a) The percentage paid undersoft dollar agreements of the total commission paid by or at the direction of:(i) Theinvestment firm licensee ; and(ii) Any other member of theinvestment firm licensee's group which is a party to those agreements;(b) The value, on a cost price basis, of the goods and services received by theinvestment firm licensee undersoft dollar agreements , expressed as a percentage of the total commission paid by or at the direction of:(i) Theinvestment firm licensee ; or(ii) Other members of theinvestment firm licensee's group;(c) A summary of the nature of the goods and services received by theinvestment firm licensee under thesoft dollar agreements ; and(d) The total commission paid from the portfolio of thatclient .Amended: January 2007BC-2.13 BC-2.13 Brokerage Fees
BC-2.13.1
All
investment firm licensees acting as money brokers in Bahrain must comply with the scale of brokerage fees as per Appendix BC-1 in Part B of the CBB Rulebook – Volume 4.Added: January 2019BC-3 BC-3 Customer Complaints Procedures
BC-3.1 BC-3.1 General Requirements
BC-3.1.1
All
investment firm licensees must have appropriate customer complaints handling procedures and systems for effective handling of complaints made by customers by 31st March 2012.Adopted: October 2011BC-3.1.2
Customer complaints procedures must be documented appropriately and their customers must be informed of their availability.
Adopted: October 2011BC-3.1.3
All
investment firm licensees must appoint a customer complaints officer and publicise his/ her contact details at all branches. The customer complaints officer must be of a senior level at the investment business firm and must be independent of the parties to the complaint to minimize any potential conflict of interest.Adopted: October 2011BC-3.1.3A
The position of customer complaints officer may be combined with that of compliance officer.
Added: July 2012BC-3.1.4
In the case of an
overseas investment firm licensee , a local complaints officer must be present and must report all complaints to the head office complaints unit.Amended: January 2012
Adopted: October 2011BC-3.2 BC-3.2 Documenting Customer Complaints Handling Procedures
BC-3.2.1
In order to make customer complaints handling procedures as transparent and accessible as possible, all
investment firm licensees must document their customer complaints handling procedures. These include setting out in writing:(a) The procedures and policies for:(i) Receiving and acknowledging complaints;(ii) Investigating complaints;(iii) Responding to complaints within appropriate time limits;(iv) Recording information about complaints;(v) Identifying recurring system failure issues.(b) The types of remedies available for resolving complaints; and(c) The organisational reporting structure for the complaints handling function.Amended: January 2012
Adopted: October 2011BC-3.2.2
Investment firm licensees must provide a copy of the procedures to all relevant staff, so that they may be able to inform customers. A simple and easy-to-use guide to the procedures must also be made available to all customers, on request, and when they want to make a complaint.Adopted: October 2011BC-3.2.3
Investment firm licensees are required to ensure that all investment services related documentation provided to the customer includes a statement informing the customer of the availability of a simple and easy-to-use guide on customer complaints procedures in the event the customer is not satisfied with the services provided.Amended: January 2012
Adopted: October 2011BC-3.3 BC-3.3 Principles for Effective Handling of Complaints
BC-3.3.1
Adherence to the following principles is required for effective handling of complaints:
Adopted: October 2011Visibility
BC-3.3.2
"How and where to complain" must be well publicised to customers and other interested parties, in both English and Arabic languages.
Adopted: October 2011Accessibility
BC-3.3.3
A complaints handling process must be easily accessible to all customers and must be free of charge.
Adopted: October 2011BC-3.3.4
While an
investment firm licensee's website is considered an acceptable mean for dealing with customer complaints, it should not be the only means available to customers as not all customers have access to the internet.Amended: January 2012
Adopted: October 2011BC-3.3.5
Process information must be readily accessible and must include flexibility in the method of making complaints.
Adopted: October 2011BC-3.3.6
Support for customers in interpreting the complaints procedures must be provided, upon request.
Adopted: October 2011BC-3.3.7
Information and assistance must be available on details of making and resolving a complaint.
Adopted: October 2011BC-3.3.8
Supporting information must be easy to understand and use.
Adopted: October 2011BC-3.3.9
[This Paragraph was deleted in January 2012].
Deleted: January 2012
Adopted: October 2011Responsiveness
BC-3.3.10
Receipt of complaints must be acknowledged in accordance with Section BC-3.5 "Response to Complaints".
Adopted: October 2011BC-3.3.11
Complaints must be addressed promptly in accordance with their urgency.
Adopted: October 2011BC-3.3.12
Customers must be treated with courtesy.
Adopted: October 2011BC-3.3.13
Customers must be kept informed of the progress of their complaint.
Adopted: October 2011BC-3.3.14
If a customer is not satisfied with an
investment firm licensee's response, theinvestment firm licensee must advise the customer on how to take the complaint further within the organisation.Adopted: October 2011BC-3.3.15
In the event that they are unable to resolve a complaint,
investment firm licensees must outline the options that are open to that customer to pursue the matter further, including, where appropriate, referring the matter to the Consumer Protection Unit at the CBB.Amended: April 2020
Adopted: October 2011Objectivity and Efficiency
BC-3.3.16
Complaints must be addressed in an equitable, objective, unbiased and efficient manner.
Amended: January 2012
Adopted: October 2011BC-3.3.17
General principles for objectivity in the complaints handling process include:
(a) Openness: The process must be clear and well publicised so that both staff and customers can understand.(b) Impartiality:(i) Measures must be taken to protect the person the complaint is made against from bias;(ii) Emphasis must be placed on resolution of the complaint not blame; and(iii) The investigation must be carried out by a person independent of the person complained about.(c) Accessibility:(i) Theinvestment firm licensee must allow customer access to the process at any reasonable point in time; and(ii) A joint response must be made when the complaint affects different participants.(d) Completeness: The complaints officer must find the relevant facts, talk to both sides, establish common ground and verify explanations wherever possible;(e) Equitability: Give equal treatment to all parties.(f) Sensitivity: Each complaint must be treated on its merits and paying due care to individual circumstances.(g) Objectivity for personnel — complaints handling procedures must ensure those complained about are treated fairly which implies:(i) Informing them immediately and completely on complaints about performance;(ii) Giving them an opportunity to explain and providing appropriate support;(iii) Keeping them informed of the progress and result of the complaint investigation;(iv) Full details of the complaint are given to those the complaint is made against prior to interview; and(v) Personnel must be assured they are supported by the process and should be encouraged to learn from the experience and develop a better understanding of the complaints process.(h) Confidentiality:(i) In addition to customer confidentiality, the process must ensure confidentiality for staff who have a complaint made against them and the details must only be known to those directly concerned;(ii) Customer information must be protected and not disclosed, unless the customer consents otherwise; and(iii) Protect the customer and customer's identity as far as is reasonable to avoid deterring complaints due to fear of inconvenience or discrimination.(i) Objectivity monitoring:Investment firm licensees must monitor responses to customers to ensure objectivity which could include random monitoring of resolved complaints.(j) Charges: The process must be free of charge to customers;(k) Customer Focused Approach:(i)Investment firm licensees must have a customer focused approach;(ii)Investment firm licensees must be open to feedback; and(iii)Investment firm licensees must show commitment to resolving problems.(l) Accountability: Investment firm licensees must ensure accountability for reporting actions and decisions with respect to complaints handling.(m) Continual improvement: Continual improvement of the complaints handling process and the quality of products and services must be a permanent objective of theinvestment firm licensee .Amended: January 2012
Adopted: October 2011BC-3.4 BC-3.4 Internal Complaint Handling Procedures
BC-3.4.1
Investment firm licensee's internal complaint handling procedures must provide for:(a) The receipt of written complaints;(b) The appropriate investigation of complaints;(c) An appropriate decision-making process in relation to the response to a customer complaint;(d) Notification of the decision to the customer;(e) The recording of complaints; and(f) How to deal with complaints when a business continuity plan (BCP) is operative.Adopted: October 2011BC-3.4.2
An
investment firm licensee's internal complaint handling procedures must be designed to ensure that:(a) All complaints are handled fairly, effectively and promptly;(b) Recurring systems failures are identified, investigated and remedied;(c) The number of unresolved complaints referred to the CBB is minimized;(d) The employee responsible for the resolution of complaints has the necessary authority to resolve complaints or has ready access to an employee who has the necessary authority; and(e) Relevant employees are aware of theinvestment firm licensee's internal complaint handling procedures and comply with them and receive training periodically to be kept abreast of changes in procedures.Adopted: October 2011BC-3.5 BC-3.5 Response to Complaints
BC-3.5.1
An
investment firm licensee must acknowledge in writing customer written complaints within 5 working days of receipt.Adopted: October 2011BC-3.5.2
An
investment firm licensee must respond in writing to a customer complaint within 4 weeks of receiving the complaint, explaining their position and how they propose to deal with the complaint.Adopted: October 2011Redress
BC-3.5.3
An
investment firm licensee should decide and communicate how it proposes (if at all) to provide the customer with redress. Where appropriate, theinvestment firm licensee must explain the options open to the customer and the procedures necessary to obtain the redress.Adopted: October 2011BC-3.5.4
Where an
investment firm licensee decides that redress in the form of compensation is appropriate, theinvestment firm licensee must provide the complainant with fair compensation and must comply with any offer of compensation made by it which the complainant accepts.Adopted: October 2011BC-3.5.5
Where an
investment firm licensee decides that redress in a form other than compensation is appropriate, it must provide the redress as soon as practicable.Adopted: October 2011BC-3.5.6
Should the customer that filed a complaint not be satisfied with the response received as per Paragraph BC-3.5.2, he can forward the complaint to the Consumer Protection Unit at the CBB within 30 calendar days from the date of receiving the letter from the
investment firm licensee .Amended: April 2020
Adopted: October 2011BC-3.6 BC-3.6 Records of Complaints
BC-3.6.1
An
investment firm licensee must maintain a record of all customers' complaints. The record of each complaint must include:(a) The identity of the complainant;(b) The substance of the complaint;(c) The status of the complaint, including whether resolved or not, and whether redress was provided; and(d) All correspondence in relation to the complaint. Such records must be retained by theinvestment firm licensee for a period of 5 years from the date of receipt of the complaint.Adopted: October 2011BC-3.7 BC-3.7 Reporting of Complaints
BC-3.7.1
An
investment firm licensee must submit to the CBB's Consumer Protection Unit a quarterly report summarising the following:(a) The number of complaints received;(b) The substance of the complaints;(c) The number of days it took theinvestment firm licensee to acknowledge and to respond to the complaints; and(d) The status of the complaint, including whether resolved or not, and whether redress was provided.Amended: April 2020
Adopted: October 2011BC-3.7.2
The report referred to in Paragraph BC-3.7.1 must be sent electronically to complaint@cbb.gov.bh.
Amended: April 2020
Added: July 2013BC-3.7.3
Where no complaints have been received by the licensee within the quarter, a 'nil' report should be submitted to the CBB's Consumer Protection Unit.
Amended: April 2020
Added: July 2013BC-3.8 BC-3.8 Monitoring and Enforcement
BC-3.8.1
Compliance with these requirements is subject to the ongoing supervision of the CBB as well as being part of any CBB inspection of a
licensee . Failure to comply with these requirements is subject to enforcement measures as outlined in Module EN (Enforcement).Adopted: October 2011CL CL Client Assets
CL-A CL-A Introduction
CL-A.1 CL-A.1 Purpose
Executive Summary
CL-A.1.1
This Module presents requirements that have to be met by
investment firm licensees with regards to safeguarding and administratingfinancial instruments or when they hold or control assets ofclients for which they are responsible.CL-A.1.2
The Rules contained in this Module are aimed at ensuring proper protection of
client assets to minimise the risk ofclient assets being used by investment firm licensees without theclient's written consent (except to the extent permitted by the Rules) and to restrict the commingling ofclient assets withinvestment firm licensee assets. This Module builds upon Principle 6 — Customer Assets (see Module PB (Principles of Business)). Principle 6 requiresinvestment firm licensees to take reasonable care to safeguard the assets of customers for which they are responsible.Amended: January 2007CL-A.1.3
The Rules contained in this Module are largely principles-based and focus on desired outputs rather than on prescribing detailed processes. This gives
investment firm licensees flexibility in how to implement the basic standards prescribed in this Module.Amended: January 2007Legal Basis
CL-A.1.4
This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) on
client assets , with respect toinvestment firm licensees , 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 toCategory 1 investment firms andCategory 2 investment firms .Amended: January 2011
April 2008
Adopted: January 2007CL-A.1.5
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Adopted: January 2007CL-A.2 CL-A.2 Module History
Evolution of Module
CL-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. 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.
Amended: January 2007CL-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.
Adopted: January 2007CL-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes CL-A.1 07/2007 New Rule CL-A.1.4 introduced, categorising this Module as a Directive. CL-A.1.4 04/2008 Clarified that this Directive only applies to Category 1 investment firms andCategory 2 investment firms .CL-1.1.8 04/2008 Clarified that client bank accounts may only be opened with banks licensed to do business in Bahrain. CL-1.4.1 and 2.6.1 04/2008 Clarified the record retention period to be in line with Article 60 of the CBB Law. Table of Contents and CL-1.5.3 07/2008 Added reference to agreed upon procedures included in Part B of Volume 4 (Investment Business) CL-1.1.1 07/2008 Corrected reference. CL-1.1.20 07/2008 Clarified nature of reconciliation required. CL-1.5.4 07/2008 Reference made to effective date when first auditor report is required. CL-2.3.1 07/2008 Dematerialised safe custody financial instruments now included as a defined term in the Glossary under Part B. CL-A.1.4 01/2011 Clarified legal basis. CL-1.1.4(a) 01/2012 Amended as client asset protection rules not included in Glossary. CL-1.1.2 04/2013 Amended introductory Paragraph of Rule. CL-1.1.4 and CL-1.1.5 04/2013 Rule and Guidance deleted as all assets are subject to client asset protection Rules. CL-1.1.10 01/2016 Clarified Rule. CL-1.5.1 10/2017 Amended Paragraph to clarify that licensees are to formally declare in writing that they do not possess any Client assets. CL-1.5.2 01/2018 Amended paragraph. Superseded Requirements
CL-A.2.4
This Module does not replace any regulations or circulars in force prior to April 2006.
Amended: January 2007CL-A.2.5
Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Amended: January 2007CL-B CL-B Scope of Application
CL-B.1 CL-B.1 License Categories
CL-B.1.1
This Module applies to every
investment firm licensee that undertakes the activity of safeguarding clients'financial instruments ; or holds or controlsclient assets .CL-B.1.2
Since
Category 1 and Category 2 investment firms only are permitted to undertake the activity specified in Rule CL-B.1.1, the requirements contained in this Module do not apply to Category 3investment firm licensees .CL-B.1.3
Client assets comprisemoney orfinancial instruments belonging toclients of aninvestment firm licensee , which are held or controlled by theinvestment firm licensee in connection with the conduct ofregulated investment services .CL-B.1.4
Client assets are held or controlled by aninvestment firm licensee on behalf of aclient if they are:(a) Directly held by theinvestment firm licensee ;(b) Held in an account in the name of theinvestment firm licensee ;(c) Held by a person, or in an account in the name of a person, controlled by theinvestment firm licensee ; or(d) Held in an account with another person, controlled by theinvestment firm licensee .Amended: January 2007CL-B.1.5
The CBB would consider a person to be controlled by an
investment firm licensee if that person is inclined to act in accordance with the instructions of theinvestment firm licensee .Amended: January 2007CL-B.1.6
The CBB would consider an account to be controlled by an
investment firm licensee if that account is operated in accordance with the instructions of theinvestment firm licensee .Amended: January 2007CL-B.2 CL-B.2 Overseas Subsidiaries and Branches
CL-B.2.1
Investment firm licensees must ensure that their branches and subsidiaries operating in foreign jurisdictions comply, at a minimum, with local client asset rules (where applicable).CL-B.2.2
Where client asset rules applied by overseas branches and subsidiaries of an
investment firm licensee fall below the standards set out in this Module, the investment firm licensee must notify the CBB of the fact.Amended: January 2007CL-B.2.3
The CBB encourages its
investment firm licensees to apply — with respect to its overseas branches and subsidiaries — client asset rules at least equivalent to those set out in this Module. Where this is not the case, then the CBB will consider any potential risk to theinvestment firm licensee that may arise through adverse reputational or other consequences.Amended: January 2007CL-1 CL-1 Client Asset Protection
CL-1.1 CL-1.1 Client Asset Protection Rules
Segregation of Client Assets
CL-1.1.1
Except to the extent permitted by these rules (Paragraph CL-1.1.2), an
investment firm licensee must holdclient assets separate from its own.Amended: July 2008CL-1.1.2
An
investment firm licensee may manageclient's assets on a discretionary basis if:(a) Thatclient has given his express consent in writing;(b) The use of theclient assets is restricted to the terms agreed by him; and(c) The document in which thatclient's consent is requested by theinvestment firm licensee gives clear information to him on:(i) The obligations and responsibilities of theinvestment firm licensee and/or of theclients for whose account theinvestment firm licensee has been allowed to use theclient's financial instruments , with respect to the use of thefinancial instruments (including the terms for the restitution of thefinancial instruments ); and(ii) The risks involved.Amended: April 2013
Amended: January 2007CL-1.1.3
An
investment firm licensee should communicate to itsclients in writing, at a minimum, the information specified in Guidance Paragraph CL-6.1.2, regardingclient assets held. This information must be reported as soon as practicable, but no later than 10 business days from the initial transaction date. Subsequent statements must be provided in accordance with client reporting requirements under Section CL-1.3.CL-1.1.4
[This Paragraph was deleted in April 2013.]
Deleted: April 2013CL-1.1.5
[This Paragraph was deleted in April 2013.]
Deleted: April 2013Client Money
CL-1.1.6
An
investment firm licensee must holdclient money in aclient bank account .CL-1.1.7
For the purposes of CL-1.1.5, a
client bank account is an account holdingclient money of one or moreclients in a bank account designated as such in accordance with the terms of agreement with theclient /clients .CL-1.1.8
Client bank accounts may only be opened with banks licensed to do business in the Kingdom of Bahrain, after being subject to due diligence by theinvestment firm licensee .Islamic investment firms may only hold client bank accounts with Islamic banks licensed to do business in the Kingdom of Bahrain.Amended: April 2008CL-1.1.9
For the purposes of CL-1.1.8, when undertaking due diligence, the
investment firm licensee should take reasonable steps to establish that the bank is appropriate considering, among other factors, the following:(a) Whether it is a duly licensed bank in good regulatory standing;(b) The capital adequacy of the bank;(c) The amount ofclient money to be placed, as a proportion of the bank's capital and deposits; and(d) The credit rating of the bank, if available.Amended: January 2007Transfer of Money to Eligible Third Parties
CL-1.1.10
An
investment firm licensee may only pay, or permit to be paid,client money into an account other than theclient bank account if that account is aneligible third party .Amended: January 2016CL-1.1.11
Eligible third parties are recognised exchanges, clearing houses and third party intermediaries (such as brokers), that are duly authorised or licensed by the appropriate regulatory oversight body to conduct investment activities.
CL-1.1.12
An
investment firm licensee may allow aneligible third party , such as an exchange, a clearing house or an intermediate broker, to hold or controlclient money :(a) Theinvestment firm licensee transfers theclient money (i) For the purpose of a transaction for aclient through or with thateligible third party ; or(ii) To meet aclient's obligations to provide collateral for a transaction;(b) In the case of aretail client , thatclient has been notified in writing that theclient money may be transferred to the other person.Amended: January 2007CL-1.1.13
For the purposes of CL-1.1.10, an
investment firm licensee must assess the suitability of aneligible third party before allowing it to hold or controlclient money . This assessment must include, at a minimum, the information included in Paragraph CL-6.1.1.CL-1.1.14
An
investment firm licensee must not hold money other thanclient money in aclient bank account unless it is:(a) A minimum sum required to open the account or to keep it open;(b) Money temporarily held in the account in accordance with the mixed remittance rule stated in CL-1.1.16; or(c) Interest credited to the account which exceeds the amount due toclients as interest and which has not yet been withdrawn by theinvestment firm licensee .Amended: January 2007CL-1.1.15
If it is prudent to do so to ensure that
client money is protected, aninvestment firm licensee may pay into aclient bank account money of its own, and that money will then becomeclient money for the purposes of theclient asset protection rules until the licensee retrieves it.CL-1.1.16
If an
investment firm licensee receives a mixed remittance (that is partclient money and part other money), it must:(a) Pay the full sum into aclient bank account ; and(b) Pay the money that is notclient money out of theclient bank account within one business day.Amended: January 2007CL-1.1.17
An
investment firm licensee should not hold excessclient money in itsclient transaction accounts with intermediate brokers, settlement agencies and over the counter (OTC) counterparties; it should be held in aclient bank account .Reconciliation
CL-1.1.18
An
investment firm licensee must ensure that a system is implemented to perform reconciliations of bothclient bank accounts andeligible third party accounts in whichclient money is held. These reconciliations must be carried out on a regular basis, sufficient to ensure the accuracy of its records (but at a minimum, on a monthly basis as at the last business day of each calendar month).CL-1.1.19
An
investment firm licensee must perform the reconciliations required under Rule CL-1.1.18 within 10 business days of the date to which the reconciliation relates.Amended: January 2007CL-1.1.20
An
investment firm licensee must perform a reconciliation between the individual ledger balances andclient bank accounts /third party balances.Amended: July 2008CL-1.1.21
In respect of reconciliation, the
investment firm licensee must ensure that unresolved differences, shortfalls and excess balances are investigated and, where applicable, corrective action is taken as soon as is practicable.CL-1.2 CL-1.2 Stock Lending Rules
CL-1.2.1
An
investment firm licensee must not undertake or otherwise engage in stock lending activity with or for aclient unless theinvestment firm licensee has obtained the consent of the CBB and theclient .Amended: January 2007CL-1.2.2
If a safe custody investment belonging to a
retail client is used for stock lending activity, theinvestment firm licensee must ensure that:(a) Relevant collateral is provided by the borrower in favour of theclient ;(b) The current realisable value of the safe custodyfinancial instrument and of the relevant collateral is monitored daily; and(c) Theinvestment firm licensee provides relevant collateral to make up the difference where the current realisable value of the collateral falls below that of the safe custodyfinancial instrument , unless otherwise agreed in writing by theclient .Amended: January 2007CL-1.2.3
If safe custody
financial instruments of more than oneclient are held together, none of those safe custodyfinancial instruments may be used for a stock lending activity unless:(a) All of thoseclients have consented to their safe custodyfinancial instrument being used for that activity; or(b) Theinvestment firm licensee has adequate systems and procedures in place to ensure that only safe custodyfinancial instruments belonging toclients who have given their consent are used for stock lending activity.Amended: January 2007CL-1.3 CL-1.3 Client Reporting
CL-1.3.1
An
investment firm licensee that holdsclient assets for aclient must send a statement of allclient assets held by theinvestment firm licensee to itsclient at least once a year or as often as agreed with thatclient .CL-1.3.2
The statement of
client assets referred to in CL-1.3.1 must:(a) Identify anyclients' assets which have been provided as collateral;(b) Identify anyclient assets which have been lent; and(c) Show any movement ofclient assets based on either trade date or settlement date clearly and consistently.Amended: January 2007CL-1.3.3
An investment firm may include the information required in CL-1.3.1 in any periodic statement provided by the
investment firm licensee to theclient , or by other separate documents, as long as all sets of information:(a) Are prepared in relation to the same date and period; and(b) Are delivered to theclient within a reasonable period of one another.Amended: January 2007CL-1.4 CL-1.4 Record-Keeping
CL-1.4.1
Investment firm licensees must ensure that proper records, sufficient to show and explain theinvestment firm licensee's transactions and commitments in respect of itsclient assets , are made and which demonstrate compliance with the provisions of this Module. These records must be retained for a period of a minimum of ten years after they were made, unless otherwise required by law.Amended: April 2008CL-1.4.2
An
investment firm licensee that holdsclient assets must:(a) Check its record-keeping andclient asset procedures regularly; and(b) Subject its record-keeping andclient asset procedures to an appropriate independent review.Amended: January 2007CL-1.5 CL-1.5 Auditor Reports
CL-1.5.1
Investment firm licensees that hold or controlclient assets (including where it pools financial instruments held for more than oneclient ) must arrange for their external auditor to report on the licensees' compliance with the requirements contained in this Module.Investment firm licensees Category 1 andInvestment firm licensees Category 2 which do not hold or control Client Assets are obligated to confirm the same annually.Amended: October 2017
Amended: July 2008CL-1.5.2
The report must be in the form agreed by the CBB, and must be submitted to the CBB within three months of the licensee's financial year end.
Amended: January 2018
Amended: January 2007CL-1.5.3
The format of the Auditor's Report is included in Part B of the Rulebook, as part of the Supplementary Information.
Amended: July 2008
Amended: January 2007CL-1.5.4
Investment firm licensees are required to comply with the requirements of Section CL-1.5, effective for the period ending 31 December 2008.Added: July 2008CL-2 CL-2 Custody Services
CL-2.1 CL-2.1 General Requirements
CL-2.1.1
The rules in this section apply to
investment firm licensees that undertake safeguarding ofclient financial instruments .CL-2.1.2
An
investment firm licensee which holds or controls safe custodyfinancial instruments must have systems and controls in place to:(a) Ensure the proper safeguarding of such safe custodyfinancial instruments ;(b) Ensure that such safe custodyfinancial instruments are identifiable and secure at all times;(c) Be able to evidence compliance with the requirements in Section CL-2 to its external auditors and the CBB.Amended: January 2007CL-2.1.3
As part of these protections, the custody rules require an
investment firm licensee to take appropriate steps to protect safe custodyfinancial instruments for which it is responsible. These rules are designed primarily to restrict the commingling ofclient andinvestment firm licensee assets and minimise the risk of theclient's safe custodyfinancial instruments being used by the firm without theclient's agreement or contrary to theclient's wishes, or being treated as theinvestment firm licensee's assets in the event of insolvency.CL-2.2 CL-2.2 Segregation
CL-2.2.1
An
investment firm licensee must segregate safe custodyfinancial instruments from its ownfinancial instruments except to the extent required by law or permitted by this module.CL-2.3 CL-2.3 Reconciliation
CL-2.3.1
An
investment firm licensee must, as often as is necessary, but at a minimum on a monthly basis, perform a reconciliation of its record of safe custodyfinancial instruments for which it is accountable but which it does not physically hold, with statements obtained from custodians. In the case ofdematerialised safe custody financial instruments not held through a custodian, this reconciliation must be performed with statements obtained from the person who maintains the record of legal entitlement.Amended: July 2008CL-2.3.2
An
investment firm licensee must, as often as is necessary, but no less than every six months (or twice in a period of twelve months but at least five months apart), carry out:(a) A count of all safe custodyfinancial instruments it physically holds on behalf ofclients and reconcile the result of that count with its record of safe custodyfinancial instruments that it physically holds on behalf of itsclients ; and(b) A reconciliation between theinvestment firm licensee's record ofclient holdings, and the firm's record of the location of safe custodyfinancial instruments .Amended: January 2007CL-2.3.3
Wherever possible, an
investment firm licensee should ensure that the reconciliations are carried out by a person (for example an employee of theinvestment firm licensee ) who is independent of the production or maintenance of the records to be reconciled.CL-2.4 CL-2.4 Client Statements
CL-2.4.1
Before
investment firm licensees provide safe custody services to aclient , they must notify theclient as to the appropriate terms and conditions which apply to this service. These must cover, at a minimum, the following matters, wherever applicable:(a) The registration of the safe custodyfinancial instruments , if these are not registered in theinvestment firm licensee clients' name;(b) The extent of theinvestment firm licensees' liability in the event of default by a custodian, except that theinvestment firm licensee must accept the same level of responsibility to itsclient for any nominee company controlled by theinvestment firm licensee or its affiliated company as for itself and may not disclaim responsibility for losses arising from the fraud, wilful default or negligence of the firm;(c) The circumstances in which theinvestment firm licensee may realise a safe custodyfinancial instrument held as collateral to meet theclient's liabilities;(d) The claiming and receiving of dividends, interest payments and other entitlements accruing to theclient ;(e) Dealing with takeovers, other offers or capital reorganisations and exercising voting, conversion and subscription rights;(f) Arrangements for the distribution of entitlements to shares and any other benefits arising from corporate events, whereclient balances have been pooled;(g) Arrangements for the provision of information to theclient relating to the safe custodyfinancial instruments which theinvestment firm licensee , or its nominee company, holds on behalf of theclient ;(h) How often a statement of custody assets will be sent to theclient and the basis on which the assets shown on the statement are valued;(i) Fees and costs for safe custody services to the extent that they are not notified to theclient elsewhere; and(j) If the firm intends to pool a safe custodyfinancial instrument with that of one or more otherclients , notification of its intention and, if theclient is a retailclient , an explanation of the effects of pooling to that retailclient .Amended: January 2007CL-2.4.2
All statements produced by or on behalf of an
investment firm licensee must list all safe custody assets held for theclient and for which the investment firm licensee is accountable and:(a) Identify any safe custodyfinancial instruments registered in theclient's own name separately from those registered in any other name;(b) Identify any safe custody assets which are being used as collateral or have been pledged to third parties, separately from any custody assets;(c) Show the market value of any collateral held, as at the date of the statement;(d) For aretail client , base the statement on either trade date or settlement date information for cash balances and safe custody investment and notify the basis to the retail client; and(e) Details of movements of eachclient asset .Amended: January 2007CL-2.5 CL-2.5 Third Party Custodians
CL-2.5.1
An
investment firm licensee must require that if a safe custodyfinancial instrument is recorded in an account with a custodian, the custodian makes it clear in the title of the account that the safe custodyfinancial instrument belongs to one or moreclients of theinvestment firm licensee .CL-2.5.2
Before an
investment firm licensee recommends a third party custodian to aretail client it must undertake an appropriate risk assessment of that custodian.CL-2.5.3
An
investment firm licensee that holds safe custodyfinancial instruments with a custodian or recommends custodians toretail clients , is expected to establish and maintain a system for assessing the appropriateness of its selection of the custodian and to assess the continued appointment of that custodian periodically as often as is reasonable in the relevant market. Theinvestment firm licensee is also expected to make and retain a record of the grounds on which it satisfies itself as to the appropriateness of its selection or, following a periodic assessment, continued appropriateness of the custodian.CL-2.5.4
In undertaking an appropriate risk assessment of the custodian in accordance with CL-2.5.2,
investment firm licensees may take into account any or all of the following:(a) The expertise and market reputation of the custodian, and once a safe custodyfinancial instrument has been lodged by the firm with the custodian, the custodian's performance of its services to theinvestment firm licensee ;(b) The arrangements for holding and safeguardingfinancial instruments ;(c) An appropriate legal opinion as to the protection of custody assets in the event of insolvency of the custodian;(d) Current industry standard reports;(e) Whether the custodian is regulated and by whom;(f) The capital or financial resources of the custodian;(g) The credit rating of the custodian; and(h) Any other activities undertaken by the custodian and, if relevant, any affiliated company.Amended: January 2007CL-2.6 CL-2.6 Record-Keeping
CL-2.6.1
An
investment firm licensee must ensure that proper records of the custody assets which it holds or receives, or arranges for another to hold or receive, on behalf of theclient , are made and retained for a period of ten years after the account is closed.Amended: April 2008CL-2.6.2
For the purpose specified in CL-2.6.1, an
investment firm licensee must maintain proper records in relation to aclient account; these records must capture at a minimum the following details:(a) The name of the account;(b) The account number;(c) Type of account;(d) Type of asset;(e) The location of the account;(f) Whether the account is currently open or closed;(g) Details of assets held and movements in each account; and(h) The date of opening and where applicable, closure.Amended: January 2007CL-3 CL-3 Collateral
CL-3.1 CL-3.1 General Requirements
CL-3.1.1
An
investment firm licensee must take care to establish and maintain appropriate systems and controls when it receives or holds assets as collateral in connection with securing aclient obligation to it.CL-3.1.2
The purpose of this section is to ensure that an appropriate level of protection is provided for those
client assets over which aclient gives aninvestment firm licensee the right to use, subject only to an obligation to return equivalent assets to theclient upon satisfaction of theclient's obligation to theinvestment firm licensee .CL-3.1.3
This section does not apply to an
investment firm licensee that has only a bare security interest (without rights to hypothecate) in theclient asset . In such circumstances, theinvestment firm licensee should comply with the custody rules orclient asset protection rules as appropriate.CL-3.1.4
For the purpose of this section only, a bare security interest in the
client's asset gives aninvestment firm licensee the right to realise the assets only on aclient's default and without the right to use those assets other than in default.CL-3.1.5
Differing levels of regulatory protection to the assets form the basis of the two different types of arrangement described in CL-3.1.2 and CL-3.1.3. Under the bare security interest arrangement, the asset continues to belong to the
client until theinvestment firm licensee's right to realise that asset crystallises. But under a "right to use arrangement", the client has transferred to theinvestment firm licensee the legal title and associated rights to the asset, so that when the firm exercises its right to treat the asset as its own, the asset ceases to belong to theclient and in effect becomes theinvestment firm licensee's asset and is no longer in need of the full range ofclient asset protection rules .CL-3.2 CL-3.2 Third Parties
CL-3.2.1
An
investment firm licensee may only permit aclient's collateral to be held by a third party where:(a) It has reasonable grounds to believe that the third party is suitable to hold that collateral; and(b) The investment firm licensee is able to demonstrate to the CBB's satisfaction the grounds upon which it considers the third party to be suitable to holdclients' collateral.Amended: January 2007CL-3.2.2
Before an
investment firm licensee depositsclient assets with a third party it must notify the third party that:(a) The collateral does not belong to theinvestment firm licensee ; and(b) The third party is not entitled to claim any lien or right of retention or sale over the collateral except to cover the obligations of theclient which gave rise to that deposit, pledge, charge or security arrangement or any charges relating to the administration or safekeeping of the collateral.Amended: January 2007CL-3.3 CL-3.3 Record-Keeping
CL-3.3.1
An
investment firm licensee that receives or holdsclient assets under an arrangement in this Section and which exercises its right to treat the assets as its own must ensure that it maintains adequate records to enable it to meet any future obligations including the return of equivalent assets to theclient .CL-3.3.2
Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).
Client Reports
CL-3.3.3
An
investment firm licensee which holds assets under an arrangement described in this section must (at least every six months or at other intervals as agreed in writing with theclient ) send to theclient a statement listing those assets and their market value as at the date of reporting.CL-3.3.4
The statement sent to the
client must be prepared and despatched to theclient within one calendar month of the date of reporting.CL-4 CL-4 Mandates
CL-4.1 CL-4.1 Mandates
CL-4.1.1
This section applies to an
investment firm licensee in respect of any writtenmandate from aclient under which theinvestment firm licensee may control aclient's assets or liabilities in the course of, or in connection with, theinvestment firm licensee's regulated investment services.Systems and Controls
CL-4.1.2
An
investment firm licensee that holdsmandates of the sort described in CL-4.1.1 must establish and maintain adequate records and internal controls in respect of its use of themandates , which should include:(a) An up-to-date list of themandates and any conditions placed by theclient or theinvestment firm licensee's management on their use;(b) A record of all transactions entered into using themandates , and internal controls to ensure that they are within the scope of authority of the person and theinvestment firm licensee entering into the transaction;(c) The details of the procedures for the giving and receiving of instructions under the authority; and(d) Where theinvestment firm licensee holds a passbook or similar documents belonging to theclient , internal controls, for the safeguarding (including against loss, unauthorized destruction, theft, fraud or misuse) of any passbook or similar document belonging to theclient held by theinvestment firm licensee .Amended: January 2007CL-5 CL-5 Third Party Related Distribution
CL-5.1 CL-5.1 General Requirements
CL-5.1.1
The
third party related distribution rules under CL-5 apply toinvestment firm licensees that holdclient money with a third party who becomes insolvent ("third party related distribution event").CL-5.1.2
The
third party related distribution rules in this Module are subject to any applicable rules of law to the contrary.CL-5.2 CL-5.2 Third Party Related Distribution
CL-5.2.1
Upon the insolvency of a third party to which
client money has been transferred or is held, theinvestment firm licensee continues to be accountable to theclient in a fiduciary capacity. However, consistent with a fiduciary's responsibility (whether as an agent or trustee) for third parties under law, aninvestment firm licensee will not be held responsible for a shortfall inclient money unless the general laws in the Kingdom of Bahrain or in the relevant jurisdiction requires otherwise, for instance, due to non-compliance with the terms of business in any respect.CL-5.2.2
To comply with its duties, the
investment firm licensee must show proper care:(a) In the selection of a third party;(b) When monitoring the performance of the third party; and(c) When notifying clients in itsterms of business the distribution rules applicable in the event of a third party distribution event.Amended: January 2007CL-5.2.3
Following the occurrence of a third party-related distribution event in relation to a
designated bank oreligible third party :(a) Theinvestment firm licensee must, as soon as is practicable, make and retain a record of each suchclient's share of the shortfall and must promptly notify the amount of the shortfall to the affectedclients (except where theinvestment firm licensee chooses to make good the shortfall);(b) Unless theinvestment firm licensee chooses to make good any shortfalls in theclient money balances held (or which should have been held) in theclient bank accounts , or third party accounts held by aninvestment firm licensee with the relevant designated bank or eligible third party, such shortfalls shall be borne byclients , in proportion to the respective value of theirclient money balances; and(c)Client money received after the third party-related distribution event:(i) Must not be transferred to the designated bank or eligible third party which has suffered the third party-related distribution event unless this is on the specific instructions of theclient (given after the occurrence of the third party-related distribution event) in order to settle an obligation of thatclient to that designated bank or eligible third party; and(ii) Must, subject to (i), be placed in a separateclient bank account that has been opened with a differentdesignated bank after the third party related distribution event has occurred.Amended: January 2007CL-6 CL-6 Appendix
CL-6.1 CL-6.1 Appendix
CL-6.1.1
The minimum information that should be assessed by an
investment firm licensee to determine the suitability of aneligible third party should include but not be limited to the following information:(a) The eligible third party's credit rating, capital and financial resources;(b) The regulatory and insolvency regimes of the jurisdiction in which the eligible third party is located;(c) The eligible third party's reputation;(d) Its regulatory status and history; and(e) The other members of the eligible third party's group and their activities.Amended: January 2007CL-6.1.2
The minimum information that should be notified by the
investment firm licensee to itsclient in respect of its holdings of thatclient's assets includes but is not limited to the following:(a) The basis and terms governing the way in which theclient assets will be held;(b) That theclient is subject to the protection conferred by theclient asset protection rules and as a consequence:i. Theclient assets will be held separately from assets belonging to theinvestment firm licensee ; andii. In the event of aninvestment firm licensees' insolvency, winding-up or other similar event, theclient's assets will be subject to theclient asset distribution rules.(c) Whether interest is payable to theclient and, if so, the terms and frequency of such payments;(d) That, notwithstanding that theclient assets will benefit from the protections conferred by theclient asset protection rules, theclient will still be taking unsecured credit risk on any bank or third party with whom theinvestment firm licensee places theclient assets that it holds;(e) If applicable, that theclient assets may be held in a jurisdiction outside the remit of the CBB and that the market practices, insolvency and legal regimes applicable in that jurisdiction may differ from the regime applicable in the CBB;(f) If applicable, that theinvestment firm licensee holds or intends to hold theclient money in aclient bank account with a designated bank or in a third party account with an eligible third party which is in the same group as theinvestment firm licensee and the identity of the designated bank or eligible third party concerned;(g) If applicable, details about how anyclient money arising out of Islamic financial business is to be held; and(h) Details of any claims or set offs which theinvestment firm licensee may have inclient assets held on behalf of theclient in satisfaction of a default by theclient or otherwise, and any rights which the investment firm licensee may have to closeout or liquidate contracts or positions in respect of any of theclient assets , without theclient's prior instruction or consent.Amended: January 2007RM RM Risk Management
Chapter RM-A Chapter RM-A Introduction
RM-A.1 RM-A.1 Purpose
Executive Summary
RM-A.1.1
This Module contains requirements relating to the management of risk by
investment firm licensees . It expands on certain high level requirements contained in other Modules. In particular, Section AU-2.6 of Module AU (Authorisation) specifies requirements regarding systems and controls that have to be met as a license condition; Principle 10 of the Principles of Business (ref. PB-1.10) requiresinvestment firm licensees to have systems and controls sufficient to manage the level of risk inherent in their business; and Module HC (High-level Controls) specifies various requirements relating to the role and composition of Boards, and related high-level controls.Adopted: July 2007RM-A.1.2
This Module obliges
investment firm licensees to recognise the range of risks that they face and the need to manage these effectively. Their risk management framework is expected to have the resources and tools to identify, monitor and control all material risks. The adequacy of alicensee's risk management framework is subject to the scale and complexity of its operations, however. In demonstrating compliance with certain Rules,licensees with very simple operational structures and business activities may need to implement less extensive or sophisticated risk management systems, compared tolicensees with a complex and/or extensive customer base or operations.Adopted: July 2007RM-A.1.3
The requirements contained in this Module apply to
Category 1 investment firms andCategory 2 investment firms only.Adopted: July 2007Legal Basis
RM-A.1.4
This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) regarding Risk Management requirements applicable to
investment firm licensees , 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').Amended: January 2011
Adopted: July 2007RM-A.1.5
For an explanation of the CBB's rule-making powers and different regulatory instruments, see section UG-1.1.
Adopted: July 2007RM-A.2 RM-A.2 Module History
Evolution of the Module
RM-A.2.1
This Module was first issued in July 2007, as part of the second phase release of Volume 4's contents. It is dated July 2007. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made: UG-3 provides further details on Rulebook maintenance and version control.
Adopted: July 2007RM-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes RM-1.1.11 04/2008 Clarified the requirement for investment firm licensees to have a separate risk management function. RM-7.3.3 04/2008 Clarified that CBB prior approval is required for intra-group outsourcing. RM-7.1.6,
7.1.7 and
7.1.1607/2008 Clarified that CBB prior approval is required for outsourcing arrangements. RM-B.1.2 10/2009 Amended to reflect applicability of Chapters RM-7 and RM-8. RM-7.1.16 10/2009 Amended to read approved person. RM-7.3.7 10/2009 New Rule added to clarify that licensees may not outsource core business activities, including internal audit, to their group. RM-7.4 10/2009 Updated to reflect CBB's requirements for outsourcing the internal audit function. RM-1.1.10, RM-1.1.11, and RM-1.1.13 07/2010 Updated and amended to include requirements for the risk management function. RM-7.1.7 07/2010 New Rule added regarding outsourcing core business functions or activities to third parties. RM-A.1.4 01/2011 Clarified legal basis. RM-B.2 01/2011 Removed reference in title to affiliates. RM-4.1.8 and RM-4.1.9 07/2012 Replaced reference to "securities" with "financial instruments". RM-7.4.5 10/2012 Corrected typo. RM-7.4.2A 01/2013 New Paragraph added to require that the outsourcing of the internal audit function must be supported by a board resolution or ratified by the audit committee. RM-7.1.9 07/2013 Added cross reference. RM-7.1.9A and RM-7.3.4 07/2013 Made reference to considerable outsourcing. RM-7.4.4 07/2013 Changed Guidance to Rule. RM-1.1.10 to RM-1.1.13 10/2013 Amendments made to allow overseas investment firm licensees to outsource the risk management function to their head office, subject to the CBB's prior written approval. RM-1.1.7 01/2016 Corrected cross reference. RM-1.1.9 01/2016 Aligned risk categories as per Module RM. RM-4.1.17 01/2016 Restructured Subparagraphs to avoid duplication. RM-7.1.9 01/2016 Clarified Guidance. RM-7.1.1 10/2017 Amended Paragraph to allow the utilization of cloud services. RM-7.1.3A 10/2017 Added a new Paragraph on outsourcing requirements. RM-7.1.6 10/2017 Amended Paragraph. RM-7.1.9 10/2017 Amended Paragraph. RM-7.1.11 10/2017 Amended Paragraph. RM-7.1.11A 10/2017 Added a new Paragraph on outsourcing. RM-7.1.13 10/2017 Amended Paragraph. RM-7.1.14 10/2017 Amended Paragraph. RM-7.1.14(f) 10/2017 Added a new sub-Paragraph. RM-7.1.17 10/2017 Amended Paragraph. RM-7.2.4 10/2017 Amended Paragraph. RM-7.2.11 10/2017 Amended Paragraph. RM-7.2.12 10/2017 Amended Paragraph. RM-7.2.18 10/2017 Amended Paragraph. RM-7.2.19 10/2017 Added a new Paragraph on security measures related to cloud services. RM-7.3.3 10/2017 Amended Paragraph. RM-7.3.4 10/2017 Amended Paragraph. RM-9 04/2019 Added a new Chapter on Cyber Security Risk. RM-9.1 01/2022 Enhanced Section on Cyber Security Risk Management. RM-9.1.58 04/2022 Amended Paragraph on the cyber security reporting. RM-9.1.59 04/2022 Amended Paragraph on the submission of the cyber security report. RM-7 07/2022 Replaced Chapter RM-7 with new Outsourcing Requirements. RM-9.1.22 10/2022 Amended Paragraph on email domains requirements. RM-9.1.22A 10/2022 Added a new Paragraph on additional domains requirements. RM-7.1.7 07/2023 Amended Sub-paragraph (v) and added Sub-paragraph (viii) on Outsourcing Requirements. Superseded Requirements
RM-A.2.3
This Module does not replace any regulations or circulars in force prior to July 2007.
Adopted: July 2007RM-A.2.4
Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Adopted: July 2007Chapter RM-B Chapter RM-B Scope of Application
RM-B.1 RM-B.1 License Categories
RM-B.1.1
The contents of this Module — unless otherwise stated — apply to
Category 1 andCategory 2 investment firms only.Adopted: July 2007RM-B.1.2
Category 3 investment firms — unless otherwise stated — are exempted from the requirements of this Module with the exeption of Chapters RM-7 and RM-8.Amended: October 2009
Adopted: July 2007RM-B.1.3
In respect of
Category 3 investment firms , however, the specific requirements contained in Module RM should be considered as good practice, which it may be appropriate to apply. Notwithstanding the exemption from the specific requirements of Module RM, specified in Rule RM-B.1.2,Category 3 investment firms are nonetheless required to maintain adequate systems and controls (see Sections AU-2.6 and PB-1.10).Adopted: July 2007RM-B.2 RM-B.2 Branches and Subsidiaries
Bahraini Investment Firm Licensees
RM-B.2.1
Bahraini investment firm licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their branches, whether located inside or outside the Kingdom of Bahrain, such that these are also subject to an effective risk management framework. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.Adopted: July 2007RM-B.2.2
Bahraini investment firm licensees must satisfy the CBB that their subsidiaries and other group members (where relevant) are subject to appropriate arrangements such that they too effectively manage their risks.Adopted: July 2007RM-B.2.3
Where an
investment firm licensee is unable to satisfy the CBB that its subsidiaries and other group members are subject to appropriate risk management arrangements, the CBB will assess the potential impact of risks — both financial and reputational — that this poses to theinvestment firm licensee . The CBB recognises that different types of activity require different approaches to risk management, and it does not necessarily expect arrangements to be in place elsewhere in a group equivalent to those contained in this Module. However, where the CBB assesses that risk management weaknesses in subsidiaries and other group members pose material risks to theinvestment firm licensee , the CBB may impose restrictions on dealings between thelicensee and other group members. Where such weaknesses are assessed by the CBB to pose a major threat to the stability of theinvestment firm licensee , then its authorisation may be called into question.Adopted: July 2007Overseas Investment Firm Licensees
RM-B.2.4
Overseas investment firm licensees must satisfy the CBB that the same or equivalent arrangements to those contained in this Module are in place at the head office level, as well as ensuring that there is effective risk management of activities conducted under the Bahrain license.Adopted: July 2007RM-B.2.5
In assessing compliance with Paragraph RM-B.2.4, the CBB will take into account regulatory requirements applicable to the head office, i.e. the company of which the Bahrain branch is part, as well as the risk management framework applied to the Bahrain operation. With the exception of specific requirements that explicitly apply to
overseas investment firm licensees ,overseas investment firm licensees should consider the contents of this Chapter as guidance, in judging whether risk management controls applied to the branch satisfy RM-B.2.4.Adopted: July 2007Chapter RM-1 Chapter RM-1 General Requirements
RM-1.1 RM-1.1 Risk Management
Board of Directors' Responsibility
RM-1.1.1
The Board of
Directors ofinvestment firm licensees must take responsibility for the establishment of an adequate and effective framework for identifying, monitoring and managing risks across all its operations.Adopted: July 2007RM-1.1.2
The CBB expects the Board to be able to demonstrate that it provides suitable oversight and establishes, in relation to all the risks the
investment firm licensee is exposed to, a risk management framework that includes setting and monitoring policies, systems, tools and controls.Adopted: July 2007RM-1.1.3
Although authority for the management of a firm's risks is likely to be delegated, to some degree, to individuals at all levels of the organisation, the overall responsibility for this activity should not be delegated from its governing body and relevant senior managers.
Adopted: July 2007RM-1.1.4
An
investment firm licensee's failure to establish, in the opinion of the CBB, an adequate risk management framework will result in it being in breach of Condition 6 of the Licensing Conditions of Section AU-2.6. This failure may result in the CBB withdrawing or imposing restrictions on thelicensee , or thelicensee being required to inject more capital.Adopted: July 2007RM-1.1.5
The Board of
Directors must also ensure that there is adequate documentation of thelicensee's risk management framework.Adopted: July 2007Systems and Controls
RM-1.1.6
The risk management framework of
investment firm licensees must provide for the establishment and maintenance of effective systems and controls as are appropriate to their business, so as to identify, measure, monitor and manage risks.Adopted: July 2007RM-1.1.7
An effective framework for risk management should include systems to identify, measure, monitor and control all major risks on an on-going basis. The risk management systems should be approved and periodically reviewed by the Board as outlined in HC-1.2.10.
Amended: January 2016
Adopted: July 2007RM-1.1.8
The systems and controls required by RM-1.1.6 must be proportionate to the nature, scale and complexity of the firm's activities.
Adopted: July 2007RM-1.1.9
The processes and systems required must enable the
licensee to identify the major sources of risk to its ability to meet its liabilities as they fall due, including the major sources of risk in each of the following Categories:(a) Counterparty risk;(b) Market risk;(c) Liquidity risk;(d) Operational risk; and(e) Derivative Transactions Risk;(f) Outsourcing Risk;(g) Group Risk; and(h) Any additional categories relevant to its business.Amended: January 2016
Adopted: July 2007Risk Management Function
RM-1.1.10
A
Bahraini investment firm licensee must have a risk management function commensurate with the nature, scale and complexity of its business.Amended: October 2013
Amended: July 2010
Amended: April 2008
Adopted: July 2007RM-1.1.11
Where a
licensee maintains a risk management function, this function must be independent of risk-taking units. The duties of the risk management function include but are not limited to:(a) Identifying, measuring, monitoring, and controlling the major sources of risks associated with the operations of theBahraini investment firm licensee including any entity it may own, control or manage on an ongoing basis;(b) Reporting to the Board and senior management on all material risks to thelicensee ; and(c) Documenting the processes and systems by which it identifies and monitors material risks, and how it reports to the Board and senior management these risks.Amended: October 2013
Adopted: July 2010RM-1.1.12
The CBB will only consider a licensee not having a risk management function, where its investment activities are limited in scale and complexity, and appropriate mitigating controls are in place.
Amended: October 2013
Adopted: April 2008RM-1.1.13
Unless otherwise agreed in writing with the CBB, the risk management function of a Bahraini investment firm licensee, may not be outsourced to a third party.
Amended: October 2013
Adopted: July 2010RM-1.1.14
An
overseas investment firm licensee may establish a risk management function commensurate with the nature, scale and complexity of its business. The risk management function may be combined with another function. The CBB will consider anoverseas investment firm licensee not having a local risk management function, provided that it seeks CBB's approval to outsource this function to its Head Office, in accordance with Section RM-7.3 (Intra-group Outsourcing). In such case, the CBB must be satisfied that equivalent arrangements to those contained in this Module are in place at the Head Office level, and that such arrangements would entail effective risk management of activities conducted by theoverseas investment firm licensee .Added: October 2013Chapter RM-2 Chapter RM-2 Counterparty Risk
RM-2.1 RM-2.1 Counterparty Risk
RM-2.1.1
Investment firm licensees must document in a credit policy their policies and procedures for identifying, measuring, monitoring and controlling counterparty risk. This policy must be approved and regularly reviewed by the Board ofDirectors of thelicensee .Adopted: July 2007RM-2.1.2
Among other things, the
licensee's credit risk policy must identify the limits it applies to both individual counterparties and categories of counterparty, how it monitors movements in counterparty risk and how it mitigates loss in the event of counterparty failure.Adopted: July 2007RM-2.1.3
A
licensee's credit risk policy should provide a clear indication of the amount and nature of counterparty risk that thelicensee wishes to incur. In particular, it should cover:(a) How, with particular reference to its activities, thelicensee defines and measures credit risk;(b) The types and sources of counterparty risk to which thelicensee wishes to be exposed (and the limits on that exposure) and those to which theinvestment firm licensee wishes not to be exposed (and how that is to be achieved, for example how exposure is to be avoided or mitigated); and(c) The level of diversification required by thelicensee and thelicensee's tolerance for risk concentrations (and the limits on those exposures and concentrations).Adopted: July 2007RM-2.1.4
It is important that sound and legally enforceable documentation is in place for each agreement that gives rise to counterparty risk as this may be called upon in the event of a default or dispute. A
licensee should therefore consider whether it is appropriate for an independent legal opinion to be sought on documentation used by thelicensee . Best practise would dictate that documentation should normally be in place before thelicensee enters into a contractual obligation or releases funds.Adopted: July 2007Risk Monitoring
RM-2.1.5
Investment firm licensees must implement an effective system for monitoring counterparty risk which should be described in a credit risk policy.Adopted: July 2007RM-2.1.6
Investment firm licensees must meet the Counterparty Risk Requirements in Module CA-3.3. Thelicensee must monitor its exposures and must notify the CBB if its total exposure to an individual counterparty exceeds 25% of aggregate counterparty exposures and/or 25% of thelicensee's regulatory capital .Adopted: July 2007RM-2.1.7
Individual credit facilities and overall limits should be periodically reviewed, in order to check their appropriateness for both the current circumstances of the counterparty and the firm's current internal and external economic environment. The frequency of review should be appropriate to the nature of the facility, but in any event should take place at least once a year.
Adopted: July 2007Record Keeping
RM-2.1.8
Investment firm licensees must maintain appropriate records of:(a) Counterparty exposures, including aggregations of individual counterparty exposures, as appropriate, by:(i) Groups of connected counterparties;(ii) Types of counterparty as defined, for example, by the nature or geographical location of the counterparty;(b) Investment decisions, including details of the decision and the facts or circumstances upon which it was made; and(c) Information relevant to assessing current counterparty and risk quality.Adopted: July 2007RM-2.1.9
For the purposes of this Module, connected counterparties means all undertakings with which the
licensee hasclose links ; theDirectors (and their family) of thelicensee ; and theDirectors (and their family) of undertakings with which thelicensee hasclose links .Adopted: July 2007Chapter RM-3 Chapter RM-3 Liquidity Risk
RM-3.1 RM-3.1 Liquidity Risk
RM-3.1.1
Investment firm licensees must maintain a liquidity risk policy for the management of liquidity risk of thelicensee , which is appropriate to the nature, scale and complexity of its activities. This policy must be approved and regularly reviewed by the Board ofDirectors of thelicensee .Adopted: July 2007RM-3.1.2
Among other things, the
licensee's liquidity risk policy must identify the limits it applies, how it monitors movements in risk and how it mitigates loss in the event of unexpected liquidity events.Adopted: July 2007RM-3.1.3
The liquidity risk policy should cover the general approach that the
licensee will take to liquidity risk management, including, as appropriate, various quantitative and qualitative targets. This general approach should be communicated to all relevant functions within the organisation.Adopted: July 2007RM-3.1.4
The policy for managing liquidity risk should cover specific aspects of liquidity risk management. So far as appropriate to the nature, scale and complexity of the activities carried on, such aspects might include:
(a) The basis for managing liquidity (for example, regional or central);(b) The degree of concentrations, potentially affecting liquidity risk, that are acceptable to the firm;(c) A policy for managing the liability side of liquidity risk;(d) The role of marketable, or otherwise realisable, assets;(e) Ways of managing both thelicensee's aggregate foreign currency liquidity needs and its needs in each individual currency;(f) Ways of managing market access;(g) The use of derivatives to minimise liquidity risk;(h) The management of intra-day liquidity, where this is appropriate, for instance where thelicensee is a member of or participates (directly or indirectly) in a system for the intra-day settlement of payments or transactions in investments; and(i) Policy on overdue and unsettled trades.Adopted: July 2007Risk Identification
RM-3.1.5
Investment firm licensees must identify significant concentrations within their asset portfolios. This should be done in relation to:(a) Individual counterparties or related groups of counterparties;(b) Credit ratings of the assets in its portfolio;(c) The proportion of an issue held;(d) Instrument types;(e) Geographical regions; and(f) Economic sectors.Adopted: July 2007RM-3.1.6
Investment firm licensees must identify on and off balance sheet impacts on its liquidity.Adopted: July 2007RM-3.1.7
For the purposes of RM-3.1.6, the
licensee should take into account:(a) Possible changes in the market's perception of thelicensee and the effects that this might have on thelicensee's access to the markets, including:(i) Where thelicensee funds its holdings of assets in one currency with liabilities in another, access to foreign exchange markets, particularly in less frequently traded currencies;(ii) Access to secured funding, including by way of repo transactions; and(iii) The extent to which thelicensee may rely on committed facilities made available to it;(b) (If applicable) the possible effect of each scenario analysed on currencies whose exchange rates are currently pegged or fixed; and(c) That:(i) General market turbulence may trigger a substantial increase in the extent to which persons exercise rights against thelicensee under off balance sheet instruments to which thelicensee is party;(ii) Access to OTC derivative and foreign exchange markets are sensitive to credit-ratings;(iii) The scenario may involve the triggering of early amortisation in asset securitisation transactions with which thelicensee has a connection; and(iv) Its ability to securitise assets may be reduced at certain times.Adopted: July 2007Risk Measurement and Monitoring
RM-3.1.8
An
investment firm licensee must establish and maintain a process for the measurement, monitoring and controlling of liquidity risk, using a robust and consistent method which should be described in its liquidity risk policy statement.Adopted: July 2007RM-3.1.9
An
investment firm licensee's monitoring framework must include a system of management reporting which provides clear, concise, timely and accurate liquidity risk reports to relevant functions within the firm. These reports must alert management when theinvestment firm licensee approaches, or breaches, predefined thresholds or limits, including quantitative limits imposed by the CBB.Adopted: July 2007RM-3.1.10
Reports on liquidity risk should be provided on a timely basis to the
investment firm licensee's governing body, senior management and other appropriate personnel. The appropriate content and format of reports depends on alicensee's liquidity management practices and the nature, scale and complexity of thelicensee's business. Reports to theinvestment firm licensee's governing body may be less detailed and less frequent than reports to senior management with responsibility for managing liquidity risk.Adopted: July 2007RM-3.1.11
For the purposes of testing liquidity risk,
licensees must carry out appropriate stress testing and scenario analysis, including taking reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which liquidity risk might occur or crystallise.Licensees should normally consider scenarios based on varying degrees of stress and both firm-specific and market-wide difficulties. In developing any scenario of extreme market-wide stress that may pose systemic risk, it may be appropriate for aninvestment firm licensee to make assumptions about the likelihood and nature of CBB intervention.Adopted: July 2007RM-3.1.12
A scenario analysis in relation to liquidity risk should include a cash-flow projection for each scenario tested, based on reasonable estimates of the impact (both on and off balance sheet) of that scenario on the firm's funding needs and sources.
Adopted: July 2007Limit Setting
RM-3.1.13
Investment firm licensees must set limits in accordance with the nature, scale and complexity of their activities. The structure of limits should reflect the need forinvestment firm licensees to have systems and controls in place to guard against a spectrum of possible risks, from those arising in day-to-day liquidity risk management to those arising in stressed conditions.Adopted: July 2007RM-3.1.14
The CBB would normally expect a
licensee to consider setting limits on:(a) Liability concentrations in relation to:(i) Individual, or related groups of, liability providers;(ii) Instrument types including those arising from short selling;(iii) Maturities, including the amount of debt maturing in a particular period; and(iv) Wholesale funding liabilities;(b) Where appropriate, net leverage and gross leverage; and(c) Daily settlement limits.Adopted: July 2007Contingency Planning
RM-3.1.15
Investment firm licensees must maintain contingency funding plans for taking action to ensure, so far as they can, that they can access sufficient liquid financial resources to meet liabilities as they fall due. These plans must also include what events or circumstances may lead to action under the plan being triggered.Adopted: July 2007RM-3.1.16
The contingency funding plan should contain administrative policies and procedures that will enable the
licensee to manage the plan's implementation effectively, including:(a) The responsibilities of senior management;(b) Names and contact details of members of the team responsible for implementing the contingency funding plan;(c) Where, geographically, team members will be assigned;(d) Who within the team is responsible for contact with head office (if appropriate), analysts, investors, external auditors, press, significant customers, regulators, lawyers and others; and(e) Mechanisms that enable senior management and the governing body to receive management information that is both relevant and timely.Adopted: July 2007Chapter RM-4 Chapter RM-4 Market Risk
RM-4.1 RM-4.1 Market Risk
RM-4.1.1
Investment firm licensees must document their framework for the proactive management of market risk. This policy must be approved and regularly reviewed by the Board ofDirectors of thelicensee .Adopted: July 2007RM-4.1.2
Market risk relates to the exposure of the
licensee to fluctuations in the market value, currency or yield in respect of positions infinancial instruments (either long or short).Adopted: July 2007RM-4.1.3
A
licensee's market risk policy document should identify its appetite for market risk, systems for identifying, reporting and documenting market risk and mitigation factors in place. In particular, the market risk policy should cover for market risk:(a) How, with particular reference to its activities, thelicensee defines and measures market risk;(b) Thelicensee's business aims in incurring market risk including:(i) Identifying the types and sources of market risk to which thelicensee wishes to be exposed (and the limits on that exposure) and those to which thelicensee wishes not to be exposed (and how that is to be achieved);(ii) Specifying the level of diversification required by thelicensee and thelicensee's tolerance for risk concentrations (and the limits on those exposures and concentrations);(c) Thelicensee's investment strategy;(d) Thefinancial instruments , commodities, assets and liabilities (and mismatches between assets and liabilities) that alicensee is exposed to and the limits on those exposures;(e) Activities that are intended to hedge or mitigate market risk including mismatches caused by, for example, differences in the assets and liabilities and maturity mismatches; and(f) The methods and assumptions used for measuring linear, non-linear and geared market risk including the rationale for selection, ongoing validation and testing. Methods might include stress testing and scenario analysis, option Greeks, asset/liability analysis, correlation analysis and Value-at-Risk (VaR). Exposure to non-linear or geared market risk is typically through the use of derivatives.Adopted: July 2007Risk Identification
RM-4.1.4
Investment firm licensees must have in place appropriate risk reporting systems that enable them to identify the types and amount of market risk to which they are (or potentially could be) exposed to. The information that systems should capture may include but is not limited to position data which may consist of raw time series of position rates, index levels and prices and derived time series of benchmark yield curves, spreads, implied volatilities, historical volatilities and correlations.Adopted: July 2007Risk Measurement
RM-4.1.5
Investment firm licensees must carry out stress testing to access the resilience of their financial resources to any identified areas of material market risk under reasonably foreseeable circumstances. This stress testing may take into account the rating and geographical spread of its assets, the duration of their maturity relative to thelicensee's liabilities and the fluctuation of interest and currency rates.Adopted: July 2007RM-4.1.6
The
licensee should consider potential market risk events that may affect its solvency. These include the following:(a) Reduced value of equities due to stock market falls etc;(b) Variation in interest rates and the effect on the market value of investments;(c) A lower level of investment income than planned;(d) Inadequate valuation of assets;(e) The direct impact on the portfolio of currency devaluation, as well as the effect on related markets and currencies; and(f) The extent of any mismatch of assets and liabilities of any type (eg. maturity, currency, market, repricing etc.).Adopted: July 2007RM-4.1.7
Where the
licensee considers that the nature of its assets and the matching of its liabilities result in no significant market risk exposure (eg. its investments consist entirely of cash and bank deposits), it will not be expected to carry out stress testing. The CBB will expect it to document the reasons for its decision and be prepared to discuss these during an onsite visit.Adopted: July 2007Valuation
RM-4.1.8
Wherever possible, a
licensee must mark to market the value of itsfinancial instruments , based on readily available close out prices from independent sources.Amended: July 2012
Adopted: July 2007RM-4.1.9
Where marking to market is not possible, a firm must use mark to model in order to measure the value of its
financial instruments . Marking to model is any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input.Amended: July 2012
Adopted: July 2007RM-4.1.10
A
licensee must ensure that its Board ofDirectors and senior management are aware of the positions which are subject to mark to model and understand the materiality of the uncertainty this creates in the reporting of the performance of the business of the firm and the risks to which it is subject.Adopted: July 2007RM-4.1.11
In addition to marking to market or marking to model, a
licensee must perform independent price verification, such that market prices or model inputs are regularly verified for accuracy and independence.Adopted: July 2007RM-4.1.12
Systems and controls regarding valuations should include the following:
(a) The department responsible for the validation of the value of assets and liabilities should be independent of the business trading area, and should be adequately resourced by suitably qualified staff;(b) All valuations should be checked and validated at appropriate intervals;(c) Alicensee should establish a review procedure to check :(i) The quality and appropriateness of the price sources used;(ii) The level of any valuation reserves held; and(iii) The valuation methodology employed for each product and consistent adherence to that methodology;(d) Alicensee should document its policies and procedures relating to the entire valuation process. In particular, the following should be documented:(i) The valuation methodologies employed for all product categories;(ii) Details of the price sources used for each product;(iii) The procedures to be followed where a valuation is disputed internally or with a service provider;(iv) The level at which a difference between a valuation assigned to an asset or liability and the valuation used for validation purposes will be reported on an exceptions basis and investigated;(v) Where alicensee is using its own internal estimate to produce a valuation, it should document in detail the process followed in order to produce the valuation; and(vi) The review procedures established by alicensee in relation to the requirements of this section should be adequately documented and include the rationale for the policy.Adopted: July 2007Risk Monitoring
RM-4.1.13
The
investment firm licensee's risk reporting and monitoring system should be independent of the employees who are responsible for exposing thelicensee to risk.Adopted: July 2007RM-4.1.14
The market risk policy of a
licensee may require the production of market risk reports at various levels within thelicensee . These reports should provide sufficiently accurate market risk data to relevant functions within thelicensee , and should be timely enough to allow any appropriate remedial action to be proposed and taken, for example:(a) At firm wide level, a market risk report may include information:(i) Summarising and commenting on the total market risk that a firm is exposed to and market risk concentrations by business unit, asset class and country;(ii) On VaR calculations, compared to risk limits by business unit, asset class and country;(iii) Commenting on significant risk concentrations and market developments; and(iv) On market risk in particular legal entities and geographical regions;(b) At the business unit level, a market risk report may include information summarising market risk by currency, trading desk, maturity or duration band, or by instrument type;(c) At the trading desk level, a market risk report may include detailed information summarising market risk by individual trader, instrument, position, currency, or maturity or duration band; and(d) All risk data should be readily reconcilable back to the prime books of entry with a fully documented audit trail.Adopted: July 2007RM-4.1.15
Risk monitoring reports and systems must be subject to periodic independent review by suitably qualified staff.
Adopted: July 2007Risk Control
RM-4.1.16
Risk control is the independent monitoring, assessment and supervision of business units within the defined policies and procedures of the market risk policy. This may be achieved by:
(a) Setting an appropriate market risk limit structure to control thelicensee's exposure to market risk; for example, by setting out a detailed market risk limit structure at the corporate level, the business unit level and the trading desk level which addresses all the key market risk factors and is commensurate with the volume and complexity of activity that thelicensee undertakes;(b) Setting limits on risks such as price or rate risk, as well as those factors arising fromoptions such as delta, gamma, vega, rho and theta;(c) Setting limits on net and gross positions, market risk concentrations, the maximum allowable loss (also called 'stop-loss'), VaR, potential risks arising from stress testing and scenario analysis, gap analysis, correlation, liquidity and volatility; and(d) Considering whether it is appropriate to set intermediate (early warning) thresholds that alert management when limits are being approached, triggering review and action where appropriate.Adopted: July 2007Record Keeping
RM-4.1.17
In relation to market risk, an
investment firm licensee must retain appropriate prudential records of:(a) [This Subparagraph was deleted in January 2016 and requirements moved to (c)];(b) The nature and amounts of off and on balance sheet exposures, including aggregations of exposures;(c) Off and on market trades infinancial instruments and other assets and liabilities; and(d) Methods and assumptions used in stress testing and scenario analysis and in VaR models.Amended: January 2016
Adopted: July 2007RM-4.1.18
A
licensee should keep a data history to enable it to perform back testing of methods and assumptions used for stress testing and scenario analysis and for VaR models.Adopted: July 2007Chapter RM-5 Chapter RM-5 Operational Risk
RM-5.1 RM-5.1 Operational Risk
RM-5.1.1
Investment firm licensees must document their framework for the proactive management of operational risk. This policy must be approved and regularly reviewed by the Board ofDirectors of thelicensee .Adopted: July 2007RM-5.1.2
Operational risk is the risk to the
licensee of loss resulting from inadequate or failed internal processes, people and systems, or from external events. In identifying the types of operational risk losses that it may be exposed to,licensees should consider, for instance, the following:(a) The nature of alicensee's customers, products and activities, including sources of business, distribution mechanisms, and the complexity and volumes of transactions;(b) The design, implementation, and operation of the processes and systems used in the end-to-end operating cycle for alicensee's products and activities;(c) The risk culture and human resource management practices at alicensee ; and(d) The business operating environment, including political, legal, socio-demographic, technological, and economic factors as well as the competitive environment and market structure.Adopted: July 2007RM-5.1.3
A
licensee should recognise that it may face significant operational exposures from a product or activity that may not be material to its business strategy. Alicensee should consider the appropriate level of detail at which risk identification is to take place, and may wish to manage the operational risks that it faces in risk categories that are appropriate to its organisational and legal structures.Adopted: July 2007RM-5.1.4
Investment firm licensees must consider the impact of operational risks on their financial resources and solvency.Adopted: July 2007RM-5.1.5
An
investment firm licensee's operational risk policy must outline thelicensee's strategy and objectives for operational risk management and the processes, including internal controls and risk management mechanisms that it intends to adopt to achieve these objectives.Adopted: July 2007RM-5.1.6
When assessing its operational risks, a
licensee may be able to differentiate between expected and unexpected operational losses. Alicensee should consider whether it is appropriate to adopt a more quantitative approach to the assessment of its expected operational losses, for example by defining tolerance, setting thresholds, and measuring and monitoring operational losses and exposures. In contrast, alicensee may wish to take a more qualitative approach to assessing its unexpected losses.Adopted: July 2007RM-5.1.7
Although a
licensee may currently be unable to assess certain operational risks with a high degree of accuracy or consistency, it should, according to the nature, scale and complexity of its business, consider the use of more sophisticated qualitative and quantitative techniques as they become available.Adopted: July 2007RM-5.1.8
Investment firm licensees must establish mechanisms to ensure adequate internal controls are in place.Adopted: July 2007RM-5.1.9
For the purposes of RM-5.1.8, internal controls for
investment firm licensees should include books and records requirements, appropriate organisation structure, segregation of duties, and related controls that are designed to safeguard entity andclient assets .Adopted: July 2007RM-5.1.10
Investment firm licensees must establish mechanisms to verify that controls, once established, are being followed. The verification procedures must include internal audits, which must be independent of trading desks and the revenue side of the business.Adopted: July 2007RM-5.1.11
In establishing mechanisms and controls, the
investment firm licensee should consider:(a) Corporate structure;(b) Delegation of authorities;(c) Outsourcing of functions;(d) Financial and human resources;(e) Risk management tools and processes;(f) Administrative systems and procedures;(g) Audit trail;(h) Nature and complexity of client service and fee arrangements;(i) Investment decision procedures;(j) Management information systems;(k) Compliance history and procedures;(l) Complaints by investors;(m) Regulatory actions; and(n) Follow up on regulatory actions and inspection observations.Adopted: July 2007RM-5.1.12
Investment firm licensee's business continuity planning, risk identification and reporting must cover reasonably foreseeable external events and their likely impact on thelicensee and its business portfolio.Adopted: July 2007RM-5.1.13
Business continuity management includes policies, standards, and procedures for ensuring that specified operations can be maintained or recovered in a timely fashion in the event of a disruption. Its purpose is to minimise the operational, financial, legal, reputational and other material consequences arising from a disruption. Effective business continuity management concentrates on the impact, as opposed to the source, of the disruption, which affords financial industry participants and financial authorities greater flexibility to address a broad range of disruptions. At the same time, however,
investment firm licensees cannot ignore the nature of risks to which they are exposed.Adopted: July 2007Risk Monitoring and Controlling
RM-5.1.14
When monitoring their operational risk,
investment firm licensees must:(a) Report regularly to the relevant level of management its operational exposures, loss experience (including if possible cumulative losses), and authorised deviations from theinvestment firm licensee's operational risk policy;(b) Engage in exception-based escalation to management of:(i) Unauthorised deviations from theinvestment firm licensee's operational risk policy;(ii) Likely or actual breaches in predefined thresholds for operational exposures and losses, where set; and(iii) Significant increases in theinvestment firm licensee's exposure to operational risk or alterations to its operational risk profile.Adopted: July 2007Record Keeping
RM-5.1.15
Investment firm licensees must retain an appropriate record of their operational risk management activities.Adopted: July 2007RM-5.1.16
RM-5.1.15 may, for example, include records of:
(a) The results of risk identification, measurement, and monitoring activities;(b) Actions taken to control identified risks;(c) Where relevant, any exposure thresholds that have been set for identified operational risks;(d) An assessment of the effectiveness of the risk control tools that are used; and(e) Actual operational risk losses or events against stated risk appetite or tolerance.Adopted: July 2007Chapter RM-6 Chapter RM-6 Derivative Transactions Risk
RM-6.1 RM-6.1 Derivative Transactions Risk
RM-6.1.1
Investment firm licensees must seek prior CBB approval before starting to undertake derivative transactions.Investment firm licensees that engage in derivatives trading for their own account or forclients must evaluate the systems needs for such activity.Adopted: July 2007RM-6.1.2
Rule RM-6.1.1 requires a one-off approval, before undertaking derivatives activity, rather than approval for each such transaction. With the complexity of derivatives products and the size and rapidity of transactions, it is essential that
licensees capture all relevant details of transactions, identify errors and process payments or move assets quickly and accurately. This requires a staff of sufficient size, knowledge and experience to support the volume and type of transactions.Adopted: July 2007RM-6.1.3
Current and projected volumes should be considered together with the nature of the derivatives activity and the users' expectations. Consistent with other systems plans, a written contingency plan for derivative products should be in place.
Adopted: July 2007RM-6.1.4
Investment firm licensees must ensure that a mechanism exists whereby derivatives contract documentation is confirmed, maintained and safeguarded.Adopted: July 2007RM-6.1.5
Investment firm licensees should establish a process through which documentation exceptions are monitored and resolved and appropriately reviewed by senior management and legal counsel.Adopted: July 2007RM-6.1.6
The
licensee should also have approved policies that specify documentation requirements for derivatives activities and formal procedures for saving and safeguarding important documents that are consistent with legal requirements and internal policies.Adopted: July 2007RM-6.1.7
Investment firm licensees must have adequate systems support and operational capacity to accommodate the types of derivatives activities in which it engages.Adopted: July 2007RM-6.1.8
Systems design and needs may vary according to the size and complexity of the derivatives business. However, each system should provide for accurate and timely processing and allow for proper risk exposure monitoring. Operational systems should be tailored to each
licensee's needs. Limited end-users of derivatives may not require the same degree of automation needed by more active trading institutions. All operational systems and units should adequately provide for basic processing, settlement and control of derivatives transactions.Adopted: July 2007RM-6.1.9
For the purposes of RM-6.1.7, the systems should consider:
(a) The firm's ability to efficiently process and settle the volumes of transactions;(b) The firm's ability to monitor and predict margin calls and settlement calls;(c) Availability of data sets including statistical factors particularly in respect of derivatives (betas, gammas etc.);(d) Processes to ensure that the data sets used are current and subject to validation processes to provide support for the complexity of the transaction booked;(e) The integrity of the valuation models used for derivative transactions — theinvestment firm licensee should have appropriate policies and processes ensuring accuracy and completeness of the related data flows including the data sets mentioned above, stress testing, backtesting for ensuring; and(f) Support systems and the systems developed to interface with the core applications or databases should generate accurate information sufficient and to allow business unit management and senior management to monitor risk exposures in a timely manner.Adopted: July 2007RM-6.1.10
The more sophisticated the
licensee's activity, the more need there is to establish automated systems to accommodate the complexity and volume of the deals transacted, to report position data accurately and to facilitate efficient reconciliation.Adopted: July 2007Chapter RM-7 Chapter RM-7 Outsourcing Requirements
RM-7.1 RM-7.1 Outsourcing Arrangements
RM-7.1.1
This Chapter sets out the CBB’s approach to outsourcing by licensees. It also sets out various requirements that licensees must address when considering outsourcing an activity or function.
Amended: July 2022
Adopted: July 2007RM-7.1.2
In the context of this Chapter, ‘outsourcing’ means an arrangement whereby a third party performs on behalf of a licensee an activity which commonly would have been performed internally by the licensee. Examples of services that are typically outsourced include data processing, cloud services, customer call centres and back-office related activities
Amended: July 2022
Amended: October 2017
Adopted: July 2007RM-7.1.3
In the case of branches of foreign entities, the CBB may consider a third-party outsourcing arrangement entered into by the licensee’s head office/regional office or other offices of the foreign entity as an intragroup outsourcing, provided that the head office/regional office submits to the CBB a letter of comfort which includes, but is not limited to, the following conditions:
i. The head office/regional office declares its ultimate responsibility of ensuring that adequate control measures are in place; andii. The head office/regional office is responsible to take adequate rectification measures, including compensation to the affected customers, in cases where customers suffer any loss due to inadequate controls applied by the third-party service provider.Amended: July 2022
Adopted: July 2007RM-7.1.4
The
licensee must not outsource the following functions:(i) Compliance;(ii) AML/CFT;(iii) Financial control;(iv) Risk management; and(v) Business line functions offering regulated services directly to the customers (refer to Regulation No. (1) of 2007 and its amendments for the list of CBB regulated services).Amended: July 2022
Adopted: July 2007RM-7.1.5
For the purposes of Paragraph RM-7.1.4, certain support activities, processes and systems under these functions may be outsourced (e.g. call centres, data processing, credit recoveries, cyber security, e-KYC solutions) subject to compliance with Paragraph RM-7.1.7. However, strategic decision-making and managing and bearing the principal risks related to these functions must remain with the
licensee .Amended: July 2022
Adopted: July 2007RM-7.1.6
Branches of foreign entities may be allowed to outsource to their head office, the risk management function stipulated in Subparagraph RM-7.1.4 (iv), subject to CBB’s prior approval.
Amended: July 2022
Amended: October 2017
Amended: July 2008
Adopted: July 2007RM-7.1.7
Licensees must comply with the following requirements:(i) Prior CBB approval is required on any outsourcing to a third-party outside Bahrain (excluding cloud data services). The request application must:a. include information on the legal and technical due diligence, risk assessment and detailed compliance assessment; andb. be made at least 30 calendar days before the licensee intends to commit to the arrangement.(ii) Post notification to the CBB, within 5 working days from the date of signing the outsourcing agreement, is required on any outsourcing to an intragroup entity within or outside Bahrain or to a third-party within Bahrain, provided that the outsourced service does not require a license, or to a third-party cloud data services provider inside or outside Bahrain.(iii)Licensees must have in place sufficient written requirements in their internal policies and procedures addressing all strategic, operational, logistical, business continuity and contingency planning, legal and risks issues in relation to outsourcing.(iv)Licensees must sign a service level agreement (SLA) or equivalent with every outsourcing service provider. The SLA must clearly address the scope, rights, confidentiality and encryption requirements, reporting and allocation of responsibilities. The SLA must also stipulate that the CBB, external auditors, internal audit function, compliance function and where relevant the Shari’a coordination and implementation and internal Shari’a audit functions of thelicensee have unrestricted access to all relevant information and documents maintained by the outsourcing service provider in relation to the outsourced activity.(v)Licensees must designate an approved person to act as coordinator for monitoring and assessing the outsourced arrangement to ensure compliance with the licensee’s internal policies and applicable laws and regulations.(vi)Licensee must submit to the CBB any report by any other regulatory authority on the quality of controls of an outsourcing service provider immediately after its receipt or after coming to know about it.(vii)Licensee must inform its normal supervisory point of contact at the CBB of any material problems encountered with the outsourcing service provider if they remain unresolved for a period of three months from its identification date.(viii) Where the internal audit function is fully or partially outsourced,licensees must ensure that:i. The use of external experts does not compromise the independence and objectivity of the internal audit function;ii. The outsourcing service provider has not been previously engaged in a consulting or external audit engagement with thelicensee unless a one year “cooling-off” period has elapsed;iii. The outsourcing service provider must not provide consulting services to thelicensee during the engagement period; andiv. Adequate oversight is maintained over the outsourcing service provider to ensure that it complies with thelicensee’s internal audit charter, policy and applicable laws and regulations.Amended: July 2023
Amended: July 2022
Adopted: July 2010RM-7.1.8
For the purpose of Subparagraph RM-7.1.7 (iv),
licensees as part of their assessments may use the following:a) Independent third-party certifications on the outsourcing service provider’s security and other controls;b) Third-party or internal audit reports of the outsourcing service provider; andc) Pooled audits organized by the outsourcing service provider, jointly with its other clients.When conducting on-site examinations,
licensees should ensure that the data of the outsourcing service provider’s other clients is not negatively impacted, including impact on service levels, availability of data and confidentiality.Amended: July 2022
Amended: July 2010
Amended: July 2008
Adopted: July 2007RM-7.1.9
For the purpose of Subparagraph RM-7.1.7 (i), the CBB will provide a definitive response to any prior approval request for outsourcing within 10 working days of receiving the request complete with all the required information and documents.
Amended: July 2022
Amended: October 2017
Amended: January 2016
Amended: July 2013
Amended: July 2010
Adopted: July 2007RM-7.2 [This Section was deleted in July 2022]
RM-7.3 [This Section was deleted in July 2022]
RM-7.4 [This Section was deleted in July 2022]
Chapter RM-8 Chapter RM-8 Group Risk
RM-8.1 RM-8.1 Group Risk
RM-8.1.1
Section RM-8.1 applies only to
Bahraini investment firm licensees .Adopted: July 2007RM-8.1.2
Investment firm licensees must identify, manage and control risks to their activities arising from the activities and financial position of other members of their group.Adopted: July 2007RM-8.1.3
The CBB may impose additional restrictions on the
licensee should it have reason to believe that other members of the group pose undue risk to thelicensee . These restrictions, for instance, may try to limit the risk of financial contagion, by restricting financial transactions between thelicensee and group members.Adopted: July 2007RM-8.1.4
For the purposes of Section RM-8.1, the term 'group' refers to a person or firm who is:
(a) The parent of thelicensee ;(b) A subsidiary of thelicensee (including subsidiaries of subsidiaries); or(c) A subsidiary of thelicensee's parent.Adopted: July 2007RM-8.1.5
The Board is required to request sufficient information of its group members to allow it to address group risks.
Adopted: July 2007Systems and Controls
RM-8.1.6
The
investment firm licensee must have adequate, sound and appropriate risk management processes and internal control mechanisms for the purpose of assessing and managing its own exposure to group risk, including sound administrative and accounting procedures.Adopted: July 2007RM-8.1.7
For the purposes of RM-8.1.6, the question of whether the risk management processes and internal control mechanisms are adequate, sound and appropriate should be judged in the light of the nature, scale and complexity of the group's business and the level of interaction between the
investment firm and the group.Adopted: July 2007RM-8.1.8
Where a
licensee is part of a larger financial services group, it may rely on the systems and controls that the group (or its parent company) has put in place. The Board in these circumstances should establish what systems and controls are in place and should ensure that it is provided with sufficient and timely information on the financial position of the group. This should be evidenced in the prudential records retained in Bahrain.Adopted: July 2007RM-8.1.9
The internal control mechanisms referred to in RM-8.1.6 must include:
(a) Mechanisms that are adequate for the purpose of producing any data and information which would be relevant for the purpose of monitoring compliance with any prudential requirements (including any reporting requirements and any requirements relating to capital adequacy, solvency and large exposures):(i) To which theinvestment firm licensee is subject with respect to its membership of a group; or(ii) That apply to or with respect to that group or part of it; and(b) Mechanisms that are adequate to monitor funding within the group.Adopted: July 2007RM-8.1.10
In assessing group risk systems and controls, the
investment firm licensee must give consideration to:(a) The likely impact of activities of the group on the compliance of thelicensee with CBB requirements;(b) The effectiveness of the linkages between group and central functions and thelicensee ;(c) Potential conflicts of interest and methods of minimising them; and(d) The risk of adverse events of other group entities on thelicensee , in particular due to financial weakness, crime or fraudulent behaviour.Adopted: July 2007RM-8.1.11
A
licensee should not be subject to material influence by other entities of the group through informal or undocumented channels. The overall governance, high-level controls and reporting lines within the group should be clearly documented.Adopted: July 2007Reporting Requirement
RM-8.1.12
Where the
investment firm licensee's group or parent reports its own capital adequacy position to its regulatory authority (on a group or 'solo' basis), a copy of this calculation must be provided to the CBB within 30 calendar days from the due date to the other regulatory authority.Adopted: July 2007Chapter RM-9 Chapter RM-9 Cyber Security Risk Management
RM-9.1 RM-9.1 Cyber Security Risk Management
Role of the Board and Senior Management
RM-9.1.1
The Board of
investment firm licensees must ensure that thelicensee has a robust cyber security risk management framework to comprehensively manage thelicensee ’s cyber security risk and vulnerabilities. The Board must establish clear ownership, decision-making and management accountability for risks associated with cyber-attacks and related risk management and recovery processes.Amended: January 2022
Added: April 2019RM-9.1.2
Licensees must ensure that the cyber security risk management framework encompasses, at a minimum, the following components:a) Cyber security strategy;b) Cyber security policy; andc) Cyber security risk management approach, tools and methodology and, an organization-wide security awareness program.Amended: January 2022
Added: April 2019RM-9.1.3
The cyber security risk management framework must be developed in accordance with the National Institute of Standards and Technology (NIST) Cyber security framework which is summarized in Appendix A – Cyber security Control Guidelines. At the broader level, the Cyber security framework should be consistent with the
licensee ’s risk management framework.Amended: January 2022
Added: April 2019RM-9.1.4
Senior management, and where appropriate, the board should receive comprehensive reports covering cyber security issues such as the following:
a. Key Risk Indicators/ Key Performance Indicators;b. Status reports on overall cyber security control maturity levels;c. Status of staff Information Security awareness;d. Updates on latest internal or relevant external cyber security incidents; ande. Results from penetration testing exercises.Amended: January 2022
Added: April 2019RM-9.1.5
The Board must ensure that the cyber security risk management framework is evaluated for scope of coverage, adequacy and effectiveness every three years or when there are significant changes to the risk environment, taking into account emerging cyber threats and cyber security controls.
Amended: January 2022
Added: April 2019RM-9.1.6
Licensees must have in place arrangements, commensurate with their size and risk profile, to handle cyber security risk management responsibilities.Licensees may assign the responsibilities to a qualified Chief Information Security Officer (CISO) reporting to an independent risk management function or incorporate the responsibilities of cyber security risk into the risk management function.Overseas investment firm licensees must be governed under a framework of cyber security risk management policies which ensure that an adequate level of oversight is exercised by the regional office or head office.Amended: January 2022
Added: April 2019RM-9.1.7
Licensees should ensure that appropriate resources are allocated to the cyber security risk management function for implementing the cyber security framework.Amended: January 2022
Added: April 2019RM-9.1.8
Licensees must ensure that the cyber security risk management function is headed by suitably qualified Chief Information Security Officer (CISO), with appropriate authority to implement the Cyber Security strategy.Amended: January 2022
Added: April 2019RM-9.1.9
Licensees may establish a cyber security committee that is headed by an independent senior manager from a control function (like CFO / CRO), with appropriate authority to approve policies and frameworks needed to implement the cyber security strategy, and act as a governance committee for the cyber security function. Membership of this committee should include senior management members from business functions, IT, Risk and Compliance.Amended: January 2022
Added: April 2019RM-9.1.10
The
senior management must be responsible for the following activities:(a) Create the overall cyber security risk management framework and adequately oversee its implementation;(b) Formulate an organisation-wide cyber security strategy and cyber security policy;(c) Implement and consistently maintain an integrated, organisation-wide, cyber security risk management framework, and ensure sufficient resource allocation;(d) Monitor the effectiveness of the implementation of cyber security risk management practices and coordinate cyber security activities with internal and external risk management entities;(e) Ensure that internal management reporting caters to cyber threats and cyber security risk treatment;(f) Prepare quarterly or more frequent reports on all cyber incidents (internal and external) and their implications on thelicensee ; and(g) Ensure that processes for identifying the cyber security risk levels across thelicensee are in place and annually evaluated.Amended: January 2022
Added: April 2019RM-9.1.11
The
senior management must ensure that:(a) Thelicensee has identified clear internal ownership and classification for all information assets and data;(b) Thelicensee has maintained an inventory of the information assets and data which is reviewed and updated regularly;(c) The cyber security staff are adequate to manage thelicensee ’s cyber security risks and facilitate the performance and continuous improvement of all relevant cyber security controls;(d) It provides and requires cyber security staff to attend regular cyber security update and training sessions (for example Security+, CEH, CISSP, CISA, CISM, CCSP) to stay abreast of changing cyber security threats and countermeasures.Amended: January 2022
Added: April 2019RM-9.1.12
With respect to Subparagraph RM-9.1.11(a), data classification entails analyzing the data the
licensee retains, determining its importance and value, and then assigning it to a category. When classifying data, the following aspects of the policy should be determined:a) Who has access to the data;b) How the data is secured;c) How long the data is retained (this includes backups);d) What method should be used to dispose of the data;e) Whether the data needs to be encrypted; andf) What use of the data is appropriate.The general guideline for data classification is that the definition of the classification should be clear enough so that it is easy to determine how to classify the data. In other words, there should be little (if any) overlap in the classification definitions. The owner of data (i.e. the relevant business function) should be involved in such classification.
Amended: January 2022
Added: April 2019Cyber Security Strategy
RM-9.1.13
An organisation-wide cyber security strategy must be defined and documented to include:
(a) The position and importance of cyber security at thelicensee ;(b) The primary cyber security threats and challenges facing thelicensee ;(c) Thelicensee ’s approach to cyber security risk management;(d) The key elements of the cyber security strategy including objectives, principles of operation and implementation approach;(e) Scope of risk identification and assessment, which must include the dependencies on third party service providers;(f) Approach to planning response and recovery activities; and(g) Approach to communication with internal and external stakeholders including sharing of information on identified threats and other intelligence among industry participants.Amended: January 2022
Added: April 2019RM-9.1.14
The cyber security strategy should be communicated to the relevant stakeholders and it should be revised as necessary and, at least, once every three years. Appendix A provides cyber security control guidelines that can be used as reference to support the
licensee ’s cyber security strategy and cyber security policy.Amended: January 2022
Added: April 2019Cyber Security Policy
RM-9.1.15
Licensees must implement a written cyber security policy setting forth its policies for the protection of its electronic systems and client data stored on those systems, which must be reviewed and approved by thelicensee’s senior management, as appropriate, at least annually. The cyber security policy areas including but not limited to the following must be addressed:(a) Definition of the key cyber security activities within thelicensee , the roles, responsibilities, delegated powers and accountability for these activities;(b) A statement of thelicensee ’s overall cyber risk tolerance as aligned with thelicensee ’s business strategy. The cyber risk tolerance statement should be developed through consideration of the various impacts of cyber threats including customer impact, service downtime, potential negative media publicity, potential regulatory penalties, financial loss, and others;(c) Definition of main cyber security processes and measures and the approach to control and assessment;(d) Policies and procedures (including process flow diagrams) for all relevant cyber security functions and controls including the following:(a) Asset management (Hardware and software);(b) Incident management (Detection and response);(c) Vulnerability management;(d) Configuration management;(e) Access management;(f) Third party management;(g) Secure application development;(h) Secure change management;(i) Cyber training and awareness;(j) Cyber resilience (business continuity and disaster planning); and(k) Secure network architecture.Amended: January 2022
Added: April 2019RM-9.1.16
Licensees must ensure that the cyber security policy is effectively implemented through a consistent risk-based approach using tools and methodologies that are commensurate with the size and risk profile of thelicensee . The approach, tools and methodologies must cover all cyber security functions and controls defined in the cyber security policy.Amended: January 2022
Added: April 2019Approach, Tools and Methodology
RM-9.1.17
Licensees should establish and maintain plans, policies, procedures, process and tools (“playbooks”) that provide well-defined, organised approaches for cyber incident response and recovery activities, including criteria for activating the measures set out in the plans and playbooks to expedite thelicensee’s response time. Plans and playbooks should be developed in consultation with business lines to ensure business recovery objectives are met and are approved by senior management before broadly shared across thelicensee . They should be reviewed and updated regularly to incorporate improvements and/or changes in thelicensee .Licensees may enlist external subject matter experts to review complex and technical content in the playbook, where appropriate. A number of plans and playbooks should be developed for specific purposes (e.g. response, recovery, contingency, communication) that align with the overall cyber security strategy.Amended: January 2022
Added: April 2019Prevention Controls
RM-9.1.18 RM-9.1.18
A
Licensee must develop and implement preventive measures across all relevant technologies to minimise thelicensee ’s exposure to cyber security risk. Such preventive measures must include, at a minimum, the following:(a) Deployment of End Point Protection (EPP) and Endpoint Detection and Response (EDR) including anti-virus software and anti-malware programs to detect, prevent, and isolate malicious code;(b) Use of firewalls for network segmentation including use of Web Application Firewalls (WAF) where relevant, for filtering and monitoring HTTP traffic between a web application and the Internet, and access control lists to limit unauthorized system access between network segments;(c) Rigorous security testing at software development stage as well as after deployment to limit the number of vulnerabilities;(d) Use of a secure email gateway to limit email based cyber attacks such as malware attachments, malicious links, and phishing scams (for example use of Microsoft Office 365 Advanced Threat Protection tools for emails);(e) Use of a Secure Web Gateway to limit browser based cyber-attacks, malicious websites and enforce organization policies;(f) Creating a list of whitelisted applications and application components (libraries, configuration files, etc.) that are authorized to be present or active on the organization’s systems; and(g) Implementing Bring Your Own Device “BYOD” security policies to secure all mobile devices with any access tolicensee systems, applications, and networks through security measures such as encryption, remote wipe capabilities, and password enforcement.Amended: January 2022
Added: April 2019RM-9.1.19
Licensees should also implement the following prevention controls in the following areas:(a) Data leakage prevention to detect and prevent confidential data from leaving the licensee’s technology environment;(b) Controls or solutions to secure, control, manage and monitor privileged access to critical assets, (e.g. Privileged Access Management (PAM);(c) Controls to secure physical network ports against connection to computers which are unauthorised to connect to thelicensee’s network or which do not meet the minimum-security requirements defined forlicensee computer systems (e.g. Network access control); and(d) Identity and access management controls to limit the exploitation and monitor the use of privileged and non-privileged accounts.Added: January 2022RM-9.1.20
Licensees must set up anti-spam and anti-spoofing measures to authenticate thelicensee ’s mail server and to prove to ISPs, mail services and other receiving mail servers that senders are truly authorized to send the email. Examples of such measures include:• SPF “Sender Policy Framework”;• DKIM “Domain Keys Identified Mail”; and• DMARC “Domain-based Message Authentication, Reporting and Conformance”.Added: January 2022RM-9.1.21
Licensees should subscribe to one of the Cyber Threat Intelligence services in order to stay abreast of emerging cyber threats, cybercrime actors and state of the art tools and security measures.Added: January 2022RM-9.1.22
Licensees must use a single unified private email domain or its subdomains for communication with customers to prevent abuse by third parties.Licensees must not utilise third-party email provider domains for communication with customers. The email domains must comply with the requirements with respect to SPF, DKIM and DMARC in this Module. With respect to URLs or other clickable links in communications with customers,licensees must comply with the following requirements:(a) Limit the use of links in SMS and other short messages (such as WhatsApp) to messages sent as a result of customer request or action. Examples of such customer actions include verification links for customer onboarding, payment links for customer-initiated transactions etc;(b) Refrain from using shortened links in communication with customers;(c) Implement one or more of the following measures for links sent to customers:i. ensure customers receive clear instructions in communications sent with the links;ii. prior notification to the customer such as through a phone call informing the customer to expect a link from thelicensee ;iii. provision of transaction details such as the transaction amount and merchant name in the message sent to the customer with the link;iv. use of other verification measures like password or biometric authentication; and(d) Create customer awareness campaigns to educate their customers on the risk of fraud related to links they receive in SMS, short messages and emails with clear instructions to customers thatlicensees will not send clickable links in SMS, emails and other short messages to request information or payments unless it is as a result of customer request or action.Amended: October 2022
Added: January 2022RM-9.1.22A
For the purpose of Paragraph RM-9.1.22, subject to CBB’s approval,
licensees may be allowed to use additional domains for email communications with customers under certain circumstances. Examples of such circumstances include emails sent to customers by:(a) Head/regional office of alicensee ; and(b) Third-party service providers subject to prior arrangements being made with customers. Examples of such third-party services include informational subscription services (e.g. Bloomberg) and document management services (e.g. DocuSign).Added: October 2022Cyber Risk Identification and Assessments
RM-9.1.23
Licensees must conduct periodic assessments of cyber threats. For the purpose of analysing and assessing current cyber threats relevant to thelicensee , it should take into account the factors detailed below:(a) Cyber threat entities including cyber criminals, cyber activists, insider threats;(b) Methodologies and attack vectors across various technologies including cloud, email, websites, third parties, physical access, or others as relevant;(c) Changes in the frequency, variety, and severity of cyber threats relevant to the region;(d) Dark web surveillance to identify any plot for cyber attacks;(e) Examples of cyber threats from past cyber attacks on thelicensee if available; and(f) Examples of cyber threats from recent cyber attacks on other organisations.Added: January 2022RM-9.1.24
Licensees must conduct periodic assessments of the maturity, coverage, and effectiveness of all cyber security controls. Cyber security control assessment must include an analysis of the controls’ effectiveness in reducing the likelihood and probability of a successful attack.Added: January 2022RM-9.1.25
Licensees should ensure that the periodic assessments of cyber threats and cyber security controls cover all critical technology systems. A risk treatment plan should be developed for all residual risks which are considered to be above thelicensee ’s risk tolerance levels.Added: January 2022RM-9.1.26
Licensees must conduct regular technical assessments to identify potential security vulnerabilities for systems, applications, and network devices. The vulnerability assessments must be comprehensive and cover internal technology, external technology, and connections with third parties. Assessments for external public facing services and systems must be more frequent.Added: January 2022RM-9.1.27
With respect to Paragraph RM-9.1.26, external technology refers to the
licensee ’s public facing technology such as websites, apps and external servers. Connections with third parties includes any API or other connections with fintech companies, technology providers, outsourcing service providers etc.Added: January 2022RM-9.1.28
Licensees must have in place vulnerability and patch management processes which include remediation processes to ensure that the vulnerabilities identified are addressed and that security patches are applied where relevant within a timeframe that is commensurate with the risks posed by each vulnerability.Added: January 2022RM-9.1.29
All
licensees must perform penetration testing of their systems, applications, and network devices to verify the robustness of the security controls in place at least once a year. These tests must be used to simulate real world cyber-attacks on the technology environment and must:(a) Follow a risk-based approach based on an internationally recognized methodology, such as National Institute of Standards and Technology “NIST” and Open Web Application Security Project “OWASP”;(b) Include both Grey Box and Black Box testing in its scope;(c) Be conducted by qualified and experienced security professionals who are certified in providing penetration testing services;(d) Be performed by internal and external independent third parties which should be changed at least every two years; and(e) Be performed on either the production environment or on non-production exact replicas of the production environment.Added: January 2022RM-9.1.30
CBB may require additional third-party security reviews to be performed as needed.
Added: January 2022RM-9.1.31
The tests referred to in Paragraph RM-9.1.29 must be conducted each year in June and the report on such testing must be submitted to the CBB before 30th September. The penetration testing reports must include the vulnerabilities identified and a full list of ‘passed’ tests and ‘failed’ tests together with the steps taken to mitigate the risks identified.
Added: January 2022Cyber Incident Detection and Management
RM-9.1.32
Licensees must implement cyber security incident management processes to ensure timely detection, response and recovery for cyber security incidents. This includes implementing a monitoring system for log correlation and anomaly detection.Added: January 2022RM-9.1.33
Licensees should receive data on a real time basis from all relevant systems, applications, and network devices including operational and business systems. The monitoring system should be capable of identifying indicators of cyber incidents and initiate alerts, reports, and response activities based on the defined cyber security incident management process.Added: January 2022RM-9.1.34
Licensees should retain the logs and other information from the monitoring system for detecting cyber incidents, including "low-and-slow" attacks, in order to facilitate incident investigations, for 12 months or longer.Added: January 2022RM-9.1.35
Once a cyber incident is detected,
licensees should activate their containment measures, processes and technologies best suited to each type of cyber incident to prevent a cyber incident from inflicting further damage. This may involve, after considering the costs, business impact and operational risks, shutting down or isolating all or affected parts of their systems and networks as deemed necessary for containment and diagnosis.Added: January 2022RM-9.1.36
Licensees must define roles and responsibilities and assign adequate resources to detect, identify, investigate and respond to cyber incidents that could impact the licensee’s infrastructure, services and customers. Such responsibilities must include log correlation, anomaly detection and maintaining thelicensee ’s asset inventory and network diagrams.Added: January 2022RM-9.1.37
Licensees must regularly identify, test, review and update current cyber security risk scenarios and the corresponding response plan. This is to ensure that the scenarios and response plan remain relevant and effective, taking into account changes in the operating environment, systems or the emergence of new cyber security threats. If any gaps are identified, the monitoring system must be updated with new use cases and rule sets which are capable of detecting the current cyber incident scenarios.Added: January 2022RM-9.1.38
The cyber incident scenario tests should include high-impact-low-probability events and scenarios that may result in failure. Common cyber incident scenarios include distributed denial of service (DDoS) attacks, system intrusion, data exfiltration and system disruption.
Licensees should regularly use threat intelligence to update the scenarios so that they remain current and relevant.Licensees should periodically review current cyber incident scenarios for the purpose of assessing the licensee’s ability to detect and respond to these scenarios if they were to occur.Added: January 2022RM-9.1.39
Licensees must ensure that critical cyber security incidents detected are escalated to an incident response team, management and the Board, in accordance with thelicensee ’s business continuity plan and crisis management plan, and that an appropriate response is implemented promptly. See also Paragraph RM-9.1.58 for the requirement to report to CBB.Added: January 2022RM-9.1.40
Licensees should clearly define the roles, responsibilities and accountabilities for cyber incident detection and response activities to one or more named individuals that meet the pre-requisite role requirements. Potential conflicts of interest are minimised by ensuring a separation of implementation and oversight roles where possible. The roles should include:• Incident Owner: An individual that is responsible for handling the overall cyber incident detection and response activities according to the incident type and services affected. The Incident Owner is delegated appropriate authority to manage the mitigation or preferably, removal of all impacts due to the incident.• Spokesperson: An individual, from External Communications Unit or another suitable department, that is responsible for managing the communications strategy by consolidating relevant information and views from subject matter experts and thelicensee’s management to update the internal and external stakeholders with consistent information.• Record Keeper: An individual that is responsible for maintaining an accurate record of the cyber incident throughout its different phases, as well as documenting actions and decisions taken during and after a cyber incident. The record serves as an accurate source of reference for after-action reviews to improve future cyber incident detection and response activities.Added: January 2022RM-9.1.41
For the purpose of managing a critical cyber incident, the licensee should operate a situation room, and should include in the incident management procedure a definition of the authorities and responsibilities of staff members, internal and external reporting lines, communication channels, tools and detailed working procedures. The situation room or a war room is a physical room or a virtual room where relevant members of the management gather to handle a crisis in the most efficient manner possible.
Added: January 2022RM-9.1.42
Licensees should record and document in an orderly manner the incidents that have been handled and the actions that were taken by the relevant functions. In particular, thelicensee should maintain an "incident log" in which all the notifications, decisions and actions taken, in relation to cyber incidents, are documented, as close as possible to the time of their occurrence. It should also include the status of the issue whether it is open or has been resolved and person in charge of resolving the issue/incident. The logs should be stored and preserved in a secure and legally admissible manner.Added: January 2022RM-9.1.43
Licensees should utilise pre-defined taxonomy for classifying cyber incidents according to, for example, the type of incident, threat actors, threat vectors and repercussions; and a pre-established severity assessment framework to help gauge the severity of the cyber incident. For example, taxonomies that can be used when describing cyber incidents:(a) Describe the cause of the cyber incident (e.g. process failure, system failure, human error, external event, malicious action)(b) Describe whether the cyber incident due to a third-party service provider(c) Describe the attack vector (e.g. malware, virus, worm, malicious hyperlink)(d) Describe the delivery channel used (e.g. e-mail, web browser, removable storage media)(e) Describe the impact (e.g. service degradation/disruption, service downtime, potential impact to customers, data leakage, unavailability of data, data destruction/corruption, tarnishing of reputation)(f) Describe the type of incident (e.g. zero-day attack, exploiting a known vulnerability, isolated incident)(g) Describe the intent (e.g. malicious, theft, monetary gain, fraud, political, espionage, opportunistic)(h) Describe the threat actor (e.g. script kiddies, amateur, criminal syndicate, hacktivist, nation state)The cyber incident severity may be classified as:
(a) Severity 1 incident has or will cause a serious disruption or degradation of critical service(s) and there is potentially high impact on public confidence in thelicensee .(b) Severity 2 incident has or will cause some degradation of critical services and there is medium impact on public confidence in thelicensee .(c) Severity 3 incident has little or no impact to critical services and there is no visible impact on public confidence in thelicensee .Added: January 2022RM-9.1.44
Licensees should determine the effects of the cyber incident on customers and to the wider financial system as a whole and report the results of such an assessment to CBB if it is determined that the cyber incident may have a systemic impact.Added: January 2022RM-9.1.45
Licensees should establish metrics to measure the impact of a cyber incident and to report to management the performance of response activities. Examples include:1. Metrics to measure impact of a cyber incident(a) Duration of unavailability of critical functions and services(b) Number of stolen records or affected accounts(c) Volume of customers impacted(d) Amount of lost revenue due to business downtime, including both existing and future business opportunities(e) Percentage of service level agreements breached2. Performance metrics for incident management(a) Volume of incidents detected and responded via automation(b) Dwell time (i.e. the duration a threat actor has undetected access until completely removed)(c) Recovery Point objectives (RPO) and recovery time objectives (RTO) satisfiedAdded: January 2022Recovery
RM-9.1.46
Licensees must identify the critical systems and services within its operating environment that must be recovered on a priority basis in order to provide certain minimum level of services during the downtime and determine how much time thelicensee will require to return to full service and operations.Added: January 2022RM-9.1.47
Critical incidents are defined as incidents that trigger the BCP and the crisis management plan. Critical systems and services are those whose failure can have material impact on any of the following elements:
a) Financial situation;b) Reputation;c) Regulatory, legal and contractual obligations; andd) Operational aspects and delivery of key products and services.Added: January 2022RM-9.1.48
Licensees must define a program for recovery activities for timely restoration of any capabilities or services that were impaired due to a cyber security incident.Licensees must establish recovery time objectives (“RTOs”), i.e. the time in which the intended process is to be covered, and recovery point objectives (“RPOs”), i.e. point to which information used must be restored to enable the activity to operate on resumption”.Licensees must also consider the need for communication with third party service providers, customers and other relevant external stakeholders as may be necessary.Added: January 2022RM-9.1.49
Licensees must ensure that all critical systems are able to recover from a cyber security breach within thelicensee ’s defined RTO in order to provide important services or some level of minimum services for a temporary period of time.Added: January 2022RM-9.1.50
Licensees should validate that recovered assets are free of compromise, fully functional and meet the security requirements before returning the systems to normal business operations. This includes performing checks on data to ensure data integrity. In some cases,licensees may need to use backup data kept in a disaster recovery site or plan for the reconstruction of data from external stakeholders such as business partners and customers.Added: January 2022RM-9.1.51
Licensees must define a program for exercising the various response mechanisms, taking into account the various types of exercises such as attack simulations, "war games" and "table top" exercises, and with reference to the relevant stakeholders such as technical staff, crisis management team, decision-makers and spokespersons.Added: January 2022RM-9.1.52
Licensees must define the mechanisms for ensuring accurate, timely and actionable communication of cyber incident response and recovery activities with the internal stakeholders, including to the board or designated committee of the board.Added: January 2022RM-9.1.53
Licensee must ensure its business continuity plan is comprehensive and includes a recovery plan for its systems, operations and services arising from a cyber security incident.Added: January 2022Cyber Security Insurance
RM-9.1.54
Licensees must arrange to seek cyber risk insurance cover from a suitable insurer, following a risk-based assessment of cyber security risk is undertaken by the respectivelicensee and independently verified by the insurance company. The insurance policy may include some or all of the following types of coverage, depending on the risk assessment outcomes:(a) Crisis management expenses, such as costs of notifying affected parties, costs of forensic investigation, costs incurred to determine the existence or cause of a breach, regulatory compliance costs, costs to analyse the insured’s legal response obligations;(b) Claim expenses such as costs of defending lawsuits, judgments and settlements, and costs of responding to regulatory investigations; and(c) Policy also provides coverage for a variety of torts, including invasion of privacy or copyright infringement. First-party coverages may include lost revenue due to interruption of data systems resulting from a cyber or denial of service attack and other costs associated with the loss of data collected by the insured.Added: January 2022Training and Awareness
RM-9.1.55
Licensees must evaluate improvement in the level of awareness and preparedness to deal with cyber security risk to ensure the effectiveness of the training programmes implemented.Added: January 2022RM-9.1.56
The
licensee must ensure that all employees receive adequate training on a regular basis, in relation to cyber security and the threats they could encounter, such as through testing employee reactions to simulated cyber-attack scenarios. All relevant employees must be informed on the current cyber security breaches and threats. Additional training should be provided to ‘higher risk staff’.Added: January 2022RM-9.1.57
The
licensees must ensure that role specific cyber security training is provided on a regular basis to relevant staff including:(a) Executive board and senior management;(b) Cyber security roles;(c) IT staff; and(d) Any high-risk staff as determined by thelicensee .Added: January 2022Reporting to CBB
RM-9.1.58
Upon occurrence or detection of any cyber security incident, whether internal or external, that compromises customer information or disrupts critical services that affect operations,
licensees must contact the CBB, immediately (within one hour), on 17547477 and submit Section A of the Cyber Security Incident Report (Appendix RM-1) to CBB’s cyber incident reporting email, incident.investment@cbb.gov.bh, within two hours.Amended: April 2022
Added: January 2022RM-9.1.59
Following the submission referred to in Paragraph RM-9.1.58, the
licensee must submit to CBB Section B of the Cyber Security Incident Report (Appendix RM-1) within 10 calendar days of the occurrence of the cyber security incident.Licensees must include all relevant details in the report, including the full root cause analysis of the cyber security incident, its impact on the business operations and customers, and all measures taken by the licensee to stop the attack, mitigate its impact and to ensure that similar events do not recur. In addition, a weekly progress update must be submitted to CBB until the incident is fully resolved.Amended: April 2022
Added: January 2022RM-9.1.60
With regards to the submission requirement mentioned in Paragraph RM-9.1.58, the licensee should submit the report with as much information as possible even if all the details have not been obtained yet.
Added: January 2022RM-9.1.61
The penetration testing report as per Paragraph RM-9.1.29, along with the steps taken to mitigate the risks must be maintained by the
licensee for a five-year period from the date of the report.Added: January 2022Appendix A – Cyber Security Control Guidelines
The Control Guidelines consists of five Core tasks which are defined below. These Functions are not intended to form a serial path or lead to a static desired end state. Rather, the Functions should be performed concurrently and continuously to form an operational culture that addresses the dynamic cyber security risk.
Identify – Develop an organisation-wide understanding to manage cyber security risk to systems, people, assets, data, and capabilities. The activities in the Identify Function are foundational for effective use of the Cyber Security Risk Management Framework. Understanding the business context, the resources that support critical functions, and the related cyber security risks enables an organization to focus and prioritize its efforts, consistent with its risk management strategy and business needs.
Protect – Develop and implement appropriate safeguards to ensure delivery of critical services. The Protect Function supports the ability to limit or contain the impact of a potential cyber security incident.
Detect – Develop and implement appropriate activities to identify the occurrence of a cyber security incident. The Detect Function enables timely discovery of cyber security events.
Respond – Develop and implement appropriate activities to take action regarding a detected cyber security incident. The Respond Function supports the ability to contain the impact of a potential cyber security incident.
Recover – Develop and implement appropriate activities to maintain plans for resilience and to restore any capabilities or services that were impaired due to a cyber security incident. The Recover Function supports timely recovery to normal operations to reduce the impact from a cyber security incident.
Below is a listing of the specific cyber security activities that are common across all critical infrastructure sectors:
IDENTIFY
Asset Management: The data, personnel, devices, systems, and facilities that enable the licensee to achieve business purposes are identified and managed consistent with their relative importance to organizational objectives and the licensee’s risk strategy.
1. Physical devices and systems within the licensee are inventoried.2. Software platforms and applications within the licensee are inventoried.3. Communication and data flows are mapped.4. External information systems are catalogued.5. Resources (e.g., hardware, devices, data, time, personnel, and software) are prioritized based on their classification, criticality, and business value.6. Cyber security roles and responsibilities for the entire workforce and third-party stakeholders (e.g., suppliers, customers, partners) are established.Business Environment: The licensee’s mission, objectives, stakeholders, and activities are understood and prioritized; this information is used to inform cyber security roles, responsibilities, and risk management decisions.
1. Priorities for the licensee’s mission, objectives, and activities are established and communicated.2. Dependencies and critical functions for delivery of critical services are established.3. Resilience requirements to support delivery of critical services are established for all operating states (e.g. under duress/attack, during recovery, normal operations).Governance: The policies, procedures, and processes to manage and monitor the licensee’s regulatory, legal, risk, environmental, and operational requirements are understood and inform the management of cyber security risk.
1. licensee’s cyber security policy is established and communicated.2. Cyber security roles and responsibilities are coordinated and aligned with internal roles and external partners.3. Legal and regulatory requirements regarding cyber security, including privacy and civil liberties obligations, are understood and managed.4. Governance and risk management processes address cyber security risks.Risk Assessment: The licensee understands the cyber security risk to licensee’s operations (including mission, functions, image, or reputation), licensee’s assets, and individuals.
1. Asset vulnerabilities are identified and documented.2. Cyber threat intelligence is received from information sharing forums and sources.3. Threats, both internal and external, are identified and documented.4. Potential business impacts and likelihoods are identified.5. Threats, vulnerabilities, likelihoods, and impacts are used to determine risk.6. Risk responses are identified and prioritized.Risk Management Strategy: The licensee’s priorities, constraints, risk tolerances, and assumptions are established and used to support operational risk decisions.
1. Risk management processes are established, managed, and agreed to by licensee’s stakeholders.2. The licensee’s risk tolerance is determined and clearly expressed.3. The licensee’s determination of risk tolerance is informed by its role in critical infrastructure and sector specific risk analysis.Third Party Risk Management: The licensee’s priorities, constraints, risk tolerances, and assumptions are established and used to support risk decisions associated with managing third party risk. The licensee has established and implemented the processes to identify, assess and manage supply chain risks.
1. Cyber third-party risk management processes are identified, established, assessed, managed, and agreed to by the licensee’s stakeholders.2. Suppliers and third-party partners of information systems, components, and services are identified, prioritized, and assessed using a cyber third-party risk assessment process.3. Contracts with suppliers and third-party partners are used to implement appropriate measures designed to meet the objectives of a licensee’s cyber security program.4. Suppliers and third-party partners are routinely assessed using audits, test results, or other forms of evaluations to confirm they are meeting their contractual obligations.5. Response and recovery planning and testing are conducted with suppliers and third-party providers.PROTECT
Identity Management, Authentication and Access Control: Access to physical and logical assets and associated facilities is limited to authorized users, processes, and devices, and is managed consistent with the assessed risk of unauthorized access to authorized activities and transactions.
1. Identities and credentials are issued, managed, verified, revoked, and audited for authorized devices, users and processes.2. Physical access to assets is managed and protected.3. Remote access is managed.4. Access permissions and authorizations are managed, incorporating the principles of least privilege and separation of duties5. Network integrity is protected (e.g., network segregation, network segmentation).6. Identities are proofed and bound to credentials and asserted in interactions7. Users, devices, and other assets are authenticated (e.g., single-factor, multi-factor) commensurate with the risk of the transaction (e.g., individuals’ security and privacy risks and other organizational risks).Awareness and Training: The licensee’s personnel and partners are provided cyber security awareness education and are trained to perform their cyber security-related duties and responsibilities consistent with related policies, procedures, and agreements.
1. All users are informed and trained on a regular basis.2. Licensee’s security awareness programs are updated at least annually to address new technologies, threats, standards, and business requirements.3. Privileged users understand their roles and responsibilities.4. Third-party stakeholders (e.g., suppliers, customers, partners) understand their roles and responsibilities.5. The Board and senior management understand their roles and responsibilities.6. Physical and cyber security personnel understand their roles and responsibilities.7. Software development personnel receive training in writing secure code for their specific development environment and responsibilities.Data Security: Information and records (data) are managed consistent with the licensee’s risk strategy to protect the confidentiality, integrity, and availability of information.
Data-at-rest classified as critical or confidential is protected through strong encryption.
1. Data-in-transit classified as critical or confidential is protected through strong encryption.2. Assets are formally managed throughout removal, transfers, and disposition3. Adequate capacity to ensure availability is maintained.4. Protections against data leaks are implemented.5. Integrity checking mechanisms are used to verify software, firmware, and information integrity.6. The development and testing environment(s) are separate from the production environment.7. Integrity checking mechanisms are used to verify hardware integrity.Information Protection Processes and Procedures: Security policies (that address purpose, scope, roles, responsibilities, management commitment, and coordination among organizational units), processes, and procedures are maintained and used to manage protection of information systems and assets.
1. A baseline configuration of information technology/industrial control systems is created and maintained incorporating security principles (e.g. concept of least functionality).2. A System Development Life Cycle to manage systems is implemented3. Configuration change control processes are in place.4. Backups of information are conducted, maintained, and tested.5. Policy and regulations regarding the physical operating environment for licensee’s assets are met.6. Data is destroyed according to policy.7. Protection processes are improved.8. Effectiveness of protection technologies is shared.9. Response plans (Incident Response and Business Continuity) and recovery plans (Incident Recovery and Disaster Recovery) are in place and managed.10. Response and recovery plans are tested.11. Cyber security is included in human resources practices (e.g., deprovisioning, personnel screening).12. A vulnerability management plan is developed and implemented.Maintenance: Maintenance and repairs of information system components are performed consistent with policies and procedures.
1. Maintenance and repair of licensee’s assets are performed and logged, with approved and controlled tools.2. Remote maintenance of licensee’s assets is approved, logged, and performed in a manner that prevents unauthorized access.Protective Technology: Technical security solutions are managed to ensure the security and resilience of systems and assets, consistent with related policies, procedures, and agreements.
1. Audit/log records are determined, documented, implemented, and reviewed in accordance with policy.2. Removable media is protected and its use restricted according to policy.3. The principle of least functionality is incorporated by configuring systems to provide only essential capabilities.4. Communications and control networks are protected.5. Mechanisms (e.g., failsafe, load balancing, hot swap) are implemented to achieve resilience requirements in normal and adverse situations.DETECT
Anomalies and Events: Anomalous activity is detected and the potential impact of events is understood.
1. A baseline of network operations and expected data flows for users and systems is established and managed.2. Detected events are analyzed to understand attack targets and methods.3. Event data are collected and correlated from multiple sources and sensors4. Impact of events is determined.5. Incident alert thresholds are established.Security Continuous Monitoring: The information system and assets are monitored to identify cyber security events and verify the effectiveness of protective measures.
1. The network is monitored to detect potential cyber security events.2. The physical environment is monitored to detect potential cyber security events3. Personnel activity is monitored to detect potential cyber security events.4. Malicious code is detected.5. Unauthorized mobile code is detected.6. External service provider activity is monitored to detect potential cyber security events.7. Monitoring for unauthorized personnel, connections, devices, and software is performed.8. Vulnerability scans are performed at least quarterly.Detection Processes: Detection processes and procedures are maintained and tested to ensure awareness of anomalous events.
1. Roles and responsibilities for detection are well defined to ensure accountability.2. Detection activities comply with all applicable requirements.3. Detection processes are tested.4. Event detection information is communicated.5. Detection processes are continuously improved.RESPOND
Response Planning: Response processes and procedures are executed and maintained, to ensure response to detected cyber security incidents. Response plan is executed during or after an incident.
Communications: Response activities are coordinated with internal and external stakeholders.
1. Personnel know their roles and order of operations when a response is needed.2. Incidents are reported consistent with established criteria.3. Information is shared consistent with response plans.4. Coordination with internal and external stakeholders occurs consistent with response plans.5. Voluntary information sharing occurs with external stakeholders to achieve broader cyber security situational awareness.6. Incident response exercises and scenarios across departments are conducted at least annually.Analysis: Analysis is conducted to ensure effective response and support recovery activities.
1. Notifications from detection systems are investigated.2. The impact of the incident is understood.3. Forensics are performed.4. Incidents are categorized consistent with response plans.5. Processes are established to receive, analyze and respond to vulnerabilities disclosed to the licensee from internal and external sources (e.g. internal testing, security bulletins, or security researchers).Mitigation: Activities are performed to prevent expansion of an event, mitigate its effects, and resolve the incident.
1. Incidents are contained.2. Incidents are mitigated.3. Newly identified vulnerabilities are mitigated or documented as accepted risks.Improvements: The response activities are improved by incorporating lessons learned from current and previous detection/response activities.
1. Response plans incorporate lessons learned.2. Response strategies are updated.RECOVER
Recovery Planning: Recovery processes and procedures are executed and maintained to ensure restoration of systems or assets affected by cyber security incidents. Recovery plan is executed during or after a cyber security incident.
Improvements: Recovery planning and processes are improved by incorporating lessons learned into future activities.
1. Recovery plans incorporate lessons learned.2. Recovery strategies are updated.3.Communications: Restoration activities are coordinated with internal and external parties (e.g. coordinating centers, Internet Service Providers, owners of attacking systems, victims, other CSIRTs, and vendors).
1. Public relations are managed.2. Reputation is repaired after an incident.3. Recovery activities are communicated to internal and external stakeholders as well as executive and management teams.Added: January 2022FC FC Financial Crime
FC-A FC-A Introduction
FC-A.1 FC-A.1 Purpose
Executive Summary
FC-A.1.1
This Module applies, to all
investment firm licensees , a comprehensive framework of Rules and Guidance aimed at combating money laundering and terrorist financing. In so doing, it helps implement the FATF Recommendations on combating money laundering and the financing of terrorism & proliferation, issued by the Financial Action Task Force (FATF), that are relevant toinvestment firm licensees . It also helps implement IOSCO guidance in this area. (Further information on these can be found in Chapter FC-9.) The Module also contains measures relating to the combating of fraud in the investment business sector.Amended: October 2014FC-A.1.2
The Module requires
investment firm licensees to have effective anti-money laundering ('AML') policies and procedures, in addition to measures for combating the financing of terrorism ('CFT'). The Module contains detailed requirements relating to customer due diligence, reporting and the role and duties of the Money Laundering Reporting Officer (MLRO). Furthermore, examples of suspicious activity are provided, to assistinvestment firm licensees monitor transactions and fulfil their reporting obligations under Bahrain law.FC-A.1.3
This Module also covers measures in place to combat fraud: these apply to
Category 1 investment firms andCategory 2 investment firms . Chapter FC-10 sets out basic requirements regarding measures to deter, detect and report instances of fraud and attempted fraud.Amended: July 2007Legal Basis
FC-A.1.4
This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) regarding the combating money laundering and terrorism financing 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 .Amended: January 2022
Amended: January 2011
Amended: January 2007FC-A.1.5
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Amended: January 2007FC-C.1.1
A
investment firm licensee must implement Risk Based Approach (RBA) in establishing an AML/CFT/CPF program and conduct ML/TF/PF risk assessments prior to and during the establishment of a business relationship and, on an ongoing basis, throughout the course of its relationship with the customer. Thelicensee must establish and implement policies, procedures, tools and systems commensurate with the size, nature and complexity of its business operations to support its RBA.Added: January 2022FC-C.1.2
An
investment firm licensee must perform enhanced measures where higher ML/TF/PF risks are identified to effectively manage and mitigate those higher risks.Added: January 2022FC-C.1.3
An
investment firm licensee must maintain and regularly review and update the documented risk assessment. The risk management and mitigation measures implemented by alicensee must be commensurate with the identified ML/TF/PF risks.Added: January 2022FC-C.1.4
Investment firm licensees must allocate adequate financial, human and technical resources and expertise to effectively implement and take appropriate preventive measures to mitigate ML/TF/PF risks.Added: January 2022FC-A.2 FC-A.2 Module History
Evolution of Module
Amended: January 2007FC-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 by the BMA. 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.
Amended: January 2007FC-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.
Amended: January 2007FC-A.2.3
A list of recent changes made to this Module is detailed in the table below:
Module Ref. Change Date Description of Changes FC-4.3.1 07/2006 Updated telephone number for the Director, Compliance Directorate. FC-A.1 01/2007 Updated to reflect new CBB Law: new Rule FC-A.1.4 introduced Categorising this Module as a Directive. FC-4.3.1 01/2007 Updated new e-mail address for the Compliance Directorate. FC-3.3.7 04/2008 Clarified to whom in the CBB, the reports required under Paragraph FC-3.3.1 should be submitted to. Table of Contents 07/2008 Added Supplementary Information Documents to Part B. FC-1.1.11 07/2010 Cross reference added. FC-1.2.1, FC-1.2.3, FC-1.2.5, FC-1.9, FC-3.1, FC-3.2.1, FC-3.3.7, FC-4.2.3 and FC-4.3.1 07/2010 Paragraphs amended. FC-1.6 and FC-1.7 07/2010 New sections added regarding enhanced CDD for charities, clubs and societies and “pooled funds'. FC-3.3 07/2010 Heading amended. FC-A.1.4 01/2011 Clarified legal basis. FC-1.6.4 01/2011 Corrected name of Compliance Directorate. FC-3.1.6 01/2011 Amended requirements for position of MLRO. FC-3.1.6 10/2011 Corrected minor typo to be in line with other Volumes of the CBB Rulebook. FC-3.3 10/2011 Amended Section to allow for CBB-approved consultancy firm to do required sample testing and report under Paragraph FC-3.3.1. FC-3.3.5 and FC-3.3.6 01/2012 Amended to reflect the addition of approved consultancy firm. FC 10/2014 Updated to reflect February 2012 update to FATF Recommendations. FC-1.1.11 10/2015 Clarified Rule for incomplete customer due diligence. FC-10.1.4 01/2016 Clarified Rule. FC-1.2.8 07/2016 Change made for consistency across CBB Rulebook. FC-1.5.1 07/2016 Aligned definition of PEPs as per FATF Recommendations. FC-1.5.4 07/2016 Definition of PEPs is already included in Glossary so this guidance paragraph was deleted. FC-4.2.3 07/2016 Updated instructions for STR. FC-1.2.9A 01/2017 Added guidance paragraph on CR printing FC-7.2.1AA 04/2017 Implementing and complying with the United Nations Security Council resolutions requirement. FC-1.1.2B 10/2017 Amended paragraph on CDD requirements. FC-1.2.7 10/2017 Amended paragraph. FC-1.2.8A 10/2017 Added new paragraph on legal entities or legal arrangements CDD. FC-2.2.10 — FC-2.2.11 10/2017 Amended paragraphs on On-going CDD and Transaction Monitoring FC-3.1.3A 10/2017 Added paragraph on combining MLRO or DMLRO position with any other position within the licensee. FC-B.2.4 01/2018 Amended paragraph. FC-1.8.1 01/2018 Amended paragraph. FC-1.10.1 01/2018 Deleted sub-paragraph. FC-4.2.6 01/2018 Amended paragraph. FC-7.1.4 01/2018 Amended paragraph. FC-7.2.2 01/2018 Deleted paragraph. FC-1.1.2 07/2018 Deleted sub-paragraph (a). FC-1.2.1 07/2018 Amended Paragraph deleting the threshold. FC-1.10.2 07/2018 Amended Paragraph. FC-1.10.3 07/2018 Deleted Paragraph. FC-1.10.9 07/2018 Deleted Paragraph. FC-1.10.1 01/2019 Amended references. FC-3.3.2 - FC-3.3.5 01/2019 Amended references. FC-3.3.7 01/2019 Amended references. FC-6.1.2 01/2019 Amended references. FC-1.9.2 10/2019 Amended authority name. FC-3.1.7 10/2019 Amended authority name. FC-3.2.1 10/2019 Amended authority name. FC-4.2.3 10/2019 Amended authority name. FC-4.3.2 10/2019 Amended authority name. FC-7.2.1AA 10/2019 Defined 'without delay'. FC-1.1.1 01/2020 Amended Paragraph on procedures approval. FC-1.2.1 01/2020 Added a new sub-Paragraph. FC-3.2.1(d) 01/2020 Amended sub-Paragraph. FC-3.3.5 01/2020 Amended Paragraph on report submission date. FC-3.3.7 01/2020 Amended Paragraphs references. FC-2.1.3 & FC-2.1.4 04/2020 Added new Paragraphs on KPIs compliance with AML/CFT requirements. FC-5.1.6A 01/2021 Added a new Paragraph on requirements to hire new employees. FC-A.1.4 01/2022 Amended Paragraph to replace financial crime with money laundering and terrorism financing FC-C 01/2022 New chapter on risk-based approach (RBA) FC-1.1 01/2022 Amended Section to introduce additional rules for non-resident customers, amendments to customers onboarded prior to full completion of customer due diligence, digital onboarding etc. FC-1.2 01/2022 Amended Section to include E-KYC and electronic documents law requirements. FC-1.3 01/2022 Amended Section on enhanced due diligence requirements for customers identified as having higher risk profile. FC-1.4 01/2022 Amended Section to introduce detailed requirements for digital onboarding and related requirements. FC-1.5.2 01/2022 Amended Paragraph on onboarding non-Bahraini PEPs using digital ID applications. FC-1.6 01/2022 Amended Section on Enhanced Due Diligence: Charities, Clubs and Other Societies. FC-1.10.8A 01/2022 Added a new Paragraph on not applying simplified CDD in situations where the licensee has identified high ML/TF/PF risks. FC-2.2.5 01/2022 Amended Paragraph. FC-3.3.1B 01/2022 Amended Paragraph. FC-3.3.2 01/2022 Amended Paragraph. FC-3.3.5 01/2022 Amended Paragraph. FC-3.3.6 01/2022 Deleted Paragraph. FC-3.3.7 01/2022 Deleted Paragraph. FC-5.1.6A 01/2022 Deleted Paragraph. FC-C.2.3 01/2023 Minor amendment to Paragraph. FC-7.2.4(c) 01/2023 Added a new Sub-paragraph on reporting any frozen assets or actions taken. FC-1.1.12A 10/2023 Amended Sub-Paragraph on the enhanced diligence for the non-resident accounts. FC-1.1.12G 10/2023 Deleted Paragraph. FC-1.1.15 10/2023 Added a new Paragraph on CDD and Customer onboarding requirements. FC-1.11 10/2023 Added a new Section on reliance on third parties for customer due diligence. FC-1.2.1 01/2024 Amended Paragraph on customer due diligence. FC-11 01/2024 Added a new Chapter on Crypto-assets. Superseded Requirements
Amended: January 2007FC-A.2.4
Prior to the introduction of this Module, the CBB had issued various regulatory instruments containing requirements covering different aspects of financial crime. These requirements were consolidated and updated into a comprehensive financial crime regulation, issued in January 2006 to all non-bank and non-insurance licensees (including investment firm licensees, except those licensed as Bahrain Stock Exchange brokers). In turn, this new consolidated regulation was transposed, with no major changes, into the initial version of this Module. This and other instruments replaced by this Module are listed below:
Document Ref. Date of Issue Module Ref.
(Version 01)Document Subject BC/17/97 10 Nov 1997 FC-B.1 Money Laundering OG/308/89 14 Oct 1989 FC-B.1 Money Laundering EDBC/6/01 14 Oct 2001 FC-1, FC-4 to FC-7 Re: Money Laundering Module BC/1/02 27 Jan 2002 FC-3 FATF Special Recommendations on Terrorism Financing BC/3/00 5 Mar 2000 FC-1.5 Re: Accounts for Charity Organisations Resolution No 1 31 Dec 2003 FC-1, FC-2, FC-4 to FC-7 Money Laundering (NB This Module replaces Resolution No. 1 with respect to BSE brokers, custodians and registrars only: Resolution No. 1, as amended, continues to apply to the BSE and issuers of securities.) FIS/C/001/2006 2 Jan 2006 FC-A to FC-10 New Financial Crime Regulation Amended: January 2007FC-A.2.5
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Amended: July 2010FC-B FC-B Scope of Application
FC-B.1 FC-B.1 License Categories
FC-B.1.1
This Module applies to all categories of
investment firm licensees (i.e. categories 1, 2 and 3).Category 3 investment firms are exempt from Chapter FC-10, however.FC-B.1.2
This Module applies to all
investment firm licensees , irrespective of whether they are aBahraini investment firm licensee or anoverseas investment firm licensee operating in Bahrain as a branch.Overseas investment firm licensees , andBahraini investment firm licensees that are subsidiaries of an overseas-based group, may apply additional AML/CFT policies and procedures, provided they satisfy the minimum requirements contained in this Module.Amended: July 2007FC-B.1.3
Category 3 investment firms are exempt from Chapter FC-10 because of the limited nature of their business.FC-B.1.4
The scope provided for simplified customer due diligence requirements — as set out in Section FC-1.8 — will reduce the burden of customer due diligence for many
investment firm licensees .FC-B.1.5
The requirements of this Module are in addition to and supplement Decree Law No. (4) of 2001 with respect to the prevention and prohibition of the laundering of money; this Law was subsequently updated, with the issuance of Decree Law No. 54 of 2006 with respect to amending certain provisions of Decree No. 4 of 2001 (collectively, ‘the AML Law’). The AML Law imposes obligations generally in relation to the prevention of money laundering and the combating of the financing of terrorism, to all persons resident in Bahrain (including financial services firms such as
investment firm licensees ). Allinvestment firm licensees are therefore under the statutory obligations of that Law, in addition to the more specific requirements contained in this Module. Nothing in this Module is intended to restrict the application of the AML Law (a copy of which is contained in Part B of Volume 4 (Investment Business), under 'Supplementary Information'). Also included in Part B is a copy of Decree Law No. 58 of 2006 with respect to the protection of society from terrorism activities (‘the anti-terrorism law’).Amended: January 2007FC-B.2 FC-B.2 Overseas Subsidiaries and Branches
FC-B.2.1
Investment firm licensees must apply the requirements in this Module to all their branches and subsidiaries operating both in the Kingdom of Bahrain and in foreign jurisdictions. Where local standards differ, the higher standard must be followed.Investment firm licensees must pay particular attention to procedures in branches or subsidiaries in countries that do not or insufficiently apply the FATF Recommendations and do not have adequate AML/CFT systems (see also Section FC-7.1).Amended: October 2014FC-B.2.2
Where another jurisdiction's laws or Regulations prevent a
licensee (or any of its foreign branches or subsidiaries) from applying the same standards contained in this Module or higher, the licensee must immediately inform the CBB in writing.Amended: January 2007FC-B.2.3
In such instances, the CBB will review alternatives with the
licensee . Should the CBB and the licensee be unable to reach agreement on the satisfactory implementation of this Module in a foreign subsidiary or branch, thelicensee may be required by the CBB to cease the operations of the subsidiary or branch in the foreign jurisdiction in question.Amended: January 2007FC-B.2.4
Financial groups (e.g. an investment firm with its subsidiary) must implement groupwide programmes against money laundering and terrorist financing, including policies and procedures for sharing information within the group for AML/CFT purposes, which must also be applicable, and appropriate to, all branches and subsidiaries of the financial group. These must include:
(a) The development of internal policies, procedures and controls, including appropriate compliance management arrangements, and adequate screening procedures to ensure high standards when hiring employees;(b) An ongoing employee training programme;(c) An independent audit function to test the system;(d) Policies and procedures for sharing information required for the purposes of CDD and money laundering and terrorist financing risk management;(e) The provision at group-level compliance, audit, and/or AML/CFT functions of customer, account and transaction information from branches and subsidiaries when necessary for AML/CFT purposes; and(f) Adequate safeguards on the confidentiality and use of information exchanged.Amended: January 2018
Added: October 2014FC-C FC-C: Risk Based Approach
FC-C.1 Risk Based Approach
FC-C.2 FC-C.2 Risk Assessment
FC-C.2.1
An
investment firm licensee must ensure that it takes measures to identify, assess, monitor, manage and mitigate ML/TF/PF risks to which it is exposed and that the measures taken are commensurate with the nature, scale and complexities of its activities. The risk assessment must enable thelicensee to understand how, and to what extent, it is vulnerable to ML/TF/PF.Added: January 2022FC-C.2.2
In the context of the risk assessment, “proliferation financing risk” refers to the potential breach, non-implementation or evasion of the targeted financial sanctions obligations referred to in FATF Recommendation 7.
Added: January 2022FC-C.2.3
The risk assessment must be properly documented, regularly updated and communicated to the
investment firm licensee ’s senior management.Licensees must have in place policies, controls and procedures, which are approved by senior management, to enable them to manage and mitigate the risks that have been identified. In conducting its risk assessments, thelicensee must consider quantitative and qualitative information obtained from the relevant internal and external sources to identify, manage and mitigate these risks. This must include consideration of the risk and threat assessments using, national risk assessments, sectorial risk assessments, crime statistics, typologies, risk indicators, red flags, guidance and advisories issued by inter-governmental organisations, national competent authorities and the FATF, and AML/CFT/CPF mutual evaluation and follow-up reports by the FATF or associated assessment bodies.Amended: January 2023
Added: January 2022FC-C.2.4
An
investment firm licensee must assess country/geographic risk, customer/investor risk, product/ service/ transactions risk and distribution channel risk taking into consideration the appropriate factors in identifying and assessing the ML/TF/PF risks, including the following:(a) The nature, scale, diversity and complexity of its business, products and target markets;(b) Products, services and transactions that inherently provide more anonymity, ability to pool underlying customers/funds, cash-based, face-to-face, non face-to-face, domestic or cross-border;(c) The volume and size of its transactions, nature of activity and the profile of its customers;(d) The proportion of customers identified as high risk;(e) Its target markets and the jurisdictions it is exposed to, either through its own activities or the activities of customers, especially jurisdictions with relatively higher levels of corruption or organised crime, and/or deficient AML/CFT/CPF controls and listed by FATF;(f) The complexity of the transaction chain (e.g. complex layers of intermediaries and sub intermediaries or distribution channels that may anonymise or obscure the chain of transactions) and types of distributors or intermediaries;(g) The distribution channels, including the extent to which thelicensee deals directly with the customer and the extent to which it relies (or is allowed to rely) on third parties to conduct CDD and the use of technology; and(h) Internal audit, external audit or regulatory inspection findings.Added: January 2022Country/Geographic risk
FC-C.2.5
Country/geographic area risk, in conjunction with other risk factors, provides useful information as to potential ML/TF/PF risks. Factors that may be considered as indicators of higher risk include:
(a) Countries identified by credible sources, such as mutual evaluation or detailed assessment reports or published follow-up reports, as not having adequate AML/CFT/CPF systems;(b) Countries or geographic areas identified by credible sources as providing funding or support for terrorist activities, or that have designated terrorist organisations operating within their country;(c) Countries identified by credible sources as having significant levels of corruption or organized crime or other criminal activity, including source or transit countries for illegal drugs, human trafficking and smuggling and illegal gambling;(d) Countries subject to sanctions, embargoes or similar measures issued by international organisations such as the United Nations Organisation; and(e) Countries identified by credible sources as having weak governance, law enforcement, and regulatory regimes, including countries identified by the FATF statements as having weak AML/CFT/CPF regimes, and for which financial institutions should give special attention to business relationships and transactions.Added: January 2022Customer/Investor risk
Product/Service/Transactions risk
FC-C.2.7
An overall risk assessment should include determining the potential risks presented by product, service, transaction or the delivery channel of the
investment firm licensee . Alicensee should assess, using a RBA, the extent to which the offering of its product, service, transaction or the delivery channel presents potential vulnerabilities to placement, layering or integration of criminal proceeds into the financial system.Added: January 2022FC-C.2.8
Determining the risks of product, service, transaction or the delivery channel offered to customers may include a consideration of their attributes, as well as any associated risk mitigation measures. Products and services that may indicate a higher risk include:
(a) Wealth management/private banking;(b) Anonymous transactions (which may include cash);(c) Non-face-to-face business relationships or transactions;(d) Payment received from unknown or un-associated third parties;(e) Products or services that may inherently favour anonymity or obscure information about underlying customer transactions;(f) The geographical reach of the product or service offered, such as those emanating from higher risk jurisdictions;(g) Products with unusual complexity or structure and with no obvious economic purpose;(h) Products or services that permit the unrestricted or anonymous transfer of value (by payment or change of asset ownership) to an unrelated third party, particularly those residing in a higher risk jurisdiction; and(i) Use of new technologies or payment methods not used in the normal course of business by theinvestment firm licensee .Added: January 2022Distribution Channel Risk
FC-C.2.9
A customer may request transactions that pose an inherently higher risk to the
investment firm licensee . Factors that may be considered as indicators of higher risk include:(a) A request is made to transfer funds to a higher risk jurisdiction/country/region without a reasonable business purpose provided; and(b) A transaction is requested to be executed, where thelicensee is made aware that the transaction will be cleared/settled through an unregulated entity.Added: January 2022FC-C.2.10
An
investment firm licensee should analyse the specific risk factors, which arise from the use of intermediaries and their services. Intermediaries’ involvement may vary with respect to the activity they undertake and their relationship with thelicensee s.Licensee should understand who the intermediary is and perform a risk assessment on the intermediary prior to establishing a business relationship.Licensees and intermediaries should establish clearly their respective responsibilities for compliance with applicable regulation.Added: January 2022FC-1 FC-1 Customer Due Diligence Requirements
FC-1.1 FC-1.1 General Requirements
Verification of Identity and Source of Funds
FC-1.1.1
Investment firm licensees must establish effective systematic internal procedures for establishing and verifying the identity of their customers and the source of their funds. Such procedures must be set out in writing and approved by theinvestment firm licensee's senior management and must be strictly adhered to.Amended: January 2020
Amended: October 2014FC-1.1.2
Investment firm licensees must implement the customer due diligence measures outlined in Chapter FC-1 when:(a) [This Sub-paragraph was deleted in July 2018];(b) Establishing business relations with a new or existing customer;(c) A change to the signatory or beneficiary of an existing account or business relationship is made;(d) Customer documentation standards change substantially;(e) Thelicensee has doubts about the veracity or adequacy of previously obtained customer due diligence information;(f) A significant transaction takes place;(g) There is a material change in the way that an account is operated or in the manner in which the business relationship is conducted; or(h) There is a suspicion of money laundering or terrorist financing.Amended: July 2018
Amended: January 2007FC-1.1.2A
Investment firm licensees must understand, and as appropriate, obtain information on the purpose and intended nature of the business relationship.Added: October 2014FC-1.1.2B
Investment firm licensees must conduct ongoing due diligence on the business relationship, including;(a) Scrutinizing transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution's knowledge of the customer, their business and risk profile, including, where necessary, the source of funds; and(b) Ensuring that documents, data and information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records, particularly for higher risk categories of customers.Amended: October 2017
Added: October 2014FC-1.1.2C
An
investment firm licensee must also review and update the customer’s risk profile based on their level of ML/TF/PF risk upon onboarding the customer and regularly throughout the life of the relationship. The risk management and mitigation measures implemented by alicensee must be commensurate with the risk profile of a particular customer or type of customer.Added: January 2022FC-1.1.3
For the purposes of this Module, 'customer' includes counterparties such as financial markets counterparties, except where financial institutions are acting as principals where simplified due diligence measures may apply. These simplified measures are set out in Section FC-1.8.
Amended: January 2007FC-1.1.4
The CBB's specific minimum standards to be followed with respect to verifying customer identity and source of funds are contained in Section FC-1.2, with further explanations provided in Guidance Notes (see Supplementary Information, item FC-(v), in Part B of Volume 4). Enhanced requirements apply under certain high-risk situations: these requirements are contained in Sections FC-1.3 to FC-1.5 inclusive. Additional requirements apply where a
licensee is relying on a professional intermediary to perform certain parts of the customer due diligence process: these are detailed in Section FC-1.6. Simplified customer due diligence measures may apply in defined circumstances: these are set out in Section FC-1.8.Amended: January 2007Verification of Third Parties
FC-1.1.5
Investment firm licensees must obtain a signed statement, in hard copy or through digital means from all new customers confirming whether or not the customer is acting on his own behalf or not. This undertaking must be obtained prior to conducting any transactions with the customer concerned.Amended: January 2022FC-1.1.6
Where a customer is acting on behalf of a third party, the
licensee must also obtain a signed statement from the third party, confirming they have given authority to the customer to act on their behalf. Where the third party is a legal person, thelicensee must have sight of the original Board resolution (or other applicable document) authorising the customer to act on the third party's behalf, and retain a certified copy.FC-1.1.7
Investment firm licensees must establish and verify the identity of the customer and (where applicable) the party/parties on whose behalf the customer is acting, including the Beneficial Owner of the funds. Verification must take place in accordance with the requirements specified in this Chapter.FC-1.1.8
Where financial services are provided to a minor or other person lacking full legal capacity, the normal identification procedures as set out in this Chapter must be followed. In the case of minors,
investment firm licensees must additionally verify the identity of the parent(s) or legal guardian(s). Where a third party on behalf of a person lacking full legal capacity wishes to open business relations, the licensee must establish the identity of that third party as well as the person conducting the business.Amended: January 2007Anonymous and Nominee Accounts
FC-1.1.9
Investment firm licensees must not establish or keep anonymous accounts or accounts in fictitious names. Whereinvestment firm licensees maintain a nominee account, which is controlled by or held for the benefit of another person, the identity of that person must be disclosed to thelicensee and verified by it in accordance with the requirements specified in this Chapter.Timing of Verification
FC-1.1.10
Investment firm licensees must not commence a business relationship or undertake a transaction with a customer before completion of the relevant customer due diligence (‘CDD’) measures specified in Chapter FC-1.Licensees must also adopt risk management procedures with respect to the conditions under which a customer may utilise the business relationship prior to verification. However, verification may be completed after receipt of funds in the case of non face-to-face business, or the subsequent submission of CDD documents by the customer after undertaking initial customer due diligence provided that no disbursement of funds takes place until after the requirements of this Chapter have been fully met.Amended: January 2022Incomplete Customer Due Diligence
FC-1.1.11
Where a
licensee is unable to comply with the requirements specified in Chapter FC-1, it must consider whether to terminate the relationship or not proceed with the transaction. If funds have been received, these must be returned to the counterparty in the same method as originally received. If it proceeds with the transaction (to avoid tipping off the customer), it should additionally consider whether it should file a suspicious transaction report (STR).Amended: October 2015
Amended: July 2010FC-1.1.12
See also Chapter FC-4, which covers the filing of suspicious transaction reports. Regarding the return of funds to the counterparty, if funds are received in cash, funds should be returned in cash. If funds are received by wire transfer, they should be returned by wire transfer.
Amended: October 2014Non-Resident Accounts
FC-1.1.12A
Investment firm licensees that open accounts or otherwise transact or deal with non-resident customers who are natural persons must have documented criteria for acceptance of business with such persons. For non-resident customers, assessed as high risk,investment firm licensees must ensure the following:(a) Ensure there is a viable economic reason for the business relationship;(b) Perform enhanced due diligence diligence where required in accordance with Paragraph FC-1.1.15;(c) Obtain and document the country of residence for tax purposes where relevant;(d) Obtain evidence of banking relationships in the country of residence;(e) Obtain the reasons for dealing with licensee in Bahrain;(f) Obtain an indicative transaction volume and/or value of incoming funds; and(g) Test that the persons are contactable without unreasonable delays.Amended: October 2023
Added: January 2022FC-1.1.12B
Investment firm licensees must not accept non-residents customers from high risk jurisdictions subject to a call for action by FATF.Added: January 2022FC-1.1.12C
Investment firm licensees must take adequate precautions and risk mitigation measures before onboarding non-resident customers from high risk jurisdictions. Thelicensees must establish detailed assessments and criteria that take into consideration FATF mutual evaluations, FATF guidance, the country national risk assessments (NRAs) and other available guidance on onboarding and retaining non-resident customers from the following high risk jurisdictions:(a) Jurisdictions under increased monitoring by FATF;(b) Countries upon which United Nations sanctions have been imposed except those referred to in Paragraph FC-1.1.12B; and(c) Countries that are the subject of any other sanctions.Added: January 2022FC-1.1.12D
Investment firm licensees must establish systems and measures that are proportional to the risk relevant to each jurisdiction and this must be documented. Such a document must show the risks, mitigation measures for each jurisdiction and for each non-resident customer.Added: January 2022FC-1.1.12E
Investment firm licensees must establish a comprehensive documented policy and procedures describing also the tools, methodology and systems that support the licensee’s processes for:(a) The application of RBA;(b) Customer due diligence;(c) Ongoing transaction monitoring; and(d) Reporting in relation to their transactions or dealings with non-resident customers.Added: January 2022FC-1.1.12F
Investment firm licensees must ensure that only the official/government documents are accepted for the purpose of information in Subparagraphs FC-1.2.1 (a) to (f) in the case of non-resident customers.Added: January 2022FC-1.1.12G
[This Paragraph has been deleted in October 2023].
Deleted: October 2023
Added: January 2022FC-1.1.13
[This Paragraph was deleted in October 2014.]
Deleted: October 2014FC-1.1.14
[This Paragraph was deleted in October 2014.]
Deleted: October 2014FC-1.1.15
Investment firm licensees must follow the below CDD and customer onboarding requirements:Enhanced Due Diligence Digital Onboarding Bahrainis and GCC nationals (wherever they reside) and expatriates resident in Bahrain No Yes Others Yes Yes Added: October 2023[Deleted]
FC-1.2 FC-1.2 Face-to-face Business
Natural Persons
FC-1.2.1
If the customer is a natural person,
investment firm licensees must identify the person’s identity and obtain the following information before providing financial services of any kind:(a) Full legal name and any other names used;(b) Full permanent address (i.e. the residential address of the customer; a post office box is insufficient);(c) Date of birth;(d) Nationality;(e) Passport number (if the customer is a passport holder);(f) Current CPR or residency permit number (for residents of Bahrain or GCC states) or government issued national identification proof;(g) Telephone/fax number and email address (where applicable);(h) Occupation or public position held (where applicable);(i) Employer's name and address (if self-employed, the nature of the self-employment);(j) Type of account, and nature and volume of anticipated business dealings with thelicensee ;(k) Signature of the customer(s);(l) Source of funds;(m) Reason for opening the account; and(n) Place of birth.Amended: January 2024
Amended: January 2022
Amended: January 2020
Amended: July 2018
Amended: July 2010
Amended: January 2007FC-1.2.1A
Investment firm licensees obtaining the information and customer signature electronically using digital applications must comply with the applicable laws governing the onboarding/business relationship including but not limited to the Electronic Communications and Transactions Law (Law No. 54 of 2018) for the purposes of obtaining signatures as required in Subparagraph FC-1.2.1 (k) above.Added: January 2022FC-1.2.2
See the Guidance Notes (filed under Supplementary Information in Part B of Volume 4) for further information on source of funds (FC-1.2.1(1)) and CDD requirements for Bahrain residents (FC-1.2.1(c) & (f)).
FC-1.2.3
Investment firm licensees must verify the information in Paragraph FC-1.2.1 (a) to (f), by the following methods below; at least one of the copies of the identification documents mentioned in (a) and (b) below must include a clear photograph of the customer:(a) Confirmation of the date of birth and legal name, by use of the national E-KYC application and if this is not practical, obtaining a copy of a current valid official original identification document (e.g. birth certificate, passport, national identity card, CPR or Iqama);(b) Confirmation of the permanent residential address by use of the national E-KYC application and if this is not practical, obtaining a copy of a recent utility bill, bank statement or similar statement from anotherlicensee or financial institution, or some form of official correspondence or official documentation card, such as national identity card or CPR, from a public/governmental authority, or a tenancy agreement or record of home visit by an official of thelicensee ; and(c) Where appropriate, direct contact with the customer by phone, letter or email to confirm relevant information, such as residential address information.Amended: January 2022
Amended: July 2010
Amended: January 2007FC-1.2.4
Any document copied or obtained for the purpose of identification verification in a face-to-face customer due diligence process must be an original. An authorised official of the
licensee must certify the copy, by writing on it the words 'original sighted', together with the date and his signature. Equivalent measures must be taken for electronic copies.Amended: January 2022
Amended: January 2007FC-1.2.5
Identity documents which are not obtained by an authorised official of the
licensee in original form (e.g. due to a customer sending a copy by post following an initial meeting) must instead be certified (as per FC-1.2.4) by one of the following from a GCC or FATF member state:(a) A lawyer;(b) A notary;(c) A chartered/certified accountant;(d) An official of a government ministry;(e) An official of an embassy or consulate; or(f) An official of another licensed financial institution or of a licensed associate company of thelicensee .Amended: July 2010
Amended: January 2007FC-1.2.6
The individual making the certification under FC-1.2.5 must give clear contact details (e.g. by attaching a business card or company stamp). The
licensee must verify the identity of the person providing the certification through checking membership of a professional organisation (for lawyers or accountants), or through checking against databases/websites, or by direct phone or email contact.Amended: January 2007Legal Entities or Legal Arrangements (such as trusts)
FC-1.2.7
If the customer is a legal entity or a legal arrangement such as a trust, the
licensee must obtain and record the following information from original identification documents, databases or websites, in hard copy or electronic form, to identify the customer and to take reasonable measures to verify its identity, legal existence and structure:(a) The entity's full name and other trading names used;(b) Registration number (or equivalent);(c) Legal form and proof of existence;(d) Registered address and trading address (where applicable);(e) Type of business activity;(f) Date and place of incorporation or establishment;(g) Telephone, fax number and email address;(h) Regulatory body or listing body (for regulated activities such as financial services and listed companies);(hh) The names of the relevant persons having a senior management position in the legal entity or legal arrangement;(i) Name of external auditor (where applicable);(j) Type of account, and nature and volume of anticipated business dealings with thelicensee ; and(k) Source of funds.Amended: October 2017
Amended: January 2007FC-1.2.8
The information provided under FC-1.2.7 must be verified by obtaining certified copies of the following documents, as applicable (depending on the legal form of the entity):
(a) Certificate of incorporation and/or certificate of commercial registration or trust deed;(b) Memorandum of association;(c) Articles of association;(d) Partnership agreement;(e) Board resolution seeking the financial services (only necessary in the case of private or unlisted companies);(f) Identification documentation of the authorised signatories of the account (certification not necessary for companies listed in a GCC/FATF state);(g) Copy of the latest financial report and accounts, audited where possible (audited copies do not need to be certified); and(h) List of persons authorised to do business on behalf of the company and in the case of the opening of an account, a Board resolution (or other applicable document) authorising the named persons to operate the account (resolution only necessary for private or unlisted companies).Amended: July 2016
Amended: January 2007FC-1.2.8A
For customers that are legal persons,
Investment firm licensees must identify and take reasonable measures to verify the identity of beneficial owners through the following information:(a) The identity of the natural person(s) who ultimately have a controlling ownership interest in a legal person, and(b) To the extent that there is doubt under (a) as to whether the person(s) with the controlling ownership interest is the beneficial owner(s), or where no natural person exerts control of the legal person or arrangement through other means; and(c) Where no natural person is identified under (a) or (b) above, the identity of the relevant natural person who holds the position of senior managing official.Added: October 2017FC-1.2.9
Documents obtained to satisfy the requirements in Paragraph FC-1.2.8 above must be certified in the manner specified in Paragraphs FC-1.2.4 to FC-1.2.6.
Amended: January 2007FC-1.2.9A
For the purpose of Paragraph FC-1.2.8(a), the requirement to obtain a certified copy of the commercial registration, may be satisfied by obtaining a commercial registration abstract printed directly from the Ministry of Industry, Commerce and Tourism's website, through "SIJILAT Commercial Registration Portal".
Added: January 2017FC-1.2.10
The documentary requirements in Paragraph FC-1.2.8 above do not apply in the case of listed companies: see Section FC-1.8 below. Also, the documents listed in Paragraph FC-1.2.8 above are not exhaustive: for customers from overseas jurisdictions, documents of an equivalent nature may be produced as satisfactory evidence of a customer's identity.
Amended: January 2007FC-1.2.11
Investment firm licensees must also obtain and document the following due diligence information. These due diligence requirements must be incorporated in thelicensee's new business procedures:(a) Enquire as to the structure of the legal entity or trust sufficient to determine and verify the identity of the ultimate beneficial owner of the funds, the ultimate provider of funds (if different), and the ultimate controller of the funds (if different);(b) Ascertain whether the legal entity has been or is in the process of being wound up, dissolved, struck off or terminated;(c) Obtain the names, country of residence and nationality ofDirectors or partners (only necessary for private or unlisted companies);(d) Require, through new customer documentation or other transparent means, updates on significant changes to corporate ownership and/or legal structure;(e) Obtain and verify the identity ofshareholders holding 20% or more of the issued capital (where applicable). The requirement to verify the identity of theseshareholders does not apply in the case of listed companies;(f) In the case of trusts or similar arrangements, establish the identity of the settlor(s), trustee(s), and beneficiaries (including making such reasonable enquiries as to ascertain the identity of any other potential beneficiary, in addition to the named beneficiaries of the trust); and(g) Where a licensee has reasonable grounds for questioning the authenticity of the information supplied by a customer, conduct additional due diligence to confirm the above information.Amended: January 2007FC-1.2.12
For the purposes of Paragraph FC-1.2.11, acceptable means of undertaking such due diligence might include taking bank references; visiting or contacting the company by telephone; undertaking a company search or other commercial enquiries; accessing public and private databases (such as stock exchange lists); making enquiries through a business information service or credit bureau; confirming a company's status with an appropriate legal or accounting firm; or undertaking other enquiries that are commercially reasonable.
Amended: January 2007FC-1.2.13
In cases where an
investment firm licensee is providing investment management services to a regulated mutual fund, and is not responsible for receiving investors' funds being paid into the fund, it may limit its CDD to confirming that the administrator of the fund is subject to FATF-equivalent customer due diligence measures (see FC-1.6 for applicable measures). Where there are reasonable grounds for believing that investors' funds being paid into the fund are not being adequately verified by the administrator, then theinvestment firm licensee should consider terminating its relationship with the fund.Amended: January 2007FC-1.3 FC-1.3 Enhanced Customer Due Diligence: General Requirements
FC-1.3.1
Enhanced customer due diligence must be performed on those customers identified as having a higher risk profile, and additional inquiries made or information obtained in respect of those customers.
FC-1.3.2
Licensees should examine, as far as reasonably possible, the background and purpose of all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or lawful purpose. Where the risks of money laundering or terrorist financing are higher,licensees should conduct enhanced CDD measures, consistent with the risks identified. In particular, they should increase the degree and nature of monitoring of the business relationship, in order to determine whether those transactions or activities appear unusual or suspicious. The additional inquiries or information referred to in Paragraph FC-1.3.1 include:(a) Obtaining additional information on the customer (e.g. occupation, volume of assets, information available through public databases, internet, etc.), and updating more regularly the identification data of customer and beneficial owner;(b) Obtaining additional information on the intended nature of the business relationship;(c) Obtaining information on the source of funds or source of wealth of the customer;(d) Obtaining information on the reasons for intended or performed transactions;(e) Obtaining the approval of senior management to commence or continue the business relationship;(f) Conducting enhanced monitoring of the business relationship, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination;(g) Taking specific measures to identify the source of the first payment in this account and applying RBA to ensure that there is a plausible explanation in any case where the first payment was not received from the same customer’s account;(h) Obtaining evidence of a person's permanent address through the use of a credit reference agency search, or through independent governmental database or by home visit;(i) Obtaining a personal reference (e.g. by an existing customer of thelicensee );(j) Obtaining another licensed entity's reference and contact with the concernedlicensee regarding the customer;(k) Obtaining documentation outlining the customer's source of wealth;(l) Obtaining additional documentation outlining the customer's source of income; and(m) Obtaining additional independent verification of employment or public position held.Amended: January 2022
Amended: January 2007FC-1.4 FC-1.4 Enhanced Customer Due Diligence: Non face-to-face Business and New Technologies
FC-1.4.1
Investment firm licensees must establish specific procedures for verifying customer identity where no face-to-face contact takes place.FC-1.4.2
Where no face-to-face contact takes place,
investment firm licensees must take additional measures (to those specified in Section FC-1.2), in order to mitigate the potentially higher risk associated with such business. In particular,investment firm licensees must take measures:(a) To ensure that the customer is the person they claim to be; and(b) To ensure that the address provided is genuinely the customer's.Amended: January 2007FC-1.4.3
There are a number of checks that can provide a
licensee with a reasonable degree of assurance as to the authenticity of the applicant. They include:(a) Telephone contact with the applicant on an independently verified home or business number;(b) With the customer’s consent, contacting an employer to confirm employment, via phone through a listed number or in writing;(c) Salary details appearing on recent bank statements;(d) Independent verification of employment (e.g.: through the use of a national E-KYC application, or public position held;(e) Carrying out additional searches (e.g. internet searches using independent and open sources) to better inform the customer risk profile;(f) Carrying out additional searches focused on financial crime risk indicator (i.e. negative news);(g) Evaluating the information provided with regard to the destination of fund and the reasons for the transaction;(h) Seeking and verifying additional information from the customer about the purpose and intended nature of the transaction or the business relationship; and(i) Increasing the frequency and intensity of transaction monitoring.Amended: January 2022
Amended: January 2007FC-1.4.4
Financial services provided using digital channels or internet pose greater challenges for customer identification and AML/CFT purposes.
Investment firm licensees must identify and assess the money laundering or terrorist financing risks relevant to any new technology or channel and establish procedures to prevent the misuse of technological developments in money laundering or terrorist financing schemes. The risk assessments must be consistent with the requirements in Section FC-C.2.Amended: January 2022
Amended: January 2007FC-1.4.5
Investment firm licensees must identify and assess the money laundering or terrorist financing risks that may arise in relation to:(a) The development of new products and new business practices, including new delivery mechanisms; and(b) The use of new or developing technologies for both new and pre-existing products.Added: October 2014FC-1.4.6
For purposes of Paragraph FC-1.4.5, such a risk assessment consistent with the requirements in Section FC-C.2 and must take place prior to the launch of the new products, business practices or the use of new or developing technologies.
Investment firm licensees must take appropriate measures to manage and mitigate those risks.Amended: January 2022
Added: October 2014Enhanced Monitoring
FC-1.4.7
Customers onboarded digitally must be subject to enhanced on-going account monitoring measures.
Added: January 2022FC-1.4.8
The CBB may require a
licensee to share the details of the enhanced monitoring and the on-going monitoring process for non face-to-face customer relationships.Added: January 2022Licensee’s digital ID applications
FC-1.4.9
Investment firm licensees may use its digital ID applications that use secure audio-visual real time (live video conferencing/live photo selfies) communication means to identify the natural person.Added: January 2022FC-1.4.10
Investment firm licensees must maintain a document available upon request for the use of its digital ID applications that includes all the following information:(a) A description of the nature of products and services for which the proprietary digital ID application is planned to be used with specific references to the rules in this Module for which it will be used;(b) A description of the systems and IT infrastructure that are planned to be used;(c) A description of the technology and applications that have the features for facial recognition or biometric recognition to authenticate independently and match the face and the customer identification information available with the licensee. The process and the features used in conjunction with video conferencing include, among others, face recognition, three-dimensional face matching techniques etc;(d) “Liveness” checks created in the course of the identification process;(e) A description of the governance arrangements related to this activity including the availability of specially trained personnel with sufficient level of seniority; and(f) Record keeping arrangements for electronic records to be maintained and the relative audit.Added: January 2022FC-1.4.11
Investment firm licensees that intends to use its digital ID application to identify the customer and verify identity information must meet the following additional requirements:(a) The digital ID application must make use of secure audio visual real time (live video conferencing/ live photo selfies) technology to (i) identify the customer, (ii) verify his/her identity, and also (iii) ensure the data and documents provided are authentic;(b) The picture/sound quality must be adequate to facilitate unambiguous identification;(c) The digital ID application must include or be combined with capability to read and decrypt the information stored in the identification document’s machine readable zone (MRZ) for authenticity checks from independent and reliable sources;(d) Where the MRZ reader is with an outsourced provider, thelicensee must ensure that such party is authorized to carry out such services and the information is current and up to date and readily available such that thelicensee can check that the decrypted information matches the other information in the identification document;(e) The digital ID application has the features for allowing facial recognition or biometric recognition that can authenticate and match the face and the customer identification documents independently;(f) The digital ID solution has been tested by an independent expert covering the governance and control processes to ensure the integrity of the solution and underlying methodologies, technology and processes and risk mitigation. The report of the expert’s findings must be retained and available upon request;(g) The digital ID application must enable an ongoing process of retrieving and updating the digital files, identity attributes, or data fields which are subject to documented access rights and authorities for updating and changes; and(h) The digital ID application must have the geo-location features which must be used by thelicensee to ensure that it is able to identify any suspicious locations and to make additional inquiries if the location from which a customer is completing the onboarding process does not match the location of the customer based on the information and documentation submitted.Added: January 2022FC-1.4.12
Investment firm licensees using its digital ID application must establish and implement an approved policy which lays down the governance, control mechanisms, systems and procedures for the CDD which include:(a) A description of the nature of products and services for which customer due diligence may be conducted through video conferencing or equivalent electronic means;(b) A description of the systems, controls and IT infrastructure planned to be used;(c) Governance mechanism related to this activity;(d) Specially trained personnel with sufficient level of seniority; and(e) Record keeping arrangements for electronic records to be maintained and the relative audit trail.Added: January 2022FC-1.4.13
Investment firm licensees must ensure that the information referred to in Paragraph FC-1.2.1 is collected in adherence to privacy laws and other applicable laws of the country of residence of the customer.Added: January 2022FC-1.4.14
Investment firm licensees must ensure that the information referred to in Subparagraphs FC-1.2.1 (a) to (f) is obtained prior to commencing the digital verification such that:(a) Thelicensee can perform its due diligence prior to the digital interaction/communication and can raise targeted questions at such interaction/communication session; and(b) Thelicensee can verify the authenticity, validity and accuracy of such information through digital means (See Paragraph FC.1.4.16 below) or by use of the methods mentioned in Paragraph FC-1.2.3 and /or FC-1.4.3 as appropriate.Added: January 2022FC-1.4.15
The
licensee must also obtain the customer’s explicit consent to record the session and capture images as may be needed.Added: January 2022FC-1.4.16
Investment firm licensees must verify the information in Paragraph FC-1.2.1 (a) to (f) by the following methods below:(a) Confirmation of the date of birth and legal name by digital reading and authenticating current valid passport or other official original identification using machine readable zone (MRZ) or other technology which has been approved under paragraph FC-1.4.9, unless the information was verified using national E-KYC application;(b) Performing real time video calls with the applicant to identify the person and match the person’s face and /other features through facial recognition or bio-metric means with the office documentation, (e.g. passport, CPR);(c) Matching the official identification document, (e.g. passport, CPR) and related information provided with the document captured/displayed on the live video call; and(d) Confirmation of the permanent residential address by, unless the information was verified using national E-KYC application capturing live, the recent utility bill, bank statement or similar statement from anotherlicensee or financial institution, or some form of official correspondence or official documentation card, such as national identity card or CPR, from a public/governmental authority, or a tenancy agreement or record of home visit by an official of theinvestment firm licensee .Added: January 2022FC-1.4.17
For the purposes of Paragraph FC-1.4.16, actions taken for obtaining and verifying customer identity could include:
(a) Collection: Present and collect identity attributes and evidence, either in person and/or online (e.g., by filling out an online form, sending a selfie photo, uploading photos of documents such as passport or driver’s license, etc.);(b) Certification: Digital or physical inspection to ensure the document is authentic and its data or information is accurate (for example, checking physical security features, expiration dates, and verifying attributes via other services);(c) De-duplication: Establish that the identity attributes and evidence relate to a unique person in the ID system (e.g., via duplicate record searches, biometric recognition and/or deduplication algorithms);(d) Verification: Link the individual to the identity evidence provided (e.g., using biometric solutions like facial recognition and liveness detection); and(e) Enrolment in identity account and binding: Create the identity account and issue and link one or more authenticators with the identity account (e.g., passwords, one-time code (OTC) generator on a smartphone, etc.). This process enables authentication.Added: January 2022FC-1.4.18
Not all elements of a digital ID system are necessarily digital. Some elements of identity proofing and enrolment can be either digital or physical (documentary), or a combination, but binding and authentication must be digital.
Added: January 2022FC-1.4.19
Sufficient controls must be put in place to safeguard the data relating to customer information collected through the video conference and due regard must be paid to the requirements of the Personal Data Protection Law (PDPL). Additionally, controls must be put in place to minimize the increased impersonation fraud risk in such non face-to-face relationship where there is a chance that customer may not be who he claims he is.
Added: January 2022Overseas branches
FC-1.4.20
Where
investment firm licensees intend to use a digital ID application in a foreign jurisdiction in which it operates, it must ensure that the digital ID application meets with the requirements under Paragraph FC-B.2.1.Added: January 2022FC-1.5 FC-1.5 Enhanced Customer Due Diligence: Politically Exposed Persons ('PEPs')
FC-1.5.1
Investment firm licensees must have appropriate risk management systems to determine whether a customer or beneficial owner is aPolitically Exposed Person ('PEP') , both at the time of establishing business relations and thereafter on a periodic basis.Investment firm licensees must utilise publicly available databases and information to establish whether a customer is aPEP .Amended: July 2016
Amended: October 2014
January 2007FC-1.5.2
Investment firm licensees must establish aclient acceptance policy with regard toPEPs , taking into account the reputational and other risks involved. Senior management approval must be obtained before aPEP is accepted as a customer.Licensees must not accept a non-Bahraini PEP as a customer based on customer due diligence undertaken using digital ID applications.Amended: January 2022
Amended: January 2007FC-1.5.3
Where an existing customer is a
PEP , or subsequently becomes aPEP , enhanced monitoring and customer due diligence measures must include:(a) Analysis of complex financial structures, including trusts, foundations or international business corporations;(b) A written record in the customer file to establish that reasonable measures have been taken to establish both the source of wealth and the source of funds;(c) Development of a profile of anticipated customer activity, to be used in on-going monitoring;(d) Approval of senior management for allowing the customer relationship to continue; and(e) On-going account monitoring of thePEP's account by senior management (such as the MLRO).Amended: January 2007FC-1.5.3A
In cases of higher risk business relationships with such persons, mentioned in Paragraph FC-1.5.1,
investment firm licensees must apply the measures referred to in (b), (d) and (e) of Paragraph FC-1.5.3.Added: October 2014FC-1.5.3B
The requirements for all types of
PEP must also apply to family or close associates of suchPEPs .Added: October 2014FC-1.5.3C
For the purpose of Paragraph FC-1.5.3B, 'family' means spouse, father, mother, sons, daughters, sisters and brothers. 'Associates' are persons associated with a
PEP whether such association is due to the person being an employee or partner of thePEP or of a firm represented or owned by thePEP , or family links or otherwise.Added: October 2014FC-1.5.4
[This Paragraph was deleted in July 2016 as definition is included under Part B in the Glossary.]
Deleted: July 2016
Amended: October 2014
January 2007FC-1.6 FC-1.6 Enhanced Due Diligence: Charities, Clubs and Other Societies
FC-1.6.1
Financial services must not be provided to charitable funds and religious, sporting, social, cooperative, professional and other societies, until an original certificate authenticated by the relevant Ministry confirming the identities of those purporting to act on their behalf (and authorising them to obtain the said service) has been obtained.
Amended: January 2022
Amended: October 2014
Added: July 2010FC-1.6.1A
For the purpose of Paragraph FC-1.6.1, for clubs and societies registered with the Ministry of Youth and Sport Affairs,
licensees must contact the Ministry to clarify whether the account may be opened in accordance with the rules of the Ministry. In addition, in the case of sport associations registered with the Bahrain Olympic Committee (BOC),licensees must contact BOC to clarify whether the account may be opened in accordance with the rules of BOC.Added: January 2022FC-1.6.2
Investment firm licensees are reminded that clubs and societies registered with Ministry of Youth and Sport Affairs may only have one account with banks in Bahrain.Amended: January 2022
Adopted: July 2010FC-1.6.2A
Pursuant to Article (20) of the Consolidated Financial Regulations for Sports Clubs issued in 2005,
licensees must not change or open additional accounts for Clubs and Youth Centres without obtaining the prior approval of the Ministry of Youth and Sport Affairs.Added: January 2022FC-1.6.3
Charities should be subject to enhanced transaction monitoring by
licensees .Investment firm licensees should develop a profile of anticipated account activity (in terms of payee countries and recipient organisations in particular).Adopted: July 2010
FC-1.6.4
Investment firm licensees must provide a monthly report of all payments and transfers of BD3,000 (or equivalent in foreign currencies) and above, from accounts held by charities registered in Bahrain. The report must be submitted to the CBB's Compliance Directorate (see FC-4.3 for contact address), giving details of the amount transferred, account name, number and beneficiary name account and bank details.Investment firm licensees must ensure that such transfers are in accordance with the spending plans of the charity (in terms of amount, recipient and country).Amended: January 2011
Adopted: July 2010FC-1.7 FC-1.7 Enhanced Due Diligence: 'Pooled Funds'
FC-1.7.1
Where
investment firm licensees receive pooled funds managed by professional intermediaries (such as investment and pension fund managers, stockbrokers and lawyers or authorised money transferors), they must apply CDD measures contained in Section FC-1.8 to the professional intermediary. In addition,investment firm licensees must verify the identity of the beneficial owners of the funds where required as shown in Paragraphs FC-1.7.2 or FC-1.7.3 below.Adopted: July 2010FC-1.7.2
Where funds pooled in an account are not co-mingled (i.e. where there are 'sub-accounts' attributable to each beneficiary), all beneficial owners must be identified by the
investment firm licensee , and their identity verified in accordance with the requirements in Section FC-1.2.Adopted: July 2010FC-1.7.3
For accounts held by intermediaries resident in Bahrain, where such funds are co-mingled, the
investment firm licensee must make a reasonable effort (in the context of the nature and amount of the funds received) to look beyond the intermediary and determine the identity of the beneficial owners or underlying clients, particularly where funds are banked and then transferred onward to other financial institutions (e.g. in the case of accounts held on behalf of authorised money transferors). Where, however, the intermediary is subject to equivalent regulatory and money laundering regulation and procedures (and, in particular, is subject to the same due diligence standards in respect of its client base) the CBB will not insist upon all beneficial owners being identified provided thelicensee has undertaken reasonable measures to determine that the intermediary has engaged in a sound customer due diligence process, consistent with the requirements in Section FC-1.8Adopted: July 2010FC-1.7.4
For accounts held by intermediaries from foreign jurisdictions, the intermediary must be subject to requirements to combat money laundering and terrorist financing consistent with the FATF Recommendations and the intermediary must be supervised for compliance with those requirements. The
licensee must obtain documentary evidence to support the case for not carrying out customer due diligence measures beyond identifying the intermediary. Thelicensee must satisfy itself that the intermediary has identified the underlying beneficiaries and has the systems and controls to allocate the assets in the pooled accounts to the relevant beneficiaries. The due diligence process contained in Section FC-1.8 must be followed.Amended: October 2014
Adopted: July 2010FC-1.7.5
Where the intermediary is not empowered to provide the required information on beneficial owners (e.g. lawyers bound by professional confidentiality rules) or where the intermediary is not subject to the same due diligence standards referred to above, a
licensee must not permit the intermediary to open an account or allow the account to continue to operate, unless specific permission has been obtained in writing from the CBB.Adopted: July 2010FC-1.8 FC-1.8 Introduced Business from Professional Intermediaries
FC-1.8.1
A
licensee may only accept customers introduced to it by other financial institutions or intermediaries, if it has satisfied itself that the introducer concerned is subject to FATF-equivalent measures and customer due diligence measures. Whereinvestment firm licensees delegate part of the customer due diligence measures to an introducer, the responsibility for meeting the requirements of Chapters 1 and 2 remains with thelicensee , not the introducer.Amended: January 2018
Amended: July 2010FC-1.8.2
Investment firm licensees may only accept introduced business if all of the following conditions are satisfied:(a) The customer due diligence measures applied by the introducer are consistent with those required by the FATF Recommendations;(b) A formal agreement is in place defining the respective roles of thelicensee and the introducer in relation to customer due diligence measures. The agreement must specify that the customer due diligence measures of the introducer will comply with the FATF Recommendations;(c) The introducer immediately provides all necessary information required in Paragraphs FC-1.2.1 or FC-1.2.7 and FC-1.1.2A pertaining to the customer's identity, the identity of the customer and beneficial owner of the funds (where different), the purpose of relationship and, where applicable, the party/parties on whose behalf the customer is acting; also, the introducer has confirmed that thelicensee will be allowed to verify the customer due diligence measures undertaken by the introducer at any stage; and(d) Written confirmation is provided by the introducer confirming that all customer due diligence measures required by the FATF Recommendations have been followed and the customer's identity established and verified. In addition, the confirmation must state that any identification documents or other customer due diligence material can be accessed by thelicensee and that these documents will be kept for at least five years after the business relationship has ended.Amended: October 2014
Amended: July 2010
Amended: January 2007FC-1.8.3
The
licensee must perform periodic reviews ensuring that any introducer on which it relies is in compliance with the FATF Recommendations. Where the introducer is resident in another jurisdiction, thelicensee must also perform periodic reviews to verify whether the jurisdiction is in compliance with the FATF Recommendations.Amended: October 2014
Amended: July 2010
Amended: January 2007FC-1.8.4
Should the
licensee not be satisfied that the introducer is in compliance with the requirements of the FATF Recommendations, thelicensee must conduct its own customer due diligence on introduced business, or not accept further introductions, or discontinue the business relationship with the introducer.Amended: October 2014
Amended: July 2010
Amended: January 2007FC-1.9 FC-1.9 Shell Banks
FC-1.9.1
Investment firm licensees must not establish business relations with banks which have no physical presence or 'mind and management' in the jurisdiction in which they are licensed and which are unaffiliated with a regulated financial group ('shell banks').Investment firm licensees must not knowingly establish relations with financial institutions that have relations with shell banks.Amended: July 2010
Amended: January 2007FC-1.9.2
Investment firm licensees must make a suspicious transaction report to the Financial Intelligence Directorate and the Compliance Directorate if they are approached by a shell bank or an institution they suspect of being a shell bank.Amended: October 2019
Amended: July 2010FC-1.10 FC-1.10 Simplified Customer Due Diligence
FC-1.10.1
Investment firm licensees may apply simplified customer due diligence measures, as described in Paragraphs FC-1.10.2 to FC-1.10.8, if:(a) [This Subparagraph was deleted in January 2018].<(b) The transaction concerns the sale of a security listed on the Bahrain Bourse ('BHB'), and issued as a result of an initial public offering after January 2006, and the customer already holds an investor number, an allotment letter and a valid BHB Form 2 in place. Furthermore, the BHB should have advised the broker (by circular) that all necessary customer due diligence information and copies of all original identification documents will be made available upon request without delay;(c) The customer is a company listed on a GCC or FATF member state stock exchange with equivalent disclosure standards to those of the BHB;(d) The customer is a financial institution whose entire operations are subject to AML/CFT requirements consistent with the FATF Recommendations and it is supervised by a financial services supervisor in a FATF or GCC member state for compliance with those requirements;(e) The customer is a financial institution which is a subsidiary of a financial institution located in a FATF or GCC member state, and the AML/CFT requirements applied to its parent also apply to the subsidiary;(f) The customer is the Bahrain Monetary Agency ('CBB'), the BHB or alicensee of the CBB; or(g) The customer is a Ministry of a Gulf Cooperation Council ('GCC') or Financial Action Task Force ('FATF') member state government, a company in which a GCC government is a majority shareholder, or a company established by decree in the GCC.Amended: January 2019
Amended: January 2018
Amended: October 2014
Amended: July 2010
Amended: January 2007FC-1.10.2
For customers falling under category (b) in Paragraph FC-1.10.1, the customer's name and contact information must be recorded. However, the verification, certification and due diligence requirements (contained in Paragraphs FC-1.2.3, FC-1.2.5, FC-1.2.8, FC-1.2.9 and FC-1.2.11), may be dispensed with.
Amended: July 2018
Amended: July 2010FC-1.10.3
[This Paragraph was deleted in July 2018].
Deleted: July 2018
Amended: July 2010
Amended: January 2007FC-1.10.4
For customers falling under categories (c) to (g) in Paragraph FC-1.10.1, the information required under Paragraph FC-1.2.1 (for natural persons) or FC-1.2.7 (for legal entities) must be obtained. However, the verification, certification and due diligence requirements (contained in Paragraphs FC-1.2.3, FC-1.2.5, FC-1.2.8, FC-1.2.9 and FC-1.2.11), may be dispensed with.
Amended: July 2010FC-1.10.5
Investment firm licensees wishing to apply simplified due diligence measures as allowed for under categories (c) to (g) of Paragraph FC-1.10.1 must retain documentary evidence supporting their categorisation of the customer.Amended: July 2010
Amended: January 2007FC-1.10.6
Examples of such documentary evidence may include a printout from a regulator's website, confirming the licensed status of an institution, and internal papers attesting to a review of the AML/CFT measures applied in a jurisdiction.
Amended: July 2010FC-1.10.7
Investment firm licensees may use authenticated SWIFT messages as a basis for confirmation of the identity of a financial institution under FC-1.10.1(d) and (e) where it is dealing as principal. For customers coming under Paragraph FC-1.10.1(d) and (e),investment firm licensees must also obtain and retain a written statement from the parent institution of the subsidiary concerned, confirming that the subsidiary is subject to the same AML/CFT measures as its parent.Amended: July 2010FC-1.10.8
Simplified customer due diligence measures must not be applied where a
licensee knows, suspects, or has reason to suspect, that the applicant is engaged in money laundering or terrorism financing or that the transaction is carried out on behalf of another person engaged in money laundering or terrorism financing.Amended: July 2010FC-1.10.8A
Simplified customer due diligence measures must not be applied in situations where the licensee has identified high ML/TF/PF risks.
Added: January 2022FC-1.10.9
[This Paragraph was deleted in July 2018].
Deleted: July 2018
Amended: July 2010FC-1.11 Reliance on Third Parties for Customer Due Diligence
FC-1.11.1
Licensees are permitted to rely on third parties to perform elements of CDD measures and recordkeeping requirements stipulated in Chapter FC-1 related to customer and beneficial owner identity, verification of their identity and information on the purpose and intended nature of the business relationship with thelicensee , subject to complying with the below:(a)Licensees remain ultimately responsible for CDD measures;(b)Licensees immediately obtain the relevant CDD information from the third party upon onboarding clients;(c) There is an agreement with the third party for the arrangement with clear contractual terms on the obligations of the third party;(d) The third party without delay makes available the relevant documentation relating to the CDD requirements upon request;(e)Licensees ensure that the third party is a financial institution that is regulated and supervised for, and has measures in place for compliance with, CDD and recordkeeping requirements in line with FATF Recommendations 10 and 11; and(f) For third parties based abroad,licensees must consider the information available on the level of country risk.Added: October 2023FC-1.11.2
Where a
licensee relies on a third-party that is part of the same financial group, thelicensee can consider that:(a) The requirements under Subparagraphs FC-1.11.1 (d) and (e) are complied with through its group programme, provided the group satisfies the following conditions:(i) The group applies CDD and record keeping requirements consistent with FATF Recommendations 10, 11 and 12 and has in place internal controls in accordance with FATF Recommendation 18; and(ii) The implementation of CDD, record keeping and AML/CFT measures are supervised at a group level by a financial services regulatory authority for compliance with AML/CFT requirements consistent with standards set by the FATF.(b) The requirement under Subparagraph FC-1.11.1 (f) is complied with if the country risk is adequately mitigated by the group’s AML/CFT policies.Added: October 2023FC-1.11.3
This Section does not apply to outsourcing or agency arrangements in which the outsourced entity applies the CDD measures on behalf of the delegating
licensee , in accordance with its procedures.Added: October 2023FC-2 FC-2 AML/CFT Systems and Controls
FC-2.1 FC-2.1 General Requirements
FC-2.1.1
Investment firm licensees must implement programmes against money laundering and terrorist financing which establish and maintain appropriate systems and controls for compliance with the requirements of this Module and which limit their vulnerability to financial crime. These systems and controls must be documented, and approved and reviewed annually by the Board of the licensee. The documentation, and the Board's review and approval, must be made available upon request to the CBB.Amended: October 2014
Amended: January 2007FC-2.1.2
The above systems and controls, and associated documented policies and procedures, should cover standards for customer acceptance, on-going monitoring of high-risk accounts, staff training and adequate screening procedures to ensure high standards when hiring employees.
FC-2.1.3
Investment firm licensees must incorporate Key Performance Indicators (KPIs) to ensure compliance with AML/CFT requirements by all staff. The performance against the KPIs must be adequately reflected in their annual performance evaluation and in their remuneration (See also Paragraph HC-5.3.3).Added: April 2020FC-2.1.4
In implementing the policies, procedures and monitoring tools for ensuring compliance with Paragraph FC-2.1.3,
investment firm licensees should consider the following:(a) The business policies and practices should be designed to reduce incentives for staff to expose theinvestment firm licensees to AML/CFT compliance risk;(b) The performance measures of departments/divisions/units and personnel should include measures to address AML/CFT compliance obligations;(c) AML/CFT compliance breaches and deficiencies should be attributed to the relevant departments/divisions/units and personnel within the organisation as appropriate;(d) Remuneration and bonuses should be adjusted for AML/CFT compliance breaches and deficiencies; and(e) Both quantitative measures and human judgement should play a role in determining any adjustments to the remuneration and bonuses resulting from the above.Added: April 2020FC-2.2 FC-2.2 On-going Customer Due Diligence and Transaction Monitoring
Risk Based Monitoring
FC-2.2.1
Investment firm licensees must develop risk-based monitoring systems appropriate to the complexity of their business, their number ofclients and types of transactions. These systems must be configured to identify significant or abnormal transactions or patterns of activity. Such systems must include limits on the number, types or size of transactions undertaken outside expected norms; and must include limits for cash and non-cash transactions.Amended: January 2007FC-2.2.2
Investment firm licensees' risk-based monitoring systems should therefore be configured to help identify:(a) Transactions which do not appear to have a clear purpose or which make no obvious economic sense;(b) Significant or large transactions not consistent with the normal or expected behaviour of a customer; and(c) Unusual patterns of activity (relative to other customers of the same profile or of similar types of transactions, for instance because of differences in terms of volumes, transaction type, or flows to or from certain countries), or activity outside the expected or regular pattern of a customer's account activity.Amended: January 2007Automated Transaction Monitoring
FC-2.2.3
Investment firm licensees must consider the need to include automated transaction monitoring as part of their risk-based monitoring systems to spot abnormal or unusual flows of funds. In the absence of automated transaction monitoring systems, all transactions above BD 6,000 must be viewed as 'significant' and be captured in a daily transactions report for monitoring by the MLRO or a relevant delegated official, and records retained by thelicensee for five years after the date of the transaction.Amended: January 2007FC-2.2.4
The CBB would expect larger
investment firm licensees to include automated transaction monitoring as part of their risk-based monitoring systems. See also Chapters FC-3 and FC-6, regarding the responsibilities of the MLRO and record-keeping requirements. Where theinvestment firm licensee is not receiving funds — for instance where it is simply acting as agent on behalf of a principal, and the customer is directly remitting funds to the principal — then theinvestment firm licensee may agree with the principal that the latter should be responsible for the daily monitoring of such transactions.Amended: January 2007Unusual Transactions or Customer Behaviour
FC-2.2.5
Where a
licensee's risk-based monitoring systems identify significant or abnormal transactions (as defined in FC-2.2.2 and FC-2.2.3), it must verify the source of funds for those transactions, particularly where the transactions are above the transactions threshold of BD 6,000. Furthermore,investment firm licensees must examine the background and purpose to those transactions and document their findings. In the case of one-off transactions where there is no on-going account relationship, thelicensee must file an STR if it is unable to verify the source of funds to its satisfaction (see Chapter FC-4).Amended: January 2022
Amended: January 2007FC-2.2.6
The investigations required under Paragraph FC-2.2.5 must be carried out by the MLRO (or relevant delegated official). The documents relating to these findings must be maintained for five years from the date when the transaction was completed (see also FC-6.1.1(b)).
Amended: January 2007FC-2.2.7
Investment firm licensees must consider instances where there is a significant, unexpected or unexplained change in customer activity.FC-2.2.8
When an existing customer closes one account and opens another, the
licensee must review its customer identity information and update its records accordingly. Where the information available falls short of the requirements contained in Chapter FC-1, the missing or out of date information must be obtained and re-verified with the customer.FC-2.2.9
Once identification procedures have been satisfactorily completed and, as long as records concerning the customer are maintained in line with Chapters FC-1 and FC-6, no further evidence of identity is needed when transactions are subsequently undertaken within the expected level and type of activity for that customer, provided reasonably regular contact has been maintained between the parties and no doubts have arisen as to the customer's identity.
On-going Monitoring
FC-2.2.10
Investment firm licensees must take reasonable steps to:(a) Scrutinize transactions undertaken throughout the course of that relationship to ensure that transactions being conducted are consistent with theinvestment firm licensee's knowledge of the customer, their business risk and risk profile; and(b) Ensure that they receive and maintain up-to-date and relevant copies of the identification documents specified in Chapter FC-1, by undertaking reviews of existing records, particularly for higher risk categories of customersInvestment firm licensees must require all customers to provide up-to-date identification documents in their standard terms and conditions of business.Amended: October 2017FC-2.2.11
Investment firm licensees must review and update their customer due diligence information at least every three years, particularly for higher risk categories of customers. If, upon performing such a review, copies of identification documents are more than 12 months out of date, thelicensee must take steps to obtain updated copies as soon as possible.Amended: October 2017FC-3 FC-3 Money Laundering Reporting Officer (MLRO)
FC-3.1 FC-3.1 Appointment of MLRO
FC-3.1.1
Investment firm licensees must appoint a Money Laundering reporting officer ("MLRO"). The position of MLRO is acontrolled function and the MLRO is anapproved person .Amended: January 2007FC-3.1.1.A
For details of CBB’s requirements regarding controlled functions and approved persons, see Section AU-1.2. Amongst other things, approved persons require CBB approval before being appointed, which is granted only if they are assessed as ‘fit and proper’ for the function in question. A completed Form 3 must accompany any request for CBB approval.
Amended: January 2007FC-3.1.2
The position of MLRO must not be combined with functions that create potential conflicts of interest, such as an internal auditor or business line head. The position of MLRO may not be outsourced.
FC-3.1.3
Subject to Paragraph FC-3.1.2, however, the position of MLRO may otherwise be combined with other functions in the
licensee , such as that of Compliance Officer, in cases where the volume and geographical spread of the business is limited and, therefore, the demands of the function are not likely to require a full time resource.Amended: July 2010
Amended: January 2007FC-3.1.3A
For purpose of Paragraphs FC-3.1.2 and FC-3.1.3 above,
Investment firm licensees must clearly state in the Application for Approved Person Status — Form 3 — when combining the MLRO or DMLRO position with any other position within theInvestment firm licensee .Added: October 2017FC-3.1.4
Investment firm licensees must appoint at least one deputy MLRO (or more depending on the scale and complexity of the licensee’s operations). The deputy MLRO must be resident in Bahrain unless otherwise agreed with the CBB.Amended: January 2007FC-3.1.5
Investment firm licensees should note that although the MLRO may delegate some of his functions, either to other employees of the licensee, or even (in the case of larger groups) to individuals performing similar functions for other group entities, the responsibility for compliance with the requirements of this Module remains with thelicensee and the designated MLRO. The deputy MLRO should be able to support the MLRO discharge his responsibilities and to deputise for him in his absence.Amended: January 2007FC-3.1.6
So that he can carry out his functions effectively,
investment firm licensees must ensure that their MLRO:(a) Is a member of senior management of thelicensee and has a sufficient level of seniority within thelicensee , has the authority to act without interference from business line management and has direct access to the Board and senior management (where necessary);(b) [Subparagraph (b) combined with (a) in January 2011];(c) Has sufficient resources, including sufficient time and (if necessary) support staff, and has designated a replacement to carry out the function should the MLRO be unable to perform his duties;(d) Has unrestricted access to all transactional information relating to any financial services provided by thelicensee to a customer, or any transactions conducted by thelicensee on behalf of that customer;(e) Is provided with timely information needed to identify, analyse and effectively monitor customer accounts;(f) Has access to all customer due diligence information obtained by thelicensee ; and(g) Is resident in Bahrain.Amended: October 2011
Amended: January 2011
Amended: January 2007FC-3.1.7
In addition,
investment firm licensees must ensure that their MLRO is able to:(a) Monitor the day-to-day operation of its policies and procedures relevant to this Module; and(b) Respond promptly to any reasonable request for information made by the Financial Intelligence Directorate or the CBB.Amended: October 2019
Amended: July 2010
Amended: January 2007FC-3.1.8
If the position of MLRO falls vacant, the
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, thelicensee must make immediate interim arrangements (including the appointment of an acting MLRO) to ensure continuity in the MLRO function's performance. These interim arrangements must be approved by the CBB.Amended: January 2007FC-3.2 FC-3.2 Responsibilities of the MLRO
FC-3.2.1
The MLRO is responsible for:
(a) Establishing and maintaining thelicensee's AML/CFT policies and procedures;(b) Ensuring that thelicensee complies with the AML Law, any other applicable AML/CFT legislation and this Module;(c) Ensuring day-to-day compliance with thelicensee's own internal AML/CFT policies and procedures;(d) Acting as thelicensee's main point of contact in respect of handling internal suspicious transaction reports from thelicensee's staff (refer to Section FC-4.1) and as the main contact for the Financial Intelligence Directorate, the CBB and other concerned bodies regarding AML/CFT;(e) Making external suspicious transaction reports to the Financial Intelligence Directorate and Compliance Directorate (refer to Section FC-4.2);(f) Taking reasonable steps to establish and maintain adequate arrangements for staff awareness and training on AML/CFT matters (whether internal or external), as per Chapter FC-5;(g) Producing annual reports on the effectiveness of thelicensee's AML/CFT controls, for consideration by senior management, as per Paragraph FC-3.3.3;(h) On-going monitoring of what may, in his opinion, constitute high-risk customer accounts; and(i) Ensuring that theinvestment firm licensee maintains all necessary CDD, transactions, STR and staff training records for the required periods (refer to Section FC-6.1).Amended: January 2020
Amended: October 2019
Amended: October 2014
Amended: July 2010
Amended: January 2007FC-3.3 FC-3.3 Compliance Monitoring
Annual Compliance Review
FC-3.3.1
Investment firm licensees must take appropriate steps to identify and assess their money laundering and terrorist financing risks (for customers, countries or geographic areas; and products, services, transactions or delivery channels). They must document those assessments in order to be able to demonstrate their basis, keep these assessments up to date, and have appropriate mechanisms to provide risk assessment information to the CBB. The nature and extent of any assessment of money laundering and terrorist financing risks must be appropriate to the nature and size of the business.Added: October 2014FC-3.3.1A
Investment firm licensees should always understand their money laundering and terrorist financing risks, but the CBB may determine that individual documented risk assessments are not required, if the specific risks inherent to the sector are clearly identified and understood.Added: October 2014FC-3.3.1B
Investment firm licensees must review the effectiveness of its AML/CFT procedures, systems and controls at least once each calendar year. The review must cover thelicensee and its branches and subsidiaries both inside and outside the Kingdom of Bahrain. Aninvestment firm licensee must monitor the implementation of those controls and enhance them if necessary. The scope of the review must include:(a) A report, containing the number of internal reports made in accordance with Section FC-4.1, a breakdown of all the results of those internal reports and their outcomes for each segment of thelicensee's business, and an analysis of whether controls or training need to be enhanced;(b) A report, indicating the number of external reports made in accordance with Section FC-4.2 and, where alicensee has made an internal report but not made an external report, noting why no external report was made;(c) A sample test of compliance with this Module's customer due diligence requirements; and(d) A report as to the quality of thelicensee's anti-money laundering procedures, systems and controls, and compliance with the AML Law and this Module.Amended: January 2022
Amended: October 2014
Amended: January 2007FC-3.3.2
The reports listed under Paragraph FC-3.3.1B (a) and (b) must be made by the MLRO. The sample testing and report required under Paragraph FC-3.3.1B (c) and (d) must be made by the
licensee’s external auditor or a consultancy firm approved by the CBB.Amended: January 2022
Amended: January 2019
Amended: October 2011FC-3.3.2A
In order for a consultancy firm to be approved by the CBB for the purposes of Paragraph FC-3.3.2, such firm should provide the CBB's Compliance Directorate with:
(a) A sample AML/CFT report prepared for a financial institution;(b) A list of other AML/CFT related work undertaken by the firm;(c) A list of other audit/review assignments undertaken, specifying the nature of the work done, date and name of the licensee; and(d) An outline of any assignment conducted for or in cooperation with an international audit firm.Added: October 2011FC-3.3.2B
The firm should indicate which personnel (by name) will work on the report (including, where appropriate, which individual will be the team leader) and demonstrate that all such persons have appropriate qualifications in one of the following areas:
(a) Audit;(b) Accounting;(c) Law; or(d) Banking/Finance.Added: October 2011FC-3.3.2C
At least two persons working on the report (one of whom would normally expected to be the team leader) should have:
(a) A minimum of 5 years professional experience dealing with AML/CFT issues; and(b) Formal AML/CFT training.Added: October 2011FC-3.3.2D
Submission of a curriculum vitae for all personnel to be engaged on the report is encouraged for the purposes of evidencing the above requirements.
Added: October 2011FC-3.3.2E
Upon receipt of the above required information, the CBB Compliance Directorate will assess the firm and communicate to it whether it meets the criteria required to be approved by the CBB for this purpose. The CBB may also request any other information it considers necessary in order to conduct the assessment.
Added: October 2011FC-3.3.3
The reports listed under Paragraph FC-3.3.1B must be submitted to the
licensee's Board, for it to review and commission any required remedial measures, and copied to thelicensee's senior management.Amended: January 2019FC-3.3.4
The purpose of the annual compliance review is to assist a
licensee's Board and senior management to assess, amongst other things, whether internal and external reports are being made (as required under Chapter FC-4), and whether the overall number of such reports (which may otherwise appear satisfactory) does not conceal inadequate reporting in a particular segment of thelicensee's business (or, where relevant, in particular branches or subsidiaries).Investment firm licensees should use their judgement as to how the reports listed under Paragraph FC-3.3.1B(a) and (b) should be broken down in order to achieve this aim (e.g. by branches, departments, product lines, etc).Amended: January 2019FC-3.3.5
Investment firm licensees must instruct their appointed firm to produce the report referred to in Paragraph FC-3.3.1B (c) and (d). The report must be submitted to the CBB by the 30th of June of the following year. The findings of this review must be received and acted upon by thelicensee .Amended: January 2022
Amended: January 2020
Amended: January 2019
Amended: January 2012
Amended: January 2007FC-3.3.6
[This Paragraph has been deleted in January 2022].
Deleted: January 2022
Amended: January 2012FC-3.3.7
[This Paragraph has been deleted in 2022].
Deleted: January 2022
Amended: January 2020
Amended: January 2019
Amended: July 2010
Amended: April 2008
Amended: January 2007FC-4 FC-4 Suspicious Transaction Reporting
FC-4.1 FC-4.1 Internal Reporting
FC-C.2.6 FC-C.2.6
Categories of customers which may indicate a higher risk include:
(a) The business relationship is conducted in unusual circumstances (e.g. significant unexplained geographic distance between the financial institution and the customer).(b) Non-resident customers;(c) Legal persons or arrangements that are personal asset-holding vehicles;(d) Companies that have nominee shareholders or shares in bearer form;(e) Businesses that are cash-intensive;(f) The ownership structure of the company appears unusual or excessively complex given the nature of the company’s business;(g) Customer is sanctioned by the relevant national competent authority for non-compliance with the applicable AML/CFT/CPF regime and is not engaging in remediation to improve its compliance;(h) Customer is a PEP or customer’s family members, or close associates are PEPs (including where a beneficial owner of a customer is a PEP);(i) Customer resides in or whose primary source of income originates from high-risk jurisdictions;(j) Customer resides in countries considered to be uncooperative in providing beneficial ownership information; customer has been mentioned in negative news reports from credible media, particularly those related to predicate offences for AML/CFT/CPF or to financial crimes;(k) Customer’s transactions indicate a potential connection with criminal involvement, typologies or red flags provided in reports produced by the FATF or national competent authorities;(l) Customer is engaged in, or derives wealth or revenues from, a high-risk cash-intensive business;(m) The number of STRs and their potential concentration on particular client groups;(n) Customers who have sanction exposure; and(o) Customer has a non-transparent ownership structure.Added: January 2022FC-4.1.1
Investment firm licensees must implement procedures to ensure that staff who handle customer business (or are managerially responsible for such staff) make a report promptly to the MLRO if they know or suspect that a customer (or a person on whose behalf a customer may be acting) is engaged in money laundering or terrorism financing, or if the transaction or the customer's conduct otherwise appears unusual or suspicious. These procedures must include arrangements for disciplining any member of staff who fails, without reasonable excuse, to make such a report.FC-4.1.2
Where
investment firm licensees' internal processes provide for staff to consult with their line managers before sending a report to the MLRO, such processes must not be used to prevent reports reaching the MLRO, where staff have stated that they have knowledge or suspicion that a transaction may involve money laundering or terrorist financing.FC-4.2 FC-4.2 External Reporting
FC-4.2.1
Investment firm licensees must take reasonable steps to ensure that all reports made under Section FC-4.1 are considered by the MLRO (or his duly authorised delegate). Having considered the report and any other relevant information, if the MLRO (or his duly authorised delegate) still suspects that a person has been engaged in money laundering or terrorism financing, or the activity concerned is otherwise still regarded as suspicious, he must report the fact promptly to therelevant authorities . Where no report is made, the MLRO must document the reasons why.FC-4.2.2
To take reasonable steps, as required under Paragraph FC-4.2.1,
investment firm licensees must:(a) Require the MLRO to consider reports made under Section FC-4.1 in the light of all relevant information accessible to or reasonably obtainable by the MLRO;(b) Permit the MLRO to have access to any information, including know your customer information, in thelicensee's possession which could be relevant; and(c) Ensure that where the MLRO, or his duly authorised delegate, suspects that a person has been engaged in money laundering or terrorist financing, a report is made by the MLRO which is not subject to the consent or approval of any other person.Amended: January 2007FC-4.2.3
Reports to the
relevant authorities made under Paragraph FC-4.2.1 must be sent to the Financial Intelligence Directorate at the Ministry of the Interior, and to the CBB's Compliance Directorate using the Suspicious Transaction Reporting Online System (Online STR system). STRs in paper format will not be accepted.Amended: October 2019
Amended: July 2016
Amended: October 2014
Amended: July 2010
Amended: January 2007FC-4.2.4
Investment firm licensees must report all suspicious transactions or attempted transactions. This reporting requirement applies regardless of whether the transaction involves tax matters.FC-4.2.5
Investment firm licensees must retain all relevant details of STRs submitted to the relevant authorities, for at least five years.FC-4.2.6
In accordance with the AML Law,
investment firm licensees , theirDirectors , officers andemployees :(a) Must not warn or inform ('tipping off') their customers, the beneficial owner or other subjects of the STR when information relating to them is being reported to therelevant authorities ; and(b) In cases whereinvestment firm licensees form a suspicion that transactions relate to money laundering or terrorist financing, they must take into account the risk of tipping-off when performing the CDD process. If theinvestment firm licensee reasonably believes that performing the CDD process will tip-off the customer or potential customer, it may choose not to pursue that process, and must file an STR.Amended: January 2018
Amended: January 2007FC-4.3 FC-4.3 Contacting the Relevant Authorities
FC-4.3.1
Reports made by the MLRO or his duly authorised delegate under Section FC-4.2 must be sent electronically using the Suspicious Transaction Reporting Online System (Online STR system).
Amended: October 2014
Amended: July 2010
Amended: January 2007FC-4.3.2
The
relevant authorities are:
Financial Intelligence Directorate (FID)
Ministry of Interior
P.O. Box 26698
Manama, Kingdom of Bahrain
Telephone: + 973 17 749397
Fax: + 973 17 715502
E-mail: bahrainfid@moipolice.bhDirector of Compliance Directorate
Central Bank of Bahrain
P.O. Box 27
Manama, Kingdom of Bahrain
Telephone: 17 547107
Fax: 17 535673
E-mail: Compliance@cbb.gov.bhAmended: October 2019
Added: October 2014FC-5 FC-5 Staff Training and Recruitment
FC-5.1 FC-5.1 General Requirements
FC-5.1.1
Investment firm licensees must take reasonable steps to provide periodic training and information to ensure that staff who handle customer transactions, or are managerially responsible for such transactions, are made aware of:(a) Their responsibilities under the AML Law, this Module, and any other relevant AML/CFT laws and Regulations;(b) The identity and responsibilities of the MLRO and his deputy;(c) The potential consequences, both individual and corporate, of any breach of the AML Law, this Module and any other relevant AML/CFT laws or Regulations;(d) Thelicensee's current AML/CFT policies and procedures;(e) Money laundering and terrorist financing typologies and trends;(f) The type of customer activity or transaction that may justify an internal report in accordance with Section FC-4.1;(g) The licensee's procedures for making an internal report as per Section FC-4.1; and(h) Customer due diligence measures with respect to establishing business relations with customers.Amended: January 2007FC-5.1.2
The information referred to in Paragraph FC-5.1.1 must be brought to the attention of relevant new
employees ofinvestment firm licensees , and must remain available for reference by staff during their period of employment.Amended: January 2007FC-5.1.3
Relevant new
employees must be given AML/CFT training within three months of joining alicensee .Amended: January 2007FC-5.1.4
Investment firm licensees must ensure that their AML/CFT training for relevant staff remains up-to-date, and is appropriate given thelicensee's activities and customer base.Amended: January 2007FC-5.1.5
The CBB would normally expect AML/CFT training to be provided to relevant staff at least once a year.
Amended: January 2007FC-5.1.6
Investment firm licensees must develop adequate screening procedures to ensure high standards when hiring employees. These procedures must include controls to prevent criminals or their associates from being employed byinvestment firm licensees .Amended: January 2007FC-5.1.6A
[This Paragraph was deleted in January 2022].
Deleted: January 2022
Added: January 2021FC-6 FC-6 Record-Keeping
FC-6.1 FC-6.1 General Requirements
CDD and Transaction Records
FC-6.1.1
Investment firm licensees must comply with the record-keeping requirements contained in the AML Law and in the CBB Law.Investment firm licensees must therefore retain adequate records (including accounting and identification records), for the following minimum periods:(a) For customers, in relation to evidence of identity and business relationship records (such as application forms, account files and business correspondence, including the results of any analysis undertaken (e.g. enquiries to establish the background and purpose of complex, unusual large transactions)), for at least five years after the customer relationship has ceased; and(b) For transactions, in relation to documents enabling a reconstitution of the transaction concerned, for at least five years after the transaction was completed.Amended: October 2014
Amended: April 2008
Amended: January 2007Compliance Records
FC-6.1.2
Investment firm licensees must retain copies of the reports produced for their annual compliance review, as specified in Paragraph FC-3.3.1B, for at least five years.Investment firm licensees must also maintain for 5 years reports made to, or by, the MLRO made in accordance with Sections FC-4.1 and FC-4.2, and records showing how these reports were dealt with and what action, if any, was taken as a consequence of those reports.Amended: January 2019
Amended: January 2007Training Records
FC-6.1.3
Investment firm licensees must maintain for at least five years, records showing the dates when AML/CFT training was given, the nature of the training, and the names of the staff that received the training.Access
FC-6.1.4
All records required to be kept under this Section must be made available for prompt and swift access by the relevant authorities or other authorised persons.
FC-7 FC-7 NCCT Measures and Terrorist Financing
FC-7.1 FC-7.1 Special Measures for Non-Cooperative Countries or Territories ('NCCTs')
FC-7.1.1
Investment firm licensees must give special attention to any dealings they may have with entities or persons domiciled in countries or territories which are:(a) Identified by the FATF as being 'non-cooperative'; or(b) Notified toinvestment firm licensees from time to time by the CBB.Amended: January 2007FC-7.1.2
Whenever transactions with such parties have no apparent economic or visible lawful purpose, their background and purpose must be re-examined and the findings documented. If suspicions remain about the transaction, these must be reported to the
relevant authorities in accordance with Section FC-4.2.FC-7.1.3
Investment firm licensees must apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries where such measures are called for by the FATF. The type of enhanced due diligence measures applied must be effective and proportionate to the risks.Added: October 2014FC-7.1.4
With regard to jurisdictions identified as NCCTs or those which in the opinion of the CBB, do not have adequate AML/CFT systems, the CBB reserves the right to:
(a) Refuse the establishment of subsidiaries or branches or representative offices of financial institutions from such jurisdictions;(b) Limit business relationships or financial transactions with such jurisdictions or persons in those jurisdictions;(c) Prohibit financial institutions from relying on third parties located in such jurisdictions to conduct elements of the CDD process;(d) Require financial institutions to review and amend, or if necessary terminate, correspondent relationships with financial institutions in such jurisdictions;(e) Require increased supervisory examination and/or external audit requirements for branches and subsidiaries of financial institutions based in such jurisdictions; or(f) Require increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in such jurisdictions.Amended: January 2018
Added: October 2014FC-7.2 FC-7.2 Terrorist Financing
FC-7.2.1AA
Investment firm licensees must implement and comply with United Nations Security Council resolutions relating to the prevention and suppression of terrorism and terrorist financing.Investment firm licensees must freeze,without delay , the funds or other assets of, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of, any person or entity either (i) designated by, or under the authority of, the United Nations Security Council under Chapter VII of the Charter of the United Nations, including in accordance with resolution 1267(1999) and its successor resolutions as well as Resolution 2178(2014) or (ii) designated as pursuant to Resolution 1373(2001).Amended: October 2019
Added: April 2017FC-7.2.1
Investment firm licensees must comply in full with the provisions of the UN Security Council Anti-terrorism Resolution No. 1373 of 2001 ('UNSCR 1373').FC-7.2.2
[This Paragraph was deleted in January 2018].
Deleted: January 2018
Amended: January 2007FC-7.2.3
A copy of UNSCR 1373 is included in Part B of Volume 1 (Conventional Banks), under 'Supplementary Information' on the BMA Website.
FC-7.2.4
Investment firm licensees must report to the CBB details of:(a) Funds or other financial assets or economic resources held with them which may be the subject of Article 1, paragraphs c) and d) of UNSCR 1373;(b) All claims, whether actual or contingent, which thelicensee has on persons and entities which may be the subject of Article 1, paragraphs c) and d) of UNSCR 1373; and(c) All assets frozen or actions taken in compliance with the prohibition requirements of the relevant UNSCRs, including attempted transactions.Amended: January 2023
Amended: January 2007FC-7.2.5
For the purposes of Paragraph FC-7.2.4, 'funds or other financial resources' includes (but is not limited to) shares in any undertaking owned or controlled by the persons and entities referred to in Article 1, paragraph c) and d) of UNSCR 1373, and any associated dividends received by the licensee.
FC-7.2.6
All reports or notifications under this Section must be made to the CBB's Compliance Directorate.
Amended: January 2007FC-7.2.7
See Section FC-4.3 for the Compliance Directorate’s contact details.
Amended: January 2007FC-7.3 FC-7.3 Designated Persons and Entities
FC-7.3.1
Without prejudice to the general duty of all
investment firm licensees to exercise the utmost care when dealing with persons or entities who might come under Article 1, paragraphs (c) and (d) of UNSCR 1373,investment firm licensees must not deal with any persons or entities designated by the CBB as potentially linked to terrorist activity.Amended: January 2007FC-7.3.2
The CBB from time to time issues to
investment firm licensees lists of designated persons and entities believed linked to terrorism.Investment firm licensees are required to verify that they have no dealings with these designated persons and entities, and report back their findings to the CBB. Names designated by the CBB include persons and entities designated by the United Nations, under UN Security Council Resolution 1267 ('UNSCR 1267').Amended: January 2007FC-7.3.3
Investment firm licensees must report to therelevant authorities , using the procedures contained in Section FC-4.2, details of any accounts or other dealings with designated persons and entities, and comply with any subsequent directions issued by therelevant authorities .FC-8 FC-8 Enforcement Measures
FC-8.1 FC-8.1 Regulatory Penalties
FC-8.1.1
Without prejudice to any other penalty imposed by the CBB Law, the Decree Law No. 4 or the Penal Code of the Kingdom of Bahrain, failure by a
licensee to comply with this Module or any direction given hereunder shall result in the levying by the CBB, without need of a court order and at the CBB's discretion, of a fine of up to BD 20,000.Amended: January 2007FC-8.1.2
Module EN provides further information on the assessment of financial penalties and the criteria taken into account prior to imposing such fines (see Paragraph EN-5.1.4). Other enforcement measures may also be applied by the CBB in response to a failure by a
licensee to comply with this Module; these other measures are also set out in Module EN.Amended: January 2007FC-8.1.3
The CBB will endeavour to assist
investment firm licensees to interpret and apply the requirements of this Module.Investment firm licensees may seek clarification on any issue by contacting the Compliance Directorate (see Section FC-4.3 for contact details).Amended: January 2007FC-8.1.4
Without prejudice to the CBB's general powers under the law, the CBB may amend, clarify or issue further directions on any provision of this Module from time to time, by notice to its
investment firm licensees .Amended: January 2007FC-9 FC-9 AML/CFT Guidance and Best Practice
FC-9.1 FC-9.1 Guidance provided by International Bodies
FATF Recommendations
FC-9.1.1
The FATF Recommendations (see www.fatf-gafi.org) (together with their associated interpretative notes and best practices papers) issued by the Financial Action Task Force (FATF), provide the basic framework for combating money laundering activities and the financing of terrorism. FATF Recommendations 2, 9-12, 15, 17-21, 26-27, 33-35 and 40 and the AML/CFT Methodology are relevant to the investment business sector.
Amended: October 2014FC-9.1.2
The
relevant authorities in Bahrain believe that the principles established by these Recommendations should be followed byinvestment firm licensees in all material respects, as representing best practice and prudence in this area.Amended: October 2014Other Website References Relevant to AML/CFT
FC-9.1.3
The following lists a selection of other websites relevant to AML/CFT:
(a) The Middle East North Africa Financial Action Task Force: www.menafatf.org;(b) The Egmont Group: www.egmontgroup.org;(c) The United Nations: www.un.org/terrorism;(d) The UN Counter-Terrorism Committee: www.un.org/Docs/sc/committees/1373/;(e) The UN list of designated individuals: www.un.org/Docs/sc/committees/1267/1267ListEng.htm;(f) The Wolfsberg Group: www.wolfsberg-principles.com; and(g) The Association of Certified Anti-Money Laundering Specialists: www.acams.org.Amended: October 2014
Amended: January 2007FC-10 FC-10 Fraud
FC-10.1 FC-10.1 General Requirements
FC-10.1.1
The requirements of this Chapter apply to
Category 1 investment firms andCategory 2 investment firms only.Amended: July 2007FC-10.1.2
Investment firm licensees must ensure that they allocate appropriate resources and have in place systems and controls to deter, detect, and record instances of fraud or attempted fraud.FC-10.1.3
Fraud may arise from internal sources originating from changes or weaknesses to processes, products and internal systems and controls. Fraud can also arise from external sources, for instance through false invoicing or advance fee frauds. Further guidance — and occasional investor alerts — can be found on the CBB's website (www.cbb.gov.bh).
Amended: January 2007FC-10.1.4
Any actual or attempted fraud incident (however small) must be reported to the appropriate authorities (including the Compliance Directorate at the CBB) and followed up. Monitoring systems must be designed to measure fraud patterns that might reveal a series of related fraud incidents.
Amended: January 2016
Amended: January 2007FC-10.1.5
Investment firm licensees must ensure that a person, of sufficient seniority, is given overall responsibility for the prevention, detection and remedying of fraud within the organisation.FC-10.1.6
Investment firm licensees must ensure the effective segregation of functions and responsibilities, between different individuals and departments, such that the possibility of financial crime is reduced and that no single individual is able to initiate, process and control a transaction.FC-10.1.7
Investment firm licensees must provide regular training to their management and staff, to make them aware of potential fraud risks.FC-11 Crypto-assets
FC-11.1 Transfers of Crypto-assets and Wire Transfers
FC-11.1.1
This section is applicable to
investment firm licensees who undertakeregulated investment services involving transfers ofcrypto-assets . The CBB considers transactions involving transfer ofcrypto-assets as functionally analogous to wire transfer.Added: January 2024FC-11.1.2
Licensees must use technology solutions and other systems to adequately meet anti-money laundering, financial crime and know-your-customer requirements.Added: January 2024FC-11.1.3
Licensees must develop, implement and maintain effective transaction monitoring systems to determine the origin of acrypto-asset and to monitor its destination, and to apply strong transaction monitoring measures which enable thelicensees to have complete granular data centric information about the transactions done by a client.Added: January 2024FC-11.1.4
Licensees must be vigilant and establish internal processes and indicators to identifycrypto-assets that may have been tainted i.e. used for an illegal purpose (for example, certain clients or use of “mixer” and “tumbler” services).Added: January 2024Suspicious Wallet Addresses
FC-11.1.5
Licensees must establish and implement policies for identification of wallet addresses that are suspected of ML/TF (suspicious wallet addresses).Licensees must not establish or continue business relationship with or transact with suspicious wallet addresses.Added: January 2024FC-11.1.6
Where a
licensee identifies or becomes aware of a suspicious wallet address, it must immediately file a Suspicious Transaction Report (STR) in accordance with Chapter FC-4.Added: January 2024Crypto-asset Transfers to be considered as Cross Border Wire Transfer
FC-11.1.7
Licensees must consider all transfers ofcrypto-assets as cross-border wire transfers rather than domestic transfers.Added: January 2024Outward Transfers
FC-11.1.8
Licensees must include all requiredoriginator information and requiredbeneficiary information details with the accompanying transfer ofcrypto-assets and/or wire transfer of funds they make on behalf of their customers.Added: January 2024FC-11.1.9
For purposes of this Section,
originator information refers to the information listed in Subparagraphs FC-11.1.12 (a) to (c) andbeneficiary information refers to the information listed in Subparagraphs FC-11.1.12 (d) and (e).Added: January 2024Inward Transfers
FC-11.1.10
Licensees must:(a) Maintain records of alloriginator information received with an inward transfer; and(b) Carefully scrutinize inward transfers which do not containoriginator information (i.e. full name, address and account number or a unique customer identification number).Licensees must presume that such transfers are ‘suspicious transactions’ and pass them to the MLRO for review for determination as to possible filing of STR, unless theordering financial institution is able to promptly (i.e. within two business days) advise thelicensee in writing of theoriginator information upon thelicensee’s request. The period of 2 business days provided toordering financial institution by thelicensees to furnish theoriginator information is only applicable while undertaking fund transfer (traditional wire transfer) and must not be used in case of transfer ofcrypto-assets .Added: January 2024FC-11.1.11
While undertaking
crypto-asset transfers,licensees must ensure that theordering financial institution transmits theoriginator andbeneficiary information immediately.Added: January 2024Information accompanying Crypto-asset and Cross Border Wire Transfers
FC-11.1.12
Information accompanying all
crypto-asset transfers as well as wire transfers must always contain:(a) The name of theoriginator ;(b) Theoriginator account number (e.g. IBAN orcrypto-asset wallet) where such an account is used to process the transaction;(c) Theoriginator’s address, or national identity number, or customer identification number, or date and place of birth;(d) The name of thebeneficiary ; and(e) The beneficiary account number (e.g. IBAN orcrypto-asset wallet) where such an account is used to process the transaction.Added: January 2024FC-11.1.13
Where a
licensee undertakes a transfer ofcrypto-assets it is not necessary for the information referred to in Paragraph FC-11.1.12 to be attached directly to thecrypto-asset transfers itself. The information can be submitted either directly or indirectly.Added: January 2024FC-11.1.14
Licensees while undertaking transfer ofcrypto-assets must ensure that the requiredoriginator andbeneficiary information is transmitted immediately and securely.Added: January 2024FC-11.1.15
For the purposes of Paragraph FC-11.1.14, “Securely” means that the provider of the information must protect it from unauthorized disclosure as well as ensure that the integrity and availability of the required information is maintained so as to facilitate recordkeeping and the use of such information by financial institution. The term “immediately” means that the provider of the information must submit the required information simultaneously or concurrently with the transfer of the
crypto-asset .Added: January 2024FC-11.1.16
The CBB recognises that unlike traditional fiat currency wire transfers, not every
crypto-asset transfer involves (or is bookended by) two institutions (crypto-asset entities or financial institutions). In instances in which acrypto-asset transfer involves only one financial institution on either end of the transfer (e.g. when anordering financial institution sendscrypto-assets on behalf of its customers, theoriginator , to abeneficiary that is not a customer of abeneficiary financial institution but rather an individual user who receives thecrypto-asset transfer using his/her own distributed ledger technology (DLT) software, such as an unhosted wallet), the financial institution must still ensure adherence to Paragraph FC-11.1.12 for their customer. The CBB does not expect that financial institutions, when originating acrypto-asset transfer, would submit the required information to individual users who are not financial institutions. However, financial institutions receiving acrypto-asset transfer from an entity that is not a financial institution (e.g. from an individualcrypto-asset user using his/her own DLT software, such as an unhosted wallet), must obtain the requiredoriginator information from their customer.Added: January 2024Domestic Wire Transfers
FC-11.1.17
Information accompanying domestic wire transfers must also include
originator information as indicated for cross-border wire transfers unless this information can be made available to thebeneficiary financial institution and the CBB by other means. In this latter case, theordering financial institution need only include the account number or a unique transaction reference number, provided that this number or identifier will permit the transaction to be traced back to theoriginator or thebeneficiary .Added: January 2024FC-11.1.18
For the purposes of Paragraph FC-11.1.17, the information should be made available by the
ordering financial institution within three business days of receiving the request either from thebeneficiary financial institution or from the CBB.Added: January 2024FC-11.1.19
It is not necessary for the recipient institution to pass the
originator information on to thebeneficiary . The obligation is discharged simply by notifying thebeneficiary financial institution of theoriginator information at the time the transfer is made.Added: January 2024Responsibilities of Ordering Financial Institution
FC-11.1.20
The
ordering financial institution must ensure thatcrypto-asset transfers and wire transfers contain required and accurateoriginator information and requiredbeneficiary information.Added: January 2024FC-11.1.21
The
ordering financial institution must maintain alloriginator andbeneficiary information collected in accordance with Chapter FC-6.Added: January 2024FC-11.1.22
The
ordering financial institution must not execute thecrypto-asset transfer or wire transfer if it does not comply with the requirements of Paragraphs FC-11.1.20 and FC-11.1.21.Added: January 2024Responsibilities of Intermediary Financial Institutions
FC-11.1.23
For
crypto-asset transfers and cross-border wire transfers, financial institutions processing an intermediary element of such chains of transfers must ensure that alloriginator andbeneficiary information that accompanies acrypto-asset transfer or wire transfer is retained with it.Added: January 2024FC-11.1.24
Where technical limitations prevent the required
originator orbeneficiary information accompanying a cross-border wire transfer from remaining with a related domestic wire transfer, a record must be kept, for at least five years, by the receivingintermediary financial institution of all the information received from theordering financial institution or anotherintermediary financial institution .Added: January 2024FC-11.1.25
An
intermediary financial institution must take reasonable measures to identifycrypto-asset transfers and cross-border wire transfers that lack the requiredoriginator information or requiredbeneficiary information.Added: January 2024FC-11.1.26
An
intermediary financial institution must have effective risk-based policies and procedures for determining:(a) When to execute, reject, or suspend a traditional wire transfer lacking requiredoriginator or requiredbeneficiary information; and(b) The appropriate follow-up action.Added: January 2024Responsibilities of Beneficiary Financial Institution
FC-11.1.27
A
beneficiary financial institution must take reasonable measures to identifycrypto-asset transfers and cross-border wire transfers that lack the requiredoriginator or the requiredbeneficiary information. Such measures may include post-event monitoring or real-time monitoring where feasible.Added: January 2024FC-11.1.28
For
crypto-asset transfers and wire transfers, abeneficiary financial institution must verify the identity of thebeneficiary , if the identity has not been previously verified, and maintain this information in accordance with Chapter FC-6.Added: January 2024FC-11.1.29
A
beneficiary financial institution must have effective risk-based policies and procedures for determining:(a) When to execute, reject, or suspend a traditional wire transfer lacking requiredoriginator or requiredbeneficiary information; and(b) The appropriate follow-up action.Added: January 2024TC TC Training and Competency
TC-A TC-A Introduction
TC-A.1 TC-A.1 Purpose
Executive Summary
TC-A.1.1
This Module presents requirements that have to be met by
investment firm licensees with respect to training and competency of individuals undertakingcontrolled functions (i.e.approved persons ).Amended: October 2013
Adopted: July 2010TC-A.1.2
Module TC provides Rules and Guidance to
Investment firm licensees to ensure satisfactory levels of competence, in terms of an individual's knowledge, skills, experience, and professional qualifications.Investment firm licensees , are required to demonstrate that individuals undertakingcontrolled functions are sufficiently competent, and are able to undertake their respective roles and responsibilities.Amended: October 2013
Adopted: July 2010TC-A.1.3
The Rules build upon Principles 3 and 9 of the Principles of Business (see Module PB (Principles of Business)). Principle 3 (Due Skill, Care and Diligence) requires an
investment firm licensee to observe high standards of integrity and fair dealing, and to be honest and straightforward in its dealings with clients. Principle 9 (Adequate Resources) requires aninvestment firm licensee to maintain adequate human, financial and other resources sufficient to run its business in an orderly manner.Adopted: July 2010TC-A.1.4
Condition 4 of the Central Bank of Bahrain's ('CBB') Licensing Conditions (Chapter AU-2.4) and Condition 1 of the Approved Persons regime (Chapter AU-3.1) impose further requirements. To satisfy Condition 4 of the CBB's Licensing Conditions, an
investment firm licensee's staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of thelicensee in a sound and prudent manner (AU-2.4). This condition specifies thatinvestment firm licensees must ensure their employees meet any training and competency requirements specified by the CBB. Condition 1 of the Approved Persons Conditions (AU-3.1) sets forth the 'fit and proper' requirements in relation to competence, experience and expertise required byapproved persons .Amended: January 2011
Adopted: July 2010Legal Basis
TC-A.1.5
This Module contains the CBB's Directive (as amended from time to time) relating to Training and Competency and is issued under the powers available to the CBB under Articles 38 and 65 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 theirapproved persons ).Amended: January 2011
Adopted: July 2010TC-A.1.6
Chapter AU-3 of Module AU (Authorisation), specifies that
approved persons must be assessed by the CBB as 'fit and proper' to hold such a position. The Chapter specifies various factors that the CBB takes into account when reaching such a decision.Adopted: July 2010TC-A.1.7
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Adopted: July 2010TC-A.2 TC-A.2 Module History
Evolution of the Module
TC-A.2.1
This Module was first issued in July 2010. Any material changes that are subsequently made to this Module are annotated with the calendar quarter date in which the change is made; Chapter UG-3 provides further details on Rulebook maintenance and version control.
Adopted: July 2010TC-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes TC-A.1.5 01/2011 Clarified legal basis. TC-1.1.6, 1.1.9, 1.1.11, 1.1.13, 1.1.15, 1.1.18, 1.1.20 and 1.1.22 01/2011 Paragraphs deleted as considered duplicate and found in other parts of Volume 4. TC-1.1.16 01/2011 Amended requirements for position of MLRO. Appendix TC-1 01/2011 Clarified how competence can be demonstrated for the position of Director. TC-1.1.7, TC-1.1.8, TC-1.1.10, TC-1.1.14 04/2011 Corrected cross references. Appendix TC-1 01/2012 Added core competencies for compliance officer. Module TC 10/2013 Removed references to Deputy Money Laundering Officer (DMLRO) to be in line with changes made to Module AU in January 2011. Module TC 10/2013 Removed references to appointed representatives. TC-B.1.4 07/2014 Clarified scope of application to include board members. Appendix TC-1 10/2015 Added additional example of certification for financial instruments trader. TC-1.1.17 01/2016 Corrected typo. TC-A.2.3
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Adopted: July 2010TC-B TC-B Scope of Application
TC-B.1 TC-B.1 Scope
TC-B.1.1
This Module applies to all CBB
investment firm licensees authorised in the Kingdom.Adopted: July 2010TC-B.1.2
Module TC, unless otherwise stated, applies in full to all three categories of
investment firm licensees authorised in Bahrain. In the case of anoverseas investment firm licensee , the applicability of this Module is restricted to its Bahrain operations.Adopted: July 2010TC-B.1.3
Persons authorised by the CBB as
approved persons prior to the issuance of Module TC need not reapply for authorisation.Adopted: July 2010TC-B.1.4
The requirements of this Module apply to
approved persons , including board members, holdingcontrolled functions :(a) Who are employed by theinvestment firm licensee in connection with theinvestment firm licensee's regulated investment services , whether under a contract of service or for services or otherwise;(b) Whose services, under an arrangement between theinvestment firm licensee and a third party, are placed at the disposal and under the control of theinvestment firm licensee ; or(c) Employed by theinvestment firm licensee , whether under a contract of service or for services or otherwise, for which thatinvestment firm licensee has accepted responsibility.Amended: July 2014
Amended: October 2013
Adopted: July 2010TC-B.1.5
Investment firm licensees must satisfy the CBB that individuals performing acontrolled function for it or on its behalf are suitable and competent to carry on thatcontrolled function .Adopted: July 2010TC-B.1.6
In implementing this Module,
investment firm licensees must ensure that:(a) Individuals recruited by theinvestment firm licensee to perform acontrolled function hold suitable qualifications and experience appropriate to the nature of the business;(b) Individuals performing acontrolled function remain competent for the work they do; and(c) Individuals performing acontrolled function are appropriately supervised.Amended: October 2013
Adopted: July 2010TC-1 TC-1 Recruitment and Assessing Competence
TC-1.1 TC-1.1 Recruitment and Appointments
TC-1.1.1
If an
investment firm licensee recruits an individual to undertake acontrolled function , it must satisfy itself, where appropriate, of such individual's relevant qualifications and experience.Amended: October 2013
Adopted: July 2010TC-1.1.2
An
investment firm licensee proposing to recruit an individual has to satisfy itself, of his/her relevant qualifications and experience. Theinvestment firm licensee should:(a) Take into account the knowledge and skills required for the role, in addition to the nature and the level of complexity of thecontrolled function ; and(b) Take reasonable steps to obtain sufficient information about the individual's background, experience, training and qualifications.Adopted: July 2010TC-1.1.3
In accordance with AU-1.1.24, a firm which is an
Islamic investment firm licensee must maintain a Shari'a Supervisory Board to verify that its operations are Shari'a compliant, and must comply with relevant AAOIFI standards.Adopted: July 2010TC-1.1.4
Individuals occupying
controlled functions (refer to Paragraphs AU-1.2.7 to AU-1.2.15) in aninvestment firm licensee must be qualified and suitably experienced for their specific roles and responsibilities. Thecontrolled functions are those of:(a)Director ;(b)Chief Executive orGeneral Manager ;(c)Head of function ;(d)Compliance officer ;(e) Money Laundering Reporting Officer ('MLRO');(f) [This Subparagraph was deleted in October 2013];(g) Member of Shari'a Supervisory Board (where applicable);(h)Financial instruments trader ; and(i)Investment consultant orinvestment adviser .Amended: October 2013
Adopted: July 2010TC-1.1.5
An
investment firm licensee must take reasonable steps to ensure that individuals holdingcontrolled functions are sufficiently knowledgeable about their respective fields of work to be able to guide and supervise operations that fall under their responsibilities. Competence must be assessed on the basis of experience and relevant qualifications described in Appendix TC-1 as a minimum. However, the CBB reserves the right to impose a higher level of qualifications as it deems necessary.Amended: October 2013
Adopted: July 2010Director
TC-1.1.6 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.7
The role of the
director is to be accountable and responsible for the management and performance of thelicensee , and is outlined in more details in Section HC-1.2.Amended: April 2011
Adopted: July 2010TC-1.1.8
When taken as a whole, the board of
directors of aninvestment firm licensee must be able to demonstrate that it has the necessary expertise, as outlined in Paragraph HC-1.2.4.Amended: April 2011
Adopted: July 2010Chief Executive or General Manager
TC-1.1.9 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.10
The
chief executive officer orgeneral manager (as appropriate) is responsible for the executive management and performance of thelicensee within the framework or delegated authorities set by the Board, and is outlined in more details in Paragraph HC-6.3.4.Amended: April 2011
Adopted: July 2010Head of Function
TC-1.1.11 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.12
Heads of functions are responsible for tracking specific functional performance goals in addition to identifying, managing, and reporting critical organisational issues upstream. Certain functions require dealing directly withclients while others do not. Both categories of functions, however, require specific qualifications and experience to meet the objectives as well as compliance requirements of theinvestment firm licensee .Adopted: July 2010Compliance Officer
TC-1.1.13 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.14
In accordance with Paragraph AU-1.2.16, an employee of appropriate standing must be designated by
investment firm licensees for the position ofcompliance officer . The duties of thecompliance officer , who must have Bahraini residency, are outlined in more details in Section HC-6.5 and include:(a) Having responsibility for oversight of thelicensee's compliance with the requirements of the CBB; and(b) Reporting to thelicensee's Board in respect of that responsibility.Amended: April 2011
Adopted: July 2010Money Laundering Reporting Officer (MLRO)
TC-1.1.15 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.16
In order to carry out the function of MLRO effectively,
investment firm licensees must ensure that their MLRO:(a) Is a member of senior management of thelicensee and has a sufficient level of seniority within thelicensee , has the authority to act without interference from business line management and has direct access to the Board and senior management (where necessary);(b) [Subparagraph (b) combined with (a) in January 2011];(c) Has sufficient resources, including sufficient time and (if necessary) support staff, and has designated a replacement to carry out the function should the MLRO be unable to perform his duties;(d) Has unrestricted access to all transactional information relating to any financial services provided by thelicensee to that customer, or any transactions conducted by thelicensee on behalf of a customer;(e) Is provided with timely information needed to identify, analyse and effectively monitor customer accounts;(f) Has access to all customer due diligence information obtained by thelicensee ; and(g) Is resident in Bahrain.Amended: October 2013
Amended: January 2011
Adopted: July 2010TC-1.1.17
As outlined in Paragraph FC-3.2.1, the role and responsibilities of the MLRO involve, but are not limited to, the following:
(a) Establishing and maintaining theinvestment firm licensee's Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) policies and procedures;(b) Ensuring compliance with the AML Law, any other applicable AML/CFT legislation as well as rules and guidance pertaining to Module FC;(c) Ensuring day-to-day compliance with thelicensee's own internal AML/CFT policies and procedures;(d) Acting as thelicensee's main point of contact for internal suspicious transaction reports from thelicensee's staff, (refer to Section FC-4.1), and as the main contact for the Financial Intelligence Unit, the CBB and other concerned bodies regarding AML/CFT;(e) Making external suspicious transaction reports to the Financial Intelligence Unit and Compliance Directorate (refer to Section FC-4.2);(f) Taking reasonable steps to establish and maintain adequate arrangements for staff awareness and training on AML/CFT matters (whether internal or external), as per Section FC-5;(g) Producing annual reports on the effectiveness of thelicensee's AML/CFT controls, for consideration by senior management, as per Paragraph FC-3.3.1;(h) On-going monitoring of what may, in his opinion, constitute high-risk customer accounts; and(i) Maintaining all necessary customer due diligence (CDD), transactions, suspicious transaction reports (STR) and staff training records for the required periods (see Section FC-6.1).Amended: January 2016
Amended: October 2013
Adopted: July 2010Member of the Shari'a Supervisory Board
TC-1.1.18 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.19
As outlined in AAOIFI's governance standard No.1, the Shari'a Supervisory Board is entrusted with the duty of directing, reviewing and supervising the activities of the Islamic financial institutions in order to ensure that it is in compliance with Islamic Shari'a Rules and Principles.
Adopted: July 2010Financial Instruments Trader
TC-1.1.20 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.21
In accordance with Rule AU-1.2.12, the role of
financial instruments traders , who must be knowledgeable of various areas within the financial industry and any significant market developments, involves:(a) Buyingfinancial instruments ; or(b) Sellingfinancial instruments .Adopted: July 2010Investment Consultant or Investment Adviser
TC-1.1.22 [deleted]
[Paragraph deleted in January 2011].
Deleted: January 2011TC-1.1.23
In accordance with Rule AU-1.2.13,
investment consultants orinvestment advisers are responsible for:(a) Arranging deals infinancial instruments ; and/or(b) Providing advice to clients with regards tofinancial instruments .Amended: October 2013
Adopted: July 2010TC-1.1.24
Individuals holding the position of
investment consultant orinvestment adviser must comply with the rules and guidance set forth in Module BC, particularly theInvestment Business Code of Practice ('the Code') Amended: October 2013
Adopted: July 2010Record Keeping
TC-1.1.25
An
investment firm licensee must make and retain records of its recruitment procedures. Such procedures should be designed to adequately take into account proof of the candidates' knowledge and skills and their previous activities and training.Adopted: July 2010TC-1.1.26
The recruitment record keeping procedure should include, but is not limited to, the following:
(a) Results of the initial screening;(b) Results of any employment tests;(c) Results and details of any interviews conducted;(d) Background and references checks; and(e) Details of any professional qualifications.Adopted: July 2010TC-1.2 TC-1.2 Assessing Competence
TC-1.2.1
Investment firm licensees must not allow an individual to undertake or supervisecontrolled functions unless that individual has been assessed by theinvestment firm licensee as competent in accordance with this Section.Adopted: July 2010TC-1.2.2
In the case of new personnel, the
investment firm licensee should ensure that they work under proper supervision. Where a person is working towards attaining a level of competence, they should be supervised by a competent person until they can demonstrate the appropriate level of competence. It is theinvestment firm licensee's responsibility to ensure that such arrangements are in place and working successfully.Adopted: July 2010TC-1.2.3
In determining an individual's competence,
licensees may assess if the person is fit and proper in accordance with Chapter AU-3.Adopted: July 2010TC-1.2.4
Investment firm licensees will assess individuals as competent when they have demonstrated the ability to apply the knowledge and skills required to perform a specificcontrolled function without supervision.Adopted: July 2010TC-1.2.5
The assessment of competence will be dependent on the nature and the level of complexity of the
controlled function . Such assessment of competence of new personnel may take into account the fact that an individual has been previously assessed as competent in a similarcontrolled function with anotherinvestment firm licensee .Adopted: July 2010TC-1.2.6
If an
investment firm licensee assesses an individual as competent in accordance with TC-1.2.4 to perform a specificcontrolled function, it does not necessarily mean that the individual is competent to undertake othercontrolled functions .Adopted: July 2010TC-1.2.7
A firm should use methods of assessment that are appropriate to the
controlled function and to the individual's role.Adopted: July 2010Record Keeping
TC-1.2.8
An
investment firm licensee should make and retain updated records of:(a) The criteria applied in assessing the ongoing and continuing competence; and(b) How and when the competence decision was arrived at.Adopted: July 2010TC-2 TC-2 Training and Maintaining Competence
TC-2.1 TC-2.1 Training and Supervision
TC-2.1.1
An
investment firm licensee must annually determine the training needs of individuals undertakingcontrolled functions . It must develop a training plan to address these needs and ensure that training is planned, appropriately structured and evaluated.Amended: October 2013
Adopted: July 2010TC-2.1.2
The assessment and training plan described in Paragraph TC-2.1.1 should be aimed at ensuring that the relevant
approved person maintains competence in thecontrolled function . Training does not necessarily just simply attendance of courses. An individual can develop skills and gain experience in a variety of ways. These could include on-the-job learning, individual study, and other methods. In almost every situation, and for most individuals, it is likely that competence will be developed most effectively by a mixture of training methods.Amended: October 2013
Adopted: July 2010TC-2.1.3
The training plan of
investment firm licensees must include a programme for continuous professional development training ("CPD") for their staff.Amended: October 2013
Adopted: July 2010TC-2.1.4
Approved persons may choose to fulfil their CPD requirements by attending courses and seminars at local or foreign training institutions, some of which are set out in Appendix TC-2.Amended: October 2013
Adopted: July 2010TC-2.1.5
The annual training needs assessment required under Paragraph TC-2.1.1 must also consider quarterly updates, if any, to the CBB Volume 4 (Investment Business) Rulebook, in areas relevant to each
controlled function .Adopted: July 2010Continuous Professional Development (CPD)
TC-2.1.6
Individuals holding the
controlled functions of compliance officer and MLRO in aninvestment firm licensee must undergo a minimum of 15 hours of CPD, in their area, per annum.Amended: October 2013
Adopted: July 2010TC-2.1.7
An
investment firm licensee should ensure that anapproved person undertaking acontrolled function undergo appropriate review and assessment of performance.Amended: October 2013
Adopted: July 2010TC-2.1.8
The level of review and assessment should be proportionate to the level of competence demonstrated by the
approved person . Review and assessment should take place on a regular basis and include coaching and assessing performance against the competencies necessary for the role.Amended: October 2013
Adopted: July 2010TC-2.1.9
Assessors of
approved persons should have technical knowledge and relevant skills, e.g. coaching and assessment skills.Amended: October 2013
Adopted: July 2010Record Keeping
TC-2.1.10
An
investment firm licensee should make and retain records of:(a) The annual training plan for eachcontrolled function ;(b) Materials used to conduct in-house training courses;(c) List of participants attending such in-house training courses; and(d) Results of evaluations conducted at the end of such training courses.Amended: October 2013
Adopted: July 2010TC-2.1.11
Investment firm licensees should maintain appropriate training records for each individual.Licensees should note how the relevant training relates to and supports the individual's role. Training records may be reviewed during supervisory visits to assess theinvestment firm licensee's systems and to review how thelicensee ensures that its staff are competent and remain competent for their roles.Amended: October 2013
Adopted: July 2010TC-2.2 TC-2.2 Maintaining Competence
TC-2.2.1
An
investment firm licensee must make appropriate arrangements to ensure thatapproved persons maintain competence.Amended: October 2013
Adopted: July 2010TC-2.2.2
An
investment firm licensee should ensure that maintaining competence for anapproved person takes into account:(a) Application of technical knowledge;(b) Application and development of skills; and(c) Any market changes and changes to products, legislation and regulation.Amended: October 2013
Adopted: July 2010TC-2.2.3
An
investment firm licensee may utilise the CPD schemes of relevant professional bodies to demonstrate compliance with TC-2.2.1. See Appendix TC-2 for a list of professional bodies in Bahrain. In-house training, seminars, conferences, further qualifications, product presentations, computer-based training and one-to-one tuition may also be considered to demonstrate compliance with TC-2.2.1.Amended: October 2013
Adopted: July 2010Record Keeping
TC-2.2.4
An
investment firm licensee should make and retain records of:(a) The criteria applied in assessing continuing competence;(b) The annual assessment of competence; and(c) Record of CPD hours undertaken by eachapproved person .Amended: October 2013
Adopted: July 2010TC-3 TC-3 Transitional Provisions
TC-3.1 TC-3.1 Transitional Period
TC-3.1.1
The requirements of Module TC for
investment firm licensees are effective from 1st July 2010.Adopted: July 2010TC-3.1.2
Where
approved persons holdingcontrolled functions are occupying positions within theinvestment firm licensee , do not meet the qualifications and core competencies outlined in Appendix TC-1 at the time of the issuance of Module TC, theinvestment firm licensee must ensure that such individuals will meet the requirements of Module TC by 31st December 2011 at the latest.Amended: October 2013
Adopted: July 2010Appendix TC-1 Qualifications and Core Competencies of Controlled Functions
Role Core Competencies How can competence be demonstrated? Director Directors should have: (a) Experience to demonstrate sound business decision-making; and(b) A good understanding of the industry and its regulatory environment.This person should be experienced in the industry. Competence could be demonstrated by: (a) Holding a relevant professional qualification; or(b) A minimum length of service (at least 5 years at director or senior management level) in the industry or another industry.Chief Executive or General Manager These roles require: (a) A clear understanding of the role and responsibilities associated with this position;(b) A good understanding of the licensee's business, the broader industry and its regulatory environment; and(c) The relevant experience and qualifications associated with any executive responsibilities.This person should be experienced as a senior manager in the financial services industry for a minimum of 5 years. Ways of demonstrating competence could include holding or working towards a relevant qualification.
Relevant qualifications should involve an examination of topics such as the general economic background, financial markets, legal issues, clients' financial needs and objectives, relevant social issues, regulatory codes and legislation, roles of financial advisers, in addition to risks, costs and benefits of financial products.Head of Function This role requires: (a) A clear understanding of the role and responsibilities associated with the relevant function;(b) A good understanding of the licensee's business, the broader industry and its regulatory environment; and(c) The relevant experience and qualifications to fulfill their responsibilities.A senior manager responsible for a specialist function should demonstrate the competencies required for that role.
The person must have area specific experience/qualifications as required for head of function. These include accounting qualifications for financial managers, Bachelors degree in Banking or Finance, MBA, etc.
Certain roles may require qualifications such as the CISI/ESA Islamic Finance Qualification, or other relevant certifications. The benchmark qualifications include certifications issued by a recognized institute such as any:(a) Certificate in Securities;(b) Certificate in Securities and Financial Derivatives;(c) Certificate in Investment Management;(d) Professional Certification in Accounting; and/or(e) Equivalent certificates or degrees.The head of function should have at least 5 years of experience in the industry and will typically hold, or be working towards, a relevant professional qualification in the field of banking and finance, or as appropriate to the controlled function.Head of Treasury In addition to the requirements outlined for individuals holding positions of head of function, this role requires: (a) A clear understanding of banking and treasury related products;(b) A clear understanding of the Asset Liability Management and Risk Management; and(c) A good understanding of the Financial Markets, Capital Markets, Latest Product Offering, hands-on working knowledge of the various treasury systems and risk management functions.The treasury function is highly specialised, and as such, the head of this function needs to satisfy further qualifications in comparison to other function heads.
In addition to holding a minimum of 5 years of experience, the Head of Treasury must also hold certifications required for a head of function.
Additional qualifications for the Head of Treasury may include the following certifications issued by a recognized institute:(a) MBA (Finance and Marketing);(b) ACI Diploma;(c) CFA;(d) ACI Dealing Certificate, ACI Operations Certificate;(e) General Securities Representative Qualification (Series 7); and/or(f) PRM.Compliance Officer A Compliance Officer should: (a) Have the ability and experience to take responsibility for implementing and maintaining compliance policies;(b) Have the appropriate level of experience to demonstrate independence from other functions within the licensee;(c) Have a thorough understanding of the industry and the applicable regulatory framework;(d) Have knowledge of different types of investment structures and the structural and operational arrangements ofinvestment firm licensees ;(e) Have knowledge of the financial instruments dealt by the licensee; and(f) Have knowledge of the requirements for providing services in other jurisdictions.The level of required competence varies based on the scope, magnitude and complexity of the licensee.The person should have a minimum of 2 years of relevant experience in a compliance function of a financial institution.
Additional relevant certifications may include:(a) Diploma in International Compliance offered by the International Compliance Association; and/or(b) Other relevant professional qualification.Money
Laundering
Reporting
Officer
(MLRO)The MLRO should: (a) Understand the business and how the Anti Money Laundering framework applies thereto; and(b) Have the appropriate level of experience to demonstrate independence from staff of the licensee dealing directly with customers.An MLRO will typically hold a relevant professional qualification and/or a qualification related to the financial activities. These may include: (a) Certified Anti-Money Laundering Specialist Examination (ACAMS);(b) Other relevant MLRO programs; and/or(c) Diploma in International Compliance offered by the International Compliance Association.Additionally, he must have undergone training in anti money laundering, in a recognized institute. The initial training must be for a period of 35 hours or more.
MLROs should have thorough knowledge of the financial institutions industry and be familiar with relevant international standards and applicable domestic regulatory requirements.Members of Shari'a Supervisory Board This role requires: (a) An appropriate level of knowledge of Islamic Finance and related rules and their application to the industry; and(b) A good understanding of the industry.Members of a Shari'a Supervisory Board should be: (a) Highly experienced in their field; and(b) Specialized jurists in Fiqh Al-Mua'malat (Islamic commercial jurisprudence) and familiar with Islamic finance.Financial
Instruments
TraderThis role requires: (a) A thorough understanding of Financial Markets, Capital Markets, Latest product offering, working knowledge of the various treasury systems, Asset Liability Management (ALM) and risk management functions; and(b) Understanding of the industry and its regulatory environment.The benchmark qualifications include certifications issued by a recognized institute such as: (a) Any professional qualification/degree in accounting, finance, banking, and/or investment management;(b) ACI Dealing Diploma/Certificate (The Financial Markets Association);(c) CFA;(d) General Securities Representative Qualification (Series 7);(e) Any certificate in Securities;(f) Any certificate in Securities and Financial Derivatives;(g) Any certificate in Investment Management;(h) Certified Islamic Professional Accountant; and/or(i) Securities Market Regulation Certification Programme; and/or(j) Equivalent certificates or degrees.Investment Consultant / Investment Adviser This role requires: (a) A thorough understanding of Financial products, Financial Markets, Capital Markets, latest product offering, Asset Liability Management and risk management functions;(b) An awareness of tax issues associated with investment activities (where applicable); and(c) An understanding of the Investment Code of Practice ('the Code').It is expected that any person who is involved in advising customers on investment products has attained an appropriate qualification such as: (a) Any professional qualification/degree in accounting, finance, banking, and/or investment management;(b) ACI Dealing Diploma/Certificate (The Financial Markets Association);(c) CFA;(d) General Securities Representative Qualification (Series 7);(e) Certificate in Financial Planning papers 1-3 (The Chartered Insurance Institute);(f) IFA Certificate for Financial Advisers;(g) Any Securities Investment Institute/Financial Adviser qualification; and/or(h) Any equivalent or higher level qualification.Amended: October 2015
Amended: October 2013
Amended: January 2012
Amended: January 2011
Adopted: July 2010Appendix TC-2 Professional Bodies and Qualifications
Relevant Professional Bodies
(a) Any accredited university(b) Institute of Chartered Secretaries and Administrators (ICSA)(c) Certified Financial Analyst (CFA) Institute(d) American Institute of Certified Public Accountants (AICPA)(e) Institute of Management Accountants (IMA)(f) Chartered Alternative Investment Analyst Association (CAIA)(g) Association of Chartered Certified Accountants (ACCA)(h) Chartered Institute for Securities & Investment (CISI)(i) Association Cambiste Internationale, Paris (ACI)(j) Professional Risk Managers' International Association (PRIMA)(k) Financial Industry Regulatory Authority (FINRA), formerly National Association of Securities Dealers (NASD)(l) International Compliance AssociationCourses for CPD in Bahrain
(a) Courses and certifications in the following areas:• Banking• Investment Management• Islamic Finance• Insurance• Leadership and Management• Accounting• Information Technology• Anti Money Laundering(b) Other training courses and diplomas in areas of banking and financeAdopted: July 2010GS Group Supervision
[This module in Volume 4 has been intentionally left blank: requirements relating to Group Supervision will be issued at a later date.]
DA DA Digital Financial Advice
DA-A DA-A Introduction
DA-A.1 DA-A.1 Purpose
DA-A.1.1
This Module sets out the Central Bank of Bahrain's (CBB's) Directive relevant to licensees providing
digital financial advice or 'robo-advice' as defined in Module AU, Authorisation Module of the CBB Rulebook Volume 4 in the Kingdom of Bahrain.Added: April 2019DA-A.1.2
This Module should be read in conjunction with the requirements in other parts of the CBB Rulebook, Volume 4, applicable to
licensees particularly:(a) Principles of Business Module(b) General Requirements Module;(c) High level Controls Module;(d) Business Conduct Module(e) Financial Crime Module; and(f) Enforcement Module.Added: April 2019Legal Basis
DA-A.1.3
This Module contains the CBB's Directive (as amended from time to time) applicable to Category 1, 2 or 3
licensees providingdigital financial advice and is issued under the powers available to the CBB under Article 38 of the CBB Law.Added: April 2019DA-A.1.4
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Added: April 2019DA-A.2 DA-A.2 Module History
DA-A.2.1
This Module was first issued in March 2019. It is numbered as version 01. All subsequent changes to this Module are annotated with a sequential version number: UG-3 provides further details on Rulebook maintenance and version control.
Added: April 2019DA-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes DA-B DA-B Scope of Application
DA-B.1 DA-B.1 Introduction
DA-B.1.1
Digital financial advice , otherwise also referred to in common jargon as 'robo advice' or 'automated advice' has gained much popularity globally following advancements in technology. The provision of financial advice is a regulated activity under this Rulebook and the use of technology for providingdigital financial advice needs to be governed within the context of sound prudential and conduct regulations in order to safeguard the interests ofclients . This Module sets forth the key requirements applicable tolicensees who wish to use adigital financial advice tool.Added: April 2019DA-B.1.2
The core of
digital financial advice tools is the algorithms embedded in the software. The algorithms use a variety of financial modelling techniques and assumptions to translate data inputs into suggested actions at each step of the financial advice value chain. For this reason, it is essential that the entire process is subject to a comprehensive governance and controls framework.Added: April 2019DA-B.1.3
Additionally, there are confidentiality and data privacy implications if the
digital financial advice tool uses the cloud for the analytics. Ifclient data is processed by the tool using the cloud there must be safeguards to avoid noncompliance with applicable laws.Added: April 2019DA-1 DA-1 Systems and Controls
DA-1.1 DA-1.1 Oversight and Internal Controls
Board and Senior Management Involvement
DA-1.1.1
Board and senior management of the
licensees providingdigital financial advice must maintain effective oversight and governance of thedigital financial advice process and the client-facing tool. The board and senior management must establish sound policies, procedures, systems, methodologies and tools in relation to the provision ofdigital financial advice . Such policies must be comprehensive and cover the following:(a) System design and system design documentation;(b) Construction of the algorithms, changes and their maintenance;(c) Suspension of the use ofdigital financial advice tool should there be errors;(d) Security and access controls;(e) Updating input parameters on a timely basis, for example, factors such as market changes or changes in law;(f) End to end processes for the advisory service using thedigital financial advice tool;(g) Oversight over the management of the client-facing tool; and(h) Documentation of test strategy explaining scope of testing the algorithms.Added: April 2019Internal Controls and Risks
DA-1.1.2
Licensees must establish adequate internal controls to safeguard theirclients from unsuitable advice and effectively manage the operational and other relevant risks arising therefrom.Added: April 2019DA-1.1.3
Licensees must ensure that there are documented measures to protect confidentiality of client data consistent with Law No. 30 of 2018, Personal Data Protection Law (PDPL) issued on 12 July 2018.Added: April 2019DA-1.1.4
Licensees providingdigital financial advice must ensure that their overall control framework and the algorithm functionality is evaluated and independently tested by an independent external consultant other than the external auditor:a) initially upon implementation of this Module and prior to launching the digital financial advice to clients;b) when there are any material changes to the systems and controls; andc) at least once every 3 years.Added: April 2019DA-1.1.5
The evaluation requirements referred to in Paragraph DA-1.1.4 should cover at a minimum:
a) the internal control infrastructure, given the nature, scope and complexity of the digital financial advice business operation;b) the appropriateness of third-party system or tools used;c) validation of the underlying models;d) the algorithm's functionality;e) the cyber security policies and controls;f) the completeness and accuracy of client profiling process including the relevant KYC requirements;g) controls on client data protection and confidentiality.Added: April 2019DA-1.1.6
Licensees must ensure that reports of the evaluation referred to in paragraph DA-1.1.4 is provided to the CBB within 2 weeks of completion of the reports, provided however, that the report required under DA-1.1.4 (a) should be submitted for the CBB's review and no-objection prior to launching the digital financial advice to clients.Added: April 2019DA-1.1.7
Licensees must ensure that the requirements relating to enhanced due diligence as required under Module FC are met when the client is assessed as higher risk and also where the client relationship (whether at the time of on-boarding or otherwise) is on a non-face-to-face basis.Added: April 2019DA-1.1.8
Licensees offeringdigital financial advice involving overseas funds must ensure that they comply with the requirements for obtaining authorization, registration and/ or acknowledgement of filing from the CBB under Module ARR of the CBB Rulebook 7: (Collective Investment Undertakings).Added: April 2019DA-1.2 DA-1.2 Technology
DA-1.2.1
Licensees providingdigital financial advice must ensure that they maintain an up to date security policy document containing the following information:a) a description of the business IT systems supporting thedigital financial advice tool;b) the logical security measures and mechanisms in place, specifying the control the licensee will have over such access as well as the nature and frequency of such control;c) policies and processes for system monitoring, authentication, confidentiality of communication, intrusion detection, antivirus systems and logs;d) the physical security measures and mechanisms of the premises and the data centre of thelicensee , such as access controls and environmental security; ande) the type of authorised connections from outside, such as with technology partners, service providers and employees working remotely, including the rationale for such connections where applicable.Added: April 2019DA-1.3 DA-1.3 Client On boarding and Profiling
Client Agreements and On boarding
DA-1.3.1
Further to the requirements under BC-2.4 relevant to retail
clients , thelicensees providingdigital financial advice must agree in writing theterms of business with theirclients and ensure that the following are stipulated:a) the full scope of thedigital financial advice ;b) the basis for providingdigital financial advice including but not limited to methodologies used for the algorithm,c) the fees, charges or commissions relevant to the advice being offered;d) the specific conditions or triggers and the processes relating to suspension or discontinuation of the use of thedigital financial advice client facing tool and possible use or replacement of human judgement;e) changes to the algorithm, the key input parameter, assumptions underlying thedigital financial advice client facing tool;f) the dispute resolution processes are available to theclients if they wish to make a complaint; andg) terms on howclients can withdraw from the arrangement and any associated costs.Added: April 2019DA-1.3.2
The terms of business referred to in Paragraph DA-1.3.1 may be presented in a digital format and customer consent may be obtained in digital format subject to complying with relevant law/s.
Added: April 2019DA-1.3.3
At the time of on boarding
clients and prior to the signing ofclient agreements, thelicensees must:(a) explain the scope of the advice (i.e. what advice is being offered, any restrictions or limitations, and any relevant matters not forming part of the advice);(b) actively demonstrate to the clients that the advice they are seeking is within the scope of what is being offered;(c) explain the methodological approaches to the strategy and the algorithms underlying it;(d) informclients if the licensee believes that thedigital financial advice is not appropriate to him based on the understanding of the client profile and objectives;(e) inform the clients on the likely benefits and risk resulting from thedigital financial advice ; and(f) ensure that the client understands that any performance numbers presented are hypothetical projections of return and that actual performance of the portfolio may vary from initial projections.Added: April 2019DA-1.3.4
Licensees are not required to disclose the detailed methodology itself, but rather the approach utilised in designing the algorithm should be described.
Added: April 2019Client Profiling
DA-1.3.5
Licensees providingdigital financial advice toclients must record the client profile accurately and comprehensively if they are critical and to the extent needed for the algorithms underlying the client facing tool. The licensees must at a minimum:(a) obtain information to understand theclients overall financial situation, including sources of regular income, financial returns objective, time horizon, liquidity, legal issues, taxes and any unique constraints;(b) obtain information to make assessment of both the customers' risk tolerance, capacity and willingness;(c) have a process in place for resolving contradictory or inconsistent responses or advice in a client profiling tool or questionnaire, if any;(d) have a process for assessing whether investing (as opposed to saving or paying off debt) is appropriate for the client individual;(e) establish a process for contacting customers to update changes to their profile, at least annually; and(f) establish appropriate governance and supervisory mechanisms for the client profiling tool.Added: April 2019DA-1.3.6
Due to the nature of digital financial advice tools, much information referred to in the Paragraph DA-1.3.5 will be obtained using questionnaires, which should be comprehensive and fuzzy logic enabled.
Added: April 2019DA-1.3.7
Licensees must obtain a declaration from the client to ensure that he understands the scope and nature of digital financial advice and the associated risks and limitations.Added: April 2019DA-1.3.8
Licensees must disclose in writing any actual or potential conflicts of interest arising from any connection or association with product provider, including any material information or facts that may compromise its objectivity or independence.Added: April 2019DA-1.3.9
Licensees must disclose in writing the full particulates of any arrangement, including basis for commissions, charges or fees, involving related parties including parent, associates, fellow subsidiaries and other connected parties.Added: April 2019DA-1.3.10
Any disclosure of information that requires acceptance by the client should be tracked for an acknowledgement or response from the client confirming receipt thereof.
Added: April 2019DA-2 DA-2 Algorithm Governance
DA-2.1 DA-2.1 Design of Algorithm
DA-2.1.1
Licensees providingdigital financial advice must ensure that the algorithm embedded within the client facing tool is sufficiently robust and that the algorithm is designed to sufficiently analyse the information in order to make a suitable recommendation. The algorithms must be able to identify and determineclients who are unsuitable for investing in products.Added: April 2019DA-2.1.2
Licensees providingdigital financial advice must:(a) have appropriate system design documentation that clearly sets out the purpose, scope and design of the algorithms;(b) establish decision trees or decision rules as part of the documentation, where relevant;(c) establish controls to detect any error or bias in the algorithms;(d) have appropriate processes for managing any changes to an algorithm which must include security arrangements to monitor and prevent unauthorised access to the algorithm;(e) be able to control, monitor and keep records describing any changes made to algorithms (one way of doing this may be to store different versions of the algorithm electronically);(f) review and update algorithms whenever there are factors that may affect their relevance (e.g. market changes and changes in the law);(g) have in place controls and processes to suspend the provision of advice either when there are two or more conflicting answers to the risk profiling questions or when an error within an algorithm is detected and that error is likely to result inclient loss and/or a breach ofclient agreement or laws and regulations;(h) have in place an appropriate internal sign-off process to ensure that the steps above have been followed; and(i) perform compliance checks on the quality of advice provided by the client-facing tool. This must include post-transaction sample testing.Added: April 2019DA-2.1.3
Licensees offeringdigital financial advice may base their algorithms on different methodological approaches (e.g. Modern Portfolio Theory). Each algorithm would have different assumptions, underlying rules and limitations. In addition, some digital advisers may override the automated algorithm or temporarily halt the digital advisory service in extreme market conditions.Added: April 2019DA-2.2 DA-2.2 Testing and Updating Algorithms
DA-2.2.1
Licensees providingdigital financial advice must perform back-test to ensure that the methodology reliably produces an output that is consistent with the intended investment recommendation. Such back-testing must be performed at periodic intervals and when changes are made to the tool.Added: April 2019DA-2.2.2
Back-testing in Paragraph DA-2.2.1 refers to testing the
digital financial advice tool that seeks to estimate the performance of a strategy or model if it had been employed during a past period. This requires simulating past conditions with sufficient detail.Added: April 2019DA-2.2.3
Licensees providingdigital financial advice must maintain and document the policies, procedures and controls to monitor and test their algorithm. They must ensure that, at a minimum, the following process are in place:(a) have a documented test strategy that explains the scope of the licensee's testing of algorithms which should includei. test plans,ii. test cases,iii. test results,iv. defect resolution (if relevant), andv. final test results.(b) establish robust testing of algorithms to occur beforedigital financial advice is first provided to a client, and on a regular basis after that; and(c) conduct stress tests at least once a year under various scenarios including extreme adverse and unpredictable market conditions.Added: April 2019DA-2.2.4
Licensees providingdigital financial advice must ensure that they have adequate human resources with the competency and expertise to develop and review the methodology of the algorithms.Added: April 2019DA-2.2.5
Licensees providingdigital financial advice must not outsource the key processes and management of the client facing tool.Added: April 2019DA-2.2.6
Licensees providingdigital financial advice may choose to outsource the development (based on the approach, methodology and design input provided by the licensee) and the day to day maintenance of client-facing tools to a third party. However, thelicensee remains responsible for the underlying approach to financial advice, the methodology, design input and also the quality of the advice provided. In order to be able to assume this responsibility, the licensee must understand and control the rationale, risks and decision rules behind the algorithm.Licensees should, nonetheless, subject the outsourcing service provider to appropriate due diligence processes as required by the relevant rules on outsourcing in Module RM.Added: April 2019DA-3 DA-3 Dealing and Rebalancing Portfolio
DA-3.1 DA-3.1 Dealing Incidental to Offering Digital Financial Advice
DA-3.1.1
Licensees dealing in securities as agents or brokers as part of thedigital financial advice offering must comply with the requirements related to conflicts of interest under Module BC and rules incidental to it.Added: April 2019DA-4 DA-4 Disclosures
DA-4.1 DA-4.1 Ongoing Disclosure
DA-4.1.1
Further to the requirements under BC-2.6 of Module BC of the Rulebook,
licensees providingdigital financial advice must ensure that the following are disclosed to their clients:(a) adequate explanations about the functioning of anyclient facing tool including whether there are affirmations or confirmations that theclient would provide as the tool is being populated;(b) at key points in the advice process, inform theclient about the limitations and potential consequences of the scope of advice in plain and simple language(c) throughout the advice process, inform theclient about key concepts and the relevant risks and benefits associated with the advice being provided; and(d) disclose separately the fees, costs and charges.Added: April 2019DA-4.1.2
Licensees must disclose to theirclients in writing the following with respect to the algorithms used:(a) assumptions, limitations and risks of the algorithms;(b) circumstances under which thelicensees may override the algorithms or temporarily halt the digital advisory service; and(c) any material adjustments to the algorithms.Added: April 2019DA-4.1.3
Licensees that provide general financial advice to non-retail clients must provide a warning that such advice does not take into account the client's profile and personal circumstances.Added: April 2019DA-4.1.4
For the purpose of Paragraph DA-4.1.3, general financial advice is defined as financial advice that does not take into account the particular personal circumstances, such as the objectives, financial situation and needs of the client. For example, if an adviser gives information about a product but does not consider the financial goals of the client and the adviser does not actually recommend the client to specifically take up the said product, it is considered general advice.
Added: April 2019Category 4 Category 4 Investment Firms
C4-A C4-A Introduction
C4-A.1 C4-A.1 Purpose and Scope
C4-A.1.1
This Module sets out the Central Bank of Bahrain’s (CBB) regulations for
category 4 investment firms offeringregulated investment services in the Kingdom of Bahrain.Category 4 investment firms are subject to the provisions of this Module and the following modules of CBB Rulebook Volume 4:(a) Authorisation Module (AU Module);(b) Principles of Business Module (PB Module);(c) Financial Crime Module (FC Module); and(d) Enforcement Module (EN Module).Added: January 2022C4-A.1.2
Persons who operate/manage a
collective investment undertaking (CIU) within or from the Kingdom of Bahrain and are not otherwise licensed by CBB as a bank, acategory 1 investment firm , or acategory 2 investment firm are required to be licensed by CBB ascategory 4 investment firm .Added: January 2022C4-A.1.3
Category 4 investment firms areoperators ofCIUs targeted ataccredited investors i.e.exempt CIUs ,venture capital CIUs orprivate investment undertakings (PIU) . Moreover,category 4 investment firms can provide the regulated service of safeguarding financial instruments (i.e. act as custodian) of the venture capitalCIUs they operate/manage.Added: January 2022C4-A.1.4
Locally incorporated
category 4 investment firms are calledBahraini category 4 investment firms .Investment firms that are incorporated in an overseas jurisdiction and operate via a ‘branch’ presence in the Kingdom of Bahrain are calledoverseas investment firms .Added: January 2022C4-A.1.5
Persons undertaking certain functions in relation to
category 4 investment firms require prior CBB approval. These functions (called'controlled functions' ) includedirectors and members of senior management. Thecontrolled functions requirements supplement the licensing requirements by ensuring that key persons involved in the running ofcategory 4 investment firms are fit and proper. Those authorised by the CBB to undertakecontrolled functions are calledapproved persons .Added: January 2022Legal Basis
C4-A.1.6
This Module contains the CBB’s Directive, Regulation and Resolutions (as amended from time to time) applicable to
category 4 investment firms under Volume 4 of the CBB Rulebook. It 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, 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.Added: January 2022C4-A.2 C4-A.2 Module History
Evolution of Module
C4-A.2.1
This Module was first issued in September 2021 as part of Volume 4 (Investment Business). 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.
Added: January 2022C4-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes C4-1 C4-1 Authorisation Requirements
C4-1.1 C4-1.1 Licensing Conditions
Legal Status
Mind and Management
C4-1.1.1 C4-1.1.1
The legal form of a
category 4 investment firm must be:(i) A Bahraini joint stock company (BSC); or(ii) A branch resident in Bahrain of anoperator ofCIUs domiciled in an overseas jurisdiction and authorised to carry out such activity in that jurisdiction.Added: January 2022C4-1.1.3
Category 4 investment firms must maintain their head office in the Kingdom.Overseas category 4 investment firms must maintain local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.Added: January 2022C4-1.1.2 C4-1.1.2
Where the
category 4 investment firm is a branch of anoverseas investment firm , an application for licensing will be considered after extensive enquiries into the firm’s shareholders, management structure, financial position, its activities and how these activities are regulated.Added: January 2022C4-1.1.4
Category 4 investment firms must appoint at least two senior executives who are resident in the Kingdom of Bahrain and at least one of the senior executives must be the CEO, GM, Co-CEO, Managing Partner, or Senior Executive Officer of thelicensee .Added: January 2022Controllers
C4-1.1.5
A
controller is a natural or legal person who, either alone or with his associates:(a) Holds 10% or more of the issued and paid-up capital in thelicensee orparent undertaking ; or(b) Is able to exercise more than 10% of the voting power over thelicensee or theparent undertaking .Added: January 2022C4-1.1.6
For the purposes of Paragraph C4-1.1.5, ‘associate’ includes:
(a) In the case of natural persons, a member of thecontroller’s family ;(b) If thecontroller is a legal person, aDirector , an employee, a partner of thecontroller , a subsidiary of thecontroller , or aDirector of anysubsidiary undertaking of thecontroller ; and(c) Any other person or undertaking with which thecontroller has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in thelicensee , or under which they undertake to act together in exercising their voting power in relation to thelicensee. Added: January 2022C4-1.1.7
Bahraini category 4 investment firms must obtain prior approval from the CBB for any of the following changes to theircontrollers :(a) A newcontroller ;(b) An existingcontroller increasing its holding from 10% to 20%;(c) An existingcontroller increasing its holding from below 20% to 30%;(d) An existingcontroller increasing its holding from below 30% to 40%;(e) An existing controller increasing its holding to above 40% forlicensees not listed on any exchange in Bahrain or abroad; and(f) An existingcontroller reducing its holding to below 10%.Added: January 2022C4-1.1.8
For the purposes of Subparagraph C4-1.1.7(a),
licensees must submit information required in the controller section of Category 4 Investment Firm Authorisation Form (see Part B of the CBB Rulebook Volume 4) and must satisfy the CBB that the newcontroller is suitable and poses no undue risks to thelicensee .Added: January 2022C4-1.1.9
In assessing the suitability of
controllers the CBB will consider the track record of the proposedcontrollers , including adequate experience, financial strength, any record of disciplinary proceedings or conviction by a court or competent authority etc.Added: January 2022C4-1.1.10
Overseas category 4 investment firms must notify the CBB of any new significant ownership in excess of 50% of the issued and paid-up capital of the concernedlicensee’s directparent undertaking as soon as thelicensee becomes aware of the change. Theoverseas category 4 investment firm must provide a copy of the relevant approval by thehome supervisor of the parent (if applicable).Added: January 2022C4-1.1.11
Category 4 investment firms must immediately notify the CBB in case of any material change to the information provided to the CBB for approval for acontroller .Added: January 2022C4-1.1.12
The percentage of direct or indirect control of a natural person or an unregulated legal person in a
Bahraini category 4 investment firm must not exceed one-third of the issued and paid up capital. This limit does not apply to operators of venture capitalCIUs .Added: January 2022Board and Employees
C4-1.1.13
Those nominated to carry out
controlled functions must satisfy CBB’sapproved persons requirements which are set out in Section C4-1.3 of this Module.Added: January 2022Financial Resources
C4-1.1.14
Category 4 investment firms must maintain a level of financial resources, as agreed with the CBB, adequate for the level of business proposed. In all cases,category 4 investment firms must maintain a minimum capital of:(a) BD 100,000 if it operatesexempt CIUs andPIUs ; and(b) BD 25,000 if it only operates/manages venture capitalCIUs .Added: January 2022C4-1.1.15
The CBB may require
category 4 investment firms to maintain higher capital and liquidity than those specified in Paragraph C4-1.1.14 depending on the nature, size and profile of thelicensee on a case by case basis.Added: January 2022C4-1.1.16
An investment by a
category 4 investment firm into aCIU it operates (or directly into any company underlying aCIU it operates) must only be made out of the capital it holds in excess of its minimum capital.Added: January 2022C4-1.1.17
For the purposes of Paragraph C4-1.1.14, capital is defined as the shareholder’s equity or the net assets of the
licensee .Added: January 2022C4-1.1.18
In the event that a
category 4 investment firm fails to meet the minimum capital requirements, it must, on becoming aware that it has breached these requirements, immediately notify the CBB in writing. Unless otherwise directed, thelicensee must in addition submit to the CBB, within 30 calendar days of its notification, a plan demonstrating how it will achieve compliance with these requirements.Added: January 2022C4-1.1.19
Category 4 investment firms must maintain adequate liquid funds representing 25% of operating expenses incurred in the preceding financial year at all times in the form of cash or liquid assets that can be converted to cash in the short-term to cover its operating expenses.Added: January 2022C4-1.1.20
For the purposes of Paragraph C4-1.1.15,
Category 4 investment firms in their first year of operation should use the estimated forecasted operating expenses as per the business plan submitted to the CBB at the time of obtaining the CBB license as the basis of computation of liquid funds.Added: January 2022C4-1.1.21
Overseas applicants must provide a written confirmation from their head office that they will provide sufficient financial support to the branch to enable them to meet their obligations as and when they fall due. Overseas applicants must also demonstrate that the company as a whole will be adequately resourced at all times to cater to the risks and their obligations.
Added: January 2022Systems and Controls
C4-1.1.22
Category 4 investment firms must maintain systems and controls that are, in the opinion of the CBB, commensurate with the scale and complexity of their activities. These systems and controls must meet the minimum requirements contained in this Module and with respect to financial crime risks, Module FC (Financial Crime).Added: January 2022C4-1.1.23
As part of the licensing approval process, applicants must demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. They must also address risks, including liquidity, credit, market or investment risks, operational risks and other material risks to investors associated with assets under management in CIUs. Applicants may also be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB.
Added: January 2022External Auditors
C4-1.1.24
Category 4 investment firms must appoint external auditors, subject to prior CBB approval. The minimum requirements set out in Section C4-2.2 of this Module must be met.Added: January 2022Books and Records
C4-1.1.25
Category 4 investment firms must maintain comprehensive books of accounts and other records (whether in electronic or hard copy form), which must be available for inspection within the Kingdom of Bahrain by the CBB, or persons appointed by the CBB, at any time.Licensees must maintain books and records sufficient to produce financial statements and show a complete record of the business undertaken and must retain such record for at least ten years. Foroverseas investment firms these requirements only apply to the business booked in their branch in Bahrain.Added: January 2022C4-1.1.26
Category 4 investment firms must keep completed transaction records for as long as they are relevant for the purposes for which they were made with a minimum period in all cases of five years from the date when the transaction was terminated. Records of terminated transactions must be kept whether in hard copy or electronic format as per the Legislative Decree No. (54) of 2018 with respect to Electronic Transactions “The Electronic Communications and Transactions Law” and its amendments.Added: January 2022C4-1.1.27
Category 4 investment firms must maintain the following records in original, hard copy or digital form at their premises in Bahrain:(a) Internal policies, procedures and operating manuals;(b) Corporate records, including minutes ofshareholders ',Directors ' and management meetings;(c) Correspondence with the CBB and records relevant to monitoring compliance with CBB requirements;(d) Correspondence with their investors, andrelated parties ;(e) Reports prepared by thecategory 4 investment firm’s internal and external auditors and compliance officer; and(f) Employee training manuals and records.Added: January 2022C4-1.1.28
Unless otherwise agreed to by the CBB in writing, records must be kept in either English or Arabic. Any records kept in languages other than English or Arabic must be accompanied by a certified English or Arabic translation. Records must be kept current. The records must be sufficient to allow an audit of the
licensee's business or an on-site examination of thelicensee by the CBB.Added: January 2022Provision of Information
General Conduct
C4-1.1.30
Category 4 investment firms must conduct their activities in a professional and orderly manner, in keeping with good market practice standards.Licensees must comply with the general standards of business conduct contained in Module PB, as well as the standards relating to treatment of customers contained in Chapter C4-3.Added: January 2022License Fees
C4-1.1.31
Applicants seeking a
category 4 investment firm license must pay a non-refundable license application fee of BD 100 at the time of submitting their formal application to the CBB.Added: January 2022C4-1.1.32
Category 4 investment firms must pay a variable annual licensing fee based on 0.25% of theirrelevant operating expenses , subject to:(a) a minimum (‘floor’) of BD 750 and a maximum (‘cap’) of BD 2,000 foroperators of venture CapitalCIUs ; and(b)a minimum (‘floor’) of BD 2,000 and a maximum (‘cap’) of BD 6,000 foroperators of otherCIUs .Added: January 2022C4-1.1.33
Relevant operating expenses are defined as the total operating expenses of thelicensee concerned, as recorded in the most recent audited financial statements available, excluding the following items:(a) Training costs;(b) Charitable donations;(c) CBB fees paid; and(d) Non-executiveDirectors ’ remuneration.Added: January 2022C4-1.1.34
For the avoidance of doubt, operating expenses for the purposes of this Section, do not include items such as depreciation, provisions, interest expense, and dividends.
Added: January 2022C4-1.1.35
Category 4 investment firms must pay the relevant annual license fee to the CBB on the 1st of December of the preceding year for which the fees are due.Added: January 2022C4-1.1.36
Category 4 investment firms must complete and submit Form ALF (Annual License Fee) to the CBB, no later than 15th October of the preceding year for which the fees are due.Added: January 2022C4-1.1.37
Category 4 investment firms are subject to direct debit for the payment of the annual fee and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September available under Part B of Volume 4 (Investment Business) CBB Rulebook on the CBB Website.Added: January 2022C4-1.1.38
For new
Category 4 investment firms , their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount.Added: January 2022C4-1.1.39
For the first full year of operation for
category 4 investment firms , the licensee would calculate its fee as the floor amount. For subsequent years, thelicensee would submit a Form ALF by 15th October of the preceding year for which the fees are due and calculate its fee using its last audited financial statements (or alternative arrangements as agreed with CBB, should its first set of accounts cover an 18-month period).Added: January 2022C4-1.1.40
Where a license is cancelled (whether at the initiative of the firm or the CBB), no refund is paid for any months remaining in the calendar year in question.
Added: January 2022C4-1.2 C4-1.2 Licensing Process
Application and Documents
C4-1.2.1
Applicants for a license must fill in the application for authorisation online, available on the CBB website under E-services/online Forms. The applicant must also upload PDF copies/scanned copies of the following supporting documents:
(a) A comprehensive business plan for the application;(b) For overseas companies, the company’s current commercial registration or equivalent documentation;(c) Where the applicant is an existing Bahraini company, the applicant’s commercial registration certificate;(d) A certified copy of a Board resolution of the applicant, confirming its decision to seek a CBBcategory 4 investment firm license ;(e) Details of the proposedlicensee’s group structure, if any, and in the case of applicants that are part of a regulated group, a letter of non-objection to the proposed license application from the applicant’slead supervisor ;(f) In the case of branch applicants, a letter of non-objection to the proposed license application from the applicant’s home supervisor, together with confirmation that the applicant is in good regulatory standing; and(g) In the case of branch applicants, the audited financial statements of the applicant (head office) for the three years immediately prior to the date of application;(h) Applicant’s memorandum and articles of association (in draft form for applicants creating a new company).Added: January 2022C4-1.2.2
The CBB, at 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.
Added: January 2022C4-1.2.3
The business plan submitted in support of an application must include:
(a) An outline of the history of the applicant and its shareholders;(b) The proposed type of activities to be carried on by the applicant in/from the Kingdom of Bahrain, including the applicant’s strategy and market objectives;(c) The proposed Board and senior management of the applicant and the proposed organisational structure of the applicant;(d) An independent assessment of the risks that may be faced by the applicant, together with the proposed systems and controls framework to be put in place for addressing those risks and to be used for the main business functions; and(e) A proforma opening balance sheet for the applicant, together with a three-year financial projection, with all assumptions clearly outlined, demonstrating that the applicant will be able to meet applicable capital adequacy requirements.Added: January 2022C4-1.2.4
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.
Added: January 2022C4-1.2.5
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.
Added: January 2022C4-1.2.6
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.
Added: January 2022C4-1.2.7
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). All applicants are strongly encouraged to contact the CBB at an early stage to discuss their plans, for guidance on the CBB’s requirements.
Added: January 2022C4-1.2.8
The CBB recognises that applicants may find it difficult to complete all the incorporation procedures in the absence of preliminary assurances regarding the likelihood of obtaining a license. Therefore, 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. An ‘in principle’ confirmation does not constitute a license approval, nor does it commit the CBB to issuing a license. The applicants can later complete their applications for final approval.
Added: January 2022C4-1.2.9
The CBB will review the application and duly advise the applicant in writing when it has:
(a) Granted the application without conditions;(b) Granted the application subject to conditions specified by the CBB; or(c) Refused the application, stating the grounds on which the application has been refused and the process for appealing against that decision.Added: January 2022C4-1.2.10
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).
Added: January 2022C4-1.2.11
The CBB may refuse to grant a license if in its opinion:
(a) The requirements of the CBB Law or this Module are not met;(b) False or misleading information has been provided to the CBB, or information which should have been provided to the CBB has not been so provided; or(c) The CBB believes it necessary in order to safeguard the interests of potential customers.Added: January 2022C4-1.2.12
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.
Added: January 2022C4-1.2.13
Before the final approval is granted to a
licensee , confirmation from a retail bank addressed to the CBB that thelicensee’s capital as specified in the business plan has been paid in must be provided to the CBB.Added: January 2022Starting Operations
C4-1.2.14
Within 6 months of the license being issued, the new
licensee must provide to the CBB (if not previously submitted):(a) The registered office address and details of premises to be used to carry out the business of the proposedlicensee ;(b) The address in the Kingdom of Bahrain where full business records will be kept;(c) Thelicensee’s contact details including telephone and fax number, e-mail address and website;(d) A copy of its business continuity plan;(e) A copy of the auditor’s acceptance to act as auditor for the applicant;(f) A copy of thelicensee’s professional indemnity insurance policy;(g) A copy of the applicant’s notarized memorandum and articles of association;(h) A copy of the Ministry of Industry and Commerce commercial registration certificate in Arabic and in English;(j) An updated organisation chart showing the reporting lines, committees (if any) and including the names of the persons undertaking thecontrolled functions; and (k) Any other information as may be specified by the CBB.Added: January 2022C4-1.2.15
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.Added: January 2022Amendment of Authorisation
C4-1.2.16
Category 4 investment firms wishing to vary the scope of their license must obtain the CBB’s written approval, before effecting any such change. Such changes include whenever alicensee wishes to add or cease undertaking aregulated service , or to vary a condition imposed on their license.Licensees requesting CBB approval to undertake a newregulated service must provide the following:(a) A summary of the rationale for undertaking the proposed new service;(b) A description of how the new service will be managed and controlled; and(c) An analysis of the financial impact of the new service.Added: January 2022Cancellation of Authorisation
C4-1.2.17
In accordance with Article 50 of the CBB Law,
category 4 investment firms wishing to cancel their license or cease activities must obtain the CBB’s written approval, before ceasing their activities. All such requests must be made in writing and include the following in support of the request:(a) Full details of the business to be terminated;(b) The rationale for the cessation;(c) How thelicensee proposes to cease business;(d) Evidence that the proposed cessation has been duly authorised by the licensee (such as a certified copy of a Board resolution approving the cessation); and(e) If applicable, an assessment of the impact of the cessation on the licensee’s remaining business and customers, and any mitigating factors or measures.Added: January 2022C4-1.2.18
Category 4 investment firms , after receiving the CBB’s in-principle approval for cessation of business, must invite the CBB to the Extraordinary General Meeting (EGM) held to seek the shareholder’s approval on the following:(a) Cessation and subsequent liquidation of business; and(b) Appointment of a liquidator.Added: January 2022C4-1.2.19
Once the shareholders give their approval to cease business, the
licensee must publish a notice of its intention to cease business in two local daily newspapers (one in Arabic, the other in English). Notices must also be displayed in the premises (including any branch offices) of thelicensee concerned. These notices must be given not less than 30 calendar days before the cessation is to take effect and must include such information as the CBB may specify including a statement that written representations concerning the liquidation may be submitted to the CBB before a specified day, which shall not be later than thirty calendar days after the day of the first publication of the notice. Prior to publication, the draft notices will be reviewed by the CBB.Added: January 2022C4-1.2.20
Upon completion of the period specified in Paragraph C4-1.2.19,
category 4 investment firms must request the CBB’s final approval on the cessation and provide the proposed cut-off date.Licensees must also confirm in their request that either no objections to the cessation were received and/or any objections received have been adequately dealt with. The CBB will then grant the final approval to proceed with liquidation.Added: January 2022C4-1.2.21
Upon completion of the liquidation process, the liquidator must provide the CBB with the following:
(a) Liquidation report;(b) Final audited accounts;(c) Proof of cancellation of the name of the licensee from the Commercial Registry;(d) The original CBB license certificate;(e) Proof of payment of publication fees for the CBB to publish the cancellation of license;(f) Confirm that there are no outstanding liabilities, claims or legal proceedings; and(g) Request the CBB to cancel the license.Added: January 2022C4-1.2.22
The
category 4 investment firm must continue to comply with all applicable CBB requirements until such time as it is formally notified by the CBB that its obligations have been discharged and a final written notice of license cancellation is issued.Added: January 2022Cancellation of a License by the CBB
C4-1.2.23
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 thelicensee 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 thelicensee’s right to appeal the formal notice of cancellation issued by the CBB.Added: January 2022Publication of the Decision to Grant, Cancel or Amend a License
C4-1.2.24
In accordance with Articles 47 and 49 of the CBB Law, the CBB will publish its decision to grant, cancel or amend a license in the Official Gazette and in two local newspapers, one in Arabic and the other in English, the cost of which is borne by the licensee. The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.
Added: January 2022Business Transfers
C4-1.2.25
Category 4 investment firms must seek prior written approval from the CBB before transferring any of its business to a third party.Added: January 2022C4-1.2.26
Paragraph C4-1.2.25 is intended to apply to circumstances where a
category 4 investment firm wishes to sell all or part of its business to a third party. It does not apply where acategory 4 investment firm is simply allocatingclient assets to a third party, on instruction from the client concerned or managingclient assets through another asset manager.Added: January 2022C4-1.2.27
In the case of a
Bahraini category 4 investment firm , business transfer requirements apply both to its business booked in Bahrain and in the firm’s overseas branches. In the case of anoverseas category 4 investment firm , the requirements only to business booked in the firm’s Bahrain branch.Added: January 2022C4-1.2.28
In all cases, CBB approval to transfer business will only be given where:
(a) The transfer of business will not damage or otherwise prejudice the legitimate interests of thelicensee’s customers;(b) The transferee is duly licensed to undertake the business which it is to receive; and(c) The CBB is satisfied that the transfer will not breach any applicable laws or regulations and would not create any supervisory concerns.Added: January 2022C4-1.2.29
In assessing the criteria outlined in Paragraph C4-1.2.28, the CBB will, amongst other factors, take into account the financial strength of the transferee; its capacity to manage the business being transferred; its track record in complying with applicable regulatory requirements; and (where applicable) its track record in treating customers fairly. The CBB will also take into account the impact of the transfer on the transferor, and any consequences this may have for the transferor’s remaining customers.
Added: January 2022C4-1.2.30
Category 4 investment firms seeking to obtain the CBB’s permission to transfer business must provide the following information in their request:(a) Full details of the business to be transferred;(b) The rationale for the proposed transfer;(d) If applicable, an assessment of the impact of the transfer on the transferor’s remaining business and customers, and any mitigating factors or measures; and(e) Evidence that the proposed transfer has been duly authorised by the transferor (such as a certified copy of a Board resolution approving the transfer).Added: January 2022C4-1.2.31
Licensees intending to apply to transfer business are advised to contact the CBB at the earliest possible opportunity, prior to submitting a formal application, in order that the CBB may determine the nature and level of documentation to be provided and the need for an auditor or other expert opinion to be provided to support the application.Added: January 2022C4-1.2.32
At its discretion, the CBB may require that a notice of proposed transfer of business be published in the Official Gazette, and/or in at least two local daily newspapers (one in Arabic, the other in English), in order to give affected customers, the right to comment on the proposed transfer. Where such a requirement has been imposed, the CBB’s decision on the application will also be published in the Official Gazette and in at least two local daily newspapers. In all such cases, the costs of publication must be met by the transferor.
Added: January 2022Branches, Subsidiaries and Representative Offices
C4-1.2.33
As specified in Articles 51 and 57 of the CBB Law, a
Bahraini category 4 investment firm must seek CBB approval and provide adequate information for its intention to:(a) Enter into a merger with another undertaking;(b) Enter into a proposed acquisition, disposal or establishment of a newsubsidiary undertaking ;(c) Open a new place of business as asubsidiary undertaking or abranch within the Kingdom of Bahrain or other jurisdiction; or(d) Open arepresentative office in another jurisdiction.Added: January 2022C4-1.2.34
Bahraini category 4 investment firms wishing to establish or acquire asubsidiary undertaking must submit the following information to the CBB as part of the approval process:(a) Proposed name of subsidiary;(b) Country of incorporation;(c) Legal structure;(d) Proposed paid-up capital;(e) Proposed shareholding structure;(f) Purpose of establishing or acquiring the subsidiary;(g) Draft incorporation documents of the subsidiary;(h) Board Resolution approving the establishment or acquisition of the subsidiary;(i) Names of the board members of the proposed subsidiary and the relationship of the board member to thelicensee ;(j) Names of the authorised signatories of the proposed subsidiary;(k) An undertaking from the board of thelicensee that the board will be held ultimately responsible for any misconduct or action committed by the proposed subsidiary; and(l) Any other information or documentation as required by the CBB.Added: January 2022C4-1.2.35
Bahraini category 4 investment firm wishing to establish abranch or arepresentative office in a jurisdiction other than the Kingdom of Bahrain, must submit the following information to the CBB as part of the approval process:(a) Name of thehost supervisor ;(b) Proposed license type of thebranch ;(c) Purpose of establishing thebranch orrepresentative office ;(d) Board Resolution approving the establishment of thebranch orrepresentative office ;(e) The minimum requirements of the host jurisdiction; and(f) Any other information or documentation as required by the CBB.Added: January 2022C4-1.3 C4-1.3 Approved Persons
General Requirement
C4-1.3.1
Category 4 investment firms must obtain the CBB’s prior written approval for any person wishing to undertake acontrolled function in thelicensee .Added: January 2022C4-1.3.2
Controlled functions are those of:(a)Director ;(b)Chief Executive ,General Manager , Managing Partner or Co-CEO;(c)Head of function ;(d) Compliance officer;(e) Money Laundering Reporting Officer; and(f)Investment consultant orinvestment adviser .Added: January 2022Definitions
C4-1.3.4
Director is any person who is a member of thelicensee’s Board of Directors, and is individually, and collectively with other Directors responsible for directing the affairs and overseeing the activities of the licensee.Added: January 2022C4-1.3.5
The
Chief Executive ,General Manager , Managing Partner or Co-CEO means a person who is responsible for the conduct of thelicensee (regardless of actual title) and its executive management and performance, within the framework of delegated authorities set by the Board.Added: January 2022C4-1.3.6
Compliance officer or head of compliance function is responsible to ensure that the licensee is in compliance with the applicable legal and regulatory requirements of the CBB and any other relevant regulator/authority.
Added: January 2022C4-1.3.7
The
controlled functions of Money Laundering Reporting Officer/Deputy Money Laundering Reporting Officer are defined under Chapter FC-3.Added: January 2022C4-1.3.8
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 thelicensee .Added: January 2022C4-1.3.9
An
investment consultant orinvestment adviser refers to the function of advising a client or potential client with respect to buying, selling, subscribing for orunderwriting a particularfinancial instrument or exercising any right conferred by such afinancial instrument .Added: January 2022Approved Persons Conditions
C4-1.3.10
Category 4 investment firms seeking anapproved person authorisation for an individual, must satisfy the CBB that the individual concerned is ‘fit and proper’ to undertake thecontrolled function in question. Each applicant applying forapproved person status and those individuals occupyingapproved person positions must comply with the following conditions:(a) Has not previously been convicted of any felony or crime that relates to his/her honesty and/or integrity unless he/she has subsequently been restored to good standing;(b) Has not been the subject of any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud;(c) Has not been adjudged bankrupt by a court unless a period of 10 years has passed, during which the person has been able to meet all his/her obligations and has achieved economic accomplishments;(d) Has not been disqualified by a court, regulator or other competent body, as a director or as a manager of a corporation;(e) Has not failed to satisfy a judgement debt under a court order resulting from a business relationship; and(f) Must have personal integrity, good conduct and reputation;(g) Has appropriate qualifications and experience for thecontrolled function in question.Added: January 2022C4-1.3.11
For the purposes of sub-paragraph C4-1.3.17(g),
category 4 investment firms should satisfy the CBB that the controllers, managing partners and the CEO collectively have adequate experience in the related fields, including venture capital, angel investing and entrepreneurship / start-ups for operators of venture capitalCIUs .Added: January 2022C4-1.3.12
Approved persons undertaking acontrolled function must act prudently, and with honesty, integrity, care, skill and due diligence in the performance of their duties. They must avoid conflicts of interest arising whilst undertaking acontrolled function .Added: January 2022Prior Approval Requirements and Process
C4-1.3.13
Category 4 investment firms must obtain CBB’s prior written approval before a person is formally appointed to acontrolled function . The request for CBB approval must be made by submitting to the CBB the approved persons’ section of the application for authorisation and Curriculum Vitae after verifying that all the information provided is accurate. The following additional documents must be attached with the application:(a) A certified copy of the applicant’s passport and national ID card;(b) Certified copies of applicant’s educational and professional qualification certificates (with its translation if not in Arabic or English);(c) Licensee’s organisation chart (or proposed organisation chart if it is to be amended) clearly showing the proposed applicant’s position and reporting lines in the organisation.Added: January 2022C4-1.3.14
The CBB approval for the Board of director candidates of
category 4 investment firms must be obtained prior to issuance of the notice/agenda of the shareholder’s meeting in which the candidates are put forward for election/approval. CBB approval of the candidates does not in any way limit the shareholders’ rights to refuse those put forward for election/approval.Added: January 2022Assessment of Application
C4-1.3.15
The CBB will review and assess the application for
approved person status to ensure that it satisfies CBB’s ‘fit and proper’ requirements and respond within 15 business days from the date of receiving the application complete with all the required information and documents. The CBB reserves the right to refuse an application forapproved person status if it does not satisfy the CBB’s requirements.Added: January 2022C4-1.3.16
Category 4 investment firms or the nominatedapproved persons may, within 30 calendar days of the notification, appeal against the CBB’s decision to refuse the application forapproved person status. The CBB shall decide on the appeal and notify thelicensee of its decision within 30 calendar days from submitting the appeal.Added: January 2022Notification Requirements and Process
C4-1.3.17
Category 4 investment firms must immediately notify the CBB when:(a) Anapproved person ceases to hold acontrolled function together with an explanation as to the reasons why. In such cases, theirapproved person status is automatically withdrawn by the CBB; or(b) In case of any material change to the information provided in the application submitted for an approved person.Added: January 2022C4-1.3.18
If a
controlled function falls vacant, thecategory 4 investment firm must appoint a permanent replacement (after obtaining CBB approval), within 120 calendar days of the vacancy occurring. Pending the appointment of a permanent replacement, thelicensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of thecontrolled function affected, provided that such arrangements do not pose a conflict of duties. These interim arrangements must be approved by the CBB.Added: January 2022Training and Competence
C4-1.3.19
Category 4 investment firms must assess individuals as competent when they have demonstrated the ability to apply the knowledge and skills required to perform a specificcontrolled function without supervision.Added: January 2022C4-1.3.20
Category 4 investment firms must annually determine the training needs of individuals undertakingcontrolled functions . It must develop a training plan to address these needs and ensure that training is planned, appropriately structured and evaluated. The training plan ofcategory 4 investment firms must include a programme for continuous professional development training (“CPD”) for their staff.Added: January 2022C4-1.3.21
Category 4 investment firms should make and retain updated records of:(a) The criteria applied in assessing the ongoing and continuing competence;(b) How and when the competence decision for a staff member was arrived at including any periodic assessments;(c) The annual training plan for eachcontrolled function ;(d) Record of CPD hours undertaken by eachapproved person ;Added: January 2022C4-2 C4-2 High-Level Controls
C4-2.1 C4-2.1 Board and Management Structure
C4-2.1.1
Category 4 investment firms must be headed by an effective, collegial and informed Board of Directors.Added: January 2022Board Role and Responsibilities
C4-2.1.2
All directors should understand the Board’s role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:
(a) The Board’s role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and(b) The Board’s fiduciary duties of care and loyalty to thecategory 4 investment firm and the shareholders.Added: January 2022C4-2.1.3
The Board’s role and responsibilities include but are not limited to:
(a) The overall business performance and strategy for thecategory 4 investment firm ;(b) Causing financial statements to be prepared which accurately disclose thecategory 4 investment firm’s financial position;(c) Monitoring management performance;(d) Convening and preparing the agenda for shareholder meetings;(e) Monitoring conflicts of interest and preventing abusive related party transactions; and(e) Assuring equitable treatment of shareholders including minority shareholders.Added: January 2022C4-2.1.4
The directors are responsible both individually and collectively for performing these responsibilities. Although the Board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place.
Added: January 2022C4-2.1.5
The
category 4 investment firm should have a written appointment agreement with each director which recites the directors’ powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, hisremuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.Added: January 2022C4-2.1.6
The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.
Added: January 2022Board Composition
C4-2.1.7
The Board should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints.
Category 4 investment firms may appointnon-executive directors or a separate advisory board to obtain expert guidance.Added: January 2022Directors’ Communication with Management
C4-2.1.8
The Board must encourage participation by management regarding matters the Board is considering.
Non-executive directors or where applicable advisory board members should have free access to thecategory 4 investment firm’s management beyond that provided in Board meetings.Added: January 2022Management Structure
C4-2.1.9
The Board must appoint
senior management whose authority must include management and operation of current activities of thecategory 4 investment firm , reporting to and under the direction of the Board. The Board must make adequate arrangements, at a minimum for the below functions/positions:(a) ACEO ,General Manager (or CO-CEO, Managing Partner etc.);(b) Financial control;(c) Compliance;(d) Risk management;(e) Asset management;(f) Internal audit; and(g) Anti-Money Laundering (AML).Added: January 2022C4-2.1.10
For the purposes of Paragraph C4-2.1.9 and as per Paragraph C4-1.1.4, the Board is required to appoint at least two senior executives that are resident in Bahrain, one of who is the CEO, but the
category 4 investment firm , with the approval of the CBB, may outsource other functions provided the following conditions are met:(a) The Board andsenior management take responsibility for the outsourced activities and maintain oversight and control over the operations of the outsourced service provider;(b) Thelicensee satisfies the CBB that adequate arrangements are in place to fulfill the role’s responsibilities;(c) The core business of asset management is carried out internally although the firm may utilise third-parties for managing the related processes; and(d) Compliance and AML functions (which may be combined) must have on-site presence (either in-house or on a secondment basis).Added: January 2022C4-2.1.11
The Board and
CEO should prescribe eachsenior manager’s title, authorities, duties and internal reporting responsibilities. The Board may also specify any limits on the authority of theCEO or othersenior managers , such as monetary maximums for transactions which they may authorise without separate Board approval.Added: January 2022C4-2.1.12
At least annually, the Board should review and concur in a succession plan addressing the policies and principles for selecting a successor to the
CEO , both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to theCEO .Added: January 2022Approved Persons Accountability
C4-2.1.13
Each
approved person should understand that under the Law he is personally accountable to thecategory 4 investment firm and the shareholders and if he violates his legal duty of loyalty to thelicensee , and that he can be personally sued by thelicensee or the shareholders for such violations.Added: January 2022Conflicts of Interest
C4-2.1.14
Each
approved person should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with thecategory 4 investment firm . This includes not usinglicensee’s information it for his personal profit, not to take business opportunities of thelicensee for himself, and not to compete in business with the category 4 investment firm. The Board should also have in place a policy on the employment of relatives of theapproved persons .Added: January 2022C4-2.1.15
Approved persons must inform the Board of conflicts of interest as they arise and abstain from voting on the matter in accordance with the relevant provisions of the Law.Added: January 2022Communication between Board and Shareholders
C4-2.1.16
The
category 4 investment firm should communicate with shareholders, encourage their participation, and respect their rights. The Board should observe both the letter and the intent of the Commercial Company Law’s requirements for shareholder meetings.Added: January 2022Remuneration of Approved Persons
C4-2.1.17
The
category 4 investment firm must remunerate approved persons fairly and responsibly.Added: January 2022C4-2.1.18
Remuneration of
approved persons should be sufficient enough to attract, retain and motivate persons of the quality needed to run thecategory 4 investment firm successfully, but thelicensee should avoid paying more than is necessary for that purpose.Added: January 2022C4-2.2 C4-2.2 Auditor Requirements
Appointment of Auditors
C4-2.2.1
Category 4 investment firms must obtain prior written approval from the CBB before appointing or re-appointing their auditors.Added: January 2022C4-2.2.2
Where a
licensee fails to appoint an external auditor within four months from the beginning of the financial year, Article 61 (b) of the CBB Law provides the CBB with the power to appoint the external auditor.Added: January 2022Resignation or Removal of Auditors
C4-2.2.3
Category 4 investment firms must notify the CBB immediately if they intend to remove their auditors, with an explanation of their decision, or when their auditors resign. Thelicensee must appoint the replacement auditor as soon as practicable but no later than three months.Added: January 2022C4-2.2.4
In accordance Article 63 of the CBB Law, auditors of
category 4 investment firms must inform the CBB in writing, if they resign or their appointment as auditor is terminated, within 30 calendar days, of the event occurring, setting out the reasons for the resignation or termination.Added: January 2022Audit Partner Rotation
C4-2.2.5
Unless otherwise exempted by the CBB,
category 4 investment firms must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.Licensees must notify the CBB of any change in audit partner.Added: January 2022Auditor Independence
C4-2.2.6
Before a
category 4 investment firm appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of thelicensee . For an auditor to be considered independent, it must, among things, comply with the restrictions in this Section.Added: January 2022C4-2.2.7
If a
category 4 investment firms becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact. The CBB may require the appointment of a new auditor if the issue is not resolved within a reasonable timeframe.Added: January 2022C4-2.2.8
Category 4 investment firms must not provideregulated services to their auditors or outsource their internal audit function to the same firm that acts as their external auditors.Added: January 2022C4-2.2.9
A partner, director or manager on the engagement team of auditing a
category 4 investment firms may not serve on the Board or in acontrolled function of thelicensee , for two years following the end of their involvement in the audit, without prior authorisation of the CBB.Added: January 2022C4-2.2.10
The Bahrain Commercial Company’s Law and the CBB Law provide further requirements with regards to the
licensee ’s relationship with auditors.Added: January 2022CBB Access to Auditors
C4-2.2.11
Category 4 investment firms must waive any duty of confidentiality on the part of their auditors, such that their auditors may report to the CBB any concerns held regarding material failures by thelicensee to comply with CBB requirements.Added: January 2022C4-2.2.12
In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint
appointed experts to undertake on-site examinations or report by way of investigations on specific aspects of acategory 4 investment firm’s business. External auditors may be called upon to beappointed experts and should be aware of their role in that capacity by referring to Section C4-5.3.Added: January 2022Auditor Access to Outsourcing Providers
C4-2.2.13
Outsourcing agreements between
category 4 investment firms and outsourcing providers must ensure that thelicensee’s internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.Added: January 2022Report on Compliance with Client Asset Rules
C4-2.2.14
Category 4 investment firms that hold or controlclient assets must arrange for their external auditors to report on thelicensee’s compliance with the requirements contained in Appendix CL – (i) at least once a year. The report must be in the form agreed by CBB and must be submitted to the CBB within three months of thelicensee’s financial year-end.Added: January 2022C4-3 C4-3 Operating Requirements
C4-3.1 C4-3.1 Overarching Principles
C4-3.1.1
Category 4 investment firms must:(a) Act with due skill, care and diligence in all dealings withclients ;(b) Provide services without any discrimination based on gender, nationality, origin, language, faith, religion, physical ability or social standing;(c) Act fairly and reasonably in all dealings withclients ;(d) Identifyclients ’ specific requirements in relation to the products and services about which they are enquiring and take adequate measures to avoid mis-selling and mis-representation;(e) Ensure that any advice toclients is aimed at theclients’ interests and based on adequate standards of research and analysis;(f) Provide sufficient information to enableclients to make informed decisions when purchasing investment products and services offered to them;(g) Provide sufficient and timely documentation toclients to confirm that their investment arrangements are in place and provide all necessary information about their products, rights and responsibilities;(h) Maintain fair treatment ofclients through the lifetime of theclient relationships, and ensure thatclients are kept informed of important events;(i) Ensure complaints fromclients are dealt with fairly and promptly;(j) Ensure that all information provided toclients is clear, fair and not misleading, and appropriate toclients ’ information needs; and(k) Take appropriate measures to safeguard any money and property handled on behalf ofclients and maintain confidentiality ofclient information.Added: January 2022Client Classification
C4-3.1.2
Category 4 investment firms must only provide services toaccredited investors who are defined as:(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 1,000,000, excluding that person’s principal place of residence;(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 1,000,000; or(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest infinancial instruments (such as state pension funds).Added: January 2022C4-3.1.3
Before providing any
regulated investment services to anyclient , acategory 4 investment firm must take reasonable steps to obtain appropriate information to establish whether thatclient is anaccredited investor . Such classification must be communicated to theclient along with an explanation of the implications of such classification.Licensees must also keep records of the classification established for eachclient , including sufficient information to support such classification.Added: January 2022Conflicts of Interest
C4-3.1.4
Category 4 investment firms must take all reasonable steps to identify conflicts of interest between themselves (or any person directly or indirectly linked to them by control) and theirclients , which may arise in the course of providing aregulated investment service . Any such conflict of interest must be disclosed to the client and take reasonable steps to obtain theclient’s no objection.Added: January 2022C4-3.1.5
Category 4 investment firms must establish policies and procedures to manage conflicts to interest, including where appropriate information barriers, Chinese walls etc. If thelicensee is unable to manage a conflict of interest it must decline to act for theclient . The policies must also cover an employee’spersonal account transactions .Added: January 2022C4-3.1.6
Category 4 investment firms must establish controls, policies and procedures to ensure that neither they, nor any of their employees, offer, give, solicit or accept any inducement which is likely to conflict significantly with any duty that they owe to theirclients .Added: January 2022Professional Indemnity Insurance
C4-3.1.7
Category 4 investment firms must satisfy the CBB that its professional indemnity coverage is adequate for the nature, size and risk profile of its business.Added: January 2022C4-3.2 C4-3.2 Disclosure Requirements
C4-3.2.1
Category 4 investment firms must provide (with respect toregulated investment services ), comprehensible information toclients or potentialclients on:(a) Itself and the types of services that it can provide;(b) Fees, costs and associated charges such as:(i) The basis or amount of its charges, remuneration and commission for conductingregulated investment services ; and(ii) The nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to thatregulated investment service ;(c) ProposedCIU structures, investments and strategies and appropriate guidance on and warnings of the risks associated with those investments and strategies; and(d) Information about methods of redress.Added: January 2022C4-3.2.2
For the purpose of Subparagraph C4-3.2.1 (b),
category 4 investment firms must disclose any remuneration that the operator/manager is eligible to receive such as carried interest and employee share option plans (ESOP) to itsclients in the prospectus or other offering document.Added: January 2022C4-3.2.3
Category 4 investment firms must provide periodic statements and updates, at least on a semi-annual basis, to theirclients on the status of their investments.Added: January 2022C4-3.2.4
For the purposes of Paragraph C4-3.2.3, information provided to
clients may include the following, where applicable:(a) Updates on status of theCIU , the underlying assets and future strategies and plans;(b) Value of the client’s investments (for example total and net asset value of theCIU );(c) Any debt, pledges on theCIU assets, and resulting costs such as interested payments;(d) Fees and charges paid during the period and their nature;(e) Details of remuneration of theoperator /manager;(f) Details of any income received during the period such as dividends etc.; and(g) Any material changes to the structure of theCIUs , thelicensee , the management etc.Added: January 2022C4-3.3 C4-3.3 Client Assets
C4-3.3.1
Category 4 investment firms must ensure they have made adequate arrangements for safeguardingclient assets comprisingmoney orfinancial instruments belonging toclients which are held or controlled by thelicensee in connection with its business activities.Added: January 2022C4-3.3.2
For the purpose of C4-3.3.1
client assets are held or controlled by thecategory 4 investment firm on behalf of aclient if they are:(a) Directly held by thelicensee ;(b) Held in an account in the name of thelicensee ;(c) Held by a person, or in an account in the name of a person, controlled by thelicensee ; or(d) Held in an account with another person, controlled by thelicensee ; or(e) The account is operated in accordance with the instructions of thelicensee .Added: January 2022C4-3.3.3
Category 4 investment firms must ensure thatclient assets are held separately from assets belonging to thelicensees and that they disclose the arrangements for custody of theclient assets in their prospectus and agreements with theclients .Added: January 2022C4-3.3.4
Category 4 investment firms must ensure the following in respect of custody of assets of theCIUs :(a) Undertake an appropriate risk assessment of thatcustodian and document the same;(b) That theclient will assume the unsecured credit risk of thecustodian or third party with whom thelicensee places theclient assets that it holds;(c) If applicable, thatclient assets may be held in a jurisdiction outside the Kingdom of Bahrain;(d) Agree with the client the details of any claims or set offs which thelicensee may have inclient assets held on behalf of theclient in satisfaction of a default by theclient or otherwise, and any rights which thelicensee may have to closeout or liquidate contracts or positions in respect of any of theclient assets , without theclient’s prior instruction or consent; and(e) Obtainclients’ consent in writing for the arrangements for custody in a document which gives clear information on:i. The terms governing the way in which theclient assets will be held and the obligations and responsibilities of thelicensee and/or of the third-party custodian (where applicable), theclients (including the terms for the restitution of thefinancial instruments );ii. The risks involved; andiii. Whether interest onclient money held is payable to theclient and, if so, the terms and frequency of such payments.Added: January 2022C4-3.3.5
Category 4 investment firms must require that if a safe custodyfinancial instrument is recorded in an account with acustodian , thecustodian makes it clear in the title of the account that thefinancial instrument belongs to one or moreclients of thelicensee .Added: January 2022C4-3.3.6
Category 4 investment firms that hold custody offinancial instruments with acustodian are expected to establish and maintain a system for assessing the appropriateness of the selection of the custodian and to assess the continued appointment of thatcustodian periodically as often as is reasonable in the relevant market. Thelicensee is also expected to make and retain a record of the grounds on which it satisfies itself as to the appropriateness of its selection or, following a periodic assessment, continued appropriateness of thecustodian .Added: January 2022Client Money
C4-3.3.7
Category 4 investment firms must hold allclient money in aclient bank account .Added: January 2022C4-3.3.8
For the purposes of C4-3.3.7, a
client bank account is an account holdingclient money of one or moreclients in a bank account designated as such in accordance with the terms of agreement with theclient /clients.Added: January 2022C4-3.3.9
Client bank accounts in respect of Bahrain domiciledCIUs may only be opened with banks licensed to do business in the Kingdom of Bahrain unless approved by CBB for any given justifiable circumstances.Added: January 2022C4-3.3.10
If the bank holding
client money is located outside the Kingdom of Bahrain,category 4 investment firms should take reasonable steps to establish that the bank is appropriate considering, among other factors, the following:(a) Whether it is a duly licensed bank in good regulatory standing in the jurisdiction it operates;(b) The capital adequacy of the bank is reasonable;(c) The amount ofclient money to be placed, as a proportion of the bank’s capital and deposits is not disproportionate; and(d) The credit rating of the bank, if available is good.Added: January 2022Transfer of Money to Eligible Third Parties
C4-3.3.11
Category 4 investment firms may only pay, or permit to be paid,client money into an account other than theclient bank account if that account is aneligible third party .Added: January 2022C4-3.3.12
Eligible third parties are recognised exchanges, clearing houses and third-party intermediaries (such as brokers), that are duly authorised or licensed by the appropriate regulatory oversight body.Added: January 2022C4-3.3.13
For the purposes of C4-3.3.11, the
category 4 investment firm must assess the suitability of aneligible third party before allowing it to hold or controlclient money . This assessment must include, at a minimum, the information included below:(a) Theeligible third party’s credit rating, capital and financial resources;(b) The regulatory and insolvency regimes of the jurisdiction in which theeligible third party is located;(c) The eligible third party’s reputation;(d) Its regulatory status and history; and(e) The other members of theeligible third party’s group and their activities.Added: January 2022C4-3.3.14
Category 4 investment firms may allow aneligible third party , such as an exchange, a clearing house or an intermediate broker, to hold or controlclient money , only if thelicensee transfers theclient money :(a) For the purpose of a transaction for aclient through or with thateligible third party ; or(b) To meet aclient’s obligations to provide collateral for a transaction.Added: January 2022C4-3.3.15
Category 4 investment firms must not hold money other thanclient money in aclient bank account unless it is:(a) A minimum sum required to open the account or to keep it open;(b) Money temporarily held in the account in accordance with the mixed remittance requirements in Paragraph C4-3.3.17; or(c) Interest credited to the account which exceeds the amount due toclients as interest and which has not yet been withdrawn by thelicensee .Added: January 2022C4-3.3.16
Category 4 investment firm may pay into aclient bank account money of its own to protectclient money if it is prudent to do so, and that money will then becomeclient money for the purposes of theclient asset protection rules in this Module until thelicensee retrieves it.Added: January 2022C4-3.3.17
If a
category 4 investment firm receives a mixed remittance (that is partclient money and part other money), it must:(a) Pay the full sum into aclient bank account ; and(b) Pay the money that is notclient money out of theclient bank account within one business day.Added: January 2022C4-3.3.18
Category 4 investment firms should not hold excessclient money in itsclient transaction accounts with intermediate brokers, settlement agencies or over the counter (OTC) counterparties; it should be held in aclient bank account .Added: January 2022Reconciliation
C4-3.3.19
Category 4 investment firms must ensure that a system is implemented to perform reconciliations of bothclient bank accounts andeligible third-party accounts in whichclient money is held. These reconciliations must be carried out on a regular basis, sufficient to ensure the accuracy of its records (but at a minimum, on a monthly basis as at the last business day of each calendar month).Added: January 2022C4-3.4 C4-3.4 Customer Complaints Procedures
C4-3.4.1
Category 4 investment firms must have adequate customer complaints handling procedures and systems for effective handling of complaints made by customers. The procedures must be documented appropriately, and the customers must be informed of their availability.Added: January 2022C4-3.4.2
Category 4 investment firms should assign the responsibility to handle customer complaints and be the contact point for the customers to a senior level employee and publicise his/her contact details. The position may be outsourced to a third-party with the CBB’s prior approval.Added: January 2022C4-3.4.3
For the purposes of Paragraph C4-3.4.1, customer complaints handling procedures must include the following:
(a) The procedures and policies for:(i) Receiving and acknowledging complaints;(ii) Investigating complaints;(iii) Responding to complaints within appropriate time limits;(iv) Recording information about complaints;(v) Identifying recurring system failure issues.(b) The types of remedies available for resolving complaints; and(c) The periodic reporting of customer complaints and concerns to the Board andsenior management .Added: January 2022Visibility and Accessibility
C4-3.4.4
“How and where to complain” must be well publicised to customers and other interested parties, in both English and Arabic languages. The complaints handling process must be easily accessible to all customers and must be free of charge.
Added: January 2022Responsiveness
C4-3.4.5
Category 4 investment firms must promptly acknowledge a customer complaint and in no case, later than within 5 working days of receipt.Licensees must also promptly respond to a customer complaint in accordance with their urgency, and in no case, later than 4 calendar weeks of receiving the complaint, explaining their position and how they propose to deal with the complaint, including any redress. Until the complaint is resolved, the customers must be kept informed of the progress of their complaint.Added: January 2022C4-3.4.6
If a customer is not satisfied with a
category 4 investment firm’s response or redress options, thelicensee must advise the customer on how to take the complaint further within the organisation, including, the option to refer the matter to the Consumer Protection Unit at the CBB.Added: January 2022Objectivity
C4-3.4.7
Complaints must be addressed in an equitable, objective, unbiased and efficient manner. The following measures must be implemented in this respect:
(a) Impartiality:i. Measures must be taken to protect the person the complaint is made against from bias;ii. The investigation must be carried out by a person independent of the person complained about.(b) Confidentiality:i. Ensure confidentiality for staff who have a complaint made against them and the details must only be known to those directly concerned;ii. Customer information must be protected and not disclosed, unless the customer consents otherwise; andiii. Protect the customer and customer’s identity as far as is reasonable to avoid deterring complaints due to fear of inconvenience or discrimination.Added: January 2022Records of Complaints
C4-3.4.8
Category 4 investment firms must maintain a record of all customers’ complaints. The record of each complaint must include:(a) The identity of the complainant;(b) The substance of the complaint;(c) The status of the complaint, including whether resolved or not, and whether redress was provided; and(d) All correspondence in relation to the complaint.Such records must be retained by the
licensee for a period of 5 years from the date of receipt of the complaint.Added: January 2022Reporting of Complaints
C4-3.4.9
Category 4 investment firms must electronically submit to the CBB’s Consumer Protection Unit at complaint@cbb.gov.bh, a quarterly report summarising the following:(a) The number of complaints received;(b) The substance of the complaints;(c) The number of days it took thelicensee to acknowledge and to respond to the complaints; and(d) The status of the complaint, including whether resolved or not, and whether redress was provided.Added: January 2022C4-3.4.10
Where no complaints have been received by the
licensee within the quarter, a ‘nil’ report should be submitted to the CBB’s Consumer Protection Unit.Added: January 2022C4-4 C4-4 Risk Management
C4-4.1 C4-4.1 Risk Governance
C4-4.1.1
The Board of
category 4 investment firms is ultimately responsible for the establishment of an adequate and effective framework for identifying, measuring monitoring and managing risks. The CBB expects the Board to be able to demonstrate that it provides suitable oversight and establishes effective systems and controls proportionate to the nature, scale and complexity of thelicensee’s activities.Added: January 2022C4-4.1.2
Category 4 investment firms must have a risk management function, independent of risk-taking, commensurate with the nature, scale and complexity of their business. The duties of the risk management function include but are not limited to:(a) Identifying, measuring, monitoring, and controlling the major sources of risks associated with the operations of thelicensee including any entity it may own, control or manage on an ongoing basis;(b) Reporting to the Board andsenior management on all material risks thelicensee is exposed to; and(c) Documenting the processes and systems by which it identifies and monitors material risks, and how it reports to the Board and senior management these risks.Added: January 2022C4-4.2 C4-4.2 Risk Management Framework
C4-4.2.1
The risk management framework of
category 4 investment firms must provide for the establishment and maintenance of effective systems and controls including Board approved policies that enable thelicensee to identify, measure, monitor and manage the major sources of risk arising from its own books and those arising from the CIU it operates in each of the following categories:(a) Counterparty risk;(b) Market risk;(c) Liquidity risk;(d) Operational risk (including where relevant cyber security risk);(e) Outsourcing Risk; and(f) Any additional categories relevant to its business.Added: January 2022C4-4.2.2
Category 4 investment firms must have contingency arrangements to ensure, that they can access sufficient liquid financial resources to meet liabilities as they fall due.Added: January 2022C4-4.2.3
The risk reporting and monitoring systems of
category 4 investment firms must be independent of the employees who are responsible for exposing thelicensee to risk.Added: January 2022Valuation
C4-4.2.4
Category 4 investment firms must have policies and procedures for valuation of assets under management. Wherever possible, thelicensee must use mark to market approach for valuation purposes. Where mark to model approach is not used due to lack of market prices,licensees must follow internationally recognised standards for valuation.Licensees must also utilise independent valuation experts to verify accuracy of valuation models.Added: January 2022Business Continuity Planning
C4-4.2.5
Category 4 investment firms must maintain a business continuity plan (BCP) appropriate to the size and complexity if its operations. The BCP must include procedures for ensuring that critical systems, functions and operations can be maintained or recovered in a timely manner in the event of a disruptionAdded: January 2022Review
C4-4.2.6
Category 4 investment firms must establish mechanisms, including internal audits, to verify that controls, once established, are being followed.Added: January 2022C4-4.3 C4-4.3 Outsourcing Risk
C4-4.3.1
Category 4 investment firms must identify all material outsourcing contracts and ensure that the risks associated with such contracts are adequately controlled.Added: January 2022C4-4.3.2
Outsourcing means an arrangement whereby a third party performs on behalf of alicensee an activity that was previously undertaken by thelicensee itself (or in the case of a new activity, one which ordinarily would have been performed internally by thelicensee ).Added: January 2022C4-4.3.3
For purposes of C4-4.3.1, a contract is ‘material’ where, if it failed in any way, it would pose significant risks to the on-going operations of a
licensee , its reputation and/or the quality of service provided to itsclients . For instance, the outsourcing of all or a substantial part of functions such as financial control, risk management, internal audit would be considered “material”. Management should carefully consider whether a proposed outsourcing arrangement falls under this Module’s definition of “material”. If in doubt, management should consult with the CBB.Added: January 2022C4-4.3.4
Category 4 investment firms must retain ultimate responsibility for functions or activities that are outsourced. In particular,licensees must ensure that they continue to meet all their regulatory obligations with respect to outsourced activities.Added: January 2022C4-4.3.5
Category 4 investment firms must seek the CBB’s prior written approval before committing to a new material outsourcing arrangement in accordance with Paragraph C4-2.1.10. The approval request must contain sufficient detail to demonstrate that relevant issues raised in this Chapter have been addressed.Added: January 2022C4-4.3.6
Category 4 investment firms must immediately inform the CBB of any material problems encountered with an outsourcing provider.Added: January 2022C4-4.3.7
The CBB reserves the right to require a
licensee to terminate or make alternative outsourcing arrangements if, among other reasons, the confidentiality of its customer information was, or is likely to be, breached or the ability of the CBB to carry out its supervisory functions in view of the outsourcing arrangement cannot be assured or executed.Added: January 2022C4-4.3.8
The CBB requires ongoing access to the outsourced activity, which it may occasionally want to examine itself, through management meetings or on-site examinations.
Added: January 2022Risk Assessment
C4-4.3.9
Category 4 investment firms must undertake a thorough risk assessment of an outsourcing proposal, before formally submitting the request for approval to the CBB and committing itself to an agreement.Added: January 2022C4-4.3.10
Before entering into, or significantly changing, an outsourcing arrangement, a
licensee should:(a) Analyse how the arrangement will fit with its organisation and reporting structure; business strategy; overall risk profile; and ability to meet its regulatory obligations;(b) Consider whether the agreements establishing the arrangement will allow it to monitor and control its operational risk exposure relating to the outsourcing;(c) Conduct appropriate due diligence of the service provider’s financial stability and expertise;(d) Consider how it will ensure a smooth transition of its operations from its current arrangements to a new or changed outsourcing arrangement (including what will happen on the termination of the contract);(e) Consider any concentration risk implications such as the business continuity implications that may arise if a single service provider is used by several firms; and(f) Analyse the outsourcing provider’s financial soundness, its technical competence, its commitment to the arrangement, its reputation, its adherence to international standards, and the associated country risk.Added: January 2022C4-4.3.11
In negotiating its contract with a service provider, a
licensee should have regard to:(a) Reporting or notification requirements it may wish to impose on the service provider;(b) Whether sufficient access will be available to its internal auditors, external auditors and to the CBB;(c) Information ownership rights, confidentiality agreements and Chinese walls to protectclient and other information (including arrangements at the termination of the contract);(d) The adequacy of any guarantees and indemnities;(e) The extent to which the service provider must comply with thelicensee’s policies and procedures (covering, for example, information security);(f) The extent to which a service provider will provide business continuity for outsourcing operations;(g) The processes for making changes to the outsourcing arrangement and the conditions under which thelicensee or service provider can choose to change or terminate the outsourcing arrangement, such as where there is:(i) A change of ownership or control (including insolvency or receivership) of the service provider or firm;(ii) Significant change in the business operations (including sub-contracting) of the service provider or firm; or(iii) Inadequate provision of services that may lead to the firm being unable to meet its regulatory obligations.Added: January 2022C4-4.3.12
Category 4 investment firms must maintain and regularly review contingency plans to enable them to set up alternative arrangements with minimum disruption to business should the outsourcing contract be terminated, or the outsourcing provider fail. This may involve the identification of alternative outsourcing providers or the provision of the service in-house. These plans must consider how long the transition would take and what interim arrangements would apply.Added: January 2022C4-4.3.13
All material outsourcing arrangements by a
category 4 investment firm must be the subject of a legally enforceable outsourcing agreement. The contractual liabilities and obligations of the outsourcing provider and licensee must be clearly specified in an outsourcing agreement. Where the outsourcing provider interacts directly with a licensee’s customers, the contract must, where relevant, reflect the licensee’s own standards regardingclient care. Once an outsourcing agreement has been entered into,licensees must regularly review the suitability of the outsourcing provider, and the on-going impact of the agreement on their risk profile and systems and controls framework.Added: January 2022C4-4.3.14
Category 4 investment firms must ensure that the outsourcing arrangement is in compliance with the Personal Data Protection Law (PDPL) and the outsourcing provider implements adequate safeguards and procedures to protectclient data confidentiality.Category 4 investment firms must ensure that they retain title under any outsourcing agreements for data, information and records that form part of the prudential records of thelicensee .Added: January 2022C4-4.3.15
Category 4 investment firms must ensure that its internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.Added: January 2022C4-4.3.16
Category 4 investment firms must also ensure that the CBB inspectors andappointed experts have timely access to any relevant information they may reasonably require to fulfil its responsibilities under the law. Such access must allow the CBB to conduct on-site examinations of the outsourcing provider, if required.Added: January 2022C4-4.3.17
Termination under any other circumstances allowed under the agreement must give
category 4 investment firms a sufficient notice period in which they can affect a smooth transfer of the service to another provider or bring it back in-house.Added: January 2022Outsourcing Controls
Internal Audit Outsourcing
C4-4.3.18
Category 4 investment firms must not outsource their internal audit function to the same firm that acts as their external auditors.Added: January 2022C4-4.3.19
Board and management of
licensees must retain responsibility for ensuring that an adequate internal audit programme is implemented, and will be held accountable in this respect by the CBB.Added: January 2022C4-5 C4-5 CBB Reporting
C4-5.1 C4-5.1 Prudential Reporting
C4-5.1.1
Category 4 investment firms must complete the relevant sections of the Quarterly Prudential Return (‘Form QPR’) and submit to the CBB a soft copy of the return within 30 calendar days of each quarter end. Locally incorporatedlicensees must complete the returns on a consolidated basis while overseaslicensees must complete the returns in respect of the business booked in Bahrain branch.Added: January 2022C4-5.1.2
For the purpose of reporting requirements under this Module, the quarter end of a
licensee is a 3 month period ending on 31 March, 30 June, 30 September or 31 December.Added: January 2022C4-5.1.3
Category 4 investment firms must submit to the CBB its final audited accounts within 3 months of thelicensee’s financial year-end. Such accounts should be submitted along with the Management Letter prepared by the Auditors for the financial year.Added: January 2022C4-5.1.4
Category 4 investment firms must complete the online non-financial information related to their institution by accessing the CBB’s institutional information system (IIS).Licensees must update the required information at least on a quarterly basis or when a significant change occurs in the non-financial information included in the IIS. If no information has changed during the quarter, thelicensees must still access the IIS quarterly and confirm the information contained in the IIS.Licensees must ensure that they access the IIS within 20 calendar days from the end of the related quarter and either confirm or update the information contained in the IIS.Added: January 2022C4-5.1.5
For the purpose of onsite inspection by the CBB,
category 4 investment firms must submit the requested documents and completed questionnaires to the Inspection Directorate at the CBB three working days ahead of inspection team entry date.Added: January 2022C4-5.1.6
Category 4 investment firms must review the contents of the draft Inspection Report and submit to the Inspection Directorate at the CBB a written assessment of the observations/issues raised within ten working days of receipt of such report. Evidentiary documents supporting management’s comments must also be included in the response package.Added: January 2022C4-5.1.7
Category 4 investment firms are required to review the contents of the final Inspection Report and submit within one month, of the report issue date, a final response to such report along with an action plan addressing the issues raised within the stipulated timeline.Added: January 2022C4-5.2 C4-5.2 Notification and Approval Requirements
Notification Requirements
C4-5.2.1 C4-5.2.1
Category 4 investment firms must notify the CBB if any of the following has occurred, may have occurred or may occur in the near future:(a) Any matter which could have a significant adverse impact on thelicensee ’s reputation;(b) Any matter which could affect thelicensee’s ability to continue to provide adequate services to itscustomers and which could result in serious detriment to acustomer ;(c) Any matter in respect of the licensee that could result in material financial consequences to the financial system or to otherlicensees ;(d) A breach of any provision of the CBB laws and regulations;(e) If thelicensee becomes aware, or has information that reasonably suggests that it has or may have provided the CBB with information that was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material way;(f) Any legal, professional, administrative or other proceedings instituted against thelicensee ,controller or aparent undertaking of thelicensee that is significant in relation to the licensee’s financial resources or its reputation;(g) The bringing of a prosecution for, or conviction of, any material offence under any relevant law against thelicensee or against any of itsapproved persons ; and(h) It becomes aware that an employee, or another person, may have committed a fraud, it suspects fraud and identifies irregularities in its accounting or other records, or that one of its employees may be guilty of serious misconduct concerning his honesty or integrity.Added: January 2022C4-5.2.2
Except in instances where the CBB has initiated the following actions,
category 4 investment firms must notify the CBB immediately of any of the following events:(a) The calling of a meeting to consider a resolution for winding up thelicensee , acontroller or aparent undertaking of the licensee;(b) An application to dissolve acontroller or aparent undertaking of thelicensee ;(c) The presentation of a petition for the winding up of acontroller or aparent undertaking of thelicensee ;(d) The making of any proposals, or the making of, a composition or arrangement with any one or more of thelicensee’s creditors, for material amounts of debt;(e) An application for the appointment of an administrator or trustee in bankruptcy to acontroller or aparent undertaking of thelicensee ;(f) The appointment of a receiver to acontroller or aparent undertaking of theinvestment firm licensee (whether an administrative receiver or a receiver appointed over particular property); or(g) An application for an interim order against thelicensee , acontroller or aparent undertaking of thelicensee under the Reorganization and Bankruptcy Law or similar legislation in another jurisdiction.Added: January 2022C4-5.2.3
Category 4 investment firms must notify the CBB immediately if it becomes subject to or ceases to be subject to the supervision of any overseas supervisor (including ahome supervisor ).Added: January 2022C4-5.2.4
Where conduct of business standards applied by overseas branches and subsidiaries of a
category 4 investment firm falls below the standards set out in this Module, thelicensee must notify the CBB of the fact.Added: January 2022Approval Requirements
C4-5.2.5
Category 4 investment firms must obtain prior written approval from the CBB for the following(a) A change in its registered/trade name. The request must include the proposed new name and the date it intends to implement the change;(b) A change in the address of thelicensee’s principal place of business in Bahrain. The request must include the proposed new address and the date it intends to implement the change;(c) A change in its legal status that may, in any way, affect its relationship with or limit its liability to its customers;(d) A change in its authorised or issued capital. If thelicensee is granted approval to increase its paid-up capital, confirmation from the external auditor stating that the amount has been deposited in the licensee’s bank account or otherwise reflected in the licensee’s accounts will subsequently be required; and(e) A change in its Memorandum or Articles of Association.Added: January 2022C4-5.3 C4-5.3 Information Gathering by the CBB
C4-5.3.1
Category 4 investment firms must provide all information that the CBB may reasonably request in order to discharge its regulatory obligations. This includes providing all relevant information and assistance to the CBB inspectors and appointed experts on demand.Added: January 2022C4-5.3.2
Article 163 of the CBB Law provides for criminal sanctions where false or misleading statements are made to the CBB or any person /appointed expert appointed by the CBB to conduct an inspection or investigation on the business of the
licensee .Added: January 2022C4-5.3.3
The CBB may ask a
category 4 investment firm to provide it with information at the request of or on behalf of other supervisors to enable them to discharge their functions properly. Those supervisors may include overseas supervisors or government agencies in Bahrain. The CBB may also, without notifying thelicensee , pass on to those supervisors or agencies information that it already has in its possession.Added: January 2022C4-5.3.4
Category 4 investment firms must permit representatives of the CBB, or persons appointed for the purpose by the CBB to have access, with or without notice, during reasonable business hours to any of its business premises in relation to the discharge of the CBB’s functions under the law.Added: January 2022C4-5.3.5
Category 4 investment firms must take reasonable steps to ensure that all information they give to the CBB is:(a) Factually accurate or, in the case of estimates and judgements, fairly and properly based after appropriate enquiries have been made by thelicensee ; and(b) Complete, in that it should include everything which the CBB would reasonably and ordinarily expect to have.Added: January 2022C4-5.3.6
The CBB uses various methods of information gathering on its own initiative which require the cooperation of the
category 4 investment firm: (a) Representatives of the CBB may make onsite visits at the premises of thelicensee . These visits may be made on a regular basis, or on a sample basis, for special purposes, or when the CBB has a particular reason for visiting alicensee ;(b) Appointees of the CBB may also make onsite visits at the premises of thelicensee . Appointees of the CBB may include persons who are not CBB staff, but who have been appointed to undertake particular monitoring activities for the CBB, such as in the case ofAppointed Experts .(c) The CBB may request theinvestment firm licensee to attend meetings at the CBB’s premises or elsewhere;(d) The CBB may seek information or request documents by telephone, by emails, at meetings or in writing;Added: January 2022Appointed Experts
C4-5.3.7
The CBB uses its own inspectors to undertake on-site examinations of
licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission reports on matters relating to the business oflicensees in order to help it assess their compliance with CBB requirements. Inspections may be carried out either by the CBB’s own officials, by duly qualifiedappointed experts appointed for the purpose by the CBB, or a combination of the two.Added: January 2022C4-5.3.8
Appointed experts will be appointed in writing, through an appointment letter, by the CBB. In each case, the CBB will decide on the range, scope and frequency of work to be carried out byappointed experts .Added: January 2022C4-5.3.9
Appointed experts will report directly to and be responsible to the CBB in this context and will specify in their report any limitations placed on them in completing their work (for example due to thelicensee’s group structure). The report produced by theappointed experts is the property of the CBB (but is usually shared by the CBB with thelicensee concerned).Added: January 2022C4-5.3.10
The
appointed experts ’ report should follow the format set out in Appendix BR-1, in part B of the CBB Rulebook.Added: January 2022C4-5.3.11
Where the report is
qualified by exception , the report must clearly set out the risks which thelicensee runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected.Appointed experts will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.Added: January 2022C4-5.3.12
If the
appointed experts conclude, after discussing the matter with thelicensee , that they will give a negative opinion (as opposed to onequalified by exception ) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.Added: January 2022C4-5.3.13
The report must be completed, dated and submitted, together with any comments by directors or management (including any proposed timeframe within which the
licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.Added: January 2022C4-5.3.14
Appointed experts must communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, are not or have not been fulfilled, or that there has been a material loss or there exists a significant risk of material loss in the concernedlicensee , or that the interests of customers are at risk because of adverse changes in the financial position or in the management or other resources of alicensee . Notwithstanding the above, it is primarily thelicensee’s responsibility to report such matters to the CBB.Added: January 2022C4-5.3.15
Appointed experts must keep information obtained during their arrangement confidential and not divulge it to a third party except with the CBB’s permission and/or unless required by Bahrain Law.Added: January 2022C4-5.3.16
The CBB may, at its discretion, call for a
trilateral meeting (s) to be held between the CBB and representatives of the relevantcategory 4 investment firm licensee and theappointed experts . This meeting will provide an opportunity to discuss theappointed experts ’ examination of and report on thelicensee .Added: January 2022Reporting Requirements
BR BR CBB Reporting
Chapter BR-A Chapter BR-A Introduction
BR-A.1 BR-A.1 Purpose
Executive Summary
BR-A.1.1
This Module sets out requirements applicable to
investment firm licensees regarding reporting to the Central Bank of Bahrain ('CBB'). These include the provision of financial information to the CBB by way of quarterly prudential returns, as well as notification to the CBB of certain specified events, some of which require prior CBB approval. This Module also outlines the methods used by the CBB in gathering information required in the supervision ofinvestment firm licensees .Amended: January 2011
Adopted: July 2007BR-A.1.2
The requirements in this Module apply to all categories of
investment firm licensees .Adopted: July 2007Legal Basis
BR-A.1.3
This Module contains the CBB's Directive (as amended from time to time) regarding CBB Reporting requirements applicable to
investment firm licensees , 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').Amended: January 2011
Adopted: July 2007BR-A.1.4
For an explanation of the CBB's rule-making powers and different regulatory instruments, see section UG-1.1.
Adopted: July 2007BR-A.2 BR-A.2 Module History
Evolution of Module
BR-A.2.1
This Module was first issued in July 2007, as part of the second phase release of Volume 4's contents. It is dated July 2007. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made: UG-3 provides further details on Rulebook maintenance and version control.
Adopted: July 2007BR-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes BR-1.1 10/2009 Updated to include CBB's new requirements for preparation and submission of Quarterly Prudential Report and Auditors Report. BR-1.2 10/2009 Corrected Heading to read Annual Group Return. BR-1.3 10/2009 Amended to include CBB's requirements for prudential and reporting dates of a branch. BR-1.4 10/2009 New Section added to include CBB's reporting requirements in accordance with other Modules of Volume 4. BR-2.2 10/2009 Updated to include CBB's notification requirements in accordance with other Modules of Volume 4. BR-2.3 10/2009 Updated to include CBB's approval requirements in accordance with other Modules of Volume 4 BR-1.4.6 07/2010 New Rule added to clarify requirements for listed companies. BR-2.2.1 and BR-3.4.3 07/2010 Paragraphs amended. BR-2.3.13 07/2010 Amended cross reference. BR-2.3.29 07/2010 Added cross reference. BR-A.1.3 01/2011 Clarified legal basis. BR-1.4.6 01/2011 Amendment made to recognise “licensed exchange”. BR-1.4.12 and BR-1.4.13 01/2011 Added IIS reporting requirements. BR-2.2.9 01/2011 Administrator not to be shown as a defined term in this Paragraph. BR-2.2.22 01/2011 Amended reference to “direct” supervisory contact. BR-2.3.5 01/2011 Removed reference to additional premises. BR-2.3.8 01/2011 Clarified Rule dealing with change in authorised or issued capital. BR-2.3.12 01/2011 Rule amended as it does not apply to overseas investment firms. BR-2.3.18 01/2011 Rule amended to remove reference to “directors”. BR-1.4.13 04/2011 Corrected cross reference. BR-2.3.15, BR-2.3.16 and BR-2.3.17 04/2011 Paragraphs amended to incorporate new requirements under Chapter GR-10. BR-1.4.9A 10/2011 Added requirement for submission of complaint handling procedures report. BR-3.5 10/2011 Transferred material from EN-2 and AA-5 dealing with appointed experts. BR-1.1.8 01/2012 Clarified application of Rule to Category 1 and Category 2 investment firm licensees .BR-2.3.33 01/2012 Added notification to be provided to the Financial Institutions Supervision Directorate. BR-1.4.10 07/2012 Deleted Paragraph to be in line with changes made to Module FC. BR-2.3.27A 07/2012 Added a Paragraph to reflect CBB prior approval requirements under Paragraph CA-1.1.5A. BR-3.1.1A and BR-3.1.1B 07/2012 Added Paragraphs to clarify Rules on power to request information. BR-3.3.1 and BR-3.4 07/2012 Minor corrections. BR-2.3.32 10/2012 Reference updated to reflect the issuance of Volume 7 (CIU). BR-1.4.12 01/2013 Clarified deadline to update IIS. BR-2.3.27B 01/2013 Added a Rule requiring CBB prior written approval where an investment firm licensee proposes to settle a subordinated loan made by its shareholders, either fully or partially. BR-2.3.19(a) 04/2013 Correction made to proper cross reference. BR-1.4.11 10/2013 Aligned defined term with Glossary. BR-2.2.5, BR-2.2.26, BR-2.3.6 and BR-3.2.2 10/2013 Removed reference to appointed representatives. BR-2.3.33 10/2014 Added cross reference to Module OFS in Volume 6 of the CBB Rulebook. BR-1.1.6 07/2015 Clarified that the QPR is to be filed on a consolidated basis. BR-1.4.1 and BR-2.3.11 10/2015 Added cross reference to reflect update to Chapter GR-5. BR-2.2.23, BR-2.2.23A and BR-2.3.10 10/2015 Amended to be in line with updated Chapter GR-5. BR-2.2.16 and BR-2.2.22 01/2016 Corrected cross references. BR-2.2.6 04/2016 Clarified to whom notification requirements must be sent in the cases of fraud. BR-1.1.8 10/2016 Added reference to AA-3.1.1 BR-1.4.6A 10/2016 Added a new Rule on submitting to the CBB the Audited financial statements of subsidiaries BR-2.2.23 01/2017 Amended to be consistent with GR-5.1.5. BR-1A.4 04/2017 Added a new Section on Onsite Inspection Reporting. BR-2.2.17 04/2017 Corrected reference BR-1.4.11 10/2017 Amended Paragraph to clarify that licensees are to formally declare in writing that they do not possess any Client assets. BR-1.4.11 04/2018 Amended Paragraph. BR-1B.4 10/2018 Added a new Section on Report on Private Placements. BR-1.4.5A 10/2019 Added a new Paragraph on disclosure of financial penalties. BR-1B.4.1 01/2020 Amended Paragraph to add requirements applicable to Cat. 1 and 2. BR-1B.4.2 01/2020 Amended Paragraph on reports purpose. BR-1B.4.6 01/2020 Added a new Paragraph on reporting requirements. BR-2.3.12 01/2020 Amended Paragraph. BR-2.3.15 01/2020 Amended Paragraph. BR-1.1.4 01/2022 Amended Paragraph on submission of Forms. BR-1.1.12 01/2022 Deleted Paragraph. BR-1.2 01/2022 Deleted Section. BR-1.4.3 01/2022 Amended Paragraph. BR-1.4.4 01/2022 Delete Paragraph. BR-1.4.7 01/2022 Amended Paragraph. BR-1.4.8 01/2022 Amended Paragraph. BR-1.4.9 01/2022 Amended Paragraph on submission of the PIIR. BR-1.4.9A 01/2022 Amended Paragraph on submission of a complaint handling procedures report. BR-1A.4.2 01/2022 Amended Paragraph on the submission of the written assessment of the observations/issues raised in the Inspection draft report. BR-1B.4.1 01/2022 Amended Paragraph. BR-2.2.22 01/2023 Amended Paragraph removing reference to RM. BR-2.3.19 01/2023 Deleted Paragraph on CBB approval for outsourcing of functions.. BR-1.4.14 07/2023 Added a new Paragraph on Prudential Meetings Requirements. BR-2.2.27 07/2023 Added a new Paragraph on notifying the CBB of any changes to the business strategy. Superseded Requirements
BR-A.2.3
This Module supersedes the following provisions contained in circulars or other regulatory instruments:
Circular/ other reference Provision Subject Circular No. BC/9/99 dated 6 June 1999 All provisions Quarterly Information Report (QIR). Circular No. BC/12/2000 dated 10 October 2000 All provisions Quarterly Information Report (QIR). Adopted: July 2007BR-A.2.4
Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Adopted: July 2007Chapter BR-B Chapter BR-B Scope of Application
BR-B.1 BR-B.1 License Categories
BR-B.1.1
The content of this Module — unless otherwise stated — applies to all categories of
investment firm licensees authorised in the Kingdom.Adopted: July 2007BR-B.1.2
The effect of BR-B.1.1 is that this Module, unless otherwise stated, applies in full to all
investment firm licensees authorised in Bahrain, whether or not theinvestment firm licensee is incorporated in Bahrain, or else is incorporated in an overseas territory and operates through a branch in the Kingdom.Adopted: July 2007Chapter BR-1 Chapter BR-1 Prudential Reporting
BR-1.1 BR-1.1 Quarterly Prudential Reporting
BR-1.1.1
All
investment firm licensees must prepare and submit to the CBB a Quarterly Prudential Return ('Form QPR').Adopted: July 2007BR-1.1.2
A copy of Form QPR is contained in Part B of Volume 4 of the CBB Rulebook. As per the reporting instructions for the Form,
Category 1 investment firms andCategory 2 investment firms are required to complete all sections of the Form.Category 3 investment firms are required to complete only a subset of the sections of the Form, reflecting their more limited range of activities.Adopted: July 2007BR-1.1.3
The Quarterly Prudential Return must be submitted to the CBB within 30 calendar days of each quarter end (as defined in Rule BR-1.3.1).
Adopted: July 2007BR-1.1.4
For each submission an electronic 'soft copy' must be submitted to the CBB.
Amended: January 2022
Adopted: July 2007Scope of the Quarterly Prudential Return
BR-1.1.5
The Quarterly Prudential Return must be submitted using the prescribed Form QPR, as contained in Part B of Volume 4 (Investment Business), together with the required auditor's report only for the quarter ending 30 June (or semi-annually, depending on the
licensee's financial year-end).Amended: October 2009
Adopted: July 2007BR-1.1.6
The Quarterly Prudential Return must be completed by every
investment firm licensee as follows:(a) In the case of aninvestment firm licensee incorporated in Bahrain, the Quarterly Prudential Return must be completed on a consolidated basis, i.e. showing the assets and liabilities of the licensee concerned (including any of its branches, subsidiaries or associates); and(b) In the case of anoverseas investment firm licensee , the Quarterly Prudential Return must be completed in respect of the investment business booked by theoverseas investment firm licensee in the Bahrain branch only.Amended: July 2015
Adopted: July 2007Valuation of Assets and Liabilities
BR-1.1.7
Amounts included within the Quarterly Prudential Return must be determined in accordance with the recognition and measurement principles specified by International Financial Reporting Standards.
Adopted: July 2007Auditor's Report
BR-1.1.8
In accordance with Paragraph AA-3.1.1, for Category 1 and Category 2
investment firm licensees , the Quarterly Prudential Returns for the quarter ending 30 June (or semi-annually, depending on thelicensee's financial year-end) must be reviewed by the firm's external auditor, unless otherwise exempted in writing by CBB.Amended: October 2016
Amended: January 2012
Amended: January 2011
Amended: October 2009
Adopted: July 2007BR-1.1.9
The requirement in Rule BR-1.1.8 aims to ensure accuracy and consistency of the financial data presented in Form QPR. Where auditor reviews reveal no material errors in four successive reviews, an exemption from this requirement may be requested. The CBB will normally grant such an exemption, unless it has other supervisory concerns regarding the licensee. However, material reporting errors identified in subsequent Forms QPR may lead to the exemption being withdrawn.
Amended: October 2009
Adopted: July 2007BR-1.1.10
For the purpose of Rule BR-1.1.8, the time allowed for submission of the Auditor's report is 15 calendar days from the date of submission of the return to the CBB.
Amended: October 2009
Adopted: July 2007Preparation and Submission of the Quarterly Prudential Return
BR-1.1.11
If the CBB notifies an
investment firm licensee that a Form submitted under Rule BR-1.1.1 appears to be inaccurate or incomplete, theinvestment firm licensee must promptly look into the matter and within 5 business days of the CBB notification (or as otherwise agreed), correct any inaccuracies or make good any omissions, and submit the amended parts of the Quarterly Prudential Return.Amended: October 2009
Adopted: July 2007BR-1.1.12
[This Paragraph was deleted in January 2022].
Deleted: January 2022
Amended: October 2009
Adopted: July 2007Public Disclosure
BR-1.1.13
Submitted Forms QPR are not public documents and will not be disclosed to third parties by the CBB without the
investment firm licensee's consent. However, the CBB may from time to time publish aggregate information derived from such Forms, relating to categories ofinvestment firm licensees or the Bahrain investment business sector as a whole.Adopted: July 2007BR-1.1.14
Whilst submitted Forms QPR are not public documents,
investment firm licensees are not prevented from providing complete copies (including all relevant certifications and reports) to third parties.Adopted: July 2007BR-1.2 BR-1.2 [This Section was deleted in January 2022]
Annual Group Return
BR-1.2.1
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.2
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.3
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.4
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.5
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.6
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.7
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.8
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.2.9
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Adopted: July 2007BR-1.3 BR-1.3 Prudential and Financial Reporting Dates
BR-1.3.1
For the purpose of reporting requirements under this Module, the quarter end of an
investment firm licensee must be a 3-month period ending on 31 March, 30 June, 30 September or 31 December.Adopted: July 2007BR-1.3.2
The financial year of an
investment firm licensee must be a 12-month period ending on 31 December, except where the firm has obtained the written consent from the CBB for either the period or the period end to be other than 12 months and 31 December respectively. In any event, the financial year can never be less than a 6-month period or greater than an 18-month period.Adopted: July 2007BR-1.3.3
In instances where the financial year end of the parent undertaking is other than 31 December, the
investment firm licensee must notify the CBB that its financial year will coincide with that of itsparent undertaking .Adopted: October 2009BR-1.3.4
For the purposes of Rule BR-1.3.2 and BR-1.3.3, the CBB would usually accept that the financial year end of a branch be the same as that of its head office (i.e. the company of which it is part). The CBB may also consider allowing
licensees that are part of an overseas group to have a different year end, where imposing a December year-end would cause significant difficulties. Otherwise, the only time that the CBB would be likely to consider allowing aninvestment firm licensee to adopt a financial period of other than 12 months would be the year in which it is authorised, or when the company's shareholders have themselves approved a change in the reporting period for the purposes of its financial statements.Amended: October 2009
Adopted: July 2007BR-1.4 BR-1.4 Other Reporting Requirements
Reports Prepared by Licensee
BR-1.4.1
Investment firm licensees must submit, within 3 months of their financial year-end, a report on theircontrollers (ref. GR-5.1.8 and GR-5.5.3).Amended: October 2015
Adopted: October 2009BR-1.4.2
Investment firm licensees must submit to the CBB, within 3 months of their financial year-end, a report on theirclose links (ref. GR-6.1.3).Adopted: October 2009BR-1.4.3
Investment firm licensees must submit to the CBB, within 6 months of their financial year-end, the annual report of their parent company.Amended: January 2022
Amended: July 2012
Adopted: October 2009BR-1.4.4
[This Paragraph was deleted in January 2022]
Deleted: January 2022
Amended: July 2012
Adopted: October 2009BR-1.4.5
As specified in Article 62 of the CBB Law, an
investment firm licensee must submit to the CBB its final audited accounts within 3 months of thelicensee's financial year-end. Such accounts should be submitted along with the Management Letter prepared by the Auditors for the financial year.Adopted: October 2009BR-1.4.5A
In accordance with Paragraph EN-B.4.6,
investment firm licensees must disclose the amount of any financial penalties paid to the CBB, together with a factual description of the reason(s) given by the CBB for the penalty.Investment firm licensees which fail to comply with this requirement will be required to make the disclosure in the annual audited financial statements of the subsequent year and will be subject to an enforcement action for non-disclosure.Added: October 2019BR-1.4.6
Investment firm licensees that arelisted companies must observe, while complying with Rule BR-1.4.5, all applicable CBB Capital Market andlicensed exchange requirements, as updated by the relevant authorities, with respect to their final audited accounts. These other requirements are currently issued separately, in the form of individual directives issued by the CBB's Capital Markets Supervision Directorate and thelicensed exchange (ref. UG-A.1.5).Amended: January 2011
Adopted: July 2010BR-1.4.6A
Bahraini investment firm licensees must submit to the CBB audited financial statements of theirsubsidiaries within 3 months of the year end of thesubsidiary (ref. GR-10.1.8B).Added: October 2016BR-1.4.7
Investment firm licensees must submit the reports referred to in Paragraph FC-4.2.1 promptly to the Financial Intelligence Unit at the Ministry of the Interior, and submit a copy of the reports to the CBB's Compliance Directorate (FC-4.2.3).Amended: January 2022
Amended: July 2010
Adopted: October 2009BR-1.4.8
Investment firm licensees must report any actual or attempted fraud incident (however small) to the CBB and appropriate authorities immediately (ref. FC-10.1.4). This requirement is applicable toCategory 1 andCategory 2 investment firm licensees only.Amended: January 2022
Amended: July 2010
Adopted: October 2009BR-1.4.9
Investment firm licensees must submit a Professional Indemnity Insurance Return (Form PIIR) within 30 calendar days of each quarter (ref. GR-9.1.1). This requirement is applicable toCategory 2 andCategory 3 investment firm licensees only.Amended: January 2022
Amended: July 2010
Adopted: October 2009BR-1.4.9A
Investment firm licensees must submit to the Complaints Unit at the CBB a report summarising the outcome of their complaint handling procedures in accordance with the requirements of Paragraph BC-3.7.1 within 30 calendar days of each quarter end.Amended: January 2022
Adopted: October 2011Reports Prepared by External Auditors
BR-1.4.10
[This Paragraph was deleted in July 2012].
Deleted: July 2012BR-1.4.11
Investment firm licensees that hold or control client assets (including where it pools financial instruments held for more than one client) must arrange for their external auditor to report on thelicensees' compliance with the requirements contained in Module CL (Client Assets), and submit the report to the CBB within three months of thelicensee's financial year end (ref. AA-3.2.1 and CL-1.5.1). This requirement is applicable toCategory 1 investment firm andCategory 2 investment firm licensees only.Investment firm licensees which do not hold or control Client Assets are obligated to confirm the same annually.Amended: April 2018
Amended: October 2017
Amended: October 2013
Amended: July 2010
Adopted: October 2009IIS Reporting Requirements
BR-1.4.12
Investment firm licensees are required to complete online non-financial information related to their institution by accessing the CBB's institutional information system (IIS).Investment firm licensees must update the required information at least on a quarterly basis or when a significant change occurs in the non-financial information included in the IIS. If no information has changed during the quarter, theinvestment firm licensees must still access the IIS quarterly and confirm the information contained in the IIS. Licensees must ensure that they access the IIS within 20 calendar days from the end of the related quarter and either confirm or update the information contained in the IIS.Amended: January 2013
Adopted: January 2011BR-1.4.13
Investment firm licensees failing to comply with the requirements of Paragraph BR-1.4.12 or reporting inaccurate information are subject to financial penalties or other enforcement actions as outlined in Module (EN) Enforcement.Amended: April 2011
Adopted: January 2011BR-1.4.14
Investment firm licensees must submit to the CBB at least three weeks prior to the prudential meeting date, all compliance reports issued since the last prudential meeting along with status updates on resolved and pending issues.Added: July 2023BR-1A.4 BR-1A.4 Onsite Inspection Reporting
BR-1A.4.1
For the purpose of onsite inspection by the CBB,
Investment firm licensees must submit requested documents and completed questionnaires to the Inspection Directorate at the CBB three working days ahead of inspection team entry date.Added: April 2017BR-1A.4.2
Investment firm licensees must review the contents of the draft Inspection Report and submit to the Inspection Directorate at the CBB a written assessment of the observations/issues raised within fifteen working days of receipt of such report. Evidentiary documents supporting management's comments must also be included in the response package.Amended: January 2022
Added: April 2017BR-1A.4.3
Investment firm licensees' board are required to review the contents of the Inspection Report and submit within one month, of the report issue date, a final response to such report along with an action plan addressing the issues raised within the stipulated timeline.Added: April 2017BR-1B.4 BR-1B.4 Report on Private Placements
BR-1B.4.1
When acting as an issuer, promoter or manager of a private placement of securities (excluding CIUs),
Investment firm licensees must provide on a semi-annual basis to investors and the CBB a progress report on the private placement. The semi-annual reports are to be provided as of 30th June and 31st December and must be submitted to the investors and the CBB within three months of the reporting period. This requirement is applicable to Category 1investment firm licensees and Category 2investment firm licensees only.Amended: January 2022
Amended: January 2020
Added: October 2018BR-1B.4.2
The reports referred to in Paragraph BR-1B.4.1 are to be issued for all PPMs issued or distributed for the purpose of solicitation of funds from investors.
Amended: January 2020
Added: October 2018BR-1B.4.3
The requirements for the report on private placements are in addition to any requirements outlined in Module OFS (Offering of Securities) under Volume 6 (Capital Markets).
Added: October 2018BR-1B.4.4
Investment firm licensees may opt to issue the required report on a more frequent basis.Added: October 2018BR-1B.4.5
The report required under Paragraph BR-1B.4.1 must be issued for private equity purchases of existing companies, as well as for real estate and other projects under development (in coordination with the real estate developer), and must follow the requirements of Appendix BR-2 under Part B of Volume 4.
Added: October 2018BR-1B.4.6
Investment firm licensees which do not act as issuers, promoters or managers for PPMs, and therefore are not subject to the reporting requirement under Rule BR-1B.4.1, are obligated to confirm the same to the CBB on a semi-annual basis, within the deadline stipulated in Rule BR-1B.4.1.Added: January 2020Chapter BR-2 Chapter BR-2 Notifications and Approvals
BR-2.1 BR-2.1 Introduction
BR-2.1.1
All notifications and approvals required in this Chapter are to be submitted by
investment firm licensees in writing.Adopted: July 2007BR-2.1.2
In this Module, the term 'in writing' includes electronic communication capable of being reproduced in paper form.
Adopted: July 2007BR-2.1.3
An
investment firm licensee must make the notifications and approvals required in Chapter BR-2 immediately it becomes aware, or has information which reasonably suggests, that any of the matters in Chapter BR-2 have occurred, may have occurred or may occur in the near future.Amended: October 2009
Adopted: July 2007BR-2.1.4
The requirements imposed on
investment firm licensees under this Chapter apply whether the event relates to a matter that has occurred in Bahrain or in any other jurisdiction.Adopted: July 2007BR-2.1.5
Investment firm licensees are required to provide the CBB with a range of information to enable it to monitor theinvestment firm licensee's compliance with Volume 4 of the CBB Rulebook. Some of this information is provided through regular reports, whereas others are in response to the occurrence of a particular event (such as a change in name or address). The following lists the commonly occurring reports for which aninvestment firm licensee will be required to notify the CBB or seek its approval.Adopted: July 2007BR-2.2 BR-2.2 Notification Requirements
Matters Having a Serious Supervisory Impact
BR-2.2.1
An
investment firm licensee must notify the CBB if any of the following has occurred, may have occurred or may occur in the near future:(a) Theinvestment firm licensee failing to satisfy one or more of the Principles of Business referred to in Module PB;(b) Any matter which could have a significant adverse impact on theinvestment firm licensee's reputation;(c) Any matter which could affect theinvestment firm licensee's ability to continue to provide adequate services to itscustomers and which could result in serious detriment to acustomer of theinvestment firm licensee ; or(d) Any matter in respect of theinvestment firm licensee that could result in material financial consequences to the financial system or to otherinvestment firm licensees .(e) Any breach of any provision of the Rulebook (including a Principle);(f) A breach of any requirement imposed by the relevant law or by regulations or an order made under any relevant law by the CBB; or(g) If aninvestment firm licensee becomes aware, or has information that reasonably suggests that it has or may have provided the CBB with information that was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material way, it must notify the CBB immediately (ref. BR-3.3.2).Amended: July 2010
Amended: October 2009
Adopted: July 2007BR-2.2.2
The circumstances that may give rise to any of the events in Paragraph BR-2.2.1 are wide-ranging and the probability of any matter resulting in such an outcome, and the severity of the outcome, may be difficult to determine. However, the CBB expects
investment firm licensees to consider properly all potential consequences of events.Adopted: July 2007BR-2.2.3
In determining whether an event that may occur in the near future should be notified to the CBB, an
investment firm licensee should consider both the probability of the event happening and the severity of the outcome should it happen. Matters having a supervisory impact could also include matters relating to aparent undertaking orcontroller that may indirectly have an effect on theinvestment firm licensee .Adopted: July 2007BR-2.2.4 [Deleted]
Deleted: October 2009Legal, Professional, Administrative or other Proceedings Against an Investment Firm Licensee
BR-2.2.4
An
investment firm licensee must notify the CBB immediately of any legal, professional or administrative or other proceedings instituted against theinvestment firm licensee ,controller or aclose link including aparent undertaking of theinvestment firm licensee that is known to theinvestment firm licensee and is significant in relation to theinvestment firm licensee's financial resources or its reputation.Amended: October 2009
Adopted: July 2007BR-2.2.5
An
investment firm licensee must notify the CBB of the bringing of a prosecution for, or conviction of, any offence under any relevant law against theinvestment firm licensee that would prevent theinvestment firm licensee from meeting the Principles or Business (Module PB) or any of itsDirectors , officers orapproved persons from meeting the fit and proper requirements of Module AU.Amended: October 2013
Adopted: October 2009Fraud, Errors and other Irregularities
BR-2.2.6
An
investment firm licensee must notify its supervisory point of contact, and in cases of fraud the Compliance Directorate at the CBB immediately if one of the following events arises and the event is significant:(a) It becomes aware that an employee may have committed a fraud against one of itscustomers ;(b) It becomes aware that a person, whether or not employed by it, is acting with intent to commit fraud against it;(c) It identifies irregularities in its accounting or other records, whether or not there is evidence of fraud;(d) It suspects that one of its employees may be guilty of serious misconduct concerning his honesty or integrity and which is connected with theinvestment firm licensee's regulated or ancillary activities; or(e) Significant conflicts of interest.Amended: April 2016
Amended: October 2009
Adopted: July 2007Meaning of the Term "significant"
BR-2.2.7
For the purposes of this chapter, in determining whether a matter is significant, an
investment firm licensee should have regard to:(a) The size of any monetary loss or potential monetary loss to itself or itscustomers (either in terms of a single incident or group of similar or related incidents);(b) The risk of reputational loss to theinvestment firm licensee ; and(c) Whether the incident or a pattern of incidents reflects weaknesses in theinvestment firm licensee's internal controls.Adopted: July 2007BR-2.2.8
In addition, if the
investment firm licensee may have suffered significant financial losses as a result of the incident, or may suffer reputational loss, the CBB will wish to consider this and whether the incident suggests weaknesses in theinvestment firm licensee's internal controls.Adopted: July 2007Insolvency, Bankruptcy and Winding Up
BR-2.2.9
Except in instances where the CBB has initiated the following actions, an
investment firm licensee must notify the CBB immediately of any of the following events:(a) The calling of a meeting to consider a resolution for winding up theinvestment firm licensee , acontroller orclose link , including aparent undertaking of theinvestment firm licensee ;(b) An application to dissolve acontroller orclose link , including aparent undertaking of theinvestment firm licensee or to strike theinvestment firm licensee off the Register of Investment Business Companies;(c) The presentation of a petition for the winding up of acontroller orclose link , including aparent undertaking of theinvestment firm licensee ;(d) The making of any proposals, or the making of, a composition or arrangement with any one or more of theinvestment firm licensee's creditors, for material amounts of debt;(e) An application for the appointment of an administrator or trustee in bankruptcy to acontroller orclose link , including aparent undertaking of theinvestment firm licensee ;(f) The appointment of a receiver to acontroller orclose link , including aparent undertaking of theinvestment firm licensee (whether an administrative receiver or a receiver appointed over particular property); or(g) An application for an interim order against theinvestment firm licensee , acontroller orclose link , including aparent undertaking of theinvestment firm licensee under the Bankruptcy and Composition Law of 1987 or similar legislation in another jurisdiction.Amended: January 2011
Amended: October 2009
Adopted: July 2007Other Supervisors
BR-2.2.10
An
investment firm licensee must notify the CBB immediately if it becomes subject to or ceases to be subject to the supervision of any overseas supervisor (including ahome supervisor ).Adopted: July 2007BR-2.2.11
The supervisory regime and any legislative or foreign provisions to which that
investment firm licensee , including its branches, is subject, influence the CBB's approach to the supervision of theinvestment firm licensee .Adopted: July 2007Carrying out Business in Another Jurisdiction
BR-2.2.12
Where another jurisdiction's laws or regulations prevent a
licensee (or any of its foreign branches or subsidiaries) from applying the same standards contained in Module FC (Financial Crime) or higher, the licensee must immediately inform the CBB in writing (ref. FC-B.2.2).Amended: October 2009
Adopted: July 2007BR-2.2.13
Where conduct of business standards applied by overseas branches and subsidiaries of an
investment firm licensee fall below the standards set out in Module BC (Business Conduct), theinvestment firm licensee must notify the CBB of the fact (ref. BC-B. 1.5).Amended: October 2009
Adopted: July 2007External Auditor
Approved Persons
BR-2.2.16
An
investment firm licensee must notify the CBB of the termination of employment ofapproved persons , including particulars of reasons for the termination and arrangements with regard to replacement (ref. AU-5.2.8 and AU-5.5.5).Amended: January 2016
Amended: October 2009
Adopted: July 2007Capital Adequacy
BR-2.2.17
In the event that an
investment firm licensee fails to meet any of the requirements specified in Module CA (Capital Adequacy), it must, on becoming aware that it has breached the requirements, immediately notify the CBB in writing (ref. CA-1.1.5).Amended: April 2017
Adopted: October 2009BR-2.2.18
Category 1 investment firms andCategory 2 investment firms must notify the CBB if:(a) The ratio ofRegulatory Capital to theirRegulatory Capital Requirement falls below 110%;(b) Any single probable contingency, financial commitment or large exposure exceeds 25% of theirRegulatory Capital ; and(c) Any instrument, transaction or situation does not appear to be catered for under Module CA (ref. CA-1.2.9).Amended: July 2012
Adopted: October 2009BR-2.2.19
An
investment firm licensee shall notify the CBB if it has counterparty exposures in repurchase and reverse repo transactions, including sale and buy back and securities lending (ref. CA-3.3.1). This requirement is applicable toCategory 1 investment firms andCategory 2 investment firm licensees only.Amended: July 2012
Adopted: October 2009BR-2.2.20
An
investment firm licensee shall notify the CBB if it has counterparty exposures in swaps, forward contracts, over the counter options, contracts for differences and off-exchange futures (ref. CA-3.3.1). This requirement is applicable toCategory 1 investment firms andCategory 2 investment firm licensees only.Amended: July 2012
Adopted: October 2009BR-2.2.21
As specified in Article 58 of the CBB Law, an
investment firm licensee must notify the CBB immediately of any matter that may affect its financial position, currently or in the future, or limit its ability to meet its obligations.Adopted: October 2009Outsourcing Arrangements
BR-2.2.22
Investment firm licensees must immediately inform their direct supervisory contact at the CBB of any material problems encountered with an outsourcing provider.Amended: January 2023
Amended: January 2016
Amended: January 2011
Adopted: October 2009Controllers
BR-2.2.23
If, as a result of circumstances outside the
Bahraini investment firm licensee's knowledge and/or control, one of the changes to theircontrollers specified in Paragraph GR-5.1.1 is triggered prior to CBB approval being sought or obtained, theBahraini investment firm licensee must notify the CBB no later than 15 calendar days from the date on which those changes occurred (ref. GR-5.1.5).Amended: January 2017
Amended: October 2015
Adopted: October 2009BR-2.2.23A
Overseas investment firm licensees must notify the CBB of any new significant ownership in excess of 50% of the issued and paid up capital of the concernedlicensee's directparent undertaking as soon as thelicensee becomes aware of the change (see Paragraph GR-5.5.1).Adopted: October 2015BR-2.2.24
As specified in Article 52 of the CBB Law, an
investment firm licensee must notify the CBB of the following events:(a) If effective control over alicensee takes place indirectly whetherby way of inheritance or otherwise.(b) Gaining control directly as a result of any action leading to it.(c) The intention to take any of the actions that would lead to control.Adopted: October 2009Registered Address
BR-2.2.25
An
investment firm licensee must notify the CBB of a change in the address of its registered office (or its head office in the case of a branch of anoverseas investment firm licensee ).Adopted: October 2009Appointed Representatives
BR-2.2.26
[This Paragraph was deleted in October 2013]
Deleted: October 2013Business Strategy
BR-2.2.27
Bahraini investment firm licensees must notify the CBB when there is a major change to its strategy by introducing a new line of business within the scope of its existing licensed activities.Added: July 2023BR-2.3 BR-2.3 Approval Requirements
Change in Name
BR-2.3.1
In accordance with Paragraph GR-2.1.1, an
investment firm licensee must seek prior written approval from the CBB and give reasonable advance notice of a change in:(a) Theinvestment firm licensee's name (which is the registered name if theinvestment firm licensee is a body corporate); or(b) Theinvestment firm licensee's trade name, and that of its subsidiaries located in Bahrain (ref. GR-2.1.1).Amended: October 2009
Adopted: July 2007BR-2.3.2
The request under Paragraph BR-2.3.1 must include the details of the proposed new name and the date on which the
investment firm licensee intends to implement the change of name.Adopted: July 2007Change of Address
BR-2.3.3
As specified in Article 51 of the CBB Law, an
investment firm licensee must seek approval from the CBB and give reasonable advance notice of a change in the address of theinvestment firm licensee's principal place of business in Bahrain.Amended: October 2009
Adopted: July 2007BR-2.3.4
The request under Paragraph BR-2.3.3 must include the details of the proposed new address and the date on which the
investment firm licensee intends to implement the change of address.Adopted: July 2007BR-2.3.5
As specified in Article 51 of the CBB Law, an
investment firm licensee must seek approval from the CBB for its intention to carry on its business from new premises in Bahrain. This requirement applies whether or not the premises are to be used for the purposes of transacting business withcustomers , administration of the business or as the head office in Bahrain of theinvestment firm licensee .Amended: January 2011
Adopted: October 2009BR-2.3.6
[This Paragraph was deleted in October 2013]
Deleted: October 2013Change in Legal Status
BR-2.3.7
An
investment firm licensee must seek CBB approval and give reasonable advance notice of a change in its legal status that may, in any way, affect its relationship with or limit its liability to itscustomers .Amended: October 2009
Adopted: July 2007Change in Authorised or Issued Capital
BR-2.3.8
As specified in Article 57(3) of the CBB Law, an
investment firm licensee must seek CBB approval before making any modification to its authorised or issued capital. In the case that aninvestment firm licensee has been granted approval to increase its paid-up capital, confirmation from the external auditor stating that the amount has been deposited in the licensee's bank account or otherwise reflected in the licensee's accounts will subsequently be required.Amended: January 2011
Adopted: October 2009Client Asset Transfers
BR-2.3.9
In accordance with Chapter GR-4,
investment firm licensees must seek prior written approval from the CBB before transferringclient assets to a third party, in circumstances other than when acting on instruction from theclient concerned. This requirement is applicable toCategory 1 investment firm andCategory 2 investment firm licensees only.Amended: July 2012
Amended: October 2009
Adopted: July 2007Controllers and Close Links
BR-2.3.10
In accordance with Chapter GR-5, Bahraini
investment firm licensees must seek CBB approval and give reasonable advance notice of any of the following events concerning theinvestment firm licensee :(a) A person acquiring control or ceasing to have control;(b) An existingcontroller acquiring an additional type of control (such as ownership or significant influence) or ceasing to have a type of control;(c) An existingcontroller increasing his or her percentage in the issued and paid up capital or voting power beyond 10%, 20%, 30% or 40%; and(d) An existingcontroller becoming or ceasing to be aparent undertaking .Amended: October 2015
Amended: October 2009
Adopted: July 2007Carrying out Business in Another Jurisdiction
BR-2.3.12
An
investment firm licensee must seek CBB approval and give three months' notice of its intention to undertake investment business activities in a jurisdiction other than Bahrain prior to commencing that business and where the effect of commencing that business may have a significant impact on:(a) Theinvestment firm licensee's business in Bahrain; or(b) The capital resources of theinvestment firm licensee .Amended: January 2020
Amended: January 2011
Amended: October 2009
Adopted: July 2007BR-2.3.13
Rule BR-2.3.12 applies whether or not the
investment firm licensee is required to be regulated locally in the jurisdiction where it proposes to undertake the investment business.Amended: July 2010
Amended: October 2009
Adopted: July 2007BR-2.3.14
The CBB will use this information to consider whether or not it should refuse its approval or impose additional requirements on the
licensee .Amended: October 2009
Adopted: July 2007Mergers, Acquisitions, Disposals and Establishment of New Subsidiaries
BR-2.3.15
A
Bahraini investment firm licensee incorporated in Bahrain must seek CBB approval and give reasonable advance notice of its intention to:(a) Enter into a merger with another undertaking;(b) Enter into a proposed acquisition, disposal or establishment of a new subsidiary undertaking; or(c) Open a new place of business as a subsidiary undertaking, a branch or a representative office within the Kingdom of Bahrain or other jurisdiction.Amended: January 2020
Amended: April 2011
Amended: October 2009
Adopted: July 2007BR-2.3.16
In order to comply with requirements of Paragraph BR-2.3.15,
investment firm licensees should refer to the requirements of Chapter GR-10.Amended: April 2011
Amended: October 2009
Adopted: July 2007BR-2.3.17
[This Paragraph was moved to GR-10.1.5].
Amended: April 2011
Amended: October 2009
Adopted: July 2007Share Option Schemes
BR-2.3.18
An
investment firm licensee must seek prior approval from the CBB for any share option schemes it proposes to offer to its employees.Amended: January 2011
Amended: October 2009
Adopted: July 2007BR-2.3.16 [Deleted]
Deleted: October 2009Outsourcing Arrangements
BR-2.3.19
[This Paragraph was deleted in January 2023].
Deleted: January 2023
Amended: April 2013
Adopted: October 2009Matters Having a Serious Supervisory Impact
BR-2.3.20
An
investment firm licensee must seek prior approval from the CBB for any material changes or proposed changes to the information provided to the CBB in support of an authorisation application that occurs after authorisation has been granted.Adopted: October 2009BR-2.3.21
Any
licensee that wishes, intends or has been requested to do anything that might contravene, in its reasonable opinion, the provisions of UNSCR 1373 (and in particular Article 1, Paragraphs c) and d) of UNSCR 1373) must seek, in writing, the prior written opinion of the CBB on the matter (ref. FC-7.2.2).Adopted: October 2009BR-2.3.22
As specified in Article 57 of the CBB Law, an
investment firm licensee wishing to modify its Memorandum or Articles of Association, must obtain prior written approval from the CBB.Adopted: October 2009BR-2.3.23
As specified in Article 57 of the CBB Law, an
investment firm licensee wishing to transfer all or a major part of its assets or liabilities inside or outside the Kingdom, must obtain prior written approval from the CBB.Adopted: October 2009Capital Adequacy
BR-2.3.24
Bahraini investment firm licensees , must obtain a letter of no-objection from the CBB to any dividend proposed, before submitting a proposal for a distribution of profits to ashareholder vote (ref. GR-3.1.1). This requirement is applicable toCategory 1 investment firm andCategory 2 investment firm licensees only.Amended: July 2012
Adopted: October 2009BR-2.3.25
An
investment firm licensee must not redeem any Tier 1 instrument that it has included in itsRegulatory Capital for the purpose of satisfying itsRegulatory Capital Requirement without the prior written approval of the CBB (ref. CA-2.1.7).Adopted: October 2009BR-2.3.26
No value, for
Regulatory Capital purposes, may be attributed to any other instrument or resource, without the CBB's written consent (ref. CA-2.1.12).Adopted: October 2009BR-2.3.27
Exceptional items of expenditure may also be excluded from relevant annual expenditure, as defined in Rule CA-3.1.2, subject to prior CBB written approval (ref. CA-3.1.2). This requirement is applicable to
Category 1 investment firm andCategory 2 investment firm licensees only.Amended: July 2012
Adopted: October 2009BR-2.3.27A
Should an
investment firm licensee need to inject additional working capital and does so by way of a subordinated loan from its shareholders, it must receive CBB's prior approval to do so (ref. CA-1.1.5A).Adopted: July 2012BR-2.3.27B
Investment firm licensees must seek the CBB's prior written approval before settling a subordinated loan made by its shareholders, either fully or partially, prior to the end of its term (see Paragraph CA-1.1.5A).Added: January 2013
Licensed Regulated Services
BR-2.3.28
Investment firm licensees must seek prior CBB approval before undertaking new activities (ref. Article 48 of the CBB Law and AU-5.4.1).Adopted: October 2009BR-2.3.29
As specified in Article 50 of the CBB Law, an
investment firm licensee wishing to cease to provide all or any of its licensed regulated services, completely or at any of its branches, must obtain prior written approval from the CBB (ref. AU-5.5.1 and Section GR-7.1).Amended: July 2010
Adopted: October 2009BR-2.3.30
Investment firm licensees must seek prior CBB approval before starting to undertake derivative transactions (ref. RM-6.1.1). This requirement is applicable toCategory 1 investment firm andCategory 2 investment firm licensees only.Amended: July 2012
Adopted: October 2009BR-2.3.31
An
investment firm licensee must not undertake or otherwise engage in stock lending activity with or for aclient unless theinvestment firm licensee has obtained the consent of the CBB and theclient (ref. CL-1.2.1). This requirement is applicable toCategory 1 investment firm andCategory 2 investment firm licensees only.Amended: July 2012
Adopted: October 2009Private Placement of Securities
BR-2.3.32
All Private Placement Memorandums (PPMs) relating to the issue of financial instruments by
investment firm licensees , with the exception of those made under Collective Investment Undertakings arrangements (which are covered under Volume 7 (CIU) of the CBB Rulebook), must obtain the CBB's prior approval before distributing the offering document. This requirement is applicable toCategory 1 investment firm andCategory 2 investment firm licensees only.Amended: October 2012
Amended: July 2012
Adopted: October 2009BR-2.3.33
Investment firm licensees are required to obtain the approval required under Rule BR-2.3.32 above from the Capital Markets Supervision Directorate at the CBB and simultaneously notify the Financial Institutions Supervision Directorate of the same. The request must be supported by a draft proposal for private placements and addressed to the Director of Capital Markets Supervision Directorate and must be in line with the requirements of Module OFS (Offering of Securities) under Volume 6 of the CBB Rulebook.Amended: October 2014
Amended: January 2012
Adopted: October 2009External Auditor
Approved Persons
BR-2.3.35
An
investment firm licensee must seek prior approval from the CBB for the appointment of persons undertaking acontrolled function in aninvestment firm licensee (ref. Article 65 of the CBB Law, AU-1.2 and AU-5.2.1).Adopted: October 2009BR-2.3.36
Investment firm licensees must seek prior CBB approval before anapproved person may move from onecontrolled function to another within the samelicensee (ref. AU-5.4.5).Adopted: October 2009BR-2.3.37
If a
controlled function falls vacant, aninvestment firm licensee making immediate interim arrangements for thecontrolled function affected, must obtain approval from the CBB for such arrangement (ref. AU-5.5.5).Adopted: October 2009Chapter BR-3 Chapter BR-3 Information Gathering by the CBB
BR-3.1 BR-3.1 Power to Request Information
BR-3.1.1
Investment firm licensees must provide all information that the CBB may reasonably request in order to discharge its regulatory obligations.Adopted: July 2007BR-3.1.1A
Investment firm licensees must provide all relevant information and assistance to the CBB inspectors andappointed experts on demand as required by Articles 111 and 114 of the CBB Law. Failure byinvestment firm licensees to cooperate fully with the CBB's inspectors orappointed experts , or to respond to their examination reports within the time limits specified, will be treated as demonstrating a material lack of cooperation with the CBB which will result in other enforcement measures being considered, as described elsewhere in Module EN. This rule is supported by Article 114(a) of the CBB Law.Adopted: July 2012BR-3.1.1B
Article 163 of the CBB Law provides for criminal sanctions where false or misleading statements are made to the CBB or any person /
appointed expert appointed by the CBB to conduct an inspection or investigation on the business of theinvestment firm licensee or the listed licensee.Adopted: July 2012Information Requested on Behalf of other Supervisors
BR-3.1.2
The CBB may ask an
investment firm licensee to provide it with information at the request of or on behalf of other supervisors to enable them to discharge their functions properly. Those supervisors may include overseas supervisors or government agencies in Bahrain. The CBB may also, without notifying aninvestment firm licensee , pass on to those supervisors or agencies information that it already has in its possession.Adopted: July 2007BR-3.2 BR-3.2 Access to Premises
BR-3.2.1
An
investment business licensee must permit representatives of the CBB, or persons appointed for the purpose by the CBB to have access, with or without notice, during reasonable business hours to any of its business premises in relation to the discharge of the CBB's functions under the relevant law.Adopted: July 2007BR-3.2.2
An
investment business licensee must take reasonable steps to ensure that its agents and providers under outsourcing arrangements permit such access to their business premises, to the CBB.Amended: October 2013
Adopted: July 2007BR-3.2.3
An
investment business licensee must take reasonable steps to ensure that each of its providers under material outsourcing arrangements deals in an open and cooperative way with the CBB in the discharge of its functions in relation to theinvestment business licensee .Adopted: July 2007BR-3.2.4
The cooperation that
investment firm licensees are expected to procure from such providers is similar to that expected ofinvestment firm licensees themselves.Adopted: July 2007BR-3.3 BR-3.3 Accuracy of Information
BR-3.3.1
Investment firm licensees must take reasonable steps to ensure that all information they give to the CBB is:(a) Factually accurate or, in the case of estimates and judgements, fairly and properly based after appropriate enquiries have been made by theinvestment firm licensee ; and(b) Complete, in that it should include everything which the CBB would reasonably and ordinarily expect to have.Amended: July 2012
Adopted: July 2007BR-3.3.2
If an
investment firm licensee becomes aware, or has information that reasonably suggests that it has or may have provided the CBB with information that was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material way, it must notify the CBB immediately. The notification must include:(a) Details of the information which is or may be false, misleading, incomplete or inaccurate, or has or may have changed;(b) An explanation why such information was or may have been provided; and(c) The correct information.Adopted: July 2007BR-3.3.3
If the information in Paragraph BR-3.3.2 cannot be submitted with the notification (because it is not immediately available), it must instead be submitted as soon as possible afterwards.
Adopted: July 2007BR-3.4 BR-3.4 Methods of Information Gathering
BR-3.4.1
The CBB uses various methods of information gathering on its own initiative which require the cooperation of
investment firm licensees :(a) Representatives of the CBB may make onsite visits at the premises of theinvestment firm licensee . These visits may be made on a regular basis, or on a sample basis, for special purposes such as theme visits (looking at a particular issue across a range ofinvestment firm licensees ), or when the CBB has a particular reason for visiting aninvestment firm licensee ;(b) Appointees of the CBB may also make onsite visits at the premises of theinvestment firm licensee . Appointees of the CBB may include persons who are not CBB staff, but who have been appointed to undertake particular monitoring activities for the CBB, such as in the case ofAppointed Experts (refer to Section BR-3.5).(c) The CBB may request theinvestment firm licensee to attend meetings at the CBB's premises or elsewhere;(d) The CBB may seek information or request documents by telephone, at meetings or in writing, including electronic communication;(e) The CBB may requireinvestment firm licensees to submit various documents or notifications, as per Chapter BR-2, in the ordinary course of their business such as financial reports or on the happening of a particular event in relation to theinvestment firm licensee such as a change in control.Amended: July 2012
Amended: October 2011
Adopted: July 2007BR-3.4.2
When seeking meetings with an
investment firm licensee or access to the licensee's premises, the CBB or the CBB appointee needs to have access to aninvestment firm licensee's documents and personnel. Such requests will be made during reasonable business hours and with proper notice. There may be instances where the CBB may seek access to the licensee's premises without prior notice. While such visits are not common, the prospect of unannounced visits is intended to encourageinvestment firm licensees to comply at all times with the requirements and standards imposed by the CBB as per legislation and Volume 4 of the CBB Rulebook.Amended: July 2012
Adopted: July 2007BR-3.4.3
The CBB considers that an
investment firm licensee should:(a) Make itself readily available for meetings with representatives or appointees of the CBB;(b) Give representatives or appointees of the CBB reasonable access to any records, files, tapes or computer systems, which are within theinvestment firm licensee's possession or control, and provide any facilities which the representatives or appointees may reasonably request;(c) Produce to representatives or appointees of the CBB specified documents, files, tapes, computer data or other material in theinvestment firm licensee's possession or control as may be reasonably requested;(d) Print information in theinvestment firm licensee's possession or control which is held on computer or otherwise convert it into a readily legible document or any other record which the CBB may reasonably request;(e) Permit representatives or appointees of the CBB to copy documents of other material on the premises of theinvestment firm licensee at theinvestment firm licensee's expense and to remove copies and hold them elsewhere, or provide any copies, as may be reasonably requested; and(f) Answer truthfully, fully and promptly all questions which representatives or appointees of the CBB reasonably put to it.Amended: July 2012
Amended: July 2010
Adopted: July 2007BR-3.4.4
The CBB considers that an
investment firm licensee should take reasonable steps to ensure that the following persons act in the manner set out in Paragraph BR-3.4.3:(a) Its employees; and(b) Any other members of its group and their employees.Amended: October 2013
Amended: July 2012
Adopted: July 2007BR-3.4.5
In gathering information to fulfill its supervisory duties, the CBB acts in a professional manner and with due regard to maintaining confidential information obtained during the course of its information gathering activities.
Adopted: July 2007BR-3.5 BR-3.5 Role of the Appointed Expert
Introduction
BR-3.5.1
The content of this Chapter is applicable to all
investment firm licensees andappointed experts .Adopted: October 2011BR-3.5.2
The purpose of the contents of this Chapter is to set out the roles and responsibilities of
appointed experts when appointed pursuant to Article 114 or 121 of the CBB Law (see EN-2.1.1). These Articles empower the CBB to assign some of its officials or others to inspect or conduct investigations ofinvestment firm licensees .Adopted: October 2011BR-3.5.3
The CBB uses its own inspectors to undertake on-site examinations of
licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission reports on matters relating to the business oflicensees in order to help it assess their compliance with CBB requirements. Inspections may be carried out either by the CBB's own officials, by duly qualifiedappointed experts appointed for the purpose by the CBB, or a combination of the two.Adopted: October 2011BR-3.5.4
The CBB will not, as a matter of general policy, publicise the appointment of an
appointed expert , although it reserves the right to do so where this would help achieve its supervisory objectives. Both theappointed expert and the CBB are bound to confidentiality provisions restricting the disclosure of confidential information with regards to any such information obtained in the course of the investigation.Adopted: October 2011BR-3.5.5
Unless the CBB otherwise permits,
appointed experts should not be the same firm appointed as external auditor of theinvestment firm licensee .Adopted: October 2011BR-3.5.6
Appointed experts will be appointed in writing, through an appointment letter, by the CBB. In each case, the CBB will decide on the range, scope and frequency of work to be carried out byappointed experts .Adopted: October 2011BR-3.5.7
All proposals to appoint
appointed experts require approval by an Executive Director or more senior official of the CBB. The appointment will be made in writing, and made directly with theappointed experts concerned. A separate letter is sent to thelicensee , notifying them of the appointment. At the CBB's discretion, atrilateral meeting may be held at any point, involving the CBB and representatives of thelicensee and theappointed experts , to discuss any aspect of the investigation.Adopted: October 2011BR-3.5.8
Following the completion of the investigation, the CBB will normally provide feedback on the findings of the investigation to the
licensee .Adopted: October 2011BR-3.5.9
Appointed experts will report directly to and be responsible to the CBB in this context and will specify in their report any limitations placed on them in completing their work (for example due to thelicensee's group structure). The report produced by theappointed experts is the property of the CBB (but is usually shared by the CBB with the firm concerned).Adopted: October 2011BR-3.5.10
Compliance by
appointed experts with the contents of this Chapter will not, of itself, constitute a breach of any other duty owed by them to a particularinvestment firm licensee (i.e. create aconflict of interest ).Adopted: October 2011BR-3.5.11
The CBB may appoint one or more of its officials to work on the
appointed experts' team for a particularinvestment firm licensee .Adopted: October 2011The Required Report
BR-3.5.12
The scope of the required report will be determined and detailed by the CBB in the appointment letter. Commissioned
appointed experts would normally be required to report on one or more of the following aspects of alicensee's business:(a) Accounting and other records;(b) Internal control systems;(c) Returns of information provided to the CBB;(d) Operations of certain departments; and/or(e) Other matters specified by the CBB.Adopted: October 2011BR-3.5.13
Appointed experts will be required to form an opinion on whether, during the period examined, thelicensee is in compliance with the relevant provisions of the CBB Law and the CBB's relevant requirements, as well as other requirements of Bahrain Law and, where relevant, industry best practice locally and/or internationally.Adopted: October 2011BR-3.5.14
The
appointed experts' report should follow the format set out in Appendix BR-1, in part B of the CBB Rulebook.Adopted: October 2011BR-3.5.15
Unless otherwise directed by the CBB or unless the circumstances described in Section BR-3.5.19 apply, the report must be discussed with the Board of directors and/or
senior management in advance of it being sent to the CBB.Adopted: October 2011BR-3.5.16
Where the report is
qualified by exception , the report must clearly set out the risks which thelicensee runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected.Appointed experts will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.Adopted: October 2011BR-3.5.17
If the
appointed experts conclude, after discussing the matter with thelicensee , that they will give a negative opinion (as opposed to onequalified by exception ) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.Adopted: October 2011BR-3.5.18
The report must be completed, dated and submitted, together with any comments by directors or management (including any proposed timeframe within which the
licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.Adopted: October 2011Other Notifications to the CBB
BR-3.5.19
Appointed experts must communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, including the criteria for licensing alicensee (see Module AU), are not or have not been fulfilled, or that there has been a material loss or there exists a significant risk of material loss in the concernedlicensee , or that the interests of customers are at risk because of adverse changes in the financial position or in the management or other resources of alicensee . Notwithstanding the above, it is primarily thelicensee's responsibility to report such matters to the CBB.Adopted: October 2011BR-3.5.20
The CBB recognises that
appointed experts cannot be expected to be aware of all circumstances which, had they known of them, would have led them to make a communication to the CBB as outlined above. It is only whenappointed experts , in carrying out their duties, become aware of such a circumstance that they should make detailed inquiries with the above specific duty in mind.Adopted: October 2011BR-3.5.21
If
appointed experts decide to communicate directly with the CBB in the circumstances set out in Paragraph BR-3.5.19, they may wish to consider whether the matter should be reported at an appropriate senior level in thelicensee at the same time and whether an appropriate senior representative of thelicensee should be invited to attend the meeting with the CBB.Adopted: October 2011Permitted Disclosure by the CBB
BR-3.5.22
Information which is confidential and has been obtained under, or for the purposes of, this chapter or the CBB Law may only be disclosed by the CBB in the circumstances permitted under the Law. This will allow the CBB to disclose information to
appointed experts to fulfil their duties. It should be noted, however, thatappointed experts must keep this information confidential and not divulge it to a third party except with the CBB's permission and/or unless required by Bahrain Law.Adopted: October 2011Trilateral Meeting
BR-3.5.23
The CBB may, at its discretion, call for a
trilateral meeting (s) to be held between the CBB and representatives of the relevantinvestment firm licensee and theappointed experts . This meeting will provide an opportunity to discuss theappointed experts' examination of, and report on, theinvestment firm licensee .Adopted: October 2011PD Public Disclosure
[This module in Volume 4 has been intentionally left blank: requirements relating to Public Disclosure will be issued at a later date.]
Enforcement & Redress
EN EN Enforcement
EN-A EN-A Introduction
EN-A.1 EN-A.1 Purpose
Executive Summary
EN-A.1.1
This Module sets out the Central Bank of Bahrain's ('CBB') approach to enforcement, and the measures used by the CBB to address failures by
authorised persons to comply with its regulatory requirements(whether they beinvestment firm licensees ,approved persons orregistered persons ). The purpose of such measures is to encourage a high standard of compliance by all those authorised by the CBB, thus reducing risk tocustomers and the financial system.Amended: January 2011
January 2007Legal Basis
EN-A.1.2
This Module contains the CBB's Directive (as amended from time to time) relating to enforcement and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 and its amendments ('CBB Law'). The Directive in this Module is applicable to all
investment firm licensees (including theirapproved persons ).Amended: April 2016
Amended: January 2011
Amended: July 2010
Amended: January 2007EN-A.1.3
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
Adopted: January 2007EN-A.1.4
Investment firm licensees who are also members of the Bahrain Stock Exchange ('BSE') are reminded that the BSE is also empowered to exercise its own enforcement powers by virtue of the Bahrain Stock Exchange Decree — Law No. 4 of 1987 (the 'BSE Law'). Article 14 of the BSE Law lays down a number of penalties which the disciplinary board of the BSE may impose on persons who violate the BSE Law and/or the regulations made thereunder. In appropriate circumstances, the CBB may ask the BSE to consider the exercise of its powers under Article 14 in support of the enforcement objectives of the CBB.Amended: January 2007EN-A.2 EN-A.2 Module History
Evolution of Module
EN-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.
Amended: January 2007EN-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.
Adopted: January 2007EN-A.2.3
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes EN-A.1 07/2007 New Rule EN-A.1.2 introduced, categorising this Module as a Directive. EN-1.1,
EN- 3.1,
EN-4.1,
EN-5.1,
EN- 8.1 and
EN- 9.107/2007 Insertion of new 'Legal Source' Sections, reflecting CBB Law. EN-2.2.10 07/2007 New Rule inserted on Appointed Experts reflecting CBB Law. EN-2.3 07/2007 New procedure section introduced for investigations. EN-10.3,
EN- 10.4,
EN-10.5 and
EN-10.607/2007 Revised/new Sections describing criminal sanctions contained in CBB Law. EN-1.2,
EN-2.4,
EN-2.5 and
EN-8.310/2009 Amended/introduced to be consistent with other Volumes of CBB Rulebook. EN-2.3 10/2009 Amended terminology to be consistent with other Volumes of CBB Rulebook. EN-5.2.7 10/2009 Paragraph deleted and replaced as it is a repetition of EN-5.2.6. EN-A.1.2 07/2010 Removed reference to registered administrators. EN-A.1.2 01/2011 Clarified legal basis. EN-2 10/2011 Chapter has been streamlined and repetitive information has been eliminated and reference is now made to Section BR-3.5. EN-B.4.5 and EN-4.1.1 10/2012 Corrected typo. EN-5.1.1 10/2012 Amended guidance. EN-5.3A 10/2012 Added new Section on financial penalties for date sensitive requirements. EN-10.2A 01/2013 Section added to refer to Article 161 of the CBB Law. EN-5.3A.2(c) 01/2016 Corrected cross reference. EN-A.1.2 04/2016 Reference added to amendments to the CBB Law. EN-B.1.4 04/2016 New guidance Paragraph added to broaden the scope of the application of financial penalties to persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law. EN-5 04/2016 Amended to be in line with amendments to Article 129 of the CBB Law. EN-5.3A.3 04/2017 Amendment to financial penalties For Date Sensitive Requirements. EN-B.2.9 04/2019 Guideline moved from Section EN-4.3. EN-4.3.3 04/2019 Moved guideline to Section EN-B.2. EN-6 04/2019 Deleted Chapter. EN-B.4.6 10/2019 Added a new Paragraph on disclosure of financial penalties. EN-5.3B 04/2021 Added a new Section on ‘Financial Penalties for Non-compliance with Blocking/Unblocking Requirements’. Superseded Requirements
EN-A.2.4
This Module replaces CBB Circular No. ODG/249/2004 (the "Enforcement Circular"), issued on 22 July 2004.
Amended: January 2007EN-A.2.5
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
Amended: January 2007EN-B EN-B Scope of Application
EN-B.1 EN-B.1 Scope
EN-B.1.1
The contents of this Module mostly consist of Guidance material, explaining the different measures that CBB can employ to ensure compliance with Volume 4 (Investment Business). Certain Rules, applicable to
investment firm licensees , are however contained in Paragraphs EN-B.3.1, EN-B.4.5, EN-2.2.4, EN-2.2.10, and EN-8.2.4.Amended: January 2007EN-B.1.2
With the exception of Chapter EN-9, Chapters EN-1 to EN-10 of this Module are generally relevant to
investment firm licensees . In the case ofoverseas investment firm licensees , the CBB's enforcement powers apply only to the branch operating in the Kingdom of Bahrain.Amended: January 2007EN-B.1.3
In addition, Chapters EN-8 and EN-10 of this Module are relevant to
approved persons , whilst Chapter EN-9 is relevant toregistered persons .Amended: January 2007EN-B.1.4
Section EN-5 dealing with financial penalties is applicable to
investment firm licensees as well as to persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law.Added: April 2016EN-B.2 EN-B.2 The CBB's Approach
EN-B.2.1
The CBB favours an open, pragmatic and collaborative relationship with
authorised persons , within the boundaries set by the CBB Law and Rulebook. Whilst the CBB wishes to avoid a legalistic and confrontational style of supervision, it believes that effective supervision requires effective and timely enforcement of its requirements. Shouldauthorised persons fail to cooperate, then the CBB will use the means described in this Module to achieve compliance.Amended: January 2007EN-B.2.2
In the CBB's view, it is generally neither practical nor effective to prescribe in detail the exact regulatory response for each and every potential contravention. There are a large number of potential contraventions. Moreover, individual circumstances are unlikely to be identical in all cases, and may warrant different responses.
Amended: January 2007EN-B.2.3
In deciding any given supervisory response, the CBB will nonetheless consistently assess the individual circumstance of each contravention against the principles described in this Module. The CBB's overall approach is to take into account:
(a) The seriousness of the contravention concerned (including the risks posed to customers and other market participants);(b) The compliance track record of theauthorised person concerned (including the extent to which the contravention reflects systemic weaknesses or reckless behaviour); and(c) Which measures are most likely to achieve the desired result of remedying the contravention.Amended: January 2007EN-B.2.4
Such an approach reduces the risk of inappropriate enforcement actions, by allowing regulatory measures to be tailored to individual circumstances. By taking into account an
authorised person's compliance record and attitude, it also creates positive incentives and encourages an open and collaborative approach. By assessing individual cases against the same broad principles, the CBB also aims to achieve an overall consistency in its regulatory actions.Amended: January 2007EN-B.2.5
Underlying the CBB's approach outlined in paragraph EN-B.2.3 is the fundamental principle of proportionality. The enforcement measures contained in this Module are of varying severity, and will be used accordingly in keeping with the CBB's assessment of the contravention. Thus, the CBB will reserve its most serious enforcement measures — such as cancellation of license or withdrawal of "fit and proper" status — for the most serious contraventions.
Amended: January 2007EN-B.2.6
In keeping with the proportionality principle, and to the extent consistent with the CBB's enforcement approach in paragraph EN-B.2.3, the CBB will usually opt for the least severe of appropriate enforcement measures. In most cases, the CBB expects to use a Formal Warning before resorting to more severe measures; the need for further measures will then usually be dependent on the response of the
authorised person concerned.Amended: January 2007EN-B.2.7
Where a significant element of judgement is required to assess compliance with a requirement, the CBB will usually discuss the matter with the
authorised person concerned, before using one of this Module's enforcement mechanisms. This is likely to be the case, for example, with respect to requirements for adequate systems and controls. Conversely, where there are clear-cut contraventions of CBB requirements, then the CBB will usually move immediately to one or more of the enforcement mechanisms outlined in this Module. This is more likely to occur in cases where quantitative requirements — such as those relating to capital and/or large exposures — are concerned. In most such cases, though, the CBB also expects to continue an active dialogue with theauthorised person concerned, aimed at remedying the contravention.Amended: January 2007EN-B.2.8
Except in the limited circumstances outlined below, the CBB will usually only apply an enforcement measure after the
authorised person concerned has been given a suitable opportunity to make representations. In the case of measures described in Chapters EN-6 and EN-7, certain procedures are set out in the CBB Law.Amended: January 2007EN-B.2.9
In extreme circumstances, where the CBB believes that immediate action is required to prevent real damage to Bahrain's financial markets, its users or to
customers of the licensee concerned, it may amend or cancel a license, place a licensee under administration, or suspend a license (cf. Articles 48(g), 130(b) and 131 of the CBB Law).Added: April 2019EN-B.3 EN-B.3 Prohibition on Insurance
EN-B.3.1
To help the CBB achieve the purpose of this Module,
investment firm licensees may not enter into or make a claim under a contract of insurance that is intended to, or has the effect of, indemnifying them from the financial penalties provided for in this Module.Amended: January 2007EN-B.4 EN-B.4 Publicity
EN-B.4.1
The CBB will not as a matter of general policy publicise individual cases when it uses the measures described in Chapters EN-2 to EN-5, and EN-8. However, in such cases the CBB may inform (where relevant) an
authorised person's external auditors and — in the case of licensees with overseas operations — relevant overseas regulators.Amended: January 2007EN-B.4.2
In exceptional circumstances, the CBB may decide to publicise individual cases when the measures set out in Chapters EN-2 to EN-5 and EN-8 are used, where there is a strong case that doing so would help achieve the CBB's supervisory objectives. In such instances, the CBB will usually allow the licensee or person concerned the opportunity to make representations to the CBB before a public statement is issued.
Amended: January 2007EN-B.4.3
Without prejudice to the above policy, the CBB may from time to time publish aggregate information on its use of enforcement measures, without identifying the licensees or persons concerned.
Amended: January 2007EN-B.4.4
By their nature, the penalties in Chapters EN-6, EN-7, and EN-9 are public acts, once applied. The CBB will in these instances generally issue a public statement explaining the circumstances of the case.
Amended: January 2007EN-B.4.5
Investment firm licensees subject to a CBB enforcement measure (with the exception of formal requests for information) must inform their external auditor of the fact.Amended: October 2012
Amended: January 2007EN-B.4.6
Investment firm licensees must disclose in their annual audited financial statements any financial penalties served on them, together with a factual description of the reasons given by the Central Bank for applying the penalty. In addition, the CBB may publicise the issuance of a financial penalty notice, where there is a strong case that doing so would help achieve the CBB's supervisory objectives, as mentioned in Article 132 of the pre-mentioned Law.Added: October 2019EN-1 EN-1 Formal Requests for Information
EN-1.1 EN-1.1 Legal Source
EN-1.1.1
As part of its on-going supervision, under Articles 111 and 123 of the CBB Law, the CBB may specifically request information or temporary reporting from a licensee or individual. Recipients of such requests are bound to respond to such requests under the terms of their authorisation. Such requests are in effect a type of Direction.
Amended: January 2007EN-1.2 EN-1.2 Procedure
EN-1.2.1
To clearly identify formal information requests, these will always be made in writing, under signature of a Director or more senior official of the CBB. They will include the statement, "This is a formal request for information as defined in Chapter 1 of Module EN of Volume 4 of the CBB Rulebook"; and will state the deadline by which the information is to be communicated to the CBB.
Amended: January 2007EN-1.2.2
Failure to respond to such formal requests within the deadline set will be viewed as a significant breach of regulatory requirements and may result in a formal warning or other enforcement measure, specified under Articles 163 and 170 of the CBB Law, as decided by the CBB depending on the circumstances of the case.
Amended: January 2007EN-1.2.3
The deadline set in the request will vary depending on individual circumstances. A recipient may submit a case for an extension to the deadline; it should do so as soon as possible if it believes that an extension will be required, and in any event prior to the passing of the original deadline. The Central Bank will respond before the original deadline has passed; if it fails to do so, then the requested extension will apply. Whilst waiting for a reply, the recipient must assume that the original deadline will apply.
Amended: October 2009
Amended: January 2007EN-1.2.4
The above procedures do not prevent individual Central Bank supervisors making oral requests for information as part of their day-to-day interaction with
licensees . The Central Bank expectslicensees to maintain their cooperative response to such requests; however, in the interests of clarity, the Central Bank will not view failures to respond to oral requests as a breach of regulatory requirements.Amended: October 2009
Amended: January 2007EN-2 EN-2 Investigations
EN-2.1 EN-2.1 Legal Source
EN-2.1.1
Articles 121 to 123 of the CBB Law empower the CBB to order investigations of licensees, in order to help it assess a licensee's compliance with the provisions of the CBB Law. Such investigations may be carried out either by its own officials or
appointed experts . Articles 111 and 124 require licensees to make available to the CBB's inspectors andappointed experts their books and other records, and to provide all relevant information within the time limits deemed reasonable by the inspectors and/orappointed experts .Amended: October 2011
Amended: January 2007EN-2.2 EN-2.2 CBB Policy
EN-2.2.1
The CBB uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission special investigations of licensees in order to help it assess their compliance with CBB requirements, as contained in Article 121 of the CBB Law. Such investigations may be carried out either by the CBB's own officials, by duly qualified experts appointed for the purpose by the CBB ('
appointed experts '), or a combination of the two.Amended: October 2011
Amended: January 2007EN-2.2.2
Failure by licensees to cooperate fully with the CBB's inspectors, or its
appointed experts , or to respond to their examination reports within the time limit specified, will be treated as demonstrating a material lack of cooperation with the CBB which will result in other enforcement measures being considered, as described elsewhere in this Module. This guidance is supported by Article 124(a) of the CBB Law.Amended: October 2011
Amended: January 2007EN-2.2.3
The CBB may appoint an individual or a firm as an
appointed expert . Examples ofappointed experts are lawyers, audit firms and expert witnesses. The appointment ofappointed experts is not necessarily indicative of a contravention of CBB requirements or suspicion of such a contravention. For instance, anappointed expert may be commissioned to provide an expert opinion on a technical matter.Amended: October 2011
Amended: January 2007EN-2.2.4
Appointed experts report in a form and within a scope defined by the CBB, and are solely responible to the CBB for the work they undertake in relation to the investigation concerned. The report produced by theappointed experts is the property of the CBB (but is usually shared by the CBB with the firm concerned). The cost of theappointed experts' work must be borne by the licensee concerned.Amended: October 2011
Amended: January 2007EN-2.2.5
In selecting an
appointed expert , the CBB will take into account the level of fees proposed and aim to limit these to the lowest level consistent with an adequate review of the matters at hand, given the qualifications, track record and independence of the persons concerned. Because the costs of such investigations are met by the licensee, the CBB makes only selective use ofappointed experts , when essential to supplement CBB's other supervisory tools and resources.Amended: October 2011
Amended: January 2007EN-2.2.6
[This Paragraph was moved to Section BR-3.5]
Deleted: October 2011
Amended: January 2007EN-2.2.7
[This Paragraph was moved to Section BR-3.5]
Deleted: October 2011
Adopted: January 2007EN-2.2.8
[This Paragraph was moved to Section BR-3.5]
Deleted: October 2011
Adopted: January 2007EN-2.2.6
The CBB may commission reports, which require
appointed experts to review information from another company within the reportinginvestment firm licensee's group even when that other entity is not subject to any CBB requirements.Amended: October 2011
Adopted: January 2007EN-2.2.7
In accordance with Articles 114 and 123 of the CBB Law,
investment firm licensee must provide all relevant information and assistance toappointed experts on demand.Amended: October 2011
Adopted: January 2007EN-2.2.11
[This Paragraph was moved to Section BR-3.5]
Deleted: October 2011
Adopted: January 2007EN-2.3 EN-2.3 Procedure
[The Content of this Section was moved to Section BR-3.5 in October 2011]
EN-2.3.1
All proposals for to appoint
investigators require approval by an Executive Director or more senior official of the CBB. The appointment will be made in writing, and made directly with theinvestigators concerned. A separate letter is sent to the licensee, notifying them of the appointment. At the CBB's discretion, a trilateral meeting may be held at any point, involving the CBB and representatives of the licensee and theinvestigators , to discuss any aspect of the investigation.Amended: October 2009
Adopted: January 2007EN-2.3.2
Following the completion of the investigation, the CBB will normally provide feedback on the findings of the investigation to the
investment firm licensee concerned.Adopted: January 2007EN-2.4 EN-2.4 The Required Report
[The Content of this Section was moved to Section BR-3.5 in October 2011]
EN-2.4.1
The scope of the required report will be determined and detailed by the CBB in the appointment letter. Commissioned
investigators will normally be required to report on one or more of the following aspects of alicensee's business:a) Accounting and other records;b) Internal control systems;c) Returns of information provided to the CBB;d) Operations of certain departments; and/ore) Other matters specified by the CBB.Adopted: October 2009EN-2.4.2
Investigators will be required to form an opinion on whether, during the period examined, thelicensee is in compliance with the relevant provisions of the CBB Law and the CBB's relevant requirements, as well as other requirements of Bahrain Law and, where relevant, industry best practice locally and/or internationally.Adopted: October 2009EN-2.4.3
The
investigators report should follow the format set out in Appendix EN-1 in Part B of Rulebook Volume 4.Adopted: October 2009EN-2.4.4
Unless otherwise directed by the CBB, the report should be discussed with the Board of Directors and/or senior management in advance of it being sent to the CBB.
Adopted: October 2009EN-2.4.5
Where the report is
qualified by exception , the report must clearly set out the risks which thelicensee runs by not correcting the weakness, with an indication of the severity of the weakness, should it not be corrected.Investigators will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.Adopted: October 2009EN-2.4.6
If the
investigators conclude, after discussing the matter with thelicensee , that they will give a negative opinion (as opposed to onequalified by exception ) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.Adopted: October 2009EN-2.4.7
The report must be completed, dated and submitted, together with any comments by Directors or management (including any proposed timeframe within which the licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.
Adopted: October 2009EN-2.5 EN-2.5 Other Notifications to the CBB
[The Content of this Section was moved to Section BR-3.5 in October 2011]
EN-2.5.1
Investigators must communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, including the criteria for licensing alicensee (see Module AU), are not or have not been fulfilled, or that there has been a material loss or there exists a significant risk of material loss in the concernedlicensee , or that the interests of clients are at risk because of adverse changes in the financial position or in the management or other resources of alicensee . Notwithstanding the above, it is primarily thelicensee's responsibility to report such matters to the CBB.Adopted: October 2009EN-2.5.2
The CBB recognises that
investigators cannot be expected to be aware of all circumstances which, had they known of them, would have led them to make a communication to the CBB as outlined above. It is only wheninvestigators , in carrying out their duties, become aware of such a circumstance that they should make detailed inquiries with the above specific duty in mind.Adopted: October 2009EN-2.5.3
If
investigators decide to communicate directly with the CBB in the circumstances set out in Paragraph EN-2.5.1 above, they may wish to consider whether the matter should be reported at an appropriate senior level in thelicensee at the same time and whether an appropriate senior representative of thelicensee should be invited to attend the meeting with the CBB.Adopted: October 2009EN-3 EN-3 Formal Warnings
EN-3.1 EN-3.1 CBB Legal Source
EN-3.1.1
Article 38 of the CBB Law empowers the CBB to issue formal warnings to
investment firm licensees or individuals. The CBB will issue such warnings where it reasonably believes that these are required to achieve its statutory objectives.Adopted: January 2007EN-3.2 EN-3.2 CBB Policy
EN-3.1.1
The BMA may issue formal warnings to
authorised persons where it reasonably believes that these are required to achieve its statutory objectives.EN-3.2.1
Formal warnings are clearly identified as such and represent the CBB's first level formal enforcement measure. They are intended to clearly set out the CBB's concerns to a licensee or individual regarding an issue, and should be viewed by the recipient with the appropriate degree of seriousness.
Amended: January 2007EN-3.2.2
As indicated in Paragraph EN-B.2.7, the CBB will usually discuss concerns it may have prior to resorting to a formal enforcement measure, especially where a significant element of judgement is required in assessing compliance with a regulatory requirement.
Amended: January 2007EN-3.2.3
Where such discussions fail to resolve matters to the CBB's satisfaction, then it may issue a formal warning. Failure to respond adequately to a formal warning will lead the CBB to consider more severe enforcement measures. However, more severe measures do not require the prior issuance of a formal warning — depending on its assessment of the circumstances, the CBB may decide to have immediate recourse to other measures. Similarly, there may be circumstances where the CBB issues a formal warning without prior discussion with the licensee or individual concerned: this would usually be the case where a clear-cut compliance failing has occurred.
Amended: January 2007EN-3.2.4
When considering whether to issue a formal warning, the criteria taken into consideration by the CBB therefore include the following:
(a) The seriousness of the actual or potential contravention, in relation to the requirement(s) concerned and the risks posed tocustomers , market participants and other stakeholders;(b) In the case of an actual contravention, its duration and/or frequency of the contravention; the extent to which it reflects more widespread weaknesses in controls and/or management; and the extent to which it was attributable to deliberate or reckless behaviour; and(c) The extent to which the CBB's supervisory objectives would be better served by issuance of a formal warning as opposed to another type of regulatory action.Amended: January 2007EN-3.3 EN-3.3 Procedure
EN-3.3.1
Proposals to issue formal warnings are carefully considered against the criteria listed in Paragraph EN-3.2.4. They require approval of a Director or more senior CBB official, and include the statement "This is a formal warning as defined in Chapter EN-3 of Volume 4 of the CBB Rulebook".
Amended: January 2007EN-3.3.2
Depending on the issue in question, recipients of a formal warning may be required to respond to the contents of the notice. Where a formal warning is served prior to imposing any penalties or administrative proceedings, Articles 125(c) and 126 of the CBB Law provide the recipients the right to object or challenge the formal warning.
Amended: January 2007EN-4 EN-4 Directions
EN-4.1 EN-4.1 Legal Source
EN-4.1.1
Article 38 of the CBB Law empowers the CBB to issue Directions to
investment firm licensees or individuals. The powers conveyed allow the CBB to issue whatever Directions, it reasonably believes, are required to achieve its statutory objectives.Amended: October 2012
Adopted: January 2007EN-4.2 EN-4.2 CBB Policy
EN-4.1.1
The BMA may issue Directions to
authorised persons under supervisory powers granted to it by the BMA Decree — Law No. 23 of 1973 ("BMA Law"). These powers are broad in nature, and effectively allow the BMA to issue whatever Directions it reasonably believes are required to achieve its statutory objectives.EN-4.2.1
The types of Directions that the CBB may issue in practice vary and will depend on the individual circumstances of a case. Generally, however, Directions require a licensee or individual either to undertake or to stop specific actions in order to address or mitigate certain perceived risks. They may also include restrictions on a licensee's activities until those risks have been addressed — for instance, a ban on the acceptance of new
customers .Amended: January 2007EN-4.2.2
The CBB is conscious of the powerful nature of a Direction and, in the case of a licensee, the fact that it subordinates the role of its Board and management on a specific issue. The CBB will carefully consider the need for a Direction, and whether alternative measures may not achieve the same end. Where feasible, the CBB will try to achieve the desired outcome through persuasion, rather than recourse to a Direction.
Amended: January 2007EN-4.2.3
In considering whether to issue a Direction, the criteria taken into consideration by the CBB include the following:
(a) The seriousness of the actual or potential contravention, in relation to the requirement(s) concerned and the risks posed tocustomers , market participants and other stakeholders;(b) In the case of an actual contravention, its duration and/or frequency of the contravention; the extent to which it reflects more widespread weaknesses in controls and/or management; and the extent to which it was attributable to deliberate or reckless behaviour; and(c) The extent to which the CBB's supervisory objectives would be better served by issuance of a Direction as opposed to another type of regulatory action.Amended: January 2007EN-4.3 EN-4.3 Procedure
EN-4.3.1
Proposals to issue Directions are carefully considered against the criteria listed in Paragraph EN-4.2.3. They require approval of an Executive Director or more senior official of the CBB, and include the statement "This is a formal Direction as defined in Chapter EN-4 of Volume 4 of the CBB Rulebook".
Amended: January 2007EN-4.3.2
The subject of the Direction will normally be given 30 calendar days from the Direction's date of issuance in which to make representations to the CBB concerning the actions required. This must be done in writing, and addressed to the issuer of the original Direction. Should a representation be made, the CBB will make a final determination within 30 calendar days of the date of the representation, as specified in Articles 125(c) and 126 of the CBB Law.
Amended: January 2007EN-4.3.3
[This Paragraph was moved to Section EN-B.2 in April 2019].
Amended: April 2019
Amended: January 2007EN-5 EN-5 Financial Penalties
EN-5.1 EN-5.1 Legal Source
EN-5.1.1
Article 129 of the CBB Law, provides the CBB the power to impose financial penalties on licensees or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law. Their use is generally limited to situations where major breaches of regulatory requirements have taken place and a licensee has failed to respond in an acceptable manner to the concerns expressed by the CBB. Financial penalties may be preceded by the issuance of a written formal warning and/or Direction.
Amended: April 2016
Amended: October 2012
Adopted: January 2007EN-5.2 EN-5.2 CBB Policy
EN-5.1.1
The BMA may on a very selective basis impose financial penalties on licensees. Their use is generally limited to situations where major breaches of regulatory requirements have taken place and a licensee has failed to respond in an acceptable manner to the concerns expressed by the BMA. Financial penalties are thus normally preceded by the issuance of a Formal Notice and/or Direction.
EN-5.2.1
The level of financial penalty applied is determined by the nature of the contravention and the amount of additional supervisory attention and resources taken up by a licensee's or persons' referred to in paragraph (b) of Article (68 bis 1) of the CBB Law behaviour and by limits set in the CBB Law. The CBB intends that the impact of a penalty should derive more from its signalling effect than from the actual amount of money involved.
Amended: April 2016
Amended: January 2007EN-5.2.2
In accordance with Article 132 of the CBB Law, the CBB may publicise the issuance of a financial penalty notice, by way of its website or through other means, where there is a strong case that doing so would help achieve the CBB's supervisory objectives.
Amended: January 2007EN-5.2.3
In assessing whether to serve a financial penalty notice, the CBB takes into account the following criteria:
(a) The seriousness of the contravention, in relation to the requirement(s) concerned;(b) The duration and/or frequency of the contravention, and the extent to which it reflects more widespread weaknesses in controls and/or management;(c) The extent to which the contravention was deliberate or reckless;(d) The licensee's past compliance record and conduct following the contravention; and(e) The scope of any other action taken by the CBB or other regulators against the licensee, in response to the compliance failures in question.Amended: January 2007EN-5.2.4
Part 11 of the CBB Law outlines instances where financial penalties may be imposed. Examples of the types of compliance failings that may lead to the serving of a financial penalty notice include (but are not limited to):
(a) Failures to address persistent delays and/or significant inaccuracies in regulatory reporting to the CBB;(b) Repeated failures to respond to formal requests for information from the CBB, within the deadlines set;(c) The submission of information to the CBB known to be false or misleading; and(d) Major failures in maintaining adequate systems and controls in accordance with CBB's requirements, subjecting investors and othercustomers to significant risk of financial loss.Amended: January 2007EN-5.2.5
In accordance with Article 125 of the CBB Law, a written notice of a financial penalty must be issued before imposing any financial penalty. The written notice must contain the following information:
(a) The violations committed by the licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law with respect to the CBB Law; the CBB Rulebook; any Directions, Warnings or Formal Requests for Information; or violations of the terms and conditions of the license issued to the licensee;(b) Evidence or proof to support the above;(c) The level of financial penalty to be imposed; and(d) The grace period to be allowed to the licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law for challenging the intended penalty (which will not be less than 30 calendar days).Amended: April 2016
Adopted: January 2007EN-5.2.6
The licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law may either pay the penalty or, pursuant to Article 126 of the CBB Law, may object within the period noted in Sub-Paragraph EN-5.2.5(d). In accordance with Article 127 of the CBB Law, the CBB will consider any objection and make a formal resolution within 30 calendar days of receiving the objection. Thereafter, the resolution and any accompanying penalties are final and must be paid within 30 calendar days.
Amended: April 2016
Adopted: January 2007EN-5.2.7 [Deleted]
Deleted: October 2009EN-5.2.7
The imposition of a financial penalty does not preclude the CBB from also using other enforcement measures to remedy the same violation (for instance, a Direction).
Amended: October 2009
Amended: January 2007EN-5.3 EN-5.3 Module FC (Financial Crime)
EN-5.3.1
In addition to the general circumstances set out in Section EN-5.2, a financial penalty of up to BD 100,000 may be applied by the CBB in cases where a licensee fails to comply with any of the requirements in Module FC (Financial Crime). The fine shall be multiplied by the number of violations.
Amended: April 2016
Amended: January 2007EN-5.3.2
As with the imposition of financial penalties in response to breaches of other regulatory requirements, the CBB will apply financial penalties with respect to Module FC, based on the criteria set out in paragraph EN-5.2.3.
Amended: January 2007EN-5.3.3
A failure to comply with the requirements in Module FC (Financial Crime) that warrants a financial penalty would not trigger also a additional financial penalty under Section EN-5.2.
Amended: January 2007EN-5.3.4
Any financial penalties applied by the CBB as regards the implementation of its regulations set out under Module FC (Financial Crime), are without prejudice to the criminal sanctions available to the Bahraini courts under the <Decree — Law No. 4 of 2001, with respect to the prevention and prohibition of the laundering of money. As with other financial penalties, the imposition of a financial penalty with regards to breaches of the regulation in Module FC (Financial Crime) does not prevent the CBB from also using other enforcement measures to remedy the same violation (for instance, a Direction).
Amended: January 2007EN-5.3A EN-5.3A Financial Penalties for Date Sensitive Requirements
EN-5.3A.1
Modules AU, FC, BR and PD contain specific requirements where
investment firm licensees must comply with, by a precise date. Where a specific due date is involved, the CBB's financial penalties are based on a per diem basis.Added: October 2012EN-5.3A.2
This Section applies to date sensitive requirements for:
(a) Reporting requirements included in Module BR;(b) Public disclosure requirements included in Module PD;(c) The report of the external auditor or approved consultancy firm required as per Paragraph FC-3.3.1B(d); and(d) Annual licensing fees required as per Section AU-6.2.Amended: January 2016
Added: October 2012EN-5.3A.3
Financial penalties related to late filing or other date sensitive requirements are calculated as per the following per diem basis:
(a) Forcategory 1 investment firm licensees , the financial penalty for late filing is BD 80 per day;(b) Forcategory 2 investment firm licensees , the financial penalty for late filing is BD 60 per day; and(c) Forcategory 3 investment firm licensees , the financial penalty is BD 40 per day.Amended: April 2017
Added: October 2012EN-5.3A.4
In accordance with Article 129 of the CBB Law, the maximum financial penalty levied for failing to comply with date sensitive requirements is BD 100,000. The fine shall be multiplied by the number of violations. The CBB may opt to limit the amount of the financial penalty and use other enforcement measures as outlined in Module EN (Enforcement), such as imposing restrictions on an investment firm license limiting the scope of operations.
Amended: April 2016
Added: October 2012EN-5.3A.5
The various deadlines for submission of reports and annual fees referred to in Modules BR, FC, PD and AU are defined:
(a) In terms of a specified number of days or months following a given date, such as the last date of a calendar quarter;(b) A specified number of days or months after the occurrence of a specific event; or(c) A specific date.Added: October 2012EN-5.3A.6
In imposing financial penalties for date sensitive requirements, the following criteria apply:
(a) Where the due date falls on a holiday as designated by the CBB, the first business day following the holiday will be considered as being the due date;(b) Where a due date is not complied with by the end of the day on which it is due, holidays and weekend days are included in the number of days the item is considered late;(c) For returns and other filings, the date received is the date recorded by the CBB's systems in case of returns filed electronically;(d) In the case of returns filed in hard copy, the CBB stamp is the date received;(e) All returns are to be sent to the respective Supervision Directorate and the annual fees to the Accounts Directorate, on or before the due date, to be considered filed on time;(f) A day ends at midnight in the case of returns that must be filed electronically, or at the close of CBB business day, in the case returns are filed in hard copy; and(g) An incomplete return, where completeness is determined in relation to the requirements of the relevant instructions and Module BR, is considered 'not filed' until the CBB receives all necessary elements of the return.Added: October 2012EN-5.3A.7
The CBB does not require any particular method of delivery for returns and filings that are filed in hard copy. The use of the Bahrain postal services, private courier services or other methods of delivery is entirely at the discretion and risk of the licensee. For the payment of annual fees, licensees must follow the requirements of Form ALF, included under Part B of Volume 4.
Added: October 2012EN-5.3A.8
A decision to impose a financial penalty for date sensitive requirements is unrelated to whether the CBB issues a reminder; it is the licensee's responsibility to file and disclose on time as per the requirements of Volume 4 (Investment Business) Rulebook.
Added: October 2012EN-5.3B EN-5.3B Financial Penalties for Non-compliance with Blocking / Unblocking Requirements
EN-5.3B.1
The financial penalty for late execution of blocking/unblocking orders issued by the Court/Public Prosecution is BD 10 per day per customer account/claim. Such financial penalties will be charged through billing on a weekly basis.
Added: April 2021EN-5.4 EN-5.4 Procedure
EN-5.4.1
A written financial penalty notice will be addressed to the
Chief Executive Officer orGeneral Manager of the licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law concerned. This written notification will describe the contravention concerned, the CBB's evidence supporting a financial penalty, and the factors justifying the level of penalty proposed. Only an Executive Director or more senior member of the CBB's management may sign the notification.Amended: April 2016
Amended: January 2007EN-5.4.2
The licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law has 30 calendar days from the notification's date of issuance to submit any representations it wishes to make to the CBB, in writing and addressed to the issuer of the original notification. If the licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law decides not to submit representations, it has 30 calendar days from the notification's date of issuance in which to pay the penalty.
Amended: April 2016
Amended: January 2007EN-5.4.3
Should the licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law make representations challenging the proposed penalty, the CBB has 30 calendar days from the issuance of those representations in which to re-examine the facts of the case and its conclusions. If the CBB confirms application of a penalty, payment is required within 30 calendar days of a final notice being issued.
Amended: April 2016
Amended: January 2007EN-5.4.4
Failure to pay a penalty within the required deadlines will be considered a breach of CBB's regulatory requirements, and will also result in other measures being considered, as described elsewhere in this Module.
Amended: January 2007EN-5.5 EN-5.5 Addressing a Compliance Failure
EN-5.5.1
Payment of a financial penalty does not by itself absolve a licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law from remedying the compliance failure concerned. The CBB will expect the licensee or persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law to address the contravention within a reasonable timescale, to be agreed on a case-by-case basis. Failure to do so will result in other measures being considered.
Amended: April 2016
Amended: January 2007EN-6 EN-6 [This Chapter was deleted in April 2019]
EN-6.1 EN-6.1 [This Section was deleted in April 2019]
EN-6.1.1
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.1.2
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.1.3
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.2 EN-6.2 [This Section was deleted in April 2019]
EN-6.2.1
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.2.2
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.2.3
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.3 EN-6.3 [This Section was deleted in April 2019]
EN-6.3.1
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.3.2
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-6.3.3
[This Paragraph was deleted in April 2019].
Deleted: April 2019
Amended: January 2007EN-7 EN-7 Cancellation or Amendment of License
EN-7.1 EN-7.1 Legal Source
EN-7.1.1
Article 48 of the CBB empowers the CBB to cancel or amend a license under certain circumstances. These include cases where a licensee has:
(a) Failed to satisfy its license conditions;(b) Violated the terms of the CBB Law, regulations or Rulebook;(c) Failed to start business within six months from the date of the license being issued;(d) Ceased to carry out the licensed activities permitted; or(e) Not acted in the legitimate interest of its customers or creditors.Amended: January 2007EN-7.1.2
Article 48(d) of the CBB Law also requires the CBB to give the licensee concerned at least 30 calendar days in which to appeal to object to any proposed cancellation or amendment of its license.
Amended: January 2007EN-7.2 EN-7.2 CBB Policy
EN-7.2.1
When used as an enforcement tool, the CBB views cancelling a license as appropriate only in the most serious of circumstances, when faced with the gravest of contraventions or when left with no other reasonable means of successfully addressing the regulatory failings in question. Cancellation or amendment of a license, however, may also be required in circumstances outside of an enforcement context, for instance because of a change in the business profile of a licensee.
Amended: January 2007EN-7.2.2
When used as an enforcement tool, the criteria used by the CBB in assessing whether to seek the cancellation or amendment of a license include:
(a) The extent to which the interests of the market, its users and those who have a claim on the licensee would be best served by the cancellation or amendment of the license;(b) The extent to which other supervisory penalties could reasonably be expected to achieve the CBB's desired supervisory objectives;(c) The extent to which the licensee has contravened the conditions of its license and/or the CBB Law, including the seriousness, duration and/or frequency of the contravention(s) concerned, and the extent to which the contraventions reflect more widespread or systemic weaknesses in controls and/or management;(d) The extent to which the licensee has been involved in financial crime or other criminal conduct; and(e) The licensee's past compliance record and conduct following the contravention(s).Amended: January 2007EN-7.2.3
When the CBB issues a notice of cancellation or amendment as an enforcement tool, it will only implement the actual change once it is satisfied that there are no longer any regulated activities for which it is necessary to keep the current authorisation in force. Until such time as these activities have been run off or moved to another licensee, the CBB will control these activities through other means (such as taking the licensee into administration or through issuing Directions).
Adopted: January 2007EN-7.3 EN-7.3 Procedure
EN-7.3.1
All proposals for cancelling or amending a license as an enforcement tool are subject to a thorough review by the CBB of all relevant facts, assessed against the criteria outlined in Paragraphs EN-7.2.1 and EN-7.2.2. After being assessed at the Executive Director level, proposals are submitted to H.E. the Governor for approval.
Amended: January 2007EN-7.3.2
Once approved within the CBB, a formal notice of cancellation or amendment is issued to the licensee concerned. The notice of cancellation or amendment will describe the factual circumstances of the contraventions concerned, and the CBB's rationale for the proposed cancellation or amendment, as measured against the criteria outlined in Paragraphs EN-7.2.1 and EN-7.2.2.
Amended: January 2007EN-7.3.3
The licensee has 30 calendar days from the date of the notice in which to lodge an appeal. The appeal should be addressed to the Board of the CBB, and copied to H.E. the Governor of the CBB.
Amended: January 2007EN-7.3.4
If an appeal is lodged, the Board of the CBB will make a final ruling within 60 calendar days of its date of issuance.
Amended: January 2007EN-7.3.5
A licensee may appeal to a competent court within 60 days of the above final ruling for a decision. The court's decision will then be final.
Adopted: January 2007EN-8 EN-8 Cancellation of 'Fit and Proper' Approval
EN-8.1 EN-8.1 Legal Source
EN-8.1.1
Article 65 of the CBB Law allows the CBB to determine the level of qualifications, experience and training of
licensee's officers or employees. Article 65(c) of the CBB Law empowers the CBB the right to remove any official, being a Board member or in an executive position, that is unqualified or unsuitable for the assigned position.Adopted: January 2007EN-8.1.2
In addition, Chapter AU-3 of Module AU (Authorisation), specifies that
approved persons must be assessed by the CBB as 'fit and proper' to hold such a position. The Chapter specifies various factors that the CBB takes into account when reaching such a decision.Amended: January 2007EN-8.2 EN-8.2 CBB Policy
EN-8.2.1
Chapter AU-3 of Module AU (Authorisation), specifies that
approved persons must be assessed by the CBB as 'fit and proper' to hold such a position. The Chapter specifies various factors that the CBB takes into account when reaching such a decision.Amended: January 2007EN-8.2.2
The CBB is conscious of the impact that assessing someone as not 'fit and proper' may have on an individual
approved person . Such assessments are carefully reviewed in the light of all relevant facts. The criteria used in reaching a decision include the following:(a) The extent to which the factors set out in Chapter AU-3 have not been met;(b) The extent to which the person has deliberately or recklessly breached requirements of the CBB law or Volume 4 (Investment Business);(c) The person's past compliance record and conduct following any such breaches;(d) The length of time since factors indicating a lack of fitness or propriety occurred; and(e) The risk the person poses to licensees and theircustomers .Amended: January 2007EN-8.2.3
Amongst other matters, the CBB will normally consider as grounds for the revocation of
approved person status the following events affecting theapproved person :(a) The conviction by a court, whether in Bahrain or elsewhere, for a crime affecting honesty;(b) A declaration of bankruptcy by a court of law;(c) A court ruling that theapproved person's legal capacity is totally or partially impaired; or(d) The sanction by a professional body of a fine, suspension, expulsion or censure.Amended: January 2007EN-8.2.4
Investment firm licensees must inform the CBB immediately when they become aware of any of the events listed in Paragraph EN-8.2.3, affecting one of theirapproved persons .Amended: October 2009
Amended: January 2007EN-8.2.5
If the CBB has grounds for considering that an individual is no longer fit and proper to continue to hold their existing
controlled function(s) , it will revoke theapproved person status granted to that individual. The individual will then be required to resign from each of thecontrolled functions to which this revocation applies. This revocation does not automatically preclude them from applying to hold othercontrolled functions in the future, but will be taken into account in considering new requests frominvestment firm licensees that pertain to that individual.Amended: January 2007EN-8.2.6
Depending on the seriousness of the situation, the CBB may impose further measures, which may include disqualification from:
(a) Holding anycontrolled function ;(b) Performing any function in relation to any regulated activity carried out by a licensed firm; or(c) Being acontroller of any licensed firm.Amended: January 2007EN-8.2.7
In assessing evidence, the CBB applies a lower threshold than is applied in a criminal court of law, reflecting the administrative nature of the sanction. The CBB may also take into account the cumulative effect of factors which, when considered individually, may not in themselves be sufficient to justify an adverse 'fit and proper' finding.
Amended: January 2007EN-8.2.8
The CBB may also take into account the particular function being undertaken in the licensee by the individual concerned, and the size and nature of the licensee itself, particularly when assessing the suitability of a person's experience or qualifications. Thus, the fact that a person was deemed 'fit and proper' for a particular position in a particular firm does not necessarily mean he would be suitable in a different position or in a different firm.
Amended: January 2007EN-8.3 EN-8.3 Procedure
EN-8.3.1
All proposals for issuing an adverse 'fit and proper' finding are subject to a thorough review by the CBB of all relevant facts, assessed against the criteria outlined in Paragraph EN-8.2.2 above. In some instances, it may be appropriate for the CBB to request the licensee or person concerned to provide further information, in order to help reach a decision.
Amended: January 2007EN-8.3.2
All adverse findings have to be approved by an Executive Director of the CBB. Once approved, a notice of intent is issued to the person concerned and copied to the Board/senior management of the licensee, setting out the circumstances and the basis for the CBB's proposed adverse finding. The person has 30 calendar days from the date of the notice in which to make written representations, addressed to the Executive Director concerned, failing which a final notice is issued by the CBB.
Amended: October 2009
Amended: January 2007EN-8.3.3
If representations are made, then the CBB has 30 calendar days from the date of the representation in which to consider any mitigating evidence submitted and make a final determination.
Amended: October 2009
Amended: January 2007EN-9 EN-9 [This Chapter deleted 07/2007.]
Deleted: July 2007EN-9.1 EN-9.1 BMA Policy
EN-9.1.1
Rule AU-1.3.1 of Module AU (Authorisation) requires persons wishing to carry on the business of an administrator in the Kingdom of Bahrain to be registered as such by BMA.
Registered administrators are not allowed to undertakeregulated investment services and are not categorised as licensees: the registration requirement exists simply to ensure that those acting as administrators satisfy certain basic suitability criteria.EN-9.1.2
These basic criteria are contained in Chapter AU-4. Should a registered administrator, in the opinion of the BMA, cease to satisfy one or more of these criteria, then the BMA has the right to cancel that person's registration.
EN-9.1.3
Where the BMA proposes to cancel the registration of a
registered person , it must provide the person concerned reasonable time to object to the proposed cancellation.EN-9.1.4
Amongst other matters affecting a person's compliance with the registration criteria contained in Chapter AU-4, the BMA will normally consider as grounds for the revocation of registration the following:
(a) the conviction by a court, whether in Bahrain or elsewhere, for a crime affecting honesty;(b) a bankruptcy declaration by a court of law;(c) a court ruling that the person's legal capacity is totally or partially impaired; or(d) the sanction by a professional body of a fine, suspension, expulsion or censure.EN-9.2 EN-9.2 Procedure for Cancellation of Registration
EN-9.2.1
All proposals to cancel a registration are subject to a thorough review of all relevant facts and must be approved by an Executive Director of the BMA.
EN-9.2.2
Once approved within the BMA, a notice of intent is issued to the registrant concerned, setting out the basis for the decision. The notice of intent will describe the factual circumstances and the BMA's rationale for the proposed cancellation.
EN-9.2.3
The registrant has 30 calendar days from the date stated in the notice in which to appeal the decision. The appeal should be addressed to the Executive Director that has approved the proposal for cancellation.
EN-9.2.4
If representations are made, then the BMA has 30 calendar days from the date of the representation in which to consider any mitigating evidence submitted and make a final determination.
EN-10 EN-10 Criminal Sanctions
EN-10.1 EN-10.1 Overview
EN-10.1.1
The CBB Law provides for a number of criminal sanctions in cases where certain of its provisions are contravened. This Section provides a summary of those sanctions most relevant to licensees, their
Directors and employees. What follows is not a complete list of all sanctions provided for in the CBB Law, nor is it a substitute for reading the Law and being fully aware of its provisions.Amended: January 2007EN-10.1.2
Licensees, their
Directors and employees should also be aware of the criminal sanctions provided for under other relevant Bahraini laws, such as the Decree — Law No. 4 of 2001, with respect to the prevention and prohibition of the laundering of money.EN-10.1.3
In all cases to do with criminal sanctions, the CBB can only refer the matter to the Office of the Public Prosecutor. The CBB has no authority to apply such sanctions without recourse to the courts.
Amended: January 2007EN-10.2 EN-10.2 CBB Policy
EN-10.2.1
Because of their criminal status, and their provision for custodial sentences, the sanctions provided for under the CBB Law are viewed by the CBB as very powerful measures, to be pursued sparingly. In most situations, the CBB will seek to address regulatory failures through administrative sanctions, as outlined in the preceding Chapters, rather than by pursuing the criminal sanctions outlined here.
Amended: January 2007EN-10.2.2
Where, however, the nature of the offence is such that there is strong evidence of a reckless or intentional breach of the CBB Law relevant to the following Articles, then the CBB will usually refer the matter to the Office of the Public Prosecutor.
Amended: January 2007EN-10.2A EN-10.2A Article 161
EN-10.2.1A
Article 161 of the CBB Law provides for a penalty of up to BD 1 million, without prejudice to any other penalty prescribed in any other law, in case of any person who breaches the provisions of Resolution No.(16) for the year 2012 issued pursuant to Article 42 of the CBB Law. The Court may also confiscate the proceeds resulting from breaching the Resolution.
Added: January 2013EN-10.3 EN-10.3 Article 163
EN-10.3.1
Article 163 of the CBB Law provides for a term of imprisonment of up to two years, and/or a fine of up to BD 20,000, without prejudice to any other penalty prescribed in any other law, in case of conviction of a
Director , manager, official, agent or representative of any licensee who:(a) Conceals any records, information or documents requested by the CBB (or any person appointed by the CBB to conduct an investigation or inspection);(b) Provides statements or information in bad faith which do not reflect the actual financial position of the licensee;(c) Conceals from an external auditor any records, information or documents necessary for auditing the accounts of the licensee; or(d) Provides in bad faith any misleading or inaccurate statements to an external auditor which do not reflect the actual financial position of the licensee.Amended: January 2007EN-10.4 EN-10.4 Article 169
EN-10.4.1
Article 169 provides for a term of imprisonment, and/or a fine of up to BD 20,000 for any
Director , manager, official or employee, who acts or permits an act in violation of Article 134 of the CBB Law, dealing with the effects of insolvency, where he knows (or should have known) that the licensee is insolvent.Amended: January 2007EN-10.5 EN-10.5 Article 170
EN-10.5.1
Article 170(2) of the CBB Law provides for terms of imprisonment and/or a fine not exceeding BD 3,000 if any
Director , manager, official or employee intentionally obstructs an investigation by the CBB or anAppointed Expert .Adopted: January 2007EN-10.6 EN-10.6 Article 171
EN-10.6.1
Article 171 of the CBB Law provides for a term of imprisonment and/or a fine not exceeding BD 10,000, if any
Director , manager, official or employee discloses in bad faith any confidential information relating to a customer of a licensee.Adopted: January 2007DP Dispute Procedures
[This module in Volume 4 has been intentionally left blank: requirements relating to Dispute Procedures will be issued at a later date.]
CP Compensation
[This module in Volume 4 has been intentionally left blank: requirements relating to Compensation may be developed in due course.]
Sector Guides
C1 Category 1 licensees
[This module in Volume 4 has been intentionally left blank: it will be issued at a later date.]
C2 Category 2 licensees
[This module in Volume 4 has been intentionally left blank: it will be issued at later date.]
C3 Category 3 licensees
[This module in Volume 4 has been intentionally left blank: it will be issued at a later date.]
IF Islamic Investment Firms
[This module in Volume 4 has been intentionally left blank: it will be issued at a later date.]
Part B
Glossary of Terms
Glossary History
Version Date Description of Changes April 2006 Initial Launch July 2006 Page 19 ("R"): deletion of 'acting as a financial trust service provider' from the definition of 'regulated investment services'. July 2007 • Changes to definitions of: administrator(s); authorised person(s); collective investment undertaking(s); family; property.• New definitions included: closed-ended fund(s); custodian(s); Investment Business Code of Practice; Islamic investment firm; overseas Category 1 investment firm.July 2008 Added definition for accredited investor, dematerialised safe custody financial instruments and expert investor. October 2009 • Changes to definitions of: accredited investor; expert investor and subsidiary undertaking.• New definitions included: investigator; qualified by exception; managing director and retail client.• Deleted definitions of: appointed expert, market counterparty and professional client.July 2010 New definitions included: appointed expert, listed company, reporting accountant and trilateral meeting. January 2011 • Amended definition of: Chief Executive Officer.• New definition included: Dated subordinated debt, Executive director, Independent director, licensed exchange(s), market, minimum capital requirements, Non-executive director, original term, remuneration, senior manager/management.April 2011 • Amended definition of executive director and managing director.• New definitions include: branch(es), host regulator/supervisor.October 2011 • Added definition of: Conflict of interest.• Amended definition of appointed expert(s), family, qualified by exception and trilateral meeting.• Clarified definition of independent director.January 2012 • Amended definition of Collective investment undertaking(s) (CIU(s)) and independent director.October 2012 • Added definition for underwrite/underwriting.January 2013 • Added definition for financial services.• Amended definition for public offering.July 2013 • Added definition for Bahrain domiciled CIU.• Amended the definition of subsidiary undertaking.October 2013 Removed the term 'appointed representative(s)' October 2014 Amended cross reference for relevant authorities. October 2015 Added definition for ultimate parent undertaking. July 2016 Amended definition of Politically Exposed Persons (PEPs). October 2017 Added definition of Beneficial Owner. April 2019 Added definition of Digital Financial Advice. October 2019 Added definition of 'without delay'. July 2020 Amended definition of Independent Director. October 2020 Amended definition of Accredited Investor. October 2020 Added point (f) in definition of Independent Director. July 2022 Amended definition of accredited investor(s). October 2023 Added definitions of Family, Family Clients, Family Office Licensees, Investment Management and Wealth Management Advice. January 2024 Added definitions of Beneficiary, Beneficiary Financial Institution, Ordering Financial Institution and Originator. June 2025 Amended definition of Beneficial Owner. June 2025 Amended definition of Politically Exposed Persons (PEPs). [ A ]
Accredited Investor
Accredited investors are defined as investors meeting the following criteria:(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 1,000,000, excluding that person’s principal place of residence;(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 1,000,000; or(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).Individuals and commercial undertakings may elect in writing to be treated as accredited investors subject to meeting at least two of the following conditions:
(a) The investor has carried out trading/investing transactions, in significant size (i.e. value of transactions aggregating USD 200,000) over the last 12-month period;(b) The size of the investor's financial assets portfolio including cash deposits and financial instruments is USD 500,000 or more; and/or(c) The investor works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged (i.e. the position was professional in nature and held in a field that allowed the client to acquire knowledge of transactions or services that have comparable features and a comparable level of complexity to the transactions or services envisaged).Amended: July 2022
Amended: October 2020
Amended: Oct 09
Added: July 08Administrator(s)
Administrators are persons who undertake the administration offinancial instruments and other assets, for a third party. Administration may include the following activities:(a) Legal and fund management accounting services;(b) Client enquiries;(c) Valuation and pricing (including tax returns);(d) Regulatory compliance monitoring;(e) Maintenance of unit-holder register;(f) Distribution of income;(g) Issuance and redemption ofholdings in aCIU ;(h) Contract settlements (including certificate dispatch); and(i) Record-keeping.Amended: July 2007Ancillary services provider(s)
A person who is licensed by the CBB in relation to the carrying on of one or more ancillary services, such as administrators, or those providing compliance services, data-processing services, or a local service or management office, with respect to other CBB licensees. Such persons are not subject to Volume 4 of the CBB Rulebook, but are separately licensed and subject to the requirements contained in the relevant CBB's 'Standard Conditions and Licensing Criteria' (cf. AU-A.1.10).
Amended: July 2007Appointed Expert(s)
A duly qualified individual or firm appointed by the CBB to carry out inspections in accordance with Article 114 of the CBB Law or special investigations of licensees in accordance with Article 121 of the CBB Law. Appointed experts may be appointed in addition to the CBB's own officials. Examples of appointed experts include
reporting accountants , lawyers, privateinvestigators , expert witnesses and independent actuaries.Amended: January 2012
Amended: October 2011
Added: July 2010Appointed Representative(s)
[Deleted in October 2013].
Deleted: October 2013Approved Person(s)
Approved Persons are individuals holding certain specified positions inCBB licensees ; they must be approved by the CBB prior to taking on those positions and must demonstrate that they are fit and proper. The list of positions subject to the CBB'sApproved Persons regime vary according to the CBB license Category, but generally cover directors and senior management, as well as certain other positions.Approved Persons requirements are specified in the relevant Rulebook Volume for the license Category in question.Amended: July 2007Authorised person(s)
A person authorised either as a CBB
licensee or anApproved Person .Amended: July 2007[ B ]
Bahrain domiciled CIU(s) (as defined under Volume 7)
Bahrain domiciled CIUs are undertakings where:
(a) The legal form of the CIU is established under the laws of the Kingdom of Bahrain; and(b) The CIU documents and contractual agreements are governed by the Laws of the Kingdom of Bahrain.Added: July 2013Bahraini investment firm licensee
An investment firm that is incorporated in the Kingdom of Bahrain (and is therefore not an
overseas investment firm licensee ). The same naming convention applies to the various sub-categories of investment firm: e.g. a BahrainiCategory 1 investment firm is aCategory 1 investment firm that is incorporated in the Kingdom of Bahrain. See AU-A.1.5; andoverseas investment firm licensee below.Beneficial Owner
(a) In the context of legal persons, beneficial owner refers to the natural person(s) who ultimately owns or controls a customer, and/or the natural person on whose behalf a transaction is being conducted. It also includes those natural persons who exercise ultimate effective control over a legal person. Only a natural person can be an ultimate beneficial owner, and more than one natural person can be the ultimate beneficial owner of a given legal person.(b) In the context of legal arrangements, beneficial owner includes: (i) the settlor(s); (ii) the trustee(s); (iii) the protector(s) (if any); (iv) each beneficiary, or where applicable, the class of beneficiaries and objects of a power; and (v) any other natural person(s) exercising ultimate effective control over the arrangement. In the case of a legal arrangement similar to an express trust, beneficial owner refers to the natural person(s) holding an equivalent position to those referred above. When the trustee and any other party to the legal arrangement is a legal person, the beneficial owner of that legal person should be identified.(c) Reference to “ultimately owns or controls” and “ultimate effective control” refer to situations in which ownership/control is exercised through a chain of ownership or by means of control other than direct control.(d) Reference to “ultimate effective control” over trusts or similar legal arrangements includes situations in which ownership/control is exercised through a chain of ownership/control.Added: October 2017
Amended: June 2025Beneficiary
(As used in Module FC): refers to the natural or legal person or legal arrangement who is identified by the originator as the receiver of the requested wire/crypto-asset transfer.
Beneficiary Financial Institution
Refers to the financial institution which receives the wire/crypto-asset transfer from the ordering financial institution directly or through an intermediary financial institution and makes the funds/crypto-assets available to the beneficiary.
Bonds
An instrument creating or acknowledging a present or future indebtedness (i.e. debentures, debenture stock, loan stock, bonds, certificates of deposit and any other instruments creating or acknowledging a present or future indebtedness), but excluding:
(a) An instrument creating or acknowledging indebtedness for, or for money borrowed to defray, the consideration payable under a contract for the supply of goods and services;(b) A cheque or other bill of exchange, a bankers draft or a letter of credit (but not a bill of exchange accepted by a banker);(c) A banknote, a statement showing a balance on a bank account, or a lease or other disposition of property; and(d) A contract of insurance.Amended: January 2011Branch(es)
A place of business which is a part of a firm and which has no separate legal personality.
Added: April 2011[ C ]
Category 1 investment firm
An investment firm licensee as defined in AU-1.1.13.
Category 2 investment firm
An investment firm licensee as defined in AU-1.1.15.
Category 3 investment firm
An investment firm licensee as defined in AU-1.1.17.
Chief Executive, Chief Executive Officer or CEO
Chief executive, chief executive officer or CEO. The board shall determine that person's actual title, which may be 'CEO', 'Chief Executive Officer', 'President', 'Managing Director', or another title.
Amended: January 2011
Amended: July 2007Client
A
client is a person with or for whom aninvestment firm licensee conducts or intends to conduct regulated investment services.Client Agreement
Terms of business, which the
client of theinvestment firm licensee has consented to in writing.Client Asset Protection Rules
Rules contained in Section CL-1.1.
Client Assets
Money or
financial instruments belonging toclients of aninvestment firm licensee that are held or controlled by theinvestment firm licensee in connection with the conduct ofregulated investment services .Client Bank Account
A bank account held by an
investment firm licensee , in order to hold client money: cf. CL-1.1.6.Amended: July 2007Client Money
Money (of any currency), which, in the course of carrying on regulated investment business, an
investment firm licensee holds in respect of any investment agreement entered into, or to be entered into, with or for aclient .Close Links
Defined in GR-6.2.1
Closed-ended fund(s)
Closed-ended funds areCIUs with a limited number ofholdings . Where the fund vehicle is a company,holdings can take the form of shares. Newholdings are rarely issued after the fund is launched and are not normally redeemable until the fund liquidates. Typically an investor can acquire or dispose ofholdings in aclosed-ended fund by buying or selling them on a secondary market, from a market intermediary or other investor, rather than by dealing with theCIU itself.Adopted: July 2007Code
The Investment Business Code of Practise contained in Chapter BC-2.
Collective investment undertaking(s) (CIU(s))
Collective investment undertakings ('CIUs') are undertakings:(a) The sole object of which is the collective investment of capital raised from the public infinancial instruments or other assets and which operates on the basis of risk-spreading; and(b) Theholdings of which are re-purchased or redeemed, directly or indirectly, out of those undertakings' assets.Amended: January 2012
Amended: July 2007Conflict of interest
A situation when a person or an entity has competing professional or personal obligations to other parties in a financial transaction (e.g. underwriting a securities transaction and simultaneously advising clients whether to buy the security or not) or in ongoing financial relationships (e.g. when a licensee has a director or one of its major borrowers on its board), or personal or financial interests that would make it difficult to fulfil his duties fairly.
Added: October 2011
Controlled function
A function carried on by an
approved person in relation to aninvestment firm licensee that requires prior CBB approval: cf. AU-1.2.2.Amended: July 2007Controller
A
controller is a natural or legal person who:(a) Holds 10% or more of the shares in the licensee ("L"), or is able to exercise (or control the exercise) of more than 10% of the voting power in L; or(b) Holds 10% or more of the shares in a parent undertaking ("P") of L, or is able to exercise (or control the exercise) of more than 10% of the voting power in P; or(c) Is able to exercise significant influence over the management of L or P.Amended: January 2011
Amended: July 2007Conventional bank licensee
A bank licensed by CBB under Volume 1 of the CBB Rulebook, and generally operating according to conventional finance principals (as opposed to operating in accordance with Islamic finance principles).
Amended: July 2007Custodian(s)
A custodian is a person mandated to hold and safeguard the
financial instruments and other assets of a person, such as acollective investment undertaking (CIU).Adopted: July 2007[ D ]
Dated subordinated debt
A subordinated debt instrument whose maturity date is fixed at the time the instrument is issued.
Added: January 2011Dematerialised safe custody financial instruments
Reference to dematerialised safe custody financial instruments refers to electronic holdings of securities. This is often seen in instances where "jumbo" certificates are issued, but individual tranches of the certificate are recorded only in an electronic fashion.
Added: July 08Designated Bank
A designated bank is one to which the
client of theinvestment firm licensee has consented in writing to hold his money. See Section CL-5.1.Digital Financial Advice
Digital Financial advice, also commonly known as robo-advice or automated advice is the advising on financial instruments as defined under AU-1.4.41 using algorithms and technology and with limited or no human financial advisor involvement.
Added: April 2019Director
A person who acts in the capacity of director of a firm (whether appointed or not, or whether titled director or not). In the case of a sole trader, unincorporated body or partnership, a person directing its affairs, or a partner (of a partnership). Directors are a controlled function: see AU-1.2.2.
Amended: July 2007[ E ]
Eligible Third Party
An eligible third party refers to:
(a) An exchange;(b) A clearing house; or(c) An intermediate broker.Amended: January 2011
Amended: July 2007Executive director
Means a director who is an officer or employee, or is otherwise involved in day-to-day management, of either:
(a) Theinvestment firm licensee ;(b) Another company which is acontroller of theinvestment firm licensee ;(c) Another company of which theinvestment firm licensee is acontroller ; or(d) Another company which is controlled by acontroller of theinvestment firm licensee .In this definition, the word "company" which is a controller of the investment firm excludes sovereigns such as government owned entities and government ministries.
Amended: April 2011
Added: January 2011Expert investor
Defined in Rule BC-2.2.9.
Expert investors are:(a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 100,000, excluding that person's principal place of residence;(b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 100,000; or(c) Governments, supranational organisations, central banks or other national monetary authorities, local authorities and state organisations.Amended: Oct 09
Added: July 08[ F ]
Family
The term family refers to: father, mother, brother, sister, spouse, sons or daughters.
Amended: October 2011
Amended: July 2007Family (for the purpose of Family Office Services Module)
Family for the purposes of Family Offices Services Module means one or more individuals that are:
(a) Lineal descendants of a common ancestor;(b) Spouse of the common ancestor;(c) Spouses of the lineal descendants of a common ancestor;(d) Stepchildren and adopted children of the common ancestor; and(e) Stepchildren and adopted children of the lineal descendants of a common ancestor.Added: October 2023Family Office Licensees
Family office licensees are wealth management and advisory firms that offer customised services to wealthy families.
Added: October 2023Family Clients(for the purpose of Family Office Services Module)
Family clients include:
(a) A family member of a single family;(b) Trusts for which the family members are beneficiaries;(c) Any company, wholly owned (directly or indirectly) by, and operated for the sole benefit of, one or more family members;Family members are those defined under the family definition. All family clients must also fall within the definition of accredited investors.
Added: October 2023Financial instruments
Any of the following instruments, as further defined in Volume 4, Section AU-1.5, of the CBB Rulebook:
(a) Transferable securities;(b) Islamicfinancial instruments ;(c) Money market instruments;(d) Holdings incollective investment undertakings ;(e) Derivative contracts other than commodity derivatives;(f) Derivative contracts relating to commodities settled in cash;(g) Derivative contracts relating to commodities;(h) Credit derivatives;(i) Financial contracts for differences;(j) Other derivative contracts;(k) Interests in real estate property;(l) Certificates representing certain securities; and(m) Rights or Interests in Financial Instruments.Amended: January 2011
Amended: July 2007Financial Instruments Trader
A person who is engaged in buying or selling
financial instruments . This is a controlled function (cf. AU-1.2.2).Financial Services (as used in Module AU)
For the purpose of Module AU, financial services means:
(a) Any dealings in any instrument defined as a financial instrument in any Volume of the CBB Rulebook;(b) Any arrangement where money, goods or services are made available to a person in exchange for his promise to pay at a later date and that arrangement is of a type habitually provided by another person for commercial gain;(c) Any arrangement in which money is solicited from the public in return for a promise of financial gain on, or safekeeping of, that money; or(d) Any product or other financial services in the area of regulated services (regulated by the CBB) marketed in the Kingdom of Bahrain.Added: January 2013Futures
Rights under a contract for the sale of a commodity or property of any other description under which delivery is to be made at a future date and at a price agreed on when the contract is made.
[ G ]
General Manager
The General Manager (of a firm whether incorporated in Bahrain or not) means a person who (regardless of actual title) is responsible, alone or jointly, for the conduct of the whole of the firm, or in the case of an overseas
licensee , for all the activities of the branch. Equivalent toChief Executive in the case of firms incorporated in Bahrain (cf. Rule AU-1.2.9).[ H ]
Head of Function
A person who, under the immediate authority of the
chief executive orgeneral manager , exercises one or more major managerial functions or is responsible for maintaining accounts or other records of the firm (cf. Rule AU-1.2.10).Amended: July 2007Home Supervisor
The competent regulatory authority of the head office of a branch.
Amended: July 2007Host Regulator / Supervisor
The competent authority in which a branch of a foreign licensee is located or in which a subsidiary or joint venture of a foreign parent licensee is incorporated.
Added: April 2011[ I ]
Independent Director
Determination by the Board. Under Module HC an 'independent director' is a director whom the board has specifically determined has no material relationship which could affect his independence of judgment, taking into account all known facts. The board should consider that, although a particular director meets the formal requirements, he may not be independent owing to specific circumstances of the person or the
investment firm licensee , ownership structure of theinvestment firm licensee , or for any other reason. The board's determination should be a good faith finding after diligent review and full discussion.Formal Requirements. 'Independent director' means a
director of theinvestment firm licensee who, or whose family shareholders either separately or together with him or each other, does not have any material pecuniary relationships or transactions with theinvestment firm licensee (not counting director's remuneration for this purpose) and in particular who, during the one year preceding the time in question met all the following conditions:(a) Was not an employee of the company;(b) Did not:(i) Make to, or receive from, theinvestment firm licensee payments of more than 31,000 BD or equivalent (not counting director's remuneration);(ii) Own more than a 10% share or other ownership interest, directly or indirectly, in an entity that made to or received from theinvestment firm licensee payments of more than such amount;(iii) Act as a general partner, manager, director or officer of a partnership or company that made to or received from theinvestment firm licensee payments of more than such amount;(iv) Have any significant contractual or business relationship with theinvestment firm licensee which could be seen to materially interfere with the person's capacity to act in an independent manner,(c) Did not own directly or indirectly (including for this purpose ownership by any family member or related person) 5% or more of the shares of any type or class of theinvestment firm licensee ;(d) Was not engaged directly or indirectly as an auditor or professional advisor for theinvestment firm licensee ,(e) Was not an associate of a Director or a member of senior management of theinvestment firm licensee , and(f) Was not an associate of a Director, member of senior management or board member of theinvestment firm licensee’s controller.For purposes of this definition, the 'payments' referred to in paragraph (b)(i), (b)(ii) and (b) (iii) do not include monies received from dividends and investment accounts; reference to such payments only applies to contractual payments for services rendered to the licensee by the director or company concerned, or paid (or payable) by the concerned director or company to the licensee for services provided by the licensee.
Dividends and investment accounts are to be considered under item (b)(iv) of the definition.
For the purpose of the definition of "independent director":
(a) Where the term "family" or "family member or related persons" is used reference is made to: spouse, father, mother, son(s) or daughter(s); and(b) Where the term "associate" is used reference is made to:(i) Spouse, father, mother, son(s) or daughter(s); or(ii) A person who is an employee or partner.Amended: October 2020
Amended: July 2020
Amended: January 2012
Amended: October 2011
Added: January 2011Initial Capital Requirement
Initial capital requirements, as defined in Rule CA-1.2.7, are:
(a) ForCategory 1 investment firms , BD 1,000,000;(b) ForCategory 2 investment firms , BD 1,000,000 if undertaking the activity of safeguarding financial instruments (i.e. custodian), BD 250,000 in all other cases; and(c) ForCategory 3 investment firms , BD 125,000.Amended: January 2011
Amended: July 2007Insurance licensee
A person licensed under Volume 3 of the CBB Rulebook.
Amended: July 2007Investigator
An Investigator is a person appointed by the CBB under the authority of Article 121 of the CBB Law to carry out an investigation of the business of a licensee or listed company.
Added: Oct 09Investment adviser
A person who performs the function of arranging deals (on behalf of a
client ) infinancial instruments , and/or advising aclient onfinancial instruments (cf. Rule AU-1.2.13).Investment analyst
An employee of an
investment firm licensee who preparesinvestment research .Investment Business Code of Practice ('the Code')
The Investment Business Code of Practice contained in Chapter BC-2.
Investment consultant
See definition of
investment adviser above.Investment firm license
A license issued by CBB under Volume 4 of the CBB Rulebook.
Amended: July 2007Investment firm licensee
A person licensed under Volume 4 of the CBB Rulebook to undertake regulated investment business services.
Amended: July 2007Investment Management
“Investment management” shall mean managing investments or assets in accordance with mandates given by the
client , managing a portfolio of assets on a discretionary client-by-client basis where such investments include financial instruments, crypto-assets and other assets, and would include the activity of formation, origination and management of special purpose vehicles, trusts, investment limited partnerships, protected cell companies, collective investment undertakings and or other local or overseas domiciled legal vehicles.Added: October 2023Investment research
A document (other than a recommendation made to an individual
client ), distributed outside aninvestment firm licensee , which contains one or more of the following:(a) The results of research into an individualfinancial instrument ;(b) Analysis of factors likely to influence the future performance of an individualfinancial instrument or its issuer; and(c) Advice or recommendations based on those results or that analysis.Amended: January 2011
Amended: July 2007Islamic bank licensee
A person licensed under Volume 2 of the CBB Rulebook to undertake regulated Islamic banking services.
Amended: July 2007Islamic investment firm(s)
An
investment firm licensee , all of whose operations are conducted in compliance with Shar'ia principles.Amended: July 2007[ J ]
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[ K ]
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[ L ]
Lead Supervisor
In the context of groups containing regulated financial companies, the principal regulator supervising those financial companies on a consolidated basis.
Adopted: July 2007Licensed exchange(s)
"Licensed exchange" means an exchange licensed in respect of the operation of its
market in and from the Kingdom of Bahrain.Added: January 2011Licensed Principal
An
investment firm licensee that appoints anappointed representative (cf. Chapter GR-8).Licensees
Any person licensed by the CBB under any of the Volumes of the CBB Rulebook.
Amended: July 2007Listed Company
Any company whose securities are listed on the Stock Exchange according to Article 86 of Legislative Decree No. 64 of 2006 with respect to the Central Bank of Bahrain and Financial Institutions Law.
Added: July 2010[ M ]
Managing Director
Defined in Rule AU-1.2.9B. A Managing Director is a Director on the Board of a
licensee who:(a) Should be fully responsible for the executive management and performance of thelicensee , within the framework of delegated authorities set by the Board;(b) Must devote full-time working hours to thelicensee ; and(c) Must not be employed at any other firm.Amended: April 2011
Amended: January 2011
Added: Oct 09Mandates
Defined in Rule CL-4.1.1.
Market
"Market" means a place at which, or a facility (whether electronic or otherwise) by means of which, offers or invitations to sell, purchase or exchange
securities or futures contracts (including options and derivatives) regularly made on a centralised basis, being offers or invitations that are intended or may reasonably be expected to result, whether directly or indirectly, in the acceptance or making, respectively, of offers to sell, purchase or exchangesecurities or futures contracts (whether through that place or facility or otherwise).Added: January 2011Market Counterparty
(Deleted)
Deleted: Oct 09Minimum capital requirements (as defined in Paragraph CA-1.2.7)
(a) Category 1 investment firms: BD 1,000,000;(b) Category 2 investment firms: BD 1,000,000 if undertaking the activity of safeguarding financial instruments (i.e. custodian), BD 250,000 in all other cases; and(c) Category 3 investment firms: BD 125,000.Added: January 2011
[ N ]
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Non-executive director
Means any director who is not an
executive director Added: January 2011[ O ]
Operator(s)
In the context of a
collective investment undertaking ('CIU'),operator means a person undertaking the functions of establishing, operating or winding-up aCIU .Adopted: July 2007Options
An option is a contract giving the buyer the right, but not the obligation, to buy or sell any of the following at a specific price on or before a certain date:
(a) Currency of the Kingdom of Bahrain or any other country or territory;(b) Palladium, platinum, gold or silver; or other commodity;(c) Option to acquire or dispose of a financial instrument of the kind specified by this definition by virtue of the above.Amended: January 2011
Ordering Financial Institution
Refers to the financial institution which initiates the wire/crypto-asset transfer and transfers the funds/crypto-assets upon receiving the request for a wire/crypto-asset transfer on behalf of the originator.
Original term
(in respect of redeemable instruments including dated subordinated debt and redeemable preference shares) - the period of time between the date of issue and the earliest date that those instruments will mature or can be redeemed.
Added: January 2011Originator
Refers to the account holder who allows the wire/crypto-asset transfer from that account, or where there is no account, the natural or legal person that places the order with the ordering financial institution to perform the wire/crypto-asset transfer.
Overseas Category 1 investment firm
A
Category 1 investment firm , which is incorporated in an overseas jurisdiction and operates in the Kingdom of Bahrain through a branch licensed by the CBB.Overseas investment firm licensee
An
investment firm licensee incorporated in an overseas jurisdiction (and therefore is not aBahraini investment firm licensee ). The same naming convention applies to the various sub-categories of investment firm: e.g. a BahrainiCategory 1 investment firm is aCategory 1 investment firm that is incorporated in the Kingdom of Bahrain. See Paragraph AU-A.1.5; andBahraini investment firm licensee , above.[ P ]
Parent Undertaking
An undertaking or individual ('P'), which has the following relationship to another undertaking ('S'):
(i) P holds (alone or, under an agreement with other shareholders) a majority of the voting rights in S;(ii) P (alone or in conjunction with its other subsidiary undertakings), has the right to appoint or remove a majority of its board of directors;(iii) P has the right to exercise a dominant influence over S, either through provisions contained in S's memorandum or articles, or a control contract; or(iv) P is a parent undertaking of a parent undertaking of S.Amended: July 2007Personal account transaction
A transaction undertaken by an employee of an
investment firm licensee in afinancial instrument , for his own account.Politically Exposed Person ('PEP')
Foreign PEPs are individuals who are or have been entrusted with prominent public functions by a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials.
Domestic PEPs are individuals who are or have been entrusted domestically with prominent public functions, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials.
Persons who are or have been entrusted with a prominent function by an international organisation refers to members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions.
The definition of PEPs is not intended to cover middle ranking or more junior individuals in the foregoing categories.
Amended: July 2016
Amended: June 2025Professional client
(Deleted)
Deleted: Oct 09Property
Property of any description (including assets, rights, interests, and/or money).
Amended: July 2007Public Offering
An offer of securities to the general public. See Rule BC-2.3.7.
Amended: January 2013
Amended: July 2007[ Q ]
Qualified by Exception
A report issued by an appointed expert that is qualified and indicates that certain areas or issues remain unresolved or are unverifiable due to certain limitations imposed on the appointed experts' work. The report will clearly indicate the type and reason for exception and the action taken by the appointed experts had the mentioned limitation not been placed on their work.
Amended: October 2011
Added: October 2009Qualifying Custodian
Defined in Rule AU-1.4.35.
[ R ]
Real Time Promotion
Defined in Paragraph BC-2.3.13.
Registered administrator
Persons registered by BMA, and thus allowed to carry on the business of an administrator. See Section AU-1.3.
Registered persons
Refer to
registered administrators .Regulated banking services
Any of the regulated activities permitted to be undertaken by a
conventional bank licensee .Regulated investment services
Any of the following, as further defined in Section AU-1.4:
(a) Dealing infinancial instruments as principal;(b) Dealing infinancial instruments as agent;(c) Arranging deals infinancial instruments ;(d) Managingfinancial instruments ;(e) Safeguardingfinancial instruments (i.e. custodian);(f) Advising onfinancial instruments ; and(g) Operating acollective investment undertaking (i.e. anoperator ).Amended: January 2011
Amended: July 2007Regulated Islamic banking services
Any of the regulated activities permitted to be undertaken by an
Islamic bank licensee .Regulatory Capital
Capital elements that satisfy the regulatory criteria for admissibility, in the context of calculating compliance with
Regulatory Capital Requirements . Defined in Chapter CA-2.Regulatory Capital Requirement
Defined in Rule CA-1.2.2 for
Category 1 andCategory 2 investment firms , and in Rule CA-1.2.3 forCategory 3 investment firms .Relevant Authorities
For the purposes of Module FC, relevant authority refers to the authorities listed in Rule FC-4.3.2.
Amended: October 2014Relevant Operating Expenses
For the purposes of calculating a
licensee's annual CBB license fee,relevant operating expenses are defined as the total operating expenses of the licensee concerned, as recorded in the most recent audited financial statements available, excluding the following items:(a) Training costs;(b) Charitable donations;(c) CBB fees paid; and(d) Non-executiveDirectors' remuneration.Adopted: July 2007Remuneration
Means all types of compensation including but not limited to salary, fee and non-cash benefits such as grants of stock, stock options or pension benefits.
Added: January 2011Reporting Accountant
A Reporting Accountant is a person appointed by the CBB under the authority of Article 114 of the CBB Law, as an Inspector of the business of a
licensee orlisted company .Added: July 2010Representative office
A person who is licensed by the CBB to undertake only representative office functions:
(i) Gather financial, economic and commercial information;(ii) Carry out general promotional activities; and/or(iii) Provide general assistance of a non specific nature to resident and non residentclients of the overseas entity/group the office is representing.Such persons are not subject to Volume 4 of the CBB Rulebook, but are separately licensed and subject to the requirements contained in the relevant CBB's 'Standard Conditions and Licensing Criteria' (cf. AU-A.1.12).
Amended: July 2007Retail Client
Defined in Rule BC-2.2.8. A retail client means a client who is not classified as an
expert investor or anaccredited investor under Rules BC-2.2.9 and BC-2.2.1Amended: Oct 09Risk-based Capital Requirement(s)
Defined in Rule CA-1.2.8. The Risk-based Capital Requirement is the sum of a firm's Expenditure Requirement, Position Risk Requirement (PRR), Counterparty Risk Requirement (CRR), and Foreign Exchange Risk Requirement (FER).
Amended: July 2007[ S ]
Senior Manager/Management
Refers to individuals occupying the position of CEO or head of function.
Added: January 2011Shareholders
(a) In relation to a share which is represented by a bearer certificate, the person who holds the certificate; or(b) In relation to a share that is not represented by a bearer certificate, the person whose name is entered on the register in relation to the share.Amended: January 2011
Amended: July 2007Shares
A share or stock in the share capital of an enterprise, whether incorporated or unincorporated, but excluding units in
collective investment undertakings .Soft dollar agreement
An agreement in any form under which an
investment firm licensee receives goods or services in return forregulated investment services put through or in the way of another person.Specialised Licensee
A person licensed under Volume 5 of the CBB Rulebook (when issued). Until such time, a CBB licensee not licensed under any of Volume 1, 2, 3, 4 or 6 of the CBB Rulebook.
Amended: July 2007Subsidiary or Subsidiary undertaking
A company or other enterprise controlled by another company or enterprise (the parent or the holding company), including any other legal entity or other forms such as contractual or management agreements, where the licensee exercises a majority shareholding or has majority voting control by virtue of direct ownership or by proxy/nominee arrangements or such other control mechanism as determined by the CBB.
Amended: July 2013
Amended: Oct 09Swaps
A financial contractual agreement between two parties to exchange (swap) a set of payments that one party owns for a set of payments owned by the other party.
[ T ]
Terms of business
A statement in a durable medium of terms and conditions on which a firm will conduct
regulated investment services with or for aclient .Third Party Related Distribution Rules
Rules specified in Chapter CL-5.
Trilateral Meeting
A meeting between a
licensee , anappointed expert and the CBB.Amended: October 2011
Added: July 2010[ U ]
Ultimate Parent Undertaking
The highest parent investment firm undertaking of the investment firm licensee or the holding company whose predominant investment are shares of the investment firm(s) (wherever established) that is not itself the subsidiary of another undertaking.
Added: October 2015Underwrite/Underwriting
Is when a licensee(s) bears the risk of commitment to market or place all or part of the issue of a financial instrument issued by an unconnected party (the issuer), to investors, in return for a fee and within a pre-agreed upon timeframe. Underwriting includes a binding commitment by the licensee(s) to purchase the portion of the issue which remains unsubscribed for.
Added: October 2012Unsolicited Real Time Promotion
A
real time promotion in breach of Rule BC-2.3.12.[ V ]
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[ W ]
Warrant
Warrants are instruments that confer an entitlement to subscribe for shares, debenture and government and public securities. The rights conferred must be rights to 'subscribe' for the relevant investments. This means that they are rights to acquire the investments directly from the issuer of the investments and by way of the issue of new investments.
Wealth Management Advice
“Wealth management advice” shall mean advice in wealth management organisation, wealth management planning, administrative or financial wealth management, or coordination of the service providers in wealth management, monitoring or assessment of performances.
Added: October 2023Without delay
The phrase without delay means, ideally, within a matter of hours of a designation by the United Nations Security Council or its relevant Sanctions Committee (e.g. the 1267 Committee, the 1988 Committee, the 1718 Sanctions Committee or the 1737 Sanctions Committee). For the purposes of S/RES/1373(2001), the phrase without delay means upon having reasonable grounds, or a reasonable basis, to suspect or believe that a person or entity is a terrorist, one who finances terrorism or a terrorist organisation. In both cases, the phrase without delay should be interpreted in the context of the need to prevent the flight or dissipation of funds or other assets which are linked to terrorists, terrorist organisations, those who finance terrorism, and to the financing of proliferation of weapons of mass destruction, and the need for global, concerted action to interdict and disrupt their flow swiftly.
Added: October 2019[ X ]
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[ Y ]
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[ Z ]
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CBB Authorisation Forms
Form 1 Form 1 Application for a License
Please download the Form in PDF format.
[Deleted]
Deleted: July 2007[Deleted]
Deleted: July 2007Form 2 Application for Authorisation of Controller
Please download the Form in PDF format.
Form 3 Application for Approved Person status
Please download the Form in PDF format.
Form 4 Application for Registration
Please download the Form in PDF format.
Form 4 C4 Investment Firms Authorisation
Please download the Form in PDF format.
Form 5 Application for a License
Please download the Form in PDF format.
CBB Reporting Forms
QPR: Quarterly Prudential Return
Please download the Form in MS Excel format.
AGR: Annual Group Return
This form is currently under development.
STR: Suspicious Transaction Report
Please download the Form in PDF format.
ALF: Annual License Fee
Please download the Form in PDF format.
Direct Debit Authorisation Form
Please download the Form in PDF format.
RM-1 Cyber-Security Incident Report
Please download the Form in PDF format.
SAPR: Semi-Annual Prudential Return
Please download the Form in MS Excel format.
Supplementary Information
CA CA: Capital Adequacy
CA-1: Bahrain Public Sector Entities, International Organisations & Multilateral Development Banks
Click here to download the Appendix in PDF format.
CL: CL: Client Assets
CL-(i): Agreed Upon Procedures
Click here to download the Appendix in PDF format.
BR: BR: CBB Reporting
BR-1: Appointed Experts Report
Click here to download in PDF format.
BR-2 Requirements for Report on Private Placements
Click here to download in PDF format.
FC: Financial Crime
FC-(i): Amiri Decree Law No. 4 (2001)
Click here to download the Law in PDF format.
FC-(i)(a) Decree Law No. 54 (2006)
Click here to download the Law in PDF format.
FC-(i)(b): Decree Law No. 58 (2006)
Click here to download the Law in PDF format.
FC-(ii): UN Security Council Resolution 1373 (2001)
Click here to download the Law in PDF format.
FC-(iii): UN Security Council Resolution 1267 (1999)
Click here to download the Law in PDF format.
FC-(iv): Example of Suspicious Transaction
Click here to download the Examples in PDF format.
FC-(v): Guidance Notes
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BC: BC: Business Conduct
BC-1 Brokerage Fees Scale
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PD: Public Disclosure
Appendix PD-1 Instructions for Publication of Press Releases
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Quarterly Updates
January 2024
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October 2011
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July 2010
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July 2007
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July 2006
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Ad-hoc Communications
Cyber Security Requirements_17 July 2025
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New Stablecoin Issuance and Offering Module_2 July 2025
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GCC Fund Passporting Regime_4 May 2025
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Appointment of Data Protection Guardian_24 March 2025
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Remote Visual Notarisation Service_13 March 2025
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New Identity Card Launch_10 March 2025
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New Fit and Proper Requirements Module_3 March 2025
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National e-KYC_17 February 2025
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Resolution No. (43) of 2024 Regarding the Conditions and Licensing Procedures of Undertaking Trustee Services_19 November 2024
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GCC Funds Passporting Regime_2 January 2025
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Tax on Multinational Enterprises (MNEs)_16 September 2024
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Amendment to the Central Bank of Bahrain's Market Making Framework & Introduction of an Alternative Market Making Mechanism by Bahrain Bourse_12 August 2024
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Amendments to Authorisation Module (Module AU) and Financial Crime Module (Module FC)_14 January 2024
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Amendments to Customer Due Diligence (CDD) Requirements_7 January 2024
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Environmental, Social and Governance Requirements Module_5 November 2023
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Resolution No. (54) of 2023 with Respect to issuing a Regulation on the Rules and Procedures of Mergers and Acquisitions of Shares of Companies Listed on Exchanges Licensed by the Central Bank of Bahrain_1 November 2023
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Reliance on Third Parties for Customer Due Diligence_16 October 2023
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Issuance of the Family Office Services Module_14 Septerber 2023
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Amendments to Customer Due Dillgence (CDD) and Customer Onboarding Requirements_14 September 2023
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Sub: Submission of CIUs Application_22 June 2023
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Revised High Level Controls Module (Module HC)_4 June 2023
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Government Employee Certificates issued through the National Electronic Portal_30 March 2023
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Amendments to the Capital Adequacy Module (Module CA)_27 February 2023
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Trade based Money Laundering – Guidance for all Financial Institutions_16 February 2023
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Amendments to the Financial Crime Module (Module FC) and Anti-Money Laundering and Combating Financial Crime Module (Module AML)_17 January 2023
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Re: Judicial Banking Orders System (JBOS)_06 November 2022
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Amendments to Cybersecurity Requirements_18 August 2022
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Amendments to Outsourcing Requirements
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Reporting of Financial Impact of Covid-19_9 May 2022
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Subject: Replacement of the Traditional Hard-Copy Residency Permits with Digital Residency Permits_31 March 2022
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Amendments to Requirements on Reporting Cyber Security Incidents Investment Firm Licensees_28 March 2022
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Issuance of the new Collective Investment Undertakings Module_24 March 2022
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Re: Climate-Related Risks_14 March 2022
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Amendments to Take-overs, Mergers and Acquisitions (TMA) Module_19 January 2022
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Subject: Climate-Related Risks_8 November 2021
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Enhancements to Cyber Security Requirement_1 Nov 2021
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Amendments to the Financial Crime Module (Module FC)_28 October 2021
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Issuance of Regulations on New Category 4 Investment Firm License_16 September 2021
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Draft Executive Resolutions issued by the Personal Data Protection Authority_26 April 2021
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Agreed-Upon Procedures of the Financial Crime ("FC") Module_28 February 2021
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Upcoming Annual General Meetings_14 February 2021
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Re: CBB Rules on Blocking/Unblocking of Customer Accounts_23 December 2020
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Re: Virtual Assets - Red Flags and Indicators_30 November 2020
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Re: Combating the Financing of Terrorism - Guidance for All Financial Institutions_17 November 2020
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Re: Proof of Residency Permit__29 September 2020
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Re: Provision of Financial Services on a Non-discriminatory Basis_26 Aug 2020
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Reporting of Financial Impact of COVID-19_14 July 2020
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Amendments to Authorisation (AU) Module - Volume 4_5 July 2020
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Re: Money Laundering & Terrorist Financing Risks & Practices during Covid-19_27 May 2020
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Amendments to the Financial Crime (FC) and High-Level Controls (HC) Modules_7 May 2020
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Directive Automatic Exchange of Information ("AEOI") - Common Reporting Standard ("CRS") and Foreign Account Tax Compliance Act ("FATCA") Reporting Window_16 April 2020
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Webinar on Principles and Practices of Real Estate Valuation in the Financial Services Sector_13 April 2020
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Additional COVID-19 Precautionary Measures_8 April 2020
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Agreed Upon Procedures for Financial Crime Module_1 April 2020
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Upcoming General Meetings_19 March 2020
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Instructions for Publication of Press Releases Concerning Financial Results_15 January 2020
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Financial Reporting for VAT purposes_13 January 2020
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Issuance of the Amended Module TMA -Volume 6_2 October 2019
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Supplementary Information Appendix FC-(vi) Agreed-upon Procedures for fulfilling the reporting requirements in Compliance with FC Module (Financial Crime)_30 July 2019
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Agreed Upon Procedures for Financial Crime (FC) Module_30 July 2019
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Issuance of the Digital Financial Advice Rules_28 March 2019
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Exposure to controllers_25 March 2019
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e-KYC Project Implementation_7 March 2019
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Regulations relating to 'Crypto-Assets'_25 February 2019
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Brokerage Fees in Bahrain_31 January 2019
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Agreed Upon Procedures for Financial Crime (FC) Module_16 January 2019
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CBB Regulatory Policy Initiatives for Investment Firms for the year 2019_3 January 2019
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VAT and Financial Services_25 December 2018
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Re: Financial Penalties_15 April 2018
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Amendment to the Regulatory Sandbox Framework_28 August 2017
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Registration of Expatriate Staff with the Labour Market Regulatory Authority (LMRA)_27 July 2017
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Protected Cell Companies_22 June 2017
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Investment Limited Partnerships_22 June 2017
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Trust Registration and Amendment Form_22 June 2017
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Directive Common Reporting Standards (CRS)_30 January 2017
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Implementation of Resolution No. (59) of 2011 — Registration of Pledges and Liens on Securities — and its amendment Resolution No. (30) of 2015_11 January 2017
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Onsite Inspection Process_10 January 2017
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Newly Issued Laws — Protected Cell Companies and Investment Limited Partnerships_6 November 2016
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Trust Law_6 November 2016
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New Appointment Notification_7 September 2016
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Amendments to the Central Bank and Financial Institutions Law No. (64) of the year 2006_29 December 2015
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Women in the Financial and Banking Sector 2015_31 March 2015
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Women in the Financial and Banking Sector_15 March 2015
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Court Actions Taken Against Customers_16 February 2015
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Changes in the Current Smart ID Cards_27 November 2014
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Discriminatory Service Treatment Not Allowed_11 March 2014
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Foreign Account Tax Compliance Act (FATCA)_29 August 2013
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Promotion of and participation in educational scholarships and bursaries by licensees of the CBB_3 July 2013
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Suspicious Transaction Reports Online System (STRs)_25 June 2013
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Electronic Submission of Returns and Analysis of Data (ESRAD)_20 May 2013
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The official adoption of the GCC States Identity Card_27 March 2013
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Foreign Account Tax Compliance Act (FACTA)_19 February 2013
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Change in Due Date and Payment for CBB Annual License Fees_2 December 2012
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Submission of Audited Financial Statements_1 November 2012
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Delivery of Date Sensitive Documents at the CBB
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Investment Business Firm Licensees - Business Card Requirements
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Volume 4 Launch Letter
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Archived Part A
HC HC High Level Controls [deleted]
Chapter HC-A Chapter HC-A Introduction [deleted]
HC-A.1 HC-A.1 Purpose [deleted]
Executive Summary [deleted]
HC-A.1.1 [deleted]
HC-A.1.2 [deleted]
HC-A.1.3 [deleted]
Legal Basis [deleted]
HC-A.1.4 [deleted]
HC-A.1.5 [deleted]
HC-A.2 HC-A.2 Module History [deleted]
Evolution of the Module [deleted]
HC-A.2.1 [deleted]
HC-A.2.2 [deleted]
Superseded Requirements [deleted]
HC-A.2.3 [deleted]
HC-A.2.4 [deleted]
Chapter HC-B Chapter HC-B Scope of Application [deleted]
HC-B.1 HC-B.1 License Categories [deleted]
HC-B.1.1 [deleted]
HC-B.1.2 [deleted]
HC-B.1.3 [deleted]
HC-B.2 HC-B.2 Branches, Subsidiaries and Affiliates [deleted]
Bahraini investment firm licensees [deleted]
HC-B.2.1 [deleted]
HC-B.2.2 [deleted]
HC-B.2.3 [deleted]
Overseas investment firm licensees [deleted]
HC-B.2.4 [deleted]
HC-B.2.5 [deleted]
Chapter HC-1 Chapter HC-1 The Board [deleted]
HC-1.1 HC-1.1 Functions and Responsibilities [deleted]
General Requirements [deleted]
HC-1.1.1 [deleted]
HC-1.1.2 [deleted]
Specific Requirements [deleted]
HC-1.1.3 [deleted]
HC-1.1.4 [deleted]
HC-1.1.5 [deleted]
HC-1.1.6 [deleted]
HC-1.1.7 [deleted]
HC-1.1.8 [deleted]
HC-1.1.9 [deleted]
HC-1.1.10 [deleted]
HC-1.1.11 [deleted]
HC-1.1.12 [deleted]
HC-1.1.13 [deleted]
HC-1.1.14 [deleted]
HC-1.1.15 [deleted]
HC-1.2 HC-1.2 Composition [deleted]
HC-1.2.1 [deleted]
HC-1.2.2 [deleted]
HC-1.2.3 [deleted]
HC-1.2.4 [deleted]
HC-1.2.5 [deleted]
HC-1.2.6 [deleted]
HC-1.2.7 [deleted]
HC-1.2.7A [deleted]
HC-1.2.8 [deleted]
HC-1.2.9 [deleted]
HC-1.2.10 [deleted]
HC-1.2.11 [deleted]
HC-1.2.12 [deleted]
HC-1.2.13 [deleted]
HC-1.2.14 [deleted]
HC-1.3 HC-1.3 Meetings and Attendance [deleted]
HC-1.3.1 [deleted]
HC-1.3.2 [deleted]
HC-1.3.3 [deleted]
HC-1.3.4 [deleted]
HC-1.3.5 [deleted]
HC-1.3.6 [deleted]
Chapter HC-2 Chapter HC-2 Other High-level Controls [deleted]
HC-2.1 HC-2.1 Chief Executive / General Manager / Managing Director [deleted]
HC-2.1.1 [deleted]
HC-2.1.2 [deleted]
HC-2.1.3 [deleted]
HC-2.1.4 [deleted]
HC-2.1.5 [deleted]
HC-2.1.6 [deleted]
HC-2.1.7 [deleted]
HC-2.2 HC-2.2 Segregation of Duties [deleted]
HC-2.2.1 [deleted]
HC-2.2.2 [deleted]
HC-2.2.3 [deleted]
HC-2.2.4 [deleted]
HC-2.3 HC-2.3 Internal Audit [deleted]
HC-2.3.1 [deleted]
HC-2.3.2 [deleted]
HC-2.3.3 [deleted]
HC-2.3.4 [deleted]
HC-2.3.5 [deleted]
HC-2.3.6 [deleted]
HC-2.3.7 [deleted]
HC-2.3.8 [deleted]
HC-2.3.9 [deleted]
HC-2.3.10 [deleted]
HC-2.3.11 [deleted]
HC-2.4 HC-2.4 Compliance [deleted]
HC-2.4.1 [deleted]
HC-2.4.2 [deleted]
HC-2.4.3 [deleted]
HC-2.4.4 [deleted]
HC-2.5 HC-2.5 Remuneration Policies [deleted]
HC-2.5.1 [deleted]
HC-2.5.2 [deleted]
HC-2.5.3 [deleted]
HC-2.5.4 [deleted]
HC-2.6 HC-2.6 Corporate Ethics [deleted]
HC-2.6.1 [deleted]
HC-2.6.2 [deleted]
HC-2.6.3 [deleted]
HC-2.6.4 [deleted]
HC-2.6.5 [deleted]
Chapter HC-3 Chapter HC-3 Annual Certification [deleted]
HC-3.1 HC-3.1 Annual Board Review and Certification [deleted]
HC-3.1.1 [deleted]
HC-3.1.2 [deleted]
HC-3.1.3 [deleted]
HC-3.1.4 [deleted]
HC-3.2 HC-3.2 Scope of the Review [deleted]
HC-3.2.1 [deleted]
HC-3.2.2 [deleted]
GR GR General Requirements
GR-5.3 GR-5.3 Suitability of Controllers
GR-5.3.3 [Replaced 1 October 2015]
Natural persons who intend to take a stake of 20% or more in a
Bahraini investment firm licensee are subject to enhanced scrutiny, given the CBB's position ashome supervisor of suchlicensees . The level of scrutiny and the expected compliance with the above standards become more onerous as the level of proposed ownership increases. Natural persons will not normally be approved to take majority control (i.e. a stake of 50% or more of either the capital or voting rights) of aBahraini investment firm licensee .Amended: October 2011
Amended: October 2009
Amended: April 2008
Amended: July 2007GR-5.3.5 [Replaced 1 October 2015]
Legal persons who intend to take a stake of 20% or more in a
Bahraini investment firm licensee are subject to enhanced scrutiny, given the CBB's position ashome supervisor of suchlicensees . The level of scrutiny and of expected compliance with the above standards becomes more onerous as the level of proposed ownership increases. In particular, unregulated legal persons will not normally be approved to take majority control (i.e. a stake of 50% or more of either the capital or voting rights) of aBahraini investment firm licensee , unless the proposed parent is a well-established business (that satisfies the above conditions), and its ownership would not pose undue conflicts of interest. Regulated legal persons will normally only be approved to take majority control where – in addition to the above conditions – the resulting group would be subject to effective consolidated supervision in accordance with relevant international standards; and thehome supervisor of the parent entity has agreed to the proposed acquisition, as well as to the sharing of relevant prudential information for supervisory purposes (expressed, if necessary, through the signing of a Memorandum of Understanding between the CBB and thehome supervisor , setting out their respective supervisory responsibilities).Amended: October 2011
Amended: October 2009
Adopted: July 2007GR-5.3.6 [Replaced 1 October 2015]
The CBB may contact references and supervisory bodies in connection with any information provided to support an application for
controller . The CBB may also ask for further information, in addition to that provided in the Form 2, if required to satisfy itself as to the suitability of the applicant.Amended: January 2011
Adopted: July 2007HC HC High-Level Controls Module
HC-A HC-A Introduction
HC-A.1 HC-A.1 Purpose
Executive Summary
HC-A.1.1
This Module presents requirements that have to be met by
investment firm licensees with respect to:(a) Corporate governance principles issued by the Ministry of Industry and Commerce as The Corporate Governance Code; and(b) Related high-level controls and policies.January 2011HC-A.1.2
The Principles referred to in this Module are in line with the Principles relating to the Corporate Governance Code issued by the Ministry of Industry and Commerce.
January 2011HC-A.1.3
The purpose of the Module is to establish best practice corporate principles in Bahrain, and to provide protection for investors and other company stakeholders through compliance with those principles.
January 2011HC-A.1.4
Whilst the Module follows best practice, it is nevertheless considered as the minimum standard to be applied. This Module also includes additional rules and guidance issued by the Central Bank of Bahrain ('the CBB') prior to the publication of the Code and previously contained in Module HC.
January 2011Structure of this Module
HC-A.1.5
This Module follows the structure of the Corporate Governance Code and each Chapter deals with one the nine fundamental Principles of corporate governance. The numbered directives included in the Code are Rules for purposes of this Module. Recommendations under the Code have been included as guidance. However, where the previous version of Module HC had a similar recommendation as a Rule, the Module retains this Paragraph as a Rule.
January 2011HC-A.1.6
The Module also incorporates other high-level controls and policies that apply in particular to
investment firm licensees .January 2011HC-A.1.7
All references in this Module to 'he' or 'his' shall, unless the context otherwise requires, be construed as also being references to 'she' and 'her'.
January 2011HC-A.1.8
This Module contains a mixture of Rules and Guidance (See Module UG-1.2 for a detailed explanation of Rules and Guidance). All Rules in Module HC must be complied with by all
investment firm licensees .Amended: July 2015
January 2011The Comply or Explain Principle for Guidance Paragraphs
Monitoring and Enforcement of Module HC
HC-A.1.9
Disclosure and transparency are underlying principles of Module HC. Disclosure is crucial to allow outside monitoring to function effectively. This Module looks to a combined monitoring system relying on the Board, the
investment firm licensee's shareholders and the CBB.January 2011HC-A.1.10
It is the Board's responsibility to see to the accuracy and completeness of the
investment firm licensee's corporate governance guidelines and compliance with Module HC. Failure to comply with this Module is subject to enforcement measures as outlined in Module EN (Enforcement).January 2011Legal Basis
HC-A.1.11
This Module contains the CBB's Directive (as amended from time to time) relating to high-level controls 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
investment firm licensees (including theirapproved persons ).Amended: July 2015
January 2011HC-A.1.12
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
January 2011Effective Date
HC-A.1.13
This updated Module is effective on 1st January 2011. All
investment firm licensees to which Module HC applies should be in full compliance by the financial year end 2011. At everyinvestment firm licensee's annual shareholder meeting held after 1st January 2011, corporate governance should be an item on the agenda for information and any questions from shareholders regarding theinvestment firm licensee's governance. Where possible, theinvestment firm licensee should also have corporate governance guidelines in place at that time and should have a "comply or explain" report as described in Paragraph HC-A.1.8.January 2011HC-A.2 HC-A.2 Module History
HC-A.2.1
This Module was first issued in July 2007. Following the issuance of the Corporate Governance Code by the Ministry of Industry and Commerce in March 2010, the Module was amended in January 2011 to be in line with the new Code and to include previous requirements that were in place in the originally issued Module HC. 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.
Amended: July 2015
January 2011HC-A.2.2
A list of recent changes made to this Module is detailed in the table below:
Module Ref. Change Date Description of Changes HC-1 to HC-9 01/2011 Amendments due to introduction of new MOIC Corporate Governance Code. HC-1.4 04/2011 Amendment made to reflect new Rules on attendance of Directors at Board of Directors meetings. HC-6.3.4 04/2011 Added description of compliance officer's duties. HC-6.5.3 04/2011 Guidance added dealing with the compliance function. HC-B.2.2 01/2012 Clarified language related to corporate governance. HC-1.2.5 and HC-1.6.3 01/2012 Clarified that the chairman of the Board may delegate specific duties dealt with in these Paragraphs. HC-1.5.7 and HC-1.5.7A 01/2012 Clarified rule and guidance on the chairman of the Board. HC-1.10.1 01/2012 Deleted last sentence. HC-5.5.6 01/2012 Amended Paragraph. Appendix B 01/2012 Disclosure to shareholders amended. HC-1.9.5 07/2012 Clarified guidance. Appendix A 07/2012 Clarified requirement for written report on performance evaluation for Audit Committee. HC-7.2.5 and HC-10.7.6 10/2012 Clarified guidance on election of board members. Appendix A 10/2012 Included reference to compliance under Committee Duties and Responsibilities. HC-2.2.3 and HC-2.4.1 01/2013 Clarified scope of application for Rules. HC-3.2.1 01/2013 Clarified guidance on appointment of internal auditor. HC-1.3.7 04/2013 Clarified Rule on limits on number of directorships. HC-2.2.4 and HC-2.2.6 10/2013 Removed reference to appointed representatives. HC-1.3.2 and HC-10.1.8 10/2014 Corrected typo to be consistent with other Volumes of the CBB Rulebook. HC-9.2.1 10/2014 Clarified language for Category 1 and 2 Islamic investment firms. HC-10.9.2 10/2014 Amended guidance for Category 3 Islamic investment firms to appoint a minimum of one Shari'a advisor or scholar instead of having a Shari'a Supervisory Board. HC-A.1.8 07/2015 Clarified the application of the comply or explain principle. HC-6.4.2 07/2015 Changed Guidance to Rule so that the internal audit function must be independent and cannot be combined with any other function. HC-2.3.5 and HC-10.2.5A 04/2016 Added a requirement (or guidance, based on the category of license) for the investment firm licensee to have in place a board approved policy on the employment of relatives of approved persons. HC-2.4.2A and HC-10.2.6A 04/2016 Added the requirement (or guidance, based on the category of license) to disclose to the board on annual basis relatives of any approved persons occupying controlled functions. HC-2.3, HC-2.4 and HC-10.2 07/2016 Clarified application of Rules (or guidance, based on the category of license) for overseas licensees. HC-7.2.1(j) and HC-10.7.2(j) 10/2017 Added requirement on the invitation of a CBB representative for any shareholders' meetings. HC-1.2.2 & HC-1.11.5 01/2020 Amended Paragraphs on policy and procedures approval. HC-5.3.3 04/2020 Added a new Paragraph on KPIs compliance with AML/CFT requirements. HC-1.5.8 04/2021 Amended Paragraph on independent directors. HC-1.5.10 04/2021 Added a new Paragraph on Directors Independence status. HC-1.5.11 04/2021 Added a new Paragraph on termination of Board membership of a retired, terminated CEO. HC-4.2.3 04/2021 Added a new Paragraph on notification on any change in board categorisation. HC-1.11.2 – HC-1.11.4 01/2022 Deleted Paragraphs. HC-1.11.6 01/2022 Deleted Paragraph. HC-A.2.3
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
January 2011HC-B HC-B Scope of Application
HC-B.1 HC-B.1 License Categories
HC-B.1.1
The contents of this Module — unless otherwise stated — apply to
Category 1 andCategory 2 investment firm licensees , incorporated under the Bahrain Commercial Companies Law ('the Company Law').January 2011HC-B.1.2
For
Category 3 investment firms , the applicable Guidance Paragraphs are included in Chapter HC-10. The Comply or Explain Principle (see Paragraph HC-A.1.8) applies to the content of Chapter HC-10.January 2011HC-B.1.3
Overseas investment firm licensees must satisfy the CBB that equivalent arrangements are in place at theparent entity level, and that these arrangements provide for effective high-level controls over activities conducted under the Bahrain license.January 2011HC-B.1.4
In assessing compliance with Paragraph HC-B.1.3, the CBB will take into account regulatory requirements applicable to the
parent entity, as well as the governance and systems and controls arrangements actually implemented by theparent entity and applied to the Bahrain operation. With the exception of specific requirements that explicitly apply tooverseas investment firm licensees (i.e. Paragraphs HC-B.1.3),overseas investment firm licensees should consider the remaining contents of this Chapter as guidance, in judging whether high-level controls applied to the branch satisfy HC-B.1.3.January 2011HC-B.2 HC-B.2 Branches, Subsidiaries and Affiliates
HC-B.2.1
Bahraini investment firm licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to theirbranches , whether located inside or outside the Kingdom of Bahrain, such that these are also subject to effective high-level controls. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.January 2011HC-B.2.2
Bahraini investment firm licensees must satisfy the CBB thatregulated investment services conducted insubsidiaries and other group members are subject to the same or equivalent arrangements for ensuring effective corporate governance over their activities.Amended: January 2012
January 2011HC-B.2.3
Where an
investment firm licensee is unable to satisfy the CBB that itssubsidiaries and other group members are subject to the same or equivalent arrangements, the CBB will assess the potential impact of risks — both financial and reputational — to the licensee arising from inadequate high-level controls in the rest of the group of which it is a member. In such instances, the CBB may impose restrictions on dealings between the licensee and other group members. Where weaknesses in controls are assessed by the CBB to pose a major threat to the stability of the licensee, then its authorisation may be called into question.January 2011HC-1 HC-1 The Board
HC-1.1 HC-1.1 Principle
HC-1.1.1
All
Bahraini investment firm licensees must be headed by an effective, collegial and informed Board of Directors ('the Board').January 2011HC-1.2 HC-1.2 Role and Responsibilities
HC-1.2.1
All directors must understand the Board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:
(a) The Board's role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and(b) The Board's fiduciary duties of care and loyalty to theinvestment firm licensee and the shareholders (see HC-2.1).January 2011HC-1.2.2
The Board's role and responsibilities include but are not limited to:
(a) Approving and reviewing at least annually the overall business performance and strategy for theinvestment firm licensee ;(b) Reviewing regularly the implementation of the strategy and operational performance;(c) Causing financial statements to be prepared which accurately disclose theinvestment firm licensee's financial position;(d) Monitoring management performance;(e) Reviewing regularly the level of risk;(f) Approving and reviewing at least annually systems and controls framework (including policies);(g) Convening and preparing the agenda for shareholder meetings;(h) Monitoring conflicts of interest and preventing abusive related party transactions;(i) Assuring equitable treatment of shareholders including minority shareholders; and(j) Setting out clearly and reviewing on a regular basis who has authority to enter the licensee into contractual obligations.January 2020
January 2011HC-1.2.3
With respect to Subparagraph HC-1.2.2(j), the Board should set a materiality threshold so that contractual obligations above this set threshold are regularly reported to the Board. In setting the materiality threshold, the Board will consider the financial impact the contractual obligation may have in relation to its capital.
January 2011HC-1.2.4
The directors are responsible both individually and collectively for performing these responsibilities and must have sufficient expertise as a Board to understand the important issues relating to operation and control of the
investment firm licensee . Although the Board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place. This statement must be clearly communicated to Board members andsenior management .January 2011HC-1.2.5
When a new director is inducted, the chairman of the Board, or the licensee's legal counsel or compliance officer, or other individual delegated by the chairman of the board, should review the Board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC (see also HC-4.3.1).
Amended: January 2012
January 2011HC-1.2.6
The
investment firm licensee should have a written appointment agreement with each director which recites the directors' powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, hisremuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.January 2011HC-1.2.7
The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.
January 2011Additional Guidance
HC-1.2.8
In assessing the
licensee's strategic plans (see Paragraph HC-1.2.2), the CBB would expect the Board to address thelicensee's current and future aspirations with respect to its position in the market place, its size, products, value and other key aspirations that would be considered important by investors. Furthermore, the Board should demonstrate that it is able to identify proactively and understand the significant risks that the licensee faces in achieving its business objectives. A description of thelicensee's strategy should be included in the annual financial statements.January 2011HC-1.2.9
In assessing the management framework (see Paragraph HC-1.2.2), the CBB would expect the Board to have effective policies and processes in place for:
(a) Ensuring a formal and transparent Board nomination process;(b) Appointingsenior managers , and ensuring that they have the necessary integrity, technical and managerial competence, and experience;(c) Overseeing succession planning, and minimizing undue reliance on key individuals;(d) Reviewing keysenior management and Board remuneration packages and ensuring such packages are consistent with the corporate values and strategy of thelicensee and encourage prudent risk taking;(e) Monitoring and evaluating management's performance in implementing agreed strategy and business plans, and ensuring appropriate resources are available; and(f) Approving budgets and reviewing performance against those budgets.January 2011HC-1.2.10
In assessing the systems and controls framework (see Paragraph HC-1.2.2), the CBB would expect the Board to be able to demonstrate that the
licensee's operations, individually and collectively:(a) Are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of thelicensee's activities. These should pro-actively identify as well as monitor risk. The systems should produce information on a timely basis, and in a form and quality appropriate to the needs of the different recipients;(b) Are supported by an appropriate control environment. The risk management and financial reporting functions must be independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas; and(c) Make effective use of the work of internal and external auditors.January 2011HC-1.3 HC-1.3 Composition
HC-1.3.1
The Memorandum and Articles of Association of
Bahraini investment firm licensees must adequately set out procedures for the appointment, removal and retirement ofdirectors .January 2011HC-1.3.2
The Board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints. The Board should recommend changes in Board size to the shareholders when a needed change requires amendment of the
investment firm licensee's Memorandum of Association.Amended: October 2014
January 2011HC-1.3.3
It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. CBB also expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities as
Directors .January 2011HC-1.3.4
Potential
non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. The Nominating Committee should regularly review the time commitment required from eachnon-executive director and should require eachnon-executive director to inform the Committee before he accepts any Board appointments to another company. One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.January 2011HC-1.3.5
To fulfil its responsibilities outlined in Section HC-1.2, the Board of
Bahraini investment firm licensees must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting newdirectors to replace long-standing members or those members whose contributions to thelicensee or its committees is not adequate.January 2011HC-1.3.6
To demonstrate compliance with Rule HC-1.3.5, the Board should be able to demonstrate that it regularly considers (e.g. every one or two years) the mix of executive, non-executive and independent non-executive
Directors , and skills and experience, that it requires. See also Paragraph HC-1.3.2.January 2011HC-1.3.7
A Board member may have a maximum of two Directorships of financial institutions inside Bahrain. However, two Directorships of
investment firm licensees would not be permitted.Investment firm licensees may approach the CBB for exemption from this limit where the Directorships concern financial institutions within the same group.Amended: April 2013
January 2011HC-1.3.8
The appointment of Board members is conditional on the approval of the CBB (See Section AU-1.2).
January 2011HC-1.4 HC-1.4 Decision Making Process
HC-1.4.1
The Board must be collegial and deliberative, to gain the benefit of each individual director's judgment and experience.
January 2011HC-1.4.2
The chairman must take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made.
January 2011HC-1.4.3
The Board must meet frequently but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.
January 2011HC-1.4.4
Individual board members must attend at least 75% of all Board meetings in a given financial year to enable the Board to discharge its responsibilities effectively (see table below). Voting and attendance proxies for board meetings are prohibited at all times.
Meetings per year 75% Attendance requirement 4 3 5 4 6 5 7 5 8 6 9 7 10 8 Amended: April 2011
January 2011HC-1.4.4A
The absence of Board members at Board and committee meetings must be noted in the 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 95% of scheduled meetings this year).
Added: April 2011
HC-1.4.4B
In the event that a Board member has not attended at least 75% of Board meetings in any given financial year, the
investment firm licensee must immediately notify the CBB indicating which member has failed to satisfy this requirement, his level of attendance and any mitigating circumstances affecting his non-attendance. The CBB shall then consider the matter and determine whether disciplinary action, including disqualification of that Board member pursuant to Article 65 of the CBB Law, is appropriate. Unless there are exceptional circumstances, it is likely that the CBB will take disciplinary action.Added: April 2011
HC-1.4.5
To meet its obligations under Rule HC-1.4.3 above, the Board should meet preferably no less than four times per year. The CBB recommends that meetings should take place once every quarter to address the Board's responsibilities for management oversight and performance monitoring. Furthermore, Board rules should require members to step down if they are not actively participating in Board meetings. Board members are reminded that non attendance at board meetings does not absolve them of their responsibilities as directors. It is important that each individual director should allocate adequate time and effort to discharge his responsibilities. All Directors are expected to contribute actively to the work of the Board in order to discharge their responsibilities and should make every effort to attend board meetings where major issues are to be discussed.
Investment firm licensees are encouraged to amend their Articles of Association to provide for telephonic and videoconference meetings. Participation in board meetings by means of video or telephone conferencing is regarded as attendance and may be recorded as such.Amended: April 2011
January 2011HC-1.4.6
At least half the Board meetings of
Bahraini investment firm licensees in any twelve-month period must be held in the Kingdom of Bahrain.January 2011HC-1.4.7
The chairman must ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each Board meeting and when necessary between meetings. All directors must receive the same Board information. At the same time, directors have a legal duty to inform themselves and they must ensure that they receive adequate and timely information and must study it carefully.
January 2011HC-1.4.8
The Board must maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.
January 2011HC-1.5 HC-1.5 Independence of Judgment
HC-1.5.1
The Board must ensure that it has sufficient non-executive and
independent non-executive directors (in addition to its Chairman), in order to provide sufficient independent scrutiny of management.January 2011HC-1.5.2
In the case of a
Bahraini investment firm licensee , which is part of an overseas group, where there is sufficient independent scrutiny of the operations of the firm on a group wide basis, the CBB will consider exempting the licensee from the independence requirements of Paragraph HC-1.5.1.January 2011HC-1.5.3
Every director must bring independent judgment to bear in decision-making. No individual or group of directors must dominate the Board's decision-making and no one individual should have unfettered powers of decision.
January 2011HC-1.5.4
Executive directors must provide the Board with all relevant business and financial information within their cognizance, and must recognise that their role as a director is different from their role as an officer.January 2011HC-1.5.5
Non-executive directors should be fully independent of management and should constructively scrutinise and challenge management including the management performance ofexecutive directors .January 2011HC-1.5.6
At least half of an
investment firm licensee's Board should benon-executive directors and at least three of those persons should beindependent directors. (Note the exception for controlled companies in Paragraph HC-1.6.2 and for possible exemption under Paragraph HC-1.5.2).January 2011HC-1.5.7
The chairman of the Board should be an
independent director so that there will be an appropriate balance of power and greater capacity of the Board for independent decision making.Amended: January 2012
January 2011HC-1.5.7A
The chairman and/or deputy chairman must not be the same person as the CEO.
Added: January 2012HC-1.5.8
The Board must review the independence of each director at least annually in light of interests disclosed by them. Each
independent director must provide the Board with all necessary and updated information for this purpose.Amended: April 2021
January 2011HC-1.5.9
To facilitate free and open communication among
independent directors , each Board meeting should be preceded or followed with a session at which onlyindependent directors are present, except as may otherwise be determined by theindependent directors themselves.January 2011HC-1.5.10
Where an independent director has served three consecutive terms on the board, such director will lose his/her independence status and must not be classified as an independent director if reappointed.
Added: April 2021HC-1.5.11
Where a Chief Executive Officer of an
investment firm licensee , who is also a Board member, no longer occupies the CEO position, whether due to resignation, retirement or termination, his/her Board Membership must also be immediately terminated.Added: April 2021HC-1.6 HC-1.6 Representation of all Shareholders
HC-1.6.1
Each director must consider himself as representing all shareholders and must act accordingly. The Board must avoid having representatives of specific groups or interests within its membership and must not allow itself to become a battleground of vested interests. If the company has a
controller (or a group ofcontrollers acting in concert), the latter must recognise its or their specific responsibility to the other shareholders, which is direct and is separate from that of the Board of directors.January 2011HC-1.6.2
In
investment firm licensees with acontroller , at least one-third of the Board must beindependent directors . Minority shareholders must generally look toindependent directors' diligent regard for their interests, in preference to seeking specific representation on the Board.January 2011HC-1.6.3
In
investment firm licensees with acontroller , both controllers and other shareholders should be aware ofcontrollers' specific responsibilities regarding their duty of loyalty to theinvestment firm licensee and conflicts of interest (see Chapter HC-2) and also of rights that minority shareholders may have to elect specific directors under the Company Law or if theinvestment firm licensee has adopted cumulative voting for directors. The chairman of the board or other individual delegated by the chairman of the board should take the lead in explaining this with the help of company lawyers.Amended: January 2012
January 2011HC-1.7 HC-1.7 Directors' Access to Independent Advice
HC-1.7.1
The Board must ensure that individual directors have access to independent legal or other professional advice at the
investment firm licensee's expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with theinvestment firm licensee's policy approved by the Board.January 2011HC-1.7.2
Individual directors must also have access to the
investment firm licensee's corporate secretary, who must have responsibility for reporting to the Board on Board procedures. Both the appointment and removal of the corporate secretary must be a matter for the Board as a whole, not for the CEO or any other officer.January 2011HC-1.7.3
Whenever a director has serious concerns which cannot be resolved concerning the running of the
investment firm licensee or a proposed action, he should consider seeking independent advice and should ensure that the concerns are recorded in the Board minutes and that any dissent from a Board action is noted or delivered in writing.January 2011HC-1.7.4
Upon resignation, a
non-executive director should provide a written statement to the chairman, for circulation to the Board, if he has any concerns such as those in Paragraph HC-1.7.3.January 2011HC-1.8 HC-1.8 Directors' Communication with Management
HC-1.8.1
The Board must encourage participation by management regarding matters the Board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.
January 2011HC-1.8.2
Non-executive directors should have free access to theinvestment firm licensee's management beyond that provided in Board meetings. Such access should be through the Chairman of the Audit Committee or CEO. The Board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.January 2011HC-1.9 HC-1.9 Committees of the Board
HC-1.9.1
The Board must create specialised committees when and as such committees are needed. In addition to the Audit Committee described elsewhere in this Module, these may include an Executive Committee to review and make recommendations to the whole Board on company actions, or a Risk Committee to identify and minimise specific risks of the
investment firm licensee's business.January 2011HC-1.9.2
The Board should establish a corporate governance committee of at least three independent members which should be responsible for developing and recommending changes from time to time in the
investment firm licensee's corporate governance policy framework.Amended: January 2012
January 2011HC-1.9.3
The Board or a committee may invite non-directors to participate in, but not vote at committee meetings so that the committee may gain the benefit of their advice and expertise in financial or other areas.
January 2011HC-1.9.4
Committees must act only within their mandates and therefore the Board must not allow any committee to dominate or effectively replace the whole Board in its decision-making responsibility.
January 2011HC-1.9.5
Committees may be combined provided that no conflict of interest might arise between the duties of such committees.
Amended: July 2012
January 2011HC-1.9.6
Every committee should have a formal written charter similar in form to the model charter which is set forth in Appendix A of this Module for the Audit Committee.
January 2011HC-1.10 HC-1.10 Evaluation of the Board and Each Committee
HC-1.10.1
At least annually the Board must conduct an evaluation of its performance and the performance of each committee and each individual director.
Amended: January 2012
January 2011HC-1.10.2
The evaluation process must include:
(a) Assessing how the Board operates, especially in light of Chapter HC-1;(b) Evaluating the performance of each committee in light of its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;(c) Reviewing each director's work, his attendance at Board and committee meetings, and his constructive involvement in discussions and decision-making; and(d) Reviewing the Board's current composition against its desired composition with a view toward maintaining an appropriate balance of skills and experience and a view toward planned and progressive refreshing of the Board.January 2011HC-1.10.3
While the evaluation is a responsibility of the entire Board, it should be organised and assisted by an internal Board committee and, when appropriate, with the help of external experts.
January 2011HC-1.10.4
The Board should report to the shareholders, at each annual shareholder meeting, that evaluations have been done.
January 2011HC-1.11 HC-1.11 Annual Board Review and Certification
HC-1.11.1
The Board must assess and document each year whether the internal corporate governance processes that it has implemented have successfully achieved their objectives, and consequently whether the Board has fulfilled its responsibilities for directing and monitoring the overall conduct of the
licensee's affairs.January 2011HC-1.11.2
[This Paragraph was deleted in January 2022].
Deleted: January 2022
Amended: October 2012
January 2011HC-1.11.3
[This Paragraph was deleted in January 2022].
Deleted: January 2022
January 2011HC-1.11.4
[This Paragraph was deleted in January 2022].
Deleted: January 2022
January 2011HC-1.11.5
The Board's review should cover the following specific matters:
(a) That the Board has reassessed thelicensee's objectives and plans, and has reviewed thelicensee's corporate strategy document;(b) That the Board has reassessed thelicensee's overall risk profile, and its mapping of risks and the control environment put in place to meet those risks. The Board must comment whether the control environment remains effective and appropriate;(c) That the Board has assessed thelicensee's internal controls, to confirm that these are based on established policies approved by the Board and provide reasonable assurance of the integrity and reliability of its financial records;(d) That the Board has assessed whether adherence to established internal limits and controls was continuously monitored;(e) That the Board has assessed that all new (or material changes to) significant policies and products introduced by thelicensee since the last Board certification were appropriately reviewed and approved at the time;(f) That the Board has assessed that management and staff have complied with thelicensee's corporate code of conduct (see Paragraph HC-2.2.4); and(g) That in the period under review, the Board had received and reviewed the external auditor's management letter within six months of the (previous) financial year end, together with comments on the letter and proposed actions, from thelicensee's audit committee and senior management.January 2020
January 2011HC-1.11.6
[This Paragraph was deleted in January 2022].
Deleted: January 2022
January 2011HC-2 HC-2 Approved Persons Loyalty
HC-2.1 HC-2.1 Principle
HC-2.1.1
The
approved persons must have full loyalty to theinvestment firm licensee .January 2011HC-2.2 HC-2.2 Personal Accountability
HC-2.2.1
The Board and its members must act with honesty, integrity, due skill and care, and in the best interests of the
licensee , itsshareholders andclients .January 2011HC-2.2.2
In assessing compliance with Paragraph HC-2.2.1, the CBB will take into account all actions of the Board and its members. The interest of the
licensee includes thelicensee 's continued compliance with all relevant rules and regulations, and the interests of employees,clients and other stakeholders. The interest ofshareholders includes the current and future value of thelicensee , its status as a going concern, transparency and disclosure of information to the market. The interest ofclients includes ensuring that thelicensee fulfils its obligations under itsterms of business and treats allclients fairly and pays equal regard to the interests of allclients. January 2011HC-2.2.3
Each member of the board must understand that under the Company Law he is personally accountable to the
investment firm licensee and the shareholders if he violates his legal duty of loyalty to theinvestment firm licensee , and that he can be personally sued by theinvestment firm licensee or the shareholders for such violations.Amended: January 2013
January 2011HC-2.2.4
An
investment firm licensee's Board must establish and disseminate to all employees of thelicensee a corporate code of conduct.Amended: October 2013
January 2011HC-2.2.5
The code of conduct must establish standards by giving examples or expectations as regards:
(a) Honesty;(b) Integrity;(c) The avoidance or disclosure of conflicts of interest;(d) Maintaining confidentiality;(e) Professionalism;(f) Commitment to the law and best practices; and(g) Reliability.January 2011HC-2.2.6
The Board must establish and disseminate to employees policies and processes for the identification, reporting and prevention or management of potential conflicts of interest, including matters such as:
(a) Related party transactions;(b) The misuse of thelicensee's assets; and(c) The use of privileged information for personal advantage ('insider trading').Amended: October 2013
January 2011HC-2.2.7
Any transaction in which Board members or any member of management have potential conflicts of interest should either be proscribed or require formal documented approval by the Board, with measures taken to manage those conflicts (see also Paragraph HC-2.4.1).
January 2011HC-2.2.8
The Board must ensure that policies and procedures are in place to ensure that necessary customer confidentiality is maintained.
January 2011HC-2.2.9
The duty of loyalty includes a duty not to use property of the
investment firm licensee for his personal needs as though it was his own property, not to disclose confidential information of theinvestment firm licensee or use it for his personal profit, not to take business opportunities of theinvestment firm licensee for himself, not to compete in business with theinvestment firm licensee , and to serve theinvestment firm licensee's interest in any transactions with the company in which he has a personal interest.January 2011HC-2.2.10
For purposes of Paragraph HC-2.2.9, an
approved person should be considered to have a "personal interest" in a transaction with the company if:(a) He himself;(b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or(c) Another company of which he is a director orcontroller ,is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)
January 2011HC-2.3 HC-2.3 Avoidance of Conflicts of Interest
HC-2.3.1
Investment firm licensees must maintain an organisational structure that minimises the risk of conflicts of interest arising.January 2011HC-2.3.2
For the purposes of Rule HC-2.3.1, the CBB would expect
investment firm licensees to separate front and back office functions, as well as proprietary trading and client trading/advisory functions.January 2011HC-2.3.3
Each
approved person must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with theinvestment firm licensee .January 2011HC-2.3.4
Board members must absent themselves from any discussion or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject, transaction or proposed transaction where there is a potential conflict of interest.
January 2011HC-2.3.5
Bahraini investment firm licensees must have in place a board approved policy on the employment of relatives ofapproved persons and a summary of such policy must be disclosed in the annual report of theBahraini investment firm licensees .Amended: July 2016
Added: April 2016HC-2.3.6
Overseas investment firm licensees must have in place a policy on the employment of relatives ofapproved persons pertaining to their Bahrain operations.Added: July 2016HC-2.4 HC-2.4 Disclosure of Conflicts of Interest
HC-2.4.1
Each
approved person must inform the entire Board of conflicts of interest as they arise. Board members must abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure must include all material facts in the case of a contract or transaction involving theapproved person . Theapproved persons must understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision.Amended: January 2013
January 2011HC-2.4.2
Board members must declare annually in writing all of their interests (and those of their
family ) in other enterprises or activities (whether as aDirector ,shareholder , senior executive or other form of participation) to the Board (or appropriate Board sub-Committee).January 2011HC-2.4.2A
The chief executive/general manager of the
Bahraini investment firm licensees must disclose to the board of directors on an annual basis those individuals who are occupyingcontrolled functions and who are relatives of anyapproved persons within theBahraini investment firm licensee .Amended: July 2016
Added: April 2016HC-2.4.2B
The chief executive/general manager of the
overseas investment firm licensees must disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupyingcontrolled functions and who are relatives of anyapproved persons within theoverseas investment firm licensee .Added: July 2016HC-2.4.3
The Board of the
Bahraini investment firm licensee should establish formal procedures for:(a) Periodic disclosure and updating of information by eachapproved person on his actual and potential conflicts of interest; and(b) Advance approval by directors or shareholders who do not have an interest in the transactions in which aninvestment firm licensee's approved person has a personal interest. The Board should require such advance approval in every case.Amended: July 2016
January 2011HC-2.5 HC-2.5 Disclosure of Conflicts of Interest to Shareholders
HC-2.5.1
The
investment firm licensee must disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and must disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.January 2011HC-3 HC-3 Audit Committee and Financial Statements Certification
HC-3.1 HC-3.1 Principle
HC-3.1.1
The Board must have rigorous controls for financial audit and reporting, internal control, and compliance with law.
January 2011HC-3.2 HC-3.2 Audit Committee
HC-3.2.1
The Board should establish an audit committee of at least three directors of which the majority should be independent including the Chairman. The committee should:
(a) Review the company's accounting and financial practices;(b) Review the integrity of theinvestment firm licensee's financial and internal controls and financial statements;(c) Review theinvestment firm licensee's compliance with legal requirements;(d) Recommend the appointment, compensation and oversight of theinvestment firm licensee's external auditor; and(e) Recommend the appointment of the internal auditor (whether in-house or outsourced).Amended: January 2013
January 2011HC-3.2.2
The Board or Audit Committee should ensure that the external audit firm and its partners are truly independent of the
licensee and have no financial or other relationship with thelicensee . Audit findings should be used as an independent check on the information received from management about thelicensee's operations and performance and the effectiveness of internal controls.January 2011HC-3.3 HC-3.3 Audit Committee Charter
HC-3.3.1
The audit committee should adopt a written charter which shall, at a minimum, state the duties outlined in Paragraph HC-3.2.1 and the other matters included in Appendix A to this Module.
January 2011HC-3.3.2
A majority of the audit committee should have the financial literacy qualifications stated in Appendix A.
January 2011HC-3.3.3
The Board should adopt a "whistleblower" program under which employees can confidentially raise concerns about possible improprieties in financial or legal matters. Under the program, concerns may be communicated directly to any audit committee member or, alternatively, to an identified officer or employee who will report directly to the Audit Committee on this point.
January 2011HC-3.4 HC-3.4 CEO and CFO Certification of Financial Statements
HC-3.4.1
To encourage management accountability for the financial statements required by the directors, the
investment firm licensee's CEO and chief financial officer should state in writing to the audit committee and the Board as a whole that theinvestment firm licensee's interim and annual financial statements present a true and fair view, in all material respects, of theinvestment firm licensee's financial condition and results of operations in accordance with applicable accounting standards.January 2011HC-4 HC-4 Appointment, Training and Evaluation of the Board
HC-4.1 HC-4.1 Principle
HC-4.1.1
The
investment firm licensee must have rigorous procedures for appointment, training and evaluation of the Board.January 2011HC-4.2 HC-4.2 Board Nominations to Shareholders
HC-4.2.1
Each proposal by the Board to the shareholders for election or reelection of a director must be accompanied by a recommendation from the Board, and the following specific information:
(a) The term to be served, which may not exceed three years (but there need not be a limit on reelection for further terms);(b) Biographical details and professional qualifications;(c) In the case of anindependent director , a statement that the Board has determined that the criteria ofindependent director have been met;(d) Any other directorships held;(e) Particulars of other positions which involve significant time commitments, and(f) Details of relationships between:(i) The candidate and theinvestment firm licensee , and(ii) The candidate and other directors of theinvestment firm licensee. January 2011HC-4.2.2
The chairman of the Board should confirm to shareholders when proposing re-election of a director that, following a formal performance evaluation, the person's performance continues to be effective and continues to demonstrate commitment to the role. Any term beyond six years (e.g. two three-year terms) for a director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the Board. Serving more than six years is relevant to the determination of a non-executive director's independence.
January 2011HC-4.2.3
Licensees must notify the CBB immediately on any change in board categorisation.Added: April 2021HC-4.3 HC-4.3 Induction and Training of Directors
HC-4.3.1
The chairman of the Board must ensure that each new director receives a formal and tailored induction to ensure his contribution to the Board from the beginning of his term. The induction must include meetings with
senior management , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.January 2011HC-4.3.2
All continuing directors must be invited to attend orientation meetings and all directors must continually educate themselves as to the
investment firm licensee's business and corporate governance.January 2011HC-4.3.3
Management, in consultation with the chairman of the Board, should hold programs and presentations to directors respecting the
investment firm licensee's business and industry, which may include periodic attendance at conferences and management meetings.January 2011HC-5 HC-5 Remuneration of Approved Persons
HC-5.1 HC-5.1 Principle
HC-5.1.1
The
investment firm licensee must remunerateapproved persons fairly and responsibly.January 2011HC-5.2 HC-5.2 Role of Board of Directors
HC-5.2.1
The Board of Directors must:
(a) Review theinvestment firm licensee's remuneration policies for theapproved persons , which must be approved by the shareholders;(b) Make recommendations regardingremuneration policies and amounts for specific persons to the whole Board, taking account of totalremuneration including salaries, fees, expenses and employee benefits; and(c) Remunerate Board members based on their attendance and performance.January 2011HC-5.3 HC-5.3 Standard for all Remuneration
HC-5.3.1
Remuneration (including incentives, bonuses and other rewards) ofapproved persons must be sufficient enough to attract, retain and motivate persons of the quality needed to run theinvestment firm licensee successfully, but theinvestment firm licensee must avoid paying more than is necessary for that purpose.January 2011HC-5.3.2
Where remuneration is structured so as to link rewards to corporate and individual performance, criteria should avoid excessive focus on short-term profitability measures, without due regard to the longer-term consequences of actions taken.
January 2011Alignment of All Staff Remuneration with Compliance with AML/CFT Requirements
HC-5.3.3
The performance evaluation and remuneration of senior management and staff of the
investment firm licensee must be based on the achievement of the Key Performance Indicators (KPIs) relevant to ensuring compliance with AML/CFT requirements as specified in Paragraphs FC-2.1.3 and FC-2.1.4.Added: April 2020HC-5.4 HC-5.4 Directors' Remuneration
HC-5.4.1
The review of
Directors ' remuneration must be a standing item on theinvestment firm licensee's Annual General Meeting agenda, and must be considered byshareholders at every Annual General Meeting.Directors ' remuneration (including pension and severance arrangements) and bonuses must be clearly disclosed in the annual financial statements.January 2011HC-5.4.2
Directors' remuneration should also comply with all applicable laws, such as Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law.January 2011HC-5.4.3
Remuneration ofnon-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.January 2011HC-5.5 HC-5.5 Senior Management Remuneration
HC-5.5.1
Remuneration ofsenior management must be structured so that a portion of the total is linked toinvestment firm licensee and individual performance and aligns their interests with the interests of the shareholders.January 2011HC-5.5.2
Such rewards may include grants of shares, share options and other deferred stock-related incentive schemes, bonuses, and pension benefits which are not based on salary.
January 2011HC-5.5.3
If a
senior manager is also a director, hisremuneration as asenior manager must take into account compensation received in his capacity as a director.January 2011HC-5.5.4
All share incentive plans must be approved by the shareholders.
January 2011HC-5.5.5
All performance-based incentives should be awarded under written objective performance standards which have been approved by the Board and are designed to enhance shareholder and company value, and under which shares should not vest and options should not be exercisable within less than two years of the date of award of the incentive.
January 2011HC-5.5.6
All policies for performance-based incentives should be approved by the shareholders, but the approval should be only of the plan itself and not of the grant to specific individuals of benefits under the plan.
Amended: January 2012
January 2011HC-6 HC-6 Management Structure
HC-6.1 HC-6.1 Principle
HC-6.1.1
The Board must establish a clear and efficient management structure.
January 2011HC-6.2 HC-6.2 Establishment of Management Structure
HC-6.2.1
The Board must approve and review at least annually the
investment firm licensee's management structure and responsibilities.January 2011HC-6.2.2
The Board must appoint
senior management whose authority must include management and operation of current activities of theinvestment firm licensee , reporting to and under the direction of the Board. Thesenior managers must include at a minimum:(a) ACEO ;(b) A chief financial officer;(c) A corporate secretary;and must also include such other
approved persons as the Board considers appropriate and as a minimum must include persons occupyingcontrolled functions as outlined in Paragraph AU-1.2.2.Amended: April 2011
January 2011HC-6.3 HC-6.3 Titles, Authorities, Duties and Reporting Responsibilities
HC-6.3.1
Investment firm licensees must maintain clearly documented and communicated staff responsibilities and reporting lines.January 2011HC-6.3.2
For the purposes of Rule HC-6.3.1,
investment firm licensees should maintain and document their delegated authority structure as well as written terms of reference for staff positions.January 2011HC-6.3.3
The Board must adopt by-laws prescribing each
senior manager's title, authorities, duties and internal reporting responsibilities. This must be done in consultation with theCEO , to whom the othersenior managers should normally report.January 2011HC-6.3.4
These provisions must include but should not be limited to the following:
(a) TheCEO must have authority to act generally in theinvestment firm licensee's name, representing theinvestment firm licensee's interests in concluding transactions on theinvestment firm licensee's behalf and giving instructions to othersenior managers andinvestment firm licensee employees;(b) The chief financial officer must be responsible and accountable for:(i) The complete, timely, reliable and accurate preparation of theinvestment firm licensee's financial statements, in accordance with the accounting standards and policies of theinvestment firm licensee (see HC-3.4.1); and(ii) Presenting the Board with a balanced and understandable assessment of theinvestment firm licensee's financial situation;(c) The corporate secretary's duties must include arranging, recording and following up on the actions, decisions and meetings of the Board and of the shareholders (both at annual and extraordinary meetings) in books to be kept for that purpose;(d) The internal auditor's (see HC-6.4) duties must include providing an independent and objective review of the efficiency of theinvestment firm licensee's operations. This would include a review of the accuracy and reliability of theinvestment firm licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of theinvestment firm licensee's risk management, control, and governance processes; and(e) The compliance officer's (see HC-6.5) duties include maintaining effective systems and controls for compliance with applicable requirements in the Kingdom's legislation and those set by the CBB, and those established under any other statute or regulator to which they are subject.Amended: April 2011
January 2011HC-6.3.5
The Board should also specify any limits which it wishes to set on the authority of the
CEO or othersenior managers , such as monetary maximums for transactions which they may authorize without separate Board approval.January 2011HC-6.3.6
The corporate secretary should be given general responsibility for reviewing the
investment firm licensee's procedures and advising the Board directly on such matters. Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training.January 2011HC-6.3.7
At least annually the Board shall review and concur in a succession plan addressing the policies and principles for selecting a successor to the
CEO , both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to theCEO .January 2011HC-6.4 HC-6.4 Internal Audit
HC-6.4.1
Bahraini investment firm licensees must establish an internal audit function to monitor the adequacy of their systems and controls.January 2011HC-6.4.2
The internal audit function must be independent of the
senior management , reporting either to the Board or its Audit committee (where applicable). The internal audit function must not be combined with any other function.Amended: July 2015
January 2011HC-6.4.3
The CBB would normally expect larger
investment firm licensees to maintain the internal audit function within the organisation (or at least to be provided from within thelicensee's group, where relevant, providing this doesn't impair the level of internal audit scrutiny applied to thelicensee ). The CBB will however consider allowing smallinvestment firm licensees to outsource part or all of their internal audit function to third party providers.January 2011HC-6.4.4
Where
investment firm licensees outsource part or all of their internal audit function, the outsourcing arrangements must provide for an adequate level of scrutiny of thelicensee , and must comply with the requirements contained in Chapter RM-7. Alicensee cannot outsource its internal audit function to its external auditor.January 2011HC-6.4.5
Prior approval from the CBB is required for significant outsourcing arrangements, including all outsourcing of internal audit. Note that in all such cases, the
licensee retains ultimate responsibility for the adequacy of its outsourcing function, and is required to identify the person within thelicensee responsible for internal audit: this person should be anapproved person (see Section AU-1.2 and Chapter RM-7).January 2011HC-6.4.6
Internal audit functions must have terms of reference that clearly indicate:
(a) The scope and frequency of audits;(b) Reporting lines; and(c) The review and approval process applied to audits.January 2011HC-6.4.7
Paragraph HC-6.4.6 applies irrespective of whether the internal audit function is
outsourced . Where it isoutsourced , the CBB would expect to see these matters addressed in the contract with theoutsourcing provider .January 2011HC-6.4.8
Internal audit functions must report directly to the Audit committee or, where none exists, to the Board. They must have unrestricted access to all the appropriate records of the
investment firm licensee . They must have open and regular access to the Audit Committee, the Board, theChief Executive , and thelicensee's external auditor.January 2011HC-6.4.9
Internal audit functions must have adequate staff levels with appropriate skills and knowledge, such that they can act as an effective challenge to the business. Where the function is not outsourced, the
head of function should be a senior and experienced employee. Internal audit functions must not perform other activities that compromise their independence.January 2011HC-6.4.10
The CBB would expect to see in place a formal audit plan that:
(a) Is reviewed and approved at least annually by the Audit Committee or, where none exists, the Board;(b) Is risk-based, with an appropriate scoring system; and(c) Covers all material areas of alicensee's operations over a reasonable timescale.January 2011HC-6.4.11
Internal Audit reports should also be:
(a) Clear and prioritised, with action points directed towards identified individuals;(b) Timely; and(c) Distributed to the Audit Committee or Board and appropriatesenior management .January 2011HC-6.4.12
Investment firm licensees should also have processes in place to deal with recommendations raised by internal audit to ensure that they are:(a) Dealt with in a timely fashion;(b) Monitored until they are settled; and(c) Raised withsenior management if they have not been adequately dealt with.January 2011HC-6.5 HC-6.5 Compliance
HC-6.5.1
Investment firm licensees must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements in the Kingdom's legislation and those set by the CBB, and those established under any other statute or regulator to which they are subject.January 2011HC-6.5.2
Depending on the nature, scale and complexity of its business, an
investment firm licensee should consider having a separate compliance function. A compliance function should:(a) Document its organisation and responsibilities;(b) Be appropriately staffed with competent individuals;(c) Have unrestricted access to thelicensee's relevant records; and(d) Have ultimate recourse to the Board.January 2011HC-6.5.3
The compliance function may not be combined with the internal audit function or any other operational function as such combination may lead to a conflict of interest.
Added: April 2011
HC-7 HC-7 Communication between Board and Shareholders
HC-7.1 HC-7.1 Principle
HC-7.1.1
The
investment firm licensee must communicate with shareholders, encourage their participation, and respect their rights.January 2011HC-7.2 HC-7.2 Conduct of Shareholders' Meetings
HC-7.2.1
The Board must observe both the letter and the intent of the Company Law's requirements for shareholder meetings. Among other things:
(a) Notices of meetings must be honest, accurate and not misleading. They must clearly state and, where necessary, explain the nature of the business of the meeting;(b) Meetings must be held during normal business hours and at a place convenient for the greatest number of shareholders to attend;(c) Notices of meetings must encourage shareholders to participate by proxy and must refer to procedures for appointing a proxy and for directing the proxy how to vote on a particular resolution. The proxy agreement must list the agenda items and must specify the vote (such as "yes," "no" or "abstain");(d) Notices must ensure that all material information and documentation is provided to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;(e) The Board must propose a separate resolution at any meeting on each substantially separate issue, so that unrelated issues are not "bundled" together;(f) In meetings where directors are to be elected or removed the Board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;(g) The chairman of the meeting must encourage questions from shareholders, including questions regarding theinvestment firm licensee's corporate governance guidelines;(h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and(i) Disclosure of all material facts must be made to the shareholders.(j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.Amended: October 2017
Added: January 2011HC-7.2.2
The
investment firm licensee should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).January 2011HC-7.2.3
The
investment firm licensee should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.January 2011HC-7.2.4
An
investment firm licensee should maintain a company website. Theinvestment firm licensee should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. Theinvestment firm licensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, theinvestment firm licensee should grant a controlled access to such information to its shareholders.January 2011HC-7.2.5
In notices of meetings at which directors are to be elected or removed the
investment firm licensee should ensure that:(a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and(b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.Amended: October 2012
January 2011HC-7.3 HC-7.3 Direct Shareholder Communication
HC-7.3.1
The chairman of the Board (and other directors as appropriate) must maintain continuing personal contact with
controllers to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the Board as a whole. The chairman must discuss governance and strategy withcontrollers . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the Board should encourage investors, particularly institutional investors, to help in evaluating theinvestment firm licensee's corporate governance (see also HC-1.4 for other duties of the chairman).January 2011HC-7.4 HC-7.4 Controllers
HC-7.4.1
In companies with one or more
controllers , the chairman and other directors must actively encourage thecontrollers to make a considered use of their position and to fully respect the rights of minority shareholders (see also HC-1.4 for other duties of the chairman).January 2011HC-8 HC-8 Corporate Governance Disclosure
HC-8.1 HC-8.1 Principle
HC-8.1.1
The
investment firm licensee must disclose its corporate governance.January 2011HC-8.2 HC-8.2 Disclosure Under the Company Law and CBB Requirements
HC-8.2.1
The Board must oversee the process of disclosure to all stakeholders. The Board must ensure that the
licensee's communications are fair, transparent, comprehensive and timely.January 2011HC-8.2.2
In each
investment firm licensee :(a) The Board must adopt written corporate governance guidelines covering the matters stated in Module HC and other corporate governance matters deemed appropriate by the Board. Such guidelines must include or refer to the principles and rules of Module HC;(b) Theinvestment firm licensee must publish the guidelines on its website, if it has a website (see HC-7.2.4);(c) At each annual shareholders' meeting the Board must report on theinvestment firm licensee's compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and(d) At each annual shareholders' meeting the Board must also report on further items listed in Appendix B. Such information should be maintained on theinvestment firm licensee's website or held at theinvestment firm licensee's premises on behalf of the shareholders.January 2011HC-8.2.3
The CBB may issue a template as a guide for an
investment firm licensee's annual meeting corporate governance discussion.January 2011HC-8.2.4
The licensee's annual report must identify
Directors as executive, non-executive, or independent non-executive, and provide the definition of independence used.January 2011HC-9 HC-9 Islamic Investment Firm Licensees
HC-9.1 HC-9.1 Principle
HC-9.1.1
Companies which refer to themselves as "Islamic" must follow the principles of Islamic Shari'a.
January 2011HC-9.2 HC-9.2 Governance and Disclosure per Shari'a Principles
HC-9.2.1
Islamic
investment firm licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders.Investment firm licensees which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a Principles. In ensuring compliance with Shari'a principles, each Islamicinvestment firm licensee must establish a Shari'a Supervisory Board consisting of at least three Shari'a board members.Amended: October 2014
January 2011HC-9.2.2
In addition to its duties outlined in Chapter HC-3 and Appendix A, the Audit Committee shall communicate and co-ordinate with the
investment firm licensee's Corporate Governance Committee and the Shari'a Supervisory Board ("SSB") (where applicable) to ensure that information on compliance with Islamic Shari'a rules and principles is reported in a timely manner.January 2011HC-9.2.3
The Board shall set up a Corporate Governance Committee (see also Paragraph HC-1.9.2). In this case, the Committee shall comprise at least three members to co-ordinate and integrate the implementation of the governance policy framework.
January 2011HC-9.2.4
The Corporate Governance Committee established under Chapter HC-9 shall comprise at a minimum of:
(a) Anindependent director to chair the Corporate Governance Committee. The Chairman of the Corporate Governance Committee should not only possess the relevant skills, such as the ability to read and understand financial statements, but should also be able to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the Audit Committee;(b) A Shari'a scholar who is an SSB member for the purpose of leading the Corporate Governance Committee on Shari'a-related governance issues (if any), and also to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the SSB; and(c) Anindependent director who can offer different skills to the committee, such as legal expertise and business proficiency, which are considered particularly relevant by the Board of directors for cultivating a good corporate governance culture, and deemed "fit and proper" by the CBB.January 2011HC-9.2.5
The Corporate Governance Committee shall be empowered to:
(a) Oversee and monitor the implementation of the governance policy framework by working together with the management, the Audit Committee and the SSB; and(b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.January 2011HC-10 HC-10 Category 3 Investment Firm Licensees
HC-10.1 HC-10.1 The Board
HC-10.1.1
All
Category 3 investment firm licensees should be headed by an effective, collegial and informed Board of Directors ('the Board').January 2011Role and Responsibilities
HC-10.1.2
All directors should understand the Board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:
(a) The Board's role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and(b) The Board's fiduciary duties of care and loyalty to theinvestment firm licensee and the shareholders (see HC-10.2).January 2011HC-10.1.3
The Board's role and responsibilities include but are not limited to:
(a) The overall business performance and strategy for theinvestment firm licensee ;(b) Causing financial statements to be prepared which accurately disclose theinvestment firm licensee's financial position;(c) Monitoring management performance;(d) Convening and preparing the agenda for shareholder meetings;(e) Monitoring conflicts of interest and preventing abusive related party transactions; and(e) Assuring equitable treatment of shareholders including minority shareholders.January 2011HC-10.1.4
The directors are responsible both individually and collectively for performing these responsibilities. Although the Board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place.
January 2011HC-10.1.5
When a new director is inducted, the chairman of the Board, assisted by company legal counsel or compliance officer, should review the Board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC.
January 2011HC-10.1.6
The
investment firm licensee should have a written appointment agreement with each director which recites the directors' powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, hisremuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.January 2011HC-10.1.7
The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.
January 2011Composition
HC-10.1.8
The Board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints. The Board should recommend changes in Board size to the shareholders when a needed change requires amendment of the
investment firm licensee's Memorandum of Association.Amended: October 2014
January 2011HC-10.1.9
Potential
non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. The Board should regularly review the time commitment required from eachnon-executive director and should require eachnon-executive director to inform the Board before he accepts any Board appointments to another company. One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.January 2011Decision Making Process
HC-10.1.10
The Board should be collegial and deliberative, to gain the benefit of each individual director's judgment and experience.
January 2011HC-10.1.11
The chairman should take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made.
January 2011HC-10.1.12
The Board should meet frequently but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.
January 2011HC-10.1.13
The chairman should ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each Board meeting and when necessary between meetings. All directors should receive the same Board information. At the same time, directors have a legal duty to inform themselves and they should ensure that they receive adequate and timely information and should study it carefully.
January 2011Directors' Communication with Management
HC-10.1.14
The Board must encourage participation by management regarding matters the Board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.
January 2011HC-10.1.15
Non-executive directors should have free access to theinvestment firm licensee's management beyond that provided in Board meetings. Such access should be through the Chairman of the Audit Committee or CEO. The Board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.January 2011HC-10.2 HC-10.2 Approved Persons Loyalty
HC-10.2.1
The
approved persons shall have full loyalty to theinvestment firm licensee .January 2011Personal Accountability
HC-10.2.2
Each
approved person should understand that under the Company Law he is personally accountable to theinvestment firm licensee and the shareholders if he violates his legal duty of loyalty to theinvestment firm licensee , and that he can be personally sued by theinvestment firm licensee or the shareholders for such violations.January 2011HC-10.2.3
The duty of loyalty includes a duty not to use property of the
investment firm licensee for his personal needs as though it was his own property, not to disclose confidential information of theinvestment firm licensee or use it for his personal profit, not to take business opportunities of theinvestment firm licensee for himself, not to compete in business with theinvestment firm licensee , and to serve theinvestment firm licensee's interest in any transactions with the company in which he has a personal interest.January 2011HC-10.2.4
For purposes of Paragraph HC-10.2.3, an
approved person should be considered to have a "personal interest" in a transaction with the company if:(a) He himself;(b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or(c) Another company of which he is a director orcontroller ,is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)
January 2011Avoidance of Conflicts of Interest
HC-10.2.5
Each
approved person should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with theinvestment firm licensee .January 2011HC-10.2.5A
Bahraini investment firm licensees should have in place a board approved policy on the employment of relatives ofapproved persons and a summary of such policy must be disclosed in the annual report of theBahraini investment firm licensee .Amended: July 2016
Added: April 2016HC-10.2.5B
Overseas investment firm licensees should have in place a policy on the employment of relatives ofapproved persons pertaining to their Bahrain operations.Added: July 2016Disclosure of Conflicts of Interest
HC-10.2.6
Each
approved person should inform the entire Board of conflicts of interest as they arise and abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure should include all material facts in the case of a contract or transaction involving theapproved person . Theapproved persons should understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision.January 2011HC-10.2.6A
The chief executive/general manager of the
Bahraini investment firm licensees should disclose to the board of directors on an annual basis those individuals who are occupying controlled functions and who are relatives of anyapproved persons within theBahraini investment firm licensee .Amended: July 2016
Added: April 2016HC-10.2.6B
The chief executive/general manager of the
overseas investment firm licensees should disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupyingcontrolled functions and who are relatives of anyapproved persons within theoverseas investment firm licensee .Added: July 2016HC-10.2.7
The Board of the
Bahraini investment firm licensee should establish formal procedures for:(a) Periodic disclosure and updating of information by eachapproved person on his actual and potential conflicts of interest; and(b) Advance approval by directors or shareholders who do not have an interest in the transactions in which aninvestment firm licensee's approved person has a personal interest. The Board should require such advance approval in every case.Amended: July 2016
January 2011Disclosure of Conflicts of Interests to Shareholders
HC-10.2.8
The
investment firm licensee should disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and should disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.January 2011HC-10.3 HC-10.3 Financial Statements Certification
HC-10.3.1
The Board shall have rigorous controls for financial audit and reporting, internal control, and compliance with law.
January 2011CEO and CFO Certification of Financial Statements
HC-10.3.2
To encourage management accountability for the financial statements required by the directors, the
investment firm licensee's CEO and chief financial officer should state in writing to the audit committee and the Board as a whole that theinvestment firm licensee's interim and annual financial statements present a true and fair view, in all material respects, of theinvestment firm licensee's financial condition and results of operations in accordance with applicable accounting standards.January 2011HC-10.4 HC-10.4 Appointment, Training and Evaluation of the Board
HC-10.4.1
The
investment firm licensee should have rigorous procedures for appointment, training and evaluation of the Board.January 2011Induction and Training of Directors
HC-10.4.2
The chairman of the Board should ensure that each new director receives a formal and tailored induction to ensure his contribution to the Board from the beginning of his term. The induction should include meetings with
senior management , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.January 2011HC-10.4.3
All continuing directors should be invited to attend orientation meetings and all directors should continually educate themselves as to the
investment firm licensee's business and corporate governance.January 2011HC-10.4.4
Management, in consultation with the chairman of the Board, should hold programs and presentations to directors respecting the
investment firm licensee's business and industry, which may include periodic attendance at conferences and management meetings. The Board shall oversee directors' corporate governance educational activities.January 2011HC-10.5 HC-10.5 Remuneration of Approved Persons
HC-10.5.1
The
investment firm licensee should remunerateapproved persons fairly and responsibly.January 2011HC-10.5.2
Remuneration ofapproved persons should be sufficient enough to attract, retain and motivate persons of the quality needed to run theinvestment firm licensee successfully, but theinvestment firm licensee should avoid paying more than is necessary for that purpose.January 2011HC-10.6 HC-10.6 Management Structure
HC-10.6.1
The Board should establish a clear and efficient management structure.
January 2011Establishment of Management Structure
HC-10.6.2
The Board should appoint
senior management whose authority must include management and operation of current activities of theinvestment firm licensee , reporting to and under the direction of the Board. Thesenior managers should include at a minimum:(a) ACEO ;(b) A chief financial officer;(c) A corporate secretary; and(d) An internal auditor (see AU-1.2)and should also include such other
approved persons as the Board considers appropriate and as a minimum must include persons occupyingcontrolled functions as outlined in Paragraph AU-1.2.2.January 2011Titles, Authorities, Duties and Reporting Responsibilities
HC-10.6.3
The Board should adopt by-laws prescribing each
senior manager's title, authorities, duties and internal reporting responsibilities. This should be done in consultation with theCEO , to whom the othersenior managers should normally report.January 2011HC-10.6.4
These provisions should include but should not be limited to the following:
(a) TheCEO should have authority to act generally in theinvestment firm licensee's name, representing theinvestment firm licensee's interests in concluding transactions on theinvestment firm licensee's behalf and giving instructions to othersenior managers andinvestment firm licensee employees;(b) The chief financial officer should be responsible and accountable for:(i) The complete, timely, reliable and accurate preparation of theinvestment firm licensee's financial statements, in accordance with the accounting standards and policies of theinvestment firm licensee (see HC-10.3.2); and(ii) Presenting the Board with a balanced and understandable assessment of theinvestment firm licensee's financial situation;(c) The corporate secretary's duties should include arranging, recording and following up on the actions, decisions and meetings of the Board and of the shareholders (both at annual and extraordinary meetings) in books to be kept for that purpose; and(d) The internal auditor's duties should include providing an independent and objective review of the efficiency of theinvestment firm licensee's operations. This would include a review of the accuracy and reliability of theinvestment firm licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of theinvestment firm licensee's risk management, control, and governance processes.January 2011Titles, Authorities, Duties and Reporting Responsibilities
HC-10.6.5
The Board should also specify any limits which it wishes to set on the authority of the
CEO or othersenior managers , such as monetary maximums for transactions which they may authorise without separate Board approval.January 2011HC-10.6.6
The corporate secretary should be given general responsibility for reviewing the
investment firm licensee's procedures and advising the Board directly on such matters. Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training.January 2011HC-10.6.7
At least annually the Board shall review and concur in a succession plan addressing the policies and principles for selecting a successor to the
CEO , both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to theCEO .January 2011HC-10.7 HC-10.7 Communication between Board and Shareholders
HC-10.7.1
The
investment firm licensee should communicate with shareholders, encourage their participation, and respect their rights.January 2011Conduct of Shareholders' Meetings
HC-10.7.2
The Board should observe both the letter and the intent of the Company Law's requirements for shareholder meetings. Among other things:
(a) Notices of meetings must be honest, accurate and not misleading They must clearly state and, where necessary, explain the nature of the business of the meeting;(b) Meetings must be held during normal business hours and at a place convenient for the greatest number of shareholders to attend;(c) Notices of meetings must encourage shareholders to participate by proxy and must refer to procedures for appointing a proxy and for directing the proxy how to vote on a particular resolution. The proxy agreement must list the agenda items and must specify the vote (such as "yes," "no" or "abstain");(d) Notices must ensure that all material information and documentation is provided to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;(e) The Board must propose a separate resolution at any meeting on each substantially separate issue, so that unrelated issues are not "bundled" together;(f) In meetings where directors are to be elected or removed the Board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;(g) The chairman of the meeting must encourage questions from shareholders, including questions regarding theinvestment firm licensee's corporate governance guidelines;(h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and(i) Disclosure of all material facts must be made to the shareholders.(j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.Amended: October 2017
Added: January 2011HC-10.7.3
The
investment firm licensee should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).January 2011HC-10.7.4
The
investment firm licensee should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.January 2011HC-10.7.5
An
investment firm licensee should maintain a company website. Theinvestment firm licensee should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. Theinvestment firm licensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, theinvestment firm licensee should grant a controlled access to such information to its shareholders.January 2011HC-10.7.6
In notices of meetings at which directors are to be elected or removed the
investment firm licensee should ensure that:(a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and(b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.Amended: October 2012
January 2011Direct Shareholder Communication
HC-10.7.7
The chairman of the Board (and other directors as appropriate) must maintain continuing personal contact with
controllers to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the Board as a whole. The chairman must discuss governance and strategy withcontrollers . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the Board should encourage investors, particularly institutional investors, to help in evaluating theinvestment firm licensee's corporate governance.January 2011Controllers
HC-10.7.8
In companies with one or more
controllers , the chairman and other directors should actively encourage thecontrollers to make a considered use of their position and to fully respect the rights of minority shareholders.January 2011HC-10.8 HC-10.8 Corporate Governance Disclosure
HC-10.8.1
The
investment firm licensee should disclose its corporate governance.January 2011Disclosure Under the Company Law
HC-10.8.2
In each
investment firm licensee :(a) The Board should adopt written corporate governance guidelines covering the matters stated in Module HC and other corporate governance matters deemed appropriate by the Board. Such guidelines must include or refer to the principles and rules of Module HC;(b) Theinvestment firm licensee should publish the guidelines on its website, if it has a website (see HC-10.7.5);(c) At each annual shareholders' meeting the Board should report on theinvestment firm licensee's compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and(d) At each annual shareholders' meeting the Board should also report on further items listed in Appendix D. Such information should be maintained on theinvestment firm licensee's website or held at theinvestment firm licensee's premises on behalf of the shareholders.January 2011HC-10.8.3
The CBB may issue a template as a guide for an
investment firm licensee's annual meeting corporate governance discussion.January 2011HC-10.9 HC-10.9 Islamic Investment Firm Licensees
HC-10.9.1
Companies which refer to themselves as "Islamic" should follow the principles of Islamic Shari'a.
January 2011Governance and Disclosure per Shari'a Principles
HC-10.9.2
Islamic
investment firm licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders.Investment firm licensees which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a Principles. In ensuring compliance with Shari'a principles, each Islamicinvestment firm licensee should appoint a minimum of one Shari'a advisor or scholar to verify that their operations are Shari'a compliant.Amended: October 2014
January 2011Appendix A Appendix A Audit Committee
Committee Duties
The Committee's duties shall include those stated in Paragraph HC-3.2.1.
January 2011Committee Membership and Qualifications
The Committee shall have at least three members. Such members must have no conflict of interest with any other duties they have for the
investment firm licensee .A majority of the members of the committee including the Chairman shall be
independent directors andnon-executive directors .The Board must satisfy itself that at least a majority of the committee has recent and relevant financial ability and experience, which includes:
(a) An ability to read and understand corporate financial statements including aninvestment firm licensee's balance sheet, income statement and cash flow statement and changes in shareholders' equity;(b) An understanding of the accounting principles which are applicable to theinvestment firm licensee's financial statements;(c) Experience in evaluating financial statements that have a level of accounting complexity comparable to that which can be expected in theinvestment firm licensee's business;(d) An understanding of internal controls and procedures for financial reporting; and(e) An understanding of the audit committee's controls and procedures for financial reporting.January 2011Committee Duties and Responsibilities
In serving those duties, the Committee shall:
(a) Be responsible for the selection, appointment, remuneration, oversight and termination where appropriate of the external auditor, subject to ratification by theinvestment firm licensee's Board and shareholders. The external auditor shall report directly to the committee;(b) Make a determination at least once each year of the external auditor's independence, including:(i) Determining whether its performance of any non-audit services compromised its independence (the committee may establish a formal policy specifying the types of non-audit services which are permissible) and;(ii) Obtaining from the external auditor a written report listing any relationships between the external auditor and theinvestment firm licensee or with any other person or entity that may compromise the auditor's independence;(c) Review and discuss with the external auditor the scope and results of its audit, any difficulties the auditor encountered including any restrictions on its access to requested information and any disagreements or difficulties encountered with management;(d) Review and discuss with management and the external auditor each annual and each quarterly financial statements of theinvestment firm licensee including judgments made in connection with the financial statements;(e) Review and discuss and make recommendations regarding the selection, appointment and termination where appropriate of the head of internal audit and head of compliance and the budget allocated to the internal audit and compliance function, and monitor the responsiveness of management to the committee's recommendations and findings;(f) Review and discuss the adequacy of theinvestment firm licensee's internal auditing and compliance personnel and procedures and its internal controls and compliance procedures, and any risk management systems, and any changes in those;(g) Oversee theinvestment firm licensee's compliance with legal and regulatory requirements; and(h) Review and discuss possible improprieties in financial reporting or other matters, and ensure that arrangements are in place for independent investigation and follow-up regarding such matters.Amended: October 2012
January 2011Committee Structure and Operations
The committee shall elect one member as its chair.
The committee shall meet at least four times a year. Its meetings may be scheduled in conjunction with regularly-scheduled meetings of the entire Board.
The committee may meet without any other director or any officer of the
investment firm licensee present. Only the committee may decide if a non-member of the committee should attend a particular meeting or a particular agenda item. Non-members who are not directors of theinvestment firm licensee may attend to provide their expertise, but may not vote. It is expected that the external auditor's lead representative will be invited to attend regularly but that this shall always be subject to the committee's decision.The committee shall report regularly to the full Board on its activities.
January 2011Committee Resources and Authority
The committee shall have the resources and authority necessary for its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of outside legal, accounting or other advisors as it deems necessary or appropriate, without seeking the approval of the Board or management. The
investment firm licensee shall provide appropriate funding for the compensation of any such persons.January 2011Committee Performance Evaluation
The committee shall prepare and review with the Board an annual performance evaluation of the committee, which shall compare the committee's performance with the above requirements and shall recommend to the Board any improvements deemed necessary or desirable to the committee's charter. The report must be in the form of a written report provided at any regularly scheduled Board meeting.
Amended: July 2012
January 2011Appendix B Corporate Governance Disclosure to Shareholders
The
investment firm licensee shall disclose the following items to the shareholders.Ownership of Shares
1.Distribution of ownership by nationality2.Distribution of ownership by size of shareholder3. Ownership by Government4. Names of shareholders owning 5% or more and, if they act in concert, a description of the voting, shareholders' or other agreements among them relating to acting in concert, and of any other direct and indirect relationships among them or with theinvestment firm licensee or other shareholdersBoard, Board Members and Management
1. Board's functions — rather than a general statement (which could be disclosed simply as the Board's legal obligations under the law) the 'mandate' of the Board should be set out2. The types of material transactions that require Board approval3. Names, their capacity of representation and detailed information about the directors, including directorships of other Boards, positions, qualifications and experience (should describe each director as executive or non-executive)4. Number and names of independent members5. Board terms and the start date of each term6. What the Board does to induct/educate/orient new directors7. Director's ownership of shares8. Election system of directors and any termination arrangements9. Director's trading ofinvestment firm licensee's shares during the year10. Meeting dates (number of meetings during the year)11. Attendance of directors at each meeting12. Aggregate remuneration to board members12A. The remuneration policy of theinvestment firm licensee for board members and senior management13. List ofsenior managers and profile of each14. Shareholding bysenior managers 15. Aggregate remuneration paid to thesenior management 16. Details of stock options and performance-linked incentives available to executives17. Whether the Board has adopted a written code of ethical business conduct, and if so the text of that code and a statement of how the Board monitors compliance.Committees
1. Names of the Board committees2. Functions of each committee3. Members of each committee divided into independent and non-independent4. Minimum number of meetings per year5. Actual number of meetings6. Attendance of committees' members7. [This item was deleted in January 2012]8. Work of committees and any significant issues arising during the periodCorporate Governance
1. Separate section in the Annual Report2. Reference to Module HC and its principles3. Changes in Module HC that took place during the yearAuditors
1. The charters and a list of members of the Audit (including external and internal; financial and non-financial experts) Committee of the Board.2. Audit fees3. Non-Audit services provided by the external auditor and fees4. Reasons for any switching of auditors and reappointing of auditorsOther
1. Related party transactions2. Approval process for related party transactions3. Means of communication with shareholders and investors4. Separate report on Management Discussion and Analysis is included in the Annual Report — in particular, this should identify and comment on the management of principal risks and uncertainties faced by the business.5. Review of internal control processes and procedures.6. Announcements of the results in the press should include at least the followings:(a) Balance sheet, income statement, cash flow statement, statement of comprehensive income and changes in shareholders' equity(b) Auditor(c) Auditor's signature date(d) Board approval dateSet out directors responsibility with regard to the preparation of financial statements
Conflict of Interest — any issues arising must be reported, in addition describe any steps the Board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.
Board of Directors — whether or not the Board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution.
Amended: January 2012
Amended: April 2011
January 2011