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  • AU-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 any financial 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 offer financial services.
        Amended: January 2013
        Amended: July 2007

      • AU-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 2007

      • AU-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 2007

      • AU-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 2013

      • AU-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 2013

      • AU-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 in financial instruments as principal), since these specific activities also form part of the definition of regulated banking services (or regulated Islamic banking services in the case of Islamic banks). In such cases, banks are not required to hold a separate investment firm license.

        Amended: July 2007

      • AU-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 a Category 1, a Category 2, a Category 3 or a Category 4 investment firm.

        Amended: January 2022

      • AU-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 2007

      • AU-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 all controllers; and
        (c) Application for authorisation of all controlled functions.
        Amended: January 2022
        Amended: July 2007

      • AU-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 2007

      • AU-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 2007

      • AU-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 2007

      • Investment Firm License Categories

        • AU-1.1.12

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

          Amended: July 2007

        • Category 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) any regulated investment service, as listed below:

            (a) Dealing in financial instruments as principal;
            (b) Dealing in financial instruments as agent;
            (c) Arranging deals in financial instruments;
            (d) Managing financial instruments;
            (e) Safeguarding financial instruments (i.e. a custodian;
            (f) Advising on financial instruments;
            (ff) Arranging Credit and Advising on Credit; and
            (g) Operating a collective investment undertaking (i.e. an operator).
            Amended: July 2020
            Added: July 2007

          • AU-1.1.13A

            [This Paragraph has been moved to AU-1.1.24].

            Amended: January 2022
            Added: October 2020

          • AU-1.1.14

            [This Paragraph was moved and amended to Paragraph AU-1.4.11A in January 2012].

            Amended: January 2012
            Amended: July 2007

        • Category 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) any regulated investment service (as listed in Rule AU-1.1.13), except that of 'dealing in financial instruments as principal'.

          • AU-1.1.16

            A Category 2 investment firm cannot, therefore, trade in financial instruments for its own account ('dealing in financial instruments as principal'), but it may conduct all other types of regulated investment services, including holding client assets.

            Amended: July 2007

        • Category 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 following regulated investment services only:

            (a) Arranging deals in financial instruments;
            (b) Advising on financial instruments; and
            (c) Arranging Credit and Advising on Credit.
            Amended: July 2020
            Added: July 2007

          • AU-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 any client assets;
            c) Must refrain from receiving any fees or commissions from any party other than the client; and
            (d) Must not have an 'agency' relationship (tied agent) with an investment provider.
            Amended: October 2016
            Amended: October 2009
            April 2008
            Amended: July 2007

          • AU-1.1.18A

            In assessing the independence of a Category 3 investment firm, the CBB will take into account the regulated investment services offered in relation to financial instruments of a related party.

            Amended: October 2016
            Adopted: April 2008

          • AU-1.1.18B

            For the purpose of Paragraph AU-1.1.18A, a related party of a Category 3 investment firm includes:

            (a) A controller of the Category 3 investment firm as defined in Module GR;
            (b) A close link of the Category 3 investment firm as defined in Module GR;
            (c) An associate of a controller as defined in Module GR;
            (d) The extended family of a controller 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 a controller 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 2008

        • Category 4

          • AU-1.1.18C

            For the purposes of Volume 4 (Investment Business), category 4 investment firms are permitted to provide the following regulated investment services to accredited investors:

            a) Operating a collective investment undertaking (CIU); and
            b) In respect of venture capital CIUs that the category 4 investment firm operates/manages, act as custodian (i.e. safeguarding financial instruments).
            Added: January 2022

          • AU-1.1.18D

            While category 1 investment firms and category 2 investment firms can operate/manage all types of CIUs, targeting retail clients, expert investors and accredited investors, category 4 investment firm license caters to the business models of specialist fund managers who operate/manage CIUs targeted at accredited investors only. Examples of such CIUs are private equity funds, hedge funds, structured funds, real estate funds, venture capital funds and other alternative investment funds. An operator of CIUs who markets or manages a CIU targeted at retail clients or expert investors would not be eligible to obtain a category 4 investment firm license. Category 4 investment firms also act as placement agents of overseas domiciled CIUs they operate/manage.

            Added: January 2022

          • AU-1.1.18E

            Category 4 investment firms must appoint independent custodians to safeguard client assets. However, in accordance with Sub-paragraph AU-1.1.18C(b), category 4 investment firms may be authorised by the CBB to act as custodians of the venture capital CIUs they operate/manage provided they meet the requirements stipulated in Section C4-3.3 of the CBB Rulebook, Volume 4 regarding the safeguarding of client assets and client money. This entails that category 4 investment firms can safeguard the illiquid assets of the venture capital CIUs, but client money must be kept in a client bank account.

            Added: January 2022

          • AU-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 to accredited investors.

            Added: January 2022

      • Combining Regulated Investment Services

        • AU-1.1.19

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

        • AU-1.1.20

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

      • Suitability

        • AU-1.1.21

          [This Paragraph was deleted in January 2011].

          Deleted: January 2011
          Amended: July 2007

        • AU-1.1.22

          [This Paragraph was deleted in January 2011].

          Deleted: January 2011
          Amended: July 2007

        • AU-1.1.22A

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

          Added: July 2020

        • AU-1.1.22B

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

          Added: July 2020

        • AU-1.1.22C

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

          Added: July 2020

        • AU-1.1.22D

          Investment firm licensees wishing to undertake the following regulated investment services involving crypto-assets that fall under the definition of financial instruments must seek the CBB’s prior approval before undertaking such activity:

          (a) Dealing in financial instruments as agent;
          (b) Arranging deals in financial instruments;
          (c) Managing financial instruments;
          (d) Safeguarding financial instruments (i.e. a custodian);
          (e) Advising on financial instruments; and
          (f) Operating a collective investment undertaking (i.e. an operator).

          Investment firm licensees must not undertake the activity of dealing in crypto-assets as principal.

          Added: January 2024

        • AU-1.1.22E

          Investment firm licensees offering the regulated investment services referred to in Paragraph AU-1.1.22D must comply with the requirements stipulated in Appendix AU-1, as applicable.

          Added: January 2024

        • AU-1.1.22F

          Investment firm licensees undertaking the regulated investment service involving safe custody of crypto-assets (custody service), whether through “in house” arrangement or through a “third party”, remain responsible for safeguarding, storing, holding or maintaining custody of crypto-assets and must have systems and controls in place to:

          (a) Ensure the proper safeguarding of crypto-assets;
          (b) Ensure that such safe custody of crypto-assets is identifiable and secure at all times; and
          (c) Ensure protection against the risk of loss, theft or hacking.
          Added: January 2024

        • AU-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) The licensee is wholly responsible for custody of client’s crypto-assets and provides this service “in-house” through its own crypto-assets wallet solution. Such an arrangement includes scenarios where a licensee provides its own inhouse proprietary wallet for clients to store any crypto-assets bought through that licensee or transferred into the wallet from other sources.
          (b) The licensee is wholly responsible for the custody of client’s crypto-assets but outsources this service to a third party crypto-asset custodian. Such an arrangement includes the scenario where a licensee uses a third-party service provider to hold all its clients’ crypto-assets (e.g., all or part of the clients’ private keys).
          (c) The licensee wholly allows clients to “self-custodise” their crypto-assets. Such an arrangement includes scenarios where licensees require clients to self-custodise their crypto-assets. Such licensees only provide the platform for clients to buy and sell crypto-assets. Clients are required to source and use their own third party crypto-asset custodians (which the licensee have no control over or responsibility for). This arrangement also includes the scenario where licensees provide an in-house wallet service for clients, but also allow clients to transfer their crypto-assets out of this wallet to another wallet from a third-party wallet provider chosen by the client (and which the licensee does not control).
          Added: January 2024

        • AU-1.1.22H

          Where investment firm licensees provide a third-party crypto-asset custodian to a client it must undertake an appropriate risk assessment of that crypto-asset custodian. Licensees must also retain ultimate responsibility for safe custody of crypto-assets held on behalf of clients and ensure that they continue to meet all their regulatory obligations with respect to crypto-asset custody service and outsourced activities.

          Added: January 2024

        • AU-1.1.22I

          Investment firm licensees offering the regulated 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 2024

        • AU-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 2024

      • Conventional and Islamic Investment Firms

        • AU-1.1.23

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

          Amended: July 2007

        • AU-1.1.24

          Where licensees are undertaking regulated activities in accordance with Shari'a, all transactions and contracts concluded by investment 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 2007

        • AU-1.1.24A

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

          Added: October 2014

        • AU-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 2014

        • AU-1.1.25

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

          Amended: October 2012
          Amended: July 2007

        • AU-1.1.26

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

        • AU-1.1.27

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

    • AU-1.2 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 a controlled function in an investment firm licensee. The approval from the CBB must be obtained prior to their appointment, subject to the variations contained in Paragraphs AU-1.2.3 to AU-1.2.5.

          Amended: January 2016
          Amended: July 2007

        • AU-1.2.2

          Controlled functions are those of:

          (a) Director;
          (b) Chief Executive or General 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 or investment adviser.
          Amended: January 2021
          Amended: April 2018
          Amended: January 2016
          Amended: January 2011
          Amended: October 2009
          July 2007

        • AU-1.2.3

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

          Amended: October 2009
          July 2007

        • AU-1.2.4

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

          Amended: October 2009
          July 2007

        • AU-1.2.5

          [This Paragraph was deleted in January 2021].

          Amended: January 2021
          Amended: October 2009

      • Basis 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 2007

      • Definitions

        • 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 2007

        • AU-1.2.8

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

          Amended: July 2007

        • AU-1.2.9

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

          Amended: January 2011
          Amended: July 2010

        • AU-1.2.9A

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

          Amended: April 2011
          Adopted: January 2011

        • AU-1.2.9B

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

          (a) Should be fully responsible for the executive management and performance of the licensee, within the framework of delegated authorities set by the Board;
          (b) Must devote full-time working hours to the licensee; and
          (c) Must not be employed at any other firm.
          Adopted: January 2011

        • AU-1.2.9C

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

          Adopted: January 2011

        • AU-1.2.9D

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

          Adopted: January 2011

        • AU-1.2.9E

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

          Adopted: January 2011

        • AU-1.2.10

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

        • AU-1.2.11

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

        • AU-1.2.12

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

          Amended: July 2007

        • AU-1.2.13

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

          Amended: October 2012
          Amended: July 2012
          Amended: July 2007

        • AU-1.2.13A

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

          Added: July 2012

        • AU-1.2.13B

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

          Added: July 2012

        • AU-1.2.14

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

          Amended: July 2007

        • AU-1.2.15

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

          Amended: January 2011
          Amended: October 2009

        • AU-1.2.16

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

          (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 2011

    • AU-1.3 AU-1.3 [This Section deleted 07/2007]

      Deleted: July 2007

      • AU-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); and
        i) 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 2007

      • AU-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 2007

      • General 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 2007

        • AU-1.4.4

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

        • AU-1.4.5

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

        • AU-1.4.6

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

          Amended: July 2007

        • AU-1.4.7

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

          Amended: July 2007

        • AU-1.4.8

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

          Amended: July 2007

        • AU-1.4.9

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

        • AU-1.4.10

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

      • Dealing in Financial Instruments as Principal

        • AU-1.4.11

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

          Amended: October 2014
          Amended: October 2012
          Amended: October 2009

        • AU-1.4.11A

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

          Amended: October 2014
          Amended: October 2012
          Added: January 2012

        • AU-1.4.11B

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

          Amended: October 2014
          Added: January 2012

        • AU-1.4.12

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

        • AU-1.4.13

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

          Amended: July 2007

        • AU-1.4.14

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

        • AU-1.4.15

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

          Amended: October 2012

        • AU-1.4.16

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

      • Dealing in Financial Instruments as Agent

        • AU-1.4.17

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

          Amended: October 2012

        • AU-1.4.18

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

          Amended: October 2012
          Amended: July 2007

      • Arranging 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 in financial instruments. This activity does not include the execution of a deal for which the arrangement has been made.

          Amended: January 2012
          Amended: October 2009

        • AU-1.4.19A

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

          Added: January 2012

        • AU-1.4.20

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

        • AU-1.4.21

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

        • AU-1.4.22

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

        • AU-1.4.23

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

        • AU-1.4.24

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

          Amended: July 2007

        • AU-1.4.25

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

          Amended: January 2011
          Amended: July 2007

        • AU-1.4.26

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

        • AU-1.4.27

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

          (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 2007

        • AU-1.4.28

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

          Amended: October 2012

        • AU-1.4.29

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

          Amended: October 2012

      • Managing Financial Instruments

        • AU-1.4.30

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

        • AU-1.4.31

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

      • Safeguarding Financial Instruments (i.e. Custodian)

        • AU-1.4.32

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

        • AU-1.4.33

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

          Amended: July 2019
          Amended: January 2012
          Amended: July 2010

        • AU-1.4.34

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

          Amended: July 2010
          Amended: July 2007

        • AU-1.4.35

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

          Amended: July 2010
          Amended: July 2007

        • AU-1.4.36

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

          Amended: July 2010

        • AU-1.4.37

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

          Amended: July 2010
          Amended: July 2007

        • AU-1.4.38

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

          Amended: July 2010
          Amended: July 2007

        • AU-1.4.39

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

          (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 2007

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

          Deleted: July 2007

      • Advising 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 or underwriting a particular financial instrument or exercising any right conferred by such a financial instrument.

          Amended: October 2012

        • AU-1.4.41A

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

          Added: April 2019

        • AU-1.4.42

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

          Added: July 2010

        • AU-1.4.43

          [This Paragraph was deleted in July 2020].

          Deleted: July 2020
          Added: July 2010

        • AU-1.4.44

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

          (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 the financial instrument, or on the characteristics or performance of the financial instrument or credit facility concerned.
          Amended: July 2010
          Amended: July 2007

        • AU-1.4.45

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

          (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 or underwrite a financial instrument.
          Amended: October 2012
          Amended: July 2010
          Amended: July 2007

        • AU-1.4.46

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

          (a) Explaining the structure or the terms and conditions of a financial instrument or credit facility;
          (b) Valuing financial instruments for which there is no ready market;
          (c) Circulating company news or announcements;
          (d) Comparing the benefits and risks of one financial instrument to another; and
          (e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, a financial 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 2007

        • AU-1.4.47

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

          Amended: July 2010
          Amended: July 2007

      • Arranging 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 2020

        • AU-1.4.47B

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

          Added: July 2020

        • AU-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 2020

        • AU-1.4.47D

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

          Added: July 2020

        • AU-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 an accredited investor; or
          (b) A legal person who is an accredited investor or expert 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 2020

        • AU-1.4.47F

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

          Added: July 2020

        • AU-1.4.47G

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

          Added: July 2020

      • Operating a Collective Investment Undertaking (i.e. operator)

        • AU-1.4.48

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

          Amended: January 2022
          Amended: July 2010
          Amended: July 2007

        • AU-1.4.49

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

          Amended: July 2010
          Amended: July 2007

        • AU-1.4.50

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

          Amended: July 2010

        • AU-1.4.51

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

          Amended: July 2010
          Adopted: July 2007

        • AU-1.4.52

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

          Amended: October 2012
          Amended: July 2010
          Adopted: July 2007

        • AU-1.4.53

          [Paragraph deleted 07/2006.]

          Amended: July 2010

        • AU-1.4.54

          [Paragraph deleted 07/2006.]

          Amended: July 2010

    • AU-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 2007

      • Transferable 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 to shares in companies, partnerships or other entities, and depositary receipts in respect of shares;
          (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 2007

      • Islamic Financial Instruments

        • AU-1.5.2

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

          Amended: July 2007

      • Money-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 2007

      • Derivative 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 derivative financial instruments.

          Amended: July 2007

      • Credit 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 or property of any description;
          (b) Any currency;
          (c) The rate of interest in any currency or any index of such rates (including interest rate options);
          (d) The level of any index which is derived for the prices of an investment or physical commodity (including index options); or
          (e) Any combination of the above.
          Amended: July 2007

        • AU-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 of property; 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 2007

      • Other 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 derivative financial 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 2007

      • Rights or Interests in Financial Instruments

        • AU-1.5.15

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