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  • CA-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, their Regulatory Capital is in excess of their Regulatory Capital Requirement. They must monitor compliance with this requirement on an on-going basis.

      • CA-1.2.2

        For Category 1 and Category 2 investment firms, their Regulatory Capital Requirement is defined as the higher of their Risk-based Capital Requirement and their Minimum Capital Requirement.

        Amended: October 2009

      • CA-1.2.3

        For Category 3 investment firms, their Regulatory Capital Requirement is their Minimum Capital Requirement.

        Amended: October 2009

      • CA-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 relevant Minimum 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 apply Risk-based Capital Requirements. They are only required to comply with their Minimum Capital Requirement.

        Amended: October 2009

    • Definitions

      • 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. For overseas 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 2007

      • CA-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 2007

      • CA-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 2023

      • 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), 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 of Regulatory Capital to their Regulatory Capital Requirement falls below 110% (see Paragraph CA-1.1.5);
        (b) Any single probable contingency, financial commitment or large exposure exceeds 25% of their Regulatory Capital; and
        (c) Any instrument, transaction or situation does not appear to be catered for under Module CA.
        Amended: April 2011
        Amended: January 2007

      • CA-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 its regulatory capital to bring it to a level in excess of its regulatory capital requirement (refer to Paragraph CA-1.2.1); or
        (b) Reduce the single contingency, financial commitment or large exposure to below 25% of the regulatory capital.
        Amended: October 2012
        Added: April 2011

    • Group 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 2011

      • CA-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 2011