Back Custom print Link Text Only Rich Text Print

  • CL-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 hold client assets separate from its own.

          Amended: July 2008

        • CL-1.1.2

          An investment firm licensee may manage client's assets on a discretionary basis if:

          (a) That client has given his express consent in writing;
          (b) The use of the client assets is restricted to the terms agreed by him; and
          (c) The document in which that client's consent is requested by the investment firm licensee gives clear information to him on:
          (i) The obligations and responsibilities of the investment firm licensee and/or of the clients for whose account the investment firm licensee has been allowed to use the client's financial instruments, with respect to the use of the financial instruments (including the terms for the restitution of the financial instruments); and
          (ii) The risks involved.
          Amended: April 2013
          Amended: January 2007

        • CL-1.1.3

          An investment firm licensee should communicate to its clients in writing, at a minimum, the information specified in Guidance Paragraph CL-6.1.2, regarding client 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 2013

        • CL-1.1.5

          [This Paragraph was deleted in April 2013.]

          Deleted: April 2013

      • Client Money

        • CL-1.1.6

          An investment firm licensee must hold client money in a client bank account.

        • CL-1.1.7

          For the purposes of CL-1.1.5, a client bank account is an account holding client money of one or more clients in a bank account designated as such in accordance with the terms of agreement with the client/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 the investment 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 2008

        • CL-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 of client 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 2007

      • Transfer 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 the client bank account if that account is an eligible third party.

          Amended: January 2016

        • CL-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 an eligible third party, such as an exchange, a clearing house or an intermediate broker, to hold or control client money:

          (a) The investment firm licensee transfers the client money
          (i) For the purpose of a transaction for a client through or with that eligible third party; or
          (ii) To meet a client's obligations to provide collateral for a transaction;
          (b) In the case of a retail client, that client has been notified in writing that the client money may be transferred to the other person.
          Amended: January 2007

        • CL-1.1.13

          For the purposes of CL-1.1.10, an investment firm licensee must assess the suitability of an eligible third party before allowing it to hold or control client 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 than client money in a client 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 to clients as interest and which has not yet been withdrawn by the investment firm licensee.
          Amended: January 2007

        • CL-1.1.15

          If it is prudent to do so to ensure that client money is protected, an investment firm licensee may pay into a client bank account money of its own, and that money will then become client money for the purposes of the client asset protection rules until the licensee retrieves it.

        • CL-1.1.16

          If an investment firm licensee receives a mixed remittance (that is part client money and part other money), it must:

          (a) Pay the full sum into a client bank account; and
          (b) Pay the money that is not client money out of the client bank account within one business day.
          Amended: January 2007

        • CL-1.1.17

          An investment firm licensee should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agencies and over the counter (OTC) counterparties; it should be held in a client bank account.

      • Reconciliation

        • CL-1.1.18

          An investment firm licensee must ensure that a system is implemented to perform reconciliations of both client bank accounts and eligible third party accounts in which client 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 2007

        • CL-1.1.20

          An investment firm licensee must perform a reconciliation between the individual ledger balances and client bank accounts/third party balances.

          Amended: July 2008

        • CL-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 a client unless the investment firm licensee has obtained the consent of the CBB and the client.

        Amended: January 2007

      • CL-1.2.2

        If a safe custody investment belonging to a retail client is used for stock lending activity, the investment firm licensee must ensure that:

        (a) Relevant collateral is provided by the borrower in favour of the client;
        (b) The current realisable value of the safe custody financial instrument and of the relevant collateral is monitored daily; and
        (c) The investment firm licensee provides relevant collateral to make up the difference where the current realisable value of the collateral falls below that of the safe custody financial instrument, unless otherwise agreed in writing by the client.
        Amended: January 2007

      • CL-1.2.3

        If safe custody financial instruments of more than one client are held together, none of those safe custody financial instruments may be used for a stock lending activity unless:

        (a) All of those clients have consented to their safe custody financial instrument being used for that activity; or
        (b) The investment firm licensee has adequate systems and procedures in place to ensure that only safe custody financial instruments belonging to clients who have given their consent are used for stock lending activity.
        Amended: January 2007

    • CL-1.3 CL-1.3 Client Reporting

      • CL-1.3.1

        An investment firm licensee that holds client assets for a client must send a statement of all client assets held by the investment firm licensee to its client at least once a year or as often as agreed with that client.

      • CL-1.3.2

        The statement of client assets referred to in CL-1.3.1 must:

        (a) Identify any clients' assets which have been provided as collateral;
        (b) Identify any client assets which have been lent; and
        (c) Show any movement of client assets based on either trade date or settlement date clearly and consistently.
        Amended: January 2007

      • CL-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 the client, 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 the client within a reasonable period of one another.
        Amended: January 2007

    • CL-1.4 CL-1.4 Record-Keeping

      • CL-1.4.1

        Investment firm licensees must ensure that proper records, sufficient to show and explain the investment firm licensee's transactions and commitments in respect of its client 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 2008

      • CL-1.4.2

        An investment firm licensee that holds client assets must:

        (a) Check its record-keeping and client asset procedures regularly; and
        (b) Subject its record-keeping and client asset procedures to an appropriate independent review.
        Amended: January 2007

      • CL-1.4.3

        Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).

    • CL-1.5 CL-1.5 Auditor Reports

      • CL-1.5.1

        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 the licensees' compliance with the requirements contained in this Module. Investment firm licensees Category 1 and Investment firm licensees Category 2 which do not hold or control Client Assets are obligated to confirm the same annually.

        Amended: October 2017
        Amended: July 2008

      • CL-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 2007

      • CL-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 2007

      • CL-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 2008