• RM-1.1 RM-1.1 Risk Management

    • Board of Directors' Responsibility

      • RM-1.1.1

        The Board of Directors of investment 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 2007

      • RM-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 2007

      • RM-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 2007

      • RM-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 the licensee, or the licensee being required to inject more capital.

        Adopted: July 2007

      • RM-1.1.5

        The Board of Directors must also ensure that there is adequate documentation of the licensee's risk management framework.

        Adopted: July 2007

    • Systems 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 2007

      • RM-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 2007

      • RM-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 2007

      • RM-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 2007

    • Risk 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 2007

      • RM-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 the Bahraini 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 the licensee; 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 2010

      • RM-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 2008

      • RM-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 2010

      • RM-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 an overseas 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 the overseas investment firm licensee.

        Added: October 2013