HC-6.1.1

The Board must establish a clear and efficient management structure.

HC-6.2.1

The Board must approve and review at least annually the investment firm licensee's management structure and responsibilities.

HC-6.2.2

The Board must appoint senior management whose authority must include management and operation of current activities of the investment firm licensee, reporting to and under the direction of the Board. The senior managers must include at a minimum:

and must also include such other approved persons as the Board considers appropriate and as a minimum must include persons occupying controlled functions as outlined in Paragraph AU-1.2.2.

HC-6.3.1

Investment firm licensees must maintain clearly documented and communicated staff responsibilities and reporting lines.

HC-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.

HC-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 the CEO, to whom the other senior managers should normally report.

HC-6.3.4

These provisions must include but should not be limited to the following:

HC-6.3.5

The Board should also specify any limits which it wishes to set on the authority of the CEO or other senior managers, such as monetary maximums for transactions which they may authorize without separate Board approval.

HC-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.

HC-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 the CEO.

HC-6.4.1

Bahraini investment firm licensees must establish an internal audit function to monitor the adequacy of their systems and controls.

HC-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.

HC-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 the licensee's group, where relevant, providing this doesn't impair the level of internal audit scrutiny applied to the licensee). The CBB will however consider allowing small investment firm licensees to outsource part or all of their internal audit function to third party providers.

HC-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 the licensee, and must comply with the requirements contained in Chapter RM-7. A licensee cannot outsource its internal audit function to its external auditor.

HC-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 the licensee responsible for internal audit: this person should be an approved person (see Section AU-1.2 and Chapter RM-7).

HC-6.4.6

Internal audit functions must have terms of reference that clearly indicate:

HC-6.4.7

Paragraph HC-6.4.6 applies irrespective of whether the internal audit function is outsourced. Where it is outsourced, the CBB would expect to see these matters addressed in the contract with the outsourcing provider.

HC-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, the Chief Executive, and the licensee's external auditor.

HC-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.

HC-6.4.10

The CBB would expect to see in place a formal audit plan that:

HC-6.4.11

Internal Audit reports should also be:

HC-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:

HC-6.4.13

The internal auditor is considered as a head of function (see Paragraph AU-1.2.11) and is subject to CBB prior approval for the approved person occupying this controlled function as outlined in Section AU-1.2.

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.

HC-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:

HC-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.