Archived Part A
HC HC High Level Controls [deleted]
Chapter HC-A Chapter HC-A Introduction [deleted]
HC-A.1 HC-A.1 Purpose [deleted]
Executive Summary [deleted]
HC-A.1.1 [deleted]
HC-A.1.2 [deleted]
HC-A.1.3 [deleted]
Legal Basis [deleted]
HC-A.1.4 [deleted]
HC-A.1.5 [deleted]
HC-A.2 HC-A.2 Module History [deleted]
Evolution of the Module [deleted]
HC-A.2.1 [deleted]
HC-A.2.2 [deleted]
Superseded Requirements [deleted]
HC-A.2.3 [deleted]
HC-A.2.4 [deleted]
Chapter HC-B Chapter HC-B Scope of Application [deleted]
HC-B.1 HC-B.1 License Categories [deleted]
HC-B.1.1 [deleted]
HC-B.1.2 [deleted]
HC-B.1.3 [deleted]
HC-B.2 HC-B.2 Branches, Subsidiaries and Affiliates [deleted]
Bahraini investment firm licensees [deleted]
HC-B.2.1 [deleted]
HC-B.2.2 [deleted]
HC-B.2.3 [deleted]
Overseas investment firm licensees [deleted]
HC-B.2.4 [deleted]
HC-B.2.5 [deleted]
Chapter HC-1 Chapter HC-1 The Board [deleted]
HC-1.1 HC-1.1 Functions and Responsibilities [deleted]
General Requirements [deleted]
HC-1.1.1 [deleted]
HC-1.1.2 [deleted]
Specific Requirements [deleted]
HC-1.1.3 [deleted]
HC-1.1.4 [deleted]
HC-1.1.5 [deleted]
HC-1.1.6 [deleted]
HC-1.1.7 [deleted]
HC-1.1.8 [deleted]
HC-1.1.9 [deleted]
HC-1.1.10 [deleted]
HC-1.1.11 [deleted]
HC-1.1.12 [deleted]
HC-1.1.13 [deleted]
HC-1.1.14 [deleted]
HC-1.1.15 [deleted]
HC-1.2 HC-1.2 Composition [deleted]
HC-1.2.1 [deleted]
HC-1.2.2 [deleted]
HC-1.2.3 [deleted]
HC-1.2.4 [deleted]
HC-1.2.5 [deleted]
HC-1.2.6 [deleted]
HC-1.2.7 [deleted]
HC-1.2.7A [deleted]
HC-1.2.8 [deleted]
HC-1.2.9 [deleted]
HC-1.2.10 [deleted]
HC-1.2.11 [deleted]
HC-1.2.12 [deleted]
HC-1.2.13 [deleted]
HC-1.2.14 [deleted]
HC-1.3 HC-1.3 Meetings and Attendance [deleted]
HC-1.3.1 [deleted]
HC-1.3.2 [deleted]
HC-1.3.3 [deleted]
HC-1.3.4 [deleted]
HC-1.3.5 [deleted]
HC-1.3.6 [deleted]
Chapter HC-2 Chapter HC-2 Other High-level Controls [deleted]
HC-2.1 HC-2.1 Chief Executive / General Manager / Managing Director [deleted]
HC-2.1.1 [deleted]
HC-2.1.2 [deleted]
HC-2.1.3 [deleted]
HC-2.1.4 [deleted]
HC-2.1.5 [deleted]
HC-2.1.6 [deleted]
HC-2.1.7 [deleted]
HC-2.2 HC-2.2 Segregation of Duties [deleted]
HC-2.2.1 [deleted]
HC-2.2.2 [deleted]
HC-2.2.3 [deleted]
HC-2.2.4 [deleted]
HC-2.3 HC-2.3 Internal Audit [deleted]
HC-2.3.1 [deleted]
HC-2.3.2 [deleted]
HC-2.3.3 [deleted]
HC-2.3.4 [deleted]
HC-2.3.5 [deleted]
HC-2.3.6 [deleted]
HC-2.3.7 [deleted]
HC-2.3.8 [deleted]
HC-2.3.9 [deleted]
HC-2.3.10 [deleted]
HC-2.3.11 [deleted]
HC-2.4 HC-2.4 Compliance [deleted]
HC-2.4.1 [deleted]
HC-2.4.2 [deleted]
HC-2.4.3 [deleted]
HC-2.4.4 [deleted]
HC-2.5 HC-2.5 Remuneration Policies [deleted]
HC-2.5.1 [deleted]
HC-2.5.2 [deleted]
HC-2.5.3 [deleted]
HC-2.5.4 [deleted]
HC-2.6 HC-2.6 Corporate Ethics [deleted]
HC-2.6.1 [deleted]
HC-2.6.2 [deleted]
HC-2.6.3 [deleted]
HC-2.6.4 [deleted]
HC-2.6.5 [deleted]
Chapter HC-3 Chapter HC-3 Annual Certification [deleted]
HC-3.1 HC-3.1 Annual Board Review and Certification [deleted]
HC-3.1.1 [deleted]
HC-3.1.2 [deleted]
HC-3.1.3 [deleted]
HC-3.1.4 [deleted]
HC-3.2 HC-3.2 Scope of the Review [deleted]
HC-3.2.1 [deleted]
HC-3.2.2 [deleted]
GR GR General Requirements
GR-5.3 GR-5.3 Suitability of Controllers
GR-5.3.3 [Replaced 1 October 2015]
Natural persons who intend to take a stake of 20% or more in a
Bahraini investment firm licensee are subject to enhanced scrutiny, given the CBB's position ashome supervisor of suchlicensees . The level of scrutiny and the expected compliance with the above standards become more onerous as the level of proposed ownership increases. Natural persons will not normally be approved to take majority control (i.e. a stake of 50% or more of either the capital or voting rights) of aBahraini investment firm licensee .Amended: October 2011
Amended: October 2009
Amended: April 2008
Amended: July 2007GR-5.3.5 [Replaced 1 October 2015]
Legal persons who intend to take a stake of 20% or more in a
Bahraini investment firm licensee are subject to enhanced scrutiny, given the CBB's position ashome supervisor of suchlicensees . The level of scrutiny and of expected compliance with the above standards becomes more onerous as the level of proposed ownership increases. In particular, unregulated legal persons will not normally be approved to take majority control (i.e. a stake of 50% or more of either the capital or voting rights) of aBahraini investment firm licensee , unless the proposed parent is a well-established business (that satisfies the above conditions), and its ownership would not pose undue conflicts of interest. Regulated legal persons will normally only be approved to take majority control where – in addition to the above conditions – the resulting group would be subject to effective consolidated supervision in accordance with relevant international standards; and thehome supervisor of the parent entity has agreed to the proposed acquisition, as well as to the sharing of relevant prudential information for supervisory purposes (expressed, if necessary, through the signing of a Memorandum of Understanding between the CBB and thehome supervisor , setting out their respective supervisory responsibilities).Amended: October 2011
Amended: October 2009
Adopted: July 2007GR-5.3.6 [Replaced 1 October 2015]
The CBB may contact references and supervisory bodies in connection with any information provided to support an application for
controller . The CBB may also ask for further information, in addition to that provided in the Form 2, if required to satisfy itself as to the suitability of the applicant.Amended: January 2011
Adopted: July 2007HC HC High-Level Controls Module
HC-A HC-A Introduction
HC-A.1 HC-A.1 Purpose
Executive Summary
HC-A.1.1
This Module presents requirements that have to be met by
investment firm licensees with respect to:(a) Corporate governance principles issued by the Ministry of Industry and Commerce as The Corporate Governance Code; and(b) Related high-level controls and policies.January 2011HC-A.1.2
The Principles referred to in this Module are in line with the Principles relating to the Corporate Governance Code issued by the Ministry of Industry and Commerce.
January 2011HC-A.1.3
The purpose of the Module is to establish best practice corporate principles in Bahrain, and to provide protection for investors and other company stakeholders through compliance with those principles.
January 2011HC-A.1.4
Whilst the Module follows best practice, it is nevertheless considered as the minimum standard to be applied. This Module also includes additional rules and guidance issued by the Central Bank of Bahrain ('the CBB') prior to the publication of the Code and previously contained in Module HC.
January 2011Structure of this Module
HC-A.1.5
This Module follows the structure of the Corporate Governance Code and each Chapter deals with one the nine fundamental Principles of corporate governance. The numbered directives included in the Code are Rules for purposes of this Module. Recommendations under the Code have been included as guidance. However, where the previous version of Module HC had a similar recommendation as a Rule, the Module retains this Paragraph as a Rule.
January 2011HC-A.1.6
The Module also incorporates other high-level controls and policies that apply in particular to
investment firm licensees .January 2011HC-A.1.7
All references in this Module to 'he' or 'his' shall, unless the context otherwise requires, be construed as also being references to 'she' and 'her'.
January 2011HC-A.1.8
This Module contains a mixture of Rules and Guidance (See Module UG-1.2 for a detailed explanation of Rules and Guidance). All Rules in Module HC must be complied with by all
investment firm licensees .Amended: July 2015
January 2011The Comply or Explain Principle for Guidance Paragraphs
Monitoring and Enforcement of Module HC
HC-A.1.9
Disclosure and transparency are underlying principles of Module HC. Disclosure is crucial to allow outside monitoring to function effectively. This Module looks to a combined monitoring system relying on the Board, the
investment firm licensee's shareholders and the CBB.January 2011HC-A.1.10
It is the Board's responsibility to see to the accuracy and completeness of the
investment firm licensee's corporate governance guidelines and compliance with Module HC. Failure to comply with this Module is subject to enforcement measures as outlined in Module EN (Enforcement).January 2011Legal Basis
HC-A.1.11
This Module contains the CBB's Directive (as amended from time to time) relating to high-level controls and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to
investment firm licensees (including theirapproved persons ).Amended: July 2015
January 2011HC-A.1.12
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
January 2011Effective Date
HC-A.1.13
This updated Module is effective on 1st January 2011. All
investment firm licensees to which Module HC applies should be in full compliance by the financial year end 2011. At everyinvestment firm licensee's annual shareholder meeting held after 1st January 2011, corporate governance should be an item on the agenda for information and any questions from shareholders regarding theinvestment firm licensee's governance. Where possible, theinvestment firm licensee should also have corporate governance guidelines in place at that time and should have a "comply or explain" report as described in Paragraph HC-A.1.8.January 2011HC-A.2 HC-A.2 Module History
HC-A.2.1
This Module was first issued in July 2007. Following the issuance of the Corporate Governance Code by the Ministry of Industry and Commerce in March 2010, the Module was amended in January 2011 to be in line with the new Code and to include previous requirements that were in place in the originally issued Module HC. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.
Amended: July 2015
January 2011HC-A.2.2
A list of recent changes made to this Module is detailed in the table below:
Module Ref. Change Date Description of Changes HC-1 to HC-9 01/2011 Amendments due to introduction of new MOIC Corporate Governance Code. HC-1.4 04/2011 Amendment made to reflect new Rules on attendance of Directors at Board of Directors meetings. HC-6.3.4 04/2011 Added description of compliance officer's duties. HC-6.5.3 04/2011 Guidance added dealing with the compliance function. HC-B.2.2 01/2012 Clarified language related to corporate governance. HC-1.2.5 and HC-1.6.3 01/2012 Clarified that the chairman of the Board may delegate specific duties dealt with in these Paragraphs. HC-1.5.7 and HC-1.5.7A 01/2012 Clarified rule and guidance on the chairman of the Board. HC-1.10.1 01/2012 Deleted last sentence. HC-5.5.6 01/2012 Amended Paragraph. Appendix B 01/2012 Disclosure to shareholders amended. HC-1.9.5 07/2012 Clarified guidance. Appendix A 07/2012 Clarified requirement for written report on performance evaluation for Audit Committee. HC-7.2.5 and HC-10.7.6 10/2012 Clarified guidance on election of board members. Appendix A 10/2012 Included reference to compliance under Committee Duties and Responsibilities. HC-2.2.3 and HC-2.4.1 01/2013 Clarified scope of application for Rules. HC-3.2.1 01/2013 Clarified guidance on appointment of internal auditor. HC-1.3.7 04/2013 Clarified Rule on limits on number of directorships. HC-2.2.4 and HC-2.2.6 10/2013 Removed reference to appointed representatives. HC-1.3.2 and HC-10.1.8 10/2014 Corrected typo to be consistent with other Volumes of the CBB Rulebook. HC-9.2.1 10/2014 Clarified language for Category 1 and 2 Islamic investment firms. HC-10.9.2 10/2014 Amended guidance for Category 3 Islamic investment firms to appoint a minimum of one Shari'a advisor or scholar instead of having a Shari'a Supervisory Board. HC-A.1.8 07/2015 Clarified the application of the comply or explain principle. HC-6.4.2 07/2015 Changed Guidance to Rule so that the internal audit function must be independent and cannot be combined with any other function. HC-2.3.5 and HC-10.2.5A 04/2016 Added a requirement (or guidance, based on the category of license) for the investment firm licensee to have in place a board approved policy on the employment of relatives of approved persons. HC-2.4.2A and HC-10.2.6A 04/2016 Added the requirement (or guidance, based on the category of license) to disclose to the board on annual basis relatives of any approved persons occupying controlled functions. HC-2.3, HC-2.4 and HC-10.2 07/2016 Clarified application of Rules (or guidance, based on the category of license) for overseas licensees. HC-7.2.1(j) and HC-10.7.2(j) 10/2017 Added requirement on the invitation of a CBB representative for any shareholders' meetings. HC-1.2.2 & HC-1.11.5 01/2020 Amended Paragraphs on policy and procedures approval. HC-5.3.3 04/2020 Added a new Paragraph on KPIs compliance with AML/CFT requirements. HC-1.5.8 04/2021 Amended Paragraph on independent directors. HC-1.5.10 04/2021 Added a new Paragraph on Directors Independence status. HC-1.5.11 04/2021 Added a new Paragraph on termination of Board membership of a retired, terminated CEO. HC-4.2.3 04/2021 Added a new Paragraph on notification on any change in board categorisation. HC-1.11.2 – HC-1.11.4 01/2022 Deleted Paragraphs. HC-1.11.6 01/2022 Deleted Paragraph. HC-A.2.3
Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).
January 2011HC-B HC-B Scope of Application
HC-B.1 HC-B.1 License Categories
HC-B.1.1
The contents of this Module — unless otherwise stated — apply to
Category 1 andCategory 2 investment firm licensees , incorporated under the Bahrain Commercial Companies Law ('the Company Law').January 2011HC-B.1.2
For
Category 3 investment firms , the applicable Guidance Paragraphs are included in Chapter HC-10. The Comply or Explain Principle (see Paragraph HC-A.1.8) applies to the content of Chapter HC-10.January 2011HC-B.1.3
Overseas investment firm licensees must satisfy the CBB that equivalent arrangements are in place at theparent entity level, and that these arrangements provide for effective high-level controls over activities conducted under the Bahrain license.January 2011HC-B.1.4
In assessing compliance with Paragraph HC-B.1.3, the CBB will take into account regulatory requirements applicable to the
parent entity, as well as the governance and systems and controls arrangements actually implemented by theparent entity and applied to the Bahrain operation. With the exception of specific requirements that explicitly apply tooverseas investment firm licensees (i.e. Paragraphs HC-B.1.3),overseas investment firm licensees should consider the remaining contents of this Chapter as guidance, in judging whether high-level controls applied to the branch satisfy HC-B.1.3.January 2011HC-B.2 HC-B.2 Branches, Subsidiaries and Affiliates
HC-B.2.1
Bahraini investment firm licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to theirbranches , whether located inside or outside the Kingdom of Bahrain, such that these are also subject to effective high-level controls. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.January 2011HC-B.2.2
Bahraini investment firm licensees must satisfy the CBB thatregulated investment services conducted insubsidiaries and other group members are subject to the same or equivalent arrangements for ensuring effective corporate governance over their activities.Amended: January 2012
January 2011HC-B.2.3
Where an
investment firm licensee is unable to satisfy the CBB that itssubsidiaries and other group members are subject to the same or equivalent arrangements, the CBB will assess the potential impact of risks — both financial and reputational — to the licensee arising from inadequate high-level controls in the rest of the group of which it is a member. In such instances, the CBB may impose restrictions on dealings between the licensee and other group members. Where weaknesses in controls are assessed by the CBB to pose a major threat to the stability of the licensee, then its authorisation may be called into question.January 2011HC-1 HC-1 The Board
HC-1.1 HC-1.1 Principle
HC-1.1.1
All
Bahraini investment firm licensees must be headed by an effective, collegial and informed Board of Directors ('the Board').January 2011HC-1.2 HC-1.2 Role and Responsibilities
HC-1.2.1
All directors must understand the Board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:
(a) The Board's role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and(b) The Board's fiduciary duties of care and loyalty to theinvestment firm licensee and the shareholders (see HC-2.1).January 2011HC-1.2.2
The Board's role and responsibilities include but are not limited to:
(a) Approving and reviewing at least annually the overall business performance and strategy for theinvestment firm licensee ;(b) Reviewing regularly the implementation of the strategy and operational performance;(c) Causing financial statements to be prepared which accurately disclose theinvestment firm licensee's financial position;(d) Monitoring management performance;(e) Reviewing regularly the level of risk;(f) Approving and reviewing at least annually systems and controls framework (including policies);(g) Convening and preparing the agenda for shareholder meetings;(h) Monitoring conflicts of interest and preventing abusive related party transactions;(i) Assuring equitable treatment of shareholders including minority shareholders; and(j) Setting out clearly and reviewing on a regular basis who has authority to enter the licensee into contractual obligations.January 2020
January 2011HC-1.2.3
With respect to Subparagraph HC-1.2.2(j), the Board should set a materiality threshold so that contractual obligations above this set threshold are regularly reported to the Board. In setting the materiality threshold, the Board will consider the financial impact the contractual obligation may have in relation to its capital.
January 2011HC-1.2.4
The directors are responsible both individually and collectively for performing these responsibilities and must have sufficient expertise as a Board to understand the important issues relating to operation and control of the
investment firm licensee . Although the Board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place. This statement must be clearly communicated to Board members andsenior management .January 2011HC-1.2.5
When a new director is inducted, the chairman of the Board, or the licensee's legal counsel or compliance officer, or other individual delegated by the chairman of the board, should review the Board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC (see also HC-4.3.1).
Amended: January 2012
January 2011HC-1.2.6
The
investment firm licensee should have a written appointment agreement with each director which recites the directors' powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, hisremuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.January 2011HC-1.2.7
The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.
January 2011Additional Guidance
HC-1.2.8
In assessing the
licensee's strategic plans (see Paragraph HC-1.2.2), the CBB would expect the Board to address thelicensee's current and future aspirations with respect to its position in the market place, its size, products, value and other key aspirations that would be considered important by investors. Furthermore, the Board should demonstrate that it is able to identify proactively and understand the significant risks that the licensee faces in achieving its business objectives. A description of thelicensee's strategy should be included in the annual financial statements.January 2011HC-1.2.9
In assessing the management framework (see Paragraph HC-1.2.2), the CBB would expect the Board to have effective policies and processes in place for:
(a) Ensuring a formal and transparent Board nomination process;(b) Appointingsenior managers , and ensuring that they have the necessary integrity, technical and managerial competence, and experience;(c) Overseeing succession planning, and minimizing undue reliance on key individuals;(d) Reviewing keysenior management and Board remuneration packages and ensuring such packages are consistent with the corporate values and strategy of thelicensee and encourage prudent risk taking;(e) Monitoring and evaluating management's performance in implementing agreed strategy and business plans, and ensuring appropriate resources are available; and(f) Approving budgets and reviewing performance against those budgets.January 2011HC-1.2.10
In assessing the systems and controls framework (see Paragraph HC-1.2.2), the CBB would expect the Board to be able to demonstrate that the
licensee's operations, individually and collectively:(a) Are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of thelicensee's activities. These should pro-actively identify as well as monitor risk. The systems should produce information on a timely basis, and in a form and quality appropriate to the needs of the different recipients;(b) Are supported by an appropriate control environment. The risk management and financial reporting functions must be independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas; and(c) Make effective use of the work of internal and external auditors.January 2011HC-1.3 HC-1.3 Composition
HC-1.3.1
The Memorandum and Articles of Association of
Bahraini investment firm licensees must adequately set out procedures for the appointment, removal and retirement ofdirectors .January 2011HC-1.3.2
The Board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints. The Board should recommend changes in Board size to the shareholders when a needed change requires amendment of the
investment firm licensee's Memorandum of Association.Amended: October 2014
January 2011HC-1.3.3
It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. CBB also expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities as
Directors .January 2011HC-1.3.4
Potential
non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. The Nominating Committee should regularly review the time commitment required from eachnon-executive director and should require eachnon-executive director to inform the Committee before he accepts any Board appointments to another company. One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.January 2011HC-1.3.5
To fulfil its responsibilities outlined in Section HC-1.2, the Board of
Bahraini investment firm licensees must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting newdirectors to replace long-standing members or those members whose contributions to thelicensee or its committees is not adequate.January 2011HC-1.3.6
To demonstrate compliance with Rule HC-1.3.5, the Board should be able to demonstrate that it regularly considers (e.g. every one or two years) the mix of executive, non-executive and independent non-executive
Directors , and skills and experience, that it requires. See also Paragraph HC-1.3.2.January 2011HC-1.3.7
A Board member may have a maximum of two Directorships of financial institutions inside Bahrain. However, two Directorships of
investment firm licensees would not be permitted.Investment firm licensees may approach the CBB for exemption from this limit where the Directorships concern financial institutions within the same group.Amended: April 2013
January 2011HC-1.3.8
The appointment of Board members is conditional on the approval of the CBB (See Section AU-1.2).
January 2011HC-1.4 HC-1.4 Decision Making Process
HC-1.4.1
The Board must be collegial and deliberative, to gain the benefit of each individual director's judgment and experience.
January 2011HC-1.4.2
The chairman must take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made.
January 2011HC-1.4.3
The Board must meet frequently but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.
January 2011HC-1.4.4
Individual board members must attend at least 75% of all Board meetings in a given financial year to enable the Board to discharge its responsibilities effectively (see table below). Voting and attendance proxies for board meetings are prohibited at all times.
Meetings per year 75% Attendance requirement 4 3 5 4 6 5 7 5 8 6 9 7 10 8 Amended: April 2011
January 2011HC-1.4.4A
The absence of Board members at Board and committee meetings must be noted in the meeting minutes. In addition, Board attendance percentage must be reported during any general assembly meeting when Board members stand for re-election (e.g. Board member XYZ attended 95% of scheduled meetings this year).
Added: April 2011
HC-1.4.4B
In the event that a Board member has not attended at least 75% of Board meetings in any given financial year, the
investment firm licensee must immediately notify the CBB indicating which member has failed to satisfy this requirement, his level of attendance and any mitigating circumstances affecting his non-attendance. The CBB shall then consider the matter and determine whether disciplinary action, including disqualification of that Board member pursuant to Article 65 of the CBB Law, is appropriate. Unless there are exceptional circumstances, it is likely that the CBB will take disciplinary action.Added: April 2011
HC-1.4.5
To meet its obligations under Rule HC-1.4.3 above, the Board should meet preferably no less than four times per year. The CBB recommends that meetings should take place once every quarter to address the Board's responsibilities for management oversight and performance monitoring. Furthermore, Board rules should require members to step down if they are not actively participating in Board meetings. Board members are reminded that non attendance at board meetings does not absolve them of their responsibilities as directors. It is important that each individual director should allocate adequate time and effort to discharge his responsibilities. All Directors are expected to contribute actively to the work of the Board in order to discharge their responsibilities and should make every effort to attend board meetings where major issues are to be discussed.
Investment firm licensees are encouraged to amend their Articles of Association to provide for telephonic and videoconference meetings. Participation in board meetings by means of video or telephone conferencing is regarded as attendance and may be recorded as such.Amended: April 2011
January 2011HC-1.4.6
At least half the Board meetings of
Bahraini investment firm licensees in any twelve-month period must be held in the Kingdom of Bahrain.January 2011HC-1.4.7
The chairman must ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each Board meeting and when necessary between meetings. All directors must receive the same Board information. At the same time, directors have a legal duty to inform themselves and they must ensure that they receive adequate and timely information and must study it carefully.
January 2011HC-1.4.8
The Board must maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.
January 2011HC-1.5 HC-1.5 Independence of Judgment
HC-1.5.1
The Board must ensure that it has sufficient non-executive and
independent non-executive directors (in addition to its Chairman), in order to provide sufficient independent scrutiny of management.January 2011HC-1.5.2
In the case of a
Bahraini investment firm licensee , which is part of an overseas group, where there is sufficient independent scrutiny of the operations of the firm on a group wide basis, the CBB will consider exempting the licensee from the independence requirements of Paragraph HC-1.5.1.January 2011HC-1.5.3
Every director must bring independent judgment to bear in decision-making. No individual or group of directors must dominate the Board's decision-making and no one individual should have unfettered powers of decision.
January 2011HC-1.5.4
Executive directors must provide the Board with all relevant business and financial information within their cognizance, and must recognise that their role as a director is different from their role as an officer.January 2011HC-1.5.5
Non-executive directors should be fully independent of management and should constructively scrutinise and challenge management including the management performance ofexecutive directors .January 2011HC-1.5.6
At least half of an
investment firm licensee's Board should benon-executive directors and at least three of those persons should beindependent directors. (Note the exception for controlled companies in Paragraph HC-1.6.2 and for possible exemption under Paragraph HC-1.5.2).January 2011HC-1.5.7
The chairman of the Board should be an
independent director so that there will be an appropriate balance of power and greater capacity of the Board for independent decision making.Amended: January 2012
January 2011HC-1.5.7A
The chairman and/or deputy chairman must not be the same person as the CEO.
Added: January 2012HC-1.5.8
The Board must review the independence of each director at least annually in light of interests disclosed by them. Each
independent director must provide the Board with all necessary and updated information for this purpose.Amended: April 2021
January 2011HC-1.5.9
To facilitate free and open communication among
independent directors , each Board meeting should be preceded or followed with a session at which onlyindependent directors are present, except as may otherwise be determined by theindependent directors themselves.January 2011HC-1.5.10
Where an independent director has served three consecutive terms on the board, such director will lose his/her independence status and must not be classified as an independent director if reappointed.
Added: April 2021HC-1.5.11
Where a Chief Executive Officer of an
investment firm licensee , who is also a Board member, no longer occupies the CEO position, whether due to resignation, retirement or termination, his/her Board Membership must also be immediately terminated.Added: April 2021HC-1.6 HC-1.6 Representation of all Shareholders
HC-1.6.1
Each director must consider himself as representing all shareholders and must act accordingly. The Board must avoid having representatives of specific groups or interests within its membership and must not allow itself to become a battleground of vested interests. If the company has a
controller (or a group ofcontrollers acting in concert), the latter must recognise its or their specific responsibility to the other shareholders, which is direct and is separate from that of the Board of directors.January 2011HC-1.6.2
In
investment firm licensees with acontroller , at least one-third of the Board must beindependent directors . Minority shareholders must generally look toindependent directors' diligent regard for their interests, in preference to seeking specific representation on the Board.January 2011HC-1.6.3
In
investment firm licensees with acontroller , both controllers and other shareholders should be aware ofcontrollers' specific responsibilities regarding their duty of loyalty to theinvestment firm licensee and conflicts of interest (see Chapter HC-2) and also of rights that minority shareholders may have to elect specific directors under the Company Law or if theinvestment firm licensee has adopted cumulative voting for directors. The chairman of the board or other individual delegated by the chairman of the board should take the lead in explaining this with the help of company lawyers.Amended: January 2012
January 2011HC-1.7 HC-1.7 Directors' Access to Independent Advice
HC-1.7.1
The Board must ensure that individual directors have access to independent legal or other professional advice at the
investment firm licensee's expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with theinvestment firm licensee's policy approved by the Board.January 2011HC-1.7.2
Individual directors must also have access to the
investment firm licensee's corporate secretary, who must have responsibility for reporting to the Board on Board procedures. Both the appointment and removal of the corporate secretary must be a matter for the Board as a whole, not for the CEO or any other officer.January 2011HC-1.7.3
Whenever a director has serious concerns which cannot be resolved concerning the running of the
investment firm licensee or a proposed action, he should consider seeking independent advice and should ensure that the concerns are recorded in the Board minutes and that any dissent from a Board action is noted or delivered in writing.January 2011HC-1.7.4
Upon resignation, a
non-executive director should provide a written statement to the chairman, for circulation to the Board, if he has any concerns such as those in Paragraph HC-1.7.3.January 2011HC-1.8 HC-1.8 Directors' Communication with Management
HC-1.8.1
The Board must encourage participation by management regarding matters the Board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.
January 2011HC-1.8.2
Non-executive directors should have free access to theinvestment firm licensee's management beyond that provided in Board meetings. Such access should be through the Chairman of the Audit Committee or CEO. The Board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.January 2011HC-1.9 HC-1.9 Committees of the Board
HC-1.9.1
The Board must create specialised committees when and as such committees are needed. In addition to the Audit Committee described elsewhere in this Module, these may include an Executive Committee to review and make recommendations to the whole Board on company actions, or a Risk Committee to identify and minimise specific risks of the
investment firm licensee's business.January 2011HC-1.9.2
The Board should establish a corporate governance committee of at least three independent members which should be responsible for developing and recommending changes from time to time in the
investment firm licensee's corporate governance policy framework.Amended: January 2012
January 2011HC-1.9.3
The Board or a committee may invite non-directors to participate in, but not vote at committee meetings so that the committee may gain the benefit of their advice and expertise in financial or other areas.
January 2011HC-1.9.4
Committees must act only within their mandates and therefore the Board must not allow any committee to dominate or effectively replace the whole Board in its decision-making responsibility.
January 2011HC-1.9.5
Committees may be combined provided that no conflict of interest might arise between the duties of such committees.
Amended: July 2012
January 2011HC-1.9.6
Every committee should have a formal written charter similar in form to the model charter which is set forth in Appendix A of this Module for the Audit Committee.
January 2011HC-1.10 HC-1.10 Evaluation of the Board and Each Committee
HC-1.10.1
At least annually the Board must conduct an evaluation of its performance and the performance of each committee and each individual director.
Amended: January 2012
January 2011HC-1.10.2
The evaluation process must include:
(a) Assessing how the Board operates, especially in light of Chapter HC-1;(b) Evaluating the performance of each committee in light of its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;(c) Reviewing each director's work, his attendance at Board and committee meetings, and his constructive involvement in discussions and decision-making; and(d) Reviewing the Board's current composition against its desired composition with a view toward maintaining an appropriate balance of skills and experience and a view toward planned and progressive refreshing of the Board.January 2011HC-1.10.3
While the evaluation is a responsibility of the entire Board, it should be organised and assisted by an internal Board committee and, when appropriate, with the help of external experts.
January 2011HC-1.10.4
The Board should report to the shareholders, at each annual shareholder meeting, that evaluations have been done.
January 2011HC-1.11 HC-1.11 Annual Board Review and Certification
HC-1.11.1
The Board must assess and document each year whether the internal corporate governance processes that it has implemented have successfully achieved their objectives, and consequently whether the Board has fulfilled its responsibilities for directing and monitoring the overall conduct of the
licensee's affairs.January 2011HC-1.11.2
[This Paragraph was deleted in January 2022].
Deleted: January 2022
Amended: October 2012
January 2011HC-1.11.3
[This Paragraph was deleted in January 2022].
Deleted: January 2022
January 2011HC-1.11.4
[This Paragraph was deleted in January 2022].
Deleted: January 2022
January 2011HC-1.11.5
The Board's review should cover the following specific matters:
(a) That the Board has reassessed thelicensee's objectives and plans, and has reviewed thelicensee's corporate strategy document;(b) That the Board has reassessed thelicensee's overall risk profile, and its mapping of risks and the control environment put in place to meet those risks. The Board must comment whether the control environment remains effective and appropriate;(c) That the Board has assessed thelicensee's internal controls, to confirm that these are based on established policies approved by the Board and provide reasonable assurance of the integrity and reliability of its financial records;(d) That the Board has assessed whether adherence to established internal limits and controls was continuously monitored;(e) That the Board has assessed that all new (or material changes to) significant policies and products introduced by thelicensee since the last Board certification were appropriately reviewed and approved at the time;(f) That the Board has assessed that management and staff have complied with thelicensee's corporate code of conduct (see Paragraph HC-2.2.4); and(g) That in the period under review, the Board had received and reviewed the external auditor's management letter within six months of the (previous) financial year end, together with comments on the letter and proposed actions, from thelicensee's audit committee and senior management.January 2020
January 2011HC-1.11.6
[This Paragraph was deleted in January 2022].
Deleted: January 2022
January 2011HC-2 HC-2 Approved Persons Loyalty
HC-2.1 HC-2.1 Principle
HC-2.1.1
The
approved persons must have full loyalty to theinvestment firm licensee .January 2011HC-2.2 HC-2.2 Personal Accountability
HC-2.2.1
The Board and its members must act with honesty, integrity, due skill and care, and in the best interests of the
licensee , itsshareholders andclients .January 2011HC-2.2.2
In assessing compliance with Paragraph HC-2.2.1, the CBB will take into account all actions of the Board and its members. The interest of the
licensee includes thelicensee 's continued compliance with all relevant rules and regulations, and the interests of employees,clients and other stakeholders. The interest ofshareholders includes the current and future value of thelicensee , its status as a going concern, transparency and disclosure of information to the market. The interest ofclients includes ensuring that thelicensee fulfils its obligations under itsterms of business and treats allclients fairly and pays equal regard to the interests of allclients. January 2011HC-2.2.3
Each member of the board must understand that under the Company Law he is personally accountable to the
investment firm licensee and the shareholders if he violates his legal duty of loyalty to theinvestment firm licensee , and that he can be personally sued by theinvestment firm licensee or the shareholders for such violations.Amended: January 2013
January 2011HC-2.2.4
An
investment firm licensee's Board must establish and disseminate to all employees of thelicensee a corporate code of conduct.Amended: October 2013
January 2011HC-2.2.5
The code of conduct must establish standards by giving examples or expectations as regards:
(a) Honesty;(b) Integrity;(c) The avoidance or disclosure of conflicts of interest;(d) Maintaining confidentiality;(e) Professionalism;(f) Commitment to the law and best practices; and(g) Reliability.January 2011HC-2.2.6
The Board must establish and disseminate to employees policies and processes for the identification, reporting and prevention or management of potential conflicts of interest, including matters such as:
(a) Related party transactions;(b) The misuse of thelicensee's assets; and(c) The use of privileged information for personal advantage ('insider trading').Amended: October 2013
January 2011HC-2.2.7
Any transaction in which Board members or any member of management have potential conflicts of interest should either be proscribed or require formal documented approval by the Board, with measures taken to manage those conflicts (see also Paragraph HC-2.4.1).
January 2011HC-2.2.8
The Board must ensure that policies and procedures are in place to ensure that necessary customer confidentiality is maintained.
January 2011HC-2.2.9
The duty of loyalty includes a duty not to use property of the
investment firm licensee for his personal needs as though it was his own property, not to disclose confidential information of theinvestment firm licensee or use it for his personal profit, not to take business opportunities of theinvestment firm licensee for himself, not to compete in business with theinvestment firm licensee , and to serve theinvestment firm licensee's interest in any transactions with the company in which he has a personal interest.January 2011HC-2.2.10
For purposes of Paragraph HC-2.2.9, an
approved person should be considered to have a "personal interest" in a transaction with the company if:(a) He himself;(b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or(c) Another company of which he is a director orcontroller ,is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)
January 2011HC-2.3 HC-2.3 Avoidance of Conflicts of Interest
HC-2.3.1
Investment firm licensees must maintain an organisational structure that minimises the risk of conflicts of interest arising.January 2011HC-2.3.2
For the purposes of Rule HC-2.3.1, the CBB would expect
investment firm licensees to separate front and back office functions, as well as proprietary trading and client trading/advisory functions.January 2011HC-2.3.3
Each
approved person must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with theinvestment firm licensee .January 2011HC-2.3.4
Board members must absent themselves from any discussion or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject, transaction or proposed transaction where there is a potential conflict of interest.
January 2011HC-2.3.5
Bahraini investment firm licensees must have in place a board approved policy on the employment of relatives ofapproved persons and a summary of such policy must be disclosed in the annual report of theBahraini investment firm licensees .Amended: July 2016
Added: April 2016HC-2.3.6
Overseas investment firm licensees must have in place a policy on the employment of relatives ofapproved persons pertaining to their Bahrain operations.Added: July 2016HC-2.4 HC-2.4 Disclosure of Conflicts of Interest
HC-2.4.1
Each
approved person must inform the entire Board of conflicts of interest as they arise. Board members must abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure must include all material facts in the case of a contract or transaction involving theapproved person . Theapproved persons must understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision.Amended: January 2013
January 2011HC-2.4.2
Board members must declare annually in writing all of their interests (and those of their
family ) in other enterprises or activities (whether as aDirector ,shareholder , senior executive or other form of participation) to the Board (or appropriate Board sub-Committee).January 2011HC-2.4.2A
The chief executive/general manager of the
Bahraini investment firm licensees must disclose to the board of directors on an annual basis those individuals who are occupyingcontrolled functions and who are relatives of anyapproved persons within theBahraini investment firm licensee .Amended: July 2016
Added: April 2016HC-2.4.2B
The chief executive/general manager of the
overseas investment firm licensees must disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupyingcontrolled functions and who are relatives of anyapproved persons within theoverseas investment firm licensee .Added: July 2016HC-2.4.3
The Board of the
Bahraini investment firm licensee should establish formal procedures for:(a) Periodic disclosure and updating of information by eachapproved person on his actual and potential conflicts of interest; and(b) Advance approval by directors or shareholders who do not have an interest in the transactions in which aninvestment firm licensee's approved person has a personal interest. The Board should require such advance approval in every case.Amended: July 2016
January 2011HC-2.5 HC-2.5 Disclosure of Conflicts of Interest to Shareholders
HC-2.5.1
The
investment firm licensee must disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and must disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.January 2011HC-3 HC-3 Audit Committee and Financial Statements Certification
HC-3.1 HC-3.1 Principle
HC-3.1.1
The Board must have rigorous controls for financial audit and reporting, internal control, and compliance with law.
January 2011HC-3.2 HC-3.2 Audit Committee
HC-3.2.1
The Board should establish an audit committee of at least three directors of which the majority should be independent including the Chairman. The committee should:
(a) Review the company's accounting and financial practices;(b) Review the integrity of theinvestment firm licensee's financial and internal controls and financial statements;(c) Review theinvestment firm licensee's compliance with legal requirements;(d) Recommend the appointment, compensation and oversight of theinvestment firm licensee's external auditor; and(e) Recommend the appointment of the internal auditor (whether in-house or outsourced).Amended: January 2013
January 2011HC-3.2.2
The Board or Audit Committee should ensure that the external audit firm and its partners are truly independent of the
licensee and have no financial or other relationship with thelicensee . Audit findings should be used as an independent check on the information received from management about thelicensee's operations and performance and the effectiveness of internal controls.January 2011HC-3.3 HC-3.3 Audit Committee Charter
HC-3.3.1
The audit committee should adopt a written charter which shall, at a minimum, state the duties outlined in Paragraph HC-3.2.1 and the other matters included in Appendix A to this Module.
January 2011HC-3.3.2
A majority of the audit committee should have the financial literacy qualifications stated in Appendix A.
January 2011HC-3.3.3
The Board should adopt a "whistleblower" program under which employees can confidentially raise concerns about possible improprieties in financial or legal matters. Under the program, concerns may be communicated directly to any audit committee member or, alternatively, to an identified officer or employee who will report directly to the Audit Committee on this point.
January 2011HC-3.4 HC-3.4 CEO and CFO Certification of Financial Statements
HC-3.4.1
To encourage management accountability for the financial statements required by the directors, the
investment firm licensee's CEO and chief financial officer should state in writing to the audit committee and the Board as a whole that theinvestment firm licensee's interim and annual financial statements present a true and fair view, in all material respects, of theinvestment firm licensee's financial condition and results of operations in accordance with applicable accounting standards.January 2011HC-4 HC-4 Appointment, Training and Evaluation of the Board
HC-4.1 HC-4.1 Principle
HC-4.1.1
The
investment firm licensee must have rigorous procedures for appointment, training and evaluation of the Board.January 2011HC-4.2 HC-4.2 Board Nominations to Shareholders
HC-4.2.1
Each proposal by the Board to the shareholders for election or reelection of a director must be accompanied by a recommendation from the Board, and the following specific information:
(a) The term to be served, which may not exceed three years (but there need not be a limit on reelection for further terms);(b) Biographical details and professional qualifications;(c) In the case of anindependent director , a statement that the Board has determined that the criteria ofindependent director have been met;(d) Any other directorships held;(e) Particulars of other positions which involve significant time commitments, and(f) Details of relationships between:(i) The candidate and theinvestment firm licensee , and(ii) The candidate and other directors of theinvestment firm licensee. January 2011HC-4.2.2
The chairman of the Board should confirm to shareholders when proposing re-election of a director that, following a formal performance evaluation, the person's performance continues to be effective and continues to demonstrate commitment to the role. Any term beyond six years (e.g. two three-year terms) for a director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the Board. Serving more than six years is relevant to the determination of a non-executive director's independence.
January 2011HC-4.2.3
Licensees must notify the CBB immediately on any change in board categorisation.Added: April 2021HC-4.3 HC-4.3 Induction and Training of Directors
HC-4.3.1
The chairman of the Board must ensure that each new director receives a formal and tailored induction to ensure his contribution to the Board from the beginning of his term. The induction must include meetings with
senior management , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.January 2011HC-4.3.2
All continuing directors must be invited to attend orientation meetings and all directors must continually educate themselves as to the
investment firm licensee's business and corporate governance.January 2011HC-4.3.3
Management, in consultation with the chairman of the Board, should hold programs and presentations to directors respecting the
investment firm licensee's business and industry, which may include periodic attendance at conferences and management meetings.January 2011HC-5 HC-5 Remuneration of Approved Persons
HC-5.1 HC-5.1 Principle
HC-5.1.1
The
investment firm licensee must remunerateapproved persons fairly and responsibly.January 2011HC-5.2 HC-5.2 Role of Board of Directors
HC-5.2.1
The Board of Directors must:
(a) Review theinvestment firm licensee's remuneration policies for theapproved persons , which must be approved by the shareholders;(b) Make recommendations regardingremuneration policies and amounts for specific persons to the whole Board, taking account of totalremuneration including salaries, fees, expenses and employee benefits; and(c) Remunerate Board members based on their attendance and performance.January 2011HC-5.3 HC-5.3 Standard for all Remuneration
HC-5.3.1
Remuneration (including incentives, bonuses and other rewards) ofapproved persons must be sufficient enough to attract, retain and motivate persons of the quality needed to run theinvestment firm licensee successfully, but theinvestment firm licensee must avoid paying more than is necessary for that purpose.January 2011HC-5.3.2
Where remuneration is structured so as to link rewards to corporate and individual performance, criteria should avoid excessive focus on short-term profitability measures, without due regard to the longer-term consequences of actions taken.
January 2011Alignment of All Staff Remuneration with Compliance with AML/CFT Requirements
HC-5.3.3
The performance evaluation and remuneration of senior management and staff of the
investment firm licensee must be based on the achievement of the Key Performance Indicators (KPIs) relevant to ensuring compliance with AML/CFT requirements as specified in Paragraphs FC-2.1.3 and FC-2.1.4.Added: April 2020HC-5.4 HC-5.4 Directors' Remuneration
HC-5.4.1
The review of
Directors ' remuneration must be a standing item on theinvestment firm licensee's Annual General Meeting agenda, and must be considered byshareholders at every Annual General Meeting.Directors ' remuneration (including pension and severance arrangements) and bonuses must be clearly disclosed in the annual financial statements.January 2011HC-5.4.2
Directors' remuneration should also comply with all applicable laws, such as Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law.January 2011HC-5.4.3
Remuneration ofnon-executive directors must not include performance-related elements such as grants of shares, share options or other deferred stock-related incentive schemes, bonuses, or pension benefits.January 2011HC-5.5 HC-5.5 Senior Management Remuneration
HC-5.5.1
Remuneration ofsenior management must be structured so that a portion of the total is linked toinvestment firm licensee and individual performance and aligns their interests with the interests of the shareholders.January 2011HC-5.5.2
Such rewards may include grants of shares, share options and other deferred stock-related incentive schemes, bonuses, and pension benefits which are not based on salary.
January 2011HC-5.5.3
If a
senior manager is also a director, hisremuneration as asenior manager must take into account compensation received in his capacity as a director.January 2011HC-5.5.4
All share incentive plans must be approved by the shareholders.
January 2011HC-5.5.5
All performance-based incentives should be awarded under written objective performance standards which have been approved by the Board and are designed to enhance shareholder and company value, and under which shares should not vest and options should not be exercisable within less than two years of the date of award of the incentive.
January 2011HC-5.5.6
All policies for performance-based incentives should be approved by the shareholders, but the approval should be only of the plan itself and not of the grant to specific individuals of benefits under the plan.
Amended: January 2012
January 2011HC-6 HC-6 Management Structure
HC-6.1 HC-6.1 Principle
HC-6.1.1
The Board must establish a clear and efficient management structure.
January 2011HC-6.2 HC-6.2 Establishment of Management Structure
HC-6.2.1
The Board must approve and review at least annually the
investment firm licensee's management structure and responsibilities.January 2011HC-6.2.2
The Board must appoint
senior management whose authority must include management and operation of current activities of theinvestment firm licensee , reporting to and under the direction of the Board. Thesenior managers must include at a minimum:(a) ACEO ;(b) A chief financial officer;(c) A corporate secretary;and must also include such other
approved persons as the Board considers appropriate and as a minimum must include persons occupyingcontrolled functions as outlined in Paragraph AU-1.2.2.Amended: April 2011
January 2011HC-6.3 HC-6.3 Titles, Authorities, Duties and Reporting Responsibilities
HC-6.3.1
Investment firm licensees must maintain clearly documented and communicated staff responsibilities and reporting lines.January 2011HC-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.January 2011HC-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 theCEO , to whom the othersenior managers should normally report.January 2011HC-6.3.4
These provisions must include but should not be limited to the following:
(a) TheCEO must have authority to act generally in theinvestment firm licensee's name, representing theinvestment firm licensee's interests in concluding transactions on theinvestment firm licensee's behalf and giving instructions to othersenior managers andinvestment firm licensee employees;(b) The chief financial officer must be responsible and accountable for:(i) The complete, timely, reliable and accurate preparation of theinvestment firm licensee's financial statements, in accordance with the accounting standards and policies of theinvestment firm licensee (see HC-3.4.1); and(ii) Presenting the Board with a balanced and understandable assessment of theinvestment firm licensee's financial situation;(c) The corporate secretary's duties must include arranging, recording and following up on the actions, decisions and meetings of the Board and of the shareholders (both at annual and extraordinary meetings) in books to be kept for that purpose;(d) The internal auditor's (see HC-6.4) duties must include providing an independent and objective review of the efficiency of theinvestment firm licensee's operations. This would include a review of the accuracy and reliability of theinvestment firm licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of theinvestment firm licensee's risk management, control, and governance processes; and(e) The compliance officer's (see HC-6.5) duties include maintaining 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.Amended: April 2011
January 2011HC-6.3.5
The Board should also specify any limits which it wishes to set on the authority of the
CEO or othersenior managers , such as monetary maximums for transactions which they may authorize without separate Board approval.January 2011HC-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.January 2011HC-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 theCEO .January 2011HC-6.4 HC-6.4 Internal Audit
HC-6.4.1
Bahraini investment firm licensees must establish an internal audit function to monitor the adequacy of their systems and controls.January 2011HC-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.Amended: July 2015
January 2011HC-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 thelicensee's group, where relevant, providing this doesn't impair the level of internal audit scrutiny applied to thelicensee ). The CBB will however consider allowing smallinvestment firm licensees to outsource part or all of their internal audit function to third party providers.January 2011HC-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 thelicensee , and must comply with the requirements contained in Chapter RM-7. Alicensee cannot outsource its internal audit function to its external auditor.January 2011HC-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 thelicensee responsible for internal audit: this person should be anapproved person (see Section AU-1.2 and Chapter RM-7).January 2011HC-6.4.6
Internal audit functions must have terms of reference that clearly indicate:
(a) The scope and frequency of audits;(b) Reporting lines; and(c) The review and approval process applied to audits.January 2011HC-6.4.7
Paragraph HC-6.4.6 applies irrespective of whether the internal audit function is
outsourced . Where it isoutsourced , the CBB would expect to see these matters addressed in the contract with theoutsourcing provider .January 2011HC-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, theChief Executive , and thelicensee's external auditor.January 2011HC-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.January 2011HC-6.4.10
The CBB would expect to see in place a formal audit plan that:
(a) Is reviewed and approved at least annually by the Audit Committee or, where none exists, the Board;(b) Is risk-based, with an appropriate scoring system; and(c) Covers all material areas of alicensee's operations over a reasonable timescale.January 2011HC-6.4.11
Internal Audit reports should also be:
(a) Clear and prioritised, with action points directed towards identified individuals;(b) Timely; and(c) Distributed to the Audit Committee or Board and appropriatesenior management .January 2011HC-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:(a) Dealt with in a timely fashion;(b) Monitored until they are settled; and(c) Raised withsenior management if they have not been adequately dealt with.January 2011HC-6.5 HC-6.5 Compliance
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.January 2011HC-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:(a) Document its organisation and responsibilities;(b) Be appropriately staffed with competent individuals;(c) Have unrestricted access to thelicensee's relevant records; and(d) Have ultimate recourse to the Board.January 2011HC-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.
Added: April 2011
HC-7 HC-7 Communication between Board and Shareholders
HC-7.1 HC-7.1 Principle
HC-7.1.1
The
investment firm licensee must communicate with shareholders, encourage their participation, and respect their rights.January 2011HC-7.2 HC-7.2 Conduct of Shareholders' Meetings
HC-7.2.1
The Board must observe both the letter and the intent of the Company Law's requirements for shareholder meetings. Among other things:
(a) Notices of meetings must be honest, accurate and not misleading. They must clearly state and, where necessary, explain the nature of the business of the meeting;(b) Meetings must be held during normal business hours and at a place convenient for the greatest number of shareholders to attend;(c) Notices of meetings must encourage shareholders to participate by proxy and must refer to procedures for appointing a proxy and for directing the proxy how to vote on a particular resolution. The proxy agreement must list the agenda items and must specify the vote (such as "yes," "no" or "abstain");(d) Notices must ensure that all material information and documentation is provided to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;(e) The Board must propose a separate resolution at any meeting on each substantially separate issue, so that unrelated issues are not "bundled" together;(f) In meetings where directors are to be elected or removed the Board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;(g) The chairman of the meeting must encourage questions from shareholders, including questions regarding theinvestment firm licensee's corporate governance guidelines;(h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and(i) Disclosure of all material facts must be made to the shareholders.(j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.Amended: October 2017
Added: January 2011HC-7.2.2
The
investment firm licensee should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).January 2011HC-7.2.3
The
investment firm licensee should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.January 2011HC-7.2.4
An
investment firm licensee should maintain a company website. Theinvestment firm licensee should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. Theinvestment firm licensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, theinvestment firm licensee should grant a controlled access to such information to its shareholders.January 2011HC-7.2.5
In notices of meetings at which directors are to be elected or removed the
investment firm licensee should ensure that:(a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and(b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.Amended: October 2012
January 2011HC-7.3 HC-7.3 Direct Shareholder Communication
HC-7.3.1
The chairman of the Board (and other directors as appropriate) must maintain continuing personal contact with
controllers to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the Board as a whole. The chairman must discuss governance and strategy withcontrollers . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the Board should encourage investors, particularly institutional investors, to help in evaluating theinvestment firm licensee's corporate governance (see also HC-1.4 for other duties of the chairman).January 2011HC-7.4 HC-7.4 Controllers
HC-7.4.1
In companies with one or more
controllers , the chairman and other directors must actively encourage thecontrollers to make a considered use of their position and to fully respect the rights of minority shareholders (see also HC-1.4 for other duties of the chairman).January 2011HC-8 HC-8 Corporate Governance Disclosure
HC-8.1 HC-8.1 Principle
HC-8.1.1
The
investment firm licensee must disclose its corporate governance.January 2011HC-8.2 HC-8.2 Disclosure Under the Company Law and CBB Requirements
HC-8.2.1
The Board must oversee the process of disclosure to all stakeholders. The Board must ensure that the
licensee's communications are fair, transparent, comprehensive and timely.January 2011HC-8.2.2
In each
investment firm licensee :(a) The Board must adopt written corporate governance guidelines covering the matters stated in Module HC and other corporate governance matters deemed appropriate by the Board. Such guidelines must include or refer to the principles and rules of Module HC;(b) Theinvestment firm licensee must publish the guidelines on its website, if it has a website (see HC-7.2.4);(c) At each annual shareholders' meeting the Board must report on theinvestment firm licensee's compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and(d) At each annual shareholders' meeting the Board must also report on further items listed in Appendix B. Such information should be maintained on theinvestment firm licensee's website or held at theinvestment firm licensee's premises on behalf of the shareholders.January 2011HC-8.2.3
The CBB may issue a template as a guide for an
investment firm licensee's annual meeting corporate governance discussion.January 2011HC-8.2.4
The licensee's annual report must identify
Directors as executive, non-executive, or independent non-executive, and provide the definition of independence used.January 2011HC-9 HC-9 Islamic Investment Firm Licensees
HC-9.1 HC-9.1 Principle
HC-9.1.1
Companies which refer to themselves as "Islamic" must follow the principles of Islamic Shari'a.
January 2011HC-9.2 HC-9.2 Governance and Disclosure per Shari'a Principles
HC-9.2.1
Islamic
investment firm licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders.Investment firm licensees which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a Principles. In ensuring compliance with Shari'a principles, each Islamicinvestment firm licensee must establish a Shari'a Supervisory Board consisting of at least three Shari'a board members.Amended: October 2014
January 2011HC-9.2.2
In addition to its duties outlined in Chapter HC-3 and Appendix A, the Audit Committee shall communicate and co-ordinate with the
investment firm licensee's Corporate Governance Committee and the Shari'a Supervisory Board ("SSB") (where applicable) to ensure that information on compliance with Islamic Shari'a rules and principles is reported in a timely manner.January 2011HC-9.2.3
The Board shall set up a Corporate Governance Committee (see also Paragraph HC-1.9.2). In this case, the Committee shall comprise at least three members to co-ordinate and integrate the implementation of the governance policy framework.
January 2011HC-9.2.4
The Corporate Governance Committee established under Chapter HC-9 shall comprise at a minimum of:
(a) Anindependent director to chair the Corporate Governance Committee. The Chairman of the Corporate Governance Committee should not only possess the relevant skills, such as the ability to read and understand financial statements, but should also be able to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the Audit Committee;(b) A Shari'a scholar who is an SSB member for the purpose of leading the Corporate Governance Committee on Shari'a-related governance issues (if any), and also to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the SSB; and(c) Anindependent director who can offer different skills to the committee, such as legal expertise and business proficiency, which are considered particularly relevant by the Board of directors for cultivating a good corporate governance culture, and deemed "fit and proper" by the CBB.January 2011HC-9.2.5
The Corporate Governance Committee shall be empowered to:
(a) Oversee and monitor the implementation of the governance policy framework by working together with the management, the Audit Committee and the SSB; and(b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.January 2011HC-10 HC-10 Category 3 Investment Firm Licensees
HC-10.1 HC-10.1 The Board
HC-10.1.1
All
Category 3 investment firm licensees should be headed by an effective, collegial and informed Board of Directors ('the Board').January 2011Role and Responsibilities
HC-10.1.2
All directors should understand the Board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:
(a) The Board's role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and(b) The Board's fiduciary duties of care and loyalty to theinvestment firm licensee and the shareholders (see HC-10.2).January 2011HC-10.1.3
The Board's role and responsibilities include but are not limited to:
(a) The overall business performance and strategy for theinvestment firm licensee ;(b) Causing financial statements to be prepared which accurately disclose theinvestment firm licensee's financial position;(c) Monitoring management performance;(d) Convening and preparing the agenda for shareholder meetings;(e) Monitoring conflicts of interest and preventing abusive related party transactions; and(e) Assuring equitable treatment of shareholders including minority shareholders.January 2011HC-10.1.4
The directors are responsible both individually and collectively for performing these responsibilities. Although the Board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place.
January 2011HC-10.1.5
When a new director is inducted, the chairman of the Board, assisted by company legal counsel or compliance officer, should review the Board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC.
January 2011HC-10.1.6
The
investment firm licensee should have a written appointment agreement with each director which recites the directors' powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, hisremuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.January 2011HC-10.1.7
The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.
January 2011Composition
HC-10.1.8
The Board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints. The Board should recommend changes in Board size to the shareholders when a needed change requires amendment of the
investment firm licensee's Memorandum of Association.Amended: October 2014
January 2011HC-10.1.9
Potential
non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. The Board should regularly review the time commitment required from eachnon-executive director and should require eachnon-executive director to inform the Board before he accepts any Board appointments to another company. One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.January 2011Decision Making Process
HC-10.1.10
The Board should be collegial and deliberative, to gain the benefit of each individual director's judgment and experience.
January 2011HC-10.1.11
The chairman should take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made.
January 2011HC-10.1.12
The Board should meet frequently but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.
January 2011HC-10.1.13
The chairman should ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each Board meeting and when necessary between meetings. All directors should receive the same Board information. At the same time, directors have a legal duty to inform themselves and they should ensure that they receive adequate and timely information and should study it carefully.
January 2011Directors' Communication with Management
HC-10.1.14
The Board must encourage participation by management regarding matters the Board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.
January 2011HC-10.1.15
Non-executive directors should have free access to theinvestment firm licensee's management beyond that provided in Board meetings. Such access should be through the Chairman of the Audit Committee or CEO. The Board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.January 2011HC-10.2 HC-10.2 Approved Persons Loyalty
HC-10.2.1
The
approved persons shall have full loyalty to theinvestment firm licensee .January 2011Personal Accountability
HC-10.2.2
Each
approved person should understand that under the Company Law he is personally accountable to theinvestment firm licensee and the shareholders if he violates his legal duty of loyalty to theinvestment firm licensee , and that he can be personally sued by theinvestment firm licensee or the shareholders for such violations.January 2011HC-10.2.3
The duty of loyalty includes a duty not to use property of the
investment firm licensee for his personal needs as though it was his own property, not to disclose confidential information of theinvestment firm licensee or use it for his personal profit, not to take business opportunities of theinvestment firm licensee for himself, not to compete in business with theinvestment firm licensee , and to serve theinvestment firm licensee's interest in any transactions with the company in which he has a personal interest.January 2011HC-10.2.4
For purposes of Paragraph HC-10.2.3, an
approved person should be considered to have a "personal interest" in a transaction with the company if:(a) He himself;(b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or(c) Another company of which he is a director orcontroller ,is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)
January 2011Avoidance of Conflicts of Interest
HC-10.2.5
Each
approved person should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with theinvestment firm licensee .January 2011HC-10.2.5A
Bahraini investment firm licensees should have in place a board approved policy on the employment of relatives ofapproved persons and a summary of such policy must be disclosed in the annual report of theBahraini investment firm licensee .Amended: July 2016
Added: April 2016HC-10.2.5B
Overseas investment firm licensees should have in place a policy on the employment of relatives ofapproved persons pertaining to their Bahrain operations.Added: July 2016Disclosure of Conflicts of Interest
HC-10.2.6
Each
approved person should inform the entire Board of conflicts of interest as they arise and abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure should include all material facts in the case of a contract or transaction involving theapproved person . Theapproved persons should understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision.January 2011HC-10.2.6A
The chief executive/general manager of the
Bahraini investment firm licensees should disclose to the board of directors on an annual basis those individuals who are occupying controlled functions and who are relatives of anyapproved persons within theBahraini investment firm licensee .Amended: July 2016
Added: April 2016HC-10.2.6B
The chief executive/general manager of the
overseas investment firm licensees should disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupyingcontrolled functions and who are relatives of anyapproved persons within theoverseas investment firm licensee .Added: July 2016HC-10.2.7
The Board of the
Bahraini investment firm licensee should establish formal procedures for:(a) Periodic disclosure and updating of information by eachapproved person on his actual and potential conflicts of interest; and(b) Advance approval by directors or shareholders who do not have an interest in the transactions in which aninvestment firm licensee's approved person has a personal interest. The Board should require such advance approval in every case.Amended: July 2016
January 2011Disclosure of Conflicts of Interests to Shareholders
HC-10.2.8
The
investment firm licensee should disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and should disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.January 2011HC-10.3 HC-10.3 Financial Statements Certification
HC-10.3.1
The Board shall have rigorous controls for financial audit and reporting, internal control, and compliance with law.
January 2011CEO and CFO Certification of Financial Statements
HC-10.3.2
To encourage management accountability for the financial statements required by the directors, the
investment firm licensee's CEO and chief financial officer should state in writing to the audit committee and the Board as a whole that theinvestment firm licensee's interim and annual financial statements present a true and fair view, in all material respects, of theinvestment firm licensee's financial condition and results of operations in accordance with applicable accounting standards.January 2011HC-10.4 HC-10.4 Appointment, Training and Evaluation of the Board
HC-10.4.1
The
investment firm licensee should have rigorous procedures for appointment, training and evaluation of the Board.January 2011Induction and Training of Directors
HC-10.4.2
The chairman of the Board should ensure that each new director receives a formal and tailored induction to ensure his contribution to the Board from the beginning of his term. The induction should include meetings with
senior management , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.January 2011HC-10.4.3
All continuing directors should be invited to attend orientation meetings and all directors should continually educate themselves as to the
investment firm licensee's business and corporate governance.January 2011HC-10.4.4
Management, in consultation with the chairman of the Board, should hold programs and presentations to directors respecting the
investment firm licensee's business and industry, which may include periodic attendance at conferences and management meetings. The Board shall oversee directors' corporate governance educational activities.January 2011HC-10.5 HC-10.5 Remuneration of Approved Persons
HC-10.5.1
The
investment firm licensee should remunerateapproved persons fairly and responsibly.January 2011HC-10.5.2
Remuneration ofapproved persons should be sufficient enough to attract, retain and motivate persons of the quality needed to run theinvestment firm licensee successfully, but theinvestment firm licensee should avoid paying more than is necessary for that purpose.January 2011HC-10.6 HC-10.6 Management Structure
HC-10.6.1
The Board should establish a clear and efficient management structure.
January 2011Establishment of Management Structure
HC-10.6.2
The Board should appoint
senior management whose authority must include management and operation of current activities of theinvestment firm licensee , reporting to and under the direction of the Board. Thesenior managers should include at a minimum:(a) ACEO ;(b) A chief financial officer;(c) A corporate secretary; and(d) An internal auditor (see AU-1.2)and should also include such other
approved persons as the Board considers appropriate and as a minimum must include persons occupyingcontrolled functions as outlined in Paragraph AU-1.2.2.January 2011Titles, Authorities, Duties and Reporting Responsibilities
HC-10.6.3
The Board should adopt by-laws prescribing each
senior manager's title, authorities, duties and internal reporting responsibilities. This should be done in consultation with theCEO , to whom the othersenior managers should normally report.January 2011HC-10.6.4
These provisions should include but should not be limited to the following:
(a) TheCEO should have authority to act generally in theinvestment firm licensee's name, representing theinvestment firm licensee's interests in concluding transactions on theinvestment firm licensee's behalf and giving instructions to othersenior managers andinvestment firm licensee employees;(b) The chief financial officer should be responsible and accountable for:(i) The complete, timely, reliable and accurate preparation of theinvestment firm licensee's financial statements, in accordance with the accounting standards and policies of theinvestment firm licensee (see HC-10.3.2); and(ii) Presenting the Board with a balanced and understandable assessment of theinvestment firm licensee's financial situation;(c) The corporate secretary's duties should include arranging, recording and following up on the actions, decisions and meetings of the Board and of the shareholders (both at annual and extraordinary meetings) in books to be kept for that purpose; and(d) The internal auditor's duties should include providing an independent and objective review of the efficiency of theinvestment firm licensee's operations. This would include a review of the accuracy and reliability of theinvestment firm licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of theinvestment firm licensee's risk management, control, and governance processes.January 2011Titles, Authorities, Duties and Reporting Responsibilities
HC-10.6.5
The Board should also specify any limits which it wishes to set on the authority of the
CEO or othersenior managers , such as monetary maximums for transactions which they may authorise without separate Board approval.January 2011HC-10.6.6
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.January 2011HC-10.6.7
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 theCEO .January 2011HC-10.7 HC-10.7 Communication between Board and Shareholders
HC-10.7.1
The
investment firm licensee should communicate with shareholders, encourage their participation, and respect their rights.January 2011Conduct of Shareholders' Meetings
HC-10.7.2
The Board should observe both the letter and the intent of the Company Law's requirements for shareholder meetings. Among other things:
(a) Notices of meetings must be honest, accurate and not misleading They must clearly state and, where necessary, explain the nature of the business of the meeting;(b) Meetings must be held during normal business hours and at a place convenient for the greatest number of shareholders to attend;(c) Notices of meetings must encourage shareholders to participate by proxy and must refer to procedures for appointing a proxy and for directing the proxy how to vote on a particular resolution. The proxy agreement must list the agenda items and must specify the vote (such as "yes," "no" or "abstain");(d) Notices must ensure that all material information and documentation is provided to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;(e) The Board must propose a separate resolution at any meeting on each substantially separate issue, so that unrelated issues are not "bundled" together;(f) In meetings where directors are to be elected or removed the Board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;(g) The chairman of the meeting must encourage questions from shareholders, including questions regarding theinvestment firm licensee's corporate governance guidelines;(h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and(i) Disclosure of all material facts must be made to the shareholders.(j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.Amended: October 2017
Added: January 2011HC-10.7.3
The
investment firm licensee should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).January 2011HC-10.7.4
The
investment firm licensee should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.January 2011HC-10.7.5
An
investment firm licensee should maintain a company website. Theinvestment firm licensee should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. Theinvestment firm licensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, theinvestment firm licensee should grant a controlled access to such information to its shareholders.January 2011HC-10.7.6
In notices of meetings at which directors are to be elected or removed the
investment firm licensee should ensure that:(a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and(b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.Amended: October 2012
January 2011Direct Shareholder Communication
HC-10.7.7
The chairman of the Board (and other directors as appropriate) must maintain continuing personal contact with
controllers to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the Board as a whole. The chairman must discuss governance and strategy withcontrollers . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the Board should encourage investors, particularly institutional investors, to help in evaluating theinvestment firm licensee's corporate governance.January 2011Controllers
HC-10.7.8
In companies with one or more
controllers , the chairman and other directors should actively encourage thecontrollers to make a considered use of their position and to fully respect the rights of minority shareholders.January 2011HC-10.8 HC-10.8 Corporate Governance Disclosure
HC-10.8.1
The
investment firm licensee should disclose its corporate governance.January 2011Disclosure Under the Company Law
HC-10.8.2
In each
investment firm licensee :(a) The Board should adopt written corporate governance guidelines covering the matters stated in Module HC and other corporate governance matters deemed appropriate by the Board. Such guidelines must include or refer to the principles and rules of Module HC;(b) Theinvestment firm licensee should publish the guidelines on its website, if it has a website (see HC-10.7.5);(c) At each annual shareholders' meeting the Board should report on theinvestment firm licensee's compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and(d) At each annual shareholders' meeting the Board should also report on further items listed in Appendix D. Such information should be maintained on theinvestment firm licensee's website or held at theinvestment firm licensee's premises on behalf of the shareholders.January 2011HC-10.8.3
The CBB may issue a template as a guide for an
investment firm licensee's annual meeting corporate governance discussion.January 2011HC-10.9 HC-10.9 Islamic Investment Firm Licensees
HC-10.9.1
Companies which refer to themselves as "Islamic" should follow the principles of Islamic Shari'a.
January 2011Governance and Disclosure per Shari'a Principles
HC-10.9.2
Islamic
investment firm licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders.Investment firm licensees which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a Principles. In ensuring compliance with Shari'a principles, each Islamicinvestment firm licensee should appoint a minimum of one Shari'a advisor or scholar to verify that their operations are Shari'a compliant.Amended: October 2014
January 2011Appendix A Appendix A Audit Committee
Committee Duties
The Committee's duties shall include those stated in Paragraph HC-3.2.1.
January 2011Committee Membership and Qualifications
The Committee shall have at least three members. Such members must have no conflict of interest with any other duties they have for the
investment firm licensee .A majority of the members of the committee including the Chairman shall be
independent directors andnon-executive directors .The Board must satisfy itself that at least a majority of the committee has recent and relevant financial ability and experience, which includes:
(a) An ability to read and understand corporate financial statements including aninvestment firm licensee's balance sheet, income statement and cash flow statement and changes in shareholders' equity;(b) An understanding of the accounting principles which are applicable to theinvestment firm licensee's financial statements;(c) Experience in evaluating financial statements that have a level of accounting complexity comparable to that which can be expected in theinvestment firm licensee's business;(d) An understanding of internal controls and procedures for financial reporting; and(e) An understanding of the audit committee's controls and procedures for financial reporting.January 2011Committee Duties and Responsibilities
In serving those duties, the Committee shall:
(a) Be responsible for the selection, appointment, remuneration, oversight and termination where appropriate of the external auditor, subject to ratification by theinvestment firm licensee's Board and shareholders. The external auditor shall report directly to the committee;(b) Make a determination at least once each year of the external auditor's independence, including:(i) Determining whether its performance of any non-audit services compromised its independence (the committee may establish a formal policy specifying the types of non-audit services which are permissible) and;(ii) Obtaining from the external auditor a written report listing any relationships between the external auditor and theinvestment firm licensee or with any other person or entity that may compromise the auditor's independence;(c) Review and discuss with the external auditor the scope and results of its audit, any difficulties the auditor encountered including any restrictions on its access to requested information and any disagreements or difficulties encountered with management;(d) Review and discuss with management and the external auditor each annual and each quarterly financial statements of theinvestment firm licensee including judgments made in connection with the financial statements;(e) Review and discuss and make recommendations regarding the selection, appointment and termination where appropriate of the head of internal audit and head of compliance and the budget allocated to the internal audit and compliance function, and monitor the responsiveness of management to the committee's recommendations and findings;(f) Review and discuss the adequacy of theinvestment firm licensee's internal auditing and compliance personnel and procedures and its internal controls and compliance procedures, and any risk management systems, and any changes in those;(g) Oversee theinvestment firm licensee's compliance with legal and regulatory requirements; and(h) Review and discuss possible improprieties in financial reporting or other matters, and ensure that arrangements are in place for independent investigation and follow-up regarding such matters.Amended: October 2012
January 2011Committee Structure and Operations
The committee shall elect one member as its chair.
The committee shall meet at least four times a year. Its meetings may be scheduled in conjunction with regularly-scheduled meetings of the entire Board.
The committee may meet without any other director or any officer of the
investment firm licensee present. Only the committee may decide if a non-member of the committee should attend a particular meeting or a particular agenda item. Non-members who are not directors of theinvestment firm licensee may attend to provide their expertise, but may not vote. It is expected that the external auditor's lead representative will be invited to attend regularly but that this shall always be subject to the committee's decision.The committee shall report regularly to the full Board on its activities.
January 2011Committee Resources and Authority
The committee shall have the resources and authority necessary for its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of outside legal, accounting or other advisors as it deems necessary or appropriate, without seeking the approval of the Board or management. The
investment firm licensee shall provide appropriate funding for the compensation of any such persons.January 2011Committee Performance Evaluation
The committee shall prepare and review with the Board an annual performance evaluation of the committee, which shall compare the committee's performance with the above requirements and shall recommend to the Board any improvements deemed necessary or desirable to the committee's charter. The report must be in the form of a written report provided at any regularly scheduled Board meeting.
Amended: July 2012
January 2011Appendix B Corporate Governance Disclosure to Shareholders
The
investment firm licensee shall disclose the following items to the shareholders.Ownership of Shares
1.Distribution of ownership by nationality2.Distribution of ownership by size of shareholder3. Ownership by Government4. Names of shareholders owning 5% or more and, if they act in concert, a description of the voting, shareholders' or other agreements among them relating to acting in concert, and of any other direct and indirect relationships among them or with theinvestment firm licensee or other shareholdersBoard, Board Members and Management
1. Board's functions — rather than a general statement (which could be disclosed simply as the Board's legal obligations under the law) the 'mandate' of the Board should be set out2. The types of material transactions that require Board approval3. Names, their capacity of representation and detailed information about the directors, including directorships of other Boards, positions, qualifications and experience (should describe each director as executive or non-executive)4. Number and names of independent members5. Board terms and the start date of each term6. What the Board does to induct/educate/orient new directors7. Director's ownership of shares8. Election system of directors and any termination arrangements9. Director's trading ofinvestment firm licensee's shares during the year10. Meeting dates (number of meetings during the year)11. Attendance of directors at each meeting12. Aggregate remuneration to board members12A. The remuneration policy of theinvestment firm licensee for board members and senior management13. List ofsenior managers and profile of each14. Shareholding bysenior managers 15. Aggregate remuneration paid to thesenior management 16. Details of stock options and performance-linked incentives available to executives17. Whether the Board has adopted a written code of ethical business conduct, and if so the text of that code and a statement of how the Board monitors compliance.Committees
1. Names of the Board committees2. Functions of each committee3. Members of each committee divided into independent and non-independent4. Minimum number of meetings per year5. Actual number of meetings6. Attendance of committees' members7. [This item was deleted in January 2012]8. Work of committees and any significant issues arising during the periodCorporate Governance
1. Separate section in the Annual Report2. Reference to Module HC and its principles3. Changes in Module HC that took place during the yearAuditors
1. The charters and a list of members of the Audit (including external and internal; financial and non-financial experts) Committee of the Board.2. Audit fees3. Non-Audit services provided by the external auditor and fees4. Reasons for any switching of auditors and reappointing of auditorsOther
1. Related party transactions2. Approval process for related party transactions3. Means of communication with shareholders and investors4. Separate report on Management Discussion and Analysis is included in the Annual Report — in particular, this should identify and comment on the management of principal risks and uncertainties faced by the business.5. Review of internal control processes and procedures.6. Announcements of the results in the press should include at least the followings:(a) Balance sheet, income statement, cash flow statement, statement of comprehensive income and changes in shareholders' equity(b) Auditor(c) Auditor's signature date(d) Board approval dateSet out directors responsibility with regard to the preparation of financial statements
Conflict of Interest — any issues arising must be reported, in addition describe any steps the Board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.
Board of Directors — whether or not the Board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution.
Amended: January 2012
Amended: April 2011
January 2011