Executive Summary

Legal Basis

Evolution of Module

General

CBB’s Rulemaking Instruments

UG-1.2.1

The contents of the CBB Rulebook are categorised either as Rules or as Guidance. Rules have a binding effect. If a licensee breaches a Rule to which it is subject, it is liable to enforcement action by the CBB and, in certain cases, criminal proceedings by the Office of the Public Prosecutor.

UG-1.2.2

Guidance is not binding: rather, it is material that helps inform a particular Rule or set of Rules, or provides other general information. Where relevant, compliance with Guidance will generally lead the CBB to assess that the rule(s) to which the Guidance relates has been complied with. Conversely, failure to comply with Guidance will generally be viewed by the CBB as tending to suggest breach of a Rule.

UG-1.2.3

The status of each Paragraph within the Rulebook is identified by its text format, as follows:

UG-1.2.4

Where there are differences of interpretation over the meaning of a Rule or Guidance, the CBB reserves the right to apply its own interpretation.

UG-1.2.5

Rule UG-1.2.4 does not prejudice the rights of an authorised person to make a judicial appeal, should it believe that the CBB is acting unreasonably or beyond its legal powers.

UG-1.2.6

All Rulebook content has the formal status of at least a Directive. Some Rulebook content may also have the status of Regulations. Rulebook content that is categorised as a Rule is therefore legally mandatory and must be complied with by those to whom the content is addressed.

UG-1.2.7

[This Paragraph was deleted in October 2012].

UG-1.2.8

The CBB's enforcement powers and processes are set out in Module EN.

UG-1.3.1

Volume 5 of the CBB Rulebook for the most part applies only to specialised licensees, and to individuals undertaking key functions in those licensees (so-called 'approved persons'). Most of the content of Volume 5 only has the formal status of a Directive.

UG-1.3.2

A few Rules and Guidance have general applicability (and thus also have the formal status of a Regulation): for instance, no one may carry on specialised activities within or from Bahrain without the appropriate license, and controllers of specialised licensees are also subject to various requirements.

UG-1.3.3

Each Module in Volume 5 (except those listed under the 'Introduction' and 'Sector Guides' headings) contains a Scope of Application Chapter, setting out which Rules and Guidance apply to which particular type of specialised licensee or person, for the Module concerned. In addition, each Rule (or Section containing a series of Rules) is drafted such that its application is clearly highlighted for the user. Finally, each Module, in its Purpose Section, specifies in all cases the rulemaking instrument(s) used to issue the content of the Module in question, and the legal basis underpinning the Module's requirements.

UG-1.3.4

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'.

UG-1.4.1

Volume 5 (Specialised Licensees) of the CBB Rulebook was first issued in October 2010. Its contents have immediate effect, subject to any specific transition arrangements that may be specified.

Rulebook Volumes

Rulebook Contents (Overview)

Modules

Chapters

Sections and Paragraphs

Table of Contents

Headers

Footers

Defined terms

Cross-references

Text format

Quarterly Updates

Changes to Numbering

Availability

Queries

Executive Summary

Legal Basis

Evolution of Module

PB-B.1.1

The 10 Principles of Business apply to all CBB specialised licensees, in accordance with Paragraph PB-B.1.2. Principles 1-8 also apply to all approved persons, in accordance with Paragraph PB-B.1.5.

PB-B.1.2

These principles are addressed to all specialised licensees (where applicable).

PB-B.1.3

Principles 1 to 10 apply to activities carried out by the specialised licensee, including activities carried out through overseas branches (if any).

PB-B.1.4

The CBB expects specialised licensees to take into account any activities of other members of the group of which the specialised licensee is a member for Principles 9 and 10.

PB-B.1.5

Principles 1 to 8 apply to approved persons in respect of the controlled function for which they have been approved.

PB-B.1.6

Principles 1 to 8 do not apply to behaviour by an approved person with respect to any other functions or activities they may undertake. However, behaviour unconnected to their controlled function duties may nonetheless be relevant to an assessment of that person's fitness and propriety.

PB-B.1.7

The CBB's requirements regarding approved persons and controlled functions are located in Module AU (Authorisation).

PB-B.2.1

Breaching a Principle of Business makes the specialised licensee or approved person concerned liable to enforcement action. In the case of a licensee, this may call into question whether they continue to meet the licensing conditions (see Chapter AU-2). In the case of an approved person, this may call into question whether they continue to meet the 'fit and proper' requirements for the function for which they have been approved (see Chapter AU-3).

PB-B.2.2

Module EN (Enforcement) sets out the CBB's policy and procedures on enforcement action.

PB-1.1.1

Specialised licensees and approved persons must observe high standards of integrity and fair dealing. They must be honest and straightforward in their dealings with customers, and provide full disclosure of all relevant information to customers, as required by the CBB's Regulations and Directives.

PB-1.1.2

Specialised licensees and approved persons must take all reasonable steps to identify, and prevent or manage, conflicts of interest that could harm the interests of a customer.

PB-1.1.3

Specialised licensees and approved persons must act with due skill, care and diligence.

PB-1.1.4

Specialised licensees and approved persons must observe in full any obligations of confidentiality, including with respect to customer information. This requirement does not over-ride lawful disclosures.

PB-1.1.5

Specialised licensees and approved persons must observe proper standards of market conduct, and avoid action that would generally be viewed as improper.

PB-1.1.6

Specialised licensees and approved persons must take reasonable care to safeguard the assets of customers for which they are responsible.

PB-1.1.7

Specialised licensees and approved persons must pay due regard to the legitimate interests and information needs of their customers and communicate with them in a fair and transparent manner. Specialised licensees and approved persons, when dealing with customers who are entitled to rely on their advice or discretionary decisions, must take reasonable care to ensure the suitability of such advice or decisions.

PB-1.1.8

Specialised licensees and approved persons must act in an open and co-operative manner with the CBB and other regulatory/supervisory bodies whose authority they come under. They must take reasonable care to ensure that their activities comply with all applicable laws and regulations.

PB-1.1.9

Specialised licensees must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner.

PB-1.1.10

Specialised licensees must take reasonable care to ensure that their affairs are managed effectively and responsibly, with appropriate systems and controls in relation to the size and complexity of their operations. Specialised licensees' systems and controls, as far as is reasonably practical, must be sufficient to manage the level of risk inherent in their business and ensure compliance with the CBB Rulebook.

Executive Summary

Legal Basis

Evolution of Module

AA-B.1.1

The contents of this Module – unless otherwise stated – apply to all specialised licensees. Representative Offices are exempted from this Module.

AA-B.1.2

The contents of this Module apply to both Bahraini specialised licensees and overseas specialised licensees.

AA-B.2.1

Certain requirements in this Module indirectly extend to auditors, by virtue of their appointment by specialised licensees. Auditors appointed by specialised licensees must be independent (cf. Sections AA-1.4 and AA-1.5). Auditors who resign or are otherwise removed from office are required to inform the CBB in writing of the reasons for the termination of their appointment (cf. Sections AA-1.2). Other requirements are contained in Sections AA-1.3 (Audit partner rotation) and AA-3.1 (Auditor reports).

AA-1.1.1

Specialised licensees must obtain prior written approval from the CBB before appointing or re-appointing their auditor.

AA-1.1.2

As the appointment of auditors normally takes place during the course of the firm's annual general meeting, specialised licensees should notify the CBB of the proposed agenda for the annual general meeting in advance of it being circulated to shareholders. The CBB's approval of the proposed auditors does not limit in any way shareholders' rights to subsequently reject the Board's choice.

AA-1.1.3

The CBB, in considering the proposed (re-) appointment of an auditor, takes into account the expertise, resources and reputation of the audit firm, relative to the size and complexity of the licensee. The CBB will also take into account the track record of the audit firm in auditing specialised licensees within Bahrain; the degree to which it has generally demonstrated independence from management in its audits; and the extent to which it has identified and alerted relevant persons of significant matters. Finally, the CBB will also consider the audit firm's compliance with applicable laws and regulations (including legislative Decree No. 26 of 1996; the Ministry of Industry and Commerce's Ministerial Resolution No. 6 of 1998; and relevant Bahrain Stock Exchange regulations).

AA-1.1.4

In the case of overseas specialised licensees, the CBB will also take into account who act as the auditors of the parent firm. As a general rule, the CBB does not favour different parts of a specialised licensee group having different auditors.

AA-1.2.1

Specialised licensees must notify the CBB as soon as they intend to remove their external auditor, with an explanation of their decision, or as soon as their auditor resign.

AA-1.2.2

Specialised licensees must ensure that a replacement auditor is appointed (subject to CBB approval as per Section AA-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

AA-1.2.3

The external auditor of specialised licensees must inform the CBB in writing, should it resign or its appointment as auditor be terminated, within 30 calendar days, of the event occurring, setting out the reasons for the resignation or termination.

AA-1.3.1

Unless otherwise exempted by the CBB, specialised licensees must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.

AA-1.3.2

[This Paragraph was deleted in October 2012].

AA-1.3.3

Specialised licensees must notify the CBB of any change in audit partner.

AA-1.4.1

Article 61(d) of the CBB Law imposes conditions for the auditor to be considered independent. Before a specialised licensee appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of the licensee.

AA-1.4.2

For an auditor to be considered independent, it must, among things, comply with the restrictions in Section AA-1.5.

AA-1.4.3

If a specialised licensee becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact.

AA-1.4.4

If in the opinion of the CBB, independence has not been achieved within a reasonable timeframe, then the CBB may require the appointment of a new auditor.

Financial Transactions with Auditors

Outsourcing to Auditors

Other Relationships

Definition of 'Auditor'

AA-2.1.1

Specialised licensees must waive any duty of confidentiality on the part of their auditor, such that their auditor may report to the CBB any concerns held regarding material failures by the specialised licensee to comply with CBB requirements.

AA-2.1.2

The CBB may, as part of its on-going supervision of specialised licensees, request meetings with a licensee's auditor. If necessary, the CBB may direct that the meeting be held without the presence of the licensee's management or Directors.

AA-2.2.1

Outsourcing agreements between specialised licensees and outsourcing providers must ensure that the licensee's internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required.

AA-2.2.2

Further Rules and Guidance on outsourcing are contained in Module RM (Risk Management).

AA-3.1.1

[This paragraph was deleted in October 2016]

AA-3.1.2

[This paragraph was deleted in October 2016]

AA-3.2.1

Specialised licensees that are required to publish financial disclosures in accordance with Module PD must arrange for their external auditor to review these prior to their publication, unless otherwise exempted in writing by the CBB.

AA-3.2.2

Financing companies must arrange for their external auditor to review the annual disclosures required in Module PD, Section PD-1.3 and Chapter PD-4, prior to their submission to the CBB or their publication. This review must be in the form of an agreed-upon procedures report (see also PD-A.2.4). The report must be submitted to the CBB within 3 months of the year end of the concerned financing company (see also Paragraph BR-1.1.2).

AA-3.2.3

Financing companies must arrange for their external auditor to review the disclosures in the half-yearly financial statements required by Module PD, Paragraph PD-2.1.6 prior to their submission to the CBB or their publication. This review must be in the form of an agreed-upon procedure report. This report must be submitted to the CBB within two months of the end of the half year reporting period of the concerned financing company (see also Section BR-1.2.4).

AA-3.3.1

[This Paragraph was deleted in October 2012].

AA-3.3.2

[This Paragraph was deleted in October 2012].

AA-3.3.3

[This Paragraph was deleted in October 2012].

AA-4.1.1

Specialised licensees must comply with International Financial Reporting Standards / International Accounting Standards and, to the extent that they undertake Shari'a compliant activities, relevant standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

AA-4.1.2

Overseas specialised licensees that do not, at the parent licensee level, apply IFRS/IAS are still required under Paragraph AA-4.1.1 to produce pro-forma accounts for the Bahrain branch in conformity with these standards. Where this requirement is difficult to implement, the Bahraini specialised licensee should contact the CBB in order to agree to a solution.

AA-4.1.3

Paragraph AA-4.1.1 requires specialised licensees that operate exclusively on a Shari'a compliant basis to apply relevant AAOIFI Financial Accounting Standards, depending on the type of Islamic finance contracts entered into. Specialised licensees that undertake both conventional finance and Shari'a compliant transactions are required by Paragraph AA-4.1.1 to apply AAOIFI Financial Accounting Standard 18, "Islamic Financial Services Offered by Conventional Financial Institutions".

AA-5.1.1

In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint appointed experts to undertake on-site examinations or report by way of investigations on specific aspects of a licensee's business. External auditors may be called upon to be appointed experts and should be aware of their role in that capacity by referring to Section BR-3.5 for money changers and administrators or Module GR for representative office licensees.

[The Rules and guidance in this Section were moved to Section BR-3.5 for money changers and administrators and Module GR for Representative offices in April 2012]

AA-5.1.2

The purpose of the contents of this chapter is to set out the roles and responsibilities of Appointed Experts when appointed pursuant to Article 114 or 121 of the CBB Law (see EN-7.1.1). These Articles empower the CBB to assign some of its officials or others to inspect or conduct investigations of licensees.

AA-5.1.3

The CBB uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission reports on matters relating to the business of licensees in order to help it assess their compliance with CBB requirements. Inspections may be carried out either by the CBB's own officials, by duly qualified "Appointed Experts" appointed for the purpose by the CBB, or a combination of the two.

AA-5.1.4

Specialised licensees must provide all relevant information and assistance to the CBB inspectors and Appointed Experts on demand as required by Articles 111 and 114 of the CBB Law. Failure by licensees to cooperate fully with the CBB's inspectors or Appointed Experts, or to respond to their examination reports within the time limits specified, will be treated as demonstrating a material lack of cooperation with the CBB which will result in other enforcement measures being considered, as described elsewhere in Module EN. This rule is supported by Article 114(a) of the CBB Law.

AA-5.1.5

Article 163 of the CBB Law provides for criminal sanctions where false or misleading statements are made to the CBB or any person /Appointed Expert appointed by the CBB to conduct an inspection or investigation on the business of the licensee or the listed licensee.

AA-5.1.6

The CBB will not, as a matter of general policy, publicise the appointment of an Appointed Expert, although it reserves the right to do so where this would help achieve its supervisory objectives. Both the Appointed Expert and the CBB are bound to confidentiality provisions restricting the disclosure of confidential information with regards to any such information obtained in the course of the investigation.

AA-5.1.7

Unless the CBB otherwise permits, Appointed Experts should not be the same firm appointed as external auditor of the specialised licensee.

AA-5.1.8

Appointed Experts will be appointed in writing, through an appointment letter, by the CBB. In each case, the CBB will decide on the range, scope and frequency of work to be carried out by Appointed Experts.

AA-5.1.9

Appointed Experts will report directly to and be responsible to the CBB in this context and will specify in their report any limitations placed on them in completing their work (for example due to the relevant specialised licensees' group structure). The report produced by the Appointed Experts is the property of the CBB (but is usually shared by the CBB with the firm concerned).

AA-5.1.10

Compliance by Appointed Experts with the contents of this Chapter will not, of itself, constitute a breach of any other duty owed by them to a particular specialised licensee (i.e. create a conflict of interest).

AA-5.1.11

The CBB may appoint one or more of its officials to work on the Appointed Experts' team for a particular specialised licensee.

AA-5.2.1

Commissioned Appointed Experts would normally be required to report on one or more of the following aspects of a specialised licensee's business:

AA-5.2.2

Appointed Experts will be required to form an opinion on whether, during the period examined, the specialised licensee is in compliance with the relevant provisions of the CBB Law and the CBB's relevant requirements, as well as other requirements of Bahrain Law and, where relevant, industry best practice locally and/or internationally.

AA-5.2.3

The Appointed Experts' report should follow the format set out in Appendix AA-1, in part B of the CBB Rulebook.

AA-5.2.4

Unless otherwise directed by the CBB or unless the circumstances described in Section AA-5.3 apply, the report must be discussed with the Board of directors and/or senior management in advance of its being sent to the CBB.

AA-5.2.5

Where the report is qualified by exception, the report must clearly set out the risks which the specialised licensee runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected. Appointed Experts will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.

AA-5.2.6

If the Appointed Experts conclude, after discussing the matter with the specialised licensee, that they will give a negative opinion (as opposed to one qualified by exception) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.

AA-5.2.7

The report must be completed, dated and submitted, together with any comments by directors or management (including any proposed timeframe within which the specialised licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.

AA-5.3.1

Appointed Experts must communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, including the criteria for licensing a specialised licensee (see Module AU), are not or have not been fulfilled, or that there has been a material loss or there exists a significant risk of material loss in the concerned specialised licensee, or that the interests of customers are at risk because of adverse changes in the financial position or in the management or other resources of a specialised licensee. Notwithstanding the above, it is primarily the specialised licensee's responsibility to report such matters to the CBB.

AA-5.3.2

The CBB recognises that Appointed Experts cannot be expected to be aware of all circumstances which, had they known of them, would have led them to make a communication to the CBB as outlined above. It is only when Appointed Experts, in carrying out their duties, become aware of such a circumstance that they should make detailed inquiries with the above specific duty in mind.

AA-5.3.3

If Appointed Experts decide to communicate directly with the CBB in the circumstances set out in Paragraph AA-5.3.1 above, they may wish to consider whether the matter should be reported at an appropriate senior level in the specialised licensee at the same time and whether an appropriate senior representative of the specialised licensee should be invited to attend the meeting with the CBB.

AA-5.4.1

Information which is confidential and has been obtained under, or for the purposes of, this chapter or the CBB Law may only be disclosed by the CBB in the circumstances permitted under the Law. This will allow the CBB to disclose information to Appointed Experts to fulfil their duties. It should be noted, however, that Appointed Experts must keep this information confidential and not divulge it to a third party except with the CBB's permission and/or unless required by Bahrain Law.

AA-5.5.1

The CBB may, at its discretion, call for a trilateral meeting(s) to be held between the CBB and representatives of the relevant specialised licensee and the Appointed Experts. This meeting will provide an opportunity to discuss the Appointed Experts' examination of, and report on, the specialised licensee.

Executive Summary

Legal Basis

Evolution of Module

Superseded Requirements

FC-B.1.1

This Module applies to all specialised licensees including branches of licensees incorporated outside of Bahrain, and Bahrain-incorporated subsidiaries of overseas groups. Certain parts of this Module may not be relevant to some licensees' business. Some transactions may not involve the opening of account relationships, however whenever a transaction takes place with another party or the licensee acts as an introducer or intermediary in a transaction or business relationship, then this Module becomes effective. Representative office licensees, administrators and ancillary services providers, except ancillary service providers carrying out the activities of payment service provider, crowdfunding platform operator and payment initiation service provider, are exempted from: FC-C, FC-2, FC-3, FC-4 and FC-6 because of the limited nature of their business; however, for these licensees, the Chief Executive Officer/General Manager of the licensee is responsible to comply with the remaining Chapters of Module FC. The scope provided for simplified customer due diligence requirements – as set out in Section FC-1.10 – will reduce the burden of customer due diligence for a number of specialised licensees.

FC-B.1.2

The requirements of this Module are in addition to and supplement Decree Law No. (4) of 2001 with respect to the prevention and prohibition of the laundering of money; this Law was subsequently updated, with the issuance of Decree Law No. 54 of 2006 with respect to amending certain provisions of Decree No. 4 of 2001 (collectively, 'the AML Law'). The AML Law imposes obligations on persons generally in relation to the prevention of money laundering and the combating of the financing of terrorism, to all persons resident in Bahrain. All specialised licensees are therefore under the statutory obligations of that Law, in addition to the more specific requirements contained in this Module. Nothing in this Module is intended to restrict the application of the AML Law (a copy of which is contained in Part B of Volume 5 (Specialised licensees), under 'Supplementary Information'). Also included in Part B is a copy of Decree Law No. 58 of 2006 with respect to the protection of society from terrorism activities ('the anti-terrorism law).

FC-B.2.1

Licensees must apply the requirements in this Module to all their branches and subsidiaries operating both in the Kingdom of Bahrain and in foreign jurisdictions. Where local standards differ, the higher standard must be followed. Licensees must pay particular attention to procedures in branches or subsidiaries in countries that do not or insufficiently apply the FATF Recommendations and Special Recommendations.

FC-B.2.2

Where another jurisdiction's laws or regulations prevent a licensee (or any of its foreign branches or subsidiaries) from applying the same standards contained in this Module or higher, the licensee must immediately inform the CBB in writing.

FC-B.2.3

In such instances, the CBB will review alternatives with the licensee. Should the CBB and the licensee be unable to reach agreement on the satisfactory implementation of this Module in a foreign subsidiary or branch, the licensee may be required by the CBB to cease the operations of the subsidiary or branch in the foreign jurisdiction in question.

FC-B.2.4

Financial groups (e.g. a licensee with its subsidiaries) must implement groupwide programmes against money laundering and terrorist financing, including policies and procedures for sharing information within the group for AML/CFT purposes, which must also be applicable, and appropriate to, all branches and subsidiaries of the financial group. These must include:

FC-C.1.1

Licensees must implement Risk Based Approach (RBA) in establishing an AML/CFT/CPF program and conduct ML/TF/PF risk assessments prior to and during the establishment of a business relationship and, on an ongoing basis, throughout the course of its relationship with the customer. The licensee must establish and implement policies, procedures, tools and systems commensurate with the size, nature and complexity of its business operations to support its RBA.

FC-C.1.2

Licensees must perform enhanced measures where higher ML/TF/PF risks are identified to effectively manage and mitigate those higher risks.

FC-C.1.3

Licensees must maintain and regularly review and update the documented risk assessment. The risk management and mitigation measures implemented by a licensee must be commensurate with the identified ML/TF/PF risks.

FC-C.1.4

A Licensees must allocate adequate financial, human and technical resources and expertise to effectively implement and take appropriate preventive measures to mitigate ML/TF/PF risks.

FC-C.2.1

A Licensee must ensure that it takes measures to identify, assess, monitor, manage and mitigate ML/TF/PF risks to which it is exposed and that the measures taken are commensurate with the nature, scale and complexities of its activities. The risk assessment must enable the licensee to understand how, and to what extent, it is vulnerable to ML/TF/PF.

FC-C.2.2

In the context of the risk assessment, “proliferation financing risk” refers to the potential breach, non-implementation or evasion of the targeted financial sanctions obligations referred to in FATF Recommendation 7.

FC-C.2.3

The risk assessment must be properly documented, regularly updated and communicated to the licensee’s senior management. Licensees must have in place policies, controls and procedures, which are approved by senior management, to enable them to manage and mitigate the risks that have been identified. In conducting its risk assessments, the licensee must consider quantitative and qualitative information obtained from the relevant internal and external sources to identify, manage and mitigate these risks. This must include consideration of the risk and threat assessments using, national risk assessments, sectorial risk assessments, crime statistics, typologies, risk indicators, red flags, guidance and advisories issued by inter-governmental organisations, national competent authorities and the FATF, and AML/CFT/CPF mutual evaluation and follow-up reports by the FATF or associated assessment bodies.

FC-C.2.4

Licensees must assess country/geographic risk, customer risk, product/ service/transactions risk and distribution channel risk taking into consideration the appropriate factors in identifying and assessing the ML/TF/PF risks, including the following:

Country/Geographic risk

Customer risk

Product/Service/Transactions risk

Distribution Channel Risk

Verification of Identity and Source of Funds

Verification of Third Parties

Anonymous and Nominee Accounts

Timing of Verification

Incomplete Customer Due Diligence

Non-Resident Accounts

Natural Persons

Legal Entities or Legal Arrangements (such as trusts)

FC-1.3.1

Enhanced customer due diligence must be performed on those customers identified as having a higher risk profile, and additional inquiries made or information obtained in respect of those customers.

FC-1.3.2

Licensees should examine, as far as reasonably possible, the background and purpose of all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or lawful purpose. Where the risks of money laundering or terrorist financing are higher, licensees should conduct enhanced CDD measures, consistent with the risks identified. In particular, they should increase the degree and nature of monitoring of the business relationship, in order to determine whether those transactions or activities appear unusual or suspicious. The additional inquiries or information referred to in Paragraph FC-1.3.1 include:

FC-1.3.3

In addition to the general rule contained in Paragraph FC-1.3.1 above, special care is required in the circumstances specified in Sections FC-1.4 to FC-1.9 inclusive.

FC-1.4.1

Licensees must establish specific procedures for verifying customer identity where no face-to-face contact takes place.

FC-1.4.2

Where no face-to-face contact takes place, licensees must take additional measures (to those specified in Section FC-1.2), in order to mitigate the potentially higher risk associated with such business. In particular, licensees must take measures:

FC-1.4.3

There are a number of checks that can provide a licensee with a reasonable degree of assurance as to the authenticity of the applicant. They include:

FC-1.4.4

Financial services provided using digital channels or internet pose greater challenges for customer identification and AML/CFT purposes. Licensees must identify and assess the money laundering or terrorist financing risks relevant to any new technology or channel and establish procedures to prevent the misuse of technological developments in money laundering or terrorist financing schemes. The risk assessments must be consistent with the requirements in Section FC-C.2.

Enhanced Monitoring

Licensee’s digital ID applications

Overseas branches

FC-1.5.1

Licensees must have appropriate risk management systems to determine whether a customer is a Politically Exposed Person ('PEP'), both at the time of establishing business relations and thereafter on a periodic basis. Licensees must utilise publicly available databases and information to establish whether a customer is a PEP.

FC-1.5.2

Licensees must establish a client acceptance policy with regard to PEPs, taking into account the reputational and other risks involved. Senior management approval must be obtained before a PEP is accepted as a customer. Licensees must not accept a non-Bahraini PEP as a customer based on customer due diligence undertaken using digital ID applications.

FC-1.5.3

Where an existing customer is a PEP, or subsequently becomes a PEP, enhanced monitoring and customer due diligence measures must include:

FC-1.5.4

[This Paragraph was deleted in July 2016 as the definition is included under Part B in the Glossary.]

FC-1.6.1

Financial services must not be provided to charitable funds and religious, sporting, social, cooperative and professional societies, before an original certificate authenticated by the relevant Ministry confirming the identities of those purporting to act on their behalf (and authorising them to obtain the said service) has been obtained. Money changers are allowed to conduct business with charities without a certificate where payment is made by a cheque drawn on a bank licensed in Bahrain.

FC-1.6.2

Charities should be subject to enhanced transaction monitoring. Money changers should develop a profile of anticipated activity (in terms of payee countries and recipient organisations in particular).

FC-1.6.3

Money changers must provide a monthly report of all payments and transfers of BD3,000 (or equivalent in foreign currencies) and above performed on behalf of charities registered in Bahrain. The report must be submitted to the CBB's Compliance Directorate (see Section FC-5.3 for contact address), giving details of the amount transferred, name of charity, number and beneficiary name account and bank details. Licensees must ensure that such transfers are in accordance with the spending plans of the charity (in terms of amount, recipient and country).

FC-1.6.4

Article 20 of Decree Law No. 21 of 1989 (issuing the Law of Social and Cultural Societies and Clubs and Private Organizations Operating in the Area of Youth and Sport and Private Institutions) provides that money changer licensees and payment service providers must not accept or process any incoming or outgoing fund transfers in any form (wire transfer, drafts, etc.) from or to any foreign person or foreign association on behalf of societies and clubs licensed by the Ministry of Youth and Sport Affairs without prior written approval of the Ministry.

FC-1.6.5

The receipt of a Ministry letter mentioned in Paragraph FC-1.6.4 above does not exempt the concerned money changer from conducting normal CDD measures as outlined in other parts of this Module.

FC-1.7.1

A licensee may only accept customers introduced to it by other financial institutions or intermediaries, if it has satisfied itself that the introducer concerned is subject to FATF-equivalent measures and customer due diligence measures. Where licensees delegate part of the customer due diligence measures to an introducer, the responsibility for meeting the requirements of Chapters 1 and 2 remains with the licensee, not the introducer.

FC-1.7.2

Licensees may only accept introduced business if all of the following conditions are satisfied:

FC-1.7.3

The licensee must perform periodic reviews ensuring that any introducer on which it relies is in compliance with the FATF 40 + 9 Recommendations. Where the introducer is resident in another jurisdiction, the licensee must also perform periodic reviews to verify whether the jurisdiction is in compliance with the FATF 40 + 9 Recommendations.

FC-1.7.4

Should the licensee not be satisfied that the introducer is in compliance with the requirements of the FATF 40 + 9 Recommendations, the licensee must conduct its own customer due diligence on introduced business, or not accept further introductions, or discontinue the business relationship with the introducer.

FC-1.8.1

Licensees must not establish business relations with banks, which have no physical presence or "mind and management" in the jurisdiction in which they are licensed and which are unaffiliated with a regulated financial group ("shell banks"). Licensees must not knowingly establish relations with financial institutions that have relations with shell banks.

FC-1.8.2

Licensees must make a suspicious transaction report to the Financial Intelligence Directorate and the Compliance Directorate if they are approached by a shell bank or an institution they suspect of being a shell bank.

FC-1.9.1

The cross-border movement of cash funds warrants special attention under the FATF 40 Recommendations where transactions are large in value (Recommendation 6), in addition to the general requirement under Recommendation 19 to verify monitor, declare and keep records of all cross-border transfers of cash. Cash shipments are therefore subject to inspection and investigation procedures by the Customs Directorate of the Kingdom of Bahrain. There are also certain specific legal measures mentioned below which are relevant to cross-border cash shipments. Under Article 4 of Decree Law No. 4 of 2001, licensees of the CBB are required to comply with the CBB's Rules and Regulations concerning the prevention and prohibition of money laundering, which include regulations concerning the cross-border movement of cash. Also, licensees' attention is drawn to the disclosure provisions of Decree Law No 54 of 2006 and Ministerial Order No 6 of 2008 with respect to cross-border transportation of funds (see Part B of the Rulebook for Decree Law No 54). Licensees are also reminded of the rules of the unified customs arrangements of the Gulf Cooperation Council as laid out in Decree Law No 10 of 2002. With respect to the above Law No. 4 of 2001 and the concerned parts of other legislation mentioned above, all money changers must implement the enhanced measures below in respect of all cash received from foreign countries or sold/transferred to foreign countries.

FC-1.9.2

Cash coming into Bahrain via courier (whether a representative of a Bahrain money changer or a foreign institution) must be accompanied by original documentation stating the source of funds and identity of the originator of the funds. Furthermore, the documentation must state the full name and address of the beneficiary of the funds. This documentation must be signed in original by (a representative) of the originator of the cash. This means that where a courier is importing cash via any customs point of entry (e.g. via the Causeway or the Airport), the aforementioned courier must carry original documentation which clearly shows the source of funds and identity of the originator of the funds and the intended beneficiaries' names and address.

FC-1.9.3

In the case of incoming cash, the courier must carry original documentation signed by the originator stating whether the cash shipment is for local use or for onward transmission.

FC-1.9.4

If the imported cash is for onward transmission, the original documentation must provide the full name and address of the final beneficiaries, as well as the local recipient (e.g. the money changer).

FC-1.9.5

Failure to provide complete and detailed original signed documentation by the originator of the funds referred to in Paragraph FC-1.9.2 may cause the cash shipment to be blocked, whereupon the blocking costs will be borne by the concerned money changer in Bahrain. Licensees are also reminded of the penalties and enforcement measures in Law No. 4 of 2001, Decree Law No. 54 of 2006, Ministerial Order No. 7 of 2001 issued by the Minister of Finance and National Economy, the rules of the unified customs arrangements of the Gulf Cooperation Council as laid out in Decree Law No. 10 of 2002 and the CBB Law No. 64 of 2006.

FC-1.10.1

Licensees may apply simplified customer due diligence measures, as described in Paragraphs FC-1.10.2 to FC-1.10.7, if:

FC-1.10.2

For customers falling under categories (c) to (g) specified in Paragraph FC-1.10.1, the information required under Paragraph FC-1.2.1 (for natural persons) or FC-1.2.7 (for legal entities) must be obtained. However, the verification, certification and due diligence requirements in Paragraphs FC-1.2.3, FC-1.2.5, FC-1.2.8, FC-1.2.9 and FC-1.2.11, may be dispensed with.

FC-1.10.3

[This Paragraph was deleted in July 2018].

FC-1.10.4

Licensees wishing to apply simplified due diligence measures as allowed for under categories (c) to (g) of Paragraph FC-1.10.1 must retain documentary evidence supporting their categorisation of the customer.

FC-1.10.5

Examples of such documentary evidence may include a printout from a regulator's website, confirming the licensed status of an institution, and internal papers attesting to a review of the AML/CFT measures applied in a jurisdiction.

FC-1.10.6

Licensees may use authenticated SWIFT messages as a basis for confirmation of the identity of a financial institution under Subparagraphs FC-1.10.1 (d) and (e) where it is dealing as principal. For customers coming under Subparagraphs FC-1.10.1 (d) and (e), licensees must also obtain and retain a written statement from the parent institution of the subsidiary concerned, confirming that the subsidiary is subject to the same AML/CFT measures as its parent.

FC-1.10.7

Simplified customer due diligence measures must not be applied where a licensee knows, suspects, or has reason to suspect, that the applicant is engaged in money laundering or terrorism financing or that the transaction is carried out on behalf of another person engaged in money laundering or terrorism financing.

FC-1.10.7A

Simplified customer due diligence measures must not be applied in situations where the licensee has identified high ML/TF/PF risks.

FC-1.10.8

[This Paragraph was deleted in July 2018].

FC-1.11.1

Licensees are permitted to rely on third parties to perform elements of CDD measures and recordkeeping requirements stipulated in Chapter FC-1 related to customer and beneficial owner identity, verification of their identity and information on the purpose and intended nature of the business relationship with the licensee, subject to complying with the below:

FC-1.11.2

Where a licensee relies on a third-party that is part of the same financial group, the licensee can consider that:

FC-1.11.3

This Section does not apply to outsourcing or agency arrangements in which the outsourced entity applies the CDD measures on behalf of the delegating licensee, in accordance with its procedures.

FC-2.1.1

Licensees must take reasonable care to establish and maintain appropriate systems and controls for compliance with the requirements of this Module and to limit their vulnerability to financial crime. These systems and controls must be documented, and approved and reviewed annually by the Board of the licensee. The documentation, and the Board's review and approval, must be made available upon request to the CBB.

FC-2.1.2

The above systems and controls, and associated documented policies and procedures, should cover standards for customer acceptance, on-going monitoring of high-risk accounts, staff training and adequate screening procedures to ensure high standards when hiring employees.

FC-2.1.3

Licensees must incorporate Key Performance Indicators (KPIs) to ensure compliance with AML/CFT requirements by all staff. The performance against the KPIs must be adequately reflected in their annual performance evaluation and in their remuneration (See also Paragraph HC-5.4.2 for Financing Companies and Microfinance Institutions, HC-5.2.4 for Ancillary Service Providers and HC-4.2.1 for Money Changers).

FC-2.1.4

In implementing the policies, procedures and monitoring tools for ensuring compliance with Paragraph FC-2.1.3, licensees should consider the following:

FC-2.1.5

Licensees that use remitting agents must include them in their AML/CFT programmes and monitor them for compliance with these programmes.”

Risk Based Monitoring

Automated Transaction Monitoring

Unusual Transactions or Customer Behaviour

On-going Monitoring

Outward Transfers

Inward Transfers

Rejecting Payment Transactions

Originating Financial Institution

Intermediary Financial Institution/Bank

Beneficiary Financial Institution

FC-3.2.1

Whenever a licensee uses the services of Authorised Money Transferors to effect the transfer of funds for a customer to a person or organisation in another country, that licensee must, in respect of the amount so transferred, maintain records of:

FC-3.2.2

Licensees must be able to produce this information for inspection immediately upon request by the CBB.

FC-3.2.3

Licensees must not transfer funds for customers to a person or organisation in another country by any means other than through an Authorised Money Transferor. Where a licensee is found to be in contravention of this rule, the CBB will not hesitate to impose sanctions upon that licensee (and in serious cases may revoke the license).

FC-4.1.1

Licensees must appoint a Money Laundering reporting officer ("MLRO"). The MLRO must be approved by the CBB prior to his appointment. The position of MLRO is a controlled function and the MLRO is an approved person.

FC-4.1.2

For details of CBB's requirements regarding controlled functions and approved persons, see Section AU-1.2. Amongst other things, approved persons require CBB approval before being appointed, which is granted only if they are assessed as 'fit and proper' for the function in question. A completed Form 3 must accompany any request for CBB approval.

FC-4.1.3

The position of MLRO must not be combined with functions that create potential conflicts of interest, such as an internal auditor or business line head. The position of MLRO may not be outsourced.

FC-4.1.4

Subject to Paragraph FC-4.1.2, however, the position of MLRO may otherwise be combined with other functions in the licensee, such as that of Compliance Officer, in cases where the volume and geographical spread of the business is limited and, therefore, the demands of the function are not likely to require a full time resource.

FC-4.1.4A

For purposes of Paragraphs FC-4.1.3 and FC-4.1.4 above, licensees must clearly state in the Application for Approved Person Status — Form 3 — when combining the MLRO or DMLRO position with any other position within the licensee.

FC-4.1.5

Licensees must appoint a deputy MLRO to act for the MLRO in his absence. The deputy MLRO must be resident in Bahrain unless otherwise agreed with the CBB.

FC-4.1.6

Licensees should note that although the MLRO may delegate some of his functions, either within the licensee or even possibly (in the case of larger groups) to individuals performing similar functions for other group entities, the responsibility for compliance with the requirements of this Module remains with the licensee and the designated MLRO. The deputy MLRO should be able to support the MLRO discharge his responsibilities and to deputise for him in his absence.

FC-4.1.7

So that he can carry out his functions effectively, licensees must ensure that their MLRO:

FC-4.1.8

In addition, licensees must ensure that their MLRO is able to:

FC-4.1.9

If the position of MLRO falls vacant, the licensee must appoint a permanent replacement (after obtaining CBB approval), within 120 calendar days of the vacancy occurring. Pending the appointment of a permanent replacement, the licensee must make immediate interim arrangements (including the appointment of an acting MLRO) to ensure continuity in the MLRO function's performance. These interim arrangements must be approved by the CBB.

FC-4.2.1

The MLRO is responsible for:

Annual Compliance Review

FC-5.1.1

Licensees must implement procedures to ensure that staff who handle customer business (or are managerially responsible for such staff) make a report promptly to the MLRO if they know or suspect that a customer (or a person on whose behalf a customer may be acting) is engaged in money laundering or terrorism financing, or if the transaction or the customer's conduct otherwise appears unusual or suspicious. These procedures must include arrangements for disciplining any member of staff who fails, without reasonable excuse, to make such a report.

FC-5.1.2

Where licensees' internal processes provide for staff to consult with their line managers before sending a report to the MLRO, such processes must not be used to prevent reports reaching the MLRO, where staff have stated that they have knowledge or suspicion that a transaction may involve money laundering or terrorist financing.

FC-5.2.1

Licensees must take reasonable steps to ensure that all reports made under Section FC-5.1 are considered by the MLRO (or his duly authorised delegate). Having considered the report and any other relevant information the MLRO (or his duly authorised delegate), if he still suspects that a person has been engaged in money laundering or terrorism financing, or the activity concerned is otherwise still regarded as suspicious, must report the fact promptly to the relevant authorities. Where no report is made, the MLRO must document the reasons why.

FC-5.2.2

To take reasonable steps, as required under Paragraph FC-5.2.1, licensees must:

FC-5.2.3

Reports to the relevant authorities made under Paragraph FC-5.2.1 must be sent to the Financial Intelligence Directorate at the Ministry of Interior, and CBB's Compliance Directorate using the Suspicious Transaction Reporting Online System (Online STR system). STRs in paper format will not be accepted.

FC-5.2.4

Licensees must report all suspicious transactions or attempted transactions. This reporting requirement applies regardless of whether the transaction involves tax matters.

FC-5.2.5

Licensees must retain all relevant details of STRs submitted to the relevant authorities, for at least five years.

FC-5.2.6

In accordance with the AML Law, licensees, their directors, officers and employees:

FC-5.3.1

Reports made by the MLRO or his duly authorised delegate under Section FC-5.2 must be sent electronically using the Suspicious Transaction Reporting Online System (Online STR system).

FC-5.3.2

The relevant authorities are:
Financial Intelligence Directorate (FID)
Ministry of Interior
P.O. Box 26698
Manama, Kingdom of Bahrain
Telephone: + 973 17 749397
Fax: + 973 17 715502
E-mail: bahrainfid@moipolice.bh

Director of Compliance Directorate
Central Bank of Bahrain
P.O. Box 27
Manama, Kingdom of Bahrain
Telephone: 17 547107
Fax: 17 535673
E-mail: Compliance@cbb.gov.bh

FC-6.1.1

A licensee must take reasonable steps to provide periodic training and information to ensure that staff who handle customer transactions, or are managerially responsible for such transactions, are made aware of:

FC-6.1.2

The information referred to in Paragraph FC-6.1.1 must be brought to the attention of relevant new employees of licensees, and must remain available for reference by staff during their period of employment.

FC-6.1.3

Relevant new employees must be given AML/CFT training within three months of joining a licensee.

FC-6.1.4

Licensees must ensure that their AML/CFT training for relevant staff remains up-to-date, and is appropriate given the licensee's activities and customer base.

FC-6.1.5

The CBB would normally expect AML/CFT training to be provided to relevant staff at least once a year.

FC-6.1.6

Licensees must develop adequate screening procedures to ensure high standards when hiring employees. These procedures must include controls to prevent criminals or their associates from being employed by licensees.

FC-6.1.6A

[This Paragraph was deleted in January 2022].

CDD and Transaction Records

Compliance Records

Training Records

Access

FC-8.1.1

Licensees must give special attention to any dealings they may have with entities or persons domiciled in countries or territories which are:

FC-8.1.2

Whenever transactions with such parties have no apparent economic or visible lawful purpose, their background and purpose must be reexamined and the findings documented. If suspicions remain about the transaction, these must be reported to the relevant authorities in accordance with Section FC-5.2.

FC-8.1.3

Licensees must apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries where such measures are called for by the FATF. The type of enhanced due diligence measures applied must be effective and proportionate to the risks.

FC-8.1.4

With regard to the jurisdictions identified as NCCTs or those which in the opinion of the CBB, do not have adequate AML/CFT systems, the CBB reserves the right to:

FC-8.2.1AA

Licensees must implement and comply with United Nations Security Council resolutions relating to the prevention and suppression of terrorism and terrorist financing. Licensees must freeze, without delay, the funds or other assets of, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of, any person or entity either (i) designated by, or under the authority of, the United Nations Security Council under Chapter VII of the Charter of the United Nations, including in accordance with resolution 1267(1999) and its successor resolutions as well as Resolution 2178(2014) or (ii) designated as pursuant to Resolution 1373(2001).

FC-8.2.1

Licensees must comply in full with the provisions of the UN Security Council Anti-terrorism Resolution No. 1373 of 2001 ('UNSCR 1373').

FC-8.2.2

[This Paragraph was deleted in January 2018].

FC-8.2.3

A copy of UNSCR 1373 is included in Part B of Volume 5 (Specialised Licensees), under 'Supplementary Information' on the CBB Website.

FC-8.2.4

Licensees must report to the CBB details of:

FC-8.2.5

For the purposes of Paragraph FC-8.2.4, 'funds or other financial resources' includes (but is not limited to) shares in any undertaking owned or controlled by the persons and entities referred to in Article 1, paragraph c) and d) of UNSCR 1373, and any associated dividends received by the licensee.

FC-8.2.6

All reports or notifications under this Section must be made to the CBB's Compliance Directorate.

FC-8.2.7

See Section FC-5.3 for the Compliance Directorate's contact details.

FC-8.3.1

Without prejudice to the general duty of all licensees to exercise the utmost care when dealing with persons or entities who might come under Article 1, paragraphs (c) and (d) of UNSCR 1373, licensees must not deal with any persons or entities designated by the CBB as potentially linked to terrorist activity.

FC-8.3.2

The CBB from time to time issues to licensees lists of designated persons and entities believed linked to terrorism. Licensees are required to verify that they have no dealings with these designated persons and entities, and report back their findings to the CBB. Names designated by the CBB include persons and entities designated by the United Nations, under UN Security Council Resolution 1267 ("UNSCR 1267").

FC-8.3.3

Licensees must report to the relevant authorities, using the procedures contained in Section FC-5.2, details of any accounts or other dealings with designated persons and entities, and comply with any subsequent directions issued by the relevant authorities.

FC-9.1.1

Without prejudice to any other penalty imposed by the CBB Law, the AML Law No. 4 or the Penal Code of the Kingdom of Bahrain, failure by a licensee to comply with this Module or any direction given hereunder shall result in the levying by the CBB, without need of a court order and at the CBB's discretion, of a fine of up to BD 20,000.

FC-9.1.2

Module EN provides further information on the assessment of financial penalties and the criteria taken into account prior to imposing such fines (reference to Paragraph EN-5.1.4). Other enforcement measures may also be applied by the CBB in response to a failure by a licensee to comply with this Module; these other measures are also set out in Module EN.

FC-9.1.3

The CBB will endeavor to assist licensees to interpret and apply the requirements of this Module. Licensees may seek clarification on any issue by contacting the Compliance Directorate (see Section FC-5.3 for contact details).

FC-9.1.4

Without prejudice to the CBB's general powers under the law, the CBB may amend, clarify or issue further directions on any provision of this Module from time to time, by notice to its licensees.

FATF: 40 Recommendations and 9 Special Recommendations

Other Website References Relevant to AML/CFT

FC-11.1.1

The requirements of this Chapter apply to all Specialised Licensees.

FC-11.1.2

Licensees must ensure that they allocate appropriate resources and have in place systems and controls to deter, detect, and record instances of fraud or attempted fraud.

FC-11.1.3

Fraud may arise from internal sources originating from changes or weaknesses to processes, products and internal systems and controls. Fraud can also arise from external sources, for instance through false invoicing or advance fee frauds.

FC-11.1.4

Any actual or attempted fraud incident (however small) must be reported to the appropriate authorities (including the CBB) and followed up. Monitoring systems must be designed to measure fraud patterns that might reveal a series of related fraud incidents.

FC-11.1.5

Licensees must ensure that a person, of sufficient seniority, is given overall responsibility for the prevention, detection and remedying of fraud within the organisation.

FC-11.1.6

Licensees must ensure the effective segregation of functions and responsibilities, between different individuals and departments, such that the possibility of financial crime is reduced and that no single individual is able to initiate, process and control a transaction.

FC-11.1.7

Licensees must provide regular training to their management and staff, to make them aware of potential fraud risks.

Executive Summary

Legal Basis

Evolution of Module

Superseded Requirements

EN-B.1.1

The contents of this Module mostly consist of Guidance material, explaining the different measures that the CBB can employ to ensure compliance with Volume 5 (Specialised Licensees). Certain Rules, applicable to specialised licensees, are however contained in Paragraphs EN-B.3.1, EN-B.4.5, EN-2.2.4, EN-2.2.10, EN-5.2.2 and EN-8.2.4 and Sections EN-2.4 and EN-2.5.

EN-B.1.2

Chapters EN-1 to EN-9 of this Module are generally relevant to specialised licensees. In the case of overseas specialised licensees, the CBB's enforcement powers apply only to the branch operating in the Kingdom of Bahrain.

EN-B.1.3

In addition, Chapters EN-8 and EN-9 of this Module are relevant to approved persons.

EN-B.1.4

Section EN-5 dealing with financial penalties is applicable to specialised licensees as well as to persons referred to in paragraph (b) of Article (68 bis 1) of the CBB Law.

EN-B.2.1

The CBB favours an open, pragmatic and collaborative relationship with authorised persons, within the boundaries set by the CBB Law and Rulebook. Whilst the CBB wishes to avoid a legalistic and confrontational style of supervision, it believes that effective supervision requires effective and timely enforcement of its requirements. Should authorised persons fail to cooperate, then the CBB will use the means described in this Module to achieve compliance.

EN-B.2.2

In the CBB's view, it is generally neither practical nor effective to prescribe in detail the exact regulatory response for each and every potential contravention. There are a large number of potential contraventions. Moreover, individual circumstances are unlikely to be identical in all cases, and may warrant different responses.

EN-B.2.3

In deciding any given supervisory response, the CBB will nonetheless consistently assess the individual circumstance of each contravention against the principles described in this Module. The CBB's overall approach is to take into account:

EN-B.2.4

Such an approach reduces the risk of inappropriate enforcement actions, by allowing regulatory measures to be tailored to individual circumstances. By taking into account an authorised person's compliance record and attitude, it also creates positive incentives and encourages an open and collaborative approach. By assessing individual cases against the same broad principles, the CBB also aims to achieve an overall consistency in its regulatory actions.

EN-B.2.5

Underlying the CBB's approach outlined in Paragraph EN-B.2.3 is the fundamental principle of proportionality. The enforcement measures contained in this Module are of varying severity, and will be used accordingly in keeping with the CBB's assessment of the contravention. Thus, the CBB will reserve its most serious enforcement measures – such as cancellation of license or withdrawal of "fit and proper" status – for the most serious contraventions.

EN-B.2.6

In keeping with the proportionality principle, and to the extent consistent with the CBB's enforcement approach in Paragraph EN-B.2.3, the CBB will usually opt for the least severe of appropriate enforcement measures. In most cases, the CBB expects to use a Formal Warning before resorting to more severe measures; the need for further measures will then usually be dependent on the response of the authorised person concerned.

EN-B.2.7

Where a significant element of judgement is required to assess compliance with a requirement, the CBB will usually discuss the matter with the authorised person concerned, before using one of this Module's enforcement mechanisms. This is likely to be the case, for example, with respect to requirements for adequate systems and controls. Conversely, where there are clear-cut contraventions of CBB requirements, then the CBB will usually move immediately to one or more of the enforcement mechanisms outlined in this Module. This is more likely to occur in cases where quantitative requirements – such as those relating to capital and/or large exposures – are concerned. In most such cases, though, the CBB also expects to continue an active dialogue with the authorised person concerned, aimed at remedying the contravention.

EN-B.2.8

Except in the limited circumstances outlined below, the CBB will usually only apply an enforcement measure after the authorised person concerned has been given a suitable opportunity to make representations. In the case of measures described in Chapters EN-6 and EN-7, certain procedures are set out in the CBB Law.

EN-B.2.9

In extreme circumstances, where the CBB believes that immediate action is required to prevent real damage to Bahrain's financial markets, its users or to customers of the licensee concerned, it may amend or cancel a license, place a licensee under administration, or suspend a license (cf. Articles 48(g), 130(b) and 131 of the CBB Law).

EN-B.3.1

To help the CBB achieve the purpose of this Module, specialised licensees may not enter into or make a claim under a contract of insurance that is intended to, or has the effect of, indemnifying them from the financial penalties provided for in this Module.

EN-B.4.1

The CBB will not as a matter of general policy publicise individual cases when it uses the measures described in Chapters EN-2 to EN-5, and EN-8. However, in such cases the CBB may inform (where relevant) an authorised person's external auditor and – in the case of licensees with overseas operations – relevant overseas regulators.

EN-B.4.2

In exceptional circumstances, as allowed by Article 132 of the CBB Law, the CBB may decide to publicise individual cases when the measures set out in Chapters EN-2 to EN-5 and EN-8 are used, where there is a strong case that doing so would help achieve the CBB's supervisory objectives. In such instances, the CBB will usually allow the licensee or person concerned the opportunity to make representations to the CBB before a public statement is issued.

EN-B.4.3

Without prejudice to the above policy, the CBB may from time to time publish aggregate information on its use of enforcement measures, without identifying the licensees or persons concerned, unless their identities have previously been disclosed as provided for in Paragraphs EN-B.4.1 or EN-B.4.2.

EN-B.4.4

By their nature, the penalties in Chapters EN-6, EN-7 and EN-9 are public acts, once applied. The CBB will in these instances generally issue a public statement explaining the circumstances of the case.

EN-B.4.5

If a financial penalty is imposed on a specialised licensee under the provision of Chapter EN-5, and it is subject to the requirements of Module PD (Public Disclosure) or Module BR (CBB Reporting Requirements), then the specialised licensee must disclose in the manner prescribed by Module PD or BR the amount of any financial penalties imposed by the CBB, together with a factual description of the reasons given by the CCB for the penalty.

EN-B.4.6

Specialised licensees subject to a CBB enforcement measure (with the exception of formal requests for information) must inform their external auditor of the fact.

EN-1.1.1

As part of its on-going supervision, under Articles 111 and 123 of the CBB Law, the CBB may specifically request information or temporary reporting from a licensee or individual. Recipients of such requests are bound to respond to such requests under the terms of their license.

EN-1.2.1

To clearly identify formal information requests, these will always be made in writing, under signature of a Director or more senior official of the CBB. They will include the statement, "This is a formal request for information as defined in Chapter 1 of Module EN of Volume 5 of the CBB Rulebook"; and will state the deadline by which the information is to be communicated to the CBB.

EN-1.2.2

Failure to respond to such formal requests within the deadline set will be viewed as a significant breach of regulatory requirements and may result in a formal warning or other enforcement measure, specified under Articles 163 and 170 of the CBB Law, as decided by the CBB depending on the circumstances of the case.

EN-1.2.3

The deadline set in the request will vary depending on individual circumstances. A recipient may submit a case for an extension to the deadline; it should do so as soon as possible if it believes that an extension will be required, and in any event prior to the passing of the original deadline. Unless otherwise directed by the CBB, the original deadline remains valid pending consideration by the CBB of a request for an extension. The CBB will respond before the original deadline has passed; if it fails to do so, then the requested extension will apply. Whilst waiting for a reply, the recipient must assume that the original deadline will apply.

EN-1.2.4

The above procedures do not prevent individual CBB supervisors from making oral requests for information as part of their day-to-day interaction with authorised persons. The CBB expects authorised persons to maintain their cooperative response to such requests; however, in the interests of clarity, the CBB will not view failures to respond to oral requests as a breach of regulatory requirements.

EN-2.1.1

Articles 121 to 123 of the CBB Law empowers the CBB to order investigations of licensees, in order to help it assess a licensee's compliance with the provisions of the CBB Law. Such investigations may be carried out either by its own officials or appointed experts. Articles 111 and 124 require licensees to make available to the CBB's inspectors and appointed experts their books and other records, and to provide all relevant information within the time limits deemed reasonable by the inspectors and/or appointed experts.

EN-2.1.2

Articles 163 and 170 of the CBB Law provide for criminal sanctions where false or misleading statements are made to the CBB, or an investigation by the CBB is otherwise obstructed (see Section EN-9.3).

EN-2.2.1

The CBB uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission special investigations of licensees in order to help it assess their compliance with CBB requirements, as contained in Article 121 of the CBB Law. Such investigations may be carried out either by the CBB's own officials, by duly qualified experts appointed for the purpose by the CBB ('appointed experts'), or a combination of the two.

EN-2.2.2

Failure by licensees to cooperate fully with the CBB's inspectors, or its appointed experts or to respond to their examination reports within the time limits specified, will be treated as demonstrating a material lack of cooperation with the CBB which will result in other enforcement measures being considered, as described elsewhere in this Module. This guidance is supported by Article 114(a) of the CBB Law.

EN-2.2.3

The CBB may appoint an individual or a firm as an appointed expert. Examples of appointed experts are lawyers and expert witnesses. The appointment of appointed experts is not necessarily indicative of a contravention of CBB requirements or suspicion of such a contravention. For instance, an appointed expert may be commissioned to provide an expert opinion on a technical matter.

EN-2.2.4

Appointed experts report in a form and within a scope defined by the CBB, and are solely responsible to the CBB for the work they undertake in relation to the investigation concerned. The report produced by the appointed experts is the property of the CBB (but is usually shared by the CBB with the firm concerned). The cost of the appointed experts' work must be borne by the licensee concerned.

EN-2.2.5

In selecting an appointed expert, the CBB will take into account the level of fees proposed and aim to limit these to the lowest level consistent with an adequate review of the matters at hand, given the qualifications, track record and independence of the persons concerned. Because the costs of such investigations are met by the licensee, the CBB makes only selective use of appointed experts, when essential to supplement CBB's other supervisory tools and resources.

EN-2.2.6

[This Paragraph was moved to Section BR-3.5 for money changers and administrators and the module GR for representative offices in April 2012.]

EN-2.2.7

[This Paragraph was deleted in April 2012].

EN-2.2.8

[This Paragraph was deleted in April 2012].

EN-2.2.9

The CBB may commission reports, which require appointed experts to review information from another company within the reporting specialised licensee's group even when that other entity is not subject to any CBB requirements.

EN-2.2.10

In accordance with Articles 114 and 123 of the CBB Law, specialised licensees must provide all relevant information and assistance to appointed experts on demand.

EN-2.2.11

[This Paragraph was moved to Section BR-3.5 for money changers and administrators and the module GR for representative offices in April 2012.]

EN-2.3.1

All proposals for Appointed Experts require approval by an Executive Director or more senior official of the CBB. The appointment will be made in writing, and made directly with the experts concerned. A separate letter is sent to the licensee, notifying them of the appointment. At the CBB's discretion, a trilateral meeting may be held at any point, involving the CBB and representatives of the licensee and the Appointed Experts, to discuss any aspect of the investigation.

EN-2.3.2

Following the completion of the investigation, the CBB will normally provide feedback on the findings of the investigation to the specialised licensee concerned.