Executive Summary

Retaining Authorised Status

Legal Basis

Evolution of Module

Superseded Requirements

AU-B.1.1

The content of this Module applies to all Money Changer licensees authorised in the Kingdom of Bahrain, thereafter referred to in this Module as licensees.

AU-B.1.2

Two types of authorisation are prescribed:

AU-B.2.1

Various requirements in Chapters AU-2 to AU-4 inclusive also apply to persons once they have been authorised by the CBB (whether as licensees or approved persons).

AU-B.2.2

Chapter AU-2 applies to licensees (not just applicants), since licensing conditions have to be met on a continuous basis by licensees. Similarly, Chapter AU-3 applies to approved persons on a continuous basis; it also applies to licensees seeking an approved person authorisation. Chapter AU-4 contains requirements applicable to licensees, with respect to the starting up of their operations, as well as to licensees and approved persons, with respect to the amendment or cancellation of their authorised status. Finally, Section AU-5.2 imposes annual fees on licensees.

AU-1.1.1

No person may:

AU-1.1.2

For the purposes of Rule AU-1.1.1, please refer to Rule AU-1.1.8 for the definition of 'regulated money changer services' and Rule AU-1.1.9 for 'by way of business'. Such activities will be deemed to be undertaken within or from the Kingdom of Bahrain if, for example, the person concerned:

AU-1.1.2A

In accordance with Resolution No.(16) for the year 2012 and for the purpose of Subparagraph AU-1.1.1(c), the word 'market' refers to any promotion, offering, announcement, advertising, broadcast or any other means of communication made for the purpose of inducing recipients to purchase or otherwise acquire financial services in return for monetary payment or some other form of valuable consideration.

AU-1.1.2B

Persons in breach of Subparagraph AU-1.1.1(c) are considered in breach of Resolution No.(16) for the year 2012 and are subject to penalties under Articles 129 and 161 of the CBB Law (see also Section EN-9.3).

AU-1.1.3

Persons wishing to be licensed to undertake regulated money changer services within or from the Kingdom of Bahrain must apply in writing to the CBB.

AU-1.1.4

An application for a license must be in the form prescribed by the CBB and must contain, inter alia:

AU-1.1.5

The CBB will review the application and duly advise the applicant in writing when it has:

AU-1.1.6

Detailed rules and guidance regarding information requirements and processes for licenses can be found in Section AU-4.1. As specified in Paragraph AU-4.1.12, the CBB will provide a formal decision on a license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB.

AU-1.1.7

All applicants seeking a Money Changers license must satisfy the CBB that they meet, by the date of authorisation, the minimum criteria for licensing, as contained in Chapter AU-2. Once licensed, licensees must maintain these criteria on an on-going basis.

Money Changer License Permitted Activities

Suitability

General Requirements

Basis for Approval

Definitions

AU-2.1.1

The legal status of a licensee must be:

AU-2.1.2

For those licensees that do not meet the requirements of Rule AU-2.1.1, they should discuss their legal status with the CBB.

AU-2.2.1

Licensees with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom and must conduct their business from their Head Office and approved branches only.

AU-2.2.2

In assessing the location of a licensee's Head Office, the CBB will take into account the residency of its Directors and senior management. The CBB requires the majority of key decision makers in executive management — including the Chief Executive - to be resident in Bahrain.

AU-2.3.1

Licensees must satisfy the CBB that their controllers are suitable and pose no undue risks to the licensee.

AU-2.4.1

As per Article 65(a) of the CBB law, those nominated to carry out controlled functions must satisfy CBB's approved person's requirements.

AU-2.4.2

The definition of controlled functions is contained in Paragraph AU-1.2, whilst Chapter AU-3 sets out CBB's approved persons requirements. Applications for approved person status must be submitted using the prescribed approved persons form.

AU-2.4.3

The licensee's staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of the licensee in a sound and prudent manner. Licensees must ensure their employees meet any training and competency requirements specified by the CBB.

AU-2.4.4

The CBB's training and competency requirements are contained in Module TC (Training and Competency).

AU-2.5.1

Licensees must maintain a level of financial resources, as agreed with the CBB, adequate for the level of business proposed. The level of financial resources held must exceed at all times the minimum requirements contained in Module CA (Capital Adequacy), as specified for the license held.

AU-2.6.1

Licensees must maintain systems and controls that are, in the opinion of the CBB, adequate for the scale and complexity of their activities. These systems and controls must meet the minimum requirements contained in Modules HC (High-level Controls) and RM (Risk Management), as specified for the license held.

AU-2.6.2

Licensees must maintain adequate segregation of responsibilities in their staffing arrangements, to protect against the misuse of systems or errors. Such segregation should ensure that no single individual has control over all stages of a transaction.

AU-2.6.3

Licensees must maintain systems and controls that are, in the opinion of the CBB, adequate to address the risks of financial crime occurring in the licensee. These systems and controls must meet the minimum requirements contained in Module FC (Financial Crime), as specified for the license held.

AU-2.6.4

As part of the licensing approval process, applicants must demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. Applicants may also be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB.

AU-2.7.1

As per Article 61 of the CBB Law, licensees must appoint external auditors, subject to prior CBB approval. The minimum requirements regarding auditors contained in Module AA (Auditors and Accounting Standards) must be met.

AU-2.7.2

Applicants must submit details of their proposed external auditor to the CBB as part of their license application.

Books and Records

Provision of Information

General Conduct

License Fees

Additional Conditions

AU-3.1.1

Licensees seeking an approved person authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake the controlled function in question.

AU-3.1.2

The authorisation requirement for persons nominated to carry out controlled functions is contained in Section AU-1.2. The authorisation process is described in Section AU-4.3.

AU-3.1.3

Each applicant applying for approved person status and those individuals occupying approved person positions must comply with the following conditions:

AU-3.1.4

In assessing the conditions prescribed in Rule AU-3.1.3, the CBB will take into account the criteria contained in Paragraph AU-3.1.5. The CBB reviews each application on a case-by-case basis, taking into account all relevant circumstances. A person may be considered 'fit and proper' to undertake one type of controlled function but not another, depending on the function's job size and required levels of experience and expertise. Similarly, a person approved to undertake a controlled function in one licensee may not be considered to have sufficient expertise and experience to undertake nominally the same controlled function but in a much bigger licensee.

AU-3.1.5

In assessing a person's fitness and propriety, the CBB will also consider previous professional and personal conduct (in Bahrain or elsewhere) including, but not limited to, the following:

AU-3.1.6

With respect to Paragraph AU-3.1.5, the CBB will take into account the length of time since any such event occurred, as well as the seriousness of the matter in question.

AU-3.1.7

Approved persons undertaking a controlled function must act prudently, and with honesty, integrity, care, skill and due diligence in the performance of their duties. They must avoid conflicts of interest arising whilst undertaking a controlled function.

AU-3.1.8

In determining where there may be a conflict of interest arising, factors that may be considered will include whether:

AU-3.1.9

Further guidance on the process for assessing a person s fit and proper status is given in Module EN (Enforcement): see Chapter EN-8.

AU-3.2.1

[This Paragraph was deleted in January 2016.]

AU-3.2.2

[This Paragraph was deleted in January 2016.]

AU-3.2.3

[This Paragraph was moved to Paragraph AU-3.1.9 in January 2016.]

Application Form and Documents

Licensing Process and Timelines

Granting or Refusal of License

Starting Operations

AU-4.2.1

Licensees may open branches in the Kingdom of Bahrain after obtaining the CBB's prior written approval. Licensees are prohibited from opening branches in foreign jurisdictions but may open subsidiaries in such jurisdictions with the CBB prior approval.

Authorisation of a Branch

Starting Operations of a Branch

Authorisation of a Subsidiary

Prior Approval Requirements and Process

Assessment of Application

Appeal Process

Notification Requirements and Process

Change in Controlled Function

Voluntary Surrender of a License or Closure of Branch

Cancellation of a License by the CBB

Cancellation of Approved Person Status

AU-4.5.1

In accordance with Articles 47 and 49 of the CBB Law, the CBB will publish its decision to grant, cancel or amend a license in the Official Gazette and in two local newspapers, one in Arabic and the other in English.

AU-4.5.2

For the purposes of Paragraph AU-4.5.1, the cost of publication must be borne by the Licensee.

AU-4.5.3

The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.

AU-5.1.1

Applicants seeking a Money Changer license from the CBB must pay a non-refundable license application fee of BD 100 at the time of submitting their formal application to the CBB.

AU-5.1.2

There are no application fees for those seeking approved person status.

AU-5.2.1

Licensees must pay the relevant annual license fee to the CBB, on 1st December of the preceding year for which the fee is due.

AU-5.2.2

The relevant fees are specified in Rule AU-5.2.3 below. The fees due on 1st December are those due for the following calendar year, but are calculated on the basis of the firm's latest audited financial statements for the previous calendar year: i.e. the fee payable on 1st December 2013 for the 2014 year (for example), is calculated using the audited financial statements for 2012, assuming a 31st December year end. Where a licensee does not operate its accounts on a calendar-year basis, then the most recent audited financial statements available are used instead.

AU-5.2.3

The variable annual license fee payable by licensees is 0.25% of their relevant operating expenses, subject to a minimum ('floor') of BD 300 and a maximum ('cap') of BD 6,000.

AU-5.2.4

Relevant operating expenses are defined as the total operating expenses of the licensee concerned, as recorded in the most recent audited financial statements available, subject to the adjustments specified in Rule AU-5.2.5.

AU-5.2.5

The adjustments to be made to relevant operating expenses are the exclusion of the following items from total operating expenses:

AU-5.2.6

For the avoidance of doubt, operating expenses for the purposes of this Section, do not include items such as depreciation, provisions, interest expense, and dividends.

AU-5.2.7

The CBB would normally rely on the audited accounts of a licensee as representing a true and fair picture of its operating expenses. However, the CBB reserves the right to enquire about the accounting treatment of expenses, and/or policies on intra-group charging, if it believes that these are being used artificially to reduce a license fee.

AU-5.2.8

Licensees must complete and submit Form ALF (Annual License Fee) to the CBB, no later than 15th October of the preceding year for which the fees are due.

AU-5.2.8A

All licensees are subject to direct debit for the payment of the annual fee and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September available under Part B of Volume 5 (Specialised Licensees) CBB Rulebook on the CBB Website.

AU-5.2.9

For new licensees, the first annual license fee is payable when the license is issued by the CBB. The amount payable is the floor amount of BD 300.

AU-5.2.9A

For the first full year of operation for licensees, the licensee would calculate its fee as the floor amount. For future years, the licensee would submit a Form ALF by 15th October of the preceding year for which the fees are due and calculate its fee using its last audited financial statements (or alternative arrangements as agreed with CBB, should its first set of accounts cover an 18-month period).

AU-5.2.10

Where a license is cancelled (whether at the initiative of the firm or the CBB), no refund is paid for any months remaining in the calendar year in question.

AU-5.2.11

Licensees failing to comply with this Section may be subject to financial penalties for date sensitive requirements as outlined in Section EN-5.3A or may have their licenses withdrawn by the CBB.

Executive Summary

Legal Basis

Evolution of the Module

Superseded Requirements

Monitoring and Enforcement of Module HC

HC-B.1.1

The content of this Module applies to all Money Changer licensees authorised in the Kingdom of Bahrain, thereafter referred to in this Module as licensees.

General Requirements

Specific Requirements

HC-1.2.1

The Memorandum and Articles of Association of licensees must adequately set out procedures for the appointment, removal and retirement of Directors.

HC-1.2.2

These should, amongst other things, include procedures for removing Directors in case of non-attendance or other failure to discharge properly their responsibilities as company Directors.

HC-1.2.2A

The Board should have a minimum of 3 members, as agreed with the CBB.

HC-1.2.3

To fulfil its responsibilities outlined in Section HC-1.1, the Board of licensees must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting new Directors to replace long-standing members or those members whose contributions to the licensee or its committees is not adequate.

HC-1.2.4

The Board must ensure that collectively it has sufficient expertise to understand the important issues relating to the operation and control of its company.

HC-1.2.5

It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. There should also be agreed upon procedures by the Board for Directors to take independent advice if necessary at the licensee's expense. CBB also expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities as Directors.

HC-1.2.6

The appointment of Board members is conditional on the approval of the CBB. (See Section AU-1.2).

HC-1.2.7

A Board member may have a maximum of two Directorships of financial institutions inside Bahrain. However, two Directorships of licensees within the same type of licensees would not be permitted. Licensees may approach the CBB for exemption from this limit where the Directorships concern financial institutions within the same group.

HC-1.2.8

Unless otherwise agreed with the CBB, the chairman and/or deputy chairman must not be the same person as the CEO or general manager.

HC-1.3.1

The Board must meet sufficiently often to enable it to discharge its responsibilities effectively, taking into account the licensee's scale and complexity.

HC-1.3.2

The CBB expects that the scale and complexity of most licensees will require meetings to be held at least quarterly. For the larger, most complex licensees, more frequent Board meetings may be more appropriate.

HC-1.3.2A

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.

HC-1.3.2B

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.

HC-1.3.2C

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).

HC-1.3.2D

In the event that a Board member has not attended at least 75% of Board meetings in any given financial year, the 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.

HC-1.3.2E

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. In instances where telephonic or videoconference meetings are held, licensees are encouraged to amend their Articles of Association to provide for such meetings. Participation in board meetings by means of video or telephone conferencing is regarded as attendance and may be recorded as such.

HC-1.3.3

Board rules must require members to step down if they are not actively participating in Board meetings.

HC-1.3.4

The CBB expects Board members who fail to attend at least three-quarters of all Board meetings in any twelve-month period to step down, unless the Board is able to satisfy the CBB that there are valid reasons for the Director concerned to remain a Board member.

HC-1.3.5

At least half the Board meetings of licensees in any twelve-month period must be held in the Kingdom of Bahrain.

HC-1.3.5A

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.

HC-1.3.6

The Board must maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.

HC-1.4.1

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 or general manager (as the case may be) believes should have exposure to the directors.

HC-2.1.1

The Board and its members must act with honesty, integrity, due skill and care, and in the best interests of the licensee, its shareholders and clients.

HC-2.1.2

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 the licensee's continued compliance with all relevant rules and regulations, and the interests of employees, clients and other stakeholders. The interest of shareholders includes the current and future value of the licensee, its status as a going concern, transparency and disclosure of information to the market. The interest of clients includes ensuring that the licensee fulfils its obligations under its terms of business and treats all clients fairly and pays equal regard to the interests of all clients.

HC-2.1.3

Each member of the board must understand that under the Company Law he is personally accountable to the licensee and the shareholders if he violates his legal duty of loyalty to the licensee, and that he can be personally sued by the licensee or the shareholders for such violations.

HC-2.1.4

The duty of loyalty includes a duty not to use property of the licensee for his personal needs as though it was his own property, not to disclose confidential information of the licensee or use it for his personal profit, and to serve the licensee's interest in any transactions with the company in which he has a personal interest.

HC-2.1.5

For purposes of Paragraph HC-2.1.4, an approved person is considered to have a "personal interest" in a transaction with the company if:

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.)

HC-2.1.6

A licensee's Board must establish and disseminate to all employees of the licensee a corporate code of conduct.

HC-2.1.7

The code of conduct must establish standards by giving examples or expectations as regards:

HC-2.1.8

A Board must ensure that policies and procedures are in place to ensure that necessary customer confidentiality is maintained.

HC-2.2.1

Licensees must maintain an organisational structure that segregates duties in order to minimise the risk of conflicts of interest arising.

HC-2.2.2

Each approved person must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the licensee.

HC-2.2.3

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.

HC-2.3.1

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 the approved person. The approved 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.

HC-2.3.2

Board members must declare annually in writing all of their interests (and those of their family) in other enterprises or activities (whether as a Director, shareholder, senior executive or other form of participation) to the Board (or appropriate Board sub-Committee).

HC-2.3.3

Bahraini licensees must have in place a board approved policy on the employment of relatives of approved persons and a summary of such policy must be disclosed in the annual report of the Bahraini licensee.

HC-2.3.4

Overseas licensees must have in place a policy on the employment of relatives of approved persons pertaining to their Bahrain operations.

HC-2.4.1

The 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.

HC-2.4.2

The chief executive/general manager of the Bahraini licensee must disclose to the board of directors on an annual basis those individuals who are occupying controlled functions and who are relatives of any approved persons within the Bahraini licensee.

HC-2.4.3

The chief executive/general manager of the overseas licensees must disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupying controlled functions and who are relatives of any approved persons within the overseas licensee.

HC-3.1.1

The Board must have rigorous controls for financial audit and reporting, internal control, and compliance with law.

HC-3.1.2

To encourage management accountability for the financial statements required by the directors, the licensee's CEO or general manager and chief financial officer must state in writing to the Board as a whole that the licensee's interim and annual financial statements present a true and fair view, in all material respects, of the licensee's financial condition and results of operations in accordance with applicable accounting standards.

HC-4.2.1

The performance evaluation and remuneration of senior management and staff of the 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.

HC-4.1.1

The review of Directors' remuneration must be a standing item on the licensee's Annual General Meeting agenda, and must be considered by shareholders at every Annual General Meeting. Directors' remuneration (including pension and severance arrangements) and bonuses must be clearly disclosed in the annual financial statements.

HC-4.1.2

Directors' remuneration should also comply with all applicable laws, such as Legislative Decree No. 21 of 2001 (and its amendments), with respect to promulgating the Commercial Companies Law.

HC-5.1.1

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

HC-5.1.2

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

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

HC-5.1.3

The licensee may appoint a corporate secretary. Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training. The corporate secretary's duties include:

HC-5.2.1

Licensees must maintain clearly documented and communicated staff responsibilities and reporting lines.

HC-5.2.2

For the purposes of Rule HC-5.2.1, licensees should maintain and document their delegated authority structure as well as written terms of reference for staff positions.

HC-5.2.3

The Board must adopt by-laws prescribing each senior manager's title, authorities, duties and internal reporting responsibilities. This must be done in consultation with the CEO or general manager, to whom the other senior managers should normally report.

HC-5.2.4

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

HC-5.2.5

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

HC-5.2.6

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 or general manager, both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to the CEO or general manager.

HC-5.3.1

Licensees must appoint a person to undertake the function of Chief Executive or General Manager.

HC-5.3.2

The Chief Executive or General Manager (as appropriate), is responsible for the executive management and performance of the licensee, within the framework of delegated authorities set by the Board. The function of Chief Executive or General Manager is a controlled function, and the person nominated to that post therefore requires prior CBB approval (see Module AU (Authorisation)).

HC-5.3.3

Residency requirements apply to Chief Executives and General Managers (see Section AU-2.2.)

HC-5.4.1

Unless otherwise agreed with the CBB, licensees must establish an internal audit function to monitor the adequacy of their systems and controls.

HC-5.4.2

The CBB would normally expect larger licensees to maintain the internal audit function within the organisation. The CBB will however consider allowing small licensees to outsource part or all of their internal audit function to third party providers.

HC-5.4.3

Licensees may outsource part or all of their internal audit function, after obtaining the prior approval of the CBB. The outsourcing arrangements must provide for an adequate level of scrutiny of the licensee, and must comply with the requirements contained in Section RM-2.4. A licensee cannot outsource its internal audit function to its external auditor.

HC-5.4.4

Prior approval from the CBB is required for significant outsourcing arrangements, including all outsourcing of internal audit. Note that in all such cases, the licensee retains ultimate responsibility for the adequacy of its outsourcing function, and is required to identify the person within the licensee responsible for internal audit: this person should be an approved person (see Section AU-1.2 and Chapter RM-2).

HC-5.4.5

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

HC-5.4.6

Paragraph HC-5.4.5 applies irrespective of whether the internal audit function is outsourced. Where it is outsourced, the CBB would expect to see these matters addressed in the contract with the outsourcing provider.

HC-5.4.7

Internal audit functions must report directly to the Board. They must have unrestricted access to all the appropriate records of the licensee. They must have open and regular access to the Board, the Chief Executive or general manager, and the licensee's external auditor.

HC-5.4.8

Internal audit functions must have adequate staff levels with appropriate skills and knowledge, such that they can act as an effective challenge to the business. Where the function is not outsourced, the head of function should be a senior and experienced employee. Internal audit functions must not perform other activities that compromise their independence.

HC-5.4.9

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

HC-5.4.10

Internal Audit reports should also be:

HC-5.4.11

Licensees should also have processes in place to deal with recommendations raised by internal audit to ensure that they are:

HC-5.5.1

Licensees must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements in the Kingdom's legislation and those set by the CBB, and those established under any other statute or regulator to which they are subject.

HC-5.5.2

Depending on the nature, scale and complexity of its business, a licensee should consider having a separate compliance function. A compliance function should:

HC-5.5.3

Licensees must designate an employee, of appropriate standing and resident in Bahrain, as Compliance Officer. The duties of the Compliance Officer include:

HC-5.5.4

The Compliance Officer is a controlled function and the requirements relating to approved persons must be met (see Chapter AU-1.2). If the scale and nature of the licensee's operations are limited, then the individual who performs the function of Compliance Officer may also take on other responsibilities, providing this does not create a potential conflict of interest. The compliance function may not be combined with the internal audit function or any operational function as they are incompatible and may create a conflict of interest.

Executive Summary

Legal Basis

Evolution of Module

Superseded Requirements

GR-B.1.1

The scope of application of Module GR (General Requirements) applies to all Money Changer Licensees, thereafter referred to in this Module as licensees.

GR-1.1.1

In accordance with Articles 59 and 60 of the CBB Law, all licensees must maintain books and records (whether in electronic or hard copy form) sufficient to produce financial statements and show a complete record of the business undertaken by a licensee. These records must be maintained for at least 10 years according to Article 60 of the CBB Law.

GR-1.1.2

GR-1.1.1 includes accounts, books, files and other records (e.g. trial balance, general ledger, nostro/vostro statements, reconciliations, list of counterparties). It also includes records that substantiate the value of the assets and liabilities activities of the licensee.

GR-1.1.3

Bahrain Law currently requires other transaction records to be retained for at least 5 years (see Ministerial Order No. 23 of 2002, made pursuant to Amiri Decree Law No. 4 of 2001).

GR-1.1.4

Unless otherwise agreed to by the CBB in writing, records must be kept in either English or Arabic. Any records kept in languages other than English or Arabic must be accompanied by a certified English or Arabic translation. Records must be kept current. The records must be sufficient to allow an audit of the licensee's business or an on-site examination of the licensee by the CBB.

GR-1.1.5

Translations produced in compliance with Rule GR-1.1.4 may be undertaken inhouse, by an employee or contractor of the licensee, provided they are certified by an appropriate officer of the licensee.

GR-1.1.6

Records must be accessible at any time from within the Kingdom of Bahrain, or as otherwise agreed with the CBB in writing.

GR-1.1.7

Where older records have been archived, the CBB may accept that records be accessible within a reasonably short time frame (e.g. within 5 business days), instead of immediately.

GR-1.1.8

Paragraphs GR-1.1.1 to GR-1.1.6 apply to licensees, with respect to all their business activities.

GR-1.2.1

Licensees must keep completed transaction records for as long as they are relevant for the purposes for which they were made (with a minimum period in all cases of five years from the date when the transaction was terminated). Records of terminated transactions must be kept whether in hard copy or electronic format as per the Legislative Decree No. (54) of 2018 with respect to Electronic Transactions “The Electronic Communications and Transactions Law” and its amendments.

GR-1.2.2

[This Paragraph has been deleted in July 2017].

Corporate Records

Customer Records

GR-2.1.1

All remittances must be pre-funded. In instances where remittances are not pre-funded, they must be channelled through a designated customer account at a retail bank in the Kingdom of Bahrain. No claims by the licensee can be made against this account.

GR-3.1.1

Licensees must obtain CBB’s prior written approval for any change in their legal name. Licensees must notify the CBB of any change in their corporate name at least one week prior to effecting the proposed change.

GR-3.1.2

In approving a change to a legal name, the CBB seeks to ensure that it is sufficiently distinct as to reduce possible confusion with other unconnected businesses, particularly those operating in the financial services sector.

GR-4.1.1

Licensees must obtain the CBB's prior written approval to any dividend proposed to be distributed to the shareholders, before announcing the proposed dividend by way of press announcement or any other means of communication and prior to submitting a proposal for a distribution of profits to a shareholder vote.

GR-4.1.2

The CBB will grant approval where it is satisfied that the level of dividend proposed is unlikely to leave the licensee vulnerable — for the foreseeable future — to breaching the CBB's financial resources requirements, taking into account (as appropriate) trends in the licensee's business volumes, expenses and performance.

GR-4.1.3

To facilitate the prior approval required under Paragraph GR-4.1.1, licensees subject to Paragraph GR-4.1.1 must provide the CBB with:

GR-5.1.1

Licensees must obtain prior approval from the CBB for any of the following changes to their controllers (as defined in Section GR-5.2):

GR-5.1.1A

Licensees must not incur or otherwise have an exposure (either directly or indirectly) to their controllers, including subsidiaries and associated companies of such controllers.

GR-5.1.1B

For the purpose of Paragraph GR-5.1.1A, licensees that already have an exposure to controllers must have an action plan agreed with the CBB's supervisory point of contact to address such exposures within a timeline agreed with the CBB.

GR-5.1.2

Articles 52 to 56 of the CBB Law require notification to the CBB of all controllers of licensees and of listed companies; it further gives the CBB the right to refuse approval of controllers if deemed damaging to the interests of the market, customers, or in contravention of the criteria set by the CBB.

GR-5.1.3

Requests for approval under Paragraph GR-5.1.1 must be made by submitting a duly completed Form 2 (Application for Authorisation of Controller) to the CBB. Notification must be made by the controller or intended controller, and by the licensee where it is aware of the change.

GR-5.1.4

If, as a result of circumstances outside the licensee's knowledge and/or control, one of the changes specified in Paragraph GR-5.1.1 is triggered prior to CBB approval being sought or obtained, the licensee must notify the CBB no later than 15 calendar days from the date on which those changes have occurred.

GR-5.1.5

For approval under Rule GR-5.1.1 to be granted, the applicant must satisfy the CBB that the proposed change in controller poses no undue risks to the licensee or its customers, and is not damaging to the interests of the market, as defined in the suitability criteria for controllers, contained in Section GR-5.3.

GR-5.1.6

An approval of controller is valid for the period specified in the approval letter issued by the CBB. The CBB may impose any restrictions that it considers necessary to be observed when granting its approval.

GR-5.1.7

The approval process is specified in Section GR-5.4.

GR-5.2.1

A controller of a licensee is a natural or legal person who, either alone or with his associates:

GR-5.2.2

For the purposes of Paragraph GR-5.2.1, 'associate' includes:

GR-5.2.3

Associate also includes any other person or undertaking with which the controller has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in the licensee, or under which they undertake to act together in exercising their voting power in relation to the licensee.

GR-5.3.1

All new controllers or prospective controllers (as defined in Section GR-5.2) of a Bahraini specialised licensee must obtain the approval of the CBB. Any increases to existing controllers' holdings or voting control (as outlined under Paragraph GR-5.1.1) must also be approved by the CBB and are subject to the conditions outlined in this Section. Such changes in existing controllers (as defined in the Section GR-5.2) or new/prospective controllers of a licensee must satisfy the CBB of their suitability and appropriateness according to the criteria outlined in Paragraphs GR-5.3.2 to GR-5.3.5. The CBB will issue an approval notice or notice of refusal of a controller according to the approval process outlined in Section GR-5.4 and Paragraph GR-5.1.6.

GR-5.3.1A

For those licensees authorised after 1st January 2011, at least one controller must be a regulated financial institution owning or controlling 20% or more of the voting capital.

GR-5.3.2

In assessing the suitability of controllers who are natural persons, the CBB has regard to their professional and personal conduct, including, but not limited to, the following:

GR-5.3.3

Natural persons who intend to take a stake of 20% or more in a licensee are subject to enhanced scrutiny. The level of scrutiny and the expected compliance with the above standards become more onerous as the level of proposed ownership increases.

GR-5.3.4

Legal persons who intend to take a stake of 20% or more in a licensee are subject to enhanced scrutiny, given the CBB's position as home supervisor of such licensees. The level of scrutiny and of expected compliance with the above standards becomes more onerous as the level of proposed ownership increases. 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 the home 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 the home supervisor, setting out their respective supervisory responsibilities).

GR-5.3.5

In assessing the suitability of controllers who are legal persons, CBB has regard to their financial standing, judicial and regulatory record, and standards of business practice and reputation, including, but not limited to, the following:

GR-5.3.6

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.

GR-5.4.1

Within 3 months of receipt of an approval request under Paragraph GR-5.1.1, the CBB will issue a written notice of approval (or of refusal, if it is not satisfied that the person concerned is suitable to become a controller of the licensee). The notice of refusal will specify the reasons for the objection and specify the applicant's right of appeal. Where an approval notice is given, it will specify the period for which it is valid and any conditions that may be applied.

GR-5.4.2

Article 53 allows the CBB up to 3 months in which to respond to an application, although the CBB normally aims to respond within 30 calendar days. Notices of refusal have to be approved by an Executive Director of the CBB. The applicant has 30 calendar days from the date of a notice in which to appeal a decision to refuse the application or any conditions imposed as a condition of approval. The CBB then has 30 calendar days from the date of the appeal in which to consider any mitigating evidence submitted and make a final determination. See Module EN (Enforcement).

GR-5.4.3

Where a person has become a controller by virtue of their shareholding in contravention of Paragraph GR-5.1.1, or a notice of refusal has been served on them under Paragraph GR-5.4.1 and the period of appeal has expired, the CBB may, by notice in writing served on the person concerned, instruct the person concerned to transfer such shares, or refrain from exercising voting rights in respect of such shares.

GR-5.4.4

If the person concerned fails to take the action specified under Paragraph GR-5.4.3, then the CBB may seek a court order to take appropriate measures: these may include forcing the person to sell their shares.

GR-5.4.5

The powers available to the CBB that are described in Paragraphs GR-5.4.3 and GR-5.4.4 are specified in Article 56 of the CBB Law.

GR-5.4.6

In addition to the above requirements, licensees are encouraged to notify the CBB as soon as they become aware of events that are likely to lead to major changes in their controllers. Any supervisory implications of such changes can then be discussed prior to the filing of a formal approval request.

GR-6.1.1

As specified in Article 50 of the CBB Law, a licensee wishing to cease to provide or suspend all or any of its licensed regulated services, completely or at any of its branches, must obtain prior written approval from the CBB.

GR-6.1.2

Licensees seeking to obtain the CBB's permission to cease business must apply to the CBB in writing, in the form of a formal request together with supporting documents. Unless otherwise directed by the CBB, the following requirements must be provided in support of the request:

GR-6.1.3

Licensees intending to apply to cease business are advised to contact the CBB at the earliest possible opportunity, prior to submitting a formal application, in order that the CBB may determine the nature and level of documentation to be provided and the need for an auditor or other expert opinion to be provided to support the application. The documentation specified in Paragraph GR-6.1.2 may be varied by the CBB, depending on the nature of the proposed cessation, such as the materiality of the business concerned and its impact on customers.

GR-6.1.4

Approval to cease business will generally be given where adequate arrangements have been made to offer alternative arrangements to any affected customers. The CBB's approval may be given subject to any conditions deemed appropriate by the CBB. In all cases where additional requirements are imposed, the CBB shall state the reasons for doing so.

GR-6.1.5

The notice referred to in Subparagraph GR-6.1.2 (i) must include a statement that written representations concerning the liquidation may be submitted to the CBB before a specified day, which shall not be later than thirty calendar days after the day of the first publication of the notice. The CBB will not decide on the application until after considering any representations made to the CBB before the specified day.

GR-6.1.6

Upon satisfactorily meeting the requirements set out in GR-6.1.2, the licensee must surrender the original license certificate issued by the Licensing Directorate at the time of establishment, and submit confirmation of the cancellation of its Commercial Registration from the Ministry of Industry and Commerce.

GR-6.1.7

Where the CBB has given its approval to cancel or amend a license, then it will also publish its decision in the Official Gazette, as well as in two local daily newspapers (one in Arabic, the other in English), once this decision has been implemented.

GR-6.1.7A

The publication cost of the notices referred to in Paragraph GR-6.1.7 is to be met by the licensee concerned.

GR-6.1.8

The licensee must continue to comply with all applicable CBB requirements until such time as it is formally notified by the CBB that its obligations have been discharged.

GR-6.1.9

A licensee in liquidation must continue to meet its contractual and regulatory obligations to customers and creditors.

GR-6.1.9A

If no objections to the liquidation are upheld by the CBB, the CBB may then issue a written notice of approval for the surrender of the license.

GR-6.1.10

If a licensee applies to the CBB for voluntary surrender of its authorisation, it must ensure that suitable arrangements are in place for insurance coverage, to continue in respect of any unreported claims arising from past transactions, in accordance with Rule GR-7.1.7.

GR-6.1.11

Upon satisfactorily meeting the requirements set out in GR-6.1.2, the licensees must surrender the original license certificate issued by the Licensing Directorate at the time of establishment, and submit confirmation of the cancellation of its commercial registration from the Ministry of Industry, Commerce and Tourism.

GR-7.1.1

Licensees are required to maintain the following insurance coverage at all times:

GR-7.1.2

A licensee is encouraged to assess its insurance needs, through professional advice, to ensure its adequacy to the level of business undertaken.

GR-7.1.3

The insurance coverage must be obtained from an insurance firm acceptable to the CBB and licensed in the Kingdom of Bahrain.

GR-7.1.4

Licensees must submit an Insurance Coverage Return (Form ICR) on an annual basis, within 3 months of the end of the financial year. Additionally, they must provide, upon request, evidence to the CBB of the coverage in force.

GR-7.1.5

In accordance with Paragraph EN-B.3.1, 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 Module EN.

GR-7.1.6

The requirement to maintain insurance coverage will normally be met by the licensee concerned obtaining an insurance policy from an insurance firm. The CBB may also accept an insurance policy issued at group level, e.g. issued with respect to the parent of the licensee, provided the terms of the policy explicitly provide coverage with respect to the licensee.

GR-7.1.7

Unless otherwise agreed in writing with the CBB, the policy must contain a clause that it may not be cancelled or lapsed without the prior approval of the CBB. The policy must also contain a provision for an automatic extended reporting period in the event that the policy is cancelled or lapsed, such that claims relating to the period during which the policy was in force may subsequently still be reported.

GR-7.1.8

As provided for in Module ES, insurance coverage requirements must be met by licensees which were licensed prior to the introduction of Volume 5 (Specialised Licensees) in October 2010, by June 2011. Licensees licensed after October 2010 are required to comply with the CBB's professional indemnity coverage requirements, from the point they are given a license.

GR-8.1.1

Licensees must display the license granted to them by the CBB, and declare the exchange rates applied by them in a prominent position in their premises, including all of their branches.

GR-9.1.1

Licensees must apply the following security measures as a minimum:

GR-9.1.2

External Measures

GR-9.1.3

Internal Measures

Teller Area

GR-10.1.1

Licensees are required to apply the measures in this Section to detect counterfeit currency:

GR-10.1.2

Licensees must have in place counterfeit detection machines that comply with the following requirements:

Reporting

GR-11.1.1

Licensees are prohibited from extending credit facilities to proprietors, partners and shareholders of the business.

GR-11.1.1A

Credit facilities include but are not limited to loans and shari'a compliant financing facilities.

GR-11.1.2

Credit facilities may be extended to employees of the licensee, other than proprietors, partners and shareholders of the business.

GR-11.1.3

Licensees must obtain the CBB's prior written approval for any credit facility in excess of BD15,000, extended to the employees of the business.

GR-11.1.4

Licensees must obtain the CBB's prior written approval before writing-off any credit facility extended to the employees of the business.

Executive Summary

Legal Basis

Evolution of Module

Superseded Requirements

CA-B.1.1

The content of this Module applies to all Money Changer licensees authorised in the Kingdom, thereafter referred to in this Module as licensees.

Obligation to Maintain Adequate Capital

Key Requirements

CA-1.3.1

Licensees are required to provide the CBB with a guarantee in respect of their liabilities. The guarantee must be:

CA-1.3.2

If the guarantee is not renewed within the stipulated timeframe, the CBB may call the guarantee.

CA-1.4.1

In addition to the minimum paid-up capital required under Section CA-1.2, licensees must inject capital in the amount of BD30, 000 in respect of any additional branch (see CA-1.2.2 for additional details).

CA-1.4.2

Licensees must provide the CBB with evidence of the deposited amount of capital as part of the application for a branch outlined in Section 4.2 of the Module AU (Authorisation).

CA-1.5.1

A licensee's liabilities should not exceed threefold its capital and reserves.

CA-1.5.2

A licensee's liquid assets must be held in a form acceptable to the CBB, in a minimum amount of three months estimated expenditures including salaries, rent, general utilities and other operating costs.

CA-1.5.3

Liquid assets comprise of cash, cash equivalents, and placements or deposits maturing within 30 days.

Executive Summary

Legal Basis

Evolution of the Module

Superseded Requirements

BC-B.1.1

The content of this Module applies to all Money Changer licensees authorised in the Kingdom, thereafter referred to in this Module as licensees.

BC-C.1.1

Money changer licensees must ensure that all regulated financial services are provided without any discrimination based on gender, nationality, origin, language, faith, religion, physical ability or social standing.

BC-1.1.1

This Module applies to all licensees.

BC-1.1.2

This Module aims to encourage high standards of business conduct, which are broadly applicable to all licensees, all types of regulated money changer services, and all types of customers.

BC-1.1.3

Licensees must comply with the Money Changers' Business Code of Practice ('the Code'), under Chapter 2 of this Module, throughout the lifetime of their relationship with a customer.

BC-1.1.4

Licensees must take responsibility for compliance with the Code by all persons carrying out regulated money changer services on their behalf. Licensees must put in place appropriate measures across all their business operations to ensure compliance with the Code.

BC-1.1.5

The Business Code of Practice comprises a number of overarching principles of business conduct, with respect to the conduct of regulated money changer services by licensees; these cover the various stages of the life of a customer relationship.

BC-1.1.6

Licensees must maintain adequate records to demonstrate compliance with the Code.

BC-1.1.7

The Code focuses on desired outcomes, rather than prescribing detailed measures to achieve those outcomes.

BC-1.1.8

The CBB will monitor compliance with the Code and business conduct standards. If required, the CBB may develop more detailed rules and guidance to supplement the existing Code.

BC-2.1.1

In the course of regulated money changer services, licensees must:

BC-2.2.1

Licensees must ensure that all advertising and promotional material is fair, clear and not misleading.

BC-2.2.2

In ensuring that the description of the service in the promotional material is fair, clear and not misleading, the licensee should send copies of the documentation relating to promotional schemes to the CBB at least 2 weeks prior to their launch and should, among other precautionary measures, ensure that:

BC-2.2.3

Licensees must ensure that the accuracy of all material statements of fact in promotional materials is supported by adequate evidence.

BC-2.2.4

Licensees must not, in any form of communication with an individual customer, attempt to limit or avoid any duty or liability it may have towards the individual customer in relation to regulated money changing services.

Content of Promotions

Records

BC-2.3.1

Licensees must disclose, maintain and operate effective procedures for handling complaints in a reasonable and timely manner. These procedures include:

BC-2.3.2

Upon receiving complaints from customers (either orally or in writing), licensees must:

BC-2.3.3

In their final responses to customers' complaints, licensees must:

Records

BC-2.4.1

Licensees must ensure that any information obtained from their customers is not used or disclosed unless:

BC-2.4.2

Licensees must take appropriate steps to ensure the security of any information handled or held on behalf of their customers.

BC-2.5.1

The minimum information that should be contained in promotional material includes:

BC-2.5.2

The minimum information that should be provided to customers when purchasing regulated money changer services include:

BC-2.5.3

The minimum information that should be included in a transaction confirmation includes:

Executive Summary

Legal Basis

Evolution of the Module

Superseded Requirements

RM-B.1.1

The content of this Module applies to all Money Changer licensees authorised in the Kingdom, thereafter referred to in this Module as licensees.

Board of Directors' Responsibility

Systems and Controls

RM-1.2.1

Licensees must adequately document the necessary policies and procedures for identifying, measuring, monitoring and controlling counterparty risk. This policy must be approved and regularly reviewed by the Board of Directors of the licensee.

RM-1.2.2

Among other things, the licensee's policies and procedures must identify the limits it applies to counterparties, how it monitors movements in counterparty risk and how it mitigates loss in the event of counterparty failure.

RM-1.3.1

Licensees must maintain a liquidity risk policy for the management of liquidity risk, which is appropriate to the nature, scale and complexity of its activities. This policy must be approved and regularly reviewed by the Board of Directors of the licensee.

RM-1.3.2

Among other things, the licensee's liquidity risk policy must identify the limits it applies, how it monitors movements in risk and how it mitigates loss in the event of unexpected liquidity events.

RM-1.4.1

Licensees must document their framework for the proactive management of market risk. This policy must be approved and regularly reviewed by the Board of Directors of the licensee.

RM-1.5.1

Licensees must document their framework for the proactive management of operational risk. This policy must be approved and regularly reviewed by the Board of Directors of the licensee.

RM-1.5.2

Licensees must consider the impact of operational risks on their financial resources and solvency.

RM-1.5.3

Licensees' business continuity planning, risk identification and reporting must cover reasonably foreseeable external events and their likely impact on the licensee and its business portfolio.

RM-1.5.4

Business continuity management includes policies, standards, and procedures for ensuring that specified operations can be maintained or recovered in a timely fashion in the event of a disruption. Its purpose is to minimise the operational, financial, legal, reputational and other material consequences arising from a disruption. Effective business continuity management concentrates on the impact, as opposed to the source, of the disruption, which affords financial industry participants and financial authorities greater flexibility to address a broad range of disruptions. At the same time, however, licencees cannot ignore the nature of risks to which they are exposed.

Electronic Frauds

Secure Authentication

RM-2.1.1

This Chapter sets out the CBB’s approach to outsourcing by licensees. It also sets out various requirements that licensees must address when considering outsourcing an activity or function.

RM-2.1.2

In the context of this Chapter, ‘outsourcing’ means an arrangement whereby a third party performs on behalf of a licensee an activity which commonly would have been performed internally by the licensee. Examples of services that are typically outsourced include data processing, cloud services, customer call centres and back-office related activities.

RM-2.1.3

In the case of branches of foreign entities, the CBB may consider a third-party outsourcing arrangement entered into by the licensee’s head office/regional office or other offices of the foreign entity as an intragroup outsourcing, provided that the head office/regional office submits to the CBB a letter of comfort which includes, but is not limited to, the following conditions:

RM-2.1.4

The licensee must not outsource the following functions:

RM-2.1.5

For the purposes of Paragraph RM-2.1.4, certain support activities, processes and systems under these functions may be outsourced (e.g. call centres, data processing, credit recoveries, cyber security, e-KYC solutions) subject to compliance with Paragraph RM-2.1.7. However, strategic decision-making and managing and bearing the principal risks related to these functions must remain with the licensee.

RM-2.1.6

Branches of foreign entities may be allowed to outsource to their head office, the risk management function stipulated in Subparagraph RM-2.1.4 (iv), subject to CBB’s prior approval.

RM-2.1.7

Licensees must comply with the following requirements:

RM-2.1.8

For the purpose of Subparagraph RM-2.1.7 (iv), licensees as part of their assessments may use the following:

When conducting on-site examinations, licensees should ensure that the data of the outsourcing service provider’s other clients is not negatively impacted, including impact on service levels, availability of data and confidentiality.

RM-2.1.9

For the purpose of Subparagraph RM-2.1.7 (i), the CBB will provide a definitive response to any prior approval request for outsourcing within 10 working days of receiving the request complete with all the required information and documents.

Role of the Board and Senior Management

Cyber Security Strategy

Cyber Security Policy

Approach, Tools and Methodology