• Type 6: Type 6: Microfinance Institutions

    • Part A

      • High Level Standards

        • AU AU Microfinance Institutions Authorisation Module

          • AU-A AU-A Introduction

            • AU-A.1 AU-A.1 Purpose

              • Executive Summary

                • AU-A.1.1

                  The executive summary only provides an overview. For detailed rules, reference must be made to the individual rules outlined in the remainder of this Module.

                  January 2014

                • AU-A.1.2

                  The Authorisation Module sets out the Central Bank of Bahrain's ('CBB's) approach to licensing providers of regulated microfinance services in the Kingdom of Bahrain. It also sets out CBB requirements for approving persons undertaking key functions in those providers.

                  January 2014

                • AU-A.1.3

                  Persons undertaking certain functions in relation to licensees require prior CBB approval. These functions (called 'controlled functions') include members of the Board of directors and members of senior management. The controlled functions regime supplements the licensing regime by ensuring that key persons involved in the running of licensees are fit and proper. Those authorised by the CBB to undertake controlled functions are called approved persons.

                  January 2014

              • Retaining Authorised Status

                • AU-A.1.4

                  The requirements set out in Chapters AU-2 and AU-3 represent the minimum conditions that have to be met in each case, both at the point of authorisation and on an on-going basis thereafter, in order for authorised status to be retained.

                  January 2014

              • Legal Basis

                • AU-A.1.5

                  This Module contains the CBB's Directive, Resolution and Regulations (as amended from time to time) regarding authorisation under Volume 5 of the CBB Rulebook. It is applicable to all microfinance institutions licensees (as well as to approved persons), and is issued under the powers available to the CBB under Articles 37 to 42, 44 to 48 and 180 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). It also includes the requirements contained in Resolution No (1) of 2007 (as amended from time to time) with respect to determining fees categories due for licenses and services provided by the CBB. It contains requirements under Regulation No (1) of 2007 pertaining to the CBB's regulated services issued under Article 39 of the CBB Law and governing the conditions of granting a license for the provision of regulated services as prescribed under Resolution No (43) of 2011 and is issued under the powers available to the CBB under Article 44(c). The Module contains requirements under Resolution No.(16) for the year 2012 including the prohibition of marketing financial services pursuant to Article 42 of the CBB Law. This Module contains the prior approval requirements for approved persons under Resolution No (23) of 2015.

                  Amended: July 2015
                  January 2014

                • AU-A.1.6

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  January 2014

                • AU-A.1.7

                  Persons wishing to undertake regulated microfinance services are required to be licensed by the CBB as a microfinance institution licensee.

                  January 2014

              • Licensing Conditions

                • AU-A.1.8

                  Microfinance institution licensees are subject to 8 licensing conditions, mostly specified at a high-level in Module AU, and further expanded in underlying subject Modules. These licensing conditions are broadly equivalent to the standards applied in other Volumes of the CBB Rulebook, to other license categories, and are consistent with international good practice.

                  January 2014

              • Information Requirements and Processes

                • AU-A.1.9

                  Chapter AU-3 specifies the processes and information requirements that have to be followed for applicants seeking a microfinance institution license. It also covers the voluntary surrender of a license, or its cancellation by the CBB.

                  January 2014

            • AU-A.2 AU-A.2 Module History

              • Evolution of Module

                • AU-A.2.1

                  This Module was first issued in January 2014. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made. Chapter UG-3 provides further details on Rulebook maintenance and version control.

                  January 2014

                • AU-A.2.2

                  A list of recent changes made to this Module is provided below:

                  Module Ref. Change Date Description of Changes
                  AU-1.1.3 04/2014 Corrected cross reference.
                  AU-5.2.1 04/2014 Corrected due date of CBB annual license fees.
                  AU-1.3.1 10/2014 Corrected cross reference.
                  AU-A.1.5 07/2015 Legal basis updated to reflect Resolution No (23) of 2015.
                  AU-4.2 07/2015 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons.
                  AU-1.4 01/2016 Clarified general requirements for approved persons.
                  AU-3 01/2016 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons.
                  AU-4.2 01/2016 Minor amendments to be aligned with other Volumes of the Rulebook.
                  AU-4.4 07/2017 Added new Section on Publication of the Decision to Grant, Cancel or Amend a License.
                  AU-4.1.1 04/2018 Amended Paragraph.
                  AU-4.2.2 04/2018 Amended Paragraph.
                  AU-1.2.2 04/2019 Amended conventional microfinance limit per eligible beneficiary.
                  AU-1.2.3 04/2019 Amended Shari'a compliant microfinance contracts limit per eligible beneficiary.
                  AU-2.5.2 04/2019 Amended minimum required capital.
                  AU-4.1.1 07/2019 Amended Paragraph to remove references to hardcopy Form 1 submission to online submission.
                  AU-4.4.1 10/2019 Changed from Rule to Guidance.
                  AU-1.2.1A 10/2020 Added a new Paragraph on compliance with AAOIFI Shari’a Standards.
                  AU-4.2.10A 01/2021 Added a new Paragraph on compliance of approved persons with the fit and proper requirement.

              • Superseded Requirements

                • AU-A.2.3

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Document Subject
                  Volumes 1 and 2 Module LR
                     
                  January 2014

          • AU-B AU-B Scope of Application

            • AU-B.1 AU-B.1 Scope of Application

              • AU-B.1.1

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

                January 2014

              • AU-B.1.2

                Two types of authorisation are prescribed:

                (a) Any person seeking to provide regulated microfinance services within or from the Kingdom of Bahrain must hold the appropriate CBB license (see Section AU-1.1); and
                (b) Natural persons wishing to perform a controlled function in a licensee also require prior CBB's approval, as an approved person (see AU-1.2).
                January 2014

              • AU-B.1.3

                The authorisation requirements in Chapter AU-1 have general applicability, in that they prevent any person from providing (or seeking to provide) regulated microfinance services within or from the Kingdom of Bahrain, unless they have been licensed as a microfinance institution (conventional or Islamic) by the CBB or marketing any financial services unless specifically allowed to do so by the CBB (see Rule AU-1.1.1).

                January 2014

              • AU-B.1.4

                The remaining requirements in Chapters AU-1 to AU-3 (besides those mentioned in Section AU-B.1) apply to all those licensed by the CBB as a microfinance institution licensee, or which are in the process of seeking such a license. They apply regardless of whether the person concerned is incorporated in the Kingdom of Bahrain, or in an overseas jurisdiction, unless otherwise specified.

                January 2014

              • AU-B.1.5

                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.

                January 2014

          • AU-1 AU-1 Authorisation Requirements

            • AU-1.1 AU-1.1 Microfinance Institutions Licensees

              • General Prohibitions

                • AU-1.1.1

                  No person may:

                  (a) Undertake (or hold themselves out to undertake) microfinance services, by way of business within or from the Kingdom of Bahrain unless duly licensed by the CBB;
                  (b) Hold themselves out to be licensed by the CBB unless they have as a matter of fact been so licensed: or
                  (c) Market any financial services in the Kingdom of Bahrain unless:
                  (i) Allowed to do by the terms of a license issued by the CBB;
                  (ii) The activities come within the terms of an exemption granted by the CBB by way of a Directive; or
                  (iii) Has obtained the express written permission of the CBB to offer financial services.
                  January 2014

                • AU-1.1.2

                  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.

                  January 2014

                • AU-1.1.3

                  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-10.3).

                  Amended: April 2014
                  January 2014

                • AU-1.1.4

                  Licensees are prohibited from taking deposits.

                  January 2014

                • AU-1.1.5

                  Only persons licensed to undertake regulated microfinance services can use the term 'microfinance' in their corporate or trading names, or otherwise hold themselves out to be a microfinance institution. Licensees are not allowed to transact with non-residents of the Kingdom of Bahrain, and in foreign currencies. To qualify as a microfinance institution, the person concerned must undertake (as a minimum), the activities of providing credit to eligible beneficiaries.

                  January 2014

                • AU-1.1.6

                  Licensees are obliged to include the word 'microfinance' in their corporate or trading names and are required to make clear their regulatory status in their letter heads, customer communications, website and other communication as required under Section GR-2.2.

                  January 2014

                • AU-1.1.7

                  For the purposes of Rule AU-1.1.5, persons will be considered in breach of this requirement if they attempt to operate as, or incorporate a microfinance institution in Bahrain with or without a name containing the word "microfinance" (or the equivalent in any language), without holding the appropriate CBB license or obtaining the prior approval of the CBB.

                  January 2014

              • Licensing

                • AU-1.1.8

                  Persons wishing to be licensed to undertake regulated microfinance services within or from the Kingdom of Bahrain must apply in writing to the CBB. An application for a license must be in the form prescribed by the CBB as indicated in Chapter AU-4.

                  January 2014

                • AU-1.1.9

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

                  (a) Granted the application without conditions;
                  (b) Granted the application subject to conditions specified by the CBB; or
                  (c) Refused the application, stating the grounds on which the application has been refused and the process for appealing against that decision
                  January 2014

                • AU-1.1.10

                  Detailed rules and guidance regarding information requirements and processes for license applications can be found in Section AU-4.1. As specified in Paragraph AU-4.1.14, the CBB will provide a formal decision on license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB.

                  January 2014

                • AU-1.1.11

                  All applicants for microfinance institution licenses must satisfy the CBB that they meet, by the date of their license, the minimum conditions for licensing, as specified in Chapter AU-2. Once licensed, licensees must maintain these criteria on an on-going basis.

                  January 2014

                • AU-1.1.12

                  Licensees must not carry on any other business in the Kingdom of Bahrain or elsewhere other than microfinance business and activities directly arising from or incidental to that business.

                  January 2014

                • AU-1.1.13

                  Rule AU-1.1.12 is intended to restrict licensees from undertaking any material non-financial business activities. The Rule does not prevent a licensee undertaking commercial activities if these directly arise from their financial business: for instance, in the context of Islamic contracts, such as murabaha, ijara and musharaka, where the company may hold the physical assets being financed or leased. Nor does it restrict a licensee from undertaking commercial activities if, in the judgment of the CBB, they are incidental and do not detract from the financial nature of the licensees.

                  January 2014

            • AU-1.2 AU-1.2 Definition of Regulated Microfinance Services

              • AU-1.2.1

                Regulated microfinance services are any of the following activities, carried on by way of business:

                (a) Providing conventional or Shari'a compliant microfinance to eligible beneficiaries; and
                (b) Providing consultancy and information services to its eligible beneficiaries and prospective eligible beneficiaries.
                January 2014

              • AU-1.2.1A

                Where licensees are undertaking regulated activities in accordance with Shari'a, all transactions and contracts concluded by regulated microfinance services must comply with Sharia standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The validity of the contract or transaction is not impacted, if at a later date, the relevant AAOIFI Sharia standards are amended.

                Added: October 2020

              • Providing Conventional Microfinance

                • AU-1.2.2

                  Providing conventional microfinance to an eligible beneficiary is defined as the provision of credit to a person in his capacity as borrower or potential borrower. The maximum amount provided under the microfinance shall not exceed BD 7,000 in aggregate per eligible beneficiary. The repayment period must not exceed 3 years.

                  Amended: April 2019
                  January 2014

              • Offering Shari'a Compliant Microfinance Contracts

                • AU-1.2.3

                  Offering Shari'a compliant microfinance contracts is defined as entering into, or making arrangement for an eligible beneficiary to enter into, a contract to provide finance in accordance with Shari'a principles. The maximum amount provided under the microfinance contracts shall not exceed BD 7,000 in aggregate per eligible beneficiary. The repayment period must not exceed 3 years.

                  Amended: April 2019
                  January 2014

                • AU-1.2.4

                  For the purpose of this Section, eligible beneficiary(ies) means: Low income individuals and small businesses, who are not eligible to secure financing facilities through the banking system that intend to get a credit facility to engage in small economic activities (examples: small farmers, fishermen, related activities etc.).

                  January 2014

                • AU-1.2.5

                  For the purposes of Rule AU-1.2.1, carrying on a regulated microfinance service by way of business means:

                  (a) Undertaking the regulated microfinance service of (a) and (b), as defined in Section AU-1.2, for commercial gain;
                  (b) Holding oneself out as willing and able to engage in such activities; or
                  (c) Regularly soliciting other persons to engage in transactions constituting such activities.
                  January 2014

              • General Exclusions

                • AU-1.2.6

                  A person does not carry on an activity constituting a regulated microfinance service if the activity:

                  (a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of microfinance services;
                  (b) May reasonably be regarded as a necessary part of any other services provided in the course of that business;
                  (c) Is not remunerated separately from the other services; and
                  (d) Is carried out by a government entity in Bahrain authorised to provide such activity by Royal Decree or relevant legislation or a non-government organisation (NGO) registered with the Ministry of Social Development for that purpose.
                  January 2014

            • AU-1.3 AU-1.3 Shari'a Compliant Transactions Offered by Conventional Licensees

              • General Requirements for all Conventional Microfinance Institutions

                • AU-1.3.1

                  Conventional licensees may not hold themselves out as an Islamic microfinance institution. Conventional licensees are allowed to enter into activities listed in Rule AU-1.2.1 under the conditions outlined in the remainder of this section.

                  Amended: October 2014
                  January 2014

                • AU-1.3.2

                  When offering any of the Shari'a compliant activities listed in Rule AU-1.2.1, conventional licensees must have staff trained in Shari'a compliant financing business. The licensee must also disclose in the notes to its Annual Report/Financial Statements all quantitative and qualitative disclosures on its Shari'a compliant business as required by AAOIFI accounting and auditing standards.

                  January 2014

              • Additional Requirements

                • AU-1.3.3

                  Conventional licensees may provide Shari'a compliant activities listed in Rule AU-1.2.1, subject to the limits under Paragraph AU-1.2.3 in Bahraini dinars to Bahraini resident individuals subject to the following conditions:

                  (a) Shari'a compliant financing transactions to be undertaken through a special counter or branch as deemed necessary by the licensee;
                  (b) The licensee must maintain separate books for Shari'a compliant financing activities to ensure no co-mingling of conventional and Islamic funds;
                  (c) The licensee must have a Shari'a Compliant Reviewer;
                  (d) The licensee must appoint a minimum of one Shari'a Scholar who has authority for all Shari'a compliant business; and
                  (e) The total Islamic assets of the conventional licensee must not exceed 20% of the total assets of the licensee.
                  January 2014

            • AU-1.4 AU-1.4 Approved Persons

              • General Requirement

                • AU-1.4.1

                  Licensees must obtain the CBB's prior written approval for any person wishing to undertake a controlled function at a licensee. The approval from the CBB must be obtained prior to their appointment.

                  Amended: January 2016
                  January 2014

                • AU-1.4.2

                  Controlled functions are those functions occupied by board members and persons in executive positions and include:

                  (a) Director;
                  (b) Chief executive or general manager and their deputies;
                  (c) Head of function; and
                  (d) Compliance officer/Money Laundering Reporting Officer (MLRO).
                  Amended: January 2016
                  January 2014

                • AU-1.4.3

                  Combination of the above controlled functions is subject to the requirements contained in Modules HC and RM.

                  January 2014

              • Basis for Approval

                • AU-1.4.4

                  Approval under Paragraph AU-1.4.1 is only granted by the CBB, if it is satisfied that the person is fit and proper to hold the particular position in the licensee concerned. 'Fit and proper' is determined by the CBB on a case-by-case basis. The definition of 'fit and proper' and associated guidance is provided in Sections AU-3.1 and AU-3.2 respectively.

                  January 2014

                • AU-1.4.5

                  The chief executive or general manager means a person who is responsible for the conduct of the licensee (regardless of actual title). The chief executive or general manager must be resident in Bahrain. This person is responsible for the conduct of the whole of the firm.

                  January 2014

                • AU-1.4.6

                  Head of function means a person who, under the immediate authority of a director or the chief executive or general manager exercises major managerial responsibilities, is responsible for a significant business or operating unit, or has senior managerial responsibility for maintaining accounts or other records of the licensee.

                  January 2014

                • AU-1.4.7

                  Whether a person is a head of function will depend on the facts in each case and is not determined by the presence or absence of the word in their job title. Examples of head of function might include, depending on the scale, nature and complexity of the business, a deputy chief executive; heads of departments such as Risk Management, Compliance or Internal Audit; or the Chief Financial Officer.

                  January 2014

                • AU-1.4.8

                  Where a licensee is in doubt as to whether a function should be considered a controlled function it must discuss the case with the CBB.

                  January 2014

          • AU-2 AU-2 Licensing Conditions

            • AU-2.1 AU-2.1 Condition 1: Legal Status

              • AU-2.1.1

                The legal status of a licensee must be a Bahraini joint stock company (BSC).

                January 2014

            • AU-2.2 AU-2.2 Condition 2: Mind and Management

              • AU-2.2.1

                Licensees with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom.

                January 2014

              • 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 Officer — to be resident in Bahrain.

                January 2014

            • AU-2.3 AU-2.3 Condition 3: Controllers

              • AU-2.3.1

                Licensees must satisfy the CBB that their controllers are suitable and pose no undue risks to the licensee. Licensees must also satisfy the CBB that their close links does not prevent the effective supervision of the licensee by the CBB and otherwise pose no undue risks to the licensee.

                January 2014

              • AU-2.3.2

                Chapter GR-4 contains the CBB's requirements and definitions regarding controllers.

                January 2014

              • AU-2.3.3

                In summary, controllers are persons who directly or indirectly are significant shareholders in a licensee, or who are otherwise able to exert significant influence on the licensee. The CBB seeks to ensure that controllers pose no significant risks to the licensee. In general terms, controllers are assessed in terms of their financial standing, their judicial and regulatory record, and standards of business and (where relevant) personal probity.

                January 2014

              • AU-2.3.4

                As regards group structures, the CBB seeks to ensure that these do not prevent adequate consolidated supervision being applied to financial entities within the group, and that other group entities do not pose any material financial, reputational or other risks to the licensee.

                January 2014

              • AU-2.3.5

                In all cases, when judging applications from existing groups, the CBB will have regard to the reputation and financial standing of the group as a whole. Where relevant, the CBB will also take into account the extent and quality of supervision applied to overseas members of the group and take into account any information provided by other supervisors in relation to any member of the group.

                January 2014

            • AU-2.4 AU-2.4 Condition 4: Board and Employees

              • AU-2.4.1

                Those nominated to carry out controlled functions must satisfy the CBB's approved persons requirements. This Rule is supported by Article 65 of the CBB Law.

                January 2014

              • AU-2.4.2

                The definition of controlled functions is contained in Paragraph AU-1.4.2, whilst Chapter AU-3 sets out CBB's approved persons requirements.

                January 2014

              • 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.

                January 2014

            • AU-2.5 AU-2.5 Condition 5: Financial Resources

              • Capital Funds

                • AU-2.5.1

                  Licensees must maintain a level of financial resources, as agreed with the CBB, adequate for the level of business proposed.

                  January 2014

                • AU-2.5.2

                  Licensees must maintain a minimum level of paid-up capital of BD 2 million which has been provided by the shareholders/promoters and/or grants and donations received by the microfinance institution. A greater amount of capital may be required by the CBB on a case-by-case basis.

                  Amended: April 2019
                  January 2014

              • Other Sources of Funds

                • AU-2.5.3

                  Licensees may obtain funds through borrowings, issuance of fixed-income securities and grants and donations received on an on-going basis.

                  January 2014

              • Liquidity

                • AU-2.5.4

                  Licensees must maintain sufficient liquid assets to meet their obligations as they fall due in the normal course of their business, as required under Section CA-1.2. Licensees must agree a liquidity management policy with the CBB.

                  January 2014

            • AU-2.6 AU-2.6 Condition 6: Systems and Controls

              • 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 and RM.

                January 2014

              • AU-2.6.2

                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, as specified for the license held.

                January 2014

            • AU-2.7 AU-2.7 Condition 7: External Auditors

              • AU-2.7.1

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

                January 2014

            • AU-2.8 AU-2.8 Condition 8: Other Requirements

              • Books and Records

                • AU-2.8.1

                  Article 59 of the CBB Law requires that licensees to maintain comprehensive books of accounts and other records, and satisfy the minimum record-keeping requirements contained in Article 60 of the pre-mentioned Law and Module RM. Books of accounts must comply with IFRS and AAOIFI, where applicable.

                  January 2014

              • Provision of Information

                • AU-2.8.2

                  Articles 58, 111, 114 and 163 of the CBB Law require that licensees and their staff act in an open and cooperative manner with the CBB. Licensees must meet the regulatory reporting and public disclosure requirements contained in Modules BR and PD respectively. As per Article 62 of the CBB Law, audited financial statements must be submitted to the CBB within 3 months of the licensee's financial year-end.

                  January 2014

              • General Conduct

                • AU-2.8.3

                  Licensees must conduct their activities in a professional and orderly manner, in keeping with good market practice. Licensees must comply with the general standards of business conduct contained in Module PB, as well as the standards relating to treatment of customers contained in Modules BC and RM.

                  January 2014

              • Additional Conditions

                • AU-2.8.4

                  Licensees must comply with any other specific requirements or restrictions imposed by the CBB on the scope of their license.

                  January 2014

                • AU-2.8.5

                  Islamic licensees must appoint a minimum of one Shari'a scholar (see Paragraph HC-9.2.1).

                  January 2014

                • AU-2.8.6

                  Licensees are subject to the provisions of the CBB Law. These include the right of the CBB to impose such terms and conditions, as it may deem necessary when issuing a license, as specified in Article 45 of the CBB Law.

                  January 2014

                • AU-2.8.7

                  In addition, the CBB may impose additional restrictions or requirements, beyond those al specified in Volume 5, to address specific risks. For instance, a license may be granted subject to strict limitations on intra-group transactions.

                  January 2014

          • AU-3 AU-3 Approved Persons Conditions

            • AU-3.1 AU-3.1 Approved Persons 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.

                January 2014

              • AU-3.1.2

                The authorisation requirements for persons nominated to carry out controlled functions is contained in Section AU-1.4. The authorisation process is described in Section AU-4.3.

                January 2014

              • AU-3.1.3

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

                (a) Has not previously been convicted of any felony or crime that relates to his/her honesty and/or integrity unless he/she has subsequently been restored to good standing;
                (b) Has not been the subject of any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud;
                (c) Has not been adjudged bankrupt by a court unless a period of 10 years has passed, during which the person has been able to meet all his/her obligations and has achieved economic accomplishments;
                (d) Has not been disqualified by a court, regulator or other competent body, as a director or as a manager of a corporation;
                (e) Has not failed to satisfy a judgement debt under a court order resulting from a business relationship;
                (f) Must have personal integrity, good conduct and reputation;
                (g) Has appropriate professional and other qualifications for the controlled function in question; and
                (h) Has sufficient experience to perform the duties of the controlled function.
                Amended: January 2016
                January 2014

              • 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.

                Amended: January 2016
                January 2014

              • 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:

                (a) The propriety of a person's conduct, whether or not such conduct resulted in a criminal offence being committed, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;
                (b) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;
                (c) Any adverse finding in a civil action by any court or competent jurisdiction, relating to misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;
                (d) Whether the person, or any body corporate, partnership or unincorporated institution to which the applicant has, or has been associated with as a director, controller, manager or company secretary been the subject of any disciplinary proceeding, investigation or fines by any government authority, regulatory agency or professional body or association;
                (e) The contravention of any financial services legislation;
                (f) Whether the person has ever been refused a license, authorisation, registration or other authority;
                (g) Dismissal or a request to resign from any office or employment;
                (h) Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners have been declared bankrupt whilst the person was connected with that partnership;
                (i) The extent to which the person has been truthful and open with supervisors; and
                (j) Whether the person has ever entered into any arrangement with creditors in relation to the inability to pay due debts.
                Added: January 2016

              • 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.

                Added: January 2016

              • 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.

                Amended: January 2016
                January 2014

              • AU-3.1.8

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

                (a) A person has breached any fiduciary obligations to the company or terms of employment;
                (b) A person has undertaken actions that would be difficult to defend, when looked at objectively, as being in the interest of the licensee; and
                (c) A person has failed to declare a personal interest that has a material impact in terms of the person's relationship with the licensee.
                Amended: January 2016
                January 2014

              • 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.

                Added: January 2016

            • AU-3.2 AU-3.2 [This Section was deleted in January 2016]

              Deleted: January 2016

              • AU-3.2.1

                [This Paragraph was deleted in January 2016.]

                Deleted: January 2016
                January 2014

              • AU-3.2.2

                [This Paragraph was deleted in January 2016.]

                Deleted: January 2016
                January 2014

              • AU-3.2.3

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

                Amended: January 2016
                January 2014

          • AU-4 AU-4 Information Requirements and Processes

            • AU-4.1 AU-4.1 Licensing

              • Application Form and Documents

                • AU-4.1.1

                  Applicants for a license must fill in the Application Form 1 (Application for a License) online, available on the CBB website under E-services/online Forms. The applicant must upload scanned copies of supporting documents listed in Paragraph AU-4.1.4, unless otherwise directed by the CBB.

                  Amended: July 2019
                  Amended: April 2018
                  January 2014

                • AU-4.1.2

                  Articles 44 to 47 of the CBB Law govern the licensing process. This prescribes a single stage process, with the CBB required to take a decision within 60 calendar days of an application being deemed complete (i.e. containing all required information and documents). See below, for further details on the licensing process and timelines.

                  January 2014

                • AU-4.1.3

                  References to applicant mean the proposed licensee seeking authorisation. An applicant may appoint a representative — such as a law firm or professional consultancy — to prepare and submit the application. However, the applicant retains full responsibility for the accuracy and completeness of the application, and is required to certify the application form accordingly. The CBB also expects to be able to liaise directly with the applicant during the authorisation process, when seeking clarification of any issues.

                  January 2014

                • AU-4.1.4

                  Unless otherwise directed by the CBB, the following documents must be provided together with the covering letter referred in Paragraph AU-4.1.1 in support of a license application:

                  (a) A duly completed Form 2 (Application for Authorisation of Controller) for each controller of the proposed licensee;
                  (b) A duly completed Form 3 (Application for Approved Person status), for each individual applying to undertake controlled functions of the proposed licensee;
                  (c) A comprehensive business plan for the application, addressing the matters described in AU-4.1.6;
                  (d) Where the applicant is an existing institution, a copy of the applicant's commercial registration;
                  (e) Where the applicant is a corporate body, a certified copy of a Board resolution of the applicant along with minutes of the concerned meeting, confirming the board's decision to seek a CBB microfinance institution license;
                  (f) Details of the proposed licensee's close links, if any, as defined under Chapter GR-5;
                  (g) In the case of applicants that are part of a regulated group, a letter of non-objection to the proposed license application from the applicant's home supervisor, together with confirmation that the group is in good regulatory standing and is in compliance with applicable supervisory requirements, including those relating to capital adequacy requirements;
                  (h) Copies of the audited financial statements of the applicant's major shareholder and/or group (as directed by the CBB), for the three years immediately prior to the date of application; and
                  (i) A draft copy of the applicant's (and parent's where applicable) memorandum and articles of association, addressing the matters described in AU-4.1.6.
                  January 2014

                • AU-4.1.5

                  The CBB may require that an acceptably worded letter of guarantee be provided in support of the application for a license. Where the application for the license is for an incorporated entity, the CBB may seek a letter of guarantee from controllers. Where the application is for an overseas licensee, the CBB may seek a letter of guarantee from the parent company.

                  January 2014

                • AU-4.1.6

                  The business plan submitted in support of an application should include:

                  (a) An outline of the history of the applicant and its shareholders;
                  (b) The reasons for applying for a license, including the applicant's strategy and market objectives;
                  (c) The proposed type of activities to be carried on by the applicant in/from the Kingdom of Bahrain;
                  (d) The proposed Board and senior management of the applicant and the proposed organisational structure of the applicant;
                  (e) An independent assessment of the risks that may be faced by the applicant, together with the proposed systems and controls framework to be put in place for addressing those risks and to be used for the main business functions; and
                  (f) An opening balance sheet for the applicant, together with a three-year financial projection, with all assumptions clearly outlined, demonstrating that the applicant will be able to meet applicable leverage and liquidity requirements.
                  January 2014

                • AU-4.1.7

                  The applicant's (and where applicable, its parent's) memorandum and articles of association must explicitly provide for it to undertake the activities proposed in the application, and must preclude the applicant from undertaking other commercial activities, unless these arise out of its microfinance activities or are incidental to those.

                  January 2014

                • AU-4.1.8

                  All documentation provided to the CBB as part of an application for a license must be in either Arabic or English language. Any documentation in a language other than English or Arabic must be accompanied by a certified English or Arabic translation thereof.

                  January 2014

                • AU-4.1.9

                  Any material changes or proposed changes to the information provided to the CBB in support of an authorisation application that occurs prior to authorisation must be reported to the CBB.

                  January 2014

                • AU-4.1.10

                  Failure to inform the CBB of the changes specified in Paragraph AU-4.1.10 is likely to be viewed as a failure to provide full and open disclosure of information, and thus a failure to meet licensing condition in Paragraph AU-2.8.2.

                  January 2014

              • Licensing Process and Timelines

                • AU-4.1.11

                  As part of the application process, 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, as specified in Article 44 (e) of the CBB Law. The applicant must submit within 6 months of the application date, all remaining requirements or otherwise has to submit a new application to the CBB. Applicants are encouraged to approach the CBB to discuss their application at an early stage, so that any specific questions can be dealt with prior to the finalisation of the application.

                  January 2014

                • AU-4.1.12

                  Before the final approval is granted to a licensee, confirmation from a retail bank addressed to the CBB that the licensee's capital (injected funds) – as specified in the business plan submitted under Rule AU-4.1.4 – has been paid in must be provided to the CBB.

                  January 2014

              • Starting Operations

                • AU-4.1.13

                  Within 6 months of the license being issued, the licensee must provide to the CBB:

                  (a) A detailed action plan for establishing the operations and supporting infrastructure of the licensee, such as the completion of written policies and procedures, and recruitment of remaining employees (having regard to the time limit set by Article 48 (c) of the CBB Law);
                  (b) The registered office address and details of premises to be used to carry out the business of the proposed licensee;
                  (c) The address in the Kingdom of Bahrain where full business records will be kept;
                  (d) The licensee's contact details including telephone and fax number, e-mail address and website;
                  (e) A description of the business continuity plan;
                  (f) A description of the IT system that will be used, including details of how IT systems and other records will be backed up;
                  (g) A copy of the external auditor's acceptance to act as an external auditor for the applicant;
                  (h) A copy of the Ministry of Industry & Commerce commercial registration certificate in Arabic and English languages;
                  (i) A copy of the licensee's business card and any written communication (including stationery, website, e-mail, business documentation, etc.) including a statement that the microfinance institution is licensed by the CBB;
                  (j) An updated organisation chart showing the reporting lines, committees (if any) and including the names of the persons undertaking the controlled functions;
                  (k) A copy of the applicant's notarised memorandum and articles of association, addressing the matters described in Paragraph AU-4.1.7; and
                  (l) Other information as may be specified by the CBB.
                  January 2014

                • AU-4.1.14

                  Applicants issued new licenses by the CBB must start operations within 6 months of the license being issued, as per Article 48 (c) of the CBB Law. Failure to comply with this rule may lead to enforcement action being taken against the licensee concerned, as specified in Article 128 of the CBB Law.

                  January 2014

                • AU-4.1.15

                  A licensee must at all times keep an approved copy of the license displayed in a visible place on the licensee's premises in the Kingdom, as per Article 47 (b) of the CBB Law.

                  January 2014

                • AU-4.1.16

                  Applicants who are refused a license have a right of appeal under the provisions contained in Article 46 of the CBB Law, which shall not be less than thirty days from the date of the decision. The CBB will decide on the appeal made by the applicant and notify him of its decision within thirty calendar days from the date of submission of the appeal.

                  January 2014

                • AU-4.1.17

                  Applicants may not publicise in any way the application for a licence for, or formation of, a microfinance institution before the formal decision referred to in Paragraph AU-4.1.11 is provided to the applicant or the concerned agent.

                  January 2014

            • AU-4.2 AU-4.2 Approved Persons

              • AU-4.2.1

                Licensees must obtain the CBB's prior written approval before a person is formally appointed to a controlled function. The request for CBB approval must be made by submitting to the CBB a duly completed Form 3 (Application for Approved Person status) and Curriculum Vitae after verifying that all the information contained in the Form 3, including previous experience, is accurate. Form 3 is available under Volume 5 Part B Authorisation Forms of the CBB Rulebook.

                Amended: January 2016
                Amended: July 2015
                January 2014

              • AU-4.2.2

                When the request for approved person status forms part of a license application, the Form 3 must be marked for the attention of the Director, Licensing Directorate. When the submission to undertake a controlled function is in relation to an existing licensee, the Form 3, except if dealing with a MLRO, must be marked for the attention of the applicable Banking Supervision Director. In the case of the MLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.

                Amended: April 2018
                January 2014

              • AU-4.2.3

                When submitting Form 3, licensees must ensure that the Form 3 is:

                (a) Submitted to the CBB with a covering letter signed by an authorised representative of the licensee, seeking approval for the proposed controlled function;
                (b) Submitted in original form;
                (c) Submitted with a certified copy of the applicant's passport, original or certified copies of educational and professional qualification certificates (and translation if not in Arabic or English) and the Curriculum Vitae; and
                (d) Is signed by an authorised representative of the licensee and all pages stamped with the licensee's seal.
                Amended: July 2015
                January 2014

              • AU-4.2.4

                For existing licensees applying for the appointment of a Director or the Chief Executive/General Manager, the authorised representative should be the Chairman of the Board or a Director signing on behalf of the Board. For all other controlled functions, the authorised representative should be a Director or the Chief Executive/General Manager.

                Amended: July 2015
                January 2014

              • AU-4.2.5

                [This Paragraph was deleted in July 2015.]

                Deleted: July 2015

              • AU-4.2.6

                Licensees seeking to appoint Board Directors must seek CBB approval for all the candidates to be put forward for election/approval at a shareholder meeting, in advance of the agenda being issued to shareholders. CBB approval of the candidates does not in any way limit shareholders' rights to refuse those put forward for election/approval.

                January 2014

              • Assessment of Application

                • AU-4.2.6A

                  The CBB shall review and assess the application for approved person status to ensure that it satisfies all the conditions required in Paragraph AU-3.1.3 and the criteria outlined in Paragraph AU-3.1.5.

                  Amended: January 2016
                  Added: July 2015

                • AU-4.2.6B

                  For purposes of Paragraph AU-4.2.6A, licensees should give the CBB a reasonable amount of notice in order for an application to be reviewed. The CBB shall respond within 15 business days from the date of meeting all regulatory requirements, including but not limited to receiving the application complete with all the required information and documents, as well as verifying references.

                  Amended: January 2016
                  Added: July 2015

                • AU-4.2.6C

                  The CBB reserves the right to refuse an application for approved person status if it does not satisfy the conditions provided for in Paragraph AU-3.1.3 and the criteria outlined in Paragraph AU-3.1.5. A notice of such refusal is issued by registered mail to the licensee concerned, setting out the basis for the decision.

                  Amended: January 2016
                  Added: July 2015

                • AU-4.2.7

                  [This Paragraph was deleted in January 2016.]

                  Deleted: January 2016
                  Amended: July 2015
                  January 2014

              • Appeal Process

                • AU-4.2.7A

                  Licensees or the nominated approved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application for approved person status. The CBB shall decide on the appeal and notify the licensee of its decision within 30 calendar days from submitting the appeal.

                  Added: July 2015

                • AU-4.2.7B

                  Where notification of the CBB's decision to grant a person approved person status is not issued within 15 business days from the date of meeting all regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, licensees or the nominated approved persons may appeal to the Executive Director, Banking Supervision of the CBB provided that the appeal is justified with supporting documents. The CBB shall decide on the appeal and notify the licensee of its decision within 30 calendar days from the date of submitting the appeal.

                  Amended: January 2016
                  Added: July 2015

              • Notification Requirements and Process

                • AU-4.2.8

                  Licensees must immediately notify the CBB when an approved person ceases to hold a controlled function together with an explanation as to the reasons why (see Paragraphs AU-4.3.8 and AU-4.3.9). In such cases, their approved person status is automatically withdrawn by the CBB.

                  January 2014

                • AU-4.2.9

                  Licensees must immediately notify the CBB in case of any material change to the information provided in a Form 3 submitted for an approved person.

                  January 2014

                • AU-4.2.10

                  Licensees must immediately notify the CBB when they become aware of any of the events listed in Paragraph EN-8.2.3, affecting one of their approved persons.

                  January 2014

                • AU-4.2.10A

                  Licensees must immediately notify the CBB should they become aware of information that could reasonably be viewed as calling into question an approved person’s compliance with CBB’s ‘fit and proper’ requirement (see AU3.1).

                  Added: January 2021

              • Change in Controlled Function

                • AU-4.2.11

                  Licensees must seek prior CBB approval before an approved person may move from one controlled function to another within the same licensee.

                  January 2014

                • AU-4.2.12

                  In such instances, a new Form 3 (Application for Approved Person status) should be completed and submitted to the CBB. Note that a person may be considered 'fit and proper' for one controlled function, but not for another, if for instance the new role requires a different set of skills and experience. Where an approved person is moving to a controlled function in another licensee, the first licensee should notify the CBB of that person's departure (see Rule AU-4.2.8), and the new licensee should submit a request for approval under Rule AU-1.4.1.

                  January 2014

            • AU-4.3 AU-4.3 Cancellation of Authorisation

              • Licenses

                • Voluntary Surrender of a License or Closure of a Branch

                  • AU-4.3.1 AU-4.3.1

                    In accordance with Article 50 of the CBB Law, all requests for the voluntary surrender of a license or closure of a branch are subject to CBB's prior written approval, before ceasing such activities. Such requests must be made in writing to the relevant Banking Supervision Director, setting out in full the reasons for the request and how the voluntary surrender of the license or branch closure is to be carried out.

                    January 2014

                    • AU-4.3.2 AU-4.3.2

                      Licensees must satisfy the CBB that their customers' interests are to be safeguarded during and after the proposed voluntary surrender or closure of the branch. The requirements contained in Chapter GR-6 regarding cessation of business must be satisfied.

                      January 2014

                      • AU-4.3.3 AU-4.3.3

                        The CBB will only approve a voluntary surrender where it has no outstanding regulatory concerns and any relevant customers' interests would not be prejudiced. A voluntary surrender will not be accepted where it is aimed at pre-empting supervisory actions by the CBB. Also, a voluntary surrender will only take effect once the licensee, in the opinion of the CBB, has discharged all its regulatory responsibilities to customers.

                        January 2014

                        • Cancellation

                          • AU-4.3.4 AU-4.3.4

                            As provided for under Article 48 of the CBB Law, the CBB may amend or revoke a licence in any of the following cases:

                            (a) If the licensee fails to satisfy any of the license conditions;
                            (b) If the licensee violates the terms of these Rules or any of the CBB's directives;
                            (c) If the licensee fails to start business within six months from the date of the licence;
                            (d) If the licensee ceases to carry out the licensed activity in the Kingdom; or
                            (e) The legitimate interests of the customers or creditors of a licensee required such amendment or cancellation.
                            January 2014

                            • AU-4.3.5 AU-4.3.5

                              Cancellation of a license requires the CBB to issue a formal notice of cancellation to the person concerned. The notice of cancellation describes the CBB's rationale for the proposed cancellation, as specified in Article 48 (d) of the CBB Law.

                              January 2014

                              • AU-4.3.6 AU-4.3.6

                                The CBB generally views cancellation of a license as appropriate only in the most serious of circumstances, and generally tries to address supervisory concerns through other means beforehand. Further guidance is contained in Module EN (Enforcement), regarding CBB's approach to enforcement and on the process for issuing a notice of cancellation and the recipient's right to appeal the notice.

                                January 2014

                                • AU-4.3.7 AU-4.3.7

                                  Normally, where cancellation of a license has been confirmed by the CBB, the CBB will only effect the cancellation once a licensee has discharged all its regulatory responsibilities to customers. Until such time, the CBB will retain all its regulatory powers with regards to the licensee, and will direct the licensee such that no new regulated microfinance services may be undertaken whilst the licensee discharges its obligations to customers.

                                  January 2014

                                  • Cancellation of Approved Person Status

                                    • AU-4.3.8 AU-4.3.8

                                      In accordance with Paragraph BR-2.2.11, licensees must promptly notify the CBB in writing when a person undertaking a controlled function will no longer be carrying out that function. If a controlled function 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 to ensure continuity of the duties and responsibilities of the controlled function affected. These interim arrangements must be approved by the CBB.

                                      January 2014

                                      • AU-4.3.9 AU-4.3.9

                                        The explanation given for any such changes should simply identify if the planned move was prompted by any concerns over the person concerned, or is due to a routine staff change, retirement or similar reason.

                                        January 2014

                                        • AU-4.3.10 AU-4.3.10

                                          The CBB may also move to declare someone as not 'fit and proper', in response to significant compliance failures or other improper behaviour by that person: see Chapter EN-8 regarding the cancellation of 'fit and proper' approval.

                                          January 2014

                                          • AU-4.4 AU-4.4 Publication of the Decision to Grant, Cancel or Amend a License

                                            • AU-4.4.1

                                              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.

                                              Amended: October 2019
                                              Added: July 2017

                                            • AU-4.4.2

                                              For the purposes of Paragraph AU-4.4.1, the cost of publication must be borne by the Licensee.

                                              Added: July 2017

                                            • AU-4.4.3

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

                                              Added: July 2017

          • AU-5 AU-5 License Fees

            • AU-5.1 AU-5.1 License Application Fees

              • AU-5.1.1

                Applicants seeking a microfinance institution 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.

                January 2014

              • AU-5.1.2

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

                January 2014

            • AU-5.2 AU-5.2 Annual License Fees

              • AU-5.2.1

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

                Amended: April 2014
                January 2014

              • AU-5.2.2

                Licensees must pay an annual license fee of BD1,000.

                January 2014

              • AU-5.2.3

                All annual fees are collected by direct debit and all licensees must ensure that they submit to the CBB the completed Direct Debit Authorisation Form (available under Part B of Volume 5) by 15th October prior to the year for which the fees are due.

                January 2014

              • AU-5.2.4

                For new licensees, their first annual license fee of BD1,000 is payable when their license is issued by the CBB.

                January 2014

              • AU-5.2.5

                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, should a fee have been paid for that year.

                January 2014

        • HC HC Microfinance Institutions High-Level Controls Module

          • HC-A HC-A Introduction

            • HC-A.1 HC-A.1 Purpose

              • Executive Summary

                • HC-A.1.1

                  This Module presents requirements that have to be met by microfinance institution licensees with respect to:

                  (a) Corporate governance principles issued by the Ministry of Industry and Commerce as "The Corporate Governance Code";
                  (b) International best practice corporate governance standards set by bodies such as the Basel Committee on Banking Supervision; and
                  (c) Related high-level controls and policies.
                  January 2014

                • HC-A.1.2

                  The Principles referred to in this Module are in line with the Principles relating to the Corporate Governance Code issued by the Ministry of Industry and Commerce.

                  January 2014

                • HC-A.1.3

                  The purpose of the Module is to establish best practice corporate governance principles in Bahrain, and to provide protection for customers and other microfinance institution licensee's stakeholders through compliance with those principles.

                  January 2014

                • HC-A.1.4

                  Whilst the Module follows best practice, it is nevertheless considered as the minimum standard to be applied.

                  January 2014

              • Structure of this Module

                • HC-A.1.5

                  This Module follows the structure of the Corporate Governance Code and each Chapter deals with one of the nine Principles of corporate governance. The numbered directives included in the Code are Rules for purposes of this Module. Recommendations under the Code have been included as guidance.

                  January 2014

                • HC-A.1.6

                  The Module also incorporates other high-level controls and policies that apply in particular to microfinance institution licensees.

                  January 2014

                • HC-A.1.7

                  All references in this Module to 'he' or 'his' shall, unless the context otherwise requires, be construed as also being references to 'she' and 'her'.

                  January 2014

              • The Comply or Explain Principle

                • HC-A.1.8

                  This Module is issued as a Directive (as amended from time to time) in accordance with Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). In common with other Rulebook Modules, this Module contains a mixture of Rules and Guidance (See Module UG-1.2 for detailed explanation of Rules and Guidance). All Rulebook content that is categorised as a Rule must be complied with by those to whom the content is addressed. Other parts of this Module are Guidance; nonetheless every microfinance institution licensee to whom Module HC applies, is expected to comply with recommendations made as Guidance in Module HC or explain its noncompliance by way of an annual report to its shareholders and to the CBB (see Chapter HC-8).

                  January 2014

              • Monitoring and Enforcement of Module HC

                • HC-A.1.9

                  Disclosure and transparency are underlying principles of Module HC. Disclosure is crucial to allow outside monitoring to function effectively. This Module looks to a combined monitoring system relying on the board, the microfinance institution licensee's shareholders and the CBB.

                  January 2014

                • HC-A.1.10

                  It is the board's responsibility to see to the accuracy and completeness of the microfinance institution licensee's corporate governance guidelines and compliance with Module HC. Failure to comply with this Module is subject to enforcement measures as outlined in Module EN (Enforcement).

                  January 2014

              • Legal Basis

                • HC-A.1.11

                  This Module contains the CBB's Directive (as amended from time to time) relating to high-level controls and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 (‛CBB Law'). The Directive in this Module is applicable to microfinance institution licensees (including their approved persons).

                  January 2014

                • HC-A.1.12

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  January 2014

              • Effective Date

                • HC-A.1.13

                  All microfinance institution licensees to which Module HC applies must be in full compliance by the financial year end 2014. At every microfinance institution licensee's annual shareholder meeting held after December 2013, corporate governance must be an item on the agenda for information and any questions from shareholders regarding the microfinance institution licensee's governance. The microfinance institution licensee must also have corporate governance guidelines in place at that time and must have a "comply or explain" report as described in Paragraph HC-A.1.8.

                  January 2014

            • HC-A.2 HC-A.2 Module History

              • HC-A.2.1

                This Module was first issued in January 2014. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

                January 2014

              • HC-A.2.2

                A list of recent changes made to this Module is provided below:

                Module Ref. Change Date Description of Changes
                HC-1.3.8 10/2014 Updated cross reference.
                HC-1.4.11 01/2020 Added a new Paragraph on independent directors.
                HC-1.4.12 01/2020 Added a new Paragraph on termination of Board membership of a retired, terminated CEO.
                HC-5.4.2 04/2020 Added a new Paragraph on KPIs compliance with AML/CFT requirements.
                     

              • Superseded Requirements

                • HC-A.2.3

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Document Subject
                  Volumes 1 and 2 Module HC
                     
                  January 2014

          • HC-B HC-B Scope of Application

            • HC-B.1 HC-B.1 Scope of Application

              • HC-B.1.1

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

                January 2014

              • HC-B.1.2

                Overseas licensees must satisfy the CBB that equivalent arrangements are in place at the parent entity level, and that these arrangements provide for effective high-level controls over activities conducted under the Bahrain license.

                January 2014

          • HC-1 HC-1 The Board

            • HC-1.1 HC-1.1 Principle

              • HC-1.1.1

                All licensees must be headed by an effective, collegial and informed board of directors ('the board').

                January 2014

            • HC-1.2 HC-1.2 Role and Responsibilities

              • HC-1.2.1

                All directors must understand the board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:

                (a) The board's role as distinct from the role of the shareholders (who elect the board and whose interests the board serves) and the role of senior managers (whom the board appoints and oversees); and
                (b) The board's fiduciary duties of care and loyalty to the licensee and the shareholders (see Section HC-2.1).
                January 2014

              • HC-1.2.2

                The board's role and responsibilities include but are not limited to:

                (a) The overall business performance and strategy for the licensee;
                (b) Causing financial statements to be prepared which accurately disclose the licensee's financial position;
                (c) Monitoring management performance;
                (d) Convening and preparing the agenda for shareholder meetings;
                (e) Monitoring conflicts of interest and preventing abusive related party transactions;
                (f) Assuring equitable treatment of shareholders including minority shareholders; and
                (g) Establishing the objectives of the licensee.
                January 2014

              • HC-1.2.3

                The precise functions reserved for the board, and those delegated to management and committees will vary, dependent upon the business of the licensee, its size and ownership structure. However, as a minimum, the board must establish and maintain a statement of its responsibilities for:

                (a) The adoption and annual review of strategy;
                (b) The adoption and review of management structure and responsibilities;
                (c) The adoption and review of the systems and controls framework; and
                (d) Monitoring the implementation of strategy by management.
                January 2014

              • HC-1.2.4

                The directors are responsible both individually and collectively for performing the responsibilities outlined in Paragraph HC-1.2.1 to HC-1.2.3. Although the board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place.

                January 2014

              • HC-1.2.5

                In its strategy review process under Paragraphs HC-1.2.3 a) and d), the board must:

                (a) Review the licensee's business plans and the inherent level of risk in these plans;
                (b) Assess the adequacy of capital to support the business risks of the licensee;
                (c) Set performance objectives; and
                (d) Oversee major capital expenditures and divestitures.
                January 2014

              • HC-1.2.6

                Licensees must notify the CBB in writing of all major proposed changes to the strategy of the licensee prior to implementation.

                January 2014

              • HC-1.2.7

                The board is expected to have effective policies and processes in place for:

                (a) Approving budgets and reviewing performance against those budgets and key performance indicators; and
                (b) The management of the licensee's compliance risk.
                January 2014

              • HC-1.2.8

                When a new director is inducted, the chairman of the board, assisted by the licensee's legal counsel or compliance officer, should review the board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC (see also HC-4.5.1).

                January 2014

              • HC-1.2.9

                The licensee must have a written appointment agreement with each director which recites the directors' powers, duties, responsibilities and accountabilities and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, his remuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

                January 2014

              • Risk Recognition and Assessment

                • HC-1.2.10

                  The board is responsible for ensuring that the systems and controls framework, including the board structure and organisational structure of the licensee, is appropriate for the business and associated risks (see Paragraph HC-1.2.3 (c)). The board must ensure that collectively it has sufficient expertise to identify, understand and measure the significant risks to which the licensee is exposed in its business activities.

                  The board must regularly assess the systems and controls framework of the licensee. In its assessments, the board must demonstrate to the CBB that:

                  (a) The licensee's operations, individually and collectively are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of its activities;
                  (b) The licensee's operations are supported by an appropriate control environment. The compliance, internal audit, risk management and financial reporting functions must be adequately resourced, independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas. The board must additionally ensure that management develops, implements and oversees the effectiveness of comprehensive know your customer standards, as well as on-going monitoring of accounts and transactions, in keeping with the requirements of relevant law, regulations and best practice (with particular regard to anti-money laundering measures). The control environment must maintain necessary client confidentiality and ensure that the privacy of the licensee is not violated, and ensure that clients' rights and assets are properly safeguarded; and
                  (c) Where the board has identified any significant issues related to the licensee's adopted governance framework, appropriate and timely action is taken to address any identified adverse deviations from the requirements of this Module.
                  January 2014

                • HC-1.2.11

                  The board must adopt a formal board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors. This charter must cover the points in Paragraphs HC-1.2.1 to HC-1.2.10.

                  January 2014

            • HC-1.3 HC-1.3 Decision Making Process

              • HC-1.3.1

                The board must be collegial and deliberative, to gain the benefit of each individual director's judgment and experience.

                January 2014

              • HC-1.3.2

                The chairman must take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made.

                January 2014

              • HC-1.3.3

                The board must meet frequently to enable it to discharge its responsibilities effectively but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.

                January 2014

              • HC-1.3.4

                Individual board members must attend at least 75% of all board meetings in a given financial year to enable the board to discharge its responsibilities effectively (see table below). Voting and attendance proxies for board meetings are prohibited at all times.

                Meetings per year 75% Attendance requirement
                4 3
                5 4
                6 5
                7 5
                8 6
                9 7
                10 8
                January 2014

              • HC-1.3.5

                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).

                January 2014

              • HC-1.3.6

                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.

                January 2014

              • HC-1.3.7

                To meet its obligations under Rule HC-1.3.3 above, the full board should meet once every quarter to address the board's responsibilities for management oversight and performance monitoring. Furthermore, board rules should require members to step down if they are not actively participating in board meetings. Board members are reminded that non attendance at board meetings does not absolve them of their responsibilities as directors. It is important that each individual director should allocate adequate time and effort to discharge his responsibilities. All directors are expected to contribute actively to the work of the board in order to discharge their responsibilities and should make every effort to attend board meetings where major issues are to be discussed. Licensees are encouraged to amend their articles of association to provide for telephonic and videoconference meetings. Participation in board meetings by means of video or telephone conferencing is regarded as attendance and may be recorded as such.

                January 2014

              • HC-1.3.7A

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

                January 2014

              • HC-1.3.8

                All licensees are required to submit, on an annual basis, as an attachment to the year-end quarterly PIR, a report recording the meetings during the year by their board of directors. For a sample report, refer to Appendix BR-5.

                Amended: October 2014
                January 2014

              • HC-1.3.9

                The chairman is responsible for the leadership of the board, and for the efficient functioning of the board. 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. Therefore it is vital that the chairman commit sufficient time to perform his role effectively. 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 (See also Chapter HC-7 for other duties of the chairman).

                January 2014

              • HC-1.3.10

                The board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision making yet large enough to have members who can contribute from different specialties and viewpoints. The board should recommend changes in board size to the shareholders when a needed change requires amendment of the licensee's Memorandum of Association.

                January 2014

              • HC-1.3.11

                Potential non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. Where there is a nominating committee, it should regularly review the time commitment required from each non-executive director and should require each non-executive director to inform the committee before he accepts any board appointments to another licensee.

                January 2014

              • HC-1.3.12

                One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the board should not propose the election or reelection of any director who does.

                January 2014

            • HC-1.4 HC-1.4 Independence of Judgment

              • HC-1.4.1

                Every director must bring independent judgment to bear in decision-making. No individual or group of directors must dominate the board's decision-making and no one individual should have unfettered powers of decision.

                January 2014

              • HC-1.4.2

                Executive directors must provide the board with all relevant business and financial information within their cognizance, and must recognise that their role as a director is different from their role as a member of management (see HC-2.3.2).

                January 2014

              • HC-1.4.3

                Non-executive directors must be fully independent of management and must constructively scrutinise and challenge management including the management performance of executive directors.

                January 2014

              • HC-1.4.4

                Where there is the potential for conflict of interest, or there is a need for impartiality, the Board must assign a sufficient number of independent board members capable of exercising independent judgement.

                January 2014

              • HC-1.4.5

                At least half of a licensee's board should be non-executive directors and at least three of those persons should be independent directors. (Note the exception for controlled companies in Paragraph HC-1.5.2.). Due to the nature of the business carried out by licensees, and government participation in such entities, government representatives are considered independent for the purpose of this Module.

                January 2014

              • HC-1.4.6

                The chairman of the board should be an independent director, so that there will be an appropriate balance of power and greater capacity of the board for independent decision making.

                January 2014

              • HC-1.4.7

                The chairman and/or deputy chairman must not be the same person as the chief executive officer (CEO).

                January 2014

              • HC-1.4.8

                The chairman must not be an executive director.

                January 2014

              • HC-1.4.9

                The board should review the independence of each director at least annually in light of interests disclosed by them, and their conduct. Each independent director shall provide the board with all necessary and updated information for this purpose.

                January 2014

              • HC-1.4.10

                To facilitate free and open communication among independent directors, each board meeting should be preceded or followed with a session at which only independent directors are present, except as may otherwise be determined by the independent directors themselves.

                January 2014

              • HC-1.4.11

                Where an independent director has served three consecutive terms on the board, such director will lose his/her independence status and must not be classified as an independent director if reappointed.

                Added: January 2020

              • HC-1.4.12

                Where a Chief Executive Officer of a microfinance institution licensee, who is also a Board member, no longer occupies the CEO position, whether due to resignation, retirement or termination, his/her Board Membership must also be immediately terminated.

                Added: January 2020

            • HC-1.5 HC-1.5 Representation of all Shareholders

              • HC-1.5.1

                Each director must consider himself as representing all shareholders and must act accordingly. The board must avoid having representatives of specific groups or interests within its membership and must not allow itself to become a battleground of vested interests. If the licensee has controllers (as defined by Section GR-4.2) (or a group of controllers acting in concert), the latter must recognise its or their specific responsibility to the other shareholders, which is direct and is separate from that of the board of directors.

                January 2014

              • HC-1.5.2

                In licensees with a controller, at least one-third of the board must be independent directors. Minority shareholders must generally look to independent directors' diligent regard for their interests, in preference to seeking specific representation on the board.

                January 2014

              • HC-1.5.3

                In licensees with controllers, both controllers and other shareholders should be aware of controllers' specific responsibilities regarding their duty of loyalty to the licensee and conflicts of interest (see Chapter HC-2) and also of rights that minority shareholders may have to elect specific directors under the Company Law or if the licensee has adopted cumulative voting for directors. The chairman of the board should take the lead in explaining this with the help of the licensee's lawyers.

                January 2014

            • HC-1.6 HC-1.6 Directors' Access to Independent Advice

              • HC-1.6.1

                The board must ensure by way of formal procedures that individual directors have access to independent legal or other professional advice at the licensee's expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with the licensee's policy approved by the board.

                January 2014

              • HC-1.6.2

                Individual directors must also have access to the licensee's corporate secretary, who must have responsibility for reporting to the board on board procedures. Both the appointment and removal of the corporate secretary must be a matter for the board as a whole, not for the CEO or any other officer.

                January 2014

              • HC-1.6.3

                Whenever a director has serious concerns which cannot be resolved concerning the running of the licensee or a proposed action, he should consider seeking independent advice and should ensure that the concerns are recorded in the board minutes and that any dissent from a board action is noted or delivered in writing.

                January 2014

              • HC-1.6.4

                Upon resignation, a non-executive director should provide a written statement to the chairman, for circulation to the board, if he has any concerns such as those in Paragraph HC-1.6.3.

                January 2014

            • HC-1.7 HC-1.7 Directors' Communication with Management

              • HC-1.7.1

                The board must encourage participation by management regarding matters the board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.

                January 2014

              • HC-1.7.2

                Non-executive directors should have free access to the licensee's management beyond that provided in board meetings. Such access should be through the chairman of the audit committee or CEO. The board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.

                January 2014

            • HC-1.8 HC-1.8 Committees of the Board

              • HC-1.8.1

                The board must create specialised committees when and as such committees are needed.

                January 2014

              • HC-1.8.2

                In addition to the audit, remuneration and nominating committees described elsewhere in this Module, specialised committees may include an executive committee to review and make recommendations to the whole board on the licensee's actions, or a risk committee to identify and minimize specific risks of the licensee's business.

                January 2014

              • HC-1.8.3

                The board shall establish a corporate governance committee of at least three independent members which shall be responsible for developing and recommending changes from time to time in the licensee's corporate governance policy framework.

                January 2014

              • HC-1.8.4

                The board or a committee may invite non-directors to participate in, but not vote at, a committee's meetings so that the committee may gain the benefit of their advice and expertise in financial or other areas.

                January 2014

              • HC-1.8.5

                Committees must act only within their mandates and therefore the board must not allow any committee to dominate or effectively replace the whole board in its decision-making responsibility.

                January 2014

              • HC-1.8.6

                Committees may be combined provided that no conflict of interest might arise between the duties of such committees, subject to CBB prior approval.

                January 2014

              • HC-1.8.7

                Every committee must have a formal written charter similar in form to the model charters which are set forth in Appendices A, B and C of this Module for the audit, nominating and remuneration committees.

                January 2014

              • HC-1.8.8

                Where committees are set up, they must keep full minutes of their activities and meet regularly to fulfill their mandates.

                January 2014

            • HC-1.9 HC-1.9 Evaluation of the Board and Each Committee

              • HC-1.9.1

                At least annually the board must conduct an evaluation of its performance and the performance of each committee and each individual director.

                January 2014

              • HC-1.9.2

                The evaluation process must include:

                (a) Assessing how the board operates, especially in light of Chapter HC-1;
                (b) Evaluating the performance of each committee in light of its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;
                (c) Reviewing each director's work, his attendance at board and committee meetings, and his constructive involvement in discussions and decision making;
                (d) Reviewing the board's current composition against its desired composition with a view toward maintaining an appropriate balance of skills and experience and a view toward planned and progressive refreshing of the board; and
                (e) Recommendations for new directors to replace long-standing members or those members whose contribution to the board or its committees (such as the audit committee) is not adequate.
                January 2014

              • HC-1.9.3

                While the evaluation is a responsibility of the entire board, it should be organised and assisted by an internal board committee and, when appropriate, with the help of external experts.

                January 2014

              • HC-1.9.4

                The board should report to the shareholders, at each annual shareholder meeting, that evaluations have been done and report its findings.

                January 2014

          • HC-2 HC-2 Approved Persons Loyalty

            • HC-2.1 HC-2.1 Principle

              • HC-2.1.1

                The approved persons must have full loyalty to the licensee.

                January 2014

            • HC-2.2 HC-2.2 Personal Accountability

              • HC-2.2.1

                Licensees are subject to a wide variety of laws, regulations and codes of best practice that directly affect the conduct of business. Such laws involve the Rulebook of the licensed exchange, the Labour Law, the Commercial Companies Law, occupational health and safety, even environment and pollution laws, as well as the Law, codes of conduct and regulations of the CBB (as amended from time to time). The board sets the 'tone at the top' of a licensee, and has a responsibility to oversee compliance with these various requirements. The board should ensure that the staff conduct their affairs with a high degree of integrity, taking note of applicable laws, codes and regulations.

                January 2014

              • Corporate Ethics, Conflicts of Interest and Code of Conduct

                • HC-2.2.2

                  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.

                  January 2014

                • HC-2.2.3

                  The board must establish corporate standards for approved persons and employees. This requirement should be met by way of a documented and published code of conduct or similar document. These standards must be communicated throughout the licensee, so that the approved persons and staff understand the importance of conducting business based on good corporate governance values and understand their accountabilities to the various stakeholders of the licensee. Licensee's approved persons and staff must be informed of and be required to fulfil their responsibilities to the stakeholders.

                  January 2014

                • HC-2.2.4

                  An internal code of conduct is separate from the business strategy of a licensee. A code of conduct should outline the practices that approved persons and staff should follow in performing their duties. Licensees may wish to use procedures and policies to complement their codes of conduct. The suggested contents of a code of conduct are covered below:

                  (a) Commitment by the board and management to the code. The code of conduct should be linked to the objectives of the licensee, and its responsibilities and undertakings to customers, shareholders, staff and the wider community (see HC-2.2.3 and HC-2.2.4). The code should give examples or expectations of honesty, integrity, leadership and professionalism;
                  (b) Commitment to the law and best practice standards. This commitment would include commitments to following accounting standards, industry best practice (such as ensuring that information to clients is clear, fair, and not misleading), transparency, and rules concerning potential conflicts of interest (see HC-2.3);
                  (c) Employment practices. This would include rules concerning health and safety of employees, training, policies on the acceptance and giving of business courtesies, prohibition on the offering and acceptance of bribes, and potential misuse of licensee's assets;
                  (d) How the licensee deals with disputes and complaints (see Chapter BC-2) from clients and monitors compliance with the code; and
                  (e) Confidentiality. Disclosure of client or licensee information should be prohibited, except where disclosure is required by law (see HC-1.2.10 b).
                  January 2014

                • HC-2.2.5

                  The CBB expects that the board and its members individually and collectively:

                  (a) Act with honesty, integrity and in good faith, with due diligence and care, with a view to the best interest of the licensee and its shareholders and other stakeholders (see Paragraphs HC-2.2.2 to HC-2.2.4);
                  (b) Act within the scope of their responsibilities (which should be clearly defined – see HC-1.2.9 and HC-1.2.11) and not participate in the day-to-day management of the licensee;
                  (c) Have a proper understanding of, and competence to deal with the affairs and products of the licensee and devote sufficient time to their responsibilities; and
                  (d) To independently assess and question the policies, processes and procedures of the licensee, with the intent to identify and initiate management action on issues requiring improvement. (i.e. to act as checks and balances on management).
                  January 2014

                • HC-2.2.6

                  The duty of loyalty (mentioned in Paragraph HC-2.2.2) 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, not to take business opportunities of the licensee for himself, not to compete in business with the licensee, and to serve the licensee's interest in any transactions with a licensee in which he has a personal interest.

                  January 2014

                • HC-2.2.7

                  For purposes of Paragraph HC-2.2.6, an approved person should be considered to have a "personal interest" in a transaction with a licensee if:

                  (a) He himself; or
                  (b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or
                  (c) Another licensee of which he is a director or controller,

                  is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)

                  January 2014

            • HC-2.3 HC-2.3 Avoidance of Conflicts of Interest

              • HC-2.3.1

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

                January 2014

              • HC-2.3.2

                The board must establish and disseminate to its members and management, policies and procedures for the identification, reporting, disclosure, prevention, or strict limitation of potential conflicts of interest. It is senior management's responsibility to implement these policies. Rules concerning connected party transactions and potential conflicts of interest may be dealt with in the Code of Conduct (see HC-2.2.4). In particular, the CBB requires that any decisions to enter into transactions, under which approved persons would have conflicts of interest that are material, should be formally and unanimously approved by the full board. Best practice would dictate that an approved person must:

                (a) Not enter into competition with the licensee;
                (b) Not demand or accept substantial gifts from the licensee for himself or connected persons;
                (c) Not misuse the licensee's assets;
                (d) Not use the licensee's privileged information or take advantage of business opportunities to which the licensee is entitled, for himself or his associates; and
                (e) Absent himself from any discussions or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject or a proposed transaction where a conflict of interest exists.
                January 2014

            • HC-2.4 HC-2.4 Disclosure of Conflicts of Interest

              • HC-2.4.1

                Each approved person must inform the entire board of potential conflicts of interest in their activities with, and commitments to other organisations 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 conflicted transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision. In any case, all approved persons must declare in writing all of their other interests in other enterprises or activities (whether as a shareholder of above 5% of the voting capital of a licensee, a manager, or other form of significant participation) to the board (or the nominations or audit committees) on an annual basis.

                January 2014

              • HC-2.4.2

                The board should establish formal procedures for:

                (a) Periodic disclosure and updating of information by each approved person on his actual and potential conflicts of interest; and
                (b) Advance approval by directors or shareholders who do not have an interest in the transactions in which a licensee's approved person has a personal interest. The board should require such advance approval in every case.
                January 2014

            • HC-2.5 HC-2.5 Disclosure of Conflicts of Interest to Shareholders

              • HC-2.5.1

                The licensee must disclose to its shareholders in the notes to the audited financial statements any abstention from voting motivated by a conflict of interest and must disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.

                January 2014

          • HC-3 HC-3 Audit Committee and Financial Statements Certification

            • HC-3.1 HC-3.1 Principle

              • HC-3.1.1

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

                January 2014

            • HC-3.2 HC-3.2 Audit Committee

              • HC-3.2.1

                The board must establish an audit committee of at least three directors of which the majority must be independent including the chairman. The committee must:

                (a) Review the licensee's accounting and financial policies and practices;
                (b) Review the integrity of the licensee's financial and internal controls and financial statements (particularly with reference to information passed to the board - see Paragraph HC-1.2.10). The information needs of the board to perform its monitoring responsibilities must be defined in writing, and regularly monitored by the audit committee;
                (c) Review the licensee's compliance with legal requirements;
                (d) Recommend the appointment, compensation and oversight of the licensee's external auditor; and
                (e) Recommend the appointment of the internal auditor.
                January 2014

              • HC-3.2.2

                In its review of the systems and controls framework in Paragraph HC-3.2.1, the audit committee must:

                (a) Make effective use of the work of external and internal auditors. The audit committee must ensure the integrity of the licensee's accounting and financial reporting systems through regular independent review (by internal and external audit). Audit findings must be used as an independent check on the information received from management about the licensee's operations and performance and the effectiveness of internal controls;
                (b) Make use of self-assessments, stress tests, and/or independent judgements made by external advisors. The board should appoint supporting committees, and engage senior management to assist the audit committee in the oversight of risk management; and
                (c) Ensure that senior management have put in place appropriate systems of control for the business of the licensee and the information needs of the board; in particular, there must be appropriate systems and functions for identifying as well as for monitoring risk, the financial position of the licensee, and compliance with applicable laws, regulations and best practice standards. The systems must produce information on a timely basis.
                January 2014

              • HC-3.2.3

                The licensee must set up an internal audit function, which reports directly to the audit committee and administratively to the CEO.

                January 2014

              • HC-3.2.4

                The CEO must not be a member of the audit committee.

                January 2014

            • HC-3.3 HC-3.3 Audit Committee Charter

              • HC-3.3.1

                The audit committee must adopt a written charter which shall, at a minimum, state the duties outlined in Paragraph HC-3.2.1 and the other matters included in Appendix A to this Module.

                January 2014

              • HC-3.3.2

                A majority of the audit committee members must have the financial literacy qualifications stated in Appendix A.

                January 2014

              • Whistleblower Program

                • HC-3.3.3

                  The board must adopt a "whistleblower" program under which employees can confidentially raise concerns about possible improprieties in financial or legal matters. Under the program, concerns may be communicated directly to any audit committee member or, alternatively, to an identified officer or employee who will report directly to the audit committee on this point.

                  January 2014

            • HC-3.4 HC-3.4 CEO and CFO Certification of Financial Statements

              • HC-3.4.1

                To encourage management accountability for the financial statements required by the directors, the licensee's CEO and chief financial officer (CFO) must state in writing to the audit committee and 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.

                January 2014

          • HC-4 HC-4 Appointment, Training and Evaluation of the Board

            • HC-4.1 HC-4.1 Principle

              • HC-4.1.1

                The licensee must have rigorous and transparent procedures for appointment, training and evaluation of the board.

                January 2014

            • HC-4.2 HC-4.2 Nominating Committee

              • HC-4.2.1

                The board should establish a nominating committee of at least three directors which should:

                (a) Identify persons qualified to become members of the board of directors or CEO, CFO, Corporate Secretary and any other officers of the licensee considered appropriate by the board, with the exception of the appointment of the internal auditor which is the responsibility of the audit committee in accordance with Paragraph HC-3.2.1; and
                (b) Make recommendations to the whole board of directors including recommendations of candidates for board membership to be included by the board of directors on the agenda for the next annual shareholder meeting.
                January 2014

              • HC-4.2.2

                The committee should include only independent directors or, alternatively, only non-executive directors of whom a majority should be independent directors and the chairman should be an independent director. This is consistent with international best practice and it recognises that the nominating committee should exercise judgment free from personal career conflicts of interest.

                January 2014

            • HC-4.3 HC-4.3 Nominating Committee Charter

              • HC-4.3.1

                The nominating committee should adopt a formal written charter which should, at a minimum, state the duties outlined in Paragraph HC-4.2.1 and the other matters included in Appendix B to this Module.

                January 2014

            • HC-4.4 HC-4.4 Board Nominations to Shareholders

              • HC-4.4.1

                Each proposal by the board to the shareholders for election or reelection of a director must be accompanied by a recommendation from the board, a summary of the advice of the nominating committee, as applicable, and the following specific information:

                (a) The term to be served, which may not exceed three years (but there need not be a limit on reelection for further terms);
                (b) Biographical details and professional qualifications;
                (c) In the case of an independent director, a statement that the board has determined that the criteria of independent director have been met;
                (d) Any other directorships held;
                (e) Particulars of other positions which involve significant time commitments, and
                (f) Details of relationships between:
                (i) The candidate and the licensee, and
                (ii) The candidate and other directors of the licensee.
                January 2014

              • HC-4.4.2

                The chairman of the board should confirm to shareholders when proposing re-election of a director that, following a formal performance evaluation, the person's performance continues to be effective and continues to demonstrate commitment to the role. Any term beyond six years (e.g. two three-year terms) for a director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the board. Serving more than six years is relevant to the determination of a non-executive director's independence.

                January 2014

            • HC-4.5 HC-4.5 Induction and Training of Directors

              • HC-4.5.1

                The chairman of the board must ensure that each new director receives a formal and tailored induction to ensure his contribution to the board from the beginning of his term. The induction must include:

                (a) Meetings with senior management, internal and external auditors and legal counsel;
                (b) Visits to the licensee's facilities; and
                (c) Presentations regarding strategic plans, significant financial, accounting and risk management issues and compliance programs.
                January 2014

              • HC-4.5.2

                The tailored induction for new directors may be provided by the licensee's compliance officer.

                January 2014

              • HC-4.5.3

                All continuing directors must be invited to attend orientation meetings and all directors must continually educate themselves as to the licensee's business and corporate governance.

                January 2014

              • HC-4.5.4

                Management, in consultation with the chairman of the board, should hold programs and presentations to the directors respecting the licensee's business and industry, which may include periodic attendance at conferences and management meetings. The nominating committee shall oversee directors' corporate governance educational activities.

                January 2014

          • HC-5 HC-5 Remuneration of Approved Persons

            • HC-5.1 HC-5.1 Principle

              • HC-5.1.1

                The licensee must remunerate approved persons fairly and responsibly.

                January 2014

            • HC-5.2 HC-5.2 Remuneration Committee

              • HC-5.2.1

                The board should establish a remuneration committee of at least three directors which should:

                (a) Review the licensee's remuneration policies for the approved persons, which should be approved by the shareholders and be consistent with the corporate values and strategy of the licensee;
                (b) Make recommendations regarding remuneration policies and amounts for approved persons to the whole board, taking account of total remuneration including salaries, fees, expenses and employee benefits; and
                (c) Recommend board member remuneration based on their attendance and performance.
                January 2014

              • HC-5.2.2

                The committee may be merged with the nominating committee.

                January 2014

            • HC-5.3 HC-5.3 Remuneration Committee Charter

              • HC-5.3.1

                The committee should adopt a written charter which should, at a minimum, state the duties in Paragraph HC-5.2.1 and other matters in Appendix C of this Module.

                January 2014

              • HC-5.3.2

                The committee should include only independent directors or, alternatively, only non-executive directors of whom a majority are independent directors and the chairman is an independent director. This is consistent with international best practice and it recognises that the remuneration committee must exercise judgment free from personal career conflicts of interest.

                January 2014

            • HC-5.4 HC-5.4 Standard for all Remuneration

              • HC-5.4.1

                Remuneration of approved persons must be sufficient enough to attract, retain and motivate persons of the quality needed to run the licensee successfully, but the licensee must avoid paying more than is necessary for that purpose.

                January 2014

              • Alignment of All Staff Remuneration with Compliance with AML/CFT Requirements

                • HC-5.4.2

                  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.

                  Added: April 2020

            • HC-5.5 HC-5.5 Non-Executive Directors' Remuneration

              • HC-5.5.1

                Remuneration of independent directors and non-executive directors must not include performance-related elements such as grants of shares, share options or other deferred stock-related incentive schemes, bonuses, or pension benefits.

                January 2014

            • HC-5.6 HC-5.6 Senior Management's Remuneration

              • HC-5.6.1

                Remuneration of senior management must be structured so that a portion of the total is linked to the licensee's and individual's performance and aligns their interests with the interests of the shareholders.

                January 2014

              • HC-5.6.2

                Such rewards may include grants of shares, share options and other deferred stock-related incentive schemes, bonuses, and pension benefits which are not based on salary.

                January 2014

              • HC-5.6.3

                If a senior manager is also a director, his remuneration as a senior manager must take into account compensation received in his capacity as a director.

                January 2014

              • HC-5.6.4

                All share incentive plans must be approved by the shareholders.

                January 2014

              • HC-5.6.5

                All performance-based incentives should be awarded under written objective performance standards which have been approved by the board and are designed to enhance shareholder and the licensee's value, and under which shares should not vest and options should not be exercisable within less than two years of the date of award of the incentive.

                January 2014

              • HC-5.6.6

                All plans for performance-based incentives should be approved by the shareholders, but the approval should be only of the plan itself and not of the grant to specific individuals of benefits under the plan.

                January 2014

          • HC-6 HC-6 Management Structure

            • HC-6.1 HC-6.1 Principle

              • HC-6.1.1

                The board must establish a clear and efficient management structure.

                January 2014

            • HC-6.2 HC-6.2 Establishment of Management Structure

              • HC-6.2.1

                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 management must include at a minimum:

                (a) A CEO;
                (b) A CFO;
                (c) A corporate secretary; and
                (d) An internal auditor,

                and must also include such other approved persons as the board considers appropriate.

                January 2014

            • HC-6.3 HC-6.3 Titles, Authorities, Duties and Reporting Responsibilities

              • HC-6.3.1

                The board must adopt by-laws and issue formal letters of appointment prescribing each senior manager's title, authorities, duties, accountabilities and internal reporting responsibilities. This must be done in consultation with the CEO, to whom the other senior managers should normally report.

                January 2014

              • HC-6.3.2

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

                (a) The CEO must have authority to act generally in the licensee's name, representing the licensee's interests in concluding transactions on the licensee's behalf and giving instructions to other senior managers and licensee employees;
                (b) The CFO must be responsible and accountable for:
                (i) The complete, timely, reliable and accurate preparation of the licensee's financial statements, in accordance with the accounting standards and policies of the licensee (see also Paragraph HC-3.4.1); and
                (ii) Presenting the board with a balanced and understandable assessment of the licensee's financial situation;
                (c) The corporate secretary's duties must include arranging, recording and following up on the actions, decisions and meetings of the board and of the shareholders (both at annual and extraordinary meetings) in books to be kept for that purpose; and
                (d) The internal auditor's duties must include providing an independent and objective review of the efficiency of the licensee's operations. This would include a review of the accuracy and reliability of the licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of the licensee's risk management, control, and governance processes.
                January 2014

              • HC-6.3.3

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

                January 2014

              • HC-6.3.4

                The corporate secretary should be given general responsibility for reviewing the licensee's procedures and advising the board directly on such matters (see Rule HC-6.3.2(c)). Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training.

                January 2014

              • HC-6.3.5

                At least annually the board shall review and concur in a succession plan addressing the policies and principles for selecting a successor to the CEO, both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to the CEO.

                January 2014

            • HC-6.4 HC-6.4 Compliance

              • HC-6.4.1

                The CBB expects licensees to carry out a review of their compliance with the principles in this Module on a regular basis (either by way of a self-assessment or by way of a review by the internal audit function).

                January 2014

          • HC-7 HC-7 Communication between Board and Shareholders

            • HC-7.1 HC-7.1 Principle

              • HC-7.1.1

                The licensee must communicate with shareholders, encourage their participation, and respect their rights.

                January 2014

            • HC-7.2 HC-7.2 Conduct of Shareholders' Meetings

              • HC-7.2.1

                The board must observe both the letter and the intent of the Company Law's requirements for shareholder meetings. Among other things:

                (a) Notices of meetings must be honest, accurate and not misleading. They must clearly state and, where necessary, explain the nature of the business of the meeting;
                (b) Meetings must be held during normal business hours and at a place convenient for the greatest number of shareholders to attend;
                (c) Notices of meetings must encourage shareholders to attend shareholder meetings and, if not possible, to allow shareholders to participate by proxy and must refer to procedures for appointing a proxy and for directing the proxy how to vote on a particular resolution. The proxy agreement must list the agenda items and must specify the vote (such as "yes," "no" or "abstain);
                (d) Notices must ensure that all material information and documentation is provided to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;
                (e) The board must propose a separate resolution at any meeting on each substantially separate issue, so that unrelated issues are not "bundled" together;
                (f) In meetings where directors are to be elected or removed the board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;
                (g) The chairman of the meeting must encourage questions from shareholders, including questions regarding the licensee's corporate governance guidelines;
                (h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and
                (i) Disclosure of all material facts must be made to the shareholders by the Chairman prior to any vote by the shareholders.
                January 2014

              • HC-7.2.2

                The licensee should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nomination committees, where applicable, are to answer appropriate questions regarding matters within their committee's responsibility (being understood that confidential and proprietary business information may be kept confidential).

                January 2014

              • HC-7.2.3

                The licensee should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.

                January 2014

              • HC-7.2.4

                A licensee should maintain a website. The licensee should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. The licensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, the licensee should grant a controlled access to such information to its shareholders.

                January 2014

              • HC-7.2.5

                In notices of meetings at which directors are to be elected or removed the licensee should ensure that:

                (a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and
                (b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.
                January 2014

            • HC-7.3 HC-7.3 Direct Shareholder Communication

              • HC-7.3.1

                The chairman of the board (and other directors as appropriate) must maintain continuing personal contact with controllers to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the board as a whole. The chairman must discuss governance and strategy with controllers. Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the board must encourage shareholders to help in evaluating the licensee's corporate governance (see also Sections HC-1.2 and 1.3 for other duties of the chairman).

                January 2014

            • HC-7.4 HC-7.4 Controllers

              • HC-7.4.1

                In licensees with one or more controllers, the chairman and other directors must actively encourage the controllers to make a considered use of their position and to fully respect the rights of minority shareholders (see also Sections HC-1.2 and 1.3 for other duties of the chairman).

                January 2014

          • HC-8 HC-8 Corporate Governance Disclosure

            • HC-8.1 HC-8.1 Principle

              • HC-8.1.1

                The licensee must disclose its corporate governance.

                January 2014

            • HC-8.2 HC-8.2 Disclosure under the Company Law and CBB Requirements

              • HC-8.2.1

                In each licensee:

                (a) The board must adopt written corporate governance guidelines covering the matters stated in this Module and other corporate governance matters deemed appropriate by the board. Such guidelines must include or refer to the principles and rules of Module HC;
                (b) The licensee must publish the guidelines on its website, if it has a website;
                (c) At each annual shareholders' meeting the board must report on the licensee's compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and
                (d) At each annual shareholders' meeting the board must also report on further items listed in Appendix D. Such information should be maintained on the licensee's website or held at the licensee's premises on behalf of the shareholders.
                January 2014

              • Board's Responsibility for Disclosure

                • HC-8.2.2

                  The board must oversee the process of disclosure and communications with internal and external stakeholders. The board must ensure that disclosures made by the licensee are fair, transparent, comprehensive and timely and reflect the character of the licensee and the nature, complexity and risks inherent in the licensee's business activities. Disclosure policies must be reviewed for compliance with the CBB's disclosure requirements (see Chapter PD-1).

                  January 2014

          • HC-9 HC-9 Shari'a Compliant Business

            • HC-9.1 HC-9.1 Principle

              • HC-9.1.1

                Companies which refer to themselves as "Islamic" must follow the principles of Islamic Shari'a.

                January 2014

            • HC-9.2 HC-9.2 Governance and Disclosure per Shari'a Principles

              • HC-9.2.1

                Licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders. Licensees which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a principles. In ensuring compliance with Shari'a principles, each licensee must appoint a minimum of one Shari'a scholar.

                January 2014

              • HC-9.2.2

                In addition to its duties outlined in Chapter HC-3 and Appendix A, the audit committee shall communicate and co-ordinate with the licensee's corporate governance committee and the appointed Shari'a scholar to ensure that information on compliance with Islamic Shari'a rules and principles is reported in a timely manner.

                January 2014

              • HC-9.2.3

                The Board shall set up a corporate governance committee (see also Paragraph HC-1.8.2). In this case, the committee shall comprise at least three members to coordinate and integrate the implementation of the governance policy framework.

                January 2014

              • HC-9.2.4

                The corporate governance committee established under Chapter HC-9 shall comprise at a minimum of:

                (a) An independent director to chair the corporate governance committee. The chairman of the corporate governance committee should not only possess the relevant skills, such as the ability to read and understand financial statements, but should also be able to coordinate and link the complementary roles and functions of the corporate governance committee and the audit committee;
                (b) A Shari'a scholar for the purpose of leading the corporate governance committee on Shari'a-related governance issues (if any); and
                (c) An independent director who can offer different skills to the committee, such as legal expertise and business proficiency, which are considered particularly relevant by the board of directors for cultivating a good corporate governance culture, and deemed "fit and proper" by the CBB.
                January 2014

              • HC-9.2.5

                The corporate governance committee shall be empowered to:

                (a) Oversee and monitor the implementation of the governance policy framework by working together with the management, the audit committee and the Appointed Shari'a scholar; and
                (b) Provide the board of directors with reports and recommendations based on its findings in the exercise of its functions.
                January 2014

          • Appendix A Appendix A Audit Committee

            • Committee Duties

              The committee's duties shall include those stated in Paragraph HC-3.2.1.

              January 2014

            • Committee Membership and Qualifications

              The committee shall have at least three members. Such members must have no conflict of interest with any other duties they have for the licensee.

              A majority of the members of the committee including the chairman shall be independent directors. Where a government representative is a board member, such representative can be considered as a member of the audit committee and the majority rule will not apply (refer to Paragraph HC-1.4.5)

              The CEO must not be a member of this committee.

              The committee members must have sufficient technical expertise to enable the committee to perform its functions effectively. Technical expertise means that members must have recent and relevant financial ability and experience, which includes:

              (a) An ability to read and understand corporate financial statements including a licensee's balance sheet, income statement and cash flow statement and changes in shareholders' equity;
              (b) An understanding of the accounting principles which are applicable to the licensee's financial statements;
              (c) Experience in evaluating financial statements that have a level of accounting complexity comparable to that which can be expected in the licensee's business;
              (d) An understanding of internal controls and procedures for financial reporting; and
              (e) An understanding of the audit committee's controls and procedures for financial reporting.
              January 2014

            • Committee Duties and Responsibilities

              In serving those duties, the committee shall:

              (a) Be responsible for the selection, appointment, remuneration, oversight and termination where appropriate of the external auditor, subject to ratification by the licensee's board and shareholders. The external auditor shall report directly to the committee;
              (b) Make a determination at least once each year of the external auditor's independence, including:
              (i) Determining whether its performance of any non-audit services compromised its independence (the committee may establish a formal policy specifying the types of non-audit services which are permissible) and;
              (ii) Obtaining from the external auditor a written report listing any relationships between the external auditor and the licensee or with any other person or entity that may compromise the auditor's independence;
              (c) Review and discuss with the external auditor the scope and results of its audit, any difficulties the auditor encountered including any restrictions on its access to requested information and any disagreements or difficulties encountered with management;
              (d) Review and discuss with management and the external auditor each annual and each quarterly financial statements of the licensee including judgments made in connection with the financial statements;
              (e) Review and discuss and make recommendations regarding the selection, appointment and termination where appropriate of the head of internal audit and the head of compliance and the budget allocated to the internal audit and compliance function, and monitor the responsiveness of management to the committee's recommendations and findings;
              (f) Review and discuss the activities, performance and adequacy of the licensee's internal auditing and compliance personnel and procedures and its internal controls and compliance procedures, and any risk management systems, and any changes in those;
              (g) Oversee the licensee's compliance with legal and regulatory requirements, codes and business practices, and ensure that the licensee communicates with shareholders and relevant stakeholders (internal and external) openly and promptly, and with substance of compliance prevailing over form;
              (h) Review and discuss possible improprieties in financial reporting or other matters, and ensure that arrangements are in place for independent investigation and follow-up regarding such matters;
              (i) The committee must monitor rotation arrangements for audit engagement partners. The audit committee must monitor the performance of the external auditor and the non-audit services provided by the external auditor; and
              (j) The review and supervision of the implementation of, enforcement of and adherence to the bank's code of conduct.
              January 2014

            • Committee Structure and Operations

              The committee shall elect one member as its chair.

              The committee shall meet at least four times a year. Its meetings may be scheduled in conjunction with regularly-scheduled meetings of the entire board.

              The committee may meet without any other director or any officer of the licensee present. Only the committee may decide if a non-member of the committee should attend a particular meeting or a particular agenda item. Non-members who are not directors of the licensee may attend to provide their expertise, but may not vote. It is expected that the external auditor's lead representative will be invited to attend regularly but that this shall always be subject to the committee's decision.

              The committee must meet with the external auditor at least twice per year, and at least once per year in the absence of any members of executive management.

              The committee shall report regularly to the full board on its activities.

              January 2014

            • Committee Resources and Authority

              The committee shall have the resources and authority necessary for its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of outside legal, accounting or other advisors as it deems necessary or appropriate, without seeking the approval of the board or management. The licensee shall provide appropriate funding for the compensation of any such persons.

              January 2014

            • Committee Performance Evaluation

              The committee shall prepare and review with the board an annual performance evaluation of the committee, which shall compare the committee's performance with its requirements and shall recommend to the board any improvements deemed necessary or desirable to the committee's charter. The report must be in the form of a written report made at any regularly scheduled board meeting.

              January 2014

          • Appendix B Appendix B Nominating Committee

            • Committee Duties

              The committee's duties shall include those stated in Paragraph HC-4.2.1.

              January 2014

            • Committee Duties and Responsibilities

              In serving those duties with respect to board membership:

              (a) The committee shall make recommendations to the board from time to time as to changes the committee believes to be desirable to the size of the board or any committee of the board;
              (b) Whenever a vacancy arises (including a vacancy resulting from an increase in board size), the committee shall recommend to the board a person to fill the vacancy either through appointment by the board or through shareholder election;
              (c) In performing the above responsibilities, the committee shall consider any criteria approved by the board and such other factors as it deems appropriate. These may include judgment, specific skills, experience with other comparable businesses, the relation of a candidate's experience with that of other board members, and other factors;
              (d) The committee shall also consider all candidates for board membership recommended by the shareholders and any candidates proposed by management;
              (e) The committee shall identify board members qualified to fill vacancies on any committee of the board and recommend to the board that such person appoint the identified person(s) to such committee; and
              (f) Assuring that plans are in place for orderly succession of senior management.

              In serving those purposes with respect to officers the committee shall:

              (a) Make recommendations to the board from time to time as to changes the committee believes to be desirable in the structure and job descriptions of the officers including the CEO, and prepare terms of reference for each vacancy stating the job responsibilities, qualifications needed and other relevant matters including integrity, technical and managerial competence, and experience;
              (b) Overseeing succession planning and replacing key executives when necessary, and ensuring appropriate resources are available, and minimising reliance on key individuals;
              (c) Design a plan for succession and replacement of officers including replacement in the event of an emergency or other unforeseeable vacancy; and
              (d) If charged with responsibility with respect to licensee's corporate governance guidelines, the committee shall develop and recommend to the board corporate governance guidelines, and review those guidelines at least once a year.
              January 2014

            • Committee Structure and Operations

              The committee shall elect one member as its chair.

              The committee shall meet at least twice a year. Its meetings may be scheduled in conjunction with regularly-scheduled meetings of the entire board.

              January 2014

            • Committee Resources and Authority

              The committee shall have the resources and authority necessary for its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of outside legal, consulting or search firms used to identify candidates, without seeking the approval of the board or management. The licensee shall provide appropriate funding for the compensation of any such persons.

              January 2014

            • Performance Evaluation

              The committee shall preview and review with the board an annual performance evaluation of the committee, which shall compare the committee's performance with its requirements and shall recommend to the board any improvements deemed necessary or desirable to the committee's charter. The report must be in the form of a written report made at any regularly scheduled board meeting.

              January 2014

          • Appendix C Appendix C Remuneration Committee

            • Committee Duties

              The committee's duties shall include those stated in Paragraph HC-5.2.1.

              January 2014

            • Committee Duties and Responsibilities

              In serving those duties the committee shall consider, and make specific recommendations to the board on, both remuneration policy and individual remuneration packages for the CEO and other senior managers. This remuneration policy should cover at least:

              (a) The following components:
              (i) Salary;
              (ii) The specific terms of performance-related plans including any stock compensation, stock options, or other deferred-benefit compensation;
              (iii) Pension plans;
              (iv) Fringe benefits such as non-salary perks; and
              (v) Termination policies including any severance payment policies; and
              (b) Policy guidelines to be used for determining remuneration in individual cases, including on:
              (i) The relative importance of each component noted in a) above;
              (ii) Specific criteria to be used in evaluating a senior manager's performance.

              The committee shall evaluate the CEO's and senior management's performance in light of the licensee's corporate goals, agreed strategy, objectives and business plans and may consider the licensee's performance and shareholder return relative to comparable licensees, the value of awards to CEOs at comparable licensees, and awards to the CEO in past years.

              The committee should also be responsible for retaining and overseeing outside consultants or firms for the purpose of determining approved persons' remuneration, administering remuneration plans, or related matters.

              January 2014

            • Committee Structure and Operations

              The committee shall elect one member as its chair.

              The committee shall meet at least twice a year. Its meetings may be scheduled in conjunction with regularly-scheduled meetings of the entire board.

              January 2014

            • Committee Resources and Authority

              The committee shall have the resources and authority necessary for its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of outside legal, consulting or compensation firms used to evaluate the compensation of directors, the CEO or other approved persons, without seeking the approval of the board or management. The licensee shall provide appropriate funding for the compensation of any such persons.

              January 2014

            • Performance Evaluation

              The committee shall preview and review with the board an annual performance evaluation of the committee, which shall compare the committee's performance with its requirements and shall recommend to the board any improvements deemed necessary or desirable to the committee's charter. The report must be in the form of a written report made at any regularly scheduled board meeting.

              January 2014

          • Appendix D Corporate Governance Disclosure to Shareholders

            The licensee shall disclose the following items to the shareholders, in addition to any disclosures required as per Module PD:

            Ownership of Shares

            1. Distribution of ownership by nationality
            2. Distribution of ownership by size of shareholder
            3. Ownership by Government
            4. Names of shareholders owning 5% or more and, if they act in concert, a description of the voting, shareholders' or other agreements among them relating to acting in concert, and of any other direct and indirect relationships among them or with the licensee or other shareholders.

            Board, Board Members and Management

            1. Board's functions – rather than a general statement (which could be disclosed simply as the board's legal obligations under the law) the 'mandate' of the board should be set out
            2. The types of material transactions that require board approval
            3. Names, their capacity of representation and detailed information about the directors, including directorships of other boards, positions, qualifications and experience (should describe each director as executive or non-executive)
            4. Number and names of independent members
            5. Board terms and the start date of each term
            6. What the board does to induct/educate/orient new directors
            7. Director's ownership of shares
            8. Election system of directors and any termination arrangements
            9. Director's trading of licensee's shares during the year
            10. Meeting dates (number of meetings during the year)
            11. Attendance of directors at each meeting
            12. Remuneration policy for board members and senior management
            13. Aggregate remuneration paid to board members
            14. List of senior managers and profile of each
            15. Shareholding by senior managers
            16. Aggregate remuneration paid to senior management
            17. Details of stock options and performance-linked incentives available to executives
            18. Whether the board has adopted a written code of ethical business conduct, and if so the text of that code and a statement of how the board monitors compliance.

            Committees

            1. Names of the board committees
            2. Functions of each committee
            3. Members of each committee divided into independent and non-independent
            4. Minimum number of meetings per year
            5. Actual number of meetings
            6. Attendance of committees' members
            7. Aggregate remuneration paid to each committee
            8. Work of committees and any significant issues arising during the period

            Corporate Governance

            1. Reference to Module HC and its principles
            2. Changes in Module HC that took place during the year

            Auditors

            1. The charters and a list of members of the audit (including external and internal; financial and non-financial experts), nominating and remuneration committees of the board.
            2. Audit fees
            3. Non-audit services provided by the external auditor and fees
            4. Reasons for any switching of auditors and reappointing of auditors

            Other

            1. Related party transactions
            2. Approval process for related party transactions
            3. Means of communication with shareholders and investors
            4. Review of internal control processes and procedures
            5. Announcements of the results in the press should include at least the followings:
            (a) Balance sheet, income statement, cash flow statement, statement of comprehensive income and changes in shareholders' equity
            (b) Auditor
            (c) Auditor's signature date
            (d) Board approval date

            Set out directors responsibility with regard to the preparation of financial statements

            Conflict of Interest – any issues arising must be reported, in addition describe any steps the board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.

            Board of directors – whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution.

            January 2014

        • GR GR Microfinance Institutions General Requirements Module

          • GR-A GR-A Introduction

            • GR-A.1 GR-A.1 Purpose

              • Executive Summary

                • GR-A.1.1

                  This Module presents a variety of different requirements that are not extensive enough to warrant their own stand-alone Module, but for the most part are generally applicable. These include general requirements on books and records, the use of corporate and trade names, the distribution of dividends, controllers, close links and cessation of business. Each set of requirements is contained in its own Chapter.

                  January 2014

              • Legal Basis

                • GR-A.1.2

                  This Module contains the Central Bank of Bahrain ('CBB') Directive (as amended from time to time) regarding general requirements applicable to microfinance institution licensees, and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). Requirements regarding controllers (see Chapter GR-5) are also included in Regulations, to be issued by the CBB.

                  January 2014

                • GR-A.1.3

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see section UG-1.1.

                  January 2014

            • GR-A.2 GR-A.2 Module History

              • Evolution of Module

                • GR-A.2.1

                  This Module was first issued in January 2014 by the CBB. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made. Chapter UG-3 provides further details on Rulebook maintenance and version control.

                  January 2014

                • GR-A.2.2

                  A list of recent changes made to this Module is detailed in the table below:

                  Module Ref. Change Date Description of Changes
                  GR-6.1 10/2016 Added additional requirement for cessation of business to be consistent with other Volumes of the CBB Rulebook.
                  GR-4.1.8 01/2017 Consistency of notification timeline rule on controllers with other Volumes of the CBB Rulebook.
                  GR-1.2.1 07/2017 Amended paragraph according to the Legislative Decree No. (28) of 2002.
                  GR-1.2.2 07/2017 Deleted paragraph.
                  GR-3.1.3 10/2017 Amended paragraph and changed from Guidance to Rule.
                  GR-4.1.1A 04/2019 Added a new Paragraph on exposure to controllers.
                  GR-4.1.1B 04/2019 Added a new Paragraph on exposure to controllers.
                  GR-1.2.1 01/2020 Amended Paragraph.
                  GR-6.1.8 04/2020 Amended Paragraph.
                       
                       

              • Superseded Requirements

                • GR-A.2.3

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Document Subject
                  Volumes 1 and 2 Module GR
                     
                  January 2014

          • GR-B GR-B Scope of Application

            • GR-B.1 GR-B.1 Microfinance Institution Licensees

              • GR-B.1.1

                This Module is applicable to all microfinance institution licensees, authorised in the Kingdom, thereafter referred to in this Module as licensees.

                January 2014

          • GR-1 GR-1 Books and Records

            • GR-1.1 GR-1.1 General Requirements

              • GR-1.1.1

                In accordance with Article 59 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 retained for at least ten years according to Article 60 of the CBB Law.

                January 2014

              • GR-1.1.2

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

                January 2014

              • GR-1.1.3

                Separately, Bahrain Law currently requires other corporate records to be retained for at least five years (see Ministerial Order No. 23 of 2002, Article 5(2), made pursuant to the Amiri Decree Law No. 4 of 2001).

                January 2014

              • 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.

                January 2014

              • GR-1.1.5

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

                January 2014

              • 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.

                January 2014

              • 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. The CBB may also agree similar arrangements where elements of record retention and management have been centralised in another group company, whether inside or outside of Bahrain.

                January 2014

              • GR-1.1.8

                Paragraphs GR-1.1.1 to GR-1.1.7 apply to licensees, with respect to all business activities.

                January 2014

            • GR-1.2 GR-1.2 Transaction Records

              • 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.

                Amended: January 2020
                Amended: July 2017
                Added: January 2014

              • GR-1.2.2

                [This Paragraph has been deleted in July 2017].

                Deleted: July 2017
                January 2014

              • GR-1.2.3

                Rule GR-1.2.1 applies only to transactions relating to business booked in Bahrain by the licensee.

                January 2014

            • GR-1.3 GR-1.3 Other Records

              • Corporate Records

                • GR-1.3.1

                  Licensees must maintain the following records in original form or in hard copy at their premises in Bahrain:

                  (a) Internal policies, procedures and operating manuals;
                  (b) Corporate records, including minutes of shareholders', Directors' and management meetings;
                  (c) Correspondence with the CBB and records relevant to monitoring compliance with CBB requirements;
                  (d) Reports prepared by the licensee's internal and external auditors; and
                  (e) Employee training manuals and records.
                  January 2014

              • Customer Records

                • GR-1.3.2

                  Record-keeping requirements with respect to customer records, including customer identification and due diligence records, are contained in Module FC (Financial Crime).

                  January 2014

          • GR-2 GR-2 Corporate and Trade Names

            • GR-2.1 GR-2.1 Vetting of Names

              • GR-2.1.1

                Licensees must seek prior written approval from the CBB for their corporate name and any trade names.

                January 2014

              • GR-2.1.2

                Licensees must ensure that the words 'microfinance institution' appears in their corporate and trade name.

                January 2014

              • GR-2.1.3

                In approving a corporate or trade 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. The CBB also seeks to ensure that names used by unregulated subsidiaries do not suggest those subsidiaries are in fact regulated.

                January 2014

            • GR-2.2 GR-2.2 Publication of Documents by the Licensee

              • GR-2.2.1

                Any written communication, including stationery, business cards or other business documentation published by the licensee, or used by its employees must include a statement that the licensee is regulated by the Central Bank of Bahrain, the type of license and the legal status.

                January 2014

          • GR-3 GR-3 Dividends

            • GR-3.1 GR-3.1 CBB Non-Objection

              • GR-3.1.1

                Licensees must obtain a letter of no-objection from the CBB to any dividend proposed, 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.

                January 2014

              • GR-3.1.2

                The CBB will grant a no-objection letter 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 capital requirements, taking into account (as appropriate) trends in the licensee's business volumes, expenses, overall performance and the adequacy of provisions against impaired loans or other assets.

                January 2014

              • GR-3.1.3

                To facilitate the prior approval required under Paragraph GR-3.1.1, licensees must provide the CBB with:

                (a) The licensee's intended percentage and amount of proposed dividends for the coming year;
                (b) A letter of no objection from the licensee's external auditor on such profit distribution; and
                (c) A detailed analysis of the impact of the proposed dividend on the capital adequacy requirements outlined in Module CA (Capital Adequacy) and liquidity position of the licensee.
                Amended: October 2017
                January 2014

          • GR-4 GR-4 Controllers

            • GR-4.1 GR-4.1 Key Provisions

              • GR-4.1.1

                Licensees must obtain prior approval from the CBB for any of the following changes to their controllers (as defined in Section GR-4.2 and subject to the limits as outlined in GR-4.3):

                (a) A new controller;
                (b) An existing controller increasing its holding from below 20% to above 20% of issued and paid up share capital;
                (c) An existing controller increasing its holding from below 50% to above 50% of issued and paid up share capital; or
                (d) An existing controller reducing its holding from above 50% to below 50% of issued and paid up share capital.
                January 2014

              • GR-4.1.1A

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

                Added: April 2019

              • GR-4.1.1B

                For the purpose of Paragraph GR-4.1.1A, licensees that al 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.

                Added: April 2019

              • GR-4.1.2

                Condition 3 of the CBB's licensing conditions specifies, among other things, that licensees must satisfy the CBB that their controllers are suitable and pose no undue risks to the licensee (See Paragraph AU-2.3.1). There are also certain procedures which are set out in Articles 52 to 56 of the CBB Law on controllers. Licensees and their controllers must also observe the CBB's Capital Markets requirements in respect of changes in holdings of shares of listed companies.

                January 2014

              • GR-4.1.3

                Applicants for a license must provide details of their controllers, by submitting a duly completed Form 2 (Application for Authorisation of Controller). (See sub-Paragraph AU-4.1.4(a)).

                January 2014

              • GR-4.1.4

                There are strict limits on changes in the holdings of shares held by controllers in licensees or the extent of voting control exercised by controllers in licensees. These limits are outlined in Section GR-4.3.

                January 2014

              • GR-4.1.5

                Failure to observe the limits outlined in this Section or to comply with an order issued by the CBB in relation to violating the share acquisition rules may lead to imposition of enforcement provisions of the Rulebook on the licensee and other penalties on the controller under the provisions of the CBB Law as outlined in Paragraph GR-4.1.2, including loss of voting power or transfer of shares.

                January 2014

              • GR-4.1.6

                Where a controller is a legal person, any change in its shareholding must be notified to the CBB at the earlier of:

                (a) When the change takes effect; and
                (b) When the controller becomes aware of the proposed change.
                January 2014

              • GR-4.1.7

                For approval under Paragraph GR-4.1.1 to be granted, the CBB must be satisfied that the proposed controller or increase in control poses no undue risks to the licensee. The CBB will therefore consider or reconsider the criteria outlined in Paragraphs GR-4.3.6 to GR-4.3.8 in any request for approval. The CBB may impose any restrictions that it considers necessary to be observed in case of its approval of a new controller, or any of the changes listed to existing controllers in Paragraph GR-4.1.1. These restrictions will include the applicable maximum allowed limit of holding or control (as outlined in Section GR-4.3). A duly completed Form 2 (Controllers) must be submitted as part of the request for a change in controllers. An approval of controller will specify the applicable period for effecting the proposed acquisition of shares.

                January 2014

              • GR-4.1.8

                If, as a result of circumstances outside the licensee's knowledge and/or control, one of the changes specified in Paragraph GR-4.1.1 is triggered prior to CBB approval being sought or obtained, the licensee must notify the CBB no later than 15 calendar days on which those changes have occurred.

                Amended: January 2017
                January 2014

              • GR-4.1.9

                The approval provisions outlined above do not apply to existing holdings or existing voting control by controllers al approved by the CBB. The approval provisions apply to new/prospective controllers or to increases in existing holdings/voting control as outlined in Paragraph GR-4.1.1.

                January 2014

              • GR-4.1.10

                Licensees are required to notify the CBB as soon as they become aware of events that are likely to lead to changes in their controllers. The criteria by which the CBB assesses the suitability of controllers are set out in Section GR-4.3. The CBB aims to respond to requests for approval within 30 calendar days and is obliged to reply within 3 months to a request for approval. 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 Form 2, if required to satisfy itself as to the suitability of the applicant.

                January 2014

              • GR-4.1.11

                Licensees must submit, within 3 months of their financial year-end, a report on their controllers (See Subparagraph BR-1.1.2(f)). This report must identify all controllers of the licensee, as defined in Section GR-4.2 and the extent of their shareholding interests.

                January 2014

            • GR-4.2 GR-4.2 Definition of Controller

              • GR-4.2.1

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

                (a) Holds 10% or more of the issued and paid up share capital in the licensee ("L"), or is able to exercise (or control the exercise of) 10% or more of the voting power in L;
                (b) Holds 10% or more of the issued and paid up share capital in a parent undertaking ("P") of L, or is able to exercise (or control the exercise of ) 10% or more of the voting power in P; or
                (c) Is able to exercise significant influence over the management of L or P.
                January 2014

              • GR-4.2.2

                For the purposes of Paragraph GR-4.2.1, "associate" includes:

                (a) The spouse, son(s) or daughter(s) of a controller;
                (b) An undertaking of which a controller is a director;
                (c) A person who is an employee or partner of the controller; and
                (d) If the controller is a legal person, a director of the controller, a subsidiary of the controller, or a director of any subsidiary undertaking of the controller.
                January 2014

              • GR-4.2.3

                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.

                January 2014

            • GR-4.3 GR-4.3 Suitability of Controllers

              • GR-4.3.1

                All new controllers or prospective controllers (as defined in Section GR-4.2) of a licensee must obtain the approval of the CBB. Any increases to existing controllers' holdings or voting control (as outlined under Paragraph GR-4.1.1) must also be approved by the CBB and are subject to the conditions outlined in this Section. Such changes in existing controllers or new/prospective controllers of a licensee must satisfy the CBB of their suitability and appropriateness according to the criteria outlined in Paragraphs GR-4.3.6 to GR-4.3.8. The CBB will issue an approval notice or notice of refusal of a controller according to the approval process outlined in Section GR-4.4 and Paragraph GR-4.1.6.

                January 2014

              • GR-4.3.2

                All controllers or prospective controllers (whether natural or legal persons) of all licensees are subject to the approval of the CBB. Persons who intend to take ownership stakes of 10% or above of the voting capital of a licensee are subject to enhanced scrutiny, given the CBB's position as home supervisor of such licensees. The level of scrutiny and the criteria for approval become more onerous as the level of proposed ownership increases. Existing and prospective controllers should therefore take particular note of the requirements of Paragraphs GR-4.3.3 to GR-4.3.8 if they wish to take more substantial holdings or control.

                As a matter of policy, the CBB distinguishes between regulated legal persons (i.e. financial institutions) and unregulated legal persons and natural persons as controllers. Regulated legal persons must satisfy home country prudential requirements. As a regulated legal person can own a greater percentage of issued and pid up share capital, it is subject to additional conditions as outlined in Paragraph GR-4.3.8. The CBB may also contact their home regulators for information on their "fit & proper" status.

                January 2014

              • GR-4.3.3

                A natural person will not be allowed to own or control more than 15% of the issued and paid up capital of a licensee. Such person must satisfy the conditions in Paragraph GR-4.3.6 below.

                January 2014

              • GR-4.3.4

                An unregulated legal person (including companies, trusts, partnerships) will not be allowed to own or control more than 50% of the issued and paid up capital of a licensee. All such persons must satisfy the conditions in Paragraph GR-4.3.7 below.

                January 2014

              • GR-4.3.5

                The CBB will only permit financial institutions which are subject to effective consolidated supervision under a regulatory framework consistent with the Basel Core Principles, the IOSCO Principles or the IAIS Principles to become controllers with a holding of 100% of the issued and paid up capital of a licensee. Furthermore, the concerned regulated financial institution must satisfy the conditions in Paragraph GR-4.3.7 and also the specific conditions in Paragraph GR-4.3.8.

                January 2014

              • GR-4.3.6

                In assessing the suitability and the appropriateness of new/prospective controllers (and existing controllers proposing to increase their shareholdings) who are natural persons, the CBB considers their professional and personal conduct, including, but not limited to, the following:

                (a) The propriety of a person's conduct, whether or not such conduct resulted in conviction for a criminal offence, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;
                (b) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;
                (c) Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;
                (d) Whether the person has been the subject of any disciplinary proceeding by any government authority, regulatory agency or professional body or association;
                (e) The contravention of any financial services legislation or regulation;
                (f) Whether the person has ever been refused a license, authorisation, registration or other authority;
                (g) Dismissal or a request to resign from any office or employment;
                (h) Disqualification by a court, regulator or other competent body, as a director or as a manager of a corporation;
                (i) Whether the person has been a director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners or managers have been declared bankrupt whilst the person was connected with that partnership or corporation;
                (j) The extent to which the person has been truthful and open with regulators;
                (k) Whether the person has ever been adjudged bankrupt, entered into any arrangement with creditors in relation to the inability to pay due debts, or failed to satisfy a judgement debt under a court order or has defaulted on any debts;
                (l) The person's track record as a controller of, or investor in financial institutions;
                (m) The financial resources of the person and the likely stability of their shareholding;
                (n) Existing directorships or ownership of more than 20% of the capital or voting rights of any financial institution in the Kingdom of Bahrain or elsewhere, and the potential for conflicts of interest that such directorships or ownership may imply;
                (o) The legitimate interests of creditors and minority shareholders of the licensee;
                (p) If the approval of a person as a controller is or could be detrimental to the subject licensee, Bahrain's banking and financial sector or the national interests of the Kingdom of Bahrain; and
                (q) Whether the person is able to deal with existing shareholders and the board in a constructive and co-operative manner.
                January 2014

              • GR-4.3.7

                In assessing the suitability and appropriateness of legal persons as controllers (wishing to increase their shareholding) or new/potential controllers, the 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:

                (a) The financial strength of the person, its parent(s) and other members of its group, its implications for the licensee and the likely stability of the person's shareholding;
                (b) Whether the person or members of its group have ever entered into any arrangement with creditors in relation to the inability to pay due debts;
                (c) The person's jurisdiction of incorporation, location of Head Office, group structure and close links and the implications for the licensee as regards effective supervision of the licensee and potential conflicts of interest;
                (d) The person's (and other group members') propriety and general standards of business conduct, including the contravention of any laws or regulations including financial services legislation on regulations, or the institution of disciplinary proceedings by a government authority, regulatory agency or professional body;
                (e) Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct;
                (f) Any criminal actions instigated against the person or other members of its group, whether or not this resulted in an adverse finding;
                (g) The extent to which the person or other members of its group have been truthful and open with regulators and supervisor;
                (h) Whether the person has ever been refused a licence, authorisation, registration or other authority;
                (i) The person's track record as a controller of, or investor in financial institutions;
                (j) The legitimate interests of creditors and shareholders of the licensee;
                (k) Whether the approval of a controller is or could be detrimental to the subject licensee, Bahrain's financial sector or the national interests of the Kingdom of Bahrain;
                (l) Whether the person is able to deal with existing shareholders and the board in a constructive manner; and
                (m) Existing directorships or ownership of more than 20% of the capital or voting rights of any financial institution in the Kingdom of Bahrain or elsewhere, and the potential for conflicts of interest that such directorships or ownership may imply.
                January 2014

              • GR-4.3.8

                Regulated financial institutions wishing to acquire more than 50% of the voting capital of a licensee must observe the following additional conditions:

                (a) The person must be subject to effective consolidated supervision by a supervisory authority which effectively implements the Basel Core Principles, the IOSCO Principles or the IAIS Principles as well as the FATF Recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation;
                (b) The home supervisor of the person must give its formal written prior approval for (or otherwise raise no objection to) the proposed acquisition of the licensee;
                (c) The home supervisor of the person must confirm to the CBB that it will require the person to consolidate the activities of the concerned licensee for regulatory and accounting purposes if the case so requires;
                (d) The home supervisor of the person must formally agree to the exchange of customer information between the person and its prospective Bahraini subsidiary/acquisition for AML/CFT purposes and for large exposures monitoring purposes;
                (e) The home supervisor of the person and the CBB must (if not al in place) conclude a Memorandum of Understanding in respect of supervisory responsibilities, exchange of information and mutual inspection visits; and
                (f) The person must provide an acceptably worded letter of guarantee to the CBB in respect of its obligation to support the licensee.
                January 2014

            • GR-4.4 GR-4.4 Approval Process

              • GR-4.4.1

                Within 3 months of receipt of an approval request under Paragraph GR-4.1.1, the CBB will issue an approval notice (with or without restrictions) or a written notice of refusal if it is not satisfied that the person concerned is suitable to increase his shareholding in, or become a controller of the licensee. The notice of refusal or notice of approval with conditions will specify the reasons for the objection or restriction and specify the applicant's right of appeal in either case. Where an approval notice is given, it will specify the period for which it is valid and any conditions that attach (see Paragraph GR-4.1.6). These conditions will include the maximum permitted limit of holding or voting control exercisable by the controller.

                January 2014

              • GR-4.4.2

                Notices of refusal have to be approved by an executive director of the CBB. The applicant has 30 calendar days from the date of the notice in which to make written representation as to why his application should not be refused. The CBB then has 30 calendar days from the date of receipt of those representations to reconsider the evidence submitted and make a final determination, pursuant to Article 53 of the CBB Law and Module EN (Enforcement).

                January 2014

              • GR-4.4.3

                Pursuant to Article 56 of the CBB Law, where a person has become a controller by virtue of his shareholding in contravention of Paragraph GR-4.1.1, or a notice of refusal has been served to him under Paragraph GR-4.4.1 and the period of appeal has expired, the CBB may, by notice in writing served on the person concerned, direct that his shareholding shall be transferred or until further notice, no voting right shall be exercisable in respect of those shares.

                January 2014

              • GR-4.4.4

                Article 56 of the CBB Law empowers the CBB to request a court of law to take appropriate precautionary measures, or sell such shares mentioned in Paragraph GR-4.4.3, if the licensee fails to carry out the order referred to in the preceding Paragraph.

                January 2014

          • GR-5 GR-5 Close Links

            • GR-5.1 GR-5.1 Key Provisions

              • GR-5.1.1

                Condition 3 of the CBB's licensing conditions specifies, amongst other things, that licensees must satisfy the CBB that their close links do not prevent the effective supervision of the licensee and otherwise pose no undue risks to the licensee. (See Paragraph AU-2.3.1).

                January 2014

              • GR-5.1.2

                Applicants for a license must provide details of their close links, as provided for under Form 1 (Application for a License). (See Paragraphs AU-4.1.1 and AU-4.1.4 (f)).

                January 2014

              • GR-5.1.3

                Licensees must submit to the CBB, within 3 months of their financial year-end, a report on their close links (See Subparagraph BR-1.1.3(g)). The report must identify all undertakings closely linked to the licensee, as defined in Section GR-5.2.

                January 2014

              • GR-5.1.4

                Licensees may satisfy the requirement in Paragraph GR-5.1.3 by submitting a corporate structure chart, identifying all undertakings closely linked to the licensee.

                January 2014

              • GR-5.1.5

                Licensees must provide information on undertakings with which they are closely linked, as requested by the CBB.

                January 2014

            • GR-5.2 GR-5.2 Definition of Close Links

              • GR-5.2.1

                A licensee ('L') has close links with another undertaking ('U'), if:

                (a) U is a parent undertaking of L;
                (b) U is a subsidiary undertaking of L;
                (c) U is a subsidiary undertaking of a parent undertaking of L;
                (d) U, or any other subsidiary undertaking of its parent, owns or controls 20% or more of the voting rights or capital of L; or
                (e) L, any of its parent or subsidiary undertakings, or any of the subsidiary undertakings of its parent, owns or controls 20% or more of the voting rights or capital of U.
                January 2014

            • GR-5.3 GR-5.3 Assessment Criteria

              • GR-5.3.1

                In assessing whether a licensee's close links may prevent the effective supervision of the firm, or otherwise poses no undue risks to the licensee, the CBB takes into account the following:

                (a) Whether the CBB will receive adequate information from the licensee, and those with whom the licensee has close links, to enable it to determine whether the licensee is complying with CBB requirements;
                (b) The structure and geographical spread of the licensee, its group and other undertakings with which it has close links, and whether this might hinder the provision of adequate and reliable flows of information to the CBB, for instance because of operations in territories which restrict the free flow of information for supervisory purposes; and
                (c) Whether it is possible to assess with confidence the overall financial position of the group at any particular time, and whether there are factors that might hinder this, such as group members having different financial year ends or auditors, or the corporate structure being unnecessarily complex and opaque.
                January 2014

          • GR-6 GR-6 Cessation of Business

            • GR-6.1 GR-6.1 CBB Approval

              • GR-6.1.1

                As specified in Article 50 of the CBB Law, a licensee wishing to cease to provide or suspend any or all of the licensed regulated services of its operations and/or liquidate its business must obtain the CBB's prior approval.

                January 2014

              • GR-6.1.2

                Licensees must notify the CBB in writing at least six months in advance of their intended suspension of any or all the licensed regulated services or cessation of business, setting out how they propose to do so and, in particular, how they will treat any of their liabilities.

                January 2014

              • GR-6.1.3

                If the licensee wishes to liquidate its business, the CBB will revise its license to restrict the firm from entering into new business. 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 and that it may surrender its license.

                January 2014

              • GR-6.1.4

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

                January 2014

              • GR-6.1.5

                Once the licensee believes that it has discharged substantially all its remaining contractual obligations to clients and creditors, it must publish a notice in two national newspapers in Bahrain approved by the CBB (one being in English and one in Arabic), stating that it has settled all its dues and wishes to leave the market. According to Article 50 of the CBB Law, such notice shall be given after receiving the approval of the CBB, not less than 30 days before the actual cessation is to take effect.

                January 2014

              • GR-6.1.6

                The notice referred to in Paragraph GR-6.1.5 must include a statement that written representations concerning the liquidation may be sent to the CBB before a specified day, which shall not be later than thirty 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.

                January 2014

              • GR-6.1.7

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

                January 2014

              • GR-6.1.8

                Upon satisfactorily meeting the requirements set out in GR-6.1., 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.

                Amended: April 2020
                Added: October 2016

      • Business Standards

        • CA CA Microfinance Institutions Capital Adequacy and Liquidity Requirements Module

          • CA-A CA-A Introduction

            • CA-A.1 CA-A.1 Purpose

              • Executive Summary

                • CA-A.1.1

                  The purpose of this module is to set out the CBB's regulations for minimum capital requirements. This requirement is supported by Article 44(c) of the Central Bank of Bahrain and Financial Institutions Law 2006 (CBB Law).

                  January 2014

                • CA-A.1.2

                  Principle 9 of the Principles of Business requires that microfinance institution licensees maintain adequate human, financial and other resources, sufficient to run their business in an orderly manner (see Section PB-1.9). In addition, Condition 5 of the CBB's Authorised Conditions (Section AU-2.5) requires microfinance institution licensees to maintain financial resources in excess of the minimum requirements specified in this Module.

                  January 2014

                • CA-A.1.3

                  This Module sets out the minimum capital requirements which microfinance institution licensees must meet as a condition of their licensing.

                  January 2014

                • CA-A.1.4

                  The purpose of these requirements is to ensure that microfinance institution licensees hold sufficient financial resources to provide some protection against unexpected losses.

                  January 2014

                • CA-A.1.5

                  The CBB requires that microfinance institution licensees maintain adequate capital in accordance with the requirements of this Module, against their risks.

                  January 2014

              • Legal Basis

                • CA-A.1.6

                  This Module contains the CBB's Directive relating to the capital requirements and gearing of microfinance institution licensees, and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all microfinance institution licensees.

                  January 2014

            • CA-A.2 CA-A.2 Module History

              • Evolution of Module

                • CA-A.2.1

                  This Module was first issued in January 2014 by the CBB. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made. Chapter UG-3 provides further details on Rulebook maintenance and version control.

                  January 2014

                • CA-A.2.2

                  A list of recent changes made to this Module is provided below:

                  Module Ref. Change Date Description of Changes
                  CA-1.1.4 and CA-1.1.5 10/2014 Updated capital requirements to be aligned with the term and definition of 'core capital'.
                  CA-1.1.3 01/2019 Amended minimum Capital Adequacy ratio.
                  CA-1.1.4 01/2019 Amended Paragraph defining Capital Adequacy ratio.
                  CA-1.1.5A 01/2019 Added a new Paragraph on risk weighted asset items.
                  CB-1.1.5B 01/2019 Added a new Paragraph on claims on banks.
                  CB-1.1.5C 01/2019 Added a new Paragraph on short-term claims.
                  CA-1.1.6 01/2019 Amended Paragraph on maintaining minimum CAR.
                  CA-1.1.7 01/2019 Amended Paragraph.
                  CA-1.1.8 01/2019 Amended guidance and changed to Rule.
                  CA-1.1.9 01/2019 Amended Paragraph.
                  CA-1.1.1 04/2019 Amended the minimum capital required.

          • CA-B CA-B Scope of Application

            • CA-B.1 CA-B.1 Scope of Application

              • CA-B.1.1

                This Module is applicable to all microfinance institution licensees (authorised in the Kingdom, thereafter referred to in this Module as licensees).

                January 2014

          • CA-1 CA-1 Regulatory Capital and Liquidity

            • CA-1.1 CA-1.1 Capital Requirements

              • Minimum Capital Requirement

                • CA-1.1.1

                  A licensee must maintain at all times a minimum paid-up capital of BD 2 million provided by the shareholders/promoters and/or through grants and donations. A greater amount of capital may be required by the CBB on a case-by-case basis.

                  Amended: April 2019
                  January 2014

                • CA-1.1.2

                  In addition to the requirements of Paragraph CA-1.1.1, the CBB may require that an acceptably worded letter of guarantee be provided. The CBB may seek a letter of guarantee from controllers.

                  January 2014

              • Capital Adequacy Ratio (CAR)

                • CA-1.1.3

                  In addition to the requirements outlined in Paragraphs CA-1.1.1 and CA-1.2.1, all licensees must maintain a minimum Capital Adequacy Ratio of 12%.

                  Amended: January 2019
                  January 2014

                • CA-1.1.4

                  For purposes of Paragraph CA-1.1.3, the capital adequacy ratio is defined as the total core capital divided by the risk weighted assets.

                  Amended: January 2019
                  Amended: October 2014
                  January 2014

                • CA-1.1.5

                  For purposes of Paragraph CA-1.1.4, total core capital refers to:

                  (a) Issued and fully paid ordinary shares (net of treasury shares);
                  (b) Retained earnings (losses) brought forward, including interim profits/losses; and
                  (c) All disclosed reserves brought forward, that are audited and approved by the shareholders, in the form of legal, general and other reserves created by appropriations of retained earnings;
                  LESS:
                  (d) Other deductions, as specified by the CBB.
                  Amended: October 2014
                  January 2014

                • CA-1.1.5A

                  For the purpose of Paragraph CA-1.1.4, the asset items must be risk weighted as follows:

                  (a) Cash and treasury bills in BD or in US$: 0%;
                  (b) Claims on banks (See CA-1.1.5B);
                  (c) Microfinance credit facilities: 75%;
                  (d) Investments: 100%; and
                  (e) Other assets: 100%.
                  Added: January 2019

              • Claims on Banks

                • CA-1.1.5B

                  Claims on banks must be risk weighted as given in the following table. No claim on an unrated bank may receive a risk weight lower than that applied to claims on its sovereign of incorporation.

                  Banks Credit Quality Grades AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Un-rated
                  ECAI 1 ECAI 2 ECAI 3 ECAI 4 ECAI 5 -
                  Standard risk weights 20% 50% 50% 100% 150% 50%
                  Added: January 2019

                • CA-1.1.5C

                  Short-term claims on locally incorporated banks may be assigned a risk weighting of 20% where such claims on the banks are of an original maturity of 3 months or less denominated and funded in either BD or US dollar.

                  Added: January 2019

                • CA-1.1.6

                  Licensees must ensure that at all times they maintain the minimum CAR outlined in Paragraph CA-1.1.3. In the event that the licensee does not comply with the minimum CAR requirement, it must notify the CBB by no later than the following business day of the actual level of the CAR. When providing such notification, the licensee must:

                  (a) Provide to the CBB, within one week of the non-compliance, a written action plan setting out how the licensee proposes to restore its CAR to the required minimum level and describe the systems and controls that have been put in place to prevent any future non-compliance of the minimum CAR; and
                  (b) Report to the CBB on a monthly basis or on another timely basis as required by the CBB, the licensee's CAR until such time as the CAR has reached 12.5% or other target level as specified by the CBB.
                  Amended: January 2019
                  January 2014

                • CA-1.1.7

                  Licensees should note that the CBB considers the breach of the minimum CAR requirement to be a very serious matter. Consequently, the CBB may (at its discretion) subject a licensee which breaches its minimum CAR requirement to a formal enforcement action.

                  Amended: January 2019
                  January 2014

              • Deleted

              • Compliance Officer

                • CA-1.1.8

                  Compliance officers must ensure that the licensee has adequate internal systems and controls to comply with this Module.

                  Amended: January 2019
                  January 2014

              • Reporting Requirements

                • CA-1.1.9

                  The licensee must report its capital level and CAR to the CBB in accordance with the requirements outlined in Chapter BR-1.

                  Amended: January 2019
                  January 2014

            • CA-1.2 CA-1.2 Liquidity Requirements

              • CA-1.2.1

                A licensee's net 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.

                January 2014

              • CA-1.2.2

                For purposes of Paragraph CA-1.2.1, net liquid assets comprise of unencumbered cash, cash equivalents, treasury bills, and placements and balances with banks maturing within 30 days less any liabilities due within 30 days.

                January 2014

        • BC BC Microfinance Institutions Business Conduct Module

          • BC-A BC-A Introduction

            • BC-A.1 BC-A.1 Purpose

              • BC-A.1.1

                This Module contains requirements that have to be met by microfinance institution licensees with regards to their dealings with customers. The Rules contained in this Module aim to ensure that microfinance institution licensees deal with their customers in a fair and open manner, and address their customers' information needs.

                January 2014

              • BC-A.1.2

                The Rules build upon several of the Principles of Business (see Module PB (Principles of Business)). Principle 1 (Integrity) requires microfinance institution licensees to observe high standards of integrity and fair dealing, and to be honest and straightforward in their dealings with customers. Principle 3 (Due skill, care and diligence) requires microfinance institution licensees to act with due skill, care and diligence when acting on behalf of their customers. Principle 7 (Client Interests) requires microfinance institution licensees to pay due regard to the legitimate interests and information needs of their customers, and to communicate with them in a fair and transparent manner.

                January 2014

              • Legal Basis

                • BC-A.1.3

                  This Module contains the CBB's Directive (as amended from time to time) on business conduct by microfinance institution licensees, and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all microfinance institution licensees.

                  January 2014

                • BC-A.1.4

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  January 2014

            • BC-A.2 BC-A.2 Module History

              • BC-A.2.1

                This Module was first issued in January 2014 by the CBB. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

                January 2014

              • BC-A.2.2

                A list of recent changes made to this Module is provided below:

                Module Ref. Change Date Description of Changes
                BC-2.3.14 04/2020 Amended Paragraph adding reference to CBB consumer protection.
                BC-2.5.6 04/2020 Amended Paragraph adding reference to CBB consumer protection.
                BC-2.7.1 -
                BC-2.7.3
                04/2020 Amended Paragraphs adding reference to CBB consumer protection.
                BC-C 10/2020 Added a new Chapter on Provision of Financial Services on a Non-discriminatory Basis.

              • Superseded Requirements

                • BC-A.2.3

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Document Subject
                  Volumes 1 and 2 Module BC
                     
                  January 2014

          • BC-B BC-B Scope of Application

            • BC-B.1 BC-B.1 Scope

              • BC-B.1.1

                This Module applies to all microfinance institution licensees authorised in the Kingdom, thereafter referred to in this Module as licensees.

                January 2014

          • BC-C BC-C Provision of Financial Services on a Non-discriminatory Basis

            • BC-C.1 BC-C.1 Provision of Financial Services on a Non-discriminatory Basis

              • BC-C.1.1

                Microfinance institution 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.

                Added: October 2020

          • BC-1 BC-1 Best Practices for Microfinance Institutions

            • BC-1.1 BC-1.1 General Rules

              • BC-1.1.1

                Licensees must comply with the best practices throughout the lifetime of their relationship with a customer. Chapter BC-1 sets out the minimum standards for microfinance institutions to follow when providing micro-credit and other services on which fees and/or interest (profit margin in case of Shari'a compliant micro-finance) are payable by customers in the Kingdom of Bahrain.

                January 2014

              • BC-1.1.2

                This Chapter applies where any licensee provides to a borrower any type of financial product creating a creditor relationship (including Shari'a compliant credit facilities of all types).

                January 2014

              • BC-1.1.3

                Licensees must put in place appropriate measures across all their business operations and distribution channels to ensure compliance with the requirements of this Chapter, where relevant. Licensees must maintain adequate records to demonstrate compliance with this Chapter.

                January 2014

              • BC-1.1.4

                The CBB may, from time to time, ask the compliance officer to report on the licensee's record of adherence to the requirements of Module BC.

                January 2014

              • BC-1.1.5

                Licensees should implement the requirements of Module BC and ensure that their staff is fully familiar with these.

                January 2014

            • BC-1.2 BC-1.2 Overarching Principles

              • BC-1.2.1

                The six overarching principal commitments are:

                (a) Licensees must act fairly and reasonably in all dealings with customers;
                (b) Licensees must make sure that all advertising and promotional material relating to microfinance facilities, credit and charging is clear and not misleading in any way;
                (c) Licensees must give clear information and provide clear documentation about products and services they offer, including the application procedures, terms & conditions, interest/profit rates and breakdown of charges that apply;
                (d) Licensees must provide their customers with regular statements;
                (e) Licensees must inform their customers about any changes to the terms and conditions of the contract prior to the change taking place. It is the duty of the customer to inform the licensee of changes in contact address immediately; and
                (f) Licensees must deal sympathetically with cases of genuine financial difficulty and treat all customer personal information as private and confidential.
                January 2014

            • BC-1.3 BC-1.3 Identification of Customer Requirements

              • BC-1.3.1

                For each new (or potentially new) customer, licensees should:

                (a) Give transparent and factual information on the key features and benefits of the credit facility the customer is interested in;
                (b) Advise customers on the various delivery channels of products (e.g. through the internet, over the phone, in different branches, etc.) and tell customers how they can find out more about such products; and
                (c) Prior to granting the credit facility, the licensee will inform the customer of applicable details and the criteria for provision of a credit facility.
                January 2014

            • BC-1.4 BC-1.4 Disclosure of Charges

              • BC-1.4.1

                In order to improve customer awareness and enhance transparency of licensee's charging structures, licensees must display in a prominent position, in Arabic and in English, by notice in their offices (both head office and branches), a list of all current charges.

                January 2014

              • BC-1.4.2

                Licensees must also ensure that each customer is in receipt of their current list of charges and must display these on their websites. The list must specify standard charges that will be applied by the licensee to individual services and transactions.

                January 2014

              • Credit Agreements

                • BC-1.4.3

                  A licensee must make available, at their premises, information leaflets containing information in respect of all credit agreements including the Annual Percentage Rate (APR) as defined in Paragraph BC-1.4.10.

                  January 2014

                • BC-1.4.4

                  For the purpose of this Section, the following definitions apply:

                  (a) Conspicuous notice – Means a written statement in both Arabic and English languages which is easily visible and legible and displayed in all licensees' premises open to the public (head offices and branches), and via means such as websites, newspapers and other press notices;
                  (b) Nominal annual rate – Means the interest/profit rate charged to the customer, calculated by dividing the amount of the total interest/profit by the amount of the funds provided to the customer and excluding any other charges, the results of which is divided by the number of years or part thereof, of the term of the credit agreement;
                  (c) Outstanding credit amount – Means the amount outstanding under a credit agreement representing the amount of funds provided to the customer and any other charges that are included as part of the principal amount to be repaid by the customer over the duration of the agreement less any repayment made related to the principal amount at a specified date; and
                  (d) Principal – Means the amount of credit received plus any other charges, the total of which is subject to interest/profit.
                  January 2014

              • General Rules

                • BC-1.4.5

                  Where a customer has a credit agreement with a licensee, licensees must:

                  (a) Duly inform their customers in accordance with this Module about the nature and the characteristics (including relevant risks) of the credit agreements and services offered by them, and about the terms and conditions governing such agreements;
                  (b) Periodically inform, in writing, their customers on the evolution and the terms of any credit agreement signed, throughout the duration of the contract (refer to Paragraph BC-1.4.17);
                  (c) Respond in due time, to customers' requests for the provision of information and clarifications regarding the application of contractual terms (refer to Paragraphs BC-1.4.21 and BC-1.4.22);
                  (d) Appoint a customer complaints officer and publicise his/her contact details (refer to Chapter BC-2 on Customer Complaints Procedures);
                  (e) Ensure the proper training of employees involved in interfacing and providing specific information to customers;
                  (f) Disclose information required in this Module the credit agreement in both Arabic & English languages;
                  (g) Show clearly the APR on the credit agreement application and 'key terms disclosure' document; and
                  (h) Disclose all information in a clear and readable form (refer to Paragraph BC-1.4.6).
                  January 2014

                • BC-1.4.6

                  Marketing of customer credit agreements, advertising and sales promoting credit agreements, irrespective of the media used (SMS, Internet, printed material, telephone solicitation) must be clear and understandable, must be true and not misleading and meet the basic customer information requirements as defined in this Module. All advertisements for credit facilities are subject to CBB prior approval as per Paragraph BC-1.8.1. Licensees are also asked to take special care to ensure that the content of any advertising material does not mislead or deceive the public in any way.

                  January 2014

                • BC-1.4.7

                  The use of "small print" to make potentially important information less visible is not compatible with good business conduct, and should be avoided.

                  January 2014

              • Minimum Disclosure Requirements

                • BC-1.4.8

                  Licensees must make:

                  (a) Public disclosure regarding credit agreements; and
                  (b) Disclosures to customers, whether these be during the course of the initial negotiation of the credit agreement or during the term of the facility being offered.
                  January 2014

              • Public Disclosure Requirements for all Credit Agreements

                • BC-1.4.9

                  The following public disclosures must be made by conspicuous notice for all types of credit agreements:

                  (a) Any obligation on the part of the customer to open a deposit account with a retail bank as a condition of granting the credit agreement;
                  (b) Administration fees;
                  (c) Pre-payment charges;
                  (d) Late payment fees;
                  (e) Insurance; and
                  (f) Any other charges not included above.
                  January 2014

              • Additional Public Disclosure for Credit Facilities

                • BC-1.4.10

                  In addition to the requirements under Paragraph BC-1.4.9, licensees must publicly disclose by conspicuous notice for credit facilities:

                  (a) The current Annual Percentage Rate (APR) as calculated using the APR methodology in Paragraph BC-1.4.23. The APR displayed must be calculated based on the following scenarios. Amount borrowed is BD3,000 for a 1-year term;
                  (b) The Annual Percentage Rate (APR), must be broken down as follows:
                  (i) The annual nominal interest/profit rate payable;
                  (ii) Administration/handling fees;
                  (iii) In the case of finance lease contracts/ijara or deferred purchase contracts, any fees for purchasing the asset; and
                  (iv) Any other mandatory charges (contingent costs are excluded); and
                  (c) The terms and conditions for early repayment, partial or full, of the credit agreement, or for any change in the terms and covenants of the credit agreement, as well as any relevant charges (where permitted) and the way in which these are calculated
                  January 2014

                • BC-1.4.11

                  The APR is a standard measure that allows customers to compare total charges for instalment financing facilities on a like-for-like basis. The APR allows the customer to compare the total charge for credit over differing periods (e.g. – two versus three years) or offered by different retail banks with differing payment profiles and taking into account the payment of any other fees payable as a condition of the contract, such as administration fees or insurance premiums.

                  January 2014

                • BC-1.4.12

                  Any advertising through any media means of credit facilities, offered by the licensees must specify only the APR (including all fees and charges) and no other rates, i.e. nominal, base, flat or rates by any other names.

                  January 2014

              • Disclosure to Customers: Initial Disclosure Requirements of Key Terms

                • BC-1.4.13

                  Licensees must make clear to potential customers, prior to entering into a credit agreement, all relevant key terms of the agreement in the credit application and 'key terms disclosure' document, in order for them to clearly understand the characteristics of the services and products on offer.

                  January 2014

                • BC-1.4.14

                  The above 'key terms disclosure' document must be summarised in plain English and Arabic. This document must be signed and dated by the customer(s) in duplicate as having been read and understood, prior to signing a credit agreement. One copy should be retained by the customer and the other must be retained by the licensee in their customer file.

                  January 2014

                • BC-1.4.15

                  In addition to the initial disclosure of key terms noted in Paragraphs BC-1.4.13 and BC-1.4.14, the "key terms disclosure" document must, amongst other things, make clear:

                  (a) The detailed breakdown of the payments:
                  (i) The principal amount being borrowed and the maturity of the credit agreement;
                  (ii) The net amount provided to the customer after deducting or applying any upfront or other charges;
                  (iii) The total interest/profit payments and principal repayment for the term of the credit agreement; and
                  (iv) The total administration/handling fees and all details of any other fees and charges spread over the term of the credit agreement;
                  (b) The APR and the nominal annual rate as defined in Paragraphs BC-1.4.10 and BC-1.4.4(b) respectively;
                  (c) Whether the rate of interest/profit is fixed or can be varied, and under what circumstances;
                  (d) The basis on which interest/profit is charged (e.g. actual reducing balance) and applied to the account (e.g. monthly or quarterly compounding) and whether principal repayments are taken into account in the calculation, together with an illustration of the calculation method;
                  (e) The detailed costs associated with "top-ups" of credit agreements or other alternative arrangements for extending additional credit or early repayments, whether partial or full, of amounts due including the treatment of remaining interest/profit and the payment of premium for insurance;
                  (f) Any late payment charges; and
                  (g) Any other charges related to the credit agreement not included above, all details of which must be provided to the customer.
                  January 2014

                • BC-1.4.16

                  Licensees are free to design the layout and wording to be used in their 'key terms disclosure' document, as they see fit, providing they contain the information specified in Paragraph BC-1.4.15. The CBB will monitor compliance with the spirit as well as the letter of the requirements in this Chapter.

                  January 2014

              • Disclosure to Customers: During the Term of the Credit Agreement

                • BC-1.4.17

                  Licensees must give information on the payment schedule of the credit agreement, including interest/profit and other charges. Information must be given, free of charge, at least every three months.

                  January 2014

              • Variation Disclosures Requirements

                • BC-1.4.18

                  Licensees must disclose to the customer in advance, either collectively or individually, all relevant changes or variations to a credit agreement. The circumstances in which a customer must be provided with variation disclosures are:

                  (a) If both the licensee and customer agree to change the credit agreement; in this case, the customer must be provided in writing with full particulars of the change, at least seven calendar days before it takes effect; and
                  (b) If the credit agreement gives the licensee power to vary fees or charges, the amount or timing of payments, the interest/profit rate or the way interest/profit is calculated, and the licensee decides to exercise that power, the customer must be provided with full particulars of the change, including an updated schedule of the total interest/profit payments and principal repayment for the remaining term of the credit agreement, at least thirty calendar days prior to the date the change takes effect. Such notice is to enable the customer to decide whether to accept the new terms or terminate the agreement by settling the outstanding credit amount, in accordance with relevant provisions therein, which must have been stated in a clear and understandable manner.
                  January 2014

                • BC-1.4.19

                  Any increase of the interest/profit rate or the amount of any fee or charge payable under a credit agreement, must be disclosed publicly, by conspicuous notice, at least thirty calendar days prior to the date the change takes effect by:

                  (a) Displaying the information prominently at the licensee's place of business; and
                  (b) Posting the information on the licensee's website.
                  January 2014

                • BC-1.4.20

                  Any deferral of interest/profit or principal announced by the licensee must also take account of the APR methodology as shown in Paragraphs BC-1.4.23 to BC-1.4.25, and the new APR must be given to the customer or made public in advertisements.

                  January 2014

              • Request Disclosure

                • BC-1.4.21

                  The licensee must provide a reply to any request for disclosure within fifteen business days of receiving the request.

                  January 2014

                • BC-1.4.22

                  Disclosures requested by the customer may include but are not limited to any or all of the following information about a credit agreement:

                  (a) The effect of part prepayment on the customer's obligations;
                  (b) Full particulars of any changes to the agreement since it was made;
                  (c) The amount of any fee payable on part prepayment and how the fee will be calculated;
                  (d) The amount required for full prepayment on a specified date and how the amount will be calculated;
                  (e) The outstanding credit amount, including any outstanding interest/profit charge (calculated at the date the disclosure statement is prepared);
                  (f) The amount of payments made or to be made or the method of calculating the amount of those payments;
                  (g) The number of payments made or to be made (if ascertainable);
                  (h) How often payments are to be made;
                  (i) The total amount of payments to be made under the agreement, if ascertainable; and
                  (j) A copy of any disclosure statement that was or should have been provided before the request was made.
                  January 2014

                • BC-1.4.23

                  The APR must be calculated using the following methodology:

                  January 2014

                • BC-1.4.24

                  The meaning of letters and symbols used in the above formula are:

                  K is the number identifying a particular advance of credit;
                  K' is the number identifying a particular instalment;
                  Ak is the amount of advance K;
                  A'k' is the amount of instalment K;
                  Σ represents the sum of all the terms indicated;
                  m is the number of advances of credit;
                  m' is the total number of instalments;
                  tk is the interval, expressed in years between the relevant date and the date of advance K;
                  tk' is the interval expressed in years between the relevant date and the date of instalment K';
                  i is the APR, expressed as a decimal.
                  January 2014

                • BC-1.4.25

                  For the purpose of this Chapter, the 'relevant date' is the earliest identifiable date on which the borrower is able to acquire anything which is the subject of the agreement (e.g. delivery of goods), or otherwise the 'relevant date' is the date on which the credit agreement is made.

                  January 2014

            • BC-1.5 BC-1.5 Repayment Assessment

              • BC-1.5.1

                Before a licensee provides a credit facility, it must assess whether the customer will be able to repay, given its knowledge of the customer's current circumstances.

                January 2014

            • BC-1.6 BC-1.6 Financial Difficulties

              • BC-1.6.1

                Licensees should deal sympathetically with cases of genuine financial difficulty and treat all customer personal information as private and confidential.

                January 2014

              • BC-1.6.2

                Licensees should always endeavour to discuss financial difficulties with their customers before taking any legal measures.

                January 2014

              • BC-1.6.3

                Where possible, licensees should consider alternative arrangements to enable customers to overcome their repayment difficulties.

                January 2014

              • BC-1.6.4

                Licensees should provide customers with a minimal level of counseling on debt problems.

                January 2014

            • BC-1.7 BC-1.7 Disclosure of Information about Individual Accounts

              • BC-1.7.1

                In accordance with Article 117 of the CBB Law, licensees must not publish or release information to third parties concerning the accounts or activities of their individual customers, unless:

                (a) Such information is requested by an authorised official from the CBB or by an order from the Courts;
                (b) The release of such information is approved by the customer concerned; or
                (c) It is in compliance with the provision of the law or any international agreements to which the Kingdom is a signatory.
                January 2014

            • BC-1.8 BC-1.8 Advertisements for Microfinance Products and Services

              • BC-1.8.1

                Licensees must seek the CBB's prior written approval before placing advertisements in newspapers, public places, website or through the use of any other media.

                January 2014

              • BC-1.8.2

                In implementing Rule BC-1.8.1, the CBB will provide the licensee with a written decision within five business days of the receipt of request for approval.

                January 2014

          • BC-2 BC-2 Customer Complaints Procedures

            • BC-2.1 BC-2.1 General Requirements

              • BC-2.1.1

                All licensees must have appropriate customer complaints handling procedures and systems for effective handling of complaints made by customers.

                January 2014

              • BC-2.1.2

                Customer complaints procedures must be documented appropriately and their customers must be informed of their availability.

                January 2014

              • BC-2.1.3

                All licensees must appoint a customer complaints officer and publicise his/her contact details at all departments and branches and on the licensee's website. The customer complaints officer must be of a senior level at the licensee and must be independent of the parties to the complaint to minimise any potential conflict of interest.

                January 2014

            • BC-2.2 BC-2.2 Documenting Customer Complaints Handling Procedures

              • BC-2.2.1

                In order to make customer complaints' handling procedures as transparent and accessible as possible, all licensees must document their customer complaints handling procedures. These include setting out in writing:

                (a) The procedures and policies for:
                (i) Receiving and acknowledging complaints;
                (ii) Investigating complaints;
                (iii) Responding to complaints within appropriate time limits;
                (iv) Recording information about complaints;
                (v) Identifying recurring system failure issues;
                (b) The types of remedies available for resolving complaints; and
                (c) The organisational reporting structure for the complaints handling function.
                January 2014

              • BC-2.2.2

                Licensees must provide a copy of the procedures to all relevant staff, so that they may be able to inform customers. A simple and easy-to-use guide to the procedures must also be made available to all customers, on request, and when they want to make a complaint.

                January 2014

              • BC-2.2.3

                Licensees are required to ensure that all financial services related documentation (such as credit facility documentation) provided to the customer includes a statement informing the customer of the availability of a simple and easy-to-use guide on customer complaints procedures in the event the customer is not satisfied with the services provided.

                January 2014

            • BC-2.3 BC-2.3 Principles for Effective Handling of Complaints

              • BC-2.3.1

                Adherence to the following principles is required for effective handling of complaints:

                January 2014

              • Visibility

                • BC-2.3.2

                  "How and where to complain" must be well publicised to customers and other interested parties, in both English and Arabic languages.

                  January 2014

              • Accessibility

                • BC-2.3.3

                  A complaints handling process must be easily accessible to all customers and must be free of charge.

                  January 2014

                • BC-2.3.4

                  While a licensee's website is considered an acceptable mean for dealing with customer complaints, it should not be the only means available to customers as not all customers have access to the internet.

                  January 2014

                • BC-2.3.5

                  Process information must be readily accessible and must include flexibility in the method of making complaints.

                  January 2014

                • BC-2.3.6

                  Support for customers in interpreting the complaints procedures must be provided, upon request.

                  January 2014

                • BC-2.3.7

                  Information and assistance must be available on details of making and resolving a complaint.

                  January 2014

                • BC-2.3.8

                  Supporting information must be easy to understand and use.

                  January 2014

              • Responsiveness

                • BC-2.3.9

                  Receipt of complaints must be acknowledged in accordance with Section BC-2.5 "Response to Complaints".

                  January 2014

                • BC-2.3.10

                  Complaints must be addressed promptly in accordance with their urgency.

                  January 2014

                • BC-2.3.11

                  Customers must be treated with courtesy.

                  January 2014

                • BC-2.3.12

                  Customers must be kept informed of the progress of their complaint, in accordance with Section BC-2.5.

                  January 2014

                • BC-2.3.13

                  If a customer is not satisfied with a licensee's response, the licensee must advise the customer on how to take the complaint further within the organisation.

                  January 2014

                • BC-2.3.14

                  In the event that they are unable to resolve a complaint, licensees must outline the options that are open to that customer to pursue the matter further, including, where appropriate, referring the matter to the Consumer Protection Unit at the CBB.

                  Amended: April 2020
                  Added: January 2014

              • Objectivity and Efficiency

                • BC-2.3.15

                  Complaints must be addressed in an equitable, objective, unbiased and efficient manner.

                  January 2014

                • BC-2.3.16

                  General principles for objectivity in the complaints handling process include:

                  (a) Openness:
                  The process must be clear and well publicised so that both staff and customers can understand;
                  (b) Impartiality:
                  (i) Measures must be taken to protect the person the complaint is made against from bias;
                  (ii) Emphasis must be placed on resolution of the complaint not blame; and
                  (iii) The investigation must be carried out by a person independent of the person complained about;
                  (c) Accessibility:
                  (i) The licensee must allow customer access to the process at any reasonable point in time; and
                  (ii) A joint response must be made when the complaint affects different participants;
                  (d) Completeness:
                  The complaints officer must find relevant facts, talk to both sides, establish common ground and verify explanations wherever possible;
                  (e) Equitability:
                  Give equal treatment to all parties;
                  (f) Sensitivity:
                  Each complaint must be treated on its merits and paying due care to individual circumstances;
                  (g) Objectivity for personnel – complaints handling procedures must ensure those complained about are treated fairly which implies:
                  (i) Informing them immediately and completely on complaints about performance;
                  (ii) Giving them an opportunity to explain and providing appropriate support;
                  (iii) Keeping them informed of the progress and result of the complaint investigation;
                  (iv) Full details of the complaint are given to those the complaint is made against prior to interview; and
                  (v) Personnel must be assured they are supported by the process and should be encouraged to learn from the experience and develop a better understanding of the complaints process;
                  (h) Confidentiality:
                  (i) In addition to customer confidentiality, the process must ensure confidentiality for staff who have a complaint made against them and the details must only be known to those directly concerned;
                  (ii) Customer information must be protected and not disclosed, unless the customer consents otherwise; and
                  (iii) Protect the customer and customer's identity as far as is reasonable to avoid deterring complaints due to fear of inconvenience or discrimination;
                  (i) Objectivity monitoring:
                  Licensees must monitor responses to customers to ensure objectivity which could include random monitoring of resolved complaints;
                  (j) Charges:
                  The process must be free of charge to customers;
                  (k) Customer Focused Approach:
                  (i) Licensees must have a customer focused approach;
                  (ii) Licensees must be open to feedback; and
                  (iii) Licensees must show commitment to resolving problems;
                  (l) Accountability:
                  Licensees must ensure accountability for reporting actions and decisions with respect to complaints handling; and
                  (m) Continual improvement:
                  Continual improvement of the complaints handling process and the quality of products and services must be a permanent objective of the licensee.
                  January 2014

            • BC-2.4 BC-2.4 Internal Complaints Handling Procedures

              • BC-2.4.1

                Licensees' internal complaints handling procedures must provide for:

                (a) The receipt of written complaints;
                (b) The appropriate investigation of complaints;
                (c) An appropriate decision-making process in relation to the response to a customer complaint;
                (d) Notification of the decision to the customer; and
                (e) The recording of complaints.
                January 2014

              • BC-2.4.2

                Licensees' internal complaints handling procedures must be designed to ensure that:

                (a) All complaints are handled fairly, effectively and promptly;
                (b) Recurring systems failures are identified, investigated and remedied;
                (c) The number of unresolved complaints referred to the CBB is minimised;
                (d) The employee responsible for the resolution of complaints has the necessary authority to resolve complaints or has access to an employee who has the necessary authority; and
                (e) Relevant employees are aware of the licensee's internal complaint handling procedures and comply with them and receive training periodically to be kept abreast of changes in procedures.
                January 2014

            • BC-2.5 BC-2.5 Response to Complaints

              • BC-2.5.1

                Licensees must acknowledge in writing customer written complaints within 5 working days of receipt.

                January 2014

              • BC-2.5.2

                Licensees must respond in writing to a customer complaint within 4 weeks of receiving the complaint, explaining their position and how they propose to deal with the complaint.

                January 2014

              • Redress

                • BC-2.5.3

                  Licensees should decide and communicate how they propose (if at all) to provide the customer with redress. Where appropriate, the licensee must explain the options open to the customer and the procedures necessary to obtain the redress.

                  January 2014

                • BC-2.5.4

                  Where a licensee decides that redress in the form of compensation is appropriate, the licensee must provide the complainant with fair compensation and must comply with any offer of compensation made by it which the complainant accepts.

                  January 2014

                • BC-2.5.5

                  Where a licensee decides that redress in a form other than compensation is appropriate, it must provide the redress as soon as practicable.

                  January 2014

                • BC-2.5.6

                  Should the customer that filed a complaint not be satisfied with the response received as per Paragraph BC-2.5.2, he can forward the complaint to the Consumer Protection Unit at the CBB within 30 calendar days from the date of receiving the letter.

                  Amended: April 2020
                  Added: January 2014

            • BC-2.6 BC-2.6 Records of Complaints

              • BC-2.6.1

                Licensees must maintain a record of all customers' complaints. The record of each complaint must include:

                (a) The identity of the complainant;
                (b) The substance of the complaint;
                (c) The status of the complaint, including whether resolved or not, and whether redress was provided; and
                (d) All correspondence in relation to the complaint. Such records must be retained by licensees for a period of 5 years from the date of receipt of the complaint.
                January 2014

            • BC-2.7 BC-2.7 Reporting of Complaints

              • BC-2.7.1

                Licensees must submit to the CBB's Consumer Protection Unit, 20 days after the end of the quarter, a quarterly report summarising the following:

                (a) The number of complaints received;
                (b) The substance of the complaints;
                (c) The number of days it took the licensee to acknowledge and to respond to the complaints; and
                (d) The status of the complaint, including whether resolved or not, and whether redress was provided.
                Amended: April 2020
                Added: January 2014

              • BC-2.7.2

                The report referred to in Paragraph BC-2.7.1 must be sent electronically to complaint@cbb.gov.bh.

                Amended: April 2020
                Added: January 2014

              • BC-2.7.3

                Where no complaints have been received by the licensee within the quarter, a "nil" report should be submitted to the CBB's Consumer Protection Unit.

                Amended: April 2020
                Added: January 2014

            • BC-2.8 BC-2.8 Monitoring and Enforcement

              • BC-2.8.1

                Compliance with these requirements is subject to the ongoing supervision of the CBB as well as being part of any CBB inspection of a licensee. Failure to comply with these requirements is subject to enforcement measures as outlined in Module EN (Enforcement).

                January 2014

        • RM RM Microfinance Institutions Risk Management Module

          • RM-A RM-A Introduction

            • RM-A.1 RM-A.1 Purpose

              • RM-A.1.1

                This Module contains requirements relating to the management of risk by microfinance institution licensees.

                July 2014

              • RM-A.1.2

                This Module details the minimum key elements of a sound credit risk management system which the Central Bank of Bahrain ('CBB') requires its microfinance institutions licensees to observe. These minimum requirements reflect the unique environment within which microfinance institutions licensees operate and the range of products which they typically offer. However, the CBB, at its sole discretion, retains the right to impose more stringent requirements and guidelines upon one or more microfinance institution licensees should it consider such action to be in the best interest of the Bahrain financial system at any time.

                July 2014

              • RM-A.1.3

                This Module obliges microfinance institution licensees to identify and document the major risks that they face, and what action will be taken to manage those risks effectively. Effective compliance with this Module will require the risk management framework to be supported by adequate resources and the appropriate tools to identify, monitor and control all material risks.

                July 2014

              • RM-A.1.4

                This Module provides support for certain other parts of the Rulebook, mainly:

                (a) Principles of Business;
                (b) The CBB Reporting Requirements;
                (c) Auditors and Accounting Standards; and
                (d) High-level Controls.
                July 2014

              • Legal Basis

                • RM-A.1.5

                  This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) relating to the credit and operational risk management of microfinance institution licensees, and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all microfinance institutions licensees.

                  July 2014

                • RM-A.1.6

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  July 2014

            • RM-A.2 RM-A.2 Module History

              • RM-A.2.1

                This Module was first issued in July 2014 by the CBB. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG 3 provides further details on Rulebook maintenance and version control.

                July 2014

              • Summary of Changes

                • RM-A.2.2

                  The most recent changes made to this Module are detailed in the table below:

                  Module Ref. Change Date Description of Changes
                  RM-4.3.1 10/2017 Amended Paragraph.
                  RM-4.4.3 10/2017 Amended Paragraph.
                  RM-4.5.1(c) 10/2017 Amended sub-sub-Paragraph no. (2).
                  RM-4.5.1(e) 10/2017 Amended sub-sub-Paragraph no. (3).
                  RM-4.5.2 10/2017 Added a new paragraph for security measures related to cloud services.

              • Superseded Requirements

                • RM-A.2.3

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Document Subject
                  Volumes 1 and 2 Modules CM and OM
                     

          • RM-B RM-B Scope of Application

            • RM-B.1 RM-B.1 Scope

              • RM-B.1.1

                This Module applies to all microfinance institution licensees authorised in the Kingdom, thereafter referred to in this Module as licensees.

                July 2014

          • RM-1 RM-1 Risk Management

            • RM-1.1 RM-1.1 General Requirements

              • Board of Directors

                • RM-1.1.1

                  The board of directors of licensees must take responsibility for the establishment of an adequate and effective framework for identifying, monitoring and managing risks across all its operations.

                  July 2014

                • RM-1.1.2

                  The CBB expects the board to be able to demonstrate that it provides suitable oversight and establishes, in relation to all the risks the licensee is exposed to, a risk management framework that includes approving and monitoring policies, systems, tools and controls.

                  July 2014

                • RM-1.1.3

                  Although authority for the management of a licensee's risks is likely to be delegated to some degree to individuals at all levels of the organisation, the overall responsibility for this activity should not be delegated from its governing body and relevant senior managers.

                  July 2014

                • RM-1.1.4

                  A licensee's failure to establish an adequate risk management framework to the satisfaction of the CBB will result in it being in breach of Condition 6 of the Licensing Conditions of Section AU-2.6. This failure may result in the CBB withdrawing the licence or imposing other restrictions on the licensee, or the licensee being required to inject more capital.

                  July 2014

                • RM-1.1.5

                  The board of directors must ensure that there is adequate documentation of the licensee's risk management framework, and that the documentation is reviewed at least annually to ensure the framework continues to meet the needs of the licensee and complies with CBB requirements.

                  July 2014

              • Senior Management

                • RM-1.1.6

                  The responsibilities of the senior management of the licensee must include:

                  (a) Implementing the overall risk strategy approved by the Board of Directors;
                  (b) Ensuring that the strategy is implemented consistently throughout the whole organisation;
                  (c) Ensuring that all levels of staff understand their responsibilities with respect to risk management;
                  (d) Ensuring that each member of staff has the requisite knowledge, skills, and understanding of the principles and practices of risk management to discharge their duties effectively; and
                  (e) Developing and implementing policies, processes and procedures for managing risk in all of the licensee's products, activities, processes and systems.
                  July 2014

              • Systems and Controls

                • RM-1.1.7

                  The risk management framework of a licensee must describe the systems and controls which are appropriate to their business, so as to identify, measure, mitigate, and monitor risks to which the licensee may be exposed.

                  July 2014

                • RM-1.1.8

                  The board must ensure that the licensee undertakes a timely review and evaluation of all internal systems and control weaknesses identified by external and/or internal auditors, the risk management function and management, and that actions are implemented to effectively mitigate such control weaknesses.

                  July 2014

                • RM-1.1.9

                  Licensees must establish mechanisms to verify that controls, once established, are implemented effectively at all times.

                  July 2014

              • The Role of Internal Audit

                • RM-1.1.10

                  The internal audit function, which may be outsourced subject to the conditions outlined in Chapter RM-4 must, on an on-going basis, monitor, assess, and evaluate the system of internal controls.

                  July 2014

          • RM-2 RM-2 Credit Risk

            • RM-2.1 RM-2.1 General Requirements

              • RM-2.1.1

                Credit risk is the likelihood that a counterparty of the licensee will not meet its obligations in accordance with the agreed terms. The magnitude of the specific credit risk depends on the likelihood of default by the counterparty, and on the potential value of the licensees' contracts with the customer at the time of default. Credit risk largely arises in assets shown on the balance sheet, but it can also show up off the balance sheet in a variety of contingent obligations.

                July 2014

              • RM-2.1.2

                Exposure to credit risk, notably in the form of traditional and Shari'a compliant financing has historically been the most frequent source of risk.

                July 2014

              • RM-2.1.3

                The lack of continuous credit facility supervision and effective internal controls, and/or the failure to identify the application of effective controls and fraud are also sources of risk.

                July 2014

            • RM-2.2 RM-2.2 Credit Analysis

              • RM-2.2.1

                All licensees which provide credit facilities to resident natural or legal persons in Bahrain must become members of the Credit Reference Bureau (CRB). All requests by residents of Bahrain for new credit facilities must be submitted to the CRB.

                July 2014

              • RM-2.2.2

                All CRB members must implement the requirements of Module BC (Business Conduct), in matters such as the protection of confidential customer data (see Section BC-1.7) and payment of enquiry fees.

                July 2014

            • RM-2.3 RM-2.3 Credit Policy

              • RM-2.3.1

                Licensees must have a properly documented credit framework. The framework must include a board approved policy which is supported by appropriate procedures and practices designed to bring professional discipline to the credit granting activities and ensure that credit facilities are granted based on clear and relevant criteria.

                July 2014

              • RM-2.3.2

                It is prudent to review the credit policy regularly to ensure that once it is established, it remains flexible enough to be current and continues to accomplish its original purpose taking into consideration market developments.

                July 2014

              • RM-2.3.3

                A sound credit policy should consider which types of credit products and borrowers the licensee is prepared to accept and the underwriting standards the licensee will utilise.

                July 2014

              • RM-2.3.4

                A licensee's credit policy should address all credit matters of significance including:

                (a) Objectives of credit monitoring;
                (b) Organisation and reporting structure of the credit department;
                (c) The target economic sectors and products;
                (d) Establishment of a credit limit framework;
                (e) Guidelines for assessment of concentration;
                (f) Authorisation procedures for the advancement of credit;
                (g) Effective oversight and review of all credit facilities;
                (h) Establishment of desirable pricing levels and criteria; and
                (i) Problem credit identification, classification and administration.
                July 2014

            • RM-2.4 RM-2.4 Credit Grading System

              • RM-2.4.1

                Licensees must have in place appropriate credit grading systems (sometimes referred to as credit classification systems) to help assess credit quality.

                July 2014

              • RM-2.4.2

                Each licensee must have a credit grading system and provisioning requirements within its credit policy.

                July 2014

              • RM-2.4.3

                Credit facilities must be classified by licensees on an ongoing basis. The classification framework must, at a minimum, include the categories listed below, and licensees must apply provisions (sometimes referred to as "allowances") at or above the minimum levels specified in Paragraph RM-2.4.4. Licensees are free to classify a credit facility in a category which requires a higher level of provisioning if the licensee has information which gives doubt as to the collectability of the facility, even if the concerned credit facility is performing. These standards must also be applied in the case of the suspension of profit and the classification of other non-financing receivables (e.g. fees):

                (a) 'Standard facilities' are those, which are 'performing' as the contract requires. These facilities are not past due and there is no reason to suspect that the customer's financial condition or the adequacy of collateral has deteriorated in any way;
                (b) 'Watch-list facilities' are those which show some weaknesses in the customer's (or counterparty's) financial condition or creditworthiness, requiring more than normal attention but not necessarily requiring the allocation of specific provisions (or impairment allowances). 'Watch' could include 'performing' facilities which are not regular in repayment or are regular but there is minor deterioration in the financial position of the customer or counterparty or the underlying collateral. 'Watch' must include any facilities which are less than 90 days overdue and which are not (yet) included in 'sub-standard', 'doubtful' or 'loss' (i.e. the facility can be regarded as overdue but not yet 'impaired' according to IFRS);
                (c) 'Sub-standard facilities' are those where interest/profit or principal is 90 days or more overdue (see Paragraph RM-2.4.4 for minimum required provisioning levels). 'Sub-standard facilities' also include those where full repayment (collectability) is in doubt due to inadequate protection by the impaired paying capacity of the customer or by impairment of the collateral pledged. Sub-standard facilities are characterised by the distinct possibility of loss if observed weaknesses are not corrected and may therefore be viewed as 'impaired' or non-performing. Sub-standard may therefore include facilities that are not yet overdue, or are less than 90 days overdue;
                (d) 'Doubtful facilities' are those where interest/profit or principal is 180 days or more overdue (see Paragraph RM-2.4.4 for minimum required provisioning levels). 'Doubtful facilities' have all the weaknesses inherent in a facility classified as 'substandard' with the added characteristic that observed weaknesses make full collection (or liquidation), on the basis of currently existing facts and valuations highly questionable or improbable. The probability of loss is extremely high, but total loss may not necessarily occur because some mitigating factors may strengthen the asset quality; and
                (e) 'Loss facilities' are those where interest/profit or principal is 360 days or more overdue (see Paragraph RM 2.5.6 for minimum required provisioning levels). 'Loss facilities' are considered uncollectible or of such little value that their continuance at any material value is not warranted. The category 'loss' means that it is not considered practical or desirable to give a positive valuation to this facility, even though partial recovery may be effected in the future.
                July 2014

              • RM-2.4.4

                The following categories of credit facilities are defined as 'Non-performing'. Licensees must apply the minimum specific provision levels outlined below:

                Substandard : 10% of the outstanding amount
                Doubtful : 30% of the outstanding amount
                Loss : 100% of the outstanding amount.
                July 2014

              • RM-2.4.5

                The minimum provisioning levels set out above must be taken on the net amount of the outstanding facility after deducting the eligible collateral. If a licensee has collateral but is unprepared to exercise it after a facility becomes non-performing, then the collateral is not providing protection to the licensee and therefore provisions must be taken on the full amount of the outstanding balance until either the facility is repaid, the collateral (or guarantees) exercised or the facility rescheduled or restructured.

                July 2014

            • RM-2.5 RM-2.5 Treatment of Profit/Interest in Suspense and Provisioning

              • Non-accrual of Profit/Interest Income

                • RM-2.5.1

                  Licensees are required to place on a non-accrual basis any facility where there is reasonable doubt about the collectability of the receivable irrespective of whether the facility is overdue or not. All accrued profit/interest, including related interest/profit earned but not collected and recognised as income in prior periods, for non-accrual assets identified in Paragraph RM-2.5.2 must be credited to an off-balance sheet special account in the licensee's records under the name 'profit/interest in suspense account' and not to the profit and loss account, i.e. it must not be recognised as income.

                  July 2014

                • RM-2.5.2

                  For the purpose of this Module, the following 'non-performing' categories of assets must be considered as non-accrual items:

                  (a) Substandard;
                  (b) Doubtful;
                  (c) Loss; and
                  (d) Any other credit facilities that are overdue for a period of less than 90 days but the licensee has doubts about their collectability.
                  July 2014

              • Treatment of Restructured and Rescheduled Facilities and Facilities Which Cease to be Non-performing

                • RM-2.5.3

                  Any facility where principal or profit/interest is 90 days or more overdue must be categorised as 'non-performing'. A facility becomes overdue from the first date that profit/interest or principal is not received.

                  July 2014

                • RM-2.5.4

                  For purposes of Paragraph RM-2.5.3, if an instalment is missed on 1st March 2010, but payment is made on 1st April 2010 (and the March instalment is still not paid), then the credit facility will become over 90 days overdue by 1st June 2010, even if the April and May instalments are paid on time and in full, and a provision must at least be taken in respect of the overdue amount (but not necessarily the full outstanding amount of the credit facility if other payments were made).

                  July 2014

                • RM-2.5.5

                  If a non-performing credit facility is formally rescheduled (by way of a written agreement), the rescheduled credit facility may be considered 'performing' again (as 'standard') after a period of one year from the date of rescheduling if all payments have been made on schedule and the concerned provisions and suspended profit/interest may be credited (back) to the profit & loss account.

                  July 2014

                • RM-2.5.6

                  If a facility ceases to be non-performing (due to full repayment of all arrears on profit/interest and principal) it may be categorised as performing after a period of one year and the concerned provisions and suspended profit/interest may be credited (back) to the profit & loss account.

                  July 2014

            • RM-2.6 RM-2.6 Collateral

              • RM-2.6.1

                The extension of credit is sometime supported by collateral provided by the customer or third parties. In the case of a credit facility supported by a guarantee, an assessment of the guarantor must be made by the licensee on at least an annual basis.

                July 2014

            • RM-2.7 RM-2.7 Developing a Sound Credit Culture

              • RM-2.7.1

                Credit culture is defined as the sum total of a licensee's approach to managing credit risk, including business strategy, credit policy, shared assumptions about credit, the effectiveness of communications, and the composition and quality of the resulting loan portfolio.

                July 2014

              • The Role of the Board of Directors

                • RM-2.7.2

                  The board must review and reassess the credit policies of the licensee (including collateral, provisioning and concentration policies) on at least an annual basis. The board must also review overdue facilities in terms of performance on a quarterly basis.

                  July 2014

              • The Role of Senior Management

                • RM-2.7.3

                  Senior management must be involved in the credit review process of existing facilities, including visiting clients, assessing the financial status of the borrower and verifying the appropriateness of collateral.

                  July 2014

              • Effective Internal Systems and Controls

                • RM-2.7.4

                  Licensees must utilise internal grading systems (as outlined in Paragraph RM-2.4.3) to manage credit risk and to set adequate provisions on a timely basis.

                  July 2014

                • RM-2.7.5

                  Policies and procedures must include the requirement for a thorough understanding of the customer, the purpose of the credit facility and the source of repayment. This data must be reviewed as part of the risk management framework in any assessment of the customer for risk profiling purposes.

                  July 2014

            • RM-2.8 RM-2.8 The CBB's Approach to Microfinance Credit Facilities

              • RM-2.8.1

                Licensees must implement a sound internal controls framework, including an effective credit culture (see Section RM-2.7). Licensees must display and communicate charges and the APR clearly (see Section BC-1.4).

                July 2014

              • RM-2.8.2

                The CBB requires licensees to demonstrate transparency in their dealings with their customers, as regards the costs and terms of their lending.

                July 2014

              • RM-2.8.3

                The measures presented in this Chapter should be viewed as minimum standards, rather than best practice. They are aimed at encouraging prudent lending and full, frank and fair disclosures, rather than dictating comprehensively how licensees should engage in microfinance credit facilities.

                July 2014

            • RM-2.9 RM-2.9 Refunds and Prepayments

              • Refund/Adjustment of Insurance Premium on Loan Prepayments and Top-Ups

                • RM-2.9.1

                  Licensees must refund/adjust proportionately the insurance premium charged on individual loans/facilities when the borrower either requests for a top-up or prepayment of the loan/facility as per the prescribed formula below:

                  Refund/Adjustment Amount = Remaining Period to Maturity X Premium Paid / Original Maturity
                  July 2014

              • Early Repayment Fees/Charges

                • RM-2.9.2

                  If early repayment charges are imposed by the licensee, the CBB imposes a ceiling on the early repayment charges on microfinance credit facilities as follows:

                  (a) 1% of the outstanding credit facility amount or BD20 whichever is lower;
                  (b) The ceilings on the charges have a retroactive effect i.e. covering existing and new credit facilities; and
                  (c) Licensees must not charge any remaining interest/profit amount if prepayment is made.
                  July 2014

          • RM-3 RM-3 Operational Risk

            • RM-3.1 RM-3.1 General Requirements

              • RM-3.1.1

                Licensees must document their framework for the proactive management of operational risk. This policy must be approved and reviewed at least annually by the board of directors of the licensee.

                July 2014

              • RM-3.1.2

                Operational risk is the risk to the licensee of loss resulting from inadequate or failed internal processes, people and systems, or from external events. In identifying the types of operational risk losses that it may be exposed to, licensees should consider, for instance, the following:

                (a) The nature of a licensee's customers, products and activities, including sources of business, distribution mechanisms, and the complexity and volumes of transactions;
                (b) The design, implementation, and operation of the processes and systems used in the end-to-end operating cycle for a licensee's products and activities;
                (c) The risk culture and human resource management practices at a licensee; and
                (d) The business operating environment, including political, legal, socio-demographic, technological, and economic factors as well as the competitive environment and market structure.
                July 2014

              • RM-3.1.3

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

                July 2014

              • Business Continuity Planning

                • RM-3.1.4

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

                  July 2014

              • Record Keeping

                • RM-3.1.5

                  Licensees must retain an appropriate record of their operational risk management activities.

                  July 2014

            • RM-3.2 RM-3.2 Identification, Measurement, Monitoring and Control

              • RM-3.2.1

                As part of an effective operational risk management system, licensees must:

                (a) Identify critical processes, resources and loss events; and
                (b) Develop policies, processes and procedures to control or mitigate operational risk.
                July 2014

            • RM-3.3 RM-3.3 Succession Planning

              • RM-3.3.1

                Succession planning is an essential precautionary measure for a licensee if its leadership stability — and hence ultimately its financial stability — is to be protected. Succession planning is especially critical for smaller institutions, where management teams tend to be smaller and possibly reliant on a few key individuals.

                July 2014

            • RM-3.4 RM-3.4 Business Continuity Requirements

              • Vital Records Management

                • RM-3.4.1

                  A business continuity plan must clearly identify information deemed vital for the recovery of critical business and support functions in the event of a significant disruption to business, including an event considered as a disaster, as well as the relevant protection measures to be taken for protecting vital information, whether stored on electronic or non-electronic media.

                  July 2014

                • RM-3.4.2

                  Copies of vital records must be stored off-site as soon as possible after creation. A back-up of all vital records must be readily accessible for emergency retrieval. Access to back-up vital records should be adequately controlled to ensure that they are reliable for business resumption purposes. For certain critical business operations or services, licensees should consider the need for instantaneous data back up to ensure prompt system and data recovery. There should be clear procedures indicating how and in what priority vital records are to be retrieved or recreated in the event that they are lost, damaged or destroyed.

                  July 2014

            • RM-3.5 RM-3.5 Security Measures for Microfinance Institutions

              • RM-3.5.1

                Licensees that maintain cash on their premises must put in place security measures to minimize the risk of theft or fraud.

                July 2014

              • RM-3.5.2

                Licensees are required to install an alarm system for those premises where cash is held.

                July 2014

              • RM-3.5.3

                Where appropriate, licensees may consider the need to maintain a trained security guard on the premises.

                July 2014

              • RM-3.5.4

                All licensees are required to have in place insurance coverage to cover potential losses arising from liability, theft, fire and other potential operational risk.

                July 2014

          • RM-4 RM-4 Outsouring Risk

            • RM-4.1 RM-4.1 Introduction

              • RM-4.1.1

                Licensees must apply in writing to the CBB for approval to outsource any of their activities. The prior written approval of the CBB is required before any outsourcing is entered into by the licensee.

                July 2014

              • RM-4.1.2

                Licensees must not outsource 'core functions' which are defined as the offering of regulated microfinance services, customer due diligence and approval of customers.

                July 2014

            • RM-4.2 RM-4.2 Supervisory Approach

              • RM-4.2.1

                Once an outsourcing arrangement has been implemented, the CBB requires a licensee to continue to monitor the associated risks and the effectiveness of its mitigating controls. The CBB requires access to the outsourced activity, which it may occasionally want to examine itself, through management meetings or on-site examinations.

                July 2014

              • RM-4.2.2

                The board and management of the licensee may not abdicate their responsibility for a licensee's business and the way its customers are treated. The board and management remain ultimately responsible for the effectiveness of systems and controls in outsourced activities.

                July 2014

            • RM-4.3 RM-4.3 Prior Approval Requirements

              • RM-4.3.1

                Where an activity has been outsourced, a licensee must immediately inform its supervisory point of contact at the CBB of any material problems encountered with the outsourcing provider. The CBB reserves the right to direct a licensee to make alternative arrangements for the outsourced activity.

                Amended: October 2017
                July 2014

            • RM-4.4 RM-4.4 Risk Assessment

              • RM-4.4.1

                Licensees must undertake a thorough risk assessment of an outsourcing proposal, before formally submitting a request for prior written approval to the CBB and committing itself to an agreement.

                July 2014

              • RM-4.4.2

                Once an outsourcing agreement has been entered into, licensees must regularly review the suitability of the outsourcing provider and the ongoing impact of the agreement on their risk profile and systems and controls framework. Such reviews should take place on at least an annual basis.

                July 2014

              • RM-4.4.3

                A licensee must nominate a relevant approved person with day-to-day responsibility for handling the relationship with the outsourcing provider and ensuring that relevant risks are addressed. The name of this person must be communicated to the CBB as part of the prior approval process required under Section RM-4.3 or if any change occurs thereafter. Any subsequent replacement of such person must also be notified to the CBB.

                Amended: October 2017
                July 2014

            • RM-4.5 RM-4.5 Outsourcing Agreement

              • RM-4.5.1

                The activities to be outsourced and respective contractual liabilities and obligations of the outsourcing provider and licensee must be clearly specified in an outsourcing agreement. This agreement must -amongst other things - address the following points:

                (a) Control over outsourced activities:
                (i) The board and management of licensees are held ultimately responsible by the CBB for the adequacy of systems and controls over the outsourced activities. Licensees must therefore ensure that they have adequate mechanisms for monitoring the performance of, and managing the relationship with, the outsourcing provider;
                (ii) A service level agreement ('SLA') - setting out the standards of service to be provided - must form part of the outsourcing agreement;
                (iii) Mechanisms for the regular monitoring by licensees of performance against the SLA and other targets, and for implementing remedies in case of any shortfalls, must also form part of the agreement;
                (iv) Clear reporting and escalation mechanisms must be specified in the agreement; and
                (v) Where an outsourcing provider in turn decides to subcontract to other providers, the original provider must remain contractually liable to the licensee for the quality and level of service agreed, and its obligations to the licensee must remain unchanged.
                (b) Customer data confidentiality:
                (i) Licensees must ensure that outsourcing agreements comply with all applicable legal requirements regarding customer confidentiality; and
                (ii) Licensees must ensure that the outsourcing provider implements adequate safeguards and procedures. Amongst other things, customer data should be properly segregated from those belonging to other clients the outsourcing provider may have. Outsourcing providers must give suitable undertakings that the company and its staff will comply with all applicable confidentiality rules. Licensees must have contractual rights to take action against the service provider in the event of a breach of confidentiality.
                (c) Access to information:
                (i) Outsourcing agreements must ensure that the licensee's internal and external auditors have timely access to any relevant information they may require to fulfill their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing provider, if required;
                (ii) Licensees must also ensure that the CBB inspectors and appointed experts have timely access to any relevant information they may reasonably require under the law and the regulatory framework. Such access must allow the CBB to conduct on-site examinations of the outsourcing provider at the sole discretion of the CBB; and
                (iii) The outsourcing provider must commit itself, in the outsourcing agreement, to informing the licensee of any developments that may have a material impact on its ability to meet its obligations. These may include, for example, relevant control weaknesses identified by the outsourcing provider's internal or external auditors, and material adverse developments in the financial and/or operational performance of the outsourcing provider.
                (d) Business continuity:
                (i) Licensees must ensure that service providers maintain, regularly review and test plans to ensure continuity in the provision of the outsourced service;
                (e) Termination:
                (i) Licensees must have the right to terminate the agreement should the outsourcing provider undergo a change of ownership (whether direct or indirect) that poses a potential conflict of interest, becomes insolvent, or goes into liquidation or administration;
                (ii) Termination under any other circumstances allowed under the agreement must give licensees a sufficient notice period in which they can effect a smooth transfer of the service to another provider or bring it back in-house; and
                (iii) In the event of termination, for whatever reason, the agreement should provide for the return of all customer data — where required by licensees — or destruction of the records under the supervision of and certified by the licensee.
                Amended: October 2017
                July 2014

              • Cloud services

                • RM-4.5.2

                  For the purpose of outsourcing of cloud services, licensees must ensure that, at a minimum, the following security measures are in place:

                  (a) Customer information must be encrypted and licensees must ensure that all encryption keys or similar forms of authentication are kept secure within the licensee's control;
                  (b) A secure audit trail must be maintained for all actions performed at the cloud services outsourcing provider;
                  (c) A comprehensive change management procedure must be developed to account for future changes to technology with adequate testing of such changes;
                  (d) The licensee's data must be logically segregated from other entities data at the outsourcing service provider's platform;
                  (e) The cloud service provider must provide information on measures taken at its platform to ensure adequate information security, data security and confidentiality, including but not limited to forms of protection available against unauthorized access and incident management process in cases of data breach or data loss; and
                  (f) The right to release customer information/data in case of foreign government/court orders must be the sole responsibility of the licensee, subject to the CBB Law.
                  Added: October 2017

          • RM-5 RM-5 Liquidity Risk

            • RM-5.1 RM-5.1 Liquidity Risk

              • RM-5.1.1

                Licensees must design and implement a liquidity risk policy for the management of liquidity risk of the licensee. The policy must be appropriate to the nature, scale and complexity of the activities of the licensee, and it must be approved and regularly reviewed by the board of directors of the licensee.

                July 2014

              • Risk Measurement and Monitoring

                • RM-5.1.2

                  A licensee must establish and maintain a process for the measurement, monitoring and controlling of liquidity risk.

                  July 2014

              • Contingency Planning

                • RM-5.1.3

                  Licensees must maintain contingency funding plans for taking action to ensure, so far as they can, that they can access sufficient liquid financial resources to meet liabilities as they fall due.

                  July 2014

      • Reporting Requirements

        • BR BR Microfinance Institutions CBB Reporting Requirements Module

          • BR-A BR-A Introduction

            • BR-A.1 BR-A.1 Purpose

              • Executive Summary

                • BR-A.1.1

                  This Module sets out requirements applicable to microfinance institutions licensees regarding reporting to the CBB. These include the provision of financial information to the CBB by way of prudential returns, as well as notification to the CBB of certain specified events, some of which require prior CBB approval. This Module also outlines the methods used by the CBB in gathering information required in the supervision of microfinance institutions licensees.

                  January 2014

                • BR-A.1.2

                  This Module provides support for certain other parts of the Rulebook, mainly:

                  (a) Principles of Business;
                  (b) Public Disclosure;
                  (c) Risk Management;
                  (d) Financial Crime;
                  (e) Capital Adequacy;
                  (f) High-Level Controls;
                  (g) Business Conduct; and
                  (h) Auditors and Accounting Standards.
                  January 2014

                • BR-A.1.3

                  Unless otherwise stated, all reports referred to in this Module should be addressed to the director of the relevant supervision directorate of the CBB.

                  January 2014

              • Legal Basis

                • BR-A.1.4

                  This Module contains the CBB's Directive relating to reporting requirements applicable to microfinance institutions licensees and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law').

                  January 2014

                • BR-A.1.5

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  January 2014

            • BR-A.2 BR-A.2 Module History

              • Evolution of Module

                • BR-A.2.1

                  This Module was first issued in January 2014 by the CBB. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made. Chapter UG-3 provides further details on Rulebook maintenance and version control.

                  January 2014

                • BR-A.2.2

                  A list of recent changes made to this Module is provided below:

                  Module Ref. Change Date Description of Changes
                  BR-1.2.5 04/2014 Deleted semi-annual reporting requirements.
                  BR-1.5 04/2017 Added a new Section on Onsite Inspection Reporting.
                  BR-1.1.3 07/2017 Amended timeframe for the annual reporting requirements.
                  BR-1.2.1 01/2020 Amended Paragraph.
                  BR-2.3.10 01/2020 Amended Paragraph.

          • BR-B BR-B Scope of Application

            • BR-B.1 BR-B.1 Scope of Application

              • BR-B.1.1

                The content of this Module applies to all microfinance institutions licensees authorised in the Kingdom (thereafter referred to in this Module as licensees).

                January 2014

          • BR-1 BR-1 Prudential Reporting

            • BR-1.1 BR-1.1 Annual Requirements

              • BR-1.1.1

                All licensees are required to submit to the CBB their annual audited financial statements within 3 months of the financial year end.

                January 2014

              • BR-1.1.2

                In accordance with the provisions of Section AA-4.1, the audited financial statements and the annual reports of the licensees must be in full compliance with:

                (a) The International Financial Reporting Standards (IFRS); or
                (b) AAOIFI Financial Accounting Standards for Sharia Compliant licensees and for products and activities not covered by AAOIFI, International Financial Reporting Standards (IFRS)/International Accounting Standards (IAS) must be followed; and
                (c) The disclosure requirements set out under Section PD-1.3.
                January 2014

              • BR-1.1.3

                In addition to the statements required in Paragraph BR-1.1.1, licensees are required to submit to the CBB the following information within 4 months of the financial year end:

                (a) The external auditor's management letter;
                (b) Audited financial statements of all subsidiaries along with their management letters;
                (c) The licensee's group structure and the internal organisation chart;
                (d) A list of non-performing and rescheduled credit facilities (including name of customer, country, amount outstanding, net interest income for the year attributed to profit & loss and the reasons for attributing interest/profit to income);
                (e) A reconciliation statement between the audited financial statements and the relevant prudential returns;
                (f) The report on controllers as required under Paragraph GR-4.1.10;
                (g) A report on the licensee's close links as required under Paragraph GR-5.1.3; and
                (h) Any supplementary information as required by the CBB.
                Amended: July 2017
                January 2014

              • BR-1.1.4

                In accordance with Paragraph HC-1.3.8, licensees must submit annually a report recording the board meetings held during the year. Such report must be submitted to the CBB, within 20 calendar days of the end of the reporting date, as an attachment to the year-end quarterly PIR. Reference should be made to Appendix BR-6, Board and Committee Meetings, under part B/Reporting Forms of Volume 5 for a sample of such report.

                January 2014

            • BR-1.2 BR-1.2 Quarterly Requirements

              • BR-1.2.1

                All licensees must complete the PIRMF form (see Appendix BR-1 under Part B of Volume 5 for microfinance institutions). This form is intended to be a financial report of the licensee on a consolidated basis. Licensees must include all assets and liabilities of their head office and their branches in Bahrain (if any) and abroad (and subsidiaries, where applicable).

                Amended: January 2020
                Added: January 2014

              • BR-1.2.2

                The PIR forms referred to under Paragraph BR-1.2.1 must be submitted to the CBB on a quarterly basis within 20 calendar days of the end of the reporting date.

                January 2014

              • BR-1.2.3

                The CBB requires all licensees to request their external auditor to conduct a review of the prudential return on a quarterly basis. The results of such review (in the form of an Agreed Upon Procedures report as shown in Appendix BR-3) must be submitted to the CBB's relevant supervision Directorate no later than 2 months from the end of the subject quarter. A licensee may apply for exemption from this requirement provided that it meets the criteria set out under Paragraph BR-1.2.4.

                January 2014

              • BR-1.2.4

                Licensees which demonstrate to the satisfaction of the CBB that they have fulfilled all of the CBB's requirements with regard to Prudential Returns for at least two consecutive quarters may apply (in writing) to the CBB for an exemption from the review procedure set out in Paragraph BR-1.2.3.

                January 2014

              • BR-1.2.5

                [This Paragraph was deleted in April 2014.]

                Deleted: April 2014
                January 2014

            • BR-1.3 BR-1.3 Monthly Requirements

              • BR-1.3.1

                All licensees which are listed on a licensed exchange in Bahrain must comply with the requirements of Volume 6 of the CBB Rulebook.

                January 2014

            • BR-1.4 BR-1.4 IIS Reporting Requirements

              • Institutional Information System (IIS)

                • BR-1.4.1

                  All licensees are required to complete online non-financial information related to their institution by accessing the CBB's institutional information system (IIS). Licensees must update the required information at least on a quarterly basis or when a significant change occurs in the non-financial information included in the IIS. If no information has changed during the quarter, the licensee must still access the IIS quarterly and confirm the information contained in the IIS.

                  January 2014

                • BR-1.4.2

                  Licensees failing to comply with the requirements of Paragraph BR-1.4.1 or reporting inaccurate information are subject to financial penalties or other enforcement actions as outlined in Module (EN) Enforcement.

                  January 2014

            • BR-1.5 BR-1.5 Onsite Inspection Reporting

              • BR-1.5.1

                For the purpose of onsite inspection by the CBB, licensees must submit requested documents and completed questionnaires to the Inspection Directorate at the CBB three working days ahead of inspection team entry date.

                Added: April 2017

              • BR-1.5.2

                Licensees must review the contents of the draft Inspection Report and submit to the Inspection Directorate at the CBB a written assessment of the observations/issues raised within ten working days of receipt of such report. Evidentiary documents supporting management's comments must also be included in the response package.

                Added: April 2017

              • BR-1.5.3

                Licensees' board are required to review the contents of the Inspection Report and submit within one month, of the report issue date, a final response to such report along with an action plan addressing the issues raised within the stipulated timeline.

                Added: April 2017

              • BR-1.5.4

                Licensees failing to comply with the requirements of Paragraphs BR-1.5.1 and BR-1.5.2 are subject to date sensitive requirements and other enforcement actions as outlined in Module (EN) Enforcement.

                Added: April 2017

          • BR-2 BR-2 Notifications and Approvals

            • BR-2.1 BR-2.1 Introduction

              • BR-2.1.1

                All notifications and requests for approvals required in this Chapter are to be submitted by licensees in writing.

                January 2014

              • BR-2.1.2

                In this Chapter, the term 'in writing' includes electronic communications capable of being reproduced in paper form.

                January 2014

              • BR-2.1.3

                Licensees are required to provide the CBB with a range of information to enable it to monitor the licensee's compliance with Volume 5 of the CBB Rulebook. Some of this information is provided through regular reports, whereas others are in response to the occurrence of a particular event (such as a change in name or address). The following Sections list the commonly occurring reports for which a licensee will be required to notify the CBB or seek its approval.

                January 2014

            • BR-2.2 BR-2.2 Notification Requirements

              • Matters Having a Serious Supervisory Impact

                • BR-2.2.1

                  A licensee must notify the CBB if any of the following has occurred, may have occurred or may occur in the near future:

                  (a) The licensee failing to satisfy one or more of the Principles of Business referred to in Module PB;
                  (b) Any matter which could have a significant adverse impact on the licensee's reputation;
                  (c) Any matter which could affect the licensee's ability to continue to provide adequate services to its customers and which could result in serious detriment to a customer of the licensee;
                  (d) Any matter in respect of the licensee that could result in material financial consequences to the financial system or to other licensees;
                  (e) A breach of any provision of the Rulebook (including a Principle);
                  (f) A breach of any requirement imposed by the relevant law or by regulations or an order made under any relevant law by the CBB;
                  (g) If a licensee becomes aware, or has information that reasonably suggests that it has or may have provided the CBB with information that was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material way, it must notify the CBB immediately (ref. BR-3.3.2); or
                  (h) If the licensee intends to suspend any or all the licensed regulated services or ceases business, setting out how it proposes to do so and, in particular, how it will treat any of its liabilities (ref GR-6.1.2).
                  January 2014

                • BR-2.2.2

                  The circumstances that may give rise to any of the events in Paragraph BR-2.2.1 are wide-ranging and the probability of any matter resulting in such an outcome, and the severity of the outcome, may be difficult to determine. However, the CBB expects licensees to consider properly all potential consequences of events.

                  January 2014

                • BR-2.2.3

                  In determining whether an event that may occur in the near future should be notified to the CBB, a licensee should consider both the probability of the event happening and the severity of the outcome should it happen. Matters having a supervisory impact could also include matters relating to a controller that may indirectly have an effect on the licensee.

                  January 2014

              • Legal, Professional, Administrative or other Proceedings against a Licensee

                • BR-2.2.4

                  A licensee must notify the CBB immediately of any legal, professional or administrative or other proceedings instituted against the licensee, controller or a close link of the licensee that is known to the licensee and is significant in relation to the licensee's financial resources or its reputation.

                  January 2014

                • BR-2.2.5

                  A licensee must notify the CBB of the bringing of a prosecution for, or conviction of, any offence under any relevant law against the licensee that would prevent the licensee from meeting the Principles of Business (Module PB) or any of its approved persons from meeting the fit and proper requirements of Module AU.

                  January 2014

              • Fraud, Errors and other Irregularities

                • BR-2.2.6

                  A licensee must notify the CBB immediately if one of the following events arises:

                  (a) It becomes aware that an employee may have committed a fraud against one of its customers;
                  (b) It becomes aware that a person, whether or not employed by it, is acting with intent to commit fraud against it;
                  (c) It identifies irregularities in its accounting or other records, whether or not there is evidence of fraud;
                  (d) It suspects that one of its employees may be guilty of serious misconduct concerning his honesty or integrity and which is connected with the licensee's regulated activities; or
                  (e) Conflicts of interest.
                  January 2014

              • Insolvency, Bankruptcy and Winding Up

                • BR-2.2.7

                  Except in instances where the CBB has initiated the following actions, a licensee must notify the CBB immediately of any of the following events:

                  (a) The calling of a meeting to consider a resolution for winding up the licensee, a controller or close link of the licensee;
                  (b) An application to dissolve a controller or close link of the licensee or to strike the licensee off the register of microfinance institutions;
                  (c) The presentation of a petition for the winding up of a controller or close link of the licensee;
                  (d) The making of any proposals, or the making of, a composition or arrangement with any one or more of the licensee's creditors, for material amounts of debt;
                  (e) An application for the appointment of an administrator or trustee in bankruptcy to a controller or close link of the licensee;
                  (f) The appointment of a receiver to a controller or close link of the licensee (whether an administrative receiver or a receiver appointed over particular property); or
                  (g) An application for an interim order against the licensee, a controller or close link of the licensee under the Bankruptcy and Composition Law, Decree Law No(11), 1987 or similar legislation in another jurisdiction.
                  January 2014

              • External Auditor

                • BR-2.2.8

                  A licensee must notify the CBB of the following and the reason for the change:

                  (a) Removal or resignation of auditor (ref. AA-1.2.1); or
                  (b) Change in audit partner (ref. AA-1.3.3).
                  January 2014

              • Approved Persons

                • BR-2.2.9

                  A licensee must notify the CBB of the termination of employment of approved persons, including particulars of reasons for the termination and arrangements with regard to replacement (ref. AU-4.3.8 and AU-4.4.8).

                  January 2014

              • Authorised Signatories

                • BR-2.2.10

                  At the time of authorisation (when the license is granted) or whenever a change occurs, in order to maintain an up-to-date record of authorised signatories of respective financial institutions, the CBB requires all licensees to submit to it a list of specimen signatures of the officials authorised to sign on behalf of the concerned institution.

                  January 2014

              • Current Management and Changes thereto

                • BR-2.2.11

                  At the time of authorisation (when the license is granted) or whenever a change occurs, all licensees must keep the CBB informed, in writing, of the controlled functions held by approved persons. Such notification must include the following information:

                  (a) Full name (and identity card for Bahrain resident management);
                  (b) Contact details including address and emergency phone number;
                  (c) Date of birth;
                  (d) Place of birth (including town etc.);
                  (e) Nationality;
                  (f) Professional qualifications (by educational establishment and dates); and
                  (g) Career details over the last ten years (with your institution or elsewhere).
                  January 2014

              • Breach of Capital Adequacy Requirements

                • BR-2.2.12

                  In the event that a licensee fails to meet any of the requirements specified in Module CA (Capital Adequacy) it must, on becoming aware that it has breached the requirements, immediately notify the CBB in writing (ref. CA-1.1.9).

                  January 2014

                • BR-2.2.13

                  As specified in Article 58 of the CBB Law, a licensee must notify the CBB immediately of any matter that may affect its financial position, currently or in the future, or limit its ability to meet its obligations.

                  January 2014

              • Outsourcing Arrangements

                • BR-2.2.14

                  Licensees must immediately inform their relevant supervisory contact at the CBB of any material problems or changes encountered with an outsourcing provider (ref. RM-3.3.4).

                  January 2014

              • Controllers

                • BR-2.2.15

                  If, as a result of circumstances outside the licensee's knowledge and/or control, one of the changes to their controllers specified in Paragraph GR-4.1.1 is triggered prior to CBB approval being sought or obtained, the licensee must notify the CBB the earlier of:

                  (a) When the change takes effect; and
                  (b) When the controller becomes aware of the proposed change (ref. GR-4.1.7).
                  January 2014

                • BR-2.2.16

                  As specified in Article 52 of the CBB Law, a licensee must notify the CBB of the following events:

                  (a) If effective control over a licensee takes place indirectly whether by way of inheritance or otherwise;
                  (b) Gaining control directly as a result of any action leading to it; or
                  (c) The intention to take any of the actions that would lead to control.
                  January 2014

            • BR-2.3 BR-2.3 Approval Requirements

              • Branches or Subsidiaries

                • BR-2.3.1

                  In accordance with Rule AU-4.2.1, a licensee should seek prior written approval from the CBB for opening a branch or a subsidiary.

                  January 2014

                • BR-2.3.2

                  Licensees wishing to cancel an authorisation for a branch or subsidiary must obtain the CBB's written approval, before ceasing the activities of the branch or subsidiary.

                  January 2014

              • Change in Name

                • BR-2.3.3

                  In accordance with Paragraph GR-2.1.1, a licensee must seek prior written approval from the CBB and give reasonable advance notice of a change in:

                  (a) The licensee's name (which is the registered name if the licensee is a corporate body; or
                  (b) The licensee's trade name.
                  January 2014

                • BR-2.3.4

                  The request under Paragraph BR-2.3.3 must include the details of the proposed new name and the date on which the licensee intends to implement the change of name.

                  January 2014

              • Change of Address

                • BR-2.3.5

                  As specified in Article 51 of the CBB Law, a licensee must seek prior written approval from the CBB and give reasonable advance notice of a change in the address of the licensee's principal place of business in Bahrain, and that of its branches.

                  January 2014

                • BR-2.3.6

                  The request under Paragraph BR-2.3.5 must include the details of the proposed new address and the date on which the licensee intends to implement the change of address.

                  January 2014

              • Change in Legal Status

                • BR-2.3.7

                  A licensee must seek CBB prior written approval and give reasonable advance notice of a change in its legal status that may, in any way, affect its relationship with or limit its liability to its customers.

                  January 2014

              • Change in Paid-up or Issued Capital

                • BR-2.3.8

                  As specified in Article 57(3) of the CBB Law, a licensee must seek CBB prior written approval before making any modification to its issued or paid-up capital.

                  January 2014

              • Controllers

                • BR-2.3.9

                  In accordance with Section GR-4.1, licensees must seek CBB prior written approval and give reasonable advance notice of any of the following events concerning the licensee:

                  (a) A person acquiring control or ceasing to have control;
                  (b) An existing controller acquiring an additional type of control (such as ownership or significant influence) or ceasing to have a type of control;
                  (c) An existing controller increasing the percentage of shares or voting power beyond 10%, 20% or 40%; and
                  (d) An existing controller becoming or ceasing to be a parent undertaking.
                  January 2014

              • Mergers, Acquisitions, Disposals and Establishment of New Subsidiaries

                • BR-2.3.10

                  A licensee incorporated in Bahrain must seek CBB prior written approval and give reasonable advance notice of its intention to enter into a:

                  (a) Merger with another undertaking; or
                  (b) Proposed acquisition, disposal or establishment of a new subsidiary undertaking.
                  Amended: January 2020
                  Added: January 2014

              • Write-offs

                • BR-2.3.11

                  Licensees must obtain the CBB's prior written approval before writing off any of the following exposures:

                  (a) To any present or former director of the licensee;
                  (b) Which are guaranteed by a director of the licensee;
                  (c) To any business entity for which the licensee or any of its directors is an agent;
                  (d) To any officer or employee of the licensee, or any other person who receives remuneration from the licensee;
                  (e) To any business entity in which the licensee (or any of its directors, officers or other persons receiving remuneration from the licensee) has a material interest as a shareholder (i.e., 5% or more), or as a director, manager, agent or guarantor; and
                  (f) To any person who is a director, manager or officer of another licensee of the CBB.
                  January 2014

              • Outsourcing Arrangements

                • BR-2.3.12

                  A licensee must seek prior approval from the CBB for any outsourcing arrangements (see Paragraph RM-4.3.1), including the outsourcing of their internal audit function (see Section. RM-4.6)

                  January 2014

              • Matters Having a Supervisory Impact

                • BR-2.3.13

                  A licensee must seek prior approval from the CBB for any material changes or proposed changes to the information provided to the CBB in support of an authorisation application that occurs after authorisation has been granted.

                  January 2014

                • BR-2.3.14

                  Any licensee that wishes, intends or has been requested to do anything that might contravene, in its reasonable opinion, the provisions of United Nations Security Council Resolution (UNSCR) 1373 (and in particular Article 1, Paragraphs c) and d) of UNSCR 1373) must seek, in writing, the prior written opinion of the CBB on the matter (ref. FC-8.2.2).

                  January 2014

                • BR-2.3.15

                  As specified in Article 57 of the CBB Law, a licensee wishing to modify its Memorandum or Articles of Association, must obtain prior written approval from the CBB.

                  January 2014

                • BR-2.3.16

                  As specified in Article 57 of the CBB Law, a licensee wishing to transfer all or a major part of its assets or liabilities inside or outside the Kingdom, must obtain prior written approval from the CBB.

                  January 2014

              • External Auditor

                • BR-2.3.17

                  A licensee must seek prior written approval from the CBB for the appointment or re-appointment of its external auditor (ref. AU-2.7.1 and AA-1.1.1)

                  January 2014

              • Dividend Distribution

                • BR-2.3.18

                  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, in accordance with Chapter GR-3.

                  January 2014

              • Approved Persons

                • BR-2.3.19

                  A licensee must seek prior approval from the CBB for the appointment of persons undertaking a controlled function (ref. Article 65 of the CBB Law, AU-1.4 and AU-4.3.1).

                  January 2014

                • BR-2.3.20

                  Licensees must seek prior CBB approval before an approved person may move from one controlled function to another within the same licensee (ref. AU-4.3.11).

                  January 2014

                • BR-2.3.21

                  If a controlled function falls vacant, a licensee making immediate interim arrangements for the controlled function affected, must obtain approval from the CBB (ref. AU-4.4.9).

                  January 2014

              • Cessation of Business

                • BR-2.3.22

                  In accordance with Paragraph GR-6.1.1 and Article 50 of the CBB Law, licensees must seek the CBB's prior approval should they wish to cease to provide or suspend any or all of the licensed regulated services of their operations and/or liquidate their business.

                  January 2014

          • BR-3 BR-3 Information Gathering by the CBB

            • BR-3.1 BR-3.1 Power to Request Information

              • BR-3.1.1

                In accordance with Article 111 of the CBB Law, licensees must provide all information that the CBB may reasonably request in order to discharge its regulatory obligations.

                January 2014

              • Information Requested on Behalf of other Supervisors

                • BR-3.1.2

                  The CBB may ask licensees to provide it with information at the request of or on behalf of other supervisors to enable them to discharge their functions properly. Those supervisors may include overseas supervisors or government agencies in Bahrain. The CBB may also, without notifying a licensee, pass on to those supervisors or agencies information that it al has in its possession.

                  January 2014

            • BR-3.2 BR-3.2 Access to Premises

              • BR-3.2.1

                In accordance with Article 114 of the CBB Law, a licensee must permit representatives of the CBB, or appointed experts for the purpose by the CBB to have access, with or without notice, during reasonable business hours to any of its business premises in relation to the discharge of the CBB's functions under the relevant law.

                January 2014

              • BR-3.2.2

                A licensee must take reasonable steps to ensure that its agents and providers under outsourcing arrangements permit such access to their business premises, to the CBB.

                January 2014

              • BR-3.2.3

                A licensee must take reasonable steps to ensure that each of its providers under material outsourcing arrangements deals in an open and cooperative way with the CBB in the discharge of its functions in relation to the licensee.

                January 2014

              • BR-3.2.4

                The cooperation that licensees are expected to procure from such providers is similar to that expected of licensees themselves.

                January 2014

            • BR-3.3 BR-3.3 Accuracy of Information

              • BR-3.3.1

                Licensees must take reasonable steps to ensure that all information they give the CBB is:

                (a) Factually accurate or, in the case of estimates and judgements, fairly and properly based after appropriate enquiries have been made by the licensee; and
                (b) Complete, in that it should include anything of which the CBB would reasonably expect notice.
                January 2014

              • BR-3.3.2

                If a licensee becomes aware, or has information that reasonably suggests that it has or may have provided the CBB with information that was or may have been false, misleading, incomplete or inaccurate, or has or may have changed in a material way, it must notify the CBB immediately. The notification must include:

                (a) Details of the information which is or may be false, misleading, incomplete or inaccurate, or has or may have changed;
                (b) An explanation why such information was or may have been provided; and
                (c) The correct information.
                January 2014

              • BR-3.3.3

                If the information in Paragraph BR-3.3.2 cannot be submitted with the notification (because it is not immediately available), it must instead be submitted as soon as possible afterwards.

                January 2014

            • BR-3.4 BR-3.4 Methods of Information Gathering

              • BR-3.4.1

                The CBB uses various methods of information gathering on its own initiative which require the cooperation of licensees:

                (a) Representatives of the CBB may make onsite visits at the premises of the licensee. These visits may be made on a regular basis, on a sample basis, for special purposes such as theme visits (looking at a particular issue across a range of licensees), or when the CBB has a particular reason for visiting a licensee;
                (b) Appointees of the CBB may also make onsite visits at the premises of the licensee. Appointees of the CBB may include persons who are not CBB staff, but who have been appointed to undertake particular monitoring activities for the CBB, such as in the case of Appointed Experts (refer to Chapter EN-2);
                (c) The CBB may request the licensee to attend meetings at the CBB's premises or elsewhere;
                (d) The CBB may seek information or request documents by telephone, at meetings or in writing, including electronic communication; and
                (e) The CBB may require licensees to submit various documents or notifications, as per Chapter BR-2, in the ordinary course of their business such as financial reports or on the happening of a particular event in relation to the licensee such as a change in control.
                January 2014

              • BR-3.4.2

                When seeking meetings with a licensee or access to the licensee's premises, the CBB or the CBB appointee needs to have access to a licensee's documents and personnel. Such requests will be made during reasonable business hours and with proper notice. There may be instances where the CBB may seek access to the licensee's premises without prior notice. While such visits are not customary, the prospect of unannounced visits is intended to encourage licensees to comply at all times with the requirements and standards imposed by the CBB as per legislation and Volume 5 of the CBB Rulebook.

                January 2014

              • BR-3.4.3

                The CBB considers that a licensee should:

                (a) Make itself readily available for meetings with representatives or appointees of the CBB;
                (b) Give representatives or appointees of the CBB reasonable access to any records, files, tapes or computer systems, which are within the licensee's possession or control, and provide any facilities which the representatives or appointees may reasonably request;
                (c) Produce to representatives or appointees of the CBB specified documents, files, tapes, computer data or other material in the licensee's possession or control as reasonably requested;
                (d) Print information in the licensee's possession or control which is held on computer or otherwise convert it into a readily legible document or any other record which the CBB may reasonably request;
                (e) Permit representatives or appointees of the CBB to copy documents of other material on the premises of the licensee at the licensee's expense and to remove copies and hold them elsewhere, or provide any copies, as reasonably requested; and
                (f) Answer truthfully, fully and promptly all questions which representatives or appointees of the CBB reasonably put to it.
                January 2014

              • BR-3.4.4

                The CBB considers that a licensee should take reasonable steps to ensure that the following persons act in the manner set out in Paragraph BR-3.4.3:

                (a) Its employees; and
                (b) Any other members of its group, and their employees.
                January 2014

              • BR-3.4.5

                In gathering information to fulfill its supervisory duties, the CBB acts in a professional manner and with due regard to maintaining confidential information obtained during the course of its information gathering activities.

                January 2014

            • BR-3.5 BR-3.5 Role of the Appointed Expert

              • Introduction

                • BR-3.5.1

                  The content of this Chapter is applicable to all licensees and appointed experts.

                  January 2014

                • BR-3.5.2

                  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-2.1.1). These Articles empower the CBB to assign some of its officials or others to inspect or conduct investigations of licensees.

                  January 2014

                • BR-3.5.3

                  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.

                  January 2014

                • BR-3.5.4

                  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.

                  January 2014

                • BR-3.5.5

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

                  January 2014

                • BR-3.5.6

                  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.

                  January 2014

                • BR-3.5.7

                  All proposals to appoint 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 appointed 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.

                  January 2014

                • BR-3.5.8

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

                  January 2014

                • BR-3.5.9

                  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 licensee's group structure). The report produced by the appointed experts is the property of the CBB (but is usually shared by the CBB with the licensee concerned).

                  January 2014

                • BR-3.5.10

                  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 licensee (i.e. create a conflict of interest).

                  January 2014

                • BR-3.5.11

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

                  January 2014

              • The Required Report

                • BR-3.5.12

                  The scope of the required report will be determined and detailed by the CBB in the appointment letter. Commissioned appointed experts would normally be required to report on one or more of the following aspects of a licensee's business:

                  (a) Accounting and other records;
                  (b) Internal control systems;
                  (c) Returns of information provided to the CBB;
                  (d) Operations of certain departments; and/or
                  (e) Other matters specified by the CBB.
                  January 2014

                • BR-3.5.13

                  Appointed experts will be required to form an opinion on whether, during the period examined, the 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.

                  January 2014

                • BR-3.5.14

                  The appointed experts' report should follow the format set out in Appendix BR-10, in part B of the CBB Rulebook.

                  January 2014

                • BR-3.5.15

                  Unless otherwise directed by the CBB or unless the circumstances described in Section BR-3.5.19 apply, the report must be discussed with the board of directors and/or senior management in advance of it being sent to the CBB.

                  January 2014

                • BR-3.5.16

                  Where the report is qualified by exception, the report must clearly set out the risks which the 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.

                  January 2014

                • BR-3.5.17

                  If the appointed experts conclude, after discussing the matter with the 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.

                  January 2014

                • BR-3.5.18

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

                  January 2014

              • Other Notifications to the CBB

                • BR-3.5.19

                  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 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 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 licensee. Notwithstanding the above, it is primarily the licensee's responsibility to report such matters to the CBB.

                  January 2014

                • BR-3.5.20

                  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.

                  January 2014

                • BR-3.5.21

                  If appointed experts decide to communicate directly with the CBB in the circumstances set out in Paragraph BR-3.5.19, they may wish to consider whether the matter should be reported at an appropriate senior level in the licensee at the same time and whether an appropriate senior representative of the licensee should be invited to attend the meeting with the CBB.

                  January 2014

              • Permitted Disclosure by the CBB

                • BR-3.5.22

                  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.

                  January 2014

              • Trilateral Meeting

                • BR-3.5.23

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

                  January 2014

        • PD PD Microfinance Institutions Public Disclosure Module

          • PD-A PD-A Introduction

            • PD-A.1 PD-A.1 Purpose

              • PD-A.1.1

                The purpose of this Module is to set out the detailed qualitative and quantitative public disclosure requirements that the microfinance institutions should adhere to in order to enhance corporate governance and financial transparency through better public disclosure. Such disclosures also help to protect customers and facilitate market discipline.

                January 2014

              • PD-A.1.2

                ThisModule provides support for certain other parts of the Rulebook, namely:

                (a) Licensing and Authorisation Requirements;
                (b) CBB Reporting Requirements;
                (c) Risk Management;
                (d) High Level Controls;
                (e) Relationship with Audit Firms; and
                (f) Enforcement actions.
                January 2014

              • PD-A.1.3

                This Module also provides support for certain aspects relating to disclosure requirements stipulated in the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006) and the Bahrain Commercial Companies Law (as amended).

                January 2014

              • Legal Basis

                • PD-A.1.4

                  This Module contains the Central Bank of Bahrain's ('the CBB') Directive (as amended from time to time) relating to public disclosure and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). It also incorporates the requirements of Article 62 (as amended from time to time) of the CBB Law with respect to the publication of financial statements. The Directive in this Module is applicable to all microfinance institution licensees.

                  January 2014

                • PD-A.1.5

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  January 2014

            • PD-A.2 PD-A.2 General Requirements

              • PD-A.2.1

                All microfinance institutions must have a formal disclosure policy as part of their overall communications strategy approved by the Board of Directors (and supported by documented procedures) that addresses the disclosures that the microfinance institution makes and the internal controls over the disclosure process. In addition, all microfinance institutions must carry out an annual review of the validity of their disclosures (in terms of scope and accuracy) as outlined in Modules BR and Paragraph AA-3.2.1.

                January 2014

              • PD-A.2.2

                All microfinance institutions are required to publish their annual audited financial statements per the rules set out in this Module and Article 62 of the CBB Law and the Bahrain Commercial Companies Law (as amended), where applicable. Such financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS) in the case of conventional microfinance institutions or Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) for Shari'a compliant licensees and for products and activities not covered by AAOIFI, by IFRS and IAS.

                January 2014

              • PD-A.2.3

                The CBB requires that each microfinance institution maintain an up-to-date checklist of all applicable accounting standards and also the disclosure requirements set out in this Module for full compliance purposes. Such checklists should be part of the microfinance institution's public disclosures procedures.

                January 2014

              • PD-A.2.4

                [This Paragraph was deleted in April 2014].

                Deleted: April 2014

              • PD-A.2.5

                The disclosures in this Module may be presented as an accompanying document or appendices to the Annual Report or in the Notes to the Financial Statements at the discretion of the concerned microfinance institution.

                January 2014

              • PD-A.2.6

                A microfinance institution should decide which disclosures are relevant for it based on the materiality concept and subject to the concurrence of the microfinance institution's external auditor. For the microfinance institutions' guidance, information would be regarded as material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions.

                January 2014

              • PD-A.2.7

                Non-compliance with these disclosure requirements is likely to lead to enforcement actions as outlined in Module EN (Enforcement) such as a fine imposed by the CBB.

                January 2014

            • PD-A.3 PD-A.3 Module History

              • Evolution of Module

                • PD-A.3.1

                  This Module was first issued in January 2014 by the CBB. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made. Chapter UG-3 provides further details on Rulebook maintenance and version control.

                  January 2014

                • PD-A.3.2

                  A list of recent changes made to this Module is provided below:

                  Module Ref. Change Date Description of Changes
                  PD-A.2.4 04/2014 Deleted requirement for review by external auditor based on agreed upon procedures of disclosures specified under Module PD.
                  PD-1.2.3 07/2018 Amended Paragraph on 'Publication of Annual Audited Financial Statements' time frame.
                       
                       
                       

              • Superseded Requirements

                • PD-A.3.3

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Document Subject
                  Volumes 1 and 2 Module PD
                  EDBS/KH/C/37/2018 Amendments to the Public Disclosure Module (PD)
                  Amended: July 2018
                  January 2014

          • PD-B PD-B Scope of Application

            • PD-B.1 PD-B.1 Scope

              • PD-B.1.1

                This Module applies to all microfinance institution licensees authorised in the Kingdom, thereafter referred to in this Module as licensees.

                January 2014

          • PD-1 PD-1 Annual Disclosure Requirements

            • PD-1.1 PD-1.1 Introduction

              • PD-1.1.1

                The purpose of this Chapter is to set out the CBB's requirements relating to the disclosure of information in the annual audited financial statements of all licensees. This Chapter also refers to the Bahrain Commercial Companies Law (as amended).

                January 2014

              • PD-1.1.2

                For the purpose of this Module, 'audited financial statements' refers to the financial statements required under International Financial Reporting Standards (IFRS) and/or Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

                January 2014

            • PD-1.2 PD-1.2 Requirements for Annual Audited Financial Statements

              • Submission of Annual Audited Financial Statements

                • PD-1.2.1

                  All licensees must submit their annual audited financial statements to the CBB within 3 months of the end of the licensee's financial year (as required by Article 62 of the CBB Law). Licensees' annual audited financial statements must be audited by their external auditor.

                  January 2014

                • PD-1.2.2

                  Licensees are also required to publish the annual audited financial statements on their website (see also PD-1.3.8(h)) within seven days of submission to the CBB.

                  January 2014

              • Publication of Annual Audited Financial Statements

                • PD-1.2.3

                  Licensees must publish extracts from their audited annual financial statements in one Arabic and one English daily newspaper within 3 months of the end of the financial year. The newspaper disclosures must include at a minimum the balance sheet, the statements of income, the cash flow and changes in equity. The newspaper disclosures must also be published on the licensee's website within seven days of publication.

                  Amended: July 2018
                  January 2014

                • PD-1.2.4

                  The newspaper disclosures should include a reference to the fact that the published figures 'have been extracted from financial statements audited by XYZ auditor, who expressed an unqualified opinion on (dated report)'. Licensees must disclose in full any audit qualifications or matter of emphasis paragraphs contained within the auditor's opinion. The auditor's opinion must be made in accordance with the International Standards on Auditing as established by the International Federation of Accountants or AAOIFI's Standards on Auditing, whichever is applicable.

                  January 2014

                • PD-1.2.5

                  Licensees must submit a copy of the newspaper extracts from their annual audited financial statements to the CBB within two business days of publication in the concerned newspapers. The copy must be accompanied by a letter clearly showing on which date and in which publications the statements were published.

                  January 2014

            • PD-1.3 PD-1.3 Disclosures in the Annual Audited Financial Statements

              • Introduction

                • PD-1.3.1

                  In addition to the disclosures required under the International Financial Reporting Standards (IFRS) and/or Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), licensees must provide timely information which facilitates market participants' assessment of them. The disclosure requirements set out in this Section must be included in the annual audited financial statements either as an Appendix or in the notes, at the discretion of the concerned licensee. The disclosures must be addressed in clear terms and with appropriate details to help achieve a satisfactory level of transparency.

                  January 2014

                • PD-1.3.2

                  If a licensee is unable to achieve full compliance with the requirements stated in this Chapter, a meeting should be held with the relevant Supervision Director at the CBB in the presence of the concerned external auditor to discuss the reasons for such non-compliance prior to the finalisation of the annual audited financial statements. It is the responsibility of the licensee to call for such meetings.

                  January 2014

              • Financial Performance and Position

                • PD-1.3.3

                  The audited financial statements must include a discussion of the main factors that influenced the licensee's financial performance for the year, explaining any differences in performance between the current year and previous years and the reasons for such differences, and discussing factors that will have a significant influence on the licensee's future financial performance.

                  January 2014

              • Corporate Governance and Transparency

                • PD-1.3.4

                  The following information relating to corporate governance must be disclosed in the audited financial statements:

                  (a) Information about the Board structure (e.g. the size of the Board, Board committees) and the basic organisational structure (lines of business structure and legal entity structure);
                  (b) Information about the profession, business title, and experience in years of each Board member and the qualifications and experience in years of all heads of function;
                  (c) Descriptive information on the managerial structure, including:
                  (i) Committees;
                  (ii) Segregation of duties;
                  (iii) Reporting lines; and
                  (iv) Responsibilities;
                  (d) Nature and extent of transactions with related parties (as defined by IFRS and AAOIFI as appropriate);
                  (e) Information about any changes in the structures (as mentioned in Subparagraphs PD-1.3.4(a) to PD-1.3.4(c)) from prior periods;
                  (f) The communications strategy approved by the Board (including the use of the licensee's website) which should undertake to perform at least the following:
                  (i) The disclosure of all relevant information to stakeholders on a periodic basis in a timely manner; and
                  (ii) The provision of at least the last three years of financial data on the licensee's website;
                  (g) Names of shareholders owning 5% or more and, if they act in concert, a description of the voting, shareholders' or other agreements among them relating to acting in concert, and of any other direct and indirect relationships among them or with the licensee or other shareholders; and
                  (h) Information on the directorships held by the directors on other boards.
                  January 2014

                • PD-1.3.5

                  Licensees are required to maintain a website.

                  January 2014

              • Capital Structure – Qualitative Disclosures

                • PD-1.3.6

                  All licensees must disclose summary information of the terms and conditions of the main features of all capital instruments listed in Paragraph PD-1.3.7.

                  January 2014

              • Capital Structure – Quantitative Disclosures

                • PD-1.3.7

                  All licensees must disclose the amount of capital with separate disclosures of:

                  (a) Authorised capital;
                  (b) Paid-up share capital/common stock; and
                  (c) Breakdown of reserves and retained earnings.
                  January 2014

              • Capital Adequacy

                • PD-1.3.8

                  All licensees must present a summary of the licensee's approach to assessing the adequacy of capital and adherence to the gearing requirements to support current and future activities.

                  January 2014

              • Credit Risk – Quantitative Disclosures

                • PD-1.3.9

                  All licensees must disclose the distribution of exposures by industry and provide for each major industry:

                  (a) Amount of impaired loans/facilities and past due loans/facilities, based on an aging schedule;
                  (b) Specific and collective impairment provisions and write-offs for the period, shown separately;
                  (c) Charges for specific impairment provisions and write-offs during the period; and
                  (d) Reconciliation of changes in provisions for impairment.
                  January 2014

              • Operational Risk Disclosures

                • PD-1.3.10

                  All licensees must disclose quantitative information on any material legal contingencies including pending legal actions, and a discussion and estimate of the potential liabilities, in addition to qualitative statements about how licensees manage and control such risks.

                  January 2014

              • Compliance

                • PD-1.3.11

                  The audited financial statements must include a declaration by the external auditor that it did not come across any violations of the requirements below during the course of its audit work that would have any material negative impact on the financial position of the licensee:

                  (a) The Bahrain Commercial Companies Law (as amended); and
                  (b) The CBB Law and any related Regulations, Resolutions and Directives issued by the CBB (as amended from time to time) where a violation might have had a material negative effect on the business of the licensee or on its financial position.
                  January 2014

                • PD-1.3.12

                  The notes to the audited financial statements must disclose the amount of any penalties paid to the CBB during the period of the report together with a factual description of the reason(s) given by the CBB for the penalty (see Module EN).

                  January 2014

          • PD-2 PD-2 Other Public Disclosure Requirements

            • PD-2.1 PD-2.1 Disclosure of Fees, Commissions and other Charges on Loans/Facilities and other Forms of Financing

              • Display of Rates by Conspicuous Notice

                • PD-2.1.1

                  Licensees must display a list of current charges including any standard charges and commissions that will be applied by the licensee to individual services and transactions. See Module BC for further details.

                  January 2014

              • Advertising of Microfinance Credit Facilities

                • PD-2.1.2

                  Licensees are also asked to take special care to ensure that the content of any advertising material does not mislead or deceive the public in any way. All advertising is subject to CBB prior approval in accordance with Section BC-1.8.

                  January 2014