Executive Summary

Legal Basis

Evolution of the Module

Superseded Requirements

Monitoring and Enforcement of Module HC

HC-B.1.1

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

General Requirements

Specific Requirements

HC-1.2.1

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

HC-1.2.2

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

HC-1.2.2A

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

HC-1.2.3

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

HC-1.2.4

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

HC-1.2.5

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

HC-1.2.6

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

HC-1.2.7

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

HC-1.2.8

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

HC-1.3.1

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

HC-1.3.2

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

HC-1.3.2A

The Board must meet frequently but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.

HC-1.3.2B

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

HC-1.3.2C

The absence of Board members at Board and committee meetings must be noted in the meeting minutes. In addition, Board attendance percentage must be reported during any general assembly meeting when Board members stand for re-election (e.g. Board member XYZ attended 95% of scheduled meetings this year).

HC-1.3.2D

In the event that a Board member has not attended at least 75% of Board meetings in any given financial year, the licensee must immediately notify the CBB indicating which member has failed to satisfy this requirement, his level of attendance and any mitigating circumstances affecting his non-attendance. The CBB shall then consider the matter and determine whether disciplinary action, including disqualification of that Board member pursuant to Article 65 of the CBB Law, is appropriate. Unless there are exceptional circumstances, it is likely that the CBB will take disciplinary action.

HC-1.3.2E

Board members are reminded that non attendance at board meetings does not absolve them of their responsibilities as directors. It is important that each individual director should allocate adequate time and effort to discharge his responsibilities. All Directors are expected to contribute actively to the work of the Board in order to discharge their responsibilities and should make every effort to attend board meetings where major issues are to be discussed. In instances where telephonic or videoconference meetings are held, licensees are encouraged to amend their Articles of Association to provide for such meetings. Participation in board meetings by means of video or telephone conferencing is regarded as attendance and may be recorded as such.

HC-1.3.3

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

HC-1.3.4

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

HC-1.3.5

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

HC-1.3.5A

The chairman must ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each Board meeting and when necessary between meetings. All directors must receive the same Board information. At the same time, directors have a legal duty to inform themselves and they must ensure that they receive adequate and timely information and must study it carefully.

HC-1.3.6

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

HC-1.4.1

The Board must encourage participation by management regarding matters the Board is considering, and also by management members who by reason of responsibilities or succession, the CEO or general manager (as the case may be) believes should have exposure to the directors.

HC-2.1.1

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

HC-2.1.2

In assessing compliance with Paragraph HC-2.2.1, the CBB will take into account all actions of the Board and its members. The interest of the licensee includes the licensee's continued compliance with all relevant rules and regulations, and the interests of employees, clients and other stakeholders. The interest of shareholders includes the current and future value of the licensee, its status as a going concern, transparency and disclosure of information to the market. The interest of clients includes ensuring that the licensee fulfils its obligations under its terms of business and treats all clients fairly and pays equal regard to the interests of all clients.

HC-2.1.3

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

HC-2.1.4

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

HC-2.1.5

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

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

HC-2.1.6

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

HC-2.1.7

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

HC-2.1.8

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

HC-2.2.1

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

HC-2.2.2

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

HC-2.2.3

Board members must absent themselves from any discussion or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject, transaction or proposed transaction where there is a potential conflict of interest.

HC-2.3.1

Each approved person must inform the entire Board of conflicts of interest as they arise. Board members must abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure must include all material facts in the case of a contract or transaction involving the approved person. The approved persons must understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision.

HC-2.3.2

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

HC-2.3.3

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

HC-2.3.4

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

HC-2.4.1

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

HC-2.4.2

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

HC-2.4.3

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

HC-3.1.1

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

HC-3.1.2

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

HC-4.2.1

The performance evaluation and remuneration of senior management and staff of the licensee must be based on the achievement of the Key Performance Indicators (KPIs) relevant to ensuring compliance with AML/CFT requirements as specified in Paragraphs FC-2.1.3 and FC-2.1.4.

HC-4.1.1

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

HC-4.1.2

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

HC-5.1.1

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

HC-5.1.2

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

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

HC-5.1.3

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

HC-5.2.1

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

HC-5.2.2

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

HC-5.2.3

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

HC-5.2.4

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

HC-5.2.5

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

HC-5.2.6

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

HC-5.3.1

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

HC-5.3.2

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

HC-5.3.3

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

HC-5.4.1

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

HC-5.4.2

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

HC-5.4.3

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

HC-5.4.4

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

HC-5.4.5

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

HC-5.4.6

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

HC-5.4.7

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

HC-5.4.8

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

HC-5.4.9

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

HC-5.4.10

Internal Audit reports should also be:

HC-5.4.11

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

HC-5.5.1

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

HC-5.5.2

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

HC-5.5.3

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

HC-5.5.4

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