GR-5 GR-5 Controllers
GR-5.1 GR-5.1 Key Provisions
GR-5.1.1
Licensees must obtain prior approval from the CBB for any of the following changes to theircontrollers (as defined in Section GR-5.2):(a) A newcontroller ;(b) An existingcontroller increasing its holding from below 20% to above 20%;(c) An existingcontroller increasing its holding from below 50% to above 50%; and(d) An existingcontroller reducing its holding from above 50% to below 50%.October 2010GR-5.1.1A
Licensees must not incur or otherwise have an exposure (either directly or indirectly) to theircontrollers , includingsubsidiaries andassociated companies of suchcontrollers .Added: April 2019GR-5.1.1B
For the purpose of Paragraph GR-5.1.1A,
licensees that already have an exposure tocontrollers 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 2019GR-5.1.2
Articles 52 to 56 of the CBB Law require notification to the CBB of all
controllers oflicensees and of listed companies; it further gives the CBB the right to refuse approval ofcontrollers if deemed damaging to the interests of the market, customers, or in contravention of the criteria set by the CBB.October 2010GR-5.1.3
Requests for approval under Paragraph GR-5.1.1 must be made by submitting a duly completed Form 2 (Application for Authorisation of Controller) to the CBB. Notification must be made by the
controller or intendedcontroller , and by thelicensee where it is aware of the change.October 2010GR-5.1.4
If, as a result of circumstances outside the
licensee's knowledge and/or control, one of the changes specified in Paragraph GR-5.1.1 is triggered prior to CBB approval being sought or obtained, thelicensee must notify the CBB no later than 15 calendar days from the date on which those changes have occurred.Amended: January 2017
October 2010GR-5.1.5
For approval under Rule GR-5.1.1 to be granted, the applicant must satisfy the CBB that the proposed change in
controller poses no undue risks to thelicensee or its customers, and is not damaging to the interests of the market, as defined in the suitability criteria forcontrollers , contained in Section GR-5.3.October 2010GR-5.1.6
An approval of
controller is valid for the period specified in the approval letter issued by the CBB. The CBB may impose any restrictions that it considers necessary to be observed when granting its approval.October 2010GR-5.1.7
The approval process is specified in Section GR-5.4.
October 2010GR-5.2 GR-5.2 Definition of Controller
GR-5.2.1
A
controller of alicensee is a natural or legal person who, either alone or with his associates:(a) Holds 10% or more of the shares in thelicensee ('L'), or is able to exercise (or control the exercise of) more than 10% of the voting power in L;(b) Holds 10% or more of the shares in aparent undertaking ('P') of L, or is able to exercise (or control the exercise of) more than 10% of the voting power in P; or(c) Is able to exercise significant influence over the management of L or P.October 2010GR-5.2.2
For the purposes of Paragraph GR-5.2.1, 'associate' includes:
(a) In the case of natural persons, a member of thecontroller's family ;(b) An undertaking of which acontroller is aDirector ;(c) A person who is an employee or partner of thecontroller ; or(d) If thecontroller is a corporate entity, aDirector of thecontroller , a subsidiary of thecontroller , or aDirector of any subsidiary undertaking of thecontroller .October 2010GR-5.2.3
Associate also includes any other person or undertaking with which the
controller has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in thelicensee , or under which they undertake to act together in exercising their voting power in relation to thelicensee .October 2010GR-5.3 GR-5.3 Suitability of Controllers
GR-5.3.1
All new
controllers or prospectivecontrollers (as defined in Section GR-5.2) of aBahraini specialised licensee must obtain the approval of the CBB. Any increases to existingcontrollers' holdings or voting control (as outlined under Paragraph GR-5.1.1) must also be approved by the CBB and are subject to the conditions outlined in this Section. Such changes in existingcontrollers (as defined in the Section GR-5.2) or new/prospectivecontrollers of alicensee must satisfy the CBB of their suitability and appropriateness according to the criteria outlined in Paragraphs GR-5.3.2 to GR-5.3.5. The CBB will issue an approval notice or notice of refusal of a controller according to the approval process outlined in Section GR-5.4 and Paragraph GR-5.1.6.Amended: April 2012
October 2010GR-5.3.1A
For those
licensees authorised after 1st January 2011, at least onecontroller must be a regulated financial institution owning or controlling 20% or more of the voting capital.Added: April 2011GR-5.3.2
In assessing the suitability of
controllers who are natural persons, the CBB has regard to their professional and personal conduct, including, but not limited to, the following:(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 aDirector or as a manager of a corporation;(i) Whether the person has been aDirector , 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 financial resources of the person and the likely stability of their shareholding, and their track record as acontroller or significant investor in financial institutions;(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;(n) The legitimate interests ofcustomers , creditors andshareholders (including minority shareholders) of thelicensee ;(o) Whether the approval of acontroller is or could be detrimental to Bahrain's financial sector; and(p) Whether the person is able to deal with existingshareholders and the Board in a constructive and cooperative manner.October 2010GR-5.3.3
Natural persons who intend to take a stake of 20% or more in a
licensee are subject to enhanced scrutiny. The level of scrutiny and the expected compliance with the above standards become more onerous as the level of proposed ownership increases.October 2010GR-5.3.4
Legal persons who intend to take a stake of 20% or more in a
licensee are subject to enhanced scrutiny, given the CBB's position as home supervisor of suchlicensees . The level of scrutiny and of expected compliance with the above standards becomes more onerous as the level of proposed ownership increases. Regulated legal persons will normally only be approved to take majority control where — in addition to the above conditions — the resulting group would be subject to effective consolidated supervision in accordance with relevant international standards; and the home supervisor of the parent entity has agreed to the proposed acquisition, as well as to the sharing of relevant prudential information for supervisory purposes (expressed, if necessary, through the signing of a Memorandum of Understanding between the CBB and the home supervisor, setting out their respective supervisory responsibilities).October 2010GR-5.3.5
In assessing the suitability of
controllers who are legal persons, CBB has regard to their financial standing, judicial and regulatory record, and standards of business practice and reputation, including, but not limited to, the following:(a) The financial strength of thecontroller , its parent(s) and other members of its group, its implications for thelicensee and the likely stability of thecontroller's shareholding;(b) Whether thecontroller or members of its group has ever entered into any arrangement with creditors in relation to the inability to pay due debts;(c) Thecontroller's jurisdiction of incorporation, location of Head Office, group structure, and the implications for thelicensee as regards effective supervision of thelicensee and potential conflicts of interest;(d) Thecontroller's (and other group members') propriety and general standards of business conduct, including the contravention of any laws or 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 thecontroller or other members of its group, whether or not this resulted in an adverse finding;(g) The extent to which thecontroller or other members of its group have been truthful and open with regulators and supervisors;(h) Whether the person has ever been refused a license, authorisation, registration or other authority;(i) The person's track record as acontroller or investor in financial institutions;(j) The legitimate interests ofcustomers , creditors andshareholders of thelicensee ;(k) Whether their approval as acontroller is or could be detrimental to Bahrain's financial sector; and(l) Whether the person is able to deal with existingshareholders and the Board in a constructive manner.October 2010GR-5.3.6
The CBB may contact references and supervisory bodies in connection with any information provided to support an application for
controller . The CBB may also ask for further information, in addition to that provided in the Form 2, if required to satisfy itself as to the suitability of the applicant.October 2010GR-5.4 GR-5.4 Approval Process
GR-5.4.1
Within 3 months of receipt of an approval request under Paragraph GR-5.1.1, the CBB will issue a written notice of approval (or of refusal, if it is not satisfied that the person concerned is suitable to become a
controller of thelicensee) . The notice of refusal will specify the reasons for the objection and specify the applicant's right of appeal. Where an approval notice is given, it will specify the period for which it is valid and any conditions that may be applied.October 2010GR-5.4.2
Article 53 allows the CBB up to 3 months in which to respond to an application, although the CBB normally aims to respond within 30 calendar days. Notices of refusal have to be approved by an Executive Director of the CBB. The applicant has 30 calendar days from the date of a notice in which to appeal a decision to refuse the application or any conditions imposed as a condition of approval. The CBB then has 30 calendar days from the date of the appeal in which to consider any mitigating evidence submitted and make a final determination. See Module EN (Enforcement).
October 2010GR-5.4.3
Where a person has become a
controller by virtue of their shareholding in contravention of Paragraph GR-5.1.1, or a notice of refusal has been served on them under Paragraph GR-5.4.1 and the period of appeal has expired, the CBB may, by notice in writing served on the person concerned, instruct the person concerned to transfer such shares, or refrain from exercising voting rights in respect of such shares.October 2010GR-5.4.4
If the person concerned fails to take the action specified under Paragraph GR-5.4.3, then the CBB may seek a court order to take appropriate measures: these may include forcing the person to sell their shares.
October 2010GR-5.4.5
The powers available to the CBB that are described in Paragraphs GR-5.4.3 and GR-5.4.4 are specified in Article 56 of the CBB Law.
October 2010GR-5.4.6
In addition to the above requirements,
licensees are encouraged to notify the CBB as soon as they become aware of events that are likely to lead to major changes in theircontrollers . Any supervisory implications of such changes can then be discussed prior to the filing of a formal approval request.October 2010