High Level Standards
AU AU Financing Companies 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 2013AU-A.1.2
Module AU (Authorisation) sets out the Central Bank of Bahrain's ('CBB's) approach to licensing providers of
regulated financing company services in the Kingdom of Bahrain. It also sets out CBB requirements for approving persons undertaking key functions in those providers.January 2013AU-A.1.3
Persons undertaking certain functions in relation to
licensees require prior CBB approval. These functions (calledcontrolled functions ) includeDirectors and members of senior management. Thecontrolled functions regime supplements the licensing regime by ensuring that key persons involved in the running oflicensees are fit and proper. Those authorised by the CBB to undertakecontrolled functions are calledapproved persons .January 2013Retaining 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 2013Legal Basis
AU-A.1.5
This Module contains the CBB's Directive, Regulations and Resolutions (as amended from time to time) regarding authorisation under Volume 5 of the CBB Rulebook. It is applicable to all
licensees (as well as toapproved 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 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 those 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. The Directive, Resolutions and Regulations in this Module are applicable to allfinancing company licensees (including theirapproved persons ).Amended: July 2015
January 2013AU-A.1.6
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
January 2013AU-A.1.7
Persons wishing to undertake
regulated financing company services are required to be licensed by the CBB as afinancing company licensee .January 2013Licensing Conditions
AU-A.1.8
Financing company licensees are subject to 8 licensing conditions, mostly specified at a high-level in Module AU, and further expanded in underlying subject Modules (such as Module CA). 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 2013Information 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
financing company license , as well as existing licensees seeking to vary the scope of their license, by adding new regulated activities. It also covers the voluntary surrender of a license, or its cancellation by the CBB.January 2013AU-A.2 AU-A.2 Module History
Evolution of Module
AU-A.2.1
This Module was first issued in January 2013. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made. UG-3 provides further details on Rulebook maintenance and version control.
January 2013AU-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes AU-5.2 07/2013 Amended due date and collection process for annual license fee. AU-2.8.1 01/2014 Corrected reference to proper accounting standards. AU-5.2.7B and AU-5.2.7C 01/2014 Added requirements for payment of annual fees for SPVs. AU-1.2.2 04/2014 Updated controlled functions. AU-A.1.5 07/2015 Legal basis updated to reflect Resolution No (23) of 2015. AU-3.2.1 07/2015 Added cross reference to Module TC. AU-4.3 07/2015 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons. AU-1.2 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-4.3 01/2016 Minor amendments to be aligned with other Volumes of the Rulebook. AU-4.6 07/2017 Added new Section on Publication of the Decision to Grant, Cancel or Amend a License. AU-1.1.9 07/2019 Amended Paragraph to reflect online submission of Form 1. AU-4.1.22 10/2019 Changed from Rule to Guidance. AU-4.1.24 10/2019 Changed from Rule to Guidance. AU-4.6.1 10/2019 Changed from Rule to Guidance. AU-1.3.1A 10/2020 Added a new Paragraph on compliance with AAOIFI Shari’a Standards. AU-4.3.10A 01/2021 Added a new Paragraph on compliance of approved persons with the fit and proper requirement. AU-1.3.1(d) 07/2022 Amended Subparagraph on means of payment. AU-1.3.1B 07/2022 Added a new Paragraph on offering a limited range of financing activity. AU-1.3.14 07/2022 Deleted Paragraph. AU-2.5.2 07/2022 Amended Paragraph on financial resources. Superseded Requirements
AU-A.2.3
This Module supersedes the following provisions contained in circulars or other regulatory instruments:
Circular/other reference Provision Subject Standard Conditions and Licensing criteria for financing companies (conventional) All articles Scope of license and licensing conditions. Standard Conditions and Licensing criteria for Islamic financing companies All articles Scope of license and licensing conditions. January 2013AU-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
financing company licensees authorised in the Kingdom of Bahrain, thereafter referred to in this Module aslicensees .January 2013AU-B.1.2
Two types of authorisation are prescribed:
(a) Any person seeking to provide aregulated financing company service within or from the Kingdom of Bahrain must hold the appropriate CBB license (see AU-1.1); and(b) Natural persons wishing to perform acontrolled function in alicensee also require prior CBB's approval, as anapproved person (see AU-1.2).January 2013AU-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 financing company services within or from the Kingdom of Bahrain, unless they have been licensed as afinancing company (conventional or Islamic) by the CBB (see Rule AU-1.1.1).January 2013AU-B.1.4
The remaining requirements in Chapters AU-1 to AU-3 (besides those mentioned in Section AU-B.2 above) apply to all those licensed by the CBB as a
financing company 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 2013AU-B.1.5
Chapter AU-2 applies to
licensees (not just applicants), since licensing conditions have to be met on a continuous basis bylicensees . Similarly, Chapter AU-3 applies toapproved persons on a continuous basis; it also applies tolicensees seeking anapproved person authorisation. Chapter AU-4 contains requirements applicable tolicensees , with respect to the starting up of their operations, as well as tolicensees andapproved persons , with respect to the amendment or cancellation of their authorised status. Finally, Section AU-5.2 imposes annual fees onlicensees .January 2013AU-1 AU-1 Authorisation Requirements
AU-1.1 AU-1.1 Licensing
General Prohibitions
AU-1.1.1
No person may:
(a) Undertake (or hold themselves out to undertake)financing company 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 anyfinancial 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 offerfinancial services .January 2013AU-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 2013AU-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-9.3).
January 2013AU-1.1.4
Licensees are prohibited from taking deposits or any similar liabilities and Shari'a compliant investment accounts.January 2013AU-1.1.5
Only persons licensed to undertake
regulated financing services (or regulated Islamic financing services), may use the term 'financing company' in their corporate or trading names, or otherwise hold themselves out to be a financing company.January 2013AU-1.1.6
Licensees are not obliged to include the word 'financing company' in their corporate or trading names; however, they may be required to make clear their regulatory status in their letter heads, customer communications, website and so on (See Paragraph GR-2.2.1).January 2013AU-1.1.7
For the purposes of Rule AU-1.1.2, persons will be considered in breach of this requirement if they attempt to operate as, or incorporate a financing company in Bahrain with a name containing the word "financing company" (or the equivalents in any language), without holding the appropriate CBB license or obtaining the prior approval of the CBB.
January 2013AU-1.1.8
Persons wishing to be licensed to undertake
regulated financing company services within or from the Kingdom of Bahrain must apply in writing to the CBB.January 2013AU-1.1.9
An application for a license must fill in the Application form (Form 1) online, available on the CBB website under E-services/online Forms and must contain:
(a) A business plan specifying the type of business to be conducted;(b) Application forms (Form 2) for allcontrollers ; and(c) Application forms (Form 3) for allcontrolled functions .Amended: July 2019
January 2013AU-1.1.10
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 2013AU-1.1.11
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 2013AU-1.1.12
In granting new licenses, the CBB will specify the specific types of
regulated financing company service for which a license has been granted.January 2013AU-1.1.13
All applicants for financing company
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 2013AU-1.1.14
Licensees must not carry on any commercial business in the Kingdom of Bahrain or elsewhere other than financing business and activities directly arising from or incidental to that business.January 2013AU-1.1.15
Rule AU-1.1.14 is intended to restrict
licensees from undertaking any material non-financial business activities. The Rule does not prevent a financing company undertaking commercial activities if these directly arise from their financing 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 alicensee from undertaking commercial activities if, in the judgment of the CBB, they are incidental and do not detract from the financial nature of the financing companies operations.January 2013AU-1.1.16
Rule AU-1.1.14 applies to the legal entity holding the financing company license. A
licensee may thus own subsidiaries that undertake non-financial activities, although the CBB generally does not support the development of significant commercial activities within alicensee's group.January 2013AU-1.2 AU-1.2 Approved Persons
General Requirement
AU-1.2.1
Licensees must obtain the CBB's prior written approval for any person wishing to undertake a
controlled function at alicensee . The approval from the CBB must be obtained prior to their appointment.Amended: January 2016
January 2013AU-1.2.2
Controlled functions are those functions occupied by board members and persons in executive positions and include:(a) Member of the Board ofDirectors ;(b)Chief Executive orGeneral Manager and their Deputies;(c)Head of function ;(d) Compliance Officer;(e) Money Laundering Reporting Officer (MLRO); and(f) Head of Shari'a review.Amended: January 2016
Amended: April 2014
January 2013AU-1.2.3
Prior approval is required for
controlled functions (a), (b), (c), (d) and (e). Controlled functions (d) and (e) may be combined, however (see also FC-4.1, regarding the MLRO function).Controlled function (f) does not require prior approval instead, notification only is required, once the person concerned has accepted to undertake that function.January 2013Basis for Approval
AU-1.2.4
Approval under Paragraph AU-1.2.1 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.
Amended: January 2016
January 2013Definitions
AU-1.2.5
Director is any person who occupies the position of aDirector , as defined in Article 173 of the Commercial Companies Law (Legislative Decree No. 21 of 2001).January 2013AU-1.2.6
The fact that a person may have '
Director' in their job title does not of itself make them aDirector within the meaning of the definition noted in Paragraph AU-1.5.5. For example, a 'Director of IT', is not necessarily a member of the Board ofDirectors and therefore may not fall under the definition of Paragraph AU-1.5.5.January 2013AU-1.2.7
The
Chief Executive orGeneral Manager means a person who is responsible for the conduct of thelicensee (regardless of actual title). TheChief Executive orGeneral Manager must be resident in Bahrain. This person is responsible for the conduct of the whole of the firm.January 2013AU-1.2.8
Head of function means a person who 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 thelicensee .January 2013AU-1.2.9
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 ofhead of function might include, depending on the scale, nature and complexity of the business, a deputyChief Executive ; heads of departments such as Risk Management, Compliance or Internal Audit; or any front office functions or the Chief Financial Officer.January 2013AU-1.2.10
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 2013AU-1.2.11
The
controlled function of compliance officer is defined in accordance with the compliance function under Section HC-6.4. Thecontrolled functions of Money Laundering Reporting Officer is defined under Chapter FC-4.January 2013AU-1.2.12
All
licensees must designate anemployee , of appropriate standing and resident in Bahrain, as compliance officer. The duties of the compliance officer include:(a) Assistingsenior management to identify and assess the main compliance risks facing thelicensees and the plans to manage them;(b) Advisingsenior management on compliance laws, rules and standards, including keeping them informed on developments in the area;(c) Assistingsenior management in educating staff on compliance issues, and acting as a contact point within thelicensee for compliance queries from staff members;(d) Establishing written guidance to staff on the appropriate implementation of compliance laws, rules and standards through policies and procedures and other documents such as compliance manuals, internal codes of conduct and practice guidelines;(e) On a pro-active basis, identifying, documenting and assessing the compliance risks associated with thelicensee's business activities, including the development of new products and business practices, the proposed establishment of new types of business or customer relationships, or material changes in the nature of such relationships;(f) Monitoring and testing compliance by performing sufficient and representative compliance testing; and(g) Reporting on a regular basis to the board of directors or the audit committee of the board of directors.January 2013AU-1.3 AU-1.3 Definition of Regulated Financing Company Services
AU-1.3.1
Regulated financing company services are any of the following activities, carried on by way of business:(a) Offering instalment credit;(b) Offering revolving credit facilities (such as credit cards);(c) Offering Shari'a financing contracts; and(d) Issuing/administering means of payment (charge or prepaid cards, whether physical or digital.Amended: July 2022
January 2013AU-1.3.2 AU-1.3.2
Upon application, the CBB may exclude specific transactions from the definition of
regulated financing company services .January 2013AU-1.3.1A
Where licensees are undertaking regulated activities in accordance with Shari'a, all transactions and contracts concluded by
regulated financing company 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 2020AU-1.3.1B
A
financing company licensee may choose to offer a limited range of financing activity as determined by its business plan provided that such activity includes short term instalment credits only.Added: July 2022AU-1.3.3
For the purposes of Rule AU-1.3.1, carrying on a
regulated financing company service by way of business means:(a) Undertaking the regulated financing company service of (a), plus any of the activities (b) to (d), as defined in Section AU-1.3, 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 2013AU-1.3.4
Licensees are allowed to transact with both residents and non-residents of the Kingdom of Bahrain, and in both Bahrain Dinar and foreign currencies.January 2013AU-1.3.5
Licensees may undertake transactions with both Bahraini residents and non-residents.January 2013AU-1.3.6
Licensees should note that the same legal entity cannot combineregulated financing company services with other regulated services, such asregulated insurance services andregulated ancillary services .January 2013General Exclusions
AU-1.3.7
A person does not carry on an activity constituting a
regulated financing company service if the activity:(a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of financial services;(b) May reasonably be regarded as a necessary part of any other services provided in the course of that business; and(c) Is not remunerated separately from the other services.January 2013AU-1.3.8
A person does not carry on an activity constituting a
regulated financing company service if the person is a body corporate and carries on that activity solely with or for other bodies corporate that are members of the same group.January 2013AU-1.3.9
A person does not carry on an activity constituting a
regulated financing company service if such person carries on an activity with or for another person, and they are both members of the samefamily .January 2013AU-1.3.10
A person does not carry on an activity constituting a
regulated financing company service if the sole or main purpose for which the person enters into the transaction is to limit any identifiable risks arising in the conduct of his business, providing the business conducted does not itself constitute a regulated activity.January 2013AU-1.3.11
A person does not carry on an activity constituting a
regulated financing company service if that person is a government body charged with the management offinancial instruments on behalf of a government or public body or an exempt person, as specified by Royal decree.January 2013Providing Credit
AU-1.3.12
Providing credit is defined as the provision of credit to a person in his capacity as borrower or potential borrower. This includes consumer and mortgage credit and providing credit by way of finance leases and factoring.
January 2013Offering Shari'a Financing Contracts
AU-1.3.13
Offering Shari'a financing contracts is defined as entering into, or making arrangement for another person to enter into, a contract to provide finance in accordance with Shari'a principles, such as murabaha, bay muajjal, bay salam, ijara wa iktina and istisna'a contracts. etc...
January 2013Issuing Means of Payment
AU-1.3.14
[This Paragraph was deleted in July 2022].
Deleted: July 2022
January 2013AU-1.4 AU-1.4 Shari'a Compliant Transactions
General Requirements for all Conventional Financing Companies
AU-1.4.1
Conventional
financing company licensees may not hold themselves out as an Islamic financing company. Conventionalfinancing company licensees are allowed to enter into activities (a) to (c) listed in Rule AU-1.3.1 under the conditions outlined in the remainder of this Section, subject to conditions outlined in Section AU-1.2 (concerning facilities offered to Bahrain residents and facilities in Bahrain Dinar in particular).January 2013AU-1.4.2
When offering any of the Shari'a compliant activities listed in Rule AU-1.3.1, conventional
licensees must have staff trained in Shari'a compliant financing business. Thelicensee must also disclose in the notes to its Annual Report/Financial Statement all quantitative and qualitative disclosures on its Shari'a compliant business as required by AAOIFI accounting and auditing standards.January 2013Additional Requirements for Conventional Financing Companies
AU-1.4.3
Conventional
licensees may provide Shari'a compliant activities (b) and (c) listed in Rule AU-1.3.1 in any amount and in any currency to Bahrain-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 thelicensee ;(b) Thelicensee must maintain separate books for Shari'a compliant financing activities to ensure no co-mingling of conventional and Islamic funds;(c) Thelicensee must have a Shari'a Compliant Reviewer; and(d) Thelicensee must establish a Shari'a Supervisory Committee with a minimum of three board members. The board may have global authority for all Shari'a compliant business or may have authority purely for Islamic business booked in Bahrain.January 2013AU-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 2013AU-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 2013AU-2.2.2
The CBB requires that all
approved persons occupyingcontrolled functions outlined in Paragraph AU-1.2.2, except for Subparagraphs (a) member of the board ofdirectors and (f) member of the Shari'a Supervisory Board, be resident in Bahrain.January 2013AU-2.2.3
For regional groups, the CBB may consider other arrangements, subject to such arrangements meeting the CBB's supervisory objectives.
January 2013AU-2.3 AU-2.3 Condition 3: Controllers
AU-2.3.1
Licensees must satisfy the CBB that theircontrollers are suitable and pose no undue risks to the licensee.Licensees must also satisfy the CBB that theirclose links do not prevent the effective supervision of thelicensee by the CBB and otherwise pose no undue risks to thelicensee .January 2013AU-2.3.2
Chapters GR-5 and GR-6 contain the CBB's requirements and definitions regarding
controllers andclose links. January 2013AU-2.3.3
In summary,
controllers are persons who directly or indirectly are significant shareholders in alicensee , or who are otherwise able to exert significant influence on thelicensee . The CBB seeks to ensure thatcontrollers pose no significant risks to thelicensee . 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 2013AU-2.3.4
A
licensee hasclose links with its subsidiaries, with its parent undertakings, and with subsidiaries of its parent undertakings. It also hasclose links with any entity in which thelicensee , its subsidiaries, its parent undertakings, and the subsidiaries of its parent undertakings has an equity interest of more than 20% (either in terms of capital or voting rights). The CBB seeks to ensure that these closely linked entities 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 thelicensee .January 2013AU-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 2013AU-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'sapproved persons requirements. This rule is supported by Article 65 of the CBB Law.January 2013AU-2.4.2
The definition of
controlled functions is contained in Paragraph AU-1.5.2, whilst Chapter AU-3 sets out CBB'sapproved persons requirements.January 2013AU-2.4.3
The
licensee's staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of thelicensee in a sound and prudent manner.Licensees must ensure their employees meet any training and competency requirements specified by the CBB.January 2013AU-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 2013AU-2.5.2
Licensees must fully comply with the capital requirements contained in Module CA (Capital Adequacy).Amended: July 2022
January 2013Liquidity
AU-2.5.3
Licensees must maintain sufficient liquid assets to meet their obligations as they fall due in the normal course of their business, as required under Module LM.Licensees must agree a liquidity management policy with the CBB.January 2013AU-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, CM and OM.January 2013AU-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 2013AU-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 CBB's prior approval. The minimum requirements regarding auditors contained in Module AA (Auditors and Accounting Standards) must be met.January 2013AU-2.8 AU-2.8 Condition 8: Other Requirements
Books and Records
AU-2.8.1
Article 59 of the CBB Law requires
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 OM. Books of accounts must comply with the financial accounting standards issued by the International Financial Reporting Standards (IFRS)/International Accounting Standards (IAS) or the applicable AAOIFI standards for Islamiclicensees .Amended: January 2014
January 2013Provision of Information
AU-2.8.2
Articles 58, 111, 114 and 163 of the CBB Law require that
licensees and their staff must 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 2013General 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 ofcustomers contained in Modules BC and CM.January 2013Additional 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 2013AU-2.8.5
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. Thus, when granting a license, the CBB specifies theregulated financing company services that thelicensee may undertake.Licensees must respect the scope of their license.January 2013AU-2.8.6
In addition, the CBB may impose additional restrictions or requirements, beyond those already specified in Volume 5, to address specific risks. For instance, a license may be granted subject to strict limitations on intra-group transactions.
January 2013AU-3 AU-3 Approved Persons Conditions
AU-3.1 AU-3.1 Approved Persons Conditions
Condition 1: 'Fit and Proper'
AU-3.1.1
Licensees seeking anapproved person authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake thecontrolled function in question.January 2013AU-3.1.2
The authorisation requirement for persons nominated to carry out
controlled functions is contained in Section AU-1.5. The authorisation process is described in Section AU-4.3.January 2013AU-3.1.3
Each applicant applying for
approved person status and those individuals occupyingapproved 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 thecontrolled function in question (see Appendix TC-1 in Module TC (Training and Competency)); and(h) Has sufficient experience to perform the duties of thecontrolled function (see Appendix TC-1 in Module TC (Training and Competency)).Amended: January 2016
January 2013AU-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 acontrolled function in onelicensee may not be considered to have sufficient expertise and experience to undertake nominally the samecontrolled function but in a much biggerlicensee .Amended: January 2016
January 2013AU-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 2016AU-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 2016AU-3.1.7
Approved persons undertaking acontrolled 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 acontrolled function .Amended: January 2016
January 2013AU-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 thelicensee ; and(c) A person has failed to declare a personal interest that has a material impact in terms of the person's relationship with thelicensee .Amended: January 2016
January 2013AU-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 2016AU-3.2 AU-3.2 [This Section was deleted in January 2016]
AU-3.2.1
[This Paragraph was deleted in January 2016.]
Deleted: January 2016
Amended: July 2015
January 2013AU-3.2.2
[This Paragraph was deleted in January 2016.]
Deleted: January 2016
January 2013AU-3.2.3
[This Paragraph was moved to Paragraph AU-3.1.9 in January 2016.]
Amended: January 2016
January 2013AU-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 submit a duly completed Form 1 (Application for a License), under cover of a letter signed by an authorised signatory of the applicant marked for the attention of the Director, Licensing and Policy Directorate. The application letter must be accompanied by the documents listed in Paragraph AU-4.1.4, unless otherwise directed by the CBB.
January 2013AU-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 time-lines.
January 2013AU-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 2013AU-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 above in support of a license application:
(a) A duly completed Form 2 (Application for Authorisation of Controller) for each controller of the proposedlicensee ;(b) A duly completed Form 3 (Application for Approved Person status), for each individual proposed to undertakecontrolled functions (as defined in Rule AU-1.2.2) in the proposedlicensee ;(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) Any relevant Private Placement Memoranda or public offering documents (if funds are to be raised by external shareholders);(f) 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 financing company license;(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'shome 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 and solvency 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-4.1.7.January 2013AU-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 the major shareholder in control of the licensee.
January 2013AU-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 2013AU-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 licensed application, and must preclude the applicant from undertaking other commercial activities, unless these arise out of its financing activities or are incidental to those.
January 2013AU-4.1.8
Where a new financing company's capital is being financed by a private placement, the CBB will verify that the contents of the Private Placement Memorandum (PPM) are consistent with other information supplied to the CBB, notably the business plan, and otherwise meet any applicable regulatory requirements with respect to PPM documents. The CBB's review of the PPM does not in any way constitute an approval or endorsement as to any claims it may contain as to the future value of the proposed licensee.
January 2013AU-4.1.9
The CBB will not license applicants without a core group of sponsoring shareholders (who can demonstrate a strong business track record with relevant expertise), and where failure of the private placement to raise its targeted amount would leave the institution unable to comply with the CBB's minimum capital requirements. The CBB may, on a case-by-case basis, require that at least one shareholder is a regulated financial institution which holds 20% of the applicant's shares.
January 2013AU-4.1.10
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 2013AU-4.1.11
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 2013AU-4.1.12
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 2013Licensing Process and Timelines
AU-4.1.14
By law, the 60-day time limit referred to in Paragraph AU-4.1.2 only applies once the application is complete and all required information (which may include any clarifications requested by the CBB) and documents have been provided. This means that all the items specified in Rule AU-4.1.4 have to be provided, before the CBB may issue a license.
January 2013AU-4.1.15
The CBB recognises, however, that applicants may find it difficult to secure suitable senior management (refer AU-4.1.4(b) above) in the absence of preliminary assurances regarding the likelihood of obtaining a license.
January 2013AU-4.1.16
Therefore, applicants may first submit an unsigned Form 1 in draft, together with as many as possible of the items specified in Rule AU-4.1.4. This draft application should contain at least items AU-4.1.4(a); AU-4.1.4(b), with respect to proposed
Directors (but not necessarily senior management); AU-4.1.4(c); AU-4.1.4(d); and AU-4.1.4(f) to AU-4.1.4(i) inclusive.January 2013AU-4.1.17
On the basis of the information specified in Paragraph AU-4.1.16, the CBB may provide an initial 'in principle' confirmation that the applicant appears likely to meet the CBB's licensing requirements, subject to the remaining information and documents being assessed as satisfactory. The 'in principle' confirmation will also list all outstanding documents required before an application can be considered complete and subject to formal consideration.
January 2013AU-4.1.18
An 'in principle' confirmation does not constitute a license approval, nor does it commit the CBB to issuing a license. However, it provides sufficient assurance for an applicant to complete certain practical steps, such as securing suitable executive staff that satisfy CBB's 'fit and proper' requirements. Once this has been done, the applicant may finalise its application, by submitting the remaining documents required under Rule AU-4.1.4 and, once assessed as complete by the CBB, a signed and dated final version of Form 1. However, a Bahrain company proposing to undertake financial services activities would not be able to obtain a commercial registration from the Ministry of Industry and Commerce unless they receive the final approval from the CBB.
January 2013AU-4.1.19
Regardless of whether an applicant submits a draft application or not, all potential applicants are strongly encouraged to contact the CBB at an early stage to discuss their plans and associated requirements. The Licensing & Policy Directorate would normally expect to hold at least one pre-application meeting with an applicant, prior to receiving an application (either in draft or in final form).
January 2013AU-4.1.20
Potential applicants should initiate pre-application meetings in writing, setting out a short summary of their proposed business and any issues or questions that they may have already identified, once they have a clear business proposition in mind and have undertaken their preliminary research. The CBB can then guide the applicant on the specific areas in the Rulebook that will apply to them and the relevant requirements that they must address in their application.
January 2013AU-4.1.21
At no point should an applicant hold themselves out as having been licensed by the CBB, prior to receiving formal written notification of the fact in accordance with Rule AU-4.1.22 below. Failure to do so may constitute grounds for refusing an application and result in a contravention of Articles 40 and 41 of the CBB Law (which carries a maximum penalty of BD 1 million).
January 2013Granting or Refusal of License
AU-4.1.22
To be granted a license, an applicant should demonstrate compliance with the applicable requirements of the CBB Law and this Module. Should a license be granted, the CBB will notify the applicant in writing of the fact; the CBB will also publish its decision to grant a license in the Official Gazette and in two local newspapers (one published in Arabic, the other in English). The license may be subject to such terms and conditions as the CBB deems necessary for the additional conditions being met.
Amended: October 2019
January 2013AU-4.1.23
The CBB may refuse to grant a license if in its opinion:
(a) The requirements of the CBB Law or this Module are not met;(b) False or misleading information has been provided to the CBB, or information which should have been provided to the CBB has not been so provided; or(c) The CBB believes it necessary in order to safeguard the interests of potential customers.January 2013AU-4.1.24
Where the CBB proposes to refuse an application for a license, it will give the applicant a written notice to that effect. Applicants will be given a minimum of 30 calendar days from the date of the written notice to appeal the decision, as per the appeal procedures specified in the notice; these procedures will comply with the provisions contained in Article 46 of the CBB Law.
Amended: October 2019
January 2013Starting Operations
AU-4.1.25
Within 6 months of the license being issued, the new
licensee must provide to the CBB:(a) A detailed action plan for establishing the operations and supporting infrastructure of thelicensee , 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 proposedlicensee ;(c) The address in the Kingdom of Bahrain where full business records will be kept;(d) Thelicensee'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 applicant's notarised memorandum and articles of association, addressing the matters described in Paragraph AU-4.1.6;(i) A copy of the Ministry of Industry & Commerce commercial registration certificate in Arabic and English languages;(j) An updated organisation chart showing the reporting lines, committees (if any) and including the names of the persons undertaking thecontrolled functions; (k) 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 financing company is licensed by the CBB; and(l) Any other information as may be specified by the CBB.January 2013AU-4.1.26
New
licensees must start their operations within 6 months of being granted a license by the CBB, failing which the CBB may cancel the license, as per the powers and procedures set out in Article 48 of the CBB Law.January 2013AU-4.1.27
The procedures for cancelling licenses are contained in Section AU-4.3.
January 2013AU-4.2 AU-4.2 Authorisation of a Branch or Subsidiary
AU-4.2.1
Licensees may open branches or subsidiaries in the Kingdom of Bahrain or in foreign jurisdictions after obtaining the CBB's prior written approval.January 2013Authorisation of a Branch
AU-4.2.2
Unless otherwise directed by the CBB, the following documents must be provided to the CBB in support of an application to open a branch:
(a) A business plan explaining:(i) The reasons for applying for a branch, including the applicant's strategy and market objectives; and(ii) A minimum of three-year financial projection, with all assumptions clearly outlined, demonstrating that the branch will be able to meet all liabilities and obligations;(b) The location of the proposed branch, including the full address; and(c) Confirmation from the external auditor that thelicensee's capital adequacy is sufficient to support the operation of the branch, in addition to other existing branches (if applicable), at the time of filing the request.January 2013Starting Operations of a Branch
AU-4.2.3
Licensees must submit to the CBB confirmation that the authorised branch has commenced operations within 6 months of the authorisation letter.January 2013Authorisation of a Subsidiary
AU-4.2.4
Licensees wishing to establish a newsubsidiary undertaking must submit to the CBB the following information as part of their request:(a) Proposed name of subsidiary;(b) Country of incorporation;(c) Legal structure;(d) Proposed issued capital;(e) Proposed shareholding structure;(f) Purpose of establishing the subsidiary;(g) Draft incorporation documents of the subsidiary;(h) Board resolution approving the establishment of the subsidiary; and(i) Any other information or documentation requested by the CBB.January 2013AU-4.2.5
Licensees wishing to acquire a newsubsidiary undertaking must submit to the CBB the following information as part of their request:(a) Annual report, including audited financial statements of the subsidiary being acquired;(b) Purpose of acquiring the subsidiary;(c) Memorandum and Articles of Association of the subsidiary;(d) Board resolution approving the acquisition of the subsidiary; and(e) Any other information or documentation requested by the CBB.January 2013AU-4.2.6
Licensees should ensure adherence with Rules contained in:(a) Chapter CA-1 and in particular with the gearing ratio requirements contained in Paragraph CA-1.1.4;(b) The minimum liquidity requirements outlined in Chapter LM-1; and(c) The reporting requirements for close links contained in Paragraph GR-6.1.3when considering the impact of a subsidiary on these requirements.
January 2013AU-4.3 AU-4.3 Approved Persons
AU-4.3.1
Licensees must obtain CBB's prior written approval before a person is formally appointed to acontrolled 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 2013AU-4.3.2
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 and Policy Directorate. When the submission to undertake acontrolled function is in relation to an existinglicensee , the Form 3, except if dealing with a MLRO and the Deputy MLRO, must be marked for the attention of the applicable Director, Banking Supervision Directorate responsible for the supervision of thelicensee . In the case of the MLRO and Deputy MLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.January 2013AU-4.3.3
When submitting the Forms 3,
licensees must ensure that the Form 3 is:(a) Submitted to the CBB with a covering letter signed by an authorised representative of thelicensee , seeking approval for the proposedcontrolled 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 thelicensee and all pages stamped with thelicensee's seal.Amended: July 2015
January 2013AU-4.3.3A
Licensees seeking to appoint Board Directors must seek CBB approval for all the candidates to be put forward for election/approval at a shareholders' 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.Added: July 2015AU-4.3.4
For existing
licensees applying for the appointment of aDirector or theChief Executive /General Manager , the authorised representative should be the Chairman of the Board or aDirector signing on behalf of the Board. For all othercontrolled functions , the authorised representative should be aDirector or theChief Executive /General Manager .Amended: July 2015
January 2013AU-4.3.5
[This Paragraph was deleted in July 2015.]
Deleted: July 2015AU-4.3.6
[This Paragraph was moved to Paragraph AU-4.3.3A in July 2015.]
Amended: July 2015
January 2013Assessment of Application
AU-4.3.6A
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 2015AU-4.3.6B
For purposes of Paragraph AU-4.3.6A,
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 2015AU-4.3.6C
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 does not satisfy the CBB criteria in Paragraph AU-3.1.5. A notice of such refusal is issued by registered mail to thelicensee concerned, setting out the basis for the decision.Amended: January 2016
Added: July 2015AU-4.3.7
[This Paragraph was deleted in January 2016.]
Deleted: January 2016
Amended: July 2015
January 2013Appeal Process
AU-4.3.7A
Licensees or the nominatedapproved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application forapproved person status. The CBB shall decide on the appeal and notify thelicensee of its decision within 30 calendar days from submitting the appeal.Added: July 2015AU-4.3.7B
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 nominatedapproved persons may appeal to the concerned 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 thelicensee of its decision within 30 calendar days from the date of submitting the appeal.Amended: January 2016
Added: July 2015Notification Requirements and Process
AU-4.3.8
Licensees must immediately notify the CBB when anapproved person ceases to hold acontrolled function together with an explanation as to the reasons why (see Paragraph AU-4.5.7). In such cases, theirapproved person status is automatically withdrawn by the CBB.January 2013AU-4.3.9
Licensees must immediately notify the CBB in case of any material change to the information provided in a Form 3 submitted for anapproved person .January 2013AU-4.3.10
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 theirapproved persons .January 2013AU-4.3.10A
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 2021Change in Controlled Function
AU-4.3.11
Licensees must seek prior CBB approval before anapproved person may move from onecontrolled function to another within the samelicensee .January 2013AU-4.3.12
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 anapproved person is moving to acontrolled function in anotherlicensee , the firstlicensee should notify the CBB of that person's departure (see Rule AU-4.5.7), and the newlicensee should submit a request for approval under Rule AU-1.2.1.January 2013AU-4.4 AU-4.4 Variations to a License
AU-4.4.1
As per Article 48 of the CBB Law,
licensees must seek prior CBB approval before undertaking newregulated financing company services .January 2013AU-4.4.2
Failure to secure CBB approval prior to undertaking a new regulated activity may lead to enforcement action being taken against the concerned person. This is supported by Article 40 of the CBB law.
January 2013AU-4.4.3
In addition to any other information requested by the CBB, and unless otherwise directed by the CBB, a
licensee requesting CBB approval to undertake a newregulated financing company service must provide the following information:(a) A summary of the rationale for undertaking the proposed new activities;(b) A description of how the new business will be managed and controlled;(c) An analysis of the financial impact of the new activities; and(d) A summary of the due diligence undertaken by the Board and management of thelicensee on the proposed new activities.January 2013AU-4.4.4
The CBB may amend or revoke a licence in any of the following cases:
(a) If thelicensee fails to satisfy any of the license conditions;(b) If thelicensee violates the terms of these rules or any of the Volume's directives;(c) If thelicensee fails to start business within six months from the date of the licence;(d) If thelicensee ceases to carry out the licensed activity in the Kingdom; or(e) The legitimate interests of thecustomers or creditors of alicensee required such amendment or cancellation.January 2013AU-4.4.5
The CBB's procedures for amending or revoking a license is outlined in detail in the Enforcement Module (EN).
January 2013AU-4.5 AU-4.5 Withdrawal of a License or Closure of a Branch
Licenses
Voluntary Surrender of a License or Closure of a Branch
AU-4.5.1
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 approval. Such requests must be made in writing to the Executive Director of Banking Supervision, setting out in full the reasons for the request and how the voluntary surrender or branch closure is to be carried out.
January 2013AU-4.5.2
Licensees must satisfy CBB that theircustomers ' interests are to be safeguarded during and after the proposed voluntary surrender or closure of the branch.January 2013AU-4.5.3
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 thelicensee , in the opinion of the CBB, has discharged all its regulatory responsibilities tocustomers .January 2013Cancellation of a License by the CBB
AU-4.5.4
As provided for under Article 48 (c) of the CBB Law, the CBB may itself move to cancel a license. The CBB generally views the cancellation of a license as appropriate only in the most serious of circumstances, and generally tries to address supervisory concerns through other means beforehand. See also Chapter EN-7, regarding the cancellation or amendment of licenses, including the procedures used in such instances and the licensee's right to appeal the formal notice of cancellation issued by the CBB.
January 2013AU-4.5.5
Cancellation of a license requires CBB to issue a formal notice of cancellation to the person concerned. The notice of cancellation must describe the CBB's rationale for the proposed cancellation, as specified in Article 48(d) of the CBB Law.
January 2013AU-4.5.6
Where cancellation of a license has been confirmed by CBB, the CBB will only effect the cancellation once a
licensee has discharged all its regulatory responsibilities tocustomers . Until such time, CBB will retain all its regulatory powers with regards to thelicensee , and will direct thelicensee such that no new regulated financing activity may be undertaken whilst thelicensee discharges its obligations tocustomers .January 2013Cancellation of Approved Person Status
AU-4.5.7
In accordance with Paragraph AU-4.3.8,
licensees must promptly notify the CBB in writing, as soon as they become aware, when a person undertaking acontrolled function will no longer be carrying out that function. If acontrolled function falls vacant, thelicensee must appoint a permanent replacement (after obtaining CBB approval), within 120 calendar days of the vacancy occurring. Pending the appointment of a permanent replacement, thelicensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of thecontrolled function affected. These interim arrangements must be approved by the CBB.January 2013AU-4.5.8
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 2013AU-4.5.9
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 2013AU-4.6 AU-4.6 Publication of the Decision to Grant, Cancel or Amend a License
AU-4.6.1
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 2017AU-4.6.2
For the purposes of Paragraph AU-4.6.1, the cost of publication must be borne by the Licensee.
Added: July 2017AU-4.6.3
The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.
Added: July 2017AU-5 AU-5 License Fees
AU-5.1 AU-5.1 License Application Fees
AU-5.1.1
Applicants seeking a
financing company 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 2013AU-5.1.2
There are no application fees for those seeking
approved person status.January 2013AU-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: July 2013
January 2013AU-5.2.2
Financing company licensees must pay a variable annual licensing fee based on 0.25% of theirrelevant operating expenses , subject to a floor of BD6,000 and a cap of BD24,000.Amended: July 2013
January 2013AU-5.2.3
Relevant operating expenses are defined as the total operating expenses of the licensee concerned, as recorded in the most recent audited financial statements available, subject to the adjustments specified in Rule AU-5.2.4.January 2013AU-5.2.4
The adjustments to be made to
relevant operating expenses are the exclusion of the following items from total operating expenses:(a) Training costs;(b) Charitable donations; and(c) Previous year's CBB fees paid.January 2013AU-5.2.5
The CBB would normally rely on the audited accounts of a
licensee as representing a true and fair picture of its operating expenses. However, the CBB reserves the right to enquire about the accounting treatment of expenses, and/or policies on intra-group charging, if it believes that these are being used artificially to reduce a license fee.January 2013AU-5.2.6
Licensees must complete and submit Form ALF (Annual License Fee) to the CBB, no later than 15th October of the preceding year for which the fees are due.Amended: July 2013
January 2013AU-5.2.6A
All licensees are subject to direct debit for the payment of the annual license fee and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September available under Part B of Volume 5 (Specialised Licensees) CBB Rulebook on the CBB Website.
Added: July 2013AU-5.2.7
For new
licensees , their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount of BD6,000.Amended: July 2013
January 2013AU-5.2.7A
For the first full year of operation for
licensees , thelicensee would submit a Form ALF by the 15th October of the previous year for which the fees are due, and calculate its fee as the floor amount. For future years, thelicensee would submit a Form ALF by 15th October of the preceding year for which the fees are due and calculate its fee using its last audited financial statements (or alternative arrangements as agreed with CBB, should its first set of accounts cover an 18-month period).Added: July 2013AU-5.2.7B
Licensees must pay a fixed annual fee of BD 1,000 for each locally incorporated SPV in Bahrain which is under the control of and/or providing an actual business function, service or activity (whether actively or passively) for thelicensee and/or others at thelicensee's direction or having been established under thelicensee's direction for that purpose. The CBB approval for any new SPV will only be granted, once the annual fee has been paid. The full amount of the BD 1,000 annual fee is due in the year the SPV is set up and it is not prorated for the number of months remaining in the year.Added: January 2014AU-5.2.7C
Paragraph AU-5.2.7C does not apply to SPVs of
Bahrain domiciled CIUs . In the case ofBahrain domiciled CIUs ,licensees should refer to the relevant Chapter in Module ARR of Volume 7, depending on the classification of theBahrain domiciled CIU .Added: January 2014AU-5.2.8
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 2013AU-5.2.9
Licensees failing to comply with this Section may be subject to financial penalties for date sensitive requirements as outlined in Section EN-5.3A or may have their licenses withdrawn by the CBB.Added: July 2013HC HC Financing Companies 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
licensees with respect to:(a) Corporate governance principles issued by the Ministry of Industry and Commerce as "The Corporate Governance Code"; and(b) Related high-level controls and policies.January 2013HC-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 2013HC-A.1.3
The purpose of the Module is to establish best practice corporate governance principles in Bahrain, and to provide protection for investors and other
licensee's stakeholders through compliance with those principles.January 2013HC-A.1.4
Whilst the Module follows best practice, it is nevertheless considered as the minimum standard to be applied.
January 2013Structure 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 2013HC-A.1.6
The Module also incorporates other high-level controls and policies that apply in particular to
licensees .January 2013HC-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 2013The 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
financing company licensee to whom Module HC applies, is expected to comply with recommendations made as Guidance in Module HC or explain its noncompliance in the Annual Report in accordance with Paragraph PD-1.3.5 and to the CBB (see Chapter HC-8).January 2013Monitoring 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
licensee's shareholders and the CBB.January 2013HC-A.1.10
It is the board's responsibility to see to the accuracy and completeness of the
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 2013Legal 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
financing companies licensees (including theirapproved persons ).January 2013HC-A.1.12
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
January 2013Effective Date
HC-A.1.13
The contents in this Module are effective from January 2013.
January 2013HC-A.2 HC-A.2 Module History
HC-A.2.1
This Module was first issued in January 2013. 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 2013HC-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes HC-8.2 01/2014 Amended as a result of the issuance of Module PD. Appendix D 01/2014 Requirements moved to Module PD. HC-1.2.12,
HC-1.2.13
and HC-1.3.910/2014 Corrected cross reference. HC-1.3.11 10/2014 Corrected typo. HC-2.3.3 04/2016 Added a requirement for the licensee to have in place a board approved policy on the employment of relatives of approved persons. HC-2.4.1A 04/2016 Added the requirement to disclose to the board on annual basis relatives of any approved persons occupying controlled functions. HC-7.2 04/2016 Added requirements dealing with shareholders' meetings. HC-7.2.3A 07/2017 Amended paragraph to be in line with Article (199) of the Commercial Companies law. HC-1.4.12 01/2020 Added a new Paragraph on independent directors. HC-1.4.13 01/2020 Added a new Paragraph on termination of Board membership of a retired, terminated CEO. HC-2.3.2 01/2020 Amended Paragraph on policy and procedures approval. HC-5.4.2 04/2020 Added a new Paragraph on KPIs compliance with AML/CFT requirements. HC-1.8.1 07/2022 Amended Paragraph on the committees of the Board. HC-6.2.1 07/2022 Amended Paragraph on the appointment of senior management. 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 2013HC-B HC-B Scope of Application
HC-B.1 HC-B.1 Scope of Application
HC-B.1.1
The contents of this Module — unless otherwise stated — apply to all
financing companies licensees , thereafter referred to in this Module aslicensees .January 2013HC-B.2 HC-B.2 Subsidiaries, Affiliates and Foreign Branches
HC-B.2.1
Licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their foreignbranches , located outside the Kingdom of Bahrain, such that these are also subject to effective high-level controls. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.January 2013HC-B.2.2
Licensees must satisfy the CBB that financial services activities conducted insubsidiaries and other group members are subject to the same or equivalent arrangements for ensuring effective corporate governance over their activities.January 2013HC-B.2.3
Where a
licensee is unable to satisfy the CBB that itssubsidiaries and other group members are subject to the same or equivalent arrangements, the CBB will assess the potential impact of risks — both financial and reputational — to thelicensee arising from inadequate high-level controls in the rest of the group of which it is a member. In such instances, the CBB may impose restrictions on dealings between thelicensee and other group members. Where weaknesses in controls are assessed by the CBB to pose a major threat to the stability of thelicensee , then its authorisation may be called into question.January 2013HC-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 2013HC-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 thelicensee and the shareholders (see HC-2.1).January 2013HC-1.2.2
The board's role and responsibilities include but are not limited to:
(a) The overall business performance and strategy for thelicensee ;(b) Causing financial statements to be prepared which accurately disclose thelicensee's financial position;(c) Monitoring management performance;(d) Convening and preparing the agenda for shareholders 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 thelicensee .January 2013HC-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 institution, 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 2013HC-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 2013HC-1.2.5
In its strategy review process under Paragraphs HC-1.2.3 a) and d), the Board must:
(a) Review thelicensee's business plans and the inherent level of risk in these plans;(b) Assess the adequacy of capital to support the business risks of thelicensee ;(c) Set performance objectives; and(d) Oversee major capital expenditures, divestitures and acquisitions.January 2013HC-1.2.6
Licensees must notify the CBB in writing of all major proposed changes to the strategy and/or corporate plan of thelicensee prior to implementation.January 2013HC-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 thelicensee's compliance risk.January 2013HC-1.2.8
When a new
director is inducted, the chairman of the board, or by thelicensee's legal counsel or compliance officer, or other individual delegated by the chairman of the board 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 2013HC-1.2.9
The
licensee must have a written appointment agreement with eachdirector which recites thedirectors' powers, duties, responsibilities and accountabilities and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, hisremuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.January 2013Risk 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 thelicensee is exposed in its business activities.January 2013HC-1.2.11
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) Thelicensee'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) Thelicensee's operations are supported by an appropriate control environment. The compliance, 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 thelicensee 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 thelicensee's adopted governance framework, appropriate and timely action is taken to address any identified adverse deviations from the requirements of this Module.January 2013HC-1.2.12
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-1.2.11.Amended: October 2014
January 2013HC-1.2.13
Wherever possible, the documents referred to in Paragraphs HC-1.2.3 to HC-1.2.11 or a summary of responsibilities should be disclosed publicly, for example in the annual report, which must be submitted to the CBB in line with the requirements of Module BR.
Amended: October 2014
January 2013HC-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 2013HC-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 2013HC-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 thedirectors must maintain informal communication between meetings.January 2013HC-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 2013HC-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 2013HC-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 2013HC-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 individualdirector should allocate adequate time and effort to discharge his responsibilities. Alldirectors 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 2013HC-1.3.8
At least half the Board meetings of Bahraini
licensees in any twelve-month period must be held in the Kingdom of Bahrain.January 2013HC-1.3.9
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 2013HC-1.3.10
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. Alldirectors 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 HC-7 for other duties of the Chairman).January 2013HC-1.3.11
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.Amended: October 2014
January 2013HC-1.3.12
Potential
non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. The Nominating Committee should regularly review the time commitment required from eachnon-executive director and should require eachnon-executive director to inform the Committee before he accepts any board appointments to anotherlicensee .January 2013HC-1.3.13
No Board member may have a directorship in two
financing companies in Bahrain.Licensees may approach the CBB for exemption from this limit where the directorships concernlicensees or financial institutions within the same group.January 2013HC-1.3.14
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 2013HC-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 ofdirectors must dominate the board's decision-making and no one individual should have unfettered powers of decision.January 2013HC-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 adirector is different from their role as a member of management (see HC-2.3.2).January 2013HC-1.4.3
Non-executive directors must be fully independent of management and must constructively scrutinise and challenge management including the management performance ofexecutive directors .January 2013HC-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 judgment.
January 2013HC-1.4.5
At least half of a
licensee's board should benon-executive directors and at least three of those persons should beindependent directors . (Note the exception for controlled companies in Paragraph HC-1.5.2.)January 2013HC-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 2013HC-1.4.7
The Chairman and/or Deputy Chairman must not be the same person as the Chief Executive Officer.
January 2013HC-1.4.8
The Chairman must not be an Executive Director.
January 2013HC-1.4.9
Where the Chairmanship concerns
licensees within the same group,licensees may approach the CBB for an exemption from Paragraph HC-1.4.8.January 2013HC-1.4.10
The board should review the independence of each
director at least annually in light of interests disclosed by them, and their conduct. Eachindependent director shall provide the board with all necessary and updated information for this purpose.January 2013HC-1.4.11
To facilitate free and open communication among
independent directors , each board meeting should be preceded or followed with a session at which onlyindependent directors are present, except as may otherwise be determined by theindependent directors themselves.January 2013HC-1.4.12
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 anindependent director if reappointed.Added: January 2020HC-1.4.13
Where a Chief Executive Officer of a
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 2020HC-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 thelicensee hascontrollers (as defined by Module GR-5.2) (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 2013HC-1.5.2
In
licensees with acontroller , at least one-third of the board must beindependent directors . Minority shareholders must generally look toindependent directors' diligent regard for their interests, in preference to seeking specific representation on the board.January 2013HC-1.5.3
In
licensees withcontrollers , bothcontrollers and other shareholders should be aware ofcontrollers' specific responsibilities regarding their duty of loyalty to thelicensee 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 thelicensee has adopted cumulative voting for directors. The chairman of the board or other individual delegated by the chairman of the board should take the lead in explaining this with the help of thelicensee's lawyers.January 2013HC-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 thelicensee's expense whenever they judge this necessary to discharge their responsibilities asdirectors and this must be in accordance with thelicensee's policy approved by the board.January 2013HC-1.6.2
Individual
directors must also have access to thelicensee'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 2013HC-1.6.3
Whenever a
director has serious concerns which cannot be resolved concerning the running of thelicensee 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 2013HC-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 2013HC-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 2013HC-1.7.2
Non-executive directors should have free access to thelicensee'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 adirector's authority in this regard.January 2013HC-1.8 HC-1.8 Committees of the Board
HC-1.8.1
The board must establish Audit, Remuneration and Nominating Committees described elsewhere in this Module. For
financing company licensees offering limited scope of activities, an Audit Committee is required at minimum.Amended: July 2022
January 2013HC-1.8.2
The board should establish a corporate governance committee of at least three independent members which should be responsible for developing and recommending changes from time to time in the
licensee's corporate governance policy framework.January 2013HC-1.8.3
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 2013HC-1.8.4
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 2013HC-1.8.5
Committees may be combined provided that no conflict of interest might arise between the duties of such committees, subject to CBB prior approval.
January 2013HC-1.8.6
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 2013HC-1.8.7
Where committees are set up, they should keep full minutes of their activities and meet regularly to fulfill their mandates. For larger
licensees that deal with the general public, committees can be a more efficient mechanism to assist the main Board in its monitoring and control of the activities of thelicensee . The establishment of committees should not mean that the role of the Board is diminished, or that the Board becomes fragmented.January 2013HC-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 2013HC-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 eachdirector'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 newdirectors 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 2013HC-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 2013HC-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 2013HC-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 thelicensee .January 2013HC-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 thelicensed 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 alicensee , 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 2013Corporate 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 thelicensee , and that he can be personally sued by thelicensee or the shareholders for such violations.January 2013HC-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 thelicensee , so that theapproved 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. Thelicensee's approved persons and staff must be informed of and be required to fulfill their fiduciary responsibilities to thelicensee's stakeholders.January 2013HC-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 thatapproved 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 thelicensee , 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 oflicensee's assets;(d) How thelicensee deals with disputes and complaints from clients and monitors compliance with the code; and(e) Confidentiality. Disclosure of client orlicensee information should be prohibited, except where disclosure is required by law (see HC-1.2.10 b).January 2013HC-2.2.5
The Central Bank 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 thelicensee 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 thelicensee ;(c) Have a proper understanding of, and competence to deal with the affairs and products of thelicensee and devote sufficient time to their responsibilities; and(d) To independently assess and question the policies, processes and procedures of thelicensee , with the intent to identify and initiate management action on issues requiring improvement. (i.e. to act as checks and balances on management).January 2013HC-2.2.6
The duty of loyalty (mentioned in Paragraph HC-2.2.2 above) 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 thelicensee or use it for his personal profit, not to take business opportunities of thelicensee for himself, not to compete in business with thelicensee , and to serve thelicensee's interest in any transactions with alicensee in which he has a personal interest.January 2013HC-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 alicensee if:(a) He himself; or(b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or(c) Anotherlicensee of which he is adirector 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 2013HC-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 thelicensee .January 2013HC-2.3.2
The Board must establish and disseminate to its members and management, policies 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 whichapproved persons would have conflicts of interest that are material, should be formally and unanimously approved by the full Board. Best practice would dictate that anapproved person must:(a) Not enter into competition with thelicensee ;(b) Not demand or accept substantial gifts from thelicensee for himself orconnected persons ;(c) Not misuse thelicensee's assets;(d) Not use thelicensee's privileged information or take advantage of business opportunities to which thelicensee is entitled, for himself or his associates; and(e) Absent themselves from any discussions or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject or (proposed) transaction where a conflict of interest exists.Amended: January 2020
Added: January 2013HC-2.3.3
Licensees must have in place a board approved policy on the employment of relatives ofapproved persons and a summary of such policy must be disclosed in the annual report of thelicensee .April 2016HC-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 theapproved person . Theapproved 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, allapproved 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 alicensee , a manager, or other form of significant participation) to the Board (or the Nominations or Audit Committees) on an annual basis.January 2013HC-2.4.1A
The chief executive/general manager of the
licensee must disclose to the board of directors on an annual basis relatives of anyapproved persons occupyingcontrolled functions within thelicensee .April 2016HC-2.4.2
The board should establish formal procedures for:
(a) Periodic disclosure and updating of information by eachapproved person on his actual and potential conflicts of interest; and(b) Advance approval bydirectors or shareholders who do not have an interest in the transactions in which alicensee's approved person has a personal interest. The board should require such advance approval in every case.January 2013HC-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 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.January 2013HC-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 2013HC-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 thelicensee's accounting and financial practices;(b) Review the integrity of thelicensee's financial and internal controls and financial statements (particularly with reference to information passed to the Board — see 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 thelicensee's compliance with legal requirements;(d) Recommend the appointment, compensation and oversight of thelicensee's external auditor; and(e) Recommend the appointment of the internal auditor.January 2013HC-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 thelicensee'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 thelicensee's operations and performance and the effectiveness of internal controls;(b) Make use of self-assessments, stress/scenario tests, and/or independent judgments 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 thelicensee 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 thelicensee , and compliance with applicable laws, regulations and best practice standards. The systems must produce information on a timely basis.January 2013HC-3.2.3
The
licensee must set up an internal audit function, which reports directly to the Audit Committee and administratively to theCEO .January 2013HC-3.2.4
The
CEO must not be a member of the audit committee.January 2013HC-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 2013HC-3.3.2
A majority of the audit committee must have the financial literacy qualifications stated in Appendix A.
January 2013HC-3.3.3
The board should 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 2013HC-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 , thelicensee's CEO and chief financial officer must state in writing to the audit committee and the board as a whole that thelicensee's interim and annual financial statements present a true and fair view, in all material respects, of thelicensee's financial condition and results of operations in accordance with applicable accounting standards.January 2013HC-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 2013HC-4.2 HC-4.2 Nominating Committee
HC-4.2.1
The board must establish a Nominating Committee of at least three
directors which must:(a) Identify persons qualified to become members of the board of directors or Chief Executive Officer, Chief Financial Officer, Corporate Secretary and any other officers of thelicensee considered appropriate by the Board, with the exception of the appointment of the internal auditor which shall be the responsibility of the Audit Committee in accordance with Paragraph HC-3.2.1 above; 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 2013HC-4.2.2
The committee should include only
independent directors or, alternatively, onlynon-executive directors of whom a majority should beindependent directors and the chairman should be anindependent 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 2013HC-4.3 HC-4.3 Nominating Committee Charter
HC-4.3.1
The Nominating Committee must adopt a formal written charter which must, 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 2013HC-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 anindependent director , a statement that the board has determined that the criteria ofindependent 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 thelicensee ; and(ii) The candidate and otherdirectors of thelicensee .January 2013HC-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 adirector 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-executivedirector's independence.January 2013HC-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 thelicensee's facilities; and(c) Presentations regarding strategic plans, significant financial, accounting and risk management issues and compliance programs.January 2013HC-4.5.2
All continuing
directors must be invited to attend orientation meetings and alldirectors must continually educate themselves as to thelicensee's business and corporate governance.January 2013HC-4.5.3
Management, in consultation with the chairman of the board, should hold programs and presentations to
directors respecting thelicensee's business and industry, which may include periodic attendance at conferences and management meetings. The Nominating Committee shall overseedirectors' corporate governance educational activities.January 2013HC-5 HC-5 Remuneration of Approved Persons
HC-5.1 HC-5.1 Principle
HC-5.1.1
The
licensee must remunerateapproved persons fairly and responsibly.January 2013HC-5.2 HC-5.2 Remuneration Committee
HC-5.2.1
The Board must establish a remuneration committee of at least three
directors which must:(a) Review thelicensee's remuneration policies for theapproved persons , which must be approved by the shareholders and be consistent with the corporate values and strategy of thelicensee ;(b) Make recommendations regardingremuneration policies and amounts for approved persons to the whole board, taking account of totalremuneration including salaries, fees, expenses and employee benefits; and(c) Recommend Board member remuneration based on their attendance and performance.January 2013HC-5.2.2
The committee may be merged with the nominating committee.
January 2013HC-5.3 HC-5.3 Remuneration Committee Charter
HC-5.3.1
The committee must adopt a written charter which must, at a minimum, state the duties in Paragraph HC-5.2.1 and other matters in Appendix C of this Module.
January 2013HC-5.3.2
The committee should include only
independent directors or, alternatively, onlynon-executive directors of whom a majority areindependent directors and the chairman is anindependent 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 2013HC-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 thelicensee successfully, but thelicensee must avoid paying more than is necessary for that purpose.January 2013Alignment of All Staff Remuneration with Compliance with AML/CFT Requirements
HC-5.5 HC-5.5 Non-Executive Directors' Remuneration
HC-5.5.1
Remuneration ofindependent directors andnon-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 2013HC-5.6 HC-5.6 Senior Management's Remuneration
HC-5.6.1
Remuneration ofsenior management must be structured so that a portion of the total is linked to thelicensee's and individual's performance and aligns their interests with the interests of theshareholders .January 2013HC-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 2013HC-5.6.3
If a
senior manager is also adirector , hisremuneration as asenior manager must take into account compensation received in his capacity as adirector .January 2013HC-5.6.4
All share incentive plans must be approved by the
shareholders .January 2013HC-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 2013HC-5.6.6
All policies 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 2013HC-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 2013HC-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 thelicensee , reporting to and under the direction of the board. Thesenior management must include at a minimum:(a) ACEO ;(b) A chief financial officer;(c) A corporate secretary;(d) An internal auditor; and(e) Compliance Officer/MLRO.Amended: July 2022
January 2013HC-6.3 HC-6.3 Titles, Authorities, Duties and Reporting Responsibilities
HC-6.3.1
The board must adopt by-laws prescribing each
senior manager's title, authorities, duties, accountabilities and internal reporting responsibilities. This must be done with the advice of the Nominating Committee and in consultation with theCEO , to whom the other senior managers should normally report.January 2013HC-6.3.2
These provisions must include but should not be limited to the following:
(a) TheCEO must have authority to act generally in thelicensee's name, representing thelicensee's interests in concluding transactions on thelicensee's behalf and giving instructions to other senior managers andlicensee employees;(b) The chief financial officer must be responsible and accountable for:(i) The complete, timely, reliable and accurate preparation of thelicensee's financial statements, in accordance with the accounting standards and policies of thelicensee (see also HC-3.4.1); and(ii) Presenting the board with a balanced and understandable assessment of thelicensee'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 thelicensee's operations. This would include a review of the accuracy and reliability of thelicensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of thelicensee's risk management, control, and governance processes.January 2013HC-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 2013HC-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 2013HC-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 theCEO .January 2013HC-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.January 2013HC-7 HC-7 Communication between Board and Shareholders
HC-7.1 HC-7.1 Principle
HC-7.1.1
The
licensee must communicate withshareholders , encourage their participation, and respect their rights.January 2013HC-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 ofshareholders to attend;(c) Notices of meetings must encourageshareholders to attend shareholder meetings and, if not possible, to allowshareholders 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 toshareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents ofdirectors ;(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 wheredirectors are to be elected or removed the board must ensure that each person is voted on separately, so that theshareholders can evaluate each person individually;(g) The chairman of the meeting must encourage questions fromshareholders , including questions regarding thelicensee's corporate governance guidelines;(h) The minutes of the meeting must be made available toshareholders 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 theshareholders by the Chairman prior to any vote by theshareholders .January 2013HC-7.2.2
The
licensee should require alldirectors to attend and be available to answer questions fromshareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).January 2013HC-7.2.3
The
licensee should require its external auditor to attend the annual shareholders' meeting and be available to answershareholders' questions concerning the conduct and conclusions of the audit.January 2013HC-7.2.3A
Licensees must provide to the CBB, for its review and comment, at least 5 business days prior to communicating with the shareholders or publishing in the press, the draft agenda for any shareholders' meetings referred to in Paragraph HC-7.2.3C.Amended: July 2017
April 2016HC-7.2.3B
Licensees must ensure that any agenda items to be discussed or presented during the course of meetings which require the CBB's prior approval, have received the necessary approval, prior to the meeting taking place.April 2016HC-7.2.3C
The
licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary and extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.April 2016HC-7.2.3D
Within a maximum of 15 calendar days of any shareholders' meetings referred to in Paragraph HC-7.2.3C, the
licensee must provide to the CBB a copy of the minutes of the meeting.April 2016HC-7.2.4
A
licensee should maintain a website. Thelicensee 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. Thelicensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, thelicensee should grant a controlled access to such information to itsshareholders .January 2013HC-7.2.5
In notices of meetings at which
directors are to be elected or removed thelicensee 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 2013HC-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 withcontrollers to solicit their views and understand their concerns. The chairman must ensure that the views ofshareholders are communicated to the board as a whole. The chairman must discuss governance and strategy withcontrollers . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the board should encourageshareholders to help in evaluating thelicensee's corporate governance (see also HC-1.2 and 1.3 for other duties of the Chairman).January 2013HC-7.4 HC-7.4 Controllers
HC-7.4.1
In
licensees with one or morecontrollers , the chairman and otherdirectors must actively encourage thecontrollers to make a considered use of their position and to fully respect the rights of minority shareholders (see also HC-1.2 and 1.3 for other duties of the Chairman).January 2013HC-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 2013HC-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 Module PD 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) Thelicensee must publish the guidelines on its website, if it has a website;(c) At each annual shareholders' meeting the board must report on thelicensee'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 Module PD. Such information should be maintained on thelicensee's website or held at thelicensee's premises on behalf of the shareholders.Amended: January 2014
January 2013HC-8.2.2
[This Paragraph was deleted in January 2014]
Deleted: January 2014Board's Responsibility for Disclosure
HC-8.2.3
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 thelicensee and the nature, complexity and risks inherent in thelicensee's business activities. Disclosure policies must be reviewed for compliance with the CBB's disclosure requirements (see Chapter PD-1).January 2013HC-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 2013HC-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, eachlicensee must establish a Shari'a Supervisory Board consisting of at least three Shari'a scholars.January 2013HC-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 Shari'a Supervisory Board ("SSB") (where applicable) to ensure that information on compliance with Islamic Shari'a rules and principles is reported in a timely manner.January 2013HC-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 2013HC-9.2.4
The Corporate Governance Committee established under Chapter HC-9 shall comprise at a minimum of:
(a) Anindependent 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 who is an SSB member for the purpose of leading the Corporate Governance Committee on Shari'a-related governance issues (if any), and also to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the SSB; and(c) Anindependent 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 2013HC-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 SSB; and(b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.January 2013Appendix A Appendix A Audit Committee
Committee Duties
The Committee's duties shall include those stated in Paragraph HC-3.2.1.
January 2013Committee 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 .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 alicensee'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 thelicensee's financial statements;(c) Experience in evaluating financial statements that have a level of accounting complexity comparable to that which can be expected in thelicensee'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 2013Committee 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 thelicensee'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 thelicensee 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 thelicensee 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 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 thelicensee's internal auditing and compliance personnel and procedures and its internal controls and compliance procedures, risk management systems, and any changes in those;(g) Oversee thelicensee's compliance with legal and regulatory requirements, codes and business practices, and ensure that thelicensee 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 thelicensee's code of conduct.January 2013Committee 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 thelicensee 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 notdirectors of thelicensee 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 2013Committee 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 2013Committee 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 the above 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 provided at any regularly scheduled board meeting.
January 2013Appendix B Appendix B Nominating Committee
Committee Duties
The committee's duties shall include those stated in Paragraph HC-4.2.1.
January 2013Committee 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 tolicensee'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 2013Committee 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 2013Committee 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 2013Performance 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 the above 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 provided at any regularly scheduled board meeting.
January 2013Appendix C Appendix C Remuneration Committee
Committee Duties
The committee's duties shall include those stated in Paragraph HC-5.2.1.
January 2013Committee Duties and Responsibilities
In serving those duties the committee shall consider, and make specific recommendations to the board on, both
remuneration policy and individualremuneration packages for theCEO and other senior managers. Thisremuneration 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 determiningremuneration 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 thelicensee's corporate goals, agreed strategy, objectives and business plans and may consider thelicensee's performance and shareholder return relative to comparablelicensees , the value of awards toCEOs at comparablelicensees , and awards to theCEO 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 2013Committee 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 2013Committee 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 , theCEO or other approved persons, without seeking the approval of the board or management. Thelicensee shall provide appropriate funding for the compensation of any such persons.January 2013Performance 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 the above 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 provided at any regularly scheduled board meeting.
January 2013Appendix D Corporate Governance Disclosure to Shareholders
[The requirements of this Appendix were moved to Module PD in January 2014]
Deleted: January 2014GR GR Financing Companies General Requirements Module
GR-A GR-A Introduction
GR-A.1 GR-A.1 Purpose
Executive Summary
GR-A.1.1
The General Requirements 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; on the distribution of dividends; on controllers; and on suspension of business. Each set of requirements is contained in its own Chapter.
January 2013Legal 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
financing company 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'). The Module also contains requirements prescribed under Resolution No.(43) of 2011 governing the conditions of granting a license for the provision of regulated services and is issued under the powers available to the CBB under Article 44(c). Requirements regarding controllers (see Chapter GR-5) are also included in Regulations, to be issued by the CBB.January 2013GR-A.1.3
For an explanation of the CBB's rule-making powers and different regulatory instruments, see section UG-1.1.
January 2013GR-A.2 GR-A.2 Module History
Evolution of Module
GR-A.2.1
This Module was first issued in January 2013 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 2013GR-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-1.1.3 04/2013 Corrected reference to 'transaction' records. GR-6.1.8 10/2016 Added an additional requirement for cessation of business to be consistent with other Volumes of the CBB Rulebook. GR-4.1.7 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 exposures to controllers. GR-4.1.1B 04/2019 Added a new Paragraph on exposures to controllers. GR-1.2.1 01/2020 Amended Paragraph. GR-6.1.8 04/2020 Amended Paragraph. GR-7 01/2021 Added a new Chapter on Prepaid Cards. GR-2.1.1 01/2022 Amended Paragraph on change of licensee corporate and legal name. GR-2.1.2 01/2022 Amended Paragraph to refer to change in legal name. GR-4.3.3 – GR-4.3.4 07/2022 Amended Paragraphs on suitability and controllers. GR-4.3.4A 07/2022 Added a new Paragraph on the exemption of licensees offering limited scope of activities from certain requirements. GR-B GR-B Scope of Application
GR-B.1 GR-B.1 Financing Company Licensees
GR-B.1.1
The requirements in Module GR (General Requirements) apply to all
financing company licensees , thereafter referred to in this Module aslicensees .January 2013GR-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 alicensee . These records must be retained for at least ten years according to Article 60 of the CBB Law.January 2013GR-1.1.2
GR-1.1.1 includes accounts, books, files and other records (e.g. trial balance, general ledger, nostro/vostro statements, reconciliations, list of counterparties). It also includes records that substantiate the value of the assets, liabilities and off-balance sheet activities of the
licensee (e.g. client activity files and valuation documentation).January 2013GR-1.1.3
Separately, Bahrain Law currently requires other transaction 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).
Amended: April 2013
January 2013GR-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 thelicensee by the CBB.January 2013GR-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 , provided they are certified by an appropriate officer of thelicensee .January 2013GR-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 2013GR-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 2013GR-1.1.8
Paragraphs GR-1.1.1 to GR-1.1.7 apply to
licensees , with respect to all business activities.January 2013GR-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 2013GR-1.2.2
[This Paragraph has been deleted in July 2017].
Deleted: July 2017
January 2013GR-1.2.3
Rule GR-1.2.1 applies only to transactions relating to business booked in Bahrain by the
licensee .January 2013GR-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 ofshareholders' ,Directors' and management meetings;(c) Correspondence with the CBB and records relevant to monitoring compliance with CBB requirements;(d) Reports prepared by thelicensee's internal and external auditors; and(e) Employee training manuals and records.January 2013GR-1.3.2
[This Paragraph is intentionally left blank].
Added: April 2013Customer Records
GR-1.3.3
Record-keeping requirements with respect to customer records, including customer identification and due diligence records, are contained in Module FC (Financial Crime).
January 2013Promotional Schemes
GR-1.3.4
Licensees must maintain all materials related to promotional schemes as outlined in Section BC-1.1 for a minimum period of 5 years.January 2013GR-2 GR-2 Corporate and Trade Names
GR-2.1 GR-2.1 Vetting of Names
GR-2.1.1
Licensees must obtain CBB’s prior written approval for any change in their legal name.Licensees must notify the CBB of any change in their corporate name at least one week prior to effecting the proposed change.Amended: January 2022
Added: January 2013GR-2.1.2
In approving a change to a legal name, the CBB seeks to ensure that it is sufficiently distinct as to reduce possible confusion with other unconnected businesses, particularly those operating in the financial services sector. The CBB also seeks to ensure that names used by unregulated subsidiaries do not suggest those subsidiaries are in fact regulated.
Amended: January 2022
Added: January 2013GR-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 thelicensee is regulated by the Central Bank of Bahrain, the type of license and the legal status.January 2013GR-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 ashareholder vote.January 2013GR-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) the
licensee's liquidity, the adequacy of provisions against impaired credit facilities or other assets and the level of realised gains in reported profits.January 2013GR-3.1.3
To facilitate the prior approval required under Paragraph GR-3.1.1,
licensees must provide the CBB with:(a) Thelicensee's intended percentage and amount of proposed dividends for the coming year;(b) A letter of no objection from thelicensee'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 the liquidity position of the licensee.Amended: October 2017
January 2013GR-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 theircontrollers (as defined in Section GR-4.2 and subject to the limits as outlined in GR-4.3):(a) A newcontroller ;(b) An existing controller increasing its holding from below 20% to 20%;(c) An existing controller increasing its holding from above 20% to 30%;(d) An existing controller increasing its holding above 30% to 40%; or(e) An existing controller increasing its holding above 40%.January 2013GR-4.1.1A
Licensees must not incur or otherwise have an exposure (either directly or indirectly) to theircontrollers , includingsubsidiaries andassociated companies of suchcontrollers .Added: April 2019GR-4.1.1B
For the purpose of Paragraph GR-4.1.1A,
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-4.1.2
Condition 3 of the CBB's licensing conditions specifies, among other things, that
licensees must satisfy the CBB that theircontrollers are suitable and pose no undue risks to thelicensee (See Paragraph AU-2.3.1). There are also certain procedures which are set out in Articles 52 to 56 of the CBB Law oncontrollers .Licensees and theircontrollers must also observe the CBB's Capital Markets requirements in respect of changes in holdings of shares of listed companies.January 2013GR-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 2013GR-4.1.4
There are strict limits on changes in the holdings of shares held by
controllers inlicensees or the extent of voting control exercised bycontrollers inlicensees . These limits are outlined in Section GR-4.3. Failure to observe these limits may lead to imposition of enforcement provisions of the Rulebook on thelicensee and other penalties on thecontroller 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 2013GR-4.1.5
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 thecontroller becomes aware of the proposed change.January 2013GR-4.1.6
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 thelicensee . 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 newcontroller , or any of the changes listed to existingcontrollers 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 incontrollers . An approval ofcontroller will specify the applicable period for effecting the proposed acquisition of shares.January 2013GR-4.1.7
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, thelicensee must notify the CBB no later than 15 calendar days from the date on which those changes have occurred.Amended: January 2017
January 2013GR-4.1.8
The approval provisions outlined above do not apply to existing holdings or existing voting control by
controllers already approved by the CBB. The approval provisions apply to new/prospectivecontrollers or to increases in existing holdings/voting control as outlined in Paragraph GR-4.1.1.January 2013GR-4.1.9
Licensees are required to notify the CBB as soon as they become aware of events that are likely to lead to changes in theircontrollers . The criteria by which the CBB assesses the suitability ofcontrollers 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 forcontroller . 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 2013GR-4.1.10
Licensees must submit, within 3 months of their financial year-end, a report on theircontrollers (See Subparagraph BR-1.1.2(f)). This report must identify allcontrollers of thelicensee , as defined in Section GR-4.2 and the extent of their shareholding interests.January 2013GR-4.2 GR-4.2 Definition of Controller
GR-4.2.1
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 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 shares in aparent 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 2013GR-4.2.2
For the purposes of Paragraph GR-4.2.1, "associate" includes:
(a) The spouse, son(s) or daughter(s) of acontroller ;(b) An undertaking of which acontroller is a Director;(c) A person who is an employee or partner of thecontroller ; and(d) If the controller is a corporate entity, a Director of thecontroller , a subsidiary of thecontroller , or a Director of any subsidiary undertaking of thecontroller .January 2013GR-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 thelicensee , or under which they undertake to act together in exercising their voting power in relation to thelicensee .January 2013GR-4.3 GR-4.3 Suitability of Controllers
GR-4.3.1
All new
controllers or prospectivecontrollers (as defined in Section GR-4.2) of alicensee must obtain the approval of the CBB. Any increases to existingcontrollers' 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 existingcontrollers (as defined in the Section GR-4.2) or new/prospectivecontrollers of alicensee 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 acontroller according to the approval process outlined in Section GR-4.4 and Paragraph GR-4.1.5.January 2013GR-4.3.2
All
controllers or prospectivecontrollers (whether natural or legal persons) of alllicensees are subject to the approval of the CBB. Persons who intend to take ownership stakes of 10% or above of the voting capital of alicensee are subject to enhanced scrutiny, given the CBB's position ashome supervisor of suchlicensees . The level of scrutiny and the criteria for approval become more onerous as the level of proposed ownership increases. Existing and prospectivecontrollers 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 . Unregulated legal persons and natural persons are subject to greater due diligence and therefore have more stringent conditions to satisfy. Regulated legal persons must satisfy home country prudential requirements. The CBB may also contact their home regulators for information on their "fit & proper" status.January 2013GR-4.3.3
A natural person must not own or control more than 15% of the voting capital of a
licensee . Such person must satisfy the conditions in Paragraph GR-4.3.6 below.Amended: July 2022
January 2013GR-4.3.4
An unregulated legal person (including companies, trusts, partnerships) must not own or control more than 20% of the voting capital of a
licensee . All such persons must satisfy the conditions in Paragraph GR-4.3.7 below.Amended: July 2022
January 2013GR-4.3.4A
Financing company licensees offering limited scope of activities may be exempted from the requirements of GR-4.3.3 and GR-4.3.4.Added: July 2022GR-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 more than 20% of the voting capital of alicensee . 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 below. A regulated financial institution will not be approved as acontroller of a locally listedlicensee if it wishes to acquire more than 40% of the voting capital. Subject to the discretion of the CBB, regulated financial institutions from reputable jurisdictions may be allowed to own or control holdings of voting capital of unlisted locally incorporatedlicensees in excess of the above mentioned 40% level.January 2013GR-4.3.6
In assessing the suitability and the appropriateness of new/prospective
controllers (and existingcontrollers proposing to increase their shareholdings) who are natural persons, 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 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 acontroller 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 thelicensee ;(p) If the approval of a person as acontroller is or could be detrimental to the subject licensee, Bahrain's financial sector or the national interests of the Kingdom of Bahrain; and(q) Whether the person is able to deal with existingshareholders and the board in a constructive and co-operative manner.January 2013GR-4.3.7
In assessing the suitability and appropriateness of legal persons as
controllers (wishing to increase their shareholding) or new/potentialcontrollers , 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 thelicensee 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 connected counterparties and the implications for thelicensee as regards effective supervision of thelicensee 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 supervisors;(h) Whether the person has ever been refused a licence, authorisation, registration or other authority;(i) The person's track record as acontroller of, or investor in financial institutions;(j) The legitimate interests of creditors andshareholders of thelicensee ;(k) Whether the approval of acontroller is or could be detrimental to the subjectlicensee , Bahrain's financial sector or the national interests of the Kingdom of Bahrain;(l) Whether the person is able to deal with existingshareholders 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 2013GR-4.3.8
Regulated financial institutions wishing to acquire more than 20% 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 40+9 Recommendations on Money Laundering and Terrorist Financing;(b) Thehome supervisor of the person must give its formal written prior approval for (or otherwise raise no objection to) the proposed acquisition of thelicensee ;(c) Thehome supervisor of the person must confirm to the CBB that it will require the person to consolidate the activities of the concernedlicensee for regulatory and accounting purposes if the case so requires;(d) Thehome 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) Thehome supervisor of the person and the CBB must (if not already in place) conclude a Memorandum of Understanding in respect of supervisory responsibilities, exchange of information and mutual inspection visits;(f) The person must provide an acceptably worded letter of guarantee to the CBB in respect of its obligation to support thelicensee ; and(g) Thelicensee will be subject to the provisions of Chapter CM-5 in respect of exposures to itscontroller .January 2013GR-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 thelicensee . 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-4.1.5). These conditions will include the maximum permitted limit of holding or voting control exercisable by thecontroller .January 2013GR-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 Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006) ("CBB Law") and Module EN (Enforcement).
January 2013GR-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 2013GR-4.4.4
Article 56 of the CBB Law empowers the CBB 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 2013GR-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 theirclose links do not prevent the effective supervision of thelicensee and otherwise pose no undue risks to thelicensee . (See Paragraph AU-2.3.1).January 2013GR-5.1.2
Applicants for a
license must provide details of theirclose links , as provided for under Form 1 (Application for a License). (See Paragraph AU-4.1.1).January 2013GR-5.1.3
Licensees must submit to the CBB, within 3 months of their financial year-end, a report on theirclose links (See Subparagraph BR-1.1.2(g)). The report must identify all undertakings closely linked to thelicensee , as defined in Section GR-5.2.January 2013GR-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 thelicensee .January 2013GR-5.1.5
Licensees must provide information on undertakings with which they are closely linked, as requested by the CBB.January 2013GR-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 aparent undertaking of L;(b) U is asubsidiary undertaking of L;(c) U is asubsidiary undertaking of aparent 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 2013GR-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 thelicensee , or otherwise poses no undue risks to thelicensee , the CBB takes into account the following:(a) Whether the CBB will receive adequate information from thelicensee , and those with whom thelicensee hasclose links , to enable it to determine whether thelicensee is complying with CBB requirements;(b) The structure and geographical spread of thelicensee , its group and other undertakings with which it hasclose 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 2013GR-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 2013GR-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 2013GR-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. Thelicensee 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 2013GR-6.1.4
A
licensee in liquidation must continue to meet its contractual and regulatory obligations to its clients and creditors.January 2013GR-6.1.5
Once the
licensee believes that it has discharged 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 2013GR-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 2013GR-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 2013GR-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 2016GR-7 Prepaid Cards
GR-7.1 GR-7.1 General Requirements
GR-7.1.1
Licensees must place any prepaid card which is inactive for a period of six months on the “dormant” list.Added: January 2021