• HC-1 HC-1 The Board

    • HC-1.1 HC-1.1 Principle

      • HC-1.1.1

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

        January 2013

    • HC-1.2 HC-1.2 Role and Responsibilities

      • HC-1.2.1

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

        (a) The board's role as distinct from the role of the shareholders (who elect the board and whose interests the board serves) and the role of senior managers (whom the board appoints and oversees); and
        (b) The board's fiduciary duties of care and loyalty to the licensee and the shareholders (see HC-2.1).
        January 2013

      • HC-1.2.2

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

        (a) The overall business performance and strategy for the licensee;
        (b) Causing financial statements to be prepared which accurately disclose the licensee's financial position;
        (c) Monitoring management performance;
        (d) Convening and preparing the agenda for 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 the licensee.
        January 2013

      • HC-1.2.3

        The precise functions reserved for the Board, and those delegated to management and committees will vary, dependent upon the business of the 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 2013

      • HC-1.2.4

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

        January 2013

      • HC-1.2.5

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

        (a) Review the licensee's business plans and the inherent level of risk in these plans;
        (b) Assess the adequacy of capital to support the business risks of the licensee;
        (c) Set performance objectives; and
        (d) Oversee major capital expenditures, divestitures and acquisitions.
        January 2013

      • HC-1.2.6

        Licensees must notify the CBB in writing of all major proposed changes to the strategy and/or corporate plan of the licensee prior to implementation.

        January 2013

      • HC-1.2.7

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

        (a) Approving budgets and reviewing performance against those budgets and key performance indicators; and
        (b) The management of the licensee's compliance risk.
        January 2013

      • HC-1.2.8

        When a new director is inducted, the chairman of the board, or by the licensee'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 2013

      • HC-1.2.9

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

        January 2013

      • Risk Recognition and Assessment

        • HC-1.2.10

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

          January 2013

        • HC-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) The licensee's operations, individually and collectively are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of its activities;
          (b) The licensee's operations are supported by an appropriate control environment. The compliance, risk management and financial reporting functions must be adequately resourced, independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas. The Board must additionally ensure that management develops, implements and oversees the effectiveness of comprehensive know your customer standards, as well as on-going monitoring of accounts and transactions, in keeping with the requirements of relevant law, regulations and best practice (with particular regard to anti-money laundering measures). The control environment must maintain necessary client confidentiality and ensure that the privacy of the licensee is not violated, and ensure that clients' rights and assets are properly safeguarded; and
          (c) Where the Board has identified any significant issues related to the licensee's adopted governance framework, appropriate and timely action is taken to address any identified adverse deviations from the requirements of this Module.
          January 2013

        • HC-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 2013

        • HC-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 2013

    • HC-1.3 HC-1.3 Decision Making Process

      • HC-1.3.1

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

        January 2013

      • HC-1.3.2

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

        January 2013

      • HC-1.3.3

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

        January 2013

      • HC-1.3.4

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

        Meetings per year 75% Attendance requirement
        4 3
        5 4
        6 5
        7 5
        8 6
        9 7
        10 8
        January 2013

      • HC-1.3.5

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

        January 2013

      • HC-1.3.6

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

        January 2013

      • HC-1.3.7

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

        January 2013

      • HC-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 2013

      • HC-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 2013

      • HC-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. All directors must receive the same board information. At the same time, directors have a legal duty to inform themselves and they must ensure that they receive adequate and timely information and must study it carefully (See also HC-7 for other duties of the Chairman).

        January 2013

      • HC-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 2013

      • HC-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 each non-executive director and should require each non-executive director to inform the Committee before he accepts any board appointments to another licensee.

        January 2013

      • HC-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 concern licensees or financial institutions within the same group.

        January 2013

      • HC-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 2013

    • HC-1.4 HC-1.4 Independence of Judgment

      • HC-1.4.1

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

        January 2013

      • HC-1.4.2

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

        January 2013

      • HC-1.4.3

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

        January 2013

      • HC-1.4.4

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

        January 2013

      • HC-1.4.5

        At least half of a licensee's board should be non-executive directors and at least three of those persons should be independent directors. (Note the exception for controlled companies in Paragraph HC-1.5.2.)

        January 2013

      • HC-1.4.6

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

        January 2013

      • HC-1.4.7

        The Chairman and/or Deputy Chairman must not be the same person as the Chief Executive Officer.

        January 2013

      • HC-1.4.8

        The Chairman must not be an Executive Director.

        January 2013

      • HC-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 2013

      • HC-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. Each independent director shall provide the board with all necessary and updated information for this purpose.

        January 2013

      • HC-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 only independent directors are present, except as may otherwise be determined by the independent directors themselves.

        January 2013

      • HC-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 an independent director if reappointed.

        Added: January 2020

      • HC-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 2020

    • HC-1.5 HC-1.5 Representation of all Shareholders

      • HC-1.5.1

        Each director must consider himself as representing all shareholders and must act accordingly. The board must avoid having representatives of specific groups or interests within its membership and must not allow itself to become a battleground of vested interests. If the licensee has controllers (as defined by 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 2013

      • HC-1.5.2

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

        January 2013

      • HC-1.5.3

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

        January 2013

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

      • HC-1.6.1

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

        January 2013

      • HC-1.6.2

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

        January 2013

      • HC-1.6.3

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

        January 2013

      • HC-1.6.4

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

        January 2013

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

      • HC-1.7.1

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

        January 2013

      • HC-1.7.2

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

        January 2013

    • HC-1.8 HC-1.8 Committees of the Board

      • HC-1.8.1

        The board must create specialised committees when and as such committees are needed. In addition to the Audit, Remuneration and Nominating Committees described elsewhere in this Module, these may include an Executive Committee to review and make recommendations to the whole board on the licensee's actions, or a Risk Committee to identify and minimize specific risks of the licensee's business.

        January 2013

      • HC-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 2013

      • HC-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 2013

      • HC-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 2013

      • HC-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 2013

      • HC-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 2013

      • HC-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 the licensee. The establishment of committees should not mean that the role of the Board is diminished, or that the Board becomes fragmented.

        January 2013

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

      • HC-1.9.1

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

        January 2013

      • HC-1.9.2

        The evaluation process must include:

        (a) Assessing how the board operates, especially in light of Chapter HC-1;
        (b) Evaluating the performance of each committee in light of its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;
        (c) Reviewing each director's work, his attendance at board and committee meetings, and his constructive involvement in discussions and decision making;
        (d) Reviewing the board's current composition against its desired composition with a view toward maintaining an appropriate balance of skills and experience and a view toward planned and progressive refreshing of the board; and
        (e) Recommendations for new directors to replace long-standing members or those members whose contribution to the board or its committees (such as the audit committee) is not adequate.
        January 2013

      • HC-1.9.3

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

        January 2013

      • HC-1.9.4

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

        January 2013