MIE-2.2 MIE-2.2 Ordering a Formal Investigation
Appointment of Investigator
CMSDmay, at any time by order in writing, direct any official of the CMSDspecified in the order to conduct a formal investigationinto the affairs of any SRO, or member of an SRO, or listed company or issuer of securities, or any other capital market service provideror personsassociated with the securitiesmarket or any other person, and to report thereon to the CBB, as per Article 121 of the CBB Law.(b) The CMSDmay also appoint, with the approval of the Governor, any professional firm to conduct such formal investigationreferred to in paragraph (a) of this rule.Amended: July 2021
Before it proceeds with an
investigation, the CMSDwill satisfy itself that there are grounds to investigate under the statutory provisions that give the CBB powers to appoint investigators. If the statutory test is met, it will decide whether to carry out an investigationafter considering all the relevant circumstances. To assist its consideration of cases, the CMSDwill apply a set of assessment criteria stated in paragraph MIE-2.2.4. Not all of the criteria will be relevant to every case and there may be other considerations which are not mentioned in the list, but which are relevant to a particular case. The CMSD'sassessment will include considering whether using alternative procedures is more appropriate, taking into account the overall circumstances of the personconcerned and the wider context. Another consideration will be whether the CBB is under a general duty to take action on behalf of, or otherwise to provide assistance to another domestic or overseas authority.
investigationcan be ordered in three ways. Firstly, it can be when a preliminary investigationopened under section MIE-1.11 can be converted into a formal investigationbased on the findings, facts and evidence gathered during the preliminary investigation. Secondly, prior to completion of the preliminary investigation, it may be determined that it would be appropriate to order a formal investigationon the case. Thirdly, a formal investigationcan also be ordered without any history of a preliminary investigationon the matter.
Factors Considered while Deciding on a Formal Investigation
Without prejudice to the generality of the powers of the CBB to order formal
investigations, the factors that may be considered by the CBB, while deciding to order a formal investigation, include but are not limited to:(a) Whether the subject matter is a CBB priority in the context of the CBB's objectives and responsibilities, as per Articles 3 and 4 of the CBB Law.(b) Whether an action would address a problematic industry practice.(c) Whether the conduct undermines the fairness or integrity of the Kingdom's securitiesmarket.(d) Whether an action would provide an opportunity for the CBB to address violative conduct targeted to a specific market participant, or group of personsthat might not otherwise be familiar with the CBB, or the protections afforded by the securitieslaws.(e) Whether an action would present a good opportunity to coordinate with other regulators or authorities in the Kingdom and overseas authorities.(f) Whether the conduct can be addressed by other regulators or authorities.(g) Whether an action would alert the investing public of a new type of securitiesfraud or misconduct.(h) The magnitude of the potential violations involved in the investigation, considering:(i) The severity and seriousness of the conduct;(ii) The length of time the conduct continued, or whether it is ongoing;(iii) The number of violations;(iv) Whether recidivists were involved;(v) Whether violations were repeated;(vi) The amount of harm or potential harm to victims;(vii) The amount of ill-gotten gains to the violators;(viii) Whether victims were specifically targeted based on personal or affinity group characteristics;(ix) for capital market service providers, whether the conduct involved officers, directors, or senior management;(x) Whether gatekeepers (such as accountants or attorneys) or securitiesindustry professionals are involved.(i) The resources required to investigate the potential violations, considering:(i) The complexity of the potential violations;(ii) The approximate staff man days required over the course of the investigation;(iii) The duration of the relevant conduct;(iv) The number of potential violators;(v) The number and location of potential witnesses;(vi) The volume of evidence that the staff must collect and review, such as trading records, corporate documents and email correspondence;(vii) The level of analysis required for complex data and evidence, such as auditor workpapers, bluesheets, or financial data;(viii) The number and location of witnesses and the scheduling of the examination of persons;(ix) Travel requirements.(j) Whether there is an urgent need to file an enforcement action, such as an investigationinto ongoing fraud or conduct that poses a threat of imminent harm to investigators.Amended: July 2021
Investigation of Certain Cases
The combination of the priority given to certain types of misconduct over others and the CBB's risk-based approach to enforcement means that certain cases will be subject to enforcement action and others will not, even where they may be similar in nature or impact. The CBB's choice as to the use of the enforcement tool is therefore a question of how the CBB uses its resources effectively and efficiently and how it ensures that it is an effective regulator.Amended: July 2021
Where unauthorised business poses a significant risk to the investor protection objective or to the CBB's other regulatory objectives, unauthorised activity will be a matter of serious concern for the CBB. The CBB deals with cases of suspected unauthorised activity in a number of ways and it will not use its
investigationpowers and/or take enforcement action in every single instance.
The CBB's primary aim in using its
investigationand enforcement powers in the context of suspected unauthorised activities is to protect the interests of investors. The CBB's priority will be to confirm whether or not a regulated activity has been carried on in the Kingdom of Bahrain by someone without licensed authorisation or exemption, and if so, the extent of that activity and whether other related contraventions have occurred. It will seek to assess the risk to investors' assets and interests arising from the activity as soon as possible.
The CBB often takes a different approach to that described above where
capital market service providersno longer meet the licensing conditions. The CBB views the licensing conditions as being fundamental requirements for licensing and authorisation and it will generally take action in all such cases which come to its attention and which cannot be resolved through the use of supervisory tools. The CBB does not generally appoint investigatorsin such cases. Instead, capital market service providersmay first be given an opportunity to correct the failure. If the CBB licensee does not take the necessary remedial action, the CBB will consider whether its license to carry out regulated businesses should be varied and/or cancelled. However, there may be cases where the CBB considers that a formal investigationinto a licensing condition concern is appropriate.Amended: July 2021
When the CBB has information regarding possible contravention of the Issuing and Offering of Securities Module, or listing rules, or the Disclosure Standards (DIS) Module, or any violation or contravention relating to the primary market, the CBB will use its investigative powers and/or take enforcement action, as deemed fit.
Cases where Other Authorities or SROs have an Interest
Action before or following an
investigationmay include, for example, referring some issues or information to other authorities or SROs for consideration, including where another authority or SRO appears to be better placed to take action. For example, when considering whether to use its powers to conduct formal investigationsinto market misconduct, the CBB will take into account whether another regulatory authority or an SROis in a position to investigate and deal with the matters of concern (as far as a licensed exchange or market operator or licensed clearing house and depository is concerned, the CBB will consider the extent to which the licensed exchange or market operator, or licensed clearing house and depository has adequate and appropriate powers to investigate and deal with a matter itself). Equally, in some cases the CBB may investigate and/or take action in parallel with another domestic or international authority or SRO.Amended: July 2021
Sources of Cases
The CBB may be alerted to possible contraventions or breaches by complaints from the public or CBB licensees, or listed companies or issuers of
securitiesby referrals from other authorities, or through its own enquiries and supervisory activities. CBB licensees or listed companies, or issuers of securitiesmay also bring their own contraventions to the CBB's attention, as they are obliged to do so under the CBB Law, rules and regulations.
Assisting Overseas Regulators
Providing assistance upon request by an overseas authority will be governed by Article 122 of the CBB Law and the Cooperation and Exchange of Information with Overseas Authorities (ICO) Module.