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RR-3.3.1

Bahraini Islamic bank licensees must establish and maintain, as part of their risk management framework, policy and procedures that describe the processes used to identify entities that are unconsolidated for regulatory purposes and the associated step-in risks. The policy and procedures must:

(a) Clearly describe the identification criteria that banks use to identify the step-in risk;
(b) Not be prescriptive or geared towards any particular type of entity. Given the case-by-case nature of the evaluation, the guidelines are envisaged as flexible enough to capture all entities that are unconsolidated for regulatory purposes and which pose significant step-in risk;
(c) Clearly describe the specific provisions of the laws or regulations and list the types of entity covered by those laws or regulations;
(d) Describe the internal function responsible for identifying, monitoring, assessing, mitigating and managing the potential step-in risk;
(e) Clearly describe the bank's own definition and criteria of 'materiality', as used to exclude immaterial entities in the bank's step-in risk assessment, and their rationale;
(f) Document the process to obtain the necessary information to conduct the regular self-assessments;
(g) Be reviewed regularly, and whenever there is any material change in the types of entity or in the risk profile of entities; and
(h) Require the 'Step-in Risk Self-assessment' to be included in the internal risk management processes, subject to independent controls.
July 2018