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Location: Central Bank of Bahrain Volume 1—Conventional Banks
  • Central Bank of Bahrain Volume 1—Conventional Banks

    • Part A


      Table of Contents
        Module Title Module
      Code
      Date last
      changed
       
      Introduction Users' Guide UG Oct 16 PDF Version
      High Level Standards Licensing Requirements LR Oct 18 PDF Version
      Principles of Business PB Jan 11 PDF Version
      High-level Controls HC Jan 19 PDF Version
      Auditors and Accounting Standards AU July 17 PDF Version
      General Requirements GR Dec 18 PDF Version
      Business Standards Business and Market Conduct BC Jan 19 PDF Version
      Capital Adequacy CA    
      CA Table of Contents -- Jul 15 PDF Version
      Part 1: Definition of Capital   Oct 18 PDF Version
      Part 2: Credit Risk   Apr 16 PDF Version
      Part 3: Other Risks   Oct 18 PDF Version
      Credit Risk Management CM Apr 18 PDF Version
      Operational Risk Management OM Oct 18 PDF Version
      Financial Crime FC Jan 19 PDF Version
      Prudential Consolidation and Deduction Requirements
      [was deleted in January 2015]
      PCD Jan 15  
      Training and Competency TC Apr 17 PDF Version
      Internal Capital Adequacy Assessment Process ICAAP July 18 PDF Version
      Stress Testing ST July 18 PDF Version
      Domestic Systemically Important Banks DSIBs July 18 PDF Version
      Reputational Risk Management RR July 18 PDF Version
      Liquidity Risk Management LM Aug 18 PDF Version
      Reporting Requirements CBB Reporting Requirements BR Oct 18 PDF Version
      Public Disclosure Requirements PD July 18 PDF Version
      Enforcement & Redress Compensation CP Oct 14 PDF Version
      Enforcement EN July 18 PDF Version

      • Introduction

        • UG Users' Guide

          • UG-A Introduction

            • UG-A.1 Purpose

              • Executive Summary

                • UG-A.1.1

                  The Central Bank of Bahrain ("the CBB"), in its capacity as the regulatory and supervisory authority for all financial institutions in Bahrain, issues regulatory instruments that licensees and other specified persons are legally obliged to comply with. These regulatory instruments are contained in the CBB Rulebook. Much of the Rulebook's substantive content was previously issued by the Bahrain Monetary Agency ('the BMA'), and was carried forward when the CBB replaced the BMA in September 2006.

                  October 07

                • UG-A.1.2

                  The Rulebook is divided into 7 Volumes, covering different areas of financial services activity. These Volumes are being progressively issued. Volumes 1 and 2, covering conventional bank licenseesG and Islamic bank licenseesG respectively, were issued in July 2004 and January 2005; Volume 3, covering insurance licenseesG , was issued in April 2005. Volume 4 was issued in April 2006. Volume 5 (covering specialised licenseesG ), and Volume 6 (capital markets), are being issued progressively. Volume 7 on collective investment undertakings (CIUs) was issued in May 2012.

                  Amended: April 2013
                  Amended: July 2012
                  Amended: October 2011
                  Amended: April 2011
                  October 2007

                • UG-A.1.3

                  This Users' Guide provides guidance on (i) the status and application of the Rulebook, with specific reference to Volume 1 (Conventional Banks); (ii) the structure and design of the Rulebook; and (iii) its maintenance and version control.

                  October 07

                • UG-A.1.4

                  Volume 1 (Conventional Banks) covers Conventional Bank Licensees.G It contains prudential requirements (such as rules on minimum capital and risk management). Collectively, these requirements are aimed at ensuring the safety and soundness of CBB-licensed conventional banks and providing an appropriate level of protection to the clients of such banks.

                  October 07

              • Legal Basis

                • UG-A.1.5

                  This Module contains the CBB's Directive (as amended from time to time) regarding the User's Guide for Volume 1, of the CBB Rulebook, and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all conventional bank licensees (including their approved persons).

                  Amended: January 2011
                  October 07

                • UG-A.1.6

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.G

                  October 07

            • UG-A.2 Module History

              • UG-A.2.1

                This Module was first issued in July 2004 by the BMA together with the rest of Volume 1 (Conventional Banks). 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.

                October 07

              • UG-A.2.2

                When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 1 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                October 07

              • UG-A.2.3

                A list of recent changes made to this Module are detailed in the table below:

                Module Ref. Change Date Description of Changes
                UG-2.3 &UG-3.1 4/2006 Revised dating and update system.
                UG-A.1 10/2007 Updated to reflect new CBB Law; various references changed and new Rule A-1.6 introduced categorising this Module as a Directive.
                UG-A.2 10/2007 Module History table updated to reflect other 01/2007 changes.
                UG-1.1.2 10/2007 Explanation of powers under CBB Law in UG-1.1 and new Rules UG-1.2.6 and UG-1.2.7 to reflect the CBB Law; other material reordered as a consequence.
                UG-A.1.5 01/2011 Clarified legal basis and converted as a rule to be consistent with other parts of the CBB Rulebook.
                UG-1.3.2, UG-1.4.1 01/2011 Underlined defined term.
                UG-2.1.2 01/2011 Updated to reflect structure of Volume 5.
                UG-A.1.2 04/2011 Updated to reflect issue date of Volumes 5 and 6.
                UG-A.1.2 10/2011 Minor correction to reflect proper Glossary term.
                UG-A.1.2, UG-1.2.2, UG-1.2.8, UG-2.1.1, UG-2.1.3 and UG-2.2.2 07/2012 Various minor corrections to reflect structure of Rulebook, including issuance of Volume 7.
                UG-3.2 and Annex 01/2013 Amended as CBB Rulebook only now available on CBB Website.
                UG-A.1.2, UG-2.1.2 and UG-2.1.3 04/2013 Minor corrections.
                UG-1.3.4 10/2016 Added section to clarify reference to 'he' 'his' 'she' and 'her'.

          • UG-1 Rulebook Status and Application

            • UG-1.1 Legal Basis

              • General

                • UG-1.1.1

                  Volume 1 (conventional banks) of the CBB Rulebook is issued by the CBB pursuant to the Central Bank of Bahrain and Financial Institutions Law 2006 ('the CBB Law'). The CBB Law provides for two formal rulemaking instruments: Regulations (made pursuant to Article 37) and Directives (made pursuant to Article 38). Other articles in the CBB Law also prescribe various specific requirements (for example, requirements relating to licensing (Articles 44 to 49), or the notification and approval of controllers of licensees (Articles 52 to 56)).

                  October 07

                • UG-1.1.2

                  The Purpose Section of each Module specifies in all cases the rulemaking instrument(s) used to issue the content of the Module in question, and the legal basis underpinning the Module's requirements.

                  October 07

                • UG-1.1.3

                  Conventional bank licenseesG that are members of the Bahrain Stock Exchange are reminded that they are also subject to the membership and operating rules of that exchange. These rules are issued by the Bahrain Stock Exchange under powers given the Exchange under the Bahrain Stock Exchange Law, Decree No. 4 of 1987 (as amended by Decree No. 21 of 2002). These rules are additional to the requirements contained in Volume 1 (conventional banks).

                  October 07

              • CBB's Rulemaking Instruments

                • UG-1.1.4

                  Regulations are made pursuant to Article 37 of the CBB Law. These instruments have general application throughout the Kingdom and bind all persons ordinarily affected by Bahraini legislative measures (i.e. residents and/or Bahraini persons wherever situated).

                  October 07

                • UG-1.1.5

                  Because Regulations have wide general application, they are subject to two important safeguards: (i) the CBB is under a duty to consult with interested parties and to review and consider their comments; and (ii) the finalised Regulations only become effective after they are published in the Official Gazette.

                  October 07

                • UG-1.1.6

                  Where Regulations are used to support Rulebook requirements, their contents are included in the CBB Rulebook, as well as published in the Official Gazette. They only have legal effect, however, when published in the Official Gazette.

                  October 07

                • UG-1.1.7

                  Directives are made pursuant to Article 38 of the CBB Law. These instruments do not have general application in the Kingdom, but are rather addressed to specific licensees (or categories of licensees), approved persons or registered persons. Directives are binding on those to whom they are addressed.

                  October 07

                • UG-1.1.8

                  Unlike Regulations, there is no duty on the CBB to either consult with addressees or publicise a Directive by publishing it in the Official Gazette (save that an addressee must obviously have actual or constructive notice of a Directive). However, as a matter of general policy, the CBB also consults on Rulebook content issued by way of a Directive.

                  October 07

            • UG-1.2 Status of Provisions

              • UG-1.2.1

                The contents of the Rulebook have the formal status either of Rules or Guidance.

                October 07

              • UG-1.2.2

                Rules have a binding effect and breaches of Rules constitute breaches of the CBB Law. If a licensee breaches a Rule to which it is subject, it is liable to enforcement action by CBB and, in certain cases, criminal proceedings by the Office of the Public Prosecutor.

                Amended: July 2012
                October 07

              • UG-1.2.3

                Guidance is not binding. It is material that helps inform a particular Rule or set of Rules, or provides other general information. Where relevant, compliance with Guidance will generally lead the CBB to assess that the business has complied with the rule(s) to which the Guidance relates. Conversely, failure to comply with Guidance will generally be viewed by the CBB as tending to suggest breach of a Rule.

                October 07

              • UG-1.2.4

                The status of each Paragraph within the Rulebook can be identified by its text format, as follows:

                (a) Rules are in bold, font size 12. The Paragraph reference number is also highlighted in a coloured box.
                (b) Guidance is in normal type, font size 11.
                October 07

              • UG-1.2.5

                The CBB's interpretation of all Rules and Guidance in this Volume is final.

                Amended: January 2011
                October 07

              • UG-1.2.6

                Paragraph UG-1.2.5 does not prejudice the rights of an authorised person to make a judicial appeal, should it believe that the CBB is acting unreasonably or beyond its legal powers.

                October 07

              • UG-1.2.7

                All Rulebook content has the formal status of at least a Directive. Some Rulebook content may also have the status of Regulations. Rulebook content that is categorised as a Rule is therefore legally mandatory and must be complied with by those to whom the content is addressed.

                October 07

              • UG-1.2.8

                [This Paragraph was deleted in July 2012].

                Deleted: July 2012

              • UG-1.2.9

                The CBB's enforcement powers and processes are set out in Module EN.

                October 07

            • UG-1.3 Application

              • UG-1.3.1

                Volume 1 of the CBB Rulebook for the most part applies only to conventional bank licenseesG and to individuals undertaking key functions in those licensees (so-called "approved personsG "), except for representative offices of banks which are subject to the relevant requirements in Volume 5 (specialised activities) and Islamic banks which are covered in Volume 2.

                October 07

              • UG-1.3.2

                A few Rules and Guidance have general applicability (and thus also have the formal status of a Regulation): for instance no one may carry on banking business within or from Bahrain without the appropriate license, and controllersG of licensees are also subject to various requirements.

                Amended: January 2011
                October 07

              • UG-1.3.3

                Each Module in Volume 1 contains a Scope of Application Chapter, setting out which Rules and Guidance apply to which particular type of conventional bank licenseeG or person, for the Module concerned. In addition, each Rule (or Section containing a series of Rules) is drafted such that its application is clearly highlighted for the user. Finally, each Module, in its Purpose Section, specifies in all cases the rulemaking instrument(s) used to issue the content of the Module in question (i.e. Directive and/or Regulation), and the legal basis underpinning the Module's requirements.

                October 07

              • UG-1.3.4

                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'.

                Added: October 2016

            • UG-1.4 Effective Date

              • UG-1.4.1

                Volume 1 (conventional banks) of the CBB Rulebook was first issued in July 2004. It replaces all regulations previously issued with respect to conventional banksG .

                Amended: January 2011
                October 07

          • UG-2 Rulebook Structure and Format

            • UG-2.1 Rulebook Structure

              • Rulebook Volumes

                • UG-2.1.1

                  The Rulebook is divided into 7 Volumes, covering different areas of financial services activity, as follows:

                  Volume 1 Conventional Banks

                  Volume 2 Islamic Banks

                  Volume 3 Insurance

                  Volume 4 Investment Business

                  Volume 5 Specialised Activities

                  Volume 6 Capital Markets

                  Volume 7 Collective Investment Undertakings

                  Amended: July 2012
                  October 07

                • UG-2.1.2

                  Volume 5 (Specialised Activities) covers money changersG ; financing companies; representative officesG ; administratorsG ; trust service providers, micro-finance institutions and providers of ancillary services to the financial sector.

                  Amended: April 2013
                  Amended: January 2011
                  October 07

              • Rulebook contents (overview)

                • UG-2.1.3

                  Except for Volumes 5, 6 and 7 the basic structure of each Rulebook is the same. Each Volume starts with a contents page and User's Guide. Subsequent material is organised underneath the following headings:

                  (a) High-level Standards;
                  (b) Business Standards;
                  (c) Prudential Requirements;
                  (d) Reporting Requirements;
                  (e) Enforcement and Redress; and, where appropriate
                  (f) Sector Guides.
                  Amended: April 2013
                  Amended: July 2012
                  Amended: January 2011
                  October 07

                • UG-2.1.4

                  Volume 5 is organised by the Category of specialised firm concerned, whilst Volume 6 by subject area (authorised exchanges; issuers of securities etc).

                  October 07

                • UG-2.1.5

                  The material in Volumes 1-4 is contained in Modules, each covering a specific area of requirements (e.g. High-level Controls). In turn, each Module is divided into Chapters, Sections and Paragraphs, as detailed below.

                  October 07

                • UG-2.1.6

                  Each Volume has its own appendix Volume containing relevant reporting and authorisation forms; a glossary; and any supplementary information. In all cases, the main Volume is called "Part A" and the appendix Volume is called "Part B".

                  October 07

            • UG-2.2 Volume Structure

              • Modules

                • UG-2.2.1

                  Rulebook Volumes are subdivided into Modules, arranged in groups according to their subject matter, underneath the headings listed in Paragraph UG-2.1.3 above.

                  October 07

                • UG-2.2.2

                  Each Module in a Volume is referenced using a two-or three-letter code which is usually a contraction or abbreviation of its title. These codes are used for cross-referencing within the text.

                  Amended: July 2012
                  October 07

              • Chapters

                • UG-2.2.3

                  Each Module consists of Chapters, categorised into two types:

                  (a) A standard introductory Chapter (referenced with a letter: e.g. UG-A); and
                  (b) Chapters containing the substantive content of the Module (referenced with a number: e.g. CA-1, CA-2, etc.)

                  October 07

                • UG-2.2.4

                  The introductory Chapters summarise the purpose of the Module, its history (in terms of changes made to its contents). A separate introductory Chapter also prescribes the scope of application of the Module's requirements.

                  October 07

              • Sections and Paragraphs

                • UG-2.2.5

                  Chapters are further sub-divided into Sections (numbered consecutively after the Chapter number: e.g. FC-1.1, FC-1.2, FC-1.3 etc). In turn, Sections are sub-divided into Paragraphs (numbered consecutively after the Chapter and Section numbers: e.g. FC-1.1.1, FC-1.1.2, FC-1.1.3 etc.). Where appropriate, sub-Section headings may be used, to guide the reader through a Section: sub-Section headings are italicised and unnumbered, and act purely as an indicator (without limitation as to the status of the Paragraphs that follow.

                  October 07

              • Table of Contents

                • UG-2.2.6

                  Each Volume's contents page lists all the Modules contained within it (Part A), and the information contained in the relevant appendix Volume (Part B).

                  October 07

                • UG-2.2.7

                  The contents page of each Module lists the Chapters, Sections and the latest version date of each Section in issue.

                  October 07

            • UG-2.3 Format and Page Layout

              • Headers

                • UG-2.3.1

                  The top of each page in the Rulebook identifies the Volume, Module and Chapter in question. Each Module is a separate document. New Chapters start on a fresh page.

                  October 07

              • Footers

                • UG-2.3.2

                  The bottom of each page in the Rulebook (on the left hand side) identifies the Module in question, its Section and page number. Page numbering starts afresh for each Section: the total number of pages in each respective Section is shown as well as the individual page number. The bottom right hand side shows an end-calendar quarter issue date. The Contents Page for each Module, and each Section in a Module, are each given their own issue date. In addition, the Module Contents page lists the latest issue date for each Section in that Module. The Contents page thus acts as a summary checklist of the current version in force for each Section. Further explanation is provided in Section UG-3.1 below.

                  October 07

              • Defined Terms

                • UG-2.3.3

                  Defined terms used in the Rulebook are underlined. Each Volume has its own glossary listing defined terms and giving their meaning. Definitions of terms used apply only to the Volume in question. It is possible for the same term to be used in a different Volume with a different meaning.

                  October 07

              • Cross-references

                • UG-2.3.4

                  Any cross-references given in a text state the Module code, followed (where appropriate) by the numbering convention for any particular Chapter, Section or paragraph being referred to. For example, the cross-reference FC-1.2.3 refers to the third Paragraph in the second Section of the first Chapter of the Financial Crime Module. Many references will be quite general, referring simply to a particular Module, Chapter or Section rather than a specific Paragraph.

                  October 07

              • Text Format

                • UG-2.3.5

                  Each Paragraph is assigned a complete reference to the Module, Chapter, and Section, as well as its own Paragraph number, as explained in UG-2.3.4 above. The format of the Paragraph reference and Paragraph text indicates their status as either a Rule or Guidance, as explained in UG-1.2.4 above.

                  October 07

                • UG-2.3.6

                  When cross-referring to specific Paragraphs, and it is important to make clear the status of the Paragraph in question as a Rule or Guidance, then the words 'Rule' or 'Guidance' may be used instead of 'Paragraph', followed by the reference number (e.g. 'As required by Rule FC-1.1.1, licensees must...').

                  October 07

          • UG-3 Rulebook Maintenance and Access

            • UG-3.1 Rulebook Maintenance

              • Quarterly Updates

                • UG-3.1.1

                  Any changes to the Rulebook are generally made on a quarterly cycle (the only exception being when changes are urgently required), in early January, April, July and October. When changes are made to a Module, the amended Sections are given a new version date, in the bottom right-hand page.

                  October 07

                • UG-3.1.2

                  The contents page for each amended Module is also updated; the table of contents is changed to show the new version date for each amended Section (in the 'Date Last Changed' Column), and the contents page itself is also given its own new version date in the bottom right-hand corner. The Module contents pages thus act as a checklist for hard-copy users to verify which are the current version dates for each Section in that Module.

                  October 07

                • UG-3.1.3

                  A summary of any changes made to a Module is included in the Module History Section of each Module. The table summarises the nature of the change made, the date of the change and the Module components and relevant pages affected. The Module History can thus be used to identify which pages were updated within individual Sections.

                  October 07

                • UG-3.1.4

                  Hard-copy users of the CBB Rulebook can check that they have the latest copy of each Module's contents pages, by referring to the overall table of contents for each Volume. The Volume table of contents lists the date each Module was last changed; users can use this table to check the date showing in the bottom right-hand corner of each Module's contents page.

                  October 07

                • UG-3.1.5

                  The website version of the Rulebook acts at all times as the definitive version of the Rulebook. CBB tries to limit changes as much as possible, in order to minimise the compliance burden on licensees. The updates are posted to the CBB website, together with a summary of changes for that quarter. Licensees are in addition e-mailed the summary of each quarter's changes. Hard-copy users are required to print off the updated pages from the website to incorporate in their Rulebook in order to keep it current.

                  October 07

              • Changes to Numbering

                • UG-3.1.6

                  In order to limit the knock-on impact of inserting or deleting text on the numbering of text that follows the change, the following conventions apply:

                  (a) Where a new Paragraph is to be included in a Section, such that it would impact the numbering of existing text that would follow it, the Paragraph retains the numbering of the existing Paragraph immediately preceding it, but with the addition of an "A"; a second inserted Paragraph that follows immediately afterwards would be numbered with a "B", and so on. For example, if a new Paragraph needs to be inserted after UG-3.1.6, it would be numbered UG-3.1.6A; a second new Paragraph would be numbered UG-3.1.6B, and so on. This convention avoids the need for renumbering existing text that follows an insertion. The same principle is applied where a new Section or a new Chapter needs to be inserted: for example, UG-3.1A (for a new Section), and UG-3A (for a new Chapter)
                  (b) Where a Paragraph is deleted, then the numbering of the old Paragraph is retained, and the following inserted in square brackets: '[This Paragraph was deleted in April 2006.]' (The date given being the actual end-calendar quarter date of the deletion.) The same principle is applied with respect to Sections and Chapters.
                  October 07

                • UG-3.1.7

                  Where many such changes have built up over time, then the CBB may reissue the whole Section, Paragraph, Chapter or even Module concerned, consolidating all these changes.

                  October 07

            • UG-3.2 Rulebook Access

              • Availability

                • UG-3.2.1

                  The Rulebook is available on the CBB website.

                  Amended: January 2013

              • Queries

                • UG-3.2.2

                  Questions regarding the administration of the Rulebook (e.g. website availability, the updating of material etc) should be addressed to the Rulebook Section of the Licensing & Policy Directorate:
                  Rulebook Section
                  Licensing & Policy Directorate
                  Central Bank of Bahrain
                  PO Box 27
                  Manama
                  Kingdom of Bahrain

                  Tel: + 973 - 17 54 7413
                  Fax: + 973 - 17 53 0228
                  E-mail: rulebook@cbb.gov.bh
                  Web: www.cbb.gov.bh

                  Questions regarding interpretation of the policy and requirements contained in the Rulebook should be addressed to the licensee's regular supervisory point of contact within the CBB.

                  Amended: January 2013
                  October 07

          • Annex CBB Rulebook Order Form [This form was deleted in January 2013]

            Deleted: January 2013

      • High Level Standards

        • LR Licensing Requirements

          • LR-A Introduction

            • LR-A.1 Purpose

              • Executive Summary

                • LR-A.1.1

                  The Licensing Requirements Module sets out the Central Bank of Bahrain's ('CBB's) approach to licensing providers of regulated conventional banking servicesG in the Kingdom of Bahrain.

                  October 2007

              • Legal Basis

                • LR-A.1.2

                  This Module contains the CBB's Regulations, Resolutions and Directive (as amended from time to time) relating to Licensing Requirements 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 (as amended from time to time) with respect to determining fees categories due for licensees and services provided by the CBB. The Module also 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 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 and Resolutions in this Module are applicable to all conventional bank licenseesG (including their approved personsG ).

                  Amended: January 2016
                  Amended: January 2013
                  Amended: July 2012
                  Amended: October 2011
                  Amended: January 2011
                  Amended: October 2010
                  October 2007

                • LR-A.1.2A

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  Amended: January 2011

                • LR-A.1.3

                  Persons wishing to undertake regulated banking servicesG are required to be licensed by the CBB as a conventional bank licenseeG . Regulated banking servicesG consist of two determinant activities undertaken in combination — deposit-taking and providing credit. In addition, various supplementary regulated activities may also be undertaken. These activities are defined in Rule LR-1.3.1.

                  October 2007

                • LR-A.1.4

                  In other words, persons wishing to undertake deposit-taking must also undertake the activity of providing credit. In addition, they may undertake any of the other activities falling within the definition of regulated banking servicesG . Deposit-taking may not be undertaken on its own, without the activity of providing credit also being undertaken. Persons wishing to provide credit without undertaking deposit-taking may qualify as a finance company, a Category of specialised licensee (see separate regulations regarding these: they will fall under Volume 5 of the CBB Rulebook, when issued in the future).

                  Amended: January 2013
                  Amended: April 2011
                  October 2007

              • License Categories

                • LR-A.1.5

                  Conventional bank licenseesG are divided into two sub-categories: conventional retail banksG and conventional wholesale banksG . Certain specific regulatory requirements may differ between these two sub-categories, where appropriate to address their different risk profiles. (See Section LR-1.2.)

                  Amended: January 2011
                  October 2007

                • LR-A.1.6

                  Conventional retail banksG may undertake transactions in any currency, with both Bahraini residents and non-residents. To qualify as a conventional retail bankG , the activity of providing credit must account for a significant portion of the institution's business (defined, broadly, as accounting for over 20% of an institution's assets — See Paragraphs LR-1.2.4LR-1.2.8).

                  October 2007

                • LR-A.1.7

                  Conventional wholesale banksG may also undertake transactions without restriction, when dealing with the Government of Bahrain and its agencies; CBB bank licensees; and non-residents. However, they may only undertake transactions denominated in Bahraini Dinar and/or with a resident of the Kingdom of Bahrain, if these are wholesale in nature. Wholesale transactions are defined in terms of transaction size (broadly, BD 7 million or more for a credit or deposit transaction, and US$ 100,000 or more for an investment transaction — See Paragraphs LR-1.2.9LR-1.2.26).

                  October 2007

                • LR-A.1.8

                  Collectively, licensed providers of regulated banking servicesG are called conventional bank licenseesG . Bahrain-incorporated conventional bank licenseesG are called Bahraini conventional bank licenseesG . Conventional bank licenseesG that are incorporated in an overseas jurisdiction and operate via a branch presence in the Kingdom of Bahrain are called branches of foreign conventional bank licenseesG . The same naming convention applies to the two sub-categories of conventional bank license: thus, Bahraini conventional retail bank licenseesG and Bahraini conventional wholesale bank licenseesG are those incorporated in Bahrain, whilst retail branches of foreign banksG and wholesale branches of foreign banksG are those incorporated in an overseas jurisdiction and operating in Bahrain via a branch presence.

                  Amended: July 2017
                  October 2007

                • LR-A.1.9

                  Conventional bank licenseesG may not hold themselves out as an Islamic bank. They may nonetheless enter into Shari'a compliant transactions, subject to certain restrictions outlined in Section LR-1.4.

                  October 2007

              • Licensing Conditions

                • LR-A.1.10

                  Conventional bank licenseesG are subject to 8 licensing conditions, mostly specified at a high level in Module LR, 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, such as relevant Basel Committee standards.

                  October 2007

                • LR-A.1.11

                  The requirements contained in Chapter LR-2 represent the minimum conditions that have to be met in each case, both at the point of licensing and on an on-going basis thereafter, in order for licensed status to be retained.

                  October 2007

              • Information Requirements and Processes

                • LR-A.1.12

                  Chapter LR-3 specifies the processes and information requirements that have to be followed for applicants seeking a conventional bank licenseG , 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.

                  October 2007

              • Representative Offices, Finance Companies and Ancillary Service Providers

                • LR-A.1.13

                  Representative officesG of conventional banksG , and providers of ancillary services in the financial sector are not covered in Volume 1 (Conventional Banks) of the Rulebook. Requirements covering representative offices (for all financial services firms) and providers of ancillary services to the financial sector are included in Volume 5.

                  Amended: July 2017
                  Amended: July 2012
                  October 2007

                • LR-A.1.14

                  Representative officesG of conventional banksG are subject to requirements contained in Volume 5 (Specialised Licensees), common Modules and specific Modules for representative offices. Until such time as all parts of Volume 5 (Specialised Licensees) of the CBB Rulebook is issued, providers of ancillary services to the financial sector remain subject to the requirements contained in the CBB's "Standard Conditions and Licensing Criteria".

                  Amended: July 2017
                  Amended: July 2012
                  October 2007

                • LR-A.1.15

                  This paragraph was merged with paragraph LR-A.1.13 above in October 2007]

                • LR-A.1.16

                  This paragraph was merged with paragraph LR-A.1.14 above in October 2007]

                • LR-A.1.17

                  This paragraph was deleted in October 2007.

            • LR-A.2 Module History

              • Evolution of Module

                • LR-A.2.1

                  This Module (Module LR — "Licensing and Authorisation Requirements") was first issued in July 2004, as part of the initial release of Volume 1 of the CBB Rulebook. It was subsequently reissued in full in July 2006 (and renamed "Licensing Requirements").

                  October 2007

                • LR-A.2.2

                  The reissued Module was one of several Modules modified to reflect the introduction of the CBB's new integrated license framework. Module LR was amended to reflect the new conventional bank licenses introduced by the framework, and to more closely align its presentation with that found in other CBB Rulebook volumes.

                  October 2007

                • LR-A.2.3

                  The reissued Module is dated July 2006. 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.

                  October 2007

                • LR-A.2.3A

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 1 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  October 2007

                • LR-A.2.4

                  A list of recent changes made to this Module is provided below:

                  Module Reference Change Date Description of Changes
                  LR-6 01/2005 New guidance on record-keeping.
                  Whole Module 07/2006 Whole Module reissued to reflect integrated license framework: new license categories and updated licensing conditions introduced.
                  LR-A.1.2 10/2007 New Rule LR-A.1.2 introduced, categorising this Module as a Directive.
                  LR-1.4 10/2007 New section added on Shari'a Compliant Transactions
                  LR-A.2.8 10/2007 Changes to provision of information requirements as result of CBB Law
                  LR-3 10/2007 Revised requirements due to new CBB Law
                  LR-4 10/2007 New Chapter LR-4 on application and license fees (incorporating material on fees previously contained in Module GR).
                  LR-2.5.10 04/2008 Minimum daily cash reserve balance with the CBB increased from 5% to 7%.
                  LR-1.2.16 04/2008 Lower threshold of $100,000 for investment business transactions for wholesale banks
                  LR-2.5.10 07/2009 Minimum daily cash reserve balance with the CBB brought back to 5% from 7%.
                  LR 10/2010 Various minor amendments to ensure consistency in formatting of CBB Rulebook.
                  LR-A.1.2 10/2010 Revised legal basis.
                  LR-1A 10/2010 New Chapter on Approved Persons moved from Section HC-1.2 and from Paragraphs in Section HC-1.5.
                  LR-3.1.12A 10/2010 Added new paragraph, requiring capital to be injected prior to license being issued.
                  LR-3.1.15 10/2010 Additional details pertaining to information required, within 6 months of a license being issued.
                  LR-3.1.15A 10/2010 Transition rule added to comply with new requirement under Subparagraph HC-3.1.15(j).
                  LR-4.2.13 10/2010 Amendment to guidance.
                  LR 01/2011 Various minor amendments to ensure consistency in formatting of CBB Rulebook.
                  LR-A.1.2 01/2011 Clarified legal basis.
                  LR-3.1.5 and 3.1.5A 01/2011 Clarified the use of letters of guarantee as part of the licensing process.
                  LR-4.2.9A 01/2001 Added the requirement for annual fees for SPV's to be in line with the requirements of Resolution No (1) of 2007.
                  LR-A.1.4 04/2011 Corrected issue date.
                  LR-3.1.3 04/2011 Clarified the appointment of a representative as part of the licensing process.
                  LR-3.1.5(l) 04/2011 Deleted reference to Phase 1.
                  LR-4.2.9A 04/2011 Clarified the payment of annual license fees for SPVs.
                  LR-1.4.6 07/2011 Added Paragraph concerning Shari'a compliant financing contracts for the purchase of land and property.
                  LR-2.8.1 07/2011 Updated language to reflect current terminology.
                  LR-A.1.2 10/2011 New reference added to reflect the issuance of Resolution No.(43) of 2011.
                  LR-3.3 10/2011 Clarified language on cancellation of a license or closure of a branch to be in line with other Volumes of the CBB Rulebook.
                  LR-1A.1.23 04/2012 Last sentence of Paragraph deleted as cross reference no longer applies.
                  LR-A.1.2 07/2012 Added reference to Regulation No 1 of 2007 pertaining to regulated services.
                  LR-A.1.13 and LR-A.1.14 07/2012 Amended Paragraphs to reflect updates for Volume 5
                  LR-B.1.3 07/2012 Corrected cross-reference.
                  LR-1.2.10 07/2012 Reference to 'other banks' deleted.
                  LR-1A.1.20 07/2012 Changed Guidance to Rule.
                  LR-1A.2.4 07/2012 Added cross-reference.
                  LR-1A.3.3 07/2012 Corrected cross-reference.
                  LR-2.8.1 and LR-2.8.2 07/2012 Attributed reference to CBB Law to correct Paragraph.
                  LR-3.1.18 07/2012 Corrected cross-reference.
                  LR-4.2.9B 07/2012 Added guidance regarding annual fees of SPVs of Bahrain domiciled CIUs.
                  LR-A.1.2 01/2013 Updated legal basis.
                  LR-A.1.4 01/2013 Updated reference to when Volume 5 will be issued.
                  LR-B.1.1 01/2013 Updated prohibition as per issuance of Resolution No.(16) for the year 2012.
                  LR-1.1 01/2013 References added to requirements under Resolution No.(16) for the year 2012.
                  LR-1.3.18 01/2013 Corrected typo.
                  LR-1.3.36 to LR-1.3.39 01/2013 Updated reference to CIU to be aligned with Volume 7.
                  LR-1A.1.3 01/2013 Clarified approval requirements for controlled functions for Bahrain operations.
                  LR-4.2 07/2013 Amended due date and collection process for annual license fee.
                  LR-1A.1 10/2013 Aligned controlled functions with Module TC.
                  LR-4.2.9A 10/2013 Clarified annual license fees for newly established SPVs.
                  LR-1.2.20 01/2014 Updated to refer to licensed exchangeG .
                  LR-1A.1.3 01/2014 Correction made to clarify which controlled functions are in relation to Bahrain operations.
                  LR-1A.1.17 01/2014 Amended requirement for notification for appointment of financial instrument trader and moved requirement to Paragraph BR-5.1.7.
                  LR-2.8.1 01/2014 Corrected to refer to proper accounting standards.
                  LR-1A.1 04/2014 Amended Rule on notification requirements dealing with approved persons.
                  LR-1.4.5 04/2015 Corrected reference in Rule to 'customers'.
                  LR-A.1.2 01/2016 Legal basis updated to reflect Resolution No (23) of 2015.
                  LR-1.4.4 01/2016 Expanded the scope of Shari'a compliant investments allowed for the bank's own account.
                  LR-1A 01/2016 Amended to reflect the issuance of Resolution No. (23) of the year 2015 dealing with approved persons.
                  LR-1A.1.20B 04/2016 Clarified approval process for applicants for approved persons.
                  LR-1A.1.18C 07/2016 Clarified Guidance on authorised representative for approval of controlled functions.
                  LR-3.1.11 10/2016 Added definition of certification
                  LR-2.5.2 04/2017 Deleted Paragraph on minimum paid up capital requirement.
                  LR-2.5.2A 04/2017 Added new paragraph on minimum paid up capital requirement for locally incorporated retail banks.
                  LR-2.5.2B 04/2017 Added new paragraph on minimum paid up capital requirement for locally incorporated wholesale banks.
                  LR-2.5.6 04/2017 Amended paragraph to delete the requirement of endowment capital for overseas wholesale banks.
                  LR-1A.1.7 07/2017 Amended paragraph.
                  LR-2.2.2 07/2017 Amended paragraph.
                  LR-3.4 07/2017 Added new Section on Publication of the decision to grant, cancel or amend a license.
                  LR 07/2017 Changed the term "Overseas banks" to "branches of foreign banks".
                  LR-1A.1.18 04/2018 Amended Paragraph.
                  LR-3.1.1 04/2018 Amended Paragraph.
                  LR-1.2.20A 10/2018 Added new Paragraph on Providing Trust Services.
                  LR-1.2.23 10/2018 Amended Paragraph.
                  LR-1.3.1 10/2018 Amended Paragraph adding—Providing Trust Services.
                  LR-1.3.4 10/2018 Amended Paragraph.
                  LR-1.3.54—LR-1.3.57 10/2018 Added new Sub-section on Providing Trust Services.
                  LR-2.5.2A 10/2018 Amended paragraph on minimum total shareholders' equity maintained by retail bank licensees.
                  LR-2.5.2B 10/2018 Amended paragraph on minimum total shareholders' equity maintained by wholesale bank licensees.

                • LR-A.2.5

                  [This Paragraph was deleted in October 2007]

                  Amended: January 2013

          • LR-B Scope of Application

            • LR-B.1 Scope and Prohibitions

              • LR-B.1.1

                The licensing requirements in Chapter LR-1 have general applicability, in that they prevent any person from providing (or seeking to provide) regulated banking servicesG within or from the Kingdom of Bahrain, unless they have been licensed as a conventional bank licenseeG by the CBB or marketing any financial servicesG unless specifically allowed to do so by the CBB (see Rule LR-1.1.1).

                Amended: January 2013
                October 2007

              • LR-B.1.2

                In addition, no one may use the term 'bank' in their trading or corporate name, or otherwise hold themselves out to be a bank in Bahrain, unless they hold the appropriate license from CBB (see Rule LR-1.1.2).

                October 2007

              • LR-B.1.3

                The remaining requirements in Chapters LR-1 to LR-4 (besides those mentioned in Section LR-B.1 above) apply to all those licensed by the CBB as a conventional bank licenseeG , 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.

                Amended: July 2012
                October 2007

              • LR-B.1.4

                These remaining requirements prescribe the types of license offered; their associated operating conditions; the licensing conditions that have to be satisfied in order to secure and retain a license; and the processes to be followed when applying or varying a license, or when a license is withdrawn.

                October 2007

              • LR-B.1.5

                The Rules referred to above are supported by statutory restrictions contained in the CBB Law (cf. Articles 39 to 41 and 44 to 51).

                October 2007

            • LR-B.2 [This section was merged with section LR-B.1 in October 2007

          • LR-1 Requirement to Hold a License

            • LR-1.1 Conventional Bank Licensees

              • General Prohibitions

                • LR-1.1.1

                  No person may:

                  (a) Undertake (or hold themselves out to undertake) regulated banking servicesG 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 any financial servicesG 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 offer financial servicesG .
                  Amended: January 2013
                  Amended: October 2010
                  October 2007

                • LR-1.1.1A

                  In accordance with Resolution No.(16) for the year 2012 and for the purpose of Subparagraph LR-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 servicesG in return for monetary payment or some other form of valuable consideration.

                  Added: January 2013

                • LR-1.1.1B

                  Persons in breach of Subparagraph LR-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-10.3).

                  Added: January 2013

                • LR-1.1.2

                  According to Article 41(a) of the CBB Law, only persons licensed to undertake regulated banking servicesG (or regulated Islamic banking servicesG ), may use the term 'bank' in their corporate or trading names, or otherwise hold themselves out to be a bank.

                  October 2007

                • LR-1.1.3

                  Licensees are not obliged to include the word 'bank' in their corporate or trading names; however, they are required to make clear their regulatory status in their letter heads, customer communications, website and so on.

                  Amended: July 2012
                  October 2007

                • LR-1.1.4

                  For the purposes of Rule LR-1.1.2, persons will be considered in breach of this requirement if they attempt to operate as, or incorporate a bank in Bahrain with a name containing the word "bank" (or the equivalents in any language), without holding the appropriate CBB license or obtaining the prior approval of the CBB.

                  October 2007

              • Licensing

                • LR-1.1.5

                  Persons wishing to be licensed to undertake regulated banking servicesG within or from the Kingdom of Bahrain must apply in writing to the CBB.

                  October 2007

                • LR-1.1.6

                  An application for a license must be in the form prescribed by the CBB and must contain:

                  (a) A business plan specifying the type of business to be conducted;
                  (b) Application forms for all controllersG ; and
                  (c) Application forms for all controlled functionsG .
                  Amended: October 2010
                  October 2007

                • LR-1.1.7

                  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.
                  Amended: October 2010
                  October 2007

                • LR-1.1.8

                  Detailed rules and guidance regarding information requirements and processes for license applications can be found in Section LR-3.1. As specified in Paragraph LR-3.1.14, the CBB will provide a formal decision on a license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB.

                  October 2007

                • LR-1.1.9

                  In granting new licenses, the CBB will specify the specific types of regulated banking serviceG for which a license has been granted, and on what basis (i.e. conventional retail bankG or conventional wholesale bankG ).

                  October 2007

                • LR-1.1.10

                  All applicants for conventional bank licensesG must satisfy the CBB that they meet, by the date of their license, the minimum conditions for licensing, as specified in Chapter LR-2. Once licensed, conventional bank licenseesG must maintain these criteria on an on-going basis.

                  October 2007

                • LR-1.1.11

                  Conventional bank licenseesG must not carry on any commercial business in the Kingdom of Bahrain or elsewhere other than banking business and activities directly arising from or incidental to that business.

                  October 2007

                • LR-1.1.12

                  Rule LR-1.1.11 is intended to restrict bank licensees from undertaking any material non-financial business activities. The Rule does not prevent a bank undertaking commercial activities if these directly arise from their financial business: for instance, in the context of Islamic contracts, such as murabaha, ijara and musharaka, where the bank may hold the physical assets being financed or leased. Nor does it restrict a bank from undertaking commercial activities if, in the judgment of the CBB, they are incidental and do not detract from the financial nature of the bank's operations: for example, a bank may rent out spare office space in its own office building, and provide services associated with the rental (e.g. office security or cleaning).

                  October 2007

                • LR-1.1.13

                  Rule LR-1.1.11 applies to the legal entity holding the bank license. A bank may thus own subsidiaries that undertake non-financial activities, although the CBB generally does not support the development of significant commercial activities within a banking group. Capital invested in such subsidiaries by a bank would be deducted from the bank's capital base under the CBB's capital rules (see Module CA). In addition, the CBB may impose restrictions — such as dealings between the bank and its commercial subsidiaries — if it was felt necessary to limit the bank's exposure to non-financial risks.

                  October 2007

            • LR-1.2 License Sub-Categories

              • Retail vs. Wholesale

                • LR-1.2.1

                  Depending on the nature of activities undertaken, conventional bank licenseesG must be licensed either as a conventional retail bankG or as a conventional wholesale bankG .

                  October 2007

                • LR-1.2.2

                  The nature of activities allowed under each license sub-Category is specified below (cf. Rule LR-1.2.4 and the following Paragraphs). The conventional retail bankG Category replaces the Full Commercial Bank (conventional principles) Category that existed prior to July 2006; the conventional wholesale bankG Category replaces the Offshore Banking Unit and Investment Bank License (conventional principles) categories.

                  Amended: July 2012
                  October 2007

                • LR-1.2.3

                  Banks licensed prior to the introduction of these new license categories in July 2006 are not required to reapply for their license. Rather, their new license Category is to be confirmed by an exchange of letters with the CBB, and the issuance of a new license certificate. Where (prior to July 2006) the same legal entity holds multiple licenses, the CBB will agree transitional measures aimed at rationalizing the number of licenses held.

                  October 2007

              • Conventional Retail Banks

                • LR-1.2.4

                  Conventional retail banksG are allowed to transact with both residents and non-residents of the Kingdom of Bahrain, and in both Bahrain Dinar and foreign currencies.

                  October 2007

                • LR-1.2.5

                  To qualify as a conventional retail bankG , the person concerned must undertake (as a minimum), the activities of deposit-taking and providing credit (as defined in Rules LR-1.3.16 and LR-1.3.18). The activity of providing credit must be a significant part of the bank's business, relative to other activities.

                  October 2007

                • LR-1.2.6

                  When assessing the significance of credit-related activities, in the context of Rule LR-1.2.5, the CBB would normally expect to see loans and other credit-related activity (such as overdraft facilities, loan commitments, letters of credit, guarantees and other activities falling under the definition of providing credit), to constitute at least 20% of the total assets of the institution. Other activities and criteria may also be taken into account, if the CBB believes they are of a credit-related nature, and that such activities constitute a significant share of the bank's overall business.

                  October 2007

                • LR-1.2.7

                  In the case of new applicants, the above assessment is made based on the financial projections and business plan provided as part of the license application. Where existing licensees fail to satisfy the condition contained in Rule LR-1.2.5, the CBB will initiate discussion with the licensee as to the appropriateness of their license category: this may result in the licensee being required to change its license category. A branch of an overseas bank may nonetheless be allowed to hold a bank license in Bahrain, even if it fails to undertake the activities specified in Rule LR-1.2.5, providing that it undertakes other regulated banking services in Bahrain and its head office is licensed as a bank in its home country.

                  October 2007

                • LR-1.2.8

                  The purpose of Rule LR-1.2.5 is to ensure that, besides deposit-taking, the core banking activity of providing credit forms part of the definition of conventional retail banksG , and accounts for a significant share of their business, in keeping with their intermediation function.

                  October 2007

              • Conventional Wholesale Banks

                • LR-1.2.9

                  Conventional wholesale banksG are allowed to transact with residents of the Kingdom of Bahrain (irrespective of currency), and in Bahrain Dinar (irrespective of the location of the counterparty), subject to the conditions and exemptions specified in Rules LR-1.2.11, LR-1.2.13, LR-1.2.16 and LR-1.2.18. Foreign currency transactions with non-residents are not subject to these conditions.

                  October 2007

                • LR-1.2.10

                  The effect of Rule LR-1.2.9 is to limit the on-shore/Bahrain Dinar customer business of conventional wholesale banksG to larger transactions. By definition, their on-shore client base is therefore wholesale in nature (i.e. large corporates and high net-worth individuals).

                  Amended: July 2012
                  October 2007

                • LR-1.2.11

                  To qualify as a conventional wholesale bankG , the person concerned must undertake (as a minimum), the activities of deposit-taking and providing credit (as defined in Rules LR-1.3.16 and LR-1.3.18).

                  October 2007

                • LR-1.2.12

                  The purpose of Rule LR-1.2.11 is to ensure that the core banking activities of deposit taking and providing credit form part of the definition of conventional wholesale banksG . However, unlike conventional retail banksG , there is no requirement that the activity of providing credit must be a significant part of the bank's business, relative to other activities. This is to allow conventional wholesale banksG greater flexibility as to the nature of their activities; it also recognises that, because of the wholesale nature of their client base, there is less need to limit the scale of non-credit related risks to which their depositors may be exposed. Rule LR-1.2.11 does not in any way prevent conventional wholesale banksG from developing the provision of credit as a major activity, should they wish to. The Guidance provided in Paragraph LR-1.2.7 with regards to overseas banks is also applicable to Rule LR-1.2.11.

                  October 2007

                • LR-1.2.13

                  Conventional wholesale banksG may transact with residents of Bahrain and/or in Bahrain Dinar, with respect to the activities (a) to (e) listed in Rule LR-1.3.1, only where the individual transaction is BD 7 million or above (or its foreign currency equivalent).

                  October 2007

                • LR-1.2.14

                  To comply with Rule LR-1.2.13, the initial amount taken as a deposit must be BD 7 million or above (or its equivalent in foreign currency); however, subsequent additions and withdrawals from that deposit account may be for any amount. The initial amount taken as deposit may be split between different types of accounts (e.g. call, 3-month and 6-month accounts) — providing at least BD 7 million is taken from the customer on the same day and the bank's records can demonstrate this. Where subsequent withdrawals lead to a zero balance on an account (or the aggregate of accounts where more than one was originally opened), then a further BD 7 million must be deposited to re-start the 'wholesale' relationship, before additional deposits for smaller amounts may be made.

                  October 2007

                • LR-1.2.15

                  Similarly, with respect to credit-related transactions, the initial facility amount advised must be for BD 7 million or above (or its equivalent); but drawdowns (and repayments) under the facility may be for any amount, as may any subsequent changes to the facility amount. If the facility is fully repaid, then a further BD 7 million transaction must be agreed in order to re-start the 'wholesale' relationship.

                  October 2007

                • LR-1.2.16

                  Conventional wholesale banksG may transact with residents of Bahrain and/or in Bahrain Dinar, with respect to the activities (f) to (l) listed in Rule LR-1.3.1, only where the individual transaction is US$ 100,000 or above (or its foreign currency equivalent).

                  October 2007
                  Amended: April 2008

                • LR-1.2.17

                  With respect to activities (f) and (g) (dealing in financial instrumentsG as principal / agent), the threshold refers to the individual transaction size. With respect to activities (h) and (i) (managing / safeguarding financial instrumentsG ), the threshold refers to the initial investment amount. With respect to activity (j) (operating a collective investment schemeG ), the threshold refers to the minimum investment required for participation in the scheme. With respect to activities (k) and (l) (arranging deals in / advising on financial instrumentsG ), the threshold refers to the size of the deal arranged or of the investment on which advice is being given.

                  October 2007

                • LR-1.2.18

                  Note that the threshold with respect to activities (h) and (i) applies to the initial investment amount: where a subsequent distribution to a client or a reduction in the mark to market value of the investment reduces the initial investment amount below US$ 100,000 it is still considered a wholesale transaction. The threshold in Rule LR-1.2.16 applies to a client even if the same client satisfies the BD 7m threshold in Rule LR-1.2.13, with respect to deposit/credit activities. Finally, the initial amount taken as an investment may be split between two or more investment products — providing at least US$ 100,000 is taken from the customer on the same day and the bank's records can demonstrate this.

                  Amended: April 2008
                  October 2007

                • LR-1.2.19

                  Conventional wholesale bank licenseesG may only undertake activities (m) and (n) listed in Rule LR-1.3.1, on behalf of residents of Bahrain and/or in Bahrain Dinar, where the customer concerned meets either of the thresholds specified in LR-1.2.13 or LR-1.2.16 (in which case, activities (m) and (n) may be undertaken for any amount).

                  October 2007

                • LR-1.2.20

                  Notwithstanding Rules LR-1.2.13, LR-1.2.16 and LR-1.2.19, conventional wholesale banksG are allowed to transact in Bahrain Dinar (or any other currency) for any amount with the Government of Bahrain, Bahrain public sector entities (as defined in the Guidelines for completion of the Prudential Information Reports), and CBB bank licensees. Conventional wholesale banksG may also transact in Bahrain Dinar for any amount, where required to fund their normal operating expenses; or when investing for their own account in securities listed on a licensed exchangeG .

                  Amended: January 2014
                  October 2007

                • LR-1.2.20A

                  Conventional wholesale bank licenseesG may undertake activity (o) listed in Rule LR-1.3.1, on behalf of residents and/or non-residents of the Kingdom of Bahrain and/or in Bahrain Dinar or foreign currency, where the customer concerned meets either of the thresholds specified in LR-1.2.13 or LR-1.2.16.

                  Added: October 2018

                • LR-1.2.21

                  Any transactions entered into prior to 1 July 2006 which may be in breach of the conditions specified in Rules LR-1.2.13, LR-1.2.16 and LR-1.2.19 must be notified to the CBB. These transactions will be allowed to mature.

                  October 2007

                • LR-1.2.22

                  Since the conventional wholesale bankG regime represents an easing of the restrictions on on-shore business that previously applied to offshore bank licensees (i.e. OBUs and IBLs), there should be few transactions of the type specified in Rule LR-1.2.21 — they are likely to exist only where individual ad-hoc exemptions may have been previously granted by the CBB, and these exemptions went further than those now being applied across the Board to all conventional wholesale bank licenseesG .

                  October 2007

                • LR-1.2.23

                  Conventional wholesale banksG must seek prior written CBB approval if they wish to undertake transactions of the type specified in Rules LR-1.2.13, LR-1.2.16, LR-1.2.19 and LR-1.2.20A if the transactions are below the thresholds mentioned in LR-1.2.13 or LR-1.2.16.

                  Amended: October 2018
                  Amended: October 2009
                  October 2007

                • LR-1.2.24

                  The approval requirement in Rule LR-1.2.23 only has to be made once, prior to the licensee starting to undertake such transactions. Its purpose is to allow the CBB to monitor the initiation of such business by conventional wholesale bank licenseesG , and to check that adequate systems and controls have been in place, so that such transactions are likely to be well managed. In addition, it is to allow, where relevant, for the necessary arrangements to be made to ensure that conventional wholesale banksG comply with the CBB's reserve requirements (which apply to deposit liabilities denominated in Bahraini Dinars — see LR-2.5.10).

                  October 2007

                • LR-1.2.25

                  Conventional wholesale banksG that are unclear about the interpretation of the conditions specified in Rules LR-1.2.13, LR-1.2.16 or LR-1.2.19 must consult the CBB prior to undertaking the transaction concerned.

                  October 2007

                • LR-1.2.26

                  The CBB may publish additional interpretative guidance on the above conditions, in response to licensees' queries. The minimum thresholds specified under Rules LR-1.2.13 and LR-1.2.16 will be kept under review by the CBB and may be amended in response to market developments.

                  October 2007

              • Shari'a Compliant Transactions

                • LR-1.2.27

                  Conventional bank licenseesG may not hold themselves out as an Islamic bank. Conventional bank licenseesG may only enter into activities (c) to (e) listed in Rule LR-1.3.1, in accordance with the conditions outlined in Section LR-1.4.

                  October 2007

                • LR-1.2.28

                  [This paragraph was deleted in October 2007]

                • LR-1.2.29

                  Conventional bank licenseesG may freely deal in financial instrumentsG or operate a collective investment schemeG that happens to be Shari'a compliant (because of the nature of the financial instrumentsG concerned).

                  October 2007

            • LR-1.3 Definition of Regulated Banking Services

              • LR-1.3.1

                Regulated banking servicesG are any of the following activities, carried on by way of business:

                (a) Deposit-taking;
                (b) Providing Credit;
                (c) Accepting Shari'a money placements/deposits;
                (d) Managing Shari'a profit/loss sharing investment accounts;
                (e) Offering Shari'a Financing Contracts;
                (f) Dealing in financial instrumentsG as principal;
                (g) Dealing in financial instrumentsG as agent;
                (h) Managing financial instrumentsG ;
                (i) Safeguarding financial instrumentsG ;
                (j) Operating a Collective Investment UndertakingG ;
                (k) Arranging deals in financial instrumentsG ;
                (l) Advising on financial instrumentsG ;
                (m) Providing money exchange/remittance services;
                (n) Issuing/administering means of payment; or
                (o) Providing Trust Services.
                Amended: October 2018
                Amended: October 2010
                October 2007

              • LR-1.3.2

                Upon application, the CBB may exclude specific transactions from the definition of regulated banking servicesG .

                October 2007

              • LR-1.3.3

                The CBB will normally only consider granting such an exemption when a Bahrain resident is unable to obtain a specific product in Bahrain and it would be unreasonable to require the overseas provider of that product to be licensed for that specific transaction, and the provider has no intention of regularly soliciting such business in Bahrain.

                October 2007

              • LR-1.3.4

                For the purposes of Rule LR-1.3.1, carrying on a regulated banking serviceG by way of business means:

                (a) Undertaking the regulated banking service of (a), plus any of the activities (b) to (o), as defined in Section LR-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.
                Amended: October 2018
                Amended: October 2010
                October 2007

              • LR-1.3.5

                Licensees should note that they may still undertake activities falling outside the definition of regulated banking servicesG , such as investing in physical commodities — subject to Rule LR-1.1.11. The fact that an activity is not included in the definition of regulated banking servicesG does not mean that it is prohibited. In transitioning to the new licensing framework, the CBB will be closely liaising with licensees to ensure that no disruption occurs to their legitimate business activities.

                October 2007

              • LR-1.3.6

                Licensees should note that the same legal entity cannot combine regulated banking servicesG with other regulated services, such as regulated insurance servicesG . However, different legal entities within the same group may of course each hold a different license (e.g. banking and insurance).

                October 2007

              • General Exclusions

                • LR-1.3.7

                  A person does not carry on an activity constituting a regulated banking serviceG 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.
                  Amended: October 2010
                  October 2007

                • LR-1.3.8

                  For example, the taking of a deposit in connection with the rental of a property would not be considered a regulated banking service, since it satisfies the criteria in Rule LR-1.3.7.

                  October 2007

                • LR-1.3.9

                  A person does not carry on an activity constituting a regulated banking serviceG 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.

                  October 2007

                • LR-1.3.10

                  A person does not carry on an activity constituting a regulated banking serviceG if such person carries on an activity with or for another person, and they are both members of the same familyG .

                  October 2007

                • LR-1.3.11

                  A person does not carry on an activity constituting a regulated banking serviceG 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.

                  October 2007

                • LR-1.3.12

                  For example, an industrial company entering into an interest rate swap to switch floating-rate borrowings for fixed rate borrowings, in order to manage interest rate risk, would not be considered to be dealing in financial instruments as principal, and would not therefore be required to be licensed as a conventional bank.

                  Amended: October 2010
                  October 2007

                • LR-1.3.13

                  A person does not carry on an activity constituting a regulated banking serviceG if that person enters into that transaction solely as a nominee for another person, and acts under instruction from that other person.

                  October 2007

                • LR-1.3.14

                  A person does not carry on an activity constituting a regulated banking serviceG if that person is a government body charged with the management of financial instrumentsG on behalf of a government or public body.

                  October 2007

                • LR-1.3.15

                  A person does not carry on an activity constituting a regulated banking serviceG if that person is an exempt person, as specified by Royal decree.

                  October 2007

              • Deposit-taking

                • LR-1.3.16

                  Deposit-taking is defined as receiving a sum of money paid on terms under which it will be repaid in full, with or without interest or a premium, and either on demand or in circumstances agreed by the parties involved. It excludes sums referable to the giving of security or as a fee paid in advance for goods or services. It also excludes money received by a person in consideration for debt instruments issued by the same person, or money received by a person entering into a loan or other financing agreement.

                  October 2007

                • LR-1.3.17

                  The above definition, therefore, includes savings, current, notice, fixed and time deposits.

                  October 2007

              • Providing Credit

                • LR-1.3.18

                  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, factoring, forfaiting, and reverse repo transactions. It also includes the issuance or endorsement of letters of credit; the issuance of letters of guarantee and other contingent credit activities (such as the underwriting of loans); the purchase on the secondary market of loans and other contracts of credit (that do not otherwise fall under the definition of financial instrumentsG ); and the provision of ancillary credit-related activities, such as advising on or arranging loans. It excludes money advanced to a person in consideration for debt instruments issued by the same person.

                  Amended: January 2013
                  October 2007

              • Accepting Shari'a Money Placements/Deposits

                • LR-1.3.19

                  Accepting Shari'a money placements is defined as the acceptance of sums of money for safe-keeping ('al-wadia', 'q'ard') in a Shar'ia compliant framework, under which it will be repaid, either on demand or in circumstances agreed by the parties involved, and which is not referable to the giving of security.

                  October 2007

              • Offering Shari'a Financing Contracts

                • LR-1.3.20

                  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.

              • Managing Shari'a Profit Sharing Investment Accounts

                • LR-1.3.21

                  Managing a Shari'a profit sharing investment account is defined as managing an account, portfolio or fund, whereby a sum of money is placed with the service provider on terms that a return will be made according to an agreed Shari'a compliant profit-sharing arrangement, based either on a mudaraba or musharaka partnership.

                  October 2007

              • Dealing in Financial Instruments as Principal

                • LR-1.3.22

                  Dealing in financial instrumentsG as principal means buying, selling, subscribing for or underwriting any financial instrumentG on one's own account.

                  October 2007

                • LR-1.3.23

                  Rule LR-1.3.22 includes the underwriting of equity and other financial instrumentsG . The underwriting of loans comes under the activity of providing credit (see Rule LR-1.3.18). It also includes the temporary sale of a financial instrument through a repo transaction.

                  October 2007

                • LR-1.3.24

                  A person does not carry on an activity specified in Rule LR-1.3.22 if the activity relates to the person issuing his own shares/debentures, warrants or bonds.

                  October 2007

              • Dealing in Financial Instruments as Agent

                • LR-1.3.25

                  Dealing in financial instrumentsG as agent means buying, selling, subscribing for or underwriting financial instrumentsG on behalf of a client.

                  October 2007

                • LR-1.3.26

                  A licensee that carries on an activity of the kind specified by Rule LR-1.3.25 does not determine the terms of the transaction and does not use its own financial resources for the purpose of funding the transaction. Such a licensee may however receive or hold assets in connection with the transaction, in its capacity as agent of its client.

                  October 2007

              • Managing Financial Instruments

                • LR-1.3.27

                  Managing financial instrumentsG means managing on a discretionary basis financial instrumentsG on behalf of another person.

                  October 2007

                • LR-1.3.28

                  The activities included under the definition of Rule LR-1.3.27 include activities such as asset management.

                  October 2007

              • Safeguarding Financial Instruments (i.e. Custodian)

                • LR-1.3.29

                  Safeguarding financial instrumentsG means the safeguarding of financial instrumentsG for the account of clients.

                  October 2007

                • LR-1.3.30

                  A person does not carry on an activity specified in Rule LR-1.3.29 if the person receives documents relating to a financial instrumentG for the purpose of onward transmission to, from, or at the direction of the person to whom the financial instrumentG belongs; or else is simply providing a physical safekeeping service such as a deed box.

                  October 2007

                • LR-1.3.31

                  A person does not carry on an activity specified in Rule LR-1.3.29 if a third person, namely a qualifying custodianG , accepts responsibility with regard to the financial instrumentG .

                  October 2007

                • LR-1.3.32

                  A "qualifying custodianG " means a person who is:

                  (a) A licensee who has permission to carry on an activity of the kind specified in Rule LR-1.3.29; or
                  (b) An exempt person in relation to activities of that kind.
                  Amended: October 2010
                  October 2007

                • LR-1.3.33

                  A person does not carry on an activity specified in Rule LR-1.3.29 if they are managing a central depository, which is part of an exchange recognised by the CBB.

                  October 2007

                • LR-1.3.34

                  The following are examples of activities, which when taken in isolation, are unlikely to be regarded as an activity of the kind specified under Rule LR-1.3.29:

                  (a) Providing information as to the number of units or the value of any assets safeguarded; and
                  (b) Converting currency.
                  Amended: October 2010
                  October 2007

                • LR-1.3.35

                  A person undertaking an activity of the kind specified under Rule LR-1.3.29 may also be engaged in the administration of the financial instrumentsG , including related services such as cash/collateral management.

                  October 2007

              • Operating a Collective Investment Undertaking

                • LR-1.3.36

                  Operating a collective investment undertakingG ('CIU') means operating, establishing or winding up a collective investment undertakingG .

                  Amended: January 2013
                  October 2007

                • LR-1.3.37

                  For the purposes of LR-1.3.36, a CIU is defined in Volume 7 Paragraph ARR-B.1.1

                  Amended: January 2013
                  October 2007

                • LR-1.3.38

                  [This Paragraph was deleted in January 2013].

                  Deleted: January 2013

                • LR-1.3.39

                  [This Paragraph was deleted in January 2013].

                  Deleted: January 2013

              • Arranging Deals in Financial Instruments

                • LR-1.3.40

                  Arranging deals in financial instrumentsG means making arrangements with a view to another person, whether as principal or agent, buying, selling, or subscribing for, or underwriting deals in, financial instrumentsG .

                  October 2007

                • LR-1.3.41

                  A person does not carry on an activity specified in Rule LR-1.3.40 if the arrangement does not bring about the transaction to which the arrangement relates.

                  October 2007

                • LR-1.3.42

                  A person does not carry on an activity specified in Rule LR-1.3.40 if a person's activities are limited solely to introducing clients to licenseesG .

                  October 2007

                • LR-1.3.43

                  The exclusion in Rule LR-1.3.42 does not apply if the agent receives from any person, other than the client, any pecuniary reward or other advantage, which he does not account to the client, arising out of his entering into the transaction. Thus, if A receives a commission from B for arranging credit or deals in investment for C, the exclusion in Rule LR-1.3.42 does not apply.

                  October 2007

                • LR-1.3.44

                  A person does not carry on an activity specified in Rule LR-1.3.40 merely by providing the means of communication between two parties to a transaction.

                  October 2007

                • LR-1.3.45

                  A person does not carry on an activity specified in Rule LR-1.3.40 if they operate an exchange, duly recognised and authorised by the CBB.

                  October 2007

                • LR-1.3.46

                  Negotiating terms for an investment on behalf of a client is an example of an activity which may be regarded as an activity of the kind specified in Rule LR-1.3.40.

                  October 2007

                • LR-1.3.47

                  The following are examples of activities, which when taken in isolation, are unlikely to be regarded as an activity of the kind specified in Rule LR-1.3.40:

                  (a) Appointing professional advisers;
                  (b) Preparing a prospectus/business plan;
                  (c) Identifying potential sources of funding;
                  (d) Assisting investors/subscribers/borrowers to complete and submit application forms; or
                  (e) Receiving application forms for processing/checking and/or onward transmission.
                  Amended: October 2010
                  October 2007

              • Advising on Deals in Financial Instruments

                • LR-1.3.48

                  Advising on financial instrumentsG means giving advice to an investor or potential investor (or a person in his capacity as an agent for an investor or potential investor) on the merits of buying, selling, subscribing for or underwriting a particular financial instrumentG or exercising any right conferred by such a financial instrumentG .

                  October 2007

                • LR-1.3.49

                  The following are examples of activities, which may be regarded as an activity as defined by Rule LR-1.3.48:

                  (a) A person may offer to tell a client when shares reach a certain value on the basis that when the price reaches that value it would be a good time to buy or sell them;
                  (b) Recommendation on the size or timing of transactions; and
                  (c) Advice on the suitability of the financial instrumentG , or on the characteristics or performance of the financial instrumentG concerned.
                  Amended: October 2010
                  October 2007

                • LR-1.3.50

                  A person does not carry on an activity specified in Rule LR-1.3.48 by giving advice in any newspaper, journal, magazine, broadcast services or similar service in any medium if the principal purpose of the publication or service, taken as a whole, is neither that of:

                  (a) Giving advice of the kind mentioned in Rule LR-1.3.48; nor
                  (b) Leading or enabling persons to buy, sell, subscribe for or underwrite a financial instrumentG .
                  Amended: October 2010
                  October 2007

                • LR-1.3.51

                  The following are examples of activities, which when taken in isolation, are unlikely to be regarded as an activity as defined by Rule LR-1.3.48:

                  (a) Explaining the structure, or the terms and conditions of a financial instrumentG ;
                  (b) Valuing financial instrumentsG for which there is no ready market;
                  (c) Circulating company news or announcements;
                  (d) Comparing the benefits and risks of one financial instrumentG to another; and
                  (e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, a financial instrumentG or on the effect of contractual terms and their commercial consequences or on terms that are commonly accepted in the market.
                  Amended: October 2010
                  October 2007

              • Providing Money Exchange / Remittance Services

                • LR-1.3.52

                  Means providing exchange facilities between currencies, and the provision of wire transfer or other remittance services.

                  October 2007

              • Issuing / Administering Means of Payment

                • LR-1.3.53

                  Means the selling or issuing of payment instruments, or the selling or issuing of stored value (e.g. credit cards, travellers' cheques, electronic purses).

                  October 2007

              • Providing Trust Services

                • LR-1.3.54

                  Providing trust services is defined as:

                  (a) Establishment of trusts;
                  (b) Administration of trusts in accordance with the provisions of the trust deed;
                  (c) Providing related ancillary services to trusts in accordance with the provisions of the trust deed; and
                  (d) Providing financial advisory services to trust business clients only.
                  Added: October 2018

                • LR-1.3.55

                  The related ancillary services under sub-paragraph LR-1.3.54(c) include providing directorship services, company secretarial services, providing a registered address and/or acting as a shareholder to the company holding the assets of a trust.

                  Added: October 2018

                • LR-1.3.56

                  Conventional bank licenseesG must ensure that the trust services in Paragraph LR-1.3.54 are handled by an independent trust service department within the bank.

                  Added: October 2018

                • LR-1.3.57

                  Conventional bank licenseesG must comply with the legislative Decree No. (23) of 2016 with regards to Trust, and CBB's resolutions and directives issued in this regard.

                  Added: October 2018

            • LR-1.4 Shari'a Compliant Transactions

              • General Requirements for all Conventional Banks

                • LR-1.4.1

                  Conventional bank licenseesG may not hold themselves out as an Islamic bank. Conventional bank licenseesG are allowed to enter into activities (c) to (e) listed in Rule LR-1.3.1 under the conditions outlined in the remainder of this section, subject to the thresholds and conditions outlined in Section LR-1.2 (concerning facilities offered to Bahrain residents and facilities in Bahrain Dinar in particular).

                  October 2007

                • LR-1.4.2

                  Shari'a compliant financing facilities provided by conventional bank licenseesG are treated as normal risk-weighted assets in the PIR and are not subject to the risk-weighting treatment under Volume 2.

                  October 2007

                • LR-1.4.3

                  When offering any of the Shari'a compliant activities (c) to (e) listed in Rule LR-1.3.1, conventional bank licenseesG must have staff trained in Shari'a compliant banking business. The bank 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.

                  October 2007

                • LR-1.4.4

                  Conventional bank licenseesG may invest in Shari'a compliant financial instrumentsG for their own account or make an investment in a Shari'a compliant syndication where the bank's role is limited to provide the funding for such investment and the bank has not participated in the structuring nor the preparation of any documentation in relation to this investment.

                  Amended: January 2016
                  October 2007

              • Additional requirements for conventional retail banks

                • LR-1.4.5

                  Conventional retail bank licenseesG may provide Shari'a compliant activities (c) to (e) listed in Rule LR-1.3.1 in any amount and in any currency to customers subject to the following conditions:

                  (a) Shari'a compliant financing and funding to be undertaken through a special counter or branch as deemed necessary by the bank;
                  (b) The bank must maintain separate books for Shari'a compliant banking activities to ensure no co-mingling of conventional and Islamic funds;
                  (c) The bank must have a dedicated treasurer or senior trader for Shari'a compliant business and must also have a Shari'a compliance reviewer; and
                  (d) The bank must establish a Shari'a Supervisory Board 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.
                  Amended: April 2015
                  April 2011
                  October 2007

              • Additional Requirements for the Financing of Land or Property in Bahrain by way of Shari'a Compliant Financing Contracts

                • LR-1.4.6

                  Retail bank branches of foreign banks may provide Shari'a compliant financing (activity (e) listed in Rule LR-1.3.1) in any amount and in any currency to customers for the purpose of purchasing land or properties in Bahrain subject to the conditions below:

                  (a) The branch must secure the CBB's prior written approval for offering such financing;
                  (b) The purpose of ownership of the concerned land or property by the bank must be for the purpose of the subsequent resale to the customer under a Shari'a compliant financing contract;
                  (c) The period of legal ownership of the concerned land or property by the branch must be limited only to the financing phase of the Shari'a compliant financing contract; and
                  (d) In the case of default by the customer and repossession by the branch, the land or property must be disposed of within one year of the date of the termination of the Shari'a compliant financing contract. Branches may approach the CBB to extend this period for a maximum of one additional year.
                  Added: July 2011

          • LR-1A Approved Persons

            • LR-1A.1 CBB Notification and Approval

              • General Requirement

                • LR-1A.1.1

                  Conventional bank licenseesG must obtain the CBB's prior written approval for any person wishing to undertake a controlled functionG in a conventional bank licenseeG . The approval from the CBB must be obtained by the CBB prior to their appointment (subject to the variations contained in Rule LR-1A.1.3).

                  Amended: January 2016
                  Added: October 2010

                • LR-1A.1.2

                  Controlled functionsG are those functions occupied by board members and persons in executive positions and include:

                  (a) Board Member;
                  (b) Chief ExecutiveG or General ManagerG and their Deputies;
                  (c) Chief Financial Officer and/or Financial Controller;
                  (d) Head of Risk Management;
                  (e) Head of Internal Audit;
                  (f) Head of Shari'a Review;
                  (g) Compliance Officer;
                  (h) Money Laundering Reporting Officer;
                  (i) Deputy Money Laundering Reporting Officer; and
                  (j) Heads of other Functions.
                  Amended: January 2016
                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.3

                  Prior approval is required for all controlled functionsG in relation to Bahrain operations. Controlled functionsG (g) and (h) may be combined, however (see also FC-4.1, regarding the MLRO function).

                  Amended: January 2014
                  Amended: October 2013
                  Amended: January 2013
                  Added: October 2010

              • Basis for Approval

                • LR-1A.1.4

                  Approval under Rule LR-1A.1.1 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 LR-1A.2 and LR-1A.3 respectively.

                  Added: October 2010

              • Definitions

                • LR-1A.1.5

                  Board members collectively are responsible for the business performance and strategy of the conventional bank licenseeG , as outlined in more details in Section HC-1.2.

                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.6

                  When taken as a whole, the board of directorsG of a conventional bank licenseeG must be able to demonstrate that it has the necessary skills and expertise, as outlined in Paragraph HC-1.2.10.

                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.7

                  The Chief ExecutiveG or General ManagerG means a person who is responsible for the conduct of the licensee (regardless of actual title). The Chief ExecutiveG or General ManagerG must be resident in Bahrain. The scope of authority of the CEOG and his deputies is outlined in more detail in Subparagraph HC-6.3.2 (a).

                  Amended: July 2017
                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.8

                  The head of risk management is responsible for the management and control of all risk exposures arising from the activities of the conventional bank licenseeG .

                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.9

                  The head of internal audit is responsible for providing independent and objective review on the adequacy and effectiveness of the holistic internal control environment within the conventional bank licenseeG . The duties of the head of internal audit are outlined in more detail in Subparagraph HC-6.3.2 (d).

                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.9A

                  The head of Shari'a review in a conventional bank licenseeG , dealing with Islamic products and services, is responsible for the examination of the extent of a conventional bank licensee'sG compliance, in all its activities, with the Shari'a. This examination includes contracts, agreements, policies, products, transactions memorandum and articles of association, financial statements, reports (especially internal audit and central bank inspection), circulars, etc. The objective of the Shari'a review is to ensure that the activities carried out by a conventional bank licenseeG do not contravene the Shari'a.

                  Added: October 2013

              • Compliance Officer

                • LR-1A.1.10

                  All banks must appoint a senior member of staff with responsibility for the management of compliance risk as their Compliance Officer/Manager.

                  Added: October 2010

                • LR-1A.1.11

                  The compliance function must be independent (i.e. it must not be placed in a position where its other duties or responsibilities may cause a conflict of interest with its compliance risk management responsibilities). Therefore the compliance function must be separate from the internal audit function. The compliance officer or manager may however, perform other limited related compliance roles (e.g. the MLRO or legal advisor), subject to the CBB's prior approval.

                  Added: October 2010

                • LR-1A.1.12

                  The compliance function must have adequate resources to carry out its functions effectively.

                  Amended: January 2016
                  Added: October 2010

                • LR-1A.1.13

                  The bank must also outline how the compliance function fits into the bank's senior management reporting structure, and must give details of relevant reporting lines within the bank.

                  Amended: January 2016
                  Added: October 2010

                • LR-1A.1.14

                  In the case of locally incorporated banks, the compliance officer/manager must have access to the Board of Directors in addition to the senior management.

                  Added: October 2010

                • LR-1A.1.15

                  Heads of other functions, where risk acquisition or control is involved, are responsible for tracking specific functional performance goals in addition to identifying, managing, and reporting critical organisational issues upstream. Certain functions require dealing directly with clients while others do not. Both categories of functions, however, require specific qualifications and experience to meet the objectives as well as compliance requirements of the conventional bank licenseeG .

                  Amended: October 2013
                  Added: October 2010

                • LR-1A.1.16

                  Where a firm is in doubt as to whether a function should be considered a controlled functionG it must discuss the case with the CBB.

                  Added: October 2010

              • Prior Approval Requirements and Process

                • LR-1A.1.17

                  Conventional bank licenseesG must obtain CBB's prior written before a person is formally appointed to a controlled functionG ; 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 Form 3, including previous experience, is accurate. Form 3 is available under Volume 1 Part B Authorisation Forms of the CBB Rulebook.

                  Amended: January 2016
                  Amended: January 2014
                  Added: October 2010

                • LR-1A.1.18

                  When the request for approved personG status forms part of a license application, the Form 3 must be marked for the attention of the Director, Licensing Directorate. When the submission to undertake a controlled functionG is in relation to an existing conventional bank licenseeG , the Form 3 must be marked for the attention of either the Director, Retail Banks Supervision or the Director, Wholesale Banks Supervision, as appropriate. In the case of the MLRO or DMLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.

                  Amended: April 2018
                  Amended: January 2016
                  Added: October 2010

                • LR-1A.1.18A

                  When submitting Form 3, conventional bank licenseesG must ensure that the Form 3 is:

                  (a) Submitted to the CBB with a covering letter signed by an authorised representative of the conventional bank licenseeG , seeking approval for the proposed controlled functionG ;
                  (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) Signed by an authorised representative of the conventional bank licenseeG and all pages stamped on with the conventional bank licensee'sG seal.
                  Added: January 2016

                • LR-1A.1.18B

                  Conventional bank licenseesG 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: January 2016

                • LR-1A-1.18C

                  For existing conventional bank licenseesG applying for the appointment of a Board DirectorG or the Chief ExecutiveG /General ManagerG , the authorised representative should be the Chairman of the Board or a DirectorG signing on behalf of the Board. For all other controlled functionsG , the authorised representative should be the Chief ExecutiveG /General ManagerG , or a suitably senior representative of the bank.

                  Amended: July 2016
                  Added: January 2016

                • LR-1A.1.19

                  [This Paragraph was deleted in January 2016.]

                  Deleted: January 2016
                  Added: October 2010

                • LR-1A.1.20

                  [This Paragraph was moved to Paragraph LR-1A.1.18B in January 2016.]

                  Amended: January 2016
                  Amended: July 2012
                  Added: October 2010

              • Assessment of Application

                • LR-1A.1.20A

                  The CBB shall review and assess the application for approved personG status to ensure that it satisfies all the conditions required in Paragraph LR-1A.2.6 and the criteria outlined in Paragraph LR-1A.2.7.

                  Added: January 2016

                • LR-1A.1.20B

                  For purposes of Paragraph LR-1A.1.20A, conventional bank licenseesG 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 required conditions and regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, as well as verifying references and interviewing the applicant. The CBB will advise the conventional bank licenseeG once the application is considered complete.

                  Amended: April 2016
                  Added: January 2016

                • LR-1A.1.20C

                  The CBB reserves the right to refuse an application for approved personG status if it does not satisfy the conditions provided for in Paragraph LR-1A.2.6 and does not satisfy the CBB criteria in Paragraph LR-1A.2.7. A notice of such refusal is issued by registered mail to the conventional bank licenseeG concerned, setting out the basis for the decision.

                  Added: January 2016

              • Appeal Process

                • LR-1A.1.21

                  Conventional bank licenseesG or the nominated approved personsG may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application for approved personG status. The CBB shall decide on the appeal and notify the conventional bank licenseesG of its decision within 30 calendar days from the date of submitting the appeal.

                  Amended: January 2016
                  Added: October 2010

                • LR-1A.1.21A

                  When notification of the CBB's decision to grant a person approved personG status is not issued within 15 business days from the date of meeting all required conditions and regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, conventional bank licenseesG or the nominated approved personG may appeal to the 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 the conventional bank licenseesG of its decision within 30 calendar days from the date of submitting the appeal.

                  Added: January 2016

              • Notification Requirements and Process

                • LR-1A.1.22

                  Conventional bank licenseesG must immediately notify the CBB when an approved personG , for whatever reason, ceases to hold the controlled functionG for which they have been approved (i.e. transferred to another function within the bank, or to another group entity, or else has resigned, been suspended or dismissed). The notification must include the reasons for the action taken.

                  Amended: April 2014
                  Added: October 2010

                • LR-1A.1.23

                  [Rule moved to Paragraph BR-5.1.17 in April 2014.]

                  Amended: April 2014
                  Amended: April 2012
                  Added: October 2010

                • LR-1A.1.24

                  [This Paragraph was deleted in April 2014].

                  Deleted: April 2014
                  Added: October 2010

                • LR-1A.1.25

                  If a controlled functionG falls vacant, the conventional bank licenseeG must appoint a permanent replacement (after obtaining CBB approval), within 120 calendar days of the vacancy occurring. Pending the appointment of a permanent replacement, the conventional bank licenseeG must make immediate interim arrangements to ensure continuity of the duties and responsibilities of the controlled functionG affected. These interim arrangements must be approved by the CBB.

                  Added: October 2010

                • LR-1A-1.26

                  Conventional bank licenseesG must immediately notify the CBB should they become aware of information that could reasonably be viewed as calling into question an approved person'sG compliance with CBB's 'fit and proper' requirement (see LR-1A.2).

                  Added: October 2010

            • LR-1A.2 Approved Persons Conditions: 'Fit and proper' Requirement

              • LR-1A.2.1

                Conventional bank licenseesG seeking an approved personG authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake the controlled functionG in question.

                Amended: January 2016
                Added: October 2010

              • LR-1A.2.2

                Each applicant applying for approved personG status and those individuals occupying approved personG 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 the controlled functionG in question (see Appendix TC-1 in Module TC (Training and Competency)); and
                (h) Has sufficient experience to perform the duties of the controlled functionG (see Appendix TC-1 in Module TC (Training and Competency)).
                Amended: January 2016
                Added: October 2010

              • LR-1A.2.3

                In assessing the conditions prescribed in Rule LR-1A.2.2, the CBB will take into account the criteria contained in Paragraph LR-1A.2.4. 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 functionG but not another, depending on the function's job size and required levels of experience and expertise. Similarly, a person approved to undertake a controlled functionG in one conventional bank licenseeG may not be considered to have sufficient expertise and experience to undertake nominally the same controlled functionG but in a much bigger licenseeG .

                Amended: January 2016
                Added: October 2010

              • LR-1A.2.4

                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 2016

              • LR-1A.2.5

                With respect to Paragraph LR-1A.2.4, 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.

                Amended: January 2016
                Added: October 2010

              • LR-1A.2.6

                Approved personsG undertaking a controlled functionG 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 a controlled functionG (refer to Chapter HC-2).

                Amended: January 2016
                Amended: July 2012
                Added: October 2010

              • LR-1A.2.7

                In determining whether a conflict of interest may arise, factors that may be considered 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 the licenseeG ; and
                (c) A person has failed to declare a personal interest that has a material impact in terms of the person's relationship with the licenseeG .
                Amended: January 2016
                Added: October 2010

              • LR-1A.2.8

                Further guidance on the process for assessing a person's 'fit and proper' status is given in Module EN (Enforcement): see Chapter EN-5.

                Amended: January 2016
                Amended: July 2012
                Added: October 2010

            • LR-1A.3 [This Section was deleted in January 2016.]

              Deleted: January 2016

              • LR-1A.3.1

                [This Paragraph was deleted in January 2016.]

                Deleted: January 2016
                Added: October 2010

          • LR-2 Licensing Conditions

            • LR-2.1 Condition 1: Legal Status

              • LR-2.1.1

                The legal status of a conventional bank licenseeG must be:

                (i) A Bahraini joint stock company (BSC); or
                (ii) A branch resident in Bahrain of a conventional bank incorporated under the laws of its territory of incorporation and authorised as a bank in that territory.
                Amended: October 2010
                October 2007

              • LR-2.1.2

                Where the conventional bank licenseeG is a branch of a foreign bank, in deciding whether to grant a license, the CBB will pay close regard to its activities elsewhere and how these activities are regulated. If the conventional bank licenseeG is not regulated elsewhere or in a jurisdiction not substantially compliant with Basel Core Principles or FATF standards, then an application for licensing can only be considered after exhaustive enquiries into the bank's shareholders, management structure and financial position.

                Amended: July 2017
                October 2007

            • LR-2.2 Condition 2: Mind and Management

              • LR-2.2.1

                Conventional bank licenseesG with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom. Branches of foreign conventional bank licenseesG must maintain a local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.

                Amended: July 2017
                October 2007

              • LR-2.2.2

                In assessing the location of a conventional bank licensee'sG Head Office, the CBB will take into account the residency of its Directors and senior management. The CBB requires the majority of key decision makers in executive management — including the Chief Executive OfficerG — to be resident in Bahrain. In the case of branches of foreign bank licensees, the CBB requires the branch to have a substantive presence, demonstrated by a level of staff and other resources sufficient to ensure adequate local scrutiny and control over business booked in the Bahrain branch or subsidiary.

                Amended: July 2017
                October 2007

            • LR-2.3 Condition 3: Controllers

              • LR-2.3.1

                Conventional bank licenseesG must satisfy the CBB that their controllersG are suitable and pose no undue risks to the licensee. Conventional banksG must also satisfy the CBB that their group structures do not prevent the effective supervision of the conventional bank licenseeG by the CBB and otherwise pose no undue risks to the licensee.

                October 2007

              • LR-2.3.2

                Chapter GR-5 contains the CBB's requirements and definitions regarding controllersG .

                October 2007

              • LR-2.3.3

                In summary, controllersG are persons who directly or indirectly are significant shareholders in a conventional bank licenseeG , or who are otherwise able to exert significant influence on the conventional bank licenseeG . The CBB seeks to ensure that controllersG pose no significant risks to the licensee. In general terms, controllersG are assessed in terms of their financial standing, their judicial and regulatory record, and standards of business and (where relevant) personal probity.

                October 2007

              • LR-2.3.4

                As regards group structures, the CBB seeks to ensure that these 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 the licensee.

                October 2007

              • LR-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.

                October 2007

            • LR-2.4 Condition 4: Board and Employees

              • LR-2.4.1

                Those nominated to carry out controlled functionsG must satisfy the CBB's approved personsG requirements. This Rule is supported by Article 65 of the CBB Law.

                Amended: October 2010
                October 2007

              • LR-2.4.2

                The definition of controlled functionsG is contained in Paragraph LR-1A.1.2, whilst Section LR-1A.2 sets out the CBB's approved personsG requirements.

                Amended: October 2010
                October 2007

              • LR-2.4.3

                The conventional bank licensee'sG staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of the licensee in a sound and prudent manner. Conventional bank licenseesG must ensure their employees meet any training and competency requirements specified by the CBB.

                October 2007

            • LR-2.5 Condition 5: Financial Resources

              • Capital Adequacy

                • LR-2.5.1

                  Conventional bank licenseesG must maintain a level of financial resources, as agreed with the CBB, adequate for the level of business proposed. The level of financial resources held must at all times meet the minimum risk-based requirements contained in Module CA (Capital Adequacy), as specified for the Category of banking license held.

                  October 2007

                • LR-2.5.2

                  This paragraph was deleted in April 2017.

                  Deleted: April 2017
                  October 2007

                • LR-2.5.2A

                  All Bahraini conventional retail banks licenseesG must maintain a minimum total shareholders equity of BD 100 million.

                  Amended: October 2018
                  Added: April 2017

                • LR-2.5.2B

                  All Bahraini conventional wholesale banks licenseesG must maintain a minimum total shareholders equity of US$ 100 million.

                  Amended: October 2018
                  Added: April 2017

                • LR-2.5.3

                  Persons seeking a license as a conventional bank licenseeG must submit a 3-year business plan, with financial projections. Their proposed level of paid-up capital must be sufficient to cover expected regulatory capital requirements over that period, based on projected activities.

                  October 2007

                • LR-2.5.4

                  In practice, applicants seeking a conventional bank licenseG are likely to be required to hold significantly more capital than the minimum paid-up capital specified in Rule LR-2.5.2.

                  October 2007

                • LR-2.5.5

                  Foreign bank applicants are required to provide written confirmation from their head office that the head office will provide financial support to the branch sufficient to enable it to meet its obligations as and when they fall due. Foreign bank applicants must also demonstrate that the bank as a whole is adequately resourced for the amount of risks underwritten, and that it and its group meet capital adequacy standards applied by its home supervisorG .

                  Amended: July 2017
                  October 2007

                • LR-2.5.6

                  For conventional retail bank licenseesG , deposit liabilities must not exceed 20 times their capital and reserves.

                  Amended: April 2017
                  October 2007

                • LR-2.5.7

                  Factors taken into account in setting endowment capital for branches includes the financial strength of the parent company, the quality of its risk management, and the nature and scale of the Bahrain operations of the branch.

                  October 2007

              • Liquidity

                • LR-2.5.8

                  Conventional bank licenseesG must maintain sufficient liquid assets to meet their obligations as they fall due in the normal course of their business. Conventional bank licenseesG must agree a liquidity management policy with the CBB.

                  October 2007

                • LR-2.5.9

                  The CBB would normally expect the mark-to-market value of assets that could be readily realised at short-notice to exceed 25% of deposit liabilities at all times. Liquidity arrangements may vary, however, particularly for branches of foreign conventional banks, as agreed with the CBB and documented in the liquidity management policy.

                  Amended: July 2017
                  Amended: January 2011
                  October 2007

              • Reserve Requirements

                • LR-2.5.10

                  Conventional bank licenseesG must maintain a minimum daily cash reserve balance with the CBB set as a ratio of its total non-bank Bahrain Dinar deposits and Bahrain Dinar denominated Certificates of Deposit. The current required ratio is 5% and may be varied by the CBB at its discretion.

                  Amended July 09
                  Amended April 2008
                  October 2007

            • LR-2.6 Condition 6: Systems and Controls

              • LR-2.6.1

                Conventional bank licenseesG 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.

                October 2007

              • LR-2.6.2

                Conventional bank licenseesG 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 Category of license held.

                October 2007

              • LR-2.6.3

                Applicants will be required to demonstrate in their business plan (together with any supporting documentation) what risks their business would be subject to and how they would manage those risks. Applicants may be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB, as part of the license approval process.

                October 2007

            • LR-2.7 Condition 7: External Auditor

              • LR-2.7.1

                Article 61 of the CBB Law requires that conventional bank licenseesG must appoint an external auditor, subject to the CBB's prior approval. The minimum requirements regarding external auditors contained in Module AU (Auditors and Accounting Standards) must be met.

                Amended: October 2010
                October 2007

              • LR-2.7.2

                Applicants must submit details of their proposed external auditor to the CBB as part of their license application.

                Amended: October 2010
                October 2007

            • LR-2.8 Condition 8: Other Requirements

              • Books and Records

                • LR-2.8.1

                  Article 59 of the CBB Law requires that conventional bank licenseesG must 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), as updated from time to time.

                  Amended: January 2014
                  Amended: July 2012
                  Amended: July 2011
                  October 2007

              • Provision of Information

                • LR-2.8.2

                  Article 58, 111, 114 and 163 of the CBB Law require that conventional bank licenseesG and their staff must act in an open and cooperative manner with the CBB. Conventional bank licenseesG 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.

                  Amended: July 2012
                  October 2007

              • General Conduct

                • LR-2.8.3

                  Conventional bank licenseesG must conduct their activities in a professional and orderly manner, in keeping with good market practice. Conventional bank licenseesG must comply with the general standards of business conduct contained in Module PB, as well as the standards relating to treatment of customersG contained in Modules BC and CM.

                • LR-2.8.4

                  [This paragraph has been moved to chapter LR-4 in October 2007]

                • LR-2.8.5

                  [This paragraph has been deleted in October 2007]

              • Additional conditions

                • LR-2.8.6

                  Conventional bank licenseesG must comply with any other specific requirements or restrictions imposed by the CBB on the scope of their license.

                  October 2007

                • LR-2.8.7

                  Bank 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 the regulated banking services that the licensee may undertake. Licensees must respect the scope of their license. LR-3.2 sets out the process for varying the scope of an authorisation, should a licensee wish to undertake new activities.

                  October 2007

                • LR-2.8.8

                  In addition, the CBB may impose additional restrictions or requirements, beyond those already specified in Volume 1, to address specific risks. For instance, a license may be granted subject to strict limitations on intra-group transactions.

                  October 2007

                • LR-2.8.9

                  Conventional retail bank licenseesG are subject to the deposit protection scheme of eligible deposits held with the Bahrain offices of the licensee (see Chapter CP-2). This Rule is supported by Article 177 of the CBB Law.

                  Amended: October 2010
                  October 2007

          • LR-3 Information Requirements and Processes

            • LR-3.1 Licensing

              • LR-3.1.1

                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 Directorate. The application letter must be accompanied by the documents listed in Paragraph LR-3.1.5, unless otherwise directed by the CBB.

                Amended: April 2018
                October 2007

              • LR-3.1.2

                [This paragraph was deleted in October 2007]

              • LR-3.1.3

                References to applicant mean the proposed licenseeG 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.

                Adopted: April 2011

              • LR-3.1.4

                [This paragraph was deleted in October 2007]

              • LR-3.1.5

                Unless otherwise directed by the CBB, the following documents must be provided together with the covering letter referred in LR-3.1.1 above in support of a license application:

                (a) A duly completed Form 2 (Application for Authorisation of Controller) for each controller of the proposed licensee;
                (b) A duly completed Form 3 (Application for Approved Person status), for each proposed Director of the proposed licensee;
                (c) A comprehensive business plan for the application, addressing the matters described in LR-3.1.6;
                (d) For branches of foreign banks, a copy of the bank's current commercial registration or equivalent documentation;
                (e) Where the applicant is a registered institution, a copy of the applicant's commercial registration;
                (f) Any relevant Private Placement Memoranda or public offering documents (if funds are to be raised by external shareholders);
                (g) 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 conventional bank license;
                (h) 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's home supervisorG , 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;
                (i) In the case of branches of foreign banks applicants, a letter of non-objection to the proposed license application from the applicant's home supervisor, together with confirmation that the applicant is in good regulatory standing and is in compliance with applicable supervisory requirements, including those relating to capital adequacy requirements;
                (j) In the case of branch applicants, copies of the audited financial statements of the applicant (head office) for the three years immediately prior to the date of application; and
                (k) In the case of applicants for a licence for a locally incorporated bank, 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;
                (l) A duly completed Form 3 (Application for Approved Person status), for each individual, (other than for Directors covered in item (b) above) applying to undertake controlled functions in the applicant; and
                (m) A draft copy of the applicant's (and parent's where applicable) memorandum and articles of association, addressing the matters described in LR-3.1.7.
                Amended: July 2017
                Amended: April 2011
                Amended: January 2011
                Amended: October 2010
                October 2007

              • LR-3.1.5A

                The CBB, in its complete discretion may ask for a guarantee from the applicant's controlling or major shareholders on a case by case basis as it deems appropriate/necessary as part of the required documents to be submitted as mentioned in Paragraph LR-3.1.5 above.

                Adopted: January 2011

              • LR-3.1.6

                The business plan submitted in support of an application should explain:

                (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 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 capital adequacy and liquidity requirements.
                Amended: October 2010
                October 2007

              • LR-3.1.7

                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 banking activities or are incidental to those.

                October 2007

              • LR-3.1.8

                In the case of a new bank's capital being financed by a private placement, the Private Placement Memorandum must also be submitted to the CBB for its approval.

                October 2007

              • LR-3.1.9

                The purpose of Rule LR-3.1.8 is to allow the CBB to verify that the contents of the Private Placement Memorandum are consistent with other information supplied to the CBB, notably in the business plan, and otherwise meets 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 bank.

                October 2007

              • LR-3.1.10

                [This paragraph was deleted in October 2007]

              • LR-3.1.11

                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. Certification must be performed by an official of the concerned licensee (if already licensed), a lawyer, or a Government body such as an Embassy or Ministry. The certification must include the words "original sighted" together with a date and signature of the concerned authorised official (along with corporate stamp where applicable). The certifier's contact details should be clearly available (e.g. business card) with the certification.

                Amended: October 2016
                October 2007

              • LR-3.1.12

                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.

                October 2007

              • LR-3.1.12A

                Before the final approval is granted to a licensee, confirmation from a retail bank addressed to the CBB that the licensee'sG capital (injected funds) — as specified in the business plan submitted under Rule LR-3.1.5 — has been paid in must be provided to the CBB.

                Added: October 2010

              • LR-3.1.13

                Failure to inform the CBB of the changes specified in LR-3.1.12 is likely to be viewed as a failure to provide full and open disclosure of information, and thus a failure to meet licensing condition LR-2.8.2.

                October 2007

              • LR-3.1.14

                As part of the application process, the CBB will provide a formal decision on a license application within 60 calendar days of all required documentation having been submitted in a form acceptable to the CBB, as specified in Article 44 (e) of the CBB Law. The applicant must submit within 6 months of the application date, all remaining requirements or otherwise has to submit a new application to the CBB.  Applicants are encouraged to approach the CBB to discuss their application at an early stage, so that any specific questions can be dealt with prior to the finalisation of the application.

                October 2007

              • LR-3.1.15

                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 the bank, 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 proposed licensee;
                (c) The address in the Kingdom of Bahrain where full business records will be kept;
                (d) The licensee'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 auditor's acceptance to act as auditor for the applicant;
                (h) A copy of the applicant's notarised memorandum and articles of association, addressing the matters described in Paragraph LR-3.1.7;
                (i) A copy of the Ministry of Industry & Commerce commercial registration certificate in Arabic and in English;
                (j) A copy of the bank's business card and any written communication (including stationery, website, e-mail, business documentation, etc.) including a statement that the bank is licensed by the CBB, specifying whether it is licensed either as conventional wholesale or conventional retail bank; and
                (k) Other information as may be specified by the CBB.
                Amended: October 2010
                October 2007

              • LR-3.1.15A

                With respect to the requirement under Subparagraph LR-3.1.15(j), conventional bank licenseesG must ensure that they comply with this Rule by 31st March 2011.

                Added: October 2010

              • LR-3.1.16

                Applicants issued new licenses by the CBB must start operations within 6 months of the license being issued, as per Article 48 (c) of the CBB Law. Failure to comply with this rule lead to enforcement action being taken against the licensee concerned, as specified in Article 128 of the CBB Law. Conventional bank licenseeG must at all times keep an approved copy of the licence displayed in a visible place on the Licensee's premises in the Kingdom, as per Article 47 (b) of the CBB Law.

                Amended: April 2011
                October 2007

              • LR-3.1.17

                Applicants who are refused a license have a right of appeal under the provisions contained in Article 46 of the CBB Law, which shall not be less than thirty days from the date of the decision. The Central Bank will decide on the appeal made by the applicant and notify him of its decision within thirty days from the date of submission of the appeal.

                October 2007

              • LR-3.1.18

                Applicants may not publicise in any way the application for a licence for, or formation of, a bank before the formal decision referred to in Paragraph LR-3.1.14 is provided to the applicant or the concerned agent.

                Amended: July 2012
                October 2007

            • LR-3.2 Variations to a License

              • LR-3.2.1

                As per Article 48 of the CBB Law, conventional bank licenseesG must seek prior CBB approval before undertaking new regulated banking servicesG .

                October 2007

              • LR-3.2.2

                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.

                October 2007

              • LR-3.2.3

                In addition to any other information requested by the CBB, and unless otherwise directed by the CBB, a conventional bank licenseeG requesting CBB approval to undertake a new regulated banking serviceG 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 the conventional bank licenseeG on the proposed new activities.
                Amended: October 2010
                October 2007

              • LR-3.2.4

                The CBB may amend or revoke a licence in any of the following cases:

                (a) If the licensee fails to satisfy any of the license conditions;
                (b) If the licensee violates the terms of this regulation or any of the Volume's directives;
                (c) If the licensee fails to start business within six months from the date of the licence;
                (d) If the licensee ceases to carry out the licensed activity in the Kingdom; and
                (e) The legitimate interests of the customers or creditors of a licensee required such amendment or cancellation.
                Amended: October 2010
                October 2007

              • LR-3.2.5

                The CBB's procedures for amending or revoking a license is outlined in detail in the Enforcement Module (EN).

                October 2007

            • LR-3.3 Withdrawal of a License or Closure of a Branch

              • Voluntary Surrender of a License or Closure of a Branch

                • LR-3.3.1

                  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 the CBB's prior written approval, before ceasing such activities. 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 of the license or branch closure is to be carried out.

                  Amended: October 2011
                  October 2007

                • LR-3.3.2

                  Conventional bank licenseesG must satisfy the CBB that their customers'G interests are to be safeguarded during and after the proposed voluntary surrender or closure of the branch. The requirements contained in Chapter GR-7 regarding cessation of business must be satisfied.

                  Amended: October 2011
                  October 2007

                • LR-3.3.3

                  The CBB will only approve a voluntary surrender where it has no outstanding regulatory concerns and any relevant customers'G 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 the licensee, in the opinion of the CBB, has discharged all its regulatory responsibilities to customersG .

                  October 2007

              • Cancellation of a License by the CBB

                • LR-3.3.3A

                  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-9, 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.

                  October 2011

                • LR-3.3.4

                  Cancellation of a license requires the 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.

                  Amended: July 2012
                  Amended: October 2011
                  October 2007

                • LR-3.3.5

                  [This Paragraph was deleted in October 2011].

                  Deleted: October 2011
                  October 2007

                • LR-3.3.6

                  Where the cancellation of a license has been confirmed by the CBB, the CBB will only effect the cancellation once a licensee has discharged all its regulatory responsibilities to customersG . Until such time, the CBB will retain all its regulatory powers with regards to the licensee, and will direct the licensee such that no new regulated banking servicesG may be undertaken whilst the licensee discharges its obligations to customersG .

                  Amended: October 2011
                  October 2007

            • LR-3.4 Publication of the Decision to Grant, Cancel or Amend a License

              • LR-3.4.1

                In accordance with Articles 47 and 49 of the CBB Law, the CBB must 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.

                Added: July 2017

              • LR-3.4.2

                For the purposes of Paragraph LR-3.4.1, the cost of publication must be borne by the Licensee.

                Added: July 2017

              • LR-3.4.3

                The CBB may also publish its decision on such cancellation or amendment using any other means it considers appropriate, including electronic means.

                Added: July 2017

          • LR-4 License Fees

            • LR-4.1 License Application Fees

              • LR-4.1.1

                With immediate effect, applicants seeking a conventional bank licenseG 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.

                Amended: October 2010
                October 2007

              • LR-4.1.2

                There are no application fees for those seeking approved personG status.

                October 2007

            • LR-4.2 Annual License Fees

              • LR-4.2.1

                Conventional bank licenseesG must pay the relevant annual license fee to the CBB on 1st of December of the previous year for which the fees are due.

                Amended: July 2013
                October 2007

              • LR-4.2.2

                Conventional retail bank licenseesG must pay a variable annual licensing fee based on 1% of their total annual operating expenses by way of an annual license fee, subject to a floor of BD30,000 and a cap of BD240,000.

                Amended: July 2013
                October 2007

              • LR-4.2.3

                Bahraini conventional wholesale bank licenseesG must pay a variable annual licensing fee based on 0.5% of their total annual operating expenses by way of an annual license fee, subject to a floor of BD13,000 and a cap of BD100,000.

                Amended: July 2013
                October 2007

              • LR-4.2.4

                Wholesale branches of foreign bank licenseesG must pay a variable annual licensing fee based on 0.25% of their total annual operating expenses by way of an annual license fee, subject to a floor of BD13,000 and a cap of BD100,000.

                Amended: July 2017
                Amended: July 2013
                October 2007

              • LR-4.2.5

                The fees due on 1st December are those covering the following calendar year and are calculated on the basis of the conventional bank's latest audited financial statements for the previous calendar year: i.e. the fee payable on 1st December 2013 for the 2014 year (for example) is calculated using the audited financial statements for 2012, assuming a 31st December year end. Where a licenseeG does not operate its accounts on a calendar-year basis, then the most recent audited financial statements available are used instead.

                Amended: July 2013
                October 2007

              • LR-4.2.6

                Relevant operating expensesG 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 LR-4.2.7.

                October 2007

              • LR-4.2.7

                The adjustments to be made to relevant operating expenses are the exclusion of the following items from total operating expenses:

                (a) Training fees;
                (b) Charitable donations;
                (c) Previous year's CBB fees paid; and
                (d) Non-executive Directors'G remuneration.
                Amended: July 2013
                October 2007

              • LR-4.2.8

                For the avoidance of doubt, operating expenses for the purposes of this Section, do not include items such as depreciation, provisions, interest expense, and dividends.

                October 2007

              • LR-4.2.9

                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.

                October 2007

              • LR-4.2.9A

                Conventional bank licenseesG 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 the bank and/or others at the bank's direction or having been established under the bank'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.

                Amended: October 2013
                Amended: April 2011
                Adopted: January 2011

              • LR-4.2.9B

                Paragraph LR-4.2.9A does not apply to SPVs of Bahrain domiciled CIUsG . In the case of Bahrain domiciled CIUsG , banks should refer to the relevant Chapter in Module ARR of Volume 7, depending on the classification of the Bahrain domiciled CIUG .

                Added: July 2012

              • LR-4.2.10

                Conventional Bank licenseesG 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
                October 2007

              • LR-4.2.10A

                All conventional bank licenseesG are subject to direct debit for the payment of the annual fees and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September, available under Part B of Volume 1 (Conventional Banks) CBB Rulebook on the CBB Website.

                Added: July 2013

              • LR-4.2.11

                For new licenseesG , their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount specified for conventional bank licenseesG , reduced on a pro-rata basis such that they are charged only for the number of complete months left in the current calendar year.

                October 2007

              • LR-4.2.12

                For example, if a conventional retail bank is issued a license on 6 June 2007, then it would be asked to pay an annual license fee that same month, covering the remaining period left for the calendar year 2007. The fee would be calculated as BD 30,000 (the minimum amount payable by a conventional retail bank licenseeG , multiplied by 6/12 (the number of complete months left in the year, i.e. July to December inclusive, divided by the total number of months in the year), giving a fee liability of BD 15,000. For the following year (2008) annual fee, the licenseeG would submit a Form ALF by 15th October 2007, and calculate its fee as the floor amount. For future years, the licenseeG 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).

                Amended: July 2013
                October 2007

              • LR-4.2.13

                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.

                Amended: October 2010
                October 2007

              • LR-4.2.14

                Conventional bank licenseesG failing to comply with this Section may be subject to financial penalties for date sensitive requirements as outlined in Section EN-6.2A or may have their licenses withdrawn by the CBB.

                Added: July 2013

        • PB Principles of Business

          • PB-A Introduction

            • PB-A.1 Purpose

              • Executive Summary

                • PB-A.1.1

                  The Principles of Business are a general statement of the fundamental obligations of all Central Bank of Bahrain ('CBB') conventional bank licenseesG and approved personsG . They serve as a basis for other material in Volume 1 (Conventional Banks), and help address specific circumstances not covered elsewhere in the Rulebook.

                  October 07

                • PB-A.1.2

                  The Principles of Business have the status of Rules and apply alongside other Rules contained in Volume 1 (Conventional Banks). However, these other Rules do not exhaust the fundamental obligations contained in the Principles. Compliance with all other Rules, therefore, does not necessarily guarantee compliance with the Principles of Business.

                  October 07

              • Legal Basis

                • PB-A.1.3

                  This Module contains the CBB's Directive (as amended from time to time) relating to Principles of Business 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 all conventional bank licenseesG (including their approved personsG ).

                  Amended: January 2011
                  October 07

                • PB-A.1.4

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  October 07

            • PB-A.2 Module History

              • PB-A.2.1

                This Module was first issued in July 2004 by the BMA as part of the conventional principles volume. All regulations in this volume have been effective since this date. 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.

                October 07

              • PB-A.2.2

                When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 1 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                October 07

              • PB-A.2.3

                A list of recent changes made to this Module is provided below:

                Module Ref. Change Date Description of Changes
                PB-A.1 10/2007 New Rule PB-A.1.3 introduced, categorising this Module as a Directive.
                PB-1.1 10/2007 Small expansion of Principle 1 to refer to disclosure of all relevant information to customers, as required by CBB Regulations and Directives. Reordering and expansion of other Principles, although no substantive changes.
                PB-A.1.3 01/2011 Clarified legal basis.
                PB-B.1.5 01/2011 Corrected cross reference.
                     
                October 07

          • PB-B Scope of Application

            • PB-B.1 Scope of Application

              • PB-B.1.1

                The 10 Principles of Business apply to all CBB conventional bank licenseesG , in accordance with Paragraph PB-B.1.2. Principles 1-8 also apply to all approved personsG , in accordance with Paragraph PB-B.1.3.

                October 07

              • PB-B.1.2

                Principles 1 to 10 apply to activities carried out by the conventional bank licenseeG , including activities carried out through overseas branches (if any). Principles 9 and 10 also take into account any activities of other members of the group of which the conventional bank licensee is a member.

                October 07

              • PB-B.1.3

                Principles 1 to 8 apply to approved personsG in respect of the controlled functionG for which they have been approved.

                October 07

              • PB-B.1.4

                Principles 1 to 8 do not apply to behaviour by an approved personG with respect to any other functions or activities they may undertake. However, behaviour unconnected to their controlled functionG duties may nonetheless be relevant to an assessment of that person's fitness and propriety.

                October 07

              • PB-B.1.5

                The CBB's requirements regarding approved personsG and controlled functionsG are located in Module LR (Licensing Requirements).

                Amended: January 2011
                October 07

            • PB-B.2 Non-compliance

              • PB-B.2.1

                Breaching a Principle of Business makes the conventional bank licenseeG or approved personG concerned liable to enforcement action. In the case of a licensee, this may call into question whether they continue to meet the licensing conditions (see Chapter LR-2). In the case of an approved personG , this may call into question whether they continue to meet the 'fit and proper' requirements for the function for which they have been approved (see Section HC-2.2).

                October 07

              • PB-B.2.2

                Module EN (Enforcement) sets out the CBB's policy and procedures on enforcement action.

                October 07

          • PB-1 The Principles

            • PB-1.1 Principles

              • Principle 1 — Integrity

                • PB-1.1.1

                  Conventional bank licenseesG and approved personsG must observe high standards of integrity and fair dealing. They must be honest and straightforward in their dealings with customersG , and provide full disclosure of all relevant information to customers, as required by the CBB's Regulations and Directives.

                  October 07

              • Principle 2 — Conflicts of Interest

                • PB-1.1.2

                  Conventional bank licenseesG and approved personsG must take all reasonable steps to identify, and prevent or manage, conflicts of interest that could harm the interests of a customerG .

                  October 07

              • Principle 3 — Due Skill, Care and Diligence

                • PB-1.1.3

                  Conventional bank licenseesG and approved personsG must act with due skill, care and diligence.

                  October 07

              • Principle 4 — Confidentiality

                • PB-1.1.4

                  Conventional bank licenseesG and approved personsG must observe in full any obligations of confidentiality, including with respect to customer information. This requirement does not over-ride lawful disclosures.

                  October 07

              • Principle 5 — Market Conduct

                • PB-1.1.5

                  Conventional bank licenseesG and approved personsG must observe proper standards of market conduct, and avoid action that would generally be viewed as improper.

                  October 07

              • Principle 6 — Customer Assets

                • PB-1.1.6

                  Conventional bank licenseesG and approved personsG must take reasonable care to safeguard the assets and deposits of customersG for which they are responsible.

                  October 07

              • Principle 7 — Customer Interests

                • PB-1.1.7

                  Conventional bank licenseesG and approved personsG must pay due regard to the legitimate interests and information needs of their customersG and communicate with them in a fair and transparent manner. Conventional bank licenseesG and approved personsG , when dealing with customersG who are entitled to rely on their advice or discretionary decisions, must take reasonable care to ensure the suitability of such advice or decisions.

                  October 07

              • Principle 8 — Relations with Regulators/Supervisors

                • PB-1.1.8

                  Conventional bank licenseesG and approved personsG must act in an open and co-operative manner with the CBB and other regulatory/supervisory bodies whose authority they come under. They must take reasonable care to ensure that their activities comply with all applicable laws and regulations.

                  October 07

              • Principle 9 — Adequate Resources

                • PB-1.1.9

                  Conventional bank licenseesG must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner.

                  October 07

              • Principle 10 — Management, Systems & Controls

                • PB-1.1.10

                  Conventional bank licenseesG must take reasonable care to ensure that their affairs are managed effectively and responsibly, with appropriate systems and controls in relation to the size and complexity of their operations. Conventional bank licensees'G systems and controls, as far as is reasonably practical, must be sufficient to manage the level of risk inherent in their business and ensure compliance with the CBB Rulebook.

                  October 07

        • HC High-Level Controls

          • HC-A Introduction

            • HC-A.1 Purpose

              • Executive Summary

                • HC-A.1.1

                  This Module presents requirements that have to be met by conventional bank licenseesG with respect to:

                  (a) Corporate governance principles issued by the Ministry of Industry and Commerce as "The Corporate Governance Code"; and
                  (b) International best practice corporate governance standards set by bodies such as the Basel Committee for Banking Supervision; and
                  (c) Related high-level controls and policies.
                  Amended: April 2011
                  October 2010

                • HC-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.

                  October 2010

                • HC-A.1.3

                  The purpose of the Module is to establish best practice corporate principles in Bahrain, and to provide protection for investors and other conventional bank licensee'sG stakeholders through compliance with those principles.

                  October 2010

                • HC-A.1.4

                  Whilst the Module follows best practice, it is nevertheless considered as the minimum standard to be applied. This Module also includes additional rules and guidance issued by the CBB prior to the publication of the Code and previously contained in Module HC.

                  October 2010

              • Structure 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 eight 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. However, where the previous version of Module HC had a similar recommendation as a Rule, the Module retains this Paragraph as a Rule.

                  October 2010

                • HC-A.1.6

                  The Module also incorporates other high-level controls and policies that apply in particular to conventional bank licenseesG .

                  October 2010

                • HC-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'.

                  October 2010

              • The 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 conventional bank licenseeG 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 Subparagraph PD-1.3.8(x) and to the CBB (see Chapter HC-8).

                  Amended: April 2012
                  Amended: January 2011
                  October 2010

              • Monitoring 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 conventional bank licensee'sG shareholders and the CBB.

                  October 2010

                • HC-A.1.10

                  It is the board's responsibility to see to the accuracy and completeness of the conventional bank licensee'sG 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).

                  October 2010

              • Legal 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 conventional bank licenseesG (including their approved personsG ).

                  Amended: January 2011
                  October 2010

                • HC-A.1.12

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  October 2010

              • Effective Date

                • HC-A.1.13

                  The previous version of Module HC is applicable until 31st December 2010. This updated Module issued in October 2010, is effective on 1st January 2011. All conventional bank licenseesG to which Module HC applies should be in full compliance by the financial year end 2011. At every conventional bank licensee'sG annual shareholder meeting held after 1st January 2011, corporate governance should be an item on the agenda for information and any questions from shareholders regarding the conventional bank licensee'sG governance. Where possible, the conventional bank licenseeG should also have corporate governance guidelines in place at that time and should have a "comply or explain" report as described in Paragraph HC-A.1.8.

                  October 2010

            • HC-A.2 Module History

              • HC-A.2.1

                This Module was first issued in June 2004 by the BMA and updated in October 2007 to reflect the switch to the CBB. Following the issuance of the Corporate Governance Code by the Ministry of Industry and Commerce in March 2010, the Module was amended in October 2010 to be in line with the new Corporate Governance Code and to include previous requirements that were in place in the originally issued Module HC. 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.

                October 2010

              • HC-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
                HC-1 to HC-8 10/2010 Amendments due to introduction of new MOIC Corporate Governance Code.
                HC-1.3 10/2010 Prohibition of proxies and requirement to attend 75% of board meetings in a financial year.
                HC-A.1.8 and HC-A.1.11 01/2011 Clarified legal basis.
                HC-2.2.4, 2.2.5 and 3.2.1 01/2011 Corrected cross references.
                HC-2.3.2 01/2011 Corrected cross reference; reference changed to connected persons.
                Appendix C 01/2011 Corrected cross reference.
                Appendix A 04/2011 Clarified membership of audit committee to be in line with Rule HC-3.2.1.
                HC-6.2.1 10/2011 Clarified management structure.
                HC-B.2.2 01/2012 Clarified language related to corporate governance.
                HC-1.2.8 and HC-1.5.3 01/2012 Clarified that the Chairman of the Board may delegate specific duties dealt with in these Paragraphs.
                HC-1.3.12 01/2012 Amended Rule on Directorships.
                HC-1.9.1 01/2012 Deleted last sentence to be in line with other Volumes of the CBB Rulebook.
                HC-3.2.1(a) and HC-5.6.6 01/2012 Amended to be in line with other Volumes of the CBB Rulebook.
                HC-6.3.1 01/2012 Clarified Rule by following corporate governance code wording.
                Appendix A 01/2012 Amended criteria for audit committee member.
                HC-A.1.8 04/2012 Clarified the reporting of noncompliance with Module HC in the Annual Report.
                HC-7.2.5 04/2012 Clarified Guidance on election of board members.
                Appendices A, B and C 04/2012 Amended requirement for written report on performance evaluation for various Board committees.
                Appendix A 04/2012 Included reference to compliance under Committee Duties and Responsibilities.
                HC-2.2.6A and HC-2.2.6B 07/2012 Added Rule and guidance dealing with benefits received from approved persons from projects and investments.
                Appendices A, B and C 07/2012 Clarified requirement for written report on performance evaluation for various Board committees.
                HC-1.3.7A 10/2012 Added requirement on minimum number of Board meetings to take place in the Kingdom of Bahrain to be consistent with other Volumes of the CBB Rulebook.
                HC-2.2.6A 10/2012 Clarified Rule dealing with benefits received from approved persons from projects and investments.
                Appendix A 10/2012 Corrected minor typo.
                HC-2.2.2 and HC-2.4.1 01/2013 Clarified scope of application for Rules.
                HC-2.2.6A, HC-5 and Appendix C 01/2014 Amendments due to new rules on sound remuneration practices.
                HC-1.2.6 04/2014 Clarified CBB's requirements for proposed changes to strategy and/or corporate plans.
                HC-5.2, HC-5.4 and HC-5.5 07/2014 Updated Rules on remuneration.
                HC-1.2.11 10/2014 Corrected cross reference.
                HC-1.3.10 10/2014 Corrected typo.
                HC-6.4.3 10/2014 Clarified self assessment of compliance function.
                HC-5.4.2 01/2015 Clarified application of remuneration rules for Bahrain operations.
                HC-5.4.5 01/2015 Paragraph deleted.
                HC-5.5.2 04/2015 Clarified cap on board of directors' remuneration as per Article 188 of the Company Law.
                HC-5.4.3A 07/2015 Amended to allow for CBB-approved consultancy firm to prepare report on the bank's compliance with the remuneration Rules outlined in Chapter HC-5.
                HC-2.3.3 04/2016 Added a requirement for the conventional bank 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-2.3 and HC-2.4 07/2016 Clarified application of rules to overseas conventional bank licensees.
                HC-5.4.30(a) and HC-5.4.30A 10/2016 Amended Standard for all Remuneration
                HC-5.2.1 01/2017 Amendment in sub-paragraph (b)
                HC-7.2.4 04/2017 Amendment in paragraph on website requirement.
                HC-8.2.1 04/2017 Amendment in sub-paragraph (b) on website requirement.
                HC-7.2.3A 07/2017 Amended paragraph to be in line with Article (199) of the Commercial Companies law.
                HC-2.4.1A 10/2017 Amended paragraph.
                HC-6.5 04/2018 Added new Section on Internal Audit.
                HC-1.8.1 07/2018 Amended paragraph to be consistent with HC-6.6.
                HC-6.6 07/2018 Added new Section on Risk Management.
                HC-6.5.5 10/2018 Amended Paragraph.
                HC-6.4 01/2019 Amended Section and added new requirements on Compliance.

          • HC-B Scope of Application

            • HC-B.1 Scope of Application

              • HC-B.1.1

                The contents of this Module - unless otherwise stated - apply to all conventional bank licenseesG , incorporated under the Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law ('Company Law').

                October 2010

              • HC-B.1.2

                Overseas conventional bank licenseesG must satisfy the CBB that equivalent arrangements are in place at the parentG entity level, and that these arrangements provide for effective high-level controls over activities conducted under the Bahrain license.

                October 2010

            • HC-B.2 Subsidiaries and Foreign Branches

              • HC-B.2.1

                Bahraini conventional bank licenseesG must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their foreign branchesG , 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.

                October 2010

              • HC-B.2.2

                Bahraini conventional bank licenseesG must satisfy the CBB that financial services activities conducted in subsidiariesG and other group members are subject to the same or equivalent arrangements for ensuring effective corporate governance over their activities.

                Amended: January 2012
                October 2010

              • HC-B.2.3

                Where a conventional bank licenseeG is unable to satisfy the CBB that its subsidiariesG 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 the licensee 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 the licensee and other group members. Where weaknesses in controls are assessed by the CBB to pose a major threat to the stability of the licensee, then its authorisation may be called into question.

                October 2010

          • HC-1 The Board

            • HC-1.1 Principle

              • HC-1.1.1

                All Bahraini conventional bank licenseesG must be headed by an effective, collegial and informed Board of Directors ('the Board').

                October 2010

            • 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 officers (whom the board appoints and oversees); and
                (b) The board's fiduciary duties of care and loyalty to the conventional bank licenseeG and the shareholders (see HC-2.1).
                October 2010

              • 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 conventional bank licenseeG ;
                (b) Causing financial statements to be prepared which accurately disclose the conventional bank licensee'sG financial position;
                (c) Monitoring management performance;
                (d) Convening and preparing the agenda for shareholder 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 bank.
                October 2010

              • 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.
                Amended: April 2011
                October 2010

              • HC-1.2.4

                The directors are responsible both individually and collectively for performing the responsibilities outlined in 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.

                October 2010

              • HC-1.2.5

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

                (a) Review the bank'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 bank;
                (c) Set performance objectives; and
                (d) Oversee major capital expenditures, divestitures and acquisitions.
                Amended: April 2011
                October 2010

              • HC-1.2.6

                Bahraini conventional bank licenseesG must obtain the CBB's prior written approval for all major proposed changes to the strategy and/or corporate plan of the Bahraini conventional bank licenseeG prior to implementation (see also Paragraph BR-5.2.6).

                Amended: April 2014
                October 2010

              • 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 bank's compliance risk.
                Amended: April 2011
                October 2010

              • HC-1.2.8

                When a new director is inducted, the chairman of the board, or the conventional bank licensee'sG 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).

                Amended: January 2012
                October 2010

              • HC-1.2.9

                The conventional bank licenseeG 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 remunerationG and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

                October 2010

              • 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 bank, is appropriate for the bank's business and associated risks (see 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 bank is exposed in its business activities.

                  The Board must regularly assess the systems and controls framework of the bank. In its assessments, the Board must demonstrate to the CBB that:

                  (a) The bank's operations, individually and collectively are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of the bank's activities;
                  (b) The bank'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 bank 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 bank's adopted governance framework, appropriate and timely action is taken to address any identified adverse deviations from the requirements of this Module.
                  Amended: April 2011
                  October 2010

                • HC-1.2.11

                  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 HC-1.2.1 to HC-1.2.10. Wherever possible, the documents referred to in HC-1.2.3 to HC-1.2.10 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
                  October 2010

            • 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.

                October 2010

              • 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.

                October 2010

              • 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.

                October 2010

              • 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
                October 2010

              • 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).

                October 2010

              • 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 bank 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.

                October 2010

              • 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. Banks 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.

                October 2010

              • HC-1.3.7A

                At least half the Board meetings of Bahraini conventional bank licenseesG in any twelve-month period must be held in the Kingdom of Bahrain.

                Added: October 2012

              • HC-1.3.8

                All locally incorporated banks 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-10.

                October 2010

              • HC-1.3.9

                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).

                October 2010

              • HC-1.3.10

                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 conventional bank licensee'sG Memorandum of Association.

                Amended: October 2014
                October 2010

              • HC-1.3.11

                Potential non-executive directorsG 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 directorG and should require each non-executive directorG to inform the Committee before he accepts any board appointments to another company.

                October 2010

              • HC-1.3.12

                No Board member may have more than one Directorship of a Retail Bank or a Wholesale Bank. This means an effective cap of a maximum of two Directorships of banks inside Bahrain. Two Directorships of licensees within the same Category (e.g. 'Retail Bank') are not permitted. Banks may approach the CBB for exemption from this limit where the Directorships concern banks or financial institutions within the same group.

                Amended: January 2012
                October 2010

              • HC-1.3.13

                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.

                October 2010

            • 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.

                October 2010

              • HC-1.4.2

                Executive directorsG 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).

                October 2010

              • HC-1.4.3

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

                October 2010

              • 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 judgement. At a minimum, all locally incorporated banks must appoint one independent director.

                October 2010

              • HC-1.4.5

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

                October 2010

              • HC-1.4.6

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

                October 2010

              • HC-1.4.7

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

                October 2010

              • HC-1.4.8

                The Chairman must not be an Executive Director.

                October 2010

              • HC-1.4.9

                The board should review the independence of each director at least annually in light of interests disclosed by them, and their conduct. Each independent directorG shall provide the board with all necessary and updated information for this purpose.

                October 2010

              • HC-1.4.10

                To facilitate free and open communication among independent directorsG , each board meeting should be preceded or followed with a session at which only independent directorsG are present, except as may otherwise be determined by the independent directorsG themselves.

                October 2010

            • 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 conventional bank licenseeG has controllersG (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.

                October 2010

              • HC-1.5.2

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

                October 2010

              • HC-1.5.3

                In conventional bank licenseesG with controllersG , both controllers and other shareholders should be aware of controllers'G specific responsibilities regarding their duty of loyalty to the conventional bank licenseeG 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 conventional bank licenseeG 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 conventional bank licensee'sG lawyers.

                Amended: January 2012
                October 2010

            • 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 conventional bank licensee'sG expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with the conventional bank licensee'sG policy approved by the board.

                October 2010

              • HC-1.6.2

                Individual directors must also have access to the conventional bank licensee'sG 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.

                October 2010

              • HC-1.6.3

                Whenever a director has serious concerns which cannot be resolved concerning the running of the conventional bank licenseeG 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.

                October 2010

              • HC-1.6.4

                Upon resignation, a non-executive directorG 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.

                October 2010

            • 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.

                October 2010

              • HC-1.7.2

                Non-executive directorsG should have free access to the conventional bank licensee'sG 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.

                October 2010

            • HC-1.8 Committees of the Board

              • HC-1.8.1

                The board must establish Audit, Remuneration, Nominating and Risk Committees described elsewhere in this Module.

                Amended: July 2018
                October 2010

              • 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 conventional bank licensee'sG corporate governance policy framework.

                Amended: January 2012
                October 2010

              • 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.

                October 2010

              • 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.

                October 2010

              • 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.

                October 2010

              • 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.

                October 2010

              • HC-1.8.7

                Where committees are set up, they should keep full minutes of their activities and meet regularly to fulfil their mandates. For larger banks 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 bank. The establishment of committees should not mean that the role of the Board is diminished, or that the Board becomes fragmented.

                October 2010

            • 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.

                Amended: January 2012
                October 2010

              • 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 bank or its committees (such as the audit committee) is not adequate.
                October 2010

              • 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.

                October 2010

              • 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.

                October 2010

          • HC-2 Approved Persons Loyalty

            • HC-2.1 Principle

              • HC-2.1.1

                The approved personsG must have full loyalty to the conventional bank licenseeG .

                October 2010

            • HC-2.2 Personal Accountability

              • HC-2.2.1

                Banks 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 Bahraini Stock Exchange Law, 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 Central Bank. The Board sets the 'tone at the top' of a bank, 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.

                October 2010

              • Corporate 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 conventional bank licenseeG and the shareholders if he violates his legal duty of loyalty to the conventional bank licenseeG , and that he can be personally sued by the conventional bank licenseeG or the shareholders for such violations.

                  Amended: January 2013
                  October 2010

                • HC-2.2.3

                  The Board must establish corporate standards for approved personsG 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 the bank, so that the approved personsG 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. Banks' approved personsG and staff must be informed of and be required to fulfil their fiduciary responsibilities to the bank's stakeholders.

                  October 2010

                • HC-2.2.4

                  An internal code of conduct is separate from the business strategy of a bank. A code of conduct should outline the practices that approved personsG and staff should follow in performing their duties. Banks 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 the bank, 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 of conventional bank licensee'sG assets;
                  (d) How the conventional bank licenseeG deals with disputes and complaints from clients and monitors compliance with the code; and
                  (e) Confidentiality. Disclosure of client or bank information should be prohibited, except where disclosure is required by law (see HC-1.2.10 b).
                  Amended: April 2011
                  Amended: January 2011
                  October 2010

                • HC-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 the bank 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 the bank;
                  (c) Have a proper understanding of, and competence to deal with the affairs and products of the bank and devote sufficient time to their responsibilities; and
                  (d) To independently assess and question the policies, processes and procedures of the bank, with the intent to identify and initiate management action on issues requiring improvement. (i.e. to act as checks and balances on management).
                  Amended: April 2011
                  Amended: January 2011
                  October 2010

                • HC-2.2.6

                  The duty of loyalty (mentioned in Paragraph HC-2.2.2 above) includes a duty not to use property of the conventional bank licenseeG for his personal needs as though it was his own property, not to disclose confidential information of the conventional bank licenseeG or use it for his personal profit, not to take business opportunities of the conventional bank licenseeG for himself, not to compete in business with the conventional bank licenseeG , and to serve the conventional bank licensee'sG interest in any transactions with a company in which he has a personal interest.

                  October 2010

                • HC-2.2.6A

                  [This Paragraph was moved to Paragraph HC-5.4.39].

                  Amended: January 2014
                  Amended: October 2012
                  Added: July 2012

                • HC-2.2.6B

                  [This Paragraph was moved to Paragraph HC-5.4.40].

                  Amended: January 2014
                  Added: July 2012

                • HC-2.2.7

                  For purposes of Paragraph HC-2.2.6, an approved personG should be considered to have a "personal interest" in a transaction with a company if:

                  (a) He himself; or
                  (b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or
                  (c) Another company of which he is a director 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.)

                  October 2010

            • HC-2.3 Avoidance of Conflicts of Interest

              • HC-2.3.1

                Each approved personG must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the conventional bank licenseeG .

                October 2010

              • HC-2.3.2

                The Board must establish and disseminate to its members and management, policies and procedures for the identification, reporting, disclosure, prevention, or strict limitation of potential conflicts of interest. It is senior management'sG 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 which approved personsG would have conflicts of interest that are material, should be formally and unanimously approved by the full Board. Best practice would dictate that an approved personG must:

                a) Not enter into competition with the bank;
                b) Not demand or accept substantial gifts from the bank for himself or connected personsG ;
                c) Not misuse the bank's assets;
                d) Not use the conventional bank licensee'sG privileged information or take advantage of business opportunities to which the conventional bank licenseeG 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 2011
                October 2010

              • HC-2.3.3

                Bahraini conventional bank licenseesG must have in place a board approved policy on the employment of relatives of approved personsG and a summary of such policy must be disclosed in the annual report of the Bahraini conventional bank licenseeG .

                Amended: July 2016
                Added: April 2016

              • HC-2.3.4

                Overseas conventional bank licenseesG must have in place a policy on the employment of relatives of approved personsG pertaining to their Bahrain operations.

                Added: July 2016

            • HC-2.4 Disclosure of Conflicts of Interest

              • HC-2.4.1

                Each approved personG 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 the approved personG . The approved personsG 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, all approved personsG 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 a company, a manager, or other form of significant participation) to the Board (or the Nominations or Audit Committees) on an annual basis.

                Amended: January 2013
                Amended: January 2011
                October 2010

              • HC-2.4.1A

                The chief executive/general manager of the Bahraini conventional bank licenseesG must disclose to the board of directors on an annual basis those individuals who are occupying controlled functionsG and who are relatives of any approved personsG within the Bahraini conventional bank licenseeG .

                Amended: October 2017
                Amended: July 2016
                Added: April 2016

              • HC-2.4.1B

                The chief executive/general manager of the overseas conventional bank licenseesG must disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupying controlled functionsG and who are relatives of any approved personsG within the overseas conventional bank licenseeG .

                Added: July 2016

              • HC-2.4.2

                The board of a Bahraini conventional bank licenseeG should establish formal procedures for:

                (a) Periodic disclosure and updating of information by each approved personG on his actual and potential conflicts of interest; and
                (b) Advance approval by directors or shareholders who do not have an interest in the transactions in which a conventional bank licensee'sG approved personG has a personal interest. The board should require such advance approval in every case.
                Amended: July 2016
                October 2010

            • HC-2.5 Disclosure of Conflicts of Interest to Shareholders

              • HC-2.5.1

                The conventional bank licenseeG 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.

                October 2010

          • HC-3 Audit Committee and Financial Statements Certification

            • 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.

                October 2010

            • 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 the conventional bank licensee'sG accounting and financial practices;
                (b) Review the integrity of the conventional bank licensee'sG 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 the conventional bank licensee'sG compliance with legal requirements;
                (d) Recommend the appointment, compensation and oversight of the conventional bank licensee'sG external auditor; and
                (e) Recommend the appointment of the internal auditor.
                Amended: January 2012
                Amended: January 2011
                October 2010

              • HC-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 the bank'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 the bank's operations and performance and the effectiveness of internal controls; and
                (b) Make use of self-assessments, stress/scenario tests, and/or independent judgements 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 the bank 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 the bank, and compliance with applicable laws, regulations and best practice standards. The systems must produce information on a timely basis.
                October 2010

              • HC-3.2.3

                The conventional bank licenseeG must set up an internal audit function, which reports directly to the Audit Committee and administratively to the CEOG .

                October 2010

              • HC-3.2.4

                The CEOG must not be a member of the audit committee.

                October 2010

            • 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.

                October 2010

              • HC-3.3.2

                A majority of the audit committee must have the financial literacy qualifications stated in Appendix A.

                October 2010

              • HC-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.

                October 2010

            • 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, the conventional bank licensee'sG CEOG and chief financial officer must state in writing to the audit committee and the board as a whole that the conventional bank licensee'sG interim and annual financial statements present a true and fair view, in all material respects, of the conventional bank licensee'sG financial condition and results of operations in accordance with applicable accounting standards.

                October 2010

          • HC-4 Appointment, Training and Evaluation of the Board

            • HC-4.1 Principle

              • HC-4.1.1

                The conventional bank licenseeG must have rigorous and transparent procedures for appointment, training and evaluation of the Board.

                October 2010

            • 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 the conventional bank licenseeG 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.
                October 2010

              • HC-4.2.2

                The committee must include only independent directorsG or, alternatively, only non-executive directorsG of whom a majority must be independent directorsG and the chairman must be an independent directorG . This is consistent with international best practice and it recognises that the Nominating Committee must exercise judgment free from personal career conflicts of interest.

                October 2010

            • 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.

                October 2010

            • 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, 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 an independent directorG , a statement that the board has determined that the criteria of independent directorG 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 the conventional bank licenseeG , and
                (ii) The candidate and other directors of the conventional bank licensee.G
                October 2010

              • HC-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 a director 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-executive director's independence.

                October 2010

            • 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 meetings with senior management, visits to the conventional bank licensee'sG facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.

                October 2010

              • HC-4.5.2

                All continuing directors must be invited to attend orientation meetings and all directors must continually educate themselves as to the conventional bank licensee'sG business and corporate governance.

                October 2010

              • HC-4.5.3

                Management, in consultation with the chairman of the board, should hold programs and presentations to directors respecting the conventional bank licensee'sG business and industry, which may include periodic attendance at conferences and management meetings. The Nominating Committee shall oversee directors' corporate governance educational activities.

                October 2010

          • HC-5 Remuneration of Approved Persons and Material Risk-Takers

            • HC-5.1 Principle

              • HC-5.1.1

                The conventional bank licenseeG must remunerate approved personsG and material risk-takersG fairly and responsibly.

                Amended: January 2014
                October 2010

            • HC-5.2 Role of the Board of Directors and Remuneration Committee

              • HC-5.2.1AA

                The board of directors must actively oversee the remuneration system's design and operation for approved personsG as well as for material risk-takersG . The CEO and senior managementG must not primarily control the remuneration system.

                Added: January 2014

              • HC-5.2.1

                The Board must establish a remuneration committee of at least three directors which must:

                (a) Review the conventional bank licensee'sG remunerationG policies for the approved personsG and material risk-takersG , which must be approved by the shareholders and be consistent with the corporate values and strategy of the bank;
                (b) Approve the remunerationG package and amounts for each approved personG and material risk-takerG , as well as the total variable remuneration to be distributed, taking account of total remunerationG including salaries, fees, expenses, bonuses and other employee benefits;
                (c) Approve, monitor and review the remuneration system to ensure the system operates as intended; and
                (d) Recommend Board member remuneration based on their attendance and performance and in compliance with Article 188 of the Company Law.
                Amended: January 2017
                Amended: July 2014
                Amended: January 2014
                October 2010

              • HC-5.2.1A

                In reviewing the remuneration system (see Subparagraph HC-5.2.1(c)), the remuneration committee should ensure that the system includes effective controls, including back testing and stress testing of the remuneration policy. The practical operation of the system should be regularly reviewed for compliance with regulations, internal policies and bank procedures. In addition, remuneration outcomes, risk measurements, and risk outcomes should be regularly reviewed by the Board for consistency with Board's approved risk appetite.

                Added: January 2014

              • HC-5.2.1B

                Stress testing or stressed measures might be used by banks to help ex-ante risk adjustments take into account severe but plausible scenarios, based on possible expected loss on loans, as an example. Due to the uncertainty of payoffs, there will always be a need for ex-post adjustments so as to back-test actual performance against risk assumptions.

                Added: January 2014

              • HC-5.2.1C

                As part of the duties noted under Paragraph HC-5.2.1, the remuneration committee must carefully evaluate practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain. It must demonstrate that its decisions are consistent with an assessment of the bank's financial condition and future prospects.

                Added: January 2014

              • HC-5.2.2

                The committee may be merged with the nominating committee.

                October 2010

            • 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.

                October 2010

              • HC-5.3.1A

                Members of the remuneration committee must have independence of any risk taking function or committees.

                Added: January 2014

              • HC-5.3.2

                The committee should include only independent directorsG or, alternatively, only non-executive directorsG of whom a majority are independent directorsG and the chairman is an independent directorG . This is consistent with international best practice and it recognises that the remuneration committee must exercise judgment free from personal career conflicts of interest.

                October 2010

            • HC-5.4 Standard for all Remuneration

              • HC-5.4.1

                RemunerationG of approved personsG and material risk-takersG must be sufficient enough to attract, retain and motivate persons of the quality needed to run the conventional bank licenseeG successfully, but the conventional bank licenseeG must avoid paying more than is necessary for that purpose.

                Amended: January 2014
                October 2010

              • HC-5.4.2

                While this Section applies to all approved personsG and material risk-takersG for the Bahrain operations, the rules on the proportion of fixed and variable remunerationG (Paragraph HC-5.4.30) as well as those rules related to the deferral of variable remunerationG (Paragraphs HC-5.4.31 and HC-5.4.32) and the obligation to have part of the variable remunerationG in shares (Paragraphs HC-5.4.33 and HC-5.4.34) apply only to:

                (a) Approved personsG ; or
                (b) Material risk-takersG

                whose total annual remunerationG (including all benefits) is in excess of BD100,000, unless the board of directors requires the application of these Rules to all staff.

                Amended: January 2015
                Amended: July 2014
                Added: January 2014

              • HC-5.4.2A

                The reference to 'Bahrain operations' in Paragraph HC-5.4.2 refers to any activities carried on from an establishment in Bahrain.

                Added: April 2015

              • HC-5.4.3

                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.

                Added: January 2014

              • HC-5.4.3A

                As noted in Sections AU-3.6 and BR-4A.3, the external auditor or a CBB approved consultancy firm must undertake an annual review of the bank's compliance with the remuneration Rules outlined in this Chapter. The results of this review are to be submitted to the CBB within 3 months from the financial year end.

                Amended: July 2015
                Moved from HC-5.4.6 to HC-5.4.3A: January 2015
                Added: January 2014

              • Application to Overseas Conventional Banks

                • HC-5.4.4

                  Banks operating as overseas conventional bank licenseesG in Bahrain must apply the most stringent set of remuneration rules to which they may be subject to. Such rules are:

                  (a) The requirements imposed in Bahrain with respect to remuneration as outlined in Volume 1 CBB Rulebook; and
                  (b) The requirements imposed by their home supervisor and head office.
                  Added: January 2014

              • HC-5.4.5

                [This Paragraph was deleted in January 2015.]

                Deleted: January 2015
                Added: January 2014

              • HC-5.4.6

                [Moved to Paragraph HC-5.4.3A in January 2015.]

                Amended: January 2015
                Added: January 2014

              • Approved Persons in Risk Management, Internal Audit, Operations, Financial Controls, Internal Shari'a Review/Audit, AML and Compliance Functions

                • HC-5.4.7

                  The bank's approved personsG engaged in risk management, internal audit, operations, financial controls, internal Shari'a review/audit, AML and compliance functions must be independent, have appropriate authority, and be remunerated in a manner that is independent of the business areas they oversee and commensurate with their key role in the bank. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial risk and management's influence on incentive remuneration.

                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.8

                  The performance measures of approved personsG referred to in Paragraph HC-5.4.7 must be based principally on the achievement of the objectives and targets of their functions.

                  Added: January 2014

                • HC-5.4.9

                  The mix of fixed and variable remuneration for risk management, internal audit, operations, financial controls, internal Shari'a review/audit, AML and compliance functions personnel must be weighted in favour of fixed remuneration.

                  Amended: July 2014
                  Added: January 2014

              • Effective Alignment of Remuneration with Prudent Risk-Taking

                • HC-5.4.10

                  Remuneration must be adjusted for all types of risks.

                  Added: January 2014

                • HC-5.4.11

                  In relation to Paragraph HC-5.4.10, two employees who generate the same short-run profit but take different amounts of risk on behalf of their bank should not be treated the same by the remuneration system.

                  Added: January 2014

                • HC-5.4.12

                  Both quantitative measures and human judgement must play a role in determining risk adjustments.

                  Added: January 2014

                • HC-5.4.13

                  Risk adjustments must account for all types of risk, including intangible and other risks such as reputation risk, liquidity risk and the cost of capital.

                  Added: January 2014

                • HC-5.4.14

                  Banks' remuneration policies and practices must be designed to reduce employees' incentives to take excessive and undue risk.

                  Added: January 2014

                • HC-5.4.15

                  Remuneration outcomes must be symmetric with risk outcomes.

                  Added: January 2014

                • HC-5.4.16

                  The mix of cash, equity and other forms of remuneration must be consistent with risk alignment. The mix will vary depending on the employee's position and role and the bank must be able to explain the rationale for its mix to the CBB.

                  Added: January 2014

                • HC-5.4.17

                  Existing contractual payments related to a termination of employment must be re-examined, and kept in place only if there is a clear basis for concluding that they are aligned with long-term value creation and prudent risk-taking. Prospectively, any such payments must be related to performance achieved over time and designed in a way that does not reward failure.

                  Added: January 2014

                • HC-5.4.18

                  Banks must ensure that their employees commit themselves not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements. Banks must ensure that appropriate compliance mechanisms are in place to monitor their employees commitment in this regard such as signed adherence by staff to the bank's code of ethics which should include the conditions outlined in this Paragraph.

                  Added: January 2014

              • Variable Remuneration

                • HC-5.4.19

                  Remuneration systems must link the size of the bonus pool to the overall performance of the bank.

                  Added: January 2014

                • HC-5.4.20

                  Employees' incentive payments must be linked to the contribution of the individual and business to such performance.

                  Added: January 2014

                • HC-5.4.21

                  As profits and losses of different activities of a bank are realised over different periods of time, remuneration payout schedules must be sensitive to the time horizon of risks and variable remuneration must therefore be deferred accordingly. Variable remuneration must not be finalised over short periods where risks are realised over long periods.

                  Added: January 2014

                • HC-5.4.22

                  The remuneration committee of the bank must question payouts for income that cannot be realised or whose likelihood of realisation remains uncertain at the time of payout.

                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.23

                  Banks must ensure that total variable remuneration does not limit their ability to strengthen their capital base. The extent to which capital needs to be built up must be a function of a bank's current capital position and its ICAAP.

                  Added: January 2014

                • HC-5.4.24

                  The size of the variable remuneration pool and its allocation within the bank must take into account the full range of current and potential risks, including:

                  (a) The cost and quantity of capital required to support the risks taken;
                  (b) The cost and quantity of the liquidity risk assumed in the conduct of business; and
                  (c) Consistency with the timing and likelihood of potential future revenues incorporated into current earnings.
                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.25

                  Paragraph HC-5.4.24 focuses on the overall size of the variable remuneration, at the overall bank level, in order to ensure that the recognition and accrual of variable remuneration will not compromise the financial soundness of the bank.

                  Added: January 2014

                • HC-5.4.26

                  Bonuses must diminish or be deferred in the event of poor bank, divisional or business unit performance.

                  Added: January 2014

                • HC-5.4.27

                  Subdued or negative financial performance of the bank should generally lead to a considerable contraction of the bank's total variable remuneration, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus and clawback arrangements. Recognition of staff who have achieved their targets or better, may take place by way of deferred compensation, which may be paid once the bank's performance improves.

                  Added: January 2014

                • HC-5.4.28

                  If the bank and/or relevant line of business is incurring losses in any year during the vesting period, any unvested portions must be subject to malusG .

                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.29

                  Accrual and deferral of variable remuneration does not oblige the bank to pay the variable remuneration, particularly when the anticipated outcome has not materialised or the bank's financial position does not support such payments.

                  Added: January 2014

                • HC-5.4.30

                  For approved personsG and material risk-takersG , other than those covered under Paragraphs HC-5.4.9 and Section HC-5.5, as their actions have a material impact on the risk exposure of the bank:

                  (a) An appropriate ratio between the fixed and variable components of total remuneration must be set to ensure that fixed and variable components of total remuneration are appropriately balanced and paid on the basis of individual, business-unit and bank-wide measures that adequately measure performance; and
                  (b) The variable proportion of remuneration must increase significantly along with the level of seniority and/or responsibility.
                  Amended: October 2016
                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.30A

                  The Level of the fixed component referred to in Subparagraph HC-5.4.30(a) should represent a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable component.

                  Amended: October 2016
                  Added: July 2014

                • HC-5.4.31

                  For purposes of Paragraph HC-5.4.30:

                  (a) At least 40% of the variable remuneration must be payable under deferral arrangements over a period of at least 3 years; and
                  (b) For the CEO, his deputies and the other 5 most highly paid business line employees, at least 60% of the variable remuneration must be payable under deferral arrangements over a period of at least 3 years.
                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.32

                  The deferral period referred to under Subparagraph HC-5.4.31(a) must be aligned with the nature of the business, its risks and the activities of the employee in question. Remuneration payable under deferral arrangements should generally vest no faster than on a pro rata basis.

                  Added: January 2014

                • HC-5.4.33

                  As a minimum, 50% of variable remuneration (including both the deferred and undeferred portions of the variable remuneration) must be awarded in shares or share-linked instruments or where appropriate, other non-cash instruments.

                  Added: January 2014

                • HC-5.4.34

                  The remaining portion (other than that mentioned under Paragraph HC-5.4.33) of the deferred remuneration can be paid as cash remuneration vested over a minimum 3-year period.

                  Added: January 2014

                • HC-5.4.34A

                  The only instance where deferred remunerationG can be paid out before the end of the vesting period is in the case of the death of the employee where the beneficiaries would receive any unpaid deferred remunerationG .

                  Added: July 2014

                • HC-5.4.35

                  Banks must not provide any form of guaranteed variable remuneration as part of the overall remuneration package. Exceptional minimum variable remuneration must only occur in the context of hiring new staff and limited to the first year.

                  Amended: July 2014
                  Added: January 2014

              • Remuneration in the Form of Shares or Share-Linked Instruments

                • HC-5.4.36

                  Awards in shares or share-linked instruments must be subject to a minimum share retention policy of 6 months from the time the shares are awarded, unless the bank's policy requires a longer period.

                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.37

                  For Bahraini conventional bank licenseesG , where fixed or variable remuneration include common shares, banks must limit the shares awarded to an annual aggregate limit of 10% of the total issued shares outstanding of the bank, at all times.

                  Amended: July 2014
                  Added: January 2014

                • HC-5.4.38

                  For Bahraini conventional bank licenseesG , all share incentive plans must be approved by the shareholders.

                  Amended: July 2014
                  Added: January 2014

              • Remuneration from Projects and Investments

                • HC-5.4.39

                  In reference to Paragraph HC-2.2.6, for greater certainty, approved personsG are not allowed to take any benefits from any projects or investments which are managed by the conventional bank licenseeG or promoted to its customers or potential customers except for board related remuneration (declared as per Paragraph HC-2.4.1) linked to their fiduciary duties to the investors of the project/investment. This Rule applies to all approved personsG including those appointed as members of the board of special purpose vehicles or other operating companies set up by the conventional bank licenseeG for projects or investments.

                  Added: January 2014

                • HC-5.4.40

                  The reference to benefits in Paragraph HC-5.4.39 includes commission, fees, shares, consideration in kind, or other remuneration or incentives in respect of the performance of the project or investment

                  Added: January 2014

            • HC-5.5 Board of Directors' Remuneration

              • HC-5.5.1

                RemunerationG of non-executive directorsG must not include performance-related elements such as grants of shares, share options or other deferred stock-related incentive schemes, bonuses, or pension benefits.

                October 2010

              • HC-5.5.2

                The Board of Directors' remuneration must be capped so that total remuneration is in line with Article 188 of the Company Law, in any financial year and has been approved by the shareholders.

                Amended: April 2015
                Amended: July 2014
                Added: January 2014

              • HC-5.5.3

                If a senior managerG is also a director, his remunerationG as a senior managerG must take into account compensation received in his capacity as a director.

                Added: January 2014

              • HC-5.5.4

                In the years where the bank has not generated any profits it must comply with the approval requirements of Article 188 of the Company Law.

                Added: January 2014

              • HC-5.5.5

                In addition to the requirements of Article 188 of the Company Law, the articles of association regarding remuneration of the board of directors must be in line with the Rules outlined in this Chapter.

                Added: January 2014

            • HC-5.6 [This Section was deleted and is replaced with requirements contained under Section HC-5.4]

              Deleted: January 2014

              • HC-5.6.1

                [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

                Deleted: January 2014

              • HC-5.6.2

                [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

                Deleted: January 2014

              • HC-5.6.3

                [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

                Deleted: January 2014

              • HC-5.6.4

                [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

                Deleted: January 2014

              • HC-5.6.5

                [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

                Deleted: January 2014

              • HC-5.6.6

                [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

                Deleted: January 2014

          • HC-6 Management Structure

            • HC-6.1 Principle

              • HC-6.1.1

                The board must establish a clear and efficient management structure.

                October 2010

            • 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 the conventional bank licenseeG , reporting to and under the direction of the board. The senior management must include at a minimum:

                (a) A CEOG ;
                (b) A chief financial officer;
                (c) A corporate secretary; and
                (d) An internal auditor,

                and must also include such other approved personsG as the board considers appropriate.

                Amended: October 2011
                October 2010

            • HC-6.3 Titles, Authorities, Duties and Reporting Responsibilities

              • HC-6.3.1

                The board must adopt by-laws prescribing each senior manager'sG title, authorities, duties, accountabilities and internal reporting responsibilities. This must be done with the advice of the Nominating Committee and in consultation with the CEOG , to whom the other senior managers should normally report.

                Amended: January 2012
                October 2010

              • HC-6.3.2

                These provisions must include but should not be limited to the following:

                (a) The CEOG must have authority to act generally in the conventional bank licensee'sG name, representing the conventional bank licensee'sG interests in concluding transactions on the conventional bank licensee'sG behalf and giving instructions to other senior managers and conventional bank licenseeG employees;
                (b) The chief financial officer must be responsible and accountable for:
                (i) The complete, timely, reliable and accurate preparation of the conventional bank licensee'sG financial statements, in accordance with the accounting standards and policies of the conventional bank licensee (see also HC-3.4.1); and
                (ii) Presenting the board with a balanced and understandable assessment of the conventional bank licensee'sG 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 the conventional bank licensee'sG operations. This would include a review of the accuracy and reliability of the conventional bank licensee'sG accounting records and financial reports as well as a review of the adequacy and effectiveness of the conventional bank licensee'sG risk management, control, and governance processes.
                October 2010

              • HC-6.3.3

                The board should also specify any limits which it wishes to set on the authority of the CEOG or other senior managers, such as monetary maximums for transactions which they may authorise without separate board approval.

                October 2010

              • HC-6.3.4

                The corporate secretary should be given general responsibility for reviewing the conventional bank licensee'sG 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.

                October 2010

              • HC-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 CEOG , 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 the CEOG .

                October 2010

            • HC-6.4 Compliance

              • HC-6.4.1

                Compliance starts at the top. It will be most effective in a corporate culture that emphasises standards of honesty and integrity and in which the board of directors and senior management lead by example. It concerns everyone within the bank and should be viewed as an integral part of the bank's business activities. A bank should hold itself to high standards when carrying on business, and at all times strive to observe the spirit as well as the letter of the law. Failure to consider the impact of its actions on its shareholders, customers, employees and the markets may result in significant adverse publicity and reputational damage, even if no law has been broken.

                Amended: January 2019
                October 2010

              • HC-6.4.2

                Conventional bank licenseesG must establish an effective compliance framework, which is appropriate for the size and complexity of their operations, for managing their compliance risks.

                Amended: January 2019
                October 2010

              • HC-6.4.3

                The term "Compliance risk" refers to the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, directives, directions, reporting requirements and codes of conduct, including internal code of conduct.

                Amended: January 2019
                Amended: October 2014
                October 2010

              • HC-6.4.4

                Compliance laws, rules and standards generally cover matters such as observing proper prudential standards, standards of market conduct, managing conflicts of interest, treating customers fairly and ensuring suitability of customer advice, as well as matters specified in HC-6.4.3 above. They typically include specific areas such as the prevention of money laundering and terrorist financing, and may extend to tax laws that are relevant to the structuring of banking products or customer advice.

                Added: January 2019

              • HC-6.4.5

                It is important that banks do not consider compliance function as a cost center rather it is an activity that enhances the reputation of the bank and promotes the right environment for better financial performance.

                Added: January 2019

              • HC-6.4.6

                The relationship between a bank's business units, the support functions and the compliance function can be explained using the three lines of defence model.

                a) The business units are the first line of defence. They undertake the management of risks within assigned limits of risk exposure and are responsible and accountable for identifying, assessing and controlling the risks of their business.
                b) The second line of defence includes the support functions, such as risk management, compliance, legal, human resources, finance, operations, and technology. Each of these functions, in close relationship with the business units, ensures that risks in the business units have been appropriately identified and managed. The business support functions work closely to help define strategy, implement bank policies and procedures, and collect information to create a bank-wide view of risks.
                c) The third line of defence is the internal audit function that independently assesses the effectiveness of the controls over the processes created in the first and second lines of defence and provides assurance on these processes. The responsibility for internal control does not transfer from one line of defence to the next line.
                Added: January 2019

              • Responsibilities of the Board of Directors

                • HC-6.4.7

                  The board of directors of a conventional bank licenseeG is responsible for overseeing the management of the bank's compliance risk. The board must establish a permanent and effective compliance function and approve the bank's compliance policies and procedures for identifying, assessing, monitoring, reporting and advising on compliance risk. At least once a year, the board or a designated board committee must assess the extent to which the bank is managing its compliance risk effectively. The board must also ensure that the agenda for the meetings of the board or the designated board committee include compliance as a topic at least every quarter.

                  Added: January 2019

                • HC-6.4.8

                  The board designated committee referred to in HC-6.4.7 may be the audit committee, the governance committee, the risk committee, or other committee which does not have a role in the business or executive roles, such as those relevant to executive committees and investment committees. For branches of foreign bank licenseesG , all references in this Section to the Board/the designated board committee should be interpreted as the Group Compliance Officer or a sufficiently senior level Regional Compliance Committee or Officer.

                  Added: January 2019

              • Responsibilities of the Senior Management

                • HC-6.4.9

                  Senior managementG is responsible for effective management of bank's compliance risk.

                  Added: January 2019

                • HC-6.4.10

                  Senior managementG is responsible for establishing the operating framework and the processes to support a permanent and an effective compliance function. It is responsible for establishing and communicating a written compliance policy through all levels of the organisation for ensuring that it is adhered to in practice.

                  Added: January 2019

                • HC-6.4.11

                  The compliance policy must be approved by the Board/the designated board committee and must address the following:

                  (a) The role and responsibilities of the compliance function;
                  (b) Measures to ensure its independence;
                  (c) Its relationship with other risk management functions within the bank and with the internal audit function;
                  (d) In cases where compliance responsibilities are carried out by staff in different departments, how these responsibilities are to be allocated among the departments;
                  (e) Its right to obtain access to information necessary to carry out its responsibilities, and the corresponding duty of bank staff to cooperate in supplying this information;
                  (f) Its right to conduct investigations of possible breaches of the relevant laws and regulations and the compliance policy and to appoint outside experts to perform this task if appropriate; and
                  (g) Its right to be able freely to express and disclose its findings to the board of directors or to the designated board committee, e.g. the audit committee or the governance committee of the board.
                  (h) The basic principles to be followed by management and staff describing the main processes by which compliance risks are to be identified and managed through all levels of the organization.
                  Added: January 2019

                • HC-6.4.12

                  The Board and the designated Board committee must ensure that all compliance findings and recommendations are resolved within six months for high risk/critical issues and 9 months for any other issues from the issue date of the subject compliance report unless otherwise agreed with the CBB taking into consideration time required for specific issues that may require substantive changes to technology, systems and/or processes.

                  Added: January 2019

                • HC-6.4.13

                  Senior managementG must assess the training needs of staff taking into account the existing skills and competencies, the nature of changes to laws and regulations in developing a training plan for compliance across all levels throughout the organisation. Training must be provided by competent and skilled personnel, whether available internally or externally. Training that is provided must reflect the seniority, role and responsibilities of the individuals for whom it is intended.

                  Added: January 2019

              • Compliance Function

                • HC 6.4.14

                  Conventional bank licenseesG must organise their compliance function and set priorities for the management of their compliance risk in a way that is consistent with their own risk management strategy and structures.

                  Added: January 2019

                • HC-6.4.15

                  The compliance function must be independent and effective. It must be headed by an executive or senior staff member with overall responsibility for co-ordinating the identification and management of the bank's compliance risk and for supervising the activities of other compliance function staff

                  Added: January 2019

                • HC-6.4.16

                  The Head of Compliance, with the assistance of senior managementG must:

                  (a) report to the board of directors or the designated committee of the board on a quarterly basis, even if there are no issues to highlight,
                  (b) report to the board or the designated committee of the board on the bank's management of its compliance risk, in such a manner as to assist board members to make an informed judgment on whether the bank is managing its compliance risk effectively;
                  (c) report promptly to the board or the designated committee of the board on any material compliance failures as they arise (e.g. failures that may attract a significant risk of legal or regulatory sanctions, material financial loss, or loss to reputation); and
                  (d) ensure that senior management develop remedial action plans to address compliance breaches.
                  Added: January 2019

                • HC-6.4.17

                  The role of head of compliance may be combined with those of the head of risk if the size and nature of the bank justifies a single function for both roles. Banks which carry out limited operations or are small branches of foreign banks would qualify for such a practice.

                  Added: January 2019

                • HC-6.4.18

                  The compliance function should assist senior management, the board and the designated committee of the board in their compliance obligations and help promote the right culture within the bank. While the board and management are accountable for the bank's compliance, the compliance function has an important role in supporting corporate values, policies and processes that help ensure that the bank acts responsibly and fulfils all applicable obligations.

                  Added: January 2019

                • HC-6.4.19

                  The independence and effectiveness of the function must be based on the following related elements:

                  (a) The compliance function must have a formal status with sufficient authority within the bank;
                  (b) There must be a group compliance officer or head of compliance with overall responsibility for co-ordinating the management of the bank's compliance risk;
                  (c) Compliance function staff, and in particular, the head of compliance, must not be placed in a position where there is a possible conflict of interest between their compliance responsibilities and any other responsibilities they have;
                  (d) Compliance function staff must have access to the information and personnel necessary to carry out their responsibilities; and
                  (e) The compliance function must directly report to the board or a designated board committee in the case of Bahraini conventional bank licenseesG ) and administratively to the CEO; and
                  (f) In the case of branches of foreign bank licenseesG , the reporting must be to the Group Compliance Officer or Regional Compliance Officer and may report administratively to the CEO/GM of the branch.
                  Added: January 2019

                • HC-6.4.20

                  The concept of independence does not mean that the compliance function cannot work closely with management and staff in the various business units. Indeed, a co-operative working relationship between compliance function and business units should help to identify and manage compliance risks at an early stage. Rather, the various elements described above should be viewed as safeguards to help ensure the effectiveness of the compliance function, notwithstanding the close working relationship between the compliance function and the business units. The way in which the safeguards are implemented will depend to some extent on the specific responsibilities of individual compliance function staff.

                  Added: January 2019

                • HC-6.4.21

                  The compliance function should be free to highlight to senior management on any irregularities or possible breaches disclosed by its investigations, without fear of retaliation or disfavour from management or other staff members.

                  Added: January 2019

                • HC-6.4.22

                  Appointment, dismissal and other changes to the head of compliance must be approved by the board or the designated board committee. Appointments of head of compliance must be approved by the CBB in accordance with paragraph LR-IA.1.17. If the head of compliance is removed from his or her position for any reason, this must be notified to the CBB, describing fully the reasons as required under paragraph LR-1A.1.22.

                  Added: January 2019

                • HC-6.4.23

                  Conventional bank licenseesG must ensure that the compliance risk management framework is subject to an independent review by a third party consultant, other than the external auditor, every three years and when there are material changes to the business. The results of the independent review and action must be provided to the CBB by 30th September of the relevant year.

                  Added: January 2019

                • HC-6.4.24

                  The responsibilities of the compliance function must be carried out under a compliance programme that sets out its planned activities, such as the implementation and review of specific policies and procedures, compliance risk assessment, compliance testing, and educating staff on compliance matters. The compliance programme must be risk based and subject to oversight by the head of compliance to ensure appropriate coverage across businesses and co-ordination among risk management functions.

                  Added: January 2019

                • HC-6.4.25

                  The Compliance function must on a pro-active basis, identify, measure, document and assess the compliance risks associated with the bank'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. If the bank has a new products committee, the compliance function staff should be represented on the committee.

                  Added: January 2019

                • HC-6.4.26

                  While the Compliance function is responsible for oversight and compliance checks across the full spectrum of compliance risk areas, it is recognised that many areas of compliance require specialist skills which can be found in different parts of the organisation, example, the skill sets for compliance with ICAAP can be found either with financial control or with risk management, for compliance with labour laws, the specialist skills are with human resources departments etc. In such cases, the compliance function ensures that the right levels of checks and balances and compliance reporting are available to get comfort that the licensee has adhered to the relevant requirements. In certain instances, it may use external experts with the approval of the relevant authority within the bank.

                  Added: January 2019

                • HC-6.4.27

                  The compliance function should consider ways to measure compliance risk (e.g. by using performance indicators) and use such measurements to enhance compliance risk assessment.

                  Added: January 2019

                • HC-6.4.28

                  In case of new regulations, the compliance function must assess the appropriateness of the bank's compliance procedures and guidelines, promptly follow up any identified deficiencies, and, where necessary, formulate proposals for amendments.

                  Added: January 2019

              • Monitoring, testing and reporting

                • HC-6.4.29

                  The compliance function must monitor and test compliance by performing sufficient and representative compliance testing. The results of the compliance testing must be reported to the board or designated committee of the board.

                  Added: January 2019

                • HC-6.4.30

                  The compliance function must advise senior managementG and the designated committee of the board on all relevant laws, rules and standards, in all jurisdictions in which the bank conducts its business, and inform them on developments in the subject.

                  Added: January 2019

              • Guidance and education

                • HC-6.4.31

                  The compliance function must assist senior management in:

                  a) Educating staff on compliance issues, and acting as a contact point within the bank for compliance queries from staff members; and
                  b) Establishing written guidance to staff on the appropriate implementation of laws, rules and standards through policies and procedures and other documents such as manuals, internal codes of conduct and practice guidelines.
                  Added: January 2019

              • Statutory responsibilities and liaison

                • HC-6.4.32

                  The compliance function must have specific statutory responsibilities (e.g. fulfilling the role of anti-money laundering officer). It may also liaise with relevant external bodies, including regulators, standard setters and external experts.

                  Added: January 2019

              • Right of access

                • HC-6.4.33

                  The compliance function must have access across the entire organisation to carry out its responsibilities on its own initiative where compliance risk exists. It must, additionally, have the right to communicate with any staff member and to obtain access to any records or files necessary to conduct its responsibilities and to conduct investigations of possible breaches of the compliance policy and to request assistance from specialists within the bank (e.g. legal or internal audit) or engage outside specialists subject to appropriate internal approval to perform this task if appropriate.

                  Added: January 2019

              • Competent Resources

                • HC-6.4.34

                  The compliance function must have adequate resources to carry out its functions effectively commensurate with the size and complexity of the organisation. The resources to be provided for the compliance function must be both sufficient and appropriate to ensure that compliance risk within the bank is managed effectively.

                  Added: January 2019

                • HC-6.4.35

                  The compliance function staff must have the necessary qualifications, experience and professional and personal qualities to enable them to carry out their specific duties. Compliance function staff must have a sound understanding of laws, rules and standards and their practical impact on the bank's operations.

                  Added: January 2019

                • HC-6.4.36

                  The professional skills of compliance function staff, especially with respect to keeping up-to-date with developments in compliance laws, rules and standards, must be maintained through regular and systematic education and training.

              • Relationship with Internal Audit

                • HC-6.4.37

                  The scope and breadth of the activities of the compliance function must be subject to periodic review by the internal audit function.

                  Added: January 2019

                • HC-6.4.38

                  Compliance risk must be included in the risk assessment methodology of the internal audit function, and an audit programme that covers the adequacy and effectiveness of the bank's compliance function should be established, including testing of controls commensurate with the perceived level of risk.

                  Added: January 2019

                • HC-6.4.39

                  The compliance function and the internal audit function must be separate, to ensure that the activities of the compliance function are subject to independent review. It is important, therefore, that there is a clear understanding within the bank as to how risk assessment and testing activities are divided between the two functions, and that this is documented (e.g. in the bank's compliance policy or in a related document such as a protocol). The internal audit function must, of course, keep the head of compliance informed of any audit findings relating to compliance.

                  Added: January 2019

              • Cross-border Issues

                • HC-6.4.40

                  Conventional bank licenseesG that conduct business through a branch or subsidiary in other jurisdictions must through the Group Compliance Function:

                  (a) comply with local laws and regulations;
                  (b) have Group Compliance policy and procedures;
                  (c) Conduct annual compliance testing on overseas operations whose total revenue represents 20% or more of the Group's total revenue and on every two years basis for other overseas operations.
                  Added: January 2019

                • HC-6.4.41

                  Conventional bank licenseesG must have procedures in place to identify and assess the possible increased reputational risk to the bank if it offers products or carries out activities in certain jurisdictions.

                  Added: January 2019

                • HC-6.4.42

                  Conventional bank licenseesG with overseas operations must establish a Group Compliance Function which must oversee the compliance activities on a group-wide basis. The Group Compliance Officer must ensure that compliance reviews and checks are carried out at branches and subsidiaries. As legal and regulatory requirements may differ from jurisdiction to jurisdiction, compliance issues specific to each jurisdiction must be coordinated within the structure of the bank's group-wide compliance policy.

                  Added: January 2019

                • HC-6.4.43

                  The senior managementG with assistance of Group Compliance Officer must ensure that adequate resources, commensurate with the scale and complexity of the operations, are assigned for compliance activities at, the head office, branches and subsidiaries.

                  Added: January 2019

                • HC-6.4.44

                  The Group Compliance Officer must ensure that adequate reports and information is received from overseas branches and subsidiaries on compliance related issues.

                  Added: January 2019

              • Outsourcing

                • HC-6.4.45

                  Compliance function or its activities must not be outsourced.

                  Added: January 2019

              • Other requirements

                • HC-6.4.46

                  Every application/request for approval to the CBB must be accompanied by a compliance assessment report confirming that all related requirements pertaining to the request have been thoroughly checked by the compliance function including the impact of such a request on the licensee's financial position and compliance status. In addition, reference must be made to any previously approved arrangements by the CBB.

                  Added: January 2019

                • HC6.4.47

                  In cases where the requests have a potential financial impact on the licensee a report from the financial control function in consultation with external auditors must also be submitted as part of the compliance assessment report, whereas in case of any legal implication of such a request a legal opinion on the matter must be submitted.

                  Added: January 2019

                • HC-6.4.48

                  Where breaches or deficiencies have occurred due to failures by approved persons, the CBB may consider re-assessing the fitness and propriety of such persons.

                  Added: January 2019

            • HC-6.5 Internal Audit

              • Introduction

                • HC-6.5.1

                  Conventional bank licenseesG must establish and implement an effective internal audit function which provides an independent and objective assurance to the board of directors and senior managementG on the quality and effectiveness of a bank's internal control, risk management and governance systems and processes, to protect the bank and its reputation.

                  Added: April 2018

                • HC-6.5.2

                  The internal audit function must develop an independent and informed view of the risks faced by the bank based on its access to all bank records and data, its enquiries, and its professional competence. The internal audit function must discuss its views, findings and conclusions directly with the audit committee and, if necessary with the board of directors at their routine quarterly meetings, thereby helping the board to oversee senior managementG .

                  Added: April 2018

                • HC-6.5.3

                  In this Section, all references to the board of directors may also be taken as referring to the bank's audit committee where the audit committee is mandated to carry out such functions on the board's behalf.

                  Added: April 2018

                • HC-6.5.4

                  For branches of foreign bank licenseesG , and where no local board of directors exists, all references in this Module to the board of directors should be interpreted as the Head Office/ Regional Office.

                  Added: April 2018

                • HC-6.5.5

                  Branches should ensure that equivalent arrangements are in place at the parent level for the requirements in this Section and these arrangements provide for an effective internal audit function over activities conducted under the Bahrain license.

                  Amended: October 2018
                  Added: April 2018

                • HC-6.5.6

                  The extent of application of this Section must be commensurate with the significance, complexity and international presence of the bank (principle of proportionality).

                  Added: April 2018

                • HC-6.5.7

                  The key features for the effective operation of an internal audit function are:

                  (a) Independence and objectivity;
                  (b) Professional competence and due professional care; and
                  (c) Professional ethics
                  Added: April 2018

              • Independence and Objectivity

                • HC-6.5.8

                  Conventional bank licenseesG internal audit function must be independent of the audited activities. This means that the internal audit is independent of all functions including compliance, risk management and financial control functions. The internal audit function must also have sufficient standing and authority within the bank and must operate according to sound principles.

                  Added: April 2018

                • HC-6.5.9

                  The internal audit function must report directly to the audit committee and administratively to the CEO, thereby providing a framework for internal auditors to carry out their assignments with objectivity.

                  Added: April 2018

                • HC-6.5.10

                  The internal audit function must be able to perform its assignments on its own initiative in all areas and functions of the bank based on the audit plan established by the head of the internal audit function and approved by the board of directors or audit committee. It must be free to report its findings and assessments internally through clear reporting lines. The head of internal audit must demonstrate appropriate leadership and have the necessary personal characteristics and professional skills to fulfill his or her responsibility for maintaining the function's independence and objectivity.

                  Added: April 2018

                • HC-6.5.11

                  The internal audit function must not be involved in designing, selecting, implementing or operating specific internal control measures. However, the independence of the internal audit function must not prevent senior managementG from requesting input from internal audit on matters related to risk and internal controls. Nevertheless, the development and implementation of internal controls must remain the responsibility of management.

                  Added: April 2018

                • HC-6.5.12

                  Conventional bank licenseesG should, whenever practicable and without jeopardising competence and expertise, periodically rotate internal audit staff within the internal audit function.

                  Added: April 2018

              • Professional Competence and Due Professional Care

                • HC-6.5.13

                  The head of internal audit must have the responsibility for acquiring human resources with sufficient qualifications and skills to effectively deliver on the mandate for professional competence and to audit to the required level. He/she must continually assess and monitor the skills necessary to do so. The skills required for senior internal auditors must include the abilities to judge outcomes and make an impact at the highest level of the organisation.

                  Added: April 2018

                • HC-6.5.14

                  For purposes of Paragraph HC-6.5.13, professional competence depends on the auditor's capacity to collect and understand information, to examine and evaluate audit evidence and to communicate with the stakeholders of the internal audit function.

                  Added: April 2018

                • HC-6.5.15

                  The head of internal audit must ensure that internal audit staff acquire appropriate ongoing training in order to meet the growing technical complexity of the Conventional Bank licensee'sG activities and the increasing diversity of tasks that need to be undertaken as a result of the introduction of new products and processes within the Conventional Bank licenseeG and other developments in the financial sector.

                  Added: April 2018

                • HC-6.5.16

                  The internal audit function collectively must be competent to examine all areas in which the bank operates. When internal audit is outsourced, the head of internal audit/coordinator must ensure that the use of those experts does not compromise the independence and objectivity of the internal audit function.

                  Added: April 2018

                • HC-6.5.17

                  For purposes of Paragraph HC-6.5.16, the coordinator must be an approved person within the Conventional Bank licenseeG .

                  Added: April 2018

                • HC-6.5.18

                  The head of internal audit/coordinator should ensure that, whenever practical, the relevant knowledge input from an expert is assimilated into the organisation. This may be possible by having one or more members of the bank's internal audit staff participate in the external expert's work.

                  Added: April 2018

                • HC-6.5.19

                  Internal auditors must apply the care and skills expected of a reasonably prudent and competent professional. Due professional care does not imply infallibility; however, internal auditors having limited competence and experience in a particular area must be appropriately supervised by more experienced internal auditors.

                  Added: April 2018

              • Professional Ethics

                • HC-6.5.20

                  Internal auditors must act with integrity. Integrity includes, being straightforward, honest and truthful.

                  Added: April 2018

                • HC-6.5.21

                  Internal auditors must respect the confidentiality of information acquired in the course of their duties. They must not use that information (particularly 'confidential information' as defined in Article 116 of the CBB Law) for personal gain or malicious action and must be diligent in the protection of information acquired.

                  Added: April 2018

                • HC-6.5.22

                  The head of the internal audit function and all internal auditors must avoid conflicts of interest (see Section HC-2.3). Internally recruited internal auditors must not engage in auditing activities for which they have had previous responsibility before a one year "cooling off" period has elapsed.

                  Added: April 2018

                • HC-6.5.23

                  Internal auditors must adhere to the code of ethics of both the bank and The Institute of Internal Auditors (see Section HC-2.2).

                  Added: April 2018

              • Internal Audit Charter

                • HC-6.5.24

                  All Bahraini conventional bank licenseesG must have an internal audit charter that articulates the purpose, standing and authority of the internal audit function within the bank in a manner that promotes an effective internal audit function as described in Paragraph HC-6.5.1.

                  Added: April 2018

                • HC-6.5.25

                  The charter must be drawn up and reviewed annually by the head of internal audit and approved by the board of directors or audit committee. It must be available to all internal stakeholders and, in certain circumstances, such as listed entities, to external stakeholders.

                  Added: April 2018

                • HC-6.5.26

                  At a minimum, the internal audit charter must establish:

                  (a) The internal audit function's standing within the bank, its authority, its responsibilities and its relations with other control functions in a manner that promotes the effectiveness of the function as described in Paragraphs HC-6.5.1 and HC-6.5.2;
                  (b) The purpose and scope of the internal audit function;
                  (c) The key features of the internal audit function described in Paragraphs HC-6.5.8 to HC-6.5.23;
                  (d) The obligation of the internal auditors to communicate the results of their engagements and a description of how and to whom this must be done (reporting line);
                  (e) The criteria for when and how the internal audit function may outsource some of its engagements to external experts;
                  (f) The terms and conditions according to which the internal audit function can be called upon to provide consulting or advisory services or to carry out other special tasks;
                  (g) The responsibility and accountability of the head of internal audit;
                  (h) A requirement to comply with sound internal auditing standards; and
                  (i) Procedures for the coordination of the internal audit function with the external auditor.
                  Added: April 2018

                • HC-6.5.27

                  The charter must empower the internal audit function, whenever relevant to the performance of its assignments and discharge of its duties, to initiate direct communication with any member of staff, to examine any activity or entity of the bank, and to have full and unconditional access to any records, files, data and physical properties of the bank. This includes access to management information systems and records and the minutes of board and sub-board committee meetings and all consultative and decision-making committees.

                  Added: April 2018

              • Scope of Activity

                • HC-6.5.28

                  The scope of internal audit activities must include the examination and evaluation of the effectiveness of the internal control, risk management and governance systems and processes of the entire bank, including the bank's outsourced activities and its subsidiaries (including SPVs) and branches.

                  Added: April 2018

                • HC-6.5.29

                  The internal audit function must independently evaluate the:

                  (a) Effectiveness and efficiency of internal control, risk management and governance systems and processes created by the business units and support functions in the context of both current and potential or actual emerging risks and provide assurance on these systems and processes;
                  (b) Reliability, effectiveness and integrity of management information systems and processes (including relevance, accuracy, completeness, availability, confidentiality and comprehensiveness of data);
                  (c) Monitoring of compliance with laws and regulations, including any requirements from the CBB; and
                  (d) Safeguarding of assets.
                  Added: April 2018

                • HC-6.5.30

                  The head of internal audit must establish, prior to year-end an annual internal audit plan. It must be based on a robust risk assessment (including direct or indirect input from senior managementG and the board).

                  Added: April 2018

                • HC-6.5.31

                  The audit committee's approval of the audit plan also requires that an appropriate budget will be available to support the internal audit function's activities.

                  Added: April 2018

                • HC-6.5.32

                  The scope of the internal audit function's activities must ensure adequate coverage of matters of regulatory interest within the audit plan.

                  Added: April 2018

              • Risk Management

                • HC-6.5.33

                  Internal audit must include in its scope the following aspects of risk management:

                  (a) The organisation and mandates of the risk management function including market, credit, liquidity, interest rate and operational risks;
                  (b) Evaluation of risk appetite, escalation and reporting of issues and decisions taken by the risk management function;
                  (c) The adequacy of risk management systems and processes for identifying, measuring, assessing, controlling, responding to, and reporting on all the risks resulting from the bank's activities;
                  (d) The integrity of the risk management information systems, including the accuracy, reliability and completeness of the data used;
                  (e) The approval and maintenance of risk models including verification of the consistency, timeliness, independence and reliability of data sources used in such models;
                  (f) Information technology and information security;
                  (g) The bank's system for identifying and measuring its regulatory capital and assessing the adequacy of its capital resources in relation to the bank's risk exposures and established minimum ratios; and
                  (h) The review of management's process for stress testing its capital levels, taking into account the frequency of such exercises, their purpose (e.g., internal monitoring vs. regulator imposed), the reasonableness of scenarios and the underlying assumptions employed, and the reliability of the processes used.
                  Added: April 2018

                • HC-6.5.34

                  When the risk management function has not informed the board of directors about the existence of a significant divergence of views between senior managementG and the risk management function regarding the level of risk faced by the bank, the head of internal audit must inform the audit committee about this divergence.

                  Added: April 2018

              • Capital Adequacy and Liquidity

                • HC-6.5.35

                  The internal audit must review the bank's system for identifying and measuring its regulatory capital and assessing the adequacy of its capital resources in relation to the bank's risk exposures and established minimum ratios.

                  Added: April 2018

                • HC-6.5.36

                  Internal audit must review management's process for stress testing its capital levels.

                  Added: April 2018

                • HC-6.5.37

                  Internal audit must review the effectiveness of the bank's systems and processes for measuring and monitoring its liquidity positions in relation to its risk profile, external environment, and minimum regulatory requirements including the requirement set out in Paragraph CA-1.3.4.

                  Added: April 2018

              • Regulatory and Internal Reporting

                • HC-6.5.38

                  The internal audit function must regularly evaluate the effectiveness of the process by which the risk and reporting functions interact to produce timely, accurate, reliable and relevant reports for both internal management and the CBB. Such reports include, but not limited to, the PIR and public disclosure requirements included in the CBB Rulebook, Module PD.

                  Added: April 2018

              • Compliance

                • HC-6.5.39

                  The internal audit function must periodically review the scope of the activities of the compliance function using the risk-based approach. The audit of the compliance function must include an assessment of how effectively it fulfils its responsibilities.

                  Added: April 2018

              • Finance

                • HC-6.5.40

                  The internal audit function must periodically review the controls over the bank's finance function using the risk-based approach.

                  Added: April 2018

                • HC-6.5.41

                  The internal audit function must devote sufficient resources to evaluate the valuation control environment, availability and reliability of information or evidence used in the valuation process and the reliability of estimated fair values. This is achieved through reviewing the independent price verification processes and testing valuations of significant transactions.

                  Added: April 2018

                • HC-6.5.42

                  The internal audit function must, as a minimum, also include the following aspects in its scope:

                  (a) The organisation and mandate of the finance function;
                  (b) The adequacy and integrity of underlying financial data and finance systems and processes for completely identifying, capturing, measuring and reporting key data such as profit or loss, valuations of financial instruments and impairment allowances;
                  (c) The approval and maintenance of pricing models including verification of the consistency, timeliness, independence and reliability of data sources used in such models;
                  (d) Controls in place to prevent and detect trading irregularities;
                  (e) Balance sheet controls including key reconciliations performed and actions taken (e.g. adjustments).
                  Added: April 2018

              • Permanency of the Internal Audit Function

                • HC-6.5.43

                  The internal audit function must be structured consistent with

                  Paragraphs HC-6.5.61 to HC-6.5.65. Senior managementG and the board must ensure that the internal audit function is permanent and commensurate with the size, the nature and complexity of the bank's operations.

                  Added: April 2018

                • HC-6.5.44

                  Where the head of internal audit function ceases to act in this capacity, the CBB will meet with him/her to discuss the reasons.

                  Added: April 2018

              • Responsibilities of the Board of Directors and Senior Management

                • HC-6.5.45

                  Conventional bank licenseesG board of directors must ensure that senior managementG establishes and maintains an adequate, effective and efficient internal control system (see HC-1.2.3(c)) and accordingly, the board must support the internal audit function in discharging its duties effectively.

                  Added: April 2018

                • HC-6.5.46

                  The board of directors must review at least annually, the effectiveness and efficiency of the internal control system based, in part, on information provided by the internal audit function (see HC-1.2.10).

                  Added: April 2018

                • HC-6.5.47

                  The board of directors, its audit committee and senior managementG must promote a strong internal control environment supported and assessed by a sound internal audit function.

                  Added: April 2018

                • HC-6.5.48

                  As part of their oversight responsibilities, the audit committee must review the performance of the internal audit function.

                  Added: April 2018

                • HC-6.5.49

                  Every five years, the audit committee must commission an independent external quality assurance review of the internal audit function.

                  Added: April 2018

                • HC-6.5.50

                  Senior managementG must inform the internal audit function of new developments, initiatives, projects, products and operational changes.

                  Added: April 2018

                • HC-6.5.51

                  Senior managementG must ensure that all internal audit findings and recommendations are resolved within six months for high risk/critical issues and 12 months for any other issues from the issue date of the subject internal audit report.

                  Added: April 2018

                • HC-6.5.52

                  Senior managementG must ensure that the head of internal audit has the necessary resources, financial and otherwise, available to carry out his or her duties commensurate with the annual internal audit plan, scope and budget approved by the audit committee.

                  Added: April 2018

              • Responsibilities of the Audit Committee in relation to the Internal Audit Function

                • HC-6.5.53

                  The audit committee must oversee the bank's internal audit function (see also Paragraph HC-3.2.3).

                  Added: April 2018

                • HC-6.5.54

                  The bank's audit committee and the internal audit function must develop and maintain their own tools to assess the quality of the internal audit function.

                  Added: April 2018

                • HC-6.5.55

                  The audit committee must ensure that the internal audit function is able to discharge its responsibilities in an independent manner, consistent with Paragraph HC-6.5.8. It must review and approve the audit plan, its scope, and the budget of the internal audit function. It must also review audit reports and ensure that senior managementG is taking necessary and timely corrective actions to address control weaknesses, compliance issues with policies, laws and regulations, and other concerns identified and reported by the internal audit function.

                  Added: April 2018

              • Management of the Internal Audit Function

                • HC-6.5.56

                  The head of the internal audit function must ensure that the function complies with The Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing.

                  Added: April 2018

                • HC-6.5.57

                  The audit committee must ensure that the head of the internal audit function is a person of integrity. This means that he or she will be able to perform his or her work with honesty, diligence and responsibility. It also implies that this person observes the law and has not been a party to any illegal activity. The head of internal audit must also ensure that the members of internal audit staff are persons of integrity.

                  Added: April 2018

              • Reporting Lines of the Internal Audit Function

                • HC-6.5.58

                  The internal audit function must be accountable to the audit committee, on all matters related to the performance of its mandate as described in the internal audit charter. It must also promptly inform the CEO and other related Heads of Functions about its findings.

                  Added: April 2018

                • HC-6.5.59

                  The internal audit function must inform senior managementG of all significant findings so that timely corrective actions can be taken. Subsequently, the internal audit function must follow up with senior managementG on the outcome of these corrective measures. The head of the internal audit function must quarterly report to the audit committee, the status of pending findings.

                  Added: April 2018

              • The Relationship between the Internal Audit, Compliance and Risk Management Functions

                • HC-6.5.60

                  The relationship between a bank's business units, the support functions and the internal audit function can be explained using the three lines of defence model. The business units are the first line of defence. They undertake the management of risks within assigned limits of risk exposure and are responsible and accountable for identifying, assessing and controlling the risks of their business. The second line of defence includes the support functions, such as risk management, compliance, legal, human resources, finance, operations, and technology. Each of these functions, in close relationship with the business units, ensures that risks in the business units have been appropriately identified and managed. The business support functions work closely to help define strategy, implement bank policies and procedures, and collect information to create a bank-wide view of risks. The third line of defence is the internal audit function that independently assesses the effectiveness of the controls over the processes created in the first and second lines of defence and provides assurance on these processes. The responsibility for internal control does not transfer from one line of defence to the next line.

                  Added: April 2018

              • Internal Audit within a Group or Holding Company Structure

                • HC-6.5.61

                  The internal auditors who perform the internal audit work at the bank must report to the bank's audit committee, or its equivalent, and to the group or holding company's head of internal audit.

                  Added: April 2018

                • HC-6.5.62

                  To facilitate a consistent approach to internal audit across all the banks within a banking organisation, the board of directors of each bank within a banking group or holding company structure should ensure that either:

                  (a) The bank has its own internal audit function, which should be accountable to the bank's board and should report to the banking group or holding company's head of internal audit; or
                  (b) The banking group or holding company's internal audit function performs internal audit activities of sufficient scope at the bank to enable the board to satisfy its fiduciary and legal responsibilities.
                  Added: April 2018

                • HC-6.5.63

                  The board of directors and senior managementG of the parent bank in a banking group must ensure that an adequate and effective internal audit function is established across the banking organisation and must ensure that internal audit policies and practices are appropriate to the structure, business activities and risks of all of the components of the group or holding company.

                  Added: April 2018

                • HC-6.5.64

                  The head of internal audit at the level of the parent bank must define the group or holding company's internal audit strategy, determine the organisation of the internal audit function both at the parent and subsidiary bank levels (in consultation with these entities' respective audit committees and in accordance with local laws) and formulate the internal audit principles, which include the audit methodology and quality assurance measures.

                  Added: April 2018

                • HC-6.5.65

                  The group or holding company's internal audit function must determine the audit scope for the banking organisation. In doing so, it must comply with local legal and regulatory provisions and incorporate local knowledge and experience.

                  Added: April 2018

              • Outsourcing of Internal Audit Activities

                • HC-6.5.66

                  Regardless of whether internal audit activities are outsourced, the board of directors remains ultimately responsible for the internal audit function.

                  Added: April 2018

                • HC-6.5.67

                  The head of internal audit/coordinator must maintain adequate oversight and ensure that any outsourcing providers comply with the principles of the bank's internal audit charter.

                  Added: April 2018

                • HC-6.5.68

                  To preserve independence, the head of internal audit/coordinator must ensure that the outsourcing provider has not been previously engaged in a consulting engagement in the same area within the bank unless a one year "cooling-off" period has elapsed. Subsequently, those experts who participated in an internal audit engagement must not provide consulting services to a function of the bank they have audited within the previous 12 months. Additionally, banks must not outsource internal audit activities to their own external audit firm (see OM-3).

                  Added: April 2018

              • Communication between the CBB and the Internal Audit Function

                • HC-6.5.69

                  The bank's internal auditor must have formal regular communication with the CBB to (i) discuss the risk areas identified, (ii) understand the risk mitigation measures taken by the bank, and (iii) monitor the bank's response to weaknesses identified.

                  Added: April 2018

                • HC-6.5.70

                  At least two weeks prior to the prudential meeting date, all internal audit reports issued since the last prudential meeting must be submitted to the CBB supervisory point of contact.

                  Added: April 2018

            • HC-6.6 Risk Management

              • Bank-wide Risk Management Framework

                • HC-6.6.1

                  Conventional bank licenseesG must establish a sound risk management framework commensurate with the bank's size, complexity and risk profile. A risk management framework must have the following key features:

                  (a) active Board and senior managementG oversight;
                  (b) independent risk management function;
                  (c) a Board driven sound risk management culture that is established throughout the bank;
                  (d) appropriate policy, procedures and limits;
                  (e) comprehensive and timely identification, measurement, mitigation, controlling, monitoring and reporting of risks;
                  (f) appropriate management information systems ('MIS') at a business and bank-wide level; and
                  (g) comprehensive internal controls.
                  Added: July 2018

                • HC-6.6.2

                  More specifically, the risk management framework generally encompasses the process of:

                  (a) developing and implementing the enterprise-wide risk governance framework, subject to the review and approval of the board, which includes the bank's risk culture, risk appetite and risk limits;
                  (b) identifying key risks to the bank including material individual, aggregate and emerging risks;
                  (c) assessing the key risks and measuring the bank's exposures to them;
                  (d) ongoing monitoring and assessing of the risk taking activities, decisions and risk exposures in line with the board-approved risk strategy, risk appetite, risk limits and determining the corresponding capital or liquidity needs (i.e. capital planning) on an ongoing basis;
                  (e) reporting to senior management, and the board or risk committee as appropriate, on all the items noted in this Paragraph including but not limited to proposing appropriate risk-mitigating actions;
                  (f) establishing an early warning or trigger system for breaches of the bank's risk appetite or limits; and
                  (g) influencing and, when necessary, challenging decisions that give rise to material risk.
                  Added: July 2018

                • HC-6.6.3

                  Senior managementG must establish a risk management process that is not limited to credit, market, Interest rate risk in the banking book (IRRBB), liquidity and operational risks, but which incorporates all material risks. This includes reputational and strategic risks, as well as risks that do not appear to be significant in isolation, but when combined with other risks, could lead to material losses.

                  Added: July 2018

              • Independent Risk Management Function and Chief Risk Officer

                • HC-6.6.4

                  All Conventional bank licenseesG must establish an independent Risk Management function and appoint a head of risk management function, referred to as Chief Risk Officer ('CRO') or any equivalent title. The function must be independent of the individual business lines and report directly to the Board of Directors or its Audit or Risk Committees and administratively to the Chief Executive Officer ('CEO'). The role of the CRO must be independent and distinct from other executive functions and business line responsibilities, and there must be no 'dual hatting' (i.e. the chief operating officer, CFO, chief auditor or other senior management personnel must not also serve as the CRO).

                  Added: July 2018

                • HC-6.6.5

                  For branches of foreign bank licensees, and where no local board of directors exists, all references in this Module to the board of directors should be interpreted as the Head Office/ Regional Office.

                  Added: July 2018

                • HC-6.6.6

                  Branches of foreign bank licenseesG (retail) operating in Bahrain must have an in-house risk management function in Bahrain.

                  Added: July 2018

                • HC-6.6.7

                  Branches of foreign bank licenseesG (wholesale) operating in Bahrain have the choice of having an in-house risk management function in Bahrain or to outsource such role to their regional or Head offices.

                  Added: July 2018

                • HC-6.6.8

                  The CRO should have the ability to interpret and articulate risk in a clear and understandable manner and to effectively engage the board and management in constructive dialogue on key risk issues. The CRO should also not have any management or financial responsibility in respect of any operational business lines or revenue-generating functions. Interaction between the CRO and the board should occur regularly and be documented adequately. Non-executive board members should have the right to meet regularly — in the absence of senior managementG — with the CRO.

                  Added: July 2018

                • HC-6.6.9

                  The CRO has primary responsibility for overseeing the development and implementation of the bank's risk management framework. This includes the ongoing strengthening of risk management staff skills and enhancements to risk management systems, policies, processes, quantitative models and reports as necessary to ensure that the bank's risk management capabilities are sufficiently robust and effective to fully support its strategic objectives and all of its risk-taking activities. The CRO is responsible for supporting the board and the Risk Committee, as appropriate, in its engagement with and oversight of the development of the bank's risk strategy, risk appetite statement ('RAS') and for translating the risk appetite into a risk limits structure.

                  Added: July 2018

                • HC-6.6.10

                  The risk management function must have access to all business lines that have the potential to generate material risk to the Conventional bank licenseeG as well as to relevant risk-bearing subsidiaries.

                  Added: July 2018

                • HC-6.6.11

                  The CRO, together with management, must be actively engaged in monitoring performance relative to risk-taking and risk limit adherence. The CRO's responsibilities also include participating in key decision-making processes (e.g. strategic planning, capital and liquidity planning, new products and services development and compensation design and operation).

                  Added: July 2018

                • HC-6.6.12

                  The CRO must have sufficient organisational stature, authority, seniority within the organisation and necessary skills to oversee the Conventional bank licensee'sG risk management activities.

                  Added: July 2018

                • HC-6.6.13

                  Appointment, dismissal and other changes to the CRO position must be approved by the board or its Risk/ Audit Committee. If the CRO is removed from his or her position for any reason, this must be disclosed publicly. The bank must also discuss the reasons for such removal with the CBB. The CRO's performance, compensation and budget must be reviewed and approved by the board Remuneration Committee.

                  Added: July 2018

              • Board Risk Committee

                • HC-6.6.14

                  Further to HC-1.8.1, all Bahraini conventional bank licenseesG must establish a board risk committee composed of at least three independent directors. Such board risk committee must be responsible for supporting the board in its oversight and decisions related to the bank's risk management framework.

                  Added: July 2018

                • HC-6.6.15

                  The risk committee must meet the following requirements:

                  (a) must be chaired by an independent director;
                  (b) include a majority of members who are independent of day to day risk taking activities;
                  (c) include members who have experience in risk management issues and practices;
                  (d) develop a committee charter which among other matters include its role in the discussions of risk strategies, both at an aggregated basis and by type of risk and make recommendations to the board thereon, and on the risk appetite and risk limits;
                  (e) review and revise as may be required, the bank's policies from a risk management perspective, at least every three years, unless there are material changes in the relevant Rulebook requirements or to the business conducted by the bank and / or its risk profile;
                  (f) review and recommend the appointment or removal of Chief Risk Officer; and
                  (g) oversee that the bank has in place processes to promote the bank's adherence to the approved risk policies.
                  Added: July 2018

              • Role of Board and Senior Management

                • HC-6.6.16

                  The Board must define the Conventional bank licensee'sG risk appetite and ensure that the bank's risk management framework is aligned with the bank's strategic, capital strategies and financial plans and compensation practices and includes detailed policy that sets specific bank-wide prudential limits on the bank's activities. The bank's risk appetite must be clearly conveyed through an RAS that can be easily understood by all relevant parties: the board itself, senior management and bank employees.

                  Added: July 2018

                • HC-6.6.17

                  The Conventional bank licensee'sG RAS must:

                  (a) include both quantitative and qualitative considerations;
                  (b) establish the individual and aggregate level and types of risk that the bank is willing to assume in advance of and in order to achieve its business activities within its risk capacity;
                  (c) define the boundaries and business considerations in accordance with which the bank is expected to operate when pursuing the business strategy; and
                  (d) be communicated effectively throughout the bank, linking it to daily operational decision-making and establishing the means to raise risk issues and strategic concerns across the bank.
                  Added: July 2018

                • HC-6.6.18

                  Developing and conveying the Conventional bank licensee'sG risk appetite is essential to reinforcing a strong risk culture. The risk governance framework should outline actions to be taken when stated risk limits are breached, including disciplinary actions for excessive risk-taking, escalation procedures and board of director notification.

                  Added: July 2018

                • HC-6.6.19

                  The development of an effective RAS should be driven by both top-down board leadership and bottom-up management involvement. While the definition of risk appetite may be initiated by senior management, successful implementation depends upon effective interactions between the board, senior management, risk management and operating businesses, including the chief financial officer (CFO).

                  Added: July 2018

                • HC-6.6.20

                  The Board must ensure that:

                  (a) a sound risk management culture is established throughout the bank;
                  (b) appropriate limits are established that are consistent with the bank's risk appetite, risk profile and capital strength, and that are understood by, and regularly communicated to, relevant staff;
                  (c) policy and processes are developed for risk-taking, that are consistent with the Risk Management Strategy and the established risk appetite;
                  (d) uncertainties attached to risk measurement are recognised; and
                  (e) senior managementG is taking all necessary steps to monitor and control all material risks consistent with the approved strategies and risk appetite.
                  Added: July 2018

                • HC-6.6.21

                  The Board of Directors and senior managementG must possess sufficient knowledge of all major business lines to ensure that appropriate policy, controls and risk monitoring systems are implemented effectively. They must have the necessary expertise to understand the activities in which the Conventional bank licenseeG is involved — such as securitisation and off-balance sheet activities — and the associated risks. The Board and senior managementG must remain informed, on an on-going basis, about these risks as financial markets, risk management practices and the bank's activities evolve. In addition, the Board and senior managementG must ensure that accountability and lines of authority are clearly delineated.

                  Added: July 2018

                • HC-6.6.22

                  Before embarking on new lines of business or activities, the Board and senior managementG must identify and review the changes in risk profile arising from these potential new activities and ensure that the infrastructure and internal controls necessary to manage any related risks, are in place.

                  Added: July 2018

                • HC-6.6.23

                  Before embarking on new or complex products, senior managementG must identify and review the changes in risk profile arising from these potential new products and ensure that the infrastructure and internal controls necessary to manage any related risks, are in place.

                  Added: July 2018

                • HC-6.6.24

                  For purposes of paragraph HC-6.6.22 and HC-6.6.23, senior managementG must understand the underlying assumptions regarding accounting treatment, business models, valuation and risk management practices. In addition, senior managementG must evaluate the potential risk exposure if those assumptions fail.

                  Added: July 2018

                • HC-6.6.25

                  As part of the Board members annual training program, Conventional bank licenseesG must include training to enable Board members to better analyse risk and question strategic decisions, policy and transactions. Banks must also provide adequate training for all staff across the business units on risk management related matters.

                  Added: July 2018

              • Policy, Procedures, Limits and Controls

                • HC-6.6.26

                  A Conventional bank licensee'sG policy and procedures must provide specific guidance for the implementation of broad risk management strategies and must establish, where appropriate, internal limits for the various types of risk to which the bank may be exposed. These limits must consider the bank's role in the financial system and be defined in relation to the bank's capital, total assets, earnings or, where adequate measures exist, its overall risk level.

                  Added: July 2018

                • HC-6.6.27

                  A Conventional bank licensee'sG policy, procedures and limits must:

                  (a) provide for adequate and timely identification, measurement, monitoring, control and mitigation of all risks, including the risks posed by its lending, investing, trading, securitisation, off-balance sheet, fiduciary and other significant activities at the business line and bank-wide levels;
                  (b) ensure that the economic substance of a bank's risk exposures, including reputational risk and valuation uncertainty, are fully recognised and incorporated into the bank's risk management processes;
                  (c) be consistent with the bank's stated goals and objectives, as well as its overall financial strength;
                  (d) clearly delineate accountability and lines of authority across the bank's various business activities, and ensure there is a clear separation between business lines and the Risk Management function;
                  (e) escalate and address breaches of internal position limits;
                  (f) provide for the review of new businesses and products by bringing together all relevant risk management, control and business lines, to ensure that the bank is able to manage and control the activity, prior to it being initiated; and
                  (g) include a schedule and process for reviewing the policy, procedures and limits, and for updating them as appropriate.
                  Added: July 2018

              • Monitoring and Reporting of Risk

                • HC-6.6.28

                  A Conventional bank licensee'sG MIS must provide the Board and senior managementG with timely and relevant information concerning their risk profile, in a clear and concise manner. This information must include all risk exposures, including those that are off-balance sheet. Senior managementG must understand the assumptions behind, and limitations inherent in, specific risk measures.

                  Added: July 2018

                • HC-6.6.29

                  Conventional bank licenseesG must establish appropriate risk management methodologies, tools and models and systems commensurate with the nature and complexity of their business.

                  Added: July 2018

                • HC-6.6.30

                  Where conventional bank licenseesG use models to measure components of risk, they must establish model governance frameworks including regulatory validation and testing.

                  Added: July 2018

                • HC-6.6.31

                  Conventional bank licenseesG must have information systems that are adequate (both under normal circumstances and in periods of stress) for measuring, assessing and reporting on the size, composition and quality of exposures on a bank-wide basis across all risk types, products, countries, region, etc. and counterparties. These reports must reflect the bank's risk profile, capital and liquidity needs, and are provided on a timely basis to the bank's Board and senior managementG . A bank's MIS must be capable of capturing limit breaches, and there must be procedures in place to promptly report such breaches to senior managementG , as well as to ensure that the appropriate follow-up actions are taken.

                  Added: July 2018

                • HC-6.6.32

                  The CRO must consistently remind staff, through a regular process, under the sponsorship of the CEO, of the risk management requirements and enhance a common understanding of these requirements across the bank in order to create a culture of risk awareness.

                  Added: July 2018

              • Independent Review

                • HC-6.6.33

                  Conventional bank licenseesG must ensure that the risk management framework is subject to independent review by a third party consultant, other than the external auditor, when there are material changes in the relevant Rulebook requirements or to the business conducted by the bank and / or its risk profile. The review must cover, at a minimum, the following:

                  (a) the appropriateness of risk appetite/tolerance levels and capital planning;
                  (b) the strength of the internal control infrastructure, given the nature, scope and complexity of the bank's business;
                  (c) the appropriateness of third-party inputs or other tools used for management information purposes, such as risk measures and models.
                  (d) the identification of large exposures and risk concentrations;
                  (e) the accuracy and completeness of data input into the assessment process;
                  (f) Model governance and model validation procedures where models are used for computation of risk measures or estimates;
                  (g) the reasonableness and validity of scenarios used in the assessment process; and
                  (h) The use of stress-testing, including an analysis of the underlying assumptions and inputs.
                  Added: July 2018

                • HC-6.6.34

                  More specifically, a conventional bank licenseeG must undertake reviews referred to in HC-6.6.33 with regards to the following individual areas that are relevant to the risk management framework:

                  (a) ICAAP Framework referred to in Module IC;
                  (b) capital adequacy requirements under Module CA;
                  (c) recovery and resolution planning and RRP documents referred to in Module DS;
                  (d) credit risk management framework and compliance with Module CM;
                  (e) operational risk management framework and compliance with Module OM;
                  (f) interest rate risk in the banking book framework referred to in Module IRRBB; and
                  (g) stress-testing framework included in Module ST.
                  Added: July 2018

          • HC-7 Communication between Board and Shareholders

            • HC-7.1 Principle

              • HC-7.1.1

                The conventional bank licenseeG must communicate with shareholders, encourage their participation, and respect their rights.

                October 2010

            • 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 of shareholders to attend;
                (c) Notices of meetings must encourage shareholders to attend shareholder meetings and, if not possible, 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 to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;
                (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 where directors are to be elected or removed the board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;
                (g) The chairman of the meeting must encourage questions from shareholders, including questions regarding the conventional bank licensee'sG corporate governance guidelines;
                (h) The minutes of the meeting must be made available to shareholders 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 the shareholders by the Chairman prior to any vote by the shareholders.
                Amended: April 2011
                October 2010

              • HC-7.2.2

                The Bahraini conventional bank licenseeG should require all directors to attend and be available to answer questions from shareholders 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).

                Amended: April 2016
                Added: October 2010

              • HC-7.2.3

                The Bahraini conventional bank licenseeG should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.

                Amended: April 2016
                Added: October 2010

              • HC-7.2.3A

                Bahraini conventional bank licenseesG 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
                Added: April 2016

              • HC-7.2.3B

                Bahraini conventional bank licenseesG 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.

                Added: April 2016

              • HC-7.2.3C

                The Bahraini conventional bank licenseeG 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.

                Added: April 2016

              • HC-7.2.3D

                Within a maximum of 15 calendar days of any shareholders' meetings referred to in Paragraph HC-7.2.3C, the Bahraini conventional bank licenseeG must provide to the CBB a copy of the minutes of the meeting.

                Added: April 2016

              • HC-7.2.4

                The conventional bank licenseeG should maintain a website. The conventional bank licenseeG 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. The conventional bank licenseeG may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, the conventional bank licenseeG should grant a controlled access to such information to its shareholders.

                Amended: April 2017
                October 2010

              • HC-7.2.5

                In notices of meetings at which directors are to be elected or removed the conventional bank licenseeG 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.
                Amended: April 2012
                October 2010

            • 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 with controllersG to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the board as a whole. The chairman must discuss governance and strategy with controllersG . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the board should encourage investors, particularly institutional investors, to help in evaluating the conventional bank licensee'sG corporate governance (see also HC-1.2 and 1.3 for other duties of the Chairman).

                October 2010

            • HC-7.4 Controllers

              • HC-7.4.1

                In conventional bank licenseesG with one or more controllersG , the chairman and other directors must actively encourage the controllersG 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).

                October 2010

          • HC-8 Corporate Governance Disclosure

            • HC-8.1 Principle

              • HC-8.1.1

                The conventional bank licenseeG must disclose its corporate governance.

                October 2010

            • HC-8.2 Disclosure under the Company Law and CBB Requirements

              • HC-8.2.1

                In each conventional bank licenseeG :

                (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) The conventional bank licenseeG must publish the guidelines on its website;
                (c) At each annual shareholders' meeting the board must report on the conventional bank licensee'sG 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 the conventional bank licensee'sG website or held at the conventional bank licensee'sG premises on behalf of the shareholders.
                Amended: April 2017
                October 2010

              • HC-8.2.2

                The CBB may issue a template as a guide for a conventional bank licensee'sG annual meeting corporate governance discussion.

                October 2010

              • Board'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 bank are fair, transparent, comprehensive and timely and reflect the character of the bank and the nature, complexity and risks inherent in the bank's business activities. Disclosure policies must be reviewed for compliance with the Central Bank's disclosure requirements (see Chapter PD-1).

                  October 2010

          • Appendix A Audit Committee

            • Committee Duties

              The Committee's duties shall include those stated in Paragraph HC-3.2.1.

              October 2010

            • Committee 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 conventional bank licenseeG .

              A majority of the members of the committee including the Chairman shall be independent directorsG .

              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 a conventional bank licensee'sG balance sheet, income statement and cash flow statement and changes in shareholders' equity;
              (b) An understanding of the accounting principles which are applicable to the conventional bank licensee'sG financial statements;
              (c) Experience in evaluating financial statements that have a level of accounting complexity comparable to that which can be expected in the conventional bank licensee'sG 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.
              Amended: January 2012
              Amended: April 2011
              October 2010

            • Committee 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 the conventional bank licensee'sG 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 the conventional bank licenseeG 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 the conventional bank licenseeG 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 the conventional bank licensee'sG internal auditing and compliance personnel and procedures and its internal controls and compliance procedures, risk management systems, and any changes in those;
              (g) Oversee the conventional bank licensee'sG compliance with legal and regulatory requirements, codes and business practices, and ensure that the bank communicates with shareholders and relevant stakeholders (internal and external) openly and promptly, and with substance of compliance prevailing over form; and
              (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 the bank's code of conduct.
              Amended: October 2012
              Amended: April 2012
              Amended: April 2011
              October 2010

            • Committee 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 the conventional bank licenseeG 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 not directors of the conventional bank licenseeG 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.

              October 2010

            • Committee 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 conventional bank licenseeG shall provide appropriate funding for the compensation of any such persons.

              October 2010

            • Committee 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.

              Amended: July 2012
              Amended: April 2012
              October 2010

          • Appendix B Nominating Committee

            • Committee Duties

              The committee's duties shall include those stated in Paragraph HC-4.2.1.

              October 2010

            • Committee 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 to conventional bank licensee'sG corporate governance guidelines, the committee shall develop and recommend to the board corporate governance guidelines, and review those guidelines at least once a year.
              Amended: April 2011
              October 2010

            • Committee 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.

              October 2010

            • Committee 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 conventional bank licenseeG shall provide appropriate funding for the compensation of any such persons.

              October 2010

            • Performance 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.

              Amended: July 2012
              Amended: April 2012
              October 2010

          • Appendix C Remuneration Committee

            • Committee Duties

              The committee's duties shall include those stated in Paragraph HC-5.2.1.

              Amended: January 2011
              October 2010

            • Committee Duties and Responsibilities

              In serving those duties the committee shall consider, and make specific recommendations to the board on, both remunerationG policy and individual remunerationG packages for the approved personsG and other material risk-takersG as well as the total variable remunerationG to be distributed. This remunerationG 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 determining remunerationG 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 approved personsG and material risk-takers'G performance in light of the bank's corporate goals, agreed strategy, objectives and business plans and may consider the conventional bank licensee'sG performance and shareholder return relative to comparable conventional bank licenseesG , the value of awards to CEOsG at comparable conventional bank licenseesG , and awards to the CEOG in past years.

              The committee should also be responsible for retaining and overseeing outside consultants or firms for the purpose of determining approved personsG and material risk-takers'G remuneration, administering remuneration plans, or related matters.

              Amended: January 2014
              October 2010

            • Committee 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.

              October 2010

            • Committee 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, the CEOG or other approved persons, without seeking the approval of the board or management. The conventional bank licenseeG shall provide appropriate funding for the compensation of any such persons.

              October 2010

            • Performance 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.

              Amended: July 2012
              Amended: April 2012
              October 2010

        • AU Auditors and Accounting Standards

          • AU-A Introduction

            • AU-A.1 Purpose

              • AU-A.1.1

                This Module presents requirements that have to be met by conventional bank licenseesG with respect to the appointment of external auditors. This Module also sets out certain obligations that external auditors have to comply with, as a condition of their appointment by conventional bank licenseesG .

                October 07

              • AU-A.1.2

                This Module is issued under the powers given to the Central Bank of Bahrain ('CBB') under Decree No. (64) of 2006 with respect to promulgating the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). It supplements Article 61 of the CBB Law, which requires licenseesG to appoint an external auditor acceptable to the CBB.

                October 07

              • Legal Basis

                • AU-A.1.3

                  This Module contains the CBB's Directive (as amended from time to time) relating to auditors and accounting standards used by conventional bank licenseesG , and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all conventional bank licenseesG .

                  Amended: January 2011
                  October 2007

                • AU-A.1.4

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  October 07

            • AU-A.2 Module History

              • AU-A.2.1

                This Module was first issued as Module AU (Audit Firms) in July 2004, as part of the first release of Volume 1 (conventional banks) of the CBB Rulebook. It was subsequently reissued in full in July 2006 (and renamed 'Auditors and Accounting Standards').

                October 07

              • AU-A.2.2

                The reissued Module was one of several Modules modified to reflect the introduction of the CBB's new integrated license framework. Although the new framework did not change the substance of the requirements contained in this Module, the Module was re-issued in order to simplify its drafting and layout and align it with equivalent Modules in other Volumes of the CBB Rulebook.

                October 07

              • AU-A.2.3

                This Module is dated July 2006. Pages that are subsequently changed in this Module are updated with the end-calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

                October 07

              • AU-A.2.4

                When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 1 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                October 07

              • AU-A.2.5

                A list of changes made to this Module is provided below:

                Module Reference Change Date Description of Changes
                Whole Module July 2006 Module renamed as Module AU (Auditors and Accounting Standards). Text redrafted but substance of requirements left unchanged.
                AU-A.1 10/2007 New Rule AU-A.1.3 introduced, categorising this Module as a Directive.
                AU-1.2 10/2007 Rule AU-1.2.3 redrafted to clarify reporting obligation.
                AU-1.5 10/2007 Paragraphs AU-1.5.4 and AU-1.5.6 updated to reflect CBB Law requirements on auditor independence.
                AU-3.1 01/2009 Paragraph AU-3.1.1 updated in respect of agreed upon procedures report for review of PIR by external auditors.
                AU-5 01/2009 New Chapter inserted for the role of the reporting accountant.
                AU-5.1 10/2009 Clarification of fee arrangements for reporting accountants.
                AU-A.1.3 01/2011 Clarified legal basis.
                AU-1.1, AU-1.2, AU-1.5, AU-2.1, AU-3 and AU-5 01/2011 Various minor amendments made for consistency in formatting
                AU-3.5 01/2011 Added new Section on report on material differences to be in line with Volume 2.
                AU-3.3.2 04/2011 Added cross reference to Module FC and clarified due date of report.
                AU-3.5.1 04/2011 Corrected name of return.
                AU-3.2 10/2011 Clarification of existing requirement for the Agreed Upon Procedures Report and setting a deadline for the submission of the report.
                AU-5 10/2011 Chapter amended and content moved to Section BR-6.5 and retitled as Role of the Appointed Expert.
                AU-2.2.1 04/2012 Corrected cross reference.
                AU-1.3.1 07/2013 Removed potential exemption regarding audit partner rotation.
                AU-3.2.1 07/2013 Removed potential exemption for external auditor to review published financial disclosures prior to their publication.
                AU-3.3.1 07/2013 Clarified that an approved consultancy firm can also provide the report on compliance with financial crime rules required under Section FC-4.3.
                AU-4.1.2 07/2013 Corrected typo.
                AU-4.1.3 07/2013 Changed Guidance to Rule.
                AU-3.6 01/2014 New Section added dealing with the report on compliance with remuneration rules.
                AU-3.5.1 04/2014 Removed reference to monthly statements of assets and liabilities.
                AU-3.7 04/2014 New Section added on the Report on Eligible Accounts for the Deposits/Unrestricted Investment Accounts Protection Funds
                AU-1.1.1A 07/2014 Added guidance clarifying the information required when seeking the CBB's approval for appointment or re-appointment of the external auditor.
                AU-3.6 07/2014 Where a conventional bank licensee has no approved persons or material risk-takers whose total annual remuneration is in excess of BD100,000, the report on compliance with remuneration rules need not be completed by the external auditor.
                AU-1.5.4 10/2014 Clarified wording of guidance.
                AU-3.1.3 04/2015 Existing exemptions in respect of PIR review will cease as at 31st December 2014 for all Bahraini conventional bank licensees.
                AU-3.6.1 07/2015 Clarified that the external auditor or an approved consultancy firm can also provide the report on the bank's compliance with the remuneration Rules outlined in Chapter HC-5.
                AU-3.2.4 01/2016 Aligned as per the requirements of Module BR.
                AU-3.2.3 07/2017 Amended agreed upon procedures report submission deadline.

          • AU-B Scope of Application

            • AU-B.1 Conventional Bank Licensees

              • AU-B.1.1

                The contents of this Module – unless otherwise stated – apply to all conventional bank licenseesG .

                October 07

              • AU-B.1.2

                The contents of Chapters AU-1 to AU-4 apply to both Bahraini conventional bank licenseesG and overseas conventional bank licenseesG .

                October 07

            • AU-B.2 Auditors

              • AU-B.2.1

                Certain requirements in this Module indirectly extend to auditors, by virtue of their appointment by conventional bank licenseesG . Auditors appointed by conventional bank licenseesG must be independent (cf. Sections AU-1.4 and AU-1.5). Auditors who resign or are otherwise removed from office are required with their licensees to inform the CBB in writing of the reasons for the termination of their appointment (cf. Sections AU-1.2). Other requirements are contained in Sections AU-1.3 (Audit partner rotation) and AU-3 (Auditor reports).

                October 07

          • AU-1 Auditor Requirements

            • AU-1.1 Appointment of Auditor

              • AU-1.1.1

                Conventional bank licenseesG must obtain prior written approval from the CBB before appointing or re-appointing their auditor.

                Amended: January 2011
                October 2007

              • AU-1.1.1A

                When seeking the CBB's approval for the appointment or re-appointment of the external auditor, the request for approval should specify the name of the audit firm, the name of the responsible partner, as well as the year which the responsible partner was initially appointed by the conventional bank licenseeG .

                Added: July 2014

              • AU-1.1.2

                As the appointment of auditors normally takes place during the course of the firm's annual general meeting, conventional bank licenseesG should notify the CBB of the proposed agenda for the annual general meeting in advance of it being circulated to shareholdersG . The CBB's approval of the proposed auditor does not limit in any way shareholders'G rights to subsequently reject the Board's choice.

                Amended: January 2011
                October 2007

              • AU-1.1.3

                The CBB, in considering the proposed (re-) appointment of an auditor, takes into account the expertise, resources and reputation of the audit firm, relative to the size and complexity of the licenseeG . The CBB will also take into account the track record of the audit firm in auditing conventional bank licenseesG within Bahrain; the degree to which it has generally demonstrated independence from management in its audits; and the extent to which it has identified and alerted relevant persons of significant matters. Finally, the CBB will also consider the audit firm's compliance with applicable laws and regulations (including legislative Decree No. 26 of 1996; the Ministry of Industry and Commerce's Ministerial Resolution No. 6 of 1998; and relevant Bahrain Stock Exchange regulations).

                October 07

              • AU-1.1.4

                In the case of overseas conventional bank licenseesG , the CBB will also take into account who acts as the auditor of the parent firm. As a general rule, the CBB does not favour different parts of a banking firm or group having a different auditor.

                Amended: January 2011
                October 2007

            • AU-1.2 Removal or Resignation of Auditor

              • AU-1.2.1

                Conventional bank licenseesG must notify the CBB as soon as they intend to remove their auditor, or if their auditor intends to resign, with an explanation of their decision, or as soon as their auditor resigns.

                Amended: January 2011
                October 2007

              • AU-1.2.2

                Conventional bank licenseesG must ensure that a replacement auditor is appointed (subject to the CBB approval as per Section AU-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

                October 07

              • AU-1.2.3

                In accordance with the powers granted to CBB under Article 63 of the CBB Law, auditors of conventional bank licenseesG and their licensees must inform the CBB in writing, should they resign or their appointment as auditor be terminated, within 30 calendar days, of the event occurring, setting out the reasons for the resignation or termination.

                October 07

            • AU-1.3 Audit Partner Rotation

              • AU-1.3.1

                Conventional bank licenseesG must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.

                Amended: July 2013
                October 07

              • AU-1.3.2

                Conventional bank licenseesG must notify the CBB of any change in audit partner.

                October 07

            • AU-1.4 Auditor Independence

              • AU-1.4.1

                Article 61(d) of the CBB Law imposes conditions for the auditor to be considered independent. Before a conventional bank licenseeG appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to carry out the audit properly, and is independent of the licenseeG .

                October 07

              • AU-1.4.2

                For an auditor to be considered independent, it must, among other things, comply with the restrictions in Section AU-1.5.

                October 07

              • AU-1.4.3

                If a conventional bank licenseeG becomes aware at any time that its auditor is not independent, it must take reasonable steps to remedy the matter and notify the CBB of the fact.

                October 07

              • AU-1.4.4

                If in the opinion of the CBB, independence has not been achieved within a reasonable timeframe, then the CBB may require the appointment of a new auditor.

                October 07

            • AU-1.5 Licensee/Auditor Restrictions

              • Financial Transactions with Auditor

                • AU-1.5.1

                  Conventional bank licenseesG must not lend to their auditor, nor enter into any contracts of professional indemnity insurance with their auditor.

                  Amended: January 2011
                  October 2007

              • Outsourcing to Auditor

                • AU-1.5.2

                  Section OM-3.7 generally prohibits conventional bank licenseesG from outsourcing their internal audit function to the same firm that acts as their external auditor. However, the CBB may allow short-term outsourcing of internal audit operations to a conventional bank licensee'sG external auditor, to meet unexpected urgent or short-term needs (for instance, on account of staff resignation or illness). Any such arrangement will normally be limited to a maximum period of one year and is subject to the CBB prior approval.

                  Amended: January 2011
                  October 2007

              • Other Relationships

                • AU-1.5.3

                  Conventional bank licenseesG and their auditor must comply with the restrictions contained in Article 217 (c) of the Commercial Companies Law (Legislative Decree No. (21) of 2001), as well as in Article 61(d) of the CBB Law.

                  Amended: January 2011
                  October 2007

                • AU-1.5.4

                  Article 217(c) of the Commercial Companies Law prohibits an auditor from (i) being the chairman or a member of the Board of DirectorsG of the company he/she audits; (ii) holding any managerial position in the company he/she audits; and (iii) acquiring any shares in the company he/she audits, or selling any such shares he/she may already own, during the period of his audit. Article 61(d) of the CBB Law prohibits an auditorG from (i) being the chairman or a member of the Board of DirectorsG of the company he/she audits; (ii) holding any managerial position in the company he/she audits; and (iii) acquiring any shares in the company he/she audits, or selling any such shares he/she may already own, during the period of his audit. Furthermore, the auditorG must not be a relative (up to the second degree) of a person assuming management or accounting duties in the company.

                  Amended: October 2014
                  October 07

                • AU-1.5.5

                  The restrictions in Paragraph AU-1.5.3 apply to overseas conventional bank licenseesG as well as Bahraini conventional bank licenseesG .

                  Amended: October 2011
                  October 2007

                • AU-1.5.6

                  A partner, DirectorG or manager on the engagement team of auditing a conventional bank licenseeG may not serve on the Board or in a controlled functionG of the licenseeG , for two years following the end of their involvement in the audit, without prior authorisation of the CBB.

                  October 07

                • AU-1.5.7 [deleted]

                  [This Guidance was deleted in January 2011].

              • Definition of 'Auditor'

                • AU-1.5.8

                  For the purposes of Section AU-1.5, 'auditor' means the partners, DirectorsG and managers on the engagement team responsible for the audit of the conventional bank licenseeG .

                  October 07

          • AU-2 Access

            • AU-2.1 CBB Access to Auditor

              • AU-2.1.1

                Conventional bank licenseesG must waive any duty of confidentiality on the part of their auditor, such that their auditor may report to the CBB any concerns held regarding material failures by the conventional bank licenseeG to comply with the CBB requirements.

                Amended: January 2011
                October 2007

              • AU-2.1.2

                The CBB may, as part of its on-going supervision of conventional bank licenseesG , request meetings with a licensee'sG auditor. If necessary, the CBB may direct that the meeting be held without the presence of the licensee'sG management or DirectorsG .

                Amended: January 2011
                October 2007

            • AU-2.2 Auditor Access to Outsourcing Providers

              • AU-2.2.1

                Rule OM-3.5.1 (c) on outsourcingG agreements between conventional bank licenseesG and outsourcing providersG requires licenseesG to ensure that their internal and external auditors have timely access to any relevant information they may require to fulfil their responsibilities. Such access must allow them to conduct on-site examinations of the outsourcing providerG , if required.

                Amended: April 2012
                October 07

          • AU-3 Auditor Reports

            • AU-3.1 Review of Quarterly Prudential Information Returns

              • AU-3.1.1

                Conventional bank licenseesG must arrange for their auditor to review the licensee's quarterly Prudential Information Returns to the CBB, prior to their submission, unless otherwise exempted in writing by the CBB. The review must be made in the form of an Agreed Upon procedures Report (as outlined in BR-3).

                Amended January 2011
                Amended January 2009
                October 2007

              • AU-3.1.2

                Conventional bank licenseesG are required to submit a quarterly Prudential Information Return (PIR). Conventional bank licenseesG may apply in writing to CBB for an exemption from the requirement that the PIR be reviewed by the licensee's external auditor: this exemption would normally only be given where the licensee had established a track record of accurate and timely reporting, and there were no other supervisory issues of concern. Further details on the CBB's reporting and related requirements, including the precise scope of the auditor's review and attestation, are contained in Module BR (The CBB Reporting).

                Amended: January 2011
                October 2007

              • AU-3.1.3

                For Bahraini conventional bank licenseesG , all existing exemptions in respect of PIR review as at 31st December 2014 will cease.

                Added: April 2015

            • AU-3.2 Review of Financial Disclosures

              • AU-3.2.1

                Conventional bank licenseesG that are required to publish financial disclosures in accordance with Chapters PD-2 and PD-3 must arrange for their external auditor to review these prior to their publication.

                Amended: July 2013
                Amended: January 2011
                October 2007

              • AU-3.2.2

                Chapter PD-2 requires overseas conventional bank licenseesG operating as retail banks to publish on a semi-annual basis summary information on their balance sheet and profit and loss account, in the same format as their annual audited accounts. Chapter PD-3 requires all locally incorporated conventional bank licensees to publish quarterly financial statements, in accordance with International Accounting Standard 34 (Interim Financial Reporting).

                October 07

              • AU-3.2.3

                Locally incorporated banks must arrange for their external auditor to review the annual disclosures required in Module PD, Section PD-1.3 and Chapter PD-6, prior to their submission to the CBB or their publication. This review must be in the form of an agreed- upon procedures report (see also PD-A.2.4). The report must be submitted to the CBB within 4 months of the year end of the concerned bank (see also Paragraph BR-1.1.3).

                Amended: July 2017
                Added: October 2011

              • AU-3.2.4

                Locally incorporated banks must arrange for their external auditor to review the disclosures in the half-yearly financial statements required by Module PD, Paragraph PD-3.1.6 prior to their submission to the CBB or their publication. This review must be in the form of an agreed upon procedure report. This report must be submitted to the CBB within 2 months of the end of the half-year reporting period of the concerned bank (see also Section BR-2.2).

                Amended: January 2016
                Added: October 2011

            • AU-3.3 Report on Compliance with Financial Crime Rules

              • AU-3.3.1

                Conventional bank licenseesG must arrange for their external auditor or a consultancy firm approved by the CBB as per Paragraphs FC-4.3.2 and FC-4.3.2A, to report on the licensee's compliance with the requirements contained in Module FC (Financial Crime), at least once a year.

                Amended: July 2013
                Amended: January 2011
                October 2007

              • AU-3.3.2

                The report specified in Rule AU-3.3.1 must be in the form agreed by the CBB, and must be submitted to the Compliance Directorate at the CBB by the 30th of April of the following year (See Paragraph FC-4.3.5).

                Amended: April 2011
                October 07

              • AU-3.3.3

                The context to the above requirement can be found in Section FC-4.3.

                October 07

            • AU-3.4 Review and Validation of Internal Models

              • AU-3.4.1

                Conventional bank licenseesG seeking the CBB approval for their use of internal models for the calculation of regulatory capital requirements, must arrange for their external auditor to validate the soundness of the model concerned. This external review must be undertaken at least once a year, unless otherwise exempted in writing by the CBB.

                Amended: January 2011
                October 2007

              • AU-3.4.2

                Before granting its approval for Bahraini conventional banksG to use internal models for the measurement of market risk in the context of regulatory capital calculations, the CBB requires such models to be validated by both the internal and external auditors of the bank (see Chapter CA-9). The CBB will review the validation procedures performed by the internal and external auditors, and may independently carry out further validation procedures.

                Amended: January 2011
                October 2007

              • AU-3.4.3

                The specific requirements and procedures for external validation of models are contained in Section CA-9.8.

                October 07

              • AU-3.4.4

                Exemptions from the external validation requirement are normally only given where a track record of satisfactory validations has been developed over several years, and where the CBB has no other material supervisory concerns regarding the licensee concerned.

                October 07

            • AU-3.5 Report on Material Differences

              • AU-3.5.1

                Conventional bank licenseesG must arrange for their external auditor to provide to the CBB explanations for any material differences in data reported in the bank's audited or reviewed accounts and in the Prudential Information Returns (PIR).

                Amended: April 2014
                Amended: April 2011
                Added: January 2011

            • AU-3.6 Report on Compliance with Remuneration Rules

              • AU-3.6.1

                Unless specifically excluded in accordance with Paragraph AU-3.6.3, conventional bank licenseesG must arrange for their external auditor or a consultancy firm approved by the CBB as per Paragraph BR-4A.3.2, to report on the bank's compliance with the requirements contained in Chapter HC-5, at least once a year.

                Amended: July 2015
                Amended: July 2014
                Added: January 2014

              • AU-3.6.2

                The report specified in Rule AU-3.6.1 must be in the form agreed by the CBB, and must be submitted by the bank to the supervisory point of contact at the CBB when the audited financial statements are submitted, i.e. within 3 months of the bank's year end (See Section BR-4A.3).

                Amended: July 2014
                Added: January 2014

              • AU-3.6.3

                Where a conventional bank licenseeG has no:

                (a) Approved personsG ; or
                (b) Material risk-takersG

                whose total annual remunerationG (including all benefits) is in excess of BD100,000, Paragraph AU-3.6.1 does not apply. In this instance, an annual notification must be sent to the CBB once it is determined that this situation applies.

                Added: July 2014

            • AU-3.7 Report on Eligible Accounts for the Deposits/Unrestricted Investment Accounts Protection Funds

              • AU-3.7.1

                Conventional bank licenseesG must arrange for their external auditor to confirm the accuracy of the data reported on the Eligible accounts report for the deposits/unrestricted investment account protection funds (Appendix BR-16) as required under Paragraph BR-1.4.2.

                Added: April 2014

              • AU-3.7.2

                The report from the external auditor required under Paragraph AU-3.7.1 must be submitted to the CBB at the same time as the due date for Appendix BR-16, that is, two months after the financial year end.

                Added: April 2014

          • AU-4 Accounting Standards

            • AU-4.1 General Requirements

              • AU-4.1.1

                Conventional bank licenseesG must comply with International Financial Reporting Standards / International Accounting Standards.

                October 07

              • AU-4.1.2

                Overseas conventional bank licenseesG that do not, at the parent company level, apply IFRS/IAS are still required under Paragraph AU-4.1.1 to produce pro-forma accounts for the Bahrain branch in conformity with these standards. Where this requirement is difficult to implement, the overseas conventional bank licenseeG should contact the CBB in order to agree a solution.

                Amended: July 2013
                October 07

              • AU-4.1.3

                Paragraph AU-4.1.1 requires conventional bank licenseesG that maintain Islamic 'windows' or units to apply relevant AAOIFI Financial Accounting Standards, depending on the type of Islamic finance contracts entered into. In particular, attention is drawn to AAOIFI Financial Accounting Standard 18, 'Islamic Financial Services Offered by Conventional Financial Institutions'.

                Amended: July 2013
                October 07

          • AU-5 Role of External Auditor as Appointed Expert

            • AU-5.1 General Requirements

              • AU-5.1.1

                In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint appointed expertsG to undertake on-site examinations or report by way of investigations on specific aspects of a bank's business. External auditors may be called upon to be appointed expertsG and should be aware of their role in that capacity by referring to Section BR-6.5.

                [The Rules and Guidance in this Section were moved to Section BR-6.5 in October 2011].

                Amended October 2011
                Added January 2009

            • AU-5.2 The Required Report

              [The Rules and Guidance in this Section were moved to Section BR-6.5 in October 2011].

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • AU-5.3 Other Notifications to the CBB

              [The Rules and Guidance in this Section were moved to Section BR-6.5 in October 2011].

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • AU-5.4 Permitted Disclosure by the CBB

              [The Rules and Guidance in this Section were moved to Section BR-6.5 in October 2011].

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • AU-5.5 Trilateral Meeting

              [The Rules and Guidance in this Section were moved to Section BR-6.5 in October 2011].

              • The content selected is no longer in force and cannot be presented in Whole Section view.

        • GR General Requirements

          • GR-A Introduction

            • 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; on the use of corporate and trade names; and on controllersG . Each set of requirements is contained in its own Chapter: a table listing these and their application to licensees is given in Chapter GR-B.

                  October 07

              • Legal Basis

                • GR-A.1.2

                  This Module contains the Central Bank of Bahrain's ('CBB') Regulation No.(31) of 2008 and Directive (as amended from time to time) governing bank control and general requirements and is issued under the powers available to the CBB under Articles 38 and 52 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). The Module also contains requirements pertaining to controllersG as 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). The requirements of Resolution No.(33) for the year 2012 with respect to the issuance of the Regulation setting the procedures for processing applications of banks to transfer financial services business in the Kingdom of Bahrain are included in Chapter GR-4. The Regulation, Resolutions and Directive in this Module are applicable to all conventional bank licenseesG .

                  Amended: October 2012
                  Amended: October 2011
                  Adopted: January 2011

                • GR-A.1.3

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  Adopted: January 2011

            • GR-A.2 Module History

              • Evolution of Module

                • GR-A.2.1

                  This Module was first issued in July 2006, with immediate effect, as a new Module aimed at aligning the structure and contents of Volume 1 with other Volumes of the CBB Rulebook. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

                  Amended: January 2014
                  October 07

                • GR-A.2.2

                  The October 2007 version incorporates the requirements relating to controllersG , previously contained in Chapter HC-2 of the High-Level Controls Module. It also expands on certain requirements contained in the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006).

                  October 07

                • GR-A.2.3

                  A list of recent changes made to this Module is detailed in the table below:

                  Module Ref. Change Date Description of Changes
                  GR-4, GR-5.4, GR-7 10/2007 Administrative changes due to implementation of CBB Law. Revised notification deadlines etc.
                  GR-1 10/2007 This Chapter has been relocated to OM Module.
                  GR-8 10/2007 CBB Fees Chapter has been transferred to Module LR.
                  GR-5 04/2008 New notification and approval requirements in respect of "Controllers"
                  GR-5.3 01/2010 Revised approval threshold for controllers which are financial institutions.
                  GR 01/2011 Various minor amendments to ensure consistency in CBB Rulebook.
                  GR-A.1.2 and A.1.3 01/2011 Added legal basis.
                  GR-3.1.1 04/2011 Clarified Rule pertaining to announcement of dividend.
                  GR-4.12 04/2011 Deleted reference to outsourcing.
                  GR-4.1 07/2011 Regulation under consultation.
                  GR-A.1.2 and GR-5.3.5A 10/2011 New reference added to reflect the issuance of Resolution No.(43) of 2011, and reference made to controllers.
                  GR-3.1 10/2011 Clarified guidance Paragraphs on CBB's non-objection for dividends.
                  GR-5.2.2 10/2011 Clarified the definition of "associate".
                  GR-7 10/2011 Chapter redrafted to be consistent with other Volumes of the CBB Rulebook.
                  GR-5.3.8 07/2012 Percentage amended to be consistent with Paragraph GR-5.3.5.
                  GR-A.1.2 10/2012 Updated legal basis.
                  GR-4 10/2012 Amended to reflect the issuance of Resolution No.(33) of 2012.
                  GR-4.2.3 01/2013 Specified timeline for CBB preliminary assessment.
                  GR-5.4.1 and GR-5.4.3 04/2013 Changed Rules to Guidance.
                  GR-5 07/2013 Changes made to be in line with Regulation No.(31) for the year 2008.
                  GR-A.2.1 01/2014 Deleted repetitive sentence.
                  GR-7.1.12 10/2016 Added additional requirements for cessation of business to be in line with all Volumes.
                  GR-5.1.7 01/2017 Consistency of notification timeline rule on Controllers with other Volumes of the CBB Rulebook.
                  GR-4.2.6 07/2017 Corrected cross reference.
                  GR-3.1.3 10/2017 Amended paragraph and changed from Guidance to Rule.
                  GR-6 12/2018 Added new Section on Open Banking.

              • Superseded Requirements

                • GR-A.2.4

                  This Module supersedes:

                  Circular / other reference Provision Subject
                  Module LR (April 2006 version) LR-6: Record-keeping Keeping Record-keeping keeping requirements were moved to GR-1, and edited down to simplify and avoid duplication of record-keeping keeping requirements contained in Module FC.
                  Module HC (April 2006 version) HC-2: 'Fit and Proper Requirement' Requirements relating to controllers were moved to GR-5. Remaining 'fit and proper' elements regarding Directors and key employees of licensees were retained in HC-2, in a re-drafted form.
                  October 07

          • GR-B Scope of Application

            • GR-B.1 Conventional Bank Licensees

              • License Categories

                • GR-B.1.1

                  The requirements in Module GR (General Requirements) apply to both retailG and wholesaleG conventional bank licenseesG .

                  October 07

              • Bahraini and Overseas Bank Licensees

                • GR-B.1.2

                  The scope of application of Module GR (General Requirements) is as follows:

                  Chapter Bahraini bank licensees Overseas bank licensees
                  GR-2 Applies to the whole bank. Applies to the Bahrain branch only.
                  GR-3 Applies to the whole bank. Doesn't apply.
                  GR-4 Applies to the whole bank. Applies to the Bahrain branch only.
                  GR-5 Applies to the whole bank. Applies to the whole bank..
                  GR-6 Applies to the retail bank. For Consultation.
                  GR-7 Applies to the whole bank. Applies to the Bahrain branch only.
                  Amended: December 2018
                  October 07

                • GR-B.1.3

                  In the case of Bahraini bank licenseesG , certain requirements apply to the whole bank, irrespective of the location of its business; other requirements apply only in respect to business booked in Bahrain. In the case of overseas bank licenseesG , the requirements of Module GR mostly only apply to business booked in the Bahrain branch.

                  October 07

          • GR-1 [This Chapter has been relocated to Module OM.]

          • GR-2 Corporate and Trade Names

            • GR-2.1 Vetting of Names

              • GR-2.1.1

                Conventional bank licenseesG must seek prior written approval from the CBB for their corporate name and any trade names, and those of their subsidiaries located in Bahrain.

                October 07

              • GR-2.1.2

                GR-2.1.1 applies to overseas conventional bank licenseesG only with respect to their Bahrain branch.

                October 07

              • GR-2.1.3

                Rules GR-2.1.1 and GR-2.1.2 refers to the requirements contained in Article 41 of the CBB Law.

                October 07

              • GR-2.1.4

                In approving a corporate or trade 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.

                October 07

          • GR-3 Dividends

            • GR-3.1 CBB Non-Objection

              • GR-3.1.1

                Bahraini conventional bank licenseesG must obtain a letter of no-objection from the CBB to any dividend proposed, before announcing the proposed dividend by way of a press announcement or any other means of communication and prior to submitting a proposal for a distribution of profits to a shareholderG vote.

                Amended: April 2011
                October 2007

              • GR-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 and the adequacy of provisions against impaired loans or other assets.

                Amended: October 2011
                October 07

              • GR-3.1.3

                To facilitate the prior approval required under Paragraph GR-3.1.1, conventional bank licenseesG subject to GR-3.1.1 must provide the CBB with:

                (a) The licensee's intended percentage and amount of proposed dividends for the coming year;
                (b) A letter of no objection from the bank'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 liquidity position of the bank.
                Amended: October 2017
                Amended: October 2011
                October 07

          • GR-4 Business Transfers

            • GR-4.1 CBB Approval

              • GR-4.1.1

                In accordance with the CBB Governor's Resolution No.(33) for the year 2012 issued pursuant to Article 66 of the CBB Law, a conventional bank licenseeG (transferorG ) must seek prior written approval from the CBB before transferring any regulated banking service to a person (transfereeG ), except in the following circumstances:

                (a) Where the transferred business is limited to the assets and/or liabilities of the transferorG and does not include any regulated banking servicesG ; or
                (b) Where the regulated service transferred accounts for less than 5% of the transferor'sG total assets and/or liabilities as recorded in the unconsolidated balance sheet of the financial quarter preceding the date of the transfer of business application.
                Added: October 2012

              • GR-4.1.2

                For purposes of Paragraph GR-4.1.1 (a), a business transfer refers to a transfer of the rights and obligations of one conventional bank licenseeG to a third party, so that the customers continue to be subject to the same terms and conditions as those originally agreed.

                Added: October 2012

              • GR-4.1.3

                In instances where Subparagraph GR-4.1.1(b) applies, conventional bank licenseesG must notify the CBB before transferring any regulated banking serviceG to a transfereeG one month prior to the transfer taking place.

                Added: October 2012

              • GR-4.1.4

                Rule GR-4.1.1 is intended to apply to circumstances where a bank wishes to transfer all or part of its business (examples: credit card business, asset management business) to a third party, or is undertaking winding up proceedings.

                Added: October 2012

              • GR-4.1.5

                In the case of a Bahraini conventional bank licenseeG , Chapter GR-4 applies to its assets and liabilities booked in Bahrain. In the case of an overseas conventional bank licenseeG , Chapter GR-4 applies only to assets and liabilities booked in the bank's Bahrain branch.

                Added: October 2012

            • GR-4.2 Procedure with Respect to Applications

              • GR-4.2.1

                Conventional bank licenseesG wishing to transfer banking business in the Kingdom must apply to the Executive Director of Banking Supervision by submitting an application form along with the supporting documents as specified by the CBB (see Part B, Supplementary Information, Appendix GR-1). Unless otherwise directed by the CBB, the application must provide:

                (a) Full details of the business to be transferred including a detailed list of all liabilities or assets that will be transferred;
                (b) The rationale for the proposed transfer;
                (c) If applicable, an assessment of the impact of the transfer on any customersG directly affected by the transfer, and any mitigating factors or measures;
                (d) If applicable, an assessment of the impact of the transfer on the transferor's remaining business and customersG ; and
                (e) Evidence that the proposed transfer has been duly authorised by the transferorG (such as a certified copy of a Board resolution approving the transfer).
                Added: October 2012

              • GR-4.2.2

                Banks intending to apply to transfer a regulated service are advised to contact the CBB at the earliest possible opportunity, in order that the CBB may determine the nature and level of any documentation and/or the need for an auditor or other expert opinion to be provided. The CBB will grant its permission where the transfer will have no negative impact on the financial soundness of the bank, and does not otherwise compromise the interests of the bank's depositors and creditors. In all cases, the CBB will only grant its permission where the institution acquiring the regulated service holds the appropriate regulatory approvals and is in good regulatory standing.

                Added: October 2012

              • Preliminary Assessment

                • GR-4.2.3

                  The CBB will make a preliminary assessment of whether the proposed transfer is of a type that could be considered for approval or not based on the receipt of the documents referred to in Paragraph GR-4.2.1. If rejected, the applicant will be informed accordingly. The CBB will approve/reject the transfer of business application form after the submission of all necessary documents within 14 calendar days of the date where all documents have been submitted.

                  Amended: January 2013
                  Added: October 2012

              • Publication of the Transfer of Business Application

                • GR-4.2.4

                  In instances where the CBB is in favor of the transfer requested, and in accordance with Article 66(c) of the CBB Law, the transfer of business application will be published by the CBB in the Official Gazette and in two daily newspapers in the Kingdom of Bahrain (one in Arabic and one in English). The CBB notice will include a statement that written representations concerning the transfer of business application may be sent to the CBB within three months from the date of publication.

                  Added: October 2012

                • GR-4.2.5

                  If the liabilities are located in a jurisdiction outside Bahrain, the CBB may also publish such notice in the jurisdiction in which the risk is situated.

                  Added: October 2012

                • GR-4.2.6

                  In all cases, the costs of publication of the notices referred to in Paragraphs GR-4.2.4 and GR-4.2.5 must be met by the transferorG .

                  Amended: July 2017
                  Added: October 2012

            • GR-4.3 Determination of Application

              • GR-4.3.1

                The CBB will consider an application under Paragraph GR-4.2.1 if it is satisfied that:

                (a) Any objections received to the application to transfer the business following its publication in the Official Gazette and in two daily newspapers in the Kingdom of Bahrain (one in Arabic and one in English) as required under Article 66(d) have been reviewed and resolved by the CBB;
                (b) Except in so far as the CBB has otherwise directed, a copy of the notice has been sent to every affected customer and every other person who claims an interest in an asset or liability included in the proposed transfer (and has given written notice of his claim to the transferorG );
                (c) Copies of a statement, approved by the CBB, setting out particulars of the transfer, have been available for inspection at one or more places in Bahrain for at least 30 days, from the date of publication of the notice specified in Paragraph GR-4.2.3; and
                (d) Where the proposed transfer includes any contract where the risk is situated in a jurisdiction other than Bahrain, a statement, approved by the CBB, setting out particulars of the transfer, has been available for inspection at one or more places in that jurisdiction for at least 30 days, starting with the date of publication of the notice specified in Paragraph GR-4.2.3.
                Added: October 2012

              • GR-4.3.2

                The CBB will not approve the transfer, under the terms of Paragraph GR-4.2.1, unless it is satisfied that:

                (a) The transfereeG is authorised to carry on regulated banking servicesG in Bahrain or (where relevant) is authorised or otherwise permitted to carry on regulated banking servicesG in the jurisdiction where any overseas risks are situated;
                (b) Every transaction or account or relationship included in the transfer evidences a contract which was entered into before the date of the application;
                (c) The transfereeG possesses the necessary solvency required by the regulatory authorities to which he is subject to, after taking the proposed transfer into account;
                (d) Where transactions, accounts, or customer relationships are being transferred from an overseas branchG of a bank licensee, or the transfereeG is an overseas conventional bank licenseeG , the relevant overseas regulatory authority has been consulted about the proposed transfer, the law of that jurisdiction provides for the possibility of such a transfer, and the relevant supervisory authority in that jurisdiction has agreed to the transfer;
                (e) The transfer will not breach any applicable laws and regulations, and will not create any supervisory concerns;
                (f) The business transferred is not prohibited by the CBB; and
                (g) There are no material adverse consequences from the transfer on the transfereeG or the security of customers and creditors and their rights and obligations are protected.
                Added: October 2012

              • GR-4.3.3

                In assessing the criteria outlined in Paragraph GR-4.3.2, the CBB will, amongst other factors, take into account the financial strength of the transfereeG ; its capacity to manage the business being transferred; its track record in complying with applicable regulatory requirements; and (where applicable) its track record in treating customersG fairly. The CBB will also take into account the impact of the transfer on the transferor, and any consequences this may have for the transferor's remaining customersG .

                Added: October 2012

              • GR-4.3.4

                The CBB will review the application and any other documents or information requested by the CBB taking into consideration any objections received and conditions stated in Article 66 (d) of the CBB law.

                Added: October 2012

              • GR-4.3.5

                The CBB reserves the right to impose additional requirements if, in the opinion of the CBB, additional requirements are necessary to protect customer interests. In all cases where additional requirements are imposed, the CBB shall state the reasons for doing so.

                Added: October 2012

              • GR-4.3.6

                The CBB will communicate its final decision to the transferorG within 5 working days of the expiry of the period for submitting objections to the CBB (see Paragraph GR-4.2.4).

                Added: October 2012

            • GR-4.4 CBB Decision

              • GR-4.4.1

                In accordance with Article 67 (d) of the CBB Law and Article 8 of the Regulation issued pursuant to Resolution No.(33) of 2012, the CBB's decision regarding the application for transfer made under Section GR-4.2, will be published as a notice in the Official Gazette and in two local newspapers (one in Arabic and one in English) and will come into effect from this date.

                Added: October 2012

              • GR-4.4.2

                If the liabilities are located in a jurisdiction outside Bahrain, the CBB may also publish such notice in the jurisdiction in which the risk is situated.

                Added: October 2012

              • GR-4.4.3

                The costs of publication of the notices referred to in Paragraphs GR-4.4.1 and GR-4.4.2 must be met by the transferorG .

                Added: October 2012

              • GR-4.4.4

                Article 67(e) of the CBB Law notes that where the application for business transfer has been turned down by the CBB or includes restrictions, the applicant may appeal to a competent court within 30 calendar days from the date of publication referred to in Paragraph GR-4.4.1 .

                Added: October 2012

          • GR-5 Controllers

            • GR-5.1 Key Provisions

              • GR-5.1.1

                Condition 3 of the CBB's licensing conditions specifies, among other things, that conventional bank licenseesG must satisfy the CBB that their controllersG are suitable and pose no undue risks to the licensee (See Paragraph LR-2.3.1). There are also certain procedures which are set out in Articles 52 to 56 of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006) ("CBB Law") on controllersG . Licensees and their controllersG must also observe the CBB's Capital Markets requirements in respect of changes in holdings of shares of listed companies. There are differing requirements for locally incorporated licensees ("Bahraini conventional bank licenseesG ") and branches of foreign banks ("overseas conventional bank licenseesG "). The requirements of this Chapter apply in their entirety to Bahraini conventional bank licenseesG . Requirements for overseas conventional bank licenseesG are less onerous and are outlined in Paragraph GR-5.1.10.

                Amended: July 2013
                Amended: October 2011
                October 07

              • GR-5.1.2

                There are strict limits on changes in the holdings of shares held by controllersG in Bahraini conventional bank licenseesG or the extent of voting control exercised by controllersG in Bahraini conventional bank licenseesG . These limits are outlined in Section GR-5.3. Failure to observe these limits may lead to imposition of enforcement provisions of the Rulebook on the licensee and other penalties on the controllerG under the provisions of the CBB Law as outlined in Paragraph GR-5.1.1, including loss of voting power or transfer of shares.

                Amended: July 2013
                Amended: October 2011
                October 07

              • GR-5.1.3

                The approval provisions outlined in Paragraphs GR-5.1.4 and GR-5.1.5 do not apply to existing holdings or existing voting control by controllersG already approved by the CBB. The approval provisions apply to new/prospective controllersG or to increases in existing holdings/voting control as outlined in Paragraphs GR-5.1.4 and GR-5.1.5, following the issuance of Regulation No.(31) for the year 2008.

                Amended: July 2013
                Amended: October 2011
                October 07

              • GR-5.1.4

                Applicants seeking control of a conventional bank licenseG must provide details of their intended control, by submitting a duly completed Form 2 (Application for authorisation of controllerG ). (See Subparagraph LR-3.1.5(a))

                Amended: July 2013
                Amended: October 2011
                Amended: January 2011
                October 07

              • GR-5.1.5

                For purposes of Paragraph GR-5.1.4, prior approval from the CBB must be obtained when any of the following changes relating to controllersG (as defined in Section GR-5.2 and subject to the limits as outlined in Section GR-5.3) apply:

                (a) A new controllerG ;
                (b) An existing controllerG increasing its holding from above 10% and up to and including 20% of issued and paid up share capital;
                (c) An existing controllerG increasing its holding from above 20% and up and including 30% of issued and paid up share capital;
                (d) An existing controllerG increasing its holding from above 30% and up to and including 40% of issued and paid up share capital; or
                (e) An existing controller increasing its holding to above 40% of the issued and paid up share capital of an unlisted bank. In this instance, the controller must be a regulated legal person.
                Amended: July 2013
                Amended: October 2011
                Amended: January 2011
                October 07

              • GR-5.1.6

                For approval under Paragraph GR-5.1.5 to be granted, the CBB must be satisfied that the proposed controllerG or increase in control poses no undue risks to the licensee. The CBB will therefore consider or reconsider the criteria outlined in Paragraphs GR-5.3.6 to GR-5.3.8 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 new controllerG , or any of the changes listed to existing controllersG in Paragraph GR-5.1.5. These restrictions will include the applicable maximum allowed limit of holding or control (as outlined in Section GR-5.3). A duly completed Form 2 (ControllersG ) must be submitted as part of the request for a change in controllersG . An approval of controllerG will specify the applicable period for effecting the proposed acquisition of shares.

                Amended: July 2013
                Amended: October 2011
                October 07

              • GR-5.1.7

                If, as a result of circumstances outside the conventional bank licensee'sG knowledge and/or control, one of the changes specified in Paragraph GR-5.1.5 is triggered prior to CBB approval being sought or obtained, the conventional bank licenseeG must notify the CBB no later than 15 calendar days from the date on which those changes have occurred.

                Amended: January 2017
                October 07

              • GR-5.1.8

                Conventional bank licenseesG are required to notify the CBB as soon as they become aware of events that are likely to lead to changes in their controllersG . The criteria by which the CBB assesses the suitability of controllersG are set out in Section GR-5.3. 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 for controllerG . 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.

                October 07

              • GR-5.1.8A

                The criteria by which the CBB assesses the suitability of controllersG are set out in Section GR-5.3.

                Added: July 2013

              • GR-5.1.8B

                Within 30 days of receiving all required documentation for an application for authorisation for control, the CBB will issue its decision in writing to the applicant. The CBB may extend the period to review the completed application for no more than three months from the date where all required documentation has been submitted.

                Added: July 2013

              • GR-5.1.9

                Conventional bank licenseesG must submit, within 3 months of their financial year-end, a report on their controllersG . This report must identify all controllersG of the licensee, as defined in Section GR-5.2 and the extent of their shareholding interests.

                October 07

              • GR-5.1.10

                In the case of overseas conventional bank licenseesG , the CBB must be notified of any new significant ownership in excess of 50% of the issued share capital of the concerned bank as soon as the branch becomes aware of the new significant ownership. The concerned branch must provide a copy of the relevant approval by the home supervisor of the concerned bank. No other action is necessary unless the CBB makes a subsequent request for information or issues a formal direction. The CBB reserves the right to take any appropriate actions, including withdrawal of the license.

                Amended: January 2011
                October 07

            • GR-5.2 Definition of Controller

              • GR-5.2.1

                A controllerG of a conventional bank licenseeG is a natural or legal person who either alone, or with his associates:

                (a) Holds 10% or more of the issued and paid up share capital in the ("L"), or is able to exercise (or control the exercise of) 10% or more of the voting power in L; or
                (b) Holds 10% or more of the issued and paid up share capital in a parent undertakingG ("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.
                Amended: July 2013
                Adopted: October 2007

              • GR-5.2.2

                For the purposes of Paragraph GR-5.2.1, "associate" includes:

                (a) The spouse, son(s) or daughter(s) of a controllerG ;
                (b) An undertaking of which a controllerG is a Director;
                (c) A person who is an employee or partner of the controllerG ; and
                (d) If the controllerG is a legal person, a Director of the controllerG , a subsidiary of the controller,G or a Director of any subsidiary undertaking of the controllerG .
                Amended: July 2013
                Amended: October 2011
                Amended: January 2011
                October 07

              • GR-5.2.3

                Associate also includes any other person or undertaking with which the controllerG has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in the conventional bank licenseeG , or under which they undertake to act together in exercising their voting power in relation to the conventional bank licenseeG .

                Amended: October 2011
                October 07

            • GR-5.3 Suitability of Controllers

              • GR-5.3.1

                All new controllersG or prospective controllersG (as defined in Section GR-5.2) of a Bahraini conventional bank licenseeG must obtain the approval of the CBB. Any increases to existing controllers'G holdings or voting control (as outlined under paragraph GR-5.1.5) must also be approved by the CBB and are subject to the conditions outlined in this Section. Such changes in existing controllersG (as defined in the Section GR-5.2) or new/prospective controllersG of a conventional bank licenseeG must satisfy the CBB of their suitability and appropriateness according to the criteria outlined in Paragraphs GR-5.3.6 to GR-5.3.8. The CBB will issue an approval notice or notice of refusal of a controllerG according to the approval process outlined in Section GR-5.4 and Paragraph GR-5.1.6.

                Amended: October 2011
                Amended: January 2011
                October 07

              • GR-5.3.2

                All controllersG or prospective controllersG (whether natural or legal persons) of all conventional bank licensees are subject to the approval of the CBB. Persons who intend to take ownership stakes of 10% or above of the voting capital of a Bahraini conventional bank licenseeG are subject to enhanced scrutiny, given the CBB's position as home supervisorG of such licensees. The level of scrutiny and the criteria for approval become more onerous as the level of proposed ownership increases. Existing and prospective controllersG should therefore take particular note of the requirements of Paragraphs GR-5.3.3 to GR-5.3.8 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 controllersG . Regulated legal persons must satisfy home country prudential requirements. As a regulated legal person can own a greater percentage of issued and paid up share capital, it is subject to additional conditions as outlined in Paragraph GR-5.3.8. The CBB may also contact the home regulators for information on the "fit & proper" status of the applicant.

                Amended: July 2013
                Amended: January 2011
                October 07

              • GR-5.3.3

                A natural person will not be allowed to own or control more than 15% of the voting capital of a Bahraini conventional bank licenseeG . Such person must satisfy the conditions in Paragraph GR-5.3.6 below.

                Amended: January 2011
                October 07

              • GR-5.3.4

                An unregulated legal person (including companies, trusts, partnerships) will not be allowed to own or control more than 20% of the voting capital of a Bahraini conventional bank licenseeG . All such persons must satisfy the conditions in Paragraph GR-5.3.7 below.

                Amended: January 2011
                October 07

              • GR-5.3.5

                A regulated legal person will not be allowed to own or control more than 40% of the voting capital of a Bahraini conventional bank licenseeG . However, the 40% limit does not apply to unlisted Bahraini conventional bank licenseesG (where up to 100% of the issued and paid up share capital may be acquired) or to mergers which have been approved by the CBB.

                Amended: July 2013
                Amended: January 2011
                Amended: January 2010
                October 07

              • GR-5.3.5A

                In respect of applications for bank licenses, after 1st October 2011, at least one controllerG must be a regulated financial institution holding at least 20% of the proposed licensee's shares.

                Added: October 2011

              • GR-5.3.6

                In assessing the suitability and the appropriateness of new/prospective controllersG (and existing controllersG 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; and
                (l) The person's track record as a controllerG 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 depositors, creditors and minority shareholders of the licensee;
                (p) If the approval of a person as a controllerG is or could be detrimental to the subject licensee, Bahrain's banking and financial sector or the national interests of the Kingdom of Bahrain; and
                (q) Whether the person is able to deal with existing shareholders and the board in a constructive and co-operative manner.
                Amended: October 2011
                Amended: January 2011
                October 07

              • GR-5.3.7

                In assessing the suitability and appropriateness of legal persons as controllersG (wishing to increase their shareholding) or new/potential controllersG , 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 the conventional bank licenseeG 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 (as defined in CM-5.5.10) and the implications for the conventional bank licenseeG as regards effective supervision of the conventional bank licenseeG 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 a controllerG of, or investor in financial institutions.
                (j) The legitimate interests of depositors, creditors and shareholders of the licensee;
                (k) Whether the approval of a controllerG is or could be detrimental to the subject licensee, Bahrain's banking and financial sector or the national interests of the Kingdom of Bahrain;
                (l) Whether the person is able to deal with existing shareholders 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.
                October 07

              • GR-5.3.8

                Regulated financial institutions wishing to acquire more than 10% of the voting capital of a Bahraini conventional bank licenseeG 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, or the IOSCO Principles or the IAIS Principles as well as the FATF Recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation;
                (b) The home supervisorG of the person must give its formal written prior approval for (or otherwise raise no objection to) the proposed acquisition of the Bahraini conventional bank licenseeG ;
                (c) The home supervisorG of the person must confirm to the CBB that it will require the person to consolidate the activities of the concerned Bahraini conventional bank licenseeG for regulatory and accounting purposes if the case so requires;
                (d) The home supervisorG 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) The home supervisorG 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 the licensee; and
                (g) The Bahraini conventional bank licenseeG will be subject to the provisions of Chapter CM-5 in respect of exposures to its controllerG .
                Amended: July 2013
                Amended: July 2012
                Amended: January 2011
                October 07

            • GR-5.4 Approval Process

              • GR-5.4.1

                Within 3 months of receipt of an approval request under Paragraph GR-5.1.4, the CBB will issue in writing to the applicant and the bank, 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 controllerG of the conventional bank licenseeG . 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-5.1.6). These conditions will include the maximum permitted limit of holding or voting control exercisable by the controllerG .

                Amended: July 2013
                Amended: April 2013
                Amended: January 2011
                Amended: April 2008
                October 07

              • GR-5.4.2

                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).

                October 07

              • GR-5.4.3

                Pursuant to Article 56 of the CBB Law, where a person has become a controllerG by virtue of his shareholding in contravention of Paragraph GR-5.1.5, or a notice of refusal has been served to him under Paragraph GR-5.4.1 and the period of appeal has expired, the CBB may, by notice in writing served on the person concerned, direct that his shareholding shall be transferred or until further notice, no voting right shall be exercisable in respect of those shares.

                Amended: April 2013
                October 07

              • GR-5.4.4

                Article 56 of the CBB Law empowers the CBB to request a court of law to take appropriate precautionary measures, or sell such shares mentioned in Paragraph GR-5.4.3, if the licensee fails to carry out the order referred to in the preceding Paragraph.

                Amended: July 2013
                Amended: January 2011
                October 07

          • GR-6 Open Banking

            Amended: December 2018
            October 07

            • GR-6.1 Access to PISPs and AISPs

              • GR-6.1.1

                The CBB has recognised the need to revise its rules in keeping with the following changes at a systemic level, both globally and regionally:

                a) market growth in e-commerce activities;
                b) increased use of internet and mobile payments;
                c) consumer demand to increasingly use smart device based payment solutions;
                d) the developments in innovative technology; and
                e) a trend towards customers having multiple account providers.

                This section sets forth the rules applicable to conventional retail bank licenseesG with regards to the new category of ancillary service providersG described below.

                Added: December 2018

              • GR-6.1.2

                The CBB has established a Directive contained in "Module OB: Open Banking" in Volume 5 of the CBB Rulebook that deals with a new sub category of ancillary service providers who, under the terms of the CBB license, may provide "payment initiation servicesG " and/or "account information servicesG ". Such licensees are termed "payment initiation service providersG " or PISPs and "account information service providersG " or AISPs. Banks and other licensees which maintain a customer account is referred to in the CBB Rulebook Volume 5 as "licensees maintaining customer accounts".

                Added: December 2018

              • GR-6.1.3

                Conventional retail bank licenseesG must:

                (a) grant ancillary service providersG of the types referred to in Paragraph AU-1.2.1 (f) and (g) of Rulebook Volume 5: Ancillary Service Providers Authorisation Module, access to customer accounts on an objective, non-discriminatory and proportionate basis based on consents obtained from the customer;
                (b) provide the criteria that the conventional retail bank licenseeG applies when considering requests pursuant to sub-paragraph (a) above for such access; and
                (c) ensure that those criteria are applied in a manner which ensures compliance with sub-paragraph (a) above.
                Added: December 2018

              • GR-6.1.4

                Access to customer accounts granted pursuant to Paragraph GR-6.1.3 must be sufficiently extensive to allow the AISP and PISP access in an unhindered and efficient manner.

                Added: December 2018

              • GR-6.1.5

                If a conventional retail bank licenseeG refuses a request for access to such services or withdraws access to such services, it must seek approval of the CBB in a formal communication which must contain the reasons for the refusal or the withdrawal of access and contain such information as the CBB may direct.

                Added: December 2018

            • GR-6.2 Communication Interface for PISPs and AISPs

              • GR-6.2.1

                Conventional retail bank licenseesG that offer to a payer a customer account that is accessible online must have in place at least one interface which meets each of the following requirements:

                (a) PISPs must identify themselves in sessions with conventional retail bank licenseeG ;
                (b) PISPs must communicate securely to request and receive information on one or more designated payment accounts and associated payment transactions; and
                (c) PISPs must communicate securely to initiate a payment order from the payer's payment account and receive information on the initiation and the execution of payment transactions.
                Added: December 2018

              • GR-6.2.2

                Conventional retail bank licenseesG must establish the interface(s) referred to in Paragraph GR-6.2.1 by means of a dedicated interface or by allowing use by the AISPs and PISPs of the interface used for authentication and communication with the bank's customers.

                Added: December 2018

              • GR-6.2.3

                For the purposes of authentication of the customer, the interfaces referred to in paragraph GR-6.2.1 must allow AISPs and PISPs to rely on the authentication procedures provided by the conventional retail bank licenseeG to the payment service user. In particular, the interface must meet all of the following requirements:

                (a) process for instructing and authentication by the Islamic retail bank licenseeG ;
                (b) establishing and maintaining authentication of communication sessions between the conventional retail bank licenseeG , the AISP, the PISP and the payment service user(s); and
                (c) ensuring the integrity and confidentiality of the personalised security credentials and of authentication codes transmitted by or through the AISP or the PISP.
                Added: December 2018

              • GR-6.2.4

                Conventional retail bank licenseesG must ensure that their interface(s) follows standards of communication which are agreed by the CBB and that the technology, tools, routines and protocols are technology neutral. They must ensure that the technical specifications of the interface are documented and are made available to AISPs and PISPs when requested. Notwithstanding the above, the banks must adhere to ISO 27000 family of standards and ISO 22301 and ISO 20022 as appropriate.

                Added: December 2018

              • GR-6.2.5

                Conventional retail bank licenseesG must establish and make available a testing facility, including support, for connection and functional testing by authorised AISPs and PISPs that have applied for the relevant authorisation, to test their software and applications used for offering an information/payment service to users. No sensitive information must be shared through the testing facility.

                Added: December 2018

              • GR-6.2.6

                Conventional retail bank licenseesG must ensure that the dedicated interface established for the AISPs and PISPs offers the same level of availability and performance, including support, as well as the same level of contingency measures, as the interface made available to the payment service user for directly accessing its payment account online.

                Added: December 2018

              • GR-6.2.7

                For the purposes of GR-6.2.6, the following requirements apply:

                (a) Conventional retail bank licenseesG must monitor the availability and performance of the dedicated interface and make the resulting statistics available to the CBB upon their request;
                (b) where the dedicated interface does not operate at the same level of availability and performance as the interface made available to the conventional retail bank licenseeG 's customer when accessing the payment account online, the bank must report it to the CBB and must restore the level of service for the dedicated interface without undue delay and take the necessary action to avoid its reoccurrence.
                (c) The report referred to in (b) above must include the causes of the deficiency and the measures adopted to re-establish the required level of service; and
                (d) AISPs and PISPs making use of the dedicated interface offered by conventional retail bank licenseeG must also report to the CBB any deficiency in the level of availability and performance required of the dedicated interface.
                Added: December 2018

              • GR-6.2.8

                Conventional retail bank licenseesG must include in the design of dedicated interface, a strategy and plans for contingency measures in the event of an unplanned unavailability of the interface and systems breakdown. The strategy must include communication plan to inform the relevant AISP/PISP making use of the dedicated interface in the case of breakdown, measures to bring the system back to 'business as usual' and a description of alternative options AISPs and PISPs may make use of during the unplanned downtime.

                Added: December 2018

            • GR-6.3 Security of Communication Sessions

              • GR-6.3.1

                Conventional retail bank licenseesG must ensure that communication sessions with PISPs and AISPs including merchants, relies on each of the following:

                (a) a unique identifier of the session;
                (b) security mechanisms for the detailed logging of the transaction, including transaction number, timestamps and all relevant transaction data;
                (c) timestamps which must be based on a unified time-reference system and which must be synchronised according to an official time signal.
                Added: December 2018

              • GR-6.3.2

                Conventional retail bank licenseesG must ensure secured identification when communicating with AISPs and PISPs.

                Added: December 2018

              • GR-6.3.3

                Conventional retail bank licenseesG must ensure that, when exchanging data via the internet, with PISPs and AISPs, secure encryption is applied between the communicating parties throughout the respective communication session in order to safeguard the confidentiality and the integrity of the data, using strong and widely recognised encryption techniques.

                Added: December 2018

              • GR-6.3.4

                PISPs and AISPs must keep the access sessions offered by Conventional retail bank licenseesG as short as possible and they must actively terminate the session as soon as the requested action has been completed.

                Added: December 2018

              • GR-6.3.5

                When maintaining parallel network sessions with the PISPs and AISPs, Conventional retail bank licenseesG must ensure that those sessions are securely linked to relevant sessions established in order to prevent the possibility that any message or information communicated between them could be misrouted.

                Added: December 2018

              • GR-6.3.6

                Conventional retail bank licenseesG ' sessions with PISPs and AISPs must contain unambiguous reference to each of the following items:

                (a) the payment service user or users and the corresponding communication session in order to distinguish several requests from the same payment service user or users;
                (b) for payment initiation servicesG , the uniquely identified payment transaction initiated.;
                (c) for confirmation on the availability of funds, the uniquely identified request related to the amount necessary for the execution of the transaction.
                Added: December 2018

              • GR-6.3.7

                Conventional retail bank licenseesG must ensure that where they communicate personalised security credentials and authentication codes, these are not readable by any staff at any time.

                Added: December 2018

              • GR-6.3.8

                Conventional retail bank licenseesG must comply with each of the following requirements:

                (a) they must provide AISPs/PISPs with the same information from designated customer accounts and associated payment transactions made available to the payment service user when directly requesting access to the account information, provided that this information does not include sensitive payment data;
                (b) they must provide, immediately after receipt of the payment order, PISP with the same information on the initiation and execution of the payment transaction provided or made available to the payment service user when the transaction is initiated directly by the latter;
                (c) they must, upon request, immediately provide AISPs and PISPs with a confirmation whether the amount necessary for the execution of a payment transaction is available on the payment account of the payer. This confirmation must consist of a simple 'yes' or 'no' answer.
                Added: December 2018

              • GR-6.3.9

                In case of an unexpected event or error occurring during the process of identification, authentication, or the exchange of the data elements, the conventional retail bank licenseesG must send a notification message to the relevant PISP or AISP which explains the reason for the unexpected event or error.

                Added: December 2018

              • GR-6.3.10

                Where the conventional retail bank licenseesG offer a dedicated interface, it must ensure that the interface provides for notification messages concerning unexpected events or errors to be communicated by any PISP or AISP that detects the event or error to the other licensees participating in the communication session.

                Added: December 2018

              • GR-6.3.11

                Conventional retail bank licenseesG must provide access to information from customer accounts to AISPs whenever the customer requests such information.

                Added: December 2018

            • GR-6.4 Standards for Program Interfaces and Communication

              • GR-6.4.1

                Conventional retail bank licenseesG must adhere to the best practices of technical standards, including for application program interfaces (APIs), electronic identification, transmission of data and web security.

                Added: December 2018

              • GR-6.4.2

                Conventional retail bank licenseesG should consider the following standards or protocols:

                (a) Representational State Transfer (REST) and Simple Object Access Protocol (SOAP) are two common communication protocols in use for Open APIs. Under these respective communication protocols, data formats of JavaScript Object Notation (JSON) and eXtensible Markup Language (XML) are usually used. Due to their practicality and wide acceptance by the industry, REST is recommended as the communication protocol and JSON as the data format.
                (b) Web Services Security (WS-Security, WSS) is an extension to SOAP to apply security to Web services. The protocol specifies how integrity and confidentiality can be enforced on messages and allows the communication of various security token formats, such as Security Assertion Markup Language (SAML), Kerberos, and X.509. Its main focus is the use of XML Signature and XML Encryption to provide end-to-end security.
                (c) X.509 public key infrastructure (PKI) standard is required to be maintained by PISPs, AISPs, Conventional retail bank licenseesG , and PSPs to ensure that product and service information is extracted from genuine sites.
                (d) Several versions of the protocols find widespread use in applications such as web browsing, email, instant messaging, and voice over IP (VoIP). Websites may use TLS to secure all communications between their servers and web browsers and to provide integrity checking and encryption protection to the data being transmitted.
                (e) OAuth 2.0 provides specific authorization flows for web applications, desktop applications, mobile phones, and smart devices and shall be considered for use alongside TLS.
                (f) JSON Web Token (JWT) provides a lightweight and autonomous mechanism for secure transfer of information between parties as a JSON object. JSON Web Tokens are an open, industry standard RFC 7519 method for representing claims securely between two parties.
                Added: December 2018

              • GR-6.4.3

                To remain technologically neutral the technical standards adopted by conventional retail bank licenseesG must not require a specific technology. Authentication codes must be based on solutions such as generating and validating one-time passwords, digital signatures or other cryptographically underpinned validity assertions using keys and/or cryptographic material stored in the authentication elements, as long as the security requirements are fulfilled.

                Added: December 2018

          • GR-7 Cessation of Business

            • GR-7.1 CBB Approval

              • GR-7.1.1

                As specified in Article 50 of CBB Law, a conventional bank licenseeG wishing to cease to provide or suspend any or all of the licensed regulated services, completely or at any of its branches, must obtain prior written approval from the CBB, setting out how it proposes to do so and, in particular, how it will treat any deposits that it holds.

                Amended: October 2011
                October 07

              • GR-7.1.2

                [This Paragraph was deleted in October 2011].

                Deleted: October 2011
                October 07

              • GR-7.1.3

                If the conventional bank licenseeG wishes to liquidate its business, the CBB will revise its license to restrict the firm from entering into new business. The licensee 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.

                October 07

              • GR-7.1.4

                In the case of a Bahraini conventional bank licenseeG , Chapter GR-7 applies both to its business booked in Bahrain and the licensee's overseas branches. In the case of an overseas conventional bank licenseeG , Chapter GR-7 applies only to business booked in the licensee's Bahrain branch.

                Added: October 2011

              • GR-7.1.5

                Licensees seeking to obtain the CBB's permission to cease business must apply to the CBB in writing, in the form of a formal request together with supporting documents. Unless otherwise directed by the CBB, the following information/documentation must be provided in support of the request:

                (a) Full details of the business to be terminated;
                (b) The rationale for the cessation;
                (c) How the conventional bank licenseeG proposes to cease business;
                (d) Notice of an extraordinary shareholder meeting setting out the agenda to discuss and approve the cessation, and inviting the CBB for such meeting;
                (e) Evidence that the proposed cessation has been duly authorised by the conventional bank licenseeG (such as a certified copy of a Board resolution approving the cessation);
                (f) Formal request to the CBB for the appointment of a liquidator acceptable to the CBB;
                (g) A cut-off date by which the conventional bank licenseeG will stop its operations;
                (h) If the conventional bank licenseeG wishes to cease its whole business, confirmation that the conventional bank licenseeG will not enter into new business with effect from the cut-off date;
                (i) If applicable, an assessment of the impact of the cessation on any customers directly affected by the cessation, and any mitigating factors or measures; and
                (j) If applicable, an assessment of the impact of the cessation on the conventional bank licensee'sG remaining business and customers, and any mitigating factors or measures.
                Added: October 2011

              • GR-7.1.6

                Conventional bank licenseesG intending to apply to cease business are advised to contact the CBB at the earliest opportunity, prior to submitting a formal application, in order that the CBB may determine the nature and level of documentation to be provided and the need for an auditor or other expert opinion to be provided to support the application. The information/documentation specified in Paragraph GR-7.1.5 may be varied by the CBB, depending on the nature of the proposed cessation, such as the materiality of the business concerned and its impact on customers.

                Added: October 2011

              • GR-7.1.7

                Approval to cease business will generally be given where adequate arrangements have been made to offer alternative arrangements to any affected customers. The CBB's approval may be given subject to any conditions deemed appropriate by the CBB. In all cases where additional requirements are imposed, the CBB shall state the reasons for doing so.

                Added: October 2011

              • GR-7.1.8

                A conventional bank licenseeG in liquidation must continue to meet its contractual and regulatory obligations to depositors, other clients and creditors.

                Amended: October 2011
                October 07

              • GR-7.1.9

                [This Paragraph was deleted in October 2011].

                Deleted: October 2011
                Amended: January 2011
                October 07

              • GR-7.1.10

                [This Paragraph was deleted in October 2011].

                Deleted: October 2011
                October 07

              • GR-7.1.11

                [This Paragraph was deleted in October 2011].

                Deleted: October 2011
                October 07

              • GR-7.1.12

                Upon satisfactorily meeting the requirements set out in GR-7.1.4, the conventional bank licenseeG must surrender the original license certificate issued by the Licensing & Policy Directorate at the time of establishment, and submit confirmation of the cancellation of its commercial registration from the Ministry of Industry, Commerce and Tourism.

                Added: October 2016

          • GR-8 CBB Fees

            [This Chapter has been transferred to Module LR.]

            October 07

      • Business Standards

        • BC Business and Market Conduct

          • BC-A Introduction

            • BC-A.1 Purpose

              • BC-A.1.1

                This Module contains requirements that have to be met by conventional bank licenseesG with regards to their dealings with customers.G The Rules contained in this Module aim to ensure that conventional bank licenseesG deal with their clientsG in a fair and open manner, and address their customersG ' information needs.

                October 07

              • BC-A.1.2

                The Rules build upon several of the Principles of Business (see Module PB (Principles of Business)). Principle 1 (Integrity) requires conventional bank licenseesG to observe high standards of integrity and fair dealing, and to be honest and straightforward in their dealings with customersG . Principle 3 (Due skill, care and diligence) requires conventional bank licenseeG s to act with due skill, care and diligence when acting on behalf of their customersG . Principle 7 (Client Interests) requires conventional bank licenseesG to pay due regard to the legitimate interests and information needs of their customersG , and to communicate with them in a fair and transparent manner.

                October 07

              • BC-A.1.3

                This Module also provides support for certain aspects relating to business and market conduct in the Bahrain Commercial Companies Law of 2001 (as amended).

                October 07

              • Legal Basis

                • BC-A.1.4

                  This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) on business conduct by conventional bank licenseesG , 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 all conventional bank licenseesG .

                  Amended: January 2011
                  October 07

                • BC-A.1.5

                  For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

                  October 07

            • BC-A.2 Scope of Application and Key Requirements

              • BC-A.2.1

                This Module applies to all conventional bank licensees unless indicated otherwise. The provisions of this Module do not apply to overseas branches and subsidiaries unless clearly stated otherwise.

                October 07

              • BC-A.2.2

                The remainder of this Module covers the following activities by conventional bank licenseesG :

                (a) Promotion of financial products and services (Chapter BC-1);
                (b) Code of Conduct for bank dealers and foreign exchange dealers (Chapter BC-2);
                (c) Client confidentiality (Chapter BC-3);
                (d) Customer account services and charges (Chapter BC-4);
                (e) Dishonoured cheques (Chapter BC-5);
                (f) ATMs and charges for their use (Chapter BC-6);
                (g) Margin Trading system (Chapter BC-7);
                (h) Investment Business related activities (Chapter BC-8);
                (i) Customer Complaints Procedures (Chapter BC-9); and
                (j) Measures and Procedures for Services Provided to Disabled Customers by Bahraini Retail Banks (Chapter BC-10).
                Amended: April 2016
                Amended: October 2011
                Amended: January 2011
                Amended: April 2008
                October 07

            • BC-A.3 Module History

              • BC-A.3.1

                This Module was first issued in July 2004 by the BMA, as part of the conventional principles volume. 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.

                October 07

              • BC-A.3.2

                When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 1 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                October 07

              • BC-A.3.3

                The most recent changes to this Module are detailed in the table below:

                Summary of Changes

                Module Ref. Change Date Description of Changes
                BC-4.1 01/01/05 New minimum balance and charges regulations.
                BC-4.7 01/10/05 Streamlined notification requirements regarding new products.
                BC-7 01/04/06 Margin trading rules and guidance.
                BC-A.1 10/2007 New Rule BC-A.1.4 introduced, categorising this Module as a Directive.
                BC-8 04/2008 New conduct of business requirements for Investment Business
                BC-4.9 04/2008 New requirement to comply with Code of Best Practice on Consumer Credit and Charging.
                BC-7.2 07/2009 Removal of numerical restrictions related to margin trading requirement.
                BC-8.5.17 10/2010 Clarified the wording of Rule by replacing the term "legal" with "licensing".
                BC-A.1.4 01/2011 Clarified legal basis.
                BC-1.1.13 01/2011 Corrected reference to Ministry of Industry and Commerce.
                BC-8 01/2011 Changes made to reflect new definitions related to licensed exchange(s).
                BC-1.1.11 04/2011 Clarified retention period of records for promotional schemes.
                BC-3.1.1 and BC-4.3.1 04/2011 Minor amendments to clarify Rules.
                BC-A.2.2 10/2011 Added new Section to list of activities covered by this Module.
                BC-4.7.3 10/2011 Deleted Paragraph. Reduced notification requirements on new or expanded products and facilities.
                BC-4.8.2 10/2011 Updated name of Ministry of Justice and Islamic Affairs.
                BC-4.10 10/2011 Added new Section on transaction advice.
                BC-8.11 and BC-9 10/2011 Replaced Section BC-8.11 dealing with complaints and added Chapter BC-9 Customer Complaints Procedures in line with results of consultation and made it applicable to all regulated banking services.
                BC-9 01/2012 Minor corrections to correct typos and clarify language.
                BC-9.3.9 01/2012 Paragraph deleted as it repeats what is in Paragraph BC-9.3.7.
                BC-6.1.6 04/2012 Cross reference added.
                BC-6.1.10 and BC-6.1.11 04/2012 Rule clarified and split into one Rule and one Guidance Paragraphs.
                BC-8.2.1 04/2012 Corrected cross reference.
                BC-1.2 07/2012 Added Section on Advertisements for retail banking products and services
                BC-4.3 07/2012 Corrected cross reference.
                BC-8.5.12A 07/2012 Added guidance to clarify promotion material from banks.
                BC-9.1.3A 07/2012 Added guidance on the appointment of the customer complaints officer.
                BC-1.1.2 10/2012 Added cross reference to advertising requirements under Section BC-1.2.
                BC-4.3 10/2012 Section amended to reflect outcome of consultation on disclosure of interest/profit rate fees and charges by retail banks.
                BC-4.8 10/2012 Amended to make Rules clearer.
                BC-6.1.2 10/2012 Clarified process for applications for the installation of off-site ATMs.
                BC-4.4 01/2013 This Section was deleted and requirements are now covered under Section FC-1.6.
                BC-1.2.2 04/2013 Corrected cross reference.
                BC-4.3.2 04/2013 Clarified Rule on instances when customers must be kept informed of charges.
                BC-8.9.14 and BC-8.9.16(e)(v) 04/2013 Clarified Rules on allocations.
                BC-9.7 07/2013 Additional details provided on reporting of complaints.
                BC-4.2.15 10/2013 Corrected cross-reference.
                BC-5.3 10/2013 Updated penalty charges on dishonoured cheques.
                BC-6.3 01/2014 Added new Section on local ATM network charges.
                BC-4.11 04/2014 Added new Section on donations to NGO accounts.
                BC-4.12 10/2015 Added new Section on credit check reports.
                BC-A.2.2, and BC-10 04/2016 Added new Section on Measures and Procedures for Services Provided to Disabled Customers by Bahraini retail banks.
                BC-6.3 04/2016 Amendment to local ATM charges.
                BC-6.1.6 07/2016 Deleted reference to Ministry of Interior.
                BC-4.7 10/2016 Clarified Rules on notification for new or changes to customer products and facilities.
                BC-4.10.1 10/2016 Amendment to Transaction Advice
                BC-4.10.2 10/2016 Deleted Paragraph
                BC-7.2.5 10/2016 Rectified term 'Credit Reference Bureau'
                BC-5A 01/2017 Added new Section on Return Policy – Post-Dated Cheques
                BC-10.1, BC-10.2 and BC-10.3 04/2017 Amended Paragraphs to clarify applicability of Rules.
                BC-5.3.1 07/2017 Amended Paragraph to include penalty charges on returned cheques for the reason of Insufficient Funds.
                BC-4.1 04/2018 Deleted Section on "Minimum Balance and Charges on Savings Accounts".
                BC-4.13 04/2018 Added new Section on "Fees and Charges for Services Provided to Individuals".
                BC-5.3.2 04/2018 Deleted Paragraph on "Dishonoured Cheques".
                BC-6.2 04/2018 Deleted Section on "GCC ATM Network Charges".
                BC-6.3 04/2018 Deleted Section on "Local ATM Network Charges".
                BC-4.14 10/2018 Added a new Section on Fees and Charges for Services Provided to Companies under Formation.
                BC-11 10/2018 Added a new Chapter on Financial Advice Programme.
                BC-4.3.22 01/2019 Amended Paragraph on disclosure of charges by retail banks.
                BC-4.3.24 01/2019 Amended Paragraph on disclosure to individual customers.
                BC-4.3.25A 01/2019 Added a new Paragraph on rounding off in transactions.
                BC-4.13.2 01/2019 Added a new Paragraph on waived fees and charges.

              • Effective Date and Evolution of the Module

                • BC-A.3.4

                  Prior to the Rulebook, the CBB had issued various circulars representing regulations covering different aspects of Business and Market Conduct. The contents of this Module are effective from the date depicted in the original circulars listed below or from the dates indicated in Paragraph BC-A.3.3 above:

                  Circular Ref. Date of Issue Module Ref. Circular Subject
                  EDBC/73/96 1 May 1996 BC-1.1 Explanatory note on the promotion of Banking and Financial Products.
                  BS.C7/91/442 10 Sep 1991 BC-1.1 Promotion of Banking Services.
                  85/25 2 May 1985 BC-2 Code of Conduct for Foreign Exchange Dealers and Brokers.
                  83/5 10 Apr 1983 BC-3 Disclosure of Information about Individual Accounts.
                  BS/11/2004 10 Aug 2004 BC-4.1 Min balances and savings accounts.
                  BS.C7/90/34 31 Jan 1990 BC-4.2 Dinar Certificates of Deposits.
                  EDBO/51/02 2 Apr 2002 BC-4.3 Charges to Customers.
                  BC/5/00 8 Mar 2000 BC-4.4 Accounts held for Clubs and Societies.
                  BSD(111)/94/157 24 Sep 1994 BC-4.5 Fees on Current Accounts.
                  BC/2/01 3 Mar 2001 BC-4.6 Brokerage Fees in Bahrain.
                  ODG/145/92 18 Aug 1992 BC-4.7 New products in the Retail Banking Field.
                  EDBO/46/03 8 Apr 2003 BC-4.8 Inheritance — Financial Procedures.
                  EDBO/27/96 25 Sep 1996 BC-5.1 Regulation for "Dishonoured Cheques".
                  OG/399/94 28 Nov 1994 BC-5.2 Returned Cheques.
                  EDBO/49/01 6 May 2001 BC-5.3 Penalty Charges on Returned Cheques.
                  BC/8/98 24 May 1998 BC-6.1 Off-site ATMs.
                  EDBO/45/02 13 Mar 2002 BC-6.2 GCC ATM Network Charges.
                  BC/15/99 17 Jul 1999 BC-7.1 Margin Trading.
                  EDBS/KH/C/73/2018 22 Nov 2018 BC-4.3.25A Rounding off in Transactions.
                  Amended: January 2019
                  Amended: October 2010
                  October 07

          • BC-1 Promotion of Financial Products and Services

            • BC-1.1 Promotion of Financial Products and Services Offered in/from Bahrain by Means of Incentives etc.

              • Introduction

                • BC-1.1.1

                  The purpose of the content of this Section is to set out requirements pertaining to the promotion of banking/financial products offered in/from Bahrain by conventional bank licensees by means of incentives etc. (herein referred to as 'promotional schemes').

                  October 07

                • BC-1.1.2

                  The CBB has no objection to the use of promotional schemes in general and, unless it otherwise specifically directs in any particular case, the CBB does not expect to be actively consulted/have its approval sought about the idea and/or substance of any promotional schemes. Any advertising of promotional schemes are subject to the requirements of Section BC-1.2. The CBB should also be sent copies of documentation relating to promotional schemes at least ten days prior to their launch for information purposes.

                  Amended: October 2012
                  Amended: January 2011
                  October 07

                • BC-1.1.3

                  The CBB will monitor promotional schemes and, if thought appropriate in the interests of a bank or other financial institution (together herein referred to as 'institutions') and its customers in particular and/or the financial sector in general, may issue specific guidance in certain cases. Institutions should feel free to consult the CBB at any time regarding any matters referred to in the explanatory note set out in this Section.

                  Amended: January 2011
                  October 07

                • BC-1.1.4

                  Banks undertaking investment business activities should refer to Chapter BC-8 for additional requirements.

                  October 07
                  Amended: April 2008

              • General Requirements

                • BC-1.1.5

                  Retail bank licensees should take care to ensure that promotional schemes do not involve a breach of Bahrain law or any other relevant applicable law and regulation. In addition, promotional schemes should not in any way be detrimental to the public good or public morals.

                  Amended: April 2011
                  Added: April 08

                • BC-1.1.6

                  While there is to be no formal restriction on the types of incentive which may be used by institutions, care should be taken to ensure that promotional schemes do not negatively affect the integrity, reputation, good image and standing of Bahrain and/or its financial sector, and do not detrimentally affect Bahrain's economy.

                  Amended: April 08
                  October 07

                • BC-1.1.7

                  Bearing in mind the reputation of, and the requirement to develop, the financial sector in Bahrain, as well as the need to act at all times in the best interests of the customer, banks need to take adequate care to ensure that promotional schemes do not unreasonably divert the attention of the public from other important considerations in choosing a bank or a banking/financial product.

                  Amended: April 08
                  October 07

                • BC-1.1.8

                  All documentation concerning promotional schemes should be in Arabic and English and, if relevant, any other language necessary for customers to fully understand and appreciate their terms and conditions. Such terms and conditions, including any related advertising, need to be clear, concise, truthful, unambiguous and complete so as to enable customers to make a fully informed decision.

                  Amended: April 08
                  October 07

                • BC-1.1.9

                  Customers to whom promotional schemes are directed should enjoy equal opportunity in terms of access to, and treatment within, such schemes.

                  Amended: April 08
                  October 07

                • BC-1.1.10

                  No costs (including funding costs), charges or levies associated with promotional schemes should be concealed from prospective customers.

                  Amended: April 08
                  October 07

                • BC-1.1.11

                  All material related to promotional schemes, particularly where raffles/lotteries etc. are concerned, must be maintained for a minimum period of 5 years (see Paragraph OM-7.3.4).

                  Amended: April 2011
                  Amended: April 08
                  October 07

                • BC-1.1.12

                  Any raffles/lotteries etc. held as part of promotional schemes should be independently monitored (e.g. by the institution's external auditor) and adequate systems put in place to ensure fair play and impartiality.

                  Amended: April 08
                  October 07

                • BC-1.1.13

                  An appropriate system must also exist for informing participants of the results of a raffle/lottery without delay. Institutions must note that raffles/lotteries etc. may be subject to rules and requirements (including prior authorisation/approval) laid down by the Ministry of Industry and Commerce.

                  Amended: April 2011
                  Amended: January 2011
                  Amended: April 08
                  October 07

                • BC-1.1.14

                  Banks may use small 'gifts' as an inducement to members of the public to use banks' services, provided such gifts are offered on a general basis and have a low monetary value.

                  Amended: April 08
                  October 07

                • BC-1.1.15

                  Due note should be taken of the overriding provisions of Bahrain (and any other relevant) law in relation to institutions' duties to customers to the extent (if any) that promotional schemes might impact on such duties.

                  Amended: January 2011
                  Amended: April 08
                  October 07

            • BC-1.2 Advertisements for Retail Banking Products and Services

              • BC-1.2.1

                Retail bank licensees must seek the CBB's prior written approval before placing advertisements in newspapers, public places, website or through the use of any other media.

                Added: July 2012

              • BC-1.2.2

                In implementing BC-1.2.1, the CBB will provide the retail bank licensee with a written decision within five business days of the receipt of request for approval.

                Amended: April 2013
                Added: July 2012

          • BC-2 Code of Conduct for Bank Dealers and Foreign Exchange and Money Brokers in the Foreign Currency and Deposit Markets

            • BC-2.1 Introduction

              • BC-2.1.1

                The Code of Conduct, which is prepared in cooperation with the Bankers' Society of Bahrain and foreign exchange brokers, provides rules in respect of certain kinds of practice which experience has shown may cause difficulty and may jeopardise the good standing of the Bahrain market. Management of banks and money brokers are responsible for ensuring that their institutions are in full compliance with the Code.

                October 07

              • BC-2.1.2

                Every broker and dealer shall at all times comply with the criteria in respect to market practice, integrity and conduct. Failure to comply with such criteria will be regarded as a serious offence by the CBB, which reserves the right to investigate any complaints brought to its attention. All participants should adhere to the spirit as well as to the letter of the Code.

                October 07

            • BC-2.2 Market Terminology and Definitions

              • BC-2.2.1

                The use of generally accepted precise terminology should reduce misunderstandings and frustration, and to this end Appendix BC-5 sets out, without claiming to be exhaustive, accepted market terminology and definitions.

                October 07

              • BC-2.2.2

                For the purpose of this Chapter, the following definitions apply:

                (a) 'Broker' means a money and foreign exchange broker who is authorised by the CBB to operate in Bahrain;
                (b) 'Principal' means a party undertaking a transaction through a broker; and
                (c) 'Bank' means any institution holding a banking license.
                Amended: April 2011
                October 07

            • BC-2.3 Confidentiality and Market Practice

              • BC-2.3.1

                Confidentiality is vital for the preservation of a reputable and efficient market. Accordingly, the exchange of confidential information in respect of third parties is forbidden.

                October 07

              • BC-2.3.2

                The rules which follow are not intended to define exhaustively the obligations of dealers and brokers but set down specific ways in which confidentiality should be safeguarded and operations should be conducted:

                (a) Use of phrases and terms likely to identify the name of the principal should be avoided at all times;
                (b) In foreign exchange transactions brokers should not disclose the name of the principal until the deal is being closed.
                A broker asking for a specific support price should be prepared to qualify the principal in terms of geographical location, by country or by region when the broker genuinely believes it will enable business to be concluded satisfactorily to the benefit of both broker and principal;
                (c) In depositG transactions, brokers should not disclose the name of the borrower until the broker is satisfied that the potential lender seriously intends to do business. Once a lender has asked for the identity of the borrower ('Who pays?'), the lender is committed to do business at the rate quoted with an acceptable name, until the lending bank takes the broker 'off' or puts himself under reference. In the event of the first disclosed name being unacceptable to the lender, the lender will be prepared to check other acceptable names provided that such names are shown to the lender by the broker within a reasonable amount of time, which should be stipulated if necessary;
                (d) In the deposit market, banks should whenever possible give brokers prior indication of those categories of principals and of any centres and areas with which they would be unwilling to do business, in order that the smooth operation of markets be facilitated and frustration be minimized. Lenders should indicate the amounts they are prepared to place with particular categories of borrower. Brokers should classify bids with an indication of the type and quality of names they are in a position to pass;
                (e) Practices whereby banks reject a succession of names in order to assess the market and brokers offer banks deals which have no chance of being concluded, merely in order to establish their interest, are totally unacceptable;
                (f) A principal is urged whenever possible to specify to a broker the rate, the amount, the currency, and the period of his requirements. The principal shall be willing to deal in a marketable amount with acceptable names and shall remain bound so to deal at the quoted rate unless either:
                (i) The broker is informed otherwise at the time of acceptance; or
                (ii) A time limit was placed (for example, 'Firm for one minute only').
                A broker who quotes a firm rate without qualification shall be prepared to deal at the rate, in a marketable amount. A broker, if quoting only the basis of one or two names, shall qualify his quotation, e.g., 'one small offeror – only two names paying'. The broker should indicate whether prices are firm or simply for guidance and, if requested by the principal, should be willing to indicate the amount involved. Further he should confirm with banks at reasonable intervals that their interest is still firm.
                It is the responsibility of the principal to ensure the broker is made aware of any circumstances which materially affect the validity of the order placed with the broker.
                (g) A principal, by selecting to 'put a broker on', is deemed to have a serious intention of completing business, and should allow the broker sufficient time to quote the principal's interest to a potential counterpartyG with a view to doing business. In quantifying a 'sufficient time' factors such as the currency, market conditions and communication systems employed, should be taken into account;
                (h) A broker is held responsible for advising a principal on every occasion that his depositG rates are being checked by a potential counterpartyG . This action should help minimise the occasional difficulties that arise when a principal 'takes a broker off' simultaneously to having his prices checked.
                Whenever possible and subject to market conditions, a bank in the deposit market should, before he 'takes a broker off' either a single order or several orders, check whether the broker is already committed to deal on his behalf;
                (i) 'Under reference' orders placed by banks with brokers without having first being placed as 'firm', are to be discouraged. Firm orders which are later qualified by a request to 'put me under reference' indicate a principal's weakening desire to conclude business with that broker. 'Under reference' orders should not be left with a broker for more than a few minutes. A principal must ensure that the broker has the opportunity frequently to check the validity of an 'under reference' order;
                (j) No person may visit the dealing room of any broker or any bank except with the consent of a Manager or Director of that institution. A broker shall not in any circumstances permit any visitors from a bank to deal for his bank in the dealing room of that broker;
                (k) Management of banks should issue clear directions to staff on the monitoring, control and recording of 'after hours' dealing from premises other than bank dealing rooms. All deals of this kind must be properly authorised and confirmed;
                (l) A bank dealer shall not apply unfair pressure upon a broker to pass information which it would be improper for the broker to pass. Unfair pressure would for example include a statement made in any form that a failure to co-operate would lead to reduction in the business given by the principal or by other principals to the broker;
                (m) A principal should not place an order with a broker solely with the intention of finding out the name of a counterparty, who can be contacted directly with a view to concluding further deals;
                (n) Management of banks and brokers should lay down clear directions to staff on the extent to which dealing in foreign exchange or depositsG for personal accounts is permitted. Any such dealing must be strictly controlled;
                (o) Care should be taken over the positioning of 2-way loudspeakers in dealing rooms; and
                (p) Brokers and dealers should inform each other if conversations are being recorded. The use of such equipment is encouraged as a sensible means of enabling any subsequent disputes and differences to be settled.
                Amended: April 2011
                October 07

            • BC-2.4 Passing of Details

              • BC-2.4.1

                The passing and recording of details form an essential part of the transaction and the possibility of errors and misunderstanding is increased by delay and by the passing of details in batches. Brokers should pass details verbally, and principals should be prepared to receive them, normally within a few minutes after deals have been concluded.

                October 07

              • BC-2.4.2

                When arranging and passing details on forward contracts in foreign exchange, banks and brokers must ensure that the rate applied to the spot end of the transaction bears a close relationship to the spot rate at the time the deal was concluded.

                October 07

            • BC-2.5 Confirmations

              • BC-2.5.1

                Written confirmation by a broker is the final check on the details of the transaction. The handling of confirmations must take account of the desire of brokers to have a realistic time-limit placed on their liability for differences. There is an obligation on recipients to check such confirmations. Initial confirmations should be sent out by telex without delay, and at the latest by close of business on the same working day. They should be followed up by written confirmation, normally hand-delivered and receipted before close of business on the following working day.

                October 07

              • BC-2.5.2

                Banks must check all confirmations carefully upon receipt so that discrepancies shall be quickly revealed and differences minimised. Principals shall also make enquiries of brokers about particular confirmations which have not been received within an appropriate time (as above) or about any changes in contract terms.

                October 07

              • BC-2.5.3

                In the case of deals where a bank pays against telex confirmation, the broker remains liable for differences until receipt of written confirmation is provided by the bank.

                October 07

            • BC-2.6 Differences and Disputes

              • BC-2.6.1

                The majority of differences payable by brokers arise from errors occurring in payment or repayment instructions. They also arise from a broker, having in good faith indicated a firm rate, being unable to substantiate his quotation.

                October 07

              • BC-2.6.2

                Any differences deemed payable by a broker to a bank (or by a bank to a broker) should be settled as soon as possible. The parties should provide each other with documents, setting out the exact details of and circumstances surrounding the deal.

                October 07

              • BC-2.6.3

                It is acknowledged that differences are sometimes paid by 'points'. The management of broking firms should always ensure that this practice is strictly controlled and monitored.

                October 07

              • BC-2.6.4

                All differences settled by direct payment should be advised in writing by the broker to the Director of Reserve Management, CBB, (copied to the Bank) indicating the amount paid and the other party's name. The CBB reserves the right to ask for further information at its discretion.

                October 07

            • BC-2.7 Conduct

              • BC-2.7.1

                The CBB will regard any breaches of the rules stated below regarding gifts, favours, betting and entertainment unacceptable.

                October 07

              • Gifts and Favours