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Location: Central Bank of Bahrain Volume 1—Conventional Banks > Part A > High Level Standards > LR Licensing Requirements > LR-1 Requirement to Hold a License > LR-1.2 License Sub-Categories
  • 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

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