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Location: Central Bank of Bahrain Volume 4—Investment Business > Part A > High Level Standards > HC High-Level Controls Module > HC-10 Category 3 Investment Firm Licensees
  • HC-10 Category 3 Investment Firm Licensees

    • HC-10.1 The Board

      • HC-10.1.1

        All Category 3 investment firm licenseesG should be headed by an effective, collegial and informed Board of Directors ('the Board').

        January 2011

      • Role and Responsibilities

        • HC-10.1.2

          All directors should 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 investment firm licenseeG and the shareholders (see HC-10.2).
          January 2011

        • HC-10.1.3

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

          (a) The overall business performance and strategy for the investment firm licenseeG ;
          (b) Causing financial statements to be prepared which accurately disclose the investment firm 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; and
          (e) Assuring equitable treatment of shareholders including minority shareholders.
          January 2011

        • HC-10.1.4

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

          January 2011

        • HC-10.1.5

          When a new director is inducted, the chairman of the Board, assisted by company legal counsel or compliance officer, should review the Board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC.

          January 2011

        • HC-10.1.6

          The investment firm licenseeG should have a written appointment agreement with each director which recites the directors' powers and duties 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.

          January 2011

        • HC-10.1.7

          The Board should 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.

          January 2011

      • Composition

        • HC-10.1.8

          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 investment firm licensee'sG Memorandum of Association.

          Amended: October 2014
          January 2011

        • HC-10.1.9

          Potential non-executive directorsG should be made aware of their duties before their nomination, particularly as to the time commitment required. The Board should regularly review the time commitment required from each non-executive directorG and should require each non-executive directorG to inform the Board before he accepts any Board appointments to another company. One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.

          January 2011

      • Decision Making Process

        • HC-10.1.10

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

          January 2011

        • HC-10.1.11

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

          January 2011

        • HC-10.1.12

          The Board should meet frequently but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.

          January 2011

        • HC-10.1.13

          The chairman should 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. All directors should receive the same Board information. At the same time, directors have a legal duty to inform themselves and they should ensure that they receive adequate and timely information and should study it carefully.

          January 2011

      • Directors' Communication with Management

        • HC-10.1.14

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

          January 2011

        • HC-10.1.15

          Non-executive directorsG should have free access to the investment firm 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.

          January 2011

    • HC-10.2 Approved Persons Loyalty

      • HC-10.2.1

        The approved personsG shall have full loyalty to the investment firm licenseeG .

        January 2011

      • Personal Accountability

        • HC-10.2.2

          Each approved personG should understand that under the Company Law he is personally accountable to the investment firm licenseeG and the shareholders if he violates his legal duty of loyalty to the investment firm licenseeG , and that he can be personally sued by the investment firm licenseeG or the shareholders for such violations.

          January 2011

        • HC-10.2.3

          The duty of loyalty includes a duty not to use property of the investment firm licenseeG for his personal needs as though it was his own property, not to disclose confidential information of the investment firm licenseeG or use it for his personal profit, not to take business opportunities of the investment firm licenseeG for himself, not to compete in business with the investment firm licenseeG , and to serve the investment firm licensee'sG interest in any transactions with the company in which he has a personal interest.

          January 2011

        • HC-10.2.4

          For purposes of Paragraph HC-10.2.3, an approved personG should be considered to have a "personal interest" in a transaction with the company if:

          (a) He himself;
          (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 controllerG ,

          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.)

          January 2011

      • Avoidance of Conflicts of Interest

        • HC-10.2.5

          Each approved personG should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the investment firm licenseeG .

          January 2011

        • HC-10.2.5A

          Bahraini investment firm licenseesG should 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 investment firm licenseeG .

          Amended: July 2016
          Added: April 2016

        • HC-10.2.5B

          Overseas investment firm licenseesG should have in place a policy on the employment of relatives of approved personsG pertaining to their Bahrain operations.

          Added: July 2016

      • Disclosure of Conflicts of Interest

        • HC-10.2.6

          Each approved personG should inform the entire Board of conflicts of interest as they arise and abstain from voting on the matter in accordance with the relevant provisions of the Company Law. This disclosure should include all material facts in the case of a contract or transaction involving the approved personG . The approved personsG should understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision.

          January 2011

        • HC-10.2.6A

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

          Amended: July 2016
          Added: April 2016

        • HC-10.2.6B

          The chief executive/general manager of the overseas investment firm licenseesG should 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 investment firm licenseeG .

          Added: July 2016

        • HC-10.2.7

          The Board of the Bahraini investment firm 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 an investment firm licensee'sG approved personG has a personal interest. The Board should require such advance approval in every case.
          Amended: July 2016
          January 2011

      • Disclosure of Conflicts of Interests to Shareholders

        • HC-10.2.8

          The investment firm licenseeG should disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and should disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Company Law.

          January 2011

    • HC-10.3 Financial Statements Certification

      • HC-10.3.1

        The Board shall have rigorous controls for financial audit and reporting, internal control, and compliance with law.

        January 2011

      • CEO and CFO Certification of Financial Statements

        • HC-10.3.2

          To encourage management accountability for the financial statements required by the directors, the investment firm licensee's CEOG and chief financial officer should state in writing to the audit committee and the Board as a whole that the investment firm licensee'sG interim and annual financial statements present a true and fair view, in all material respects, of the investment firm licensee'sG financial condition and results of operations in accordance with applicable accounting standards.

          January 2011

    • HC-10.4 Appointment, Training and Evaluation of the Board

      • HC-10.4.1

        The investment firm licenseeG should have rigorous procedures for appointment, training and evaluation of the Board.

        January 2011

      • Induction and Training of Directors

        • HC-10.4.2

          The chairman of the Board should 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 should include meetings with senior managementG , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.

          January 2011

        • HC-10.4.3

          All continuing directors should be invited to attend orientation meetings and all directors should continually educate themselves as to the investment firm licensee'sG business and corporate governance.

          January 2011

        • HC-10.4.4

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

          January 2011

    • HC-10.5 Remuneration of Approved Persons

      • HC-10.5.1

        The investment firm licenseeG should remunerate approved personsG fairly and responsibly.

        January 2011

      • HC-10.5.2

        RemunerationG of approved personsG should be sufficient enough to attract, retain and motivate persons of the quality needed to run the investment firm licenseeG successfully, but the investment firm licenseeG should avoid paying more than is necessary for that purpose.

        January 2011

    • HC-10.6 Management Structure

      • HC-10.6.1

        The Board should establish a clear and efficient management structure.

        January 2011

      • Establishment of Management Structure

        • HC-10.6.2

          The Board should appoint senior managementG whose authority must include management and operation of current activities of the investment firm licenseeG , reporting to and under the direction of the Board. The senior managersG should include at a minimum:

          (a) A CEOG ;
          (b) A chief financial officer;
          (c) A corporate secretary; and
          (d) An internal auditor (see AU-1.2)

          and should also include such other approved personsG as the Board considers appropriate and as a minimum must include persons occupying controlled functionsG as outlined in Paragraph AU-1.2.2.

          January 2011

      • Titles, Authorities, Duties and Reporting Responsibilities

        • HC-10.6.3

          The Board should adopt by-laws prescribing each senior manager'sG title, authorities, duties and internal reporting responsibilities. This should be done in consultation with the CEOG , to whom the other senior managersG should normally report.

          January 2011

        • HC-10.6.4

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

          (a) The CEOG should have authority to act generally in the investment firm licensee'sG name, representing the investment firm licensee'sG interests in concluding transactions on the investment firm licensee'sG behalf and giving instructions to other senior managersG and investment firm licenseeG employees;
          (b) The chief financial officer should be responsible and accountable for:
          (i) The complete, timely, reliable and accurate preparation of the investment firm licensee'sG financial statements, in accordance with the accounting standards and policies of the investment firm licenseeG (see HC-10.3.2); and
          (ii) Presenting the Board with a balanced and understandable assessment of the investment firm licensee'sG financial situation;
          (c) The corporate secretary's duties should 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 should include providing an independent and objective review of the efficiency of the investment firm licensee'sG operations. This would include a review of the accuracy and reliability of the investment firm licensee'sG accounting records and financial reports as well as a review of the adequacy and effectiveness of the investment firm licensee'sG risk management, control, and governance processes.
          January 2011

      • Titles, Authorities, Duties and Reporting Responsibilities

        • HC-10.6.5

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

          January 2011

        • HC-10.6.6

          The corporate secretary should be given general responsibility for reviewing the investment firm licensee'sG procedures and advising the Board directly on such matters. Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training.

          January 2011

        • HC-10.6.7

          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 .

          January 2011

    • HC-10.7 Communication between Board and Shareholders

      • HC-10.7.1

        The investment firm licenseeG should communicate with shareholders, encourage their participation, and respect their rights.

        January 2011

      • Conduct of Shareholders' Meetings

        • HC-10.7.2

          The Board should 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 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 investment firm 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.
          (j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.
          Amended: October 2017
          Added: January 2011

        • HC-10.7.3

          The investment firm 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).

          January 2011

        • HC-10.7.4

          The investment firm 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.

          January 2011

        • HC-10.7.5

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

          January 2011

        • HC-10.7.6

          In notices of meetings at which directors are to be elected or removed the investment firm 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: October 2012
          January 2011

      • Direct Shareholder Communication

        • HC-10.7.7

          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 investment firm licensee'sG corporate governance.

          January 2011

      • Controllers

        • HC-10.7.8

          In companies with one or more controllersG , the chairman and other directors should actively encourage the controllersG to make a considered use of their position and to fully respect the rights of minority shareholders.

          January 2011

    • HC-10.8 Corporate Governance Disclosure

      • HC-10.8.1

        The investment firm licenseeG should disclose its corporate governance.

        January 2011

      • Disclosure Under the Company Law

        • HC-10.8.2

          In each investment firm licenseeG :

          (a) The Board should adopt written corporate governance guidelines covering the matters stated in Module HC 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 investment firm licenseeG should publish the guidelines on its website, if it has a website (see HC-10.7.5);
          (c) At each annual shareholders' meeting the Board should report on the investment firm 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 should also report on further items listed in Appendix D. Such information should be maintained on the investment firm licensee'sG website or held at the investment firm licensee'sG premises on behalf of the shareholders.
          January 2011

        • HC-10.8.3

          The CBB may issue a template as a guide for an investment firm licensee'sG annual meeting corporate governance discussion.

          January 2011

    • HC-10.9 Islamic Investment Firm Licensees

      • HC-10.9.1

        Companies which refer to themselves as "Islamic" should follow the principles of Islamic Shari'a.

        January 2011

      • Governance and Disclosure per Shari'a Principles

        • HC-10.9.2

          Islamic investment firm licenseesG which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders. Investment firm licenseesG which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a Principles. In ensuring compliance with Shari'a principles, each Islamic investment firm licenseeG should appoint a minimum of one Shari'a advisor or scholar to verify that their operations are Shari'a compliant.

          Amended: October 2014
          January 2011

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