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Location: Central Bank of Bahrain Volume 4—Investment Business > Part A > Business Standards > CA Capital Adequacy > CA-1 Capital Adequacy Requirements
  • CA-1 Capital Adequacy Requirements

    • CA-1.1 Bahraini Investment Firm Licensees

      • Obligation to Maintain Adequate Capital

        • CA-1.1.A

          Bahraini investment firm licenseesG must calculate their Regulatory CapitalG based on their shareholders' equity (and other eligible components of Regulatory CapitalG , as defined in Chapter CA-2).

          Adopted: January 2011

        • CA-1.1.1

          In accordance with Principle of Business 9 (cf. Section PB-1.9), investment firm licenseesG must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner. This includes meeting the minimum capital requirements specified in Section CA-1.2 onwards.

        • CA-1.1.2

          In addition to the minimum capital requirements specified in Section CA-1.2 onwards, the CBB may, at its discretion, require investment firm licenseesG to hold additional capital, should this be necessary (in the CBB's view) to meet additional risks that are not sufficiently addressed in either the Risk-based Capital RequirementG or the Minimum Capital RequirementG .

          Amended: October 2009
          Amended: January 2007

        • CA-1.1.3

          The CBB would typically invoke Rule CA-1.1.2 in rare circumstances — for instance, where in its assessment a licensee was running high levels of operational risk because of a particularly weak controls environment.

          Amended: January 2007

        • CA-1.1.4

          Investment firm licenseesG are required to maintain, at all times, the Minimum Capital RequirementG specified in Section CA-1.2, free from any pledge or any other restriction, in a retail bank licensed to operate in the Kingdom of Bahrain. They must provide, upon request, evidence to the CBB of the deposited amount.

          Adopted: October 2009

        • CA-1.1.5

          In the event that an investment firm licenseeG fails to meet any of the requirements specified in this Module, it must, on becoming aware that it has breached these requirements, immediately notify the CBB in writing. Unless otherwise directed, the licensee must in addition submit to CBB, within 30 calendar days of its notification, a plan demonstrating how it will achieve compliance with these requirements.

          Amended: October 2009
          Amended: January 2007

        • CA-1.1.5A

          Should the CBB direct an investment firm licenseeG to inject additional working capital in order to maintain the minimum capital requirements for its category of license, the investment firm licenseeG may inject cash in the form of a subordinated loan from the shareholders, subject to the CBB's prior approval. Such amount will be included as Tier 2 capital and must have a minimum original fixed term to maturity of more than 5 years (See Rule CA-2.1.8(h)).

          Amended: January 2016
          Amended: January 2013
          Adopted: January 2011

        • CA-1.1.5B

          Subject to the CBB's prior approval, an investment firm licenseeG may settle a subordinated debt, partially or in full, prior to the end of its term.

          Added: January 2013

        • CA-1.1.5C

          Where Paragraph CA-1.1.5B applies, the CBB will take into consideration whether the investment firm licenseeG has received confirmation from its external auditor that the investment firm licensee'sG financial position has improved and its capability to repay the debt (see Paragraph BR-2.3.27B).

          Added: January 2013

        • CA-1.1.6

          Should an investment firm licenseeG fail to comply with the requirements of this Module, the CBB may impose enforcement measures, as described in Module EN.

          Amended: October 2009
          Amended: January 2007

        • CA-1.1.7

          [This Paragraph was deleted in July 2015.]

          Deleted: July 2015
          Amended: October 2009

        • CA-1.1.8

          [This Paragraph was deleted in July 2015.]

          Deleted: July 2015
          Amended: October 2009
          Amended: January 2007

      • [deleted]

        Deleted: January 2011

        • CA-1.1.9 [deleted]

          [This Paragraph was amended and moved to CA-1.2.11].

          Deleted: January 2011

        • CA-1.1.10 [deleted]

          [This Paragraph was amended and moved to CA-1.2.12].

          Deleted: January 2011

      • Booking of Assets and Liabilities

        • CA-1.1.9

          Bahraini investment firm licenseesG must not book any obligation/liabilities in their books, without booking the corresponding asset in Bahrain.

          Adopted: January 2011

    • CA-1.1A Overseas Investment Firm Licensees

      • Obligation to Maintain Adequate Capital

        • CA-1.1A.1

          Overseas investment firm licenseesG must calculate their Regulatory CapitalG based on the audited net assets booked in the Bahrain branch, determined in accordance with accounting standards that would be applicable if they were a joint stock company incorporated in Bahrain. Overseas investment firm licenseesG must ensure that their Regulatory CapitalG meets the minimum capital requirements specified in Section CA-1.2 onwards.

          Adopted: January 2011

        • CA-1.1A.2

          While the capital adequacy requirements for Bahraini investment firm licenseesG and for overseas investment firm licenseesG are identical (and are defined in CA-1 and CA-3), the calculation of the licensee's regulatory capital varies, according to whether the investment firm licenseeG is locally incorporated or a branch operation.

          Adopted: January 2011

      • Booking of Assets and Liabilities

        • CA-1.1A.3

          Overseas investment firm licenseesG must book in Bahrain all assets pertaining to the operations of the Bahrain branch.

          Adopted: January 2011

        • CA-1.1A.4

          Overseas investment firm licenseesG must not book any obligation/liabilities in their Bahrain branch, without booking the corresponding asset in Bahrain.

          Adopted: January 2011

    • CA-1.2 Initial and Risk-Based Capital Requirements

      • Key Requirements

        • CA-1.2.1

          Investment firm licenseesG must ensure that, at all times, their Regulatory CapitalG is in excess of their Regulatory Capital RequirementG . They must monitor compliance with this requirement on an on-going basis.

        • CA-1.2.2

          For Category 1G and Category 2 investment firmsG , their Regulatory Capital RequirementG is defined as the higher of their Risk-based Capital RequirementG and their Minimum Capital RequirementG .

          Amended: October 2009

        • CA-1.2.3

          For Category 3 investment firmsG , their Regulatory Capital RequirementG is their Minimum Capital RequirementG .

          Amended: October 2009

        • CA-1.2.4

          The above requirements reflect the different risk profiles of the 3 investment firm categories. Risk-based Capital RequirementsG vary according to the level of position and other risks undertaken, and the size of the firm (measured in terms of adjusted annual expenditure). For larger firms, or those exposed to relatively higher levels of risk, Risk-based Capital RequirementsG are therefore likely to exceed the relevant Minimum Capital RequirementG . Because of the limited nature of their activities, which pose limited risks to counterparties or customers, Category 3 investment firmsG are not required to apply Risk-based Capital RequirementsG . They are only required to comply with their Minimum Capital RequirementG .

          Amended: October 2009

      • Definitions

        • CA-1.2.5

          For Bahraini investment firm licenseesG , Regulatory CapitalG is capital held by the firm that satisfies the criteria set out in Chapter CA-2. For overseas investment firm licenseesG , Regulatory CapitalG is defined as audited net assets booked in the Bahrain branch, determined in accordance with accounting standards that would be applicable if they were a joint stock company incorporated in Bahrain.

          Amended: July 2007

        • CA-1.2.6

          See Section CA-B.1 above, regarding scope of application. Overseas investment firms are also required to provide information — and meet certain requirements — with respect to the capital adequacy of their parent entity and — where relevant — their wider group. See Module GS (Group Supervision).

        • CA-1.2.7

          Minimum Capital RequirementsG are:

          (a) Category 1 investment firmsG : BD 1,000,000;
          (b) Category 2 investment firmsG : BD 1,000,000 if undertaking the activity of safeguarding financial instruments (i.e. custodian), BD 250,000 in all other cases; and
          (c) Category 3 investment firmsG : BD 125,000.
          Amended: October 2009
          Amended: January 2007

        • CA-1.2.8

          The Risk-based Capital RequirementG is the sum of a firm's Expenditure Requirement, Position Risk Requirement (PRR), Counterparty Risk requirement (CRR), and Foreign Exchange Risk Requirement (FER), as defined in Chapter CA-3.

      • Notification Requirements

        • CA-1.2.9

          Category 1 and 2 investment firmsG must notify the CBB if:

          (a) The ratio of Regulatory CapitalG to their Regulatory Capital RequirementG falls below 110% (see Paragraph CA-1.1.5);
          (b) Any single probable contingency, financial commitment or large exposure exceeds 25% of their Regulatory CapitalG ; and
          (c) Any instrument, transaction or situation does not appear to be catered for under Module CA.
          Amended: April 2011
          Amended: January 2007

        • CA-1.2.9A

          Investment firm licenseesG must submit to the CBB, within 30 calendar days of the event occurring, a plan demonstrating how it will:

          (a) Raise its regulatory capitalG to bring it to a level in excess of its regulatory capital requirementG (refer to Paragraph CA-1.2.1); or
          (b) Reduce the single contingency, financial commitment or large exposure to below 25% of the regulatory capitalG .
          Amended: October 2012
          Added: April 2011

      • Group Risks

        • CA-1.2.10

          Investment firm licenseesG that are members of a wider group are also subject to additional requirements, aimed at addressing group risks: see Module GS (Group Supervision).

      • Firm Assessment

        • CA-1.2.11

          Investment firm licenseesG must regularly carry out their own assessment of their capital needs, appropriate to their risk profile, and maintain a process for monitoring and maintaining their actual capital in line with their assessment.

          Adopted: January 2011

        • CA-1.2.12

          Rule CA-1.2.12 is in addition to the other requirements in Module CA. If a firm's own assessment suggests its required capital is less than the regulatory minima specified in this Module, the latter must still be complied with. Where a firm's assessment suggests that a higher level of capital should be held, the CBB would expect firms to hold capital in line with their assessment. The CBB is not prescribing the detailed form such assessments should take, in order to give firms flexibility to develop their own approaches. Nonetheless, the CBB would expect the sophistication of such assessments to match the risk profile of the firm concerned.

          Adopted: January 2011

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