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  • LR-1.3 Definition of Regulated Banking Services

    • LR-1.3.1

      Regulated banking services 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 instruments as principal;
      (g) Dealing in financial instruments as agent;
      (h) Managing financial instruments;
      (i) Safeguarding financial instruments;
      (j) Operating a Collective Investment Undertaking;
      (k) Arranging deals in financial instruments;
      (l) Advising on financial instruments;
      (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 services.

      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 service 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 services, 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 services 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 services with other regulated services, such as regulated insurance services. 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 service 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 service 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 service if such person carries on an activity with or for another person, and they are both members of the same family.

        October 2007

      • LR-1.3.11

        A person does not carry on an activity constituting a regulated banking service 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 service 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 service if that person is a government body charged with the management of financial instruments 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 service 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 instruments); 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 instruments as principal means buying, selling, subscribing for or underwriting any financial instrument on one's own account.

        October 2007

      • LR-1.3.23

        Rule LR-1.3.22 includes the underwriting of equity and other financial instruments. 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 instruments as agent means buying, selling, subscribing for or underwriting financial instruments 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 instruments means managing on a discretionary basis financial instruments 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 instruments means the safeguarding of financial instruments 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 instrument for the purpose of onward transmission to, from, or at the direction of the person to whom the financial instrument 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 custodian, accepts responsibility with regard to the financial instrument.

        October 2007

      • LR-1.3.32

        A "qualifying custodian" 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 instruments, including related services such as cash/collateral management.

        October 2007

    • Operating a Collective Investment Undertaking

      • LR-1.3.36

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

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

        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 licensees.

        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 instruments 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 instrument or exercising any right conferred by such a financial instrument.

        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 instrument, or on the characteristics or performance of the financial instrument concerned.
        Amended: October 2010
        October 2007

      • LR-1.3.49A

        For the purpose of Rule LR-1.3.48, advising on financial instruments includes giving digital financial advice also known as 'robo-advice' or 'automated advice' using a computer program and algorithm to generate the advice.

        Added: April 2019

      • 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 instrument.
        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 instrument;
        (b) Valuing financial instruments for which there is no ready market;
        (c) Circulating company news or announcements;
        (d) Comparing the benefits and risks of one financial instrument to another; and
        (e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, a financial instrument 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 licensees 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 licensees 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

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