CBB Volume 4: Contents

Central Bank of Bahrain Volume 4—Investment Business
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  • Central Bank of Bahrain Volume 4—Investment Business

    • Part A

      Table of Contents
        Module Title Module
      Code
      Date last
      changed
       
      Introduction User's Guide UG Oct 16 PDF Version
      Executive Summary ES Oct 14 PDF Version
      High Level
      Standards
      Authorisation AU Jul 19 PDF Version
      Principles of Business PB Jan 11 PDF Version
      High Level Controls HC Oct 17 PDF Version
      Auditors and Accounting Standards AA Apr 18 PDF Version
      General Requirements GR Jul 19 PDF Version
      Business Standards Capital Adequacy CA Jan 16 PDF Version
      Business Conduct BC Jan 19 PDF Version
      Client Assets CL Jan 18 PDF Version
      Risk Management RM Apr 19 PDF Version
      Financial Crime FC Jan 19 PDF Version
      Training and Competency TC Jan 16 PDF Version
      Digital Financial Advice DA Apr 19 PDF Version
      Reporting Requirements CBB Reporting BR Oct 18 PDF Version
      Public Disclosure PD (to be issued) PDF Version
      Enforcement &
      Redress
      Enforcement EN Apr 19 PDF Version
      Compensation CP (to be issued) PDF Version
      Sector Guides Category 1 licensees C1 (to be issued) PDF Version
      Category 2 licensees C2 (to be issued) PDF Version
      Category 3 licensees C3 (to be issued) PDF Version
      Islamic Investment Firms IF (to be issued) PDF Version

       

      • Introduction

        • UG User's 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.

                  Amended: January 2007

                • 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 licensees and Islamic bank licensees respectively, were issued in July 2004 and January 2005; Volume 3, covering insurance licensees, was issued in April 2005. This Volume (Volume 4), was issued in April 2006. Volume 5 (covering specialised licensees), and Volume 6 (capital markets) are being issued progressively. Volume 7 on collective investment undertakings (CIUs) was issued in May 2012.

                  Amended: July 2012
                  Amended: January 2008
                  Amended: January 2007

                • UG-A.1.3

                  This User's Guide provides guidance on (i) the status and application of the Rulebook, with specific reference to Volume 4 (Investment Business); (ii) the structure and design of the Rulebook; and (iii) its maintenance and version control.

                  Amended: January 2007

                • UG-A.1.4

                  Volume 4 (Investment Business) covers investment firm licensees, i.e. those CBB licensees that solely undertake regulated investment services. It contains prudential requirements (such as rules on minimum capital and risk management); and conduct of business requirements (such as rules on the giving of investment advice and the treatment of client money). Collectively, these requirements are aimed at ensuring the safety and soundness of CBB-licensed investment firms, and providing an appropriate level of protection to the clients of such firms.

                  Amended: January 2007
                  Amended: January 2008

                • UG-A.1.5

                  For the sake of clarity, Volume 4 (Investment Business) does not cover requirements that are generally applicable to participants in Bahrain's capital markets, irrespective of whether they are a CBB licensee or not, such as disclosure standards with regards to the issuance of securities or rules against insider trading or other forms of market abuse. Nor does it cover requirements applicable to recognised exchanges (such as the Bahrain Stock Exchange) and their related infrastructure (such as central clearing and depository systems), or the membership rules applicable to members of such exchanges. These other requirements are currently issued separately, in the form of individual instruments issued by the CBB's Capital Markets Supervision Directorate, and the Bahrain Stock Exchange; those issued by the CBB’s Capital Markets Supervision Directorate will be re-issued in 2007/08 as Volume 6 of the CBB Rulebook (see Paragraph UG-A.1.2 above).

                  Amended: January 2007

              • Legal Basis

                • UG-A.1.6

                  This Module contains the CBB's Directive (as amended from time to time) regarding the User's Guide for Volume 4 of the CBB Rulebook, 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 investment firm licensees.

                  Amended: January 2011
                  Amended: January 2008
                  Added: January 2007

                • UG-A.1.7

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

                  Added: January 2007

            • UG-A.2 Module History

              • Evolution of Module

                • UG-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. 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.

                  Amended: January 2007

                • UG-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Added: January 2007

                • UG-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  UG-A.1 07/2007 Updated to reflect new CBB Law: various references changed and new Rule A.1.6 introduced categorising this Module as a Directive.
                  UG-1.2 07/2007 New Rules UG-1.2.6 and UG-1.2.7 to reflect the CBB Law; other material reordered as a consequence.
                  UG-A.1.6 01/2008 Corrected that this Module applies only to investment firm licensees (including their approved persons).
                  UG-3.2.1 01/2008 Updated CBB policy re distribution of hard copies of Volumes of Rulebook.
                  Order Form 01/2008 Amended Order Form to reflect new policy re hard copy availability.
                  UG-A.1.6 01/2011 Clarified legal basis.
                  UG-2.1.2 01/2011 Updated to reflect structure of Volume 5.
                  UG-A.1.2, UG-1.2.1 and UG-2.1 07/2012 Various minor corrections to reflect structure of Rulebook, including issuance of Volume 7.
                  UG-1.2.1, UG-1.2.7, UG-2.1.2, UG-2.1.3 and UG-2.2.2 10/2012 Various minor amendments.
                  UG-3.2 and Annex 01/2013 Amended as CBB Rulebook only now available on CBB Website.
                  UG-1.3.4 10/2016 Add section to clarify reference to 'he' 'his' 'she' and 'her'.

              • Superseded Requirements

                • UG-A.2.3

                  Deleted: January 2007

                • UG-A.2.4

                  Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

          • UG-1 Rulebook Status and Application

            • UG-1.1 Legal Basis

              • General

                • UG-1.1.1

                  Volume 4 (Investment Business) 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)).

                  Amended: January 2007

                • 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.

                  Amended: January 2007

                • UG-1.1.3

                  Investment firm licensees 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 4 (Investment Business).

                  Amended: January 2007

              • 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).

                  Added: January 2007

                • 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.

                  Added: January 2007

                • UG-1.1.6

                  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.

                  Added: January 2007

                • UG-1.1.7

                  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.

                  Added: January 2007

                • UG-1.1.8

                  All of the content of the CBB Rulebook has the legal status of at least a Directive, issued pursuant to Article 38 of the CBB Law. Certain of the requirements contained in the CBB Rulebook may also have the status of a Regulation, in which case they are also separately issued pursuant to Article 37 of the CBB Law and published in the Official Gazette. Where this is the case, then the Rulebook cross-refers to the Regulation in question and specifies the requirements concerned.

                  Added: January 2007

                • UG-1.1.9

                  In keeping with the nature of these regulatory instruments, Regulations are used to supplement the CBB Rulebook, either where explicitly required under the CBB Law, or where a particular requirement needs to have general applicability, in addition to being applied to licensees, approved persons or registered persons.

                  Added: January 2007

            • UG-1.2 Status of Provisions

              • UG-1.2.1

                The contents of the CBB Rulebook are categorised either as Rules or as Guidance. Rules have a binding effect. If a licensee breaches a Rule to which it is subject, it is liable to enforcement action by the CBB and, in certain cases, criminal proceedings by the Office of the Public Prosecution.

                Amended: October 2012
                Amended: July 2012
                Amended: January 2007

              • UG-1.2.2

                Where relevant, compliance with Guidance will generally lead the CBB to assess that the rule(s) to which the Guidance relates has been complied with. Conversely, failure to comply with Guidance will generally be viewed by the CBB as tending to suggest breach of a Rule.

                Amended: January 2007

              • UG-1.2.3

                The categorisation of each Paragraph within the Rulebook is identified by its text format, as follows:

                •  Rules are in bold, font size 12. The Paragraph reference number is also highlighted in a coloured box.
                •  Guidance is in normal type, font size 11.
                Amended: January 2007

              • UG-1.2.4

                Where there are differences of interpretation over the meaning of a Rule or Guidance, the CBB reserves the right to apply its own interpretation.

                Amended: January 2007

              • UG-1.2.5

                Rule UG-1.2.4 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.

                Amended: January 2007

              • UG-1.2.6

                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.

                Amended: January 2007

              • UG-1.2.7

                [This Paragraph was deleted in October 2012].

                Deleted: October 2012

              • UG-1.2.8

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

                Amended: January 2007

            • UG-1.3 Application

              • UG-1.3.1

                Volume 4 of the CBB Rulebook for the most part applies only to investment firm licensees, and to individuals undertaking key functions in those licensees (so-called 'approved persons'). (Representative offices are subject to the relevant requirements in Volume 5 of the CBB Rulebook.) Most of the content of Volume 4 therefore only has the formal status of a Directive.

                Amended: January 2007
                Amended: January 2008

              • 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 investment business within or from Bahrain without the appropriate license, and controllers of investment firm licensees are also subject to various requirements.

                Amended: January 2007
                Amended: January 2008

              • UG-1.3.3

                Each Module in Volume 4 (except those listed under the 'Introduction' and 'Sector Guides' headings) contains a Scope of Application Chapter, setting out which Rules and Guidance apply to which particular type of investment firm licensee 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, and the legal basis underpinning the Module’s requirements.

                Amended: January 2007

              • 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 4 (Investment Business) of the CBB Rulebook was first issued in April 2006. Its contents have immediate effect, subject to any specific transition arrangements that may be specified.

                Amended: January 2007

              • UG-1.4.2

                Module ES (Executive Summary) contains details of the implementation and transition arrangements for Volume 4 (Investment Business).

          • 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
                  Amended: January 2007

                • UG-2.1.2

                  Volume 5 (Specialised Activities), covers money changers; financing companies; representative offices; administrators; trust service providers, micro-finance institutions and ancillary services providers.

                  Amended: October 2012
                  Amended: January 2011
                  Amended: January 2008

              • 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 an introduction containing a User's Guide and Executive Summary. Subsequent material is organised underneath the following headings:

                  (a) High-level Standards;
                  (b) Business Standards;
                  (c) Reporting Requirements;
                  (d) Enforcement and Redress; and, where appropriate,
                  (e) Sector Guides.
                  Amended: October 2012
                  Amended: July 2012
                  Amended: January 2008
                  Amended: January 2007

                • 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).

                  Amended: January 2007

                • UG-2.1.5

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

                • 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".

            • 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.

                • 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: October 2012

              • Chapters

                • UG-2.2.3

                  Each Module consists of Chapters, categorised into two types:

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

                • UG-2.2.4

                  The introductory Chapters summarise the purpose of the Module, its history (in terms of changes made to its contents) and, where relevant, lists previously issued circulars and regulations that were replaced by the Rulebook Module. A separate introductory Chapter also prescribes the scope of application of the Module's requirements.

                  Amended: January 2007

              • Sections and Paragraphs

                • UG-2.2.5

                  Chapters are further sub-divided into Sections: these extend the Chapter numbering (e.g. FC-1.1, FC-1.2, FC-1.3 etc). In turn, Sections are sub-divided into Paragraphs; these extend the Chapter and Section numbering (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 contents of the Paragraphs that follow.

                  Amended: January 2007

              • 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).

                • UG-2.2.7

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

                  Amended: January 2007

            • 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.

              • 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 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 issue date in force for each Section. Further explanation is provided in Section UG-3.1 below.

              • 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.

              • 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.

              • 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 Paragraph UG-2.3.4 above. The format of the Paragraph reference and text indicates its status as either a Rule or Guidance, as explained in Paragraph UG-1.2.4 above.

                • 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...').

                  Amended: January 2007

          • 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.

                  Amended: January 2007

                • 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.

                  Amended: January 2007

                • 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.

                • 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.

                  Amended: January 2007

                • UG-3.1.5

                  The website version of the Rulebook acts at all times as the definitive version of the Rulebook. Any changes are automatically posted to the CBB website, together with a summary of those changes. Licensees are in addition e-mailed every quarter, to notify them of any changes (if any). Hard-copy users are invited to print off the updated pages from the website to incorporate in their Rulebook in order to keep it current.

                  Amended: January 2007

              • 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.
                  Amended: January 2007

                • 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.

                  Amended: January 2007

            • UG-3.2 Rulebook Access

              • Availability

                • UG-3.2.1

                  The Rulebook is available on the CBB website.

                  Amended: January 2013
                  Amended: January 2008
                  Amended: January 2007

              • 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
                  P.O. Box 27
                  Manama
                  Kingdom of Bahrain

                  Tel: +973-17 547 413
                  Fax: +973-17 530 228
                  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
                  Amended: January 2007

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

            Deleted: January 2013

        • ES Executive Summary

          • ES-A Introduction

            • ES-A.1 Purpose

              • Executive Summary

                • ES-A.1.1

                  The purpose of this Module is to:

                  (a) Provide an overview of the structure of Volume 4 (Investment Business);
                  (b) Provide a summary of each Module; and
                  (c) Outline the transition rules for the implementation of Volume 4.
                  Amended: January 2007

                • ES-A.1.2

                  The Central Bank of Bahrain ('CBB'), in its capacity as the regulatory and supervisory authority for all financial institutions in Bahrain, has as its mission:

                  (a) To ensure monetary and financial stability in the Kingdom of Bahrain; and
                  (b) To regulate, develop and maintain confidence in the financial sector.
                  Amended: January 2007

                • ES-A.1.3

                  As the single regulator, the CBB ensures the consistent application of regulatory standards in banking, insurance and capital markets, as well as encourages an open and cooperative approach in dealing with financial institutions.

                  Amended: January 2007

                • ES-A.1.4

                  The supervision of the investment business sector in the Kingdom pays particular regard to the standards set by the International Organisation of Securities Commissions (IOSCO). The CBB plays an important role in meeting stakeholders' expectations — the principal stakeholders of the CBB are the Government of the Kingdom of Bahrain, regulated financial institutions, their clients, IOSCO and other relevant international organisations.

                  Amended: January 2007

                • ES-A.1.5

                  To carry out its responsibilities in relation to the investment business sector, the CBB has four supervisory objectives, namely to:

                  (a) Promote the stability and soundness of the sector;
                  (b) Provide an appropriate degree of protection to investors and clients of investment firms;
                  (c) Promote transparency and market discipline; and
                  (d) Reduce the likelihood of investment firms being used for financial crime (including money laundering activities).
                  Amended: January 2007

              • Legal Basis

                • ES-A.1.6

                  This Module contains the CBB's Directive (as amended from time to time) relating to transition rules 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 investment firm licensees (including their approved persons).

                  Amended: January 2011
                  Amended: October 2009
                  Amended: January 2007

                • ES-A.1.7

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

                  Added: January 2007

            • ES-A.2 Module History

              • Evolution of Module

                • ES-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business). Any material changes that have subsequently been made 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 2007

                • ES-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued for Module ES where the update necessitated changes to substance (as opposed to merely updating 'BMA' to 'CBB', and similar references).

                  Added: January 2007

                • ES-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  ES-A.1 07/2007 New Rule ES-A.1.6 introduced, categorising this Module as a Directive.
                  ES-1.2 07/2007 Text amended to reflect changes to Module UG.
                  ES-1.3 07/2007 Text amended to reflect changes to Module AU.
                  ES-1.4 07/2007 Text amended to reflect changes to Module PB.
                  ES-1.5 07/2007 Updated to reflect issue of Module HC in July 2007.
                  ES-1.11 07/2007 Updated to reflect issue of Module RM in July 2007.
                  ES-1.15 07/2007 Updated to reflect issue of Module BR in July 2007.
                  ES-2.1, ES-2.3 &
                  ES-2.4
                  07/2007 Changes to reflect slight delay in release of Phase 2 contents of Volume 4: implementation deadline for Modules HC, RM and BR — released in July 2007 — now set as 1 January 2008.
                  ES-2.4.1A 07/2008 Further transition period granted for requirements of Chapter BR-1, Prudential Reporting.
                  ES-A.1.6 10/2009 Reference to registered administrators removed.
                  ES-1.1.1 10/2009 Reference to administrator removed.
                  ES-1.1.5 10/2009 Updated to reflect issue of Modules.
                  ES-1.3 10/2009 Updated to reflect changes to Module AU.
                  ES-1.3.9 10/2009 Reference to registration of administrators removed.
                  ES-1.8 10/2009 Updated to reflect changes to Module CA.
                  ES-2.4.1A 10/2009 Updated to reflect issue of Form QPR.
                  ES-1.1, ES-1.3, ES-1.5.3, ES-1.6.1, ES-1.7, ES-1.15-3, ES-2.2.7, ES-2.3.2 07/2010 Updated and corrected typos.
                  ES-1.13 07/2010 Updated to reflect the issuance of Module TC
                  ES-2.5 07/2010 New section added to reflect transition rules for Module TC.
                  ES-A.1.6 01/2011 Clarified legal basis.
                  ES-1.5 04/2011 Amended to reflect new structure of Module HC.
                  ES-1.6.1 01/2012 Deleted reference to reporting accountants to be in line with October 2011 amendment.
                  ES-1.6.3 01/2012 Deleted reference to Module FC.
                  ES-1.14 01/2012 Deleted Section on Module GS (Group Supervision).
                  ES-1.18 01/2012 This Section was deleted as it is included in Chapter BC-3.
                  ES-2.6 01/2012 Added Section on transitional Rules for Section BC-3 dealing with customer complaints procedures.
                  ES-1.3.6 10/2013 Removed reference to Deputy Money Laundering Officer to be aligned with the Rule under Paragraph AU-1.2.2 that was amended in January 2011.
                  ES-1.7.1, ES-1.13.1 and ES-2.5.2 10/2013 Removed reference to appointed representatives.
                  ES-1.8.5 10/2014 Added new guidance for capital for underwriting purposes.

              • Superseded Requirements

                • ES-A.2.4

                  This Module does not supersede any previously issued circulars or other regulatory instruments.

                  Amended: January 2007

                • ES-A.2.5

                  Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Chapter ES-2.

                  Amended: January 2007

          • ES-1 Structure and Summary of Volume 4

            • ES-1.1 Structure of Volume 4 (Investment Business)

              • ES-1.1.1

                Volume 4 of the Rulebook covers the investment business sector, i.e. the provision of regulated investment services by investment firm licensees. It also includes requirements regarding approved persons.

                Amended: October 2009

              • ES-1.1.2

                Volume 4 excludes representative offices of overseas investment firm licensee, and ancillary services providers: these activities are covered by separate regulations (see AU-A.1.11 and AU-A.1.12). These regulations will later be incorporated into Volume 5 (Specialised Activities) of the CBB Rulebook, to be released later.

                Amended: July 2010
                Amended: January 2007

              • ES-1.1.3

                Volume 4 is made up of two volumes: Part A is the main Volume (comprising a range of Modules that contains all applicable Rules and Guidance), whilst Part B is an appendix Volume (containing a glossary of defined terms, CBB authorisation forms, CBB reporting forms and supplementary information).

                Amended: July 2010
                Amended: January 2007

              • ES-1.1.4

                Part A of Volume 4 is organised under the following headings:

                • Introduction
                • High Level Standards
                • Business Standards
                • Reporting Requirements
                • Enforcement and Redress; and
                • Sector Guides
                Amended: July 2010

              • ES-1.1.5

                Including this Executive Summary Module, there are plans to issue 23 Modules for inclusion in Part A of Volume 4 (Investment Business). It is planned to release Volume 4 in two phases: the first phase release was in April 2006, and comprised 11 Modules, including most of the key requirements. Remaining Modules will be issued later.

                Amended: July 2010
                Amended: October 2009
                Amended: January 2007

              • ES-1.1.6

                Each Module covers a particular subject area — such as capital or conduct of business. The requirements are tailored according to the three categories of investment firm licensee provided for under the authorisation rules, reflecting the different risk profiles of these categories. Sector Guide Modules, to be released as part of the second phase release, will summarise the key elements of the requirements for each of these 3 categories of investment firm, as well as summarise the additional requirements applicable to those investment firms operating purely on a Shari'a compliant basis.

                Amended: January 2007

              • ES-1.1.7

                Part B of Volume 4 is organised under the following headings:

                • Glossary
                • Authorisation Forms
                • Reporting Forms
                • Supplementary Information
                Amended: July 2010

              • ES-1.1.8

                Defined terms used in the Rulebook are underlined; their definitions can be found in the Glossary. Each Volume has its own Glossary, as 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.

              • ES-1.1.9

                There are three authorisation forms, comprising (i) Form 1 (application for a license); (ii) Form 2 (application for the authorisation of a controller); and (iii) Form 3 (application for approved person status); and (iv) Form 4 (application for registration).

                Amended: January 2007

              • ES-1.1.10

                When completed, Volume 4 will also contain 4 reporting forms: (i) Form QPR (Quarterly Prudential Return); (ii) Form AGR (Annual Group Return); and (iii) Form STR (Suspicious Transaction Report) and (iv) Form ALF (Annual Licence Fee).

                Amended: July 2007

              • ES-1.1.11

                Finally, space is provided in Part B of Volume 4 for any supplementary information that may be of use to users of the Rulebook. For the time being, Part B contains various additional documents relevant to the Financial Crime Module, notably a copy of Bahrain's anti-money laundering legislation (Amiri Decree Law No. 4 of 2001). It also includes information related to the Client Assets Module (CL) and Enforcement Module (EN).

                Amended: July 2010

            • ES-1.2 Module UG (User's Guide)

              • ES-1.2.1

                The User's Guide Module contains introductory material relevant to users of Volume 4. Specifically, it covers (i) the status and application of the Rulebook (with specific reference to Volume 4); (ii) the structure and design of the Rulebook; and (iii) its maintenance, version control and access. These topics are covered in Chapters UG-1 to UG-3 respectively.

              • ES-1.2.2

                The Module contains mostly Guidance material — that is, material that is not binding on licensees, but instead simply helps inform particular Rules or provides other general information. Most of the Guidance material in Module UG consists of general information.

              • ES-1.2.3

                The only Rules are contained in Sections UG-A.1, UG-1.2 and UG-1.4. Amongst other things, these specify that the Module has the legal status of a Directive, that Rules have a binding effect, and that the contents of Volume 4 apply from its date of issue in April 2006, subject to any transition arrangements specified in Module ES (see Chapter ES-2).

                Amended: July 2007

            • ES-1.3 Module AU (Authorisation)

              • ES-1.3.1

                Module AU covers (i) the licensing of persons undertaking regulated investment services; and (ii) the approval of persons undertaking controlled functions in licensees ('approved persons').

                Amended: January 2007

              • ES-1.3.2

                The Module sets out when these two types of authorisation are required, and the associated authorisation conditions that have to be satisfied in order for authorisation to be granted.

                Amended: January 2007

              • ES-1.3.3

                With respect to licensing, an investment firm license is required by all persons undertaking, by way of business, regulated investment services within or from the Kingdom of Bahrain. Regulated investment services are fully defined in Section AU-1.4, but in summary they cover the following activities:

                (a) Dealing in financial instruments as principal;
                (b) Dealing in financial instruments as agent;
                (c) Arranging deals in financial instruments;
                (d) Managing financial instruments;
                (e) Safeguarding financial instruments (i.e. a custodian);
                (f) Advising on financial instruments; and
                (g) Operating a collective investment undertaking (i.e. an operator).
                Amended: January 2007

              • ES-1.3.4

                There are 3 categories of investment firm license, determined by the regulated investment services undertaken. Category 1 investment firms may undertake all regulated investment services. Category 2 investment firms may undertake all regulated investment services, except the activity of dealing in financial instruments as principal. Finally, Category 3 investment firms may only undertake the activities of arranging or advising on financial instruments. Only Category 1 and 2 investment firms may hold client assets.

              • ES-1.3.5

                A licensee may hold itself out as an Islamic investment firm, but only if all its activities are Shari'a compliant. Islamic investment firms are required to comply with certain additional requirements, such as the need to appoint a Shari'a supervisory board.

                Amended: July 2007

              • ES-1.3.6

                Module AU also deals with the requirements and conditions for approved persons, i.e. those wishing to undertake a controlled function in an investment firm licensee. Controlled functions are those of:

                (a) Director;
                (b) Chief Executive or general manager;
                (c) Head of function;
                (d) Compliance officer;
                (e) Money Laundering Reporting Officer;
                (f) [This Subparagraph was deleted in October 2013];
                (g) Member of Shari'a Supervisory Board;
                (h) Financial instruments trader; and
                (i) Investment consultant or investment adviser.
                Amended: October 2013
                Amended: October 2009
                January 2007

              • ES-1.3.7

                The conditions for authorisation of approved persons are set out in Chapter AU-3.

              • ES-1.3.8 [This Paragraph deleted 07/2007.]

                Deleted: July 2007

              • ES-1.3.9

                The Module also outlines (in Chapter AU-5) the information requirements and procedures that must be followed as part of the process for:

                (a) Licensing;
                (b) Approved persons.
                Amended: July 2010
                Amended: October 2009
                Amended: January 2007

              • ES-1.3.10

                Chapter AU-6 covers the license application fees as well as the annual license fees.

                Added: July 2010

            • ES-1.4 Module PB (Principles of Business)

              • ES-1.4.1

                The 10 Principles of Business covered in Module PB are a general statement of the fundamental obligations of all CBB investment firm licensees and approved persons. They have the status of Rules; and provide a basis for other, more detailed Rules elsewhere in Volume 4.

                Amended: January 2007

              • ES-1.4.2

                Principles 1 to 10 apply to activities carried out by licensees, including activities carried out through overseas branches. Principles 1 to 8 also apply to approved persons, in respect of the controlled functions for which they have been approved. Principles 9 and 10 also take into account any activities of other members of the group of which the licensee is a member.

                Amended: January 2007
                Deleted: July 2007

              • ES-1.4.3

                The Principles of Business are:

                Principle 1 — Integrity
                Principle 2 — Conflicts of Interest
                Principle 3 — Due Skill, Care and Diligence
                Principle 4 — Confidentiality
                Principle 5 — Market Conduct
                Principle 6 — Customer Assets
                Principle 7 — Customer Interests
                Principle 8 — Relations with Regulators/Supervisors
                Principle 9 — Adequate Resources
                Principle 10 — Management, Systems and Controls

            • ES-1.5 Module HC (High-level Controls)

              • ES-1.5.1

                Module HC outlines the requirements that must be met by investment firm licensees with respect to:

                (a) Corporate governance principles issued by the Ministry of Industry and Commerce as The Corporate Governance Code; and
                (b) Related high-level controls and policies.
                Amended: April 2011
                Amended: July 2007

              • ES-1.5.1A

                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.

                Added: April 2011

              • ES-1.5.2

                The requirements distinguish between different Categories of investment firm licensee. Because of their limited business activities, and consequent lesser risk to customers, Category 3 investment firms are subject to applicable Guidance Paragraphs included in Chapter HC-10.

                Amended: April 2011
                Amended: July 2007

              • ES-1.5.3

                Module HC applies to Bahraini investment firm licensees, including their overseas branches (where either the same or equivalent provisions to those in Module HC should apply). Overseas investment firm licensees must demonstrate that the same or equivalent arrangements are in place at the parent entity level, and that these arrangements provide for effective high-level controls over activities conducted in the Bahrain branch.

                Amended: April 2011
                Amended: July 2010
                Added: July 2007

            • ES-1.6 Module AA (Auditors and Auditing Standards)

              • ES-1.6.1

                Module AA contains requirements regarding the appointment and functions of auditors of investment firm licensees. It also contains requirements dealing with accounting standards to be applied by investment firm licensees.

                Amended: January 2012
                Amended: July 2010
                Amended: January 2007

              • ES-1.6.2

                The auditor requirements deal with:

                (a) The appointment of auditors;
                (b) The removal and resignation of auditors;
                (c) Audit partner rotation;
                (d) Auditor independence; and
                (e) Restrictions on the relationship between a licensee and its auditor.
                Amended: January 2007

              • ES-1.6.3

                The Module also covers the CBB's requirements regarding access to auditors as well as auditors' access to outsourcing providers. In addition, the Module outlines requirements for licensees to arrange for their auditors to review their quarterly prudential returns, and compliance with Module CL (Client Assets).

                Amended: January 2012
                Amended: January 2007

            • ES-1.7 Module GR (General Requirements)

              • ES-1.7.1

                Module GR covers requirements dealing with areas not covered in other Modules. The areas covered are:

                (a) Books and records;
                (b) Corporate and trade names;
                (c) Dividends;
                (d) Business transfers;
                (e) Controllers;
                (f) Close links;
                (g) Cessation of business;
                (h) [This Subparagraph was deleted in October 2013]; and
                (i) Professional indemnity coverage.
                Amended: October 2013
                Amended: July 2010
                Amended: January 2007

              • ES-1.7.2

                The above requirements apply to all categories of investment firm licensee, except for the requirements related to the payment of dividends, which apply to Category 1 investment firms and Category 2 investment firms and the professional indemnity requirement, which applies to Category 2 investment firms and Category 3 investment firms only.

                Amended: July 2010

            • ES-1.8 Module CA (Capital Adequacy)

              • ES-1.8.1

                Module CA contains requirements on the minimum levels of capital that must be held by investment firm licensees, as well as what constitutes capital for regulatory purposes. These requirements are tailored to fit the different risk profiles of the different categories of investment firm licensees. The requirements apply to both Bahraini investment firm licensees and overseas investment firm licensees (see Section CA-B.1)

                Amended: January 2007

              • ES-1.8.2

                Investment firm licensees are required to maintain their regulatory capital in excess of their regulatory capital requirements at all times. For Category 1 and 2 firms, their regulatory capital requirement is the higher of their Minimum Capital Requirement and their Risk-based Capital Requirement. For Category 3 firms, their regulatory capital requirement is simply their Minimum Capital Requirement.

                Amended: October 2009

              • ES-1.8.3

                Minimum Capital Requirements are as follows:

                (a) Category 1 investment firms: BD 1,000,000
                (b) Category 2 investment firms: 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 firms: BD 125,000.
                Amended: October 2009
                July 2007

              • ES-1.8.4

                Risk-based Capital Requirements comprise the sum of a firm's Expenditure Requirement, Position Risk Requirement, Counterparty Risk Requirement and Foreign Exchange Risk Requirement. The actual amount of capital that is required to be held varies depending on the size of an institution's cost base and its various exposures. In practice, the Risk Based Capital Requirement of Category 2 investment firms, because they are not allowed to deal in financial instruments as principal (and thus incur position risk), would largely be determined by its Expenditure Requirement (and any currency mismatches between its assets and liabilities).

                Amended: January 2007

              • ES-1.8.5

                In assessing the financial ability of a Category 1 investment firm licensee to underwrite transactions, the CBB will consider, amongst other factors, the licensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Any underwriting activities require the prior approval of the CBB's Capital Market Supervision Directorate and are subject to Module OFS (Offering of Securities) of Volume 6 of the CBB Rulebook.

                Amended: October 2014
                Amended: January 2007

            • ES-1.9 Module BC (Business Conduct)

              • ES-1.9.1

                This Module set out minimum standards of good practice to be applied by investment firm licensees, when dealing with their clients. These comprise certain base requirements, supplemented by more detailed requirements in the form of an Investment Business Code of Practice.

                Amended: January 2007

              • ES-1.9.2

                The Investment Business Code of Practice covers various matters, relevant to contact throughout a client relationship. They are:

                (a) Overarching principles;
                (b) Client classification;
                (c) Marketing and promotion;
                (d) Accepting clients;
                (e) Suitability;
                (f) Disclosure of information;
                (g) Dealing and managing;
                (h) Reporting to clients;
                (i) Complaints;
                (j) Conflicts of interest;
                (k) Confidentiality; and
                (l) An appendix, covering various specific matters to be addressed in promotional material, transaction confirmations and the like.
                Amended: January 2007

              • ES-1.9.3

                These requirements may be modified or supplemented over time, in response to evolving market practices or as issues arise.

            • ES-1.10 Module CL (Client Assets)

              • ES-1.10.1

                This Module provides detailed Rules and Guidance with respect to the holding of client assets by investment firm licensees. They are aimed at ensuring the proper protection of such assets, to restrict the risk of client assets being commingled with investment firm licensee assets (without clients' consent), or otherwise misused.

                Amended: January 2007

              • ES-1.10.2

                As a general rule, client assets are required to be segregated from a firm's own assets, and client money must be held in a client bank account. Various other restrictions and protections apply to client money, whilst the rules also apply certain reconciliation and reporting requirements.

              • ES-1.10.3

                Finally, the Module also contains certain requirements relating to the provision of custody services (Chapter CL-2), the treatment of assets when held as collateral (Chapter CL-3), controls surrounding the application of client mandates (Chapter CL-4), and rules regarding third party related distribution events (Chapter CL-5).

            • ES-1.11 Module RM (Risk Management)

              • ES-1.11.1

                Module RM provides detailed requirements on risk management systems and controls required for investment firm licensees. It builds on the high-level controls requirements contained in Module HC.

                Amended: July 2007

              • ES-1.11.2

                The Module obliges firms to identify the range of risks that they face and to put in place appropriate systems to address those risks. It also requires the establishment of an appropriate framework for identifying, monitoring and managing risks across an investment firm licensee's operations.

                Amended: July 2007

              • ES-1.11.3

                Module RM applies to Bahraini investment firm licensees, including their overseas branches (where either the same or equivalent provisions to those in Module RM should apply). Overseas investment firm licensees must demonstrate that the same or equivalent arrangements apply to the whole company, and that these arrangements provide for effective risk management of activities conducted in the Bahrain branch.

                Added: July 2007

            • ES-1.12 Module FC (Financial Crime)

              • ES-1.12.1

                Module FC implements the Financial Action Task Force (FATF) recommendations on money laundering and special recommendations on terrorism financing that are relevant to the investment business sector in Bahrain.

              • ES-1.12.2

                The Module contains detailed requirements relating to:

                (a) Customer identification;
                (b) Reporting;
                (c) Staff awareness and training;
                (d) The appointment of a money laundering reporting officer;
                (e) Compliance monitoring;
                (f) Record-keeping arrangements;
                (g) Segregation of duties;
                (h) Special measures for non-cooperative countries; and
                (i) Contact with relevant authorities.
                Amended: January 2007

              • ES-1.12.3

                Item FC (iv) in Part B of Volume 4 (Investment Business) provides further examples of transactions that may be suspicious or unusual.

              • ES-1.12.4

                In addition, Module FC has a chapter dealing with financial fraud, which imposes certain basic systems and control, and reporting requirements, in this area. These requirements apply to Category 1 investment firms and Category 2 investment firms only.

                Amended: July 2007

            • ES-1.13 Module TC (Training and Competency)

              • ES-1.13.1

                Module TC contains requirements that have to be met by investment firm licensees with respect to training and competency of individuals undertaking controlled functions (i.e. approved persons).

                Amended: October 2013
                Amended: July 2010
                Amended: January 2007

              • ES-1.13.2

                Module TC provides Rules and Guidance to investment firm licensees to ensure satisfactory levels of competence, in terms of an individual's knowledge, skills, experience and professional qualifications.

                Amended: July 2010
                Amended: January 2007

              • ES-1.13.3

                Module TC applies in full to all three categories of investment firm licensees authorised in Bahrain.

                Added: July 2010

              • ES-1.13.4

                The requirements in the Module cover the recruitment and assessing of competence as well as the training and maintenance of competence. In addition, it includes appendices providing guidance on qualifications and core competencies for controlled functions as well professional bodies and qualifications.

                Added: July 2010

            • ES-1.14 [This Section was deleted in January 2012]

              • ES-1.14.1

                [This paragraph was deleted in January 2012]

                Deleted: January 2012

              • ES-1.14.2

                [This paragraph was deleted in January 2012]

                Deleted: January 2012

            • ES-1.15 Module BR (CBB Reporting)

              • ES-1.15.1

                Module BR sets out requirements regarding prudential reporting to the CBB, as well as certain pre- and post-notification requirements. It also describes the information gathering powers of the CBB.

                Amended: July 2007

              • ES-1.15.2

                Module BR, amongst other things, prescribes quarterly prudential reporting to the CBB (Form QPR). All investment firm licensees are required to submit these: however, Category 3 investment firms are only required to complete a subset of the sections included in Form QPR.

                Amended: July 2007

              • ES-1.15.3

                Module BR also obliges all investment firm licensees to seek prior approval for certain events, including proposed changes in the licensee's name, legal status and controllers, as well as other events such as carrying out new regulated investment services or opening new offices overseas.

                Amended: July 2010
                Added: July 2007

              • ES-1.15.4

                Finally, Module BR also requires the post-notification of various events, such as breaches of CBB requirements; legal, regulatory or other proceedings being taken against the licensee; or instances of fraud, errors or other irregularities occurring, that could have a material impact on the licensee.

                Added: July 2007

            • ES-1.16 Module PD (Public Disclosure)

              • ES-1.16.1

                This Module is to be issued as part of the second phase release of Volume 4.

                Amended: January 2007

              • ES-1.16.2

                When finalised, the Module will contain certain provisions relating to public disclosures, such as the need to publish annual accounts.

            • ES-1.17 Module EN (Enforcement)

              • ES-1.17.1

                This Module outlines enforcement powers and processes that may be applied by the CBB to address failures by investment firm licensees, approved persons or registered persons. The purpose of such measures is to encourage a high standard of compliance by all those authorised by the CBB, thus reducing risk to licensees' clients, counterparties and the financial system.

                Amended: January 2007

              • ES-1.17.2

                The enforcement measures contained in the Module are of varying severity and will be used in keeping with the CBB's assessment of the contravention, reserving the most serious enforcement measures for the most serious of contraventions.

                Amended: January 2007

              • ES-1.17.3

                The CBB's enforcement mechanisms include:

                (a) Formal requests for information;
                (b) Investigations;
                (c) Formal warnings;
                (d) Directions;
                (e) Financial penalties;
                (f) Administration;
                (g) Cancellation of license; and
                (h) Cancellation of 'fit and proper' approval.
                Amended: July 2007

              • ES-1.17.4

                A reminder of criminal sanctions contained in the CBB Law is also set out in Chapter EN-10.

                Amended: January 2007

            • ES-1.18 [This Section was deleted in January 2012 as it is included in Chapter BC-3]

              • ES-1.18.1

                [This paragraph was deleted in January 2012 as it is included in Chapter BC-3]

                Deleted: January 2012

              • ES-1.18.2

                [This paragraph was deleted in January 2012 as it is included in Chapter BC-3]

                Deleted: January 2012

            • ES-1.19 Module CP (Compensation)

              • ES-1.19.1

                This Module provides space, for possible inclusion at a later date, for a description of any investor protection scheme, should such a scheme be developed in cooperation with the industry.

                Amended: January 2007

            • ES-1.20 Sector Guides (Modules C1, C2, C3 and IF)

              • ES-1.20.1

                These Modules will be issued as part of the second phase release of Volume 4.

                Amended: January 2007

              • ES-1.20.2

                When finalised, these Modules will provide a summary — consisting solely of Guidance material — highlighting the key requirements applicable to the different categories of  investment firm licensees, as well as to those investment firm licensees that operate solely on Islamic principles.

                Amended: July 2007

          • ES-2 Implementation and Transition Rules

            • ES-2.1   30 April 2006

              • ES-2.1.1

                Investment firm licensees issued a license after 30 April 2006 must comply with the requirements contained in the first phase release of Volume 4 (Investment Business) from the date of issue of their license.

                Amended: January 2007

              • ES-2.1.2

                The earliest effective date of Volume 4 (Investment Business), therefore, is 30 April 2006.

              • ES-2.1.3

                The first phase release of Volume 4 comprises Modules ES, UG, AU, PB, AA, GR, CA, BC, CL, FC and EN.

              • ES-2.1.4

                Other implementation deadlines are prescribed in Sections ES-2.2 to ES-2.4.

            • ES-2.2   1 July 2006

              • ES-2.2.1

                Unless otherwise agreed to in writing with the CBB, investment firm licensees issued a license before 30 April 2006 must comply with the requirements contained in the first phase release of Volume 4 (Investment Business) by 1 July 2006, with the exceptions of Modules CA, BC and CL.

                Amended: January 2007

              • ES-2.2.2

                Therefore, for investment firms already licensed when Volume 4 was first issued in April 2006, the first implementation date (unless additional transition arrangements have been agreed with in writing with the CBB) is 1 July 2006. A later implementation deadline is given for Modules CA, BC and CL, on account of the wide scope of their requirements: see Section ES-2.3

                Amended: January 2007

              • ES-2.2.3

                The first phase release of Volume 4 comprises Modules ES, UG, AU, PB, AA, GR, CA, BC, CL, FC and EN.

              • ES-2.2.4

                Other implementation deadlines are prescribed in Sections ES-2.1, ES-2.3 and ES-2.4.

              • ES-2.2.5

                On an exceptional basis, the CBB may provide for grandfathering or additional transitional measures for certain firms, where these are faced with difficulties in meeting their implementation deadlines, provided such arrangements do not cause excessive risk to investors or other licensees.

                Amended: January 2007

              • ES-2.2.6

                Investment firm licensees who were licensed prior to the publication of Volume 4 (Investment Business) do not need to resubmit an application for a license.

              • ES-2.2.7

                Investment firm licensees licensed prior to 30 April 2006 will have their license category, and the scope of their authorisation, confirmed in an exchange of letters.

                Amended: July 2010

            • ES-2.3   1 January 2007

              • ES-2.3.1

                Unless otherwise agreed to in writing, investment firm licensees issued a license before 30 April 2006 must comply with the requirements contained in Modules CA, BC and CL by 1 January 2007.

              • ES-2.3.2

                In other words, investment firm licensees licensed prior to the introduction of Volume 4 in April 2006 are required to comply with the first phase release of Volume 4 by 1 July 2006, except for Modules CA, BC and CL which have to be complied with from 1 January 2007 onwards (cf. Rules ES-2.2.1 and ES-2.3.1). Investment firm licensees licensed after the introduction of Volume 4 in April 2006, are required to comply with the first phase release of Volume 4 from the date of issue of their license (cf. Rule ES-2.1.1).

                Amended: July 2010
                Amended: July 2007

              • ES-2.3.3 [This Paragraph deleted 07/2007.]

                Deleted: July 2007

              • ES-2.3.4 [This Paragraph deleted 07/2007.]

                Deleted: July 2007

            • ES-2.4 1 January 2008

              • ES-2.4.1

                Investment firm licensees licensed prior to 1 July 2007 must comply with the requirements contained in Modules HC, RM and BR by 1 January 2008. Licensees issued a license after 1 July 2007 must comply with these Modules (as well as other content of Volume 4 of the CBB Rulebook), from the date of issue of their license.

                Amended: July 2007

              • ES-2.4.1A

                As the reporting forms under Chapter BR-1, Prudential Reporting, other than the Quarterly Prudential Report which has been issued in March 2009, are under development, investment firm licensees benefit from a further transition period from the requirements of this Chapter. Licensees will be informed at a later date of the implementation date of Chapter BR-1.

                Amended: October 2009
                Added: July 2008

              • ES-2.4.2

                Modules HC, RM and BR were issued in July 2007. Rule ES-2.4.1 means that existing investment firm licensees have therefore a 6-month implementation grace period.

                Amended: July 2008
                Amended: July 2007

            • ES-2.5 Module TC — Training and Competency

              • ES-2.5.1

                The requirements of Module TC for investment firm licensees are effective from 1st July 2010.

                Adopted: July 2010

              • ES-2.5.2

                Where approved persons holding controlled functions within the investment firm licensee, do not meet the qualifications and core competencies outlined in Appendix TC-1 at the time of the issuance of Module TC, the investment firm licensee must ensure that such individuals will meet the requirements of Module TC by 31st December 2011 at the latest.

                Amended: October 2013
                Adopted: July 2010

            • ES-2.6 Module BC — Business Conduct

              • ES-2.6.1

                The requirements of Chapter BC-3, customer complaints procedures, for investment firm licensees are effective from 31st March 2012.

                Added: January 2012

      • High Level Standards

        • AU Authorisation

          • AU-A Introduction

            • AU-A.1 Purpose

              • Executive Summary

                • AU-A.1.1

                  The Authorisation Module sets out the Central Bank of Bahrain's (CBB) approach to licensing providers of regulated investment services in the Kingdom of Bahrain. It also sets out CBB requirements for approving persons in those providers.

                  Amended: January 2011
                  Amended: July 2007

                • AU-A.1.2

                  Persons who provide any of the following regulated investment services within or from the Kingdom of Bahrain, and are not otherwise licensed by CBB as a bank, are required to be licensed by CBB as an investment firm licensee:

                  a) Dealing in financial instruments as principal;
                  b) Dealing in financial instruments as agent;
                  c) Arranging deals in financial instruments;
                  d) Managing financial instruments;
                  e) Safeguarding financial instruments (i.e. a custodian);
                  f) Advising on financial instruments; and
                  g) Operating a collective investment undertaking (i.e. an operator)
                  Amended: July 2007

                • AU-A.1.3

                  Three categories of investment firm license are provided for, depending on the type of regulated investment services undertaken. The requirements in Volume 4 (Investment Business) are tailored in certain respects, according to the license category concerned, in order to address the specific features and risks associated with each type of regulated investment service.

                  Amended: July 2007

                • AU-A.1.4

                  Collectively, licensed providers of regulated investment services are called investment firm licensees. Bahrain-incorporated investment firm licensees are called Bahraini investment firm licensees. Investment firm licensees that are incorporated in an overseas jurisdiction and operate via a branch presence in the Kingdom of Bahrain are called overseas investment firm licensees. The same naming convention applies to the various sub-categories of investment firms (e.g. Bahraini Category 1 investment firm, overseas Category 1 investment firm etc).

                  Amended: July 2007

                • AU-A.1.5

                  Regulated investment services are defined in Section AU-1.4. Their definition excludes operating a recognised exchange (such as the Bahrain Stock Exchange) and related infrastructure (such as central clearing and depository systems). These activities are separately addressed, in the form of individual regulations issued by the CBB's Capital Markets Supervision Directorate, and the Bahrain Stock Exchange.

                  Amended: July 2007

                • AU-A.1.6

                  Persons undertaking certain functions in relation to investment firm licensees require prior CBB approval. These functions (called 'controlled functions') include Directors and members of senior management. The controlled functions regime supplements the licensing regime by ensuring that key persons involved in the running of investment firm licensees are fit and proper. Those authorised by the CBB to undertake controlled functions are called approved persons.

                  Amended: July 2007

              • Retaining Authorised Status

                • AU-A.1.7

                  The requirements set out in Chapters AU-2 and AU-3 represent the minimum conditions that have to be met in each case, both at the point of authorisation and on an on-going basis thereafter, in order for authorised status to be retained.

                  Amended: July 2007

              • Representative Offices and Ancillary Services Providers

                • AU-A.1.8

                  Neither representative offices of foreign investment firms, nor ancillary services providers, are covered in Volume 4 (Investment Business). Requirements covering these types of activities will instead be included in Volume 5.

                  Amended: July 2007

                • AU-A.1.9

                  Volume 5 (Specialised Activities) of the CBB Rulebook issued in December 2010 deals with representative offices of foreign investment firms.

                  Amended: October 2011
                  Amended: July 2007

                • AU-A.1.10

                  Until such time as Volume 5 (Specialised Activities) of the CBB Rulebook is issued, ancillary services providers remain subject to the requirements contained in the CBB's 'Standard Conditions and Licensing Criteria', dealing with providers of ancillary services to the financial sector.

                  Amended: July 2007

              • Legal Basis

                • AU-A.1.11

                  This Module contains the CBB's Directive, Regulation and Resolutions (as amended from time to time) regarding authorisation under Volume 4 of the CBB Rulebook. It is applicable to all investment firm licensees (as well as to approved persons), 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 includes the requirements contained in Resolution No (1) of 2007 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 contains requirements governing the 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.

                  Amended: July 2015
                  Amended: January 2013
                  Amended: October 2011
                  Amended: January 2011
                  Adopted: July 2007

                • AU-A.1.12

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

                  Adopted: July 2007

              • AU-A.1.2

                Effective up to Jun 30 2007.

                The Module builds on the legal requirements contained in Legislative Decree No. 23 of 1973, with respect to financial and investment organisations ("the BMA Law 1973"). The Module is issued under legal powers granted to the BMA by the BMA Law 1973, contained in articles 14(d), 14(g) and 41.

              • Licensing

                Effective up to Jun 30 2007.

              • Approved Persons

                Effective up to Jun 30 2007.

              • Registered Administrators

                Effective up to Jun 30 2007.

              • AU-A.1.8

                Effective up to Jun 30 2007.

                Persons carrying on the business of an administrator require prior registration by the BMA. Administrators are persons who administer financial instruments and related services such as cash/collateral management. They must satisfy certain basic conditions in order to be registered, following which they are subject to only a few on-going requirements. Unlike licensees, registered administrators are not subject to detailed on-going supervision or extensive regulation. Those authorised by the BMA to carry on administration services are called registered administrators.

            • AU-A.2 Module History

              • Evolution of Module

                • AU-A.2.1

                  This Module was first issued in April 2006, as part of the first phase of Volume 4 (Investment Business) to be released. It is dated April 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.

                  Amended: July 2007

                • AU-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB, as well as other policy changes. However, new calendar quarter dates were only issued where these involved changes in the substance of Rules.

                  Adopted: July 2007

                • AU-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  AU-A.1.3 07/2006 Deletion of reference to 'acting as a trust service provider'.
                  AU-1.1.13 07/2006 Deletion of reference to 'acting as a trust service provider'.
                  AU-1.1.14 07/2006 Clarification of scope of exemption.
                  AU-1.4.50 07/2006 Deletion of paragraph relating to 'acting as a trust service provider'.
                  AU-1.4.51 07/2006 Deletion of paragraph relating to 'acting as a trust service provider'.
                  AU-A.1 07/2007 Changes to reflect new CBB Law and reclassification of administrators as ancillary services providers (i.e. licensees, to be subject to Volume 5 of the CBB Rulebook).
                  AU-1.3 07/2007 Deletion of this Section to reflect reclassification of administrators as ancillary services providers (i.e. licensees, to be subject to Volume 5 of the CBB Rulebook).
                  AU-1.4 07/2007 Clarification of exemption in Rule AU-1.4.8; and minor change to definition of collective investment undertaking (to align with new Module CIU, Volume 6).
                  AU-4 07/2007 Chapter deleted to reflect reclassification of administrators as ancillary services providers (i.e. licensees, to be subject to Volume 5 of the CBB Rulebook).
                  AU-5.1 07/2007 Section amended to reflect new procedures reflecting CBB Law.
                  AU-5.3 07/2007 Deleted following reclassification of administrators as ancillary services providers (i.e. licensees, to be subject to Volume 5 of the CBB Rulebook).
                  AU-5.4 07/2007 Amended to reflect new CBB Law procedures.
                  AU-5.5 07/2007 Amended to reflect new CBB Law procedures.
                  AU-6 07/2007 New Chapter AU-6 on application and license fees (old material on fees, previously contained in Module GR, deleted).
                  AU-5.1.5 and 5.1.5A 01/2008 Clarified CBB's requirements for letters of comfort and/or letters of guarantee.
                  AU-5.1.13 01/2008 Clarified CBB's requirements for items that must be in place within 6 months of a new license being issued.
                  AU-1.1.18 04/2008 Clarified that Category 3 investment firms must be independent.
                  AU-5.2.2 04/2008 Clarified to whom Form 3 should be sent to if dealing with a request for an appointment of MLRO from an existing investment firm licensee.
                  AU-5.5.5 04/2008 Outlined CBB's requirements in instances where a controlled function becomes vacant.
                  AU-5.2.5 07/2008 Clarified that the refusal decision by the CBB to grant a person 'approved person' status is issued to the investment firm licensee
                  AU-5.2.6 07/2008 Added cross reference.
                  AU-1.1.18 10/2009 Clarified that Category 3 investment firms must refrain from receiving fees or commissions from parties other than clients.
                  AU-1.1.24 10/2009 Paragraph changed from Guidance to Rule.
                  AU-1.2 10/2009 Amended to reflect requirements of Modules HC and RM.
                  AU-1.2.2 10/2009 Controlled function of Deputy MLRO added.
                  AU-1.2.15 10/2009 New Rule added to clarify definition of Compliance Officer and MLRO/Deputy MLRO.
                  AU-1.4.11 10/2009 Clarified that dealing in financial instruments as principal includes underwriting and private placement.
                  AU-1.4.19 10/2009 Clarified that dealing in financial instruments as agent does not include execution of deals.
                  AU-2.3 10/2009 Updated to include CBB's requirements for controllers.
                  AU-5.1.5 10/2009 Clarified that copy of commercial registration certificate is required for existing Bahraini companies only.
                  AU-5.2 10/2009 Updated to include CBB's information requirements for the appointment of approved persons.
                  AU-B.1.3, AU-2.5.2 and AU-2.7.2 07/2010 Paragraphs deleted.
                  AU-B.2 and AU-5.5.5 07/2010 Amended heading.
                  AU-1.2.9 and AU-5.5.1 07/2010 Added cross reference.
                  AU-1.4.33 and AU-1.4.37 07/2010 Paragraphs changed from Guidance to Rules and amended to clarify definition of safeguarding financial instruments.
                  AU-1.4.42 and AU-1.4.43 07/2010 New rules added to clarify definition of advising on financial instruments.
                  AU-1.4.49, AU-1.4.50, AU-1.4.51 and AU-5.5.5 07/2010 Amended cross reference.
                  AU-1.2.9, AU-1.4.49, AU-1.4.50, AU-1.4.51, AU-2.3.5, AU-5.1.6, AU-5.1.12A, AU-5.1.12B, AU-5.1.12D and AU-6.1.1 07/2010 Paragraphs amended.
                  AU-5.1.5A 07/2010 Paragraphs amended and changed to Rule.
                  AU-5.1.12K 07/2010 Paragraph added to require confirmation that capital has been paid in before the final approval for a license.
                  AU-5.1.13 07/2010 Updated to include new requirement to be submitted within six months of the license being issued.
                  AU-6.2 07/2010 Updated to include CBB's annual license fee requirements.
                  AU-A.1.11 01/2011 Clarified legal basis.
                  AU-1.1.2 01/2011 Clarified guidance.
                  AU-1.1.21, AU-1.1.22 and AU-1.2.1(f) 01/2011 Paragraphs deleted for consistency in CBB Rulebook.
                  AU-1.2 01/2011 Amended as requirements moved from Module HC to Module AU.
                  AU-1.4.25 01/2011 Amended guidance to reflect new definitions related to licensed exchange(s).
                  AU-5.1.13(j) 01/2011 Added language requirements for commercial registration certificate.
                  AU-5.1.5A 01/2011 Amended CBB's requirements concerning letters of guarantee to be submitted with licensing application.
                  AU-5.1.13 01/2011 Added requirement to submit copy of licensee's business card and any written communication including a statement that the investment firm is licensed by the CBB.
                  AU-5.5.3 01/2011 Clarified guidance.
                  AU-1.2.16 04/2011 Added a definition Paragraph for the compliance officer.
                  AU-5.1.5(m) 04/2011 Corrected typo and added clarification to requirements dealing with private placements.
                  AU-6.2.9A 04/2011 Added the requirement for annual fees for SPV's to be in line with the requirements of Resolution No (1) of 2007.
                  AU-A.1.9 10/2011 Guidance Paragraph amended as Volume 5_Representative Offices was issued in December 2010.
                  AU-A.1.11 10/2011 Legal basis updated to reflect all Articles of the CBB Law covered by this Module as well as applicable Resolutions.
                  AU-5.5 10/2011 Clarified language on cancellation of a license to be in line with other Volumes of the CBB Rulebook.
                  AU-1.1.14, AU-1.4.11A and AU-1.4.11B 01/2012 Guidance in AU-1.1.14 amended and changed to Rule and moved to AU-1.4.11A and additional guidance added as AU-1.4.11B.
                  AU-1.4.19 and AU-1.4.19A 01/2012 Clarified Rule AU-1.4.19 and added guidance for Category 3 investment firms.
                  AU-1.4.33 01/2012 Added reference to Volume 5 (Administrators) and amended Rule.
                  AU-2.2.2 and AU-2.2.3 01/2012 Restructured and amended guidance into two Paragraphs, including one guidance and one Rule.
                  AU-2.3.2 01/2012 Clarified application of Rule for Category 1 and 2 investment firm licensees.
                  AU-5.5.5 01/2012 Clarified Rule.
                  AU-6.2.9B 01/2012 Guidance added to clarify the non application of fees for SPVs established for the purpose of setting up a locally domiciled CIU.
                  AU-1.2.13, AU-1.2.13A and AU-1.2.13B 07/2012 Clarified Rule and added Paragraphs on investment consultant and investment adviser.
                  AU-1.4.2 and AU-5.5.4A 10/2012 Corrected cross reference.
                  AU-1.1.25, AU-1.2.13, AU-1.4.11, AU-1.4.11A, AU-1.4.15, AU-1.4.17., AU-1.4.18, AU-1.4.28, AU-1.4.29, AU-1.4.41 and AU-1.4.45 10/2012 The term 'underwrite/underwriting' has now been defined and included in the Glossary under Part B of Volume 4.
                  AU-1.4.15 10/2012 Clarified Rule dealing with providing credit.
                  AU-1.4.52 10/2012 Reference updated to reflect the issuance of Volume 7 (CIU).
                  AU-A.1.11 01/2013 Updated legal basis.
                  AU-B.1.1 01/2013 Updated prohibition as per issuance of Resolution No.(16) for the year 2012.
                  AU-1.1 01/2013 References added to requirements under Resolution No.(16) for the year 2012.
                  AU-1.1.24 04/2013 Added cross reference.
                  AU-6.2 07/2013 Amended due date and collection process for annual license fees.
                  AU-1.1.24, AU-1.1.24A and AU-1.1.24B 10/2014 Amended requirements to have a Shari'a Supervisory Board based on the category of investment firm licensee.
                  AU-1.4.11 and AU-1.4.11B 10/2014 Clarified the meaning of dealing in financial instruments as a principal and added cross reference to approval from CBB's Capital market Supervision Directorate as well as requirements under Module OFS of Volume 6 of the CBB Rulebook.
                  AU-5.1.7A 10/2014 Clarified that any PPM issued to raise capital must comply with module OFS and is subject to the CBB's Capital Market Supervision Directorate's prior approval.
                  AU-A.1.11 07/2015 Legal basis updated to reflect Resolution No (23) of 2015.
                  AU-3.2.1 07/2015 Added cross reference to Module TC.
                  AU-5.2 07/2015 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons.
                  AU-5.5.5 07/2015 Clarified interim arrangements for replacement of approved person.
                  AU-1.2 01/2016 Clarified general requirements for approved persons.
                  AU-3 01/2016 Amended to be in line with Resolution No (23) of 2015 on Prior Approval Requirements for Approved Persons.
                  AU-5.1.4 01/2016 Paragraph deleted as no longer applicable.
                  AU-5.2 01/2016 Minor amendments to be aligned with other Volumes of the CBB Rulebook.
                  AU-1.1.18 10/2016 Added subparagraph (d)
                  AU-1.1.18A 10/2016 Changed 'not limited' to 'in relation'
                  AU-1.1.18B 10/2016 Deleted subparagraph (f)
                  AU-5.2.3 10/2016 Added to Rule new subparagraph (e)
                  AU-5.6 07/2017 Added new Section on Publication of the Decision to Grant, Cancel or Amend a License
                  AU-1.2.2 04/2018 Amended Paragraph
                  AU-5.1.1 04/2018 Amended Paragraph
                  AU-5.1.12E 04/2018 Amended Paragraph
                  AU-5.2.2 04/2018 Amended Paragraph
                  AU-1.4.41A 04/2019 Added a new Paragraph on digital investment advice.
                  AU-1.2.7 07/2019 Amended definition of a Director.
                  AU-1.4.33 07/2019 Amended Paragraph.
                  AU-5.1.1 07/2019 Amended Paragraph to remove references to hardcopy Form 1 submission to online submission.

              • Superseded Requirements

                • AU-A.2.4

                  This Module supersedes the following provisions contained in circulars or other regulatory instruments:

                  Circular/other reference Provision Subject
                  Standard Conditions and Licensing Criteria: investment advisers/brokers. All articles Scope of license and licensing conditions.
                  Standard Conditions and Licensing Criteria: broking company All articles Scope of license and licensing conditions.
                  Standard Conditions and Licensing Criteria: stockbrokerage All articles Scope of license and licensing conditions.
                  Circular BC/11/98, dated 27/7/98 All articles Appointment and suitability of Directors and senior managers ('fit and proper').
                  Amended: July 2007

                • AU-A.2.5

                  Further guidance on the implementation and transition to Volume 4 (Investment business) is given in Module ES (Executive Summary).

                  Amended: July 2007

          • AU-B Scope of Application

            • AU-B.1 The Public

              • AU-B.1.1

                The Authorisation requirements in Chapter AU-1 are generally applicable to the public, in that they prevent a person (whether legal or natural) from undertaking certain specified activities if they do not hold the appropriate authorisation from CBB or marketing any financial services unless specifically allowed to do so by the CBB (see Rule AU-1.1.1). In addition, those applying for authorisation are also required to comply with the relevant requirements and procedures contained in this Module.

                Amended: January 2013
                Amended: July 2007

              • AU-B.1.2

                Two types of authorisation are prescribed:

                (i) Any person seeking to provide a regulated investment service within or from the Kingdom of Bahrain must hold the appropriate CBB license (see AU-1.1); and
                (ii) Natural persons wishing to perform a controlled function in an investment firm licensee also require prior CBB approval, as an approved person (see AU-1.2).
                Amended: July 2007

              • AU-B.1.3

                [This Paragraph deleted 07/2010.]

                Deleted: July 2010

            • AU-B.2 Licensees and Authorised Persons

              • AU-B.2.1

                Various requirements in Chapters AU-2 to AU-5 inclusive also apply to persons once they have been authorised by the CBB (whether as licensees or approved persons).

                Amended: July 2007

              • AU-B.2.2

                Chapter AU-2 applies to investment firm licensees (not just applicants), since licensing conditions have to be met on a continuous basis by licensees. Similarly, Chapter AU-3 applies to approved persons on a continuous basis; it also applies to investment firm licensees seeking an approved person authorisation. Chapter AU-5 contains requirements applicable to licensees, with respect to the starting up of their operations, as well as to licensees and approved persons, with respect to the amendment or cancellation of their authorised status. Finally, Section AU-6.2 imposes annual fees on licensees.

                Amended: July 2007

          • AU-1 Authorisation Requirements

            • AU-1.1 Licensing

              • AU-1.1.1

                No person may:

                (a) Undertake (or hold themselves out to undertake) regulated investment services, by way of business, 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 services 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 services.
                Amended: January 2013
                Amended: July 2007

              • AU-1.1.2

                For the purposes of Rule AU-1.1.1(a), please refer to Section AU-1.4 for the definition of 'regulated investment services' and 'by way of business'. Such activities will be deemed to be undertaken within or from the Kingdom of Bahrain if, for example, the person concerned:

                (a) Is incorporated in the Kingdom of Bahrain;
                (b) Uses an address situated in the Kingdom of Bahrain for its correspondences; or
                (c) Directly solicits clients.
                Amended: January 2011
                Amended: July 2007

              • AU-1.1.3

                For the purposes of Rule AU-1.1.1(b), persons would be considered in breach of this requirement if they were to trade as, or incorporate a company in Bahrain with a name containing the words (or the equivalents in any language) 'adviser', 'consultant', or 'manager' in combination with 'investment', or 'portfolio', without holding the appropriate CBB license or the prior approval of the CBB.

                Amended: July 2007

              • AU-1.1.3A

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

                Added: January 2013

              • AU-1.1.3B

                Persons in breach of Subparagraph AU-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-10.2A).

                Added: January 2013

              • AU-1.1.4

                Where a person is licensed under Volumes 1 or 2, i.e. as a bank, then a separate license under Volume 4 is not required in order to undertake activities of the kind specified under Section AU-1.4.

              • AU-1.1.5

                Persons licensed as banks by the CBB may also undertake the specific activities covered by the definition of regulated investment services (such as trading in financial instruments as principal), since these specific activities also form part of the definition of regulated banking services (or regulated Islamic banking services in the case of Islamic banks). In such cases, banks are not required to hold a separate investment firm license.

                Amended: July 2007

              • AU-1.1.6

                Depending on the type of regulated investment services that a person wishes to undertake, applicants must seek to be licensed either as a Category 1, a Category 2 or a Category 3 investment firm.

              • AU-1.1.7

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

                Amended: July 2007

              • AU-1.1.8

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

                (a) A business plan specifying the type of business to be conducted;
                (b) Application forms for all controllers; and
                (c) Application forms for all controlled functions.
                Amended: July 2007

              • AU-1.1.9

                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: July 2007

              • AU-1.1.10

                Detailed rules and guidance regarding information requirements and processes for licenses can be found in Section AU-5.1. As specified in Paragraph AU-5.1.12, 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.

                Amended: July 2007

              • AU-1.1.11

                All applicants seeking an investment firm license must satisfy the CBB that they meet, by the date of authorisation, the minimum criteria for licensing, as contained in Chapter AU-2. Once licensed, investment firm licensees must maintain these criteria on an on-going basis.

                Amended: July 2007

              • Investment Firm License Categories

                • AU-1.1.12

                  For the purposes of Volume 4 (Investment Business), regulated investment services may be undertaken under three categories of investment firms as follows:

                  Amended: July 2007

                • Category 1

                  • AU-1.1.13

                    For the purposes of Volume 4 (Investment Business), Category 1 investment firms may undertake (subject to Rule AU-1.1.19) any regulated investment service, as listed below:

                    a) Dealing in financial instruments as principal;
                    b) Dealing in financial instruments as agent;
                    c) Arranging deals in financial instruments;
                    d) Managing financial instruments;
                    e) Safeguarding financial instruments (i.e. a custodian);
                    f) Advising on financial instruments; and
                    g) Operating a collective investment undertaking (i.e. an operator).
                    Amended: July 2007

                  • AU-1.1.14

                    [This Paragraph was moved and amended to Paragraph AU-1.4.11A in January 2012].

                    Amended: January 2012
                    Amended: July 2007

                • Category 2

                  • AU-1.1.15

                    For the purposes of Volume 4 (Investment Business), Category 2 investment firms may undertake (subject to Rule AU-1.1.19) any regulated investment service (as listed in Rule AU-1.1.13), except that of 'dealing in financial instruments as principal'.

                  • AU-1.1.16

                    A Category 2 investment firm cannot, therefore, trade in financial instruments for its own account ('dealing in financial instruments as principal'), but it may conduct all other types of regulated investment services, including holding client assets.

                    Amended: July 2007

                • Category 3

                  • AU-1.1.17

                    For the purposes of Volume 4 (Investment Business), Category 3 investment firms may undertake (subject to Rules AU-1.1.18 and AU-1.1.19) the following regulated investment services only:

                    a) Arranging deals in financial instruments; and
                    b) Advising on financial instruments.
                    Amended: July 2007

                  • AU-1.1.18

                    When undertaking either of the regulated investment services listed under Rule AU-1.1.17, Category 3 investment firms:

                    a) Must be independent;
                    b) May not hold any client assets;
                    c) Must refrain from receiving any fees or commissions from any party other than the client; and
                    (d) Must not have an 'agency' relationship (tied agent) with an investment provider.
                    Amended: October 2016
                    Amended: October 2009
                    April 2008
                    Amended: July 2007

                  • AU-1.1.18A

                    In assessing the independence of a Category 3 investment firm, the CBB will take into account the regulated investment services offered in relation to financial instruments of a related party.

                    Amended: October 2016
                    Adopted: April 2008

                  • AU-1.1.18B

                    For the purpose of Paragraph AU-1.1.18A, a related party of a Category 3 investment firm includes:

                    (a) A controller of the Category 3 investment firm as defined in Module GR;
                    (b) A close link of the Category 3 investment firm as defined in Module GR;
                    (c) An associate of a controller as defined in Module GR;
                    (d) The extended family of a controller including a father, mother, father-in-law, mother-in-law, brother, sister, brother-in-law, sister-in-law, or grandparent;
                    (e) A corporate entity, whether or not licensed or incorporated in Bahrain, where any of the persons identified in Sub-Paragraphs (c) and (d) is a Director or would be considered a controller were the definition of controller set out in Paragraph GR-5.2.1 applied to that corporate entity; and
                    (f) [This Subparagraph has been deleted].
                    Amended: October 2016
                    Adopted: April 2008

              • Combining Regulated Investment Services

                • AU-1.1.19

                  Investment firm licensees may combine two or more regulated investment services, providing these fall within the permitted list of services for their investment firm category, and such combinations are not restricted by Module BC (Business Conduct).

                • AU-1.1.20

                  Module BC (Business Conduct) may restrict licensees from undertaking certain combinations of activities, where such combinations potentially create conflicts of interest that could compromise the interests of customers. See Chapter BC-2.

              • Suitability

                • AU-1.1.21

                  [This Paragraph was deleted in January 2011].

                  Deleted: January 2011
                  Amended: July 2007

                • AU-1.1.22

                  [This Paragraph was deleted in January 2011].

                  Deleted: January 2011
                  Amended: July 2007

              • Conventional and Islamic Investment Firms

                • AU-1.1.23

                  Investment firm licensees may deal in both conventional and Islamic financial instruments. Only those investment firm licensees whose operations are fully shari'a compliant, however, may hold themselves out to be an Islamic investment firm.

                  Amended: July 2007

                • AU-1.1.24

                  Islamic investment firms are required to comply with relevant AAOIFI standards (see Section AA-4.1).

                  Amended: October 2014
                  Amended: April 2013
                  Amended: October 2009
                  July 2007

                • AU-1.1.24A

                  In accordance with Paragraph HC-9.2.1, Category 1 and 2 Islamic investment firms must maintain a Shari'a Supervisory Board, comprised of at least 3 Shari'a board members, to verify that their operations are Shari'a compliant.

                  Added: October 2014

                • AU-1.1.24B

                  Category 3 Islamic investment firms must appoint a minimum of one Shari'a advisor or scholar to verify that their operations are Shari'a compliant.

                  Added: October 2014

                • AU-1.1.25

                  Investment firm licensees (whether conventional or Islamic) may not accept shari'a money placements or deposits. They may not enter into shari'a financing contracts (except where it is an incidental part of assisting a client to buy, sell, subscribe for or underwrite a financial instrument). Finally, they may not offer Shari'a Profit Sharing Investment Accounts (whether restricted or unrestricted).

                  Amended: October 2012
                  Amended: July 2007

                • AU-1.1.26

                  Shari'a money placements or deposits include money taken under q'ard or al-wadia contracts. Shari'a financing contracts include contracts such as murabaha, bay muajjal, bay islam, ijara wa iktina and istisna'a. Profit sharing investment accounts include those accounts undertaken under mudaraba and musharaka contracts.

                • AU-1.1.27

                  The transactions prohibited under Rule AU-1.1.25 may only be undertaken by bank licensees.

            • AU-1.2 Approved Persons

              • General Requirement

                • AU-1.2.1

                  Investment firm licensee must obtain the CBB's prior written approval for any person wishing to undertake a controlled function in an investment firm licensee. The approval from the CBB must be obtained prior to their appointment, subject to the variations contained in Paragraphs AU-1.2.3 to AU-1.2.5.

                  Amended: January 2016
                  Amended: July 2007

                • AU-1.2.2

                  Controlled functions are those of:

                  (a) Director;
                  (b) Chief Executive or General Manager;
                  (c) Head of function;
                  (d) Compliance officer;
                  (e) Money Laundering Reporting Officer;
                  (f) [Subparagraph deleted in January 2011];
                  (g) Member of Shari'a Supervisory Board (where applicable);
                  (h) Financial Instruments Trader; and
                  (i) Investment consultant or investment adviser.
                  Amended: April 2018
                  Amended: January 2016
                  Amended: January 2011
                  Amended: October 2009
                  July 2007

                • AU-1.2.3

                  In the case of Bahraini investment firm licensees, prior approval is required for all of the above controlled functions. Combination of the above controlled functions is subject to the requirements contained in Modules HC and RM.

                  Amended: October 2009
                  July 2007

                • AU-1.2.4

                  In the case of overseas investment firm licensees, prior approval is required for controlled functions (b), defined as the 'Branch Manager' of the Bahrain branch (however titled by the licensee), (c), (d), (e), (f), (h) and (i). Combination of the above controlled functions is subject to the requirements contained in Modules HC and RM.

                  Amended: October 2009
                  July 2007

                • AU-1.2.5

                  Approval for controlled function (g) is required for all investment firm licensees undertaking Islamic transactions.

                  Amended: October 2009

              • Basis for Approval

                • AU-1.2.6

                  Approval under Paragraph AU-1.2.1 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 AU-3.1 and AU-3.2 respectively.

                  Amended: July 2007

              • Definitions

                • AU-1.2.7

                  Director is any person who is a member of the licensee's Board of Directors, and is individually, and collectively with other Directors responsible for directing the affairs and overseeing the activities of the licensee, as detailed in section HC-1.2.

                  Amended: July 2019
                  Amended: July 2007

                • AU-1.2.8

                  The fact that a person may have 'Director' in their job title does not of itself make them a Director within the meaning of the definition noted in Paragraph AU-1.2.7. For example, a 'Director of Marketing', is not necessarily a member of the Board of Directors and therefore may not fall under the definition of Paragraph AU-1.2.7.

                  Amended: July 2007

                • AU-1.2.9

                  Investment firm licensees must appoint a person to undertake the function of Chief Executive, General Manager or Managing Director. The Chief Executive or General Manager means a person who is responsible for the conduct of the licensee (regardless of actual title). The Chief Executive or General Manager must be resident in Bahrain. This person is responsible for the conduct of the whole of the firm, or, in the case of an overseas investment firm licensee, for all of the activities of the branch (ref. HC-6.3.4).

                  Amended: January 2011
                  Amended: July 2010

                • AU-1.2.9A

                  A licensee may appoint a Director on the Board to undertake the responsibility of the Chief Executive or General Manager, i.e a Managing Director, in which case the appointment of a Chief Executive or General Manager in addition to the Managing Director will not be permitted.

                  Amended: April 2011
                  Adopted: January 2011

                • AU-1.2.9B

                  The Chief Executive, General Manager or Managing Director of the licensee:

                  (a) Should be fully responsible for the executive management and performance of the licensee, within the framework of delegated authorities set by the Board;
                  (b) Must devote full-time working hours to the licensee; and
                  (c) Must not be employed at any other firm.
                  Adopted: January 2011

                • AU-1.2.9C

                  The Chairman of the Board may not undertake any executive role, including that of Chief Executive, General Manager or Managing Director.

                  Adopted: January 2011

                • AU-1.2.9D

                  The Chief Executive Officer or Managing Director are not permitted, at any time to assume Chairmanship or Deputy Chairmanship of the Board.

                  Adopted: January 2011

                • AU-1.2.9E

                  Residency requirements apply to Chief Executives, General Managers or Managing Directors: see Section AU-2.2.

                  Adopted: January 2011

                • AU-1.2.10

                  Head of function means a person who exercises major managerial responsibilities, is responsible for a significant business or operating unit, or has senior managerial responsibility for maintaining accounts or other records of the licensee.

                • AU-1.2.11

                  Whether a person is a head of function will depend on the facts in each case and is not determined by the presence or absence of the word in their job title. Examples of head of function might include, depending on the scale, nature and complexity of the business, a deputy Chief Executive; heads of departments such as Risk Management, Compliance or Internal Audit; or the Chief Financial Officer.

                • AU-1.2.12

                  Financial Instruments Trader means a person who is engaged in buying or selling financial instruments.

                  Amended: July 2007

                • AU-1.2.13

                  An investment consultant or investment adviser refers to the function of advising a client or potential client with respect to buying, selling, subscribing for or underwriting a particular financial instrument or exercising any right conferred by such a financial instrument.

                  Amended: October 2012
                  Amended: July 2012
                  Amended: July 2007

                • AU-1.2.13A

                  If a person is merely responsible for maintaining a client relationship and providing administrative support without giving advice, such person is not considered an investment consultant nor an investment adviser and need not be approved by the CBB, as such a function would not be considered a controlled function.

                  Added: July 2012

                • AU-1.2.13B

                  Any other staff of an investment firm licensee must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13. Other approved persons, must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13, unless such approved person has been specifically approved by the CBB as an investment consultant or investment adviser, in addition to their initial controlled function.

                  Added: July 2012

                • AU-1.2.14

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

                  Amended: July 2007

                • AU-1.2.15

                  The controlled function of compliance officer is defined in accordance with the compliance function under Section HC-6.5. The controlled functions of Money Laundering Reporting Officer/Deputy Money Laundering Reporting Officer are defined under Chapter FC-3.

                  Amended: January 2011
                  Amended: October 2009

                • AU-1.2.16

                  All investment firm licensees must designate an employee, of appropriate standing and resident in Bahrain, as compliance officer. The duties of the compliance officer include:

                  (a) Having responsibility for oversight of the licensee's compliance with the requirements of the CBB; and
                  (b) Reporting to the licensee's Board in respect of that responsibility.
                  Amended: July 2012
                  Adopted: April 2011

            • AU-1.3 [This Section deleted 07/2007]

              Deleted: July 2007

              • AU-1.3.1

                Effective up to Jun 30 2007.

                A person may not carry on the business of an administrator without being registered as such with the BMA.

              • AU-1.3.2

                Effective up to Jun 30 2007.

                For the purposes of Rule AU-1.3.1, administrators are defined as persons who administer financial instruments and related services such as cash/ collateral management.

              • AU-1.3.3

                Effective up to Jun 30 2007.

                Acting as an administrator refers to administering certain specified functions in relation to financial instruments that include the following:

                a) legal and fund management accounting services;
                b) client inquiries;
                c) valuation and pricing (including tax returns);
                d) regulatory compliance monitoring;
                e) maintenance of unit-holder register;
                f) distribution of income;
                g) unit issues and redemption;
                h) contract settlements (including certificate dispatch); and
                i) record-keeping.

              • AU-1.3.4

                Effective up to Jun 30 2007.

                An application for registration must be in the form prescribed by the BMA in Section AU-5.3.

              • AU-1.3.5

                Effective up to Jun 30 2007.

                A registered administrator may not undertake any regulated investment services.

            • AU-1.4 Definition of Regulated Investment Services

              • AU-1.4.1

                For the purposes of Volume 4 (Investment Business), regulated investment services are any of the activities listed under Paragraph AU-1.1.13, as further defined in this Section, carried on by way of business.

                Amended: July 2007

              • AU-1.4.2

                For the purposes of Volume 4 (Investment Business), carrying on a regulated investment service by way of business means:

                (a) Undertaking one or more of the activities listed under Paragraph AU-1.1.13 on a professional basis and for commercial gain;
                (b) Holding oneself out as willing and able to engage in that activity; or
                (c) Regularly soliciting other persons to engage in transactions constituting that activity.
                Amended: October 2012
                Amended: July 2007

              • General Exclusions

                • AU-1.4.3

                  A person does not carry on an activity constituting a regulated investment service if the activity:

                  (a) Is carried on in the course of a business which does not ordinarily constitute the carrying on of a regulated activity;
                  (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: July 2007

                • AU-1.4.4

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

                • AU-1.4.5

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

                • AU-1.4.6

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

                  Amended: July 2007

                • AU-1.4.7

                  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 an investment firm.

                  Amended: July 2007

                • AU-1.4.8

                  A person does not carry on an activity constituting a regulated investment service if that person enters into that transaction solely as a nominee for another person, and acts under instruction from that other person; or is an employee or Director of a person who is an investment firm licensee.

                  Amended: July 2007

                • AU-1.4.9

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

                • AU-1.4.10

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

              • Dealing in Financial Instruments as Principal

                • AU-1.4.11

                  Dealing in financial instruments as principal means buying, selling, subscribing for or underwriting any financial instrument on own account, including underwriting transactions.

                  Amended: October 2014
                  Amended: October 2012
                  Amended: October 2009

                • AU-1.4.11A

                  Only Category 1 investment firms are permitted to underwrite the issuance of financial instruments. However, the CBB will only permit such activity if the licensee has the financial ability to absorb the size of the commitment.

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

                • AU-1.4.11B

                  In assessing the financial ability of a licensee, the CBB will consider, amongst other factors, the licensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Any underwriting activities require the prior approval of the CBB's Capital Market Supervision Directorate and are subject to Module OFS (Offering of Securities) of Volume 6 of the CBB Rulebook.

                  Amended: October 2014
                  Added: January 2012

                • AU-1.4.12

                  A person carries on an activity specified in Rule AU-1.4.11 only if he is a market maker or deals on own account on an organised, frequent and systematic basis by providing a system accessible to third parties in order to engage in dealings with them.

                • AU-1.4.13

                  A licensee that carries on an activity of the kind specified by Rule AU-1.4.11 is authorised to act as a market maker and has the ability to deal in financial instruments on terms determined by it. Such a licensee undertakes such an activity using its own financial resources, but may also control client assets or liabilities in the course of its designated investment business.

                  Amended: July 2007

                • AU-1.4.14

                  A person does not carry on an activity specified in Rule AU-1.4.11 if the activity relates to the person issuing his own shares/debentures, warrants or bonds.

                • AU-1.4.15

                  The activity specified in Rule AU-1.4.11 may also include providing credit, where it is an incidental part of buying, selling, subscribing for or underwriting financial instruments. However, the amount provided as credit must be paid out of the investment firm licensee's capital and not out of clients' assets.

                  Amended: October 2012

                • AU-1.4.16

                  Examples of the type of 'incidental' credit activity provided for under Rule AU-1.4.15 include the provision of margin facilities on trading accounts or credit elements intrinsic to a structured or leveraged financial product.

              • Dealing in Financial Instruments as Agent

                • AU-1.4.17

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

                  Amended: October 2012

                • AU-1.4.18

                  A licensee that carries on an activity of the kind specified by Rule AU-1.4.17 is not a market maker, does not have the ability to deal in financial instruments on terms determined by it and does not use its own financial resources for the purpose of buying, selling, subscribing for or underwriting financial instruments. Such a licensee may however receive or hold client assets in connection with a client transaction, in its capacity as agent.

                  Amended: October 2012
                  Amended: July 2007

              • Arranging Deals in Financial Instruments

                • AU-1.4.19

                  Arranging deals in financial instruments means making arrangements on behalf of another person, whether as principal or agent, buying, selling or subscribing for deals in financial instruments. This activity does not include the execution of a deal for which the arrangement has been made.

                  Amended: January 2012
                  Amended: October 2009

                • AU-1.4.19A

                  For Category 3 Investment Firms, the activity of arranging the deals is limited to handling the administration arrangements only.

                  Added: January 2012

                • AU-1.4.20

                  A person does not carry on an activity specified in Rule AU-1.4.19 if the arrangement does not bring about the transaction to which the arrangement relates.

                • AU-1.4.21

                  A person does not carry on an activity specified in Rule AU-1.4.19 if a person's activities are limited solely to introducing clients to licensees.

                • AU-1.4.22

                  The exclusion in Rule AU-1.4.21 does not apply if the agent receives from any person, other than the client, any pecuniary reward or other advantage, for 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 AU-1.4.21 does not apply.

                • AU-1.4.23

                  A person does not carry on an activity specified in Rule AU-1.4.19 merely by providing the means of communication between two parties to a transaction.

                • AU-1.4.24

                  A person does not carry on an activity specified in Rule AU-1.4.19 if they operate an exchange, duly recognised and authorised by the CBB.

                  Amended: July 2007

                • AU-1.4.25

                  The BFX, as a licensed exchange, is not therefore classed as an investment firm licensee subject to Volume 4 (Investment Business). It is subject to separate rules issued by the CBB (see Volume 6 of the CBB Rulebook).

                  Amended: January 2011
                  Amended: July 2007

                • AU-1.4.26

                  Negotiating terms for an investment on behalf of a client is an example of an activity which may be regarded as activities of the kind specified in Rule AU-1.4.19.

                • AU-1.4.27

                  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 AU-1.4.19:

                  (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: July 2007

                • AU-1.4.28

                  The activity specified in Rule AU-1.4.19 may also include arranging credit, where it is an incidental part of assisting a client to buy, sell, subscribe for or underwrite any financial instrument.

                  Amended: October 2012

                • AU-1.4.29

                  Under Rule AU-1.4.28, arranging credit is an activity specified in Rule AU-1.4.19, only where it forms part of other arrangements to assist a client to buy, sell, subscribe for or underwrite a financial instrument. The activity of solely arranging credit is not a regulated activity for the purposes of Rule AU-1.4.19.

                  Amended: October 2012

              • Managing Financial Instruments

                • AU-1.4.30

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

                • AU-1.4.31

                  Activities involving initiating and carrying out investment transactions on behalf of a client on a discretionary basis are included under the definition of Rule AU-1.4.30.

              • Safeguarding Financial Instruments (i.e. Custodian)

                • AU-1.4.32

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

                • AU-1.4.33

                  A person undertaking an activity of the kind specified under Rule AU-1.4.32 may also be engaged in the administration of financial instruments as defined in CBB Rulebook Volume 5 Module AU (Administrators) Paragraphs AU-1.1.11 and AU-1.1.12, including related services such as cash/collateral management, given that strict adherence to segregation of duties is observed.

                  Amended: July 2019
                  Amended: January 2012
                  Amended: July 2010

                • AU-1.4.34

                  A person undertaking an activity of the kind specified under Rule AU-1.4.32 cannot execute negotiable instruments such as cheques on behalf of a client.

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.35

                  A person does not carry on an activity specified in Rule AU-1.4.32 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.

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.36

                  A person does not carry on an activity specified in Rule AU-1.4.32 if a third person, namely a qualifying custodian, accepts responsibility with regard to the financial instrument.

                  Amended: July 2010

                • AU-1.4.37

                  A 'qualifying custodian' is a licensee who has permission to carry on an activity of the kind specified in Rule AU-1.4.32.

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.38

                  A person does not carry on an activity specified in Rule AU-1.4.32 if they are managing a central depository, which is part of an exchange recognised by the CBB.

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.39

                  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 AU-1.4.32:

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

                • AU-1.4.40 [This Paragraph deleted 07/2007.]

                  Deleted: July 2007

              • Advising on Financial Instruments

                • AU-1.4.41

                  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.

                  Amended: October 2012

                • AU-1.4.41A

                  For the purpose of Rule AU-1.4.41, 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

                • AU-1.4.42

                  The activity defined in Rule AU-1.4.41 above does not include advising on mergers and acquisitions, unless otherwise agreed with the CBB on a case by case basis.

                  Added: July 2010

                • AU-1.4.43

                  The activity defined in Rule AU-1.4.41 above does not include advising on corporate finance.

                  Added: July 2010

                • AU-1.4.44

                  The following are examples of activities, which may be regarded as an activity as defined by Rule AU-1.4.41:

                  (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 or credit facility concerned.
                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.45

                  A person does not carry on an activity specified in Rule AU-1.4.41 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:

                  (a) That of giving advice of the kind mentioned in Rule AU-1.4.41; nor
                  (b) That of leading or enabling persons to buy, sell, subscribe for or underwrite a financial instrument.
                  Amended: October 2012
                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.46

                  The following are examples of activities which, when taken in isolation, are unlikely to be regarded as an activity as defined by Rule AU-1.4.41:

                  (a) Explaining the structure or the terms and conditions of a financial instrument or credit facility;
                  (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: July 2010
                  Amended: July 2007

                • AU-1.4.47

                  A person undertaking an activity of the kind specified under Rule AU-1.4.41 cannot accept or hold client assets or execute negotiable instruments such as cheques on behalf of a client.

                  Amended: July 2010
                  Amended: July 2007

              • Operating a Collective Investment Undertaking (i.e. operator)

                • AU-1.4.48

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

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.49

                  For the purposes of Rule AU-1.4.48, a collective investment undertaking is an undertaking the sole object of which is the collective investment of capital raised from the public in financial instruments or other assets and which operates on the basis of risk-spreading; and the holdings of which are re-purchased or redeemed, directly or indirectly, out of those undertakings' assets.

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.50

                  A person does not carry on an activity specified in Rule AU-1.4.48 if the activity relates to the person establishing or winding up a collective investment undertaking, and that activity may be reasonably regarded as a necessary in the course of providing legal services or providing accounting services.

                  Amended: July 2010

                • AU-1.4.51

                  In the case of CIUs whose holdings are listed and traded on a stock exchange (such as a closed-ended fund), actions taken by the CIU to align the stock exchange value of its holdings and its net asset value is taken as equivalent to the repurchase or redemption specified in Rule AU-1.4.49. The definition in Rule AU-1.4.49 thus recognises both open-ended funds and closed-ended funds: unit trusts, investment trusts, mutual funds, SICAV and collective investment schemes are all examples of CIUs. CIUs may also be constituted under contract law (as common funds managed by management companies); trust law (as unit trusts); or under statute (as investment companies).

                  Amended: July 2010
                  Adopted: July 2007

                • AU-1.4.52

                  See Volume 7 (CIU) of the CBB Rulebook, for the rules that apply to CIUs domiciled in Bahrain or domiciled in an overseas jurisdiction, and offered to investors resident in Bahrain. These rules also contain requirements that apply to the operators of such CIUs.

                  Amended: October 2012
                  Amended: July 2010
                  Adopted: July 2007

                • AU-1.4.53

                  [Paragraph deleted 07/2006.]

                  Amended: July 2010

                • AU-1.4.54

                  [Paragraph deleted 07/2006.]

                  Amended: July 2010

            • AU-1.5 Definition of Financial Instruments

              For the purposes of Volume 4, a financial instrument means any of the following:

              Amended: July 2007

              • Transferable Securities

                • AU-1.5.1

                  Those classes of securities which are negotiable, with the exception of instruments of payment. Transferable securities include:

                  (a) Shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares;
                  (b) Bonds or other forms of securitised debt, including depositary receipts in respect of such securities;
                  (c) Warrants;
                  (d) Any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures.
                  Amended: July 2007

              • Islamic Financial Instruments

                • AU-1.5.2

                  Those financial instruments — as defined elsewhere in Section AU-1.5 — that are shari'a compliant.

                  Amended: July 2007

              • Money-market Instruments

                • AU-1.5.3

                  Those classes of instruments which are normally dealt in on the money market, such as treasury bills and commercial papers and excluding instruments of payment.

              • Holdings in Collective Investment Undertakings

                • AU-1.5.4

                  Rights or interests (however described) of the participants in a collective investment undertaking.

                  Amended: July 2007

              • Derivative Contracts other than Commodity Derivatives

                • AU-1.5.5

                  Options, futures, forwards, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivative instruments, financial indices or financial measures which may be settled physically or in cash.

              • Derivative Contracts relating to Commodities Settled in Cash

                • AU-1.5.6

                  Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event).

              • Derivative Contracts Relating to Commodities

                • AU-1.5.7

                  Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled.

                • AU-1.5.8

                  Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in Rule AU-1.5.7 above and not being for commercial purposes, which have the characteristics of other derivative financial instruments.

                  Amended: July 2007

              • Credit Derivatives

                • AU-1.5.9

                  Over the counter derivative instruments, which provide for the transfer of credit risk.

              • Financial Contracts for Differences

                • AU-1.5.10

                  Comprise rights under a contract for differences, or any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in:

                  (a) The value or price of investment or property of any description;
                  (b) Any currency;
                  (c) The rate of interest in any currency or any index of such rates (including interest rate options);
                  (d) The level of any index which is derived for the prices of an investment or physical commodity (including index options); or
                  (e) Any combination of the above.
                  Amended: July 2007

                • AU-1.5.11

                  The following are excluded from this definition of contracts for differences:

                  (a) Contracts where the parties intend that the profit is to be secured or the loss to be avoided by taking delivery of property; and
                  (b) Contracts under which money is received by way of deposit on terms that any return to be paid on the sum deposited will be calculated by reference to an index, interest rate, exchange rate or other factor.
                  Amended: July 2007

              • Other Derivative Contracts

                • AU-1.5.12

                  Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments.

              • Interests in Real Estate Property

                • AU-1.5.13

                  Any financial instrument giving right to or interests in real estate property other than owner occupied properties. This excludes the taking of charges over real estate property.

              • Certificates Representing Certain Securities

                • AU-1.5.14

                  Certificates or other instruments which confer contractual or property rights:

                  (a) In respect of any investment held by someone other than the person on whom the rights are conferred by the certificate or other instrument; and
                  (b) The transfer of which may be effected without requiring the consent of that person.
                  Amended: July 2007

              • Rights or Interests in Financial Instruments

                • AU-1.5.15

                  Rights to or interests in all financial instruments under section AU-1.5.

          • AU-2 Licensing Conditions

            • AU-2.1 Condition 1: Legal Status

              • Category 1 and 2 Investment Firms

                • AU-2.1.1

                  The legal status of a Category 1 or Category 2 investment firm licensee must be:

                  (i) A Bahraini joint stock company (BSC); or
                  (ii) A branch resident in Bahrain of a company incorporated under the laws of its territory of incorporation and (where local regulation so requires) authorised as market-maker in that territory.
                  Amended: July 2007

              • Category 3 Investment Firms

                • AU-2.1.2

                  The legal status of a Category 3 investment firm licensee must be:

                  (i) A Bahraini joint stock company (BSC);
                  (ii) A Bahraini company with limited liability ('WLL'); or
                  (iii) A branch resident in Bahrain of a company incorporated under the laws of its territory of incorporation and (where local regulation so requires) authorised as market-maker in that territory.
                  Amended: July 2007

                • AU-2.1.3

                  Where the investment firm licensee is a branch of an overseas investment firm, an application for licensing will be considered after extensive enquiries into the firm's shareholders, management structure, financial position, its activities and how these activities are regulated.

                  Amended: July 2007

            • AU-2.2 Condition 2: Mind and Management

              • AU-2.2.1

                Investment firm licensees with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom. Overseas investment firm licensees must maintain a local management presence and premises in the Kingdom appropriate to the nature and scale of their activities.

              • AU-2.2.2

                In assessing the location of an investment firm licensee's Head Office, the CBB will take into account the residency of its Directors and senior management.

                Amended: January 2012
                Amended: July 2007

              • AU-2.2.3

                The CBB requires that all approved persons occupying controlled functions outlined in Paragraph AU-1.2.2, except for Subparagraphs (a) director and (g) member of Shari'a Supervisory Board, be resident in Bahrain.

                Added: January 2012

            • AU-2.3 Condition 3: Controllers and Close Links

              • AU-2.3.1

                Investment firm licensees must satisfy the CBB that their controllers are suitable and pose no undue risks to the licensee. Investment firm licensees must also satisfy the CBB that their close links do not prevent the effective supervision of the investment firm licensee by the CBB and otherwise pose no undue risks to the licensee.

                Amended: July 2007

              • AU-2.3.2

                For Category 1 and Category 2 investment firm licensees, at least one of the controllers of an investment firm licensee must be a reputable financial institution of financial soundness, operating within a regulated jurisdiction, with a legal structure, all of which must be acceptable to the CBB.

                Amended: January 2012
                Amended: October 2009
                July 2007

              • AU-2.3.3

                Chapters GR-5 and GR-6 contain the CBB's requirements and definitions regarding controllers and close links.

                Amended: October 2009

              • AU-2.3.4

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

                Amended: October 2009
                July 2007

              • AU-2.3.5

                An investment firm licensee has close links with its subsidiaries, with its parent undertakings, and with subsidiaries of its parent undertakings. It also has close links with any entity in which the licensee, its subsidiaries, its parent undertakings, and the subsidiaries of its parent undertakings has an equity interest of more than 20% (either in terms of capital or voting rights). The CBB seeks to ensure that these closely linked entities do not pose any material financial, reputational or other risks to the licensee. The CBB also seeks to ensure that the structure and geographical spread of the group is such that it is subject to adequate scrutiny at group level.

                Amended: July 2010
                Amended: October 2009
                Amended: July 2007

              • AU-2.3.6

                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.

                Amended: October 2009
                July 2007

            • AU-2.4 Condition 4: Board and Employees

              • AU-2.4.1

                Those nominated to carry out controlled functions must satisfy CBB's approved person's requirements.

                Amended: July 2007

              • AU-2.4.2

                The definition of controlled functions is contained in AU-1.2, whilst AU-3 sets out CBB's approved persons requirements. Applications for approved person status must be submitted using the prescribed approved persons form.

                Amended: July 2007

              • AU-2.4.3

                The investment firm licensee's 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. Investment firm licensees must ensure their employees meet any training and competency requirements specified by the CBB.

                Amended: July 2007

              • AU-2.4.4

                The CBB's training and competency requirements are contained in Module TC (Training and Competency).

                Amended: July 2007

            • AU-2.5 Condition 5: Financial Resources

              • AU-2.5.1

                Investment firm licensees 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 exceed at all times the minimum requirements contained in Module CA (Capital Adequacy), as specified for the category of investment license held.

                Amended: July 2007

              • AU-2.5.2

                [This Paragraph deleted 07/2010.]

                Deleted: July 2010

              • AU-2.5.3

                Overseas 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. Overseas applicants must also demonstrate that the company as a whole is adequately resourced for the amount of risks undertaken.

                Amended: July 2007

            • AU-2.6 Condition 6: Systems and Controls

              • AU-2.6.1

                Investment firm licensees 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 (High Level Controls) and RM (Risk Management), as specified for the category of investment firm license held.

                Amended: July 2007

              • AU-2.6.2

                Investment firm licensees must maintain adequate segregation of responsibilities in their staffing arrangements, to protect against the misuse of systems or errors. Such segregation should ensure that no single individual has control over all stages of a transaction.

              • AU-2.6.3

                Investment firm licensees 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 (Financial Crime), as specified for the category of investment firm license held.

                Amended: July 2007

              • AU-2.6.4

                As part of the licensing approval process, applicants must 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 also be asked to provide an independent assessment of the appropriateness of their systems and controls to the CBB.

                Amended: July 2007

              • AU-2.6.5

                Investment firm licensees must, in connection with any client assets received in the course of their business, establish and maintain separate client accounts, segregated from those used for their own funds, as required in Module CL.

                Amended: July 2007

            • AU-2.7 Condition 7: External Auditors

              • AU-2.7.1

                Investment firm licensees must appoint external auditors, subject to prior CBB approval. The minimum requirements regarding auditors contained in Module AA (Auditors and Accounting Standards) must be met.

                Amended: July 2007

              • AU-2.7.2

                [This Paragraph deleted 07/2010.]

                Deleted: July 2010

            • AU-2.8 Condition 8: Other Requirements

              • Books and Records

                • AU-2.8.1

                  Investment firm licensees must maintain comprehensive books of accounts and other records, which must be available for inspection within the Kingdom of Bahrain by the CBB, or persons appointed by the CBB, at any time. Investment firm licensees must comply with the minimum record-keeping requirements contained in Module GR. Books of accounts must comply with IAS (and relevant AAOIFI) standards.

                  Amended: July 2007

              • Provision of Information

                • AU-2.8.2

                  Investment firm licensees must act in an open and cooperative manner with the CBB. Investment firm licensees must meet the regulatory reporting and public disclosure requirements contained in Modules BR and PD respectively.

                  Amended: July 2007

              • General Conduct

                • AU-2.8.3

                  Investment firm licensees must conduct their activities in a professional and orderly manner, in keeping with good market practice standards. Investment firm licensees must comply with the general standards of business conduct contained in Module PB, as well as the standards relating to treatment of customers contained in Module BC.

              • License Fees

                • AU-2.8.4

                  Investment firm licensees must comply with any license fee requirements applied by the CBB.

                  Amended: July 2007

                • AU-2.8.5

                  License fee requirements are contained in Chapter AU-6.

                  Amended: July 2007

              • Additional Conditions

                • AU-2.8.6

                  Investment firm licensees must comply with any other specific requirements or restrictions imposed by the CBB on the scope of their license.

                  Amended: July 2007

                • AU-2.8.7

                  When granting a license, the CBB specifies the regulated investment services that the licensee may undertake and the category of investment firm license granted. Licensees must respect the scope of their license. AU-5.4 sets out the process for varying the scope of an authorisation, should a licensee wish to undertake new regulated investment services.

                  Amended: July 2007

                • AU-2.8.8

                  In addition, the CBB may vary existing requirements or impose additional restrictions or requirements, beyond those already specified in Volume 4, to address specific risks.

                  Amended: July 2007

          • AU-3 Approved Persons Conditions

            • AU-3.1 Condition 1: 'Fit and Proper'

              • AU-3.1.1

                Licensees seeking an approved person authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake the controlled function in question.

                Amended: July 2007

              • AU-3.1.2

                The authorisation requirement for persons nominated to carry out controlled functions is contained in Section AU-1.2. The authorisation process is described in Section AU-5.2.

                Amended: July 2007

              • AU-3.1.3

                Each applicant applying for approved person status and those individuals occupying approved person 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 function in question (see Appendix TC-1 in Module TC (Training and Competency)); and
                (h) Has sufficient experience to perform the duties of the controlled function (see Appendix TC-1 in Module TC (Training and Competency)).
                Amended: January 2016
                Amended: July 2007

              • AU-3.1.4

                In assessing the conditions prescribed in Rule AU-3.1.3, the CBB will take into account the criteria contained in Section AU-3.2. 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 function 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 function in one investment firm licensee may not be considered to have sufficient expertise and experience to undertake nominally the same controlled function but in a much bigger licensee.

                Amended: July 2007

              • AU-3.1.5

                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

              • AU-3.1.6

                With respect to Paragraph AU-3.1.5, 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.

                Added: January 2016

              • AU-3.1.7

                Approved persons undertaking a controlled function 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 function.

                Amended: January 2016
                Amended: July 2007

              • AU-3.1.8

                In determining where there may be a conflict of interest arising, factors that may be considered will 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 licensee; 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 licensee.
                Amended: January 2016
                Amended: July 2007

              • AU-3.1.9

                Further guidance on the process for assessing a person's 'fit and proper' status is given in Module EN (Enforcement): see Chapter EN-8.

                Added: January 2016

            • AU-3.2 [This Section was deleted in January 2016]

              • AU-3.2.1

                [This Paragraph was deleted in January 2016.]

              • AU-3.2.2

                [This Paragraph was deleted in January 2016.]

              • AU-3.2.3

                [This Paragraph was moved to Paragraph AU-3.1.9 in January 2016.]

          • AU-4 [This Chapter deleted 07/2007]

            Deleted: July 2007

            • AU-4.1 Condition 1: Relevant Expertise

              Effective up to Jun 30 2007.

              • AU-4.1.1

                Effective up to Jun 30 2007.

                Administrators seeking registration must satisfy the BMA that they have relevant expertise. They must hold appropriate professional qualifications from a relevant, recognised professional body.

              • AU-4.1.2

                Effective up to Jun 30 2007.

                In the case of corporate persons wishing to provide administration services, the BMA expects management and other staff collectively to have sufficient appropriate expertise to ensure a professional level of service.

            • AU-4.2 Condition 2: General Suitability

              Effective up to Jun 30 2007.

              • AU-4.2.1

                Effective up to Jun 30 2007.

                Administrators seeking registration must satisfy the BMA that they are generally suitable to operate as such.

              • AU-4.2.2

                Effective up to Jun 30 2007.

                The Agency will have regard to the fitness and propriety of the person seeking registration to operate as Administrators, using the rules and guidance contained in Sections AU-3.1 and AU-3.2.

              • AU-4.2.3

                Effective up to Jun 30 2007.

                The Agency will have regard to the person's reputation, financial soundness, and business conduct. The BMA will also review closely linked entities against the same criteria, using the definition of close links contained in Module GR (General Requirements).

            • AU-4.3 Condition 3: Systems and Controls

              Effective up to Jun 30 2007.

              • AU-4.3.1

                Effective up to Jun 30 2007.

                Administrators seeking registration must maintain systems and controls that are, in the opinion of the BMA, adequate for the scale and complexity of their activities.

              • AU-4.3.2

                Effective up to Jun 30 2007.

                Administrators seeking registration must maintain systems and controls that are, in the opinion of the BMA, adequate to address the risks of financial crime occurring. These systems and controls must meet the minimum requirements contained in Module FC (Financial Crime)

            • AU-4.4 Condition 4: External Auditors

              Effective up to Jun 30 2007.

              • AU-4.4.1

                Effective up to Jun 30 2007.

                Administrators seeking registration must appoint external auditors, subject to prior BMA approval. The minimum requirements regarding auditors contained in Module AA (Auditors and Accounting Standards) must be met.

              • AU-4.4.2

                Effective up to Jun 30 2007.

                Administrators seeking registration must submit details of their proposed external auditors to the BMA.

            • AU-4.5 Condition 5: Other requirements

              Effective up to Jun 30 2007.

              • Books and Records

                Effective up to Jun 30 2007.

                • AU-4.5.1

                  Effective up to Jun 30 2007.

                  Administrators must maintain comprehensive books of accounts and other records, which must be available for inspection within the Kingdom of Bahrain by the BMA, or persons appointed by the BMA, at any time. Administrators must comply with the minimum record-keeping requirements contained in Module GR.

              • Provision of Information

                Effective up to Jun 30 2007.

                • AU-4.5.2

                  Effective up to Jun 30 2007.

                  Administrators must act in an open and cooperative manner with the BMA.

          • AU-5 Information Requirements and Processes

            • AU-5.1 Licensing

              • Application Form and Documents

                • AU-5.1.1

                  Applicants for a license must fill in the Application Form 1 (Application for a License) online, available on the CBB website under E-services/online Forms. The applicant must upload scanned copies of supporting documents listed in Paragraph AU-5.1.5, unless otherwise directed by the CBB.

                  Amended: July 2019
                  Amended: April 2018
                  Amended: July 2007

                • AU-5.1.2

                  Articles 44 to 47 of the CBB Law govern the licensing process. This prescribes a single stage process, with the CBB required to take a decision within 60 calendar days of an application being deemed complete (i.e. containing all required information and documents). See below, for further details on the licensing process and time-lines.

                  Amended: July 2007

                • AU-5.1.3

                  References to applicant mean the proposed licensee 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.

                  Amended: July 2007

                • AU-5.1.4

                  This Paragraph was deleted in January 2016.]

                • AU-5.1.5

                  Unless otherwise directed by the CBB, the following documents must be provided in support of a Form 1:

                  (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 individual proposed to undertake controlled functions (as defined in Rule AU-1.2.2) in the proposed licensee;
                  (c) A comprehensive business plan for the application, addressing the matters described in AU-5.1.6;
                  (d) For overseas companies, a copy of the company's current commercial registration or equivalent documentation;
                  (e) Where the applicant is an existing Bahraini company, a copy of the applicant's commercial registration certificate;
                  (f) A certified copy of a Board resolution of the applicant, confirming its decision to seek a CBB investment firm license;
                  (g) Details of the proposed licensee's close links, if any, as defined under Chapter GR-6;
                  (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 lead supervisor, together with confirmation that the group is in good regulatory standing and is in compliance with applicable supervisory requirements, including those relating to capital requirements;
                  (i) In the case of branch 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 the company concerned is in compliance with applicable supervisory requirements, including those relating to capital;
                  (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;
                  (k) In the case of applicants that are part of a group, copies of the audited financial statements of the applicant's group, for the three years immediately prior to the date of application;
                  (l) In the case of applicants not falling under either (j) or (k) above, copies of the audited financial statements of the applicant's major shareholder (where they are a legal person), for the three years immediately prior to the date of application;
                  (m) In the case of applicants seeking to raise part of their capital through a private placement, a draft of the relevant private placement memorandum, together with a formal, independent legal opinion confirming that the memorandum complies with all applicable capital markets laws and regulations;
                  (n) A copy of the applicant's memorandum and articles of association (in draft form for applicants creating a new company) addressing the matters described in AU-5.1.8;
                  (o) [Subparagraph deleted in January 2008]; and
                  (p) [Subparagraph deleted in January 2008].
                  Amended: April 2011
                  Amended: October 2009
                  Amended: January 2008
                  Amended: July 2007

                • AU-5.1.5A

                  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 AU-5.1.5 above.

                  Amended: January 2011
                  Amended: July 2010
                  Added: January 2008

                • AU-5.1.6

                  The business plan submitted in support of an application must include:

                  (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;/div>
                  (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 independent 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 requirements.
                  Amended: July 2010
                  Amended: July 2007

                • AU-5.1.7

                  In the case of applicants seeking to raise capital (refer to AU-5.1.5(m)), the CBB's review is aimed at checking that the proposed private placement complies with applicable capital markets laws and regulations, and that the information contained in the private placement memorandum ('PPM') is consistent with the information provided in the license application. The CBB's review does not in any way constitute an approval or endorsement as to any claims made in the PPM regarding the future value of the company concerned. Note also that the CBB will not license applicants without a core group of sponsoring shareholders (who can demonstrate a strong business track record with relevant expertise), and where failure of the private placement to raise its targeted amount would leave the institution unable to comply with the CBB's minimum capital requirements. The CBB will normally expect core shareholders to account for at least 40% of the applicant's initial proposed total capital.

                  Amended: July 2007

                • AU-5.1.7A

                  The PPM must comply with the requirements contained under Module OFS (Offering of Securities) of Volume 6 of the CBB Rulebook and is subject to the CBB's Capital Market Supervision Directorate's prior approval.

                  Added: October 2014

                • AU-5.1.8

                  The applicant's memorandum and articles of association must explicitly provide for it to undertake the activities proposed in the license application, and must preclude the applicant from undertaking other regulated services, or commercial activities, unless these arise out of its investment activities or are incidental to those.

                  Amended: July 2007

                • AU-5.1.9

                  All documentation provided to the CBB as part of an application for a license must be in either the Arabic or English languages. Any documentation in a language other than English or Arabic must be accompanied by a certified English or Arabic translation thereof.

                  Amended: July 2007

                • AU-5.1.10

                  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.

                  Amended: July 2007

                • AU-5.1.11

                  Failure to inform the CBB of the changes specified in Rule AU-5.1.10 is likely to be viewed as a failure to provide full and open disclosure of information, and thus a failure to meet licensing condition Rule AU-2.8.2.

                  Amended: July 2007

              • Licensing Process and Timelines

                • AU-5.1.12

                  By law, the 60 day time limit referred to in Paragraph AU-5.1.2 only applies once the application is complete and all required information (which may include any clarifications requested by the CBB) and documents have been provided. This means that all the items specified in Rule AU-5.1.5 have to be provided, before the CBB may issue a license.

                  Amended: July 2007

                • AU-5.1.12A

                  The CBB recognises, however, that applicants may find it difficult to secure suitable senior management (refer AU-5.1.5(b) above) in the absence of preliminary assurances regarding the likelihood of obtaining a license.

                  Amended: July 2010
                  Adopted: July 2007

                • AU-5.1.12B

                  Therefore, applicants may first submit an unsigned Form 1 in draft, together with as many as possible of the items specified in Rule AU-5.1.5. This draft application should contain at least items AU-5.1.5(a); AU-5.1.5(b), with respect to proposed Directors (but not necessarily senior management); AU-5.1.5(c); AU-5.1.5(d); and AU-5.1.5(g) to AU-5.1.5(m) inclusive.

                  Amended: July 2010
                  Adopted: July 2007

                • AU-5.1.12C

                  On the basis of the information specified in Paragraph AU-5.1.12B, the CBB may provide an initial 'in principle' confirmation that the applicant appears likely to meet the CBB's licensing requirements, subject to the remaining information and documents being assessed as satisfactory. The 'in principle' confirmation will also list all outstanding documents required before an application can be considered complete and subject to formal consideration.

                  Adopted: July 2007

                • AU-5.1.12D

                  An 'in principle' confirmation does not constitute a license approval, nor does it commit the CBB to issuing a license. However, it provides sufficient assurance for an applicant to complete certain practical steps, such as securing suitable executive staff that satisfy CBB's 'fit and proper' requirements. Once this has been done, the applicant may finalise its application, by submitting the remaining documents required under Rule AU-5.1.1 and, once assessed as complete by the CBB, a signed and dated final version of Form 1. However, a Bahraini company proposing to undertake financial services activities would not be eligible to obtain a Commercial Registration from the Ministry of Industry and Commerce unless it receives the final approval from the CBB.

                  Amended: July 2010
                  Amended: April 2008
                  Adopted: July 2007

                • AU-5.1.12E

                  Regardless of whether an applicant submits a draft application or not, all potential applicants are strongly encouraged to contact the CBB at an early stage to discuss their plans, for guidance on the CBB's license categories and associated requirements. The Licensing Directorate would normally expect to hold at least one pre-application meeting with an applicant, prior to receiving an application (either in draft or in final).

                  Amended: April 2018
                  Adopted: July 2007

                • AU-5.1.12F

                  Potential applicants should initiate pre-application meetings in writing, setting out a short summary of their proposed business and any issues or questions that they may have already identified, once they have a clear business proposition in mind and have undertaken their preliminary research. The Central Bank can then guide the applicant on the specific areas in the Rulebook that will apply to them and the relevant requirements that they must address in their application.

                  Adopted: July 2007

                • AU-5.1.12G

                  At no point should an applicant hold themselves out as having been licensed by the CBB, prior to receiving formal written notification of the fact in accordance with Rule AU-5.1.12H below. Failure to do so may constitute grounds for refusing an application and result in a contravention of Articles 40 and 41 of the CBB Law (which carries a maximum penalty of BD 1 million).

                  Adopted: July 2007

              • Granting or Refusal of License

                • AU-5.1.12H

                  To be granted a license, an applicant must demonstrate compliance with the applicable requirements of the CBB Law and this Module. Should a license be granted, the CBB will notify the applicant in writing of the fact; the CBB will also publish its decision to grant a license in the Official Gazette and in two local newspapers (one published in Arabic, the other in English). The license may be subject to such terms and conditions as the CBB deems necessary for the additional conditions being met.

                  Adopted: July 2007

                • AU-5.1.12I

                  The CBB may refuse to grant a license if in its opinion:

                  (a) The requirements of the CBB Law or this Module are not met;
                  (b) False or misleading information has been provided to the CBB, or information which should have been provided to the CBB has not been so provided; or
                  (c) The CBB believes it necessary in order to safeguard the interests of potential customers.
                  Adopted: July 2007

                • AU-5.1.12J

                  Where the CBB proposes to refuse an application for a license, it must give the applicant written notice to that effect. Applicants will be given a minimum of 30 calendar days from the date of the written notice to appeal the decision, as per the appeal procedures specified in the notice; these procedures will comply with the provisions contained in Article 46 of the CBB Law.

                  Adopted: July 2007

                • AU-5.1.12K

                  Before the final approval is granted to a licensee, confirmation from a retail bank addressed to the CBB that the licensee's capital (injected funds) — as specified in the business plan submitted under Rule AU-5.1.5) — has been paid in must be provided to the CBB.

                  Added: July 2010

              • Starting Operations

                • AU-5.1.13

                  Within 6 months of the license being issued, the new licensee must provide to the CBB (if not previously submitted):

                  (a) The registered office address and details of premises to be used to carry out the business of the proposed licensee;
                  (b) The address in the Kingdom of Bahrain where full business records will be kept;
                  (c) The licensee's contact details including telephone and fax number, e-mail address and website;
                  (d) A copy of its business continuity plan;
                  (e) A description of the IT system that will be used, including details of how IT systems and other records will be backed up;
                  (f) A copy of the auditor's acceptance to act as auditor for the applicant;
                  (g) [Sub paragraph deleted July 2010];
                  (h) A copy of the licensee's professional indemnity insurance policy or confirmation that a deposit to an amount specified by the CBB has been placed in escrow in an account at a bank licensed in the Kingdom of Bahrain (see Section GR-9.1); and
                  (i) A copy of the applicant's notarised memorandum and articles of association, addressing the matters described in Paragraph AU-5.1.8;
                  (j) A copy of the Ministry of Industry and Commerce commercial registration certificate in Arabic and in English;
                  (k) An updated organisation chart showing the reporting lines, committees (if any) and including the names of the persons undertaking the controlled functions.
                  (l) A copy of the licensee's business card and any written communication (including stationery, website, e-mail, business documentation, etc.) including a statement that the investment firm is licensed by the CBB; and
                  (m) Any other information as may be specified by the CBB.
                  Amended: January 2011
                  Amended: July 2010
                  Amended: January 2008
                  Amended: July 2007

                • AU-5.1.14

                  New licensees must start their operations within 6 months of being granted a license by the CBB, failing which the CBB may cancel the license, as per the powers and procedures set out in Article 48 of the CBB Law.

                  Amended: July 2007

                • AU-5.1.15

                  The procedures for amending or cancelling licenses are contained in Sections AU-5.4 and AU-5.5 respectively.

                  Amended: July 2007

            • AU-5.2 Approved Persons

              • Prior Approval Requirements and Process

                • AU-5.2.1

                  Investment firm licensees must obtain CBB's prior written approval before a person is formally appointed to a controlled function. 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 the Form 3, including previous experience, is accurate. Form 3 is available under Volume 4 Part B Authorisation Forms of the CBB Rulebook.

                  Amended: January 2016
                  Amended: July 2015
                  Amended: October 2009
                  July 2007

                • AU-5.2.2

                  When the request for approved person 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 function is in relation to an existing investment firm licensee, the Form 3, except if dealing with a MLRO, must be marked for the attention of the Director, Financial Institutions Supervision Directorate. In the case of the MLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.

                  Amended: April 2018
                  Amended: April 2008
                  Amended: July 2007

                • AU-5.2.3

                  When submitting Form 3, investment firm licensees must ensure that the Form 3 is:

                  (a) Submitted to the CBB with a covering letter signed by an authorised representative of the investment firm licensee, seeking approval for the proposed controlled function;
                  (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 licensee and all pages stamped with the licensee's seal.
                  (e) Submitted with the existing organisation chart or a proposed organisation chart (if the existing organisation chart is to be amended) reflecting the reporting line of the applicant. This is for all controlled functions listed in Rule AU-1.2.2 except a & e.
                  Amended: October 2016
                  Amended: July 2015
                  Amended: October 2009

                • AU-5.2.3A

                  Investment firm licensees 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: July 2015

                • AU-5.2.4

                  For existing licensees applying for the appointment of a Director or the Chief Executive/General Manager, the authorised representative should be the Chairman of the Board or a Director signing on behalf of the Board. For all other controlled functions, the authorised representative should be the Chief Executive/General Manager.

                  Amended: July 2015
                  Amended: October 2009

                • AU-5.2.5

                  [This Paragraph was deleted in July 2015.]

                  Deleted: July 2015

                • AU-5.2.6

                  [This Paragraph was moved to Paragraph AU-5.2.3A in July 2015.]

                  Amended: July 2015
                  Amended: October 2009
                  Amended: July 2007

              • Assessment of Application

                • AU-5.2.6A

                  The CBB shall review and assess the application for approved person status to ensure that it satisfies all the conditions required in Paragraph AU-3.1.3 and the criteria outlined in Paragraph AU-3.1.5.

                  Amended: January 2016
                  Added: July 2015

                • AU-5.2.6B

                  For purposes of Paragraph AU-5.2.6A, investment firm licensees 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 regulatory requirements, including but not limited to receiving the application complete with all the required information and documents, as well as verifying references.

                  Amended: January 2016
                  Added: July 2015

                • AU-5.2.6C

                  The CBB reserves the right to refuse an application for approved person status if it does not satisfy the conditions provided for in Paragraph AU-3.1.3 and does not satisfy the CBB criteria in Paragraph AU-3.1.5. A notice of such refusal is issued by registered mail to the licensee concerned, setting out the basis for the decision.

                  Amended: January 2016
                  Added: July 2015

                • AU-5.2.7

                  [This Paragraph was deleted in January 2016.]

              • Appeal Process

                • AU-5.2.7A

                  Investment firm licensees or the nominated approved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application for approved person status. The CBB shall decide on the appeal and notify the investment firm licensee of its decision within 30 calendar days from submitting the appeal.

                  Added: July 2015

                • AU-5.2.7B

                  Where notification of the CBB's decision to grant a person approved person status is not issued within 15 business days from the date of meeting all regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, investment firm licensees or the nominated approved persons may appeal to the Executive Director, Financial Institutions Supervision of the CBB provided that the appeal is justified with supporting documents. The CBB shall decide on the appeal and notify the investment firm licensee of its decision within 30 calendar days from the date of submitting the appeal.

                  Amended: January 2016
                  Added: July 2015

              • Notification Requirements and Process

                • AU-5.2.8

                  Investment firm licensees must immediately notify the CBB when an approved person ceases to hold a controlled function together with an explanation as to the reasons why (see Paragraph AU-5.5.5). In such cases, their approved person status is automatically withdrawn by the CBB.

                  Amended: October 2009
                  Amended: July 2008
                  Amended: April 2008
                  Amended: July 2007

                • AU-5.2.9

                  Investment firm licensees must immediately notify the CBB in case of any material change to the information provided in a Form 3 submitted for an approved person.

                  Amended: October 2009

                • AU-5.2.10

                  Investment firm licensees must immediately notify the CBB when they become aware of any of the events listed in Paragraph EN-8.2.3, affecting one of their approved persons.

                  Amended: October 2009

            • AU-5.3 [This Section deleted 07/2007]

              Deleted: July 2007

              • AU-5.3.1

                Effective up to Jun 30 2007.

                Persons wishing to be registered as an administrator must submit a duly completed Form 4 (Application for Registration). The form must be marked for the attention of the Director, Licensing and Policy Directorate.

              • AU-5.3.2

                Effective up to Jun 30 2007.

                BMA aims to respond to applications for registration within 2 weeks of receipt of a Form 4, although in some cases, where referral to an overseas supervisor is required, the response time is likely to be longer.

              • AU-5.3.3

                Effective up to Jun 30 2007.

                All refusals by the BMA to grant a person registered person status have to be reviewed and approved by an Executive Director of the BMA. A notice of intent is issued to the person concerned, setting out the basis for the decision. The person has 30 calendar days from the date of the notice in which to appeal the decision. The BMA then has 30 calendar days from the date of the representation in which to make a final determination. See also Chapter EN-10.

            • AU-5.4 Amendment of Authorisation

              • Licenses

                • AU-5.4.1

                  Investment firm licensees wishing to vary the scope of their authorisation must obtain the CBB's written approval, before effecting any such change. Approval must be sought whenever a licensee wishes to add or cease undertaking a regulated investment service, or to vary a condition imposed on their license.

                  Amended: July 2007

                • AU-5.4.2

                  Failure to secure the CBB approval prior to effecting such changes is likely to be viewed as a serious breach of a licensee's regulatory obligations, and may constitute a breach of Article 40(a), as well as Article 50(a), of the CBB Law.

                  Amended: July 2007

                • AU-5.4.3

                  In addition to any other information requested by the CBB, and unless otherwise directed by the CBB, an investment firm licensee requesting CBB approval to undertake a new regulated investment service must provide the following documentation:

                  (a) A summary of the rationale for undertaking the proposed new service;
                  (b) A description of how the new service will be managed and controlled; and
                  (c) An analysis of the financial impact of the new service.
                  Amended: July 2007

                • AU-5.4.4

                  The CBB will only agree to amend a license if doing so poses, in its judgement, no unacceptable risks to customers. As provided for under Article 48 of the CBB Law, the CBB may itself move to amend a license, for instance if a licensee fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licensee requires such a change. See also Chapter EN-7, regarding the cancellation or amendment of licenses, including the procedures used in such instances.

                  Amended: July 2007

              • Approved Persons

                • AU-5.4.5

                  Investment firm licensees must seek prior CBB approval before an approved person may move from one controlled function to another within the same licensee.

                  Adopted: July 2007

                • AU-5.4.6

                  In such instances, a new Form 3 (Application for Approved Person status) should be completed and submitted to the CBB. Note that a person may be considered ‘fit and proper’ for one controlled function, but not for another, if for instance the new role requires a different set of skills and experience. Where an approved person is moving to a controlled function in another licensee, the first licensee should notify the CBB of that person’s departure (see Rule AU-5.5.5), and the new licensee should submit a request for approval under Rule AU-1.2.1.

                  Adopted: July 2007

            • AU-5.5 Cancellation of Authorisation

              • Voluntary Surrender of a License or Closure of a Branch

                • AU-5.5.1

                  In accordance with Article 50 of the CBB Law, investment firm licensees wishing to cancel their license or cease activities for a branch must obtain the CBB's written approval, before ceasing their activities. All such requests must be made in writing to the Director, Financial Institutions Supervision, setting out in full the reasons for the request and how the business is to be wound up.

                  Amended: October 2011
                  Amended: July 2010
                  Amended: July 2007

                • AU-5.5.2

                  Investment firm licensees must satisfy the CBB that their customers' interests are to be safeguarded during and after the proposed cancellation. The requirements contained in Module GR regarding cessation of business must be satisfied.

                  Amended: July 2007

                • AU-5.5.3

                  Failure to comply with Rule AU-5.5.1 constitutes a breach of Article 50(a) of the CBB Law. The CBB will only approve such a request where it has no outstanding regulatory concerns and any relevant customer interests would not be prejudiced. A voluntary surrender of a license will not be accepted where it is aimed at pre-empting supervisory actions by the CBB. A voluntary surrender will only be allowed to take effect once the licensee, in the opinion of the CBB, has discharged all its regulatory responsibilities to customers.

                  Amended: January 2011
                  Amended: July 2007

              • Cancellation of a License by the CBB

                • AU-5.5.4

                  As provided for under Article 48(c) of the CBB Law, the CBB may itself move to cancel a license, for instance if a licensee fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licensee requires a cancellation. 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-7, 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.

                  Amended: October 2011
                  Amended: July 2007

                • AU-5.5.4A

                  Cancellation of a license requires the CBB to issue a formal notice of cancellation to the licensee concerned. The notice of cancellation describes the CBB's rationale for the proposed cancellation, as specified in Article 48(d) of the CBB Law.

                  Amended: October 2012
                  Adopted: October 2011

                • AU-5.5.4B

                  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 clients. Until such time, the CBB will retain all its regulatory powers towards the licensee and will direct the licensee so that no new regulated investment services may be undertaken whilst the licensee discharges its obligations to its clients.

                  Adopted: October 2011

              • Cancellation of Approved Person Status

                • AU-5.5.5

                  In accordance with Paragraph AU-5.2.8, investment firm licensees must promptly notify the CBB in writing as soon as they become aware, when a person undertaking a controlled function will no longer be carrying out that function. If a controlled function falls vacant, the investment firm licensee 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 investment firm licensee must make immediate interim arrangements to ensure continuity of the duties and responsibilities of the controlled function affected, provided that such arrangements do not pose a conflict of duties. These interim arrangements must be approved by the CBB.

                  Amended: July 2015
                  Amended: January 2012
                  Amended: July 2010
                  Amended: April 2008
                  Amended: July 2007

                • AU-5.5.6

                  The explanation given for any such changes should simply identify if the planned move was prompted by any concerns over the person concerned, or is due to a routine staff change, retirement or similar reason.

                  Amended: July 2007

                • AU-5.5.7

                  The CBB may also move to declare someone as not 'fit and proper', in response to significant compliance failures or other improper behaviour by that person: see Chapter EN-8 regarding the cancellation of 'fit and proper' approval.

                  Amended: July 2007

            • AU-5.6 Publication of the Decision to Grant, Cancel or Amend a License

              • AU-5.6.1

                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

              • AU-5.6.2

                For the purposes of Paragraph AU-5.6.1, the cost of publication must be borne by the Licensee.

                Added: July 2017

              • AU-5.6.3

                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

          • AU-6 License Fees

            • AU-6.1 License Application Fees

              • AU-6.1.1

                Applicants seeking an investment firm license 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: July 2010
                Adopted: July 2007

              • AU-6.1.2

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

                Adopted: July 2007

            • AU-6.2 Annual License Fees

              • AU-6.2.1

                Investment firm licensees must pay the relevant annual license fee to the CBB, on the 1st of December of the preceding year for which the fees are due.

                Amended: July 2013
                Adopted: July 2007

              • AU-6.2.2

                The relevant fees are specified in Rules AU-6.2.3 to AU-6.2.5 below: different fees are specified for Category 1, Category 2 and Category 3 investment firms. The fees due on 1st December are those due for the following calendar year, and are calculated on the basis of the firm'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 licensee does not operate its accounts on a calendar-year basis, then the most recent audited financial statements available are used instead.

                Amended: July 2013
                Adopted: July 2007

              • AU-6.2.3

                Category 1 investment firms must pay a variable annual licensing fee based on 0.25% of their relevant operating expenses, subject to a minimum ('floor') of BD 6,000 and a maximum ('cap') of BD 24,000.

                Amended: July 2013
                Adopted: July 2007

              • AU-6.2.4

                Category 2 investment firms must pay a variable annual licensing fee based on 0.25% of their relevant operating expenses, subject to a minimum ('floor') of BD 4,000 and a maximum ('cap') of BD 12,000.

                Amended: July 2013
                Adopted: July 2007

              • AU-6.2.5

                Category 3 investment firms must pay a variable annual licensing fee based on 0.25% of their relevant operating expenses, subject to a minimum ('floor') of BD 1,000 and a maximum ('cap') of BD 4,000.

                Amended: July 2013
                Adopted: July 2007

              • AU-6.2.6

                Relevant operating expenses 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 AU-6.2.7.

                Adopted: July 2007

              • AU-6.2.7

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

                (a) Training costs;
                (b) Charitable donations;
                (c) CBB fees paid; and
                (d) Non-executive Directors' remuneration.
                Adopted: July 2007

              • AU-6.2.8

                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.

                Adopted: July 2007

              • AU-6.2.9

                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.

                Adopted: July 2007

              • AU-6.2.9A

                Investment firm licensees 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 licensee and/or others at the licensee's direction or having been established under the licensee's direction for that purpose.

                Adopted: April 2011

              • AU-6.2.9B

                The annual fee for SPVs stipulated in Paragraph AU-6.2.9A does not apply to SPVs of Bahrain domiciled CIUs. In the case of Bahrain domiciled CIUs, investment firm licensees should refer to the relevant Chapter in Module ARR of Volume 7, depending on the classification of the Bahrain domiciled CIU.

                Amended: July 2013
                Added: January 2012

              • AU-6.2.10

                Investment firm licensees 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
                Adopted: July 2007

              • AU-6.2.10A

                All licensees are subject to direct debit for the payment of the annual fee and must complete and submit to the CBB a Direct Debit Authorisation Form by 15th September available under Part B of Volume 4 (Investment Business) CBB Rulebook on the CBB Website.

                Added: July 2013

              • AU-6.2.11

                For new licensees, their first annual license fee is payable when their license is issued by the CBB. The amount payable is the floor amount specified for their category of license.

                Amended: July 2010
                Adopted: July 2007

              • AU-6.2.12

                For the first full year of operation for investment firm licensees, the licensee would calculate its fee as the floor amount. For future years, the licensee 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
                Deleted: July 2010
                Adopted: July 2007

              • AU-6.2.13

                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.

                Amended: July 2010
                Adopted: July 2007

              • AU-6.2.14

                Investment firm licensees failing to comply with this Section may be subject to financial penalties for date sensitive requirements as outlined in Section EN-5.3A 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’) investment firm licensees and approved persons. They serve as a basis for other material in Volume 4 (Investment Business), and help address specific circumstances not covered elsewhere in the Rulebook.

                  Amended: January 2007

                • PB-A.1.2

                  The Principles of Business have the status of Rules and apply alongside other Rules contained in Volume 4 (Investment Business). 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.

              • 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 investment firm licensees (including their approved persons).

                  Amended: January 2011
                  Added: January 2007

                • PB-A.1.4

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

                  Added: January 2007

            • PB-A.2 Module History

              • Evolution of Module

                • PB-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. 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.

                  Amended: January 2007

                • PB-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Added: July 2007

                • 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 07/2007 New Rule PB-A.1.3 introduced, categorising this Module as a Directive.
                  PB-1.1.1 07/2007 Small expansion of Principle 1 to refer to disclosure of all relevant information to customers, as required by CBB Regulations and Directives.
                  PB-A.1.3 01/2011 Clarified legal basis.

                • PB-A.2.4

                  Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

              • Superseded Requirements

                • PB-A.2.5

                  This Module does not supersede any previously issued circulars or other regulatory instruments.

                  Amended: January 2007

                • PB-A.2.6

                  [This Paragraph was deleted in April 2008]

                  Deleted: April 2008

          • PB-B Scope of Application

            • PB-B.1 Scope of Application

              • PB-B.1.1

                The 10 Principles of Business apply to all CBB investment firm licensees, in accordance with Paragraph PB-B.1.2. Principles 1–8 (Paragraphs PB-1.1 to PB-1.8 inclusive) also apply to all approved persons, in accordance with Paragraph PB-B.1.3.

                Amended: January 2007

              • PB-B.1.2

                Principles 1 to 10 apply to activities carried out by the licensee, 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 licensee is a member.

              • PB-B.1.3

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

              • PB-B.1.4

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

              • PB-B.1.5

                The CBB's requirements regarding approved persons and controlled functions are located in Module AU (Authorisation).

                Amended: January 2007

            • PB-B.2 Non-compliance

              • PB-B.2.1

                Breaching a Principle of Business makes the investment firm licensee or approved person 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 AU-2). In the case of an approved person, 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 Chapter AU-3).

              • PB-B.2.2

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

                Amended: January 2007

          • PB-1 The Principles

            • PB-1.1 Principle 1 — Integrity

              • PB-1.1.1

                Investment firm licensees and approved persons must observe high standards of integrity and fair dealing. They must be honest and straightforward in their dealings with clients, and disclose fully all relevant information to clients, as required by the CBB's Regulations and Directives.

                Amended: January 2007

            • PB-1.2 Principle 2 — Conflicts of Interest

              • PB-1.2.1

                Investment firm licensees and approved persons must take all reasonable steps to identify, and prevent or manage, conflicts of interest that could harm the interests of a client.

            • PB-1.3 Principle 3 — Due Skill, Care and Diligence

              • PB-1.3.1

                Investment firm licensees and approved persons must act with due skill, care and diligence.

            • PB-1.4 Principle 4 — Confidentiality

              • PB-1.4.1

                Investment firm licensees and approved persons must observe in full any obligations of confidentiality, including with respect to client information. This requirement does not over-ride lawful disclosures.

            • PB-1.5 Principle 5 — Market Conduct

              • PB-1.5.1

                Investment firm licensees and approved persons must observe proper standards of market conduct, and avoid action that would generally be viewed as improper.

            • PB-1.6 Principle 6 — Customer Assets

              • PB-1.6.1

                Investment firm licensees and approved persons must take reasonable care to safeguard the assets of customers for which they are responsible.

                Amended: January 2007

            • PB-1.7 Principle 7 — Customer Interests

              • PB-1.7.1

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

            • PB-1.8 Principle 8 — Relations with Regulators/Supervisors

              • PB-1.8.1

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

                Amended: January 2007

            • PB-1.9 Principle 9 — Adequate Resources

              • PB-1.9.1

                Investment firm licensees must maintain adequate human, financial and other resources sufficient to run their business in an orderly manner.

            • PB-1.10 Principle 10 — Management, Systems & Controls

              • PB-1.10.1

                Investment firm licensees 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. Investment firm licensees' 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.

                Amended: January 2007

        • HC High-Level Controls Module

          • HC-A Introduction

            • HC-A.1 Purpose

              • Executive Summary

                • HC-A.1.1

                  This Module presents requirements that have to be met by investment firm licensees with respect to:

                  (a) Corporate governance principles issued by the Ministry of Industry and Commerce as The Corporate Governance Code; and
                  (b) Related high-level controls and policies.
                  January 2011

                • 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.

                  January 2011

                • 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 company stakeholders through compliance with those principles.

                  January 2011

                • 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 Central Bank of Bahrain ('the CBB') prior to the publication of the Code and previously contained in Module HC.

                  January 2011

              • Structure of this Module

                • HC-A.1.5

                  This Module follows the structure of the Corporate Governance Code and each Chapter deals with one the nine fundamental 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.

                  January 2011

                • HC-A.1.6

                  The Module also incorporates other high-level controls and policies that apply in particular to investment firm licensees.

                  January 2011

                • 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'.

                  January 2011

                • HC-A.1.8

                  This Module contains a mixture of Rules and Guidance (See Module UG-1.2 for a detailed explanation of Rules and Guidance). All Rules in Module HC must be complied with by all investment firm licensees.

                  Amended: July 2015
                  January 2011

              • The Comply or Explain Principle for Guidance Paragraphs

                • HC-A.1.8A

                  In addition, all investment firm licensees must comply with the Guidance in Module HC or explain their noncompliance by way of an annual report to their shareholders and to the CBB (see Chapter HC-8).

                  Added: July 2015

              • 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 investment firm licensee's shareholders and the CBB.

                  January 2011

                • HC-A.1.10

                  It is the Board's responsibility to see to the accuracy and completeness of the investment firm licensee's 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).

                  January 2011

              • 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 investment firm licensees (including their approved persons).

                  Amended: July 2015
                  January 2011

                • HC-A.1.12

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

                  January 2011

              • Effective Date

                • HC-A.1.13

                  This updated Module is effective on 1st January 2011. All investment firm licensees to which Module HC applies should be in full compliance by the financial year end 2011. At every investment firm licensee's 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 investment firm licensee's governance. Where possible, the investment firm licensee 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.

                  January 2011

            • HC-A.2 Module History

              • HC-A.2.1

                This Module was first issued in July 2007. Following the issuance of the Corporate Governance Code by the Ministry of Industry and Commerce in March 2010, the Module was amended in January 2011 to be in line with the new 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.

                Amended: July 2015
                January 2011

              • 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-9 01/2011 Amendments due to introduction of new MOIC Corporate Governance Code.
                HC-1.4 04/2011 Amendment made to reflect new Rules on attendance of Directors at Board of Directors meetings.
                HC-6.3.4 04/2011 Added description of compliance officer's duties.
                HC-6.5.3 04/2011 Guidance added dealing with the compliance function.
                HC-B.2.2 01/2012 Clarified language related to corporate governance.
                HC-1.2.5 and HC-1.6.3 01/2012 Clarified that the chairman of the Board may delegate specific duties dealt with in these Paragraphs.
                HC-1.5.7 and HC-1.5.7A 01/2012 Clarified rule and guidance on the chairman of the Board.
                HC-1.10.1 01/2012 Deleted last sentence.
                HC-5.5.6 01/2012 Amended Paragraph.
                Appendix B 01/2012 Disclosure to shareholders amended.
                HC-1.9.5 07/2012 Clarified guidance.
                Appendix A 07/2012 Clarified requirement for written report on performance evaluation for Audit Committee.
                HC-7.2.5 and HC-10.7.6 10/2012 Clarified guidance on election of board members.
                Appendix A 10/2012 Included reference to compliance under Committee Duties and Responsibilities.
                HC-2.2.3 and HC-2.4.1 01/2013 Clarified scope of application for Rules.
                HC-3.2.1 01/2013 Clarified guidance on appointment of internal auditor.
                HC-1.3.7 04/2013 Clarified Rule on limits on number of directorships.
                HC-2.2.4 and HC-2.2.6 10/2013 Removed reference to appointed representatives.
                HC-1.3.2 and HC-10.1.8 10/2014 Corrected typo to be consistent with other Volumes of the CBB Rulebook.
                HC-9.2.1 10/2014 Clarified language for Category 1 and 2 Islamic investment firms.
                HC-10.9.2 10/2014 Amended guidance for Category 3 Islamic investment firms to appoint a minimum of one Shari'a advisor or scholar instead of having a Shari'a Supervisory Board.
                HC-A.1.8 07/2015 Clarified the application of the comply or explain principle.
                HC-6.4.2 07/2015 Changed Guidance to Rule so that the internal audit function must be independent and cannot be combined with any other function.
                HC-2.3.5 and HC-10.2.5A 04/2016 Added a requirement (or guidance, based on the category of license) for the investment firm licensee to have in place a board approved policy on the employment of relatives of approved persons.
                HC-2.4.2A and HC-10.2.6A 04/2016 Added the requirement (or guidance, based on the category of license) to disclose to the board on annual basis relatives of any approved persons occupying controlled functions.
                HC-2.3, HC-2.4 and HC-10.2 07/2016 Clarified application of Rules (or guidance, based on the category of license) for overseas licensees.
                HC-7.2.1(j) and HC-10.7.2(j) 10/2017 Added requirement on the invitation of a CBB representative for any shareholders' meetings.

              • HC-A.2.3

                Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

                January 2011

          • HC-B Scope of Application

            • HC-B.1 License Categories

              • HC-B.1.1

                The contents of this Module — unless otherwise stated — apply to Category 1 and Category 2 investment firm licensees, incorporated under the Bahrain Commercial Companies Law ('the Company Law').

                January 2011

              • HC-B.1.2

                For Category 3 investment firms, the applicable Guidance Paragraphs are included in Chapter HC-10. The Comply or Explain Principle (see Paragraph HC-A.1.8) applies to the content of Chapter HC-10.

                January 2011

              • HC-B.1.3

                Overseas investment firm licensees must satisfy the CBB that equivalent arrangements are in place at the parent entity level, and that these arrangements provide for effective high-level controls over activities conducted under the Bahrain license.

                January 2011

              • HC-B.1.4

                In assessing compliance with Paragraph HC-B.1.3, the CBB will take into account regulatory requirements applicable to the parent entity, as well as the governance and systems and controls arrangements actually implemented by the parent entity and applied to the Bahrain operation. With the exception of specific requirements that explicitly apply to overseas investment firm licensees (i.e. Paragraphs HC-B.1.3), overseas investment firm licensees should consider the remaining contents of this Chapter as guidance, in judging whether high-level controls applied to the branch satisfy HC-B.1.3.

                January 2011

            • HC-B.2 Branches, Subsidiaries and Affiliates

              • HC-B.2.1

                Bahraini investment firm licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their branches, whether located inside or 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.

                January 2011

              • HC-B.2.2

                Bahraini investment firm licensees must satisfy the CBB that regulated investment services conducted in subsidiaries and other group members are subject to the same or equivalent arrangements for ensuring effective corporate governance over their activities.

                Amended: January 2012
                January 2011

              • HC-B.2.3

                Where an investment firm licensee is unable to satisfy the CBB that its subsidiaries 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.

                January 2011

          • HC-1 The Board

            • HC-1.1 Principle

              • HC-1.1.1

                All Bahraini investment firm licensees must be headed by an effective, collegial and informed Board of Directors ('the Board').

                January 2011

            • 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 investment firm licensee and the shareholders (see HC-2.1).
                January 2011

              • HC-1.2.2

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

                (a) Approving and reviewing at least annually the overall business performance and strategy for the investment firm licensee;
                (b) Reviewing regularly the implementation of the strategy and operational performance;
                (c) Causing financial statements to be prepared which accurately disclose the investment firm licensee's financial position;
                (d) Monitoring management performance;
                (e) Reviewing regularly the level of risk;
                (f) Approving and reviewing at least annually systems and controls framework (including policies and procedures);
                (g) Convening and preparing the agenda for shareholder meetings;
                (h) Monitoring conflicts of interest and preventing abusive related party transactions;
                (i) Assuring equitable treatment of shareholders including minority shareholders; and
                (j) Setting out clearly and reviewing on a regular basis who has authority to enter the licensee into contractual obligations.
                January 2011

              • HC-1.2.3

                With respect to Subparagraph HC-1.2.2(j), the Board should set a materiality threshold so that contractual obligations above this set threshold are regularly reported to the Board. In setting the materiality threshold, the Board will consider the financial impact the contractual obligation may have in relation to its capital.

                January 2011

              • HC-1.2.4

                The directors are responsible both individually and collectively for performing these responsibilities and must have sufficient expertise as a Board to understand the important issues relating to operation and control of the investment firm licensee. 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. This statement must be clearly communicated to Board members and senior management.

                January 2011

              • HC-1.2.5

                When a new director is inducted, the chairman of the Board, or the licensee's 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-4.3.1).

                Amended: January 2012
                January 2011

              • HC-1.2.6

                The investment firm licensee 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 remuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

                January 2011

              • HC-1.2.7

                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

              • Additional Guidance

                • HC-1.2.8

                  In assessing the licensee's strategic plans (see Paragraph HC-1.2.2), the CBB would expect the Board to address the licensee's current and future aspirations with respect to its position in the market place, its size, products, value and other key aspirations that would be considered important by investors. Furthermore, the Board should demonstrate that it is able to identify proactively and understand the significant risks that the licensee faces in achieving its business objectives. A description of the licensee's strategy should be included in the annual financial statements.

                  January 2011

                • HC-1.2.9

                  In assessing the management framework (see Paragraph HC-1.2.2), the CBB would expect the Board to have effective policies and processes in place for:

                  (a) Ensuring a formal and transparent Board nomination process;
                  (b) Appointing senior managers, and ensuring that they have the necessary integrity, technical and managerial competence, and experience;
                  (c) Overseeing succession planning, and minimizing undue reliance on key individuals;
                  (d) Reviewing key senior management and Board remuneration packages and ensuring such packages are consistent with the corporate values and strategy of the licensee and encourage prudent risk taking;
                  (e) Monitoring and evaluating management's performance in implementing agreed strategy and business plans, and ensuring appropriate resources are available; and
                  (f) Approving budgets and reviewing performance against those budgets.
                  January 2011

                • HC-1.2.10

                  In assessing the systems and controls framework (see Paragraph HC-1.2.2), the CBB would expect the Board to be able to demonstrate that the licensee's operations, individually and collectively:

                  (a) Are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of the licensee's activities. These should pro-actively identify as well as monitor risk. The systems should produce information on a timely basis, and in a form and quality appropriate to the needs of the different recipients;
                  (b) Are supported by an appropriate control environment. The risk management and financial reporting functions must be independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas; and
                  (c) Make effective use of the work of internal and external auditors.
                  January 2011

            • HC-1.3 Composition

              • HC-1.3.1

                The Memorandum and Articles of Association of Bahraini investment firm licensees must adequately set out procedures for the appointment, removal and retirement of directors.

                January 2011

              • HC-1.3.2

                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's Memorandum of Association.

                Amended: October 2014
                January 2011

              • HC-1.3.3

                It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. CBB also expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities as Directors.

                January 2011

              • HC-1.3.4

                Potential non-executive directors 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 director and should require each non-executive director to inform the Committee 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

              • HC-1.3.5

                To fulfil its responsibilities outlined in Section HC-1.2, the Board of Bahraini investment firm licensees must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting new directors to replace long-standing members or those members whose contributions to the licensee or its committees is not adequate.

                January 2011

              • HC-1.3.6

                To demonstrate compliance with Rule HC-1.3.5, the Board should be able to demonstrate that it regularly considers (e.g. every one or two years) the mix of executive, non-executive and independent non-executive Directors, and skills and experience, that it requires. See also Paragraph HC-1.3.2.

                January 2011

              • HC-1.3.7

                A Board member may have a maximum of two Directorships of financial institutions inside Bahrain. However, two Directorships of investment firm licensees would not be permitted. Investment firm licensees may approach the CBB for exemption from this limit where the Directorships concern financial institutions within the same group.

                Amended: April 2013
                January 2011

              • HC-1.3.8

                The appointment of Board members is conditional on the approval of the CBB (See Section AU-1.2).

                January 2011

            • HC-1.4 Decision Making Process

              • HC-1.4.1

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

                January 2011

              • HC-1.4.2

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

                January 2011

              • HC-1.4.3

                The Board must 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-1.4.4

                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
                Amended: April 2011
                January 2011

              • HC-1.4.4A

                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).

                Added: April 2011

              • HC-1.4.4B

                In the event that a Board member has not attended at least 75% of Board meetings in any given financial year, the investment firm licensee 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.

                Added: April 2011

              • HC-1.4.5

                To meet its obligations under Rule HC-1.4.3 above, the Board should meet preferably no less than four times per year. The CBB recommends that meetings should take place 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. Investment firm licensees 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.

                Amended: April 2011
                January 2011

              • HC-1.4.6

                At least half the Board meetings of Bahraini investment firm licensees in any twelve-month period must be held in the Kingdom of Bahrain.

                January 2011

              • HC-1.4.7

                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. 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.

                January 2011

              • HC-1.4.8

                The Board must maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.

                January 2011

            • HC-1.5 Independence of Judgment

              • HC-1.5.1

                The Board must ensure that it has sufficient non-executive and independent non-executive directors (in addition to its Chairman), in order to provide sufficient independent scrutiny of management.

                January 2011

              • HC-1.5.2

                In the case of a Bahraini investment firm licensee, which is part of an overseas group, where there is sufficient independent scrutiny of the operations of the firm on a group wide basis, the CBB will consider exempting the licensee from the independence requirements of Paragraph HC-1.5.1.

                January 2011

              • HC-1.5.3

                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.

                January 2011

              • HC-1.5.4

                Executive directors 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 an officer.

                January 2011

              • HC-1.5.5

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

                January 2011

              • HC-1.5.6

                At least half of an investment firm licensee's Board should be non-executive directors and at least three of those persons should be independent directors. (Note the exception for controlled companies in Paragraph HC-1.6.2 and for possible exemption under Paragraph HC-1.5.2).

                January 2011

              • HC-1.5.7

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

                Amended: January 2012
                January 2011

              • HC-1.5.7A

                The chairman and/or deputy chairman must not be the same person as the CEO.

                Added: January 2012

              • HC-1.5.8

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

                January 2011

              • HC-1.5.9

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

                January 2011

            • HC-1.6 Representation of all Shareholders

              • HC-1.6.1

                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 company has a controller (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.

                January 2011

              • HC-1.6.2

                In investment firm licensees with a controller, at least one-third of the Board must be independent directors. Minority shareholders must generally look to independent directors' diligent regard for their interests, in preference to seeking specific representation on the Board.

                January 2011

              • HC-1.6.3

                In investment firm licensees with a controller, both controllers and other shareholders should be aware of controllers' specific responsibilities regarding their duty of loyalty to the investment firm licensee 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 investment firm licensee 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 company lawyers.

                Amended: January 2012
                January 2011

            • HC-1.7 Directors' Access to Independent Advice

              • HC-1.7.1

                The Board must ensure that individual directors have access to independent legal or other professional advice at the investment firm licensee's expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with the investment firm licensee's policy approved by the Board.

                January 2011

              • HC-1.7.2

                Individual directors must also have access to the investment firm licensee's 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.

                January 2011

              • HC-1.7.3

                Whenever a director has serious concerns which cannot be resolved concerning the running of the investment firm licensee 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.

                January 2011

              • HC-1.7.4

                Upon resignation, a non-executive director should provide a written statement to the chairman, for circulation to the Board, if he has any concerns such as those in Paragraph HC-1.7.3.

                January 2011

            • HC-1.8 Directors' Communication with Management

              • HC-1.8.1

                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.

                January 2011

              • HC-1.8.2

                Non-executive directors should have free access to the investment firm licensee's 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-1.9 Committees of the Board

              • HC-1.9.1

                The Board must create specialised committees when and as such committees are needed. In addition to the Audit Committee described elsewhere in this Module, these may include an Executive Committee to review and make recommendations to the whole Board on company actions, or a Risk Committee to identify and minimise specific risks of the investment firm licensee's business.

                January 2011

              • HC-1.9.2

                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 investment firm licensee's corporate governance policy framework.

                Amended: January 2012
                January 2011

              • HC-1.9.3

                The Board or a committee may invite non-directors to participate in, but not vote at committee meetings so that the committee may gain the benefit of their advice and expertise in financial or other areas.

                January 2011

              • HC-1.9.4

                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.

                January 2011

              • HC-1.9.5

                Committees may be combined provided that no conflict of interest might arise between the duties of such committees.

                Amended: July 2012
                January 2011

              • HC-1.9.6

                Every committee should have a formal written charter similar in form to the model charter which is set forth in Appendix A of this Module for the Audit Committee.

                January 2011

            • HC-1.10 Evaluation of the Board and Each Committee

              • HC-1.10.1

                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
                January 2011

              • HC-1.10.2

                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; and
                (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.
                January 2011

              • HC-1.10.3

                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.

                January 2011

              • HC-1.10.4

                The Board should report to the shareholders, at each annual shareholder meeting, that evaluations have been done.

                January 2011

            • HC-1.11 Annual Board Review and Certification

              • HC-1.11.1

                The Board must assess and document each year whether the internal corporate governance processes that it has implemented have successfully achieved their objectives, and consequently whether the Board has fulfilled its responsibilities for directing and monitoring the overall conduct of the licensee's affairs.

                January 2011

              • HC-1.11.2

                The results of the review referred to in Paragraph HC-1.11.1 must be summarised in a written certification, to be signed by all Board members, and sent to the CBB within 3 months of the financial year-end of the licensee. The Board must report any material deficiencies identified during the review, along with an action plan and timescales for their correction.

                Amended: October 2012
                January 2011

              • HC-1.11.3

                The Board certification comprises a prescribed standard statement, to be signed by all Board members, attached to which should be a summary of the steps the Board has taken in carrying out the review; a summary of the results of that review; and a summary action plan (with timescales) for addressing any identified material deficiencies.

                January 2011

              • HC-1.11.4

                The prescribed standard statement referred to in Paragraph HC-1.11.3 is as follows:

                "We, the Directors of [insert licensee name], do hereby confirm that we have undertaken the review required under Rule HC-1.11.1 of Volume 4 of the CBB Rulebook. The scope of this review was in accordance with the requirements specified in Paragraph HC-1.11.5 of Volume 4 of the CBB Rulebook.

                The summary results of this review, setting out (i) the actions taken to carry out this review; (ii) any material deficiencies identified as a result of the review; and (iii) an action plan and timescales for the correction of any such deficiencies (where appropriate), are attached.

                We understand that it is a breach of our licensing conditions to provide false or misleading information to the CBB, or to withhold material information that may reasonably be expected to be provided to the CBB.

                [signed and dated by all Board Directors]"

                January 2011

              • HC-1.11.5

                The Board's review should cover the following specific matters:

                (a) That the Board has reassessed the licensee's objectives and plans, and has reviewed the licensee's corporate strategy document;
                (b) That the Board has reassessed the licensee's overall risk profile, and its mapping of risks and the control environment put in place to meet those risks. The Board must comment whether the control environment remains effective and appropriate;
                (c) That the Board has assessed the licensee's internal controls, to confirm that these are based on established policies and procedures approved by the Board and provide reasonable assurance of the integrity and reliability of its financial records;
                (d) That the Board has assessed whether adherence to established internal limits and controls was continuously monitored;
                (e) That the Board has assessed that all new (or material changes to) significant policies, procedures and products introduced by the licensee since the last Board certification were appropriately reviewed and approved at the time;
                (f) That the Board has assessed that management and staff have complied with the licensee's corporate code of conduct (see Paragraph HC-2.2.4); and
                (g) That in the period under review, the Board had received and reviewed the external auditor's management letter within six months of the (previous) financial year end, together with comments on the letter and proposed actions, from the licensee's audit committee and senior management.
                January 2011

              • HC-1.11.6

                With respect to HC-1.11.5(g), a Director's certificate received (for example) no later than 31 March 2004, covering the year ending 31 December 2003, would need to certify that the management letter for the year ending 31 December 2002 was received and reviewed by the Board by 30 June 2003.

                January 2011

          • HC-2 Approved Persons Loyalty

            • HC-2.1 Principle

              • HC-2.1.1

                The approved persons must have full loyalty to the investment firm licensee.

                January 2011

            • HC-2.2 Personal Accountability

              • HC-2.2.1

                The Board and its members must act with honesty, integrity, due skill and care, and in the best interests of the licensee, its shareholders and clients.

                January 2011

              • HC-2.2.2

                In assessing compliance with Paragraph HC-2.2.1, the CBB will take into account all actions of the Board and its members. The interest of the licensee includes the licensee's continued compliance with all relevant rules and regulations, and the interests of employees, clients and other stakeholders. The interest of shareholders includes the current and future value of the licensee, its status as a going concern, transparency and disclosure of information to the market. The interest of clients includes ensuring that the licensee fulfils its obligations under its terms of business and treats all clients fairly and pays equal regard to the interests of all clients.

                January 2011

              • HC-2.2.3

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

                Amended: January 2013
                January 2011

              • HC-2.2.4

                An investment firm licensee's Board must establish and disseminate to all employees of the licensee a corporate code of conduct.

                Amended: October 2013
                January 2011

              • HC-2.2.5

                The code of conduct must establish standards by giving examples or expectations as regards:

                (a) Honesty;
                (b) Integrity;
                (c) The avoidance or disclosure of conflicts of interest;
                (d) Maintaining confidentiality;
                (e) Professionalism;
                (f) Commitment to the law and best practices; and
                (g) Reliability.
                January 2011

              • HC-2.2.6

                The Board must establish and disseminate to employees policies and processes for the identification, reporting and prevention or management of potential conflicts of interest, including matters such as:

                (a) Related party transactions;
                (b) The misuse of the licensee's assets; and
                (c) The use of privileged information for personal advantage ('insider trading').
                Amended: October 2013
                January 2011

              • HC-2.2.7

                Any transaction in which Board members or any member of management have potential conflicts of interest should either be proscribed or require formal documented approval by the Board, with measures taken to manage those conflicts (see also Paragraph HC-2.4.1).

                January 2011

              • HC-2.2.8

                The Board must ensure that policies and procedures are in place to ensure that necessary customer confidentiality is maintained.

                January 2011

              • HC-2.2.9

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

                January 2011

              • HC-2.2.10

                For purposes of Paragraph HC-2.2.9, an approved person 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 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.)

                January 2011

            • HC-2.3 Avoidance of Conflicts of Interest

              • HC-2.3.1

                Investment firm licensees must maintain an organisational structure that minimises the risk of conflicts of interest arising.

                January 2011

              • HC-2.3.2

                For the purposes of Rule HC-2.3.1, the CBB would expect investment firm licensees to separate front and back office functions, as well as proprietary trading and client trading/advisory functions.

                January 2011

              • HC-2.3.3

                Each approved person must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the investment firm licensee.

                January 2011

              • HC-2.3.4

                Board members must absent themselves from any discussion or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject, transaction or proposed transaction where there is a potential conflict of interest.

                January 2011

              • HC-2.3.5

                Bahraini investment firm licensees must have in place a board approved policy on the employment of relatives of approved persons and a summary of such policy must be disclosed in the annual report of the Bahraini investment firm licensees.

                Amended: July 2016
                Added: April 2016

              • HC-2.3.6

                Overseas investment firm licensees must have in place a policy on the employment of relatives of approved persons pertaining to their Bahrain operations.

                Added: July 2016

            • HC-2.4 Disclosure of Conflicts of Interest

              • HC-2.4.1

                Each approved person must inform the entire Board of conflicts of interest 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 person. The approved persons must 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.

                Amended: January 2013
                January 2011

              • HC-2.4.2

                Board members must declare annually in writing all of their interests (and those of their family) in other enterprises or activities (whether as a Director, shareholder, senior executive or other form of participation) to the Board (or appropriate Board sub-Committee).

                January 2011

              • HC-2.4.2A

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

                Amended: July 2016
                Added: April 2016

              • HC-2.4.2B

                The chief executive/general manager of the overseas investment firm licensees must disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupying controlled functions and who are relatives of any approved persons within the overseas investment firm licensee.

                Added: July 2016

              • HC-2.4.3

                The Board of the Bahraini investment firm licensee should establish formal procedures for:

                (a) Periodic disclosure and updating of information by each approved person 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's approved person has a personal interest. The Board should require such advance approval in every case.
                Amended: July 2016
                January 2011

            • HC-2.5 Disclosure of Conflicts of Interest to Shareholders

              • HC-2.5.1

                The investment firm licensee 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.

                January 2011

          • 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.

                January 2011

            • HC-3.2 Audit Committee

              • HC-3.2.1

                The Board should establish an audit committee of at least three directors of which the majority should be independent including the Chairman. The committee should:

                (a) Review the company's accounting and financial practices;
                (b) Review the integrity of the investment firm licensee's financial and internal controls and financial statements;
                (c) Review the investment firm licensee's compliance with legal requirements;
                (d) Recommend the appointment, compensation and oversight of the investment firm licensee's external auditor; and
                (e) Recommend the appointment of the internal auditor (whether in-house or outsourced).
                Amended: January 2013
                January 2011

              • HC-3.2.2

                The Board or Audit Committee should ensure that the external audit firm and its partners are truly independent of the licensee and have no financial or other relationship with the licensee. Audit findings should be used as an independent check on the information received from management about the licensee's operations and performance and the effectiveness of internal controls.

                January 2011

            • HC-3.3 Audit Committee Charter

              • HC-3.3.1

                The audit committee should 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.

                January 2011

              • HC-3.3.2

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

                January 2011

              • 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.

                January 2011

            • 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 investment firm licensee's CEO and chief financial officer should state in writing to the audit committee and the Board as a whole that the investment firm licensee's interim and annual financial statements present a true and fair view, in all material respects, of the investment firm licensee's financial condition and results of operations in accordance with applicable accounting standards.

                January 2011

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

            • HC-4.1 Principle

              • HC-4.1.1

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

                January 2011

            • HC-4.2 Board Nominations to Shareholders

              • HC-4.2.1

                Each proposal by the Board to the shareholders for election or reelection of a director must be accompanied by a recommendation from the Board, 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 director, a statement that the Board has determined that the criteria of independent director 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 investment firm licensee, and
                (ii) The candidate and other directors of the investment firm licensee.
                January 2011

              • HC-4.2.2

                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.

                January 2011

            • HC-4.3 Induction and Training of Directors

              • HC-4.3.1

                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 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-4.3.2

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

                January 2011

              • HC-4.3.3

                Management, in consultation with the chairman of the Board, should hold programs and presentations to directors respecting the investment firm licensee's business and industry, which may include periodic attendance at conferences and management meetings.

                January 2011

          • HC-5 Remuneration of Approved Persons

            • HC-5.1 Principle

              • HC-5.1.1

                The investment firm licensee must remunerate approved persons fairly and responsibly.

                January 2011

            • HC-5.2 Role of Board of Directors

              • HC-5.2.1

                The Board of Directors must:

                (a) Review the investment firm licensee's remuneration policies for the approved persons, which must be approved by the shareholders;
                (b) Make recommendations regarding remuneration policies and amounts for specific persons to the whole Board, taking account of total remuneration including salaries, fees, expenses and employee benefits; and
                (c) Remunerate Board members based on their attendance and performance.
                January 2011

            • HC-5.3 Standard for all Remuneration

              • HC-5.3.1

                Remuneration (including incentives, bonuses and other rewards) of approved persons must be sufficient enough to attract, retain and motivate persons of the quality needed to run the investment firm licensee successfully, but the investment firm licensee must avoid paying more than is necessary for that purpose.

                January 2011

              • HC-5.3.2

                Where remuneration is structured so as to link rewards to corporate and individual performance, criteria should avoid excessive focus on short-term profitability measures, without due regard to the longer-term consequences of actions taken.

                January 2011

            • HC-5.4 Directors' Remuneration

              • HC-5.4.1

                The review of Directors' remuneration must be a standing item on the investment firm licensee's Annual General Meeting agenda, and must be considered by shareholders at every Annual General Meeting. Directors' remuneration (including pension and severance arrangements) and bonuses must be clearly disclosed in the annual financial statements.

                January 2011

              • HC-5.4.2

                Directors' remuneration should also comply with all applicable laws, such as Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law.

                January 2011

              • HC-5.4.3

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

                January 2011

            • HC-5.5 Senior Management Remuneration

              • HC-5.5.1

                Remuneration of senior management must be structured so that a portion of the total is linked to investment firm licensee and individual performance and aligns their interests with the interests of the shareholders.

                January 2011

              • HC-5.5.2

                Such rewards may include grants of shares, share options and other deferred stock-related incentive schemes, bonuses, and pension benefits which are not based on salary.

                January 2011

              • HC-5.5.3

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

                January 2011

              • HC-5.5.4

                All share incentive plans must be approved by the shareholders.

                January 2011

              • HC-5.5.5

                All performance-based incentives should be awarded under written objective performance standards which have been approved by the Board and are designed to enhance shareholder and company value, and under which shares should not vest and options should not be exercisable within less than two years of the date of award of the incentive.

                January 2011

              • HC-5.5.6

                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.

                Amended: January 2012
                January 2011

          • HC-6 Management Structure

            • HC-6.1 Principle

              • HC-6.1.1

                The Board must establish a clear and efficient management structure.

                January 2011

            • HC-6.2 Establishment of Management Structure

              • HC-6.2.1

                The Board must approve and review at least annually the investment firm licensee's management structure and responsibilities.

                January 2011

              • HC-6.2.2

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

                (a) A CEO;
                (b) A chief financial officer;
                (c) A corporate secretary;
                (d) An internal auditor (see HC-6.4 and AU-1.2); and
                (e) A compliance officer (seeHC-6.5 and AU-1.2).

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

                Amended: April 2011
                January 2011

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

              • HC-6.3.1

                Investment firm licensees must maintain clearly documented and communicated staff responsibilities and reporting lines.

                January 2011

              • HC-6.3.2

                For the purposes of Rule HC-6.3.1, investment firm licensees should maintain and document their delegated authority structure as well as written terms of reference for staff positions.

                January 2011

              • HC-6.3.3

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

                January 2011

              • HC-6.3.4

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

                (a) The CEO must have authority to act generally in the investment firm licensee's name, representing the investment firm licensee's interests in concluding transactions on the investment firm licensee's behalf and giving instructions to other senior managers and investment firm licensee employees;
                (b) The chief financial officer must be responsible and accountable for:
                (i) The complete, timely, reliable and accurate preparation of the investment firm licensee's financial statements, in accordance with the accounting standards and policies of the investment firm licensee (see HC-3.4.1); and
                (ii) Presenting the Board with a balanced and understandable assessment of the investment firm licensee's 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;
                (d) The internal auditor's (see HC-6.4) duties must include providing an independent and objective review of the efficiency of the investment firm licensee's operations. This would include a review of the accuracy and reliability of the investment firm licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of the investment firm licensee's risk management, control, and governance processes; and
                (e) The compliance officer's (see HC-6.5) duties include maintaining effective systems and controls for compliance with applicable requirements in the Kingdom's legislation and those set by the CBB, and those established under any other statute or regulator to which they are subject.
                Amended: April 2011
                January 2011

              • HC-6.3.5

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

                January 2011

              • HC-6.3.6

                The corporate secretary should be given general responsibility for reviewing the investment firm licensee's 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-6.3.7

                At least annually the Board shall review and concur in a succession plan addressing the policies and principles for selecting a successor to the CEO, 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 CEO.

                January 2011

            • HC-6.4 Internal Audit

              • HC-6.4.1

                Bahraini investment firm licensees must establish an internal audit function to monitor the adequacy of their systems and controls.

                January 2011

              • HC-6.4.2

                The internal audit function must be independent of the senior management, reporting either to the Board or its Audit committee (where applicable). The internal audit function must not be combined with any other function.

                Amended: July 2015
                January 2011

              • HC-6.4.3

                The CBB would normally expect larger investment firm licensees to maintain the internal audit function within the organisation (or at least to be provided from within the licensee's group, where relevant, providing this doesn't impair the level of internal audit scrutiny applied to the licensee). The CBB will however consider allowing small investment firm licensees to outsource part or all of their internal audit function to third party providers.

                January 2011

              • HC-6.4.4

                Where investment firm licensees outsource part or all of their internal audit function, the outsourcing arrangements must provide for an adequate level of scrutiny of the licensee, and must comply with the requirements contained in Chapter RM-7. A licensee cannot outsource its internal audit function to its external auditor.

                January 2011

              • HC-6.4.5

                Prior approval from the CBB is required for significant outsourcing arrangements, including all outsourcing of internal audit. Note that in all such cases, the licensee retains ultimate responsibility for the adequacy of its outsourcing function, and is required to identify the person within the licensee responsible for internal audit: this person should be an approved person (see Section AU-1.2 and Chapter RM-7).

                January 2011

              • HC-6.4.6

                Internal audit functions must have terms of reference that clearly indicate:

                (a) The scope and frequency of audits;
                (b) Reporting lines; and
                (c) The review and approval process applied to audits.
                January 2011

              • HC-6.4.7

                Paragraph HC-6.4.6 applies irrespective of whether the internal audit function is outsourced. Where it is outsourced, the CBB would expect to see these matters addressed in the contract with the outsourcing provider.

                January 2011

              • HC-6.4.8

                Internal audit functions must report directly to the Audit committee or, where none exists, to the Board. They must have unrestricted access to all the appropriate records of the investment firm licensee. They must have open and regular access to the Audit Committee, the Board, the Chief Executive, and the licensee's external auditor.

                January 2011

              • HC-6.4.9

                Internal audit functions must have adequate staff levels with appropriate skills and knowledge, such that they can act as an effective challenge to the business. Where the function is not outsourced, the head of function should be a senior and experienced employee. Internal audit functions must not perform other activities that compromise their independence.

                January 2011

              • HC-6.4.10

                The CBB would expect to see in place a formal audit plan that:

                (a) Is reviewed and approved at least annually by the Audit Committee or, where none exists, the Board;
                (b) Is risk-based, with an appropriate scoring system; and
                (c) Covers all material areas of a licensee's operations over a reasonable timescale.
                January 2011

              • HC-6.4.11

                Internal Audit reports should also be:

                (a) Clear and prioritised, with action points directed towards identified individuals;
                (b) Timely; and
                (c) Distributed to the Audit Committee or Board and appropriate senior management.
                January 2011

              • HC-6.4.12

                Investment firm licensees should also have processes in place to deal with recommendations raised by internal audit to ensure that they are:

                (a) Dealt with in a timely fashion;
                (b) Monitored until they are settled; and
                (c) Raised with senior management if they have not been adequately dealt with.
                January 2011

              • HC-6.4.13

                The internal auditor is considered as a head of function (see Paragraph AU-1.2.11) and is subject to CBB prior approval for the approved person occupying this controlled function as outlined in Section AU-1.2.

                January 2011

            • HC-6.5 Compliance

              • HC-6.5.1

                Investment firm licensees must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements in the Kingdom's legislation and those set by the CBB, and those established under any other statute or regulator to which they are subject.

                January 2011

              • HC-6.5.2

                Depending on the nature, scale and complexity of its business, an investment firm licensee should consider having a separate compliance function. A compliance function should:

                (a) Document its organisation and responsibilities;
                (b) Be appropriately staffed with competent individuals;
                (c) Have unrestricted access to the licensee's relevant records; and
                (d) Have ultimate recourse to the Board.
                January 2011

              • HC-6.5.3

                The compliance function may not be combined with the internal audit function or any other operational function as such combination may lead to a conflict of interest.

                Added: April 2011

          • HC-7 Communication between Board and Shareholders

            • HC-7.1 Principle

              • HC-7.1.1

                The investment firm licensee must communicate with shareholders, encourage their participation, and respect their rights.

                January 2011

            • 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 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's 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-7.2.2

                The investment firm licensee 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-7.2.3

                The investment firm licensee 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-7.2.4

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

                January 2011

              • HC-7.2.5

                In notices of meetings at which directors are to be elected or removed the investment firm licensee 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

            • 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 controllers 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 controllers. 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's corporate governance (see also HC-1.4 for other duties of the chairman).

                January 2011

            • HC-7.4 Controllers

              • HC-7.4.1

                In companies with one or more controllers, the chairman and other directors must actively encourage the controllers to make a considered use of their position and to fully respect the rights of minority shareholders (see also HC-1.4 for other duties of the chairman).

                January 2011

          • HC-8 Corporate Governance Disclosure

            • HC-8.1 Principle

              • HC-8.1.1

                The investment firm licensee must disclose its corporate governance.

                January 2011

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

              • HC-8.2.1

                The Board must oversee the process of disclosure to all stakeholders. The Board must ensure that the licensee's communications are fair, transparent, comprehensive and timely.

                January 2011

              • HC-8.2.2

                In each investment firm licensee:

                (a) The Board must 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 licensee must publish the guidelines on its website, if it has a website (see HC-7.2.4);
                (c) At each annual shareholders' meeting the Board must report on the investment firm licensee's 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 Appendix B. Such information should be maintained on the investment firm licensee's website or held at the investment firm licensee's premises on behalf of the shareholders.
                January 2011

              • HC-8.2.3

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

                January 2011

              • HC-8.2.4

                The licensee's annual report must identify Directors as executive, non-executive, or independent non-executive, and provide the definition of independence used.

                January 2011

          • HC-9 Islamic Investment Firm Licensees

            • HC-9.1 Principle

              • HC-9.1.1

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

                January 2011

            • HC-9.2 Governance and Disclosure per Shari'a Principles

              • HC-9.2.1

                Islamic investment firm licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders. Investment firm licensees 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 licensee must establish a Shari'a Supervisory Board consisting of at least three Shari'a board members.

                Amended: October 2014
                January 2011

              • HC-9.2.2

                In addition to its duties outlined in Chapter HC-3 and Appendix A, the Audit Committee shall communicate and co-ordinate with the investment firm licensee's Corporate Governance Committee and the Shari'a Supervisory Board ("SSB") (where applicable) to ensure that information on compliance with Islamic Shari'a rules and principles is reported in a timely manner.

                January 2011

              • HC-9.2.3

                The Board shall set up a Corporate Governance Committee (see also Paragraph HC-1.9.2). In this case, the Committee shall comprise at least three members to co-ordinate and integrate the implementation of the governance policy framework.

                January 2011

              • HC-9.2.4

                The Corporate Governance Committee established under Chapter HC-9 shall comprise at a minimum of:

                (a) An independent director to chair the Corporate Governance Committee. The Chairman of the Corporate Governance Committee should not only possess the relevant skills, such as the ability to read and understand financial statements, but should also be able to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the Audit Committee;
                (b) A Shari'a scholar who is an SSB member for the purpose of leading the Corporate Governance Committee on Shari'a-related governance issues (if any), and also to coordinate and link the complementary roles and functions of the Corporate Governance Committee and the SSB; and
                (c) An independent director who can offer different skills to the committee, such as legal expertise and business proficiency, which are considered particularly relevant by the Board of directors for cultivating a good corporate governance culture, and deemed "fit and proper" by the CBB.
                January 2011

              • HC-9.2.5

                The Corporate Governance Committee shall be empowered to:

                (a) Oversee and monitor the implementation of the governance policy framework by working together with the management, the Audit Committee and the SSB; and
                (b) Provide the Board of directors with reports and recommendations based on its findings in the exercise of its functions.
                January 2011

          • HC-10 Category 3 Investment Firm Licensees

            • HC-10.1 The Board

              • HC-10.1.1

                All Category 3 investment firm licensees 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 licensee 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 licensee;
                  (b) Causing financial statements to be prepared which accurately disclose the investment firm licensee's 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 licensee 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 remuneration 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's Memorandum of Association.

                  Amended: October 2014
                  January 2011

                • HC-10.1.9

                  Potential non-executive directors 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 director and should require each non-executive director 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 directors should have free access to the investment firm licensee's 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 persons shall have full loyalty to the investment firm licensee.

                January 2011

              • Personal Accountability

                • HC-10.2.2

                  Each approved person should understand that under the Company Law he is personally accountable to the investment firm licensee and the shareholders if he violates his legal duty of loyalty to the investment firm licensee, and that he can be personally sued by the investment firm licensee 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 licensee for his personal needs as though it was his own property, not to disclose confidential information of the investment firm licensee or use it for his personal profit, not to take business opportunities of the investment firm licensee for himself, not to compete in business with the investment firm licensee, and to serve the investment firm licensee's 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 person 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 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.)

                  January 2011

              • Avoidance of Conflicts of Interest

                • HC-10.2.5

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

                  January 2011

                • HC-10.2.5A

                  Bahraini investment firm licensees should have in place a board approved policy on the employment of relatives of approved persons and a summary of such policy must be disclosed in the annual report of the Bahraini investment firm licensee.

                  Amended: July 2016
                  Added: April 2016

                • HC-10.2.5B

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

                  Added: July 2016

              • Disclosure of Conflicts of Interest

                • HC-10.2.6

                  Each approved person 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 person. The approved persons 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 licensees 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 persons within the Bahraini investment firm licensee.

                  Amended: July 2016
                  Added: April 2016

                • HC-10.2.6B

                  The chief executive/general manager of the overseas investment firm licensees should disclose to a designated officer at its head office or regional manager on an annual basis those individuals who are occupying controlled functions and who are relatives of any approved persons within the overseas investment firm licensee.

                  Added: July 2016

                • HC-10.2.7

                  The Board of the Bahraini investment firm licensee should establish formal procedures for:

                  (a) Periodic disclosure and updating of information by each approved person 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's approved person 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 licensee 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 CEO and chief financial officer should state in writing to the audit committee and the Board as a whole that the investment firm licensee's interim and annual financial statements present a true and fair view, in all material respects, of the investment firm licensee's 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 licensee 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 management, 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's 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's 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 licensee should remunerate approved persons fairly and responsibly.

                January 2011

              • HC-10.5.2

                Remuneration of approved persons should be sufficient enough to attract, retain and motivate persons of the quality needed to run the investment firm licensee successfully, but the investment firm licensee 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 management whose authority must include management and operation of current activities of the investment firm licensee, reporting to and under the direction of the Board. The senior managers should include at a minimum:

                  (a) A CEO;
                  (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 persons as the Board considers appropriate and as a minimum must include persons occupying controlled functions 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's title, authorities, duties and internal reporting responsibilities. This should be done in consultation with the CEO, to whom the other senior managers should normally report.

                  January 2011

                • HC-10.6.4

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

                  (a) The CEO should have authority to act generally in the investment firm licensee's name, representing the investment firm licensee's interests in concluding transactions on the investment firm licensee's behalf and giving instructions to other senior managers and investment firm licensee 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's financial statements, in accordance with the accounting standards and policies of the investment firm licensee (see HC-10.3.2); and
                  (ii) Presenting the Board with a balanced and understandable assessment of the investment firm licensee's 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's operations. This would include a review of the accuracy and reliability of the investment firm licensee's accounting records and financial reports as well as a review of the adequacy and effectiveness of the investment firm licensee's 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 CEO or other senior managers, 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's 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 CEO, 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 CEO.

                  January 2011

            • HC-10.7 Communication between Board and Shareholders

              • HC-10.7.1

                The investment firm licensee 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's 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 licensee 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 licensee 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 licensee should maintain a company website. The investment firm licensee 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 licensee may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, the investment firm licensee 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 licensee 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 controllers 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 controllers. 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's corporate governance.

                  January 2011

              • Controllers

                • HC-10.7.8

                  In companies with one or more controllers, the chairman and other directors should actively encourage the controllers 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 licensee should disclose its corporate governance.

                January 2011

              • Disclosure Under the Company Law

                • HC-10.8.2

                  In each investment firm licensee:

                  (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 licensee 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's 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's website or held at the investment firm licensee's 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's 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 licensees which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders. Investment firm licensees 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 licensee 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

          • Appendix A Audit Committee

            • Committee Duties

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

              January 2011

            • 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 investment firm licensee.

              A majority of the members of the committee including the Chairman shall be independent directors and non-executive directors.

              The Board must satisfy itself that at least a majority of the committee has recent and relevant financial ability and experience, which includes:

              (a) An ability to read and understand corporate financial statements including an investment firm licensee's 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 investment firm licensee's financial statements;
              (c) Experience in evaluating financial statements that have a level of accounting complexity comparable to that which can be expected in the investment firm licensee's 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.
              January 2011

            • 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 investment firm licensee's 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 investment firm licensee 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 investment firm licensee 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 adequacy of the investment firm licensee's internal auditing and compliance personnel and procedures and its internal controls and compliance procedures, and any risk management systems, and any changes in those;
              (g) Oversee the investment firm licensee's compliance with legal and regulatory requirements; 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.
              Amended: October 2012
              January 2011

            • 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 investment firm licensee 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 investment firm licensee 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 shall report regularly to the full Board on its activities.

              January 2011

            • 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 investment firm licensee shall provide appropriate funding for the compensation of any such persons.

              January 2011

            • 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
              January 2011

          • Appendix B Corporate Governance Disclosure to Shareholders

            The investment firm licensee shall disclose the following items to the shareholders.

            Ownership of Shares

            1.Distribution of ownership by nationality
            2.Distribution of ownership by size of shareholder
            3. Ownership by Government
            4. Names of shareholders owning 5% or more and, if they act in concert, a description of the voting, shareholders' or other agreements among them relating to acting in concert, and of any other direct and indirect relationships among them or with the investment firm licensee or other shareholders

            Board, Board Members and Management

            1. Board's functions — rather than a general statement (which could be disclosed simply as the Board's legal obligations under the law) the 'mandate' of the Board should be set out
            2. The types of material transactions that require Board approval
            3. Names, their capacity of representation and detailed information about the directors, including directorships of other Boards, positions, qualifications and experience (should describe each director as executive or non-executive)
            4. Number and names of independent members
            5. Board terms and the start date of each term
            6. What the Board does to induct/educate/orient new directors
            7. Director's ownership of shares
            8. Election system of directors and any termination arrangements
            9. Director's trading of investment firm licensee's shares during the year
            10. Meeting dates (number of meetings during the year)
            11. Attendance of directors at each meeting
            12. Aggregate remuneration to board members
            12A. The remuneration policy of the investment firm licensee for board members and senior management
            13. List of senior managers and profile of each
            14. Shareholding by senior managers
            15. Aggregate remuneration paid to the senior management
            16. Details of stock options and performance-linked incentives available to executives
            17. Whether the Board has adopted a written code of ethical business conduct, and if so the text of that code and a statement of how the Board monitors compliance.

            Committees

            1. Names of the Board committees
            2. Functions of each committee
            3. Members of each committee divided into independent and non-independent
            4. Minimum number of meetings per year
            5. Actual number of meetings
            6. Attendance of committees' members
            7. [This item was deleted in January 2012]
            8. Work of committees and any significant issues arising during the period

            Corporate Governance

            1. Separate section in the Annual Report
            2. Reference to Module HC and its principles
            3. Changes in Module HC that took place during the year

            Auditors

            1. The charters and a list of members of the Audit (including external and internal; financial and non-financial experts) Committee of the Board.
            2. Audit fees
            3. Non-Audit services provided by the external auditor and fees
            4. Reasons for any switching of auditors and reappointing of auditors

            Other

            1. Related party transactions
            2. Approval process for related party transactions
            3. Means of communication with shareholders and investors
            4. Separate report on Management Discussion and Analysis is included in the Annual Report — in particular, this should identify and comment on the management of principal risks and uncertainties faced by the business.
            5. Review of internal control processes and procedures.
            6. Announcements of the results in the press should include at least the followings:
            (a) Balance sheet, income statement, cash flow statement, statement of comprehensive income and changes in shareholders' equity
            (b) Auditor
            (c) Auditor's signature date
            (d) Board approval date

            Set out directors responsibility with regard to the preparation of financial statements

            Conflict of Interest — any issues arising must be reported, in addition describe any steps the Board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.

            Board of Directors — whether or not the Board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution.

            Amended: January 2012
            Amended: April 2011
            January 2011

        • AA Auditors and Accounting Standards

          • AA-A Introduction

            • AA-A.1 Purpose

              • Executive Summary

                • AA-A.1.1

                  This Module presents requirements that have to be met by investment firm licensees 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 investment firm licensees.

                • AA-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 licensees to appoint an external auditor acceptable to the CBB.

                  Amended: January 2007

              • Legal Basis

                • AA-A.1.3

                  This Module contains the CBB's Directive (as amended from time to time) relating to auditors and accounting standards used by investment firm licensees, 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 investment firm licensees.

                  Amended: January 2011
                  Added: January 2007

                • AA-A.1.4

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

                  Added: January 2007

            • AA-A.2 Module History

              • Evolution of Module

                • AA-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. 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.

                  Amended: January 2007

                • AA-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Added: January 2007

                • AA-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  AA-A.1 07/2007 New Rule AA-A.1.3 introduced, categorising this Module as a Directive.
                  AA-1.2 07/2007 Rule AA-1.2.3 redrafted to clarify reporting obligation
                  AA-1.5 07/2007 Paragraphs AA-1.5.4 and AA-1.5.6 updated to reflect CBB Law requirements on auditor independence.
                  AA-3.1.1 04/2008 Clarified that auditor's review is to be attached to the QPR.
                  AA-1.5 10/2009 Paragraphs AA-1.5.2 and AA-1.5.3 updated to clarify outsourcing of internal audit function.
                  AA-3.1.1 10/2009 Updated to reflect requirement in Module BR.
                  AA-5 07/2010 New Chapter added regarding Reporting Accountants.
                  AA-A.1.3 01/2011 Clarified legal basis.
                  AA-1.1.1A 01/2011 Added Guidance referring to the CBB's power to appoint an external auditor should the investment firm licensee fail to do so.
                  AA-5 10/2011 Chapter amended and content moved to Section BR-3.5 and retitled as Role of External Auditor as Appointed Expert.
                  AA-3.3 01/2012 Deleted Section on Compliance with Financial Crime Rules.
                  AA-4.1 10/2014 Clarified the application of accounting standards for investment firms based on whether they undertake conventional and/or Shari'a compliant activities.
                  AA-3.1 07/2016 Clarified that this requirement only applies to Category 1 and Category 2 investment firm licensees.
                  AA-3.2.1 10/2017 Amended Paragraph to clarify that licensees are to formally declare in writing that they do not possess any Client assets.
                  AA-3.2.2 04/2018 Amended Paragraph.

              • Superseded Requirements

                • AA-A.2.4

                  This Module supersedes the following provisions contained in circulars or other regulatory instruments:

                  Circular / other reference Provision Subject
                  Standard Conditions and Licensing Criteria: investment advisers/brokers. Article 7 Auditors
                  Standard Conditions and Licensing Criteria: broking company Article 6 Auditors
                  Standard Conditions and Licensing Criteria: stockbrokerage Article 6 Auditors

                • AA-A.2.5

                  Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

          • AA-B Scope of Application

            • AA-B.1 Investment Firm Licensees

              • AA-B.1.1

                The contents of this Module — unless otherwise stated — apply to all investment firm licensees.

              • AA-B.1.2

                The contents of Chapters AA-1 to AA-4 apply to both Bahraini investment firm licensees and overseas investment firm licensees.

            • AA-B.2 Auditors

              • AA-B.2.1

                Certain requirements in this Module indirectly extend to auditors, by virtue of their appointment by investment firm licensees. Auditors appointed by investment firm licensees must be independent (cf. Sections AA-1.4 and AA-1.5). Auditors who resign or are otherwise removed from office are required to inform the CBB in writing of the reasons for the termination of their appointment (cf. Sections AA-1.2). Other requirements are contained in Sections AA-1.3 (Audit partner rotation) and AA-3.1 (Auditor reports).

                Amended: January 2007

          • AA-1 Auditor Requirements

            • AA-1.1 Appointment of Auditors

              • AA-1.1.1

                Investment firm licensees must obtain prior written approval from the CBB before appointing or re-appointing their auditors.

                Amended: January 2007

              • AA-1.1.1A

                Where an investment firm licensee fails to appoint an external auditor within four months from the beginning of the financial year, Article 61 (b) of the CBB Law provides the CBB with the power to appoint the external auditor.

                Adopted: January 2011

              • AA-1.1.2

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

                Amended: January 2007

              • AA-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 licensee. The CBB will also take into account the track record of the audit firm in auditing investment firm licensees 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.

                Amended: January 2007

              • AA-1.1.4

                In the case of overseas investment firm licensees, the CBB will also take into account who act as the auditors of the parent firm. As a general rule, the CBB does not favour different parts of an investment group having different auditors.

                Amended: January 2007

            • AA-1.2 Removal or Resignation of Auditors

              • AA-1.2.1

                Investment firm licensees must notify the CBB as soon as they intend to remove their auditors, with an explanation of their decision, or as soon as their auditors resign.

                Amended: January 2007

              • AA-1.2.2

                Investment firm licensees must ensure that a replacement auditor is appointed (subject to CBB approval as per Section AA-1.1), as soon as reasonably practicable after a vacancy occurs, but no later than three months.

                Amended: January 2007

              • AA-1.2.3

                In accordance with the powers granted to CBB under Article 63 of the CBB Law, auditors of investment firm 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.

                Amended: January 2007

            • AA-1.3 Audit Partner Rotation

              • AA-1.3.1

                Unless otherwise exempted by the CBB, investment firm licensees must ensure that the audit partner responsible for their audit does not undertake that function more than five years in succession.

                Amended: January 2007

              • AA-1.3.2

                Investment firm licensees must notify the CBB of any change in audit partner.

                Amended: January 2007

            • AA-1.4 Auditor Independence

              • AA-1.4.1

                Before an investment firm licensee 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 licensee.

                Amended: January 2007

              • AA-1.4.2

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

              • AA-1.4.3

                If an investment firm licensee 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.

                Amended: January 2007

              • AA-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.

                Amended: January 2007

            • AA-1.5 Licensee/Auditor Restrictions

              • Financial Transactions with Auditors

                • AA-1.5.1

                  Investment firm licensees must not provide regulated investment services to their auditors.

              • Outsourcing to Auditors

                • AA-1.5.2

                  Investment firm licensees may not outsource their internal audit function to the same firm that acts as their external auditors.

                  Amended: October 2009
                  Amended: January 2007

                • AA-1.5.3

                  Further Guidance on this issue is provided in the Risk Management Module.

                  Amended: October 2009
                  Amended: January 2007

              • Other Relationships

                • AA-1.5.4

                  Investment firm licensees and their auditors 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 2007

                • AA-1.5.5

                  Article 217(c) prohibits an auditor from (i) being the chairman or a member of the Board of Directors 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 auditor must not be a relative (up to the second degree) of a person assuming management or accounting duties in the company.

                  Amended: January 2007

                • AA-1.5.6

                  Article 61(d) prohibits an auditor from (i) being the chairman or a member of the Board of Directors of the company he/she audits; (ii) acting as a managing director, agent or representative of the company concerned; and (iii) taking up any administrative work in the company, or supervising its accounts, or having a next of kin in such a position.

                  Added: January 2007

                • AA-1.5.7

                  The restriction in Paragraph AA-1.5.4 applies to overseas investment firm licensees as well as Bahraini investment firm licensees.

                • AA-1.5.8

                  A partner, Director or manager on the engagement team of auditing an investment firm licensee may not serve on the Board or in a controlled function of the licensee, for two years following the end of their involvement in the audit, without prior authorisation of the CBB.

                  Amended: January 2007

                • AA-1.5.9

                  Chapter AU-1.2 sets out the CBB's "controlled functions" requirements.

                  Amended: January 2007

              • Definition of 'Auditor'

                • AA-1.5.10

                  For the purposes of Section AA-1.5, 'auditor' means the partners, Directors and managers on the engagement team responsible for the audit of the investment firm licensee.

                  Amended: January 2007

          • AA-2 Access

            • AA-2.1 CBB Access to Auditors

              • AA-2.1.1

                Investment firm licensees must waive any duty of confidentiality on the part of their auditors, such that their auditors may report to the CBB any concerns held regarding material failures by the investment firm licensee to comply with CBB requirements.

                Amended: January 2007

              • AA-2.1.2

                The CBB may, as part of its on-going supervision of investment firm licensees, request meetings with a licensee's auditors. If necessary, the CBB may direct that the meeting be held without the presence of the licensee's management or Directors.

                Amended: January 2007

            • AA-2.2 Auditor Access to Outsourcing Providers

              • AA-2.2.1

                Outsourcing agreements between investment firm licensees and outsourcing providers must ensure that the licensee's 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 provider, if required.

                Amended: January 2007

              • AA-2.2.2

                Further Rules and Guidance on outsourcing will be contained in Module RM (Risk Management), to be issued later in 2007.

                Amended: January 2007

          • AA-3 Auditor Reports

            • AA-3.1 Review of Quarterly Prudential Returns

              • AA-3.1.1

                In accordance with Paragraph BR-1.1.8, Category 1 and Category 2 investment firm licensees must arrange for their auditors to review the licensee's Quarterly Prudential Return for the quarter ending 30 June (or semi-annually depending on the licensee's financial year-end) prior to its submission to the CBB, unless otherwise exempted in writing by CBB. Auditors must complete the prescribed form attesting to their review, which must be attached to the Quarterly Prudential Return.

                Amended: July 2016
                Amended: October 2009
                Amended: April 2008
                Amended: January 2007

              • AA-3.1.2

                Investment firm licensees are required to submit a Quarterly Prudential Return (QPR). Category 1 and Category 2 investment firm licensees may apply in writing to CBB for an exemption from the requirement that the QPR be reviewed by the licensee's external auditors: 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, will be contained in Module BR (CBB Reporting).

                Amended: July 2016
                Amended: January 2007

            • AA-3.2 Report on Compliance with Client Asset Rules

              • AA-3.2.1

                Investment firm licensees that hold or control client assets must arrange for their external auditors to report on the licensee's compliance with the requirements contained in Module CL (Client Assets), at least once a year. Investment firm licensees Category 1 and Investment firm licensees category 2 which do not hold or control Client Assets are obligated to confirm the same annually.

                Amended: October 2017
                Amended: January 2007

              • AA-3.2.2

                The report must be in the form agreed by CBB, and must be submitted to the CBB within three months of the licensee's financial year-end.

                Amended: April 2018
                Amended: January 2007

              • AA-3.2.3

                Further information on the above can be found in Section CL-1.5.

            • AA-3.3 [This Section was deleted in January 2012]

              • AA-3.3.1

                [This paragraph was deleted in January 2012]

                Deleted: January 2012

              • AA-3.3.2

                [This paragraph was deleted in January 2012]

                Deleted: January 2012

              • AA-3.3.3

                [This paragraph was deleted in January 2012]

                Deleted: January 2012

          • AA-4 Accounting Standards

            • AA-4.1 General Requirements

              • AA-4.1.1

                Investment firm licensees which deal only in conventional financial instruments must comply with International Financial Reporting Standards / International Accounting Standards.

                Amended: October 2014

              • AA-4.1.1A

                Investment firm licensees that undertake both conventional finance and Shari'a compliant transactions must comply with International Financial Reporting Standards / International Accounting Standards and, to the extent that they undertake Shari'a compliant activities, relevant standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Such firms must also apply AAOIFI Financial Accounting Standard 18, "Islamic Financial Services Offered by Conventional Financial Institutions".

                Added: October 2014

              • AA-4.1.2

                Overseas investment firm licensees that do not, at the parent company level, apply IFRS/IAS are still required under Paragraph AA-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 investment firm licensee should contact the CBB in order to agree to a solution.

                Amended: April 2014
                Amended: January 2007

              • AA-4.1.3

                Investment firm licensees that operate exclusively on a Shari'a compliant basis must comply with Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). For products and activities not covered by AAOIFI, International Financial Reporting Standards (IFRS) / International Accounting Standards (IAS) must be followed.

                Amended: October 2014
                Amended: January 2007

          • AA-5 Role of External Auditor as Appointed Expert

            • AA-5.1 General Requirements

              • AA-5.1.1

                In accordance with Articles 114 and 121 of the CBB Law, the CBB may appoint appointed experts to undertake on-site examinations or report by way of investigations on specific aspects of an investment firm licensee's business. External auditors may be called upon to be appointed experts and should be aware of their role in that capacity by referring to Section BR-3.5.

                [The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]

                Amended: October 2011
                Amended: July 2010

              • AA-5.1.2

                Effective from Jul 1 2010 - Sep 30 2011.

                The purpose of the contents of this chapter is to set out the roles and responsibilities of reporting accountants when appointed pursuant to Article 114 of the CBB Law (see EN-2). This Article empowers the CBB to assign some of its officials or others to inspect licensees' or listed companies' businesses.

                Adopted: July 2010

              • AA-5.1.3

                Effective from Jul 1 2010 - Sep 30 2011.

                The CBB uses its own inspectors to undertake on-site examinations of licensees as an integral part of its regular supervisory efforts. In addition, the CBB may commission reports on matters relating to the business of licensees in order to help it assess their compliance with CBB requirements, as contained in Article 114 of the CBB Law. Such inspections may be carried out either by the CBB's own officials, by duly qualified “Reporting Accountants” appointed for the purpose by the CBB, or a combination of the two. Article 111 requires licensees to make available to the CBB's inspectors, their books and other records, and to provide all relevant information within the time limits deemed reasonable.

                Adopted: July 2010

              • AA-5.1.4

                Effective from Jul 1 2010 - Sep 30 2011.

                Investment firm licensees must provide all relevant information and assistance to reporting accountants on demand as required by Articles 111 and 114 of the CBB Law. Failure by licensees to cooperate fully with the CBB's inspectors or reporting accountants, or to respond to their examination reports within the time limits specified, will be treated as demonstrating a material lack of cooperation with the CBB which will result in other enforcement measures being considered, as described elsewhere in EN Module. This rule is supported by Article 114(a) of the CBB Law.

                Adopted: July 2010

              • AA-5.1.5

                Effective from Jul 1 2010 - Sep 30 2011.

                Article 163 of the CBB Law provides for criminal sanctions where false or misleading statements are made to the CBB or any person/reporting accountant appointed by the CBB to conduct an inspection on the business of the licensee or the listed company.

                Adopted: July 2010

              • AA-5.1.6

                Effective from Jul 1 2010 - Sep 30 2011.

                The CBB will not, as a matter of general policy, publicise the appointment of reporting accountants, although it reserves the right to do so where this would help achieve its supervisory objectives. Both the reporting accountants and the CBB are bound to confidentiality provisions restricting the disclosure of confidential information with regards to any such information obtained in the course of the investigation.

                Adopted: July 2010

              • AA-5.1.7

                Effective from Jul 1 2010 - Sep 30 2011.

                Unless the CBB otherwise permits, reporting accountants should not be the same firm appointed as external auditors of the licensee.

                Adopted: July 2010

              • AA-5.1.8

                Effective from Jul 1 2010 - Sep 30 2011.

                Reporting accountants will be appointed in writing, through an appointment letter, by the CBB. In each case, the CBB will decide on the range, scope and frequency of work to be carried out by reporting accountants.

                Adopted: July 2010

              • AA-5.1.9

                Effective from Jul 1 2010 - Sep 30 2011.

                Reporting accountants will report directly to and be responsible to the CBB in this context and will specify in their report any limitations placed on them in completing their work (for example due to the relevant licensee's group structure). The report produced by the reporting accountants is the property of the CBB (but is usually shared by the CBB with the firm concerned).

                Adopted: July 2010

              • AA-5.1.10

                Effective from Jul 1 2010 - Sep 30 2011.

                Compliance by reporting accountants with the contents of this chapter will not, of itself, constitute a breach of any other duty owed by them to a particular licensee (i.e. create a conflict of interest).

                Adopted: July 2010

              • AA-5.1.11

                Effective from Jul 1 2010 - Sep 30 2011.

                The CBB may appoint one or more of its officials to work on the reporting accountants' team for a particular licensee.

                Adopted: July 2010

            • AA-5.2 The Required Report

              [The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]

              • AA-5.2.1

                Effective from Jul 1 2010 - Sep 30 2011.

                Commissioned reporting accountants would normally be required to report on one or more of the following aspects of a licensee's business:

                (a) Accounting and other records;
                (b) Internal control systems;
                (c) Returns of information provided to the CBB;
                (d) Operations of certain departments; and/or
                (e) Other matters specified by the CBB.
                Adopted: July 2010

              • AA-5.2.2

                Effective from Jul 1 2010 - Sep 30 2011.

                Reporting accountants will be required to form an opinion on whether, during the period examined, the licensee is in compliance with the relevant provisions of the CBB Law and the CBB's relevant requirements, as well as other requirements of Bahrain Law and, where relevant, industry best practice locally and/or internationally.

                Adopted: July 2010

              • AA-5.2.3

                Effective from Jul 1 2010 - Sep 30 2011.

                The reporting accountants' report should follow the format set out in Appendix EN 1.

                Adopted: July 2010

              • AA-5.2.4

                Effective from Jul 1 2010 - Sep 30 2011.

                Unless otherwise directed by the CBB or unless the circumstances described in section AA-5.3 apply, the report should be discussed with the board of directors and/or senior management in advance of it being sent to the CBB.

                Adopted: July 2010

              • AA-5.2.5

                Effective from Jul 1 2010 - Sep 30 2011.

                Where the report is qualified by exception, the report should clearly set out the risks which the licensee runs by not correcting the weakness, with an indication of the severity of the weakness should it not be corrected. Reporting accountants will be expected to report on the type, nature and extent of any weaknesses found during their work, as well as the implications of a failure to address and resolve such weaknesses.

                Adopted: July 2010

              • AA-5.2.6

                Effective from Jul 1 2010 - Sep 30 2011.

                If the reporting accountants conclude, after discussing the matter with the licensee, that they will give a negative opinion (as opposed to one qualified by exception) or that the issue of the report will be delayed, they must immediately inform the CBB in writing giving an explanation in this regard.

                Adopted: July 2010

              • AA-5.2.7

                Effective from Jul 1 2010 - Sep 30 2011.

                The report should be completed, dated and submitted, together with any comments by directors or management (including any proposed timeframe within which the licensee has committed to resolving any issues highlighted by the report), to the CBB within the timeframe applicable.

                Adopted: July 2010

            • AA-5.3 Other Notifications to the CBB

              [The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]

              • AA-5.3.1

                Effective from Jul 1 2010 - Sep 30 2011.

                Reporting accountants should communicate to the CBB, during the conduct of their duties, any reasonable belief or concern they may have that any of the requirements of the CBB, are not or have not been fulfilled. These may include:

                (a) Criteria for licensing (see Module AU);
                (b) Material loss or significant risk of a material loss; or
                (c) Client interest at risk because of adverse changes in the financial position, management or other resources of the licensee.

                Notwithstanding the above, it is primarily the licensee's responsibility to report such matters to the CBB.

                Adopted: July 2010

              • AA-5.3.2

                Effective from Jul 1 2010 - Sep 30 2011.

                The CBB recognises that reporting accountants cannot be expected to be aware of all circumstances which, had they known of them, would have led them to make a communication to the CBB as outlined above. It is only when reporting accountants, in carrying out their duties, become aware of such a circumstance that they should make detailed inquiries with the above specific duty in mind.

                Adopted: July 2010

              • AA-5.3.3

                Effective from Jul 1 2010 - Sep 30 2011.

                If reporting accountants decide to communicate directly with the CBB in the circumstances set out in paragraph AA 5.3.1 above, they may wish to consider whether the matter should be reported at an appropriate senior level in the licensee at the same time and whether an appropriate senior representative of the licensee should be invited to attend the meeting with the CBB.

                Adopted: July 2010

            • AA-5.4 Permitted Disclosure by the CBB

              [The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]

              • AA-5.4.1

                Effective from Jul 1 2010 - Sep 30 2011.

                Information which is confidential and has been obtained under, or for the purposes of, this chapter or the CBB Law may only be disclosed by the CBB in the circumstances permitted under the Law. This will allow the CBB to disclose information to reporting accountants to fulfil their duties. It should be noted, however, that reporting accountants must keep this information confidential and not divulge it to a third party except with the CBB's permission and/or unless required by Bahrain Law.

                Adopted: July 2010

            • AA-5.5 Trilateral Meeting

              [The Rules and guidance in this Section were moved to Section BR-3.5 in October 2011]

              • AA-5.5.1

                Effective from Jul 1 2010 - Sep 30 2011.

                The CBB may, at its discretion, call for a trilateral meeting(s) to be held between the CBB and representatives of the relevant licensee and the reporting accountants. This meeting will provide an opportunity to discuss the reporting accountants' examination of, and report on, the licensee.

                Adopted: July 2010

        • 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 requirements on books and records; on the use of corporate and trade names; and on controllers and close links. 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.

                  Amended: July 2007

              • Legal Basis

                • GR-A.1.2

                  This Module contains the Central Bank of Bahrain ('CBB') Directive (as amended from time to time) regarding general requirements applicable to investment firm licensees, 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'). This Module contains the requirements governing control in investment firm licensees under Resolution No (27) of 2015. Requirements regarding transfers of business (see Chapter GR-4) are also included in Regulations, to be issued by the CBB.

                  Amended: October 2015
                  Amended: January 2011
                  Adopted: July 2007

                • GR-A.1.3

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

                  Adopted: July 2007

            • GR-A.2 Module History

              • Evolution of Module

                • GR-A.2.1

                  This Module was first issued in April 2006, by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. 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.

                  Amended: July 2007

                • GR-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Adopted: July 2007

                • 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-A.1.2 07/2007 New Rule, classifying this Module as a Directive.
                  GR-B.1.2 07/2007 Reference to GR-10 in table removed, to reflect deletion of this Chapter (the contents of which have been moved to Module AU).
                  GR-4 07/2007 Amendments made to align the Chapter with the requirements of the CBB Law.
                  GR-5.1 07/2007 Minor changes to align controller requirements with the CBB Law.
                  GR-5.2 07/2007 Clarification of definition of controller.
                  GR-5.3 07/2007 Clarification of criteria for assessing suitability of controllers.
                  GR-5.4 07/2007 Alignment of procedures for approving controllers with CBB Law.
                  GR-7 07/2007 Amendments made to align the Chapter with the requirements of the CBB Law.
                  GR-1.2.1 01/2008 Clarified the record retention period for customer and transaction records in line with Article 60 of the CBB Law.
                  GR-9.1.1A 04/2008 Added Guidance concerning limitations on indemnification coverage.
                  GR-B.1 10/2009 Corrected to reflect applicability of Chapter GR-3.
                  GR-5.3.3 10/2009 Paragraph changed from Guidance to Rule.
                  GR-5.3.5 10/2009 Paragraph changed from Guidance to Rule.
                  GR-5.4.2 10/2009 Amended to read notices of refusal.
                  GR-7.1 10/2009 Updated to include additional requirements for cessation of business.
                  GR-9 10/2009 Amended heading to read Key Provisions
                  GR-9.1.1 10/2009 Amended to include reference to Form PIIR.
                  GR-9.1.4 10/2009 New rule added regarding professional indemnity insurance needs of licensees.
                  GR-9.1.7 10/2009 Prior approval changed to prior notification
                  GR-1 07/2010 Updated and amended to include cross reference and new paragraph regarding books and records.
                  GR-2.2 07/2010 New section added regarding publication of documents by the licensee.
                  GR-3.1.1 07/2010 Updated to include requirement for dividends.
                  GR-A.1.2 01/2011 Clarified legal basis.
                  GR-3.1.3 01/2011 Expanded guidance dealing with dividends.
                  GR-5.1.4A 01/2011 Added a new Rule related to changes in shareholding when legal person is a controller.
                  GR-5.1.5 01/2011 Clarified rule.
                  GR-5.3.6 01/2011 Corrected minor typo.
                  GR-10 04/2011 Added a new Chapter on Subsidiaries, Branches and Representative Offices.
                  GR-3.1.3 10/2011 Clarified guidance Paragraph on CBB's non-objection for dividends to be in line with other Volumes of the CBB Rulebook.
                  GR-5.3 10/2011 Amended to be in line with other Volumes of the CBB rulebook and to reflect the issuance of Resolution No.(43) of 2011.
                  GR-7 10/2011 Clarified language on cessation of business to be in line with other Volumes of the CBB Rulebook.
                  GR-1.3.1(d) 01/2012 Added reference to reports from the compliance officer.
                  GR-1.1.3 04/2013 Corrected reference to 'transaction' records.
                  GR-4.1.12 04/2013 Corrected cross reference to CBB Law.
                  GR-B.1.2 07/2013 Added the reference to Chapter GR-10 under the scope of application.
                  GR-10.1 07/2013 Various corrections and amendments.
                  GR-B.1.2 and GR-8 10/2013 The Chapter on appointed representatives was deleted.
                  GR-A.1.2, GR-B.1.2 and GR-5 10/2015 Updated to reflect issuance of Resolution No. (27) of 2015 governing control in investment firm licensees.
                  GR-2.2 04/2016 Clarified Rule on publication of documents by the licensee.
                  GR-10.1.8B 10/2016 Added reference to Module BR
                  GR-5.1.5 01/2017 Consistency of notification timeline rule on controllers with other Volumes of the CBB Rulebook.
                  GR-1.2.1 07/2017 Amended paragraph according to the Legislative Decree No. (28) of 2002.
                  GR-1.2.2 07/2017 Deleted paragraph.
                  GR-3.1.3 10/2017 Added additional requirement to submit when requesting no-objection letter for propose dividend.
                  GR-5.1.1A 04/2019 Added a new Paragraph on exposure to controllers.
                  GR-5.1.1B 04/2019 Added a new Paragraph on exposure to controllers.
                  GR-3.1.1 07/2019 Amended Paragraph.

              • Superseded Requirements

                • GR-A.2.3

                  This Module supersedes the following provisions contained in circulars or other regulatory instruments:

                  Circular Ref. Module Ref. Subject
                  BS/07/2004 GR-1 Record-keeping requirements
                  BC/8/2000 GR-5 Controllers of, and holdings and transfers of significant ownership or controlling interests in Agency licensees
                  Standard Conditions & Licensing Criteria for Licensing for Investment Advisor/Broker GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance
                  Standard Conditions & Licensing Criteria for Licensing Investment Advisor/Consultants GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance; License Fees.
                  Standard Conditions & Licensing Criteria for Licensing Stockbroking Company GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance; License Fees.
                  Standard Conditions & Standard Criteria for Licensing Broking Company GR-1, GR-9, GR-10 Books and Records; Professional Indemnity Insurance; License Fees.

                • GR-A.2.4

                  Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

          • GR-B Scope of Application

            • GR-B.1 Investment Firm Licensees

              • GR-B.1.1

                The requirements in Module GR (General Requirements) apply to all investment firm licensees, with the exception of Chapter GR-3, which applies to Category 1 investment firms and Category 2 investment firms and Chapter GR-9, which applies to Category 2 investment firms and Category 3 investment firms only.

                Amended: October 2009
                Amended: July 2007

              • GR-B.1.2

                The scope of application of Module GR (General Requirements) is as follows:

                Chapter Bahraini Investment Firm Licensee Overseas Investment Firm Licensee
                GR-1 GR-1.1 and GR-1.3 apply to the whole firm; GR-1.2 applies to business booked in Bahrain only. Applies to the Bahrain branch only.
                GR-2 Applies to the whole firm. Applies to the Bahrain branch only.
                GR-3 Applies to Category 1 investment firms and Category 2 investment firms. Doesn't apply.
                GR-4 Applies to the whole firm. Applies to the Bahrain branch only.
                GR-5 GR-5.1 to GR-5.4 apply to the whole firm. Only GR-5.5 applies.
                GR-6 Applies to the whole firm. Applies to the whole firm.
                GR-7 Applies to the whole firm. Applies to the Bahrain branch only.
                GR-8 [Chapter deleted in October 2013] [Chapter deleted in October 2013]
                GR-9 Applies to Category 2 investment firms and Category 3 investment firms, with respect to Bahrain business. Applies to the Bahrain branch only.
                GR-10 Applies to the whole firm. Does not apply.
                Amended: October 2015
                Amended: October 2013
                Amended: July 2013
                Amended: October 2009
                Amended: July 2007

              • GR-B.1.3

                In the case of Bahraini investment firm licensees, certain requirements apply to the whole firm, irrespective of the location of its business; other requirements apply only in respect to business booked in Bahrain. In the case of overseas investment firm licensees, the requirements of Module GR mostly only apply to business booked in the Bahrain branch.

          • GR-1 Books and Records

            • GR-1.1 General Requirements

              • GR-1.1.1

                In accordance with Articles 59 of the CBB Law, all investment firm licensees must maintain books and records (whether in electronic or hard copy form) sufficient to produce financial statements and show a complete record of the business undertaken by a licensee. These records must be retained for at least ten years according to Article 60 of the CBB Law.

                Amended: July 2010
                Amended: July 2007

              • GR-1.1.2

                GR-1.1.1 includes accounts, books, files and other records (e.g. trial balance, general ledger, nostro/vostro statements, reconciliations, list of counterparties). It also includes records that substantiate the value of the assets, liabilities and off-balance sheet activities of the licensee (e.g. client activity files and valuation documentation).

                Amended: July 2007

              • GR-1.1.3

                Separately, Bahrain Law currently requires other transaction records to be retained for at least five years (see Ministerial Order No. 23 of 2002, Article 5(2), made pursuant to the Amiri Decree Law No. 4 of 2001).

                Amended: April 2013
                Added: July 2010

              • GR-1.1.4

                Unless otherwise agreed to by the CBB in writing, records must be kept in either English or Arabic. Any records kept in languages other than English or Arabic must be accompanied by a certified English or Arabic translation. Records must be kept current. The records must be sufficient to allow an audit of the licensee's business or an on-site examination of the licensee by the CBB.

                Amended: July 2010
                Amended: July 2007

              • GR-1.1.5

                Translations produced in compliance with Rule GR-1.1.4 may be undertaken in-house, by an employee or contractor of the licensee, providing they are certified by an appropriate officer of the licensee.

                Amended: July 2010
                Amended: July 2007

              • Location of Books and Records

                • GR-1.1.6

                  Records must be accessible at any time from within the Kingdom of Bahrain, or as otherwise agreed with the CBB in writing.

                  Amended: July 2010
                  Amended: July 2007

                • GR-1.1.7

                  Where older records have been archived, or in the case of records relating to overseas branches of Bahraini investment firm licensees, the CBB may accept that records be accessible within a reasonably short time frame (eg. within 5 business days), instead of immediately. The CBB may also agree similar arrangements for overseas investment firm licensees, as well as Bahraini investment firm licensees, where elements of record retention and management have been centralised in another group company, whether inside or outside of Bahrain.

                  Amended: July 2010
                  Amended: July 2007

                • GR-1.1.8

                  Paragraphs GR-1.1.1 to GR-1.1.7 apply to Bahraini investment firm licensees, with respect to all its business activities. These requirements also apply to overseas investment firm licensees, but only with respect to the business booked in their branch in Bahrain.

                  Amended: July 2010

            • GR-1.2 Transaction Records

              • GR-1.2.1

                Investment firm licensees must keep completed transaction records for as long as they are relevant for the purposes for which they were made (with a minimum period in all cases of five years from the date when the transaction was terminated). Records of terminated transactions must be kept whether in hard copy or electronic format as per the Legislative Decree No.(28) of 2002 with respect to Electronic Transactions "The Electronic Transaction Law" and its amendments.

                Amended: July 2017
                Amended: July 2010
                Amended: January 2008

              • GR-1.2.2

                [This Paragraph has been deleted in July 2017].

                Deleted: July 2017

              • GR-1.2.3

                Rule GR-1.2.1 applies only to transactions relating to business booked in Bahrain by the licensee. It does not relate to transactions relating to business booked in overseas branches or subsidiaries of the licensee.

                Amended: July 2007

              • GR-1.2.4

                In the case of overseas investment firm licensees, Rule GR-1.2.1 therefore only applies to business booked in the Bahrain branch, not in the rest of the company.

            • GR-1.3 Other Records

              • Corporate Records

                • GR-1.3.1

                  Investment firm licensees must maintain the following records in original form or in hard copy at their premises in Bahrain:

                  (a) Internal policies, procedures and operating manuals;
                  (b) Corporate records, including minutes of shareholders', Directors' and management meetings;
                  (c) Correspondence with the CBB and records relevant to monitoring compliance with CBB requirements;
                  (d) Reports prepared by the investment firm licensee's internal and external auditors and compliance officer; and
                  (e) Employee training manuals and records.
                  Amended: January 2012
                  Amended: July 2007

                • GR-1.3.2

                  In the case of Bahraini investment firm licensees, these requirements apply to the licensee as a whole, including any overseas branches. In the case of overseas investment firm licensees, all the requirements of Chapter GR-1 are limited to the business booked in their branch in Bahrain and the records of that branch (see GR-1.1.7).

                  Amended: July 2007

              • Customer Records

                • GR-1.3.3

                  Record-keeping requirements with respect to customer records, including customer identification and due diligence records, are contained in Module FC (Financial Crime).

          • GR-2 Corporate and Trade Names

            • GR-2.1 Vetting of Names

              • GR-2.1.1

                Investment firm licensees must seek prior approval from the CBB for their corporate name and any trade names, and those of their subsidiaries located in Bahrain.

                Amended: July 2007

              • GR-2.1.2

                GR-2.1.1 applies to overseas investment firm licensees only with respect to their Bahrain branch.

              • GR-2.1.3

                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.

                Amended: July 2007

            • GR-2.2 Publication of Documents by the Licensee

              • GR-2.2.1

                Any written communication, including website, email, stationery, business cards or other business documentation published by the licensee, or used by its employees must include a statement that the licensee is regulated by the Central Bank of Bahrain, the type and category of license and the legal status. Additionally, written communication (stationery) should state the authorised and paid up capital of the licensee. All licensees should comply with this requirement by 31st December 2010 at the latest.

                Amended: April 2016
                Added: July 2010

          • GR-3 Dividends

            • GR-3.1 CBB Non-Objection

              • GR-3.1.1

                Bahraini investment firm licensees must obtain a letter of no-objection from the CBB to pay any dividend proposed, before announcing the proposed dividend by way of press announcement or any other means of communication and prior to submitting a proposal for a distribution of profits to a shareholder vote.

                Amended: July 2019
                Amended: July 2010
                Amended: July 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 financial resources requirements, taking into account (as appropriate) trends in the licensee's business volumes, expenses, trend performance and investment environment.

                Amended: July 2007

              • GR-3.1.3

                To facilitate the prior approval required under Paragraph GR-3.1.1, investment firm licensees subject to Paragraph 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 licensee'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 licensee.
                Amended: October 2017
                Amended: October 2011
                Amended: January 2011
                Amended: July 2007

          • GR-4 Business Transfers

            • GR-4.1 CBB Approval

              • GR-4.1.1

                An investment firm licensee must seek prior written approval from the CBB before transferring any of its business to a third party.

                Amended: July 2007

              • GR-4.1.2

                Rule GR-4.1.1 is intended to apply to circumstances where an investment firm licensee wishes to sell all or part of its business to a third party. It does not apply where an investment firm licensee is simply transferring client assets to a third party, on instruction from the client concerned.

                Amended: July 2007

              • GR-4.1.3

                In the case of a Bahraini investment firm licensee, Chapter GR-4 applies both to its business booked in Bahrain and in the firm's overseas branches. In the case of an overseas investment firm licensee, Chapter GR-4 applies only to business booked in the firm's Bahrain branch.

                Amended: July 2007

              • GR-4.1.4

                In all cases, CBB approval to transfer business will only be given where:

                (a) The transfer of business will not damage or otherwise prejudice the legitimate interests of the licensee's customers;
                (b) The transferee is duly licensed to undertake the business which it is to receive; and
                (c) The CBB is satisfied that the transfer will not breach any applicable laws or regulations, and would not create any supervisory concerns.
                Amended: July 2007

              • GR-4.1.5

                In assessing the criteria outlined in Paragraph GR-4.1.4, the CBB will, amongst other factors, take into account the financial strength of the transferee; 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 customers 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 customers.

                Adopted: July 2007

              • GR-4.1.6

                Investment firm licensees seeking to obtain the CBB's permission to transfer business must apply to the CBB in writing, in the form of a covering letter together with supporting attachments. Unless otherwise directed by the CBB, the application must provide:

                (a) Full details of the business to be transferred;
                (b) The rationale for the proposed transfer;
                (c) If applicable, an assessment of the impact of the transfer on any customers 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 customers, and any mitigating factors or measures; and
                (e) Evidence that the proposed transfer has been duly authorised by the transferor (such as a certified copy of a Board resolution approving the transfer).
                Adopted: July 2007

              • GR-4.1.7

                Firms intending to apply to transfer business are advised to contact the CBB at the earliest possible 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 documentation specified in Paragraph GR-4.1.6 may be varied by the CBB, depending on the nature of the proposed transfer, such as the materiality of the business concerned and its impact on customers.

                Amended: July 2007

              • GR-4.1.8

                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.

                Adopted: July 2007

              • GR-4.1.9

                At its discretion, the CBB may require that a notice of proposed transfer of business be published in the Official Gazette, and/or in at least two local daily newspapers (one in Arabic, the other in English), in order to give affected customers the right to comment on the proposed transfer. Where such a requirement has been imposed, the CBB's decision on the application will also be published in the Official Gazette and in at least two local daily newspapers. In all such cases, the costs of publication must be met by the transferor.

                Adopted: July 2007

              • GR-4.1.10

                Publication under paragraph GR-4.1.9 will generally only be required where a proposed transfer involves a large number of customers or is otherwise deemed necessary in order to protect customer interests.

                Adopted: July 2007

              • GR-4.1.11

                Investment firm licensees are also reminded of the requirements regarding client assets contained in Module CL (Client Assets).

                Amended: July 2007

              • GR-4.1.12

                The requirements in this Chapter are based on the powers available to the CBB in Article 68 of the CBB Law.

                Amended: April 2013
                Adopted: July 2007

          • GR-5 Controllers

            • GR-5.1 Key Provisions for Bahraini Investment Firm Licensees

              • GR-5.1.1

                Bahraini investment firm licensees must obtain prior approval from the CBB for any of the following changes to their controllers (as defined in Section GR-5.2):

                (a) A new controller;
                (b) An existing controller increasing its holding from 10% to 20%;
                (c) An existing controller increasing its holding from below 20% to 30%;
                (d) An existing controller increasing its holding from below 30% to 40%;
                (e) An existing controller increasing its holding to above 40% for licensees not listed on any exchange in Bahrain or abroad; and
                (f) An existing controller reducing its holding to below 10%.
                Amended: October 2015
                Amended: July 2007

              • GR-5.1.1A

                Licensees must not incur or otherwise have an exposure (either directly or indirectly) to their controllers, including subsidiaries and associated companies of such controllers.

                Added: April 2019

              • GR-5.1.1B

                For the purpose of Paragraph GR-5.1.1A, licensees that already have an exposure to controllers must have an action plan agreed with the CBB's supervisory point of contact to address such exposures within a timeline agreed with the CBB.

                Added: April 2019

              • GR-5.1.2

                Articles 52 to 56 of the CBB Law require notification to the CBB of all controllers of licensees and of listed companies; it further gives the CBB the right to refuse approval of controllers if deemed damaging to the interests of the market, customers, or in contravention of the criteria set by the CBB.

                Amended: July 2007

              • GR-5.1.3 [This Paragraph deleted 07/2007.]

                Deleted: July 2007

              • GR-5.1.4

                Requests for approval under Paragraph GR-5.1.1 must be made by submitting a duly completed Form 2 (Application for Authorisation of Controller) to the CBB.

                Amended: October 2015
                Amended: July 2007

              • GR-5.1.4A

                Where the direct controller of a Bahraini investment firm licensee is not the ultimate parent undertaking of the licensee, the CBB will require that Form 2 be completed by the ultimate parent undertaking and that the details be provided of the structure of the group, clearly detailing the relationship between the licensee and the ultimate parent undertaking (e.g. by providing an organisational structure of the group).

                Added: October 2015

              • GR-5.1.4B

                Bahraini investment firm licensees must immediately notify the CBB in case of any material change to the information provided in a Form 2 submitted for a controller.

                Added: October 2015

              • GR-5.1.4C

                Where a controller is a legal person, any change in its shareholding must be notified to the CBB at the earlier of:

                (a) When the change takes effect; and
                (b) When the controller becomes aware of the proposed change.
                Amended: October 2015
                Adopted: January 2011

              • GR-5.1.5

                If, as a result of circumstances outside the Bahraini investment firm licensee's knowledge and/or control, one of the changes specified in Paragraph GR-5.1.1 is triggered prior to CBB approval being sought or obtained, the Bahraini investment firm licensee must notify the CBB no later than 15 calendar days from the date on which those changes have occurred (see Paragraph BR-2.2.23).

                Amended: January 2017
                Amended: October 2015
                Amended: January 2011
                Amended: July 2007

              • GR-5.1.6

                For approval under Rule GR-5.1.1 to be granted, the applicant must satisfy the CBB that the proposed change in controller poses no undue risks to the licensee or its customers, and is not damaging to the interests of the market, as defined in the suitability criteria for controllers, contained in Section GR-5.3.

                Adopted: July 2007

              • GR-5.1.7

                An approval of controller is valid for the period specified in the approval letter issued by the CBB. The CBB may impose any restrictions that it considers necessary to be observed when granting its approval.

                Amended: October 2015
                Amended: July 2007

              • GR-5.1.7A

                The approval process is specified in Section GR-5.4.

                Adopted: July 2007

              • GR-5.1.8

                Bahraini investment firm licensees must submit, within 3 months of their financial year-end, a report on their controllers. This report must identify all controllers of the licensee, as defined in Section GR-5.2 (see Paragraph BR-1.4.1).

                Amended: October 2015
                Amended: July 2007

            • GR-5.2 Definition of Controller of a Bahraini Investment Firm Licensee

              • GR-5.2.1

                A controller of a Bahraini investment firm licensee is a natural or legal person who, either alone or with his associates:

                (a) Holds 10% or more of the issued and paid up capital in the licensee or parent undertaking; or
                (b) Is able to exercise more than 10% of the voting power over the licensee or the parent undertaking.
                Amended: October 2015
                Amended: July 2007

              • GR-5.2.2

                For the purposes of Paragraph GR-5.2.1, 'associate' includes:

                (a) In the case of natural persons, a member of the controller's family;
                (b) An undertaking of which a controller is a Director;
                (c) A person who is an employee or partner of the controller;
                (d) If the controller is a legal person, a Director of the controller, a subsidiary of the controller, or a Director of any subsidiary undertaking of the controller; and
                (e) Any other person or undertaking with which the controller has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in the investment firm licensee, or under which they undertake to act together in exercising their voting power in relation to the investment firm licensee.
                Amended: October 2015
                Amended: July 2007

              • GR-5.2.3

                In addition to the provisions of this Chapter, listed companies and their controllers shall be bound by the CBB's regulatory requirements for capital markets stipulated in the CBB's Rulebook related to changes in the ownership of shares in listed companies. For overseas investment firm licensees, Section GR-5.5 shall apply.

                Amended: October 2015
                Amended: July 2007

              • GR-5.2.4

                The restrictions set forth in this Chapter shall apply to any changes in the legality of the shares' ownership of the controllers in the licensees, or to the voting powers the controllers are entitled to in the licensees. Failure to comply with such restrictions shall result in the imposition of penalties as indicated in Module EN (Enforcement) of the CBB Rulebook. The imposition of such penalties shall not affect the CBB's right to impose other penalties and to take any other administrative measures against the controller in accordance with the provisions of the Law including preventing the controller from exercising his voting right or transferring of shares.

                Added: October 2015

            • GR-5.3 Suitability of Controllers for Bahraini Investment Firm Licensees

              • GR-5.3.1

                Bahraini investment firm licensees must satisfy the CBB of the suitability of their proposed controllers.

                Amended: October 2015
                Amended: October 2011
                Amended: July 2007

              • GR-5.3.1A

                [This Paragraph was deleted in October 2015.]

                Deleted: October 2015
                Adopted: October 2011

              • Natural Persons

                • GR-5.3.2

                  The percentage of direct or indirect control of a natural person in a Bahraini investment firm licensee must not exceed 30% of the issued and paid up capital. This limit does not apply to category 3 investment firms.

                  Added: October 2015

                • GR-5.3.3

                  In assessing the suitability of controllers who are natural persons, the CBB will consider the following:

                  (a) Whether the approval or refusal of a controller is or could be detrimental to the licensee, Bahrain's financial sector and the national interest of the Kingdom of Bahrain;
                  (b) The legitimate interests of clients, creditors, non-controlling interests, and all other stakeholders of the licensee;
                  (c) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;
                  (d) 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;
                  (e) Whether the person has been the subject of any disciplinary proceeding by any government authority, regulatory agency or professional body or association;
                  (f) The contravention of any financial services legislation or regulation;
                  (g) Whether the person has ever been refused an authorisation as controller, a license to undertake regulated activities by the CBB or any other regulator in another jurisdiction;
                  (h) Dismissal or a request to resign from any office or employment;
                  (i) Disqualification by a court, regulator or other competent body, as a Director or as a manager of a corporation;
                  (j) Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or declared bankrupt or one or more of its partners or managers have been declared bankrupt;
                  (k) The extent to which the person has been truthful and open with regulators;
                  (l) 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;
                  (m) The track record as a controller in another company or investor in a financial institution, whether in the Kingdom of Bahrain or abroad;
                  (n) The financial resources of the person and the stability of their shareholding;
                  (o) Existing Directorships or ownership of more than 20% of the issued or paid up capital in any financial institution in the Kingdom of Bahrain or elsewhere, and the potential for conflicts of interest that such Directorships or ownership may imply;
                  (p) The ability of the person to deal with existing shareholders and the Board in a constructive and co-operative manner; and
                  (q) 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.
                  Amended: October 2015
                  Amended: July 2007

              • Unregulated Legal Persons

                • GR-5.3.3A

                  The percentage of direct or indirect control of an unregulated legal person in a Bahraini investment firm licensee must not exceed 30% of the issued and paid up capital.

                  Added: October 2015

                • GR-5.3.4

                  In assessing the suitability of controllers who are unregulated legal persons, the CBB will consider the following:

                  (a) Whether their approval or refusal of a controller is or could be detrimental to the licensee, Bahrain's financial sector and the national interest of the Kingdom of Bahrain;
                  (b) The legitimate interests of investors, creditors, non-controlling interests and all other stakeholders of the licensee;
                  (c) The financial strength of the controller, its parent(s) and its subsidiaries, its implications for the investment firm licensee and the likely stability of the controller's shareholding in the investment firm licensee;
                  (d) Whether the unregulated legal person or any of its subsidiaries or any of its shareholders have ever been adjudged bankrupt, or failed to satisfy a judgement debt under a court order, or have defaulted on any debts, or entered into any arrangement with creditors in relation to the inability to pay due debts;
                  (e) The controller's jurisdiction of incorporation, location of Head Office, group structure and close links, and the implications for the investment firm licensee as regards effective supervision of the investment firm licensee and potential conflicts of interest;
                  (f) The controller's (and other subsidiaries') propriety and general standards of business conduct, including the contravention of any laws or regulations related to financial services, or the institution of disciplinary proceedings by a government authority, regulatory agency or professional body;
                  (g) Any conviction related to fraud, misfeasance or other misconduct;
                  (h) Whether the unregulated legal person or any of its subsidiaries has been subject to any disciplinary proceeding whether by court order any proceeding by a specialised body, and whether the unregulated legal person is sued in any court;
                  (i) The extent to which the controller or its subsidiaries have been truthful and open with regulators and supervisors;
                  (j) Whether the unregulated legal person has ever been refused an authorisation as controller, a license to undertake regulated activities by the CBB or any other regulator in another jurisdiction;
                  (k) The track record as a controller or investor in financial institutions;
                  (l) The ability of the unregulated legal person to deal with existing shareholders and the Board in a constructive and co-operative manner;
                  (m) Directorships in the Kingdom of Bahrain or elsewhere or ownership of more than 20% of the capital or voting rights of any financial institution, and the potential for conflicts of interest that such directorships or ownership may imply; and
                  (n) Whether the unregulated legal person or any of its subsidiaries have ever entered into any arrangement with creditors in relation to the inability to pay due debts.
                  Amended: October 2015
                  Amended: July 2007

              • Regulated Legal Persons

                • GR-5.3.5

                  The percentage of direct or indirect control of a regulated legal person in a Bahraini investment firm licensee must not exceed 40% of the issued and paid up capital.

                  Added: October 2015

                • GR-5.3.6

                  The 40% limit referred to in Paragraph GR-5.3.5 does not apply to Bahraini investment firm licensees not listed on a licensed exchange or an exchange abroad, or to mergers or acquisitions which have been approved by the CBB.

                  Added: October 2015

                • GR-5.3.7

                  Subject to the discretion of the CBB, regulated financial institutions may be allowed to own or control holdings of voting capital of listed licensees in excess of the abovementioned 40% level, if such control is not detrimental to the licensee, Bahrain's financial sector and the national interest of the Kingdom of Bahrain.

                  Added: October 2015

                • GR-5.3.8

                  Regulated financial institutions wishing to acquire more than 40% of the voting capital of a Bahraini investment firm licensee must observe the criteria set forth in Guidance GR-5.3.4 related to unregulated legal persons, in addition to the conditions set forth under Guidance GR-5.3.9.

                  Added: October 2015

                • GR-5.3.9

                  In assessing the suitability of controllers who are regulated legal persons, the CBB will consider the following:

                  (a) The person must be subject to effective consolidated supervision by a supervisory authority which effectively implements the Basel Committee on Banking Supervision Core Principles, or the IOSCO Core Principles or the IAIS Core Principles as well as the FATF Recommendations on Money Laundering and the financing of terrorism & proliferation;
                  (b) The home supervisor of the person must give its formal written prior approval for (or otherwise raise no objection to) the proposed acquisition of the Bahraini investment firm licensee;
                  (c) The home supervisor of the person must confirm to the CBB that it will require the person to consolidate the activities of the concerned Bahraini investment firm licensee for regulatory and accounting purposes if the case so requires;
                  (d) The home supervisor 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 supervisor of the person and the CBB must conclude a Memorandum of Understanding in respect of supervisory responsibilities, exchange of information and mutual inspection visits; and
                  (f) The person must provide an acceptably worded letter of guarantee to the CBB in respect of its obligation to support the licensee, should such letter be requested.
                  Added: October 2015

            • GR-5.4 Approval Process for Bahraini Investment Firm Licensees

              • GR-5.4.1

                Within 3 months of receipt of an approval request under Paragraph GR-5.1.1, with the complete documentation requirements to the satisfaction of the CBB, the CBB will issue a written notice of approval or of refusal by registered mail, to the Bahraini investment firm licensee and the applicant. Where an approval notice is given, it will specify the period for which it is valid and any conditions that may be applied.

                Amended: October 2015
                Amended: July 2007

              • GR-5.4.1A

                The CBB may refuse an application for approval if the applicant does not meet the criteria set forth in Section GR-5.3. The notice of refusal will specify the reasons for the objection and specify the applicant's right of appeal.

                Added: October 2015

              • GR-5.4.2

                Article 53 of the CBB Law allows the CBB up to 3 months in which to respond to an application, although the CBB normally aims to respond within 30 calendar days. Notices of refusal have to be approved by the concerned Executive Director of the CBB.

                Amended: October 2015
                Amended: October 2009
                Adopted: July 2007

              • Appeal Process

                • GR-5.4.2A

                  The applicant has 30 calendar days from the date of a notice in which to appeal a decision to refuse the application or any conditions imposed as a condition of approval. The CBB then has 30 calendar days from the date of the appeal in which to consider any mitigating evidence submitted and make a final determination.

                  Added: October 2015

                • GR-5.4.3

                  Where a person has become a controller by virtue of their shareholding in contravention of Paragraph GR-5.1.1, or a notice of refusal has been served on them 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, instruct the person concerned to transfer such shares, or refrain from exercising voting rights in respect of such shares.

                  Amended: July 2007

                • GR-5.4.4

                  If the person concerned fails to take the action specified under Paragraph GR-5.4.3, then the CBB may seek a court order to take appropriate measures: these may include forcing the person to sell their shares.

                  Adopted: July 2007

                • GR-5.4.5

                  [This Paragraph was deleted in October 2015.]

                  Deleted: October 2015
                  Adopted: July 2007

                • GR-5.4.6

                  In addition to the above requirements, Bahraini investment firm licensees are encouraged to notify the CBB as soon as they become aware of events that are likely to lead to major changes in their controllers. Any supervisory implications of such changes can then be discussed prior to the filing of a formal approval request.

                  Amended: October 2015
                  Adopted: July 2007

                • GR-5.4.7

                  The CBB may contact references and supervisory bodies in connection with any information provided to support an application for controller. The CBB may also ask for further information, in addition to that provided in the Form 2, if required to satisfy itself as to the suitability of the applicant.

                  Added: October 2015

                • GR-5.4.8

                  In accordance with Paragraph EN-8.2.6, and where a controller is a natural person, the CBB may, depending on the seriousness of a situation, impose enforcement measures, which may include disqualification from being a controller of any licensed firm.

                  Added: October 2015

            • GR-5.5 Key Provisions for Overseas Investment Firm Licensees

              • GR-5.5.1

                In the case of overseas investment firm licensees, the licensee must notify the CBB of any new significant ownership in excess of 50% of the issued and paid up capital of the concerned licensee's direct parent undertaking as soon as the licensee becomes aware of the change (see Paragraph BR-2.2.23A). The overseas investment firm licensee must provide a copy of the relevant approval by the home supervisor of the parent. The CBB will take the appropriate action in such case.

                Added: October 2015

              • GR-5.5.2

                In assessing the suitability of a controller of the parent of an overseas investment firm licensee, the CBB will take into regard that the change in control poses no undue risks to the licensee or its customers, and is not damaging to the interests of the market.

                Added: October 2015

              • GR-5.5.3

                Overseas investment firm licensees must submit, within 3 months of their financial year-end, a report on their controllers. This report must identify all controllers of the branch, and details of the type of control (See BR-1.4.1).

                Added: October 2015

              • GR-5.5.4

                For overseas investment firm licensees, the controller is the direct parent undertaking. Any material changes as outlined in Paragraph GR-5.5.1, to the control of the direct parent undertaking must be filed through submission of an updated Form 2 to the CBB.

                Added: October 2015

          • GR-6 Close Links

            • GR-6.1 Key Provisions

              • GR-6.1.1

                Condition 3 of the CBB's licensing conditions specifies, amongst other things, that investment firm licensees must satisfy the CBB that their close links do not prevent the effective supervision of the licensee and otherwise pose no undue risks to the licensee. (See Paragraph AU-2.3.1).

                Amended: July 2007

              • GR-6.1.2

                Applicants for an investment firm license must provide details of their close links, as provided for under Form 1 (Application for a License). (See Paragraph AU-5.1.1).

              • GR-6.1.3

                Investment firm licensees must submit to the CBB, within 3 months of their financial year-end, a report on their close links. The report must identify all undertakings closely linked to the licensee, as defined in Section GR-6.2.

                Amended: July 2007

              • GR-6.1.4

                Investment firm licensees may satisfy the requirement in Paragraph GR-6.1.3 by submitting a corporate structure chart, identifying all undertakings closely linked to the licensee.

                Amended: July 2007

              • GR-6.1.5

                Investment firm licensees must provide information on undertakings with which they are closely linked, as requested by the CBB.

                Amended: July 2007

            • GR-6.2 Definition of Close Links

              • GR-6.2.1

                An investment firm licensee ('L') has close links with another undertaking ('U'), if:

                (a) U is a parent undertaking of L;
                (b) U is a subsidiary undertaking of L;
                (c) U is a subsidiary undertaking of a parent undertaking of L;
                (d) U, or any other subsidiary undertaking of its parent, owns or controls 20% or more of the voting rights or capital of L; or
                (e) L, any of its parent or subsidiary undertakings, or any of the subsidiary undertakings of its parent, owns or controls 20% or more of the voting rights or capital of U.
                Amended: July 2007

            • GR-6.3 Assessment Criteria

              • GR-6.3.1

                In assessing whether an investment firm licensee's close links may prevent the effective supervision of the firm, or otherwise poses no undue risks to the investment firm licensee, the CBB takes into account the following:

                (a) Whether the CBB will receive adequate information from the investment firm licensee, and those with whom the licensee has close links, to enable it to determine whether the licensee is complying with CBB requirements;
                (b) The structure and geographical spread of the licensee, its group and other undertakings with which it has close links, and whether this might hinder the provision of adequate and reliable flows of information to the CBB, for instance because of operations in territories which restrict the free flow of information for supervisory purposes;
                (c) In the case of an overseas investment firm licensee, whether the investment firm licensee and its group will be subject to supervision on a consolidated basis (for example, if a financial resources requirement is determined for the group as a whole); and
                (d) Whether it is possible to assess with confidence the overall financial position of the group at any particular time, and whether there are factors that might hinder this, such as group members having different financial year ends or auditors, or the corporate structure being unnecessarily complex and opaque.
                Amended: July 2007

          • GR-7 Cessation of Business

            • GR-7.1 CBB Approval

              • GR-7.1.1

                As specified in Article 50 of the CBB Law, an investment firm licensee wishing to cease to provide or suspend all or any of its licensed regulated services, completely or at any of its branches, must obtain prior written approval from the CBB.

                Amended: October 2011
                Amended: July 2007

              • GR-7.1.2

                If the investment firm licensee wishes to transfer client assets to a third party, it must also comply with the requirements contained in Chapter GR-4.

                Amended: July 2007

              • GR-7.1.2A

                If the investment firm licensee 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.

                Adopted: October 2011

              • GR-7.1.3

                In the case of a Bahraini investment firm licensee, Chapter GR-7 applies both to its business booked in Bahrain and in the firm's overseas branches. In the case of an overseas investment firm licensee, Chapter GR-7 applies only to business booked in the firm's Bahrain branch.

                Adopted: July 2007

              • GR-7.1.4

                Investment firm 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 requirements 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 licensee proposes to cease business;
                (d) Notice of an Extraordinary 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 licensee (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 licensee will stop its operations;
                (h) If the investment firm licensee wishes to cease its whole business, confirmation that the licensee will not enter into new business with effect from the cut-off date;
                (i) Once the CBB has given its approval to an application to cease business, the licensee must publish a notice of its intention to cease business in two local daily newspapers (one in Arabic, the other in English). Notices must also be displayed in the premises (including any branch offices) of the licensee concerned. These notices must be given not less than 30 calendar days before the cessation is to take effect, and must include such information as the CBB may specify;
                (j) The audited accounts of the licensee as of the last date on which it stopped operations. The commencement of such accounts should be the beginning of the financial year of the licensee;
                (k) If applicable, an assessment of the impact of the cessation on any customers directly affected by the cessation, and any mitigating factors or measures;
                (l) If applicable, an assessment of the impact of the cessation on the licensee's remaining business and customers, and any mitigating factors or measures; and
                (m) The final liquidator's report of the licensee.
                Amended: October 2011
                Amended: October 2009
                Adopted: July 2007

              • GR-7.1.5

                Licensees intending to apply to cease business are advised to contact the CBB at the earliest possible 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 documentation specified in Paragraph GR-7.1.4 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.

                Adopted: July 2007

              • GR-7.1.6

                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.

                Adopted: July 2007

              • GR-7.1.7 [Deleted]

                Deleted: October 2009

              • GR-7.1.7

                The notice referred to in Subparagraph GR-7.1.4(i) must include a statement that written representations concerning the liquidation may be submitted to the CBB before a specified day, which shall not be later than thirty calendar days after the day of the first publication of the notice. The CBB will not decide on the application until after considering any representations made to the CBB before the specified day.

                Amended: October 2011
                Amended: October 2009
                Adopted: July 2007

              • GR-7.1.8

                Upon satisfactorily meeting the requirements set out in GR-7.1.4, the investment firm licensee 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 and Commerce.

                Amended: October 2011
                Amended: October 2009
                Amended: July 2007

              • GR-7.1.9

                Where the CBB has given its approval to cancel or amend a license, then it will also publish its decision in the Official Gazette, as well as in two local daily newspapers (one in Arabic, the other in English), once this decision has been implemented.

                Amended: October 2011
                Amended: October 2009
                Adopted: July 2007

              • GR-7.1.9A

                The publication cost of these notices mentioned in Paragraph GR-7.1.9 is to be met by the investment firm licensee concerned.

                Adopted: October 2011

              • GR-7.1.10

                The investment firm 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.

                Amended: October 2011
                Adopted: October 2009

              • GR-7.1.11

                An investment firm licensee in liquidation must continue to meet its contractual and regulatory obligations to customers and creditors.

                Amended: October 2009
                Amended: July 2007

              • GR-7.1.11A

                If no objections to the liquidation are upheld by the CBB, the CBB may then issue a written notice of approval for the surrender of the license.

                Adopted: October 2011

              • GR-7.1.12

                If a Category 2 investment firm or a Category 3 investment firm applies to the CBB for voluntary surrender of its authorisation, it must ensure that suitable arrangements are in place for professional indemnity coverage, to continue in respect of any unreported claims arising from past sales or advice, in accordance with Rule GR-9.1.8.

                Amended: October 2011
                Adopted: October 2009

              • GR-7.1.5

                Effective up to Jun 30 2007.

                Once the investment firm licensee believes that it has discharged all its remaining contractual obligations to clients and creditors, it must publish a notice in two national newspapers in Bahrain approved by the BMA (one being in English and one in Arabic), stating that is has settled all its dues and wishes to leave the market.

              • GR-7.1.6

                Effective up to Jun 30 2007.

                The notice referred to in Paragraph GR-7.1.5 must include a statement that written representations concerning the liquidation may be sent to the BMA before a specified day, which shall not be earlier than sixty days after the day of the first publication of the notice. The BMA will not decide on the application until after considering any representations made to the BMA before the specified day.

              • GR-7.1.7

                Effective up to Jun 30 2007.

                If no objections to the liquidation are upheld by the BMA, then the BMA may issue a written notice of approval for the surrender of the license.

          • GR-8 Appointed Representatives [This Chapter was deleted in October 2013]

            • GR-8.1 Key Provisions [This Section was deleted in October 2013]

              • GR-8.1.1

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.2

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.3

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.4

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.5

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.6

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.7

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.8

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.9

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.10

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.11

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.12

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

              • GR-8.1.13

                [This Paragraph was deleted in October 2013].

                Deleted: October 2013

          • GR-9 Professional Indemnity Coverage

            • GR-9.1 Key Provisions

              • GR-9.1.1

                Category 2 investment firms and Category 3 investment firms must maintain professional indemnity coverage. The professional indemnity coverage must be obtained from an insurance firm acceptable to the CBB and licensed in the Kingdom of Bahrain. Category 2 investment firms and Category 3 investment firms must submit a Professional Indemnity Insurance Return (Form PIIR) on a quarterly basis as part of the Quarterly Prudential Return Form (ref. BR-1.1). Additionally, they must provide, upon request, evidence to the CBB of the coverage in force.

                Amended: October 2009
                Amended: July 2007

              • GR-9.1.1A

                In accordance with Paragraph EN-B.3.1, investment firm licensees may not enter into or make a claim under a contract of insurance that is intended to, or has the effect of, indemnifying them from the financial penalties provided for in Module EN.

                Adopted: April 2008

              • GR-9.1.2

                The requirement to maintain professional indemnity coverage will normally be met by the investment firm licensee concerned obtaining an insurance policy from an insurance firm. The CBB may also accept an insurance indemnity policy issued at group level, e.g. issued with respect to the parent of the investment firm licensee, provided the terms of the policy explicitly provide indemnity coverage with respect to the investment firm licensee. Similarly, overseas investment firm licensees may provide evidence of professional indemnity coverage maintained by their head office, providing that the coverage of the professional indemnity extends to the operations of the branch operating in Bahrain.

                Amended: April 2008
                Amended: July 2007

              • GR-9.1.3

                Upon written application to the CBB, the requirement in Rule GR-9.1.1 may instead be met by the investment firm licensee depositing with a retail bank licensed to operate in the Kingdom of Bahrain, an amount, specified by the CBB, to be held in escrow against future claims. This amount will not be less than the minimum required policy limit.

                Amended: July 2007

              • GR-9.1.4

                An investment firm licensee must assess its insurance needs with respect to professional indemnity to ensure its adequacy to the level of business undertaken, notwithstanding the minimum limit of indemnity.

                Adopted: October 2009

              • GR-9.1.5

                The minimum limit of indemnity is BD 100,000 for Category 2 investment firms and BD 75,000 for Category 3 investment firms.

                Amended: October 2009

              • GR-9.1.6

                The maximum excess or deductible allowable under the policy shall be BD 15,000.

                Amended: October 2009

              • GR-9.1.7

                Unless otherwise agreed in writing with the CBB, the policy must contain a clause that it may not be cancelled or lapsed without the prior notification of the CBB. The policy must also contain a provision for an automatic extended reporting period in the event that the policy is cancelled or lapsed, such that claims relating to the period during which the policy was in force may subsequently still be reported.

                Amended: October 2009
                Amended: July 2007

              • GR-9.1.8

                If a Category 2 investment firm or Category 3 investment firm applies to the CBB for a voluntary surrender of its authorisation, it must ensure that suitable arrangements are in place for professional indemnity coverage to continue in respect of any unreported claims arising from past sales or advice.

                Amended: October 2009
                Amended: July 2007

              • GR-9.1.9

                The CBB will not allow a voluntary surrender of authorisation to take effect until the investment firm licensee, in the opinion of the CBB, has discharged all its regulatory responsibilities to its clients. See also Section AU-5.5, on the cancellation of authorisation.

                Amended: October 2009
                Amended: July 2007

              • GR-9.1.10

                As provided for in Module ES, professional indemnity coverage requirements must be met by Category 2 investment firms and Category 3 investment firms, which were licensed prior to the introduction of Volume 4 (Investment Business) in April 2006, by December 31, 2006. Category 2 investment firms and Category 3 investment firms licensed after April 2006 are required to comply with the CBB's professional indemnity coverage requirements, from the point they are given a license.

                Amended: October 2009
                Amended: July 2007

              • GR-9.1.11

                Category 2 investment firms and Category 3 investment firms must prominently display in their premises a notice stating that they have in place professional indemnity coverage that meets the minimum requirements of the CBB and the period of coverage, such that claims relating to the period during which the policy was in force may subsequently still be reported.

                Amended: October 2009
                Amended: July 2007

              • GR-9.1.12

                The above notice may either be issued by the insurance company on behalf of the investment firm licensee, or by the licensee itself. The notice should specify the main features of the coverage maintained (or, where relevant, the amount of funds placed in escrow, in accordance with Rule GR-9.1.3). It should also specify the procedures for submitting a claim under the coverage maintained.

                Amended: October 2009
                Amended: July 2007

          • GR-10 [This Chapter deleted 07/2007.]

            Deleted: July 2007

            • GR-10.1 Annual License Fees

              Effective up to Jun 30 2007.

              • GR-10.1.1

                Effective up to Jun 30 2007.

                Investment firm licensees must pay the relevant annual license fee to the BMA, upon the issuance of their license and thereafter on 1 January each year. The annual license fee charged upon issuance of a license is charged on a pro-rata basis, proportionate to the period remaining between the issuance of the license and the end of the calendar year in question.

              • GR-10.1.2

                Effective up to Jun 30 2007.

                The annual license fee payable is as follows:

                Category 1 investment firms: BD 4,000
                Category 2 investment firms: BD 1,000
                Category 3 investment firms: BD 500

              • GR-10.1.3

                Effective up to Jun 30 2007.

                The above fee structure is temporary, pending the development of an integrated license fee structure covering all BMA licensees. Such a system, which will be the subject of consultation prior to implementation, is to be finalized for implementation in January 2007. The guiding principles of the new system will be (i) to remain internationally competitive in terms of direct costs imposed on licensees; (ii) to be relatively simple and straightforward to calculate and apply; and (iii) to align more closely the level of fees charged with the scale and likely complexity of a licensee.

          • GR-10 Branches, Subsidiaries and Representative Offices

            • GR-10.1 General Requirements

              • GR-10.1.1

                As specified in Articles 51 and 57 of the CBB Law, a Bahraini investment firm licensee incorporated in Bahrain must seek CBB approval and give reasonable advance notice of its intention to:

                (a) Enter into a merger with another undertaking;
                (b) Enter into a proposed acquisition, disposal or establishment of a new subsidiary undertaking;
                (c) Open a new place of business as a subsidiary undertaking or a branch within the Kingdom of Bahrain or other jurisdiction; or
                (d) Open a representative office in another jurisdiction.
                Amended: July 2013
                Added: April 2011

              • GR-10.1.1A

                The Rules in this Section apply to all Bahraini investment firm licensees proposing to establish a new subsidiary undertaking, either directly by way of holding majority shareholding or having majority voting control by virtue of direct ownership or indirectly, by proxy/nominee arrangements, or through a management agreement.

                Added: July 2013

              • GR-10.1.2

                Rule GR-10.1.1 applies whether or not the Bahraini investment firm licensee is required to be regulated locally in the jurisdiction where it proposes to undertake the investment business.

                Amended: July 2013
                Added: April 2011

              • GR-10.1.3

                The CBB will consider as one of its criteria to approve, impose additional requirements on the Bahraini investment firm licensee or refuse an application under Paragraph GR-10.1.1, the information related to Paragraph GR-10.1.2.

                Amended: July 2013
                Added: April 2011

              • GR-10.1.4

                Bahraini investment firm licensees will also need to consider the implications of a merger, acquisition, disposal or establishment of a new subsidiary undertaking in the context of the controllers and close links rules set out in Sections GR-5 and GR-6.

                Added: April 2011

              • GR-10.1.5

                [This Paragraph was deleted in July 2013]

                Deleted: July 2013
                Added: April 2011

              • Establishment of a Subsidiary

                • GR-10.1.6

                  The purpose and objectives of a subsidiary undertaking referred to in Rule GR-10.1.1 must be limited to the permissible activities within the scope of the investment business license as defined under regulated investment services in Section AU-1.4.

                  Added: April 2011

                • GR-10.1.7

                  Bahraini investment firm licensees wishing to establish or acquire a subsidiary undertaking must submit the following information to the CBB as part of the approval process referred to in Paragraph GR-10.1.1:

                  (a) Proposed name of subsidiary;
                  (b) Country of incorporation;
                  (c) Legal structure;
                  (d) Proposed paid-up capital;
                  (e) Proposed shareholding structure;
                  (f) Purpose of establishing or acquiring the subsidiary;
                  (g) Draft incorporation documents of the subsidiary;
                  (h) Board Resolution approving the establishment or acquisition of the subsidiary;
                  (i) Names of the board members of the proposed subsidiary and the relationship of the board member to the investment firm licensee;
                  (j) Names of the authorised signatories of the proposed subsidiary;
                  (k) An undertaking from the board of the investment firm licensee that the board will be held ultimately responsible for any misconduct or action committed by the proposed subsidiary; and
                  (l) Any other information or documentation as required by the CBB.
                  Amended: July 2013
                  Added: April 2011

                • GR-10.1.7A

                  Any change in the criteria listed under Rule GR-10.1.7, including any changes to the incorporation documents, are subject to the CBB prior written approval, prior to the change taking place.

                  Added: July 2013

                • GR-10.1.8

                  Bahraini investment firm licensees referred to in Paragraph GR-10.1.7 must comply with Paragraphs GR-6.1.3 (reporting requirements for close links), RM-B.2.2 (risk management of subsidiaries), CA-1.2.9 and CA-2.1.13 (impact of investment in subsidiaries on capital adequacy).

                  Amended: July 2013
                  Added: April 2011

                • GR-10.1.8A

                  Bahraini investment firm licensees must ensure that the scope of their internal audit extends to the activities of their subsidiaries, to satisfy themselves of the compliance of the subsidiaries with all relevant internal and regulatory rules and regulations.

                  Added: July 2013

                • GR-10.1.8B

                  Bahraini investment firm licensees must submit to the CBB audited financial statements of their subsidiaries within 3 months of the year end of the subsidiary (ref. BR 1.4.6A).

                  Amended: October 2016
                  Added: July 2013

              • Establishment of a Branch or Representative Office

                • GR-10.1.9

                  Investment firm licensees wishing to establish a branch or a representative office in a jurisdiction other than the Kingdom of Bahrain, must submit the following information to the CBB as part of the approval process referred to in Paragraph GR-10.1.1:

                  (a) Name of the host supervisor;
                  (b) Proposed license type of the branch;
                  (c) Purpose of establishing the branch or representative office;
                  (d) Board Resolution approving the establishment of the branch or representative office;
                  (e) The minimum requirements of the host jurisdiction; and
                  (f) Any other information or documentation as required by the CBB.
                  Added: April 2011

      • Business Standards

        • CA Capital Adequacy

          • CA-A Introduction

            • CA-A.1 Purpose

              • Executive Summary

                • CA-A.1.1

                  This Module lays down requirements that apply to all investment firm licensees, with respect to the minimum level of capital they must maintain. Category 1 investment firms are also required to make their own assessment of the appropriate level of capital that they need to hold.

                  Amended: January 2007

                • CA-A.1.2

                  Principle 9 of the Principles of Business requires that investment firm licensees maintain adequate human, financial and other resources, sufficient to run their business in an orderly manner (see Section PB-1.9). In addition, Condition 5 of the Central Bank of Bahrain's ('CBB') Licensing Conditions (Section AU-2.5) requires investment firm licensees to maintain financial resources in excess of the minimum requirements specified in Module CA (Capital Adequacy).

                  Amended: January 2011
                  Amended: January 2007

                • CA-A.1.3

                  The requirements specified in this Module vary according to the category of investment firm licensee concerned, their inherent risk profile, and the volume and type of business undertaken. The purpose of such requirements is to ensure that investment firm licensees hold sufficient capital to provide some protection against unexpected losses, and otherwise allow investment firms to effect an orderly wind-down of their operations, without loss to their customers or those of other firms. The minimum capital requirements specified here are not sufficient to absorb all unexpected losses.

              • Legal Basis

                • CA-A.1.4

                  This Module contains the CBB's Directive (as amended from time to time) relating to the capital adequacy of investment firm licensees, and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to all investment firm licensees.

                  Amended: January 2011
                  Adopted: January 2007

                • CA-A.1.5

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

                  Adopted: January 2007

            • CA-A.2 Module History

              • Evolution of Module

                • CA-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. It is dated April 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.

                  Amended: July 2007

                • CA-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Adopted: July 2007

                • CA-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  CA-A.1 07/2007 New Rule CA-A.1.4 introduced, categorising this Module as a Directive.
                  CA-1.1 07/2007 Minor change to notification period in Rule CA-1.1.4.
                  CA-2.1.5 01/2008 Clarified the definition of Tier 1 capital re preference shares.
                  CA-2.1.8 01/2008 Clarified definition of Tier 2 capital
                  CA-B.1 10/2009 New Rules CA-B.1.4 and CA-B.1.3 introduced to clarify calculation of regulatory capital for overseas investment firm licensees.
                  CA-1.1 10/2009 New Rule CA-1.1.4 introduced regarding CBB's requirements for maintaining capital in Bahrain.
                  CA-1.2 and CA-2.1.5 10/2009 Amended terminology.
                  CA-2.1.8 10/2009 Clarified definition of Tier 2 capital.
                  CA-3.4 10/2009 Clarified definition of foreign exchange requirement.
                  CA-A.1.4 01/2011 Clarified legal basis.
                  CA-B.1 01/2011 New title given to this section.
                  CA-1 01/2011 Restructured by moving Paragraphs in Section CA-B.1 and categorised capital adequacy requirements for different legal forms of investment firms (Bahraini and Overseas) and added new Rule on the booking of assets and liabilities.
                  CA-1.1.5A 01/2011 Added Guidance on alternative to increase capital.
                  CA-1.2.11 and CA-1.2.12 01/2011 Paragraphs relocated from Section CA-1.1.
                  CA-2.1.8 01/2011 Added dated subordinated term debt with an original term of over 5 years to Tier 2 capital instruments.
                  CA-1.2.9 and CA-1.2.9A 04/2011 Clarified notification requirements where investment firm licensees do not meet certain requirements.
                  CA-3.1 04/2011 Provided new Rule to deal with newly established investment firm licensees.
                  CA-A.2.3 01/2012 Corrected typo.
                  CA-2.2.3 01/2012 Corrected cross reference.
                  CA-1.2.9A 10/2012 Clarified Rule.
                  CA-1.1.5A to CA-1.1.5C 01/2013 Updated Rules and Guidance dealing with issuance of subordinated debt.
                  CA-2.2.2 01/2013 Corrected typo and added cross reference.
                  CA-3.1.3 10/2013 Removed reference to appointed representatives.
                  CA-4.1 10/2014 Added new guidance for capital for underwriting purposes.
                  CA-1.1.7 and CA-1.1.8 07/2015 Guidance paragraphs deleted as reference is out of date.
                  CA-1.1.5A and CA-2.1.14 01/2016 Corrected cross references.
                  CA-2.1.3 01/2016 Clarified Rule on type of capital that can be used to satisfy the regulatory capital requirement.
                  CA-2.1.8 01/2016 Corrected numbering of Subparagraphs.

              • Superseded Requirements

                • CA-A.2.4

                  This Module supersedes the following provisions contained in circulars or other regulatory instruments:

                  Circular/other reference Provision Subject
                  Standard Conditions and Licensing Criteria: investment advisers/brokers. Article 1 Capital Funds
                  Standard Conditions and Licensing Criteria: broking company Article 1 Minimum Capital
                  Standard Conditions and Licensing Criteria: stockbrokerage Article 1 Minimum Capital

                • CA-A.2.5

                  Guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

          • CA-B Scope of Application

            • CA-B.1 Scope

              • CA-B.1.1

                This Module applies to both Bahraini investment firm licensees and overseas investment firm licensees.

              • CA-B.1.2 [deleted]

                [This Paragraph was moved to CA-1.1.A].

                Deleted: January 2011

              • CA-B.1.3 [deleted]

                [This Paragraph was moved to CA-1.1A.3].

                Deleted: January 2011

              • CA-B.1.4 [deleted]

                [This Paragraph was moved to CA-1.1A.1].

                Deleted: January 2011

              • CA-B.1.5 [deleted]

                [This Paragraph was moved to CA-1.1A.2].

                Amended: January 2011

          • CA-1 Capital Adequacy Requirements

            • CA-1.1 Bahraini Investment Firm Licensees

              • Obligation to Maintain Adequate Capital

                • CA-1.1.A

                  Bahraini investment firm licensees must calculate their Regulatory Capital based on their shareholders' equity (and other eligible components of Regulatory Capital, 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 licensees 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 licensees 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 Requirement or the Minimum Capital Requirement.

                  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 licensees are required to maintain, at all times, the Minimum Capital Requirement 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 licensee 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 licensee to inject additional working capital in order to maintain the minimum capital requirements for its category of license, the investment firm licensee 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 licenseemay 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 licensee has received confirmation from its external auditor that the investment firm licensee's 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 licensee 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 licensees 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 licensees must calculate their Regulatory Capital 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 licensees must ensure that their Regulatory Capital 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 licensees and for overseas investment firm licensees 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 licensee is locally incorporated or a branch operation.

                  Adopted: January 2011

              • Booking of Assets and Liabilities

                • CA-1.1A.3

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

                  Adopted: January 2011

                • CA-1.1A.4

                  Overseas investment firm licensees 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 licensees must ensure that, at all times, their Regulatory Capital is in excess of their Regulatory Capital Requirement. They must monitor compliance with this requirement on an on-going basis.

                • CA-1.2.2

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

                  Amended: October 2009

                • CA-1.2.3

                  For Category 3 investment firms, their Regulatory Capital Requirement is their Minimum Capital Requirement.

                  Amended: October 2009

                • CA-1.2.4

                  The above requirements reflect the different risk profiles of the 3 investment firm categories. Risk-based Capital Requirements 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 Requirements are therefore likely to exceed the relevant Minimum Capital Requirement. Because of the limited nature of their activities, which pose limited risks to counterparties or customers, Category 3 investment firms are not required to apply Risk-based Capital Requirements. They are only required to comply with their Minimum Capital Requirement.

                  Amended: October 2009

              • Definitions

                • CA-1.2.5

                  For Bahraini investment firm licensees, Regulatory Capital is capital held by the firm that satisfies the criteria set out in Chapter CA-2. For overseas investment firm licensees, Regulatory Capital 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 Requirements are:

                  (a) Category 1 investment firms: BD 1,000,000;
                  (b) Category 2 investment firms: 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 firms: BD 125,000.
                  Amended: October 2009
                  Amended: January 2007

                • CA-1.2.8

                  The Risk-based Capital Requirement 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 firms must notify the CBB if:

                  (a) The ratio of Regulatory Capital to their Regulatory Capital Requirement falls below 110% (see Paragraph CA-1.1.5);
                  (b) Any single probable contingency, financial commitment or large exposure exceeds 25% of their Regulatory Capital; 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 licensees must submit to the CBB, within 30 calendar days of the event occurring, a plan demonstrating how it will:

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

              • Group Risks

                • CA-1.2.10

                  Investment firm licensees 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 licensees 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

          • CA-2 Definition of Regulatory Capital

            • CA-2.1 Eligible Components

              • CA-2.1.1

                Regulatory Capital is the sum of the following three components (as defined in Rules CA-2.1.5 to CA-2.1.13), subject to the restrictions set out in Section CA-2.2:

                (a) Tier 1: Core capital;
                (b) Tier 2: Supplementary capital; and
                (c) Tier 3: Ancillary capital.

              • CA-2.1.2

                Limits apply to the proportion of Tier 2 and 3 capital allowed, relative to Tier 1. Any excess held is not taken into account in calculating total Regulatory Capital held. See Section CA-2.2.

              • CA-2.1.3

                Except as limited under Paragraph CA-2.2.1, Tiers 1 and 2 can be used to satisfy all elements of the Regulatory Capital Requirement. Tier 3 capital can only be used to meet the Position Risk Requirement (as defined in Section CA-3.2).

                Amended: January 2016
                Amended: January 2007

              • CA-2.1.4

                Any Tier 3 capital held in excess of the Position Risk Requirement, therefore, is not taken into account when calculating total Regulatory Capital held. See Section CA-2.2.

              • Tier 1 Capital

                • CA-2.1.5

                  Tier 1 capital comprises:

                  (a) Paid-up ordinary shares (net of treasury shares);
                  (b) Share premium reserve;
                  (c) Perpetual non-cumulative preference shares;
                  (d) General reserves, including statutory reserves, but excluding revaluation reserves;
                  (e) Unappropriated retained earnings brought forward;
                  (f) Audited retained profits net of declared dividends and tax expenses;
                  (g) Current year appropriations including statutory reserves, general reserves and other appropriations; and
                  (h) Minority interests, arising on consolidation, in the equity of subsidiaries which are less than wholly owned.

                  LESS:

                  (i) Goodwill; and
                  (j) Current year's cumulative net losses which have been reviewed or audited as per the International Standards on Auditing (ISA) by external auditors.
                  Amended: October 2009
                  Amended: January 2008
                  Amended: January 2007

                • CA-2.1.6

                  Tier 1 capital elements included under Paragraph CA-2.1.5(a) to (c) can only be so included if:

                  (a) They are issued by the investment firm licensee;
                  (b) They are fully paid (only that portion of the shares for which payment has been received may be included);
                  (c) They:
                  (i) Cannot be redeemed or can only be redeemed on a winding up of the investment firm licensee; or
                  (ii) They are only redeemable at the option of the investment firm licensee and comply with any conditions applicable to joint stock companies in Bahrain;
                  (d) Any coupon is non-cumulative, and can only be paid out of accumulated realised profits;
                  (e) They are able to absorb losses;
                  (f) They rank for repayment, upon winding up, no higher than a share of a company incorporated under the Joint Stock companies law of Bahrain; and
                  (g) The proceeds of the issue are immediately and fully available to the investment firm licensee.
                  Amended: January 2007

                • CA-2.1.7

                  An investment firm licensee must not redeem any Tier 1 instrument that it has included in its Regulatory Capital for the purpose of satisfying its Regulatory Capital Requirement without the prior written approval of the CBB.

                  Amended: January 2007

              • Tier 2: Supplementary Capital

                • CA-2.1.8

                  Tier 2 capital comprises:

                  (a) Interim retained profits reviewed by external auditors in accordance with International Standards on Auditing (ISA);
                  (b) Limited life redeemable preference shares with an original term of at least five years;
                  (c) Asset revaluation reserves, comprising:
                  (i) the revaluation of fixed assets to reflect changes in market values, that are reflected in the balance sheet as a revaluation reserve; and
                  (ii) hidden or 'latent' revaluation reserves represented by long-term holdings of equity securities valued in the balance sheet at the historical cost of acquisition; and
                  (iii) 'latent' revaluation reserves represented by revaluation of 'available for sale' securities to reflect changes in the market value.
                  (d) Dated subordinated debt with an original term of over 5 years.

                  All types of revaluation reserve may be included, with the concurrence of the external auditor, provided that the assets are prudently valued, fully reflecting the possibility of price fluctuation and forced sale. In the case of 'latent' revaluation reserves, a discount of 55% must be applied to the difference between the historical cost book value and the market value to reflect the potential volatility of this form of unrealized capital;
                  (e) General provisions held against future, presently unidentified losses, providing these are freely available to meet losses that subsequently materialise, subject to a maximum of 1.25% of Tier 1 capital. Provisions ascribed to impairment of particular assets or known liabilities are excluded;
                  (f) Cumulative preference shares;
                  (g) Hybrid instruments, that combine characteristics of equity capital and of debt, and which meet the requirements in CA-2.1.9 and CA-2.1.10;
                  (h) Subordinated term debt, comprising conventional unsecured borrowing subordinated (in respect of both interest and principal) to all other liabilities of the investment firm licensee except the share capital and limited life redeemable preference shares. To be eligible for inclusion in Tier 2 capital, subordinated debt capital instruments must have a minimum original fixed term to maturity of over five years. During the last five years to maturity, a cumulative discount (or amortisation) factor of 20% per year will be applied to reflect the diminishing value of these instruments as a continuing source of strength. Unlike instruments included in item (f) above, these instruments are not normally available to participate in the losses of an investment firm licensee which continues trading. For this reason, these instruments will be limited to a maximum of 50% of tier 1 capital; and
                  (i) 45% of unrealised gains on equity securities held as available-for-sale (on an aggregate net-basis).
                  Amended: January 2016
                  Amended: January 2011
                  Amended: October 2009
                  Amended: January 2008

                • CA-2.1.9

                  A hybrid capital instrument may only be included in Regulatory Capital, as a Tier 2 component, if it meets the following conditions:

                  (a) It is unsecured, subordinated and fully paid-up;
                  (b) It is not redeemable at the initiative of the holder, nor without the prior consent of the CBB;
                  (c) It is available to participate in losses without the investment firm licensee being obliged to cease trading (unlike conventional subordinated debt); and
                  (d) Although the capital instrument may carry an obligation to pay interest that cannot permanently be reduced or waived (unlike dividends on ordinary shareholders' equity), it allows such obligations to be deferred (as with cumulative preference shares) where the profitability of the investment firm licensee would not support payment.
                  Amended: January 2007

                • CA-2.1.10

                  In addition to those contained in Rule CA-2.1.9, the following conditions also apply:

                  (a) The only events of default must be non-payment of any amount falling due under the terms of the instrument or the winding-up of the investment firm licensee;
                  (b) The remedies available to the subordinated creditor in the event of non-payment or other breach of the written agreement or instrument must be limited to petitioning for the winding up of the investment firm licensee or proving the debt in a liquidation of the investment firm licensee;
                  (c) Any events of default and any remedy described in (b) must not prejudice the matters in (a);
                  (d) The debt must not become due and payable before its stated final maturity date (if any) except on an event of default complying with (a);
                  (e) The debt agreement or terms of the instrument are governed by the laws of Bahrain;
                  (f) To the fullest extent permitted under the laws of the relevant jurisdictions, creditors must waive their right to set off amounts they owe the investment firm licensee against subordinated amounts included in the investment firm licensee's capital resources owed to them by the investment firm licensee;
                  (g) The terms of the instrument must be set out in a written agreement that contains terms that provide for the conditions set out in (a) to (f); and
                  (h) The investment firm licensee has obtained an external legal opinion stating that the requirements in (a) to (g) have been met.
                  Amended: January 2007

              • Tier 3: Ancillary Capital

                • CA-2.1.11

                  Tier 3 capital consists of short-term subordinated debt that meets the following conditions:

                  (a) It is unsecured, subordinated and fully paid up;
                  (b) It has an original maturity of at least two years;
                  (c) It is not repayable before the agreed repayment date; and
                  (d) It is subject to a lock-in clause which stipulates that neither interest nor principal may be paid (even at maturity) if such payment means that the investment firm licensee's Regulatory Capital would fall below its Regulatory Capital Requirement.
                  Amended: January 2007

              • Deductions, etc.

                • CA-2.1.12

                  No value, for Regulatory Capital purposes, may be attributed to any other instrument or resource, without the CBB's written consent. Without limiting the generality of this rule, no value is attributed to any of the following:

                  (a) Any implicit items (which relate to future profits and hidden reserves); and
                  (b) The unpaid element of any issued shares some or all of which are not 'fully paid' shares.
                  Amended: January 2007

                • CA-2.1.13

                  Significant investments in and lending of a capital nature to subsidiaries and associated companies engaged in financial activities must be deducted from the sum of Tiers 1 and 2.

                • CA-2.1.14

                  For the purposes of CA-2.1.13, 'significant investments' are investments where the investment firm licensee holds more than 20% of the share capital of the investee company. The underlying assets associated with those investments are not included in the investment firm's assets for the purpose of computing its Regulatory Capital Requirement. See also Module GR (Group Supervision).

                  Amended: January 2016

            • CA-2.2 Limits on Components

              • Tier 1: Core Capital

                • CA-2.2.1

                  Tier 1 capital must constitute at least half of total Regulatory Capital, i.e. the sum of Tier 2 and Tier 3 capital must not exceed total Tier 1 capital.

              • Tier 2: Supplementary Capital

                • CA-2.2.2

                  Long-term subordinated term debt may not comprise more than 50% of Tier 1 (see Paragraph CA-1.1.5A).

                  Amended: January 2013

                • CA-2.2.3

                  Rule CA-2.1.8(h) sets out the requirements regarding long-term subordinated debt.

                  Amended: January 2012

              • Tier 3: Ancillary Capital

                • CA-2.2.4

                  Tier 3 capital may only be used to satisfy an investment firm's Position Risk Requirement (PRR). It is limited to 250% of the portion of Tier 1 capital also used to meet the Position Risk Requirement (PRR).

                • CA-2.2.5

                  Tier 2 elements may be substituted for Tier 3 up to the Tier 3 limit of 250% (cf. Rule CA-2.2.4), in so far as eligible Tier 2 capital does not exceed total Tier 1 capital, and long-term subordinated debt does not exceed 50% of Tier 1 capital.

                • CA-2.2.6

                  Investment firm licensees may hold capital elements in excess of the above limits, but any excess is ignored for the purposes of calculating Regulatory Capital.

          • CA-3 Calculation of Risk-Based Capital Requirements

            • CA-3.1 Expenditure Requirement

              • CA-3.1.1

                The Expenditure Requirement is equal to one quarter of the relevant annual expenditure.

              • CA-3.1.2

                Except in instances noted under Paragraph CA-3.1.2A, relevant annual expenditure equals the total annual expenditure (based on audited financial statements) less those items of expenditure that could be reduced or eliminated within a short period of time if required. Subject to prior CBB written approval, exceptional items of expenditure may also be excluded.

                Amended: April 2011
                Amended: January 2007

              • CA-3.1.2A

                For newly established investment firm licensees, for the first year of operations, the total annual expenditure is based on the projected annual expenditure figure for the first year as stated in the business plan submitted during the authorisation stage in accordance with Paragraph AU-5.1.6.

                Added: April 2011

              • CA-3.1.3

                Items that could be reduced or eliminated within a short period for the purposes of Rule CA-3.1.2 are:

                (a) Bonuses paid out of the relevant year's profits which have not been guaranteed;
                (b) Profit shares and other appropriations of profit, except for fixed or guaranteed remuneration which is payable even if the investment firm licensee makes a loss for the year;
                (c) Paid commissions shared, other than to employees or Directors of the investment firm licensee;
                (d) Fees, brokerage and other charges paid to clearing houses, clearing firms, exchanges, and intermediate brokers for the purposes of executing, registering or clearing transactions;
                (e) Interest payable to counterparties; and
                (f) Interest payable on borrowings to finance the investment firm licensee's investment firm and associated firm.
                Amended: October 2013
                Amended: January 2007

            • CA-3.2 Position Risk Requirement (PRR)

              • CA-3.2.1

                An investment firm licensee's Position Risk Requirement is the sum of its individual Position Risk Requirements, calculated as a percentage of the market or realisable value of each financial instrument held, as specified in Schedule 1 below:

                Schedule 1 — Position Risk Requirement
                (a) Debt <90 days 90 days–1 yr 1–5 yrs >5 yrs
                  OECD 2% x MV 2% x MV 5% x MV 10% x MV
                Issued or accepted by banks 2% x MV 2% x MV 5% x MV 10% x MV
                Other marketable financial instruments 10% x MV 10% x MV 20% x MV 30% x MV
                Floating rate notes <20 yrs 5% x MV    
                  >20 yrs 10% x MV    
                (b) Equities
                  Listed on a regulated financial instrument exchange 25% x MV
                Listed on Bahrain Stock Exchange 25% x MV
                Traded on a regulated financial instrument exchange 35% x MV
                Traded on Bahrain Stock Exchange 35% x MV
                Other 100% x MV
                (c) Commodities
                  Stock positions in physical commodities associated with an investment firm licensee's investment firm 30% of realisable value
                (d) Futures, options and contracts for differences
                  Exchange traded futures and written options 4 x initial margin requirement
                Off exchange futures and written options The appropriate percentage shown in a, b and c above should be applied to the value of the underlying position.
                Purchased options As for off exchange written options but limited to the current value of the option.
                Contracts for differences 20% of the market value of the contract.
                (e) Other investments
                  Single premium unit linked bonds and units in a regulated collective investment scheme unless covered below 25% of realisable value
                Units in a regulated scheme which is a geared futures and options fund, or a property fund, or a warrant fund 50% of realisable value
                With profit life policies 20% of surrender value
                Any other investments 100% of amount of asset

            • CA-3.3 Counterparty Risk Requirement (CRR)

              • CA-3.3.1

                An investment firm licensee's Counterparty Risk Requirement is the sum of its individual Counterparty Risk Requirements, calculated in accordance with Schedule 2 below:

                Schedule 2 — Counterparty Risk Requirement
                (a) Cash against document transactions
                  Where an investment firm licensee has unsettled deals in any securities it must calculate the price difference to which it is exposed and then multiply this by the appropriate percentage below to calculate the CRR for each separate unsettled deal.
                Calendar days after settlement Percentage
                0–15 Nil
                16–30 25%
                31–45 50%
                46–60 75%
                Over 60 100%
                (b) Free deliveries
                  Where an investment firm licensee makes payment or delivers securities to a counterparty without receiving the certificate/good title or payment respectively, it must calculate a CRR for each free delivery by applying the appropriate percentage below:
                Where free delivery has been made to: Business days since delivery
                  0–3 4–15 >15
                A manager, underwriter or member of a selling syndicate to whom payment for securities has been made 0% 0% 100%
                An investment firm licensee to whom securities have been delivered or payment has been made with the expectation that market practice will result in a settlement date longer than three days from delivery date. 15% 15% 100%
                Any other counterparty 0% 100% 100%
                (c) Options purchased for a counterparty
                  Where an investment firm licensee has purchased an option on behalf of a counterparty on terms which do not impose on the purchaser any actual or contingent margin requirement or liability to make any payment other than the initial purchase price of the option, and the counterparty has not paid the price by three days after trade date, the CRR is the amount by which the purchase price exceeds the current realisable value of the option.

                Where an investment firm licensee has purchased a traditional option for its own account or on behalf of a counterparty that has not paid the investment firm licensee, then, if the investment firm licensee has paid the option premium to the writer, it must calculate a CRR equal to the option premium.
                (d) Amounts owed in respect of exchange traded margined transactions
                  (i) Where, as a result of a traded margined transaction, a counterparty of the investment firm licensee has an initial margin and/or variation margin requirement and has not met it fully with cash, acceptable collateral or a positive equity balance not used to meet variation margin, an investment firm licensee must calculate a CRR by multiplying the shortfall (or the relevant part of the shortfall) by the appropriate percentage contained in the schedule below:
                Initial and variation margin percentage schedule
                Business days since shortfall occurred

                Where the shortfall is for the account of:
                0–3 days 4 days and over
                A. A market counterparty who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 5% 5%
                B. A client who has been granted a credit line under an adequate credit management policy available to cover the relevant category of margin and to the extent that it is sufficient to cover the shortfall. 10% 10%
                C. A market counterparty or client not within A or B above, or to the extent that he is not within A or B (the shortfall then being limited to the excess). 0% 100%
                (ii) Local or traded option market makers. An investment firm licensee must calculate a 100% CRR for amounts of initial and variation margin not met with acceptable collateral or a positive equity balance and owed to it by a local (or by a traded option market maker) in respect of a traded margined transaction from the date of any shortfall, unless the investment firm licensee treats the local's (or market maker's) position as if it were its own (in which case the PRR rules under Section CA-3.2 will apply instead).
                (iii) Sums owed on closed out exchange traded margined transactions. When, as a result of a traded margined transaction which has been closed out, a counterparty of the investment firm licensee owes any amounts to it arising out of losses on those transactions, and has not fully met that amount through the deposit of cash, acceptable collateral or a positive equity balance not otherwise used, the investment firm licensee must after three days from the date of crystallisation of the loss calculate a CRR equal to the unpaid amount.
                (iv) Margin percentages. An investment firm licensee may, with the prior approval of the CBB, opt to calculate the CRR using a higher or the highest initial margin or variation margin percentage, in order to avoid undue complication.
                (e) Concentrated risk to one counterparty
                  If the total amount due to a licensee for free deliveries or other debts attracting a CRR from a single counterparty (or a group of closely related counterparties) exceeds 25% of the licensee's capital available, it must calculate CRR by applying the appropriate percentage below:
                Amount of capital available Additional CRR
                0–25% Nil
                25.01–50% 15% (or the entire excess if less)
                Over 50% 40% (or the entire excess if less)
                (f) Repurchase and reverse repo transactions, including sale and buy back and securities lending
                  An investment firm licensee shall notify the CBB if it has counterparty exposures in these investments.
                (g) Swaps, forward contracts, over the counter options, contracts for differences and off-exchange futures
                  An investment firm licensee shall notify the CBB if it has counterparty exposures in these investments.
                (h) Loans to counterparties (including free delivery payments)
                  An investment firm licensee must calculate a 100% CRR on the amount by which a loan to a counterparty is not properly secured, or offset against an amount owed by the investment firm licensee to the counterparty (provided there is an agreement in writing that the investment firm licensee deems to be legally enforceable and effective to secure such set-off).
                (i) Other receivables and accrued income
                  Other receivables and accrued income not covered elsewhere attract 100% CRR from the time that they become due.
                Amended: January 2007

            • CA-3.4 Foreign Exchange Risk Requirement (FER)

              • CA-3.4.1

                The foreign exchange requirement is 10% of the net open foreign currency position.

                Amended: October 2009

              • CA-3.4.2

                For each foreign currency (that is, any other currency other than that in which the investment firm licensee's financial statements are presented) in which the investment firm licensee has monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in that currency, the investment firm licensee should calculate the net open position (netting assets and liabilities). This should be converted into the presentation currency. Where the price of an investment is quoted in more than one currency, a position in the investment shall be treated as an asset or a liability in the currency of the country in which the main or principal market in the investment is based. (Options included in the position risk requirement are to be excluded from these calculations).

                Amended: October 2009

              • CA-3.4.3

                Monetary assets or liabilities or any off balance sheet contracts which would give rise to a position in currencies of Gulf Cooperation Council countries or United States dollar are exempted for the purposes of calculating regulatory capital requirement.

                Amended: October 2009
                Amended: January 2007

              • CA-3.4.4

                An investment firm licensee's foreign exchange risk calculation must include the following items regardless of whether they are trading or non-trading positions

                (a) All spot positions in foreign currency (that is, all asset items less all liability items, including accrued interest, in the foreign currency in question); and
                (b) All forwards positions in foreign currency (net present value in respect of notional position).
                Amended: October 2009

              • CA-3.4.5

                An investment firm licensee's foreign exchange risk calculation shall not include the following:

                (a) Foreign currency assets which have been deducted in full from the firm's capital resources under the calculation under the capital resources table;
                (b) Position hedging where it is of a non trading or structural nature;
                (c) Positions of a non trading or structural nature that a firm has deliberately taken in order to hedge against the adverse effect of the exchange rate on the ratio of its capital resources to its capital resources requirements; and
                (d) Transactions to the extent that they fully hedge net future foreign currency income or expenses which are known but not yet accrued.
                Amended: October 2009

              • CA-3.4.6

                Where an Investment firm licensee does not include position hedging in its foreign exchange risk calculation, it shall:

                (a) Notify the CBB before such exclusion and the terms on which the relevant item will be excluded;
                (b) Document its policy in the use of that exclusion in its trading book policy statement.
                Adopted: October 2009

              • CA-3.4.7

                The net overall position is the sum of all the spot and forward positions. (Note that all the positions should be converted into the presentation currency)

                Adopted: October 2009

              • CA-3.4.8

                Spot net position is calculated as the difference between the gross spot assets and gross spot liabilities. Forward net position is calculated as the difference between the gross forward purchases and gross forward sales

                Adopted: October 2009

          • CA-4 Underwriting

            • CA-4.1 General Requirements

              • CA-4.1.1

                In assessing the financial ability of a Category 1 investment firm licensee to underwrite transactions, the CBB will consider, amongst other factors, the licensee's capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Any underwriting activities require the prior approval of the CBB's Capital Market Supervision Directorate and are subject to Module OFS (Offering of Securities) of Volume 6 of the CBB Rulebook.

                Added: October 2014

        • BC Business Conduct

          • BC-A Introduction

            • BC-A.1 Purpose

              • Executive Summary

                • BC-A.1.1

                  This Module contains requirements that have to be met by investment firm licensees with regards to their dealings with clients.

                • BC-A.1.2

                  The Rules contained in this Module aim to ensure that investment firm licensees deal with their clients in a fair and open manner, and address their clients' information needs.

                  Amended: January 2007

                • BC-A.1.3

                  The Rules build upon several of the Principles of Business (see Module PB (Principles of Business)). Principle 1 (Integrity) requires investment firm licensees to observe high standards of integrity and fair dealing, and to be honest and straightforward in their dealings with clients. Principle 3 (Due skill, care and diligence) requires investment firm licensees to act with due skill, care and diligence when acting on behalf of their clients. Principle 7 (Client Interests) requires investment firm licensees to pay due regard to the legitimate interests and information needs of their clients, and to communicate with them in a fair and transparent manner.

                  Amended: January 2007

                • BC-A.1.4

                  The Rules contained in this Module are largely principles-based and focus on desired outputs rather than on prescribing detailed processes. This gives investment firm licensees flexibility in how to implement the basic standards prescribed in this Module.

                  Amended: January 2007

              • Legal Basis

                • BC-A.1.5

                  This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) on business conduct by investment firm licensees, 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 investment firm licensees.

                  Amended: January 2011
                  Adopted: January 2007

                • BC-A.1.6

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

                  Adopted: January 2007

            • BC-A.2 Module History

              • Evolution of the Module

                • BC-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. 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.

                  Amended: January 2007

                • BC-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Adopted: January 2007

                • BC-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  BC-A.1 07/2007 New Rule BC-A.1.5 introduced, categorising this Module as a Directive.
                  BC-2.8.14 and 2.12.2(k) 04/2008 Clarified the record retention period to be in line with Article 60 of the CBB Law.
                  BC-A.1.3 07/2008 Corrected reference to read investment firm licensee.
                  BC-2.2 07/2008 Added reference and definition of accredited investor and expert investor to client classification.
                  BC-2.2 10/2009 Updated client classification and definitions.
                  BC-2.7 10/2009 Corrected to read accredited investors.
                  BC-2.8.6 07/2010 Paragraph amended.
                  BC-2.9.1 and BC-2.9.2 07/2010 Updated to include requirements regarding complaints.
                  BC-2.11.1 07/2010 Updated to be in line with Article 117 of the CBB Law.
                  BC-A.1.6 01/2011 Clarified legal basis.
                  BC-2.3.15 01/2001 Cross reference added to Section GR-2.2
                  BC-B.1.3 10/2011 Updated scope of application to reflect new Chapter BC-3.
                  BC-2.9 and BC-3 10/2011 Updated consumer complaints Section in line with results of consultation.
                  BC-3.2 and BC-3.3 01/2012 Minor corrections to correct typos and clarify language.
                  BC-3.3.9 01/2012 Deleted Paragraph as it repeats what is in Paragraph BC-3.3.7.
                  BC-3.1.3A 07/2012 Added guidance on the appointment of the customer complaints officer.
                  BC-2.7.14 and BC-2.7.16 07/2013 Clarified Rules on allocations.
                  BC-3.7 07/2013 Additional details provided on reporting of complaints.
                  BC-1.1.4 10/2013 Clarified language.
                  BC-2.3.15 and BC-2.3.17 10/2013 Clarified the application of these two Paragraphs to the employees of the investment firm licensee.
                  BC-2.10.2, BC-2.10.9 and BC-2.10.10 07/2015 Removed reference to corporate finance to be in line with Paragraph AU-1.4.43.
                  BC-2.4.11 10/2017 Additional requirement on signed client agreement.
                  BC-2.13 01/2019 Added a new Section on Brokerage Fees.

              • Superseded Requirements

                • BC-A.2.4

                  This Module supersedes the following provisions contained in circulars or other regulatory requirements:

                  Document Ref. Date of Issue Module Ref. Document Subject
                  OG/274/95 28 Aug 1995   Provision of investment and other financial services
                  BC/15/98 6 Sept 1998   Code of Conduct for Investment advisory companies
                  BC/83/96 19 May 1996   Minimum requirements for Terms and Conditions standard form
                  BC/73/96 1 May 1996   Promotional Schemes

                • BC-A.2.5

                  Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

          • BC-B Scope of Application

            • BC-B.1 License Categories and Overseas Offices

              • License Categories

                • BC-B.1.1

                  This Module applies to all categories of investment firm licensees (i.e. categories 1, 2 and 3) with regards to regulated investment services undertaken by them.

              • Client Categories

                • BC-B.1.2

                  This Module provides for three categories of clients, and applies different levels of protection to each, depending on their level of sophistication.

                • BC-B.1.3

                  The scope of application of this Module with regards to client categories is as follows:

                  Section Subject Matter Client Category
                  BC-2.1 Overarching Principles All categories.
                  BC-2.2 Client Classification All categories.
                  BC-2.3 Marketing and Promotion All categories; BC-2.3.18 applies to retail clients only.
                  BC-2.4 Accepting Clients Retail clients only.
                  BC-2.5 Suitability Retail clients only.
                  BC-2.6 Disclosure of Information All categories; BC-2.6.5 to BC-2.6.12 apply to retail clients only.
                  BC-2.7 Dealing and Managing All categories; various Rules apply to retail clients only.
                  BC-2.8 Reporting to Clients All categories.
                  BC-2.9 Complaints [Deleted in October 2011]
                  BC-2.10 Conflicts of Interest All categories.
                  BC-2.11 Confidentiality All categories.
                  BC-2.12 Appendix All categories; various Paragraphs apply to retail clients only.
                  BC-3 Customer Complaints Procedures All categories
                  Amended: October 2011

              • Overseas Branches and Subsidiaries

                • BC-B.1.4

                  Investment firm licensees must ensure that their branches and subsidiaries operating in foreign jurisdictions comply, at a minimum, with local conduct of business standards and regulatory requirements (where applicable).

                • BC-B.1.5

                  Where conduct of business standards applied by overseas branches and subsidiaries of an investment firm licensee fall below the standards set out in this Module, the investment firm licensee must notify the CBB of the fact.

                  Amended: January 2007

                • BC-B.1.6

                  CBB encourages its investment firm licensees to apply — with respect to its overseas branches and subsidiaries — conduct of business standards at least equivalent to those set out in this Module. Where this is not the case, then CBB will consider any potential risk to the investment firm licensee that may arise through adverse reputational or other consequences.

                  Amended: January 2007

          • BC-1 Base Requirements

            • BC-1.1 General Rules

              • BC-1.1.1

                This Module applies to the regulated investment services of all investment firm licensees.

              • BC-1.1.2

                This Module aims to encourage high standards of business conduct, which are broadly applicable to all investment firm licensees, all types of regulated investment services, and all types of clients. The CBB, nevertheless, recognises that clients' level of sophistication and understanding of risks underlying financial instruments vary. Accordingly, the level of safeguards provided for in the business conduct requirements for retail clients, for instance, are different from those for professional clients.

                Amended: January 2007

              • BC-1.1.3

                Investment firm licensees must comply with the Investment Business Code of Practice ('the Code') throughout the lifetime of their relationship with a client.

              • BC-1.1.4

                Investment firm licensees must take responsibility for compliance with the Code when carrying out regulated investment services. Investment firm licensees must put in place appropriate measures across all their business operations and distribution channels to ensure compliance with the Code.

                Amended: October 2013

              • BC-1.1.5

                The Investment Business Code of Practice comprises a number of overarching principles of business conduct, with respect to the conduct of regulated investment services by investment firm licensees; these cover the various stages of the life of a client relationship.

                Amended: January 2007

              • BC-1.1.6

                Investment firm licensees must maintain adequate records to demonstrate compliance with the Code.

              • BC-1.1.7

                The Code focuses on desired outcomes, rather than prescribing detailed measures to achieve those outcomes.

              • BC-1.1.8

                The CBB will monitor compliance with the Code and business conduct standards. If required, the CBB may develop more detailed rules and guidance to supplement the existing Code.

                Amended: January 2007

          • BC-2 The Investment Business Code of Practice

            • BC-2.1 Overarching Principles

              • BC-2.1.1

                In the course of regulated investment services, licensees must:

                (a) Act with due skill, care and diligence in all dealings with clients;
                (b) Act fairly and reasonably in all dealings with clients;
                (c) Identify clients' specific requirements in relation to the products and services about which they are enquiring;
                (d) Ensure that any advice to clients is aimed at the clients' interests and based on adequate standards of research and analysis;
                (e) Provide sufficient information to enable clients to make informed decisions when purchasing investment products and services offered to them;
                (f) Provide sufficient and timely documentation to clients to confirm that their investment arrangements are in place and provide all necessary information about their products, rights and responsibilities;
                (g) Maintain fair treatment of clients through the lifetime of the client relationships, and ensure that clients are kept informed of important events;
                (h) Ensure complaints from clients are dealt with fairly and promptly;
                (i) Ensure that all information provided to clients is clear, fair and not misleading, and appropriate to clients' information needs; and
                (j) Take appropriate measures to safeguard any money and property handled on behalf of clients and maintain confidentiality of client information.
                Amended: January 2007

            • BC-2.2 Client Classification

              • BC-2.2.1

                An investment firm licensee must classify the persons with or for whom it intends to carry on regulated investment services, in accordance with the requirements in this section, and communicate its classification to the person concerned.

              • BC-2.2.2

                The purpose of the classification is to ensure that an investment firm licensee's clients are appropriately categorised so that regulatory protections are focused on those classes of client that need them most.

              • BC-2.2.3

                Before conducting regulated investment services with or for any client, an investment firm licensee must take reasonable steps to obtain appropriate information to establish whether that client is a retail client, expert investor or accredited investor.

                Amended: October 2009
                Amended: July 2008

              • BC-2.2.4

                The treatment of an investment firm licensee's clients must be in accordance with the classification it has established for the purpose of Rule BC-2.2.3.

              • BC-2.2.5

                Where specific rules do not exist for a particular class of clients, the CBB requires appropriate treatment in accordance with the overarching principles set forth in the Code.

                Amended: January 2007

              • BC-2.2.6

                Entities classified as expert investors or accredited investors under Rules BC-2.2.9 and BC-2.2.10 may request alternative treatment, in which case investment firm licensees must agree to treat them as retail clients.

                Amended: October 2009
                Amended: January 2007

              • BC-2.2.7 [Deleted]

                Deleted: October 2009

              • BC-2.2.7

                A retail client, as defined in Rule BC-2.2.8, may voluntarily elect to be treated as an expert investor, in which case the investment firm licensee must obtain a signed declaration to that effect prior to any provision of regulated investment services and must satisfy itself that the client qualifies as an expert investor.

                Amended: October 2009

              • Professional Client

                • BC-2.2.8 [Deleted]

                  Deleted: October 2009

                • BC-2.2.8

                  For the purposes of Rule BC-2.2.3 a retail client means a client who is not classified as an expert investor or an accredited investor under Rules BC-2.2.9 and BC-2.2.10.

                  Amended: October 2009

                • BC-2.2.9 [Deleted]

                  Deleted: October 2009

              • Expert Investor

                • BC-2.2.9

                  Expert investors are:

                  (a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 100,000, excluding that person's principal place of residence;
                  (b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 100,000; or
                  (c) Governments, supranational organisations, central banks or other national monetary authorities, local authorities and state organisations.
                  Amended: October 2009
                  Added: July 2008

              • Accredited Investor

                • BC-2.2.10

                  Accredited investors are:

                  (a) Individuals who have a minimum net worth (or joint net worth with their spouse) of USD 1,000,000, excluding that person's principal place of residence;
                  (b) Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 1,000,000; or
                  (c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).
                  Amended: October 2009
                  Added: July 2008

              • Records

                • BC-2.2.11

                  An investment firm licensee must make a record of the classification established for each client, including sufficient information to support such classification.

                  Amended: October 2009

            • BC-2.3 Marketing and Promotion

              • BC-2.3.1

                Investment firm licensees must ensure that all advertising and promotional material that is sent to any class of client is fair, clear and not misleading.

                Amended: January 2007

              • BC-2.3.2

                With respect to retail clients, in ensuring that the description of the product or the service in the promotional material is fair, clear and not misleading, the investment firm licensee should, among other precautionary measures, ensure that:

                a) The purpose, and to the extent practicable, the content, of the information or communication are likely to be understood by the average member of the group to whom the communication is addressed;
                b) Key items contained in the information are given due prominence;
                c) The method of presentation in the information does not disguise, diminish, or obscure important risks, warnings or information; and
                d) The communication does not omit information that is material to ensure it is fair, clear and not misleading.
                Amended: January 2007

              • BC-2.3.3

                In ensuring that the description of the product or the service in the promotional material is fair, the investment firm licensee should avoid exaggerating the potential benefits of the investment service or financial instrument in any communication with a retail client or potential retail client.

              • BC-2.3.4

                In ensuring that the description of the product or the service in relation to promotional material directed at retail clients is adequate, the investment firm licensee should ensure that the promotional material contains a balanced description of the main characteristics of the financial instrument and/or service to which it relates, including the nature of the financial commitment and risks involved; whether or not the financial instruments involved are illiquid, and traded in a recognised exchange or market; the existence or absence of any right of withdrawal or cancellation and, where such a right exists, its duration and the conditions for exercising it, including information on any amount that the retail client may be required to pay to exercise that right; and if the communication relates to a financial instrument or service of a person other than the investment firm licensee, the name of the person.

              • BC-2.3.5

                Investment firm licensees must ensure that the accuracy of all material statements of fact in promotional materials is supported by adequate evidence.

              • BC-2.3.6

                Investment firm licensees must not, in any form of communication with an individual client or any class of client, attempt to limit or avoid any duty or liability it may have to that individual client or class of client in relation to regulated investment services.

              • BC-2.3.7

                Investment firm licensees that underwrite or market public offerings must ensure that their promotional material complies with the relevant capital markets disclosure standards of the CBB.

                Amended: January 2007

              • BC-2.3.8

                Capital markets disclosure standards are currently contained in the Disclosure Standards Regulation of 3 December 2003.

              • Content of Promotions

                • BC-2.3.9

                  Before an investment firm licensee communicates any promotional material to a client or a potential client it must ensure the promotional material at the very least contains the information laid out in Paragraph BC-2.12.1.

                • BC-2.3.10

                  Investment firm licensees must not make use of the name of the CBB in any promotion in such a way that would indicate endorsement or approval of its products or services.

                  Amended: January 2007

              • Records

                • BC-2.3.11

                  Investment firm licensees must maintain a record of all promotional materials issued by them or on their behalf.

              • Real Time Promotions

                • BC-2.3.12

                  Investment firm licensees must not make a real time promotion unless the client has been notified of the fact in advance and agreed to receive real time promotion.

                  Amended: January 2007

                • BC-2.3.13

                  For the purposes of Paragraph BC-2.3.12, a real time promotion is a promotion made in the course of a personal visit, telephone conversation or other interactive dialogue.

                • BC-2.3.14

                  Consent to receive real time promotions could be, for instance, at the time of the initial client profiling, by means of signing a form clearly indicating such consent.

                • BC-2.3.15

                  An employee of the investment firm licensee must, on making contact for the first time with a client, and again at any time when asked to do so by the client:

                  (a) Identify himself as being an employee of the investment firm licensee;
                  (b) State the name of the investment firm licensee; and
                  (c) Present the client with a business card on meeting that client, unless he has given him such a card at a previous meeting. The business card must include the information specified in Section GR-2.2.
                  Amended: October 2013
                  Amended: January 2011
                  January 2007

                • BC-2.3.16

                  For the purposes of Rule BC-2.3.15(c), the statement on the business card should make clear the authorised status of the investment firm licensee; however it should not lead the client to believe that the product being offered has been approved by the CBB.

                  Amended: January 2007

                • BC-2.3.17

                  In oral communications with a retail client, whether in person or by telephone, the employee of the investment firm licensee must:

                  (a) State the genuine purpose of the call at the commencement of the conversation;
                  (b) Ascertain whether or not the client wishes him to proceed with the conversation if the time of the conversation was not previously agreed by the client;
                  (c) Explain clearly the financial instruments or other services which he is authorised to arrange;
                  (d) Recognise and respect the right of the client to terminate the call at any time; and
                  (e) If he requests another appointment and the client refuses, shall accept that refusal courteously and in such a manner as to cause no embarrassment to the client.
                  Amended: October 2013
                  Amended: October 2011
                  Amended: January 2007

              • Records

                • BC-2.3.18

                  Investment firm licensees must keep sufficient records of real time promotions made by them, or on their behalf by other persons, for CBB's supervision purposes.

                  Amended: January 2007

                • BC-2.3.19

                  These records should include evidence that clients have been notified in advance and agreed to receive real time promotions, as required under Rule BC-2.3.12.

                  Amended: January 2007

            • BC-2.4 Accepting Clients

              • Applicability

                • BC-2.4.1

                  This section applies to retail clients only.

              • Terms of Business

                • BC-2.4.2

                  Investment firm licensees must provide their retail clients with their terms of business, setting out the basis on which the regulated investment services are to be conducted.

                • BC-2.4.3

                  The terms of business in relation to providing regulated investment services to a retail client must take the form of a client agreement.

                • BC-2.4.4

                  The terms of business must include the rights and obligations of parties to the agreement, as well as other terms relevant to the regulated investment services. The terms of business must include, but are not limited to, the items included in Paragraph BC-2.12.2.

                • BC-2.4.5

                  An application form in relation to regulated investment services will be deemed to be a client agreement, provided the form includes the principal terms and conditions of the service, such that the client is provided sufficient information to allow him to understand the basis on which the service is to be conducted.

                  Amended: January 2007

                • BC-2.4.6

                  The client agreement must be provided in good time prior to providing the regulated investment service, and it must set out or refer to, among other matters, the rights and obligations of the parties to the agreement, and the terms on which the service is to be conducted.

                • BC-2.4.7

                  For the purposes of Rule BC-2.4.6, "good time" should be taken to mean sufficient time to enable the client to consider properly the service or financial instrument on offer before he is bound.

              • Client Understanding and Acknowledgement

                • BC-2.4.8

                  Investment firm licensees must not enter into a client agreement unless they have taken reasonable care to ensure that their retail client has had a proper opportunity to consider the terms.

                • BC-2.4.9

                  Investment firm licensees must obtain their retail client's consent to the terms of the client agreement as evidenced by a signature or an equivalent mechanism.

                • BC-2.4.10

                  The equivalent mechanism refers to instances where a client may have signed a mandate letter or other document accompanying the terms of the client agreement.

                  Amended: January 2007

                • BC-2.4.11

                  The client agreement must contain the signature of both parties to the agreement. If the agreement is signed by only the client, copies of the signed agreement must be provided by the investment firm licensee to the client. A copy of the signed client agreement must be provided by the Investment firm licensee to the client.

                  Amended: October 2017

              • Records

                • BC-2.4.12

                  Investment firm licensees must keep sufficient records of client agreements and any documents referred to in the client agreement as soon as the agreement comes into force, for CBB's supervision purposes.

                  Amended: January 2007

                • BC-2.4.13

                  Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).

            • BC-2.5 Suitability

              • Applicability

                • BC-2.5.1

                  This section applies to retail clients only.

              • Information and Communication

                • BC-2.5.2

                  Investment firm licensees must seek information from their retail clients (and potential retail clients) about their needs, circumstances and investment objectives (including their risk appetite), relevant to the services to be provided.

                  Amended: January 2007

                • BC-2.5.3

                  For the purposes of Rule BC-2.5.2, the investment firm licensee, when providing the regulated investment services, should ask the client or potential client to provide information regarding his knowledge and experience in the investment field relevant to the specific type of financial instrument or service offered or demanded so as to enable the licensee to assess whether the financial instrument or service is appropriate to the client. The evaluation of the client's needs, circumstances and investment objectives (including risk appetite) can be done through a structured questionnaire.

                • BC-2.5.4

                  For the purposes of satisfying the requirement under Rule BC-2.5.2, investment firm licensees must ensure that the information and facts they hold about their clients are accurate, complete and up to date.

                • BC-2.5.5

                  Where an investment firm licensee is managing financial instruments for a client, it must assess whether the client's portfolio or account remains suitable over the lifetime of the client relationship and advise the client if it is no longer suitable.

                • BC-2.5.6

                  Where an investment firm licensee has pooled a client's assets with those of others, with a view to taking common discretionary management decisions, the investment firm licensee must take reasonable steps to ensure that the transaction is suitable for the related clients having regard to their stated investment objectives.

              • Records

                • BC-2.5.7

                  Investment firm licensees must keep a record of each recommendation made to retail clients, and be able to demonstrate to the CBB compliance with this Section.

                  Amended: January 2007

            • BC-2.6 Disclosure of Information

              • Applicability

                • BC-2.6.1

                  This section applies to investment firm licensees in relation to their dealings with all categories of clients, except when stated otherwise.

              • Initial Disclosure Requirement

                • BC-2.6.2

                  Investment firm licensees must provide (with respect to regulated investment services), comprehensible information to clients or potential clients on:

                  a) Itself and the types of services that it can provide;
                  b) Whether it is acting as agent or principal;
                  c) Fees, costs and associated charges such as:
                  i. The basis or amount of its charges, remuneration and commission for conducting regulated investment services and
                  ii. The nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to that regulated investment service;
                  d) Financial instruments and proposed strategies and appropriate guidance on and warnings of the risks associated with those financial instruments and strategies; and
                  e) Information about methods of redress.
                  Amended: January 2007

                • BC-2.6.3

                  The purpose of BC-2.6.2 is to ensure that clients are reasonably able to understand the nature and risks of the investment service and type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. This information may be provided in standard format.

              • Risks

                • BC-2.6.4

                  Investment firm licensees must disclose adequate information to all classes of clients about risks underlying the financial instrument that are not readily apparent and which relate to the regulated investment service being provided.

                • BC-2.6.5

                  Without prejudice to the scope of the requirement under Rule BC-2.6.2(c), investment firm licensees must provide retail clients with appropriate guidance on, and warnings of, relevant risks when providing regulated investment services, in relation to:

                  a) Transactions in illiquid financial instruments;
                  b) Leveraged transactions, including asset portfolios or collective investment schemes that have embedded leverage;
                  c) Financial instruments subject to high volatility in normal market conditions;
                  d) Securities repurchase agreements or securities lending agreements;
                  e) Transactions which involve credit, margin payments, or deposit of collateral;
                  f) Transactions involving material foreign exchange risk
                  g) Interests in real estate; and/or
                  h) Islamic financial instruments.
                  Amended: January 2007

                • BC-2.6.6

                  In relation to transactions involving warrants or derivatives, investment firm licensees must provide retail clients with a written statement that includes explanations of their characteristics, in particular their leverage effect, liquidity and price volatility.

                • BC-2.6.7

                  To satisfy Rule BC-2.6.6, with respect to warrants, investment firm licensees should provide retail clients with a statement that includes, at a minimum, the information contained in Paragraph BC-2.12.3.

                • BC-2.6.8

                  To satisfy Rule BC-2.6.6, with respect to futures contracts, investment firm licensees should provide retail clients with a statement that includes, at a minimum, the information contained in Paragraph BC-2.12.4.

                • BC-2.6.9

                  To satisfy Rule BC-2.6.6, with respect to option transactions, investment firm licensees should provide retail clients with a statement that includes, at a minimum, the information contained in Paragraphs BC-2.12.5 and BC-2.12.6.

                • BC-2.6.10

                  In relation to a transaction in a financial instrument that is not readily realisable, investment firm licensees must:

                  (a) Warn the retail client that there is a restricted market for such financial instruments, and that it may therefore be difficult to deal in the financial instrument or to obtain reliable information about its value; and
                  (b) Disclose any position knowingly held by the investment firm licensee or any of its associates in the financial instrument or in a related financial instrument.
                  Amended: January 2007

                • BC-2.6.11

                  The risk warning given to a retail client or potential retail client must be given due prominence in all related materials and must not be concealed or masked in any way by the wording, design or format of the information provided.

                • BC-2.6.12

                  Risk warnings provided to a retail client or potential retail client about warrants or derivatives must make clear that the instrument can be subject to sudden and sharp falls in value. Where the retail client may not only lose his entire investment but may also be required to pay more later, he must also be warned about this fact and the possible obligation to provide extra funding.

              • Cancellation and Withdrawals

                • BC-2.6.13

                  Investment firm licensees must disclose in their terms of business the existence or absence of a right to cancel as per the provisions of Paragraph BC-2.4.2.

                • BC-2.6.14

                  Investment firm licensees must pay due regard to the interests of their clients and treat them fairly.

              • Records

                • BC-2.6.15

                  Investment firm licensees must keep a record of statements issued in compliance with Rule BC-2.6.6, and of other information or recommendations provided to their clients, and be able to demonstrate to the CBB compliance with this Section.

                  Amended: January 2007

            • BC-2.7 Dealing and Managing

              • BC-2.7.1

                Investment firm licensees must apply the requirements contained in this Section to all client categories.

              • Best and Timely Execution

                • BC-2.7.2

                  Investment firm licensees must take all reasonable steps to obtain, when executing orders, the best possible result for clients taking into account price, costs, speed, likelihood of execution and settlement, and any other consideration relevant to the execution of the order.

                • BC-2.7.3

                  Investment firm licensees must establish and implement effective arrangements for complying with Rule BC-2.7.2:

                  a) Execution policies for each class of financial instrument;
                  b) Maintenance and disclosure to clients of information regarding execution venues and arrangements for disclosure to clients if orders are to be executed outside regulated markets;
                  c) Monitoring of effectiveness of the order execution arrangements and execution policies in order to identify and, where appropriate, correct any deficiencies; and
                  d) Maintenance of audit trails to demonstrate to their clients that orders were executed in accordance with the relevant execution policy.
                  Amended: January 2007

                • BC-2.7.4

                  Investment firm licensees are not required to provide best execution where they have agreed with the client in writing that they will not provide best execution.

                • BC-2.7.5

                  In determining whether an investment firm licensee has taken reasonable care to provide the best overall price for a client in accordance with Rules BC-2.7.2 to BC-2.7.4, the CBB will take into account whether an investment firm licensee has:

                  (a) Executed orders promptly and sequentially;
                  (b) Discounted any fees and charges previously disclosed to the client;
                  (c) Disclosed the price at which an order is executed; and
                  (d) Taken into account the available range of price sources for the execution of its clients' transactions. In the case where the investment firm licensee has access to prices of different regulated financial markets or alternative trading systems, it must execute the transaction at the best overall price available having considered other relevant factors.
                  Amended: January 2007

                • BC-2.7.6

                  Investment firm licensees may only postpone the execution of a transaction if it is in the best interests of the client, and the prior consent of the client has been given, or when circumstances are beyond its control. The investment firm licensee must maintain a record of all postponements together with the reasons for the postponement.

                  Amended: January 2007

                • BC-2.7.7

                  Factors relevant to whether the postponement of an existing client order may be in the best interests of the client include where:

                  (a) The client order is received outside of normal trading hours;
                  (b) A foreseeable improvement in the level of liquidity in the financial instrument is likely to enhance the terms on which the investment firm licensee can execute the order; or
                  (c) Executing the order as a series of partial executions over a period of time is likely to improve the terms on which the order as a whole is executed.
                  Amended: January 2007

              • Non-market Price Transactions

                • BC-2.7.8

                  Investment firm licensees must not enter into a non-market price transaction in any capacity, with or for a client, if it has reasonable grounds to suspect that the client is entering into the transaction for an illegal or improper purpose.

                • BC-2.7.9

                  For the purposes of Paragraph BC-2.7.8, a non-market price transaction is one where the price paid by the investment firm licensee, or its client, differs from the prevailing market price. With respect to transactions in financial instruments traded on the Bahrain Stock Exchange, licensees are reminded that in Bahrain the law prohibits off-market transactions.

                  Amended: January 2007

                • BC-2.7.10

                  For the purposes of Paragraph BC-2.7.8, examples of improper purposes for transactions include:

                  (a) The perpetration of a fraud;
                  (b) The disguising or concealment of the nature of a transaction or of profits, losses or cash flows;
                  (c) Transactions which amount to market abuse;
                  (d) High-risk transactions under the Anti Money Laundering Regulations; and
                  (e) "Window dressing", in particular around the year end, to disguise the true financial position of the person concerned.
                  Amended: January 2007

                • BC-2.7.11

                  Rule BC-2.7.8 does not apply to a non-market-price transaction if it is subject to the rules of a recognised investment exchange.

              • Aggregation and Allocation

                • BC-2.7.12

                  Investment firm licensees may only aggregate an order for a client with an order for other clients, or with an order for its own account, where:

                  (a) It is unlikely that the aggregation will disadvantage the clients whose orders have been aggregated; and
                  (b) It has disclosed to each client concerned in writing that it may aggregate orders, where these work to the client's advantage.
                  Amended: January 2007

                • BC-2.7.13

                  If an investment firm licensee has aggregated orders of clients, it must make a record of the intended basis of allocation and the identity of each client before the order is effected.

                • BC-2.7.14

                  Where an allocation takes place, prices must not be marked up or marked down, so that no customer, broker or the investment firm licensee is advantaged over any change.

                  Amended: July 2013

                • BC-2.7.15

                  Investment firm licensees must have written policies on aggregation and allocation which are consistently applied; these must include the policy that will be adopted when only part of the aggregated order has been filled.

                • BC-2.7.16

                  Where an investment firm licensee has aggregated a client order with an order for other clients or with an order for its own account, and part or all of the aggregated order has been filled, it must:

                  (a) Promptly allocate the financial instruments concerned;
                  (b) Allocate the financial instruments in accordance with its stated policy;
                  (c) Ensure the allocation is done fairly and uniformly by not giving undue preference to itself or to any of those for whom it dealt;
                  (d) Give priority to satisfying client orders where the aggregation order combines a client order and an own account order, if the aggregate total of all orders cannot be satisfied, unless it can demonstrate on reasonable grounds that without its own participation it would not have been able to execute those orders on such favourable terms, or at all; and
                  (e) Make and maintain a record of:
                  (i) The date and time of the allocation;
                  (ii) The relevant financial instruments;
                  (iii) The identity of each client concerned;
                  (iv) The amount allocated to each client and to the investment firm licensee; and
                  (v) The price of each financial instrument and allocation.
                  Amended: July 2013
                  Amended: January 2007

              • Excessive Dealing

                • BC-2.7.17

                  Investment firm licensees must not advise any client to transact with a frequency or in amounts that might result in those transactions being deemed excessive in light of historical volumes, market capitalisation, client portfolio size and related factors. This Rule does not apply to clients classified as accredited investors.

                  Amended: October 2009
                  Amended: January 2007

              • Right to Realise a Retail Client's Assets

                • BC-2.7.18

                  Investment firm licensees must not realise a retail client's assets, unless it is legally entitled to do so, and has either:

                  (a) Set out in the terms of business:
                  (i) The action it may take to realise any assets of the retail client;
                  (ii) The circumstances in which it may do so;
                  (iii) The asset (if relevant) or type or class of asset over which it may exercise the right; or
                  (b) Given the retail client written or oral notice of its intention to exercise its rights before it does so.
                  Amended: January 2007

              • Lending to Retail Clients

                • BC-2.7.19

                  Investment firm licensees providing credit pursuant to Paragraph AU-1.4.15, must not lend money or grant credit to a retail client (or arrange for any other person to do so) unless:

                  (a) They have made and recorded an assessment of the retail client's financial standing, based on information disclosed by the retail client;
                  (b) They have taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by the retail client, for the type of investment agreement proposed or which the retail client is likely to enter into; and
                  (c) The retail client has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit.
                  Amended: January 2007

              • Margin Requirements

                • BC-2.7.20

                  Before conducting a transaction with or for a retail client, investment firm licensees must notify the client of:

                  (a) The circumstances in which the client may be required to provide any margin;
                  (b) The form in which the margin may be provided;
                  (c) The steps the investment firm licensee may be required or entitled to take if the client fails to provide the required margin, including:
                  (i) The fact that the client's failure to provide margin may lead to the investment firm licensee closing out his position after a time limit specified by the firm;
                  (ii) The circumstances in which the investment firm licensee will have the right or duty to close out the client's position; and
                  (d) The circumstances, other than failure to provide the required margin, that may lead to the investment firm licensee closing out the client's position without prior reference to him.
                  Amended: January 2007

                • BC-2.7.21

                  Investment firm licensees must close out a retail client's open position if that client has failed to meet a margin call within five business days following the date on which the obligation to meet the call accrues, unless:

                  (i) The investment firm licensee has received confirmation from a relevant third party (such as a clearing firm) that the retail client has given instructions to pay in full; or
                  (ii) The investment firm licensee has taken reasonable care to establish that the delay is owing to circumstances beyond the retail client's control.
                  Amended: January 2007

                • BC-2.7.22

                  For the purposes of Rule BC-2.7.21, investment firm licensees may require the closing of a retail client's open position in less than five business days, for their own risk management purposes.

              • Programme Trading

                • BC-2.7.23

                  Before an investment firm licensee executes a programme trade, it must disclose to its client whether it will be acting as a principal or agent. An investment firm licensee must not subsequently act in a different capacity from that which is disclosed without the prior consent of the client.

                • BC-2.7.24

                  The term "programme trade" describes a single transaction or series of transactions executed for the purpose of acquiring or disposing, for a client, of all or part of a portfolio or a large basket of financial instruments.

                • BC-2.7.25

                  Investment firm licensees must ensure that neither they, nor an associate, execute an own account transaction in any financial instrument included in a programme trade, unless they have notified the client in advance that they may do this, or can otherwise demonstrate that they have provided fair treatment to the client concerned.

              • Records

                • BC-2.7.26

                  Investment firm licensees must keep a record of each step they undertake in relation to each transaction to demonstrate to the CBB compliance with Section BC-2.7.

                  Amended: January 2007

            • BC-2.8 Reporting to Clients

              • BC-2.8.1

                Section BC-2.8 applies to all client categories.

              • Confirmation of Transactions

                • BC-2.8.2

                  When an investment firm licensee executes a transaction in a financial instrument for a client, it must promptly despatch to the client, or a designated agent of the client, a written confirmation note recording the essential details of the transaction and essential information regarding the carrying out of his order.

                • BC-2.8.3

                  For the purposes of Rule BC-2.8.2, the essential details of the transaction and essential information regarding the carrying out of the order include:

                  (a) Execution price;
                  (b) Charges; and
                  (c) Time of execution.
                  Amended: January 2007

                • BC-2.8.4

                  For the purposes of Rule BC-2.8.2, investment firm licensees must include at the very least in their confirmation notes, the information included in Paragraph BC-2.12.7.

              • Periodic Statements

                • BC-2.8.5

                  Investment firm licensees must promptly and at suitable intervals provide their clients with a written statement when they:

                  (a) Undertake the activity of managing financial instruments; or
                  (b) Operate a client's account containing financial instruments.
                  Amended: January 2007

                • BC-2.8.6

                  Investment firm licensees must provide a periodic statement:

                  (a) Monthly, if the client is a retail client and the retail client's portfolio includes derivative transactions in highly volatile classes of financial instruments or leveraged transactions; or
                  (b) At least semi-annually in other cases.
                  Amended: July 2010
                  Amended: January 2007

                • BC-2.8.7

                  Periodic statements, issued in accordance with Rule BC-2.8.5, must contain, at the very least, the information contained in Paragraph BC-2.12.8, as at the end of the period covered.

                • BC-2.8.8

                  Where an investment firm licensee undertakes the activity of managing financial instruments on a discretionary basis, the periodic statements, issued in accordance with Rule BC-2.8.5, must also include at the very least the information included in Paragraph BC-2.12.9.

                • BC-2.8.9

                  In addition to Rules BC-2.8.7 and BC-2.8.8, where the retail client may not only lose his entire investment but may also be required to pay more later, investment firm licensees must also include the additional information included in Paragraph BC-2.12.10.

              • Records

                • BC-2.8.10

                  Investment firm licensees must immediately record the essential elements of all orders that are received.

                • BC-2.8.11

                  For the purposes of Rule BC-2.8.10, essential elements of orders received include the particulars of the client and order, time, price of execution, and number of instruments.

                • BC-2.8.12

                  Investment firm licensees must record the essential elements of all:

                  (a) Orders executed;
                  (b) Transactions executed for their own account;
                  (c) Non-market price transactions entered into by the investment firm licensee; and
                  (d) Orders that have been aggregated with their basis of allocation.
                  Amended: January 2007

                • BC-2.8.13

                  For purposes of Rule BC-2.8.12, investment firm licensees should include, at the very least, the information provided in Paragraph BC-2.12.9.

                • BC-2.8.14

                  Investment firm licensees must make a copy of any confirmation of a transaction or periodic statement provided to a client, and retain it for at least ten years from the date on which it was provided.

                  Amended: April 2008

            • BC-2.9 [This section was deleted in October 2011]

              • BC-2.9.1

                [This paragraph was deleted in October 2011]

                Deleted: October 2011
                Amended: July 2010
                Amended: January 2007

              • BC-2.9.2

                [This paragraph was deleted in October 2011]

                Deleted: October 2011
                Amended: July 2010
                Amended: January 2007

              • BC-2.9.3

                [This paragraph was deleted in October 2011]

                Deleted: October 2011
                Amended: January 2007

              • [Deleted]

                Deleted: October 2011

                • BC-2.9.4

                  [This paragraph was deleted in October 2011]

                  Deleted: October 2011

                • BC-2.9.5

                  [This paragraph was deleted in October 2011]

                  Deleted: October 2011
                  Amended: January 2007

            • BC-2.10 Conflicts of Interest

              • BC-2.10.1

                Investment firm licensees must undertake all reasonable steps to identify conflicts of interest between themselves (or any person directly or indirectly linked to them by control) and their clients, which may arise in the course of providing a regulated investment service.

              • BC-2.10.2

                Where conflicts arise, investment firm licensees must:

                (a) Disclose any material interest or conflict of interest to the client in writing (which may include a disclosure in the investment firm licensee's terms of business) either generally or in relation to a specific transaction, and take reasonable steps to ensure that the client does not object;
                (b) Establish information barriers between activities such as proprietary trading and portfolio management; and
                (c) Produce a written policy of independence, which requires an employee to disregard any conflict of interest or material interest when advising a client or exercising discretion.
                Amended: July 2015
                Amended: January 2007

              • BC-2.10.3

                If an investment firm licensee determines that it is unable to manage a conflict of interest or material interest using one of the methods described in Rule BC-2.10.2 it must decline to act for the client.

              • Personal Account Transactions

                • BC-2.10.4

                  Investment firm licensees must establish and maintain adequate policies and procedures, to ensure that:

                  (a) An employee does not undertake a personal account transaction unless:
                  (i) The investment firm licensee has, in a written notice, drawn to the attention of the employee the conditions upon which the employee may undertake personal account transactions and that the contents of such a notice are made a term of his contract of employment or services;
                  (ii) The investment firm licensee has given its written permission to that employee for that transaction or to transactions generally in financial instruments of that kind; and
                  (iii) The transaction will not conflict with the investment firm licensee's duties to its clients;
                  (b) It receives prompt notification or is otherwise aware of each employee's personal account transactions; and
                  (c) If an employee's personal account transactions are conducted with the investment firm licensee, each employee's account must be clearly identified and distinguishable from other clients' accounts.
                  Amended: January 2007

                • BC-2.10.5

                  The written notice in sub-Paragraph BC-2.10.4(a)(i) must make it explicit that, if an employee is prohibited from undertaking a personal account transaction, he must not, except in the proper course of his employment:

                  (a) Procure another person to enter into such a transaction; or
                  (b) Communicate any information or opinion to another person if he knows, or ought to know, that the person will as a result, enter into such a transaction or procure some other person to do so.
                  Amended: January 2007

                • BC-2.10.6

                  Where an investment firm licensee has taken reasonable steps to determine that an employee will not be involved to any material extent in, or have access to information about, the investment firm licensee's investment business, then the conditions or restrictions on personal account transactions, in Rule BC-2.10.4, need not be applied to that employee.

                • BC-2.10.7

                  Investment firm licensees must establish and maintain procedures and controls so as to ensure that an investment analyst does not undertake a personal account transaction in a financial instrument if the investment analyst is preparing investment research:

                  (a) On that investment or its issuer; or
                  (b) On a related investment, or its issuer;

                  until the investment research is published or made available to the investment firm licensee's clients.

                  Amended: January 2007

              • Investment Research

                • BC-2.10.8

                  Where an investment firm licensee issues investment research, its conflicts policy must specify the types of investment research issued by it. An investment firm licensee that prepares and publishes investment research must have adequate procedures and controls to ensure:

                  (a) The effective supervision of investment analysts by following at the very least the items listed in Paragraph BC-2.12.11;
                  (b) That any actual or potential conflicts of interest are managed in accordance with Rule BC-2.10.1; and
                  (c) That the investment research issued to clients is not biased.
                  Amended: January 2007

                • BC-2.10.9

                  Investment firm licensees that publish investment research must take reasonable steps to ensure that the investment research:

                  (a) Identifies the types of clients for which it is principally intended;
                  (b) Distinguishes fact from opinion or estimates, and includes references to sources of data used;
                  (c) Specifies the date when it was first published;
                  (d) Specifies the period the ratings or recommendations are intended to cover;
                  (e) Contains a clear and unambiguous explanation of the rating or recommendation system used;
                  (f) Includes a price chart or line graph depicting the performance of the financial instrument for the period that the investment firm licensee has assigned a rating or recommendation for that financial instrument, which must also show the dates on which the ratings were revised; and
                  (g) Includes a distribution of the different ratings or recommendations, in percentage terms for all financial instruments in respect of which the investment business licensee publishes investment research.
                  Amended: July 2015
                  Amended: January 2007

                • BC-2.10.10

                  Investment firm licensees must take reasonable steps to ensure that when it publishes investment research, disclosure is made of the following matters:

                  (a) Any financial interest or material interest that the investment analyst or a close relative has, which relates to the financial instrument;
                  (b) Any shareholding by the investment firm licensee or its associate of 1% or more of the total issued share capital of the issuer;
                  (c) Whether the investment firm licensee or its associate acts as corporate broker for the issuer;
                  (d) Any material shareholding by the issuer in the investment firm licensee;
                  (e) [This Subparagraph was deleted in July 2015]; and
                  (f) Whether the investment firm licensee is a market maker in the financial instrument.
                  Amended: July 2015
                  Amended: January 2007

                • BC-2.10.11

                  If an investment firm licensee acts as a manager or co-manager of an initial public offering or a secondary offering it must take reasonable steps to ensure that it does not publish investment research relating to the financial instrument during the period beginning on the day of publication of the listing particulars or a prospectus relating to the offering of that financial instrument and ending on the 30th calendar day after the day on which the financial instrument is admitted to trading.

                • BC-2.10.12

                  Investment firm licensees and their associates must not knowingly execute an own account transaction in a financial instrument, which is the subject of investment research, prepared either by the investment firm licensee or its associate, until the clients for whom the investment research was principally intended have had a reasonable opportunity to act upon it.

                • BC-2.10.13

                  The restriction in Rule BC-2.10.11 does not apply if:

                  (a) The investment firm licensee or its associate is a market maker in the relevant financial instrument;
                  (b) The investment firm licensee or its associate executes an unsolicited transaction for a client; or
                  (c) It is not expected to materially affect the price of the financial instrument.
                  Amended: January 2007

              • Inducements

                • BC-2.10.14

                  Investment firm licensees must have systems and controls, policies and procedures to ensure that neither they, nor any of their employees, offer, give, solicit or accept any inducement which is likely to conflict significantly with any duty that they owe to their clients.

                • BC-2.10.15

                  Investment firm licensees may only accept goods and services under a soft dollar agreement if:

                  (a) The goods and services do not constitute an inducement;
                  (b) The goods and services are reasonably expected to assist in the provision of regulated investment activities to the investment firm licensee's clients;
                  (c) The agreement is a written agreement for the supply of goods or services described in Rule BC-2.10.14, and these goods and services do not take the form of, or include, cash or any other direct financial benefit; and
                  (d) The investment firm licensee makes adequate disclosures regarding the use of soft dollar agreements.
                  Amended: January 2007

                • BC-2.10.16

                  For the purpose of Sub-Paragraph BC-2.10.15(d), Paragraph BC-2.12.12 sets out the minimum disclosure requirements.

                  Amended: January 2007

                • BC-2.10.17

                  A soft dollar agreement is an agreement in any form under which an investment firm licensee receives goods or services in return for investment business put through or in the way of another person.

                • BC-2.10.18

                  Before an investment firm licensee enters into a transaction for a client, either directly or indirectly, with or through the agency of another person, under a soft dollar agreement which the investment firm licensee has, or knows that another member of its group has, with that other person, it must disclose to its client:

                  (a) The existence of the soft dollar agreement; and
                  (b) The investment firm licensee's or its group's policy relating to soft dollar agreements.
                  Amended: January 2007

                • BC-2.10.19

                  If an investment firm licensee has a soft dollar agreement under which the investment firm licensee deals for a client, the investment firm licensee must provide that client with information as set out in Paragraph BC-2.12.12.

            • BC-2.11 Confidentiality

              • BC-2.11.1

                Investment firm licensees must ensure that any information obtained from their clients is not used or disclosed unless:

                (a) They have the client's consent; or
                (b) Disclosure is made in accordance with the licensee's regulatory obligations.
                (c) The licensee is legally obliged to disclose the information in accordance with Article 117 of the CBB Law.
                Amended: July 2010
                Amended: January 2007

              • BC-2.11.2

                Investment firm licensees must take appropriate steps to ensure the security of any information handled or held on behalf of their clients.

            • BC-2.12 Appendix

              • BC-2.12.1

                The minimum information that should be contained in promotional material includes:

                (a) The name of the investment firm licensee communicating the promotional material;
                (b) The investment firm licensee's category of license;
                (c) The investment firm licensee's address;
                (d) A description of the main characteristics of the financial instrument involved or service offered;
                (e) Suitable warning regarding the risks of the financial instrument involved and/or service offered; and
                (f) A clear statement indicating that, if a retail client (as defined in Section BC-2.2) is in any doubt about the suitability of the agreement which is the subject of the promotion, he should consult his own financial adviser, or else the investment firm licensee.
                Amended: January 2007

              • BC-2.12.2

                The minimum information that should be contained in terms of business includes:

                (a) The regulatory status of the investment firm licensee;
                (b) A statement that the licensee is bound by the CBB's regulation and licensing conditions;
                (c) The licensee's name, address, e-mail and telephone number;
                (d) A statement of the products and services provided by the licensee, as permitted by the CBB;
                (e) The total price to be paid by the client to the investment firm licensee for its services, or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the client to verify it;
                (f) Information on any rights the parties may have to terminate the contract early or unilaterally under its terms, including any penalties imposed by the contract in such cases;
                (g) Where appropriate, the client's investment objectives;
                (h) Where appropriate, the extent to which the investment firm licensee will consider the clients' personal circumstances when considering suitability (as required under Section BC-2.5) and the details of such matters that will be taken into account;
                (i) Any conflict of interest disclosure as required by Section BC-2.10;
                (j) Any disclosure of soft dollar agreements under Section BC-2.10;
                (k) A statement that clearly indicates the following:
                (i) The client's right to obtain copies of records relating to his business with the licensee; and
                (ii) The client's record will be kept for 10 years or as otherwise required by Bahrain Law; and
                (l) The name and job title, address and telephone number of the person in the investment firm licensee to whom any complaint should be addressed (in writing) by the client.
                Amended: April 2008
                Amended: January 2007

              • BC-2.12.3

                The minimum information that should be contained in a notice in relation to a warrant includes:

                "A warrant is a time-limited right to subscribe for shares or debentures and is exercisable against the original issuer of the underlying securities. A relatively small movement in the price of the underlying security results in a disproportionately large movement, unfavourable or favourable, in the price of the warrant. The prices of warrants can therefore be volatile. It is essential for anyone who is considering purchasing warrants to understand that the right to subscribe which a warrant confers is invariably limited in time, with the consequence that if the investor fails to exercise this right within the predetermined time-scale then the investment becomes worthless. You should not buy a warrant unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges."

              • BC-2.12.4

                The minimum information that should be contained in a notice in relation to a futures transaction includes:

                "Transactions in futures involve the obligation to make, or to take, delivery of the underlying asset of the contract at a future date, or in some cases to settle the position with cash. They carry a high degree of risk. The 'gearing' or 'leverage' often obtainable in futures trading means that a small deposit or down payment can lead to large losses as well as gains. It also means that a relatively small movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you. Futures transactions have a contingent liability, and you should be aware of the implications of this, in particular the margining requirements."

              • BC-2.12.5

                The minimum information that should be contained in a notice in relation to a purchased option includes:

                "Buying options: buying options involves less risk than selling options because, if the price of the underlying asset moves against you, you can simply allow the option to lapse. The maximum loss is limited to the premium, plus any commission or other transaction charges. However, if you buy a call option on a futures contract and you later exercise the option, you will acquire the future. This will expose you to the risks associated with 'futures' and 'contingent liability investment transactions'."

              • BC-2.12.6

                The minimum information that should be contained in a notice in relation to a written option includes:

                "Writing options: if you write an option, the risk involved is considerably greater than buying options. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received. By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you, however far the market price has moved away from the exercise price. If you already own the underlying asset which you have contracted to sell (when the options will be known as 'covered call options') the risk is reduced. If you do not own the underlying asset ('uncovered call options') the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure."

              • BC-2.12.7

                The minimum information that should be included in a transaction confirmation includes:

                (a) The investment firm licensee's name and address;
                (b) Whether the investment firm licensee executed the transaction as principal or agent;
                (c) The client's name, account number or other identifier;
                (d) Where relevant, a description of the collective investment undertaking or fund, including the amount invested or number of units involved;
                (e) Whether the transaction was a sale or purchase;
                (f) The price or unit price at which the transaction was executed;
                (g) If applicable, a statement that the transaction was executed on an execution only basis;
                (h) The date and time of the transaction or a statement that the time of execution will be provided on request;
                (i) Due date and procedure for settlement of transaction and the bank account;
                (j) The amount the investment firm licensee charges in connection with the transaction, including commission charges and the amount of any mark-up or mark-down, fees, taxes or duties;
                (k) The amount or basis of any charges shared with another person or statement that this will be made available on request;
                (l) For collective investment undertakings, a statement that the price at which the transaction has been executed is on a historic price or forward price basis, as the case may be;
                (m) The regulated market on which the transaction was carried out or the fact that the transaction was undertaken outside a regulated market; and
                (n) Whether the retail client's counterparty was the investment firm licensee itself or any other person in the investment firm group.
                Amended: January 2007

              • BC-2.12.8

                The minimum information that should be included in a periodic statement includes:

                (a) The number, description and value of each financial instrument;
                (b) The amount of cash held;
                (c) The total value of the portfolio; and
                (d) A statement as to the basis on which the value of each financial instrument was calculated.
                Amended: January 2007

              • BC-2.12.9

                The minimum information that should be included in a periodic statement, where the relationship includes portfolio management, includes:

                (a) A statement of which financial instruments, if any, were at the closing date loaned to any third party and which financial instruments, if any, were at that date charged to secure borrowings made on behalf of the portfolio;
                (b) The aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period;
                (c) A management report on the strategy implemented (provided at least yearly);
                (d) Total amount of fees and charges incurred during the period and an indication of their nature;
                (e) Information on any remuneration received from a third party and details of calculation basis;
                (f) Total amount of dividends, interest and other payments received during the period in relation to the clients' portfolio;
                (g) Details of each transaction which have been entered into for the portfolio during the period;
                (h) The aggregate of money and details of all financial instruments transferred into and out of the portfolio during the period;
                (i) The aggregate of any interest payments, including the dates of their application and dividends or other benefits received by the investment firm licensee from the portfolio for its own account during that period;
                (j) A statement of the aggregate charges of the investment firm licensee and its associates; and
                (k) A statement of the amount of any remuneration received by the investment firm licensee or its associates or both from a third party.
                Amended: January 2007

              • BC-2.12.10

                The minimum information that should be included in periodic statements, where the relationship includes contingent liability investment transactions, includes:

                (a) The aggregate of money transferred into and out of the portfolio during the valuation period;
                (b) In relation to each open position in the account at the end of the account period, the unrealised profit or loss to the client (before deducting or adding any commission which would be payable on closing out);
                (c) In relation to each transaction executed during the account period to close out a client's position, the resulting profit or loss to the client after deducting or adding any commission;
                (d) The aggregate of each of the following in, or relating to, the client's portfolio at the close of business on the valuation date:
                (i) Cash;
                (ii) Collateral value;
                (iii) Management fees; and
                (iv) Commissions;
                (e) Option account valuations in respect of each open option contained in the account on the valuation date stating:
                (i) The share, or future or other financial instrument involved;
                (ii) The trade price and date for the opening transaction, unless the valuation statement follows the statement for the period in which the option was opened;
                (iii) The market price of the contract; and
                (iv) The exercise price of the contract.
                Amended: January 2007

              • BC-2.12.11

                The minimum requirements that should be met where the investment firm licensee prepares and publishes investment research include:

                (a) Analysts must not trade in securities or related derivatives ahead of publishing research on the issuer of these securities;
                (b) Analysts must not trade in securities or related derivatives of any issuer that they review in a manner contrary to their existing recommendations except in special circumstances subject to pre-approval by compliance or legal personnel;
                (c) Analysts must not accept inducements by issuers or others with a material interest in the subject matter of investment research; and
                (d) Investment firms must not promise issuers favorable research coverage, specific ratings or specific target prices in return for a future or continued business relationship, service or investment.
                Amended: January 2007

              • BC-2.12.12

                The minimum requirements that should be met where the investment firm licensee has a soft dollar agreement under which it deals with clients includes:

                (a) The percentage paid under soft dollar agreements of the total commission paid by or at the direction of:
                (i) The investment firm licensee; and
                (ii) Any other member of the investment firm licensee's group which is a party to those agreements;
                (b) The value, on a cost price basis, of the goods and services received by the investment firm licensee under soft dollar agreements, expressed as a percentage of the total commission paid by or at the direction of:
                (i) The investment firm licensee; or
                (ii) Other members of the investment firm licensee's group;
                (c) A summary of the nature of the goods and services received by the investment firm licensee under the soft dollar agreements; and
                (d) The total commission paid from the portfolio of that client.
                Amended: January 2007

            • BC-2.13 Brokerage Fees

              • BC-2.13.1

                All investment firm licensees acting as money brokers in Bahrain must comply with the scale of brokerage fees as per Appendix BC-1 in Part B of the CBB Rulebook – Volume 4.

                Added: January 2019

          • BC-3 Customer Complaints Procedures

            • BC-3.1 General Requirements

              • BC-3.1.1

                All investment firm licensees must have appropriate customer complaints handling procedures and systems for effective handling of complaints made by customers by 31st March 2012.

                Adopted: October 2011

              • BC-3.1.2

                Customer complaints procedures must be documented appropriately and their customers must be informed of their availability.

                Adopted: October 2011

              • BC-3.1.3

                All investment firm licensees must appoint a customer complaints officer and publicise his/ her contact details at all branches. The customer complaints officer must be of a senior level at the investment business firm and must be independent of the parties to the complaint to minimize any potential conflict of interest.

                Adopted: October 2011

              • BC-3.1.3A

                The position of customer complaints officer may be combined with that of compliance officer.

                Added: July 2012

              • BC-3.1.4

                In the case of an overseas investment firm licensee, a local complaints officer must be present and must report all complaints to the head office complaints unit.

                Amended: January 2012
                Adopted: October 2011

            • BC-3.2 Documenting Customer Complaints Handling Procedures

              • BC-3.2.1

                In order to make customer complaints handling procedures as transparent and accessible as possible, all investment firm licensees must document their customer complaints handling procedures. These include setting out in writing:

                (a) The procedures and policies for:
                (i) Receiving and acknowledging complaints;
                (ii) Investigating complaints;
                (iii) Responding to complaints within appropriate time limits;
                (iv) Recording information about complaints;
                (v) Identifying recurring system failure issues.
                (b) The types of remedies available for resolving complaints; and
                (c) The organisational reporting structure for the complaints handling function.
                Amended: January 2012
                Adopted: October 2011

              • BC-3.2.2

                Investment firm licensees must provide a copy of the procedures to all relevant staff, so that they may be able to inform customers. A simple and easy-to-use guide to the procedures must also be made available to all customers, on request, and when they want to make a complaint.

                Adopted: October 2011

              • BC-3.2.3

                Investment firm licensees are required to ensure that all investment services related documentation provided to the customer includes a statement informing the customer of the availability of a simple and easy-to-use guide on customer complaints procedures in the event the customer is not satisfied with the services provided.

                Amended: January 2012
                Adopted: October 2011

            • BC-3.3 Principles for Effective Handling of Complaints

              • BC-3.3.1

                Adherence to the following principles is required for effective handling of complaints:

                Adopted: October 2011

              • Visibility

                • BC-3.3.2

                  "How and where to complain" must be well publicised to customers and other interested parties, in both English and Arabic languages.

                  Adopted: October 2011

              • Accessibility

                • BC-3.3.3

                  A complaints handling process must be easily accessible to all customers and must be free of charge.

                  Adopted: October 2011

                • BC-3.3.4

                  While an investment firm licensee's website is considered an acceptable mean for dealing with customer complaints, it should not be the only means available to customers as not all customers have access to the internet.

                  Amended: January 2012
                  Adopted: October 2011

                • BC-3.3.5

                  Process information must be readily accessible and must include flexibility in the method of making complaints.

                  Adopted: October 2011

                • BC-3.3.6

                  Support for customers in interpreting the complaints procedures must be provided, upon request.

                  Adopted: October 2011

                • BC-3.3.7

                  Information and assistance must be available on details of making and resolving a complaint.

                  Adopted: October 2011

                • BC-3.3.8

                  Supporting information must be easy to understand and use.

                  Adopted: October 2011

                • BC-3.3.9

                  [This Paragraph was deleted in January 2012].

                  Deleted: January 2012
                  Adopted: October 2011

              • Responsiveness

                • BC-3.3.10

                  Receipt of complaints must be acknowledged in accordance with Section BC-3.5 "Response to Complaints".

                  Adopted: October 2011

                • BC-3.3.11

                  Complaints must be addressed promptly in accordance with their urgency.

                  Adopted: October 2011

                • BC-3.3.12

                  Customers must be treated with courtesy.

                  Adopted: October 2011

                • BC-3.3.13

                  Customers must be kept informed of the progress of their complaint.

                  Adopted: October 2011

                • BC-3.3.14

                  If a customer is not satisfied with an investment firm licensee's response, the investment firm licensee must advise the customer on how to take the complaint further within the organisation.

                  Adopted: October 2011

                • BC-3.3.15

                  In the event that they are unable to resolve a complaint, investment firm licensees must outline the options that are open to that customer to pursue the matter further, including, where appropriate, referring the matter to the Compliance Directorate at the CBB.

                  Adopted: October 2011

              • Objectivity and Efficiency

                • BC-3.3.16

                  Complaints must be addressed in an equitable, objective, unbiased and efficient manner.

                  Amended: January 2012
                  Adopted: October 2011

                • BC-3.3.17

                  General principles for objectivity in the complaints handling process include:

                  (a) Openness: The process must be clear and well publicised so that both staff and customers can understand.
                  (b) Impartiality:
                  (i) Measures must be taken to protect the person the complaint is made against from bias;
                  (ii) Emphasis must be placed on resolution of the complaint not blame; and
                  (iii) The investigation must be carried out by a person independent of the person complained about.
                  (c) Accessibility:
                  (i) The investment firm licensee must allow customer access to the process at any reasonable point in time; and
                  (ii) A joint response must be made when the complaint affects different participants.
                  (d) Completeness: The complaints officer must find the relevant facts, talk to both sides, establish common ground and verify explanations wherever possible;
                  (e) Equitability: Give equal treatment to all parties.
                  (f) Sensitivity: Each complaint must be treated on its merits and paying due care to individual circumstances.
                  (g) Objectivity for personnel — complaints handling procedures must ensure those complained about are treated fairly which implies:
                  (i) Informing them immediately and completely on complaints about performance;
                  (ii) Giving them an opportunity to explain and providing appropriate support;
                  (iii) Keeping them informed of the progress and result of the complaint investigation;
                  (iv) Full details of the complaint are given to those the complaint is made against prior to interview; and
                  (v) Personnel must be assured they are supported by the process and should be encouraged to learn from the experience and develop a better understanding of the complaints process.
                  (h) Confidentiality:
                  (i) In addition to customer confidentiality, the process must ensure confidentiality for staff who have a complaint made against them and the details must only be known to those directly concerned;
                  (ii) Customer information must be protected and not disclosed, unless the customer consents otherwise; and
                  (iii) Protect the customer and customer's identity as far as is reasonable to avoid deterring complaints due to fear of inconvenience or discrimination.
                  (i) Objectivity monitoring: Investment firm licensees must monitor responses to customers to ensure objectivity which could include random monitoring of resolved complaints.
                  (j) Charges: The process must be free of charge to customers;
                  (k) Customer Focused Approach:
                  (i) Investment firm licensees must have a customer focused approach;
                  (ii) Investment firm licensees must be open to feedback; and
                  (iii) Investment firm licensees must show commitment to resolving problems.
                  (l) Accountability: Investment firm licensees must ensure accountability for reporting actions and decisions with respect to complaints handling.
                  (m) Continual improvement: Continual improvement of the complaints handling process and the quality of products and services must be a permanent objective of the investment firm licensee.
                  Amended: January 2012
                  Adopted: October 2011

            • BC-3.4 Internal Complaint Handling Procedures

              • BC-3.4.1

                Investment firm licensee's internal complaint handling procedures must provide for:

                (a) The receipt of written complaints;
                (b) The appropriate investigation of complaints;
                (c) An appropriate decision-making process in relation to the response to a customer complaint;
                (d) Notification of the decision to the customer;
                (e) The recording of complaints; and
                (f) How to deal with complaints when a business continuity plan (BCP) is operative.
                Adopted: October 2011

              • BC-3.4.2

                An investment firm licensee's internal complaint handling procedures must be designed to ensure that:

                (a) All complaints are handled fairly, effectively and promptly;
                (b) Recurring systems failures are identified, investigated and remedied;
                (c) The number of unresolved complaints referred to the CBB is minimized;
                (d) The employee responsible for the resolution of complaints has the necessary authority to resolve complaints or has ready access to an employee who has the necessary authority; and
                (e) Relevant employees are aware of the investment firm licensee's internal complaint handling procedures and comply with them and receive training periodically to be kept abreast of changes in procedures.
                Adopted: October 2011

            • BC-3.5 Response to Complaints

              • BC-3.5.1

                An investment firm licensee must acknowledge in writing customer written complaints within 5 working days of receipt.

                Adopted: October 2011

              • BC-3.5.2

                An investment firm licensee must respond in writing to a customer complaint within 4 weeks of receiving the complaint, explaining their position and how they propose to deal with the complaint.

                Adopted: October 2011

              • Redress

                • BC-3.5.3

                  An investment firm licensee should decide and communicate how it proposes (if at all) to provide the customer with redress. Where appropriate, the investment firm licensee must explain the options open to the customer and the procedures necessary to obtain the redress.

                  Adopted: October 2011

                • BC-3.5.4

                  Where an investment firm licensee decides that redress in the form of compensation is appropriate, the investment firm licensee must provide the complainant with fair compensation and must comply with any offer of compensation made by it which the complainant accepts.

                  Adopted: October 2011

                • BC-3.5.5

                  Where an investment firm licensee decides that redress in a form other than compensation is appropriate, it must provide the redress as soon as practicable.

                  Adopted: October 2011

                • BC-3.5.6

                  Should the customer that filed a complaint not be satisfied with the response received as per Paragraph BC-3.5.2, he can forward the complaint to the Compliance Directorate at the CBB within 30 calendar days from the date of receiving the letter from the investment firm licensee.

                  Adopted: October 2011

            • BC-3.6 Records of Complaints

              • BC-3.6.1

                An investment firm licensee must maintain a record of all customers' complaints. The record of each complaint must include:

                (a) The identity of the complainant;
                (b) The substance of the complaint;
                (c) The status of the complaint, including whether resolved or not, and whether redress was provided; and
                (d) All correspondence in relation to the complaint. Such records must be retained by the investment firm licensee for a period of 5 years from the date of receipt of the complaint.
                Adopted: October 2011

            • BC-3.7 Reporting of Complaints

              • BC-3.7.1

                An investment firm licensee must submit to the CBB's Compliance Directorate a quarterly report summarising the following:

                (a) The number of complaints received;
                (b) The substance of the complaints;
                (c) The number of days it took the investment firm licensee to acknowledge and to respond to the complaints; and
                (d) The status of the complaint, including whether resolved or not, and whether redress was provided.
                Adopted: October 2011

              • BC-3.7.2

                The report referred to in Paragraph BC-3.7.1 must be sent electronically to compliance@cbb.gov.bh.

                Added: July 2013

              • BC-3.7.3

                Where no complaints have been received by the licensee within the quarter, a 'nil' report should be submitted to the CBB's Compliance Directorate.

                Added: July 2013

            • BC-3.8 Monitoring and Enforcement

              • BC-3.8.1

                Compliance with these requirements is subject to the ongoing supervision of the CBB as well as being part of any CBB inspection of a licensee. Failure to comply with these requirements is subject to enforcement measures as outlined in Module EN (Enforcement).

                Adopted: October 2011

        • CL Client Assets

          • CL-A Introduction

            • CL-A.1 Purpose

              • Executive Summary

                • CL-A.1.1

                  This Module presents requirements that have to be met by investment firm licensees with regards to safeguarding and administrating financial instruments or when they hold or control assets of clients for which they are responsible.

                • CL-A.1.2

                  The Rules contained in this Module are aimed at ensuring proper protection of client assets to minimise the risk of client assets being used by investment firm licensees without the client's written consent (except to the extent permitted by the Rules) and to restrict the commingling of client assets with investment firm licensee assets. This Module builds upon Principle 6 — Customer Assets (see Module PB (Principles of Business)). Principle 6 requires investment firm licensees to take reasonable care to safeguard the assets of customers for which they are responsible.

                  Amended: January 2007

                • CL-A.1.3

                  The Rules contained in this Module are largely principles-based and focus on desired outputs rather than on prescribing detailed processes. This gives investment firm licensees flexibility in how to implement the basic standards prescribed in this Module.

                  Amended: January 2007

              • Legal Basis

                • CL-A.1.4

                  This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) on client assets, with respect to investment firm licensees, 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 Category 1 investment firms and Category 2 investment firms.

                  Amended: January 2011
                  April 2008
                  Adopted: January 2007

                • CL-A.1.5

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

                  Adopted: January 2007

            • CL-A.2 Module History

              • Evolution of Module

                • CL-A.2.1

                  This Module was first issued in April 2006 by the BMA, as part of the first phase of Volume 4 (Investment Business) to be released. It is dated April 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.

                  Amended: January 2007

                • CL-A.2.2

                  When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 4 was updated in July 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

                  Adopted: January 2007

                • CL-A.2.3

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

                  Module Ref. Change Date Description of Changes
                  CL-A.1 07/2007 New Rule CL-A.1.4 introduced, categorising this Module as a Directive.
                  CL-A.1.4 04/2008 Clarified that this Directive only applies to Category 1 investment firms and Category 2 investment firms.
                  CL-1.1.8 04/2008 Clarified that client bank accounts may only be opened with banks licensed to do business in Bahrain.
                  CL-1.4.1 and 2.6.1 04/2008 Clarified the record retention period to be in line with Article 60 of the CBB Law.
                  Table of Contents and CL-1.5.3 07/2008 Added reference to agreed upon procedures included in Part B of Volume 4 (Investment Business)
                  CL-1.1.1 07/2008 Corrected reference.
                  CL-1.1.20 07/2008 Clarified nature of reconciliation required.
                  CL-1.5.4 07/2008 Reference made to effective date when first auditor report is required.
                  CL-2.3.1 07/2008 Dematerialised safe custody financial instruments now included as a defined term in the Glossary under Part B.
                  CL-A.1.4 01/2011 Clarified legal basis.
                  CL-1.1.4(a) 01/2012 Amended as client asset protection rules not included in Glossary.
                  CL-1.1.2 04/2013 Amended introductory Paragraph of Rule.
                  CL-1.1.4 and CL-1.1.5 04/2013 Rule and Guidance deleted as all assets are subject to client asset protection Rules.
                  CL-1.1.10 01/2016 Clarified Rule.
                  CL-1.5.1 10/2017 Amended Paragraph to clarify that licensees are to formally declare in writing that they do not possess any Client assets.
                  CL-1.5.2 01/2018 Amended paragraph.

              • Superseded Requirements

                • CL-A.2.4

                  This Module does not replace any regulations or circulars in force prior to April 2006.

                  Amended: January 2007

                • CL-A.2.5

                  Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

                  Amended: January 2007

          • CL-B Scope of Application

            • CL-B.1 License Categories

              • CL-B.1.1

                This Module applies to every investment firm licensee that undertakes the activity of safeguarding clients' financial instruments; or holds or controls client assets.

              • CL-B.1.2

                Since Category 1 and Category 2 investment firms only are permitted to undertake the activity specified in Rule CL-B.1.1, the requirements contained in this Module do not apply to Category 3 investment firm licensees.

              • CL-B.1.3

                Client assets comprise money or financial instruments belonging to clients of an investment firm licensee, which are held or controlled by the investment firm licensee in connection with the conduct of regulated investment services.

              • CL-B.1.4

                Client assets are held or controlled by an investment firm licensee on behalf of a client if they are:

                (a) Directly held by the investment firm licensee;
                (b) Held in an account in the name of the investment firm licensee;
                (c) Held by a person, or in an account in the name of a person, controlled by the investment firm licensee; or
                (d) Held in an account with another person, controlled by the investment firm licensee.
                Amended: January 2007

              • CL-B.1.5

                The CBB would consider a person to be controlled by an investment firm licensee if that person is inclined to act in accordance with the instructions of the investment firm licensee.

                Amended: January 2007

              • CL-B.1.6

                The CBB would consider an account to be controlled by an investment firm licensee if that account is operated in accordance with the instructions of the investment firm licensee.

                Amended: January 2007

            • CL-B.2 Overseas Subsidiaries and Branches

              • CL-B.2.1

                Investment firm licensees must ensure that their branches and subsidiaries operating in foreign jurisdictions comply, at a minimum, with local client asset rules (where applicable).

              • CL-B.2.2

                Where client asset rules applied by overseas branches and subsidiaries of an investment firm licensee fall below the standards set out in this Module, the investment firm licensee must notify the CBB of the fact.

                Amended: January 2007

              • CL-B.2.3

                The CBB encourages its investment firm licensees to apply — with respect to its overseas branches and subsidiaries — client asset rules at least equivalent to those set out in this Module. Where this is not the case, then the CBB will consider any potential risk to the investment firm licensee that may arise through adverse reputational or other consequences.

                Amended: January 2007

          • CL-1 Client Asset Protection

            • CL-1.1 Client Asset Protection Rules

              • Segregation of Client Assets

                • CL-1.1.1

                  Except to the extent permitted by these rules (Paragraph CL-1.1.2), an investment firm licensee must hold client assets separate from its own.

                  Amended: July 2008

                • CL-1.1.2

                  An investment firm licensee may manage client's assets on a discretionary basis if:

                  (a) That client has given his express consent in writing;
                  (b) The use of the client assets is restricted to the terms agreed by him; and
                  (c) The document in which that client's consent is requested by the investment firm licensee gives clear information to him on:
                  (i) The obligations and responsibilities of the investment firm licensee and/or of the clients for whose account the investment firm licensee has been allowed to use the client's financial instruments, with respect to the use of the financial instruments (including the terms for the restitution of the financial instruments); and
                  (ii) The risks involved.
                  Amended: April 2013
                  Amended: January 2007

                • CL-1.1.3

                  An investment firm licensee should communicate to its clients in writing, at a minimum, the information specified in Guidance Paragraph CL-6.1.2, regarding client assets held. This information must be reported as soon as practicable, but no later than 10 business days from the initial transaction date. Subsequent statements must be provided in accordance with client reporting requirements under Section CL-1.3.

                • CL-1.1.4

                  [This Paragraph was deleted in April 2013.]

                  Deleted: April 2013

                • CL-1.1.5

                  [This Paragraph was deleted in April 2013.]

                  Deleted: April 2013

              • Client Money

                • CL-1.1.6

                  An investment firm licensee must hold client money in a client bank account.

                • CL-1.1.7

                  For the purposes of CL-1.1.5, a client bank account is an account holding client money of one or more clients in a bank account designated as such in accordance with the terms of agreement with the client/clients.

                • CL-1.1.8

                  Client bank accounts may only be opened with banks licensed to do business in the Kingdom of Bahrain, after being subject to due diligence by the investment firm licensee. Islamic investment firms may only hold client bank accounts with Islamic banks licensed to do business in the Kingdom of Bahrain.

                  Amended: April 2008

                • CL-1.1.9

                  For the purposes of CL-1.1.8, when undertaking due diligence, the investment firm licensee should take reasonable steps to establish that the bank is appropriate considering, among other factors, the following:

                  (a) Whether it is a duly licensed bank in good regulatory standing;
                  (b) The capital adequacy of the bank;
                  (c) The amount of client money to be placed, as a proportion of the bank's capital and deposits; and
                  (d) The credit rating of the bank, if available.
                  Amended: January 2007

              • Transfer of Money to Eligible Third Parties

                • CL-1.1.10

                  An investment firm licensee may only pay, or permit to be paid, client money into an account other than the client bank account if that account is an eligible third party.

                  Amended: January 2016

                • CL-1.1.11

                  Eligible third parties are recognised exchanges, clearing houses and third party intermediaries (such as brokers), that are duly authorised or licensed by the appropriate regulatory oversight body to conduct investment activities.

                • CL-1.1.12

                  An investment firm licensee may allow an eligible third party, such as an exchange, a clearing house or an intermediate broker, to hold or control client money:

                  (a) The investment firm licensee transfers the client money
                  (i) For the purpose of a transaction for a client through or with that eligible third party; or
                  (ii) To meet a client's obligations to provide collateral for a transaction;
                  (b) In the case of a retail client, that client has been notified in writing that the client money may be transferred to the other person.
                  Amended: January 2007

                • CL-1.1.13

                  For the purposes of CL-1.1.10, an investment firm licensee must assess the suitability of an eligible third party before allowing it to hold or control client money. This assessment must include, at a minimum, the information included in Paragraph CL-6.1.1.

                • CL-1.1.14

                  An investment firm licensee must not hold money other than client money in a client bank account unless it is:

                  (a) A minimum sum required to open the account or to keep it open;
                  (b) Money temporarily held in the account in accordance with the mixed remittance rule stated in CL-1.1.16; or
                  (c) Interest credited to the account which exceeds the amount due to clients as interest and which has not yet been withdrawn by the investment firm licensee.
                  Amended: January 2007

                • CL-1.1.15

                  If it is prudent to do so to ensure that client money is protected, an investment firm licensee may pay into a client bank account money of its own, and that money will then become client money for the purposes of the client asset protection rules until the licensee retrieves it.

                • CL-1.1.16

                  If an investment firm licensee receives a mixed remittance (that is part client money and part other money), it must:

                  (a) Pay the full sum into a client bank account; and
                  (b) Pay the money that is not client money out of the client bank account within one business day.
                  Amended: January 2007

                • CL-1.1.17

                  An investment firm licensee should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agencies and over the counter (OTC) counterparties; it should be held in a client bank account.

              • Reconciliation

                • CL-1.1.18

                  An investment firm licensee must ensure that a system is implemented to perform reconciliations of both client bank accounts and eligible third party accounts in which client money is held. These reconciliations must be carried out on a regular basis, sufficient to ensure the accuracy of its records (but at a minimum, on a monthly basis as at the last business day of each calendar month).

                • CL-1.1.19

                  An investment firm licensee must perform the reconciliations required under Rule CL-1.1.18 within 10 business days of the date to which the reconciliation relates.

                  Amended: January 2007

                • CL-1.1.20

                  An investment firm licensee must perform a reconciliation between the individual ledger balances and client bank accounts/third party balances.

                  Amended: July 2008

                • CL-1.1.21

                  In respect of reconciliation, the investment firm licensee must ensure that unresolved differences, shortfalls and excess balances are investigated and, where applicable, corrective action is taken as soon as is practicable.

            • CL-1.2 Stock Lending Rules

              • CL-1.2.1

                An investment firm licensee must not undertake or otherwise engage in stock lending activity with or for a client unless the investment firm licensee has obtained the consent of the CBB and the client.

                Amended: January 2007

              • CL-1.2.2

                If a safe custody investment belonging to a retail client is used for stock lending activity, the investment firm licensee must ensure that:

                (a) Relevant collateral is provided by the borrower in favour of the client;
                (b) The current realisable value of the safe custody financial instrument and of the relevant collateral is monitored daily; and
                (c) The investment firm licensee provides relevant collateral to make up the difference where the current realisable value of the collateral falls below that of the safe custody financial instrument, unless otherwise agreed in writing by the client.
                Amended: January 2007

              • CL-1.2.3

                If safe custody financial instruments of more than one client are held together, none of those safe custody financial instruments may be used for a stock lending activity unless:

                (a) All of those clients have consented to their safe custody financial instrument being used for that activity; or
                (b) The investment firm licensee has adequate systems and procedures in place to ensure that only safe custody financial instruments belonging to clients who have given their consent are used for stock lending activity.
                Amended: January 2007

            • CL-1.3 Client Reporting

              • CL-1.3.1

                An investment firm licensee that holds client assets for a client must send a statement of all client assets held by the investment firm licensee to its client at least once a year or as often as agreed with that client.

              • CL-1.3.2

                The statement of client assets referred to in CL-1.3.1 must:

                (a) Identify any clients' assets which have been provided as collateral;
                (b) Identify any client assets which have been lent; and
                (c) Show any movement of client assets based on either trade date or settlement date clearly and consistently.
                Amended: January 2007

              • CL-1.3.3

                An investment firm may include the information required in CL-1.3.1 in any periodic statement provided by the investment firm licensee to the client, or by other separate documents, as long as all sets of information:

                (a) Are prepared in relation to the same date and period; and
                (b) Are delivered to the client within a reasonable period of one another.
                Amended: January 2007

            • CL-1.4 Record-Keeping

              • CL-1.4.1

                Investment firm licensees must ensure that proper records, sufficient to show and explain the investment firm licensee's transactions and commitments in respect of its client assets, are made and which demonstrate compliance with the provisions of this Module. These records must be retained for a period of a minimum of ten years after they were made, unless otherwise required by law.

                Amended: April 2008

              • CL-1.4.2

                An investment firm licensee that holds client assets must:

                (a) Check its record-keeping and client asset procedures regularly; and
                (b) Subject its record-keeping and client asset procedures to an appropriate independent review.
                Amended: January 2007

              • CL-1.4.3

                Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).

            • CL-1.5 Auditor Reports

              • CL-1.5.1

                Investment firm licensees that hold or control client assets (including where it pools financial instruments held for more than one client) must arrange for their external auditor to report on the licensees' compliance with the requirements contained in this Module. Investment firm licensees Category 1 and Investment firm licensees Category 2 which do not hold or control Client Assets are obligated to confirm the same annually.

                Amended: October 2017
                Amended: July 2008

              • CL-1.5.2

                The report must be in the form agreed by the CBB, and must be submitted to the CBB within three months of the licensee's financial year end.

                Amended: January 2018
                Amended: January 2007

              • CL-1.5.3

                The format of the Auditor's Report is included in Part B of the Rulebook, as part of the Supplementary Information.

                Amended: July 2008
                Amended: January 2007

              • CL-1.5.4

                Investment firm licensees are required to comply with the requirements of Section CL-1.5, effective for the period ending 31 December 2008.

                Added: July 2008

          • CL-2 Custody Services

            • CL-2.1 General Requirements

              • CL-2.1.1

                The rules in this section apply to investment firm licensees that undertake safeguarding of client financial instruments.

              • CL-2.1.2

                An investment firm licensee which holds or controls safe custody financial instruments must have systems and controls in place to:

                (a) Ensure the proper safeguarding of such safe custody financial instruments;
                (b) Ensure that such safe custody financial instruments are identifiable and secure at all times;
                (c) Be able to evidence compliance with the requirements in Section CL-2 to its external auditors and the CBB.
                Amended: January 2007

              • CL-2.1.3

                As part of these protections, the custody rules require an investment firm licensee to take appropriate steps to protect safe custody financial instruments for which it is responsible. These rules are designed primarily to restrict the commingling of client and investment firm licensee assets and minimise the risk of the client's safe custody financial instruments being used by the firm without the client's agreement or contrary to the client's wishes, or being treated as the investment firm licensee's assets in the event of insolvency.

            • CL-2.2 Segregation

              • CL-2.2.1

                An investment firm licensee must segregate safe custody financial instruments from its own financial instruments except to the extent required by law or permitted by this module.

            • CL-2.3 Reconciliation

              • CL-2.3.1

                An investment firm licensee must, as often as is necessary, but at a minimum on a monthly basis, perform a reconciliation of its record of safe custody financial instruments for which it is accountable but which it does not physically hold, with statements obtained from custodians. In the case of dematerialised safe custody financial instruments not held through a custodian, this reconciliation must be performed with statements obtained from the person who maintains the record of legal entitlement.

                Amended: July 2008

              • CL-2.3.2

                An investment firm licensee must, as often as is necessary, but no less than every six months (or twice in a period of twelve months but at least five months apart), carry out:

                (a) A count of all safe custody financial instruments it physically holds on behalf of clients and reconcile the result of that count with its record of safe custody financial instruments that it physically holds on behalf of its clients; and
                (b) A reconciliation between the investment firm licensee's record of client holdings, and the firm's record of the location of safe custody financial instruments.
                Amended: January 2007

              • CL-2.3.3

                Wherever possible, an investment firm licensee should ensure that the reconciliations are carried out by a person (for example an employee of the investment firm licensee) who is independent of the production or maintenance of the records to be reconciled.

            • CL-2.4 Client Statements

              • CL-2.4.1

                Before investment firm licensees provide safe custody services to a client, they must notify the client as to the appropriate terms and conditions which apply to this service. These must cover, at a minimum, the following matters, wherever applicable:

                (a) The registration of the safe custody financial instruments, if these are not registered in the investment firm licensee clients' name;
                (b) The extent of the investment firm licensees' liability in the event of default by a custodian, except that the investment firm licensee must accept the same level of responsibility to its client for any nominee company controlled by the investment firm licensee or its affiliated company as for itself and may not disclaim responsibility for losses arising from the fraud, wilful default or negligence of the firm;
                (c) The circumstances in which the investment firm licensee may realise a safe custody financial instrument held as collateral to meet the client's liabilities;
                (d) The claiming and receiving of dividends, interest payments and other entitlements accruing to the client;
                (e) Dealing with takeovers, other offers or capital reorganisations and exercising voting, conversion and subscription rights;
                (f) Arrangements for the distribution of entitlements to shares and any other benefits arising from corporate events, where client balances have been pooled;
                (g) Arrangements for the provision of information to the client relating to the safe custody financial instruments which the investment firm licensee, or its nominee company, holds on behalf of the client;
                (h) How often a statement of custody assets will be sent to the client and the basis on which the assets shown on the statement are valued;
                (i) Fees and costs for safe custody services to the extent that they are not notified to the client elsewhere; and
                (j) If the firm intends to pool a safe custody financial instrument with that of one or more other clients, notification of its intention and, if the client is a retail client, an explanation of the effects of pooling to that retail client.
                Amended: January 2007

              • CL-2.4.2

                All statements produced by or on behalf of an investment firm licensee must list all safe custody assets held for the client and for which the investment firm licensee is accountable and:

                (a) Identify any safe custody financial instruments registered in the client's own name separately from those registered in any other name;
                (b) Identify any safe custody assets which are being used as collateral or have been pledged to third parties, separately from any custody assets;
                (c) Show the market value of any collateral held, as at the date of the statement;
                (d) For a retail client, base the statement on either trade date or settlement date information for cash balances and safe custody investment and notify the basis to the retail client; and
                (e) Details of movements of each client asset.
                Amended: January 2007

            • CL-2.5 Third Party Custodians

              • CL-2.5.1

                An investment firm licensee must require that if a safe custody financial instrument is recorded in an account with a custodian, the custodian makes it clear in the title of the account that the safe custody financial instrument belongs to one or more clients of the investment firm licensee.

              • CL-2.5.2

                Before an investment firm licensee recommends a third party custodian to a retail client it must undertake an appropriate risk assessment of that custodian.

              • CL-2.5.3

                An investment firm licensee that holds safe custody financial instruments with a custodian or recommends custodians to retail clients, is expected to establish and maintain a system for assessing the appropriateness of its selection of the custodian and to assess the continued appointment of that custodian periodically as often as is reasonable in the relevant market. The investment firm licensee is also expected to make and retain a record of the grounds on which it satisfies itself as to the appropriateness of its selection or, following a periodic assessment, continued appropriateness of the custodian.

              • CL-2.5.4

                In undertaking an appropriate risk assessment of the custodian in accordance with CL-2.5.2, investment firm licensees may take into account any or all of the following:

                (a) The expertise and market reputation of the custodian, and once a safe custody financial instrument has been lodged by the firm with the custodian, the custodian's performance of its services to the investment firm licensee;
                (b) The arrangements for holding and safeguarding financial instruments;
                (c) An appropriate legal opinion as to the protection of custody assets in the event of insolvency of the custodian;
                (d) Current industry standard reports;
                (e) Whether the custodian is regulated and by whom;
                (f) The capital or financial resources of the custodian;
                (g) The credit rating of the custodian; and
                (h) Any other activities undertaken by the custodian and, if relevant, any affiliated company.
                Amended: January 2007

            • CL-2.6 Record-Keeping

              • CL-2.6.1

                An investment firm licensee must ensure that proper records of the custody assets which it holds or receives, or arranges for another to hold or receive, on behalf of the client, are made and retained for a period of ten years after the account is closed.

                Amended: April 2008

              • CL-2.6.2

                For the purpose specified in CL-2.6.1, an investment firm licensee must maintain proper records in relation to a client account; these records must capture at a minimum the following details:

                (a) The name of the account;
                (b) The account number;
                (c) Type of account;
                (d) Type of asset;
                (e) The location of the account;
                (f) Whether the account is currently open or closed;
                (g) Details of assets held and movements in each account; and
                (h) The date of opening and where applicable, closure.
                Amended: January 2007

              • CL-2.6.3

                Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).

          • CL-3 Collateral

            • CL-3.1 General Requirements

              • CL-3.1.1

                An investment firm licensee must take care to establish and maintain appropriate systems and controls when it receives or holds assets as collateral in connection with securing a client obligation to it.

              • CL-3.1.2

                The purpose of this section is to ensure that an appropriate level of protection is provided for those client assets over which a client gives an investment firm licensee the right to use, subject only to an obligation to return equivalent assets to the client upon satisfaction of the client's obligation to the investment firm licensee.

              • CL-3.1.3

                This section does not apply to an investment firm licensee that has only a bare security interest (without rights to hypothecate) in the client asset. In such circumstances, the investment firm licensee should comply with the custody rules or client asset protection rules as appropriate.

              • CL-3.1.4

                For the purpose of this section only, a bare security interest in the client's asset gives an investment firm licensee the right to realise the assets only on a client's default and without the right to use those assets other than in default.

              • CL-3.1.5

                Differing levels of regulatory protection to the assets form the basis of the two different types of arrangement described in CL-3.1.2 and CL-3.1.3. Under the bare security interest arrangement, the asset continues to belong to the client until the investment firm licensee's right to realise that asset crystallises. But under a "right to use arrangement", the client has transferred to the investment firm licensee the legal title and associated rights to the asset, so that when the firm exercises its right to treat the asset as its own, the asset ceases to belong to the client and in effect becomes the investment firm licensee's asset and is no longer in need of the full range of client asset protection rules.

            • CL-3.2 Third Parties

              • CL-3.2.1

                An investment firm licensee may only permit a client's collateral to be held by a third party where:

                (a) It has reasonable grounds to believe that the third party is suitable to hold that collateral; and
                (b) The investment firm licensee is able to demonstrate to the CBB's satisfaction the grounds upon which it considers the third party to be suitable to hold clients' collateral.
                Amended: January 2007

              • CL-3.2.2

                Before an investment firm licensee deposits client assets with a third party it must notify the third party that:

                (a) The collateral does not belong to the investment firm licensee; and
                (b) The third party is not entitled to claim any lien or right of retention or sale over the collateral except to cover the obligations of the client which gave rise to that deposit, pledge, charge or security arrangement or any charges relating to the administration or safekeeping of the collateral.
                Amended: January 2007

            • CL-3.3 Record-Keeping

              • CL-3.3.1

                An investment firm licensee that receives or holds client assets under an arrangement in this Section and which exercises its right to treat the assets as its own must ensure that it maintains adequate records to enable it to meet any future obligations including the return of equivalent assets to the client.

              • CL-3.3.2

                Detailed record-keeping requirements are contained in Module GR (General Requirements) and Module FC (Financial Crime).

              • Client Reports

                • CL-3.3.3

                  An investment firm licensee which holds assets under an arrangement described in this section must (at least every six months or at other intervals as agreed in writing with the client) send to the client a statement listing those assets and their market value as at the date of reporting.

                • CL-3.3.4

                  The statement sent to the client must be prepared and despatched to the client within one calendar month of the date of reporting.

          • CL-4 Mandates

            • CL-4.1 Mandates

              • CL-4.1.1

                This section applies to an investment firm licensee in respect of any written mandate from a client under which the investment firm licensee may control a client's assets or liabilities in the course of, or in connection with, the investment firm licensee's regulated investment services.

              • Systems and Controls

                • CL-4.1.2

                  An investment firm licensee that holds mandates of the sort described in CL-4.1.1 must establish and maintain adequate records and internal controls in respect of its use of the mandates, which should include:

                  (a) An up-to-date list of the mandates and any conditions placed by the client or the investment firm licensee's management on their use;
                  (b) A record of all transactions entered into using the mandates, and internal controls to ensure that they are within the scope of authority of the person and the investment firm licensee entering into the transaction;
                  (c) The details of the procedures for the giving and receiving of instructions under the authority; and
                  (d) Where the investment firm licensee holds a passbook or similar documents belonging to the client, internal controls, for the safeguarding (including against loss, unauthorized destruction, theft, fraud or misuse) of any passbook or similar document belonging to the client held by the investment firm licensee.
                  Amended: January 2007

          • CL-5 Third Party Related Distribution

            • CL-5.1 General Requirements

              • CL-5.1.1

                The third party related distribution rules under CL-5 apply to investment firm licensees that hold client money with a third party who becomes insolvent ("third party related distribution event").

              • CL-5.1.2

                The third party related distribution rules in this Module are subject to any applicable rules of law to the contrary.

            • CL-5.2 Third Party Related Distribution

              • CL-5.2.1

                Upon the insolvency of a third party to which client money has been transferred or is held, the investment firm licensee continues to be accountable to the client in a fiduciary capacity. However, consistent with a fiduciary's responsibility (whether as an agent or trustee) for third parties under law, an investment firm licensee will not be held responsible for a shortfall in client money unless the general laws in the Kingdom of Bahrain or in the relevant jurisdiction requires otherwise, for instance, due to non-compliance with the terms of business in any respect.

              • CL-5.2.2

                To comply with its duties, the investment firm licensee must show proper care:

                (a) In the selection of a third party;
                (b) When monitoring the performance of the third party; and
                (c) When notifying clients in its terms of business the distribution rules applicable in the event of a third party distribution event.
                Amended: January 2007

              • CL-5.2.3

                Following the occurrence of a third party-related distribution event in relation to a designated bank or eligible third party:

                (a) The investment firm licensee must, as soon as is practicable, make and retain a record of each such client's share of the shortfall and must promptly notify the amount of the shortfall to the affected clients (except where the investment firm licensee chooses to make good the shortfall);
                (b) Unless the investment firm licensee chooses to make good any shortfalls in the client money balances held (or which should have been held) in the client bank accounts, or third party accounts held by an investment firm licensee with the relevant designated bank or eligible third party, such shortfalls shall be borne by clients, in proportion to the respective value of their client money balances; and
                (c) Client money received after the third party-related distribution event:
                (i) Must not be transferred to the designated bank or eligible third party which has suffered the third party-related distribution event unless this is on the specific instructions of the client (given after the occurrence of the third party-related distribution event) in order to settle an obligation of that client to that designated bank or eligible third party; and
                (ii) Must, subject to (i), be placed in a separate client bank account that has been opened with a different designated bank after the third party related distribution event has occurred.
                Amended: January 2007

          • CL-6 Appendix

            • CL-6.1 Appendix

              • CL-6.1.1

                The minimum information that should be assessed by an investment firm licensee to determine the suitability of an eligible third party should include but not be limited to the following information:

                (a) The eligible third party's credit rating, capital and financial resources;
                (b) The regulatory and insolvency regimes of the jurisdiction in which the eligible third party is located;
                (c) The eligible third party's reputation;
                (d) Its regulatory status and history; and
                (e) The other members of the eligible third party's group and their activities.
                Amended: January 2007

              • CL-6.1.2

                The minimum information that should be notified by the investment firm licensee to its client in respect of its holdings of that client's assets includes but is not limited to the following:

                (a) The basis and terms governing the way in which the client assets will be held;
                (b) That the client is subject to the protection conferred by the client asset protection rules and as a consequence:
                i. The client assets will be held separately from assets belonging to the investment firm licensee; and
                ii. In the event of an investment firm licensees' insolvency, winding-up or other similar event, the client's assets will be subject to the client asset distribution rules.
                (c) Whether interest is payable to the client and, if so, the terms and frequency of such payments;
                (d) That, notwithstanding that the client assets will benefit from the protections conferred by the client asset protection rules, the client will still be taking unsecured credit risk on any bank or third party with whom the investment firm licensee places the client assets that it holds;
                (e) If applicable, that the client assets may be held in a jurisdiction outside the remit of the CBB and that the market practices, insolvency and legal regimes applicable in that jurisdiction may differ from the regime applicable in the CBB;
                (f) If applicable, that the investment firm licensee holds or intends to hold the client money in a client bank account with a designated bank or in a third party account with an eligible third party which is in the same group as the investment firm licensee and the identity of the designated bank or eligible third party concerned;
                (g) If applicable, details about how any client money arising out of Islamic financial business is to be held; and
                (h) Details of any claims or set offs which the investment firm licensee may have in client assets held on behalf of the client in satisfaction of a default by the client or otherwise, and any rights which the investment firm licensee may have to closeout or liquidate contracts or positions in respect of any of the client assets, without the client's prior instruction or consent.
                Amended: January 2007

        • RM Risk Management

          • Chapter RM-A Introduction

            • RM-A.1 Purpose

              • Executive Summary

                • RM-A.1.1

                  This Module contains requirements relating to the management of risk by investment firm licensees. It expands on certain high level requirements contained in other Modules. In particular, Section AU-2.6 of Module AU (Authorisation) specifies requirements regarding systems and controls that have to be met as a license condition; Principle 10 of the Principles of Business (ref. PB-1.10) requires investment firm licensees to have systems and controls sufficient to manage the level of risk inherent in their business; and Module HC (High-level Controls) specifies various requirements relating to the role and composition of Boards, and related high-level controls.

                  Adopted: July 2007

                • RM-A.1.2

                  This Module obliges investment firm licensees to recognise the range of risks that they face and the need to manage these effectively. Their risk management framework is expected to have the resources and tools to identify, monitor and control all material risks. The adequacy of a licensee's risk management framework is subject to the scale and complexity of its operations, however. In demonstrating compliance with certain Rules, licensees with very simple operational structures and business activities may need to implement less extensive or sophisticated risk management systems, compared to licensees with a complex and/or extensive customer base or operations.

                  Adopted: July 2007

                • RM-A.1.3

                  The requirements contained in this Module apply to Category 1 investment firms and Category 2 investment firms only.

                  Adopted: July 2007

              • Legal Basis

                • RM-A.1.4

                  This Module contains the Central Bank of Bahrain's ('CBB') Directive (as amended from time to time) regarding Risk Management requirements applicable to investment firm licensees, 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').

                  Amended: January 2011
                  Adopted: July 2007

                • RM-A.1.5

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

                  Adopted: July 2007

            • RM-A.2 Module History

              • Evolution of the Module

                • RM-A.2.1

                  This Module was first issued in July 2007, as part of the second phase release of Volume 4's contents. It is dated July 2007. All subsequent changes to this Module are annotated with the end-calendar quarter date in which the change was made: UG-3 provides further details on Rulebook maintenance and version control.

                  Adopted: July 2007

                • RM-A.2.2

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

                  Module Ref. Change Date Description of Changes
                  RM-1.1.11 04/2008 Clarified the requirement for investment firm licensees to have a separate risk management function.
                  RM-7.3.3 04/2008 Clarified that CBB prior approval is required for intra-group outsourcing.
                  RM-7.1.6,
                  7.1.7 and
                  7.1.16
                  07/2008 Clarified that CBB prior approval is required for outsourcing arrangements.
                  RM-B.1.2 10/2009 Amended to reflect applicability of Chapters RM-7 and RM-8.
                  RM-7.1.16 10/2009 Amended to read approved person.
                  RM-7.3.7 10/2009 New Rule added to clarify that licensees may not outsource core business activities, including internal audit, to their group.
                  RM-7.4 10/2009 Updated to reflect CBB's requirements for outsourcing the internal audit function.
                  RM-1.1.10, RM-1.1.11, and RM-1.1.13 07/2010 Updated and amended to include requirements for the risk management function.
                  RM-7.1.7 07/2010 New Rule added regarding outsourcing core business functions or activities to third parties.
                  RM-A.1.4 01/2011 Clarified legal basis.
                  RM-B.2 01/2011 Removed reference in title to affiliates.
                  RM-4.1.8 and RM-4.1.9 07/2012 Replaced reference to "securities" with "financial instruments".
                  RM-7.4.5 10/2012 Corrected typo.
                  RM-7.4.2A 01/2013 New Paragraph added to require that the outsourcing of the internal audit function must be supported by a board resolution or ratified by the audit committee.
                  RM-7.1.9 07/2013 Added cross reference.
                  RM-7.1.9A and RM-7.3.4 07/2013 Made reference to considerable outsourcing.
                  RM-7.4.4 07/2013 Changed Guidance to Rule.
                  RM-1.1.10 to RM-1.1.13 10/2013 Amendments made to allow overseas investment firm licensees to outsource the risk management function to their head office, subject to the CBB's prior written approval.
                  RM-1.1.7 01/2016 Corrected cross reference.
                  RM-1.1.9 01/2016 Aligned risk categories as per Module RM.
                  RM-4.1.17 01/2016 Restructured Subparagraphs to avoid duplication.
                  RM-7.1.9 01/2016 Clarified Guidance.
                  RM-7.1.1 10/2017 Amended Paragraph to allow the utilization of cloud services.
                  RM-7.1.3A 10/2017 Added a new Paragraph on outsourcing requirements.
                  RM-7.1.6 10/2017 Amended Paragraph.
                  RM-7.1.9 10/2017 Amended Paragraph.
                  RM-7.1.11 10/2017 Amended Paragraph.
                  RM-7.1.11A 10/2017 Added a new Paragraph on outsourcing.
                  RM-7.1.13 10/2017 Amended Paragraph.
                  RM-7.1.14 10/2017 Amended Paragraph.
                  RM-7.1.14(f) 10/2017 Added a new sub-Paragraph.
                  RM-7.1.17 10/2017 Amended Paragraph.
                  RM-7.2.4 10/2017 Amended Paragraph.
                  RM-7.2.11 10/2017 Amended Paragraph.
                  RM-7.2.12 10/2017 Amended Paragraph.
                  RM-7.2.18 10/2017 Amended Paragraph.
                  RM-7.2.19 10/2017 Added a new Paragraph on security measures related to cloud services.
                  RM-7.3.3 10/2017 Amended Paragraph.
                  RM-7.3.4 10/2017 Amended Paragraph.
                  RM-9.1 04/2019 Added a new Chapter on Cyber Security Risk.

              • Superseded Requirements

                • RM-A.2.3

                  This Module does not replace any regulations or circulars in force prior to July 2007.

                  Adopted: July 2007

                • RM-A.2.4

                  Further guidance on the implementation and transition to Volume 4 (Investment Business) is given in Module ES (Executive Summary).

                  Adopted: July 2007

          • Chapter RM-B Scope of Application

            • RM-B.1 License Categories

              • RM-B.1.1

                The contents of this Module — unless otherwise stated — apply to Category 1 and Category 2 investment firms only.

                Adopted: July 2007

              • RM-B.1.2

                Category 3 investment firms — unless otherwise stated — are exempted from the requirements of this Module with the exeption of Chapters RM-7 and RM-8.

                Amended: October 2009
                Adopted: July 2007

              • RM-B.1.3

                In respect of Category 3 investment firms, however, the specific requirements contained in Module RM should be considered as good practice, which it may be appropriate to apply. Notwithstanding the exemption from the specific requirements of Module RM, specified in Rule RM-B.1.2, Category 3 investment firms are nonetheless required to maintain adequate systems and controls (see Sections AU-2.6 and PB-1.10).

                Adopted: July 2007

            • RM-B.2 Branches and Subsidiaries

              • Bahraini Investment Firm Licensees

                • RM-B.2.1

                  Bahraini investment firm licensees must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their branches, whether located inside or outside the Kingdom of Bahrain, such that these are also subject to an effective risk management framework. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.

                  Adopted: July 2007

                • RM-B.2.2

                  Bahraini investment firm licensees must satisfy the CBB that their subsidiaries and other group members (where relevant) are subject to appropriate arrangements such that they too effectively manage their risks.

                  Adopted: July 2007

                • RM-B.2.3

                  Where an investment firm licensee