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Location: Central Bank of Bahrain Volume 2—Islamic Banks > Part A > Introduction > UG Users' Guide
  • UG Users' Guide

    • UG-A Introduction

      • UG-A.1 Purpose

        • Executive Summary

          • UG-A.1.1

            The Central Bank of Bahrain ("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.

            October 07

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

            Amended: April 2013
            Amended: July 2012
            Amended: April 2011
            October 2007

          • UG-A.1.3

            This Users' Guide provides guidance on (i) the status and application of the Rulebook, with specific reference to Volume 1 (Conventional Banks); (ii) the structure and design of the Rulebook; and (iii) its maintenance and version control.

            October 07

          • UG-A.1.4

            Volume 2 (Islamic banks) covers Islamic Bank Licensees.G It contains prudential requirements (such as rules on minimum capital and risk management). Collectively, these requirements are aimed at ensuring the safety and soundness of CBB-licensed Islamic banks and providing an appropriate level of protection to the clients of such banks.

            October 07

        • Legal Basis

          • UG-A.1.5

            This Module contains the CBB's Directive (as amended from time to time) regarding the User's Guide for Volume 2, of the CBB Rulebook, 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 Islamic bank licensees (including their approved persons).

            Amended: January 2011
            October 2007

          • UG-A.1.6

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

            October 07

      • UG-A.2 Module History

        • UG-A.2.1

          This Module was first issued in January 2005 by the BMA together with the rest of Volume 2 (Islamic banks). 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.

          October 07

        • UG-A.2.2

          When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 2 was updated in October 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to actual requirements.

          October 07

        • UG-A.2.3

          A list of recent changes made to this Module are detailed in the table below:

          Module Ref. Change Date Description of Changes
          UG-2.3 & UG-3.1 4/2006 Explanation of revised dating and numbering system.
          UG-A.1 10/2007 Updated to reflect new CBB Law; various references changed and new Rule A-1.6 introduced categorising this Module as a Directive.
          UG-A.2 10/2007 Module History table updated to reflect other 01/2007 changes.
          UG-1.1-2 10/2007 Amendments to UG-1.1 to reflect new authorities under the CBB Law and new Rules UG-1.2.6 and UG-1.2.7 to reflect the CBB Law; other material reordered as a consequence.
          UG-A.1.5 01/2011 Clarified legal basis and converted as a rule to be consistent with other parts of the CBB Rulebook.
          UG-1.3.2, UG-1.4.1 01/2011 Underlined defined term.
          UG-2.1.2 01/2011 Updated to reflect structure of Volume 5.
          UG-A.1.2 04/2011 Updated to reflect issue date of Volume 5 and 6.
          UG-A.1.2, UG-1.2.2, UG-1.2.8, UG-2.1.1, UG-2.1.3 and UG-2.2.2 07/2012 Various minor corrections to reflect structure of Rulebook, including issuance of Volume 7.
          UG-3.2 and Annex 01/2013 Amended as CBB Rulebook only now available on CBB Website.
          UG-A.1.2, UG-2.1.2 and UG-2.1.3 04/2013 Minor corrections.
          UG-1.3.4 10/2016 Added paragraph to clarify reference to 'he' 'his' 'she' and 'her'.

    • UG-1 Rulebook Status and Application

      • UG-1.1 Legal Basis

        • General

          • UG-1.1.1

            Volume 2 (Islamic banks) 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)).

            October 07

          • 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.

            October 07

          • UG-1.1.3

            Islamic bank licenseesG 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 2 (Islamic banks).

            October 07

        • 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).

            October 07

          • 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.

            October 07

          • UG-1.1.6

            Where Regulations are used to support Rulebook requirements, their contents are included in the CBB Rulebook, as well as published in the Official Gazette. They only have legal effect, however, when published in the Official Gazette.

            October 07

          • UG-1.1.7

            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.

            October 07

          • UG-1.1.8

            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.

            October 07

      • UG-1.2 Status of Provisions

        • UG-1.2.1

          The contents of the Rulebook have the formal status either of Rules or Guidance.

          October 07

        • UG-1.2.2

          Rules have a binding effect and breaches of Rules constitute breaches of the CBB Law. If a licensee breaches a Rule to which it is subject, it is liable to enforcement action by CBB and, in certain cases, criminal proceedings by the Office of the Public Prosecutor.

          Amended: July 2012
          October 07

        • UG-1.2.3

          Guidance is not binding. It is material that helps inform a particular Rule or set of Rules, or provides other general information. Where relevant, compliance with Guidance will generally lead the CBB to assess that the business has complied with the rule(s) to which the Guidance relates. Conversely, failure to comply with Guidance will generally be viewed by the CBB as tending to suggest breach of a Rule.

          October 07

        • UG-1.2.4

          The status of each Paragraph within the Rulebook can be identified by its text format, as follows:

          (a) Rules are in bold, font size 12. The Paragraph reference number is also highlighted in a coloured box.
          (b) Guidance is in normal type, font size 11.
          October 07

        • UG-1.2.5

          The CBB's interpretation of all Rules and Guidance in this Volume is final.

          Amended: January 2011
          October 2007

        • UG-1.2.6

          Paragraph UG-1.2.5 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.

          October 07

        • UG-1.2.7

          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.

          October 07

        • UG-1.2.8

          [This paragraph was deleted in July 2012].

          Deleted: July 2012

        • UG-1.2.9

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

          October 07

      • UG-1.3 Application

        • UG-1.3.1

          Volume 2 of the CBB Rulebook for the most part applies only to Islamic bank licenseesG and to individuals undertaking key functions in those licensees (so-called "approved personsG "), except for representative offices of banks which are subject to the relevant requirements in Volume 5 (specialised activities) and conventional banks which are covered in Volume 1.

          October 07

        • 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 Islamic banking business within or from Bahrain without the appropriate license, and controllersG of licensees are also subject to various requirements.

          Amended: January 2011
          October 2007

        • UG-1.3.3

          Each Module in Volume 2 contains a Scope of Application Chapter, setting out which Rules and Guidance apply to which particular type of Islamic bank licenseeG 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 (i.e. Directive and/or Regulation), and the legal basis underpinning the Module's requirements.

          October 07

        • 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 2 (Islamic Banks) of the CBB Rulebook was first issued in January 2005. It replaces all regulations previously issued with respect to Islamic banksG .

          Amended: January 2011
          October 2007

    • 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
            October 07

          • UG-2.1.2

            Volume 5 (Specialised Activities), covers money changersG ; financing companiesG ; representative officesG ; administratorsG ; trust service providersG , micro-finance institutionsG and providers of ancillary services to the financial sector.

            Amended: April 2013
            Amended: January 2011
            October 2007

        • 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 User's Guide. Subsequent material is organised underneath the following headings:

            (a) High-level Standards;
            (b) Business Standards;
            (c) Prudential Requirements;
            (d) Reporting Requirements;
            (e) Enforcement and Redress; and, where appropriate
            (f) Sector Guides
            Amended: April 2013
            Amended: July 2012
            Amended: January 2011
            October 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).

            October 07

          • UG-2.1.5

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

            October 07

          • 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".

            October 07

      • 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.

            October 07

          • 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: July 2012
            October 07

        • Chapters

          • UG-2.2.3

            Each Module consists of Chapters, categorised into two types:

            (a) A standard introductory Chapter (referenced with a letter: e.g. UG A); and
            (b) Chapters containing the substantive content of the Module (referenced with a number: e.g. CA 1, CA 2, etc.)
            October 07

          • UG-2.2.4

            The introductory Chapter summarises the purpose of the Module, its history (in terms of changes made to its contents). A separate introductory Chapter also prescribes the scope of application of the Module's requirements.

            October 07

        • Sections and Paragraphs

          • UG-2.2.5

            Chapters are further sub-divided into Sections (numbered consecutively after the Chapter number: e.g. FC 1.1, FC 1.2, FC 1.3 etc). In turn, Sections are sub-divided into Paragraphs (numbered consecutively after the Chapter and Section numbers: 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 status of the Paragraphs that follow.

            October 07

        • 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).

            October 07

          • UG-2.2.7

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

            October 07

      • 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. Each Module is a separate document. New Chapters start on a fresh page.

            October 07

        • 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 respective 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.

            October 07

        • Defined Terms

          • UG-2.3.3

            Defined terms used in the Rulebook are underlinedG . 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.

            October 07

        • 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.

            October 07

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

            October 07

          • 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...').

            October 07

    • 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.

            October 07

          • 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.

            October 07

          • UG-3.1.3

            A summary of any changes made to a Module is included in the 'Regulation 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.

            October 07

          • 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.

            October 07

          • UG-3.1.5

            The website version of the Rulebook acts at all times as the definitive version. The updates are posted to the CBB website, together with a summary of changes for that quarter. Licensees are in addition e-mailed the summary of each quarter's changes. Hard-copy users are required to print off the updated pages from the website to incorporate in their Rulebook in order to keep it current.

            October 07

        • 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.
            October 07

          • 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.

            October 07

      • UG-3.2 Rulebook Access

        • Availability

          • UG-3.2.1

            The Rulebook is available on the CBB website.

            Amended: January 2013
            October 07

        • 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
            PO Box 27
            Kingdom of Bahrain

            Tel: + 973 - 17 54 7413
            Fax: + 973 - 17 53 0228

            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
            October 07

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

        Deleted: January 2013

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