CBB Volume 4: Contents

Central Bank of Bahrain Volume 4—Investment Business
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Location: Central Bank of Bahrain Volume 4—Investment Business
  • 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 licenseesG and Islamic bank licenseesG respectively, were issued in July 2004 and January 2005; Volume 3, covering insurance licenseesG , was issued in April 2005. This Volume (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 (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 licenseesG , i.e. those CBB licensees that solely undertake regulated investment servicesG . 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 moneyG ). 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 licenseesG .

                  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 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 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 licenseesG (or categories of licenseesG ), approved personsG or registered personsG . 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 licenseesG , approved personsG or registered personsG .

                  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 licenseesG , and to individuals undertaking key functions in those licensees (so-called 'approved personsG '). (Representative officesG 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 controllersG of investment firm licenseesG 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 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, 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 changersG ; financing companiesG ; representative officesG ; administratorsG ; trust service providersG , micro-finance institutionsG 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 firmsG ;
                  (c) Promote transparency and market discipline; and
                  (d) Reduce the likelihood of investment firmsG 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 licenseesG (including their approved personsG ).

                  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 servicesG by investment firm licenseesG . It also includes requirements regarding approved personsG .

                Amended: October 2009

              • ES-1.1.2

                Volume 4 excludes representative offices of overseas investment firm licenseeG , and ancillary services providersG : 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 licenseeG 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 controllerG ); and (iii) Form 3 (application for approved personG 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 servicesG ; and (ii) the approval of persons undertaking controlled functionsG in licensees ('approved personsG ').

                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 licenseG is required by all persons undertaking, by way of business, regulated investment servicesG within or from the Kingdom of Bahrain. Regulated investment servicesG are fully defined in Section AU-1.4, but in summary they cover the following activities:

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

              • ES-1.3.4

                There are 3 categories of investment firm licenseG , determined by the regulated investment servicesG undertaken. Category 1 investment firmsG may undertake all regulated investment servicesG . Category 2 investment firmsG may undertake all regulated investment servicesG , except the activity of dealing in financial instrumentsG as principal. Finally, Category 3 investment firmsG may only undertake the activities of arranging or advising on financial instrumentsG . Only Category 1 and 2 investment firmsG may hold client assetsG .

              • ES-1.3.5

                A licensee may hold itself out as an Islamic investment firmG , 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 personsG , i.e. those wishing to undertake a controlled functionG in an investment firm licenseeG . Controlled functionsG are those of:

                (a) DirectorG ;
                (b) Chief ExecutiveG or general managerG ;
                (c) Head of functionG ;
                (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 traderG ; and
                (i) Investment consultantG or investment adviserG .
                Amended: October 2013
                Amended: October 2009
                January 2007

              • ES-1.3.7

                The conditions for authorisation of approved personsG 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 personsG .
                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 licenseesG and approved personsG . 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 licenseesG , including activities carried out through overseas branches. Principles 1 to 8 also apply to approved personsG , in respect of the controlled functionsG 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 licenseeG 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 licenseesG 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 licenseeG . Because of their limited business activities, and consequent lesser risk to customers, Category 3 investment firmsG 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 licenseesG , including their overseas branches (where either the same or equivalent provisions to those in Module HC should apply). Overseas investment firm licenseesG 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 licenseesG . It also contains requirements dealing with accounting standards to be applied by investment firm licenseesG .

                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) ControllersG ;
                (f) Close linksG ;
                (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 firmsG and Category 2 investment firmsG and the professional indemnity requirement, which applies to Category 2 investment firmsG and Category 3 investment firmsG 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 licenseesG , 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 licenseesG . The requirements apply to both Bahraini investment firm licenseesG and overseas investment firm licenseesG (see Section CA-B.1)

                Amended: January 2007

              • ES-1.8.2

                Investment firm licenseesG are required to maintain their regulatory capitalG in excess of their regulatory capital requirementsG at all times. For Category 1 and 2 firms, their regulatory capital requirementG is the higher of their Minimum Capital RequirementG and their Risk-based Capital RequirementG . For Category 3 firms, their regulatory capital requirementG is simply their Minimum Capital RequirementG .

                Amended: October 2009

              • ES-1.8.3

                Minimum Capital RequirementsG are as follows:

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

              • ES-1.8.4

                Risk-based Capital RequirementsG 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 RequirementG of Category 2 investment firmsG , because they are not allowed to deal in financial instrumentsG 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 licenseeG to underwriteG transactions, the CBB will consider, amongst other factors, the licensee'sG capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Any underwritingG 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 licenseesG , when dealing with their clientsG . 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 clientG relationship. They are:

                (a) Overarching principles;
                (b) ClientG 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 assetsG by investment firm licenseesG . They are aimed at ensuring the proper protection of such assets, to restrict the risk of client assetsG being commingled with investment firm licenseeG assets (without clients' consent), or otherwise misused.

                Amended: January 2007

              • ES-1.10.2

                As a general rule, client assetsG are required to be segregated from a firm's own assets, and client moneyG must be held in a client bank accountG . Various other restrictions and protections apply to client moneyG , 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 mandatesG (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 licenseesG . 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'sG operations.

                Amended: July 2007

              • ES-1.11.3

                Module RM applies to Bahraini investment firm licenseesG , including their overseas branches (where either the same or equivalent provisions to those in Module RM should apply). Overseas investment firm licenseesG 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 firmsG and Category 2 investment firmsG 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 licenseesG with respect to training and competency of individuals undertaking controlled functionsG (i.e. approved personsG ).

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

              • ES-1.13.2

                Module TC provides Rules and Guidance to investment firm licenseesG 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 licenseesG 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 functionsG 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 licenseesG are required to submit these: however, Category 3 investment firmsG 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 licenseesG to seek prior approval for certain events, including proposed changes in the licensee'sG name, legal status and controllersG , as well as other events such as carrying out new regulated investment servicesG 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 licenseeG ; or instances of fraud, errors or other irregularities occurring, that could have a material impact on the licenseeG .

                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 licenseesG , approved personsG 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 licenseesG , as well as to those investment firm licenseesG 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 licenseesG 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 licenseesG 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 firmsG 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseesG licensed prior to 1 July 2007 must comply with the requirements contained in Modules HC, RM and BR by 1 January 2008. LicenseesG 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 licenseesG 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 licenseesG 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 licenseesG are effective from 1st July 2010.

                Adopted: July 2010

              • ES-2.5.2

                Where approved personsG holding controlled functionsG within the investment firm licenseeG , 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 licenseeG 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 licenseesG 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 servicesG 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 servicesG 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 licenseeG :

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

                • AU-A.1.3

                  Three categories of investment firm licenseG are provided for, depending on the type of regulated investment servicesG 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 serviceG .

                  Amended: July 2007

                • AU-A.1.4

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

                  Amended: July 2007

                • AU-A.1.5

                  Regulated investment servicesG 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 licenseesG require prior CBB approval. These functions (called 'controlled functionsG ') include DirectorsG and members of senior management. The controlled functionsG regime supplements the licensing regime by ensuring that key persons involved in the running of investment firm licenseesG are fit and proper. Those authorised by the CBB to undertake controlled functionsG are called approved personsG .

                  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 officesG of foreign investment firms, nor ancillary services providersG , 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 officesG 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 providersG 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 licenseesG (as well as to approved personsG ), 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.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 administratorsG as ancillary services providersG (i.e. licenseesG , to be subject to Volume 5 of the CBB Rulebook).
                  AU-1.3 07/2007 Deletion of this Section to reflect reclassification of administratorsG as ancillary services providersG (i.e. licenseesG , 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 undertakingG (to align with new Module CIU, Volume 6).
                  AU-4 07/2007 Chapter deleted to reflect reclassification of administratorsG as ancillary services providersG (i.e. licenseesG , 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 administratorsG as ancillary services providersG (i.e. licenseesG , 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 firmsG 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 servicesG 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 serviceG 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 functionG in an investment firm licenseeG 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 licenseesG or approved personsG ).

                Amended: July 2007

              • AU-B.2.2

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

                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 servicesG , 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 servicesG 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 servicesG .
                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 servicesG ' 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 servicesG 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 servicesG (such as trading in financial instrumentsG as principal), since these specific activities also form part of the definition of regulated banking servicesG (or regulated Islamic banking servicesG in the case of Islamic banks). In such cases, banks are not required to hold a separate investment firm licenseG .

                Amended: July 2007

              • AU-1.1.6

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

              • AU-1.1.7

                Persons wishing to be licensed to undertake regulated investment servicesG 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 controllersG ; and
                (c) Application forms for all controlled functionsG .
                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 firmG 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 licenseesG 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 servicesG may be undertaken under three categories of investment firmsG as follows:

                  Amended: July 2007

                • Category 1

                  • AU-1.1.13

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

                    a) Dealing in financial instrumentsG as principal;
                    b) Dealing in financial instrumentsG as agent;
                    c) Arranging deals in financial instrumentsG ;
                    d) Managing financial instrumentsG ;
                    e) Safeguarding financial instrumentsG (i.e. a custodianG );
                    f) Advising on financial instrumentsG ; and
                    g) Operating a collective investment undertakingG (i.e. an operatorG ).
                    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 firmsG may undertake (subject to Rule AU-1.1.19) any regulated investment serviceG (as listed in Rule AU-1.1.13), except that of 'dealing in financial instrumentsG as principal'.

                  • AU-1.1.16

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

                    Amended: July 2007

                • Category 3

                  • AU-1.1.17

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

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

                  • AU-1.1.18

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

                    a) Must be independent;
                    b) May not hold any client assetsG ;
                    c) Must refrain from receiving any fees or commissions from any party other than the clientG ; 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 firmG , the CBB will take into account the regulated investment servicesG 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 firmG includes:

                    (a) A controllerG of the Category 3 investment firmG as defined in Module GR;
                    (b) A close linkG of the Category 3 investment firmG as defined in Module GR;
                    (c) An associate of a controllerG as defined in Module GR;
                    (d) The extended family of a controllerG 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 controllerG 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 licenseesG may combine two or more regulated investment servicesG , 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 licenseesG may deal in both conventional and Islamic financial instrumentsG . Only those investment firm licenseesG whose operations are fully shari'a compliant, however, may hold themselves out to be an Islamic investment firmG .

                  Amended: July 2007

                • AU-1.1.24

                  Islamic investment firmsG 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 firmsG 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 firmsG 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 licenseesG (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 underwriteG 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 licenseeG must obtain the CBB's prior written approval for any person wishing to undertake a controlled functionG in an investment firm licenseeG . 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 functionsG are those of:

                  (a) DirectorG ;
                  (b) Chief ExecutiveG or General ManagerG ;
                  (c) Head of functionG ;
                  (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 TraderG ; and
                  (i) Investment consultantG or investment adviserG .
                  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 licenseesG , prior approval is required for all of the above controlled functionsG . Combination of the above controlled functionsG 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 licenseesG , prior approval is required for controlled functionsG (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 functionsG is subject to the requirements contained in Modules HC and RM.

                  Amended: October 2009
                  July 2007

                • AU-1.2.5

                  Approval for controlled functionG (g) is required for all investment firm licenseesG 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

                  DirectorG 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 'DirectorG ' in their job title does not of itself make them a DirectorG 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 DirectorsG and therefore may not fall under the definition of Paragraph AU-1.2.7.

                  Amended: July 2007

                • AU-1.2.9

                  Investment firm licenseesG must appoint a person to undertake the function of Chief ExecutiveG , General ManagerG or Managing DirectorG . The Chief ExecutiveG or General ManagerG means a person who is responsible for the conduct of the licensee (regardless of actual title). The Chief ExecutiveG or General ManagerG 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 licenseeG , 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 DirectorG on the Board to undertake the responsibility of the Chief ExecutiveG or General ManagerG , i.e a Managing DirectorG , in which case the appointment of a Chief ExecutiveG or General ManagerG in addition to the Managing DirectorG will not be permitted.

                  Amended: April 2011
                  Adopted: January 2011

                • AU-1.2.9B

                  The Chief ExecutiveG , General ManagerG or Managing DirectorG of the licenseeG :

                  (a) Should be fully responsible for the executive management and performance of the licenseeG , within the framework of delegated authorities set by the Board;
                  (b) Must devote full-time working hours to the licenseeG ; 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 ExecutiveG , General ManagerG or Managing DirectorG .

                  Adopted: January 2011

                • AU-1.2.9D

                  The Chief Executive OfficerG or Managing DirectorG 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 ExecutivesG , General ManagersG or Managing DirectorsG : see Section AU-2.2.

                  Adopted: January 2011

                • AU-1.2.10

                  Head of functionG 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 functionG 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 functionG might include, depending on the scale, nature and complexity of the business, a deputy Chief ExecutiveG ; heads of departments such as Risk Management, Compliance or Internal Audit; or the Chief Financial Officer.

                • AU-1.2.12

                  Financial Instruments TraderG means a person who is engaged in buying or selling financial instrumentsG .

                  Amended: July 2007

                • AU-1.2.13

                  An investment consultantG or investment adviserG refers to the function of advising a client or potential client with respect to buying, selling, subscribing for or underwritingG a particular financial instrumentG or exercising any right conferred by such a financial instrumentG .

                  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 consultantG nor an investment adviserG and need not be approved by the CBB, as such a function would not be considered a controlled functionG .

                  Added: July 2012

                • AU-1.2.13B

                  Any other staff of an investment firm licenseeG must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13. Other approved personsG , must not provide advice to a client or potential client, as defined in Paragraph AU-1.2.13, unless such approved personG has been specifically approved by the CBB as an investment consultantG or investment adviserG , in addition to their initial controlled functionG .

                  Added: July 2012

                • AU-1.2.14

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

                  Amended: July 2007

                • AU-1.2.15

                  The controlled functionG of compliance officer is defined in accordance with the compliance function under Section HC-6.5. The controlled functionsG 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 licenseesG 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

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • AU-1.4 Definition of Regulated Investment Services

              • AU-1.4.1

                For the purposes of Volume 4 (Investment Business), regulated investment servicesG 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 serviceG 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 serviceG 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 serviceG 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 serviceG if such person carries on an activity with or for another person, and they are both members of the same familyG .

                • AU-1.4.6

                  A person does not carry on an activity constituting a regulated investment serviceG 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 instrumentsG 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 serviceG 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 DirectorG of a person who is an investment firm licenseeG .

                  Amended: July 2007

                • AU-1.4.9

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

                • AU-1.4.10

                  A person does not carry on an activity constituting a regulated investment serviceG 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 instrumentsG as principal means buying, selling, subscribing for or underwritingG any financial instrumentG on own account, including underwritingG transactions.

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

                • AU-1.4.11A

                  Only Category 1 investment firmsG are permitted to underwriteG the issuance of financial instrumentsG . However, the CBB will only permit such activity if the licenseeG 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 licenseeG , the CBB will consider, amongst other factors, the licensee'sG capital adequacy, its capacity to undertake the activity, and its track record in complying with applicable regulatory requirements. Any underwritingG 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 instrumentsG on terms determined by it. Such a licensee undertakes such an activity using its own financial resources, but may also control client assetsG 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 underwritingG financial instrumentsG . However, the amount provided as credit must be paid out of the investment firm licensee'sG 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 instrumentsG as agent means buying, selling, subscribing for or underwritingG financial instrumentsG on behalf of a clientG .

                  Amended: October 2012

                • AU-1.4.18

                  A licenseeG 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 instrumentsG on terms determined by it and does not use its own financial resources for the purpose of buying, selling, subscribing for or underwritingG financial instrumentsG . Such a licenseeG may however receive or hold client assetsG 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 instrumentsG means making arrangements on behalf of another person, whether as principal or agent, buying, selling or subscribing for deals in financial instrumentsG . 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 FirmsG , 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 licenseesG .

                • 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 exchangeG , is not therefore classed as an investment firm licenseeG 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 underwriteG any financial instrumentG .

                  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 underwriteG a financial instrumentG . 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 instrumentsG means managing on a discretionary basis financial instrumentsG 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 instrumentsG means the safeguarding of financial instrumentsG 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 instrumentsG 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 instrumentG for the purpose of onward transmission to, from or at the direction of the person to whom the financial instrumentG 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 custodianG , accepts responsibility with regard to the financial instrumentG .

                  Amended: July 2010

                • AU-1.4.37

                  A 'qualifying custodianG ' 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 instrumentsG 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 underwritingG a particular financial instrumentG or exercising any right conferred by such a financial instrumentG .

                  Amended: October 2012

                • AU-1.4.41A

                  For the purpose of Rule AU-1.4.41, advising on financial instrumentsG includes giving digital financial adviceG 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 instrumentG , or on the characteristics or performance of the financial instrumentG 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 underwriteG a financial instrumentG .
                  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 instrumentG or credit facility;
                  (b) Valuing financial instrumentsG for which there is no ready market;
                  (c) Circulating company news or announcements;
                  (d) Comparing the benefits and risks of one financial instrumentG to another; and
                  (e) Advising on the likely meaning of uncertain provisions in an agreement relating to, or the terms of, a financial instrumentG 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 assetsG 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 undertakingG ('CIU') means operating, establishing or winding up a collective investment undertakingG .

                  Amended: July 2010
                  Amended: July 2007

                • AU-1.4.49

                  For the purposes of Rule AU-1.4.48, a collective investment undertakingG is an undertaking the sole object of which is the collective investment of capital raised from the public in financial instrumentsG 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 undertakingG , 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 CIUsG whose holdings are listed and traded on a stock exchange (such as a closed-ended fundG ), actions taken by the CIUG 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 fundsG and closed-ended fundsG : unit trusts, investment trusts, mutual funds, SICAV and collective investment schemes are all examples of CIUsG . CIUsG 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 operatorsG 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 instrumentG 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) SharesG in companies and other securities equivalent to sharesG in companies, partnerships or other entities, and depositary receipts in respect of sharesG ;
                  (b) BondsG or other forms of securitised debt, including depositary receipts in respect of such securities;
                  (c) WarrantsG ;
                  (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 instrumentsG — 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 undertakingG .

                  Amended: July 2007

              • Derivative Contracts other than Commodity Derivatives

                • AU-1.5.5

                  OptionsG , futuresG , forwards, swapsG , 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

                  OptionsG , futuresG , swapsG , 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

                  OptionsG , futuresG , swapsG , and any other derivative contract relating to commodities that can be physically settled.

                • AU-1.5.8

                  OptionsG , futuresG , swapsG , 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 instrumentsG .

                  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 propertyG of any description;
                  (b) Any currency;
                  (c) The rate of interest in any currency or any index of such rates (including interest rate optionsG );
                  (d) The level of any index which is derived for the prices of an investment or physical commodity (including index optionsG ); 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 propertyG ; 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

                  OptionsG , futuresG , swapsG , 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 instrumentsG .

              • Interests in Real Estate Property

                • AU-1.5.13

                  Any financial instrumentG 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 propertyG 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 instrumentsG 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 licenseeG 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 licenseeG 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 licenseeG is a branch of an overseas investment firmG , 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 licenseesG with their Registered Office in the Kingdom of Bahrain must maintain their Head Office in the Kingdom. Overseas investment firm licenseesG 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'sG 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 personsG occupying controlled functionsG 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 licenseesG must satisfy the CBB that their controllersG are suitable and pose no undue risks to the licenseeG . Investment firm licenseesG must also satisfy the CBB that their close linksG do not prevent the effective supervision of the investment firm licenseeG by the CBB and otherwise pose no undue risks to the licenseeG .

                Amended: July 2007

              • AU-2.3.2

                For Category 1 and Category 2 investment firm licenseesG , at least one of the controllersG of an investment firm licenseeG 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 controllersG and close linksG .

                Amended: October 2009

              • AU-2.3.4

                In summary, controllersG are persons who directly or indirectly are significant shareholders in an investment firm licenseeG , or who are otherwise able to exert significant influence on the investment firm licenseeG . The CBB seeks to ensure that controllersG pose no significant risks to the licenseeG . In general terms, controllersG 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 licenseeG has close linksG with its subsidiaries, with its parent undertakings, and with subsidiaries of its parent undertakings. It also has close linksG 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 licenseeG . 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 functionsG must satisfy CBB's approved person'sG requirements.

                Amended: July 2007

              • AU-2.4.2

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

                Amended: July 2007

              • AU-2.4.3

                The investment firm licensee'sG staff, taken together, must collectively provide a sufficient range of skills and experience to manage the affairs of the licenseeG in a sound and prudent manner. Investment firm licenseesG 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 licenseesG 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 licenseesG 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 licenseG held.

                Amended: July 2007

              • AU-2.6.2

                Investment firm licenseesG 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 licenseesG 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 licenseG 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 licenseesG must, in connection with any client assetsG received in the course of their business, establish and maintain separate clientG 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseesG must act in an open and cooperative manner with the CBB. Investment firm licenseesG 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 licenseesG must conduct their activities in a professional and orderly manner, in keeping with good market practice standards. Investment firm licenseesG 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 licenseesG 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 licenseesG 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 servicesG that the licenseeG may undertake and the category of investment firm licenseG granted. LicenseesG must respect the scope of their license. AU-5.4 sets out the process for varying the scope of an authorisation, should a licenseeG wish to undertake new regulated investment servicesG .

                  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

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

                Amended: July 2007

              • AU-3.1.2

                The authorisation requirement for persons nominated to carry out controlled functionsG 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 personG status and those individuals occupying approved personG 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 functionG in question (see Appendix TC-1 in Module TC (Training and Competency)); and
                (h) Has sufficient experience to perform the duties of the controlled functionG (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 functionG 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 functionG in one investment firm licenseeG may not be considered to have sufficient expertise and experience to undertake nominally the same controlled functionG 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 personsG undertaking a controlled functionG 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 functionG .

                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

            • The content selected is no longer in force and cannot be presented in Whole Section view.

          • AU-5 Information Requirements and Processes

            • AU-5.1 Licensing

              • Application Form and Documents

                • AU-5.1.1

                  Applicants for a licenseG 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 licenseeG 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 functionsG (as defined in Rule AU-1.2.2) in the proposed licenseeG ;
                  (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 licenseG ;
                  (g) Details of the proposed licensee'sG close linksG , 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 supervisorG , 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 DirectorsG (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 licenseeG , confirmation from a retail bank addressed to the CBB that the licensee'sG 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 licenseeG 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 licenseeG ;
                  (b) The address in the Kingdom of Bahrain where full business records will be kept;
                  (c) The licensee'sG 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'sG 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 functionsG .
                  (l) A copy of the licensee'sG 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 licenseesG must obtain CBB's prior written approval before a person is formally appointed to a controlled functionG . 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 personG 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 functionG is in relation to an existing investment firm licenseeG , 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 licenseesG 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 licenseeG , seeking approval for the proposed controlled functionG ;
                  (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 licenseeG and all pages stamped with the licensee'sG 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 licenseesG 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 DirectorG or the Chief ExecutiveG /General ManagerG , the authorised representative should be the Chairman of the Board or a DirectorG signing on behalf of the Board. For all other controlled functionsG , the authorised representative should be the Chief ExecutiveG /General ManagerG .

                  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 personG 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 licenseesG 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 personG 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 licenseeG 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 licenseesG or the nominated approved personsG may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application for approved personG status. The CBB shall decide on the appeal and notify the investment firm licenseeG 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 personG 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 licenseesG or the nominated approved personsG 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 licenseeG 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 licenseesG must immediately notify the CBB when an approved personG ceases to hold a controlled functionG together with an explanation as to the reasons why (see Paragraph AU-5.5.5). In such cases, their approved personG 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 licenseesG must immediately notify the CBB in case of any material change to the information provided in a Form 3 submitted for an approved personG .

                  Amended: October 2009

                • AU-5.2.10

                  Investment firm licenseesG 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 personsG .

                  Amended: October 2009

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

              Deleted: July 2007

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • AU-5.4 Amendment of Authorisation

              • Licenses

                • AU-5.4.1

                  Investment firm licenseesG 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 licenseeG wishes to add or cease undertaking a regulated investment serviceG , 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'sG 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 licenseeG requesting CBB approval to undertake a new regulated investment serviceG 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 licenseeG fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licenseeG 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 licenseesG must seek prior CBB approval before an approved personG may move from one controlled functionG to another within the same licenseeG .

                  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 functionG , but not for another, if for instance the new role requires a different set of skills and experience. Where an approved personG is moving to a controlled functionG in another licenseeG , the first licenseeG should notify the CBB of that person’s departure (see Rule AU-5.5.5), and the new licenseeG 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 licenseesG 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 licenseesG 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 licenseeG , 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 licenseeG fails to satisfy any of its existing license conditions or protecting the legitimate interests of customers or creditors of the licenseeG 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'sG 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 licenseeG 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 licenseeG has discharged all its regulatory responsibilities to clientsG . Until such time, the CBB will retain all its regulatory powers towards the licenseeG and will direct the licenseeG so that no new regulated investment servicesG may be undertaken whilst the licenseeG discharges its obligations to its clientsG .

                  Adopted: October 2011

              • Cancellation of Approved Person Status

                • AU-5.5.5

                  In accordance with Paragraph AU-5.2.8, investment firm licenseesG must promptly notify the CBB in writing as soon as they become aware, when a person undertaking a controlled functionG will no longer be carrying out that function. If a controlled functionG falls vacant, the investment firm licenseeG 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 licenseeG must make immediate interim arrangements to ensure continuity of the duties and responsibilities of the controlled functionG 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 licenseG 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 personG status.

                Adopted: July 2007

            • AU-6.2 Annual License Fees

              • AU-6.2.1

                Investment firm licenseesG 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 firmsG . 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 licenseeG 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 firmsG must pay a variable annual licensing fee based on 0.25% of their relevant operating expensesG , 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 firmsG must pay a variable annual licensing fee based on 0.25% of their relevant operating expensesG , 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 firmsG must pay a variable annual licensing fee based on 0.25% of their relevant operating expensesG , 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 expensesG 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 expensesG 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'G 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 licenseeG 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 licenseesG 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 CIUsG . In the case of Bahrain domiciled CIUsG , investment firm licenseesG should refer to the relevant Chapter in Module ARR of Volume 7, depending on the classification of the Bahrain domiciled CIUG .

                Amended: July 2013
                Added: January 2012

              • AU-6.2.10

                Investment firm licenseesG 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 licenseesG , 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 licenseesG , the licenseeG would calculate its fee as the floor amount. For future years, the licenseeG 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 licenseesG 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 licenseesG and approved personsG . 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 licenseesG (including their approved personsG ).

                  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 licenseesG , 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 personsG , 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 personsG in respect of the controlled functionG for which they have been approved.

              • PB-B.1.4

                Principles 1 to 8 do not apply to behaviour by an approved personG with respect to any other functions or activities they may undertake. However, behaviour unconnected to their controlled functionG 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 personsG and controlled functionsG 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 licenseeG or approved personG 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 personG , 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 licenseesG and approved personsG must observe high standards of integrity and fair dealing. They must be honest and straightforward in their dealings with clientsG , and disclose fully all relevant information to clientsG , 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 licenseesG and approved personsG must take all reasonable steps to identify, and prevent or manage, conflicts of interest that could harm the interests of a clientG .

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

              • PB-1.3.1

                Investment firm licenseesG and approved personsG must act with due skill, care and diligence.

            • PB-1.4 Principle 4 — Confidentiality

              • PB-1.4.1

                Investment firm licenseesG and approved personsG 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 licenseesG and approved personsG 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 licenseesG and approved personsG must take reasonable care to safeguard the assets of customersG for which they are responsible.

                Amended: January 2007

            • PB-1.7 Principle 7 — Customer Interests

              • PB-1.7.1

                Investment firm licenseesG and approved personsG must pay due regard to the legitimate interests and information needs of their clientsG and communicate with them in a fair and transparent manner. Investment firm licenseesG and approved personsG , when dealing with clientsG 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 licenseesG and approved personsG 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 licenseesG 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 licenseesG 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'G 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 firmG licenseesG 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 licenseesG .

                  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 licenseesG .

                  Amended: July 2015
                  January 2011

              • The Comply or Explain Principle for Guidance Paragraphs

                • HC-A.1.8A

                  In addition, all investment firm licenseesG 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'sG 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'sG 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 licenseesG (including their approved personsG ).

                  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 licenseesG to which Module HC applies should be in full compliance by the financial year end 2011. At every investment firm licensee'sG 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'sG governance. Where possible, the investment firm licenseeG 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 1G and Category 2 investment firm licenseesG , incorporated under the Bahrain Commercial Companies Law ('the Company Law').

                January 2011

              • HC-B.1.2

                For Category 3 investment firmsG , 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 licenseesG must satisfy the CBB that equivalent arrangements are in place at the parentG 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 parentG entity, as well as the governance and systems and controls arrangements actually implemented by the parentG entity and applied to the Bahrain operation. With the exception of specific requirements that explicitly apply to overseas investment firm licenseesG (i.e. Paragraphs HC-B.1.3), overseas investment firm licenseesG 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 licenseesG must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their branchesG , 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 licenseesG must satisfy the CBB that regulated investment servicesG conducted in subsidiariesG 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 licenseeG is unable to satisfy the CBB that its subsidiariesG 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 licenseesG 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 licenseeG 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 licenseeG ;
                (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'sG 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 licenseeG . 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 managementG .

                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 licenseeG should have a written appointment agreement with each director which recites the directors' powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, his remunerationG and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

                January 2011

              • HC-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'sG strategic plans (see Paragraph HC-1.2.2), the CBB would expect the Board to address the licensee'sG 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'sG 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 managersG , 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 managementG and Board remuneration packages and ensuring such packages are consistent with the corporate values and strategy of the licenseeG 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'sG 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'sG 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 licenseesG must adequately set out procedures for the appointment, removal and retirement of directorsG .

                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'sG 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 DirectorsG .

                January 2011

              • HC-1.3.4

                Potential non-executive directorsG 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 directorG and should require each non-executive directorG 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 licenseesG must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting new directorsG to replace long-standing members or those members whose contributions to the licenseeG 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 DirectorsG , 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 licenseesG would not be permitted. Investment firm licenseesG 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 licenseeG 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 licenseesG 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 licenseesG 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 directorsG (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 licenseeG , 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 directorsG 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 directorsG should be fully independent of management and should constructively scrutinise and challenge management including the management performance of executive directorsG .

                January 2011

              • HC-1.5.6

                At least half of an investment firm licensee'sG Board should be non-executiveG directorsG and at least three of those persons should be independent directors.G (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 directorG 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 directorG 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 directorsG , each Board meeting should be preceded or followed with a session at which only independent directorsG are present, except as may otherwise be determined by the independent directorsG 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 controllerG (or a group of controllersG 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 licenseesG with a controllerG , at least one-third of the Board must be independent directorsG . Minority shareholders must generally look to independent directors'G diligent regard for their interests, in preference to seeking specific representation on the Board.

                January 2011

              • HC-1.6.3

                In investment firm licenseesG with a controllerG , both controllers and other shareholders should be aware of controllers'G specific responsibilities regarding their duty of loyalty to the investment firm licenseeG 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 licenseeG 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'sG expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with the investment firm licensee'sG policy approved by the Board.

                January 2011

              • HC-1.7.2

                Individual directors must also have access to the investment firm licensee'sG 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 licenseeG 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 directorG 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 directorsG should have free access to the investment firm licensee'sG management beyond that provided in Board meetings. Such access should be through the Chairman of the Audit Committee or CEO. The Board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.

                January 2011

            • HC-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'sG 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'sG 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'sG 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 licenseeG . 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'sG objectives and plans, and has reviewed the licensee'sG corporate strategy document;
                (b) That the Board has reassessed the licensee'sG 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'sG 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 licenseeG 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'sG 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'sG audit committee and senior management.
                January 2011

              • HC-1.11.6

                With respect to HC-1.11.5(g), a Director'sG 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 personsG must have full loyalty to the investment firm licenseeG .

                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 licenseeG , its shareholdersG and clientsG .

                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 licenseeG includes the licenseeG 's continued compliance with all relevant rules and regulations, and the interests of employees, clientsG and other stakeholders. The interest of shareholdersG includes the current and future value of the licenseeG , its status as a going concern, transparency and disclosure of information to the market. The interest of clientsG includes ensuring that the licenseeG fulfils its obligations under its terms of businessG and treats all clientsG fairly and pays equal regard to the interests of all clients.G

                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 licenseeG and the shareholders if he violates his legal duty of loyalty to the investment firm licenseeG , and that he can be personally sued by the investment firm licenseeG or the shareholders for such violations.

                Amended: January 2013
                January 2011

              • HC-2.2.4

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

                January 2011

              • HC-2.2.10

                For purposes of Paragraph HC-2.2.9, an approved personG should be considered to have a "personal interest" in a transaction with the company if:

                (a) He himself;
                (b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or
                (c) Another company of which he is a director or controllerG ,

                is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)

                January 2011

            • HC-2.3 Avoidance of Conflicts of Interest

              • HC-2.3.1

                Investment firm licenseesG 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 firmG licenseesG 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 personG must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the investment firm licenseeG .

                January 2011

              • HC-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 licenseesG must have in place a board approved policy on the employment of relatives of approved personsG and a summary of such policy must be disclosed in the annual report of the Bahraini investment firm licenseesG .

                Amended: July 2016
                Added: April 2016

              • HC-2.3.6

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

                Added: July 2016

            • HC-2.4 Disclosure of Conflicts of Interest

              • HC-2.4.1

                Each approved personG 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 personG . The approved personsG 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 familyG ) in other enterprises or activities (whether as a DirectorG , shareholderG , 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 licenseesG must disclose to the board of directors on an annual basis those individuals who are occupying controlled functionsG and who are relatives of any approved personsG within the Bahraini investment firm licenseeG .

                Amended: July 2016
                Added: April 2016

              • HC-2.4.2B

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

                Added: July 2016

              • HC-2.4.3

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

                (a) Periodic disclosure and updating of information by each approved personG on his actual and potential conflicts of interest; and
                (b) Advance approval by directors or shareholders who do not have an interest in the transactions in which an investment firm licensee'sG approved personG has a personal interest. The Board should require such advance approval in every case.
                Amended: July 2016
                January 2011

            • HC-2.5 Disclosure of Conflicts of Interest to Shareholders

              • HC-2.5.1

                The investment firm licenseeG 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'sG financial and internal controls and financial statements;
                (c) Review the investment firm licensee'sG compliance with legal requirements;
                (d) Recommend the appointment, compensation and oversight of the investment firm licensee'sG 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 licenseeG and have no financial or other relationship with the licenseeG . Audit findings should be used as an independent check on the information received from management about the licensee'sG 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 CEOG and chief financial officer should state in writing to the audit committee and the Board as a whole that the investment firm licensee'sG interim and annual financial statements present a true and fair view, in all material respects, of the investment firm licensee'sG financial condition and results of operations in accordance with applicable accounting standards.

                January 2011

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

            • HC-4.1 Principle

              • HC-4.1.1

                The investment firm licenseeG 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 directorG , a statement that the Board has determined that the criteria of independent directorG 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 licenseeG , and
                (ii) The candidate and other directors of the investment firm licensee.G
                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 managementG , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.

                January 2011

              • HC-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'sG 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'sG 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 licenseeG must remunerate approved personsG 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 remunerationG policies for the approved personsG , which must be approved by the shareholders;
                (b) Make recommendations regarding remunerationG policies and amounts for specific persons to the whole Board, taking account of total remunerationG 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

                RemunerationG (including incentives, bonuses and other rewards) of approved personsG must be sufficient enough to attract, retain and motivate persons of the quality needed to run the investment firm licenseeG successfully, but the investment firm licenseeG 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 DirectorsG ' remuneration must be a standing item on the investment firm licensee'sG Annual General Meeting agenda, and must be considered by shareholdersG at every Annual General Meeting. DirectorsG ' remuneration (including pension and severance arrangements) and bonuses must be clearly disclosed in the annual financial statements.

                January 2011

              • HC-5.4.2

                Directors'G 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

                RemunerationG of non-executive directorsG 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

                RemunerationG of senior managementG must be structured so that a portion of the total is linked to investment firm licenseeG 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 managerG is also a director, his remunerationG as a senior managerG 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'sG management structure and responsibilities.

                January 2011

              • HC-6.2.2

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

                (a) A CEOG ;
                (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 personsG as the Board considers appropriate and as a minimum must include persons occupying controlled functionsG 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 licenseesG 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 licenseesG 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'sG title, authorities, duties and internal reporting responsibilities. This must be done in consultation with the CEOG , to whom the other senior managersG should normally report.

                January 2011

              • HC-6.3.4

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

                (a) The CEOG must have authority to act generally in the investment firm licensee'sG name, representing the investment firm licensee'sG interests in concluding transactions on the investment firm licensee'sG behalf and giving instructions to other senior managersG and investment firm licenseeG employees;
                (b) The chief financial officer must be responsible and accountable for:
                (i) The complete, timely, reliable and accurate preparation of the investment firm licensee'sG financial statements, in accordance with the accounting standards and policies of the investment firm licenseeG (see HC-3.4.1); and
                (ii) Presenting the Board with a balanced and understandable assessment of the investment firm licensee'sG financial situation;
                (c) The corporate secretary's duties 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'sG operations. This would include a review of the accuracy and reliability of the investment firm licensee'sG accounting records and financial reports as well as a review of the adequacy and effectiveness of the investment firm licensee'sG risk management, control, and governance processes; 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 CEOG or other senior managersG , 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'sG procedures and advising the Board directly on such matters. Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training.

                January 2011

              • HC-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 CEOG , both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to the CEOG .

                January 2011

            • HC-6.4 Internal Audit

              • HC-6.4.1

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

                January 2011

              • HC-6.4.4

                Where investment firm licenseesG outsource part or all of their internal audit function, the outsourcing arrangements must provide for an adequate level of scrutiny of the licenseeG , and must comply with the requirements contained in Chapter RM-7. A licenseeG 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 licenseeG retains ultimate responsibility for the adequacy of its outsourcing function, and is required to identify the person within the licenseeG responsible for internal audit: this person should be an approved personG (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 outsourcedG . Where it is outsourcedG , the CBB would expect to see these matters addressed in the contract with the outsourcing providerG .

                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 licenseeG . They must have open and regular access to the Audit Committee, the Board, the Chief ExecutiveG , and the licensee'sG 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 functionG 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'sG 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 managementG .
                January 2011

              • HC-6.4.12

                Investment firm licenseesG 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 managementG if they have not been adequately dealt with.
                January 2011

              • HC-6.4.13

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

                January 2011

            • HC-6.5 Compliance

              • HC-6.5.1

                Investment firm licenseesG 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 firmG licenseeG 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'sG 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 licenseeG 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'sG corporate governance guidelines;
                (h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and
                (i) Disclosure of all material facts must be made to the shareholders.
                (j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.
                Amended: October 2017
                Added: January 2011

              • HC-7.2.2

                The investment firm licenseeG should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).

                January 2011

              • HC-7.2.3

                The investment firm licenseeG should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.

                January 2011

              • HC-7.2.4

                An investment firm licenseeG should maintain a company website. The investmentG firm licenseeG should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. The investment firm licenseeG may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, the investment firm licenseeG should grant a controlled access to such information to its shareholders.

                January 2011

              • HC-7.2.5

                In notices of meetings at which directors are to be elected or removed the investment firm licenseeG should ensure that:

                (a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and
                (b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.
                Amended: October 2012
                January 2011

            • 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 controllersG to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the Board as a whole. The chairman must discuss governance and strategy with controllersG . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the Board should encourage investors, particularly institutional investors, to help in evaluating the investment firm licensee'sG corporate governance (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 controllersG , the chairman and other directors must actively encourage the controllersG 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 licenseeG 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'sG communications are fair, transparent, comprehensive and timely.

                January 2011

              • HC-8.2.2

                In each investment firm licenseeG :

                (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 licenseeG 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'sG compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and
                (d) At each annual shareholders' meeting the Board must also report on further items listed in Appendix B. Such information should be maintained on the investment firm licensee'sG website or held at the investment firm licensee'sG premises on behalf of the shareholders.
                January 2011

              • HC-8.2.3

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

                January 2011

              • HC-8.2.4

                The licensee's annual report must identify DirectorsG 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 licenseesG which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders. Investment firm licenseesG which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a Principles. In ensuring compliance with Shari'a principles, each Islamic investment firm licenseeG 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'sG 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 directorG 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 directorG 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 licenseesG should be headed by an effective, collegial and informed Board of Directors ('the Board').

                January 2011

              • Role and Responsibilities

                • HC-10.1.2

                  All directors should understand the Board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:

                  (a) The Board's role as distinct from the role of the shareholders (who elect the Board and whose interests the Board serves) and the role of officers (whom the Board appoints and oversees); and
                  (b) The Board's fiduciary duties of care and loyalty to the investment firm licenseeG and the shareholders (see HC-10.2).
                  January 2011

                • HC-10.1.3

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

                  (a) The overall business performance and strategy for the investment firm licenseeG ;
                  (b) Causing financial statements to be prepared which accurately disclose the investment firm licensee'sG financial position;
                  (c) Monitoring management performance;
                  (d) Convening and preparing the agenda for shareholder meetings;
                  (e) Monitoring conflicts of interest and preventing abusive related party transactions; and
                  (e) Assuring equitable treatment of shareholders including minority shareholders.
                  January 2011

                • HC-10.1.4

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

                  January 2011

                • HC-10.1.5

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

                  January 2011

                • HC-10.1.6

                  The investment firm licenseeG should have a written appointment agreement with each director which recites the directors' powers and duties and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, his remunerationG and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

                  January 2011

                • HC-10.1.7

                  The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of directors.

                  January 2011

              • Composition

                • HC-10.1.8

                  The Board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision-making yet large enough to have members who can contribute from different specialties and viewpoints. The Board should recommend changes in Board size to the shareholders when a needed change requires amendment of the investment firm licensee'sG Memorandum of Association.

                  Amended: October 2014
                  January 2011

                • HC-10.1.9

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

                  January 2011

              • Decision Making Process

                • HC-10.1.10

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

                  January 2011

                • HC-10.1.11

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

                  January 2011

                • HC-10.1.12

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

                  January 2011

                • HC-10.1.13

                  The chairman should ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each Board meeting and when necessary between meetings. All directors should receive the same Board information. At the same time, directors have a legal duty to inform themselves and they should ensure that they receive adequate and timely information and should study it carefully.

                  January 2011

              • Directors' Communication with Management

                • HC-10.1.14

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

                  January 2011

                • HC-10.1.15

                  Non-executive directorsG should have free access to the investment firm licensee'sG management beyond that provided in Board meetings. Such access should be through the Chairman of the Audit Committee or CEO. The Board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.

                  January 2011

            • HC-10.2 Approved Persons Loyalty

              • HC-10.2.1

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

                January 2011

              • Personal Accountability

                • HC-10.2.2

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

                  January 2011

                • HC-10.2.3

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

                  January 2011

                • HC-10.2.4

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

                  (a) He himself;
                  (b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or
                  (c) Another company of which he is a director or controllerG ,

                  is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)

                  January 2011

              • Avoidance of Conflicts of Interest

                • HC-10.2.5

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

                  January 2011

                • HC-10.2.5A

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

                  Amended: July 2016
                  Added: April 2016

                • HC-10.2.5B

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

                  Added: July 2016

              • Disclosure of Conflicts of Interest

                • HC-10.2.6

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

                  January 2011

                • HC-10.2.6A

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

                  Amended: July 2016
                  Added: April 2016

                • HC-10.2.6B

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

                  Added: July 2016

                • HC-10.2.7

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

                  (a) Periodic disclosure and updating of information by each approved personG on his actual and potential conflicts of interest; and
                  (b) Advance approval by directors or shareholders who do not have an interest in the transactions in which an investment firm licensee'sG approved personG has a personal interest. The Board should require such advance approval in every case.
                  Amended: July 2016
                  January 2011

              • Disclosure of Conflicts of Interests to Shareholders

                • HC-10.2.8

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

                  January 2011

            • HC-10.3 Financial Statements Certification

              • HC-10.3.1

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

                January 2011

              • CEO and CFO Certification of Financial Statements

                • HC-10.3.2

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

                  January 2011

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

              • HC-10.4.1

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

                January 2011

              • Induction and Training of Directors

                • HC-10.4.2

                  The chairman of the Board should ensure that each new director receives a formal and tailored induction to ensure his contribution to the Board from the beginning of his term. The induction should include meetings with senior managementG , visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programs, its internal and external auditors and legal counsel.

                  January 2011

                • HC-10.4.3

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

                  January 2011

                • HC-10.4.4

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

                  January 2011

            • HC-10.5 Remuneration of Approved Persons

              • HC-10.5.1

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

                January 2011

              • HC-10.5.2

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

                January 2011

            • HC-10.6 Management Structure

              • HC-10.6.1

                The Board should establish a clear and efficient management structure.

                January 2011

              • Establishment of Management Structure

                • HC-10.6.2

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

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

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

                  January 2011

              • Titles, Authorities, Duties and Reporting Responsibilities

                • HC-10.6.3

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

                  January 2011

                • HC-10.6.4

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

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

              • Titles, Authorities, Duties and Reporting Responsibilities

                • HC-10.6.5

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

                  January 2011

                • HC-10.6.6

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

                  January 2011

                • HC-10.6.7

                  At least annually the Board shall review and concur in a succession plan addressing the policies and principles for selecting a successor to the CEOG , both in emergencies and in the normal course of business. The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to the CEOG .

                  January 2011

            • HC-10.7 Communication between Board and Shareholders

              • HC-10.7.1

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

                January 2011

              • Conduct of Shareholders' Meetings

                • HC-10.7.2

                  The Board should observe both the letter and the intent of the Company Law's requirements for shareholder meetings. Among other things:

                  (a) Notices of meetings must be honest, accurate and not misleading They must clearly state and, where necessary, explain the nature of the business of the meeting;
                  (b) Meetings must be held during normal business hours and at a place convenient for the greatest number of shareholders to attend;
                  (c) Notices of meetings must encourage shareholders to participate by proxy and must refer to procedures for appointing a proxy and for directing the proxy how to vote on a particular resolution. The proxy agreement must list the agenda items and must specify the vote (such as "yes," "no" or "abstain");
                  (d) Notices must ensure that all material information and documentation is provided to shareholders on each agenda item for any shareholder meeting, including but not limited to any recommendations or dissents of directors;
                  (e) The Board must propose a separate resolution at any meeting on each substantially separate issue, so that unrelated issues are not "bundled" together;
                  (f) In meetings where directors are to be elected or removed the Board must ensure that each person is voted on separately, so that the shareholders can evaluate each person individually;
                  (g) The chairman of the meeting must encourage questions from shareholders, including questions regarding the investment firm licensee'sG corporate governance guidelines;
                  (h) The minutes of the meeting must be made available to shareholders upon their request as soon as possible but not later than 30 days after the meeting; and
                  (i) Disclosure of all material facts must be made to the shareholders.
                  (j) The licensee must invite a representative of the CBB to attend any shareholders' meetings (i.e. ordinary or extraordinary general assembly) taking place. The invitation must be provided to the CBB at least 5 business days prior to the meeting taking place.
                  Amended: October 2017
                  Added: January 2011

                • HC-10.7.3

                  The investment firm licenseeG should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).

                  January 2011

                • HC-10.7.4

                  The investment firm licenseeG should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.

                  January 2011

                • HC-10.7.5

                  An investment firm licenseeG should maintain a company website. The investment firmG licenseeG should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders' meeting, and should post significant documents relating to meetings including the full text of notices and minutes. The investment firm licenseeG may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, the investment firm licenseeG should grant a controlled access to such information to its shareholders.

                  January 2011

                • HC-10.7.6

                  In notices of meetings at which directors are to be elected or removed the investment firm licenseeG should ensure that:

                  (a) Where the number of candidates exceeds the number of available seats, the notice of the meeting should explain the voting method by which the successful candidates will be selected and the method to be used for counting of votes; and
                  (b) The notice of the meeting should present a factual and objective view of the candidates so that shareholders may make an informed decision on any appointment to the board.
                  Amended: October 2012
                  January 2011

              • Direct Shareholder Communication

                • HC-10.7.7

                  The chairman of the Board (and other directors as appropriate) must maintain continuing personal contact with controllersG to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the Board as a whole. The chairman must discuss governance and strategy with controllersG . Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the Board should encourage investors, particularly institutional investors, to help in evaluating the investment firm licensee'sG corporate governance.

                  January 2011

              • Controllers

                • HC-10.7.8

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

                  January 2011

            • HC-10.8 Corporate Governance Disclosure

              • HC-10.8.1

                The investment firm licenseeG should disclose its corporate governance.

                January 2011

              • Disclosure Under the Company Law

                • HC-10.8.2

                  In each investment firm licenseeG :

                  (a) The Board should adopt written corporate governance guidelines covering the matters stated in Module HC and other corporate governance matters deemed appropriate by the Board. Such guidelines must include or refer to the principles and rules of Module HC;
                  (b) The investment firm licenseeG should publish the guidelines on its website, if it has a website (see HC-10.7.5);
                  (c) At each annual shareholders' meeting the Board should report on the investment firm licensee'sG compliance with its guidelines and Module HC, and explain the extent if any to which it has varied them or believes that any variance or noncompliance was justified; and
                  (d) At each annual shareholders' meeting the Board should also report on further items listed in Appendix D. Such information should be maintained on the investment firm licensee'sG website or held at the investment firm licensee'sG premises on behalf of the shareholders.
                  January 2011

                • HC-10.8.3

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

                  January 2011

            • HC-10.9 Islamic Investment Firm Licensees

              • HC-10.9.1

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

                January 2011

              • Governance and Disclosure per Shari'a Principles

                • HC-10.9.2

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

                  Amended: October 2014
                  January 2011

          • 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 licenseeG .

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

              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'sG 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'sG 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'sG 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'sG 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 licenseeG 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 licenseeG 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'sG 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'sG 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 licenseeG 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 licenseeG 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 licenseeG 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 licenseeG 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 licenseeG 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'sG 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 licenseeG for board members and senior management
            13. List of senior managersG and profile of each
            14. Shareholding by senior managersG
            15. Aggregate remuneration paid to the senior managementG
            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 licenseesG 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 licenseesG .

                • 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 licenseesG 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 licenseesG , 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 licenseesG .

                  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 AccountantsG .
                  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 licenseesG .

              • AA-B.1.2

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

            • 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 licenseesG . Auditors appointed by investment firm licenseesG 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 licenseesG 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 licenseeG 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 licenseesG should notify the CBB of the proposed agenda for the annual general meeting in advance of it being circulated to shareholdersG . The CBB's approval of the proposed auditors does not limit in any way shareholders'G 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 licenseeG . The CBB will also take into account the track record of the audit firm in auditing investment firm licenseesG 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 licenseesG , 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseeG 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 licenseeG .

                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 licenseeG 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 licenseesG must not provide regulated investment servicesG to their auditors.

              • Outsourcing to Auditors

                • AA-1.5.2

                  Investment firm licenseesG 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 licenseesG 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 DirectorsG 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 DirectorsG 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 licenseesG as well as Bahraini investment firm licenseesG .

                • AA-1.5.8

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

                  Amended: January 2007

                • AA-1.5.9

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

                  Amended: January 2007

              • Definition of 'Auditor'

                • AA-1.5.10

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

                  Amended: January 2007

          • AA-2 Access

            • AA-2.1 CBB Access to Auditors

              • AA-2.1.1

                Investment firm licenseesG 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 licenseeG 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 licenseesG , request meetings with a licensee'sG auditors. If necessary, the CBB may direct that the meeting be held without the presence of the licensee'sG management or DirectorsG .

                Amended: January 2007

            • AA-2.2 Auditor Access to Outsourcing Providers

              • AA-2.2.1

                Outsourcing agreements between investment firm licenseesG and outsourcing providers must ensure that the licensee'sG 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 licenseesG 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 licenseesG are required to submit a Quarterly Prudential Return (QPR). Category 1 and Category 2 investment firm licenseesG may apply in writing to CBB for an exemption from the requirement that the QPR be reviewed by the licensee'sG external auditors: this exemption would normally only be given where the licenseeG 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 licenseesG that hold or control clientG assets must arrange for their external auditors to report on the licensee'sG compliance with the requirements contained in Module CL (Client Assets), at least once a year. Investment firm licenseesG Category 1 and Investment firm licenseesG 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'sG 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 licenseesG 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 licenseesG 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 licenseesG 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 licenseeG should contact the CBB in order to agree to a solution.

                Amended: April 2014
                Amended: January 2007

              • AA-4.1.3

                Investment firm licenseesG 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 expertsG to undertake on-site examinations or report by way of investigations on specific aspects of an investment firm licensee'sG business. External auditors may be called upon to be appointed expertsG 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-5.2 The Required Report

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

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • 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]

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • 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]

              • The content selected is no longer in force and cannot be presented in Whole Section view.

            • AA-5.5 Trilateral Meeting

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

              • The content selected is no longer in force and cannot be presented in Whole Section view.

        • 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 controllersG and close linksG . Each set of requirements is contained in its own Chapter: a table listing these and their application to licenseesG 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 licenseesG , 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 licenseesG 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 licenseesG , with the exception of Chapter GR-3, which applies to Category 1 investment firmsG and Category 2 investment firmsG and Chapter GR-9, which applies to Category 2 investment firmsG and Category 3 investment firmsG 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 firmsG and Category 2 investment firmsG . 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 firmsG and Category 3 investment firmsG , 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 licenseesG , 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 licenseesG , 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 licenseesG 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 licenseeG . 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 licenseeG (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'sG business or an on-site examination of the licenseeG 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 licenseeG , providing they are certified by an appropriate officer of the licenseeG .

                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 licenseesG , 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 licenseesG , as well as Bahraini investment firm licenseesG , 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 licenseesG , with respect to all its business activities. These requirements also apply to overseas investment firm licenseesG , 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 licenseesG 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 licenseeG . It does not relate to transactions relating to business booked in overseas branches or subsidiaries of the licenseeG .

                Amended: July 2007

              • GR-1.2.4

                In the case of overseas investment firm licenseesG , 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 licenseesG 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'G , Directors'G 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'sG 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 licenseesG , these requirements apply to the licenseeG as a whole, including any overseas branches. In the case of overseas investment firm licenseesG , 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 licenseesG 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 licenseesG 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 licenseeG , or used by its employees must include a statement that the licenseeG 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 licenseeG . All licenseesG 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 licenseesG 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 shareholderG 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 licenseeG vulnerable — for the foreseeable future — to breaching the CBB's financial resources requirements, taking into account (as appropriate) trends in the licensee'sG 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 licenseesG 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'sG 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 licenseeG 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 licenseeG wishes to sell all or part of its business to a third party. It does not apply where an investment firm licenseeG is simply transferring client assetsG 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 licenseeG , 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 licenseeG , 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'sG 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 licenseesG 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 licenseesG are also reminded of the requirements regarding client assetsG 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 licenseesG must obtain prior approval from the CBB for any of the following changes to their controllersG (as defined in Section GR-5.2):

                (a) A new controllerG ;
                (b) An existing controllerG increasing its holding from 10% to 20%;
                (c) An existing controllerG increasing its holding from below 20% to 30%;
                (d) An existing controllerG increasing its holding from below 30% to 40%;
                (e) An existing controller increasing its holding to above 40% for licenseesG not listed on any exchange in Bahrain or abroad; and
                (f) An existing controllerG reducing its holding to below 10%.
                Amended: October 2015
                Amended: July 2007

              • GR-5.1.1A

                LicenseesG must not incur or otherwise have an exposure (either directly or indirectly) to their controllersG , including subsidiariesG and associated companies of such controllersG .

                Added: April 2019

              • GR-5.1.1B

                For the purpose of Paragraph GR-5.1.1A, licenseesG that already have an exposure to controllersG 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 controllersG of licenseesG and of listed companies; it further gives the CBB the right to refuse approval of controllersG 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 controllerG of a Bahraini investment firm licenseeG is not the ultimate parent undertakingG of the licenseeG , the CBB will require that Form 2 be completed by the ultimate parent undertakingG and that the details be provided of the structure of the group, clearly detailing the relationship between the licenseeG and the ultimate parent undertakingG (e.g. by providing an organisational structure of the group).

                Added: October 2015

              • GR-5.1.4B

                Bahraini investment firm licenseesG must immediately notify the CBB in case of any material change to the information provided in a Form 2 submitted for a controllerG .

                Added: October 2015

              • GR-5.1.4C

                Where a controllerG 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 controllerG 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'sG 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 licenseeG 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 controllerG poses no undue risks to the licenseeG or its customers, and is not damaging to the interests of the market, as defined in the suitability criteria for controllersG , contained in Section GR-5.3.

                Adopted: July 2007

              • GR-5.1.7

                An approval of controllerG 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 licenseesG must submit, within 3 months of their financial year-end, a report on their controllersG . This report must identify all controllersG of the licenseeG , 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 controllerG of a Bahraini investment firm licenseeG 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 licenseeG or parent undertakingG ; or
                (b) Is able to exercise more than 10% of the voting power over the licenseeG or the parent undertakingG .
                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'sG familyG ;
                (b) An undertaking of which a controllerG is a DirectorG ;
                (c) A person who is an employee or partner of the controllerG ;
                (d) If the controllerG is a legal person, a DirectorG of the controllerG , a subsidiary of the controllerG , or a DirectorG of any subsidiary undertakingG of the controllerG ; and
                (e) Any other person or undertaking with which the controllerG has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in the investment firm licenseeG , or under which they undertake to act together in exercising their voting power in relation to the investment firm licenseeG .
                Amended: October 2015
                Amended: July 2007

              • GR-5.2.3

                In addition to the provisions of this Chapter, listed companies and their controllersG 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 licenseesG , 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 controllersG in the licenseesG , or to the voting powers the controllersG are entitled to in the licenseesG . 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 controllerG in accordance with the provisions of the Law including preventing the controllerG 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 licenseesG must satisfy the CBB of the suitability of their proposed controllersG .

                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 licenseeG must not exceed 30% of the issued and paid up capital. This limit does not apply to category 3 investment firmsG .

                  Added: October 2015

                • GR-5.3.3

                  In assessing the suitability of controllersG who are natural persons, the CBB will consider the following:

                  (a) Whether the approval or refusal of a controllerG is or could be detrimental to the licenseeG , 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 licenseeG ;
                  (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 controllerG , 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 DirectorG or as a manager of a corporation;
                  (j) Whether the person has been a DirectorG , 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 controllerG 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 shareholdersG 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 licenseeG must not exceed 30% of the issued and paid up capital.

                  Added: October 2015

                • GR-5.3.4

                  In assessing the suitability of controllersG who are unregulated legal persons, the CBB will consider the following:

                  (a) Whether their approval or refusal of a controllerG is or could be detrimental to the licenseeG , 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 licenseeG ;
                  (c) The financial strength of the controllerG , its parent(s) and its subsidiaries, its implications for the investment firm licenseeG and the likely stability of the controller'sG shareholding in the investment firm licensee