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Location: Central Bank of Bahrain Volume 4—Investment Business > Part A > Business Standards > RM Risk Management > Chapter RM-8 Group Risk > RM-8.1 Group Risk > RM-8.1.3
  • RM-8.1 Group Risk

    • RM-8.1.1

      Section RM-8.1 applies only to Bahraini investment firm licenseesG .

      Adopted: July 2007

    • RM-8.1.2

      Investment firm licenseesG must identify, manage and control risks to their activities arising from the activities and financial position of other members of their group.

      Adopted: July 2007

    • RM-8.1.3

      The CBB may impose additional restrictions on the licenseeG should it have reason to believe that other members of the group pose undue risk to the licenseeG . These restrictions, for instance, may try to limit the risk of financial contagion, by restricting financial transactions between the licenseeG and group members.

      Adopted: July 2007

    • RM-8.1.4

      For the purposes of Section RM-8.1, the term 'group' refers to a person or firm who is:

      (a) The parent of the licenseeG ;
      (b) A subsidiary of the licenseeG (including subsidiaries of subsidiaries); or
      (c) A subsidiary of the licensee'sG parent.
      Adopted: July 2007

    • RM-8.1.5

      The Board is required to request sufficient information of its group members to allow it to address group risks.

      Adopted: July 2007

    • Systems and Controls

      • RM-8.1.6

        The investment firm licenseeG must have adequate, sound and appropriate risk management processes and internal control mechanisms for the purpose of assessing and managing its own exposure to group risk, including sound administrative and accounting procedures.

        Adopted: July 2007

      • RM-8.1.7

        For the purposes of RM-8.1.6, the question of whether the risk management processes and internal control mechanisms are adequate, sound and appropriate should be judged in the light of the nature, scale and complexity of the group's business and the level of interaction between the investment firmG and the group.

        Adopted: July 2007

      • RM-8.1.8

        Where a licenseeG is part of a larger financial services group, it may rely on the systems and controls that the group (or its parent company) has put in place. The Board in these circumstances should establish what systems and controls are in place and should ensure that it is provided with sufficient and timely information on the financial position of the group. This should be evidenced in the prudential records retained in Bahrain.

        Adopted: July 2007

      • RM-8.1.9

        The internal control mechanisms referred to in RM-8.1.6 must include:

        (a) Mechanisms that are adequate for the purpose of producing any data and information which would be relevant for the purpose of monitoring compliance with any prudential requirements (including any reporting requirements and any requirements relating to capital adequacy, solvency and large exposures):
        (i) To which the investment firm licenseeG is subject with respect to its membership of a group; or
        (ii) That apply to or with respect to that group or part of it; and
        (b) Mechanisms that are adequate to monitor funding within the group.
        Adopted: July 2007

      • RM-8.1.10

        In assessing group risk systems and controls, the investment firm licenseeG must give consideration to:

        (a) The likely impact of activities of the group on the compliance of the licenseeG with CBB requirements;
        (b) The effectiveness of the linkages between group and central functions and the licenseeG ;
        (c) Potential conflicts of interest and methods of minimising them; and
        (d) The risk of adverse events of other group entities on the licenseeG , in particular due to financial weakness, crime or fraudulent behaviour.
        Adopted: July 2007

      • RM-8.1.11

        A licenseeG should not be subject to material influence by other entities of the group through informal or undocumented channels. The overall governance, high-level controls and reporting lines within the group should be clearly documented.

        Adopted: July 2007

    • Reporting Requirement

      • RM-8.1.12

        Where the investment firm licensee'sG group or parent reports its own capital adequacy position to its regulatory authority (on a group or 'solo' basis), a copy of this calculation must be provided to the CBB within 30 calendar days from the due date to the other regulatory authority.

        Adopted: July 2007

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