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Location: Central Bank of Bahrain Volume 4—Investment Business > Part A > High Level Standards > AU Authorisation > AU-1 Authorisation Requirements > AU-1.4 Definition of Regulated Investment Services > AU-1.4.1
  • 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

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