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Location: Central Bank of Bahrain Volume 5—Specialised Licensees > Specific Modules (By Type of Licensee) > Type 3: Financing Companies > Part A > High Level Standards > HC Financing Companies High-level Controls Module > HC-2 Approved Persons Loyalty
  • HC-2 Approved Persons Loyalty

    • HC-2.1 Principle

      • HC-2.1.1

        The approved personsG must have full loyalty to the licenseeG .

        January 2013

    • HC-2.2 Personal Accountability

      • HC-2.2.1

        LicenseesG are subject to a wide variety of laws, regulations and codes of best practice that directly affect the conduct of business. Such laws involve the Rulebook of the licensed exchangeG , the Labour Law, the Commercial Companies Law, occupational health and safety, even environment and pollution laws, as well as the Law, codes of conduct and regulations of the CBB (as amended from time to time). The Board sets the 'tone at the top' of a licenseeG , and has a responsibility to oversee compliance with these various requirements. The Board should ensure that the staff conduct their affairs with a high degree of integrity, taking note of applicable laws, codes and regulations.

        January 2013

      • Corporate Ethics, Conflicts of Interest and Code of Conduct

        • HC-2.2.2

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

          January 2013

        • HC-2.2.3

          The Board must establish corporate standards for approved personsG and employees. This requirement should be met by way of a documented and published code of conduct or similar document. These standards must be communicated throughout the licenseeG , so that the approved personsG and staff understand the importance of conducting business based on good corporate governance values and understand their accountabilities to the various stakeholders of the licensee. The licensee'sG approved personsG and staff must be informed of and be required to fulfill their fiduciary responsibilities to the licensee'sG stakeholders.

          January 2013

        • HC-2.2.4

          An internal code of conduct is separate from the business strategy of a licenseeG . A code of conduct should outline the practices that approved personsG and staff should follow in performing their duties. LicenseesG may wish to use procedures and policies to complement their codes of conduct. The suggested contents of a code of conduct are covered below:

          (a) Commitment by the Board and management to the code. The code of conduct should be linked to the objectives of the licenseeG , and its responsibilities and undertakings to customers, shareholders, staff and the wider community (see HC-2.2.3 and HC-2.2.4). The code should give examples or expectations of honesty, integrity, leadership and professionalism;
          (b) Commitment to the law and best practice standards. This commitment would include commitments to following accounting standards, industry best practice (such as ensuring that information to clients is clear, fair, and not misleading), transparency, and rules concerning potential conflicts of interest (see HC-2.3);
          (c) Employment practices. This would include rules concerning health and safety of employees, training, policies on the acceptance and giving of business courtesies, prohibition on the offering and acceptance of bribes, and potential misuse of licensee'sG assets;
          (d) How the licenseeG deals with disputes and complaints from clients and monitors compliance with the code; and
          (e) Confidentiality. Disclosure of client or licenseeG information should be prohibited, except where disclosure is required by law (see HC-1.2.10 b).
          January 2013

        • HC-2.2.5

          The Central Bank expects that the Board and its members individually and collectively:

          (a) Act with honesty, integrity and in good faith, with due diligence and care, with a view to the best interest of the licenseeG and its shareholders and other stakeholders (see Paragraphs HC-2.2.2 to HC-2.2.4);
          (b) Act within the scope of their responsibilities (which should be clearly defined — see HC-1.2.9 and HC-1.2.11 and not participate in the day-to-day management of the licenseeG ;
          (c) Have a proper understanding of, and competence to deal with the affairs and products of the licenseeG and devote sufficient time to their responsibilities; and
          (d) To independently assess and question the policies, processes and procedures of the licenseeG , with the intent to identify and initiate management action on issues requiring improvement. (i.e. to act as checks and balances on management).
          January 2013

        • HC-2.2.6

          The duty of loyalty (mentioned in Paragraph HC-2.2.2 above) includes a duty not to use property of the licenseeG for his personal needs as though it was his own property, not to disclose confidential information of the licenseeG or use it for his personal profit, not to take business opportunities of the licenseeG for himself, not to compete in business with the licenseeG , and to serve the licensee'sG interest in any transactions with a licenseeG in which he has a personal interest.

          January 2013

        • HC-2.2.7

          For purposes of Paragraph HC-2.2.6, an approved personG should be considered to have a "personal interest" in a transaction with a licenseeG if:

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

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

          January 2013

    • HC-2.3 Avoidance of Conflicts of Interest

      • HC-2.3.1

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

        January 2013

      • HC-2.3.2

        The Board must establish and disseminate to its members and management, policies and procedures for the identification, reporting, disclosure, prevention, or strict limitation of potential conflicts of interest. It is senior management'sG responsibility to implement these policies. Rules concerning connected party transactions and potential conflicts of interest may be dealt with in the Code of Conduct (see HC-2.2.4). In particular, the CBB requires that any decisions to enter into transactions, under which approved personsG would have conflicts of interest that are material, should be formally and unanimously approved by the full Board. Best practice would dictate that an approved personG must:

        (a) Not enter into competition with the licenseeG ;
        (b) Not demand or accept substantial gifts from the licenseeG for himself or connected personsG ;
        (c) Not misuse the licensee'sG assets;
        (d) Not use the licensee'sG privileged information or take advantage of business opportunities to which the licenseeG is entitled, for himself or his associates; and
        (e) Absent themselves from any discussions or decision-making that involves a subject where they are incapable of providing objective advice, or which involves a subject or (proposed) transaction where a conflict of interest exists.
        January 2013

      • HC-2.3.3

        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 licenseeG .

        April 2016

    • HC-2.4 Disclosure of Conflicts of Interest

      • HC-2.4.1

        Each approved personG must inform the entire board of (potential) conflicts of interest in their activities with, and commitments to other organisations 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 conflicted transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision. In any case, all approved personsG must declare in writing all of their other interests in other enterprises or activities (whether as a shareholder of above 5% of the voting capital of a licenseeG , a manager, or other form of significant participation) to the Board (or the Nominations or Audit Committees) on an annual basis.

        January 2013

      • HC-2.4.1A

        The chief executive/general manager of the licenseeG must disclose to the board of directors on an annual basis relatives of any approved personsG occupying controlled functionsG within the licenseeG .

        April 2016

      • HC-2.4.2

        The board 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 directorsG or shareholders who do not have an interest in the transactions in which a licensee'sG approved personG has a personal interest. The board should require such advance approval in every case.
        January 2013

    • HC-2.5 Disclosure of Conflicts of Interest to Shareholders

      • HC-2.5.1

        The 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 2013

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