Regulation Governing Control in Investment Business Firm and Insurance Licensees

Central Bank of Bahrain
Decision No. (27) for the Year 2015
Issuing the Regulation Governing Control in Investment Companies and Insurance Companies Pursuant to the Provisions of the Central Bank of Bahrain and Financial Institutions Law Issued by Law No. (64) for the Year 2006

Governor of the Central Bank of Bahrain:
Having reviewed the Central Bank of Bahrain and Financial Institutions Law Issued by Law No. (64) for the Year 2006, And based on the proposal of the Head of the Supervisory Policies Committee at the Central Bank of Bahrain,

Has Decided the Following:

Article One
The provisions of the attached Regulation regarding the control in investment companies and insurance companies shall be applied, pursuant to the provisions of the Central Bank of Bahrain and Financial Institutions Law Issued by Law No. (64) for the Year 2006.

Article Two
The competent departments at the Central Bank of Bahrain shall implement this decision, and it shall be effective from the day following its publication in the Official Gazette.

Governor of the Central Bank of Bahrain
Rashid Mohammed Al Maraj

Issued on: 2 Sha'ban 1436 AH
Corresponding to: 20 May 2015 AD

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Regulation Governing Control in Investment Companies and Insurance Companies Pursuant to the Provisions of the Central Bank of Bahrain and Financial Institutions Law Issued by Law No. (64) for the Year 2006

Definitions

Article (1)
In applying the provisions of this Regulation, the following words and expressions shall have the meanings indicated alongside each, unless the context otherwise dictates:

• Kingdom: Kingdom of Bahrain.
• Law: Central Bank of Bahrain and Financial Institutions Law Issued by Law No. (64) for the Year 2006.
• Bank: Central Bank of Bahrain.
• Person: Any natural or legal person, as applicable.
• Regulated Entity: A legal entity that exercises one of the financial services subject to the Bank's supervision or to the supervision of another authority outside the Kingdom.
• Company: An investment company or insurance company licensed pursuant to the provisions of the Law.
• Foreign Company: A foreign company branch licensed to provide financial services in the Kingdom.
• Guidance Volume: The volume of guidance issued by the Bank.
• Control Application: Any person who submits an application to the Bank for approval of control in a company with a shareholding ratio not less than 10% of its issued and paid-up capital, or to increase their control ratio in the company, in accordance with the controls stipulated in Article (5) of this Regulation.
• Controller: A person who has the ability to exercise significant influence over the management of the company or its parent company, and includes:
  • 1. A person who owns, alone or jointly, a ratio of 10% or more of the issued and paid-up capital of the company or its parent company.
  • 2. A person who has the ability, alone or jointly, to exercise voting rights assigned to those owning 10% or more of the voting rights necessary for managing the company or its parent company.

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Participant:

• 1. The spouse or children of the Controller.
• 2. A company in which the Controller serves as a board member.
• 3. An employee of or partner with the Controller.
• 4. A subsidiary of the Controller, or a board member of the Controller or a board member of a subsidiary of the Controller, provided that the Controller is a legal entity.
• 5. A person with whom the Controller has entered into an agreement or arrangement regarding the acquisition, ownership, or disposal of shares or other interests in the company, or by which voting rights concerning the company are exercised jointly.

Current Controller: A person who received approval from the Bank for control prior to the effective date of this Regulation.

General Provisions

Article (2)
This Regulation does not apply to the Current Controller, and its provisions shall apply to any changes in ownership occurring after the effective date of this Regulation.

Article (3)
Listed companies and their registered shareholders shall be subject to the capital market regulatory requirements of the Bank stipulated in the Guidance Volume regarding changes in share ownership of listed companies, without prejudice to the application of this Regulation to listed companies and their registered shareholders. With respect to foreign company branches, Article (7) of this Regulation shall apply.

Article (4)
The restrictions stipulated in this Regulation are subject to any changes in the laws governing share ownership by controllers in companies or the scope of voting rights enjoyed by shareholders. Failure to comply with these restrictions shall subject non-compliant companies to the sanctions set forth in the Guidance Volume, without prejudice to the Bank's right to impose sanctions and take other administrative measures against the controller in accordance with the Law, including prohibiting the exercise of voting rights or transferring shares.

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Application for Control Approval:

Article (5)

• 1. The control applicant must obtain prior approval from the Bank for any of the following:
     (a) A control application submitted for the first time.
     (b) A control application submitted by a current controller, aiming to increase their ownership in the company to 10% of the issued and paid-up capital.
     (c) A control application submitted by a current controller, aiming to increase their ownership in the company to 20% of the issued and paid-up capital.
     (d) A control application submitted by a current controller, aiming to increase their ownership in the company to 30% of the issued and paid-up capital.
     (e) A control application submitted by a current controller, aiming to increase their ownership in the company to exceed 40% of the issued and paid-up capital, with respect to companies not listed in any securities market inside or outside the Kingdom. (f) An application submitted by a current controller aiming to reduce their ownership ratio in the company below the minimum control threshold.
• 2. Companies must submit to the Bank, within three months from the end of their financial year, a special report on controllers specifying all controllers and their ownership ratios.

Article (6)
When applying for the company's license, detailed data regarding shareholdings and registered shareholders must be recorded on the form prepared by the Bank for this purpose.

Article (7)
A foreign company must notify the Bank if any person owns more than 50% of the issued and paid-up capital of the parent company, immediately upon becoming aware of such ownership. The notification must be accompanied by a copy of the approval from the supervisory authority relevant to the foreign company, and the Bank may take what it deems appropriate in this regard.

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Study of Control Approval Application:

Article (8)
The Bank has the right to refer to any references and supervisory authorities it deems appropriate regarding any data or information submitted to enhance the control approval application.

Article (9)
The Bank must, before ruling on a control application submitted by a natural person, consider the following:

• 1. The direct and indirect control ratio of the natural person applicant must not exceed 30% of the issued and paid-up capital in the company, except for credit experts, loss assessment and adjustment experts, licensed administrative services companies for insurance companies, insurance consultants, and financial advisory service providers (investment companies class 3).
• 2. The extent of potential harm to the company, the financial sector, or the Kingdom's national interests resulting from approving or rejecting the control application.
• 3. The legitimate interests of customers, creditors, minority shareholders, and all interested parties related to the company.
• 4. Whether the natural person applicant has previously been convicted of any crime, except traffic violations.
• 5. Whether the natural person applicant has previously been convicted of a crime related to fraud, abuse of power, or any misconduct concerning the establishment or management of an institution or company.
• 6. Whether any sanctions or administrative measures have previously been imposed on the natural person applicant by any government, supervisory, or professional authority.
• 7. Whether the natural person applicant has previously been convicted of violating any legislation or regulations related to financial services.
• 8. Whether a previous control application by the natural person applicant was rejected, or whether their license application to provide any financial services subject to the Bank's supervision was previously rejected.

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• 9. Whether the natural person applicant has previously been dismissed or submitted a resignation from any position or service.
• 10. Whether the natural person applicant has previously been deemed ineligible to serve as a board member or company director, or as a board member or director in any licensed institution operating in the Kingdom.
• 11. Whether the natural person applicant's record shows they were a board member, director, or partner in a company that was classified, placed under administration, declared bankrupt, or had its partner/director declared bankrupt.
• 12. The credibility and transparency of the natural person applicant with supervisory authorities.
• 13. Whether the natural person applicant has previously been ordered to be deported, defaulted on paying debts, or entered into an agreement with creditors regarding their ability to meet obligations.
• 14. The personal record of the natural person applicant if they are a controller in another company or an investor in a financial institution inside or outside the Kingdom.
• 15. The financial sources of the natural person applicant and the stability of their ownership of the shares intended to be controlled.
• 16. The natural person applicant's membership in the board of one or more financial institutions, or their ownership of more than 20% of the issued and paid-up capital in one or more financial institutions inside or outside the Kingdom, and the likelihood of conflicts of interest in such cases.
• 17. The natural person applicant's ability to interact constructively with the company's shareholders and board members.
• 18. The appropriateness of the natural person applicant's conduct, whether such conduct led to criminal conviction, legal or disciplinary proceedings against them, or violation of any law.

Article (10)
The Bank must, before ruling on a control application submitted by an unregulated legal entity, consider the following:

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• 1. The direct and indirect control ratio of the legal entity applicant must not exceed 30% of the issued and paid-up capital of the company.
• 2. The extent of potential harm to the company, the financial sector, or the Kingdom's national interests resulting from approving or rejecting the control application.
• 3. The legitimate interests of customers, creditors, minority shareholders, and all interested parties related to the company.
• 4. The soundness of the financial status of the legal entity applicant, its parent companies, and subsidiaries, and its impact on the company, as well as the stability of their ownership of the intended control ratio.
• 5. Whether the legal entity applicant, any of its subsidiaries, or any of its shareholders have previously been declared bankrupt, or if all of them were unable to pay their debts with the ability to meet obligations.
• 6. The nationality of the legal entity applicant, the location of their principal center, the group structure and related parties as shown in the Guidance Volume, and the impact on the Bank's supervision of the company and the likelihood of conflicts of interest in case of controlling the company.
• 7. The appropriateness of general conduct standards for the legal entity applicant and other members of their group, including violations of laws, regulations, and rules related to financial services or exposure to sanctions or administrative measures from a government, supervisory, or professional authority.
• 8. Whether the legal entity applicant has previously been convicted in a matter related to fraud, abuse of power, or misconduct.
• 9. Whether any sanctions have previously been imposed on the legal entity applicant or any of their companies, whether by court judgment or other measures from a competent authority, and whether any lawsuits are pending against them in any courts.
• 10. The credibility and transparency of the legal entity applicant with supervisory authorities.

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• 11. Whether a previous control application by the legal entity applicant was rejected, or whether their license application to provide any financial services subject to the Bank's supervision by a supervisory authority outside the Kingdom was previously rejected.
• 12. The performance record of the legal entity applicant as a controller or investor in any financial institution.
• 13. The ability of the legal entity applicant to interact constructively with current shareholders and board members of the company.
• 14. The legal entity applicant's membership in the board of one or more financial institutions inside or outside the Kingdom, and the likelihood of conflicts of interest in such cases.
• 15. Whether an agreement has previously been made with their creditors or group members regarding their inability to meet debts.

Article (11)
The Bank must, before ruling on a control application submitted by a regulated legal entity, consider the controls stipulated in clauses (2) to (15) of Article (10), as well as the following:

• 1. The direct and indirect control ratio of the regulated legal entity applicant must not exceed 40% of the issued and paid-up capital of the company. This limit does not apply to control applications concerning companies not listed in securities markets inside or outside the Kingdom, and in cases of merger or full acquisition approved by the Bank. The Bank has the right to approve a ratio higher than 40%, provided it does not cause harm to the company, the financial sector, or the Kingdom's national interests.
• 2. The regulated legal entity applicant must be supervised by a supervisory authority that effectively applies the Basel Committee's Core Principles for Effective Banking Supervision, or the International Organization of Securities Commissions (IOSCO) principles, or the International Association of Insurance Supervisors (IAIS) principles, in addition to the Financial Action Task Force (FATF) recommendations on anti-money laundering and countering the financing of terrorism.

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• 3. The regulated legal entity applicant must submit official written approval from the supervisory authority.
• 4. The relevant supervisory authority must confirm in writing to the Bank that the regulated legal entity applicant is obligated to consolidate the company's activity accounts for regulatory accounting purposes when required.
• 5. The relevant supervisory authority must formally approve the exchange of customer information between the regulated legal entity applicant and the company subject to control, for anti-money laundering, countering terrorism financing, and large exposure monitoring purposes.
• 6. The relevant supervisory authority must conclude a memorandum of understanding with the Bank regarding regulatory levels, information exchange, and joint supervisory visits and inspections.
• 7. The regulated legal entity applicant must submit a guarantee letter in a form acceptable to the Bank regarding their commitment to provide financial support to the company subject to control.

Article (12)
The Bank must issue its decision on the control application, notifying both the applicant and the company by registered mail with acknowledgment of receipt, within a period not exceeding three months from the date of submitting the complete application with all required data and information. Registration and publication procedures must be completed in accordance with Articles (7) and (20) of the Companies Law Issued by Law No. (21) for the Year 2001.

Article (13)
The decision approving control must specify the scope of that approval. The Bank may register its approval with any conditions it deems in the public interest, stating the reasons, including setting a maximum limit on the issued and paid-up capital that may be controlled.

Article (14)
The Bank may reject control approval if any of the conditions stipulated in Articles (9), (10), or (11) of this Regulation are not met, as applicable. The rejection decision must be reasoned.

Article (15)
The control applicant may appeal the Bank's decision rejecting or approving the application with conditions, within thirty days from the date of notification as stated in Article (12). The Bank must rule on the appeal and notify the appellant of the decision by registered mail. Acknowledgment of receipt shall apply within thirty days from the date of filing the appeal. The appellant may also challenge the decision before the competent court within thirty days from the date of notification.

Article (16)
Without prejudice to the provisions of Article (56) of the Law, the Bank may require shareholders who own shares in violation of the control provisions in Article (5), or those notified of rejection under Article (14) of this Regulation, to transfer ownership of these shares or refrain from exercising voting rights regarding them until further notice, by written notification to the concerned party. In case of non-compliance with such order, the Bank may request the competent court to take any appropriate interim measure, including ordering the sale of such shares.