CBB Rulebook – Category 4 Investment Firms
The Central bank of Bahrain has introduced a new licence category of investment firms under the CBB Rulebook Volume 4 - Investment Business.
The new license is specifically targeted at fund or investment managers who operate and manage collective investment undertakings (CIUs) targeted only at 'accredited investors' with, as defined under the CBB regulations, a net worth of US$1 million or above. Specifically, these include exempt CIUs, venture capital CIUs or private investment undertakings (PIU).
Being introduced only two months ago the requirements are still being understood in practicality. In order to provide clarification on the relevant regulatory requirements under the new license category, the CBB has issued a complete module on Category 4 Investment Firms (Module C4) which addresses the relevant requirements for prospective licensees – its contents are summarised below. In addition to Module C4, Category 4 Investment Firms are subject to the provisions of the Principles of Business Module (Module PB), the Financial Crime Module (Module FC), the Enforcement Module (Module EN) and relevant sections of the Authorisation Module (Module AU).
For a firm to qualify, the legal form of the category investment firm must be either a Bahraini joint stock company (BSC) or a branch of a foreign domiciled CIU resident in Bahrain and authorised to carry out such activity in the foreign jurisdiction.
Considering the risks posed by such investment managers, the CBB require that the licensing application includes the submission of a comprehensive business plan which includes potential risks including liquidity, credit, market or investment risks, operational and material risks to investors and how the applicant proposes to manage and mitigate the risks presented. In addition, applicants are required to undergo an independent assessment of the risks and the appropriateness of the systems and controls framework proposed to address those risks.
In addition to the business plan, the application should include:
A) For existing companies, the applicant's commercial registration (or equivalent for overseas companies);
B) A certified copy of the Board Resolution confirming the decision to seek a Category 4 Investment Firm license;
C) Details of the proposed group structure; and
D) The applicant's memorandum of association (or a draft thereof for new companies).
The CBB requires an initial application fee of BHD 100 and, upon approval of a licensee, a variable annual licensing fee based on 0.25% of their relevant operating expenses, subject to:
A) A minimum ('floor') of BHD 750 and a maximum ('cap') of BHD 2,000 for operators of venture capital CIUs; and
B) A minimum ('floor') of BHD 2,000 and a maximum ('cap') of BHD 6,000 for operators of other CIUs.
The module additionally provides extensive detail on management, board and employee, financial resources and controller requirements of Category 4 licensees.
The introduction of the new license category is in line with the CBB's objective of enhancing its regulatory framework and is an exciting step towards further growth within the asset management industry in Bahrain.