The Bahrain Monetary Agency (BMA) has issued a new Volume of its Rulebook for licensees, significantly upgrading its regulations for investment business firms.
The new regulations, comprising Volume 4 of the BMA Rulebook, apply to investment firms only. (Bank and insurance licensees come under Volumes 1 to 3, previously issued.)
Volume 4 introduces a comprehensive and modern regulatory framework for investment business, in line with international standards. It clarifies which investment business activities require a license from BMA, and further strengthens Bahrain’s position as a well-regulated financial centre.
Volume 4 will also facilitate the growth in investment business activities, by providing more suitable licensing options for firms wishing to undertake investment business as a stand-alone activity.
“This is an important step forward for the BMA and Bahrain, by giving much greater flexibility to firms seeking a license to provide investment business services to the public. It also ensures that we maintain our lead in terms of the quality of our regulation,” said Mr. Rasheed M. Al-Maraj, Governor of the BMA.
The new Volume reflects two consultation exercises, which were held over the past 6 months. This initial launch comprises around half of the planned contents of Volume 4, including all key requirements, such as authorisation standards, as well as capital adequacy, conduct of business, client assets and financial crime regulations.
Remaining contents will be released towards the end of 2006, once two additional consultation exercises have been completed.
Volume 4 provides for 3 categories of investment firm licensee, depending on the nature of activities undertaken.
Category 1 investment firms may undertake all types of regulated investment services, including taking proprietary risk (i.e. dealing in financial instruments as principal). Category 2 investment firms may undertake all types of activities except dealing as principal. Finally, Category 3 investment firms are limited to advising and arranging deals in financial instruments only; unlike Category 1 and 2 firms, they may not hold client money.
Regulatory requirements are tailored according to the different license categories, reflecting their different activities and hence risk profiles.
The requirements contained in this initial release take effect immediately for license applicants who are granted a license after 30 April 2006. For firms already licensed (prior to 30 April 2006), transition periods are provided for: some of the regulations take effect on 1 July 2006, with the remainder taking effect on 1 January 2007. Until these dates, these licensees are required to continue applying existing circulars.
The regulations will, amongst other things, introduce new requirements relating to Business Conduct and Client Assets. These aim to ensure that licensees deal with their clients in a fair and open manner, and that client assets are properly segregated and accounted for.
“In addition to facilitating the growth for investment business services that we are seeing, these regulations will also introduce important protections for customers, and ensure that the industry develops on a sound basis,” said Mr. Al-Baker.
“Persons operating an investment business but not currently licensed by BMA should read the Authorisation Module of Volume 4 carefully to see whether they do in fact need a license. If we find unlicensed investment business taking place after 1 July 2006, then the BMA will take the appropriate action”, he added.
Volume 4 is available on the BMA website, at www.bma.gov.bh
