Central Bank of Bahrain

Supervision

Summary of CBB regulatory requirements

The CBB supervises its licensees in accordance with relevant international standards. For banks, insurance service providers, and investment business service providers, this means that CBB requirements address the Core Principles and other standards of the Basel Committee, the International Association of Insurance Supervisors and the International Organisation of Securities Commissions. Bahrain was last assessed against these standards by the IMF in 2005-06, as part of a Financial Sector Assessment Programme review: a copy of their overall assessment is provided under 'Related Information'.

CBB requirements are risk focused and principles-based, as well as tailored to different categories of licensee and the variable nature of supervisory risks that they pose. CBB requirements cover both prudential standards as well as conduct of business.

In terms of capital requirements, all banks are currently required to apply a 12% minimum Capital Adequacy Ratio calculated in accordance with the Basel II requirements. These regulations are currently being revised in order to meet the Basel III requirements which are palnned to be implemented in phases from 2013 onwards.

Insurance companies are subject to solvency margin requirements (similar to existing EU requirements), and investment firms are subject to risk-based capital requirements that include position, counterparty and foreign exchange risk, as well as an expenditure requirement.

The CBB's requirements are contained in the CBB Rulebook, which is structured into different Volumes, each addressing a particular category of licensee or area of activity:

Volume 1: banks (conventional)
Volume 2: banks (Islamic)
Volume 3: insurance
Volume 4: investment business
Volume 5: specialised licensees (under development)
Volume 6: capital markets (under development)

For those Volumes still under development, licensees are subject to individual stand-alone regulations. Full details of these, together with the CBB Rulebook, are available in the Laws & Regulations section of this website.

Summary of CBB supervisory approach

The CBB's supervision of licensees is a mixture of onsite assessment (including the quality of systems and controls, and of books and records) and offsite supervision (which focuses on the analysis of regulatory returns, as well as of audited financial statements and other relevant public information).

Onsite examinations are undertaken by the CBB's own examiners, as well as by experts appointed for the purpose by the CBB (such as accountants and actuaries). Offsite supervision also includes regular prudential meetings with licensees to review performance, strategy and compliance matters (such as capital adequacy, large exposures and liquidity).

For banks, a risk profiling system has been developed to underpin the above supervisory efforts, by providing a detailed framework for assessing the impact and risk profile of individual licensees, and prioritising subsequent supervisory efforts. Work is underway to extend this profiling system to insurance companies.

Where a licensee fails to satisfy the CBB's regulatory requirements, then the measures outlined in the Enforcement Modules of the applicable Volumes of the Rulebook may be applied. Enforcement measures include formal warnings, directions (e.g. to cease or desist from an activity), formal requests for information, adverse fit & proper findings, financial penalties or investigations. Extreme violations of the CBB's regulatory requirements may entail cancellation of a licence, administration or criminal sanctions.

Related Topics

Supervision