A wholesale conventional bank licensee is allowed to transact with residents of the Kingdom of Bahrain (irrespective of currency) and in Bahrain Dinar (irrespective of the location of the counterparty) subject to the following conditions:
1- the threshold of BHD7 million (about US$18,518,519) or its foreign currency equivalent for activities involving deposit taking and providing credit; and
2- the threshold of US$250,000 or its equivalent in any other currency for investment related activities including any dealings in or managing or safeguarding financial instruments and providing the advise on the matter.
A CBB licensee may apply for an individual ad-hoc exemption from the abovementioned thresholds.
The above conditions do not apply to any transaction in foreign currency with non-residents. The restrictions do not apply either to regulated banking services offered or directed to the Bahrain government and its agencies and/or the CBB bank licensees.
The former condition is fulfilled if the initial amount taken as a deposit is BD 7 million or above (or its equivalent in foreign currency); however, subsequent additions and withdrawals from that deposit account may be for any amount. The initial amount taken as deposit may be split between different types of accounts (e.g. call, 3-month and 6-month accounts) — providing at least BD 7 million is taken from the customer on the same day and the bank's records can demonstrate this.
Where subsequent withdrawals lead to a zero balance on an account (or the aggregate of accounts where more than one was originally opened), then a further BD 7 million must be deposited to re-start the 'wholesale' relationship, before additional deposits for smaller amounts may be made.
Similarly, with respect to credit-related transactions, the initial facility amount advised must be for BD 7 million or above (or its equivalent); but drawdowns (and repayments) under the facility may be for any amount, as may any subsequent changes to the facility amount. If the facility is fully repaid, then a further BD 7 million transaction must be agreed in order to re-start the 'wholesale' relationship.
With respect to activities dealing in financial instruments the threshold refers to the individual transaction size or the initial investment amount or the minimum investment required for participation in the scheme or the size of the deal arranged or of the investment on which advice is being given as the case may be.
This threshold applies to a client even if the same client satisfies the BD 7m threshold with respect to deposit/credit activities.
Where a subsequent distribution to a client or a reduction in the mark to market value of the investment reduces the initial investment amount below US$ 250,000 it is still considered a wholesale transaction.
The initial amount taken as an investment may be split between two or more investment products — providing at least US$ 250,000 is taken from the customer on the same day and the bank's records can demonstrate this.
A conventional wholesale bank licensee wishing to undertake the above transactions must seek prior written approval of the CBB. Such requirement, however, is only required once, ie, prior to the licensee starting to undertake such transactions as the objective of that is to allow the CBB to monitor the initiation of such business by the concerned conventional wholesale bank licensee and to check that adequate systems and controls have been in place.
There are additional restrictions with regard to shariah compliant transactions.
© 2008 - Hurriyah El Islamy
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