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The Central Bank of Bahrain (‘CBB’) issued Directive No. OG/499/2018 concerning the economic substance requirements for certain financial institutions (defined as the ‘Relevant Entities’ below) in the Kingdom of Bahrain (‘Bahrain’) that came into force on 1 January 2019 (‘Economic Substance Directive’) pursuant to Article 38 of the CBB and Financial Institutions Law No. 64 of 2006 (‘CBB Law’).
The CBB recently published guidance notes in relation to the Economic Substance Directive and the report that is to be submitted by certain financial institutions (defined as the ‘Relevant Entities’ below), with the aim of serving as a preliminary guide to these Relevant Entities on the scope and application of the Economic Substance Rules (the ’Guidance Notes’). In this article we provide an overview of the Economic Substance Directive and the Guidance Notes.
The Economic Substance Directive applies to all CBB licensed:
in Bahrain (collectively hereinafter referred to as the ‘Relevant Entities’ and individually a ‘Relevant Entity’).
The Economic Substance Directive prescribes the requirements to be met by the Relevant Entities in Bahrain in terms of confirmations and notifications that must be submitted to the CBB on various matters on an annual basis (the ‘Rules’). These requirements are in addition to the existing requirements under the CBB Law and the regulations and do not replace or supersede any existing provisions of the CBB Law or regulations. In addition, any applicant applying to the CBB for a licence to become a Relevant Entity is also required to submit a written confirmation to the CBB that they will comply with the requirements of the Economic Substance Directive.
The Relevant Entities are required to submit a report to the CBB on an annual basis within three months of the Relevant Entity’s financial year end confirming (to the extent applicable to the Relevant Entity based on its licence category), amongst other things:
Failure of a Relevant Entity to comply with any of the provisions of the Economic Substance Directive may result in enforcement action being imposed by the CBB.
If you are a Relevant Entity, it is important for you to:
Al Tamimi & Company’s Banking & Finance team regularly advises on regulatory matters and is well placed to assess the impact of the Economic Substance Directive on your organisation. For further information please contact Rafiq Jaffer (email@example.com), Natalia Kumar (firstname.lastname@example.org) or Abdullah Puri (email@example.com).