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Memorandum of Understanding between the Central Bank of the Russian Federation (the Bank of Russia) and the Central Bank of Bahrain (the CBB) of the Kingdom of Bahrain

The Central Bank of the Russian Federation (Bank of Russia) and the Central Bank of Bahrain (CBB) referred to as the “Supervisory Authorities”, have reached an understanding on the need to exchange information for the effective fulfillment of their functions and assist the reliability and stability of banking systems in their countries. This understanding also meets the Basal Committee recommendations on the principles of conducting consolidated and comprehensive supervision and co-operation between Banking Supervisory Authorities.

1. The Powers of the Supervisory Authorities

1.1. The Russian Federation:

Under the legislation of the Russian Federation, the Central Bank of the Russian Federation (the Bank of Russia) is a body of banking regulation and banking supervision. It constantly monitors the compliance by credit institutions and banking groups (banking holdings) with banking legislation, the Bank of Russia’s regulations and mandatory standards. To fulfill its regulatory and supervisory functions, the Bank of the Russia conducts on-site inspections of credit institutions and their branches, sends them compulsory prescriptions to eliminate the shortcomings discovered in their work and takes measures to credit institutions established by the Federal Law on the Central Bank of the Russian Federation (the Bank of Russia).

Under the legislation of the Russian Federation, the reporting of credit institutions, bank groups, banking holdings and consolidated groups is submitted to the Bank of Russia.

1.2. The Kingdom of Bahrain:

Under the legislation of the Kingdom of Bahrain, the Central Bank of Bahrain (CBB) is the sole regulator of the banking and financial services industries in the Kingdom. It continually monitors the compliance of banks and other financial service providers with the Kingdom’s legislation and the CBB’s regulations and standards. To fulfill its regulatory and supervisory functions, the CBB conducts, inter alia, on-site inspections of banks and their branches, conducts off-site analysis of mandatory reports and data banks are required to send to its and issues compulsory directives requiring its licences to eliminate any shortcomings in their performance.

2. For the Purposes of this Memorandum:

2.1. “Supervised Institution(s)”: a legal entity authorised to conduct banking operations, whose activities are subject to licensing and supervision in accordance with the legislation of the Russian Federation or the Kingdom of Bahrain.

2.1.1. In the Russian Federation:

Credit institution is a legal entity which, for the purpose of deriving profit as the principal objective of its activity, has the right on the basis of a special permission (license) of the Bank of Russia to conduct banking operations stipulated by the Federal Law on Banks and Banking Activities. A credit institution is established on the basis of any form of ownership as a business entity.

Bank is a credit institution that has the exclusive right to conduct the following banking operations in their entirety: to take funds on deposit from private individuals and legal entities, lend such funds on its own behalf and at its own expense on the condition that they are returned after a specified period of time with an interest, open and keep individual and corporate bank accounts.

Non-bank credit institution is a credit institution that has the right to conduct individual banking operations stipulated by the Federal Law on Banks and Banking Activities. The permissible combinations of banking operations are established for non-bank credit institutions by the Bank of Russia.

2.1.2. In the Kingdom of Bahrain:

A “licencee” is any person licensed by the CBB to provide a regulated service in the Kingdom of Bahrain. “Regulated services” are determined by the CBB pursuant to secondary rule-making powers given to it under Article 39 of the Central Bank of Bahrain and Financial Services Law (Decree No. 64 of 2006, hereinafter referred to as the “CBB Law”).

A “bank” is (i) any corporate body licensed under the terms of the CBB Law to accept deposits, advance loans, manage and invest funds (with or without providing any other related services), (ii) any person licensed under the terms of the CBB Law to do the things set out in (i) but in accordance with Islamic Shari’ah principles and (iii) any other licencee approved by the CBB. In practice, banks are governed by the rules of the CBB rulebooks (either Volume One for conventional banks or Volume Two for Islamic banks).

2.2. “Supervised Parent Institution(s)”: a Supervised Institution incorporated in one of the states, which has a Cross-Border Establishment (a branch, a subsidiary or a representative office), located in the other state.

2.3. “Cross-Border Establishment(s)”:

2.3.1. The Russian Federation:

In the Russian Federation, foreign banks may participate in the authorised capital of credit institutions and establish subsidiaries, whose activities are subject to licensing under the Russian Federation laws, and also open representative offices.

Under the Russian Federation legislation:

A subsidiary credit institution is a legal entity in which another credit institution has majority interest and in accordance with an agreement concluded between them or otherwise can determine the decisions taken by the subsidiary credit institution.

A representative office of a credit institution is a separate division thereof, situated outside the seat of the credit institution that represents and protects its interests. A representative office of a credit institution has no right to conduct banking operations. A representative office of a credit institution is not a legal entity and conducts its activities on the basis of the regulations established by the credit institution that created it.

2.3.2. The Kingdom of Bahrain:

Subject to the laws of the Kingdom of Bahrain and compliance with the rules of the CBB, foreign banks may: (i) become shareholders of a bank or banking group licenced and regulated by the CBB, (ii) apply for a licence to establish a place of business in the Kingdom of Bahrain as either (a) a separate legal entity (i.e. a subsidiary) of that foreign bank, (b) as a branch of that foreign bank or © as a representative office.

2.4. “Home country”: the country in which a Supervised Parent Institution is registered.

2.5. “Host country”: the country in which a Cross-Border Establishment is registered.

2.6.“On-Site Inspection(s)”: inspection(s) carried out at a Cross-Border Establishment by duly authorised representatives of the Home Supervisor.

3. Exchange of Information

3.1. To ensure and enhance the efficiency of supervision over Supervised Institutions and their Cross-border Establishments, the Supervisory Authorities express their wish to co-operate and exchange information in the following areas: licensing, on-going supervision, including on-site inspections, owner control, anti-money laundering and counter terrorist financing.

The Supervisory Authorities shall exchange information on the state and development of the national banking sector, the principal banking supervision standards and requirements and significant changes therein.

3.2. In the Russian Federation the procedure of information-sharing with foreign supervisory authorities is regulated by the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)”. According to Article 51 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)” the Bank of Russia is entitled to inquire the central bank and the banking supervision authority of a foreign state for information and documents received from credit institutions in the course of the discharge of the supervisory functions, and also has the right to submit to the banking supervision authority of a foreign state the above information or documents which do not contain data on the operations of credit institutions and of their clients, under the condition that the said banking supervision authority guarantees the regime for the preservation of information that corresponds to the demands for the provision of the security of information made on the Bank of Russia which are established by the legislation of the Russian Federation. As for the information and the documents received from the central banks and banking supervisory bodies of foreign states, the Bank of Russia is obliged to meet the requirements for revealing information and for submitting the documents established by the legislation of the Russian Federation, with an account for the requirements established by the legislation of these foreign states.

3.3. In the Kingdom of Bahrain the procedure for disclosing confidential information (as defined) and sharing with foreign supervisory authorities is regulated by the CBB Law (Part 8 and Article 122). The CBB may request information from whomsoever it wishes and it has express powers to disclose certain information which would ordinarily be considered confidential information to, inter alia, international financial organizations and competent administrative bodies. Article 122(b) of the CBB Law sets out the criteria to be applied by the CBB when deciding whether or not to give assistance to an overseas authority.

3.4. Co-operation within the framework of this Memorandum shall be conducted at the initiative of a Supervisory Authority on the basis of a request for assistance.

3.5. A request for assistance shall be made in writing. Any type of communication facilities may be used to transmit a request.

3.6. Assistance within the framework of this Memorandum may be refused wholly or in part if the requested Supervisory Authority believes that the fulfillment of the request contravenes its national legislation or runs counter to the interests of the national security. In this case, the requesting Supervisory Authority shall be notified in writing and given the reasons for the refusal.

3.7. Each Supervisory Authority shall do everything to ensure a prompt and fullest possible reply to the request of the other Supervisory Authority or it shall notify the latter about the circumstances that prevent or delay the fulfillment of the request.

3.8. Each Supervisory Authority shall bear the expenses that may arise in implementing this Memorandum unless a different procedure is agreed upon.

4. Ensuring the Confidentiality of Information

4.1. The Supervisory Authorities shall take appropriate measures to ensure the confidentiality of information or documents in keeping, using and passing it to each other, including the transmission of information by any type of communication facilities.

4.2. Confidential information provided within the framework of this Memorandum may not be used without the consent of the Supervisory Authority that provided it for purposes other than those for which it was requested and provided.

4.3. Confidential information or documents may be passed to a third party in each particular case if there is a written permission to do so from the Supervisory Authority that has provided confidential information, except for the cases, when obligation to provide information is stipulated by law.

4.4. Should this Memorandum be terminated, the supervisory information received within the framework of this Memorandum shall remain confidential.

5. Licensing

5.1. Application of a Supervised Parent Institution to the Host Supervisor regarding issuing of license (permission) on opening of a Cross-border Establishment (hereinafter — “application”) is considered within the time periods and in compliance with the requirements set by the national legislation.

5.2. Upon the receipt of the application, the Host Supervisor shall inform the Home Supervisor about its contents, and after consideration of the application shall inform in writing about its results.

5.3. The Home Supervisor shall inform the Host Supervisor whether the applicant complies with the national legislation, as well as about the state of corporate governance, risk management and internal control system of the applicant Supervised Institution. The Home Supervisor informs the Host Supervisor on the compliance with qualification requirements of the prospective managers of the Cross-Border Establishment.

6. Co-operation concerning owner control

6.1. The Banking Supervisory Authorities shall consult before granting permission with regard to the acquisition of shares (stakes) by a legal entity or private individual or a group of legal entities and (or) private individuals in a Supervised Institution registered in the other country.

6.2. For the purposes of this Memorandum, an acquisition signifies the purchase of a stake in the capital of a Supervised Institution registered in the Russian Federation or in the Kingdom of Bahrain, of a size that will require, under the national legislation, preliminary agreement with the respective Supervisory Authority.

7. Co-operation in off-site supervision of Cross-Border Establishments

7.1. The Supervisory Authorities will inform each other about concerns about the financial soundness of Supervised Parent Institutions having Cross-Border Establishments in the respective other country. They will also notify each other of actions which they have taken in respect of such a Cross-Border Establishment as Host Supervisor or the Supervised Parent Institution as Home Supervisor if the information in their judgement is likely to be important to the other Supervisory Authority to assist that other Supervisory Authority in the exercise of its functions.

7.2. The Supervisory Authorities will discuss with each other any significant information on Supervised Parent Institutions and Cross-Border Establishments in the other country which is likely to be relevant to the other Supervisory Authority to assist that other Supervisory Authority in the exercise of its functions. Relevant matters are in particular: concerns about the financial soundness of a Supervised Parent Institution or a Cross-Border Establishment (failure to meet capital adequacy or other financial requirements, significant losses, rapid decline in profits or a deterioration in profitability), concerns relating to banking supervision both on a solo and consolidated basis, concerns arising from the results of inspections, or reports from and meetings or other communications with a Supervised Parent Institution or a Cross-Border Establishment, concerns arising from late and/or unreliable reporting.

8. Co-operation in Conducting On-site Inspections

8.1. The Supervisory Authorities agree that co-operation is useful in assisting each other in carrying out On-Site Inspections of Cross-Border Establishments. The Home Supervisor shall regulate on its own the relations with Cross-Border Establishments in respect to the access of the auditors and/or examiners for the purpose of On-Site Inspections. The Supervisory Authorities will provide full informational and consultative support to each other in such inspections.

8.2. The Supervisory Authorities will notify each other in advance about the intention to conduct an On-Site Inspection, giving the names of the inspectors, the purpose of the inspection and its expected duration.

8.3. The Supervisory Authorities shall inform each other on the results of the On-Site Inspections in the framework of the national legislation.

9. Co-operation on Anti-Money Laundering and Counter Terrorist Financing

The Supervisory Authorities to fulfill their supervision duties shall exchange the information:

— on national laws and regulations in the field of anti-money laundering and counter terrorist financing;

— on the practice of identifying and scrutinising clients and beneficiaries;

— on the observance by Supervised Parent Institutions and their Cross-border Establishments of the national legislation in the field of anti-money laundering and counter terrorist financing;

— on typical money laundering and terrorist financing schemes.

10. Other Provisions

10.1. If necessary, the Supervisory Authorities shall meet to discuss and settle matters relating to supervision of Supervised Parent Institutions and Cross-border Establishments. The issues relating to the implementation of this Memorandum may also be discussed at such meetings.

10.2. To ensure the practical implementation of co-operation after this Memorandum comes into force, the Supervisory Authorities shall exchange lists of contact persons (with full names, job titles, telephone and fax numbers and e-mail addresses).

10.3. Information on the Bank of Russia, banking system, laws and regulations of the Russian Federation may be found on the Bank of Russia website at www.cbr.ru.

Information on the Central Bank of Bahrain, banking system, laws and regulations of the Kingdom of Bahrain may be found on the CBB website at www.cbb.gov.bh.

10.4. The Supervisory Authorities express their desire to comply with the terms of this Memorandum to the fullest extent and implement it in the spirit it is intended, but both parties acknowledge that nothing in this Memorandum shall give rise to legally enforceable rights of action against the other.

10.5. This Memorandum shall come into force as of its signing and it will remain effective until one of the Supervisory Authorities notifies in advance the other in writing about its decision to terminate it. In this case, this Memorandum shall remain in effect for 30 days after the notification date. Requests for assistance made before that date shall be fulfilled by the Supervisory Authorities in compliance with the terms and conditions of this Memorandum.

10.6. This Memorandum is done in two copies, in the English language.

For the Central Bank
of the Russian Federation

G. G. Melikyan

First Deputy Chairman
of the Central Bank
of the Russian Federation

December, 2 2008

For the Central Bank
of Bahrain

Abdul Rahman Mohammed Al Baker

Executive Director
of Financial Institutions Supervision

December, 2 2008
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Last updated on: 29/10/2018