Here is the converted article in Markdown format:

Central Bank of Bahrain Issues Guidelines for Compliance Function Staff in Islamic Banks

The Central Bank of Bahrain (CBB) has issued new guidelines for compliance function staff in Islamic banks, outlining the necessary qualifications, experience, and professional qualities required to carry out their duties effectively.

Qualifications and Experience

According to the guidelines, compliance function staff must have a sound understanding of laws, rules, and standards and their practical impact on the bank’s operations. They must also maintain their professional skills through regular and systematic education and training, particularly in keeping up-to-date with developments in compliance laws, rules, and standards.

Separation of Compliance Function from Internal Audit

The CBB has emphasized the importance of separating the compliance function from internal audit to ensure that the activities of the compliance function are subject to independent review. The guidelines state that a clear understanding within the bank is crucial regarding how risk assessment and testing activities are divided between the two functions, and this must be documented in the bank’s compliance policy or related documents.

Compliance with Local Laws and Regulations

In addition, Islamic banks operating in other jurisdictions must comply with local laws and regulations and have procedures in place to identify and assess the possible increased reputational risk to the bank if it offers products or carries out activities in certain jurisdictions.

Group Compliance Function

The guidelines also require that Islamic banks establish a Group Compliance Function to oversee compliance activities on a group-wide basis, and that the Group Compliance Officer conduct compliance reviews, checks, and visits of branches and subsidiaries. The officer must ensure that adequate human resources are assigned for compliance activities at the head office, branches, and subsidiaries.

Prohibition of Outsourcing

Furthermore, the CBB has prohibited outsourcing of the compliance function, but specific tasks may be outsourced provided they remain subject to appropriate oversight by the head of compliance and Audit Committee/Group Compliance Officer.

Reporting Requirements

The guidelines also highlight the importance of submitting a compliance assessment report with every application or request for approval to the CBB, which must include a thorough check of related requirements and impact on the licensee’s financial position and compliance status. In cases where the requests have a potential financial impact on the licensee, a report from the financial control function in consultation with external auditors must also be submitted.

Objectives

The guidelines are aimed at ensuring that Islamic banks in Bahrain maintain high-level controls to prevent non-compliance with laws, rules, and standards, and to protect the interests of depositors and investors.