ICAP CFAP CFAP-2: Corporate Laws and Governance Syllabus

Under CCG Regulations, 2019, what is the requirement regarding the Chairman and CEO roles, and the composition split of the board?

The roles of Chairman and CEO must be separated, with clearly defined responsibilities; the Chairman should preferably be an independent director. The board must have an appropriate mix of executive, non-executive, and independent directors, with non-executive plus independent directors forming the majority.

Under CCG Regulations, 2019, what is the required composition and chairmanship of the Audit Committee of a listed company?

The Audit Committee must comprise at least three members, all non-executive directors, with the majority being independent directors; the Chairman of the Audit Committee must be an independent director. The CFO, head of internal audit, and external auditors attend by invitation.

Under CCG Regulations, 2019, what is the required composition of the Human Resource and Remuneration (HR&R) Committee?

The HR&R Committee must consist of at least three members, the majority being non-executive directors including at least one independent director; the CEO may be a member but cannot be the Chairman, and the Chairman should preferably be an independent director.

Under CCG Regulations, 2019, what restrictions apply to the number of directorships an individual may hold in listed companies?

A person cannot be a director (excluding listed subsidiaries of listed holding companies) in more than seven (7) listed companies simultaneously.

Under CCG Regulations, 2019, how frequently must the board of a listed company meet, and what is the directors' training requirement?

The board must meet at least once every quarter (four times a year). Listed companies must ensure their directors acquire the Directors' Training Program (DTP) certification within the prescribed timeline (with female head of department / executives also covered), so that a prescribed proportion of directors are certified.

Under the Companies Act, 2017, what remedies and forums are available to members against oppression and mismanagement?

Members may apply to the Court (or SECP) for relief against acts that are oppressive to any member(s) or prejudicial to the company's interests/public interest; the Court may regulate future conduct, cancel/modify transactions, order purchase of shares, appoint a new board, or wind up the company if just and equitable.

Under the Companies Act, 2017, what is the role of mediation and arbitration in resolving company disputes, and what body facilitates it?

The Act provides for a Mediation and Conciliation Panel maintained by the SECP/Commission; the Court or SECP may refer disputes to mediation/conciliation. Arbitration may be used for company disputes per the agreement/articles, providing an alternative to litigation for faster resolution.

Under the Companies Act, 2017, what is the minimum shareholding threshold required for members to apply to the Court for relief against oppression/mismanagement?

Members holding not less than ten percent (10%) of the issued share capital, or such number of members as prescribed, may apply; the Court may also waive the threshold in deserving cases / SECP may apply in the public interest.

Differentiate among the principal forms of corporate restructuring: merger, amalgamation, and acquisition.

Merger: one company absorbs another, the absorbed company ceasing to exist. Amalgamation: two or more companies combine to form a new entity. Acquisition: one company gains control of another (by acquiring shares/assets) while both may continue to exist separately.

Under the Companies Act, 2017, what is the procedure to effect a scheme of arrangement, compromise, merger or reconstruction (Sections 279–283)?

The company applies to the Court; the Court orders meetings of members/creditors; the scheme must be approved by a majority in number representing 3/4 in value of those present and voting; then sanctioned by the Court; the sanctioned order is filed with the Registrar to take effect.

What is the regulatory framework and licensing authority for Non-Banking Finance Companies (NBFCs) in Pakistan?

NBFCs are regulated by the SECP under Part VIIIA of the Companies Ordinance/Companies Act, the NBFC Rules, 2003, and the NBFC and Notified Entities Regulations, 2008; a company must obtain a license from SECP for each form of NBFC business.

List the principal categories of business that NBFCs may undertake under the NBFC Rules and Regulations.

NBFC activities include: Investment Finance Services, Leasing, Housing Finance Services, Asset Management Services (mutual funds), Investment Advisory Services, Discounting Services, Private Equity & Venture Capital, Pension Fund management (REIT management is regulated separately).

Under the NBFC Regulations, what is the concept of "minimum equity" requirement, and why is it imposed?

Each NBFC must maintain a prescribed minimum equity (paid-up capital free of losses) specified per type of license (e.g., higher for deposit-taking/investment finance, lower for advisory) to ensure financial soundness and capacity to absorb losses before it may carry on or continue that form of business.

Under the Insurance Ordinance, 2000, who is the regulator of insurance companies in Pakistan, and what is required to transact insurance business?

The SECP (Insurance Division) regulates insurers. A company must be registered with SECP and must satisfy minimum paid-up capital and solvency requirements to transact insurance business; it must be a public limited company.

Under the Insurance Ordinance, 2000, distinguish "life insurance business" from "non-life (general) insurance business," and state the rule on combining them.

Life insurance business involves contracts on human life (long-term). Non-life/general business covers fire, marine, motor, accident, etc. (short-term). A single insurer generally cannot carry on both life and non-life business in the same company; statutory funds must be maintained separately for each class of life business.

Under the Insurance Ordinance, 2000, what is the "solvency requirement," and what is a "statutory fund"?

Solvency: an insurer must maintain admissible assets exceeding its liabilities by the prescribed solvency margin at all times. A statutory fund is a fund a life insurer must establish and maintain for each class of life insurance business, ring-fencing policyholders' assets and liabilities separately from shareholders' funds.

Under the Banking Companies Ordinance, 1962, who licenses banking companies and what is the definition of "banking"?

The State Bank of Pakistan (SBP) licenses and regulates banking companies. "Banking" means accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.

Under the Banking Companies Ordinance, 1962, what is the restriction on a banking company holding shares and on its non-banking business?

A banking company cannot hold shares in any company (whether as pledgee, mortgagee or owner) exceeding 30% of the paid-up capital of that company or 30% of the bank's own paid-up capital and reserves, whichever is less; and it may engage only in forms of business permitted under Section 7, prohibiting trading and certain non-banking activities.

Under the Banking Companies Ordinance, 1962, what are the cash reserve (CRR) and statutory liquidity (SLR) requirements in concept?

Banks must maintain a Cash Reserve Requirement (CRR) — a percentage of demand and time liabilities kept as cash balance with SBP — and a Statutory Liquidity Requirement (SLR) — a percentage of liabilities held in liquid assets (cash, gold, approved securities), at rates prescribed by SBP.

What is the purpose of the Competition Act, 2010, and which authority enforces it?

The Competition Act, 2010 prohibits anti-competitive practices to ensure free competition in all spheres of commercial and economic activity; it is enforced by the Competition Commission of Pakistan (CCP).

Under the Competition Act, 2010, name the four main categories of prohibited conduct.

(1) Abuse of dominant position; (2) Prohibited (anti-competitive) agreements/cartels; (3) Deceptive marketing practices; and (4) Mergers that substantially lessen competition (regulated through pre-merger review/approval).

Under the Competition Act, 2010, what is "abuse of dominant position" and give examples.

Abuse of dominant position occurs where an undertaking with the ability to behave independently of competitors/customers acts to prevent, restrict or reduce competition. Examples: predatory pricing, limiting production/sales, price discrimination, tie-ins, refusal to deal, and applying dissimilar conditions to equivalent transactions.

Under the Competition Act, 2010, when is pre-merger clearance from the CCP required (thresholds)?

Pre-merger application/clearance to the CCP is required when the undertakings meet prescribed thresholds (e.g., the value of gross assets or turnover of the merging parties exceeds the limits notified by the CCP), to assess whether the merger substantially lessens competition by creating or strengthening dominance.

Under the SBP Foreign Exchange Manual, what is an "Authorized Dealer" and what role does it play?

An Authorized Dealer (AD) is a bank/entity authorized by the SBP to deal in foreign exchange; ADs carry out and supervise permitted foreign exchange transactions (trade payments, remittances, etc.) on behalf of customers within SBP rules, acting as the front line of exchange control.

Under the Foreign Exchange Regulation Act/SBP FE Manual, what is required for repatriation of capital and remittance of dividends/profits by foreign investors?

Foreign investment must generally be properly recorded/reported (proceeds brought in through banking channels and reported to SBP); thereafter, dividends, profits, and disinvestment proceeds may be repatriated freely through Authorized Dealers, subject to submission of prescribed documents and tax clearance.

What is the main legislation on Anti-Money Laundering in Pakistan, and which authority/body coordinates AML efforts?

The Anti-Money Laundering Act, 2010 is the principal legislation; the Financial Monitoring Unit (FMU) is the central agency receiving and analyzing Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs), with the National Executive Committee and regulators (SBP, SECP) overseeing compliance.

Define the three stages of money laundering.

(1) Placement — introducing illicit cash into the financial system; (2) Layering — moving funds through complex transactions to disguise the source; and (3) Integration — bringing the laundered funds back into the economy as apparently legitimate assets.

Under the AML framework, what are CDD, EDD, and a PEP?

CDD (Customer Due Diligence): identifying and verifying customer identity and beneficial ownership. EDD (Enhanced Due Diligence): more rigorous checks for higher-risk customers. PEP (Politically Exposed Person): an individual entrusted with a prominent public function (and close associates/family), requiring senior management approval and EDD due to higher corruption/laundering risk.

Under the AML Act, 2010, what is a Suspicious Transaction Report (STR) and who must file it, and within what time?

An STR is a report a reporting entity (banks, NBFCs, DNFBPs, etc.) must file with the FMU when it knows, suspects, or has reasonable grounds to suspect a transaction involves proceeds of crime or terrorism financing; it must be filed promptly, generally within seven (7) working days of forming the suspicion.

Under the Public Sector Companies (Corporate Governance) Rules, 2013, what are the key board independence and composition requirements?

The board of a Public Sector Company must have an appropriate mix of independent, non-executive and executive directors, with at least two (or 1/3) independent directors; the Chairman (non-executive) and CEO roles must be separate, and the majority should be non-executive/independent directors, with directors selected on fit-and-proper criteria.

Under the ICT Trust Act, 2020, what is a "trust," and who are the three parties to a trust?

A trust is an obligation annexed to the ownership of property arising from confidence reposed in and accepted by the owner for the benefit of another. The three parties are: the Author/Settlor (creates the trust), the Trustee (holds/manages the trust property), and the Beneficiary (for whose benefit the trust is held).

Under the ICT Trust Act, 2020, what are the essential requirements to validly create a trust, and the registration requirement?

A valid trust requires: a lawful purpose, certainty of the author's intention, the trust property, the beneficiary, and (for immovable property) a written instrument signed and registered. The trust deed must be registered with the relevant authority; the Act also addresses prohibition of trusts for unlawful purposes and regulation/oversight of trusts.

State the five Fundamental Principles of the ICAP/IFAC Code of Ethics for Chartered Accountants.

(1) Integrity; (2) Objectivity; (3) Professional Competence and Due Care; (4) Confidentiality; and (5) Professional Behaviour.

Under the Code of Ethics, name the five categories of threats to compliance with the fundamental principles.

(1) Self-interest threat; (2) Self-review threat; (3) Advocacy threat; (4) Familiarity threat; and (5) Intimidation threat.

Under the Code of Ethics, what are "safeguards" and give the two broad categories?

Safeguards are actions or measures that eliminate threats or reduce them to an acceptable level. The two broad categories are: (1) safeguards created by the profession, legislation or regulation (e.g., education, CPD, monitoring); and (2) safeguards in the work environment / firm-wide and engagement-specific safeguards (e.g., rotation, independent review).

Under the Code of Ethics, what does "independence" comprise for assurance engagements, and what are its two components?

Independence is required for assurance engagements and comprises: (1) Independence of Mind — the state of mind permitting a conclusion without being affected by influences that compromise professional judgment, acting with integrity, objectivity and skepticism; and (2) Independence in Appearance — avoidance of facts/circumstances so significant that a reasonable third party would conclude integrity/objectivity is compromised.