ICAP CFAP CFAP-2: Corporate Laws and Governance Flashcards

24 sample cards from the CFAP-2: Corporate Laws and Governance deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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).

9. 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).

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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).

20. 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.

21. 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.

22. 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.

23. 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).

24. 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.

What this deck covers

CFAP-2: Corporate Laws and Governance flashcards FAQ