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IFMP Financial Advisors Certification (FAC), Pakistan study materials
IFMP Financial Advisors Certification (FAC), Pakistan study resources

IFMP Financial Advisors Certification (FAC), Pakistan practice questions

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Question 1Pakistan's Capital Market Regulation and Compliance

Which institution is the apex regulator of Pakistan's capital market, with statutory authority over exchanges, brokers and listed companies?

  1. State Bank of Pakistan (SBP)
  2. Central Depository Company of Pakistan Limited (CDC)
  3. Securities and Exchange Commission of Pakistan (SECP) Correct answer.
  4. Pakistan Stock Exchange (PSX)

Explanation

The SECP is the apex regulator of Pakistan's capital market and, under the SECP Act, 1997, it licenses and supervises exchanges, brokers and listed companies. The SBP is the central bank, while PSX and CDC perform exchange and depository functions under SECP oversight.

Question 2Pakistan's Capital Market Regulation and Compliance

A Trading Right Entitlement Certificate (TREC) issued by the Pakistan Stock Exchange entitles its holder to:

  1. trade securities on the Exchange as a broker Correct answer.
  2. act as a central depository for listed securities
  3. clear and settle trades as a central counterparty
  4. approve prospectuses for public offerings

Explanation

A TREC is the licence granted by PSX that admits a broker to trading rights on the Exchange. Clearing and settlement are performed by NCCPL, depository services by CDC, and prospectus approval rests with the SECP.

Question 3Pakistan's Capital Market Regulation and Compliance

Trades executed in the normal ready market on the Pakistan Stock Exchange currently settle on which cycle?

  1. T+3
  2. T+0
  3. T+2 Correct answer.
  4. T+1

Explanation

PSX operates a T+2 settlement cycle, so a trade executed on day T is settled on the second business day after the trade date. NCCPL acts as the central counterparty and manages the clearing and settlement process.

Question 4Pakistan's Capital Market Regulation and Compliance

Which institution holds listed shares in electronic book-entry form and provides depository services in Pakistan?

  1. Securities and Exchange Commission of Pakistan (SECP)
  2. Central Depository Company of Pakistan Limited (CDC) Correct answer.
  3. National Clearing Company of Pakistan Limited (NCCPL)
  4. Pakistan Stock Exchange (PSX)

Explanation

CDC is the central depository licensed under the Central Depositories Act, 1997, and it holds shares in electronic form for investors. NCCPL handles clearing and settlement, PSX operates the trading platform, and the SECP is the regulator.

Question 5Pakistan's Capital Market Regulation and Compliance

Under the Securities Act, 2015, a director who buys shares of his company while in possession of material undisclosed price-sensitive information is most likely committing:

  1. front-running
  2. insider trading Correct answer.
  3. circular trading
  4. market manipulation

Explanation

The Securities Act, 2015 prohibits insiders from dealing in securities while in possession of material non-public information, an offence known as insider trading. It also prohibits communicating such information to others, commonly called tipping.

Question 6Pakistan's Capital Market Regulation and Compliance

A securities broker detects a client transaction that it reasonably suspects involves proceeds of crime. Under Pakistan's AML/CFT regime, the broker must promptly report the matter to:

  1. the Securities and Exchange Commission of Pakistan
  2. the Pakistan Stock Exchange
  3. the Financial Monitoring Unit Correct answer.
  4. the State Bank of Pakistan

Explanation

Suspicious transaction reports are filed with the Financial Monitoring Unit, which is Pakistan's financial intelligence unit under the Anti-Money Laundering Act, 2010. The SECP supervises the broker's AML/CFT compliance, but the STR itself is submitted to the FMU.

Question 7Pakistan's Capital Market Regulation and Compliance

Under the SECP's takeover regulations for listed companies, an acquirer whose shareholding reaches what threshold must make a mandatory public offer for the remaining shares?

  1. 50%
  2. 25%
  3. 30% Correct answer.
  4. 20%

Explanation

The Listed Companies (Substantial Acquisition of Shares and Takeovers) Regulations require a mandatory public offer once an acquirer reaches 30% of the voting shares. The offer must be made to the remaining shareholders at a price determined under those regulations.

Question 8Pakistan's Capital Market Regulation and Compliance

Client money received by a licensed securities broker must be:

  1. applied to the broker's own operating expenses
  2. pooled with the broker's own corporate funds
  3. held in a bank account segregated for clients Correct answer.
  4. deposited in the broker's proprietary trading account

Explanation

SECP's client asset rules require brokers to keep client money separate from their own funds and to use it only for the client's purposes. Commingling client money with proprietary funds is prohibited because it exposes clients to the broker's insolvency risk.

Question 9Pakistan's Capital Market Regulation and Compliance

Which of the following constitutes prohibited market manipulation under the Securities Act, 2015?

  1. Publishing a research report that recommends buying a listed security
  2. Executing wash trades that create a false appearance of active trading Correct answer.
  3. Placing a limit order that remains unexecuted at the close of the session
  4. Executing a single large block trade at the prevailing market price

Explanation

Wash trades and similar circular transactions are prohibited because they create a misleading impression of trading volume or price movement. Genuine research, ordinary block trades and unfilled limit orders are legitimate market activities when conducted without deceptive intent.

Question 10Pakistan's Capital Market Regulation and Compliance

A firm that provides investment advice on securities to clients for a fee must ordinarily obtain which SECP licence?

  1. securities adviser licence Correct answer.
  2. trading right entitlement certificate
  3. portfolio management licence
  4. trustee licence

Explanation

SECP's securities and futures advisers regulations require firms that advise clients on securities for remuneration to be licensed as securities advisers. Portfolio management involves discretionary management of client assets and is licensed separately, while a TREC is granted by PSX for trading.

Question 11Pakistan's Capital Market Regulation and Compliance

Which institution performs the clearing and settlement function for trades executed on the Pakistan Stock Exchange?

  1. Securities and Exchange Commission of Pakistan (SECP)
  2. Central Depository Company of Pakistan Limited (CDC)
  3. National Clearing Company of Pakistan Limited (NCCPL) Correct answer.
  4. Pakistan Stock Exchange Limited (PSX)

Explanation

NCCPL is the licensed clearing house that clears and settles trades executed on PSX and manages the associated settlement risk. CDC is the depository that holds securities in book-entry form, while PSX operates the trading platform. SECP is the apex regulator and does not itself clear or settle exchange trades.

Question 12Pakistan's Capital Market Regulation and Compliance

Under Pakistan's listed company corporate governance framework, at least what proportion of the board of directors must consist of independent directors?

  1. One-half
  2. Two-thirds
  3. One-third Correct answer.
  4. One-quarter

Explanation

The Listed Companies (Code of Corporate Governance) Regulations require a listed company's board to include at least one-third independent directors. Independence is assessed against the criteria in the regulations, including financial and family relationships with the company. This minimum is designed to strengthen board oversight of management.

Question 13Pakistan's Capital Market Regulation and Compliance

A foreign portfolio investor wishing to buy listed Pakistani securities generally routes funds through which account, without needing prior State Bank approval for each trade?

  1. A Non-Resident Rupee (NRR) account
  2. A foreign currency bearer account
  3. A Pakistan Stock Exchange escrow account
  4. A Special Convertible Rupee Account (SCRA) Correct answer.

Explanation

The Special Convertible Rupee Account is the standard channel for foreign portfolio investment into Pakistani listed securities. It allows conversion and repatriation of funds under the foreign exchange regime without prior State Bank approval for each transaction. The account is maintained with a authorised dealer bank in Pakistan.

Question 14Pakistan's Capital Market Regulation and Compliance

The audit committee of a listed company in Pakistan must be chaired by:

  1. An independent director Correct answer.
  2. The chief executive officer of the company
  3. Any non-executive director elected by the board
  4. The chief financial officer of the company

Explanation

Under the Listed Companies (Code of Corporate Governance) Regulations, the audit committee must be chaired by an independent director. The committee must also have at least three members, with independent directors forming a majority. This structure supports objective oversight of financial reporting and internal controls.

Question 15Pakistan's Capital Market Regulation and Compliance

Under Pakistan's Margin Trading System (MTS), the funds used to finance a client's leveraged purchase are primarily provided by:

  1. The securities broker, using its own resources or bank lines Correct answer.
  2. The exchange's settlement guarantee fund
  3. The Central Depository Company
  4. The Securities and Exchange Commission of Pakistan

Explanation

In MTS, the licensed securities broker finances the client's purchase of eligible securities against margin, using its own funds or financing arranged from banks. The client contributes the required margin and the broker bears the client's credit risk under the applicable leveraged markets framework. SECP, CDC and the settlement guarantee fund perform regulatory, depository and risk-management roles rather than financing client purchases.

Question 16Pakistan's Capital Market Regulation and Compliance

Under the Central Depositories Act, 1997 and CDC regulations, a pledge over book-entry securities is created when:

  1. The pledgee takes physical delivery of the share certificates
  2. The shares are moved to the pledgee's own sub-account without any system entry
  3. An electronic pledge is recorded in the depository system and accepted by the pledgee Correct answer.
  4. The issuer's board passes a resolution approving the pledge

Explanation

Securities held in book-entry form are pledged by recording the pledge electronically in the central depository system. The pledgee must accept or concur with the pledge entry, which gives it an enforceable security interest without physical delivery. This mechanism is central to using dematerialised shares as collateral.

Question 17Pakistan's Capital Market Regulation and Compliance

In a Pakistani mutual fund structure, which entity acts as fiduciary for the unit holders and oversees the asset management company's compliance with the trust deed?

  1. The distributor
  2. The statutory auditor
  3. The custodian
  4. The trustee Correct answer.

Explanation

The trustee holds the fund's assets in trust for unit holders and monitors the asset management company's compliance with the constitutive documents and applicable regulations. The custodian may hold the assets operationally, but it acts under the trustee's arrangements. The distributor markets units and the auditor audits the fund's accounts.

Question 18Pakistan's Capital Market Regulation and Compliance

Under the SECP's takeover regulations, when a public announcement of an offer is made, the minimum offer price must ordinarily be at least:

  1. The highest price paid by the acquirer or persons acting in concert for target shares in the preceding six months Correct answer.
  2. The average closing price over the preceding twelve months
  3. The par value of the target company's shares
  4. The closing price on the date of the public announcement only

Explanation

The takeover rules protect target shareholders by requiring the offer price to be no less than the highest price paid by the acquirer, or persons acting in concert with it, for target shares during the six months before the public announcement. This prevents an acquirer from paying a higher control premium to selected sellers and a lower price to the remaining shareholders. The rule is part of the mandatory offer framework once the shareholding threshold is crossed.

Question 19Pakistan's Capital Market Regulation and Compliance

Under the Securities Act, 2015, information qualifies as 'inside information' when it is:

  1. Information that is not generally available and that, if available, would be likely to materially affect the price of the securities Correct answer.
  2. Information that has been published in a newspaper but not filed with the exchange
  3. Any confidential information held by the company, whether or not it affects price
  4. Information known only to the company's statutory auditors

Explanation

Inside information must be non-public and price-sensitive: it is information not generally available that, if it were available, would be likely to materially affect the price of the relevant securities. The definition focuses on market impact rather than on the mere fact that information is confidential. Trading or tipping while in possession of such information is prohibited.

Question 20Pakistan's Capital Market Regulation and Compliance

A listed company becomes aware of a material event that could affect its share price. Under PSX listing regulations, the company must:

  1. Report it to SECP after thirty days
  2. Disclose it promptly to the Pakistan Stock Exchange for dissemination to the market Correct answer.
  3. Wait until the next quarterly financial report to disclose it
  4. Disclose it only to the company's major shareholders

Explanation

Listed companies have a continuous disclosure obligation to promptly inform PSX of material information that could affect the price of their securities. PSX then disseminates the information to the market so that all investors have equal access. Selective disclosure to major shareholders or delayed reporting can constitute a breach of listing regulations.

Question 21Pakistan's Capital Market Regulation and Compliance

A Pakistani unlisted company plans to raise capital by offering its shares to the general public for the first time. Under the Securities Act, 2015, the offer must ordinarily be made through which document?

  1. A Trading Right Entitlement Certificate issued by the Pakistan Stock Exchange
  2. A prospectus approved by the SECP Correct answer.
  3. A trust deed registered with the Central Depository Company
  4. A no-objection certificate from the State Bank of Pakistan

Explanation

The Securities Act, 2015 requires a public offer of securities to be made through a prospectus containing prescribed disclosures, which is submitted to the SECP for approval. A TREC governs trading rights on the exchange, a trust deed is used in collective investment schemes, and the SBP does not approve corporate share offers.

Question 22Pakistan's Capital Market Regulation and Compliance

Under the Companies Act, 2017, a listed company in Pakistan must hold its annual general meeting within how many months after the close of its financial year?

  1. Six months
  2. Four months Correct answer.
  3. Three months
  4. Nine months

Explanation

The Companies Act, 2017 requires a company to hold its annual general meeting within four months after the close of its financial year. The meeting must also be held each year within the statutory interval from the previous annual general meeting.

Question 23Pakistan's Capital Market Regulation and Compliance

In Pakistan's central depository system, a broker opens a sub-account at CDC for a client. Who is treated as the beneficial owner of the securities credited to that sub-account?

  1. The client for whom the sub-account is opened Correct answer.
  2. CDC, because it holds the securities in book-entry form
  3. The broker, because it is the CDC participant
  4. The Pakistan Stock Exchange, because the trade was executed there

Explanation

A CDC participant maintains the main account, while sub-accounts identify the underlying clients who beneficially own the securities. CDC is the depository holding the book-entry record and PSX is the trading venue; neither becomes the beneficial owner.

Question 24Pakistan's Capital Market Regulation and Compliance

A Pakistani open-end mutual fund reports total assets of PKR 1,200 million, total liabilities of PKR 200 million and 100 million units in issue. What is its net asset value (NAV) per unit?

  1. PKR 14.00
  2. PKR 10.00 Correct answer.
  3. PKR 20.00
  4. PKR 12.00

Explanation

NAV per unit equals net assets divided by the number of units in issue. Net assets are PKR 1,200 million minus PKR 200 million, or PKR 1,000 million; dividing by 100 million units gives PKR 10.00 per unit.

Question 25Pakistan's Capital Market Regulation and Compliance

In a book-building initial public offering on the Pakistan Stock Exchange, the price at which shares are finally allocated to successful bidders is ordinarily determined by:

  1. A price fixed unilaterally by the lead manager after listing
  2. The cut-off price established through the bidding process Correct answer.
  3. The highest bid received from any single investor
  4. The par value stated in the company's memorandum

Explanation

Book building discovers demand through bids, and the cut-off price is the clearing price at which offers are accepted and shares allocated under the published allocation rules. Par value is only the nominal value, the highest bid does not set the price for all bidders, and the lead manager cannot set the price unilaterally after listing.

Question 26Pakistan's Capital Market Regulation and Compliance

Under the SECP's securities broker licensing regime, a firm that executes client orders on the Pakistan Stock Exchange and also clears and settles those trades for its own clients generally holds which licence category?

  1. Non-broker dealer
  2. Self-Clearing only
  3. Trading only
  4. Trading and Self-Clearing Correct answer.

Explanation

The SECP's broker licensing framework separates trading activity from clearing and settlement activity. A firm that both executes trades and settles them for its clients holds the Trading and Self-Clearing category, whereas Trading only and Self-Clearing only cover one side of the activity.

Question 27Pakistan's Capital Market Regulation and Compliance

The Investor Protection Fund maintained in Pakistan's securities market exists primarily to:

  1. Insure listed companies against falls in their share prices
  2. Compensate eligible clients for losses caused by broker default or fraud, subject to prescribed limits Correct answer.
  3. Guarantee every investor a fixed annual return on listed shares
  4. Reimburse the Pakistan Stock Exchange for losses on proprietary trading

Explanation

The Investor Protection Fund is a client-protection arrangement that can compensate eligible investors for specified losses arising from a broker's default or fraud, up to prescribed limits. It is not a market-loss insurance scheme and does not guarantee investment returns.

Question 28Pakistan's Capital Market Regulation and Compliance

Under the SECP's takeover regulations for Pakistani listed companies, two persons are treated as 'acting in concert' when they:

  1. Happen to buy the same listed security on the same trading day
  2. Hold shares in the same central depository participant account
  3. Co-operate to obtain or consolidate control of the target company under an agreement or understanding Correct answer.
  4. Are both clients of the same securities broker

Explanation

Acting in concert refers to persons who co-operate, through an agreement or understanding, to acquire or consolidate control of a target company. Parallel trading, a common broker or a shared participant account does not by itself establish concerted action under the takeover rules.

Question 29Pakistan's Capital Market Regulation and Compliance

A director of a PSX-listed company wants to buy shares in the company shortly before the announcement of its annual financial results. Under the PSX Regulations on insider trading, the director should ordinarily:

  1. Be free to trade because directors are exempt from insider trading rules
  2. Trade only after obtaining a no-objection certificate from CDC
  3. Trade through a nominee account to avoid disclosure
  4. Refrain from trading because the closed period applies before the results announcement Correct answer.

Explanation

The PSX Regulations impose a closed period during which directors and certain connected persons may not deal in the company's securities before financial results are announced. The restriction is designed to prevent trading on unpublished price-sensitive information, and using a nominee account would not cure the prohibition.

Question 30Pakistan's Capital Market Regulation and Compliance

Under Pakistan's listed-company corporate governance framework, which board committee is responsible for recommending the remuneration of the chief executive and senior executives?

  1. Human Resource and Remuneration Committee Correct answer.
  2. Risk Management Committee
  3. Audit Committee
  4. Investment Committee

Explanation

The Code of Corporate Governance requires listed companies to constitute a Human Resource and Remuneration Committee to recommend remuneration and related policies for the chief executive and senior management. The Audit Committee focuses on financial reporting, internal controls and audit matters.

Question 31Pakistan's Capital Market Regulation and Compliance

Which institution is the apex regulator of Pakistan's capital markets and administers the Securities Act, 2015?

  1. SBP
  2. NCCPL
  3. PSX
  4. SECP Correct answer.

Explanation

The SECP is the apex regulator of Pakistan's capital markets and administers the Securities Act, 2015. It also licenses and supervises market intermediaries. SBP is the central bank, PSX is the exchange, and NCCPL performs clearing and settlement.

Question 32Pakistan's Capital Market Regulation and Compliance

On the Pakistan Stock Exchange, a trade in a listed equity is ordinarily settled on which basis?

  1. Two business days after trade date (T+2) Correct answer.
  2. Same day (T+0)
  3. Three business days after trade date (T+3)
  4. Five business days after trade date (T+5)

Explanation

PSX operates a T+2 rolling settlement cycle for listed equity trades. NCCPL settles the obligations on the second business day after the trade date. T+0, T+3 and T+5 do not describe the standard equity market settlement cycle in Pakistan.

Question 33Pakistan's Capital Market Regulation and Compliance

A broker in Pakistan identifies a transaction that it suspects may involve proceeds of crime. Under the AML regime, the broker must report the transaction to which authority?

  1. The National Clearing Company of Pakistan
  2. The Pakistan Stock Exchange
  3. The Financial Monitoring Unit Correct answer.
  4. The Securities and Exchange Commission of Pakistan

Explanation

Under the Anti-Money Laundering Act, 2010, suspicious transaction reports are filed with the Financial Monitoring Unit. The FMU is the central agency for receiving and analysing such reports. The SECP supervises brokers, but STRs are submitted to the FMU.

Question 34Pakistan's Capital Market Regulation and Compliance

Under Pakistan's takeovers regulations, a person acquiring voting shares in a listed company generally triggers a mandatory public offer upon reaching which threshold?

  1. 25% or more of the voting shares
  2. 20% or more of the voting shares
  3. 30% or more of the voting shares Correct answer.
  4. 10% or more of the voting shares

Explanation

The Listed Companies (Substantial Acquisition of Shares and Takeovers) Regulations, 2017 require a mandatory public offer when a person acquires 30% or more of the voting shares or acquires control. The offer gives minority shareholders a regulated exit opportunity. Thresholds of 10%, 20% and 25% do not trigger the mandatory offer.

Question 35Pakistan's Capital Market Regulation and Compliance

How must a licensed securities broker in Pakistan handle cash belonging to clients?

  1. Transfer it to the exchange's investor protection fund until settlement
  2. Use it temporarily for the broker's working capital if repaid within a week
  3. Deposit it in the broker's operating account and track it in the ledger
  4. Keep it in a segregated client account separate from the broker's own funds Correct answer.

Explanation

Client money must be held in segregated accounts and not commingled with the broker's own funds. This protects clients if the broker becomes insolvent. Using client cash for working capital or holding it in the operating account breaches the segregation rule.

Question 36Pakistan's Capital Market Regulation and Compliance

Under the Companies Act, 2017, what is the minimum prescribed frequency for board meetings of a listed company?

  1. Only when requisitioned by shareholders
  2. At least once every half-year
  3. At least once every financial year
  4. At least once every quarter Correct answer.

Explanation

The Companies Act, 2017 requires the board of a listed company to meet at least once in every quarter. This supports regular oversight of management and financial reporting. Half-yearly, annual or shareholder-requisitioned meetings alone do not satisfy the statutory minimum.

Question 37Pakistan's Capital Market Regulation and Compliance

Under Pakistan's REIT Regulations, a REIT scheme must distribute to unit holders at least what proportion of its net income?

  1. 100%
  2. 90% Correct answer.
  3. 50%
  4. 70%

Explanation

The REIT Regulations, 2015 require a REIT scheme to distribute at least 90% of its net income to unit holders. This pass-through feature is central to the REIT investment framework. A 50%, 70% or 100% distribution is not the regulatory minimum.

Question 38Pakistan's Capital Market Regulation and Compliance

Which category of securities broker license allows a firm both to execute orders on the Pakistan Stock Exchange and to clear and settle those trades through NCCPL?

  1. Clearing-only broker
  2. Trading-only broker
  3. Trading and clearing broker Correct answer.
  4. Market maker

Explanation

The securities broker licensing regime distinguishes trading and clearing categories. A trading and clearing broker may execute orders on PSX and clear and settle through NCCPL. A trading-only or clearing-only license covers just one side, and market maker is not a license category.

Question 39Pakistan's Capital Market Regulation and Compliance

Under Pakistan's listed-company governance requirements, the annual financial statements must be certified by which officers before publication?

  1. CEO and CFO Correct answer.
  2. Chairman and company secretary
  3. CFO and external auditor
  4. Audit committee chair and internal auditor

Explanation

Listed companies must obtain CEO and CFO certification of the annual financial statements. The certification confirms that the statements give a true and fair view and that internal controls are effective. The chairman, company secretary, audit committee and external auditor do not provide this statutory certification.

Question 40Pakistan's Capital Market Regulation and Compliance

Which conduct is prohibited as market manipulation under Pakistan's securities law?

  1. Executing a large block trade through the exchange's block trade mechanism in line with PSX rules
  2. Purchasing a security after analyzing publicly available financial statements
  3. Entering orders that create a false or misleading appearance of active trading in a security Correct answer.
  4. Selling a security to rebalance a portfolio in line with a stated investment policy

Explanation

Market manipulation includes entering orders that create a false or misleading appearance of active trading. The prohibition targets conduct that distorts price discovery, not ordinary investment activity. Block trades, research-based purchases and portfolio rebalancing are legitimate when properly conducted.

Question 41Ethics, Code of Conduct and AML/CFT

A financial advisor in Karachi suspects that a client's funds are linked to drug trafficking. Under Pakistan's Anti-Money Laundering Act, 2010, where should the advisor's firm file a suspicious transaction report (STR)?

  1. With the Securities and Exchange Commission of Pakistan.
  2. With the Financial Monitoring Unit. Correct answer.
  3. With the National Counter Terrorism Authority.
  4. With the State Bank of Pakistan's banking supervision department.

Explanation

The Financial Monitoring Unit (FMU) is Pakistan's financial intelligence unit established under the Anti-Money Laundering Act, 2010. Reporting entities submit suspicious transaction reports to the FMU rather than to their sector regulator or to law-enforcement agencies.

Question 42Ethics, Code of Conduct and AML/CFT

After an STR has been filed on a client's account, the relationship manager asks whether he may tell the client that a report was made. What does the AML/CFT prohibition on tipping-off require?

  1. He may inform the client after obtaining branch manager approval.
  2. He must not disclose the STR or related information. Correct answer.
  3. He may inform the client only if the client asks directly.
  4. He may inform the client once the transaction has been completed.

Explanation

Tipping-off rules prohibit disclosing to the client, or to any unauthorised person, that an STR has been filed or that an investigation may follow. The prohibition protects the integrity of the reporting system and the investigation.

Question 43Ethics, Code of Conduct and AML/CFT

A firm is about to open an investment account for a new retail client and will accept an initial deposit. When must customer due diligence be completed under Pakistan's AML/CFT requirements?

  1. At the end of the first financial year after the account is opened.
  2. Within 30 days after the account has been opened for the client.
  3. Only when the client first requests a withdrawal from the account.
  4. Before establishing the relationship or completing the transaction. Correct answer.

Explanation

Customer due diligence must normally be completed before a business relationship is established or an occasional transaction is carried out. Limited deferral is permitted only in narrowly defined circumstances with safeguards, not as a routine 30-day or year-end practice.

Question 44Ethics, Code of Conduct and AML/CFT

A Pakistani asset management company onboards a foreign minister of a neighbouring country as a client. Which control set is most appropriate under a risk-based AML/CFT programme?

  1. Enhanced due diligence, senior approval, and source-of-funds checks. Correct answer.
  2. No due diligence until the client crosses the cash reporting threshold.
  3. Standard customer due diligence because politicians are ordinary clients.
  4. Simplified due diligence because the client is a public official.

Explanation

A foreign minister is a politically exposed person, which is a high-risk category. The firm should apply enhanced due diligence, obtain senior management approval, and establish the source of funds and source of wealth before or during onboarding.

Question 45Ethics, Code of Conduct and AML/CFT

Under Pakistan's AML/CFT record-keeping rules, how long must a financial advisor's firm retain customer identification records and transaction records after the business relationship ends?

  1. Until the client closes all accounts.
  2. Ten years.
  3. Five years. Correct answer.
  4. One year.

Explanation

The standard retention period is at least five years after the end of the business relationship or after the transaction was completed. Records may need to be kept longer if a legal or regulatory hold applies.

Question 46Ethics, Code of Conduct and AML/CFT

An advisor recommends a mutual fund that pays the firm a higher trailer commission than a comparable fund. The client is not told about the commission difference. Which ethical breach is most directly involved?

  1. Market manipulation through misleading recommendations.
  2. A breach of client confidentiality by the firm.
  3. A failure to keep adequate capital for the advisory business.
  4. An undisclosed conflict of interest affecting the advice. Correct answer.

Explanation

Remuneration differences can create a conflict between the advisor's interest and the client's interest. The conflict should be disclosed clearly so the client can assess whether the recommendation is influenced by the higher commission.

Question 47Ethics, Code of Conduct and AML/CFT

While advising a listed company, an advisor learns confidentially that the company will announce a takeover offer next week. What is the advisor's proper course of action?

  1. Tell a close friend who is not a client of the firm.
  2. Do not trade or tip others; follow insider-trading controls. Correct answer.
  3. Wait for the announcement and then trade on the news.
  4. Buy the shares for the client before the announcement.

Explanation

Information about a pending takeover is material and non-public, so trading on it or passing it on would be insider dealing. The advisor must keep the information confidential and follow the firm's controls for handling inside information.

Question 48Ethics, Code of Conduct and AML/CFT

A client deposits Rs 4.5 million in cash by making nine separate deposits of Rs 500,000 over two days and asks the advisor not to report the transactions. What should the advisor do?

  1. Refuse the deposits and close the account without further action.
  2. Accept the deposits because each one is below the CTR threshold.
  3. Treat the pattern as suspicious and file an STR. Correct answer.
  4. Report the deposits only at the end of the month in a management report.

Explanation

Deliberately splitting cash into smaller deposits to avoid reporting is known as structuring and is itself a suspicious indicator. The advisor should escalate the matter and file a suspicious transaction report with the FMU without tipping off the client.

Question 49Ethics, Code of Conduct and AML/CFT

When a corporate client opens an account, Pakistan's AML/CFT rules require the advisor's firm to identify:

  1. Only the company's registered address and external auditor.
  2. The natural persons who ultimately own or control the company. Correct answer.
  3. Only the names of the board of directors and the chief executive.
  4. Only the company's tax registration number and bank references.

Explanation

For legal persons, the firm must look through the corporate structure to identify the natural persons who ultimately own or control the client. This beneficial ownership information is needed to assess the real parties behind the relationship.

Question 50Ethics, Code of Conduct and AML/CFT

A client's confidential information is requested by a court order in a criminal investigation. How should the advisor respond under the code of conduct and AML/CFT obligations?

  1. Disclose only what the court order legally requires, following the firm's procedure. Correct answer.
  2. Disclose the information to the client's family before responding to the court.
  3. Publish the request to warn other clients about the investigation.
  4. Refuse all disclosure because client confidentiality is an absolute duty.

Explanation

Client confidentiality is not absolute and gives way to a valid legal obligation such as a court order. The firm should disclose only the information required, document the request, and follow its legal and compliance procedures.