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Questions and Answers
What types of businesses can conduct Labuan insurance or Takaful activities?
What types of businesses can conduct Labuan insurance or Takaful activities?
What is NOT considered part of Labuan insurance business?
What is NOT considered part of Labuan insurance business?
What requirements must a licensee meet to conduct offshore insurance-related activities?
What requirements must a licensee meet to conduct offshore insurance-related activities?
Which of the following accurately describes domestic insurance business as defined in the Act?
Which of the following accurately describes domestic insurance business as defined in the Act?
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Why are Malaysian insurers encouraged to approach Labuan IBFC licensed insurers?
Why are Malaysian insurers encouraged to approach Labuan IBFC licensed insurers?
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What is the primary restriction imposed on insurers with composite licenses under the FSA?
What is the primary restriction imposed on insurers with composite licenses under the FSA?
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What standard must auditors appointed by insurers meet according to the FSA?
What standard must auditors appointed by insurers meet according to the FSA?
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Which of the following is a provision established to handle complaints in financial services?
Which of the following is a provision established to handle complaints in financial services?
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What is the maximum grace period granted for composite insurers/takaful operators to de-merge?
What is the maximum grace period granted for composite insurers/takaful operators to de-merge?
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What action is required from a person entering a contract of general insurance outside Malaysia?
What action is required from a person entering a contract of general insurance outside Malaysia?
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What does Schedule 9 (Part 2) address regarding insurance contracts?
What does Schedule 9 (Part 2) address regarding insurance contracts?
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Under what circumstances can BNM take over control of an insurer's operations?
Under what circumstances can BNM take over control of an insurer's operations?
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Which provision may lead to the removal of a director or chief executive officer?
Which provision may lead to the removal of a director or chief executive officer?
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How does the FSA support risk management practices within financial institutions?
How does the FSA support risk management practices within financial institutions?
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What type of insurance business can a licensed insurer carry out as per Section 16(1) of the FSA?
What type of insurance business can a licensed insurer carry out as per Section 16(1) of the FSA?
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What requirement must composite insurers fulfill in relation to subsection 16(1)?
What requirement must composite insurers fulfill in relation to subsection 16(1)?
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Which definition accurately describes a 'consumer insurance contract' under Schedule 9 of the FSA?
Which definition accurately describes a 'consumer insurance contract' under Schedule 9 of the FSA?
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What is one of the primary objectives of the Islamic Financial Services Act 2013 (IFSA)?
What is one of the primary objectives of the Islamic Financial Services Act 2013 (IFSA)?
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Which body has the authority to set Syariah standards under the Islamic Financial Services Act?
Which body has the authority to set Syariah standards under the Islamic Financial Services Act?
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What is the role of the Syariah Advisory Council (SAC) in Malaysia's Islamic financial sector?
What is the role of the Syariah Advisory Council (SAC) in Malaysia's Islamic financial sector?
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What does the pre-contractual duty of disclosure entail for consumers entering an insurance contract?
What does the pre-contractual duty of disclosure entail for consumers entering an insurance contract?
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Which of the following subsections from the repealed Insurance Act 1996 will remain effective until a specified date?
Which of the following subsections from the repealed Insurance Act 1996 will remain effective until a specified date?
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What are non-consumer insurance contracts defined as under the FSA?
What are non-consumer insurance contracts defined as under the FSA?
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What is the primary legal rule applied to online contracts in cases of acceptance?
What is the primary legal rule applied to online contracts in cases of acceptance?
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Which Act uses the receipt rule to establish how contracts are created online?
Which Act uses the receipt rule to establish how contracts are created online?
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Under which condition is the acceptance of an offer deemed complete in electronic contracts?
Under which condition is the acceptance of an offer deemed complete in electronic contracts?
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Which issue requires further legal clarification concerning electronic contracts?
Which issue requires further legal clarification concerning electronic contracts?
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Which section of the Electronic Transactions Act supports the validity of electronic offers?
Which section of the Electronic Transactions Act supports the validity of electronic offers?
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When is the time of receipt for an electronic data message considered to occur?
When is the time of receipt for an electronic data message considered to occur?
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Which of the following is NOT a method used to form electronic contracts?
Which of the following is NOT a method used to form electronic contracts?
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Which article of the UNCITRAL Model Law on Electronic Commerce validates data messages in contracts?
Which article of the UNCITRAL Model Law on Electronic Commerce validates data messages in contracts?
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What is the primary purpose of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA)?
What is the primary purpose of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA)?
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According to the Contracts Act 1950, when is communication of acceptance considered complete against the proposer?
According to the Contracts Act 1950, when is communication of acceptance considered complete against the proposer?
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Which of the following must Labuan Islamic Takaful operators establish to ensure compliance?
Which of the following must Labuan Islamic Takaful operators establish to ensure compliance?
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What happened to the number of approved Labuan insurance entities from 2012 to 2013?
What happened to the number of approved Labuan insurance entities from 2012 to 2013?
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Which of the following acts is NOT listed as supporting legislation for the main acts?
Which of the following acts is NOT listed as supporting legislation for the main acts?
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What key principle is emphasized by the postal rule in the Contracts Act 1950?
What key principle is emphasized by the postal rule in the Contracts Act 1950?
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What was the total asset recorded for Labuan insurance entities at the end of 2013?
What was the total asset recorded for Labuan insurance entities at the end of 2013?
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Which section of the Contracts Act 1950 discusses the rules for communication of acceptance?
Which section of the Contracts Act 1950 discusses the rules for communication of acceptance?
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What is required for a digital signature to be verified according to the Digital Signature Act 1997 (Malaysia)?
What is required for a digital signature to be verified according to the Digital Signature Act 1997 (Malaysia)?
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Under the UNCITRAL Model Law, how can the requirement for a signature of the originator or addressee be met?
Under the UNCITRAL Model Law, how can the requirement for a signature of the originator or addressee be met?
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What does Article 15 of the Model Law indicate about the dispatch of data messages?
What does Article 15 of the Model Law indicate about the dispatch of data messages?
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According to the content, what is one issue that requires parliamentary action?
According to the content, what is one issue that requires parliamentary action?
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What does the UCITA and UCC indicate about the creation of electronic contracts?
What does the UCITA and UCC indicate about the creation of electronic contracts?
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What aspect does the Malaysian Contracts Act 1950 lack regarding electronic contracts?
What aspect does the Malaysian Contracts Act 1950 lack regarding electronic contracts?
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In the context of time and place of dispatch, what is the 'place of dispatch' according to Article 15?
In the context of time and place of dispatch, what is the 'place of dispatch' according to Article 15?
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What does Article 6 of the UNCITRAL Model Law state about the writing requirement?
What does Article 6 of the UNCITRAL Model Law state about the writing requirement?
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Which agency has the power to investigate money laundering cases related to laws administered by FSA 2013 and IFSA 2013?
Which agency has the power to investigate money laundering cases related to laws administered by FSA 2013 and IFSA 2013?
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What is one of the primary roles of Bank Negara Malaysia under the Anti-Money Laundering Act (AMLA)?
What is one of the primary roles of Bank Negara Malaysia under the Anti-Money Laundering Act (AMLA)?
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How many information-sharing Memoranda of Understanding (MoUs) had Bank Negara Malaysia signed with foreign authorities by 2012?
How many information-sharing Memoranda of Understanding (MoUs) had Bank Negara Malaysia signed with foreign authorities by 2012?
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What are 'predicate offenses' in the context of the Anti-Money Laundering Act?
What are 'predicate offenses' in the context of the Anti-Money Laundering Act?
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Which of the following actions is NOT part of BNM's initiatives regarding money laundering and terrorism financing?
Which of the following actions is NOT part of BNM's initiatives regarding money laundering and terrorism financing?
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Which illegal activity is typically associated with money laundering?
Which illegal activity is typically associated with money laundering?
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Which of these methods is NOT commonly used by criminals to launder money?
Which of these methods is NOT commonly used by criminals to launder money?
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What does the term 'illicit funds' refer to in the context of money laundering?
What does the term 'illicit funds' refer to in the context of money laundering?
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What is one of the primary functions of the Companies Act 1950?
What is one of the primary functions of the Companies Act 1950?
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Which statement is true regarding corporate governance practices?
Which statement is true regarding corporate governance practices?
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What aspect is included in the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001?
What aspect is included in the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001?
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Which principle is commonly associated with codes of corporate governance?
Which principle is commonly associated with codes of corporate governance?
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What denotes a transaction that must be reported by reporting institutions under AMLATFA?
What denotes a transaction that must be reported by reporting institutions under AMLATFA?
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Which of the following is NOT a focus of the Companies Act 1950?
Which of the following is NOT a focus of the Companies Act 1950?
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Why do governments establish codes of corporate governance?
Why do governments establish codes of corporate governance?
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Which statement correctly describes the role of the Board in corporate governance?
Which statement correctly describes the role of the Board in corporate governance?
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What is the first stage of money laundering where illicit proceeds are physically deposited?
What is the first stage of money laundering where illicit proceeds are physically deposited?
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Which of the following best describes the layering stage of money laundering?
Which of the following best describes the layering stage of money laundering?
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What is the main purpose of Customer Due Diligence (CDD) as outlined in the new guidelines issued in September 2012?
What is the main purpose of Customer Due Diligence (CDD) as outlined in the new guidelines issued in September 2012?
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Which statement accurately differentiates terrorism financing from money laundering?
Which statement accurately differentiates terrorism financing from money laundering?
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What shared vulnerability do money laundering and terrorist financing exploit in financial systems?
What shared vulnerability do money laundering and terrorist financing exploit in financial systems?
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Which aspect is required for agents who process business transactions in relation to Customer Due Diligence?
Which aspect is required for agents who process business transactions in relation to Customer Due Diligence?
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What is the economic impact of money laundering and financing of terrorism as stated by regulatory authorities?
What is the economic impact of money laundering and financing of terrorism as stated by regulatory authorities?
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What is meant by the term 'integration' in the money laundering process?
What is meant by the term 'integration' in the money laundering process?
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Study Notes
Statutory and Regulatory Framework of the Underwriting Function
- The Financial Services Act 2013 (FSA) prohibits insurers from operating both general and life insurance businesses unless they are professional reinsurers.
- The Islamic Financial Services Act 2013 (IFSA) mirrors this prohibition for takaful operators.
- The FSA empowers Bank Negara Malaysia (BNM) to set standards for capital adequacy, liquidity, corporate governance, risk management, and reserve funds.
- The FSA allows BNM to examine insurers' business affairs without prior notice and remove directors or executives who do not meet "fit and proper" requirements.
Savings and Transitional Provisions
- The Insurance Act 1996 remains in effect until the implementation of Schedule 9 of the FSA.
- Composite insurers have five years to de-merge into separate entities.
Conversion to Single Insurance Business
- Composite insurers must comply with the FSA requirement of operating only one type of insurance business within five years.
Concept of 'consumer insurance contract' and 'pre-contractual duty of disclosure'
- Schedule 9 of the FSA, implemented on July 1, 2014, applies to insurance contracts entered into, varied, or renewed after that date.
- "Consumer insurance contracts" are those unrelated to an individual's trade, business, or profession, while "non-consumer insurance contracts" are purchased by businesses or professional organizations.
- The Act introduces a "pre-contractual duty of disclosure," requiring consumers to be truthful before entering into insurance contracts.
The Islamic Financial Services Act 2013 (IFSA)
- The IFSA establishes the regulatory framework for Malaysia's Islamic financial sector.
- It grants BNM regulatory and supervisory powers over Islamic banks, takaful operators, and other Islamic financial institutions.
- The IFSA empowers BNM to set Syariah standards to ensure compliance among Islamic financial institutions.
- The Syariah Advisory Council (SAC) is the highest Syariah authority in Islamic finance in Malaysia, responsible for ruling on Islamic banking, takaful, and Islamic product-related matters.
Labuan Financial Services and Securities Act 1990 (LFSSA)
- This Act consolidates the Labuan Trust Companies Act 1990, Offshore Banking Act 1990, Offshore Insurance Act 1990, and Labuan Offshore Securities Industry Act 1988.
Labuan Insurance Activities
- Labuan companies with valid licenses can conduct Labuan insurance or takaful business, including insurance, reinsurance, takaful, retakaful, captive insurance, and other offshore insurance activities approved by the Labuan FSA.
- Licensees must demonstrate the fitness and propriety of their controllers, directors, and CEOs, and maintain enough funds for six months of operations.
Scope of Insurance Activities
- Labuan Insurance business refers to insurance business conducted in foreign currency that is not considered domestic.
- Labuan insurers can reinsure domestic insurance business (in Malaysian ringgit) and other authorized businesses.
- Labuan insurance brokers cannot act as brokers for domestic risks.
The Regulatory and Legal Environment of Underwriting
- The Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) provides a one-stop regulatory framework for Syariah-compliant financial and business activities in Labuan.
- Labuan Islamic Takaful operators must comply with Syariah principles and establish an internal Syariah advisory board.
Ancillary Legislation
- The Contracts Act 1950
- The Companies Act 1965
- The Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFA)
- The Competition Act 2010
- The Personal Data Protection Act 2010
Contracts Act 1950 (CA 1950)
- Insurance contract law in Malaysia is primarily governed by the Contracts Act 1950.
- Section 4(2) outlines two rules for communication of acceptance: postal and receipt rules.
- The postal rule states that acceptance is complete when the letter communicating acceptance is posted.
- The receipt rule states that acceptance is complete when the letter communicating acceptance is received by the offeror.
Online Contracts
- The Contracts Act 1950 does not detail procedures for online contracts.
- The postal rule and receipt rule apply when forming an electronic contract.
Electronic Commerce
- Electronic contracts are formed using email, electronic data interchange (EDI), web interfaces, and chat services.
- Acceptance of an offer in an electronic contract is deemed complete when the data message is received by the offeror.
Electronic Contracts Formation
- Article 5 and 11 of the UNCITRAL Model Law on Electronic Commerce validate data messages in contracts.
- Section 11 of Singapore's Electronic Transactions Act 1998 also supports the validity of electronic offers and acceptances.
Writing Requirement
- While the Contracts Act 1950 does not explicitly address writing requirements for electronic contracts, laws may still require certain contracts to be in writing.
The Digital Signature Act 1997
- The Digital Signature Act 1997 allows for electronic signatures to fulfill the requirement for written signatures.
- The Act provides conditions for verifying digital signatures and guidelines for their use in electronic contracts.
Time and Place of Dispatch and Receipt of Data Messages
- Dispatch occurs when the message enters an information system outside the originator's control.
- Receipt occurs when the message enters the recipient's designated information system.
- The place of dispatch is the originator's place of business or habitual residence.
Issues Requiring Parliamentary Action
- Parliament needs to address the determination of when an electronic message becomes effective and when an electronic contract is created.
Companies Act 1950 (CA)
- The Companies Act 1950 concerns itself with:
- Company registration
- Preparation and submission of annual accounts
- Asset valuation
- Liability valuation
Corporate Governance
- Corporate governance refers to the processes and structures through which the Board and senior executives manage a company at the highest level.
- Codes of corporate governance aim to prevent corporate failure, fraud, and mismanagement which can negatively affect the market system and the economy.
Codes of Corporate Governance
- Common principles in corporate governance codes globally include:
- Respecting and encouraging shareholder participation
- Acknowledging obligations to other stakeholders
- Ensuring the Board has the skills and understanding to review management performance
- Developing a code of conduct for ethical decision-making
- Making the roles and responsibilities of the Board and management public
- Establishing procedures for financial reporting verification
Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFA)
- This Act came into effect on January 15, 2002, and was later amended to include Anti-Terrorism Financing.
- It covers money laundering offenses, measures to prevent money laundering and terrorism financing, and asset forfeiture.
Reporting Institutions
- Reporting institutions (such as financial institutions and insurers) are required to report specific transactions to a competent authority.
- These transactions include those exceeding a specified amount or raising suspicion of illicit funds.
Money Laundering
- Money laundering is a process by which the illicit source of assets obtained through criminal activity is concealed to obscure the link between the funds and the original criminal activity.
- Criminals use reporting institutions to launder illicit funds from drug trafficking, corruption, smuggling, fraud, forgery, and cheating.
- Money is legitimized through the banking system using nominees, front companies, money changers, and cash transactions.
- AMLA provides investigation powers to freeze and seize assets involved in money laundering or terrorism financing offenses.
BNM's Role in Combating Money Laundering
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BNM is the competent authority under AMLA.
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BNM takes measures to ensure insurers and intermediaries take effective steps to combat money laundering and terrorism financing, including issuing guidelines, supervisory AML/CFT reviews, and feedback sessions.
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BNM receives Suspicious Transaction Reports (STR) and Cash Threshold Reports (CTR), analyzes them, and makes recommendations to the relevant supervisory authority, enforcement agency, and reporting institutions.
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BNM also creates training requirements and provides training related to anti-money laundering and terrorism financing.### Money Laundering
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Money laundering requires an underlying crime such as corruption, drug trafficking, fraud, tax evasion, or market manipulation.
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It is the process of concealing the proceeds of a crime or furthering the criminal enterprise.
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Money laundering threatens the stability of a country's financial sector and can destabilize its economy.
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It involves three activities: placement, layering, and integration.
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Placement: physically depositing illegal profits
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Layering: obscuring the origin of illicit funds through transactions that disguise the trail and provide anonymity
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Integration: blending laundered funds into the economy as legitimate sources
Terrorism Financing
- Terrorism involves unlawful use of force and violence against people or property to intimidate and coerce governments or civilians to achieve political or social objectives.
- Terrorism financing raises and processes assets to provide resources for terrorist activities.
- Both money laundering and terrorism financing exploit vulnerabilities in financial systems that lack transparency and require a high level of anonymity.
Anti-Money Laundering & Counter Financing of Terrorism (AML/CFT)
- Regulators issued new guidelines for AML/CFT in the insurance and takaful sectors in September 2012.
- These guidelines require specific Customer Due Diligence (CDD) measures to enable reporting institutions to comply with their obligations.
- CDD is also required for business transactions made through agents, and insurers must enforce these requirements on their agents.
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Description
Test your knowledge on the statutory and regulatory framework governing the underwriting function in the financial services sector. This quiz covers key legislation such as the Financial Services Act 2013 and the Islamic Financial Services Act 2013, along with provisions related to insurance businesses. Brush up on essential concepts and regulations that shape the industry.