Financial Regulations Overview

Questions and Answers

What is the main purpose of the Financial Action Task Force (FATF)?

To establish a universal banking system

To regulate the banking sector in member countries

To set standards for combating money laundering and terrorist financing (correct)

To manage international financial crises

Which legal framework governs anti-money laundering efforts in India?

The Foreign Exchange Management Act, 1999

The Prevention of Money-Laundering Act, 2002 (correct)

The Banking Regulation Act, 1949

The Financial Institutions Act, 2005

What must Regulated Entities (REs) do under the Prevention of Money-Laundering Act?

Establish account-less relationships with clients

Avoid monitoring transactions entirely

Follow customer identification procedures (correct)

Note all transactions without exception

How does India contribute to the integrity of the international financial system?

By committing to FATF standards and measures Signup and view all the answers

When was the Financial Action Task Force established?

1989 Signup and view all the answers

What do the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 focus on?

Establishing record-keeping for financial transactions Signup and view all the answers

What is one of the goals of anti-money laundering (AML) measures?

To enable lawful financial transactions Signup and view all the answers

Which of the following is NOT a reason for the establishment of the FATF?

Promoting international trade Signup and view all the answers

What does the term 'Originator' refer to in the context of wire transfers?

The account holder allowing the wire transfer Signup and view all the answers

In wire transfer terminology, what constitutes a 'Cover Payment'?

A wire transfer that includes a funding instruction from one institution Signup and view all the answers

Who qualifies as a Designated Director when the Reporting Entity (RE) is a partnership firm?

The Managing Partner duly authorized by the Board Signup and view all the answers

What is the main purpose of Customer Due Diligence (CDD)?

To identify and verify the customer and beneficial owner Signup and view all the answers

What constitutes an Officially Valid Document (OVD)?

Receipt for payment of property tax Signup and view all the answers

Which of the following best describes a 'Cross-border wire transfer'?

Transfers involving institutions in different countries Signup and view all the answers

In what context is the term 'Small Account' used?

For savings accounts with limited withdrawal capabilities Signup and view all the answers

Which of the following best describes 'Non-face-to-face customers'?

Customers who open accounts online without physical interaction Signup and view all the answers

What is the role of an 'Intermediary RE' in the wire transfer process?

To handle intermediary elements while receiving and transmitting transfers Signup and view all the answers

What does the term 'Digital KYC' primarily involve?

Live capture of customer photo and Aadhaar proof with location metadata Signup and view all the answers

What defines a 'Shell Bank'?

A bank without physical presence in the country of incorporation Signup and view all the answers

What distinguishes a 'Domestic wire transfer' from other types?

Both ordering and beneficiary institutions are located in India Signup and view all the answers

What does the term 'Periodic Updation' refer to in the context of banking?

The process of keeping identification data current and relevant Signup and view all the answers

What is indicated by 'Straight-through Processing' in transactions?

Transactions processed electronically without intervention Signup and view all the answers

What type of officer is required for conducting Digital KYC?

An authorized officer of the Reporting Entity Signup and view all the answers

Which framework must REs follow to ensure compliance with anti-money laundering laws?

Group-wide policies and adherence to FATF standards Signup and view all the answers

What is the role of 'Correspondent Banking'?

To facilitate banking services between two different banks Signup and view all the answers

Which document is NOT considered Officially Valid under the given guidelines?

A bank statement showing transaction history Signup and view all the answers

What does the 'Unique transaction reference number' signify?

A code generated for tracking purposes of a transaction Signup and view all the answers

What is classified as a 'suspicious transaction'?

A transaction that appears complex or involves proceeds from an offense Signup and view all the answers

Which of the following is NOT part of Customer Due Diligence?

Amount of loans received Signup and view all the answers

What is the definition of 'KYC Templates'?

Templates for collating KYC data for reporting purposes Signup and view all the answers

In terms of risk assessment, what must REs periodically conduct?

Risk assessments related to money laundering and terrorist financing Signup and view all the answers

Which document is valid for proof of address if common OVDs are outdated?

Utility bill not older than two months Signup and view all the answers

What does 'Video based Customer Identification Process (V-CIP)' involve?

Live audio-visual interaction for customer identity verification Signup and view all the answers

What does a 'Serial Payment' specifically entail in the wire transfer process?

A chain of payments where instructions travel together Signup and view all the answers

What does the term 'Principal Officer' refer to?

An officer at the management level nominated for compliance tasks Signup and view all the answers

Under which condition is 'Customer Due Diligence' mandatory?

During the opening of accounts or high-value transactions Signup and view all the answers

Which of the following is NOT a requirement for REs according to KYC policies?

Restriction of services to certain customer types Signup and view all the answers

What is NOT a requirement for the Digital Signature as defined?

Being signed in a physical setting Signup and view all the answers

What is the main objective of the Foreign Account Tax Compliance Act (FATCA)?

To ensure foreign institutions report U.S. taxpayers' financial accounts Signup and view all the answers

Which of the following statements about the term 'Financial Institution' is accurate?

It encompasses a variety of entities engaged in financial transactions Signup and view all the answers

When is an Officially Valid Document still considered valid despite a name change?

If it is accompanied by a marriage certificate or official Gazette notification Signup and view all the answers

What characterizes 'Ongoing Due Diligence' in a banking context?

Regular review of customer transactions for compliance Signup and view all the answers

What denotes an ‘Equivalent e-document’?

An electronic version of a document with a digital signature Signup and view all the answers

How does the term 'Beneficiary' specifically function in wire transfers?

As the person identified to receive the funds Signup and view all the answers

What is meant by 'Batch transfer' in banking transactions?

Multiple individual funds transfers to a single institution Signup and view all the answers

Which of the following defines 'Group' accurately?

The same meaning as assigned in the Income-tax Act Signup and view all the answers

What does the term 'Customer identification' imply?

The process of undertaking Customer Due Diligence Signup and view all the answers

What is the function of 'Payable-through accounts'?

Accounts utilized by third parties for their direct transactions Signup and view all the answers

Which of the following acts primarily oversees the management of anti-money laundering standards in India?

Prevention of Money-Laundering Act, 2002 Signup and view all the answers

What percentage of ownership is considered as 'controlling ownership interest' in a company under the definition of Beneficial Owner?

10 percent Signup and view all the answers

In the context of beneficial ownership for a partnership, who qualifies as the beneficial owner?

Persons with more than 10 percent ownership of capital or profits Signup and view all the answers

Which of the following guidelines applies to subsidiaries of regulated entities located abroad?

They must adopt the more stringent regulation Signup and view all the answers

What is the definition of 'Authentication' in the context of Aadhaar?

A process for confirming identity via Aadhaar Signup and view all the answers

Who has the authority to apply additional measures to manage ML/TF risks according to the RBI?

Regulated entities at their discretion Signup and view all the answers

What does a 'Certified Copy' involve in the context of Aadhaar verification?

Comparing a copy with the original Signup and view all the answers

Under which circumstance is the rule on adopting more stringent regulations not applicable?

For small accounts as specified in certain regulations Signup and view all the answers

Which of the following is NOT considered a beneficial owner when the customer is a trust?

All individuals involved in the trust Signup and view all the answers

How is the Central KYC Records Registry (CKYCR) defined?

A collection of digital KYC records Signup and view all the answers

What must be done if applicable laws prohibit the implementation of RBI's guidelines in a host country?

Notify the RBI of the prohibition Signup and view all the answers

What does the term 'body of individuals' include according to the beneficial ownership definition?

Societies and similar groups Signup and view all the answers

Which section of the Prevention of Money-Laundering Act defines 'Aadhaar number'?

Section 2(a) Signup and view all the answers

What should the internal risk assessment by REs take into account?

Overall sector-specific vulnerabilities Signup and view all the answers

Who is responsible for ensuring compliance with the obligations under Chapter IV of the PML Act?

The Designated Director Signup and view all the answers

What is the minimum frequency for reviewing the risk assessment exercise?

Once a year Signup and view all the answers

Which of the following actions is not permissible if customer cooperation is lacking for CDD measures?

Opening the account anyway Signup and view all the answers

What is a requirement for customers under the Customer Acceptance Policy?

Ensuring no account is opened in a fictitious name Signup and view all the answers

What must be communicated to the FIU-IND concerning the Designated Director?

The name, designation, and address Signup and view all the answers

What should REs do when they suspect money laundering but believe CDD could tip-off the customer?

File an STR and refrain from CDD Signup and view all the answers

What is the basis for risk categorization of customers?

Geographical risk and customer identification Signup and view all the answers

Which type of information is essential for KYC purposes during account opening?

Mandatory identification documents Signup and view all the answers

What must be kept confidential regarding customer risk categorization?

The reasons for categorization Signup and view all the answers

Which of the following is NOT a parameter for risk categorization of customers?

Customer's academic qualifications Signup and view all the answers

In what scenario does the RE need to verify the Permanent Account Number (PAN)?

When PAN is obtained from the customer Signup and view all the answers

What action should be taken if doubt exists about the authenticity of customer identification data?

Deny account opening entirely Signup and view all the answers

What is the threshold amount for transactions involving non-account-based customers that requires special attention?

Rupees fifty thousand Signup and view all the answers

What is required for verifying a customer's identity when a third-party customer due diligence is performed?

Records must be obtained immediately from the third-party. Signup and view all the answers

Which document is NOT required when establishing an account-based relationship with an individual?

Passport number Signup and view all the answers

When is an RE allowed to rely on customer due diligence conducted by a third party?

When the third party's compliance measures are sufficient. Signup and view all the answers

What must be done if e-KYC authentication cannot be performed due to a customer's condition?

Offline verification or other documentation must be obtained. Signup and view all the answers

What is required for customer authentication through OTP in accounts opened using Aadhaar?

Specific consent from the customer Signup and view all the answers

What should customers do if they submit a proof of possession of Aadhaar number?

Redact the Aadhaar number if no authentication is needed. Signup and view all the answers

What is the maximum aggregate balance allowed in all deposit accounts for a customer using OTP based e-KYC?

Rupees one lakh Signup and view all the answers

Which of the following is NOT a requirement for V-CIP to ensure compliance?

Data ownership must rest with the customer Signup and view all the answers

Which of the following statements accurately describes the handling of exceptions in customer due diligence?

A centralized database for exceptions must be maintained. Signup and view all the answers

What is one of the key requirements for an RE when taking a live photo during verification?

It must align with provisions under the Information Technology Act. Signup and view all the answers

What happens to accounts if the CDD procedure is not completed within a year under OTP based e-KYC?

Deposit accounts are closed immediately Signup and view all the answers

What must a bank or RE do when a customer opts to submit an Aadhaar number?

Conduct authentication using e-KYC facility. Signup and view all the answers

How must customer consent be recorded during the V-CIP process?

In an auditable and alteration-proof manner Signup and view all the answers

What is the limit on the aggregate of all credits in a financial year for accounts opened using OTP based e-KYC?

Rupees two lakh Signup and view all the answers

What is required from REs in terms of periodic audits concerning exception handling?

Audits must include review of the exception database. Signup and view all the answers

Which of the following is NOT a valid reason for an RE to deny a digital KYC verification?

Customer's preference for traditional identification methods. Signup and view all the answers

Which type of loans can be sanctioned for borrowal accounts under OTP based e-KYC?

Term loans only Signup and view all the answers

What should individual customers provide during the V-CIP process?

The equivalent e-document of activity proofs Signup and view all the answers

What must be done in the case of exception handling for a customer who refuses to provide documentation?

Initial verification can be recorded in the exception database. Signup and view all the answers

What must REs do when conducting verification using any OVD during the account opening process?

The digital signature must be verified according to IT laws. Signup and view all the answers

Which of the following must Regulated Entities (REs) demonstrate regarding their technology infrastructure?

It must originate from a secured network domain Signup and view all the answers

What is the consequence of detecting forged identity through V-CIP?

It must be reported as a cybersecurity event Signup and view all the answers

What happens if a customer submits documentation that can't be authenticated through e-KYC?

RE will conduct offline verification or request certified copies instead. Signup and view all the answers

What is NOT a feature of the V-CIP application requirements?

Allowing connections from any IP address worldwide Signup and view all the answers

Which requirement exists for uploading KYC information of accounts opened via OTP based e-KYC?

Indicating the method of account opening in CKYCR Signup and view all the answers

What must be regularly upgraded based on experiences with detected cases of forged identity?

Technology infrastructure including application software Signup and view all the answers

What must NOT be retained by the cloud service provider after the V-CIP process is completed?

Video recordings Signup and view all the answers

What action must be taken if there is a change in only the customer's address details?

A self-declaration with verification must be obtained. Signup and view all the answers

What is a required step when periodic KYC documentation has expired?

A fresh KYC process is necessary as if onboarding a new customer. Signup and view all the answers

How should REs handle KYC updates when a customer was a minor at account opening?

A fresh photograph and updated CDD documents are required. Signup and view all the answers

What must the V-CIP application undergo before being deployed in a live environment?

Functional, performance, and maintenance testing Signup and view all the answers

Which condition should NOT trigger the initiation of a fresh session during V-CIP?

Disruption such as pausing of video happens Signup and view all the answers

What must REs do to prevent fraud during Aadhaar authentication?

Ensure the mobile number for OTP matches the profile on record. Signup and view all the answers

What documentation must be obtained from LE customers with no KYC changes?

Self-declaration via authorized email or letter is required. Signup and view all the answers

Which statement regarding the identification verification process during V-CIP is true?

The process must be completed within three working days after obtaining identification information. Signup and view all the answers

How often must REs conduct customer verification for KYC updates?

At any time deemed necessary according to risk assessment. Signup and view all the answers

What is a required action if the customer’s address differs from the OVD during V-CIP?

Capture the current address records. Signup and view all the answers

What must accounts of customers who were minors at the time of account opening provide?

New photographs and KYC documents as per current standards. Signup and view all the answers

What must happen before accounts opened via V-CIP become operational?

They need to undergo a concurrent audit for process integrity. Signup and view all the answers

Which aspect is NOT relevant to the performance of the V-CIP according to the guidelines?

Officials performing the V-CIP report to external regulatory bodies. Signup and view all the answers

In case of an absence of KYC information changes, what act must REs perform?

Obtain a self-declaration from the customer. Signup and view all the answers

What is the implication of a missing positive confirmation for address updates when using Aadhaar e-KYC?

Positive confirmation is not required for address updates. Signup and view all the answers

In the context of V-CIP, which option describes a valid reason for rejecting the account opening process?

Prompting observed at the end of the customer. Signup and view all the answers

What is a requirement when obtaining a self-declaration from a LE customer?

It can be through any electronic medium available. Signup and view all the answers

How should the recording of V-CIP be managed according to the guidelines?

Stored securely with a date and time stamp. Signup and view all the answers

Which type of customer account can be opened with special limitations under V-CIP?

Small Accounts with a maximum yearly credit of rupees one lakh. Signup and view all the answers

What approach should REs take for customers who have outdated KYC documents?

Conduct a KYC process as if onboarding a new customer. Signup and view all the answers

What must be ensured when conducting a liveness check during V-CIP?

The sequence of questions must be varied. Signup and view all the answers

Which of the following measures must REs clearly document in their internal KYC policy?

Additional requirements for exceptional KYC updates. Signup and view all the answers

What protocol must be followed if an individual's signature is required in a prison setting for account opening?

The designated officer must certify the signature. Signup and view all the answers

When must REs provide acknowledgment to the customer?

After receiving any and all documents for KYC updation. Signup and view all the answers

What document should be verified during periodic KYC updates if available?

The customer's PAN details from the issuing authority's database. Signup and view all the answers

Which must be preserved in the records of V-CIP according to the regulations?

Activity log and the credentials of the official performing V-CIP. Signup and view all the answers

What is NOT an acceptable form of identification during V-CIP?

Printed copy of equivalent e-document including e-PAN. Signup and view all the answers

In what case can REs adopt different frequency metrics for KYC updates?

Only if they have listed it in their internal policy. Signup and view all the answers

What does the term 'Assisted V-CIP' refer to?

When banks utilize Business Correspondents to facilitate the process. Signup and view all the answers

What is the maximum initial operational period for a small account before it can be extended?

Twelve months Signup and view all the answers

Under which conditions can foreign remittance be credited to a small account?

When the identity of the customer is fully established Signup and view all the answers

What is the total credit limit for all accounts held by a customer in a small account?

Rupees one lakh Signup and view all the answers

What must a customer be notified about regarding their account balance in a small account?

When the balance reaches rupees forty thousand Signup and view all the answers

What document is required when opening an account for a sole proprietary firm?

Registration certificate or equivalent e-documents Signup and view all the answers

Which entity can open an account if a customer cannot produce the required documents?

Non-Banking Finance Companies (NBFCs) Signup and view all the answers

What is the purpose of the customer due diligence (CDD) process in account opening?

To verify the identity of the customer Signup and view all the answers

Which of the following is NOT a requirement for the operation of a small account?

Customer must provide a utility bill Signup and view all the answers

What action must be taken if a customer breaches the prescribed transaction limits?

Full KYC procedure must be completed immediately Signup and view all the answers

What type of documentation is necessary for opening an account for a partnership firm?

Registration certificate and PAN Signup and view all the answers

How long can a small account remain operational if the holder provides evidence of applying for OVDs?

Twelve months Signup and view all the answers

Which governing authority allows a relaxation in account operation periods due to extraordinary circumstances?

The Central Government Signup and view all the answers

What must NBFCs acquire from a customer to validate account opening in the absence of documents?

A self-attested photograph Signup and view all the answers

In the case of suspected money laundering, what must be established for the customer?

Their identity as per specific sections Signup and view all the answers

What document is specifically required for the opening of a trust account?

Registration certificate Signup and view all the answers

Which of the following entities does NOT require identification of shareholders or beneficial owners as per the regulations?

Listed entities on stock exchanges in India Signup and view all the answers

What is necessary to verify for unincorporated associations when opening an account?

A resolution from the managing body Signup and view all the answers

In which scenario must trustees disclose their status when commencing an account-based relationship?

At the time of account opening or during transactions Signup and view all the answers

What action must be taken for transactions that exceed certain thresholds?

They need to be monitored closely Signup and view all the answers

How often should high-risk customer accounts be reviewed for KYC?

Every six months Signup and view all the answers

Which aspect of customer due diligence must be aligned with the risk category of the customer?

The frequency of KYC updates Signup and view all the answers

Which of the following is a requirement for banks regarding records of transactions?

To maintain records for a minimum of ten years Signup and view all the answers

What type of information must be collected to establish the legal existence of an unincorporated association?

Resolution from the managing body of the association Signup and view all the answers

What is the significance of 'ongoing due diligence' in financial transactions?

It ensures transactions match the customer’s risk profile Signup and view all the answers

What is required from banks before opening a Non-Resident Ordinary (NRO) account for a foreign student?

Declaration of local address within 30 days Signup and view all the answers

Which type of customers is subject to enhanced due diligence measures?

High risk customers Signup and view all the answers

What must be verified when opening an account for a juridical person?

Legal existence of the entity Signup and view all the answers

What document must be submitted by students with Pakistani nationality before opening an NRO account?

Prior approval of the Reserve Bank Signup and view all the answers

Which type of transactions should always be monitored as per the guidelines?

Large and complex transactions Signup and view all the answers

What is the minimum retention period for transaction records as per the guidelines mentioned?

Five years Signup and view all the answers

Under the PML Act, what must Reporting Entities (REs) do with regard to customer identification records?

Maintain them for five years after termination of the customer relationship Signup and view all the answers

For what duration should periodic KYC updates occur for medium-risk customers?

Every two years Signup and view all the answers

How should banks handle accounts pending local address verification?

Allow foreign remittances not exceeding USD 1,000 Signup and view all the answers

What should REs do if the details of a non-profit organization are not registered on the DARPAN portal?

Register the details themselves Signup and view all the answers

What constitutes a separate violation when reporting transactions to the Director, FIU-IND?

Delay in reporting transactions beyond the specified time limit Signup and view all the answers

What is the role of the editable electronic utilities provided by FIU-IND?

Filing Cash Transaction Reports and Suspicious Transaction Reports Signup and view all the answers

Which information must be made available to the competent authorities by REs upon request?

Identification records and transaction data Signup and view all the answers

What must REs ensure regarding the maintenance of account information?

System allows easy retrieval of data Signup and view all the answers

What type of accounts require KYC documents according to SEBI guidelines?

Foreign Portfolio Investor (FPI) accounts Signup and view all the answers

What do banks need from FPIs during the customer due diligence process?

An undertaking regarding exempted documents Signup and view all the answers

Which aspect is NOT included in the definition of 'records pertaining to identification' as per the guidelines?

Volume of business correspondence Signup and view all the answers

What is the cap on aggregate foreign remittances allowed in pending address verification?

Rupees 50,000 Signup and view all the answers

What is the consequence for a Regulated Entity (RE) if a customer fails to provide their Permanent Account Number or equivalent documentation by the notified date?

The RE will temporarily cease operations in the account. Signup and view all the answers

Which circumstance allows a RE to include relaxation measures in their internal policy for customers unable to provide necessary documents?

Customers unable to provide documents due to illness or age. Signup and view all the answers

What must a customer do if they do not wish to submit their Permanent Account Number to the RE?

Provide a letter indicating their choice to the RE. Signup and view all the answers

Which of the following is a requirement for Enhanced Due Diligence (EDD) for non-face-to-face customer onboarding?

Verify the current address through positive confirmation. Signup and view all the answers

What should the first transaction in non-face-to-face accounts ideally be?

A credit from the customer's existing KYC-complied bank account. Signup and view all the answers

Which measure should be taken regarding alternate mobile numbers once Customer Due Diligence (CDD) is completed?

Not link them post CDD for transaction purposes. Signup and view all the answers

What type of customers must accounts opened in non-face-to-face mode be subjected to?

Enhanced monitoring until identity verification is complete. Signup and view all the answers

In relation to Politically Exposed Persons (PEPs), which of the following statements is correct?

Ongoing monitoring is necessary for PEP accounts. Signup and view all the answers

What should be done if an existing beneficial owner of an account becomes a PEP?

Seek approval from senior management to maintain the relationship. Signup and view all the answers

What is required when opening accounts managed by professional intermediaries?

Beneficial owners must be identified unless confidentiality is in place. Signup and view all the answers

What is the definition of 'temporary ceasing of operations' in customer accounts?

Suspension of all transactions or activities in the account. Signup and view all the answers

What information must the RE obtain when a customer initiates a change of registered mobile number?

A robust process of due diligence through a Board approved policy. Signup and view all the answers

What constitutes a breach in compliance when dealing with non-face-to-face customer onboarding?

Failing to establish a robust EDD process. Signup and view all the answers

Which of the following best describes what constitutes an equivalent e-document?

Digital representation of identification or verification documents. Signup and view all the answers

What requirement must Regulated Entities (REs) adhere to under Section 51A of the UAPA Act, 1967?

They cannot hold accounts for individuals/entities listed as having terrorist links. Signup and view all the answers

What is a critical aspect of maintaining confidentiality in record-keeping as per the PML Rules?

Confidentiality must not prevent sharing of unusual transaction analyses. Signup and view all the answers

Which of the following implies compliance with the Weapons of Mass Destruction (WMD) Act, 2005?

REs must immediately report transaction details if particulars match those on the designated list. Signup and view all the answers

What should REs do when there are changes in the UNSC Sanctions Lists?

Verify these lists daily and take immediate action on any modifications. Signup and view all the answers

What action should be taken if a financial transaction involves an individual listed under the UAPA?

Immediately freeze the assets and notify the Central Nodal Officer. Signup and view all the answers

What is the periodic compliance requirement for REs under the WMD Act concerning designated lists?

Run checks against designated lists at customer relationship establishment and periodically thereafter. Signup and view all the answers

What is a responsibility of REs regarding the freezing of assets under the WMD Act?

The process must adhere to specified government orders without delay. Signup and view all the answers

Which act governs the obligations related to freezing assets linked to WMD activities?

Weapons of Mass Destruction Act, 2005. Signup and view all the answers

What should REs do if a customer is suspected of holding funds that fall under the WMD Act regulations?

Notify the Central Nodal Officer and prevent the transaction immediately. Signup and view all the answers

How often must REs review and reconcile the UNSCR 1718 Sanctions List?

Daily to ensure immediate compliance with changes. Signup and view all the answers

What must REs do when engaging with natural and legal persons from jurisdictions that do not apply FATF Recommendations?

Conduct enhanced due diligence measures. Signup and view all the answers

What must REs do with the information about accounts resembling those on the UNSC lists?

Report to FIU-IND and notify the Ministry of Home Affairs. Signup and view all the answers

What is the purpose of alerts generated by robust software regarding transactions?

To identify transactions inconsistent with customer profiles and risk categorization. Signup and view all the answers

Which factor should REs examine regarding transactions with persons from jurisdictions included in FATF Statements?

The background and purpose of the transactions. Signup and view all the answers

What is a key requirement for REs regarding the confidentiality of customer information?

They must maintain secrecy unless customer consent is obtained. Signup and view all the answers

What steps should be taken following a request from an individual/entity for unfreezing previously frozen assets?

Forward the application details to the CNO within two working days. Signup and view all the answers

Under the provisions of the PML Rules, how soon must REs upload customer KYC records to CKYCR after forming an account relationship?

Within 10 days. Signup and view all the answers

What is required of REs concerning risks associated with the profiles of their customers?

Continuous monitoring and updates must be part of their process. Signup and view all the answers

What is the role of CERSAI regarding KYC information as per the recent guidelines?

To act as the Central KYC Records Registry. Signup and view all the answers

Which of the following entities needs to ensure compliance with the Foreign Contribution (Regulation) Act, 2010?

All banks and financial institutions. Signup and view all the answers

What should REs do if they receive a request for information from government agencies?

Verify the request and ensure no privacy laws are violated. Signup and view all the answers

What is required of REs with respect to periodic updating of KYC information?

They should update when new KYC information is received or during periodic checks. Signup and view all the answers

What should REs do once a KYC Identifier is generated by CKYCR?

Communicate the KYC Identifier to the customer. Signup and view all the answers

What must REs focus on when assessing business relationships with countries flagged by FATF?

Apply enhanced due diligence measures tailored to risks. Signup and view all the answers

How should REs maintain records of findings related to high-risk transactions?

Written findings and documents must be retained and made available on request. Signup and view all the answers

What is the approach of REs towards legitimate trade and business transactions with jurisdictions listed by FATF?

They can engage in transactions but must conduct enhanced due diligence. Signup and view all the answers

What technological approach are REs encouraged to adopt for sanctions compliance?

Latest technological innovations and tools for name screening. Signup and view all the answers

What must the correspondent bank verify about the respondent bank regarding CDD?

The respondent bank must provide relevant CDD information upon request. Signup and view all the answers

Which of the following is a requirement for batch transfers?

The batch file must contain the originator's account number or unique transaction reference number. Signup and view all the answers

What is prohibited in terms of correspondent banking relationships?

Entering into relationships with banks in jurisdictions with strategic deficiencies. Signup and view all the answers

Which requirement applies to domestic wire transfers of fifty thousand rupees and above?

They must include both originator and beneficiary information. Signup and view all the answers

What information must be provided for domestic wire transfers below fifty thousand rupees?

Only a unique transaction reference number may be included. Signup and view all the answers

How must the wire transfer information be made available to law enforcement agencies?

Immediately upon receiving requests accompanied by appropriate legal provisions. Signup and view all the answers

In which situation do the wire transfer instructions not apply?

Wire transfers carried out using credit or debit cards for goods and services. Signup and view all the answers

What is a unique transaction reference number used for in wire transfers?

To allow tracing of the transaction back to the originator or beneficiary. Signup and view all the answers

Which of the following requirements applies to regulations regarding KYC/AML in correspondent banks?

Respondent banks must have KYC/AML policies and procedures in place. Signup and view all the answers

What must the correspondent bank ensure regarding the respondent bank's accounts?

They do not allow accounts to be accessed by shell banks. Signup and view all the answers

Under what circumstance is a customer required to resubmit KYC records after an account-based relationship has been established?

If there is a change in the customer's information. Signup and view all the answers

Which requirement must Reporting Entities (REs) fulfill under FATCA and CRS to ensure compliance?

Use a digital signature of the Designated Director for online reports. Signup and view all the answers

What should a Reporting Entity do if they suspect an account is being operated as a Money Mule?

Report the suspicious transaction to FIU-IND. Signup and view all the answers

What role does the 'High Level Monitoring Committee' play in a Reporting Entity?

To ensure compliance with AML regulations. Signup and view all the answers

What is a significant consequence for a bank that does not file a suspicious transaction report when it is established that an account is a Money Mule?

The bank is deemed non-compliant with directions. Signup and view all the answers

When collecting account payee cheques, which of the following holds true?

They can be collected only if they are drawn for co-operative credit societies' customers. Signup and view all the answers

What must Reporting Entities do when establishing new correspondent banking relationships?

Perform CDD measures and assess the respondent bank’s AML/CFT controls. Signup and view all the answers

Which technology-related requirement is specifically mentioned for reporting entities?

Develop an IT framework for due diligence procedures. Signup and view all the answers

What must be ensured for walk-in or occasional customers concerning the Unique Customer Identification Code (UCIC)?

Mechanisms must be in place to identify them and potentially issue a UCIC. Signup and view all the answers

What is a requirement for the validity of documents downloaded from CKYCR?

Their validity period must not have lapsed. Signup and view all the answers

What aspect of risk management is highlighted for Reporting Entities when developing new products?

Adopt a risk-based approach to manage emerging risks. Signup and view all the answers

Which of the following is a condition that banks must assess for correspondent banking relationships?

The regulatory framework in the home country of the respondent bank. Signup and view all the answers

What is a prerequisite for presenting payment instruments such as cheques?

They must be presented within three months from the date of the instrument. Signup and view all the answers

What is the purpose of the schema prepared by the Central Board of Direct Taxes (CBDT) in relation to reporting requirements?

To be referred to while submitting reports like Form 61B. Signup and view all the answers

Study Notes

Money Laundering and Terrorist Financing Prevention

Continuous efforts are made internationally and nationally to prevent financial institutions from being channels for money laundering (ML) and terrorist financing (TF).
The Financial Action Task Force (FATF), established in 1989, standardizes measures against ML and TF to safeguard the international financial system.
India is a committed FATF member, emphasizing the integrity of the financial system through legal frameworks.

Legal Framework in India

The Prevention of Money-Laundering Act (PMLA) 2002 and the Maintenance of Records Rules 2005 set the foundation for anti-money laundering (AML) and counter-terrorism financing (CFT) measures in India.
Regulated entities (REs) must implement customer identification procedures and monitor transactions as per PMLA and its amendments.

Regulatory Authority

The Reserve Bank of India (RBI) issues directives under various acts to enforce AML and CFT compliance among financial institutions.
Provisions extend to REs' branches and majority owned subsidiaries located internationally, considering local laws of the host countries.

Customer Due Diligence and Beneficial Ownership

REs must carry out Customer Due Diligence (CDD) to identify customers and beneficial owners, ensuring measures against illegal activities.
Beneficial ownership definitions vary based on the type of entity (company, partnership, association, trust) and include control criteria over ownership interests.

Identification and Verification Requirements

Certified copies of Aadhaar numbers or equivalent documents must be verified and archived by REs for identification.
Non-Resident Indians (NRIs) may need certified documents from Indian embassies or banks for adequate identification.

Key Definitions and Processes

"Officially Valid Document" (OVD) includes passports, voter ID cards, Aadhaar numbers, among others.
"Suspicious transactions" are defined as transactions that raise reasonable suspicions of ML or TF activities, regardless of their value.

Small Accounts and Transaction Definitions

Small accounts refer to savings accounts specified in PML Rules, enabling simplified monitoring.
A transaction encompasses various financial actions including deposits, withdrawals, and account openings.

Compliance and Reporting Obligations

Institutions are obligated to monitor transactions regularly and keep customer data updated.
Compliance encompasses refining KYC practices across all financial sectors and includes implementing additional measures if local regulations are less stringent.

Technological and Operational Measures

Use of Digital KYC involves capturing customer identification digitally with compliance to standards.
Video-based Customer Identification Process (V-CIP) provides an alternate identification method compliant with existing regulations.

Miscellaneous Terms and Concepts

Correspondent banking allows one bank to provide services to another, encompassing areas like international wire transfers and cash management.
FATCA (Foreign Account Tax Compliance Act) requires compliance from foreign financial institutions regarding U.S. taxpayer accounts.
"Shell Bank" refers to a bank without meaningful presence in its home country, critical for investigation of ML or TF activities.### Cross-Border and Domestic Wire Transfers
Cross-border wire transfer involves financial institutions in different countries, including any chain of transfers with at least one international institution.
Domestic wire transfer occurs entirely within India, with both ordering and beneficiary institutions located within the country.

Definitions of Key Terms

Financial Institution: Defined per FATF Recommendations, crucial for wire transfer operations.
Intermediary RE: Financial entities regulated by RBI, handling intermediary elements of wire transfers in chains and transmitting payments.
Ordering RE: Financial institution that initiates the wire transfer upon request from the originator.
Originator: Account holder or entity placing an order for a wire transfer.
Serial Payment: A direct chain of payments where transfers travel concurrently with payment messages.
Straight-Through Processing: Transactions processed electronically without manual intervention.
Unique Transaction Reference Number: A unique identifier assigned by the payment service provider for each wire transfer.

Regulatory Framework

Compliance must align with several laws and regulations, including the Banking Regulation Act and PML Act.
KYC policies must be board-approved and regularly assessed for effectiveness against money laundering and terrorism financing risks.
Risk assessments of money laundering and terrorist financing must be documented, reviewed annually, and reported to the Board.

Customer Due Diligence (CDD)

CDD procedures ensure identification of clients with required documents like Aadhaar and PAN.
Mandatory to document suspicions of money laundering or terrorist financing when CDD processes may tip off customers.
Risk-based approach for customer categorization, based on identity, status, business nature, and transactions.

Customer Acceptance Policies

Establish measures against denial of banking services to vulnerable populations.
Systems for KYC verification must ensure no accounts are opened anonymously or without proper documentation.

Electronic KYC and Account Opening

E-KYC via Aadhaar authentication requires explicit customer consent and must ensure secure, monitored transaction alerts.
Set restrictions on account balances and transaction limits for accounts opened through OTP-based e-KYC procedures.

V-CIP (Video Customer Identification Process)

Utilized for customer identification during remote onboarding for individuals and authorized representatives of legal entities, ensuring compliance with regulatory standards.

Risk Management Approaches

Establish robust policies for mitigating identified risks, including implementing CDD programs responsive to customer profiles and transaction characteristics.
Conduct periodic audits and maintain a centralized database for exception handling related to KYC compliance.

International Standards Compliance

Integrate best practices aligned with FATF standards in anti-money laundering and counter-terrorism financing programs for effective governance.

Customer Due Diligence (CDD) and KYC Procedures

In CDD for proprietorship firms, equivalent e-documents of activity proofs must be obtained along with the proprietor's CDD.
Conversion of accounts in non-face-to-face mode requires Aadhaar OTP based e-KYC as per regulations.
KYC must be updated periodically for eligible customers.

Cybersecurity and Technology Infrastructure

Registered Entities (REs) must comply with RBI guidelines on minimum cybersecurity and IT risk management.
Technology infrastructure must be secure, housed on RE premises, and compliant with RBI guidelines regarding outsourcing.
Data ownership must remain with RE, ensuring immediate transfer of recordings to secured servers post video-based customer identification process (V-CIP).

Video Conference Identification Process (V-CIP)

End-to-end encryption of data is required between customer devices and V-CIP systems.
Customer consent must be auditable and alteration-proof.
V-CIP must prevent connections from non-Indian or spoofed IP addresses.
Live video must include GPS coordinates and timestamps to confirm customer presence.
V-CIP applications must include face liveness detection and matching technologies for secure identification.
The infrastructure should undergo regular vulnerability assessments, penetration testing, and security audits by CERT-In empaneled auditors.

Standard Operating Procedures (SOPs)

Clear workflows and SOPs for V-CIP must be established and followed by trained officials.
Any video call disruptions should not create multiple video files unless there’s a disconnection.
Variability in questioning during V-CIP is crucial to verify real-time interactions and detect pre-recorded sessions.

Account Opening Restrictions

Small Accounts can be opened with a limit on total credits and must adhere to conditions such as verification of identity for any rise in suspicion of money laundering or terrorism financing.
NBFCs may exercise discretion in opening accounts without specified documents, subject to conditions regarding KYC and transaction limits.
Existing customers’ transfer between branches is allowed, provided full KYC was completed and is valid.

Documentation Requirements for Different Entities

Proprietorship accounts require CDD of the individual and two proofs of business activity, e.g., registration certificates or tax documents.
Company accounts necessitate certified incorporation documents, board resolutions, and beneficiary identification.
Partnership firms need registration certificates and PAN details.
Trust accounts require a range of documents including registration certificates and beneficiary information.
Unincorporated associations must provide resolutions from managing bodies and power of attorney documents.

Beneficial Ownership and Ongoing Due Diligence

Identification of beneficial owners must be thorough, especially for legal persons and fiduciaries, with ongoing due diligence to assess transactions against risk profiles.
Unusual transactions, particularly high-risk ones, should be monitored closely.
The use of AI and machine learning can enhance transaction monitoring and risk assessment.

Compliance and Monitoring

REs are obliged to perform ongoing due diligence on customers to ensure transactions align with their established profiles.
Monitoring should escalate for high-risk accounts, with a mandated periodic review at least every six months.
Any suspicious activity, particularly in high-risk sectors, must be reported to the appropriate authorities, including the Reserve Bank of India.

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Description

This quiz covers key updates and regulations affecting banks and financial institutions. Dive into the changes implemented from 2016 to 2024 to understand how they impact the financial sector. Test your knowledge on important compliance measures and prevention strategies against misuse.