Regulatory Framework and Compliance
Regulatory Framework and Compliance
This domain tests the laws and regulators that constrain banking and financial services, especially KYC, anti-money laundering, priority-sector lending and consumer protection. Expect questions on RBI, SEBI, IRDAI, PFRDA and reporting obligations.
Core rules and concepts
- RBI regulates banks and payment systems under the RBI Act and Banking Regulation Act; SEBI regulates securities markets; IRDAI regulates insurance; PFRDA regulates pensions.
- KYC and customer due diligence are mandatory; periodic updation depends on the customer’s risk category.
- PMLA requires cash transaction reports and suspicious transaction reports; STRs are confidential and have no minimum threshold.
- Priority sector lending includes agriculture, MSMEs, education, housing and weaker sections, with targets for banks.
- CRR is the share of net demand and time liabilities held with RBI; SLR is held in approved securities.
- Fair-practice codes require transparent charges and grievance redressal.
Worked example
A customer deposits ₹12 lakh in cash in one day. Because the amount exceeds the ₹10 lakh threshold for a cash transaction report, the bank must report it to FIU-India under PMLA. Reasoning: the trigger is the cash amount and the reporting rule, not whether the customer looks suspicious. If the same customer’s activity also raises suspicion, the bank files an STR separately; a CTR does not replace an STR.
Traps that cost marks
- Saying STRs have a ₹10 lakh threshold.
- Confusing CRR with SLR.
- Treating KYC as a one-time form rather than ongoing due diligence.
- Mixing the regulators’ jurisdictions.