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IIBF AML/KYC practice questions

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Question 1Know Your Customer (KYC)

Under the RBI Master Direction on KYC, which document is accepted as an Officially Valid Document (OVD) for proof of identity when it contains both the applicant's photograph and address?

  1. A rent agreement registered with the local authority
  2. A valid passport Correct answer.
  3. A recent electricity bill in the applicant's name
  4. A certificate of incorporation of a proprietary concern

Explanation

The RBI KYC framework treats a valid passport as an Officially Valid Document because it carries the holder's photograph and address details, so it can serve as both identity and address proof. Utility bills and rent agreements are address-only proofs, and a certificate of incorporation relates to a legal entity rather than a natural person.

Question 2Know Your Customer (KYC)

A customer opens a savings account through a video-based Customer Identification Process (V-CIP). Which element is mandatory for the regulated entity to complete before the account becomes operational?

  1. A personal visit to the customer's residence by the branch manager
  2. Publishing the customer's name on the entity's website for thirty days
  3. Obtaining a banker's reference from another scheduled bank
  4. Recording and storing the video interaction along with the verified OVD copies Correct answer.

Explanation

V-CIP requires the regulated entity to capture an authenticated video of the customer, retain the recording and the documents verified during the session, and keep an audit trail. A physical home visit, external banker reference, or public disclosure is not a condition for activating an account opened via V-CIP.

Question 3Know Your Customer (KYC)

Which risk category does the RBI KYC framework require a regulated entity to assign to every new customer at the time of account opening?

  1. A category prescribed by the local police station for the customer's area
  2. A uniform low-risk category until a transaction exceeds one lakh rupees
  3. A risk category based on the entity's own documented risk assessment Correct answer.
  4. A category decided solely by the customer on the account opening form

Explanation

Regulated entities must adopt a risk-based approach and assign each customer a risk rating using their own board-approved policy, considering factors such as the customer's profile, business, and location. The rating cannot be delegated to the customer, fixed uniformly by statute, or set by an external authority such as the police.

Question 4Know Your Customer (KYC)

A regulated entity is required to carry out periodic KYC updation. Which statement correctly reflects the RBI requirement for a medium-risk customer?

  1. KYC must be updated at least once every five years Correct answer.
  2. KYC must be updated at least once every eight years
  3. KYC must be updated at least once every ten years
  4. KYC must be updated at least once every two years

Explanation

The RBI framework sets periodic updation cycles of two years for high-risk, eight years for low-risk, and ten years for medium-risk customers. A medium-risk customer therefore falls in the ten-year cycle, not the two-year or eight-year cycle.

Question 5Know Your Customer (KYC)

A walk-in customer wants to purchase a demand draft for fifty thousand rupees without holding an account with the regulated entity. What does the KYC framework require for such a transaction?

  1. The customer must provide a guarantor who holds an account with the entity
  2. The customer must be identified and the transaction recorded even though no account is opened Correct answer.
  3. No identification is needed because the customer has no account relationship
  4. The customer must open a savings account before any draft can be issued

Explanation

The KYC framework extends to occasional transactions above the prescribed threshold, so a walk-in customer must still be identified and the transaction documented even without an account relationship. Opening an account or producing a guarantor is not a legal precondition for issuing a draft.

Question 6Know Your Customer (KYC)

When a regulated entity cannot complete customer due diligence for an applicant, what does the RBI KYC framework direct the entity to do?

  1. Open the account with a temporary limit until documents arrive
  2. Open the account and report the shortfall to the local police
  3. Open the account after obtaining a self-declaration from the customer
  4. Consider not opening the account and file a suspicious transaction report if warranted Correct answer.

Explanation

Where CDD cannot be completed, the entity should refrain from opening the account or commencing the relationship and must consider whether a suspicious transaction report is warranted. A self-declaration or temporary limit does not substitute for completed due diligence.

Question 7Know Your Customer (KYC)

Which party is responsible for verifying the identity of a customer when an account is opened through a Business Correspondent (BC) model?

  1. The local branch of another bank nominated by the customer
  2. The regulated entity, which remains accountable for the KYC performed at the BC point Correct answer.
  3. The Business Correspondent alone, since it faces the customer directly
  4. The customer's employer, where the account is salary-based

Explanation

Even where a Business Correspondent assists in sourcing or servicing customers, the regulated entity remains responsible for KYC compliance and for the acts of its BC. Accountability cannot be shifted to the BC, an employer, or a third-party bank.

Question 8Know Your Customer (KYC)

A customer's account shows a sudden series of cash deposits just below the reporting threshold, spread across several branches on the same day. This pattern most directly indicates which money laundering technique?

  1. Round-tripping of export proceeds
  2. Structuring or smurfing Correct answer.
  3. Cuckoo smurfing through third-party accounts
  4. Layering through insurance products

Explanation

Deposits deliberately kept below the reporting threshold and split across branches or persons are the classic sign of structuring, also called smurfing. Round-tripping concerns export proceeds returning as investment, cuckoo smurfing involves third parties depositing into an account, and insurance layering uses policy products.

Question 9Know Your Customer (KYC)

Under the KYC framework, when must a regulated entity complete the identification and verification of a customer in a normal account relationship?

  1. Within seven days of the first deposit into the account
  2. Within thirty days after the account is opened
  3. At the time of the first annual review after opening
  4. Before the account is opened or the relationship is established Correct answer.

Explanation

Customer identification and verification must be completed before an account is opened or a relationship is established, subject to the limited exceptions expressly permitted by the regulator. Post-facto verification after a fixed number of days is not the general rule.

Question 10Know Your Customer (KYC)

Which customer would typically be classified as high risk under a risk-based KYC policy?

  1. A pensioner receiving monthly credits from the government
  2. A salaried employee with a regular payroll credit account
  3. A student holding a small savings account funded by a parent
  4. A non-resident customer operating through a trust structure in a jurisdiction with weak AML standards Correct answer.

Explanation

Complex ownership structures, non-resident status, and exposure to jurisdictions with weak AML regimes are recognised high-risk indicators. Salaried employees, pensioners, and students with modest, transparent accounts are generally low-risk profiles.

Question 11Know Your Customer (KYC)

A regulated entity decides to close an existing account because the customer repeatedly fails to provide updated KYC documents despite reminders. Which action is consistent with the RBI approach?

  1. Transfer the balance to the entity's profit and loss account
  2. Hand over the account records to the customer's employer
  3. Close the account after giving due notice and allow the customer to withdraw the balance Correct answer.
  4. Freeze the account forever without informing the customer

Explanation

Where a customer fails to cooperate on periodic updation, the entity may close the account after giving reasonable notice and must return the balance to the customer. Permanent freezing without notice, appropriation of funds, or disclosure to an employer would be improper.

Question 12Know Your Customer (KYC)

Which concept refers to the requirement that a regulated entity identify and verify the natural persons who ultimately own or control a legal entity customer?

  1. Nominee arrangement registration
  2. Correspondent banking due diligence
  3. Politically exposed person screening
  4. Beneficial ownership identification Correct answer.

Explanation

Beneficial ownership identification requires the entity to look through a legal arrangement to the natural persons who ultimately own or control it. Nominee registration, correspondent due diligence, and PEP screening are distinct concepts.

Question 13Know Your Customer (KYC)

A foreign bank maintains a relationship with an Indian bank and uses that relationship to clear transactions for its own customers. What is this relationship called in KYC and AML terms?

  1. Escrow agency relationship
  2. Pooled investment vehicle
  3. Custodial agency arrangement
  4. Correspondent banking relationship Correct answer.

Explanation

A correspondent banking relationship arises when one bank holds accounts for, or provides services to, another bank to clear transactions for its customers. Custodial, pooled investment, and escrow arrangements serve different purposes and are not defined by interbank clearing services.

Question 14Know Your Customer (KYC)

A regulated entity is onboarding a customer who is a senior official of a foreign political party. Which measure does the KYC framework require before establishing the relationship?

  1. Automatic rejection of the application
  2. Enhanced due diligence with senior management approval and source of funds verification Correct answer.
  3. Standard due diligence with no additional checks
  4. Referral of the application to the customer's political party for consent

Explanation

Politically exposed persons require enhanced due diligence, senior management approval, reasonable steps to establish source of wealth and funds, and ongoing monitoring. Automatic rejection, ordinary due diligence, or seeking the party's consent is not the prescribed approach.

Question 15Know Your Customer (KYC)

A customer submits a photocopy of a utility bill as address proof. What does the KYC framework require the regulated entity to do with the document?

  1. Accept it without further checks if the name matches
  2. Send it to the billing utility for confirmation of payment history
  3. Verify it against the original or through a reliable independent source Correct answer.
  4. Retain it only if the customer signs every page

Explanation

A copy of an OVD must be verified against the original, or through a reliable independent source, before it is accepted as proof. Mere name matching or page-signing does not satisfy the verification requirement, and payment history is irrelevant.

Question 16Know Your Customer (KYC)

A regulated entity is designing ongoing due diligence for its customers. Which activity best exemplifies ongoing monitoring rather than initial KYC?

  1. Scanning the account for unusual transaction patterns against the customer's profile Correct answer.
  2. Obtaining a self-certified address at onboarding
  3. Collecting a photograph at the time of account opening
  4. Recording the customer's occupation on the application form

Explanation

Ongoing monitoring compares actual activity with the customer's known profile to detect deviations and is a continuing obligation. Collecting a photograph, address, or occupation at onboarding are initial identification steps.

Question 17Know Your Customer (KYC)

Which of the following is the correct treatment of a customer who is a low-risk individual under the risk-based approach?

  1. Simplified or reduced due diligence consistent with the entity's policy Correct answer.
  2. Full enhanced due diligence with source of wealth verification
  3. No identification because the risk is low
  4. Mandatory senior management approval before opening the account

Explanation

Low-risk customers may receive simplified due diligence, but identification and verification are never dispensed with entirely. Enhanced due diligence and senior approval apply to higher-risk cases, not low-risk individuals.

Question 18Know Your Customer (KYC)

What is the primary purpose of maintaining a record of KYC documents and transactions under the AML framework?

  1. To reduce the number of branches needed for customer service
  2. To replace the need for suspicious transaction reporting
  3. To increase the bank's fee income from documentation charges
  4. To enable reconstruction of transactions and support investigations when required Correct answer.

Explanation

Record retention allows the entity and authorities to reconstruct transactions and customer identity for investigations and regulatory review. Documentation charges, branch reduction, and replacing STRs are not objectives of the retention requirement.

Question 19Know Your Customer (KYC)

A customer insists on conducting a large transaction while refusing to explain the source of funds. The relationship manager is unsure how to proceed. Which action is most consistent with the KYC framework?

  1. Complete the transaction and note the refusal in the file for future reference
  2. Split the transaction into smaller amounts to avoid scrutiny
  3. Decline to proceed and escalate the matter for consideration of a suspicious transaction report Correct answer.
  4. Ask the customer to sign an indemnity and complete the transaction

Explanation

Refusal to explain source of funds for a large transaction is a red flag that warrants declining the transaction and escalating internally so that an STR can be considered. Proceeding with a file note, taking an indemnity, or splitting the transaction would undermine the AML controls.

Question 20Know Your Customer (KYC)

Which of the following best describes the role of the Designated Director under the RBI KYC framework?

  1. To ensure compliance with the obligations under the PMLA and the KYC directions at the entity level Correct answer.
  2. To act as the sole point of contact for law enforcement in criminal trials
  3. To approve individual loan applications above a specified limit
  4. To personally verify every customer's documents at the branch

Explanation

The Designated Director is responsible for overall compliance with the PMLA and the KYC directions and for ensuring that systems and controls are in place. Personal document verification, criminal trial representation, and credit approvals are not part of this role.

Question 21Know Your Customer (KYC)

A regulated entity uses the Central KYC Records Registry (CKYCR) during onboarding. What is the main benefit of this system?

  1. It transfers the entity's KYC responsibility to the registry
  2. It allows a customer's KYC records to be shared and reused across regulated entities Correct answer.
  3. It guarantees that a customer will never be classified as high risk
  4. It eliminates the need for any customer identification

Explanation

The CKYCR stores KYC records in a standard format so that regulated entities can retrieve and reuse them, reducing duplicate effort. It does not remove the identification requirement, affect risk classification, or shift compliance responsibility away from the entity.

Question 22Know Your Customer (KYC)

A non-profit organisation seeks to open an account and its office bearers cannot clearly explain the source of donations received from overseas. Which risk indicator is most relevant here?

  1. Regular utility payments from a savings account
  2. High-value cash deposits by salaried individuals
  3. Opaque funding sources and cross-border flows for a non-profit entity Correct answer.
  4. Small recurring deposits by a pensioner

Explanation

Non-profit entities with unexplained or cross-border funding are recognised as higher risk because of the potential for misuse for terror financing or layering. Salaried cash deposits, utility payments, and pension deposits are ordinary low-risk patterns.

Question 23Know Your Customer (KYC)

When a regulated entity relies on a third party to carry out customer due diligence, what does the RBI framework require?

  1. The entity remains responsible and must obtain the required information from the third party without delay Correct answer.
  2. The entity must obtain prior approval from each customer before relying on the third party
  3. The entity may rely on the third party without any documentation
  4. The entity must transfer its AML obligations entirely to the third party

Explanation

Reliance on a third party does not dilute the entity's own responsibility; it must obtain the CDD information promptly and ensure the third party is regulated and supervised. Blanket reliance, transfer of obligations, or customer-by-customer approval is not required.

Question 24Know Your Customer (KYC)

Which of the following is a recognised method of verifying a customer's identity through digital means under the KYC framework?

  1. Relying on a social media profile page
  2. Accepting a handwritten note from a neighbour
  3. Video-based customer identification with face matching against an OVD Correct answer.
  4. Accepting a verbal declaration over a phone call

Explanation

V-CIP verifies identity by capturing a live video, matching the customer's face with the photograph in an OVD, and retaining the recording. Verbal declarations, social media profiles, and neighbours' notes do not meet the verification standard.

Question 25Know Your Customer (KYC)

A regulated entity's customer has a complex ownership chain involving multiple offshore companies. What is the appropriate KYC response?

  1. Investigate the ownership chain to identify the natural persons who ultimately own or control the customer Correct answer.
  2. Rely on the customer's assurance that the structure is legitimate
  3. Accept the listed holding company as the beneficial owner without further enquiry
  4. Close the account immediately without any review

Explanation

Complex ownership structures require the entity to look through the chain to identify the natural persons who ultimately own or control the customer, with enhanced scrutiny where opacity is high. Accepting the holding company, immediate closure, or relying on assurances is insufficient.

Question 26Know Your Customer (KYC)

Under the RBI KYC framework, which element forms the first step of the customer acceptance policy applied to a prospective customer?

  1. Classifying the customer into a risk category before any transaction is permitted
  2. Describing the types of customers that may be accepted and those that require enhanced scrutiny Correct answer.
  3. Filing a suspicious transaction report with FIU-IND before opening the account
  4. Obtaining the customer's consent to share KYC data with the Central KYC Records Registry

Explanation

The customer acceptance policy is the documented set of rules describing which categories of customers a regulated entity will accept, which it will accept only with enhanced due diligence, and which it will refuse. It is approved by the board and sets the risk-based boundaries within which individual customers are then assessed. Consent to CKYCR and STR filing are separate obligations that arise at different stages.

Question 27Know Your Customer (KYC)

A regulated entity is collecting the minimum information required for a customer who is a natural person. Which set of details does the KYC framework require to be obtained?

  1. Name, date of birth, and the customer's social media identifiers
  2. Name, address, and the customer's employer's registered address
  3. Name, address, occupation, and purpose of the intended relationship Correct answer.
  4. Name, PAN, and the customer's income tax return for the last year

Explanation

For an individual, the framework requires the entity to obtain identity details, address, occupation, and the purpose of the account or relationship. These items feed directly into risk categorisation and ongoing monitoring. Additional documents such as PAN may be required for specified products, but they are not the universal minimum set.

Question 28Know Your Customer (KYC)

Which official document is most commonly prescribed as the proof of identity for an individual customer under the RBI KYC framework?

  1. A mobile phone bill in the customer's name
  2. A rent agreement signed by the landlord
  3. A passport bearing the customer's photograph Correct answer.
  4. A letter from the customer's neighbour confirming identity

Explanation

A passport is a standard officially valid document for identity verification because it carries a photograph and is issued after government verification. Rent agreements, utility bills, and third-party letters do not independently establish identity. The framework lists officially valid documents, and regulated entities must accept only those from the approved list.

Question 29Know Your Customer (KYC)

What does the term 'customer' mean when the KYC framework is applied to a person acting on behalf of another?

  1. Only the beneficial owner, irrespective of who operates the account
  2. The person in whose name the account is opened, including any person authorised to act on that account Correct answer.
  3. Only the natural person who physically signs the account opening form
  4. Only the entity that introduces the customer to the regulated entity

Explanation

The definition of customer extends to the person in whose name the account is maintained and to any person authorised to act on that account, such as an attorney holder or mandate holder. This prevents a regulated entity from treating the operator as the only person requiring identification. The beneficial owner must also be identified separately under ownership requirements.

Question 30Know Your Customer (KYC)

Which record-keeping obligation applies to the KYC documents collected from a customer who is later onboarded?

  1. Records must be transferred to the customer on request and then deleted
  2. Records must be retained for at least five years after the business relationship ends Correct answer.
  3. Records must be destroyed once the customer's identity has been verified
  4. Records must be retained only until the first anniversary of account opening

Explanation

The framework requires KYC records and related transaction records to be preserved for at least five years after the business relationship ends or the transaction is carried out. This retention period supports investigations that may commence long after onboarding. Destroying records early would defeat the purpose of the audit trail.

Question 31Know Your Customer (KYC)

Which body is designated to maintain the Central KYC Records Registry in India?

  1. An entity authorised by the central government for this purpose Correct answer.
  2. The Insurance Regulatory and Development Authority of India
  3. The Securities and Exchange Board of India
  4. The Reserve Bank of India directly

Explanation

The CKYCR is operated by a central registry authorised for the purpose, and regulated entities upload KYC records to it in a standard format. The registry allows a customer's KYC record to be retrieved by another reporting entity, reducing repeated documentation. The RBI is the regulator that mandates the upload, not the operator of the registry.

Question 32Know Your Customer (KYC)

A regulated entity is preparing its board-approved KYC policy. Which component must the policy contain?

  1. The marketing plan for cross-selling products to high-risk customers
  2. Procedures for monitoring transactions and for risk categorisation of customers Correct answer.
  3. A list of the names of all customers the entity intends to refuse
  4. The entity's profit targets for each customer segment

Explanation

The KYC policy must contain four key elements: customer acceptance policy, customer identification procedures, monitoring of transactions, and risk management. Transaction monitoring procedures and risk categorisation are therefore mandatory content. Commercial matters such as profit targets and marketing plans are not part of the KYC policy.

Question 33Know Your Customer (KYC)

Which statement correctly describes the relationship between the Money Laundering Prevention framework and KYC obligations in India?

  1. KYC obligations are voluntary guidelines with no statutory backing
  2. KYC obligations apply only to foreign currency transactions
  3. KYC obligations arise only from contract terms between the bank and the customer
  4. KYC obligations arise from the Prevention of Money Laundering Act and the rules made under it Correct answer.

Explanation

The Prevention of Money Laundering Act and the rules framed under it impose the core obligation on reporting entities to identify customers and maintain records. The RBI then issues KYC directions that translate these statutory duties into operational requirements for regulated entities. KYC is therefore a legal obligation, not a contractual or voluntary one.

Question 34Know Your Customer (KYC)

A customer opens a fixed deposit with a regulated entity and later requests a demand draft payable to an unrelated party. How should the entity treat the request under a risk-based approach?

  1. Refuse all demand draft requests from fixed deposit customers
  2. Process it without review because the customer is already KYC-verified
  3. Process it only after obtaining fresh identity documents for the beneficiary
  4. Apply transaction monitoring because the request is inconsistent with the customer's profile Correct answer.

Explanation

Ongoing due diligence requires the entity to scrutinise transactions for consistency with the customer's known profile and expected activity. A demand draft to an unrelated party may be legitimate, but it warrants monitoring and, where necessary, enquiry into the purpose. Being KYC-verified at onboarding does not exempt later transactions from monitoring.

Question 35Know Your Customer (KYC)

A regulated entity wants to simplify due diligence for a product with clearly limited risk. Which condition must be satisfied before simplified measures are applied?

  1. The customer must be a non-resident individual
  2. The customer must hold an account with the entity for at least ten years
  3. The product must be approved by the entity's statutory auditor
  4. The risk assessment must show low risk and the customer must not be in a prohibited category Correct answer.

Explanation

Simplified due diligence is permitted only where a documented risk assessment shows low risk and the customer does not fall into a category where enhanced measures are mandatory. It never permits skipping identification entirely. The decision must be recorded and supported by the entity's own risk framework.

Question 36Know Your Customer (KYC)

A regulated entity is verifying the identity of a partnership firm. Which document best establishes the firm's legal existence and authority of the signatory?

  1. The partnership deed together with the registration certificate, where applicable Correct answer.
  2. An income tax return of one partner in a personal capacity
  3. A utility bill in the name of one partner's residence
  4. A visiting card of the managing partner

Explanation

For a partnership, the entity must verify the firm's constitution and the authority of the person acting on its behalf. The partnership deed and registration certificate serve this purpose. Documents relating to an individual partner personally do not establish the firm's identity or the signatory's authority.

Question 37Know Your Customer (KYC)

A customer's account has been dormant for two years and the customer now requests reactivation. What is the appropriate KYC step before reactivation?

  1. Reactivate only after the customer pays a reactivation penalty
  2. Close the account and require the customer to open a new one
  3. Reactivate immediately because the account was verified when opened
  4. Obtain fresh identification and update the customer's KYC record before permitting operations Correct answer.

Explanation

The framework requires that KYC be updated before reactivating an inoperative account, since the customer's circumstances and documents may have changed. Refreshing the record protects against identity misuse and keeps risk categorisation current. Immediate reactivation without review is inconsistent with ongoing due diligence.

Question 38Know Your Customer (KYC)

A regulated entity has a customer whose transactions are consistently small and match a salaried profile. How should the monitoring system treat this relationship?

  1. Apply the same intensity of monitoring as for high-risk customers to avoid discrimination
  2. Exclude the customer from all monitoring once the first year has passed
  3. Report every transaction to FIU-IND as a precaution
  4. Monitor at a lower intensity consistent with the low-risk categorisation, with periodic review Correct answer.

Explanation

A risk-based approach allows monitoring intensity to be calibrated to the customer's assessed risk. Low-risk customers receive proportionate, less intensive monitoring while remaining subject to periodic review and to the entity's alert systems. Uniform maximum-intensity monitoring for all customers is not what the framework requires.

Question 39Know Your Customer (KYC)

A regulated entity is assessing whether to accept a customer who is a company registered in a jurisdiction identified as having weak anti-money laundering controls. What is the appropriate response?

  1. Refuse the customer automatically without any assessment
  2. Treat the customer as high risk and apply enhanced due diligence with senior management approval Correct answer.
  3. Accept the customer under standard due diligence because the company is legally registered
  4. Accept the customer but exclude the account from transaction monitoring

Explanation

Jurisdictions with weak AML controls are a recognised risk indicator that pushes a customer towards high-risk categorisation. Enhanced due diligence, including scrutiny of ownership and source of funds and approval by senior management, is the proportionate response. Automatic refusal is not required, but standard due diligence is insufficient.

Question 40Know Your Customer (KYC)

A regulated entity uses a certified copy of a document rather than the original during customer identification. Who must certify the copy?

  1. A person authorised by the entity or a prescribed official, with the certification compared against the original Correct answer.
  2. Any person known to the customer
  3. The customer's family member residing at the same address
  4. The customer themselves, by signing on the copy

Explanation

Where copies are accepted, they must be certified by a person authorised by the regulated entity or by a prescribed official who has compared the copy with the original. Self-certification by the customer does not meet the standard. The certification must be legible and traceable to the certifying person.

Question 41Know Your Customer (KYC)

Which situation should prompt a regulated entity to consider filing a suspicious transaction report with FIU-IND?

  1. A customer updates a mobile number in the contact records
  2. A customer closes a fixed deposit before maturity and pays the applicable penalty
  3. A customer requests a statement of account for the previous quarter
  4. A customer's activity shows no economic rationale and is inconsistent with the stated purpose of the account Correct answer.

Explanation

The obligation to report arises where the entity has reasonable grounds to suspect that a transaction or activity is connected to proceeds of crime or lacks apparent economic rationale. Routine service requests and ordinary product decisions do not meet that threshold. The judgement must be documented and made promptly once suspicion arises.

Question 42Know Your Customer (KYC)

A regulated entity is completing the KYC process for a Hindu undivided family. Which document is most relevant to establish the identity of the family and its manager?

  1. The karta's driving licence alone
  2. A declaration of the family's composition and the karta's identity documents Correct answer.
  3. The family's electricity bill
  4. The eldest member's school certificate

Explanation

For a Hindu undivided family, the entity needs evidence of the family's existence and of the karta's authority to act, together with the karta's officially valid identity documents. A declaration of composition supports the first requirement. A single personal document of the karta does not establish the family as a customer.

Question 43Know Your Customer (KYC)

What is the purpose of obtaining a customer's consent before uploading KYC records to the Central KYC Records Registry?

  1. To allow the registry to share the record with other reporting entities for KYC purposes Correct answer.
  2. To permit the registry to sell the data to credit bureaus
  3. To exempt the entity from its own record-keeping duties
  4. To transfer ownership of the KYC documents to the registry

Explanation

Consent enables the registry to make the KYC record available to other reporting entities so that the customer need not submit the same documents repeatedly. The registry does not sell data or take ownership of documents. The originating entity remains responsible for its own records and verification.

Question 44Know Your Customer (KYC)

A regulated entity uses another institution to introduce customers. How should the introducing institution's role be treated?

  1. As a marketing arrangement with no bearing on KYC
  2. As a factor in risk assessment, while the entity remains responsible for its own due diligence Correct answer.
  3. As a substitute for the entity's own customer identification obligations
  4. As a guarantee that the customer is low risk

Explanation

An introducer may be considered when assessing risk, but ultimate responsibility for identifying and verifying the customer rests with the entity that establishes the relationship. The entity cannot outsource its accountability to the introducer. Reliance arrangements, where permitted, carry conditions and do not eliminate that responsibility.

Question 45Know Your Customer (KYC)

A regulated entity discovers that a customer provided a forged identity document during onboarding. Which action is most consistent with the KYC framework?

  1. Suspend only the customer's internet banking facility
  2. Return the document to the customer and request a replacement without further action
  3. Continue the relationship but reduce the transaction limits
  4. Take immediate steps to examine the relationship and report the matter as required Correct answer.

Explanation

Use of forged documents is a serious red flag indicating possible money laundering or fraud. The entity must investigate the relationship and report to the appropriate authorities as required by law. Continuing the relationship with minor restrictions would expose the entity to significant regulatory and legal risk.

Question 46Know Your Customer (KYC)

A regulated entity is reviewing its risk categorisation framework. Which factor is most relevant to placing a customer in the high-risk category?

  1. The customer's preference for branch banking over digital channels
  2. The customer's request for a cheque book
  3. The customer's decision to open a savings account rather than a current account
  4. The customer's frequent cash transactions in amounts that do not match the declared business Correct answer.

Explanation

Risk categorisation depends on indicators such as the nature of the business, transaction patterns, and the mismatch between declared activity and actual behaviour. Frequent cash transactions inconsistent with the declared business are a classic high-risk indicator. Channel preference and product type are not by themselves risk drivers.

Question 47Know Your Customer (KYC)

A regulated entity is required to identify the beneficial owner of a customer that is a company. What ownership threshold is commonly used to identify a beneficial owner who has a controlling interest?

  1. A shareholder holding 25 per cent or more of the shares or controlling interest Correct answer.
  2. Any shareholder holding at least one share
  3. Only the managing director, irrespective of shareholding
  4. Only a shareholder holding more than 75 per cent

Explanation

The framework commonly treats a person holding 25 per cent or more of the shares or controlling interest as a beneficial owner, with residual provisions where no such person is identified. The threshold is not as low as a single share nor as high as 75 per cent. The managing director is not automatically the beneficial owner unless ownership or control criteria are met.

Question 48Know Your Customer (KYC)

A regulated entity operates in a group with branches in several countries. How should KYC standards be applied across the group?

  1. The group should apply a common standard, with the stricter requirement prevailing where local law differs Correct answer.
  2. The group should apply the most lenient standard to reduce compliance costs
  3. The group should apply KYC only at the head office level
  4. Each branch may apply the standards of its own jurisdiction only, with no group policy

Explanation

Group-wide policies should ensure that all branches and subsidiaries apply consistent KYC and AML standards. Where local law imposes stricter requirements than the group standard, the stricter requirement prevails. Applying the most lenient standard would create a route for regulatory arbitrage.

Question 49Know Your Customer (KYC)

A regulated entity suspects that a customer's transactions may relate to the proceeds of a predicate offence. What is the correct sequence of action?

  1. Close the account immediately and destroy the transaction records
  2. Continue the transactions and report only at the end of the financial year
  3. Examine the transaction, document the analysis, and report promptly without tipping off the customer Correct answer.
  4. Inform the customer of the suspicion and seek an explanation before deciding whether to report

Explanation

Once suspicion is formed, the entity must examine the transaction, record its analysis, and report promptly to FIU-IND. The tipping-off prohibition means the customer must not be alerted to the suspicion or the report. Destroying records or delaying reporting would breach legal obligations.

Question 50Know Your Customer (KYC)

A regulated entity uses a risk-based approach to allocate resources. Which outcome best demonstrates that the approach is operating effectively?

  1. High-risk customers are refused so that monitoring resources are not consumed
  2. Higher-risk customers receive enhanced scrutiny while low-risk customers are reviewed periodically Correct answer.
  3. All customers receive identical due diligence regardless of risk
  4. Risk categorisation is set once at onboarding and never revisited

Explanation

An effective risk-based approach concentrates enhanced measures on higher-risk relationships while keeping lower-risk customers under proportionate periodic review. Identical treatment for all customers ignores risk differentiation, and blanket refusal is not a risk management strategy. Categorisation must be dynamic and revisited as circumstances change.