KYC, AML and CFT Compliance
What the exam tests
KYC, AML and CFT tests the preventive and reporting obligations that stop banks being used to launder money or finance terrorism.
Core rules
- PMLA, 2002 and RBI's KYC Master Direction (2016) require customer due diligence, enhanced due diligence for high-risk customers, PEP screening, beneficial-ownership identification, risk categorisation and periodic KYC updation.
- Suspicious Transaction Reports go to FIU-IND within seven days of establishing suspicion, including attempted transactions; tipping off the customer is prohibited.
- Cash Transaction Reports cover aggregate cash transactions above ₹10 lakh in a month; records must be preserved for five years.
- CFT includes UNSC sanctions screening, targeted financial sanctions and wire-transfer originator/beneficiary information. Virtual digital asset service providers were brought into the PMLA reporting net by the 2023 amendment.
Worked example
A customer deposits ₹9 lakh cash on three consecutive days, totalling ₹27 lakh. Each individual deposit is below ₹10 lakh, but monthly aggregation triggers a CTR; the pattern also suggests structuring. The bank should complete EDD, file an STR if suspicion is established, and avoid informing the customer. Saying “only completed transactions count” is wrong because attempted transactions are reportable.
Traps
STRs are not limited to completed transactions. Tipping off is an offence. Record retention is five years, not ten. PEP status is not confined to foreign persons. Beneficial ownership must be traced to a natural person under the PMLA threshold.