Regulatory and Ethical Framework
Regulatory and Ethical Framework tests the roles of financial regulators, key compliance rules and the conduct expected of BFSI staff.
Core rules and concepts
- RBI regulates banks and payment systems; SEBI regulates securities markets; IRDAI regulates insurance; PFRDA regulates pensions. The Financial Stability and Development Council coordinates regulators.
- Key laws include the RBI Act, 1934, Banking Regulation Act, 1949, SEBI Act, 1992, Insurance Act, 1938, PMLA, 2002, FEMA, 1999 and the Consumer Protection Act, 2019.
- KYC and anti-money-laundering rules require customer identification, risk classification, monitoring and reporting of suspicious or high-value cash transactions. Cash transaction reports are filed above prescribed thresholds.
- Ethical conduct means avoiding conflicts of interest, maintaining confidentiality, refusing bribes, and reporting wrongdoing through proper channels.
Worked example
A customer deposits Rs 12 lakh cash into a savings account. Because the cash deposit exceeds Rs 50,000, the bank must obtain PAN or Form 60 where PAN is not available, and the transaction is reportable as a high-value cash transaction. Reasoning: PAN collection and AML reporting are separate controls; one verifies identity, the other monitors money flow.
Traps that cost marks
Do not say the RBI regulates insurance companies. Do not treat KYC as a one-time formality. Do not disclose customer information casually. Do not assume a large cash deposit is automatically legitimate or automatically criminal; it triggers identity and reporting duties.