Regulatory Environment, Ethics, KYC/AML and Cyber Safety
Regulatory environment, ethics, KYC/AML and cyber safety tests compliance behaviour. Expect the roles of RBI, SEBI, IRDAI and FIU-IND, customer due diligence, suspicious transaction reporting and fraud prevention.
Core rules
- KYC identifies the customer, verifies address and assesses risk; CDD is ongoing, and EDD applies to high-risk customers, PEPs and complex ownership.
- Beneficial ownership must be identified; records are retained for at least five years.
- Under PMLA, banks report cash transactions above ₹10 lakh to FIU-IND and file suspicious transaction reports regardless of amount.
- Tipping off a customer about an STR is prohibited.
- Ethics covers integrity, confidentiality, conflict of interest, insider trading and bribery.
- Cyber safety includes phishing, vishing, smishing, OTP fraud, device security and reporting to 1930 or cybercrime.gov.in.
Worked example
A customer with a modest salary profile deposits ₹9.8 lakh cash on three consecutive days. This is structuring to stay below the ₹10 lakh reporting threshold. The bank should verify the source, update the risk profile and file an STR; it must not tell the customer that a report is being filed. Reasoning: the pattern, not just the individual amount, creates suspicion.
Traps that cost marks
Treating KYC as a one-time formality; sharing an STR with the customer; assuming small transactions are automatically safe; and ignoring beneficial ownership. Cyber trap: a caller who knows the last four digits of a card is still not trustworthy.