AML-KYC Guidelines | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE A: GENERAL BANKING OPERATIONS
Banker-AML-KYC Guidelines: Notes
Money Laundering & Financing of Terrorism Risks
Money laundering is the process of disguising the origins of illegally obtained money. Financing of terrorism involves providing financial support to terrorist organizations. Both pose serious threats to the financial system's integrity.
AML Framework in India
India's AML framework is governed by the Prevention of Money Laundering Act (PMLA), 2002. The Financial Intelligence Unit (FIU-IND) is the central agency for receiving and analyzing suspicious transaction reports.
Know Your Customer (KYC) Policy
KYC is a mandatory process to identify and verify the identity of clients. It helps prevent identity theft, financial fraud, money laundering, and terrorist financing.
Organisational Set-up for AML
Banks appoint Principal Officers and Compliance Officers to ensure adherence to AML regulations. A robust internal control and monitoring mechanism is necessary.
Obligations under PMLA
Entities must maintain records of transactions, report suspicious activities to FIU-IND, and cooperate with enforcement authorities. Non-compliance attracts heavy penalties.
Risk Management
Risk-based approach is vital. Customers are categorized as low, medium, or high risk based on factors like geography, product type, and customer profile.
Obligations under International Agreements
India complies with international standards set by organizations like FATF, and adheres to UN Security Council resolutions concerning AML/CFT.
FATF Identified Jurisdictions
FATF lists high-risk jurisdictions subject to increased monitoring. Banks must apply enhanced due diligence in dealing with these countries.
Correspondent Banks
Banks should gather complete information about correspondent institutions, including ownership, regulatory status, AML controls, and history of compliance issues.
Reporting Under FATCA/CRS
Financial institutions must identify and report accounts held by US persons (FATCA) and residents of reportable jurisdictions (CRS) to tax authorities.
Reporting Obligations
These include Cash Transaction Reports (CTR), Suspicious Transaction Reports (STR), and others under PMLA and RBI directions. Timely and accurate reporting is mandatory.
Implications of Non-compliance of PMLA Obligations
Non-compliance can result in monetary penalties, criminal prosecution, and reputational damage to the institution.
Secrecy Obligations
While banks are obligated to maintain customer confidentiality, this does not prevent them from sharing information with authorities under statutory provisions.
MCQs: AML-KYC Guidelines
1. What is the purpose of KYC guidelines?
- a) Boost customer service
- b) Prevent tax evasion
- c) Identify and verify customers (Correct)
- d) Promote digital banking
2. Which act governs AML efforts in India?
- a) FEMA
- b) PMLA (Correct)
- c) RBI Act
- d) SEBI Act
3. What is the role of FIU-IND?
- a) Grant loans
- b) Monitor stock exchanges
- c) Analyze suspicious transaction reports (Correct)
- d) Supervise NBFCs
4. Which of the following is a type of KYC document?
- a) Pan Card (Correct)
- b) Utility bill
- c) Sales receipt
- d) Passport size photo
5. What does FATF stand for?
- a) Foreign Aid Task Force
- b) Financial Action Task Force (Correct)
- c) Financial Advisory for Trade Federation
- d) Fund Allocation Trust Framework
6. What is an STR?
- a) Special Tax Return
- b) Suspicious Transaction Report (Correct)
- c) Standard Trading Rule
- d) Stock Trade Record
7. What is a primary implication of PMLA non-compliance?
- a) Minor penalties
- b) Loss of RBI license
- c) Heavy penalties and legal actions (Correct)
- d) Increase in share price
8. What does FATCA stand for?
- a) Federal Action To Control Assets
- b) Foreign Account Tax Compliance Act (Correct)
- c) Financial Accounting and Transaction Control Agreement
- d) None of the above
9. Who is responsible for compliance in banks?
- a) Branch Manager
- b) Compliance Officer (Correct)
- c) Loan Officer
- d) Marketing Executive
10. Which report must be filed for high-value cash transactions?
- a) IT Return
- b) CTR (Cash Transaction Report) (Correct)
- c) GST Return
- d) Monthly Bank Statement
Chapter Index:-
PAPER II – PRINCIPLES & PRACTICES OF BANKING
MODULE A: GENERAL BANKING OPERATIONS
- Banker-Customer Relationship
- AML-KYC Guidelines
- Operational Aspects of KYC
- Opening Accounts of Various Types of Customers
- Operational Aspects of Deposit Accounts
- Operational Aspects of Handling Clearing/Collection/Cash
- Banker’s Special Relationship
- Foreign Exchange Remittance Facilities for Individuals
- Operational Aspect of NRI Business
- Foreign Currency Accounts for Residents and Other Aspects
- Cash Management Services and Its Importance
- Payment and Collection of Cheques and Other Negotiable Instruments
- Responsibility of Paying Bank
- Responsibility of Collecting Bank
- Ancillary Services
- Financial Inclusion & Financial Literacy
- Customer Service Guidelines
- Duties & Rights of a Banker and Customer Rights
- Grievance Redressal & RBI Integrated Ombudsman Scheme 2021
- The Consumer Protection Act, 2019: Preamble, Extent and Definitions
- The Right to Information Act, 2005
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