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    Question

    According to RBI’s KYC/AML guidelines, what framework

    must Regulated Entities (REs) adopt to effectively identify, assess, and manage risks of money laundering (ML) and terrorist financing (TF)?
    A Customer reference verification mechanism Correct Answer Incorrect Answer
    B Market analysis of customer products and services Correct Answer Incorrect Answer
    C Outsourcing of customer due diligence (CDD) Correct Answer Incorrect Answer
    D Periodic customer satisfaction surveys Correct Answer Incorrect Answer
    E Risk-Based Approach (RBA) Correct Answer Incorrect Answer

    Solution

    • RBI requires banks, NBFCs, and other Regulated Entities (REs) to adopt a Risk-Based Approach (RBA) for combating ML/TF risks. • Under RBA, institutions must: o Identify risks related to customers, products, services, and geographies. o Assess and categorize customers into low, medium, or high risk. o Apply enhanced due diligence (EDD) for high-risk customers (e.g., PEPs, cross-border clients). o Monitor transactions proportionately to the level of assessed risk. • This ensures efficient allocation of compliance resources and strengthens the AML/CFT framework.

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