KYC & AML: Complete Banking Awareness Notes 2026
Know Your Customer (KYC), Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), Anti-Money Laundering (AML), Prevention of Money Laundering Act (PMLA), Central KYC Registry (CKYCR), beneficial ownership, suspicious transactions and important RBI/FIU-IND concepts.
1. Meaning of KYC & AML
KYC stands for Know Your Customer. It is the process used by banks and other regulated entities to establish the identity of customers, verify their identity and obtain information needed to understand the customer relationship.
AML stands for Anti-Money Laundering. AML is the broader system of laws, policies, procedures, controls and reporting mechanisms used to prevent the financial system from being misused for laundering proceeds of crime and for certain related financial crimes.
| Term | Meaning | Main Purpose |
|---|---|---|
| KYC | Know Your Customer | Identify and verify the customer |
| CDD | Customer Due Diligence | Identify, verify, understand and monitor the customer relationship |
| EDD | Enhanced Due Diligence | Apply additional checks to higher-risk relationships |
| AML | Anti-Money Laundering | Prevent, detect and report money-laundering risks |
| PMLA | Prevention of Money Laundering Act, 2002 | Principal Indian law dealing with prevention of money laundering |
2. Why is KYC Important?
KYC helps a financial institution know who it is dealing with and assess the risks associated with the relationship.
- Helps prevent identity theft and impersonation.
- Reduces the risk of anonymous or fictitious accounts.
- Helps identify customers connected with money-laundering risks.
- Supports detection of suspicious transactions.
- Helps banks comply with regulatory and legal requirements.
- Helps prevent misuse of accounts by criminals, fraudsters and money mules.
- Supports risk-based monitoring of customer relationships.
- Improves the quality of customer information maintained by banks.
3. Know Your Customer (KYC)
KYC procedures are designed to establish the true identity of the customer and understand the nature and purpose of the proposed banking relationship.
Basic KYC objectives
- Identify the customer.
- Verify the customer's identity using reliable and independent information or documents.
- Understand the nature and purpose of the account or relationship.
- Identify the beneficial owner where applicable.
- Assess customer risk.
- Monitor the relationship according to the risk level.
- Maintain appropriate records.
4. Customer Due Diligence (CDD)
CDD means Customer Due Diligence. It is broader than simply collecting an identity document.
Establish who the customer is.
Verify identity using reliable and independent sources.
Understand the nature and purpose of the relationship.
Monitor transactions and customer information according to risk.
CDD can therefore be remembered as: Identify → Verify → Understand → Monitor.
5. Enhanced Due Diligence (EDD)
EDD stands for Enhanced Due Diligence. It involves additional scrutiny and controls for customers, products, transactions or relationships presenting higher money-laundering or terrorist-financing risks.
Examples of enhanced checks
- Obtaining additional customer information.
- Understanding source of funds or source of wealth where required.
- Applying stronger transaction monitoring.
- Obtaining appropriate senior-management approval where required.
- Conducting enhanced ongoing monitoring.
- Reviewing unusual ownership or control structures.
6. Simplified Due Diligence
A risk-based KYC framework can permit simplified measures in situations where the risk is demonstrably lower and applicable regulatory conditions are satisfied.
Simplified procedures should never be confused with completely removing KYC. Regulatory requirements and applicable conditions continue to apply.
7. Risk-Based Approach to KYC & AML
The risk-based approach means that the intensity of KYC and AML controls should be proportionate to the level and nature of risk.
| Risk Level | General Approach |
|---|---|
| Lower Risk | Appropriate standard or simplified measures where permitted. |
| Normal / Medium Risk | Standard CDD and normal transaction monitoring. |
| Higher Risk | Enhanced due diligence and stronger monitoring. |
Risk assessment may consider customer profile, occupation/business, geography, products and services used, delivery channels, transaction behaviour and other relevant risk factors.
8. Customer Risk Categorisation
Banks use customer-risk frameworks to determine the level of monitoring and due diligence appropriate for a relationship.
Factors that may influence risk
- Nature of customer's business or occupation.
- Expected account activity.
- Geographical exposure.
- Type of products and services used.
- Ownership and control structure.
- Transaction patterns.
- PEP status where applicable.
- Adverse information or suspicious activity indicators.
- Use of complex or unusual transaction channels.
9. Customer Identification
Customer identification involves obtaining sufficient information to establish the identity of the customer and verifying that information through appropriate and permitted methods.
Depending on the customer and onboarding method, KYC can involve documents, electronic verification, CKYCR records, Aadhaar-based mechanisms where legally permitted, and Video-based Customer Identification Process.
10. Officially Valid Documents (OVD)
OVD stands for Officially Valid Document. RBI KYC rules prescribe the documents and identification information that may be accepted for KYC purposes.
Commonly encountered OVDs under the regulatory framework include documents such as passport, driving licence, proof of possession of Aadhaar number, voter identity card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government and the letter issued by the National Population Register containing details of name and address, subject to applicable regulatory conditions.
11. Aadhaar and KYC
Aadhaar can be used in banking/KYC processes subject to the applicable legal framework and RBI directions.
- Aadhaar is issued by the Unique Identification Authority of India (UIDAI).
- Aadhaar authentication and offline/electronic verification mechanisms may be used where legally permitted.
- Submission or use of Aadhaar should not be understood as giving banks unrestricted permission to use it for every purpose.
- Regulated entities must follow applicable privacy, consent and KYC requirements.
12. PAN and Form 60
PAN means Permanent Account Number. PAN is an important identifier in banking and financial transactions and is required in circumstances prescribed by tax and regulatory rules.
Where permitted under applicable rules, a customer who does not have PAN may furnish Form 60 for specified transactions.
13. CKYCR — Central KYC Registry
CKYCR stands for Central KYC Records Registry. It is a centralised repository of KYC records that facilitates standardised customer KYC information across the financial system.
Why CKYCR is important
- Reduces repeated submission of KYC documents where applicable.
- Provides a common KYC record framework.
- Supports interoperability across regulated financial entities.
- Helps improve customer onboarding efficiency.
- Supports digital KYC record management.
The CKYCR ecosystem is associated with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), which performs the registry function under the applicable framework.
14. Video KYC / V-CIP
V-CIP means Video-based Customer Identification Process. It allows customer identification through a controlled live video interaction subject to RBI-prescribed requirements.
Important features
- Live interaction between the authorised official and customer.
- Identity information is captured and verified through prescribed procedures.
- Video and other required records are maintained as prescribed.
- Technology controls are used to reduce impersonation risk.
- Location, audit trail and other technical requirements may apply.
- The process must satisfy applicable RBI KYC requirements.
15. Periodic KYC Updation
KYC is not necessarily completed permanently at the time of account opening. Customer information must be periodically reviewed and updated according to applicable regulatory requirements and the customer's risk category.
Why periodic updation is required
- Customer address may change.
- Occupation or business activity may change.
- Ownership or control can change.
- Risk profile can change.
- Identification information can become outdated.
- New regulatory information may become relevant.
16. Beneficial Owner
A Beneficial Owner (BO) is the natural person who ultimately owns or controls a customer or on whose behalf a transaction is ultimately being conducted, as defined under the applicable legal/regulatory framework.
Why beneficial ownership matters
- A company may be legally owned by one entity but ultimately controlled by another person.
- Complex ownership structures can hide the real person controlling funds.
- AML procedures therefore look beyond the immediate account holder where necessary.
- Identification of the beneficial owner is particularly important for legal entities and arrangements.
17. PMLA and the Legal Framework
The principal Indian legislation dealing with money laundering is the Prevention of Money Laundering Act, 2002 (PMLA).
Major components of India's AML framework
- Prevention of Money Laundering Act, 2002.
- Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.
- RBI's KYC framework for regulated entities.
- Financial Intelligence Unit – India (FIU-IND).
- Reporting and record-keeping obligations of reporting entities.
- Measures concerning suspicious transactions and other prescribed reports.
18. What is Money Laundering?
Money laundering is the process of disguising the illicit origin of proceeds generated through criminal activity so that the funds appear to have a legitimate source or can be used within the legitimate financial system.
Simple example
Suppose illegal funds are generated from a criminal activity. The person may try to move, layer and integrate those funds through multiple transactions or assets so that tracing the original criminal source becomes difficult.
19. Three Common Stages of Money Laundering
Illicit money is introduced into the financial system.
Multiple transactions are used to distance the funds from their original source.
Laundered funds are brought back into the economy in a form that appears legitimate.
20. Predicate / Scheduled Offence
Money laundering generally involves proceeds connected with a criminal activity that falls within the applicable legal framework. The underlying criminal activity is commonly described as the predicate offence or scheduled offence in AML study material.
For exam purposes, remember that AML does not mean only detecting large cash deposits. The underlying source, transaction pattern, ownership, purpose and movement of funds are all relevant.
21. Anti-Money Laundering (AML) Framework
An effective AML programme generally combines customer identification, risk assessment, transaction monitoring, screening, record keeping, employee training, internal controls and regulatory reporting.
| AML Control | Purpose |
|---|---|
| KYC | Establish customer identity |
| CDD | Understand customer and relationship |
| EDD | Handle higher-risk relationships |
| Transaction Monitoring | Identify unusual or suspicious activity |
| Sanctions Screening | Identify prohibited/restricted persons or entities under applicable regimes |
| Reporting | Submit prescribed reports to competent authorities |
| Record Keeping | Maintain information required by law and regulation |
22. FIU-IND
FIU-IND stands for Financial Intelligence Unit – India. It is India's central national agency for receiving, processing, analysing and disseminating financial intelligence relating to suspected financial transactions.
Major functions
- Receives prescribed financial transaction reports from reporting entities.
- Analyses financial information.
- Identifies patterns that may indicate financial crime.
- Disseminates relevant financial intelligence to competent law-enforcement and regulatory agencies.
- Supports India's AML/CFT framework.
23. Suspicious Transaction Report (STR)
STR means Suspicious Transaction Report. A suspicious transaction is not defined simply by the amount of money involved. Suspicion may arise from the nature, complexity, unusual pattern, lack of economic rationale or other circumstances of a transaction.
Examples of suspicious indicators
- Transactions inconsistent with the customer's known profile.
- Rapid movement of funds without an apparent economic purpose.
- Complex transactions designed to obscure the source or destination of funds.
- Frequent transactions through multiple unrelated accounts.
- Unusual cash activity inconsistent with the customer's business.
- Transactions involving unusual jurisdictions or counterparties.
- Repeated transactions structured to avoid detection or reporting thresholds.
24. Cash Transaction Reporting (CTR)
CTR commonly refers to Cash Transaction Report in the Indian AML reporting framework.
Reporting entities are required to report specified cash transactions or aggregations of cash transactions when they meet the prescribed legal and regulatory criteria.
25. KYC / AML Record Keeping
Record keeping is a fundamental component of AML compliance. Regulated entities must maintain prescribed records relating to customer identification and transactions for the period required under the applicable law and regulatory directions.
Why records matter
- Supports investigation of financial transactions.
- Helps establish transaction trails.
- Supports regulatory inspection.
- Helps identify suspicious patterns over time.
- Provides evidence for compliance and enforcement purposes.
26. Wire Transfer Requirements
Wire transfers can create AML risks because money can move rapidly between accounts and jurisdictions. AML frameworks therefore contain requirements concerning originator and beneficiary information, monitoring and screening, subject to applicable rules and exemptions.
Banks should have systems capable of identifying transactions that lack required information or present unusual risk.
27. Politically Exposed Persons (PEPs)
PEP stands for Politically Exposed Person. PEPs are individuals who are or have been entrusted with prominent public functions, along with applicable categories of their family members and close associates under the relevant framework.
PEP relationships can require enhanced risk assessment and due diligence because of the potential risks associated with corruption, bribery and misuse of public position.
28. Non-Profit Organisations and AML
Non-profit organisations can be exposed to financial-crime risks, including misuse of funds or diversion of funds. Financial institutions therefore apply appropriate customer due diligence and transaction monitoring to such accounts.
The level of scrutiny should be based on the applicable legal requirements and risk profile rather than assuming that every non-profit organisation is inherently suspicious.
29. Correspondent Banking
Correspondent banking allows one bank to provide banking services to another bank, particularly for cross-border transactions.
Because transactions can involve multiple jurisdictions and institutions, correspondent banking carries AML and sanctions risks and therefore requires appropriate due diligence and monitoring.
Important AML checks
- Understand the respondent institution.
- Assess its AML controls.
- Understand the nature of the relationship.
- Apply appropriate ongoing monitoring.
- Manage risks associated with nested or indirect relationships.
30. Shell Banks
A shell bank is generally understood as a bank incorporated in a jurisdiction where it has no physical presence and which is not affiliated with a regulated financial group subject to effective consolidated supervision.
AML frameworks place strong restrictions on relationships involving shell banks because they can increase transparency and money-laundering risks.
31. Sanctions Screening
Sanctions screening involves checking customers and transactions against applicable sanctions and prohibited-party lists.
Screening may involve
- Customer names.
- Beneficial owners.
- Counterparties.
- Payment beneficiaries.
- Relevant jurisdictions.
- Vessels, entities or other identifiers where applicable.
32. Transaction Monitoring
Transaction monitoring means reviewing account activity to identify transactions that are unusual, inconsistent with the customer profile or otherwise potentially suspicious.
Common monitoring parameters
- Transaction amount.
- Frequency.
- Velocity of funds.
- Geographical location.
- Counterparty information.
- Customer occupation/business.
- Expected account activity.
- Historical transaction behaviour.
Modern banks may use rules engines, analytics, machine learning and automated alert systems to support AML monitoring, although technology does not replace human investigation and compliance judgement.
33. Important AML Red Flags
| Red Flag | Why It May Be Suspicious |
|---|---|
| Sudden unexplained increase in account activity | May be inconsistent with known customer profile |
| Rapid movement of funds | May indicate layering or pass-through activity |
| Multiple unrelated accounts | Can make tracing of funds difficult |
| Unusual cash deposits | May require explanation based on customer business |
| Complex ownership | May obscure beneficial ownership |
| Transactions without economic rationale | May indicate layering or movement of illicit funds |
| Frequent cross-border transfers | May require enhanced risk analysis |
| Use of nominee or third-party accounts | May hide the actual beneficiary |
34. KYC and Fraud Prevention
KYC is also important in reducing account-opening fraud and identity misuse. However, KYC alone cannot eliminate every type of fraud.
- Strong identity verification reduces impersonation risk.
- Transaction monitoring can detect abnormal activity.
- Customer alerts help identify unauthorised transactions.
- Device and behavioural controls can complement KYC.
- Fraud detection systems should operate alongside AML systems.
35. KYC in Different Types of Accounts
KYC requirements vary depending on the nature of the customer and account. A natural person's account is different from an account opened by a company, partnership, trust or other legal arrangement.
| Customer Type | Important KYC Focus |
|---|---|
| Individual | Identity, address, PAN/Form 60 where applicable, customer profile |
| Joint Account | KYC of applicable account holders |
| Minor | Minor's identity and guardian/representative requirements as applicable |
| Company | Company documents, authorised persons and beneficial ownership |
| Partnership | Firm documents, partners/authorised persons and beneficial ownership where applicable |
| Trust | Trust documents, trustees, beneficiaries/beneficial owners and authorised persons as applicable |
| Proprietorship | Proprietor identity plus proof of business/activity as applicable |
36. KYC of Minors
A minor account requires appropriate identification and documentation in accordance with the applicable account-opening and KYC framework.
Where a guardian operates the account, the identity and authority of the guardian are also relevant.
37. Joint Accounts
In a joint account, banks need to satisfy applicable KYC requirements for the relevant account holders. Operating instructions such as "Either or Survivor", "Jointly", or other mandates are separate from KYC.
38. Proprietorship Concerns
A sole proprietorship is not legally separate from its proprietor in the same way that a company is separate from its shareholders. KYC therefore focuses on the proprietor as well as documents establishing the existence/nature of the business as applicable.
39. KYC for Partnership Firms
For a partnership firm, the bank needs to identify the firm and the persons authorised to act on its behalf, along with applicable beneficial ownership information and supporting documents.
The partnership deed and other constitution/registration documents may be relevant depending on the applicable regulatory requirements.
40. KYC for Companies
A company is a legal entity. KYC therefore involves identifying the company, persons authorised to act for it and the natural person or persons who ultimately own or control it as required by the applicable framework.
Important exam terms
- Certificate of incorporation.
- Constitutional documents as applicable.
- Authorised signatory.
- Board/authorisation documents as applicable.
- Beneficial owner.
- PAN and other prescribed identifiers.
41. KYC for Trusts
Trust accounts require identification of the trust and relevant persons such as trustees and applicable beneficiaries or beneficial owners according to the legal and regulatory framework.
The trust deed and authorisation documents can be important for establishing the nature and control of the relationship.
42. KYC for NGOs
NGOs and other non-profit organisations are subject to applicable KYC and AML requirements. Banks may need to understand the organisation's legal status, persons controlling it, purpose and expected transaction activity.
43. KYC for NRI Customers
NRI customers are subject to KYC requirements along with applicable FEMA, account-type and banking rules.
Depending on the account and jurisdiction, additional information may be required to establish identity, address, tax status, source of funds and other relevant details.
44. Digital KYC
Digital KYC uses electronic processes to identify and verify customers. Depending on the method, it may involve electronic documents, digital signatures, Aadhaar-related mechanisms where permitted, CKYCR retrieval, video identification and other technology-enabled controls.
Advantages
- Faster customer onboarding.
- Reduced paperwork.
- Improved audit trails.
- Remote customer identification.
- Better integration with digital banking systems.
Risks
- Identity spoofing.
- Deepfake or manipulated video.
- Stolen credentials.
- Cyberattacks.
- Data leakage.
- Weak authentication.
45. KYC Data, Privacy and Confidentiality
Banks collect sensitive customer information for legitimate regulatory and business purposes. Such information must be handled according to applicable law, regulatory requirements, security controls and privacy principles.
- Customer information should be protected from unauthorised access.
- Access should be appropriately controlled.
- Digital KYC systems should maintain audit trails.
- Information should be used for legitimate purposes.
- Data-security controls should be proportionate to risk.
46. Important KYC & AML Comparisons
KYC vs AML
| KYC | AML |
|---|---|
| Know Your Customer | Anti-Money Laundering |
| Focuses strongly on customer identification and verification | Broader financial-crime prevention framework |
| Forms a major part of AML compliance | Includes KYC, monitoring, reporting, controls and investigations |
CDD vs EDD
| CDD | EDD |
|---|---|
| Standard customer due diligence | Additional due diligence for higher-risk situations |
| Identify and verify customer | Additional information and stronger scrutiny |
| Understand relationship | Enhanced monitoring and controls |
CKYCR vs KYC
| CKYCR | KYC |
|---|---|
| Central repository of KYC records | Customer identification and due-diligence process |
| Helps store/share KYC records through the prescribed framework | Performed by regulated entities |
STR vs CTR
| STR | CTR |
|---|---|
| Suspicious Transaction Report | Cash Transaction Report |
| Based on suspicion and prescribed criteria | Based on prescribed cash transaction reporting criteria |
| Not simply a high-value report | Connected to specified cash transactions/aggregations |
47. Important KYC & AML Full Forms
| Abbreviation | Full Form |
|---|---|
| KYC | Know Your Customer |
| AML | Anti-Money Laundering |
| CDD | Customer Due Diligence |
| EDD | Enhanced Due Diligence |
| OVD | Officially Valid Document |
| CKYCR | Central KYC Records Registry |
| V-CIP | Video-based Customer Identification Process |
| PMLA | Prevention of Money Laundering Act |
| FIU-IND | Financial Intelligence Unit – India |
| STR | Suspicious Transaction Report |
| CTR | Cash Transaction Report |
| PEP | Politically Exposed Person |
| BO | Beneficial Owner |
| CFT | Combating the Financing of Terrorism |
| FATF | Financial Action Task Force |
| PAN | Permanent Account Number |
| UIDAI | Unique Identification Authority of India |
| CERSAI | Central Registry of Securitisation Asset Reconstruction and Security Interest of India |
| FEMA | Foreign Exchange Management Act |
| RBI | Reserve Bank of India |
48. Common Banking Exam Traps
Correct: KYC is a broader customer-identification and verification framework.
Correct: KYC is an important component of the broader AML framework.
Correct: Suspicion depends on applicable criteria and circumstances, not amount alone.
Correct: Suspicious transactions can be cash or non-cash.
Correct: CKYCR is a central KYC record repository; KYC is the broader identification/due-diligence process.
Correct: PEP status is a risk factor, not proof of criminal conduct.
Correct: PAN is a tax identifier; KYC is a broader customer due-diligence framework.
Correct: Customer information and risk require ongoing review and periodic updation.
Correct: EDD is associated with higher-risk situations.
Correct: Customers should never disclose confidential authentication credentials to unknown persons.
49. 100 Rapid Revision Facts
- KYC stands for Know Your Customer.
- AML stands for Anti-Money Laundering.
- CDD stands for Customer Due Diligence.
- EDD stands for Enhanced Due Diligence.
- OVD stands for Officially Valid Document.
- CKYCR stands for Central KYC Records Registry.
- PMLA stands for Prevention of Money Laundering Act.
- FIU-IND stands for Financial Intelligence Unit – India.
- STR stands for Suspicious Transaction Report.
- CTR commonly means Cash Transaction Report.
- KYC is an important component of AML compliance.
- AML is broader than KYC.
- CDD is broader than simple identity-document collection.
- Customer identification is a central KYC objective.
- Customer identity must be appropriately verified.
- Banks should understand the nature and purpose of customer relationships.
- Beneficial ownership is important in AML.
- Risk-based approach is a key AML principle.
- Higher-risk customers can require enhanced due diligence.
- EDD means Enhanced Due Diligence.
- Lower-risk situations may permit simplified measures where regulations allow.
- KYC is not merely a one-time process.
- Periodic KYC updation helps maintain current customer information.
- Customer risk can change over time.
- Transaction behaviour can affect risk assessment.
- Occupation/business can be relevant to risk assessment.
- Geographical exposure can be relevant to AML risk.
- Products and services can influence customer risk.
- Delivery channels can influence risk.
- Complex ownership can increase AML risk.
- Beneficial owner means the natural person who ultimately owns or controls the customer or transaction as applicable.
- CKYCR provides a central KYC record repository.
- CERSAI is associated with operation of the Central KYC Registry.
- V-CIP stands for Video-based Customer Identification Process.
- Video KYC enables remote customer identification subject to regulatory conditions.
- PAN stands for Permanent Account Number.
- PAN is different from KYC.
- Form 60 can be relevant where PAN is not available and applicable rules permit it.
- Aadhaar is issued by UIDAI.
- UIDAI stands for Unique Identification Authority of India.
- Aadhaar use for KYC is subject to applicable law and regulatory directions.
- PMLA is the principal Indian AML legislation.
- PMLA was enacted in 2002.
- FIU-IND receives and analyses prescribed financial intelligence.
- FIU-IND is different from RBI.
- RBI regulates banks and the banking system within its statutory powers.
- STR means Suspicious Transaction Report.
- A suspicious transaction is not determined solely by transaction value.
- Transaction behaviour is important in AML monitoring.
- CTR is associated with prescribed cash transaction reporting.
- STR and CTR are not the same.
- Money laundering disguises the illicit origin of proceeds.
- Placement is a commonly identified stage of money laundering.
- Layering is a commonly identified stage of money laundering.
- Integration is a commonly identified stage of money laundering.
- PLI can be used to remember Placement, Layering and Integration.
- Placement introduces illicit funds into the financial system.
- Layering creates transaction complexity to distance funds from their source.
- Integration makes illicit funds appear legitimate.
- A predicate offence is an underlying criminal activity connected with proceeds of crime.
- Transaction monitoring is a major AML control.
- Sanctions screening is an important compliance control.
- PEP stands for Politically Exposed Person.
- PEP status is a risk factor, not proof of criminal activity.
- PEPs can require enhanced risk assessment and due diligence.
- Correspondent banking creates cross-border AML risks.
- Shell banks create heightened AML concerns.
- Customer profile is relevant when evaluating unusual transactions.
- Unexplained rapid movement of funds can be an AML red flag.
- Complex ownership can obscure beneficial ownership.
- Multiple unrelated accounts can be an AML red flag.
- Unusual cash activity can require investigation.
- Cross-border activity may require enhanced risk analysis.
- Technology can support automated transaction monitoring.
- Machine learning can support AML alert analysis.
- Technology does not replace human compliance judgement.
- Customer data requires appropriate protection.
- Unauthorised access to KYC data creates security risk.
- Audit trails are important in digital KYC.
- Digital KYC can reduce onboarding time.
- Digital KYC can also create cyber and impersonation risks.
- Deepfake technology creates new identity-verification risks.
- OTP should never be shared with unknown persons claiming to perform KYC.
- PIN should never be disclosed to unknown persons.
- Passwords should not be disclosed for KYC.
- Companies require identification of authorised persons.
- Companies also require beneficial ownership assessment.
- Partnership firms require appropriate firm and partner identification.
- Trusts require identification of relevant trustees and other applicable persons.
- Proprietorship KYC focuses on the proprietor and business information.
- Joint-account operating instructions do not remove KYC requirements.
- Minor accounts require appropriate KYC procedures.
- NRI banking can involve KYC as well as FEMA requirements.
- AML controls apply to more than cash transactions.
- Non-cash transactions can also be suspicious.
- Large transactions are not automatically illegal.
- Small transactions can also be suspicious.
- Economic rationale is relevant in AML assessment.
- Source of funds can be relevant to enhanced due diligence.
- Source of wealth can be relevant in appropriate higher-risk cases.
- Ongoing monitoring helps identify changes in customer behaviour.
- Record keeping supports financial investigations.
- AML reporting requirements are based on applicable law and regulations.
- FATF is an international standard-setting body for AML/CFT and related financial-crime controls.
- CFT stands for Combating the Financing of Terrorism.
- AML and CFT are related but distinct concepts.
- KYC helps prevent anonymous and fictitious banking relationships.
- Strong KYC supports fraud prevention.
- KYC alone cannot eliminate every fraud.
- Risk-based monitoring is more effective than treating every customer identically.
- Always use the latest RBI KYC directions for current numerical and procedural rules.
50. Frequently Asked Questions
What is KYC?
KYC means Know Your Customer. It is the process of identifying and verifying customers and understanding the nature and purpose of their relationship with the regulated entity.
What is AML?
AML means Anti-Money Laundering. It is a broader framework for preventing, detecting and reporting money-laundering and related financial-crime risks.
What is CDD?
CDD means Customer Due Diligence. It includes identifying and verifying the customer, understanding the relationship and conducting appropriate ongoing monitoring.
What is EDD?
EDD means Enhanced Due Diligence. It involves additional checks and controls for higher-risk customers, relationships or transactions.
What is CKYCR?
CKYCR is the Central KYC Records Registry, a central repository for KYC records that supports standardisation and reuse of KYC information under the applicable framework.
What is FIU-IND?
FIU-IND is the Financial Intelligence Unit – India. It receives, processes, analyses and disseminates prescribed financial intelligence.
What is an STR?
STR means Suspicious Transaction Report. It concerns transactions that meet the applicable criteria for suspicion of financial crime or money laundering.
What are the three stages of money laundering?
The commonly taught three stages are Placement, Layering and Integration.
Does a PEP automatically mean a criminal?
No. PEP status is a risk factor that can require enhanced due diligence. It is not itself proof of criminal conduct.
Is KYC completed permanently when an account is opened?
No. Customer information and risk need to be reviewed and updated according to applicable regulatory requirements.
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| Legal | PMLA 2002, Prevention of Money Laundering Act, AML rules India |
| Central KYC | CKYCR, Central KYC Registry, CKYC meaning |
| AML Reporting | STR, CTR, suspicious transaction, FIU-IND |
| Advanced | beneficial owner, PEP, EDD, CDD, risk-based approach |
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| Competitive Exams | IBPS KYC questions, SBI KYC questions, RRB AML questions, banking awareness KYC MCQs |
52. Official Verification Sources
For current banking examinations, verify changing rules and procedural details from official regulatory sources before finalising your revision notes.
- Reserve Bank of India: KYC and Customer Due Diligence directions for regulated entities.
- Department of Revenue, Ministry of Finance: PMLA and related rules.
- Financial Intelligence Unit – India: AML reporting and financial-intelligence information.
- India Code: Official statutory texts and amendments.
- UIDAI: Aadhaar-related information.
- CERSAI: Central KYC Registry-related information.
53. Final KYC & AML Memory Chart
| Concept | Remember This |
|---|---|
| KYC | Know Your Customer |
| CDD | Identify + Verify + Understand + Monitor |
| EDD | Additional checks for higher-risk situations |
| AML | Broader framework against money laundering |
| PMLA | Prevention of Money Laundering Act, 2002 |
| FIU-IND | Receives and analyses financial intelligence |
| CKYCR | Central KYC record repository |
| OVD | Officially Valid Document |
| V-CIP | Video-based Customer Identification Process |
| BO | Natural person who ultimately owns/controls as applicable |
| PEP | Politically Exposed Person |
| STR | Suspicious Transaction Report |
| CTR | Cash Transaction Report |
| Money Laundering | Placement → Layering → Integration |
| Risk-Based Approach | Higher risk → stronger controls |