Understanding Financial Compliance in BFSI
Financial compliance refers to following laws, regulations, and internal policies to ensure transparency, prevent fraud, and protect consumers and institutions. In the BFSI (Banking, Financial Services, and Insurance) sector
Key Areas of Focus:
KYC (Know Your Customer): Verifying customer identities to prevent fraud.
AML (Anti-Money Laundering): Detecting and reporting suspicious financial activities.
Data Protection: Ensuring the security of sensitive customer information.
Ethical Conduct: Upholding integrity and avoiding conflicts of interest.
Did You Know?
Between 2016 and 2023, the number of employee hours dedicated to complying with financial regulations and examiner mandates increased by 61%, even though aggregate employee hours increased only 20% in the same period. [Bank Policy Institute]
Platforms like Calibr provide comprehensive compliance training solutions tailored for the BFSI sector, ensuring your team stays informed and prepared.
Explore more on our website or contact us for more details
QUIZ TIME!
Let’s test your knowledge! Below, you’ll find a set of multiple-choice questions followed by scenario-based questions. At the end, you’ll see the complete answer key with explanations to check your understanding
MCQ'S
1. KYC Compliance
Which of the following is mandatory under KYC regulations?
A) Customer’s favorite color
B) Customer identification and verification documents
C) Customer’s hobbies
D) Customer’s social media password
2. AML Awareness
Money laundering is:
A) Legal money transfers
B) The process of making illegally-gained money appear legal
C) Bank account opening procedure
D) Financial planning
3. Suspicious Activity Reporting
If a customer makes repeated large cash deposits just below the reporting threshold, you should:
A) Ignore it
B) Report it as suspicious activity
C) Advise the customer to deposit more
D) Call the media
4. Conflict of Interest
Accepting gifts from a client that could influence your business decisions is:
A) Encouraged
B) A conflict of interest
C) Mandatory
D) Optional
5. Fraud Prevention
Which of the following is a red flag for fraud?
A) Customer requests normal account statement
B) Frequent high-value transactions with no clear purpose
C) Customer pays bills on time
D) Regular salary deposit
6. Regulatory Reporting
Filing reports to regulators late or inaccurately can result in:
A) Awards
B) Penalties and fines
C) Free training
D) Nothing
7. Data Protection
Which act regulates the handling of customer personal data in India?
A) Companies Act
B) IT Act / Data Protection Rules
C) Banking Regulation Act
D) Income Tax Act
8. Scenario-Based (AML)
A client asks you to split a large transaction into smaller ones to avoid reporting. What should you do?
A) Comply with the request
B) Report the activity as structuring/suspicious
C) Ignore it
D) Advise the client to invest elsewhere
9. Insider Trading
Using non-public information for trading securities is:
A) Ethical
B) Illegal
C) Recommended
D) Optional
10. Ethics & Conduct
Which behavior is considered unethical in BFSI?
A) Maintaining confidentiality of client data
B) Disclosing client data without authorization
C) Following internal policies
D) Reporting suspicious transactions
11. Risk Management
Operational risk refers to:
A) Risk due to natural disasters only
B) Risk arising from internal processes, systems, or people
C) Market price fluctuations only
D) Customer complaints
12. FATCA / CRS Compliance
The primary purpose of FATCA and CRS is:
A) Customer onboarding
B) Tax reporting and compliance for foreign accounts
C) Loan approval
D) Account closures
13. Record Keeping
How long should financial institutions generally keep customer transaction records?
A) 6 months
B) 1 year
C) 5–10 years depending on regulations
D) No need to keep
14. Cybersecurity Awareness
Which of the following is a best practice for secure banking operations?
A) Sharing passwords with colleagues
B) Using strong, unique passwords and two-factor authentication
C) Writing passwords on sticky notes
D) Logging in from public Wi-Fi without VPN
15.Ethics
A colleague suggests bypassing a compliance procedure to speed up a transaction. What should you do?
A) Follow their advice
B) Report it to the compliance officer
C) Ignore it
D) Ask the client to intervene
Scenario-Based Questions – Financial Compliance
1. AML / Suspicious Activity
You are a bank officer. A client regularly deposits cash just below the ₹1,00,000 reporting threshold, and occasionally withdraws similar amounts shortly after. The client claims it is for personal expenses. You notice a pattern over several months that seems unusual.
2. KYC / Customer Verification
A new corporate client wants to open a high-value account immediately. They submit documents, but some certificates appear inconsistent, and the company address differs from official records. The client is pressing for quick approval.
3. Ethics / Conflict of Interest
Your team is reviewing loan applications. A senior colleague suggests approving a loan for a friend’s company even though the credit risk is high and documentation is incomplete. They say it’s “just this once” and won’t get noticed.
4. Cybersecurity / Data Protection
While processing transactions, a co-worker asks for your login credentials to access the system from home, claiming it will save time and complete a client request faster. Sharing credentials is against company policy, but the co-worker insists it’s urgent.
5. Fraud / Red Flag Detection
You notice that a long-term client has suddenly started transferring unusually large sums to multiple unfamiliar accounts across different banks. The client avoids answering questions about the purpose of these transfers and seems nervous when asked for explanations.
Congratulations on completing the quiz! Scroll down to find the complete answer key with explanations to check your responses and reinforce your learning.
Explore our website to learn more about Calibr’s comprehensive compliance training programs, sign up for a 14-day free trial, or contact us for further details.”
Answer Key with Explanations – Financial Compliance Quiz (BFSI)
MCQ’S
1. KYC Compliance – B
Explanation: KYC regulations require financial institutions to verify the identity of customers using valid documents. This prevents fraud, money laundering, and ensures regulatory compliance. Personal preferences or hobbies are irrelevant.
2. AML Awareness – B
Explanation: Money laundering involves disguising illegally earned money as legitimate. Understanding this is crucial for detecting and reporting suspicious transactions.
3. Suspicious Activity Reporting – B
Explanation: Deposits just below the reporting threshold (structuring) are a common money-laundering technique. Employees must report such activities to comply with AML regulations.
4. Conflict of Interest – B
Explanation: Accepting gifts that influence decisions can compromise integrity and violate regulatory or internal ethics policies.
5. Fraud Prevention – B
Explanation: Frequent high-value transactions without a clear purpose are red flags for potential fraud or money laundering. Normal transactions do not indicate fraud.
6. Regulatory Reporting – B
Explanation: Delayed or inaccurate regulatory reports can lead to fines, penalties, or legal action. Accurate reporting ensures compliance and avoids reputational risk.
7. Data Protection – B
Explanation: India’s IT Act and related Data Protection Rules govern how customer personal data should be collected, stored, and shared. Companies must follow these to avoid breaches and penalties.
8. Scenario-Based (AML) – B
Explanation: Splitting large transactions to avoid reporting is called “structuring” and is illegal. Reporting such activity is mandatory under AML guidelines.
9. Insider Trading – B
Explanation: Using non-public information for trading is illegal and violates securities regulations, leading to penalties, fines, and imprisonment.
10. Ethics & Conduct – B
Explanation: Disclosing client information without authorization breaches confidentiality rules and ethical standards. Following policies and protecting data is required.
11. Risk Management – B
Explanation: Operational risk arises from internal failures in processes, people, or systems, not just natural disasters or market changes.
12. FATCA / CRS Compliance – B
Explanation: FATCA (US) and CRS (global) are designed to track foreign accounts and ensure tax compliance. It’s not about onboarding, loans, or closures.
13. Record Keeping – C
Explanation: Regulatory norms generally require financial institutions to maintain customer records for 5–10 years for audits, investigations, or compliance checks.
14. Cybersecurity Awareness – B
Explanation: Using strong passwords and two-factor authentication protects accounts and data from breaches. Sharing or writing passwords compromises security.
15. Scenario-Based (Ethics) – B
Explanation: Bypassing compliance procedures is unethical and illegal. Reporting the incident to the compliance officer ensures adherence to rules and mitigates risk.
Scenario-Based Questions
1. AML / Suspicious Activity – Report
Explanation: Repeated structured deposits below the reporting threshold indicate potential money laundering. You must report it as suspicious activity to comply with AML regulations. Personal explanations do not exempt reporting.
2. KYC / Customer Verification – Verify & Escalate
Explanation: Inconsistent or suspicious documentation requires verification and escalation before account approval. Rushing approvals can violate KYC rules and expose the bank to regulatory penalties.
3. Ethics / Conflict of Interest – Refuse & Report
Explanation: Approving a risky loan due to personal connections is unethical and a conflict of interest. Follow proper procedures and report attempts to bypass protocols to maintain compliance and integrity.
4. Cybersecurity / Data Protection – Deny & Report
Explanation: Sharing system credentials violates cybersecurity and data protection policies. Deny the request and report the incident to the IT or compliance team to prevent unauthorized access.
5. Fraud / Red Flag Detection – Investigate & Report
Explanation: Sudden large transfers to unknown accounts are red flags for fraud or money laundering. Document observations, ask relevant questions, and report to the compliance officer or fraud monitoring team immediately.
