Who doesn't comes under low risk category under KYC guidelines?

JAIIB Principles of Banking previous questions explanation series


Question: Who doesn't comes under low risk category under KYC guidelines?


A:Persons from lower strata of the society

B:Salaried employees


D:Govt Departments

Answer: Option C -Trusts

Detailed explanation

The objective of the KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. One of the element of KYC guideline is Customer Acceptance Policy(CAP), Which indicates the criteria for acceptance of customers to be followed by the bank.


Parameters of risk perception is defined in terms of the nature of business activity, location of customer and his clients, mode of payments, volume of turnover, social and financial status etc., to enable categorization of customers into low, medium and high risk called Level I, Level II and Level III respectively.
High Risk (Level III): The branches may apply enhanced due diligence measures based on the risk assessment, thereby requiring intensive ‘due diligence’ for higher risk customers, especially those for whom the sources of funds are not clear.
The examples of customers requiring higher due diligence may include :
a) Non Resident Customers,
b) High Net worth individuals
c) Trusts, charities, NGOs and organizations receiving donations,
d) Companies having close family shareholding or beneficial ownership
e) Firms with ‘sleeping partners’
f) Politically Exposed Persons (PEPs) of foreign origin
g) Non-face to face customers, and
h) Those with dubious reputation as per public information available, etc.


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