Prevention of Money Laundering Act, 2002
11 questions. Each answer is explained.
Question 1 of 10Practice · Series III-A — Securities Intermediaries Compliance (Non-Fund)
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Learn these topics
More units in NISM Series III-A
- Introduction to the Financial System8
- Regulatory Framework – General View14
- Introduction to Compliance6
- Securities and Exchange Board of India Act, 199211
- Securities Contracts (Regulation) Act, 1956 and Rules, 19576
- SEBI (Intermediaries) Regulations, 20089
- SEBI (Prohibition of Insider Trading) Regulations, 20159
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 20039
- SEBI (KYC Registration Agency) Regulations, 20113
- SEBI (Foreign Portfolio Investors) Regulations, 20195
- SEBI (Stock Brokers) Regulations, 19929
- SEBI (Merchant Bankers) Regulations 1992, etc.9
- SEBI (Issue of Capital and Disclosure Requirements) Regulations 20189
- Depositories Act 19963
- SEBI (Depositories and Participants) Regulations 20184
- SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 19934
- SEBI (Research Analyst) Regulations, 20143
- SEBI (Investment Advisers) Regulations, 20133
- SEBI (Debenture Trustees) Regulations, 19934
- SEBI (Credit Rating Agencies) Regulations, 19994
- SEBI (Custodian) Regulations, 19964
- Proxy Advisors3
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series III-A Securities Intermediaries Compliance (Non-Fund)
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 11 questions on Prevention of Money Laundering Act, 2002, with answers
Q1What is the central purpose of anti-money-laundering controls at a securities intermediary?
Option A. Preventing price losses arising from ordinary market movements
Why it is wrong: Ordinary market-price risk is different from laundering the proceeds of crime.
Option B. Preventing misuse involving proceeds of crime — Correct answer
Option C. Checking whether each investment matches the client’s risk profile
Why it is wrong: Suitability assessment is a different control, though client information may support both functions.
Option D. Ensuring sufficient collateral for every unsettled market position
Why it is wrong: Collateral controls manage settlement exposure rather than defining the central AML purpose.
Answer: B. Anti-money-laundering controls seek to prevent and detect misuse of the financial system involving proceeds of crime. Remember: AML addresses illicit financial activity rather than ordinary investment volatility.
Hint, shown before you answer in practice mode: Common mistake: Treating every loss-making trade as evidence of money laundering. Think about the origin and use of money rather than market performance.
III-A-073easyconceptual
Q2May an intermediary open an anonymous account without establishing the identity of the person behind it?
Option A. No, the client-acceptance framework prohibits such accounts — Correct answer
Option B. Yes, if the opening balance is small
Why it is wrong: A small balance does not create an anonymous-account exemption.
Option C. Yes, if the client signs a risk disclaimer
Why it is wrong: A disclaimer cannot replace client identification.
Option D. Yes, if the account is closed before the end of the month
Why it is wrong: Planned early closure does not remove onboarding requirements.
Answer: A. The framework prohibits anonymous or fictitious-name accounts where the underlying identity is not disclosed or verified. Remember: Establish identity before providing an account-based relationship.
Hint, shown before you answer in practice mode: Common mistake: Assuming small accounts do not need client identification. Consider whether a low amount removes the identity requirement.
III-A-074easyregulatory
Q3For anti-money-laundering checks, who is the beneficial owner behind a non-exempt corporate client?
Option A. The natural person ultimately owning or controlling it — Correct answer
Option B. The immediate registered shareholder even if it is a company
Why it is wrong: An ownership chain may need to be traced beyond an immediate corporate shareholder.
Option C. The authorised signatory solely because they sign the form
Why it is wrong: Authority to sign does not alone establish ultimate ownership or control.
Option D. The director solely because they hold the company’s highest title
Why it is wrong: A director’s title alone does not prove beneficial ownership under the applicable criteria.
Answer: A. The beneficial owner is the relevant natural person who ultimately owns or controls the client under the applicable tests. Remember: A corporate name is not the end of beneficial-ownership analysis.
Hint, shown before you answer in practice mode: Common mistake: Recording only the immediate corporate shareholder without looking through control. Look through the legal entity to the relevant human ownership or control.
III-A-075easyconceptual
Q4A prospective client is a politically exposed person under the applicable rules. What additional approval is required to establish the relationship?
Option A. Approval from the onboarding clerk alone
Why it is wrong: Routine processing approval does not replace the required senior management approval.
Option B. Senior management approval — Correct answer
Option C. Approval from the client’s authorised signatory alone
Why it is wrong: The client cannot provide the intermediary’s required internal senior management approval.
Option D. Approval from the account introducer alone
Why it is wrong: An introducer’s acceptance does not satisfy the senior management requirement.
Answer: B. Senior management approval is required, together with the other applicable enhanced due-diligence measures. Remember: PEP relationships require enhanced oversight rather than routine onboarding alone.
Hint, shown before you answer in practice mode: Common mistake: Assuming a successful identity check completes every PEP requirement. Think about the level of oversight required for the heightened risk.
III-A-076mediumapplication
Q5An intermediary identifies reasonable grounds to suspect laundering in a low-value transaction. What should determine suspicious transaction reporting?
Option A. Whether the value exceeds a universal STR threshold
Why it is wrong: There is no universal minimum value that removes the suspicion-based reporting duty.
Option B. The suspicion, not a minimum transaction value — Correct answer
Option C. Whether the client has earned an investment profit
Why it is wrong: Investment profit is not a condition for reporting suspected laundering.
Option D. Whether the client agrees to the report
Why it is wrong: Client consent is not required for the statutory report.
Answer: B. Reasonable suspicion can require an STR regardless of the transaction’s low value. Remember: A small suspicious transaction may still need to be reported.
Hint, shown before you answer in practice mode: Common mistake: Applying a cash-reporting threshold to suspicious transaction reporting. Separate suspicion-based reporting from reports triggered by monetary thresholds.
III-A-077mediumapplication
Q6A client abandons an attempted transaction after questions reveal suspicious features. Should the attempt be ignored solely because it was not completed?
Option A. Yes, only completed settlements are relevant
Why it is wrong: Completion is not a universal condition for suspicious transaction reporting.
Option B. Yes, unless an exchange has imposed a penalty
Why it is wrong: An exchange penalty is not a prerequisite to the AML assessment.
Option C. No, attempted suspicious transactions may require reporting — Correct answer
Option D. No, but reporting is allowed only with client consent
Why it is wrong: Client consent is not the legal basis for the required report.
Answer: C. The attempt must be assessed because suspicious transaction reporting also covers relevant attempted transactions. Remember: A cancelled attempt can still provide important AML evidence.
Hint, shown before you answer in practice mode: Common mistake: Closing an alert merely because the transaction never settled. Consider whether an unsuccessful attempt can still reveal suspicious activity.
III-A-078mediumapplication
Q7After concluding a transaction is suspicious, within what period must the suspicious transaction report be submitted under SEBI’s anti-money-laundering circular?
Option A. Within 15 days
Why it is wrong: Fifteen days is not the STR period in the cited circular.
Option B. Within 30 days
Why it is wrong: Thirty days would exceed the stated STR period.
Option C. Within 7 days — Correct answer
Option D. Within 90 days
Why it is wrong: Ninety days would exceed the stated STR period.
Answer: C. The STR must be submitted within seven days of reaching the conclusion, without undue delay in forming that conclusion. Remember: Track when suspicion is concluded and file the STR promptly.
Hint, shown before you answer in practice mode: Common mistake: Delaying the suspicion decision to postpone the reporting clock. Use the deadline linked to reaching the suspicion conclusion.
III-A-079mediumregulatory
Q8An employee wants to tell a client that a suspicious transaction report has been filed about them. What is the correct response?
Option A. Tell the client after asking for confidentiality
Why it is wrong: A confidentiality request to the client does not remove the tipping-off prohibition.
Option B. Tell the client if the account balance is small
Why it is wrong: Account size does not create the proposed exception.
Option C. Publish the report after removing the employee’s name
Why it is wrong: Public disclosure of the report would breach confidentiality.
Option D. Do not tip off the client about the report — Correct answer
Answer: D. The employee must not tip off the client about the STR or related reporting information. Remember: Keep suspicious transaction reporting confidential before, during and after submission.
Hint, shown before you answer in practice mode: Common mistake: Assuming openness with the client always overrides AML confidentiality. Protect the confidentiality of the reporting process.
III-A-080mediumapplication
Q9A transaction occurred six years ago. A related suspicious-transaction investigation remains open. May the intermediary delete relevant records solely because five years have passed?
Option A. Yes, the ordinary period always overrides an investigation
Why it is wrong: The ordinary period does not override this investigation-related retention requirement.
Option B. Yes, provided only an unsigned summary remains
Why it is wrong: A summary does not replace preservation of the relevant records.
Option C. No, but keeping only profitable transactions is sufficient
Why it is wrong: Profitability is not a valid basis for selecting investigation records to retain.
Option D. No, retain them until the case is confirmed closed — Correct answer
Answer: D. The relevant records must remain because the circular requires preservation until the case is confirmed closed. Remember: Legal holds can extend ordinary AML record-retention periods.
Hint, shown before you answer in practice mode: Common mistake: Deleting old records without checking unresolved investigations. Look for the special retention rule for investigations and suspicious reports.
III-A-081hardapplication
Q10A person owns 60% of an unlisted holding company, which owns 30% of a non-exempt client company. What is the person’s indirect economic interest?
Option A. 90%
Why it is wrong: Adding the two percentages does not measure indirect ownership.
Option B. 30%
Why it is wrong: Thirty percent is the holding company’s stake rather than the person’s proportionate stake.
Option C. 18% — Correct answer
Option D. 60%
Why it is wrong: Sixty percent is the person’s holding-company stake rather than the indirect client-company stake.
Answer: C. The indirect economic interest is 18%. Multiply the ownership proportions: 60% × 30% = 18%. This arithmetic supports the ownership review but does not replace separate control tests. Remember: Multiply successive ownership percentages and assess control separately.
Hint, shown before you answer in practice mode: Common mistake: Adding percentages along an ownership chain. Trace the ownership chain through both companies.
III-A-082hardnumerical
Q11A client closes an account in 2022, but its business relationship with the intermediary ends in 2024. What event starts the ordinary five-year identity-record retention period?
Option A. The earlier account closure in 2022
Why it is wrong: The rule uses the later event, which is the end of the relationship in the stated case.
Option B. The original account-opening date
Why it is wrong: Account opening is not the starting event for this post-relationship retention period.
Option C. The date of the client’s last completed trade
Why it is wrong: The last trade is not the later event specified for these identity records.
Option D. The end of the business relationship in 2024 — Correct answer
Answer: D. The later event, the end of the business relationship in 2024, starts the ordinary identity-record retention period. Remember: For identity records, use the later of relationship end and account closure.
Hint, shown before you answer in practice mode: Common mistake: Confusing identity-record retention with the separate transaction-date rule. Compare the two possible starting events under the retention rule.
III-A-083hardapplication
Prevention of Money Laundering Act, 2002: common questions
How many practice questions are there on Prevention of Money Laundering Act, 2002?
11 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 23 practice topics for NISM Series III-A, which has 150 questions in total.
Are these real NISM Series III-A questions on Prevention of Money Laundering Act, 2002?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series III-A?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
SEBI (KYC Registration Agency) Regulations, 2011
3 questions on SEBI (KYC Registration Agency) Regulations, 2011. Its quiz opens on that unit.
Open SEBI (KYC Registration Agency) Regulations, 2011Paper Trading Try it on the practice trading desk