Unit study guide · NISM Series III-A
Prevention of Money Laundering Act, 2002
11 questions in this unit
What this unit covers
- What is the central purpose of anti-money-laundering controls at a securities intermediary?
- May an intermediary open an anonymous account without establishing the identity of the person behind it?
- For anti-money-laundering checks, who is the beneficial owner behind a non-exempt corporate client?
- A prospective client is a politically exposed person under the applicable rules. What additional approval is required to establish the relationship?
- An intermediary identifies reasonable grounds to suspect laundering in a low-value transaction. What should determine suspicious transaction reporting?
- A client abandons an attempted transaction after questions reveal suspicious features. Should the attempt be ignored solely because it was not completed?
- After concluding a transaction is suspicious, within what period must the suspicious transaction report be submitted under SEBI’s anti-money-laundering circular?
- An employee wants to tell a client that a suspicious transaction report has been filed about them. What is the correct response?
- A transaction occurred six years ago. A related suspicious-transaction investigation remains open. May the intermediary delete relevant records solely because five years have passed?
- A 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?
- A 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?
Key ideas
From the practice bank · 1
What is the central purpose of anti-money-laundering controls at a securities intermediary?
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 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-073From the practice bank · 2
May an intermediary open an anonymous account without establishing the identity of the person behind it?
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 Common mistake: Assuming small accounts do not need client identification. Consider whether a low amount removes the identity requirement.
III-A-074From the practice bank · 3
For anti-money-laundering checks, who is the beneficial owner behind a non-exempt corporate client?
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 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-075From the practice bank · 4
A prospective client is a politically exposed person under the applicable rules. What additional approval is required to establish the relationship?
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 Common mistake: Assuming a successful identity check completes every PEP requirement. Think about the level of oversight required for the heightened risk.
III-A-076From the practice bank · 5
An intermediary identifies reasonable grounds to suspect laundering in a low-value transaction. What should determine suspicious transaction reporting?
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 Common mistake: Applying a cash-reporting threshold to suspicious transaction reporting. Separate suspicion-based reporting from reports triggered by monetary thresholds.
III-A-077From the practice bank · 6
A client abandons an attempted transaction after questions reveal suspicious features. Should the attempt be ignored solely because it was not completed?
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 Common mistake: Closing an alert merely because the transaction never settled. Consider whether an unsuccessful attempt can still reveal suspicious activity.
III-A-078From the practice bank · 7
After concluding a transaction is suspicious, within what period must the suspicious transaction report be submitted under SEBI’s anti-money-laundering circular?
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 Common mistake: Delaying the suspicion decision to postpone the reporting clock. Use the deadline linked to reaching the suspicion conclusion.
III-A-079From the practice bank · 8
An employee wants to tell a client that a suspicious transaction report has been filed about them. What is the correct response?
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 Common mistake: Assuming openness with the client always overrides AML confidentiality. Protect the confidentiality of the reporting process.
III-A-080From the practice bank · 9
A transaction occurred six years ago. A related suspicious-transaction investigation remains open. May the intermediary delete relevant records solely because five years have passed?
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 Common mistake: Deleting old records without checking unresolved investigations. Look for the special retention rule for investigations and suspicious reports.
III-A-081From the practice bank · 10
A 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?
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 Common mistake: Adding percentages along an ownership chain. Trace the ownership chain through both companies.
III-A-082From the practice bank · 11
A 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?
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 Common mistake: Confusing identity-record retention with the separate transaction-date rule. Compare the two possible starting events under the retention rule.
III-A-083