Preparing for the IIBF KYC–AML examination requires a clear understanding of concepts like Know Your Customer (KYC), Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), Customer Acceptance Policy (CAP), Risk-Based Approach, Small Accounts, and Simplified KYC. Many candidates struggle not because the syllabus is vast, but because questions in the exam are concept-based and application-oriented.
To help banking professionals and exam aspirants, we have compiled 70 most important and exam-oriented MCQs on KYC, carefully designed as per the latest IIBF exam pattern. Each question is presented in a simple and easy-to-understand format, followed by four options, the correct answer, and a clear explanation, making it ideal for both learning and quick revision.
These MCQs are especially useful for:
- IIBF KYC–AML certification aspirants
- Bankers preparing for internal promotions
- Last-minute exam revision
- Understanding tricky KYC concepts with clarity
Covering topics such as individual and non-individual KYC, trusts and NGOs, PEPs, periodic KYC updation, transaction monitoring, STR/CTR reporting, and financial inclusion, this practice set will strengthen your conceptual base and boost your confidence for the exam.
📌 Tip: Read the explanations carefully — many IIBF questions are framed from these exact concepts.
KYC – Basic Concept
Q1. KYC norms are mainly prescribed by:
A. Government of India
B. RBI
C. SEBI
D. IIBF
✅ Correct Answer: B
Explanation:
RBI issues KYC guidelines for banks under the Prevention of Money Laundering Act (PMLA).
2. Legal Basis of KYC
Q2. KYC guidelines are issued under which Act?
A. Banking Regulation Act
B. RBI Act
C. Prevention of Money Laundering Act
D. Companies Act
✅ Correct Answer: C
Explanation:
KYC norms are framed under PMLA, 2002 and its rules.
3. Anonymous Accounts
Q3. Banks are prohibited from opening:
A. Savings accounts
B. Joint accounts
C. Anonymous accounts
D. Salary accounts
✅ Correct Answer: C
Explanation:
CAP clearly states that anonymous or fictitious accounts are not allowed.
4. Purpose of CAP
Q4. Customer Acceptance Policy helps in:
A. Loan appraisal
B. Risk classification of customers
C. Interest rate fixation
D. Profit calculation
✅ Correct Answer: B
Explanation:
CAP helps identify high-risk and low-risk customers at entry level.
5. Timing of CIP
Q5. Customer Identification Procedure must be completed:
A. After account opening
B. Before account opening
C. After first transaction
D. After 6 months
✅ Correct Answer: B
Explanation:
Customer identity must be verified before establishing relationship.
6. Proof of Address
Q6. Which document is valid as proof of address?
A. PAN Card
B. Aadhaar Card
C. Visiting Card
D. Office ID
✅ Correct Answer: B
Explanation:
Aadhaar is an Officially Valid Document (OVD) for address proof.
7. PAN Requirement
Q7. PAN is mandatory mainly to:
A. Open current account
B. Track high-value transactions
C. Increase deposits
D. Issue debit card
✅ Correct Answer: B
Explanation:
PAN helps in monitoring financial transactions and tax compliance.
8. CDD Meaning
Q8. CDD involves:
A. Customer verification only
B. Customer risk assessment
C. Transaction reporting
D. Audit inspection
✅ Correct Answer: B
Explanation:
CDD includes identification, verification, and risk assessment.
9. Ongoing Due Diligence
Q9. Monitoring of customer transactions is known as:
A. Initial Due Diligence
B. Enhanced Due Diligence
C. Ongoing Due Diligence
D. Simplified Due Diligence
✅ Correct Answer: C
Explanation:
Ongoing Due Diligence ensures transactions are consistent with customer profile.
10. High-Risk Customers
Q10. Which customer category requires EDD?
A. Salaried employee
B. Pensioner
C. Politically Exposed Person
D. Student
✅ Correct Answer: C
Explanation:
PEPs are high-risk customers, hence EDD is mandatory.
11. PEP Meaning
Q11. PEP stands for:
A. Public Economic Person
B. Politically Exposed Person
C. Professional Executive Person
D. Private Economic Person
✅ Correct Answer: B
Explanation:
PEPs hold prominent public positions and pose higher risk.
12. Risk Classification
Q12. Customers are classified into risk categories as:
A. Active and inactive
B. Profit and loss
C. Low, medium, high
D. Individual and non-individual
✅ Correct Answer: C
Explanation:
Risk classification helps apply appropriate KYC measures.
13. Risk-Based KYC
Q13. Risk-based approach means:
A. Same KYC for all
B. Random checks
C. Different KYC for different risk levels
D. No monitoring
✅ Correct Answer: C
Explanation:
Higher risk → Stricter KYC, lower risk → Simplified KYC.
14. Periodic KYC Update – High Risk
Q14. KYC of high-risk customers should be updated:
A. Every year
B. Every 2 years
C. Every 5 years
D. No update required
✅ Correct Answer: A
Explanation:
High-risk customers require annual KYC updation.
15. Periodic KYC Update – Low Risk
Q15. Low-risk customers’ KYC is updated once in:
A. 1 year
B. 2 years
C. 10 years
D. Never
✅ Correct Answer: C
Explanation:
RBI allows 10-year interval for low-risk customers.
16. Beneficial Owner
Q16. Beneficial owner is the person who:
A. Signs cheques
B. Manages daily operations
C. Ultimately owns or controls the entity
D. Acts as auditor
✅ Correct Answer: C
Explanation:
Identifying the real controller is critical for KYC.
17. KYC for Companies
Q17. KYC of companies includes:
A. Balance sheet only
B. Certificate of Incorporation
C. Salary slips
D. Utility bills
✅ Correct Answer: B
Explanation:
Company KYC includes registration documents and BO details.
18. KYC for Partnership Firms
Q18. Which document is essential for partnership firms?
A. Trust deed
B. Partnership deed
C. Sale agreement
D. Memorandum of Association
✅ Correct Answer: B
Explanation:
Partnership deed defines ownership and authority.
19. Trust Account
Q19. Trust accounts require verification of:
A. Donors
B. Trustees
C. Beneficiaries only
D. Employees
✅ Correct Answer: B
Explanation:
Trustees control operations; hence their KYC is mandatory.
20. NGO Accounts
Q20. NGO accounts are monitored closely due to risk of:
A. Credit risk
B. Market risk
C. Terror financing
D. Interest rate risk
✅ Correct Answer: C
Explanation:
NGOs may be misused for terror financing, hence strict KYC.
21. Small Account Limit
Q21. Maximum balance allowed in small account is:
A. ₹25,000
B. ₹50,000
C. ₹1,00,000
D. No limit
✅ Correct Answer: C
Explanation:
RBI prescribes balance and transaction limits for small accounts.
22. Small Account Credit Limit
Q22. Total credits in a small account in a year cannot exceed:
A. ₹1 lakh
B. ₹2 lakh
C. ₹5 lakh
D. ₹10 lakh
✅ Correct Answer: B
Explanation:
Annual credit limit for small accounts is ₹2 lakh.
23. Small Account Opening
Q23. Small accounts can be opened using:
A. PAN only
B. Aadhaar only
C. Self-declaration
D. Passport
✅ Correct Answer: C
Explanation:
Small accounts allow self-declaration for identity.
24. Expiry of Small Account
Q24. After expiry of small account, bank must:
A. Close account
B. Freeze debit transactions
C. Convert to full KYC
D. Increase limits
✅ Correct Answer: C
Explanation:
Small account must be converted to full KYC account.
25. Simplified KYC Eligibility
Q25. Simplified KYC is applicable for:
A. High-risk customers
B. PEPs
C. Low-risk customers
D. Foreign nationals
✅ Correct Answer: C
Explanation:
Simplified KYC applies to low-risk categories.
26. KYC Updation Trigger
Q26. KYC updation is required when:
A. Address changes
B. Phone changes
C. ATM card expires
D. Passbook fills
✅ Correct Answer: A
Explanation:
Change in address or occupation requires KYC update.
27. Dormant Accounts
Q27. Dormant accounts require:
A. No KYC
B. Fresh KYC before activation
C. Only manager approval
D. No action
✅ Correct Answer: B
Explanation:
Re-KYC is mandatory before reactivation.
28. Transaction Monitoring
Q28. Suspicious transactions should be:
A. Ignored
B. Encouraged
C. Reported
D. Closed
✅ Correct Answer: C
Explanation:
Suspicious transactions must be reported to FIU-IND.
29. FIU-IND Role
Q29. FIU-IND receives:
A. Audit reports
B. CTR and STR
C. Balance sheets
D. Loan proposals
✅ Correct Answer: B
Explanation:
Banks report Cash Transaction Reports and Suspicious Transaction Reports.
30. Cash Transaction Threshold
Q30. CTR is required for cash transactions above:
A. ₹1 lakh
B. ₹5 lakh
C. ₹10 lakh
D. ₹25 lakh
✅ Correct Answer: C
Explanation:
Cash transactions above ₹10 lakh must be reported.
31. Purpose of Transaction Monitoring
Q31. Transaction monitoring under KYC is done to:
A. Increase bank revenue
B. Detect unusual or suspicious activity
C. Improve customer service
D. Reduce staff workload
✅ Correct Answer: B
Explanation:
Transaction monitoring helps banks identify suspicious or abnormal transactions that may indicate money laundering.
32. Ongoing Monitoring
Q32. Ongoing monitoring mainly focuses on:
A. Account opening
B. Customer verification only
C. Transactions during the relationship
D. Closing accounts
✅ Correct Answer: C
Explanation:
Ongoing monitoring ensures transactions are consistent with the customer’s risk profile.
33. Suspicious Transaction Report (STR)
Q33. STR should be filed when:
A. Cash transaction exceeds ₹10 lakh
B. Transaction is inconsistent with customer profile
C. Account balance is low
D. Interest is not credited
✅ Correct Answer: B
Explanation:
STR is filed when a transaction appears suspicious, irrespective of amount.
34. Time Limit for STR Reporting
Q34. Suspicious Transaction Report should be submitted:
A. Within 24 hours
B. Within 3 working days
C. Within 7 working days
D. Immediately after account closure
✅ Correct Answer: C
Explanation:
STRs are generally required to be reported within 7 working days of detection.
35. Tipping Off
Q35. Informing a customer about STR filing is known as:
A. Reporting
B. Disclosure
C. Tipping off
D. Monitoring
✅ Correct Answer: C
Explanation:
“Tipping off” is strictly prohibited under PMLA.
36. Responsibility of Banks
Q36. Who is responsible for KYC compliance in banks?
A. Customer
B. RBI
C. Bank staff and management
D. Auditor
✅ Correct Answer: C
Explanation:
Banks are fully responsible for implementing KYC norms.
37. KYC and Financial Inclusion
Q37. KYC norms are relaxed mainly to promote:
A. Profitability
B. Digital banking
C. Financial inclusion
D. Competition
✅ Correct Answer: C
Explanation:
Simplified KYC ensures access to banking for weaker sections.
38. Non-Face-to-Face Customers
Q38. Accounts opened without face-to-face interaction are treated as:
A. Low risk
B. Medium risk
C. High risk
D. No risk
✅ Correct Answer: C
Explanation:
Non-face-to-face customers are considered high risk due to impersonation risk.
39. KYC of Minors
Q39. In case of minor accounts, KYC is required for:
A. Minor only
B. Guardian only
C. Both minor and guardian
D. No one
✅ Correct Answer: B
Explanation:
KYC of the guardian is mandatory for minor accounts.
40. KYC Documents Storage
Q40. Banks should preserve KYC records for at least:
A. 3 years
B. 5 years
C. 8 years
D. 10 years
✅ Correct Answer: B
Explanation:
KYC records must be preserved for minimum 5 years after account closure.
41. Digital KYC
Q41. Video-based Customer Identification Process (V-CIP) is an example of:
A. Manual KYC
B. Physical KYC
C. Digital KYC
D. Simplified KYC
✅ Correct Answer: C
Explanation:
V-CIP is an approved digital KYC method.
42. Aadhaar Authentication
Q42. Aadhaar-based KYC requires:
A. Bank approval only
B. Customer consent
C. RBI approval
D. Court order
✅ Correct Answer: B
Explanation:
Customer explicit consent is mandatory for Aadhaar authentication.
43. Periodic Updation Trigger
Q43. Periodic KYC updation becomes necessary due to:
A. Change in risk category
B. Change in branch
C. Change in cheque book
D. Change in IFSC
✅ Correct Answer: A
Explanation:
Any change in risk profile requires KYC updation.
44. FATF Role
Q44. FATF mainly deals with:
A. Banking supervision
B. Anti-money laundering standards
C. Credit rating
D. Payment systems
✅ Correct Answer: B
Explanation:
FATF sets global AML/CFT standards.
45. Source of Funds
Q45. Verification of source of funds is part of:
A. Simplified KYC
B. Basic KYC
C. Enhanced Due Diligence
D. CAP
✅ Correct Answer: C
Explanation:
EDD requires verification of source of funds and wealth.
46. Shell Companies
Q46. Shell companies are considered:
A. Low risk
B. Medium risk
C. High risk
D. No risk
✅ Correct Answer: C
Explanation:
Shell companies are often used for money laundering, hence high risk.
47. Account Freezing
Q47. If KYC is not completed within stipulated time, bank may:
A. Close branch
B. Freeze account
C. Increase charges
D. Issue notice
✅ Correct Answer: B
Explanation:
Banks may restrict operations if KYC is not updated.
48. Ultimate Responsibility
Q48. Ultimate responsibility for KYC compliance lies with:
A. Branch staff
B. Compliance officer
C. Board of Directors
D. RBI
✅ Correct Answer: C
Explanation:
The Board of Directors has ultimate responsibility for KYC compliance.
49. Simplified Due Diligence
Q49. Simplified Due Diligence is applicable when risk is:
A. High
B. Medium
C. Low
D. Unknown
✅ Correct Answer: C
Explanation:
Simplified Due Diligence is permitted for low-risk customers only.
50. Main Aim of KYC
Q50. The ultimate aim of KYC norms is to:
A. Increase deposits
B. Improve customer relations
C. Prevent misuse of banking system
D. Reduce paperwork
✅ Correct Answer: C
Explanation:
KYC ensures the banking system is not misused for illegal activities.
51. Meaning of KYC
Q1. What is the primary meaning of KYC in banking?
A. Knowing the income level of the customer
B. Knowing the customer’s credit score
C. Knowing the identity and nature of the customer
D. Knowing the profitability of the account
✅ Correct Answer: C
Explanation:
KYC (Know Your Customer) means identifying and verifying the identity, address, and nature of business of a customer to prevent misuse of banking services.
52. Objectives of KYC
Q2. Which of the following is NOT an objective of KYC?
A. Prevention of money laundering
B. Prevention of terrorist financing
C. Maximization of bank profits
D. Protection of banks from fraud
✅ Correct Answer: C
Explanation:
The objective of KYC is risk prevention, not profit maximization. KYC helps banks protect themselves from fraud, money laundering, and terrorist financing.
53. Customer Acceptance Policy (CAP)
Q3. Customer Acceptance Policy mainly helps a bank to:
A. Decide interest rates for customers
B. Decide which customers to accept or reject
C. Fix service charges
D. Classify loan accounts
✅ Correct Answer: B
Explanation:
CAP defines criteria for accepting customers, ensuring that accounts are not opened in fictitious or anonymous names.
54. Customer Identification Procedure (CIP)
Q4. Customer Identification Procedure refers to:
A. Verifying transactions of customers
B. Identifying customers before opening accounts
C. Monitoring high-value transactions
D. Reporting suspicious transactions
✅ Correct Answer: B
Explanation:
CIP involves verifying identity and address of customers before establishing a banking relationship.
55. Officially Valid Documents (OVDs)
Q5. Which of the following is considered an Officially Valid Document (OVD)?
A. Ration Card
B. Aadhaar Card
C. Electricity Bill
D. Driving School ID
✅ Correct Answer: B
Explanation:
Aadhaar, Passport, Voter ID, Driving Licence, and NREGA job card are recognized as OVDs under RBI guidelines.
56. Customer Due Diligence (CDD)
Q6. Customer Due Diligence is carried out to:
A. Increase deposits
B. Understand customer’s background and risk
C. Improve customer service
D. Reduce operational cost
✅ Correct Answer: B
Explanation:
CDD helps banks assess customer risk, understand business relationships, and ensure transactions are consistent with customer profile.
57. Enhanced Due Diligence (EDD)
Q7. Enhanced Due Diligence is required for:
A. Low-risk customers
B. Small account holders
C. High-risk customers
D. All customers
✅ Correct Answer: C
Explanation:
EDD is applied to high-risk customers such as PEPs, non-resident customers, or those with complex transactions.
58. Risk-Based Approach to KYC
Q8. Under risk-based approach, KYC measures are:
A. Same for all customers
B. Higher for low-risk customers
C. Proportional to customer risk
D. Applied only at account opening
✅ Correct Answer: C
Explanation:
Risk-based approach means higher scrutiny for high-risk customers and simplified procedures for low-risk customers.
59. Periodic Updating of KYC
Q9. Periodic updating of KYC is required to:
A. Close inactive accounts
B. Update customer information
C. Increase transaction limits
D. Issue new cheque books
✅ Correct Answer: B
Explanation:
Periodic updating ensures customer information remains current, especially changes in address, occupation, or risk category.
60. KYC for Individual Customers
Q10. For individual customers, KYC mainly includes:
A. Income Tax returns only
B. Identity and address proof
C. Business registration certificate
D. Balance sheet
✅ Correct Answer: B
Explanation:
Individual KYC requires proof of identity and proof of address, verified through OVDs.
61. KYC for Non-Individual Customers
Q11. KYC for non-individual customers includes identification of:
A. Employees only
B. Branch manager
C. Beneficial owner
D. Auditors
✅ Correct Answer: C
Explanation:
For companies, firms, and trusts, banks must identify the beneficial owner who ultimately controls the entity.
62. KYC for Trusts / NGOs
Q12. While opening accounts of trusts or NGOs, banks must verify:
A. Only trustees’ PAN
B. Trust deed and authorization
C. Donation receipts
D. Past transaction history
✅ Correct Answer: B
Explanation:
Trust deed, registration certificate, and authorization to operate the account are essential for KYC of trusts/NGOs.
63. Small Accounts
Q13. A small account can be opened when:
A. Full KYC documents are available
B. Customer has high income
C. Customer has limited documents
D. Account is joint
✅ Correct Answer: C
Explanation:
Small accounts allow inclusion of financially weaker sections with simplified KYC, subject to transaction limits.
64. Simplified KYC
Q14. Simplified KYC is mainly intended to:
A. Increase bank revenue
B. Reduce compliance cost
C. Promote financial inclusion
D. Avoid monitoring
✅ Correct Answer: C
Explanation:
Simplified KYC supports financial inclusion by allowing easier account opening for low-risk customers.
65. Expiry of Small Account
Q15. A small account remains valid for:
A. 6 months
B. 12 months
C. 24 months
D. Till full KYC is completed
✅ Correct Answer: C
Explanation:
A small account is valid for 12 months initially and can be extended to 24 months, after which full KYC is mandatory.