Unit 1: Introduction to BFSI
- Banking Concepts
- Broad Features of Deposit and Loan Products
- Types of banks: Retail, Corporate, Investment, Development, Private, etc.
- Ancillary services like Trade Finance, Remittances, etc.
- Anti Money Laundering and KYC concepts
- Banking Concepts:
- Definition: Banking involves financial intermediation, accepting deposits, and providing loans.
- Functions: Facilitating payments, managing deposits, lending capital, currency exchange.
- Broad Features of Deposit and Loan Products:
- Deposit Products: Savings accounts, current accounts, fixed deposits.
- Loan Products: Home loans, personal loans, business loans.
- Types of Banks:
- Retail Banks: Serve individual customers with basic banking services.
- Corporate Banks: Cater to the financial needs of businesses and corporations.
- Investment Banks: Focus on capital markets, mergers, and acquisitions.
- Development Banks: Support economic development projects.
- Private Banks: Provide personalized financial services to high-net-worth individuals.
- Ancillary Services:
- Trade Finance: Facilitates international trade transactions.
- Remittances: Money transfer services, both domestic and international.
- Anti-Money Laundering and KYC Concepts:
- Anti Money Laundering (AML): Measures to detect and prevent money laundering activities.
- Know Your Customer (KYC): Verification processes to identify and authenticate customers.
Unit 2: Computerized operations of banks
- Evolution of computerization in banks
- Core Banking Solution
- Infrastructure requirements
- Broad software features
- Various methods, and options available for customizing like Setting up a Chart of Accounts Parameterising Products, Interest Rates and Charges
- User restrictions and transaction types
- Delivery Channel Options for direct customer access to databases
- Evolution of Computerization in Banks:
- Historical Context: From manual ledger systems to computerized operations.
- Milestones: Adoption of computers for data processing, transaction automation.
- Core Banking Solution (CBS):
- Definition: Integrated banking solution covering multiple branches.
- Features: Real-time processing, centralized databases, seamless customer services.
- Infrastructure Requirements:
- Hardware: Servers, data storage, network infrastructure.
- Software: Operating systems, database management systems.
- Broad Software Features:
- Customer Relationship Management (CRM): Managing customer interactions and relationships.
- Accounting Modules: Ledger management, financial reporting.
- Transaction Processing: Real-time processing of financial transactions.
- Various Methods and Options Available for Customizing:
- Setting up a Chart of Accounts: Defining the structure of accounts for financial reporting.
- Parameterizing Products: Configuring details of banking products.
- Interest Rates and Charges: Customizing rates and fees for various financial services.
- User Restrictions and Transaction Types:
- User Access Control: Setting permissions for system users.
- Transaction Types: Defining and managing various types of financial transactions.
- Delivery Channel Options for Direct Customer Access to Databases:
- Online Banking: Customer access via web portals.
- Mobile Banking: Banking services through mobile applications.
- ATMs: Automated teller machines for self-service transactions.
Unit 3: Basel II
- Need for Basel Regulations
- Three pillars
- Types of risks
- Operational Risk overview with focus on IT risk
- Relation of Bank-related cyber crimes to Operational risk
- Need for Basel Regulations:
- Financial Stability: To enhance stability and reduce risks in the banking sector.
- Global Standards: Establishing consistent regulatory frameworks internationally.
- Risk Management: Strengthening risk management practices in financial institutions.
- Three Pillars:
- Pillar 1 – Minimum Capital Requirements: Setting minimum capital standards based on credit, market, and operational risks.
- Pillar 2 – Supervisory Review Process: Regulatory review and evaluation of a bank’s internal capital adequacy assessment process (ICAAP).
- Pillar 3 – Market Discipline: Encouraging transparency and disclosure to enable market discipline.
- Types of Risks:
- Credit Risk: Potential loss due to the failure of a borrower to meet contractual obligations.
- Market Risk: Exposure to losses from changes in market factors like interest rates and currency exchange rates.
- Operational Risk: Risks arising from internal processes, systems, human error, or external events.
- Operational Risk Overview with Focus on IT Risk:
- Definition: Risks associated with disruptions to operations, including technology failures.
- IT Risk: Specific operational risk related to information technology systems.
- Relation of Bank-Related Cyber Crimes to Operational Risk:
- Cyber Crimes: Unauthorized access, data breaches, ransomware attacks.
- Impact on Operational Risk: Increased vulnerability to disruptions, financial losses, and reputational damage.
Unit 4: Vulnerable areas in CBS and their exploitation
- Application-related
- Parameters and freedom available to users
- Empowerment of users
- Access to organization-wide data
- Direct access to the database and records
- Multiple interfaces with other applications ATM Network, Anti-Money Laundering Application
- Application-Related Vulnerabilities:
- Definition: Weaknesses in the core banking application that can be exploited.
- Examples: Software bugs, security misconfigurations, insufficient validation checks.
- Parameters and Freedom Available to Users:
- Parameters: Configurable settings within the banking application.
- User Freedom: The extent to which users can customize or modify parameters.
- Empowerment of Users:
- User Empowerment: Granting users certain privileges or capabilities within the system.
- Risk: Over-empowerment leading to misuse or unauthorized actions.
- Access to Organization-Wide Data:
- Data Accessibility: Ability of users to access and manipulate organization-wide data.
- Security Controls: Measures in place to restrict unauthorized access.
- Direct Access to the Database and Records:
- Database Access: Possibility for users to directly interact with the underlying database.
- Security Measures: Ensuring that direct access is limited and properly controlled.
- Multiple Interfaces with Other Applications:
- Interfacing Applications: Integration with other applications, such as ATM networks or Anti-Money Laundering (AML) systems.
- Integration Risks: Potential vulnerabilities introduced through these interfaces.
- ATM Network:
- ATM Interface: Connection between the core banking system and Automated Teller Machines (ATMs).
- Security Considerations: Ensuring secure communication and transaction processing.
- Anti-Money Laundering Application:
- Integration with AML Systems: Linkages between the core banking system and Anti-Money Laundering applications.
- Data Security: Safeguarding sensitive information related to financial transactions.
Unit 5: Money Laundering and Anti-Money Laundering
- Money laundering techniques and the vulnerabilities of specific financial services products
- The process of money laundering
- How is money laundered?
- Limitations of the staged interpretation of money laundering
- Vulnerabilities of specific services and products
- The duties and responsibilities of the Money Laundering Reporting Officer (MLRO)
- The role of the MLRO
- Generating management information
- Common MLRO problems
- Recognition, handling, and reporting transactions
- The legal obligation to report
- Designing an effective internal reporting system
- The MLRO’s evaluation process
- Corruption in BFSI Sector – Types – Security Controls
- Counter Measures
- Money Laundering Techniques and the Vulnerabilities of Specific Financial Services Products:
- Layering: Complex financial transactions to conceal the source of illicit funds.
- Integration: Legitimizing the funds into the financial system.
- Vulnerabilities: Specific products susceptible to manipulation.
- The Process of Money Laundering:
- Placement: Introducing “dirty money” into the financial system.
- Layering: Concealing the source through complex transactions.
- Integration: Making illicit funds appear legitimate.
- How is Money Laundered?:
- Cash Transactions: Initial entry point for illegal funds.
- Digital Transactions: Concealing the origin through electronic channels.
- Investments: Channeling illicit funds into legitimate investments.
- Limitations of the Staged Interpretation of Money Laundering:
- Dynamic Nature: Money laundering methods continually evolve.
- Adaptability: Criminals may bypass traditional staging.
- Vulnerabilities of Specific Services and Products:
- Wire Transfers: Rapid movement of funds, potential for abuse.
- Prepaid Cards: Anonymity and ease of use pose risks.
- Online Banking: Digital channels vulnerable to exploitation.
- Duties and Responsibilities of the Money Laundering Reporting Officer (MLRO):
- Oversight: Monitoring and reporting suspicious activities.
- Compliance: Ensuring adherence to Anti-Money Laundering (AML) regulations.
- The Role of the MLRO:
- Strategic Planning: Developing AML policies and procedures.
- Training: Educating staff on AML compliance.
- Generating Management Information:
- Data Analysis: Utilizing information to identify patterns of suspicious activity.
- Reporting: Providing insights to senior management for decision-making.
- Common MLRO Problems:
- Resource Constraints: Insufficient staff or technology.
- Regulatory Changes: Adapting to evolving AML regulations.
- Recognition, Handling, and Reporting Transactions:
- Training Staff: Recognizing red flags and suspicious activities.
- Prompt Reporting: Ensuring timely reporting of suspicious transactions.
- The Legal Obligation to Report:
- Legal Framework: Understanding reporting obligations under AML laws.
- Consequences: Legal implications for non-compliance.
- Designing an Effective Internal Reporting System:
- Confidentiality: Balancing reporting with protecting sensitive information.
- Whistleblower Protection: Ensuring protection for those reporting in good faith.
- The MLRO’s Evaluation Process:
- Risk Assessment: Evaluating the institution’s risk exposure to money laundering.
- Effectiveness: Assessing the efficiency of AML measures.
- Corruption in BFSI Sector – Types – Security Controls:
- Bribery and Corruption: Illicit practices compromising financial integrity.
- Security Controls: Implementing measures to prevent and detect corrupt activities.
- Counter Measures:
- Customer Due Diligence (CDD): Verifying customer identities and assessing risks.
- Transaction Monitoring: Continuous surveillance for unusual activities.
- Enhanced Due Diligence (EDD): Heightened scrutiny for high-risk customers.
