CFT, or Countering the Financing of Terrorism, is an important part of the KYC and AML framework followed by banks and other regulated financial entities. It focuses on preventing financial resources from being collected, transferred, or made available for terrorist activities or designated individuals and organisations. In India, CFT compliance is supported by the Prevention of Money Laundering Act (PMLA), PML Rules, RBI KYC Directions, UAPA, FIU-IND requirements, and FATF standards.
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Revise the key concepts, regulations, processes, and important terms with the help of the PDF. It covers topics such as CFT meaning, KYC, AML, CDD, sanctions screening, transaction monitoring, and STR reporting. It can help candidates quickly revise the topic before exams or interviews. The direct link to download the PDF is provided below.
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Attempt the CFT, AML & KYC Practice Quiz
Test your understanding of CFT, AML and KYC concepts with the free practice quiz. The quiz covers important areas such as CFT regulations, KYC procedures, AML measures, sanctions screening and suspicious transaction reporting.
1. What does CFT most commonly stand for in the AML/KYC context?
2. Which statement best describes the relationship between KYC and CFT?
3. A key difference between money laundering and terrorist financing is that terrorist financing:
4. Which international body sets widely adopted global standards for AML, CFT and proliferation financing?
5. Which control most directly helps identify whether a customer or connected party is a designated terrorist or sanctioned person?
6. Under a risk-based AML/CFT approach, institutions should primarily:
7. Which of the following is a core purpose of Customer Due Diligence (CDD)?
8. Why is beneficial ownership important in CFT compliance?
9. Which activity is most closely associated with ongoing due diligence?
10. Which statement about transaction size and terrorist-financing risk is correct?
11. What is an STR in AML/CFT compliance?
12. In India, which authority receives prescribed suspicious transaction reports from reporting entities under the PML framework?
13. Which Indian law provides the principal statutory framework for prevention of money laundering and obligations of reporting entities?
14. For RBI-regulated entities, which instrument contains major KYC/AML/CFT requirements?
15. Which Indian law is especially important to targeted financial measures against terrorism, including Section 51A?
16. Which FATF Recommendation addresses criminalisation of terrorist financing?
17. Which FATF Recommendation addresses targeted financial sanctions related to terrorism and terrorist financing?
18. Under FATF standards, which statement about non-profit organisations (NPOs) is most accurate?
19. What is the main purpose of enhanced due diligence (EDD)?
20. Which practice would most clearly create a ‘tipping-off’ concern?
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What is CFT under KYC/AML regulations?
CFT stands for Countering the Financing of Terrorism, also commonly referred to as Combating the Financing of Terrorism. It includes the laws, procedures and financial controls used to prevent funds or other economic resources from reaching terrorists or being used for terrorist purposes.
CFT works closely with KYC and AML because financial institutions need reliable customer information to identify unusual activity and assess financial crime risks. The framework includes customer due diligence, beneficial-owner identification, sanctions screening, transaction monitoring and suspicious transaction reporting.
Why is CFT important under KYC and AML?
Financial institutions can be misused to move money for terrorist activities, sometimes through transactions that appear normal on the surface. CFT controls help institutions identify customers, understand their expected financial activity and check whether transactions match their known profile. They also help identify links with designated persons, unusual fund movements and high-risk relationships. RBI’s KYC framework treats AML/CFT controls as an important part of preventing banks and other regulated entities from being misused for financial crime.
| Area | Why it matters |
|---|---|
| Preventing terrorist financing | Helps stop funds from reaching terrorists or terrorist organisations |
| Financial security | Reduces misuse of banks and financial services |
| Customer identification | Helps establish who is using the financial system |
| Sanctions compliance | Helps identify designated persons and entities |
| Transaction monitoring | Helps detect unusual financial activity |
| Regulatory compliance | Supports compliance with Indian AML/CFT requirements |
| Financial intelligence | Helps authorities identify and investigate suspicious financial flows |
What is the difference between AML and CFT?
AML and CFT are closely connected, but they focus on different risks. Anti-Money Laundering (AML) mainly aims to prevent criminals from disguising or using the proceeds of crime as legitimate money. CFT, on the other hand, focuses on preventing funds or economic resources from being used to support terrorism. A major difference is that terrorist financing can involve money from both legal and illegal sources, so CFT cannot rely only on finding criminal proceeds.
| Basis | AML | CFT |
| Full form | Anti-Money Laundering | Countering/Combating the Financing of Terrorism |
| Main objective | Prevent laundering of proceeds of crime | Prevent financing of terrorism |
| Source of funds | Usually linked to criminal activity | May be legal or illegal |
| Main question | Where did the money come from? | Where is the money going and why? |
| Key risks | Fraud, corruption, trafficking, organised crime and other offences | Terrorists, terrorist organisations and their facilitators |
| Main controls | KYC, CDD, monitoring, source-of-funds checks and STRs | KYC, CDD, sanctions screening, monitoring, freezing and reporting |
| International framework | FATF | FATF |
How does KYC help in CFT compliance?
KYC is one of the main preventive controls used in an AML/CFT programme. A financial institution needs to know who its customer is, who ultimately owns or controls an entity, what activity is expected and whether actual transactions match that profile. This information allows the institution to identify changes in customer behaviour and potential terrorist-financing risks. RBI’s KYC framework includes customer acceptance, risk management, customer identification and transaction monitoring as key elements of KYC policy.
- KYC information used for CFT
- Customer name and identity
- Address and identification details
- Nature of business or occupation
- Expected account activity
- Beneficial-owner details
- Ownership and control structure
- Source and destination of funds, where required
- Geographic exposure
- Relevant sanctions or designation information
- Transaction history and behaviour
Check all About AML KYC Certification
What are the main steps in the CFT process?
CFT compliance is not a single check performed when an account is opened. It is an ongoing process that begins with customer identification and continues through risk assessment, screening, transaction monitoring, investigation and regulatory reporting.
| CFT Process | Details |
| Customer identification | The institution establishes the customer’s identity and collects required details such as name, address, incorporation, ownership, and authorised-person information. |
| Identity verification | The collected information is verified using applicable documents, data, or processes to help prevent the use of false or fictitious identities. |
| Beneficial ownership identification | The institution identifies the person who ultimately owns or controls the relationship and understands the ownership or control structure. |
| Customer risk assessment | The institution assesses ML/TF risk based on factors such as customer type, geography, products, services, delivery channels, and transaction behaviour. |
| Sanctions and terrorist-list screening | Customers and relevant connected parties are screened against applicable sanctions and designation lists, including beneficial owners, directors, partners, and authorised representatives where relevant. |
| Transaction monitoring | Transactions are monitored on an ongoing basis to check whether they match the customer’s known profile and expected activity. Unusual transactions may generate alerts. |
| Investigation of alerts | Compliance teams review the transaction, customer profile, counterparties, destination, source of funds, and other relevant information before deciding on further action. |
| Suspicious Transaction Reporting | Where activity meets the applicable suspicion threshold, the reporting entity may need to submit a Suspicious Transaction Report (STR) to FIU-IND as required under the applicable rules. |
| Freezing or blocking where legally required | Where a designated person or entity is involved, applicable legal or sanctions-related measures may require funds or economic resources to be frozen, blocked, or restricted. |
What are the key components of CFT compliance?
A strong CFT programme combines several controls instead of depending on one system. Customer information provides the foundation, while risk assessment and monitoring help identify changes in behaviour. Sanctions screening and regulatory reporting add further layers of protection. Together, these controls help financial institutions identify and manage terrorist-financing risks.
| CFT component | Purpose |
| KYC | Establishes and verifies customer identity |
| CDD | Helps understand the customer and financial relationship |
| Beneficial ownership | Identifies the person who ultimately owns or controls an entity |
| Risk assessment | Determines the level and nature of ML/TF risk |
| Sanctions screening | Identifies designated persons and entities |
| Transaction monitoring | Detects unusual or suspicious activity |
| EDD | Provides stronger checks for higher-risk relationships |
| STR reporting | Communicates qualifying suspicious activity to the competent authority |
| Recordkeeping | Allows transactions and customer relationships to be reconstructed |
| Freezing/blocking | Prevents access to funds or resources where legally required |
What are the CFT regulations in India?
India’s CFT framework is spread across several laws, rules, regulatory directions and institutional mechanisms. The PMLA and PML Rules provide the core AML reporting framework, while sectoral regulators such as RBI prescribe detailed KYC and AML/CFT requirements for entities under their supervision. UAPA, particularly Section 51A, is important for measures concerning designated individuals and entities. FIU-IND receives and analyses prescribed financial intelligence.
| Framework | Role in CFT |
| Prevention of Money Laundering Act, 2002 | Provides the main statutory AML framework and obligations for reporting entities |
| PML (Maintenance of Records) Rules, 2005 | Provides detailed requirements for identification, records and reporting |
| RBI Master Direction – KYC Direction, 2016 | Sets KYC/AML/CFT requirements for RBI-regulated entities |
| UAPA, 1967 | Provides important legal measures relating to terrorist organisations and designated persons |
| Section 51A of UAPA | Supports measures relating to freezing, seizure or attachment of specified funds/assets and restrictions on making resources available |
| FIU-IND framework | Supports receipt and analysis of prescribed financial intelligence |
| FATF Recommendations | Provides the international AML/CFT standards |
What is the role of the RBI in CFT compliance?
The Reserve Bank of India (RBI) sets KYC and AML/CFT requirements for entities under its regulatory framework. Its Master Direction – Know Your Customer (KYC) Direction, 2016 covers areas such as customer acceptance, risk management, customer identification, customer due diligence, beneficial ownership, ongoing due diligence, transaction monitoring and other AML/CFT controls.
What is the role of PMLA in CFT?
The Prevention of Money Laundering Act, 2002 forms an important part of India’s AML/CFT framework. It establishes obligations for reporting entities relating to customer identification, record maintenance and information reporting. Section 12 specifically deals with the obligation of reporting entities to maintain records, while Section 12AA provides for enhanced due diligence in specified situations.
What are the PML Rules and how do they support CFT?
The Prevention of Money-laundering (Maintenance of Records) Rules, 2005 provide detailed requirements for reporting entities. They cover areas such as customer due diligence, recordkeeping and reporting. The rules also provide the framework for suspicious transaction reporting, including suspicious transactions that are not necessarily cash transactions.
What is the role of UAPA Section 51A in CFT?
The Unlawful Activities (Prevention) Act, 1967 (UAPA) is particularly important for terrorist-financing controls. Section 51A provides the legal basis for measures concerning funds, financial assets and economic resources associated with specified designated persons and entities. These measures can include freezing, seizure or attachment and restrictions on making funds or economic resources available to designated parties.
- Section 51A-related CFT measures
- Identification of designated persons/entities
- Screening against applicable lists
- Freezing of relevant funds or assets where required
- Restrictions on making funds/resources available
- Reporting and compliance with applicable government directions
- Coordination with competent authorities
What is the role of FIU-IND in CFT?
The Financial Intelligence Unit – India (FIU-IND) plays a central role in India’s financial-intelligence system. Reporting entities submit prescribed reports and financial information to FIU-IND, which receives, processes and analyses the information and can disseminate relevant intelligence to appropriate agencies. This helps support the detection and investigation of money laundering, terrorist financing and related financial crime.
What are the common CFT red flags?
A red flag does not by itself prove terrorist financing. It indicates that the transaction or relationship may need additional review based on the institution’s risk-based procedures. CFT monitoring generally looks at combinations of indicators rather than relying on a single transaction or customer characteristic.
Can terrorist financing involve legitimate money?
Yes. This is one of the most important differences between AML and CFT. Terrorist financing does not necessarily depend on money being generated through a criminal activity first. Legitimately earned money can potentially be diverted for a terrorist purpose, which means institutions need to examine the purpose, destination, beneficiary and transaction pattern rather than only the source of funds.
What is Enhanced Due Diligence in CFT?
Enhanced Due Diligence (EDD) means applying stronger checks where the ML/TF risk is higher. The exact measures depend on the applicable rules and the institution’s risk assessment. EDD helps an institution understand the customer and relationship in greater depth and apply closer monitoring where necessary. The PMLA includes provisions on enhanced due diligence in specified circumstances.
Why is beneficial ownership important in CFT?
Terrorist-financing risks can be hidden behind companies, trusts, nominees, intermediaries and complex ownership structures. A customer shown on an account may not always be the person who ultimately owns or controls the relationship. Beneficial-owner identification helps financial institutions understand the real ownership or control structure and identify risks that may not be visible from the customer’s name alone.
- Ultimate owner
- Person exercising control
- Directors or partners, where relevant
- Trustees or beneficiaries, where applicable
- Authorised representatives
- Ownership and control structure
- Connected entities and relationships
How does CFT apply to virtual digital assets?
CFT has become increasingly important for the digital-asset sector because virtual assets can move quickly across borders and through multiple wallets or service providers. FIU-IND’s AML & CFT Guidelines for Reporting Entities Providing Services Related to Virtual Digital Assets, updated on January 8, 2026, address AML/CFT/CPF controls for relevant VDA reporting entities.
- Risk-based Customer Due Diligence
- Customer identification
- Beneficial-owner checks
- Transaction monitoring
- Suspicious transaction reporting
- Recordkeeping
- Sanctions screening
- ML/TF/PF risk assessment
- Monitoring of VDA-related transactions
The wider terminology here is AML/CFT/CPF, where CPF refers to Countering/Combating Proliferation Financing. This is increasingly relevant in current financial-crime compliance discussions.
What is the difference between KYC, AML and CFT?
These three terms are closely connected but should not be treated as identical. KYC focuses on knowing and verifying the customer. AML focuses on preventing and detecting money laundering and the use of the financial system for criminal proceeds. CFT focuses on preventing financial resources from being used for terrorist purposes.
| Term | Simple meaning |
| KYC | Know and verify your customer |
| AML | Prevent and detect money laundering |
| CFT | Prevent financing of terrorism |
| CDD | Understand and verify the customer and relationship |
| EDD | Apply stronger checks for higher-risk relationships |
| STR | Report qualifying suspicious activity |
| Sanctions screening | Check relevant parties against applicable designation/sanctions lists |
What is the role of FATF in CFT?
The Financial Action Task Force (FATF) develops international standards for combating money laundering, terrorist financing and proliferation financing. Its Recommendations encourage countries to use a risk-based approach and establish effective controls covering areas such as terrorist-financing offences, targeted financial sanctions, CDD, beneficial ownership, suspicious transaction reporting and international cooperation.
For CFT-related study, FATF Recommendations 5 and 6 are particularly important because they deal with terrorist-financing criminalisation and targeted financial sanctions related to terrorism and terrorist financing.
What are the key CFT terms to remember?
For banking, finance and compliance exams, understanding the following terms can make the topic easier to revise:
| Term | Full form/meaning |
| CFT | Countering/Combating the Financing of Terrorism |
| AML | Anti-Money Laundering |
| KYC | Know Your Customer |
| CDD | Customer Due Diligence |
| EDD | Enhanced Due Diligence |
| STR | Suspicious Transaction Report |
| CTR | Cash Transaction Report |
| NTR | Non-Profit Organisation Transaction Report |
| CBWTR | Cross-Border Wire Transfer Report |
| FIU-IND | Financial Intelligence Unit – India |
| PMLA | Prevention of Money Laundering Act, 2002 |
| PML Rules | Prevention of Money-laundering (Maintenance of Records) Rules, 2005 |
| UAPA | Unlawful Activities (Prevention) Act, 1967 |
| FATF | Financial Action Task Force |
| BO | Beneficial Owner |
| TF | Terrorist Financing |
| CPF | Countering/Combating Proliferation Financing |
| VDA | Virtual Digital Asset |
FAQs
CFT means Countering the Financing of Terrorism. In the KYC framework, it involves using customer identification, CDD, beneficial-owner checks and risk assessment to help prevent financial resources from supporting terrorism.
AML mainly focuses on preventing the laundering of criminal proceeds, while CFT focuses on preventing funds or resources from being used to support terrorism. Terrorist financing can involve funds from either legal or illegal sources.
CFT is broader than KYC, but KYC is one of the key controls used to implement an effective AML/CFT framework.
CFT stands for Countering the Financing of Terrorism. It is also commonly expressed as Combating the Financing of Terrorism.
Relevant Virtual Digital Asset service providers are subject to AML/CFT obligations under the applicable PMLA framework. FIU-IND’s January 2026 VDA guidance specifically addresses AML/CFT/CPF controls for reporting entities providing VDA-related services.
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