Source of funds
SoFAlso called origin of funds
Source of funds is the origin of the specific money used in a transaction or business relationship. It answers where this payment came from, such as a salary, a property sale, a loan or a company dividend. Firms check it to confirm the money is legitimate and consistent with what they know about the customer.
How it works
A firm asks the customer to explain where the money came from and to provide evidence. Typical documents are bank statements showing the funds arriving, a completion statement for a property sale, a loan agreement or payslips. The analyst checks that amounts, dates and names match and that the explanation fits the customer's profile.
Source of funds checks are part of ongoing monitoring and are required in enhanced due diligence, including for politically exposed persons. They matter most for large or unusual payments, cash-intensive customers and higher-risk countries. Weak or unexplained source of funds is a common reason to escalate a case or file a suspicious activity report.
The rules
Require scrutiny of transactions including, where necessary, source of funds, and adequate measures to establish source of funds for PEPs and their family and associates.
Banks, payment firms, cryptoasset firms and other relevant personsArticle 34(4) lists obtaining information on source of funds as an enhanced due diligence measure, and Article 42 requires it for politically exposed persons.
Credit and financial institutions and other obliged entities in the EUSets the international standard on politically exposed persons, which UK and EU rules on source of wealth and source of funds put into effect.
Countries, which apply them to regulated firms through national lawCommon questions
What is the difference between source of funds and source of wealth?
Source of funds is where the money for a particular transaction came from. Source of wealth is how the customer built up their total assets over time. A house sale can be the source of funds, while a career in law could explain the source of wealth.
When do firms ask for source of funds?
Firms ask when risk is higher, such as for PEPs, large or unusual transactions, high-risk countries or customers with limited history. Some sectors, such as property and private banking, ask routinely because of the values involved.
What evidence proves source of funds?
Evidence depends on the source. Common examples are bank statements showing the funds arriving, a solicitor's completion statement, a sale contract, a loan agreement, a dividend statement or payslips. Firms look for documents from independent parties where possible.
