Many people may be confused when it comes to the Source of Funds: “What does it mean?” and “How can I get it”? This article will offer you a precise description of the term as well as an explanation of how it operates.
What is the Source of Funds?
The term “Source of Funds” (SoF) refers to the sources of financial resources that a person or organisation utilises to finance its operations. Firms must strive to understand not only the account from which the money was moved, but also the activity that took place in order to generate those funds, in order to identify the source of funds.
Examples of Source of Funds
- Personal savings
- Pension releases
- Share sales and dividends
- Property sales
- Gambling winnings
- Inheritances and gifts
- Compensation from legal rulings
Why is the Source of Funds important?
First, it confirms that the individual in a particular transaction is authentic. Second, it allows businesses to secure their safety, combat fraud, and avoid being associated with criminal behaviour. Third, before carrying out certain transactions, one of the obligatory Anti-Money Laundering (AML) standards must be completed. Furthermore, jurisdictional regulators actively monitor SoF when determining a company’s ability to operate as a financial company.
Source of Funds vs Source of Wealth
The origin of funds or assets employed in a given business transaction between a client and a financial institution is referred to as the Source of Funds (SoF), whereas the Source of Wealth (SoW) considers the entire assets of the parties involved in the transaction.
Source of Funds in AML
SoF is an essential component in any AML procedure involving financial transactions. Companies that fail to implement SoF as part of their AML procedures, on the other hand, subject themselves to fraud, reputational harm, and significant fines. SoF must be confirmed in particular when a customer’s finances are in issue or when there is a heightened risk of AML.
Source evidence
Regulators require you to collect relevant proof to demonstrate that you have performed client due diligence, which can include but are not limited to:
- Savings – six months of bank statements demonstrating how the client is paid by their employer, pension, annuity, and the money that has grown in their bank account over time. When there are several client bank accounts, six months of bank statements for each account are required.
- Pension release – a copy of the client’s pension statement as well as a copy of their bank account statement indicating the money received from the pension firm.
- Share sale – a copy of the share release schedule as well as a copy of the bank account statements demonstrating the money received from the company.
- Sale of another property – a copy of the client’s solicitor’s completion statement and a copy of their bank statement confirming the money received from their solicitor following completion.
- Inheritance – a copy of the executors’ letter saying how much the client is being paid as a beneficiary, as well as a copy of their bank statement demonstrating the money being received from the solicitor/bank executor’s account.
- Compensation award – a copy of the letter verifying the client’s compensation payout, as well as a copy of their bank statement demonstrating the money received.
