Source of Funds

Definition

Source of Funds (SoF) refers to the specific origin of the money being used for a transaction. It covers where the funds are held immediately prior to transfer, how they were obtained for the transaction, and the route they take into the recipient’s account.

This is distinct from Source of Wealth, which describes the overall origin of a person’s total assets.

Why it matters

Knowing the Source of Funds helps regulated businesses ensure they are not facilitating money laundering, terrorist financing, or other illicit activity. It also supports compliance with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 in the UK.

SoF checks are particularly important for high-value or high-risk transactions and can be required in addition to Source of Wealth verification.

How Source of Funds checks work

1. Information request – The client is asked to provide details of the account(s) from which the funds will be sent.
2. Documentary evidence – Bank statements, remittance advices, or proof of sale showing the movement of funds.
3. Verification – Confirm that the funds are consistent with the client’s known profile and the purpose of the transaction.
4. Risk assessment – Determine whether the source is high risk (e.g., from certain jurisdictions or cash-intensive businesses).
5. Record keeping – Maintain evidence in line with regulatory retention requirements.

Examples and use cases

• Property purchase – Confirming the funds come from a sale proceeds account.
• Escrow funding – Verifying the account and transaction trail before release into a safeguarded account.
• Corporate acquisition – Checking that funds originate from an approved corporate account or facility.

Mini-FAQ

Q: How is Source of Funds different from Source of Wealth?
A: SoF focuses on the origin of the specific money used in a transaction, while SoW explains how the person acquired their overall wealth.

Q: When is Source of Funds evidence required?
A: Whenever regulations require you to confirm that transaction funds come from a legitimate, identifiable source - often for high-value or high-risk transactions or in a regulated firm context.