Source of funds and source of wealth are two related but distinct enhanced-due-diligence checks. Source of funds concerns the origin of the specific money being used in a particular transaction or business relationship, for example a salary payment, the proceeds of a property sale, or a company dividend. Source of wealth is broader: it concerns how the customer accumulated their total assets over time. Establishing both, where appropriate, is a core requirement of enhanced due diligence under Regulation 33 of the Money Laundering Regulations 2017.
When source of funds checks are triggered
These checks are not required for every customer. They are an enhanced-due-diligence measure triggered by higher risk: relationships with politically exposed persons under Regulation 35, customers established in high-risk third countries under Regulation 33(1), and any other situation the firm’s risk-based assessment identifies as higher risk. The depth of the check should be proportionate, verifying a plausible, evidenced explanation rather than simply recording the customer’s unsupported assertion.
Why it matters
Source of funds and source of wealth checks are the point at which a firm tests whether wealth and transactions are consistent with what it knows about the customer. Unexplained or implausibly large funds, or wealth that cannot be reconciled with a customer’s profile, are classic red flags that may give rise to a Suspicious Activity Report. The FCA frequently criticises firms for documenting that a check was “done” without evidencing the underlying conclusion.
Who it applies to
Relationship managers, onboarding and financial-crime teams at regulated-sector firms applying enhanced due diligence under the MLRs 2017.