AMLG11630 | Guidance for all sectors: Source of Funds & Source of Wealth

16.3 Source of Funds & Source of Wealth

Verifying a customer’s source of funds and wealth may be required when conducting EDD, , as well as where necessary as part of ongoing monitoring of transactions.

Your business may decide to verify source of funds or wealth on other transactions if your risk assessment requires it.

Source of funds and source of wealth may be required during standard CDD, in order to understand the purpose and intended nature of the business relationship or occasional transaction. HMRC recommends that source of funds and source of wealth are verified where necessary at the start of a business relationship, and before carrying out an occasional transaction.

In the case of a politically exposed person, the EDD measures must include verifying the source of wealth and source of funds.

In the case of a person established in or operating from a FATF Call for Action country, the EDD measures must include verifying the source of funds and or source of wealth of the client and beneficial owner.

Source of Funds

Source of Funds refers to the funds that are being used to fund the specific transaction in hand – i.e. the origin of the funds used for the transactions or activities that occur within the business relationship. The question you are seeking to answer should not simply be, "where did the money for the transaction come from," but also "how and from where did the client get the money for this transaction or business relationship." It is not enough to know the money came from a UK bank account.

Therefore, Source of Funds means establishing the provenance of the particular funds for use in a transaction - this includes the remitting account details but also an understanding of the activity which generated those specific funds, for example savings from employment or inheritance.

You may already be obtaining bank statements to show the customer’s possession of the funds in question, and you should continue to do this on the understanding that these statements are also intended to evidence possession and transit of the funds i.e. what account they are coming from and is that in the name of the customer.

Source of Funds may be assessed and evidenced by, for example, obtaining bank statements to check for sufficient and regular credits and obtaining bank statements to check for gifted funds matching the amount detailed by client. Should remitter details be available, it may also be possible to check any connection/related names to the client’s details).

Where risks are assessed as higher (see Part 3 for sector-specific risks) actions might also include more investigation to confirm the source of any gifted funds and/or evidence of employment, though there may also be reasons particular to any transaction (low, medium or high risk) where further investigation or evidence should be sought.

Things to consider:

• Source of Funds should be evidenced in line with your assessment of risk, (and may have an impact on your risk grading).

• It is not just about collecting documents; you should consider what you have been given e.g. is the customer’s explanation and evidence sensible/feasible? Do the bank statements show what you’d expect to see? How many months of statements should you collect in line with the risk profile?

• Document your rationale and decision-making - if HMRC asked you what you had done to satisfy source of funds, would you be comfortable explaining and evidencing the decisions you had made, why you made them, what you had done to satisfy requirements?

Source of Wealth

The source of wealth refers to the origin of a client’s entire body of wealth (i.e. total assets). Source of wealth describes the economic, business and/or commercial activities that generated, or significantly contributed to, the customer’s overall net worth/entire body of wealth. This should recognise that the composition of wealth-generating activities may change over time, as new activities are identified, and additional wealth is accumulated. You should seek to answer the question: "Why and how does the individual have the amount of overall assets they do – and how did they accumulate/generate these?"

When addressing Source of Wealth, you should consider whether the Source of Wealth is commensurate to your customer in general i.e. does it make sense that the customer in front of you obtained their wealth in the way that they have advised you?

Source of Wealth information will usually give an indication as to the volume of wealth the client would be expected to have, and a picture of how the person acquired such wealth. It does not however require you to account for all of a customer’s assets, but to build a rationale and reasoning as to why they have such wealth and to provide assurance that it was obtained through legal means. This will help you to establish whether the transaction makes sense.

Aside from the bank statements you might collect as part of Source of Funds which remains an obligation even when Source of Wealth checks are engaged you should collect and assess documents which account for the wider wealth of your customer. Depending on the customer, this evidence may include audited accounts, share registers, property portfolios, crypto wallets, bank statements or other reliable documents that give you comfort as to the level of wealth of the customer, and where it came from.