Source of funds versus source of wealth
Why supervisors ask for both, and how offices should evidence them without over-collecting.
Executive summary
Funds explain this transaction; wealth explains the wider financial position.The depth should be proportionate to risk.A plausible story needs supporting evidence.Source of funds and source of wealth are related but different questions. Source of funds explains the specific money used in the matter. Source of wealth explains how the client or UBO accumulated their overall wealth.
For many ordinary low-risk files, simple source-of-funds evidence may be enough. For PEPs, high-risk structures, large transactions or unusual payment patterns, the office may also need a broader source-of-wealth explanation supported by documents.
The defensible approach is proportionality with evidence: ask enough to understand the transaction, record why the evidence is sufficient, and escalate when the explanation does not fit the client profile or the matter.
Who this applies to
This guide is for offices that handle payments, property transactions, company acquisitions, estate matters, escrow funds or high-risk clients where money origin matters.
- Real-estate purchases
- Large deposits or escrow transfers
- PEP and EDD files
- Third-party funders
- Company sale or restructuring proceeds
- Inheritance, gift, loan or crypto explanations
Legal and supervisory context
Supervisors often distinguish source of funds from source of wealth because criminals can make a single transfer look clean while the wider wealth story remains unexplained.
The office does not need to audit a client's entire life in every file. It needs enough evidence to decide whether the money used in the matter makes sense for the client and risk profile.
What the office must actually do
Start with the transaction money: where did this payment come from, whose account paid it, and does that match the matter? Then decide whether broader wealth evidence is needed.
- Identify payer, account and payment path.
- Ask why third-party money is involved.
- Collect bank, sale, loan, inheritance or dividend evidence where relevant.
- For PEPs and higher-risk files, document overall wealth origin.
- Compare the explanation with client profile and adverse signals.
- Escalate inconsistent or unsupported explanations.
What good evidence looks like
Evidence can include bank statements, sale agreements, loan contracts, payslips, dividend records, inheritance documents, tax records or other documents that make the explanation verifiable.
Common mistakes supervisors find
- Using source of funds and source of wealth as synonyms.
- Accepting third-party funds without rationale.
- Collecting documents but not recording the conclusion.
- Over-collecting in low-risk files and under-collecting in high-risk files.
- Ignoring mismatch between client profile and transaction value.
Practical checklist
- Identify the exact funds used.
- Confirm payer and account.
- Ask for the economic explanation.
- Collect proportionate evidence.
- Assess whether wealth evidence is also required.
- Record conclusion and reviewer.
- Escalate inconsistencies.
- Separates source-of-funds and source-of-wealth tasks.
- Links payment evidence to transaction monitoring.
- Flags third-party funders and value inconsistency.
- Routes weak explanations to review.
- Keeps the conclusion as dated evidence.
FAQ
Is a bank statement always enough?
Not always. It may show where funds came from immediately, but not why the client had them or whether the explanation is plausible.
When is source of wealth needed?
Usually for PEPs, high-risk clients, large or unusual transactions, complex structures or where source-of-funds evidence does not explain the wider picture.
Can the client provide a narrative only?
A narrative helps, but higher-risk files need documents that support it.
Official references
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