Understanding Source of Wealth and Source of Funds
21 August 2025 | Mandy Blake
Understanding how to assess and document a customer’s Source of Wealth (SoW) and Source of Funds (SoF) is essential for regulated firms in identifying, mitigating, and managing AML/CFT/CPF risk.
The table below sets out key considerations for SoW and SoF.
Regulatory definitions
The activities that have generated the total net worth of a customer (e.g., ownership of a business, inheritance, or investments).
Source of wealth is the origin of the accrued body of wealth of an individual.
In finding out a customer’s source of wealth it may not be necessary to determine the monetary value of their net worth.
The activity that generates the funds for a customer (e.g., salary, trading revenues, or payments out of a trust).
Source of funds relates directly to the economic origin of funds to be used in a business relationship or one-off transaction.
Purpose
Documenting the customer’s known SoW and/ or SoF enables regulated firms to:
- Understand the customer’s background and financial history.
- Understand how and where the capital was generated.
- Identify if a customer’s transactional activity is in line with what would reasonably be expected based on the information recorded about the customer; and
- Assess if activity and transactions are potentially suspicious.
Examples (non-exhaustive list)
- Business profits or ownership.
- Employment income (e.g. salary, bonus, commissions, and other compensation from employer).
- Inheritance or gifts.
- Divorce settlement.
- Lawsuit settlement.
- Pension or retirement benefit scheme pay out; and
- Lottery wins, sale of residential properties, artwork, and other personal assets.
- Salary or transfer from employer.
- Proceeds from sale of property or investments.
- Transfer from existing personal bank account.
- Distribution received from a trust.
- Dividend received from a company; and
- Payout from an insurance or life policy.
Timing and methodology
- A regulated firm at onboarding should, for all customers irrelevant of risk rating, obtain sufficient information of the known SoW.
- If a customer has been risk rated high, then as part of Enhanced Due Diligence (EDD) measures the regulated firm will need to obtain corroborating evidence; and
- Refreshed during periodic or trigger event reviews.
- A regulated firm at onboarding should, for all customers irrelevant of risk rating, obtain sufficient information of the known SoF.
- Applied at the point of a significant transaction; and
- As part of EDD for customers that are PEPs or have other high risk factors.
Examples of acceptable documentary evidence (non-exhaustive list)
- Pay slips, employment contracts, tax returns.
- Financial statements, dividend statement, business valuations.
- Property sale completion statement.
- Portfolio valuation or statement.
- Information from reliable external party (e.g. lawyer, accountant, tax advisor).
- Will, grant of probate, letters of administration or gift letter; and
- Confirmation of inheritance from lawyer, trustee, or executor.
- Bank statement.
- SWIFT confirmation, contract note.
- Sale contract, letter from trustee confirming distribution, accountant confirmation, extract from trust or company minutes.
- Financial statements and
- Property sale completion statement.
Key principle – Documentation should ideally be independent, verifiable, and directly link the customer to the source.
Regulatory & risk-based approach
The JFSC sets out detailed requirements for understanding SoW and SoF as part of a risk-based approach and regulated firms are expected to:
- Identify and verify SoW and SoF where the risk level warrants it.
- Apply EDD in higher risk scenarios, such as: Politically Exposed Persons (PEPs), Hight net worth individuals with complex structures, or customers from higher risk jurisdictions (e.g. JFSC appendix D2); and
- Maintain appropriate records to demonstrate that SoW and SoF have been understood and corroborated.
Key principle – the level of evidence required should be proportionate to the risk associated with the customer and/ or transaction.
When suitable documentary evidence is not available
In some cases where documentary evidence cannot be obtained (e.g. long standing customer, inherited generational wealth with no access or ability to obtain corroborating evidence or customer from a jurisdiction with limited record keeping). The regulated firm is not absolved of its legal and regulatory obligations, but it does call for a pragmatic and risk based approach to be applied.
Instead of the more conventional approaches, the regulated firm may consider the following (not an exhaustive list):
- Corroborative information: long term account activity, lifestyle indicators, media or public domain searches.
- Professional references: letter from accountant, lawyer, regulated introducer, existing service provider (Trustee, Director) that confirms origin of wealth and/ or funds.
- Communication with customer: direct communication with the customer during a face-to-face meeting or via verified telephone calls can be used to obtain reliable information about their source of wealth.
- Enhanced Due Diligence and ongoing monitoring: regulated firms may apply enhanced identification measures commensurate with the customer’s risk. This could include obtaining updated documents, data or information as well as increasing the frequency of the customers ongoing monitoring of transaction and activity.
- Recording rationale: keep a clear audit trail by formally recording why, for the customer, a decision to accept alternative forms of evidence was approved and how any potential risks are mitigated. This will need the support and approval from senior manager and/ or compliance.
- Suspicious Activity Report (SAR): If SoW/ SoF claims are inconsistent, implausible, or unverifiable and suspicion arises, then employees should consider their reporting obligations under the Proceeds of Crime and Terrorism Laws.
- Decline or exit customer relationship: if there are concerns over the veracity or adequacy of documents, data or information obtained to support a customer’s SoW/ SoF, and the risks cannot be satisfactorily mitigated, the regulated firm should either decline to act and/ or exit the customer relationship. As before, if the employee has any suspicions, then they also need to consider their reporting obligations.
Ongoing monitoring
Ensure documentation remains current and relevant.
Monitoring must include checking that the documents, data, and information you previously collected regarding SOW and SOF are still up-to-date and appropriate. (e.g. periodic or trigger event reviews).
Apply enhanced ongoing monitoring for higher risk clients
Application of enhanced ongoing monitoring typically includes more frequent reviews, lower monitoring thresholds and deeper scrutiny of changes in the customer's financial behaviour and/or risk profile.
Customer risk assessment
The customer risk assessment (CRA) must take account of information and evidence relating to the customer’s identity, nature and purpose of the relationship, source of wealth and source of funds, the customer’s risk profile, and any other relevant factors. This risk assessment must be kept up to date (periodic and trigger event reviews) and be proportionate to the risks identified.
The CRA must consider whether SoW is commensurate with the Customer’s profile (e.g. occupation, business, income, jurisdiction etc.). The assessment should be informed by appropriate evidence, particularly where a higher risk relationship is identified.
Indicators to consider:
- Type of wealth (e.g. earned income, investments, inheritance etc.).
- Sector or industry the wealth was derived from (e.g. high-risk sectors with known vulnerabilities such as cash intensive businesses, gambling, extractive industries etc.)
- Jurisdictions connected to the wealth (e.g. higher or lower risk jurisdictions).
- Is the SoW consistent with the expected activity in the customer relationship; and
- The extent to which the customer’s source of wealth can be clearly understood and supported by reliable evidence.
The CRA should assess whether the origin of the SoF, for the initial and ongoing transactions, is consistent with the knowledge of the customer, including their SoW. This should be based on information and, where necessary, evidence obtained at the outset and during the course of the business relationship.
Indicators to consider:
- Method of funding (e.g. bank transfer, sale of an asset etc.)
- Origin of the funds (e.g. bank account, 3rd party sources etc.)
- Payments received from a 3rd party do they have a clear connection to the customer.
- Jurisdictions connected to the funds (e.g. higher or lower risk jurisdictions).
- Frequency and size of funds to be received compared to expected behaviour.