Source of Funds vs. Source of Wealth

What is the difference - read on

In the fight against financial crime and defending your firm against scrutiny the distinction between source of funds and source of wealth is important

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💵Source of Funds vs. Source of Wealth

And why misunderstanding the difference is where firms are currently being caught out

In today’s regulatory landscape, simply collecting documents is no longer enough.

The SRA’s latest thematic review confirms what many firms have quietly suspected:

The gap between Source of Funds and Source of Wealth checks is where firms are most vulnerable - and this is precisely where enforcement action is rising.

If your firm cannot confidently explain how the money arrived, why the client has it, and why that explanation makes sense in the context of their financial profile, the matter is exposed.

And when the SRA comes calling, that gap is laid bare in minutes.

💵Understanding Source of Funds and Source of Wealth

These are not administrative tasks.

They are your primary line of defence - for the firm, and for individual fee earners.

This guide simplifies the distinction.

💵Why is this important

Firms who are in-scope of the Money Laundering Regulations are required to comply with the legislation and their regulatory guidance.

💵What is Source of Funds (SoF)?

Source of Funds refers to the money used for a specific transaction.

The key question:

Where did the money for this transaction come from?

This requires more than identifying the account it sits in.

The SRA is clear: you must be able to explain the origin and legitimacy of the funds used in this deal.

Examples of appropriate evidence include:

Payslips or employment records confirming savings
Probate documents for inherited funds
Sale contracts for property or business assets
Accountant-certified financial statements

💵🏠🍀What is Source of Wealth (SoW)?

Source of Wealth is wider.
It considers how a client accumulated their overall assets over time.

The question here is:

Does the client’s financial position make sense?

And sometimes the two are inseparable:

If the client’s deposit comes from “rental income”, you must also establish how and when the property portfolio was obtained.
Without that, the picture is incomplete.

🥷🏻Why This Matters (More Than Ever)

The SRA has made the risk explicit:

Key Exposure	Consequence
Inadequate SoF or SoW scrutiny	Heightened ML/TF risk
Missing rationale or narrative	Regulatory criticism and file failings
Evidence collected but not analysed	Disciplinary findings
Fee earner assumptions replacing documented risk reasoning	Personal POCA exposure

The figures from the SRA’s review are stark:

11% of files had no Source of Funds checks
18% collected SoF/SoW information but did not scrutinise it
8% contained inconsistencies between funds received and evidence held

This is no longer about having a policy.
It is about demonstrating professional scepticism, recorded clearly, and consistently.

💡Some key points to consider

So you may have heard the following before, but have you really heard it to the extent that you are implementing it?

• Ask: Does this make sense? Always step back and assess if the transaction is consistent with everything you know about the client, their business, and their risk profile. Ask further questions, request further original or certified copies. If it feels wrong, it probably is.

• Document Everything Record the checks you performed. Critically, if you decide checks are not necessary for a low-risk matter, you must document a clear rationale explaining why that approach was proportionate to the risk. Your justification is as crucial as your evidence. 'Show your workings out.'

• Be Wary of Last-Minute Changes A sudden, unexpected change in how a transaction is funded - especially right before completion, is a major red flag. If a client suddenly says they no longer need a mortgage because an "old debt" was settled, you must investigate immediately.

• Remember: A UK Bank Account Isn't a Free Pass One of the most common poor practices is "Assuming funds are legitimate because they came from a UK bank account." Sophisticated criminals are adept at layering illicit money through the legitimate financial system. The origin of the funds, not the final bank account, is what matters.

🧪The Practical Test

Can you explain, where the money came from - and can you evidence that explanation?

If not, the file is at risk, you are at risk.

😫The Pain to Face Now (Quietly, Before It Becomes Loud)

Most firms do have documents.

What they are missing is:

The story of the funds
The analysis
And the recorded justification

This is where file reviews fail.
This is where regulators refer you for investigation

🤔If You Feel Even Slightly Unsure - Now is the Right Time

If you are concerned about your current approach, then now is the point to quietly strengthen your position.

We can support you with following steps:

File Sampling & Review (confidential, proportionate, and collaborative)
Review your policy, procedures and controls

📆Book a Confidential Initial Conversation

If you are concerned about the level of scrutiny you are currently applying to your Source of Funds and Source of Wealth checks, book a consultation, we can discuss how we can assist you.