Source of Funds vs Source of Wealth: AML Guide
In brief: Source of funds explains where the money for a transaction came from, while source of wealth explains how the client built the wealth behind it.
Key points
- Source of funds is transaction-specific.
- Source of wealth is broader and explains the origin of the client's overall wealth.
- Higher-risk matters often require both, supported by evidence and a decision log.
Source of funds vs source of wealth
Source of funds and source of wealth answer different AML questions.
Source of funds asks: where did the specific money for this transaction come from, and how did it reach the client or matter?
Source of wealth asks: how did the client generate or accumulate their overall wealth?
In low-risk work, basic CDD may be enough. In higher-risk work, unusual transactions, PEP exposure, complex ownership, or inconsistent explanations may require enhanced due diligence and stronger evidence.
Evidence examples
| Claim | Possible evidence |
|---|---|
| Salary or employment income | Payslips, tax returns, employer confirmation, bank statements. |
| Sale of property | Completion statement, sale agreement, Land Registry evidence, bank receipt. |
| Business profits | Accounts, tax filings, dividend records, bank statements. |
| Inheritance | Grant of probate, estate accounts, solicitor letter, bank receipt. |
| Loan | Loan agreement, lender identity, lender source of funds, repayment terms. |
| Gift | Gift letter, donor identity, donor source of funds, relationship evidence. |
The evidence should match the risk. Do not collect documents for the sake of it. Collect enough to support a defensible decision.
When source of wealth matters
Source of wealth is especially relevant when:
- The client is high risk.
- The client or beneficial owner is a PEP.
- The transaction value is inconsistent with the client's profile.
- Funds come from overseas, crypto, cash-intensive activity, or complex structures.
- The client cannot explain how wealth was built.
A practical workflow
- Identify the transaction or matter.
- Ask where the funds came from.
- Trace the route of funds where risk requires it.
- Ask how the client built the underlying wealth.
- Compare the explanation with documents and open-source information.
- Record the decision, gaps, and next review trigger.
Common mistakes
- Treating a bank statement as proof of legitimacy.
- Asking for source of wealth when only source of funds is needed.
- Accepting a vague explanation without evidence in a high-risk matter.
- Forgetting to reassess the risk rating when evidence does not fit.
- Keeping documents without recording the decision made from them.
Decision log
Your file should explain what was asked, what was provided, what was missing, and why the firm continued, paused, declined, or escalated the matter.
This guide is general information and should be applied through your firm's AML policies and risk-based approach.