Source of Funds (SoF)
Source of funds is the evidenced origin of the specific money in a transaction or account — where this particular payment came from and how it reached the customer. It is a narrower question than source of wealth, which asks how the customer accumulated their assets overall.
Also called: SOF
Source of funds answers a narrow question: this money, right here — where did it come from immediately before it arrived? A salary, the proceeds of a property sale, a dividend, a loan drawdown, the sale of a shareholding. The answer is expected to be specific, and it is expected to be supported.
The obligation sits inside customer due diligence and sharpens into a documented enhanced due diligence exercise as risk rises: a payment that does not fit the profile, a high-risk jurisdiction, a politically exposed customer, a large transfer out of an account that has been quiet. Firms ask for the payslips, the completion statement, the loan agreement, the contract note — and then check that what those documents describe reconciles with the money that actually arrived, in amount, in date and in counterparty.
The common failure is accepting a document that proves the money exists rather than where it came from. A bank statement showing a balance is not a source of funds. A statement showing the credit, named counterparty and all, sitting alongside the underlying document that explains it, is.
In practice
Saying where the money came from is not evidence that it came from there. The obligation is to obtain supporting documents, check that they reconcile with the money actually received, and keep them on file.
Example
A customer deposits the proceeds of a house sale. “I sold a property” is the explanation. The evidence is the completion statement from the conveyancer, the sale contract, and the incoming transfer arriving from the conveyancer’s client account for the amount those documents show. The statement on its own would have shown a large credit from a law firm and proved nothing about its origin.
Commonly confused with
| Term | How it differs |
|---|---|
| Source of Wealth | Source of funds explains the money in front of you today; source of wealth explains how the customer came to have assets at all. |
See also
- Source of WealthSource of wealth is the evidenced account of how a customer accumulated their overall assets — the business they built, the inheritance, the years of earnings — as distinct from the origin of the particular money moving through one transaction.
- Enhanced Due DiligenceEnhanced due diligence, or EDD, is the additional scrutiny applied where money laundering risk is higher. In the UK and the EU it is mandatory in prescribed cases — politically exposed persons, high-risk countries, correspondent banking — as well as wherever a firm’s own risk assessment says the baseline is not enough.
- Customer Due DiligenceCustomer due diligence, or CDD, is the baseline set of checks a regulated firm performs on a customer: who they are, who owns and controls them, and what activity to expect. It is done at onboarding and then kept current for as long as the relationship lasts, with risk rather than a fixed calendar setting when it is revisited.
- Know Your CustomerKnow Your Customer, or KYC, is the process of identifying and verifying a customer before a business relationship starts and keeping that understanding current while it lasts, so a firm knows who it is actually dealing with. Identity verification is the first step of KYC, not the whole of it.