Source of Wealth & Source of Funds

“Source of Wealth” and “Source of Funds” are terms used in customer due diligence (KYC) processes and as part of anti-money laundering (AML) requirements.

Source of Wealth refers to the origin of a client’s overall wealth. This can include income from businesses, investments, inheritance, etc. Understanding the source of wealth helps financial institutions to assess the overall risk associated with a client and to understand how the client has accumulated their wealth.

Source of Funds more specifically explains the origin of the money that the client intends to invest, transfer, or use within a financial transaction. It pertains to the specific sum of money that will be utilized.

Types of documents that may be requested to verify Source of Wealth and Source of Funds include:

1. For Source of Wealth:

• Bank statements showing the accumulation of funds over a long period.
• Business ownership documents, including incorporation documents, profit and loss statements.
• Notarized documents of inheritance or gift.
• Salary slips or other income verification from an employer.
• Documents regarding the sale of assets such as real estate or securities.

2. For Source of Funds:

• Bank statements with recent transactions explaining the origin of funds.
• Proof of sale of assets with confirmation of funds received from such sale (e.g., real estate sales contract).
• Loan agreement or credit arrangement with confirmation of the legality of funds.
• Documents verifying the receipt of dividends or other investment income.
• Legal documents confirming the receipt of an inheritance or gift.

Both processes are designed to prevent money laundering and to manage risks associated with banking and other financial operations. Financial institutions use this information to ensure the legality of a client’s funds and their consistency with the client’s known sources of income.