Source of funds vs source of wealth: what UK firms must check

Source of funds and source of wealth: the definitions

Source of funds is the origin of the specific money used in a transaction. HMRC’s cross-sector guidance (AMLG11630, updated 13 October 2026) describes it as the provenance of the funds, including the remitting account and the activity that generated them. The Legal Sector Affinity Group (LSAG) guidance puts the question well: not just “where did the money for the transaction come from”, but “how and from where did the client get the money”. In both documents, knowing the money came from a UK bank account is not enough.

Source of wealth is the origin of a client’s entire body of wealth, meaning their total assets. LSAG frames the question as “why and how does the individual have the amount of overall assets they do”. You do not have to account for every asset. You need a credible picture of how the client came to be worth what they appear to be worth.

The two overlap. LSAG notes that where money has been mixed with other funds in an account, you may need some understanding of the client’s wealth to make sense of the funds.

When the law requires each check

The Money Laundering Regulations 2017 (MLRs) set out a few hard rules, then leave the rest to your risk assessment.

A few points from the guidance are worth knowing:

• HMRC recommends verifying at the start. AMLG11630 says SoF and SoW may be needed under standard CDD to understand the purpose of the relationship, and recommends verifying them at the start of a relationship and before any occasional transaction.
• “Where necessary” has a meaning. The 2026 CCAB guidance for accountants (paragraph 5.2.10) says source of funds checks are necessary when a transaction appears inconsistent with what you know about the client, their business and their risk profile.
• PEP checks are proportionate. The FCA’s PEP guidance (FG25/3, July 2025) says lower-risk PEPs can be handled with “less intrusive and less exhaustive steps”, for example using information you already hold, while higher-risk PEPs need more. The legal duty to establish SoW and SoF still applies. See our guide to PEPs, sanctions and adverse media.
• Skipping EDD needs a reason. HMRC says that if you do not carry out required EDD measures, it expects an evidence-based explanation backed by your risk assessment, or it may take action.

Note that the old “high-risk third country” wording in regulation 33 was replaced by “FATF call for action country” from 30 June 2026 (SI 2026/621). Our guide to the 2026 MLR changes covers this.

What evidence is acceptable

There is no fixed list. LSAG says the higher the risk, the more comprehensive and reliable your documents should be. For source of funds, LSAG suggests recording the amount, currency and remitting account details (bank, account number, sort code, name on account), plus evidence of how the money was acquired. The table below draws on HMRC AMLG11630, HMRC ECSH33358, LSAG section 6.17 and CCAB paragraph B.1.13.

For source of wealth, HMRC lists audited accounts, share registers, property portfolios, crypto wallets and bank statements. In low or medium risk cases LSAG says it may be enough to ask the client how they built their wealth and record the answer, or to verify their business interests through public searches, for example at Companies House. In higher-risk cases you should verify it with documents until you are comfortable that you understand it.

Gifts and other third-party money deserve extra attention. LSAG says that where a third party contributes funds, you should consider checking that person’s source of funds in the same way as the client’s, with more checks as the risk increases. Payments from unknown or unassociated third parties are a risk factor under regulation 33(6)(b)(iv). Mortgage lenders also commonly ask conveyancers for a signed gifted deposit declaration from the donor.

Sector notes

Estate agents. Your duty covers buyers as well as sellers: HMRC’s estate agency guidance (AMLG2200) says the relationship with a buyer starts when the seller accepts their offer, and recommends starting buyer checks as early as possible. On funding, HMRC says SoF and SoW must be verified for PEPs and FATF call for action cases, and that “extra care should always be taken with cash buyers”. It also suggests asking whether there is a gifted deposit, whether the source of funds has changed during the transaction and whether the funds are proportionate to the buyer’s income. See AML for estate agents and our HMRC guide for estate agents.

Letting agents. Agents in scope for lettings at or above £10,000 a month should apply the same logic, particularly where rent is paid up front in a lump sum or by someone other than the tenant. See AML for letting agents.

Conveyancers and solicitors. LSAG section 6.17 expects matter-by-matter scrutiny of source of funds, and calls it good practice even for occasional transactions. It also expects a file note recording what was checked, what evidence was obtained and the conclusion. Where you cannot establish SoW in a higher-risk case, LSAG says you should consider ceasing to act and whether to report to the NCA. See AML for solicitors.

Accountants and bookkeepers. The 2026 CCAB guidance links SoF mainly to ongoing monitoring. Its examples include a capital injection that the shareholders do not appear able to afford, large cash receipts in a business that is normally paid electronically, and payments in unusual currencies, including crypto. See AML for accountants.

IFAs. Investment and pension business often involves large, one-off sums, so source of funds is a routine question. FCA-supervised firms should follow FG25/3 for PEPs, including its risk-based approach to establishing SoW and SoF. See AML for IFAs.

Red flags

LSAG section 18.2.3 lists warning signs on funding. The most relevant for small firms are:

• third-party funding with no clear connection to the client or legitimate explanation
• funds coming from, or going to, a country the client has no apparent link to, or a high-risk country
• multiple or foreign bank accounts used without good reason
• company money paying for personal spending, or the other way round
• loans from private individuals with no loan agreement or interest
• use of cash
• a last-minute change to where the money is coming from, or how it will be paid
• money paid into your client account, followed by the transaction being dropped for no clear reason

Add HMRC’s points for property: cash buyers, deposits out of proportion to income and a late switch of mortgage lender. If the explanation does not add up, escalate to your MLRO and consider a suspicious activity report. If you cannot complete due diligence, regulation 31 says you must not proceed and must consider whether a disclosure is required.

How open banking tools help

Open banking lets a client give a regulated provider read-only access to their bank account data with their consent. The FCA describes account information services as services that “allow third-party providers to access a user’s bank account information with consent”. For source of funds, that means the client can share several months of transactions directly from their bank instead of sending PDFs.

The benefits are practical: the data comes from the bank rather than a document that could be edited, it is quicker for the client, and some tools categorise credits (salary, transfers, large one-off payments) so you can see how a balance was built up. The limits matter too. Open banking covers bank accounts, not a probate file or a business sale agreement, so you still need documents for those. And a tool’s output does not replace your judgement: you still have to decide whether the explanation makes sense and record why.

Where AML Buddy fits

To be clear about what we do: AML Buddy covers identity and screening, not source of funds analysis. Each check includes ID document and selfie verification, an address match, sanctions and PEP screening, adverse media and a timestamped PDF report, with ongoing monitoring afterwards. The client completes it through one secure link. If a PEP or address result is ambiguous, AI asks the client clarifying questions.

AML Buddy does not review bank statements, connect to open banking or assess where money came from. Use it alongside your own source of funds process, whether that is a document checklist and file note or a dedicated open banking tool. A PEP hit from your AML Buddy check is often the trigger for that SoF and SoW work. Pricing is on our pricing page.

Record keeping

Regulation 40 requires you to keep copies of the documents and information obtained for customer due diligence, including SoF and SoW evidence, and records of the transactions themselves. You must keep them for five years from the date the business relationship ends or the occasional transaction completes. After that, personal data must be deleted unless the law or court proceedings require you to keep it, or the client has consented to you keeping it.

Keep your reasoning, not just the documents. HMRC’s ECSH33358 notes that where checks were done but not recorded, that is a record-keeping breach under regulation 40. For more on what an inspector will look for, see how to prepare for an HMRC AML inspection, and for the wider process, our guide to customer due diligence and the glossary entry on source of funds.