What is a source of funds check?
Source of funds checks are a legal requirement for most financial transactions. In this blog, we’ll run down why source of funds is so important, and explain how Checkboard supercharges these checks to make your KYC and anti-money laundering more efficient and more compliant.
What is source of funds?
Source of funds (often abbreviated to SoF) is the origin of money used in a financial transaction.
The purpose of a source of funds check, therefore, is to determine whether that money comes from an illicit source. It is an essential part of any AML procedure or KYC check.
They protect businesses from criminal risk and regulatory attention. They must be carried out as standard by conveyancers and estate agents during the course of a property transaction.
Auditors must check not just the origin of the funds, but also the nature of the activity used to generate it, such as a property sale or employment income.
A check will typically need to include:
Payslips and/or invoices
Bank statements
Property sale contracts
Investment account statements
Documents relating to inheritance or gifts
Source of funds checks usually go back 3-6 months. However, where money has been gained through gifts or inheritance, solicitors may ask for documents dating from the time the money was received.
If evidence of an illicit source of funds is found, solicitors can report the individual and stop the transaction in its tracks.
Why do you need to do a source of funds check?
Tens of billions of pounds of illicit funds are laundered through the UK economy every year. Property is a particular target for launderers, so conveyancers and estate agents must conduct checks for every property transaction as part of a wider KYC strategy.
This helps tackle criminal activity, but it also helps firms avoid regulatory attention, fines, and reputational damage. Here are some of the key reasons these checks are so important:
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AML compliance: All businesses must comply with the Proceeds of Crime Act 2002 (POCA) and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). Source of funds checks form part of that obligation.
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Financial crime prevention: Identifying source of funds can reveal financial impropriety or illicit activities. Money laundering is responsible for tens of billions of pounds of financial crime in the UK, often funnelled through property, so eliminating that is a key government priority.
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Regulatory obligations: Your business will be audited for regulatory compliance, so conducting timely and accurate source of funds checks is essential for avoiding penalties and sanctions.
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Risk avoidance: By conducting rigorous source of funds checks you can reduce your exposure to criminal risk from fraudsters and money launderers.
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Reputation: Being compliant and taking an active role against financial crime can improve your reputation. It can reassure clients that your business is safe, secure, and unlikely to put them at any risk from criminal activity.
How does Checkboard make source of funds check easier?
Checkboard makes the entire KYC procedure fast, seamless, and intuitive. Our platform uses open banking to link to client’s financial records, enabling them to submit bank statements and upload all the relevant documents in a timely manner.
Clients simply receive a link to download the Checkboard app, and then follow the steps to complete their checks. Upon completion, reports are pushed straight to the solicitors for review.
And where there is confusion about which documents are valid or how open banking works, Checkboard’s dedicated customer support team is on hand to walk clients through the process.
To find out more about how Checkboard turns checks into an effortless journey, get in touch with us today.