Source of Funds & Wealth Techniques for Verifying High-Risk Customers
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Source of Funds & Wealth: Techniques for Verifying High-Risk Customers

31 December 2025
17 Min Read
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Does your client’s £500,000 property purchase align with their £35,000 declared salary?

Can you trace the £200,000 “business proceeds” sitting in their account back to legitimate trading activity?

What happens when a politically exposed person walks into your practice with complex offshore structures?

If you hesitated on any of these questions, you’re not alone. These aren’t theoretical compliance scenarios. They’re real situations that determine whether you’re conducting genuine verification or just collecting signatures on declaration forms. The difference matters because Metro Bank’s £17 million fine and Starling Bank’s £29 million penalty weren’t about missing paperwork. They were about failing to question implausible narratives when the numbers didn’t add up.

But don’t worry. This guide breaks down exactly how to verify the source of funds and wealth for high-risk customers, from identifying when enhanced checks are needed to building defensible evidence files that withstand regulatory scrutiny.

Sounds good? Let’s dive in.

KEY TAKEAWAYS
  • Source of Funds verifies where the money for a specific transaction originated, while Source of Wealth explains how a client accumulated their overall financial position. Both are mandatory for PEPs and high-risk scenarios  
  • MLR 2017 Regulation 28 requires SoF scrutiny during ongoing monitoring, not just at onboarding, when transactions don’t match the client’s known risk profile  
  • Acceptable evidence goes far beyond bank statements. You need employment contracts, sale agreements, loan documentation, audited accounts, or inheritance records, depending on the claimed source  
  • Red flags include unexplained wealth relative to occupation, payments from unrelated third parties, cash-intensive businesses without supporting records, and clients who can’t explain basic transaction flows  
  • When suspicion arises about criminal property, you must file a Suspicious Activity Report with the National Crime Agency and may need consent before proceeding. Never “tip off” the client  

  • Proper documentation of your enquiries, the client’s responses, and your analytical reasoning is essential for defending your decisions during HMRC supervision or regulatory review  

Understanding Source of Funds & Source of Wealth

What is the Source of Funds?

Source of Funds refers to the origin of the money used in a specific transaction.

When a client purchases a property, invests in a business, or makes any significant financial move through your practice, SoF verification answers: where did this particular sum of money come from?

It’s transaction-specific. If your client is using £150,000 to acquire commercial premises, you’re not investigating their entire financial history. You’re verifying where that £150,000 originated and how it moved into their control.

What is Source of Wealth?

Source of Wealth describes how a client accumulated their overall financial position. This is the bigger picture: business ownership, employment history, inheritance, accumulated investments, property portfolios.

SoW explains their total net worth and the economic activities that generated it. 

Think of it this way. A client with £2 million in accumulated wealth might fund a £300,000 transaction from a recent property sale. The £2 million is their source of wealth. The property sale proceeds are the source of funds for this specific transaction. 

Here’s Why the Distinction Matters for Accountants 

Confusing these terms leads to inadequate compliance. 

For routine transactions with established clients, understanding SoF may be sufficient. For high-risk scenarios involving PEPs or clients from high-risk jurisdictions, you need both. Regulation 35 of MLR 2017 explicitly requires you to “establish the source of wealth and source of funds” when dealing with politically exposed persons. 

Miss this distinction, and you’re not just failing compliance. You’re exposing your practice to regulatory penalties and reputational damage. 

When Source of Funds Verification is Required

Regulatory Triggers Under MLR 2017 

Regulation 28(11) mandates that ongoing monitoring must include “scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, the customer’s business and risk profile.” 

The phrase “where necessary” is critical. 

This isn’t about demanding tax returns for every invoice payment. It’s about recognising when a transaction doesn’t fit what you know about the client. 

Risk-Based Application 

You don’t need SoF verification for low-risk domestic clients conducting routine transactions consistent with their profile, transactions below reasonable thresholds where the business relationship is well-established, or situations where the funding source is already documented and understood. 

You must verify SoF when onboarding clients whose wealth profile is unclear or disproportionate to their known circumstances, executing significant transactions that exceed normal patterns, or when the transaction is unusually large, complex, or has no apparent economic purpose. Payments arriving from third-party accounts without a clear explanation also trigger verification requirements, as do situations where the client’s explanation conflicts with available evidence. 

PEPs & High-Risk Third Countries 

Regulation 33 requires enhanced due diligence when either party is established in a high-risk third country or when dealing with politically exposed persons. For PEPs, Regulation 35 makes SoF and SoW verification mandatory. There’s no risk-based discretion here. 

If your client holds or has held a prominent public office, or their family members and known close associates are involved in the transaction, enhanced verification isn’t optional. The risk of corruption or misuse of public funds demands rigorous scrutiny. 

Techniques for Verifying Source of Funds

Effective SoF verification isn’t mechanical box-ticking. It demands three elements: plausibility assessment, independent corroboration, and professional scepticism.

Does the explanation make sense?

A client claiming £400,000 from “savings” while declaring £28,000 annual income requires a deeper investigation. The numbers must align with their known circumstances.

Can you verify the claim independently?

Self-declarations have limited value. Real verification requires documentary evidence from third parties, such as banks, employers, solicitors, and HMRC.

Are you questioning the narrative?

Why is this funding route being used? If a client has substantial savings, why are they borrowing from an unrelated third party? Professional scepticism means testing explanations, not accepting the easiest version of events. 

This isn’t cynical. It’s professional. The role of compliance isn’t to accept the easiest version of events. It’s to test them. 

Where to Find Source of Funds Information

Before diving into verification techniques, understand where SoF information lives.

Source of Funds for UK Companies

For UK companies, Companies House provides annual accounts showing profit and loss, balance sheets, and director information. These filings reveal the financial health of corporate clients and help you assess whether declared business income is plausible.

Electronic verification providers offer company searches that map ownership structures and identify ultimate beneficial owners. These services aggregate data from multiple sources, making it easier to understand complex corporate arrangements.

Source of Funds for Individual Clients

For individual clients, the starting point is often simpler: bank statements, payslips, and records of major financial events like property sales or inheritances. The challenge isn’t finding where to look. It’s knowing what questions to ask and what evidence actually proves the funds are legitimate.

Building the Evidence Base

Declarations alone don’t constitute verification.

Client statements provide narrative context, but genuine verification rests on documentary evidence proportionate to the risk.

Bank Statements & Financial Records

Recent bank statements showing fund accumulation and movement are fundamental. Look for six months minimum, though higher-risk cases may warrant longer periods. The statements should demonstrate where the money came from, not just that it exists in an account.

A £150,000 balance proves funds exist. Statements showing regular salary deposits, a property sale completion, or dividend payments prove where the funds originated. When large cash deposits appear without explanation, or transfers arrive from unrelated accounts, you need to investigate further.

Employment & Business Income Documentation

For employment income: payslips, employment contracts, P60S, and corresponding bank statements showing salary credits. The documentation should cover the relevant period and demonstrate consistency.

For business income: recent audited accounts, management accounts for newer businesses, dividend vouchers, and bank statements showing business-to-personal transfers. A client claiming £200,000 from business profits should have accounts and tax returns that substantiate this figure.

Property, Inheritance & Investment Documentation

Property transactions require completion statements from solicitors, Land Registry documents, and mortgage redemption statements showing funds released. The chain must be clear. Where did the property sale proceeds go, and can you trace them to the current transaction?

Inheritance verification needs probate records, estate accounts, solicitor confirmation letters, and bank statements showing the inheritance deposit. The documentation should show the deceased’s name, the inheritance amount, and when funds were received.

Investment income demands contract notes for share sales, portfolio statements, and capital gains documentation. If a client claims funds from selling investments, they should be able to produce evidence of both ownership and disposal.

Loans & Third-Party Funding

Loans from regulated financial institutions carry inherent credibility because these institutions conduct their own AML checks. You still need loan agreements, statements showing fund release, and confirmation that the loan purpose aligns with your transaction. 

Private loans or third-party gifts require deeper scrutiny. Who is the lender or donor? What’s their relationship to your client? Why are they providing funds? For significant amounts, you may need to verify the third party’s identity and conduct SoF checks on them. Where did they get the money they’re now lending or gifting? 

Analytical Review: Does It Add Up?

Documentation is necessary but insufficient. The true value lies in analysis.

Transaction value versus financial profile.

Is a £500,000 investment consistent with a client earning £40,000 annually? If they claim years of saving, do bank statements support gradual accumulation? If they claim a recent windfall, does the documentation confirm timing and amount? 

Document consistency.

Do the provided documents support the narrative? A client claiming inheritance six months ago should have bank statements from that period showing the deposit. If the inheritance was two years ago but they’re only now using the funds, can they explain where the money has been?

Gaps and inconsistencies.

Are there unexplained periods? Money that appears in one account without a clear source? Transactions that contradict the client’s stated circumstances?

You’re building a case file that answers one question: Can we reasonably believe these funds are legitimate?

If the answer is “unclear” or “possibly,” that’s not acceptable. It’s a red flag requiring escalation.

Verifying Source of Wealth for High-Risk Customers

Source of Wealth verification applies primarily to enhanced due diligence scenarios: PEPs, high-risk jurisdictions, and situations where the client’s overall financial position seems inconsistent with their known circumstances. 

For PEPs, understand how they accumulated their wealth.

Was it through legitimate business activities before entering public office? Government salary and benefits during their tenure? Post-office consulting or advisory roles? Be alert for wealth disproportionate to known income. This is where corruption risks emerge.

For corporate clients, identify the main revenue sources.

Who are the shareholders and how did they acquire their stakes? If the company shows substantial retained earnings, do historical accounts support this accumulation? For newer companies with significant capital, where did the initial funding come from?

Documentation for SoW

It might include employment history and salary progression, business ownership records and accounts showing profit accumulation, property portfolios and acquisition history, inheritance documentation, investment portfolios and their performance over time, or credible open-source information about publicly known wealth.

The key difference from SoF: you’re painting a broader picture of how someone became wealthy generally, not just where specific transaction funds originated. 

Red Flags & Risk Indicators

Nothing kills client trust faster than weak verification that exposes both parties to regulatory penalties.

Certain patterns demand heightened scrutiny and additional verification steps.

  • Wealth disproportionate to known income.

    A client declaring £35,000 employment income but funding £400,000 in property investments requires explanation. If they claim inheritance, you need documentation. If they claim business income, you need accounts and tax returns.

  • Payments from unrelated third parties.

    Why is someone else funding your client's transaction? What's the relationship? Is this a gift, a loan, or something else? The third party may require their own identity verification and SoF checks.

  • Cash-intensive businesses without supporting records.

    Restaurants, car washes, barber shops, and similar businesses can be legitimate, but they're also vulnerable to money laundering. When a cash business claims substantial profits but lacks detailed records or has inconsistent reporting, investigate further.

  • Complex structures without economic purpose.

    Multiple corporate layers, offshore trusts, or circuitous payment routes may have legitimate tax or estate planning reasons. If the client can't clearly explain why the structure exists, or if the explanation doesn't match the observed complexity, this warrants enhanced scrutiny.

  • Clients who can't explain basic transaction flows.

    If someone truly accumulated wealth legitimately, they should be able to explain in straightforward terms how they did it. Vague answers, inconsistent stories, or inability to provide documentation all indicate potential problems.

  • Reluctance to provide information.

    Legitimate clients understand that regulated professionals have compliance obligations. Excessive pushback, claims that information is "confidential," or attempts to circumvent verificaytion requirements are themselves red flags.

Documentation & Record-Keeping Requirements

Regulation 40 of MLR 2017 requires you to keep records of all CDD measures, ongoing monitoring, and risk assessments for five years after the business relationship ends.

Your records must capture all supporting documents obtained (bank statements, contracts, sale agreements), questions asked and answers provided by the client, your analytical reasoning explaining why you accepted or rejected explanations, escalation steps taken and responses from  Money Laundering Reporting Officers (MLROs) or senior management, and for high-risk cases, evidence of second-level review and formal sign-off. 

The documentation must tell a coherent story. If HMRC supervision or a regulatory review examines your file in two years, they should be able to understand your decision-making process without needing to speak with you. 

Record not just what the client said, but why you believed them. 

Example: "Client states funds from property sale" is insufficient.

"Client provided completion statement dated 15 March 2024 showing sale of 42 High Street for £385,000. Solicitor confirmation letter and bank statement from April 2024 show £362,000 net proceeds deposited to the client account after mortgage redemption. Funds were subsequently transferred to the transaction account on 3 May 2024. Timeline and amounts consistent with declared SoF."

That’s the difference between checkbox compliance and defensible verification.

When to Escalate: SARs & Regulatory Reporting

Section 327 of the Proceeds of Crime Act 2002 makes it an offence to conceal, disguise, convert, or transfer criminal property. If you suspect funds derive from criminal activity, you must file a Suspicious Activity Report with the National Crime Agency.   

Example: "Client states funds from property sale" is insufficient.

You're not required to prove criminal activity. Suspicion is sufficient. This means you have information that causes you to think, based on reasonable grounds, that funds may be proceeds of crime.  

Large unexplained wealth, implausible explanations that don't withstand scrutiny, transactions with no apparent economic purpose, or clients who can't or won't document legitimate sources can all form the basis for suspicion. 

If you suspect criminal property is involved and want to proceed with the transaction, you may need consent from the National Crime Agency. The SAR process includes requesting this consent. Proceeding without consent when you have a suspicion can itself be an offence.

Avoiding "tipping off."

Under Section 333A of POCA, it's an offence to disclose to the client that you've filed a SAR or that an investigation may be underway. This applies after you've made the report internally to your MLRO or externally to the NCA.

You can’t say “I’ve filed a report about your transaction” or “we need to wait for regulatory approval.” Instead, use general language about compliance processes: “We’re completing our standard verification procedures” or “We need additional documentation to satisfy our regulatory obligations.” The key is avoiding any disclosure that could prejudice an investigation.

Common Pitfalls to Avoid

Accepting that money in a UK bank account means the funds are clean.

Banks conduct their own AML checks, but they may have filed a SAR and received consent to transfer funds to you while law enforcement gathers evidence. You must make independent assessments based on your knowledge of the client and transaction.

Over-relying on declarations without documentary support.

A signed statement saying “funds from employment savings” provides narrative context but doesn’t constitute verification. You need payslips, bank statements, and evidence of accumulation.

Failing to document your reasoning.

Compliance isn’t just about reaching the right conclusion. It’s about demonstrating you followed a reasonable process. If you accept an explanation, record why it was plausible and consistent with known facts.

Treating all transactions the same.

A £5,000 payment for bookkeeping services from an established client’s business account doesn’t warrant the same scrutiny as a £500,000 property investment from a new client with unclear wealth sources. Risk-based compliance means calibrating your verification efforts appropriately.

Not questioning unusual funding routes.

If a client has substantial disclosed savings, why are they borrowing from a third party? If they’re a UK resident with UK income, why are funds coming from overseas accounts? Unusual structures deserve professional scepticism.

Failing to escalate when uncertain.

If you can’t satisfy yourself about the legitimacy of funds, don’t rationalise the client’s position or accept weak explanations because the transaction is commercially attractive. Escalate to your MLRO, document the concerns, and follow your firm’s procedures.

Additional Resources   

Conclusion

Source-of-funds verification protects your practice from regulatory penalties and criminal liability. The techniques are straightforward: obtain documentary evidence, verify independently, question implausible narratives, and document your reasoning.

Start with your high-risk clients. Review PEP files first, then clients from high-risk jurisdictions, then anyone whose wealth seems disproportionate to known income. Check whether you have actual documentary evidence or just signed declarations. Build verification into your onboarding workflow so you’re requesting proper documents before engagement letters are signed.

The difference between adequate and inadequate verification isn’t resources or sophisticated software. It’s professional scepticism applied systematically and documented clearly.

FigsFlow automates source of funds verification

Track client risk profiles, document verification decisions, and maintain audit-ready compliance records in one system. No more scattered spreadsheets or missing documentation during HMRC visits.
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Frequently Asked Questions (FAQs)

Do bank statements alone prove the source of funds for UK compliance?

No. Bank statements show where money currently sits, not where it originally came from. If a client has £200,000 in their account, the statement proves the balance exists, but doesn’t explain how they accumulated it. You need supporting documentation like payslips showing regular deposits, completion statements from property sales, inheritance paperwork, or business accounts demonstrating profit accumulation. The key question isn’t “where is the money now” but “how did the client acquire this money.”

When must I verify the source of funds, versus when is it optional?

MLR 2017 Regulation 28 requires SoF verification “where necessary” during ongoing monitoring, meaning when transactions don’t match what you know about the client. It’s mandatory for PEPs under Regulation 35, for clients from high-risk third countries, and when transactions are unusually large or lack an apparent economic purpose. It’s optional for low-risk domestic clients conducting routine transactions consistent with their established profile.

What's the difference between verifying the source of funds and the source of wealth?

The source of Funds is transaction-specific and verifies where the money for a particular transaction originated. If a client is using £150,000 to invest in a business, SoF answers where that specific £150,000 came from. Source of Wealth explains how a client accumulated their overall financial position through employment, business ownership, inheritance, or investments. For routine matters, SoF may be sufficient. For high-risk scenarios involving PEPs, you need both.

How much documentation do I need to collect for different risk levels?

The evidence required is proportionate to risk. Low-risk scenarios might need basic bank statements and payslips if the transaction aligns with the client’s profile. Medium-risk cases require six months of arguments, employment contracts, and evidence of accumulation. High-risk situations involving PEPs or large unexplained wealth demand comprehensive documentation, including audited accounts, property sale agreements, inheritance records, and possibly verification of third parties providing funds.

What should I do if a client can't provide paperwork to support their source of funds?

Missing paperwork doesn’t automatically indicate money laundering. Ask yourself whether the explanation is consistent with what you know about the client and whether you have information making you suspicious of criminal property. If the explanation aligns with their profile and you don’t suspect criminal property, proceed, but document your reasoning thoroughly. If you remain concerned, escalate to your MLRO and consider whether a Suspicious Activity Report is warranted.

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