Source of Funds (SOF)

In one sentence: Source of Funds is the verification that the money a customer is using comes from a legitimate activity.

Why it matters

Knowing who a customer is does not tell you whether the money they are sending is clean. SOF is the control that addresses this. It is particularly important for high-value or high-risk transactions, and for customers who are PEPs or who come from high-risk jurisdictions.

How it works in practice

For lower-risk customers, SOF is often established through the onboarding process itself: a salaried customer sending amounts consistent with their declared income does not need to explain every transaction.

For higher-risk customers or larger transactions, a reviewer will ask for documentation. Common documents include recent payslips, bank statements, tax returns, or a letter from an accountant confirming the source of a specific sum.

The reviewer checks that the document is genuine, that the amount is consistent with the customer's profile, and that the stated source makes sense given the customer's occupation and transaction history.

Red flags

A customer who cannot explain the source of a large deposit, who provides documents that do not match their stated occupation, or whose stated source does not match their transaction behaviour.

What regulators expect

FATF Recommendation 10 requires enhanced due diligence for higher-risk customers, which includes establishing the source of funds. The UK FCA's Financial Crime Guide (Chapter 5) provides detailed guidance on when and how to conduct SOF checks.

Common mistakes

Accepting a customer's explanation without supporting documentation for high-risk cases. Confusing Source of Funds (where this specific money came from) with Source of Wealth (where the customer's overall wealth came from).

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Educational content, not legal advice. Always confirm requirements with your regulator or counsel.