Source of Wealth and Source of Funds explained

Payments 27 October 2022
Author Tahmina Ahmed
Transaction Monitoring Analyst at Moneff
Source of Wealth and Source of Funds explained


To combat the global fight against financial crime, understanding who your clients are and how they have obtained money to execute transactions and make investments is an integral part of AML/CTF compliance. In order to scrutinise your clients SoW and SoW you should be able to distinguish between the two terms. Criminals who launder money use increasingly sophisticated ways to conceal the true origin of their funds. Whilst SoW and SoF are often mistaken to be the exact same thing, it is crucial you understand the difference between the two to be able to identify, assess and evaluate a clients’ profile and transactions. 

To simply put it, SoW refers to the entire origin of the wealth accumulated by a client, including the volume of which the client would have generated that wealth and how exactly that wealth was accumulated. SoF is more specific, it’s the origin of a client’s funds or assets which are used for a particular transaction between one or more customers. They are NOT the same thing.

For example; A client has provided an invoice which requires them to make a transaction of £25,000. The SoF question will address how the client has generated the funds to make the transaction of £25,000 only. The SoW question will address how the client has accumulated their entire wealth which will then help the firm identify whether the source of their wealth paired with the source of their funds is in line with their transactional activity and makes business sense to make the transaction of £25,000. Identifying SoW will be used to support the decisions for a clients’ SoF so the firm is able to assess the AML/CTF risk exposed to them from the client. So, with that in mind here are some examples of SoW and SoF for the relevant subject person(s):

3 examples for SoW:

  • Inheritance;
  • Investments;
  • Business ownership interests.

3 examples for SoF:

  • Employment income;
  • Personal savings;
  • Sales of property.


It is also important to remember that clients can be confused by the terms, and thus respond to a SoF question with answers that would fit SoW examples and vice versa. Whilst this is completely understandable and valid, the subject person(s) should seek additional information with regards to SoW/SoF such as supporting documentation and/or by rephrasing the question to the client to establish the difference.

SoW should also be requested in specific cases, for example if a client has a high- risk score not only should they be monitored closely the SoW should be raised to the client to determine their risk score in first place and during the course of the business relationship with the client when required. It is a key aspect of EDD (Enhanced Due Diligence).

By identifying the SoW successfully it gives the firm an insight into how much wealth the client is expected to have and how its acquired so they are sure the prospective applicant or established client is not involved in any criminal activity which would pose a risk to the business and wider society. 

Verifying the SoW and SoF based on clients’ responses should be as detailed as possible to paint a full picture of the clients’ profile. When receiving responses by clients for SoF questions, one cannot say ‘income from employment’ is a good enough answer. This answer does not give the description of the actual employment, how long the client has been in employment and whether it makes sense for the client to be able to make the transaction based on their period of employment, the industry the client is operating, etc.

Similarly, it's important to establish that one sentence answers such as ‘wealth from investments’ for SoW are merely not enough to give a full view of who the client is and assess the risks associated with ML/CTF for the particular client. Additional documentation and descriptions of the investments, how much the initial investment was, how the initial investment was funded etc should be requested at the minimum. 

Ultimately client responses, explanations and supporting documentation for SoF and SoW will serve as a control measure against high risk scenarios and help the relevant person(s) and the firm in general build a strong customer profile. 


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