Source of Funds and Source of Wealth Checks: What You Need to Know

by | Apr 5, 2024 | Blog Posts

source of funds

If you’ve ever wondered why solicitors want to know the “ins” and “outs” in relation to your finances when it comes to buying a property, then this might just be the blog for you. Alex Newman, our Compliance and Operations Manager, explains.

Let’s start with the basics. In England and Wales, solicitors are legally required to conduct Source of Funds (SOF) and Source of Wealth (SOW) checks as part of their due diligence process. These checks are designed to prevent money laundering, terrorist financing, and other financial crimes.  Sounds serious, right? Well, it is. But don’t worry, we’re here to guide you through it.

Source of Funds (SOF)

This refers to the origin of the funds being used in a transaction. Whether you’re buying a property, setting up a business, or investing in assets, solicitors need to verify that the money you’re using is legitimate and not derived from illegal activities.

So, what kind of proof might we ask for when conducting SOF checks? Here are some common examples:

Bank statements

Providing recent bank statements showing the source of the funds is a standard requirement. This helps us trace the money trail and ensure it’s coming from a legitimate source. Depending on the circumstances, we may ask to see 3, 6 or even 12 months’ worth of bank statements.

Be prepared for further requests for information arising out of our review of your bank statements. If there are large and/or regular deposits into your account, we may need more information.

| Pay slips

If the funds are from your employment income, we might ask for pay slips or employment contracts to verify your income.

Inheritance documentation

If you’ve inherited money or assets, we may request documentation to support this. This could be, for example, a letter from solicitors or executors.

Sale of assets

If you’ve sold property, stocks, or other assets to obtain the funds, we’ll need documentation proving the sale and transfer of ownership.

Gift deeds

If the funds are a gift from a family member or friend, we’ll need a gift deed or letter confirming the source of the gift and any conditions attached to it. We will also need to prove the source of the funds being used to provide the gift.

Cash

Cash payments are difficult to prove. Where your bank statements show large sums of cash or multiple smaller payments of cash, we will need additional proof from you as to where that cash has come from. Examples of cash payments we have declined include:

  • Cash savings kept at home and then deposited into a bank account at a later date. The original source of the cash is almost impossible for us to prove.
  • Physical cash withdrawn from one account and deposited into another account either in smaller amounts or at different branches. This may be down to lack of internet banking facilities or cash withdrawal limits, but again impossible to prove the source.
Payments from outside of the UK

We are unable to accept payments from certain countries due to the high money laundering risks associated with those countries. If you intend to use funds that have originated from outside of the UK, make sure to let your solicitor know this from the outset and check that they are willing to accept.

Remember, the goal here is not to invade your privacy but to ensure compliance with legal regulations and protect all parties involved in the transaction.

Source of Wealth (SOW)

This is broader than SOF and relates to the entirety of your wealth, including assets, investments, income, and any other financial resources. SOW checks help solicitors understand your financial background and assess the risk associated with a transaction.

For SOW checks, we might ask for documents such as:

Property ownership documents

If you own properties or real estate, we’ll need documentation proving ownership and value.

Investment portfolios

If you have investments in stocks, bonds, or other financial instruments, we’ll ask for statements or certificates to verify them.

Business ownership

If you’re a business owner, we’ll need company registration documents, financial statements, and evidence of ownership.

Tax returns

Providing recent tax returns can help us understand your income sources and financial activities over time.

Trust deeds

If you have assets held in a trust, we’ll need documentation outlining the terms and beneficiaries of the trust.

By conducting thorough SOF and SOW checks, solicitors can mitigate the risk of financial crime and ensure the integrity of transactions. So, the next time your solicitor asks for documentation regarding the source of your funds or wealth, remember it’s all in the name of transparency and legality.

Finally, it’s worth noting that when it comes to due diligence checks, every firm is different depending on their attitude to risk, their experience in dealing with certain transaction types, etc. In addition to this, every transaction is different. The list of what is acceptable is not set in stone and will vary depending upon a number of factors.  If you have any questions or concerns about SOF and SOW checks, feel free to contact us on 0800 988 7756.

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