Source of Wealth and Source of Funds are often used interchangeably. However, they're not the same thing. Here's the difference.
Source of Wealth
Source of Wealth refers to the origin of an entity’s assets, whether it be monetary assets, property or gifts and loans, all considered to be a Source of Wealth that we must verify. By verifying this information, it gives the reporting entity an insight into the amount of wealth that customer is expected to have and how it is acquired. By establishing the line of wealth, the reporting entity can be assured of the legitimacy of the wealth held by the entity.
So how do you communicate your entities Source of Wealth? Customers are required to provide evidence dated within the last 12 months that clearly illustrates how and what wealth is being acquired. This can be shown through; Financial Statements, Loan Agreements, Evidence of gifts and inheritance or a signed and dated letter from their Solicitor or Accountant, outlining their length of relationship and most importantly the origin of the wealth.
If a customer finds themselves selling, buying, investing or onboarding with an Accounting or Law Firm with the following entities they will under the legislation be asked to provide Source of Wealth evidence.
- Charitable Trusts
- Māori Trusts
- Enhanced CDD or High-Risk Customers.
Source of Funds
Whilst Source of Wealth is a much wider scope dating back to the origins of the wealth, Source of Funds has a far narrower focus, with the legislation only requiring reporting entities to verify where the funds for that particular transaction have come from.
Often the requirement for Source of Funds instead of Source of Wealth will be determined by the client First AML is conducting Customer Due Diligence on behalf of. For example, on a large value investment or purchase of a property, the customer will more likely be required to provide Source of Funds.
The customers can provide the Source of Funds in the exact same manner as the Source of Wealth, but it must show where the money being used in the transaction has come from. Again, evidence in the form of bank statements or financial accounts is required so that the reporting entity may safely ascertain the origin of funds for the transactions.
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.