Understanding the Difference Between SOF & Open Banking

When it comes to banking and financial services, new terms are constantly arising, and many sound more complicated than they actually are. When undergoing financial checks as a customer, you may come across the terms' Open Banking 'and' Source of Funds' while completing the process, but what do these terms actually mean?

In this blog, we’ll explain the meaning of Source of Funds and the meaning of Open Banking, and how they play a role in financial processes and anti-money laundering.

If you’re looking for safe, straightforward AML checks, here at SmartSearch, we have a streamlined platform that makes the process easy for customers and businesses alike.

What is SOF? Source of funds meaning

Any time you make a large transaction, whether that’s receiving or transferring money, banks need to investigate where this money is coming from. This is known as a Source of Funds or SOF investigation. This is required by law to prevent money laundering or fraud. 

Source of Funds is part of the KYC check process, and alongside verifying the origin of any transactions, your identity and the identities of any parties associated with the transaction are also checked. 

Some common sources of money you may need to prove include:

• Salary - The income from your employment, which can be proven with payslips or your contract
• Business income - Personal profits from your business. Proven with invoices or company accounts. 
• Sale of property - Show the sale contract or deed to the house.
• Inheritance - Inheritance or large gifted sums of money can be proven with legal documents like a will or a gift deed. 
• Savings - Any bank statements proving interest rates and the amount saved over time.

Why is SOF important?

The SOF process is important for ensuring financial safety for all parties involved. Banks have to legally follow customer diligence processes set out by the UK government, but SOF is more than just an administrative procedure. This process is crucial in protecting you as a customer from potential fraud. By ensuring income and money are legitimate, all parties are protected and laundered money is kept out of the financial system. 

What does open banking mean?

Open banking is how you safely share your financial data, including the proof needed for SOF like account balance, transaction history and payments, to other services. 

Whilst your financial data is kept safe and secure in your bank's system, if you want to use external tools like loan comparison sites or budgeting tools, open banking allows you to do this with ease. 

You won’t need to do any manual admin, like sending over bank statements and filling out paperwork. Instead, you can connect other apps to your bank account safely and securely. You’ll be able to make payments without the need for your card and have access to all your bank accounts in one place.

Why is open banking important?

Not only does open banking remove the lengthy admin process for sharing your data, but it also gives you full control over who can access your data. You can turn off open banking at any time or remove any unused apps. 

The new innovations in banking and financial services that use open banking can also further benefit consumers as it encourages a competitive industry where companies compete by offering premium products, services and offers to customers. 

The difference between SOF and Open Banking

Both of these concepts are involved in the customer banking process, but what’s the real difference between the source of funds meaning and open banking meaning?

How are SOF and open banking related?

Although SOF and open banking are very different, they are both connected through the Know Your Customer process. 

KYC is a part of AML checks that banks and financial institutions use when customers apply to open an account or use a financial service. These checks are used to determine your identity and the legitimacy of your funds. 

Here’s how these two steps fit into the KYC process:

Identity verification - The bank will begin by checking all the ID documents you provided, like a passport and driver's license, through Customer Due Diligence processes. This process often includes biometric data through platforms like TripleCheck, which scans your face to confirm you’re a real person and you match the provided ID.

SOF (Source of Funds) - The bank then checks where your funds have come from. This is where any payslips, contracts or inheritance documents are checked to ensure your funds are legitimate. 

Open Banking - This is how your documents are easily sent for verification. By linking your bank account with other apps like verification or government apps, your finances can be instantly verified, and you won’t need to manually provide any information. This speeds up the KYC process greatly, and you can get verified in a matter of minutes. 

Simplify SOF and KYC with SmartSearch8

SOF and Open Banking might sound like confusing financial jargon, but they’re really just the platforms used to create trustworthy and convenient banking for all parties. Both play a key role in the KYC process and are designed to keep everyday users safe from financial crime and fraud. 

For businesses, these processes allow compliance and help to speed up customer onboarding. For an advanced AML platform that makes checks hassle-free, SmartSearch is here to help. Our all-inclusive system makes it easy to carry out complete KYC, KYB, and AML checks all in  one place. Request a demo today and see how we can help transform your SOF checks.