A Source of Funds (SOF) check is a process used by financial institutions, businesses and organisations to verify the origin of the funds used in a financial transaction. It ensures that the money being used is legitimate and not linked to illegal activities.
These checks are a compulsory part of AML compliance and are a key part of the Know Your Customer process.
Identifying the origin of a customer's funds is essential when preventing money laundering and financial crime. Effective Source of Funds checks can identify if income is made legitimately, where regular payments come from and the risk level of transactions.
Not only do SOF checks help to keep your businesses and the economy safe from terrorist financing and illicit activity, but this process also protects your company from penalties and reputational damage.
These checks are required by law by any financial institution, and failure to complete checks or do so effectively can result in legal action, fines and reputation damage.
Source of Funds checks begin by accessing customer transaction data and identifying the source of this money. During the onboarding process, a customer provides their banking and personal details, where AML officers can track the origin of funds, such as salaries, and incoming and outgoing funds. This data is then assessed to identify where funds relate to hobbies, employment or business expenses.
If the source of funds cannot be identified or there is suspicious activity surrounding transactions, the customer onboarding process is halted, and this information is escalated for further investigation and assessment.
Although Source of Funds and Source of Wealth are both part of AML checks, these are two different processes.
Source of Funds: These checks focus on the origin of finances and money used in transactions.
Source of Wealth: These checks assess how customers have accumulated wealth over time and look into the origin of savings.
SOW is a more general assessment of wealth accumulated over time, whereas SOF is based on specific transactions.
To verify the Source of Funds, documents are requested from customers, including:
Businesses or individuals may not need to provide all of these documents,s and the level of evidence will depend on the identified risk levels.
These checks are part of Customer Due Diligence and are needed throughout the customer journey. They initially begin during the onboarding process,s but once a customer is on your system, they need periodic reviews via ongoing monitoring.
This involves reevaluatingthe source of funds and wealth, as risks are ever changing and sanction statuses can also evolve over time.
SOF checks are not only crucial in protecting your organisation from financial and reputational harm, but they are also essential in keeping the economy safe and stable. The many benefits of effective Source of Fund checks include:
By using SmartSearch’s Source of Funds solution, you can keep your business safe in just 60 seconds. Our service not only enables your clients to quickly and accurately identify any suspicious activity and prevent fraud, but also ensures they are meeting all their regulatory requirements.
The process is so quick and efficient and improves customer onboarding both in terms of customer experience and speed, by drastically reducing the workload and errors associated with manual checks.
Request a free demo of our AML software today and see how our SOF checks can help your business.