What is Source of Funds and Source of Wealth?

If you have purchased a property, (whether residential or commercial,) you will have most likely heard the term ‘source of funds’ or ‘source of wealth’ at some point throughout the process. But why does it exist, what is it, and what do you need to do?

Why do source of funds and wealth exist?

Under the Money Laundering Regulations 2017, we, (as your solicitors,) are under an obligation to identify the source of funds and wealth in a transaction. The purpose of these checks is to reduce the chances of money laundering in the property sector, which is notoriously targeted by criminals. We must add here that we are not accusing you of being a criminal during our checks!

What is source of funds and wealth?

Source of Funds – this means the origin of the funds which are being used in the transaction. For example, your funds may be from savings, from a mortgage, or perhaps a gift from a family member of friend. The source of funds is simply all about where the money has come from.

Source of Wealth – this means whether the amount of funds being used in the transaction can be expected, given your financial background. For example, showing evidence of your salary, or inheritance you may have received. The source of wealth is less specific to the current transaction, and instead is a wider view of your general financial position.

Whilst source of funds and wealth are separate, they are also very much intertwined and can be approached at the same time.

What do you need to do?

Whilst we must complete our checks on funds and wealth, we do also understand that our request for your personal financial information can feel very invasive. Often, you may have completed this process (to some extent) with your mortgage lender already when applying for a mortgage, and it can therefore feel quite repetitive. However, it is important that we can verify your source of funds and wealth with supporting evidence. You will need to provide us with evidence showing where the funds are and where they have come from (e.g. bank statements, pay-slips, confirmation of a house sale, shares, etc.)

Reviewing source of funds and wealth can take some time, as we will need to review the information provided and may need to request further information and evidence. However, the earlier the information is provided, the less likely it is that our checks will cause any delays later down the line of your transaction. Providing the information upfront will help us complete our checks whilst the rest of the legal work is completed.