Apr 12, 2024
5 min read

Source of Funds (SOF) vs Source of Wealth (SOW)

Learn about Source of Funds (SoF), when it’s needed, and how it differs from Source of Wealth (SoW).

Customers often face issues when submitting Source of Funds (SOF) and Source of Wealth (SOW), especially because many don’t understand the difference between the two. Nevertheless, it’s essential for businesses to collect these documents in order to understand where the money comes from. This is an essential part of the Know Your Customer (KYC) and the Anti-Money Laundering (AML) process. 

To help companies learn about the importance of SOF and SOW—and get to know the difference between the two—we at Sumsub prepared the following guide.

What is Source of Funds?

Source of Funds (SOF) refers to the origin of funds that an individual or entity uses in a specific transaction or investment.

Businesses need to collect this information from their customers to ensure that the transactions aren’t made for money laundering purposes. 

Examples of Source of Funds

SOF examples include:

  • Savings
  • Salary
  • Bonuses and dividends
  • Winnings from bettings/lotteries

Whether it’s a bank determining the mortgage eligibility of a prospective homeowner, or a business seeking to weed out illicit funds coming from a suspicious customer, there are multiple types of SOF documents that can be requested: 

  • Financial Documents—Complete tax returns and audited financial statements
  • Business Documents—Official documents proving the ownership of the company, company registration documents, stock records, promotional materials, website addresses, any records proving the sale of a business, and valuation of a business
  • Investments—Proof of investment/securities accounts over the past three years, bank statements, and stock certificates
  • Employment—Contracts, licenses, and reference letters proving employment
  • Gift—Documentary proof that funds were received as a gift from a friend, family member, or other entity
  • Loan—Proof that funds obtained through a loan from a financial institution, individual, or other sources
  • Inheritance—Documents such as a Grant of Probate or a Will
  • Real Estate—Documents on property mortgage, real estate purchase/sale, valuation of owned real estate, lease documents on property producing lease income
  • Other Source—Documentation on divorce, inheritance, lawsuits, etc.

All of the above documents have to explain the source of funds in detail and from different angles. For example, if the customer claims that their funds came from as a “gift,” a simple note from the person who “gifted” it will not be enough. This individual will also have to submit:

  • Documented proof of funds transfer
  • A personal statement explaining the details and circumstances of how the gift was presented
  • A signed declaration by the donor explaining what the gift is and its purpose
  • Documents proving the source of funds of the individual who made the gift
  • Tax return on the gift

In any case, SOF verification is an extremely important aspect of client onboarding, and it is in your power to make it quick and effortless for users.

What is Source of Wealth?

Source of Wealth (SOW) are documents that provide companies with a more broad understanding of the customer’s assets and the financial activities which led to acquiring them. Examples of SOW may include:

  • Inheritance of a family fortune
    • Name of deceased
    • Relationship with the client
    • Date of death
    • Date it was received
    • Entire amount
    • Solicitor’s details
    • Tax clearance documents
  • Employment
    • Nature of employer’s business
    • Name and address of the employer
    • Annual salary and bonuses for the last couple of years
    • Last three months /recent payslip (this will depend on the relevant regulation)
    • Confirmation from the employer of annual salary
    • Latest accounts or tax declaration if self-employed
  • Business gain from a company sale 
  • Copy of the contract of sale
  • Internet research of Company Registry
  • Name and Address of Company
  • Total sales price
  • Clients’ share participation
  • Nature of business
  • Sale date and the receipt of funds
  • Media coverage

Demanding SOW is part of Know Your Customer (KYC) measures, enabling businesses to: 

  • Expose when clients act for another individual, corrupt official, or family member of a corrupt official
  • Provide a bigger picture of the client’s background

Difference between Source of Funds and Source of Wealth

Source of Funds (SOF) is the origin of fund used in a specific business transaction, while Source of Wealth (SOW) looks more broadly at the total assets of the parties involved in the transaction. 

While SOF checks are easier to carry out than SOW checks, both require obtaining information that’s substantive, relevant, and capable of establishing the origin of the funds and circumstances in which they were acquired. 

Why are SOF/SOW important?

There are several reasons why it’s important to establish SOF. First, it confirms that the individual in a given transaction is authentic. Second, it enables businesses to ensure safety, fight fraud and avoid being linked to illegal activity. Third, it’s one of the mandatory Anti-Money Laundering (AML) requirements that must be filled before carrying out certain transactions. Plus, SOF is closely observed by jurisdictional regulators when deciding on the eligibility of a business to operate as a financial company.

SOF/SOW AML compliance

SOF is a natural component of any AML procedure relating to financial transactions. However, if companies fail to establish SOF as part of their AML procedures, they leave themselves exposed to fraud, reputational damage, and substantial fines. In particular, SOF has to be verified when a customer’s finances are in question or in cases that pose a higher risk from an AML perspective.

SOW checks are one of the essential procedures of Enhanced Due Diligence (EDD) under AML regulations. Companies have to follow a risk-based approach when establishing requirements for proof of Source of Wealth, applying reasonable measures to the extent depending on the client’s money laundering and terrorist financing risks.

The checks usually get triggered when the system spots abnormal patterns or transaction patterns. For example, a customer may exceed a certain threshold. Then this customer needs to prove that the acquired funds have a legitimate source. In case suspicions arise, a company must fulfill a Suspicious Activity Report. 

Challenges and Best Practices

While SOF and FOW are essential parts of KYC and AML, the verification process is often challenging for companies. Some of the issues that businesses face on a regular basis include:

  • Incomplete data — often enough, customers fail to provide all the required information or provide it incorrectly. As a result, businesses operate with partially wrongful information, which leads to various discrepancies and repeated checks
  • Overwhelming process for customers — companies often fail to provide customers with simple procedures to prove their SOF and SOW. As a result, it slows down the process and leads to unnecessary errors
  • Additional checks — even when all the correct information is provided, customers can lack clarity in explaining their SOF and SOW. This then requires additional in-depth checks involving the legal team

To simplify the process both for companies and customers, it’s essential to build an efficient yet simple KYC process. This includes both the onboarding stage and the rest of the customer journey. This way companies will be able to keep a high onboarding rate, as clients won’t drop out of the registration process halfway through. 

Some other tips include simplifying the data collection process, implementing a user-friendly dashboard, and providing enough context to customers during the submission process. 

Another issue companies face is an overflow of customers that need to provide proof of SOW and SOF. If these checks are done manually, companies will run into various issues, such as errors, delays, and financial losses. That’s why companies should eventually implement automated solutions that automatically detect all suspicious patterns and inform the necessary personnel. 


There are three steps to establishing proof of SOF and SOW.

  1. Obtain information on net worth:

A client’s net worth should be established through relevant documents obtained from the client. It is not necessary to obtain the exact amount (an approximation may be sufficient). 

  1. Obtain information on where their net worth came from:

Companies should determine the SOW (whether it’s inheritance, employment, business, investment, etc.). Generally, no single source is likely to account for the total value of net worth. However, it is often difficult to identify wealth from all possible sources, so the level of detail should be based on the client’s risk profile.

  1. Verify the information on a risk-sensitive basis:

Companies have to obtain proof of wealth documents from a reliable, independent source that confirms how the wealth was generated. SOW and SOF can be established through a combination of sources, such as: 

  • Publicly-available property registers
  • Past transactions
  • Internet searches
  • Evidence of title
  • Copies of trust deeds
  • Documents confirming salary
  • Tax returns
  • Bank statements

If a customer is a Politically Exposed Person (PEP), businesses must take reasonable measures to establish the customer’s SOW. Doing this is part of Customer Due Diligence (CDD) procedures for private banking.


  • What is the Source of Funds in AML/KYC?

    Source of Funds (SOF) is the origin of an individual’s funds upon the commencement of a business relationship/transaction. Businesses need to collect this information from their customers to ensure that the transactions aren’t made with money laundering purposes.

  • What are examples of SOF?

    SOF examples include:

    • Interest from savings
    • Salary
    • Bonuses and dividends
    • Winnings from bettings/lotteries

  • What are examples of Sources of Wealth?

    Examples of Source of Wealth may include:

    • Employment
    • Inheritance
    • Investments
    • Ownership of a business

AMLCustomer OnboardingFinancial InstitutionsFraud PreventionIdentity VerificationKYCProof of AddressRecordkeepingRisk-Based ApproachSource of Funds