The Sumsuber

Best practices for KYC/AML

2 min read

Achieving Transparency: How Requesting Proof of Source of Funds Exposes Client’s Transaction History

Proof of Sources of Funds or PoSoF is one or several documents providing information on the origin of funds that are being used in a particular transaction.

Any submitted PoSoF documents have to cover all withdrawals, previous as well as the most recent ones, and deposits made via the funding method in question.

When and where clients are asked to submit a proof of source of funds

Naturally, these measures are a part of an AML policy necessary for every type of business involving money transactions. Compliance with the anti-money laundering regulations prevents frauds from inflicting reputational damage on the company and eliminates the risk of substantial fines that come along with the accusation.

In particular, SoF has to be verified when an individual’s financial capabilities are in question.

It is a common case for mortgage inquiries when a note from the bank helps landlords to understand whether the potential tenant can afford the mortgage. Banks are certainly more inclined to issue a positive statement if the individual can provide a PoSoF, while those with insufficient funding will likely be rejected.

What a valid proof of source of funds does for the company

  • It confirms that the individual in charge of completing certain transactions is actually you;
  • PoSoF allows businesses to ensure safety, fight fraud and avoid being linked to illegal activities;
  • It is one of the multiple mandatory AML requirements to acquire a PoSoF before carrying out any transactions and is closely observed by jurisdictional regulators deciding whether the business is eligible to operate as a financial company.

Documents that can be submitted as proof of source of funds

  • 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 business, valuation of business.

  • Investments

Proof of investment/securities accounts in the span of the last three years, bank statements and stock certificates.

  • Employment

Individual’s CV, records of education, contracts, licences and reference letters proving employment.

  • Real Estate

Documents on property mortgage, real estate purchase/sale, valuation of owned real estate, lease documents on property producing lease income.

  • Other Sources

Documentation on divorce, inheritance, lawsuits and gifts.

All of the mentioned documents have to be explaining the source of funds in details and from different angles. For example, if the funds come from a gift, a simple note from a donator will not be enough. The individual will have to submit:

  • documented proof of funds transferring;
  • a personal statement explaining the details and circumstances of how the gift was presented;
  • documents proving the source of funds of an individual who made the gift;
  • tax return on the gift.

Finally, proof of source of funds verification is an extremely valuable part of client onboarding and it is in your power to make it quick and effortless for the users.