To conduct further financial relationships before engaging in a transaction with a client can be one of the regulatory KYC requirements to prove the legitimacy of the person’s wealth. Be it an inheritance, property sale or startup investment, there has to be evidence of the source.
Source of Wealth (SOW) is the origin of the applicant’s entire body of wealth that draws a picture of how the customer acquired such wealth, for example:
If the customer is a politically exposed person businesses have to take reasonable measures to establish the customer’s or beneficial owner’s source of wealth. SOW is also a part of requirements and due diligence for private banking, where expectations are higher.
Demanding the proof of wealth is a part of KYC measures which address the money laundering risks that arise in wealth management:
Companies have to follow a risk-based approach when establishing proof of wealth applying reasonable measures to the extent depending on the client’s money laundering and terrorist finance risks.
Three steps to follow when establishing source of wealth:
Companies have to find evidence of proof of wealth documents from a reliable, independent source that confirms how the wealth was generated. SOW 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 and bank statements.
SOW can be established through a combination of sources, provided by the customer such as evidence of title, official documents, copies of trust deeds (detailing dividends), audited documents, receipts, documents confirming salary, tax returns, bank statements.
Examples of sources of wealth and proof of wealth documents:
Source of Funds is the origin of certain funds or assets which are used in a particular business transaction between a client and a financial institution, as opposed to the source of wealth where regulators question the total assets of parties participating in the transaction.
SOF is easier to establish than a source of wealth but this should not simply be restricted to knowing from which bank or financial institution the funds may have been received. The information obtained should be substantive, relevant and be able to establish the origin of funds and the circumstances they were acquired.
Examples of SOF can be a parent’s saving account or a bank account owned by a company.
1000+ businesses and 10 000 000 users trust Sumsub and benefit from the one gate proof of source of wealth KYC / AML solution. Learn more about our approach here.