Learn what proof of income is and why certain companies require it.
Proof of Income is essential for establishing the origins of a client’s funds prior to executing a transaction or otherwise establishing a business relationship.
Proof of Income can be required for the purpose of Enhanced Due Diligence—for example, when a customer wants to conduct a high-value transaction. The goal here is to ensure that the customer’s motive is compatible with what could be reasonably expected from them.
Let’s dive into the details.
Proof of Income is a document or set of documents demonstrating a person’s earnings and financial resources. This can be used to verify their ability to pay for expenses like rent, loans, or other services. Proof of Income is commonly required by landlords, lenders, and other financial institutions to ensure that a person has a steady income stream to meet their financial obligations.
Normally, when institutions request Proof of Income documents, they provide a comprehensive copy of the materials required for submission. Below are some examples.
PAYE (Pay As You Earn) is a tax system where employers deduct income tax and National Insurance contributions directly from employees’ salaries before they are paid. Below is the list of Proof of Income documents which can be used for PAYE:
Businesses need Proof of Income to assess an individual’s financial stability and ability to meet financial commitments. Companies that usually ask for Proof of Income include lenders (e.g., banks, credit unions), landlords, property management companies, investment brokers, and insurance providers. These entities require Proof of Income to verify financial stability for loans, leases, credit card applications, insurance policies, etc.
For lenders, Proof of Income helps determine whether a borrower can repay a loan. Landlords require it to ensure that a tenant can afford rent. Brokers may request the Proof of Income to establish the investor’s financial capabilities. Employers might also ask for Proof of Income to verify a candidate’s earnings from previous jobs, especially for positions where financial reliability is important.
Regulations and obligations surrounding Proof of Income depend on the industry and context. For example, financial institutions are often required by regulations to verify income for loan approvals under laws like the Truth in Lending Act in the US. Landlords may not be legally required to ask for Proof of Income, but it is a common practice to minimize financial risk. Employers generally have discretion in requesting Proof of Income, often for roles where income verification is necessary.
Proof of Income occupies an essential place in anti-money laundering (AML) compliance and fraud prevention within the financial industry. The official documentation helps verify the other sources of income they claim to be earning including the salaries from the registered business or employment.
Suggested read: Source of Funds (SOF) vs Source of Wealth (SOW)
Businesses that require Proof of Income can make use of Sumsub’s questionnaires.
These questionnaires are easy to use, with a drag-and-drop interface and no coding required. They allow users to both answer questions and attach documents.
With Sumsub’s questionnaires, you can: