Source of funds is where the money for this particular transaction comes from, such as the sale of a previous home, a mortgage advance or savings built up from salary. Source of wealth is how the customer came to have their overall wealth, such as career earnings, an inheritance or the sale of a business. The Money Laundering Regulations 2017 require you to take adequate measures to establish both for politically exposed persons, and to obtain information on both for customers established in a FATF call for action country. In other cases, how far you go depends on your risk assessment.
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This guide is for staff in regulated businesses such as estate agents, accountants, conveyancers, high value dealers and art market participants. For ID checks and enhanced due diligence basics, see our guide to customer due diligence. It is general information, not legal advice; your firm’s policies and your supervisor’s guidance come first.
What is the difference between source of funds and source of wealth?
The difference is scale. Source of funds looks at one pot of money: the funds for the deal in front of you. Source of wealth looks at the person: how they built up everything they own.
HMRC’s guidance for the businesses it supervises, AMLG11630 on source of funds and source of wealth, says the question for source of funds should not simply be “where did the money for the transaction come from,” but also “how and from where did the client get the money for this transaction or business relationship.” It adds that “it is not enough to know the money came from a UK bank account.” You need the account the money is coming from and an understanding of the activity that generated it, such as savings from employment or an inheritance.
For source of wealth, HMRC says you are asking why and how the person has the amount of overall assets they do, and how they accumulated them. Importantly, it “does not however require you to account for all of a customer’s assets”. The aim is to build a reasoned picture of why they have that wealth and some assurance that it was obtained legally.
| Source of funds | Source of wealth | |
|---|---|---|
| The question | Where is the money for this transaction coming from, and how did the customer get it? | How did the customer build up their overall wealth? |
| Scope | One transaction or the funds moving through one business relationship | The customer’s total net worth, built up over time |
| Typical answers | Proceeds of a house sale, a mortgage advance, savings from salary, a gift from a parent | Career earnings, an inheritance, the sale of a business, investments, a property portfolio |
| Typical evidence | Bank statements, a completion statement, a mortgage offer, a gift declaration with the donor’s statements | Payslips and tax returns, probate papers, company sale documents, audited accounts, investment statements |
| When it is expected | Routinely in property and other higher-value work, and wherever a transaction does not fit what you know | Mainly in enhanced due diligence: PEPs, customers established in FATF call for action countries and other high-risk cases |
A simple example shows the difference. A buyer paying a £60,000 deposit from savings has a source of funds of “savings in their current account, built up from salary”. Their source of wealth might be twenty years as a hospital consultant plus a flat they inherited. If the buyer is a junior employee on a modest salary, the same £60,000 needs a better explanation.
Do the Money Laundering Regulations require source of funds checks?
Yes, in several places, although the wording varies. These are the provisions of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended up to and including the 2026 changes, checked on legislation.gov.uk:
| Regulation | Situation | What it says about funds and wealth |
|---|---|---|
| 28(11)(a) | Ongoing monitoring of any business relationship | Scrutinise transactions “including, where necessary, the source of funds” to make sure they fit what you know about the customer, their business and risk profile |
| 35(5)(b) | Politically exposed persons, their family members and known close associates | “take adequate measures to establish the source of wealth and source of funds” involved in the proposed relationship or transactions |
| 33(3A)(c) | Customers or transactions linked to a FATF call for action country | Obtain information on the source of funds and source of wealth of the customer and the customer’s beneficial owner |
| 33(1)(f) and 33(4) | Transactions that are unusually complex or unusually large, unusual patterns, or no apparent economic or legal purpose | As far as reasonably possible, examine the background and purpose of the transaction and increase monitoring |
| 33(5)(b) | Any enhanced due diligence case | Measures may include understanding better the “background, ownership and financial situation” of the customer |
Source of funds is not only an enhanced due diligence tool: regulation 28(11)(a) puts it inside ongoing monitoring of every business relationship. The accountancy sector’s guidance, updated in 2026 and summarised by ICAEW, now spells out that this means source of funds checks are necessary when a transaction appears inconsistent with the firm’s knowledge of the customer, their business and risk profile.
From 30 June 2026, amendments replaced the old “high-risk third country” trigger with “FATF call for action country”: a country on the Financial Action Task Force’s list of high-risk jurisdictions subject to a call for action. HMRC’s guidance currently names Iran, North Korea and Myanmar, but check FATF’s current list. The “complex or unusually large” trigger now reads “unusually complex or unusually large in each case given the nature of the transaction”.
When do you have to check source of wealth?
The clearest cases are fixed by law. For a politically exposed person, or a family member or known close associate of one, regulation 35(5) requires senior management approval, adequate measures to establish source of wealth and source of funds, and enhanced ongoing monitoring. Those measures continue for at least 12 months after the person leaves the prominent public function. For a customer or beneficial owner established in a FATF call for action country, regulation 33(3A) requires you to obtain information on both, among other measures.
Beyond that, source of wealth checks follow risk. Regulation 33 requires enhanced due diligence whenever your own risk assessment identifies a high risk, and in “any other case which by its nature can present a higher risk”. The regulation 33(6) risk factors include cash-intensive businesses, unusually complex company structures, payments from “unknown or unassociated third parties” and products that might favour anonymity. Regulation 33(7) reminds you that one or more risk factors “may not always” mean the risk is high, so you still have to think about the whole picture.
HMRC adds that both “may be required during standard CDD” to understand the purpose and intended nature of the relationship.
Are domestic PEPs treated differently for source of wealth checks?
Yes. Since 10 January 2024, SI 2023/1371 has added regulation 35(3A). For a domestic PEP, meaning someone entrusted with prominent public functions by the UK, and their family and known close associates, the starting point is that they present a lower risk than a non-domestic PEP. If no enhanced risk factors are present, the enhanced due diligence you apply must be less than for a non-domestic PEP.
Lower risk does not mean no check. The FCA’s finalised guidance FG25/3 on the treatment of politically exposed persons, published in July 2025 to update its 2017 guidance (FG17/6), says that in lower-risk situations firms may take less intrusive steps, for example using only information already available to them, such as transaction records or publicly available information, and not making further inquiries unless anomalies arise. It still says “it is necessary to seek source of wealth information”. FG25/3 is for FCA-supervised firms, but HMRC’s PEP guidance takes the same line: for a lower-risk PEP, such as a domestic PEP, source of wealth and funds can be established from information you already have or publicly available information only.
How much source of funds checking is proportionate?
The regulations do not set a document list, so proportion comes from your risk assessment. Regulation 28(12) says the extent of your due diligence must reflect your business-wide risk assessment and the risk in the particular case, and regulation 28(16) says you must be able to show your supervisor that what you did was appropriate. A sensible approach has three levels:
- Lower risk: confirm the paying account is in the customer’s name and the explanation fits what you know.
- Standard: obtain bank statements showing the funds building up and query large or unexplained credits. HMRC asks how many months of statements fit the risk profile.
- Higher risk: trace the money to the activity that generated it, verify gifts with the donor, evidence the wealth behind the funds and get senior sign-off.
HMRC’s point about judgement matters more than any checklist: “It is not just about collecting documents.” Ask whether the explanation and evidence are sensible and whether the bank statements show what you would expect to see.
What evidence can show source of funds and source of wealth?
Evidence should come from a reliable source, show the customer’s name, and connect the money to its origin. HMRC’s examples for source of funds include bank statements showing sufficient and regular credits and statements checking for gifted funds matching the amount the client gave. For source of wealth it lists audited accounts, share registers, property portfolios, crypto wallets, bank statements or other reliable documents. The table below shows how that plays out in common scenarios. It is a starting point, not a legal minimum.
| Scenario | Source of funds evidence | Source of wealth evidence, if needed |
|---|---|---|
| Savings from salary | Bank statements showing the balance building up over time and the account in the customer’s name | Recent payslips, an employment contract or a P60; for the self-employed, accounts or tax returns |
| Proceeds of a property sale | The completion statement from the sale, and the statement showing the proceeds arriving | Evidence of how the original property was bought, such as an old completion statement or mortgage records |
| Mortgage-funded purchase | The mortgage offer from the lender, plus evidence for the deposit | Income evidence consistent with the lending |
| Inheritance | Statement showing payment from the estate, the estate accounts or a letter from the executor’s solicitor | Grant of probate or confirmation, and a copy of the will where relevant |
| Sale of a business or shares | The sale and purchase agreement and the statement showing the proceeds | Company accounts, Companies House records and how the customer came to own the business |
| Gifted deposit from family | A signed gift declaration from the donor, the donor’s ID and statements showing the money leaving their account | Evidence of how the donor came to have the money, scaled to the amount and risk |
| Cash deposits | A credible, documented explanation of where the cash came from, and records such as till records or business accounts | Business accounts and tax returns where the cash comes from trading |
| Proceeds of selling cryptoassets | Exchange account statements and transaction history showing the sale and withdrawal to a bank account in the customer’s name | Evidence of how the cryptoassets were originally bought, and what money paid for them |
| Pension lump sum, investments or compensation | A letter or statement from the pension provider, investment platform, insurer or court | Usually the same documents, plus employment history for pensions |
A document only proves what it says: a bank statement shows the money is there, not where it came from. Names, dates and amounts should line up across everything you hold.
How should you check a gifted deposit?
Gifted deposits are common and usually innocent, but they are also an obvious way to route someone else’s money into a property. HMRC’s estate agency guidance lists “Is there a gifted deposit” among the questions to consider, and its general guidance says higher-risk cases may need more investigation to confirm the source of any gifted funds.
In practice, treat the donor as a key part of the file. Identify and verify them, ask them to confirm in writing that the money is a gift and does not have to be repaid, see the money leave the donor’s account, and ask how the donor came to have it if the amount or circumstances call for it. A Law Society page on money laundering risk in the property market describes a London purchase funded by a gift from the buyer’s overseas businessman father, where checks on the father found adverse information pointing to possible financial crime. The gift was the risk, not the buyer.
Watch for gifts from people with no obvious connection to the buyer, several contributors pooling money, or a gift that appears late without having been mentioned.
What are the red flags in source of funds and source of wealth checks?
HMRC’s risk assessment for estate agency businesses and the SRA’s sectoral risk assessment, last updated 4 September 2026, describe the warning signs. The SRA notes that “Transfer through a UK bank account does not by itself indicate that funds are legitimate.” Common red flags include:
- The story does not match the evidence. The customer says the money is savings, but the statements show a large recent credit from someone else.
- Funds out of line with the customer’s profile. HMRC gives the example of a customer with a low income buying a property not in line with that income.
- Money from unrelated third parties. Payments from accounts not in the customer’s name, or from people with no clear connection to them.
- Reluctance or evasiveness. Not providing source of funds or wealth information when asked, or being reluctant to explain how the purchase is funded.
- Sudden or unexplained wealth. A large balance appearing just before the transaction with no clear origin.
- Changes mid-transaction. A new bank account, an overseas account, or what HMRC calls “a last-minute change of mortgage provider”.
- Round-tripping. Money that leaves an account and returns via another route, or funds sent and then requested back to a different account.
- Cash-intensive business inconsistencies. Takings that look out of line with what the business could plausibly earn, or cash used where a bank transfer would be normal.
- Cash and cryptoassets. HMRC lists paying in cash, foreign currency or cryptocurrencies as indications of higher risk.
A red flag is a reason to ask questions, not proof of laundering; what matters is whether the explanation is credible and evidenced. For the wider list of warning signs, see what anti-money laundering is; recognising them is also a core part of our Anti Money Laundering (AML) Awareness course.
How should you record source of funds and source of wealth decisions?
Write down your reasoning as well as the documents. Regulation 40 requires you to keep a copy of the documents and information obtained to meet the due diligence requirements, including enhanced due diligence under regulations 33 to 37, and enough records to reconstruct each transaction. These must be kept for five years from the end of the business relationship or the completion of an occasional transaction. After that, personal data obtained for the regulations must be deleted unless an exception applies.
HMRC asks the question you should test every file against: if HMRC asked what you had done to satisfy source of funds, would you be comfortable explaining and evidencing the decisions you made, why you made them and what you did? A short note works well:
- what the customer said, and what the evidence showed
- any gaps or inconsistencies, and how they were resolved
- your risk rating, why the checks were proportionate, and who approved it
HMRC also warns that if enhanced due diligence measures are not carried out when required and you cannot give an evidence-based explanation backed by your risk assessment, it “will consider taking relevant action, which may include imposing penalties and other sanctions.” Source of funds files contain personal financial data, so store them securely and in line with UK GDPR.
What should you do if you are not satisfied with the source of funds?
Do not proceed until you are. If you cannot complete the due diligence that regulation 28 requires, regulation 31 says you must not carry out the transaction or establish the relationship, must end any existing relationship, and must consider whether you need to make a disclosure under the Proceeds of Crime Act 2002 or the Terrorism Act 2000. HMRC’s estate agency risk assessment makes the point for auction deposits: if you cannot complete due diligence, including checking the source of funds, you cannot return the deposit without appropriate consent from the National Crime Agency.
Raise concerns with your money laundering reporting officer (MLRO), also called the nominated officer, who decides whether to report to the National Crime Agency. Our guide to suspicious activity reports covers how that works, including defence against money laundering requests.
Be careful what you say to the customer. Under section 333A of the Proceeds of Crime Act 2002, it is an offence in the regulated sector to disclose that a report has been made, or that an investigation is being considered or carried out, where that is likely to prejudice an investigation. The maximum penalty on indictment is two years’ imprisonment, a fine or both. Asking ordinary due diligence questions is part of the job; telling the customer a report has gone to the NCA is not.
How do source of funds checks work in different sectors?
Estate agents. HMRC’s estate agency guidance treats every property transaction as a business relationship, so ongoing monitoring applies and may require you to verify both source of funds and wealth. Its risk assessment says source of funds “must always be scrutinized” by estate agency businesses during property transactions, and that extra care should always be taken with cash buyers. See our guide to training requirements for estate and letting agents.
Accountants. Sector guidance is published by CCAB on behalf of the accountancy bodies and agreed with HMRC. Its 2026 update clarifies when source of funds checks are needed under regulation 28(11)(a) and asks firms to document what they obtain. Our page on CPD requirements for accountants covers the training side.
Solicitors and conveyancers. The SRA’s sectoral risk assessment calls residential conveyancing one of the highest-risk areas of legal practice and says understanding source of funds and source of wealth is a key control across several high-risk areas. It also flags pooled funding from several contributors and cash purchases. See CPD requirements for solicitors.
High value dealers. Dealers who accept cash payments of £10,000 or more are covered. HMRC’s high value dealer guidance says verifying source of funds and wealth is required for enhanced due diligence, including PEPs and FATF call for action countries, and that records of your decision-making must be kept. If cash is paid by a third party, keep the instructions about it.
Art market participants. HMRC’s sector guidance is awaiting ministerial sign-off; until then, follow its Part 1 and Part 3 guidance and the British Art Market Federation guidance, using Part 1 where the 2026 changes conflict. HMRC’s art market risk assessment flags cryptoasset and cash transactions as potentially higher risk, and suggests checking whether banknotes look consistent with the stated source of funds.
What should a source of funds and source of wealth checklist include?
- Ask early how the transaction is funded, and record the answer
- Screen for PEPs and FATF call for action country links
- Set the risk level using your firm’s risk assessment
- Confirm the paying account is the customer’s and identify any third-party contributors
- Get evidence linking the funds to their origin, not just showing they exist
- For gifts, verify the donor and see the money leave their account
- Where source of wealth is needed, check it is plausible for this customer
- Resolve or escalate inconsistencies before proceeding, and recheck if funding changes
- Record evidence, reasoning and approvals; keep them for at least five years
- Take any suspicion to your MLRO and do not tip off the customer
Which training helps staff carry out source of funds checks?
Regulation 24 requires relevant employees to be regularly trained to recognise and deal with possible money laundering, with a written record kept. A dated certificate from an awareness course can form part of that record, but it does not replace your firm’s policies, MLRO procedures or supervisor guidance. See our guide to AML training requirements. Three courses fit together:
- Anti Money Laundering (AML) Awareness: money laundering and terrorist financing, the key UK law and offences, customer and enhanced due diligence, the risk-based approach, warning signs, tipping off and when to make a suspicious activity report; 2 CPD hours
- Anti-Bribery Awareness: the four offences under the Bribery Act 2010, the failure to prevent offence and adequate procedures, useful where PEPs and corruption risk overlap; 1.5 CPD hours. See also our Bribery Act 2010 guide.
- Data Protection and GDPR Awareness: keeping personal data safe and processing it lawfully, which matters for the bank statements and payslips that source of funds checks collect; 1.5 CPD hours
Together they cost £18 rather than £27 under the pay-for-2-get-3 offer. Employers training 5 or more staff can buy team places at £6 a course place, however many places they buy.
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Frequently asked questions
What is the difference between source of funds and source of wealth?
Source of funds is where the money for a specific transaction comes from, such as a house sale, a mortgage or savings. Source of wealth is how the customer built up their overall wealth, such as career earnings, an inheritance or selling a business. Source of funds looks at one transaction; source of wealth looks at the person.
When is source of wealth required for AML?
The Money Laundering Regulations 2017 require adequate measures to establish source of wealth and source of funds for politically exposed persons, their family members and known close associates, and information on both for customers established in a FATF call for action country. Other high-risk cases may need it under your risk assessment.
Do domestic PEPs need source of wealth checks?
Yes, but lighter ones. Since 10 January 2024, domestic PEPs start from a lower risk than non-domestic PEPs. If no other risk factors are present, the checks must be less extensive, and regulators accept using information you already hold or that is publicly available.
Is a bank statement enough to prove source of funds?
Not always. A bank statement shows the money is in an account in the customer’s name, but HMRC says it is not enough to know the money came from a UK bank account. You also need to understand the activity that generated the money, such as salary, a property sale or an inheritance.
How do you check a gifted deposit for money laundering?
Identify and verify the donor, ask them to confirm in writing that the money is a gift that does not need to be repaid, and see the money leave their account. Where the amount or circumstances raise the risk, ask how the donor came to have the money.
What should you do if a client will not explain their source of funds?
Do not proceed with the transaction. Reluctance to explain source of funds is a recognised red flag. Speak to your MLRO, who will decide whether a suspicious activity report is needed, and do not tell the client that a report has been or may be made.
General information, not legal advice. This guide summarises the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as amended, including by SI 2023/1371 and SI 2026/621, section 333A of the Proceeds of Crime Act 2002, HMRC’s anti-money laundering guidance for supervised businesses, the FCA’s FG25/3, the SRA’s sectoral risk assessment and published accountancy sector guidance, as checked on 23 October 2026. Always check the current regulations and your own supervisor’s guidance, and take advice on specific cases. Nexis CPD courses are CPD-accredited awareness training: they are not regulated qualifications and do not replace your firm’s own policies, MLRO procedures or supervisor guidance.