What’s source of wealth?

Source of wealth tells you how a client accumulated their overall assets over time. It’s not about the specific funds used in a single transaction (which is known as source of funds) but the bigger picture: how did this person or business come to have the wealth they hold today? 

FATF Recommendation 10 sets the international due diligence standard and requires you to establish source of funds where necessary. FATF Recommendation 12 then calls for you to establish source of wealth as well, in higher-risk situations. These findings should be backed up with appropriate evidence.

What source of wealth means in each sector

Each regulated sector applies the same underlying principle: source of wealth is the origin of a client’s total assets. What changes from sector to sector is when and how deep you’re expected to go to establish it.

Accountancy sector

You need to establish source of funds for all transactions and source of wealth as well when:

• enhanced due diligence applies;
• the client’s financial position doesn’t match their profile;
• ownership structures are opaque;
• transactions appear unusually large or complex.

Legal sector 

Source of wealth refers to the origin of a client’s entire body of wealth: the economic, business and commercial activities that generated their overall net worth.

You need to establish source of funds for the transactions or activities within the business relationship, and source of wealth as well in situations such as:

• all PEP relationships;
• cross-border or sanctions-linked matters;
• high-value or unusual property transactions;
• complex trust or company structures.

All this work needs to be supported by the relevant documentation. The depth of your checks should be driven by the risk assessment for the client and the matter.

Trust and company service providers (TCSPs)

You’re expected to establish source of wealth when acting for the settlors, beneficial owners or controlling parties behind a trust or company structure. This becomes particularly important in situations such as:

• beneficial owners or controlling parties who are PEPs;
• complex or opaque beneficial ownership chains;
• high-value trusts or company structures with no clear commercial rationale;
• wealth that appears disproportionate to the client’s known background;
• structures spanning multiple jurisdictions with limited transparency.

Property sector

Source of wealth means the origin of a client’s overall wealth. You need to establish this in cases involving:

• PEPs and high-risk jurisdictions;
• high-value purchases;
• offshore buyers or corporate purchasers;
• clients whose background doesn’t match their financial position.

Establishing a client’s financial background is central to checking that a property transaction lines up with their profile.

Dealers in precious metals and stones (also known as high-value dealers or HVDs)

You need to understand both the source of funds and the wider source of wealth when risk indicators appear. 

Because cash-heavy sectors carry a higher exposure to money laundering, you should be able to demonstrate that a client’s financial background makes sense relative to the transaction, including when there are:

• large cash purchases with no clear explanation;
• customers whose occupation or circumstances don’t align with the value of the goods;
• repeated high-value cash transactions over a short period;
• buyers linked to high-risk jurisdictions or industries;
• customers unwilling to explain how they accumulated their wealth.

When you can’t establish source of wealth, or when the explanation contradicts what you know about the customer, this is a clear trigger for enhanced due diligence.

What credible source of wealth information looks like

The explanation of source of wealth must be credible and proportionate to risk. Regulators give examples such as:

•    long-term employment or professional income;

•    profits from a legitimate business;

•    inheritance (with probate documents where appropriate);

•    sale of property or other assets;

•    long-term investments;

•    pension income or retirement assets.

Your test is whether the explanation reasonably accounts for the client’s wealth and is consistent with what you know.

Red flags to watch for

FATF guidance sets out the red flag indicators used across the industry to spot potential misuse of the financial system. For source of wealth, the ones that come up consistently include:

• wealth that doesn’t match the client’s known background;
• explanations relying on vague phrases such as “family money” or “various investments”;
• wealth linked to high-risk jurisdictions without evidence;
• reluctance to explain or discuss financial background.

Where this occurs, enhanced due diligence may be required or you may need to consider whether the relationship can proceed safely.

Understanding source of wealth helps you test whether a client’s financial story is coherent and legitimate. 

A clear explanation, backed by proportionate evidence, helps you assess risk and confirm it’s consistent with what you already know about the client. Anchor your assessment around that principle and you strengthen your compliance, and protect your firm from unnecessary exposure.