Source of funds vs source of wealth — the difference
These two are treated as synonyms in a surprising number of AML procedures, and they are not. Source of funds asks where this money came from. Source of wealth asks how the customer came to have money at all. Regulation (EU) 2024/1624 keeps them distinct and, for politically exposed persons, requires both — Article 42(1)(b) obliges firms to take adequate measures to establish “the source of wealth and source of funds that are involved”.
1. Two different questions
| Source of funds | Source of wealth | |
|---|---|---|
| Question | Where did the money in this transaction or relationship come from? | How did the customer accumulate their overall wealth? |
| Scope | Transaction-level or relationship-level | Person-level, over time |
| Typical evidence | Account statements showing the originating account, sale or settlement documentation, payroll records for the relevant period | Employment and remuneration history, company sale or dividend documentation, inheritance or gift documentation, asset disposal records, tax filings |
| Failure mode | Tracing to the immediately preceding account and stopping there | Accepting a narrative with no supporting record |
2. Where the AMLR requires them
The clearest requirement is the PEP regime: Article 42(1)(b) makes establishing both a standing measure for occasional transactions and business relationships with politically exposed persons, alongside senior management approval and enhanced ongoing monitoring.
Beyond that, the duty arrives through the enhanced due diligence route. Article 34(2) requires firms to examine the origin and destination of the funds involved, and the purpose, of any transaction that is complex, unusually large, in an unusual pattern, or without apparent economic or lawful purpose. And Article 20(1)(e) requires assessing and, as appropriate, obtaining information on the nature of the customer’s business.
3. What “adequate measures” looks like
The Regulation says adequate rather than prescribing documents, so the standard is proportionate to risk — but three things make a file defensible in practice:
- Two answers, recorded separately. A single free-text field labelled “SoF/SoW” is the most common structural cause of a weak file, because it lets one answer stand for both.
- Corroboration, not assertion. The customer’s explanation is the claim; the document is the evidence. Where a document cannot be obtained, the record should say what was sought, what was received, and why the residual position was accepted.
- Arithmetic that closes. The wealth narrative should plausibly produce the observed funds. Where it does not, that gap is itself the finding.
FAQ
Do we always need both?
Both are expressly required for politically exposed persons under Article 42(1)(b). Outside that, the requirement is risk-driven — but where enhanced due diligence is engaged, a file evidencing only the originating account is usually incomplete.
Is a bank statement enough for source of wealth?
Rarely. A statement evidences where funds moved from, which is source of funds. Source of wealth needs documentation of how the wealth was generated — remuneration, a company sale, an inheritance, an asset disposal.
What if the customer will not provide documents?
Article 21 governs the inability to comply with customer due diligence requirements and sets out what follows. The decision and its basis should be recorded either way; an unevidenced acceptance is the weakest outcome available.
Related: Enhanced due diligence · Politically exposed persons · Ongoing monitoring
