Source of Funds: Why Solicitors Ask Where Your Money Comes From
When purchasing a property, one of the most common questions a solicitor will ask is deceptively simple: where are the funds coming from? For many clients, this can feel like an intrusive question. After all, financial matters are deeply personal, and it may seem unnecessary to provide bank statements, inheritance documents, or evidence of savings when the money is entirely legitimate.
However, source of funds checks are not designed to invade privacy. They are a fundamental part of the legal profession’s role in countering the growing issue of money laundering.
What is Source of Funds?
The term “source of funds” refers to the immediate source of the money being used in a transaction. In residential conveyancing, this may include evidence of personal savings, the proceeds of sale from another property, an inheritance, a gift from a family member, or funds advanced by a mortgage lender. The solicitor’s task is to understand where the purchase money has come from and to obtain evidence supporting that explanation, such as bank statements, probate records, completion statements from a previous sale, or a signed gift letter. “Source of wealth” is a broader concept. It refers to how a client acquired their overall wealth over time, for example through employment income, business profits, investments, inheritance, or property ownership. While source of funds focuses on the specific money being used for the transaction, source of wealth helps explain the wider financial background that made those funds available. Together, these enquiries enable the solicitor to assess whether the transaction is consistent with the client’s circumstances and to comply with their obligations under anti-money laundering legislation.
Why these checks are required.
The importance of source of funds checks lies in the wider legal framework designed to combat money laundering. Under section 327 of the Proceeds of Crime Act 2002, it is a criminal offence to conceal, disguise, convert, transfer, or remove criminal property. The purpose of the legislation is to prevent individuals from legitimising (‘cleaning’) money obtained through unlawful activity. Deliberate non-disclosure of material facts can, in certain circumstances, amount to concealment. This principle was recognised in Clark v Escanda (1984), where thecourt held that withholding important information may itself constitute a form of concealment.
Why Property TransactionsAre High Risk
Unfortunately, property transactions are particularly vulnerable to money laundering because they often involve substantial sums of money and can provide the appearance of legitimacy. Criminals may seek to purchase property with illicit funds in order to integrate those funds into the legitimate economy. Solicitors, especially those working in residential conveyancing, are therefore on the front line of preventing this type of abuse. As residential lawyers, we act as gatekeepers to the property market and therefore the wider economy. Our role is not simply to facilitate transactions, but also to ensure that those transactions are lawful and consistent with our understanding of the client’s background and circumstances.
Regulatory Requirements
This responsibility is reinforced by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Regulation 28(11) requires lawyers to conduct ongoing monitoring of their clients and to scrutinise transactions to ensure they are consistent with the business’s knowledge of the customer and their risk profile. Where necessary, this monitoring includes investigating the source of funds. In practical terms, this means a solicitor must assess whether the funds being used make sense considering what is known about the client’s financial position and the nature of the transaction.
How the Checks Are Applied
As part of our client due diligence, we have to consider whether the funds being used are consistent with the information provided about the client’s financial position. For example, if funds are said to derive from long-term savings, bank statements may be requested to evidence the accumulation of those funds. If the money originates from an inheritance, probate documents and evidence of distribution may be required. These enquiries are a standard part of the compliance process and are undertaken in all matters where verification is necessary.
How the Information Is Used
The information gathered is used to:
- Verify the legitimacy of the funds;
- Assess the level of risk associated with the transaction;
- Comply with anti-money laundering legislation;
- Meet regulatory obligations imposed by the Solicitors Regulation Authority.
All information provided is treated in strict confidence and is only used for compliance and regulatory purposes.
How Clients Can Help Avoid Delays
To ensure that a transaction progresses smoothly, we request completion of our source of funds and source of wealth form at an early stage of the matter. Prompt completion of the form, together with the supporting documentation requested, enables us to carry out the necessary checks without delaying the transaction.
Where clients provide clear and complete information at the outset and respond promptly to any follow-up enquiries, this helps maintain momentum and allows the matter to proceed as efficiently as possible.
Conclusion
Ultimately, source of funds and wealth checks are a necessary safeguard rather than an unnecessary obstacle. They help ensure that solicitors do not become unwitting participants in money laundering and that criminal property is prevented from entering the legitimate economy. By carrying out these checks diligently, residential lawyers fulfil their role as gatekeepers and uphold public confidence in the legal profession. Although the process may require patience and additional documentation, it serves a vital purpose in protecting both individual transactions and the wider legal system.
