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Answers for law firms
How should a law firm check source of funds?
A source of funds check shows where the money for a matter comes from, such as salary saved over time, a sale or a gift, and that the money paid in matches that story. The firm collects the evidence, examines it against what the client has said and records its conclusion.
| Question | Answer |
|---|---|
| The law | MLR 2017, regulation 28(11), with regulations 33 and 35 for higher risk and PEPs |
| When | As part of due diligence, before money is received on the matter |
| What it covers | The money for this matter. Source of wealth looks at how the client built up their wealth overall |
| Typical evidence | Bank statements, payslips, a sale completion statement, a gift letter with the giver’s own evidence |
| The test | The evidence explains the money, and the account that pays matches it |
What does a source of funds check involve?
- Ask the client how the money was raised and which account it will come from.
- Collect evidence that shows the money building up or arriving, not only the closing balance.
- Examine it. Check that amounts, dates and names agree with the client’s account, and ask about anything that does not.
- Check that the money arrives from the account the client named.
- Record the conclusion and escalate anything unexplained to the MLRO.
How far back should source of funds go?
The regulations set no fixed period. The evidence should go back far enough to show how the money reached the account. A lump sum needs its origin, and savings need the statements that show them building up. The firm’s policy should set its standard period and say when to go further.
How long does a source of funds check take?
Most of the time goes on waiting for the client’s documents and then examining them. Open banking lets a client share account data directly, which removes the wait for statements.
What is the difference from source of wealth?
Source of funds is about the money in this matter. Source of wealth is about how the client came to have their wealth overall. For a PEP the firm must establish both (regulation 35(5)), and it considers both in other higher-risk cases (regulation 33).
What did the SRA find?
In its SRA anti-money laundering annual report 2025/26, 9% of the files that needed source of funds checks had none. Where documents had been gathered, 18% had not been examined, and in 6% the information did not match the ledger. 67% of the firms referred for source of funds problems had a defined process in their policy, so the gap was following it.
What if the money comes from someone else?
Check the third party too. See what to check on a gifted deposit, fees paid by someone other than the client and completion money from a different account.
Kord collects source of funds evidence from the client, including bank data shared through open banking, and records it on the matter with the identity and payer checks. The firm examines it and makes the decision.
More in Answers for law firms, including what AML checks cover.
Questions firms ask
Do conveyancers have to check source of funds?
Yes, as part of ongoing monitoring under regulation 28(11). The SRA reviews it on conveyancing files and found the checks missing from 9% of the files that needed them.
Is a bank statement enough?
Only if it shows how the money arrived. A statement that shows the balance but not the deposits proves the money exists, not where it came from.
When should the firm check source of funds?
Before money is received on the matter, so the firm can act on what it finds before the money moves.
What if the client will not provide evidence?
The firm cannot complete due diligence, so it must not go ahead and must consider whether to make a suspicious activity report (regulation 31).
Does the firm need to check a gift?
Yes. The firm checks where the giver’s money comes from, and that the gift is a gift and not a loan.