Source of funds verification is the practical checking step behind the concept of source of funds, and that entry explains what the term means and when regulators require it. This page covers how firms carry out the verification.
Asking a customer where money came from is only the first part. Verification means obtaining evidence that confirms the explanation and checking that it fits the amount and timing of the funds. A customer paying for a property with the proceeds of a house sale might provide the completion statement from that sale and a bank statement showing the money arriving. Other common evidence includes payslips, loan agreements, company dividend records, share sale contracts, probate documents for an inheritance, and statements tracing a transfer from another institution. The firm records what it saw, whether it was satisfied and why.
The verification focuses on the particular funds involved, which is what distinguishes it from source of wealth verification, a broader check on how the customer built up their total assets. Firms apply it on a risk basis: routinely for large or unusual transactions, and as part of enhanced due diligence for high-risk customers such as a politically exposed person. Where evidence cannot be obtained, the firm may decline the transaction and consider whether a suspicious activity report is needed.