What is source of funds?
Source of funds (SoF) refers to the origin of the specific funds used in a particular transaction or business relationship. Verifying the source of funds is a key component of CDD and EDD, requiring businesses to understand where the money for a specific transaction came from and whether it is consistent with the customer's known financial profile.
SoF vs source of wealth
Source of funds relates to the specific transaction; source of wealth relates to the customer's total accumulated wealth. Both may need to be verified, particularly for PEPs and higher-risk customers. Real estate transactions commonly require SoF verification to confirm the deposit and purchase funds are from legitimate origins.
Related terms
- Source of Wealth - total accumulated wealth
- EDD - enhanced checks requiring SoF verification
- CDD - the standard process including SoF checks