Our latest webinar (“Practical guidance on source of funds”) tackled the challenges and nuances of handling source of funds (SoF) inquiries, an essential part of anti-money laundering (AML) compliance. Our speakers shared real-world insights, best practices, and strategies to manage the common (and sometimes complex) inquiries around SoF, aiming to boost attendees’ confidence and compliance accuracy.
For those who couldn’t join, here’s a recap of the main discussion points and key takeaways, along with a list of questions from the Q&A session and brief answers for immediate reference.
A recording of the session is available to view for 30 days. Use passcode j*9Z6Mg2 to access the video.
Topics Covered
- Practicality of SoF inquiries: Starting with case examples, we emphasised the importance of a tailored approach, acknowledging that SoF inquiries can vary significantly based on client profiles, transaction types, and associated risks. Tools like customised templates and checklists can make it easier to gather necessary information systematically.
- Risk-based approach to SoF: Understanding when to ask further questions and when to be satisfied with a basic inquiry is essential. The panel shared guidance on using client risk assessments to decide on the depth of SoF inquiries, encouraging firms to document any decision points thoroughly.
- High-risk client profiles: The session also explored handling high-risk clients or transactions, especially when there are international elements involved, such as clients from high-risk jurisdictions. Here, we discussed different layers of due diligence, stressing the importance of specific AML checks and clear documentation to demonstrate compliance efforts.
- Challenges with high-value or third-party funding: The complexities around large third-party contributions, unusual gifting, or high-net-worth clients with family support were a highlight. Attendees were encouraged to be mindful of “does this make sense?” markers as a quick tool for flagging unusual activity.
- Sector-specific challenges: Unique SoF challenges across sectors like estate administration were also discussed. Estate cases often involve a review of a deceased’s financial history, requiring a careful balance between due diligence and reasonable inquiry efforts.
Q&A
Here are some questions we received during the session:
- How far should we go when verifying SoF for a well-known corporation?
For listed companies, a lower level of due diligence is generally acceptable due to transparency in their financial records. However, document your approach in the risk assessment for clarity. - What’s the best way to handle SoF checks when dealing with high-risk jurisdictions?
Enhanced due diligence is key here. Request detailed evidence and inquire about the origin of funds with particular scrutiny if the client or transaction involves a high-risk country. - What are some SoF red flags for large gifts or family contributions?
Look out for contributions that seem disproportionate to the family member’s financial profile, or that lack a clear, logical basis. Document any family member’s proof of funds thoroughly. - Are bank loans considered safe for SoF verification?
Yes, loans from regulated financial institutions are generally considered safe. However, maintain records of the loan documentation and the institution involved. - How do we know if we’ve done “enough” in terms of SoF inquiries?
This often depends on risk levels. A practical approach involves ensuring you’ve made reasonable inquiries and documented the rationale for concluding your SoF checks. - When handling SoF in estate administrations, what additional steps are recommended?
Estate administration requires a review of the deceased’s entire financial landscape. Consider adding estate-specific questions to your risk assessment, and be thorough in gathering background details.
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