Source of funds is the least popular conversation in a brokerage, and it is the one that decides whether the firm keeps its banking. A regulated firm is required to know that the money passing through it is legitimate, and "the client sent it, so we sent it back" is not a defence anyone has ever successfully used with a supervisor.
Two different questions
Source of funds asks about this money. Which account did the deposit come from, what put that amount into that account, and does it reconcile with what the client told you at onboarding. It is transactional and it is usually answerable with a statement.
Source of wealth asks about the whole picture. How did this person come to have money at all. A client declaring an annual income of a modest salary who deposits many times that in a quarter has a source of wealth question, not a source of funds question, and no single bank statement resolves it. The two get conflated constantly, including inside compliance teams, and the result is a request for the wrong document and a frustrated client.
The distinction matters because enhanced due diligence, the regime that applies to higher risk relationships under the EU AML directives and their equivalents elsewhere, generally calls for both. Standard due diligence at onboarding is closer to identity and basic risk profiling, which is where the tiered approach in KYC verification levels sits.
What actually triggers a request
Contrary to the folklore, it is rarely one big number. The common triggers are patterns.
| Pattern | Why it flags |
|---|---|
| Deposits far above the declared income or occupation | The profile and the behaviour do not reconcile |
| Deposit, minimal trading, withdrawal | The account looks like a transfer channel rather than a trading account |
| Withdrawal to a different name, bank or country than the deposit | Third party payment risk, which most firms prohibit outright |
| Many small deposits just under a threshold | Structuring, one of the oldest patterns in the manual |
| Funds arriving from a high risk jurisdiction or an unhosted wallet | Geographic and counterparty risk, plus travel rule considerations |
| The client becomes a PEP, or a screening hit appears on refresh | Risk rating change triggers a fresh review of the relationship |
Notice how many of these are behavioural rather than numeric. A monitoring system that only fires on a cash threshold will miss most of them, which is why transaction monitoring belongs next to the payments data rather than in a spreadsheet reviewed monthly. The mechanics of that are covered in AML basics for trading firms.
What a good document looks like
The test is whether the paperwork connects a named person to an amount, a date and a plausible origin, and whether it reconciles with the deposits the firm received. Payslips work when the bank statement shows the same credits landing. An employment letter alone does not. A property sale needs the contract or the completion statement, not an estate agent listing. Company dividends need the company's filings behind them if the company is the wealth story.
Crypto is where most requests stall. An exchange statement showing the fiat purchase, the trading history and the withdrawal to the wallet that funded the deposit is the version that passes. A screenshot of a wallet balance is not, because it evidences possession and nothing about origin. The chain analysis question sits alongside this, and the reporting obligations it creates are set out in our piece on the crypto travel rule.
Where a firm files a suspicious activity report, it is generally prohibited from telling the client that it did so. That is why compliance answers can sound unhelpfully vague. It is a legal constraint on the staff member, not evasion.
Why the firm cannot simply pay and move on
Three reasons, in order of how often they bite. First, the obligation is on the firm: paying out funds you have reason to suspect makes the firm a participant, and the penalties attach to the firm and to named officers. Second, banking. Acquirers and correspondent banks review the firm's AML file, and a pattern of releasing flagged withdrawals without documentation is one of the fastest routes to losing a payment relationship. Third, the audit trail: a supervisor reviewing a file two years later reads what the firm did at the time, and an unexplained release with no notes is indefensible.
None of this makes the delay acceptable to the client, and firms that treat it as an internal problem rather than a customer experience problem lose good clients over it.
Designing the request so it does not cost you the client
Ask early. The worst possible moment to request a source of funds file is the first withdrawal, because from the client's seat it looks like the firm is inventing obstacles to keep the money. Set the risk tiers at onboarding and collect the additional evidence when the client crosses a deposit threshold, before any payout is pending. The client experiences it as an account upgrade rather than an obstruction.
Then make the request specific. "Please provide proof of source of funds" produces a random photo. "Please upload a bank statement covering March to May showing the salary credits, and the payslip for April" produces a usable file first time. Publish the acceptable document list, give an SLA for review, and show the client where the case stands in the portal instead of leaving them to email support. Inside a broker CRM this is a queue with an owner, a timestamp on every state change and the documents attached to the client record, which is also exactly what an auditor wants to see.
One position worth stating plainly: firms that use source of funds requests as a retention tactic, slow-walking payouts to keep balances on the book, do enormous damage to the whole sector and eventually to themselves. The check exists to answer a question. Once it is answered, pay.
"Ask for the documents when the client is depositing, not when they are withdrawing. Same file, completely different conversation."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- Source of funds traces one transaction; source of wealth explains the client's overall position. Different evidence.
- Most triggers are behavioural patterns, not large amounts: deposit-and-withdraw, third party payments, structuring.
- A usable document ties a named person to an amount and a date and reconciles with the deposits received.
- Collect at a deposit threshold, name the exact documents, publish an SLA, and release promptly once cleared.
Frequently Asked Questions
What is the difference between source of funds and source of wealth?
Source of funds asks where the specific money used in this transaction came from, such as the salary payment that funded a particular deposit. Source of wealth asks how the client built their overall financial position over time, such as a business sale, an inheritance or years of employment. A bank statement can evidence source of funds. Source of wealth usually needs a narrative supported by tax filings, sale agreements or company records.
Why is my withdrawal being held while the firm asks for documents?
A regulated firm has to be satisfied that the money it holds and pays out is not the proceeds of crime. If a pattern triggers enhanced due diligence, the firm is required to complete that review before releasing funds. It is an obligation on the firm rather than an accusation against the client, and in most cases the hold ends as soon as the documents are supplied and reviewed.
Which documents usually satisfy a source of funds request?
Recent payslips with a matching bank statement showing the credit, a tax return, an employment contract, a signed sale agreement for a property or business, a dividend or pension statement, or an exchange statement plus wallet history for crypto. The document needs to connect a named person to an amount and a date, and to reconcile with the deposits the firm actually received.