Source of wealth
Sources of wealth describes how a client, or their family, has acquired their total wealth, for example, you will need to look at the activities that have generated or contributed to the accumulation of their financial and other assets.
Examples of sources of wealth:
- Inheritance
- Investments
- Ownership of a business
- Employment
Source of funds
Funds can come from a number of sources, for example:
- Savings
- Release of pension
- Sale of shares
- Sale of another property
- Inheritance
- Dividends from a UK company
- Lottery/gambling winnings
- Compensation award
- Gift from a relative
Source evidence
Regulators require you to obtain appropriate evidence to show that you have carried out client due diligence and for the purposes of source checks this can include:
- Savings - six months' bank statements showing how the client gets paid from their employer, pension, annuity and the money growing in their bank account over time. Where there are multiple client bank accounts six months' bank statements will be required for each of the accounts.
- Release of pension - a copy of the client’s pension statement and a copy of their bank account statement showing the money being received from the pension company.
- Sale of shares - a copy of the share release schedule and a copy of the bank account statements showing the money being received from the company.
- Sale of another property - a copy of the completion statement from the client’s solicitor and a copy of their bank statement showing the money being received from their solicitor following completion.
- Inheritance - a copy of the letter from the executors stating how much the client is being paid as a beneficiary and a copy of their bank statement showing the money being received from the solicitor/executor's bank account.
- Dividends from a UK company - a copy of the relevant dividend certificate(s), a copy of the company's accounts and a copy of the bank statement showing the money being received from the company.
- Lottery/gambling winnings - a copy of the receipt/cheque proving the client’s winnings and a copy of their bank statement showing the money being received from the lottery or gambling company. Proving where cash from gambling has come from will not be easy so you will need to ask additional questions and/or make additional enquiries.
- Compensation award - a copy of the letter confirming the client’s compensation settlement and a copy of their bank statement showing the money being received.
Communicating with clients
Some clients get aggrieved at being asked for what they consider to be sensitive and confidential financial information, however, you need to ensure they appreciate that you have regulatory obligations to carry out such checks; by communicating effectively with clients about why you need this information they should hopefully be more understanding and provide what you are asking for.
However, if a client refuses to co-operate with you even when you have explained the reasoning behind what you are asking for, you need to consider whether to refuse acting for them, and assess whether a report to your Money Laundering Reporting Officer (MLRO) may be appropriate; withholding information is one of the ‘red flags’ that could indicate that criminal activity has taken place and that the laundering of the proceeds of these crimes could be being attempted.
Are you exposed?
If you and your colleagues fail to carry out effective checks into a client’s source of funds and wealth you could be exposed to regulatory enforcement action and potentially criminal prosecution, so make sure everyone in your firm is aware of what they need to do and why!
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