Difference between Source of Funds and Source of Wealth under AML Compliance

Difference between Source of Funds and Source of Wealth under AML Compliance

International Financial Services Centre Authority (IFSCA AML, CFT & KYC) Guidelines, 2022 mandates the regulated entities to perform Enhanced Due Diligence in case of high-risk customers.

One of the critical elements of Enhanced Due Diligence measures is to understand the customer’s financial profile by determining the source of the customer’s funds and wealth.

Generally, the source of funds and the source of wealth are perceived as the same, but they do not hold good in all cases. There is a difference between source of wealth and source of funds. In this infographic, we have highlighted the key differences between source of funds vs source of wealth. 

What are Source of Funds and Source of Wealth?

Funds indicate the amount involved in a particular transaction, while wealth is the customer’s net worth accumulated over the period. The source of funds provides an idea of how the transaction is funded. In contrast, the source of wealth is essential to understand whether the proposed transactions are aligned with the customer’s financial status.

Having obtained the information from the customer about these, it is also essential to independently establish its legitimacy. For this, regulated entities are required to obtain necessary documents substantiating the details furnished by the customer. As a part of the KYC procedure, source of funds and source of wealth information is obtained from the customer.

Source of Funds and Source of Wealth Examples:

Source of Funds Example:

Say a retail customer pays for the jewellery in cash. The jeweller asks for the source of funds, and the buyer says it was withdrawn from his bank account and provides evidence for the withdrawal. This withdrawal slip becomes the proof of source of funds.

Source of Wealth Example:

The same retail customer keeps buying from the same jeweller, and now the jeweller finds his profile inconsistent with the purchases he makes. The jeweller asks for the source of wealth, and the retail customer provides his financial statements and tax returns. These documents serve as proof of the source of wealth.

Understand the distinguishing elements of source of funds and wealth and apply Enhanced Due Diligence to safeguard your business against high-risk customers and transactions.

AML India is an AML Consulting firm offering end-to-end AML support to regulated entities registered with IFSCA. We provide services around conducting enterprise-wide risk assessment and establishing tailor-made AML/CFT compliance programs for the entity to manage the identified risks effectively. We also assist entities in identifying appropriate AML software and impart AML training to ensure effective implementation of the AML policies and procedures, including Enhanced Due Diligence measures.

We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.

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