Mastering Source of Funds & Source of Wealth for Law Firms

Source of funds and source of wealth come up in the SRA’s AML findings year after year. They are among the most significant areas of non-compliance in the legal sector, and one of the biggest risks a firm carries if it gets them wrong.

In this Aventine Lab webinar with VinciWorks, Arsalan Abbasi brought together three perspectives:

Yasaman Asaad, Partner and Head of Middle East and Real Estate at Child & Child, who runs these checks on high-value international property transactions.
Jennifer Dunlop, Managing Director of The Compliance Office, a specialist SRA compliance consultancy that carries out independent AML audits of law firms.
Ruth Mittelmann Cohen, Head of Legal Compliance at VinciWorks, which provides compliance training and the Omnitrack compliance platform to hundreds of law firms.

This is what they said about getting source of funds and source of wealth checks right in practice.

Why source of funds is a high-risk area for law firms

Jennifer Dunlop was direct: historically, law firms have been really bad at this. The SRA’s recent thematic work “did not make for good reading”. She said around 18% of files reviewed showed poor scrutiny of source of funds and source of wealth, and called it one of the most significant areas of non-compliance in the AML framework. (Our breakdown of the SRA’s AML report covers the wider findings.)

Ruth added that regulators are now testing real behaviour, not policies. Firms are judged on the decisions and judgments they made on the file, not on whether a documented procedure exists. Source of funds has become one of the clearest signs of whether a firm’s AML controls actually work.

Source of funds vs source of wealth: the difference

Jennifer set out the distinction:

Source of funds is the origin of the money used for this specific transaction, such as savings in a particular account or a loan from a bank or another lender. The question is whether you can evidence that those specific funds were legitimately acquired.
Source of wealth is the origin of the client’s entire accumulated wealth: savings, business ownership, inheritance and investments. The question is whether the overall picture looks reasonable given everything you know about the client.

Which comes first? Start with the source of funds for the transaction, then build out the wider wealth profile. Go much deeper when the matter is higher risk. As Ruth put it, if an 18-year-old suddenly wants to spend millions of pounds, you need to understand where that came from. Everything has to make sense.

Yasaman added a point that surprises many clients: there is no fixed look-back period. Three or six months of bank statements is not automatically enough. If the money comes from selling shares bought years ago, you need to know how the client could afford those shares in the first place. Sometimes that means going back twenty years.

How clients react, and how to explain the checks

Do clients resent the questions? The panel agreed it has become much easier than five or ten years ago. Clients are used to the process, partly because high street banks now hold or question funds and even close accounts when something looks unusual. First-time buyers are more accepting when firms explain the process early.

Pushback now tends to come from long-standing clients who feel they are being asked the same questions again. Yasaman’s approach is to explain every step and why it is needed, and to tailor the explanation to the client and their culture. Ruth mentioned that some firms have turned VinciWorks’ source of funds guide into a one-page explainer for clients.

Review source of funds early, and keep it going

A big transaction can take three months. Child & Child reviews source of funds before the transaction gets going, so no one discovers on the eve of exchange that the firm cannot accept the money. Only once the funds are acceptable does the conveyancing and property due diligence proceed.

Source of funds is also not a one-off check. It continues through the matter, and for repeat clients it starts again: the source of wealth may be established, but the source of funds can change. One transaction may be funded by company income, the next by a director’s loan.

Collecting documents is not the same as analysing them

Arsalan asked whether source of funds has become a box-ticking exercise: collect three months of payslips, run open banking, send a questionnaire, but does anyone actually read the statements? The panel’s answer was the clearest message of the session.

It’s absolutely pointless getting six months’ worth of bank statements if you’re not going to look at those statements, analyse those statements and, really importantly, document your analysis.
Jennifer Dunlop, The Compliance Office

Firms often have good policies and procedures that are not applied on the ground. What auditors want to see is a coherent financial narrative, or as Ruth put it, a story: someone has gone through the documents line by line and can sit in front of an auditor and explain how and why this client has this money. The SRA is specifically flagging inconsistencies between the source of funds evidence and the client profile.

Even if you miss something on a file, Jennifer said, a clearly documented process earns you far more credit with the SRA than a bare collection of documents.

“It’s my money”: gifts, loans and money from friends and family

Yasaman gave a scenario conveyancers will recognise. A client says there is no gift and it is all their own money. The bank statements then show money arriving from several individuals just before the transaction. “My money” turns out to mean money lent to a friend or cousin years ago that has now been paid back.

That may be entirely true. Without a loan agreement, though, the firm has to look into those individuals and where their money came from. It slows the transaction and clients do not always like it, but it is required.

Small firms vs large firms: different risks

Large firms usually have a structured process and a separate compliance department. At Child & Child, compliance re-checks every file a fee earner completes. Their challenge is consistency at scale across tens of thousands of clients.
Small firms face the same risks with fewer resources. There is often no central compliance team and no specialist onboarding support, so individual fee earners carry out the checks with a lot of discretion. Many checks are still manual. Jennifer called the result inherently riskier. Inconsistent application of policy is something the SRA is focusing on.

The direction of travel, Jennifer said, is that even small firms are moving towards specialist compliance support, whether in-house or outsourced. Ruth added that expectations have changed: “we don’t have anyone to do it” is no longer an excuse, and the SRA is issuing fines, including for failing to provide information.

Firm-wide risk assessment, policies and professional judgment

Should your policies give fee earners a fixed script for each scenario, or leave it to their judgment? Jennifer explained how the pieces fit together:

The firm-wide risk assessment describes the firm’s risk profile: the types of client, practice areas and jurisdictions it deals with. It is not about individual clients.
That drives the client and matter risk assessments, which identify low-risk matters and those needing enhanced due diligence.
Good client and matter risk assessments set out scenarios and a minimum evidence set, such as six months of bank statements plus the mortgage deed.
Beyond that minimum, fee earners must use judgment. Is money coming from a third party? Are there unusual transactions? Does anything not fit? If so, make further enquiries.

Both Ruth and Jennifer warned against rigid standardisation. Crypto barely existed fifteen years ago. Documentation should follow the risk in front of you, not a fixed list. Yasaman described the practical baseline at Child & Child: enhanced due diligence wherever clients or funds are linked to high-risk countries, checks against HM Treasury sanctions lists, and the firm’s own internal procedures.

For tools that support this, see the Best Risk Assessment Tools for Law Firms report.

Keep the evidence in one place

Ruth sees a recurring problem: some documents sit in case management, some in a secretary’s inbox, some in iManage or cloud storage. When the SRA gives you a client number and asks for everything, you need three people to find it, and one of them is on holiday.

Her advice is a single, central location for all AML evidence, with responsibility for collecting documents shared between compliance and the fee earner. Omnitrack uses conditional logic to request the right documents for each transaction type, entity type and level of due diligence.

Jennifer added a forward-looking point. With the FCA taking over AML supervision of the legal sector, firms will need to report more data, such as numbers of high-risk clients and clients in high-risk jurisdictions. Getting processes and technology in place now will make that much easier.

Gifted deposits, third parties and pooled money

How far do you go to verify a giftor?

Yasaman said there is no limit. You establish the giftor’s source of wealth first, then look at the specific amount being gifted or lent. That can mean going back twenty years.

Is a notary enough to verify an overseas giftor?

Some firms direct overseas third parties to established, regulated law firms or notaries in their own country to certify ID and witness signatures. Jennifer’s caution is to check that the certifying firm is genuinely regulated on that jurisdiction’s equivalent of the SRA or Law Society register. Her ideal is electronic ID verification for everyone. With manual onboarding, the firm itself has to keep re-checking sanctions to make sure no one becomes sanctioned mid-transaction.

What about a pooled family fund?

Some cultures pool money from several family members, and one person draws it at a set time. Do you need to check every contributor? Jennifer said yes. You must understand all the money coming into the transaction. How deep you go can reflect your risk assessment. Close family and an otherwise low-risk matter may justify lighter checks, but each contributor still needs ID checks and proportionate source of funds and source of wealth enquiries.

Can I rely on a high net worth client’s public profile?

Only as a starting point. Unless the client is genuinely famous, you still need to independently verify the funds and wealth rather than rely on what is online.

Can I rely on another firm’s source of funds checks?

Be very careful. As the fee earner with conduct of the matter, you have to be satisfied that the wealth was legitimately acquired and the funds are clean.

Open banking: worth the cost?

Some firms complain they pay £10–15 per open banking check for what amounts to a few screenshots they could have asked the client for. The panel’s view was that both routes produce the same information, but open banking gives the client a much smoother journey, which matters most in fast-moving work like conveyancing.

Every firm still has clients, often older ones, who insist on bringing documents into the office. Yasaman noted that the Law Society’s new conditional property information form, where answers trigger follow-up questions, is hard for some elderly clients to complete. Processes need to work for them too.

AI in source of funds checks

Arsalan asked about AI tools that keep questioning a client until their answers meet a set of criteria, removing the back and forth of questionnaires. The panel was positive but firm on limits:

Protect the data. Ruth, who is also VinciWorks’ Data Protection Officer, warned firms to know exactly where client data goes and which models it trains.
Keep a human in the loop. You can delegate the task, but you cannot delegate the obligation. The SRA encourages AI use, but the fee earner remains responsible for the output.
Watch for forgeries. AI makes fake bank statements easier to produce, which makes human review more important, not less.
Expect caution from law firms. Some VinciWorks clients have asked for a toggle to switch AI features off entirely.

Key takeaways

Document everything. Gather the documents, analyse them and record your analysis and conclusion. The most common failure is documents on file with no interpretation. (Jennifer Dunlop)
Tell the client’s financial story. Firms that do this well show a coherent narrative, not a stack of statements, and build source of funds into the whole life of the matter. (Ruth Mittelmann Cohen)
Review, don’t just collect. Collect the relevant documents, review them, summarise your findings, and keep the review going through the transaction. (Yasaman Asaad)
Choose tools that connect. Avoid single-point solutions. If your KYC runs on Credas or Thirdfort, make sure risk assessment, source of funds and documentation are covered and connected. (Arsalan Abbasi)

Frequently asked questions

What is the difference between source of funds and source of wealth?

Source of funds is where the money for a specific transaction comes from. Source of wealth is how the client built their overall wealth. Law firms usually verify source of funds first and look more deeply at source of wealth for higher-risk clients and matters.

How many months of bank statements should a law firm request?

There is no fixed period. Your policy may set a minimum, often around six months, but you should go back as far as you need to explain the funds, which can be many years for investments or long-held assets.

Do law firms need to verify the person giving a gifted deposit?

Yes. Verify the giftor’s identity and establish their source of funds and, depending on risk, their source of wealth. Where several people contribute to a pooled fund, each contributor needs proportionate checks.

Can AI carry out source of funds checks for a law firm?

AI can collect information, question clients and flag inconsistencies, but a person must review the result. The fee earner remains responsible for the conclusion recorded on the file.

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