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Source of Funds / Source of Wealth (SOF/SOW)

Definition

Source of Funds (SOF) and Source of Wealth (SOW) are two related but distinct concepts in KYC/AML compliance that help financial institutions understand where a customer's money comes from.

  • SOF: Where the money for a specific transaction or account originates
  • SOW: How the customer accumulated their total wealth over their lifetime

SOF vs SOW

Aspect Source of Funds (SOF) Source of Wealth (SOW)
Question answered Where did THIS money come from? How did you become wealthy?
Scope Specific transaction or deposit Lifetime wealth accumulation
When required All CDD (basic level) Primarily during EDD
Evidence Bank statement, salary slip, sale deed Career history, business profits, inheritance
Example "This ₹10L deposit came from property sale" "I built wealth through 20 years in IT industry + property investments"

SOF/SOW Verification

Common Sources of Funds

Source Acceptable Evidence
Employment income Salary slips, employment contract, bank statements showing regular credits
Business income Financial statements, tax returns, business bank statements
Property sale Sale deed, settlement statement, property records
Investment returns Brokerage statements, dividend records, capital gains statements
Inheritance Will, probate documents, estate settlement records
Gift Gift deed, donor's SOF (may require donor KYC)
Loan proceeds Loan agreement, disbursement records
Government benefits Benefit award letters, payment records

SOW Investigation (for EDD)

graph TD
    A[SOW Investigation] --> B[Career History]
    A --> C[Business Ownership]
    A --> D[Investment Portfolio]
    A --> E[Real Estate Holdings]
    A --> F[Inheritance / Family Wealth]

    B --> B1[Job history, senior positions,<br/>estimated lifetime earnings]
    C --> C1[Business financial statements,<br/>ownership history, exits/sales]
    D --> D1[Investment account statements,<br/>capital gains history]
    E --> E1[Property records,<br/>purchase history, valuations]
    F --> F1[Inheritance documentation,<br/>family business background]

    B1 & C1 & D1 & E1 & F1 --> G[Wealth Profile]
    G --> H{Consistent with account activity?}
    H -->|Yes| I[SOW verified]
    H -->|No| J[Further investigation needed]

    style G fill:#4051B5,color:#fff
    style J fill:#e53935,color:#fff

When SOF/SOW is Required

Scenario SOF Required SOW Required
Standard CDD Yes (basic) No
EDD — PEP Yes (detailed) Yes
EDD — High-risk country Yes (detailed) Yes
Large/unusual transaction Yes Possibly
Private banking Yes (detailed) Yes
Cash-intensive business Yes (detailed) Yes
Complex structures Yes (detailed) Yes

Red Flags

Red Flag Concern
Unable to explain SOF Customer cannot articulate where funds came from
SOF inconsistent with profile Low-income person making large deposits
Funds from high-risk jurisdiction Without clear business purpose
Third-party funding Someone else deposits into customer's account
Reluctance to provide documentation Customer avoids providing evidence
SOW doesn't match lifestyle Declared wealth doesn't match observed spending patterns
Sudden wealth Cannot explain rapid wealth accumulation

Key Takeaways

Summary

  • SOF (where THIS money came from) is required for all CDD; SOW (lifetime wealth) is required for EDD
  • Both must be documented with evidence — self-declaration alone is insufficient for high-risk
  • Red flags include inability to explain funds, inconsistency with profile, and third-party funding
  • SOF/SOW verification is one of the most labor-intensive parts of EDD — hard to automate
  • Getting SOF/SOW right is critical — it's one of the most common AML compliance failures