In a year where 46% of organisations reported experiencing fraud corruption or other economic crimes, it’s never been more important to accurately establish Source of Wealth (SoW) and Source of Funds (SoF).
What are Source of Wealth and Source of Funds?
Many companies have a legal obligation to ensure that any money used to fund a transaction or business relationship comes from credible sources. The due diligence goes beyond ensuring that sufficient funds are available – instead they must establish the SOURCE of those funds.
- Source of funds refers to the funds that are being used to fund a specific transaction. Companies need to go beyond the question of where the money for the transaction comes from, and look at how that money was acquired,
- Source of wealth relates to activities that generated or contributed to, the client’s overall net worth or wealth and how they came to possess the funds for the transaction – i.e. investments or a company sale.
What’s the big deal?
Source of Wealth is a fundamental part of recent anti-money laundering (AML) guidance. Firms must understand the nature, background and circumstances of the client and their funds to ensure they are not tied to criminal activity or generated un an underhand way. The situation has only been accentuated by the ongoing conflict in Ukraine, with the understanding of asset and business ownership particularly pressing among Politically Exposed Persons (PEPs).
However, while essential, establishing Source of Wealth can be complex and difficult to achieve.
There’s also no set way of requesting or collecting this information from clients. With other KYC processes, there are definitions to understanding a Beneficial Owner or frameworks for sanctions screening, for instance. But when it comes to establishing a client’s money trail, there’s no formal, prescriptive mechanism for receiving this information.
Furthermore, the conversation with the client can be tricky to navigate. What is often overlooked is the detrimental impact such checks can have on client-firm relationships. It’s a sensitive subject – and any checks can instantly result in a loss of trust (and business).
What if a client chooses not to share that information? Or takes a long time to respond? This can cause delays as well as draw out the negative interaction with the client – providing more opportunity for the situation to be mishandled and for business to be lost as a result.
It’s the perfect combination to make establishing Source of Wealth a significant challenge for the people tasked with interpreting the variety – or lack of – information shared. One individual might have set up a successful business which generates most of their income, but also have a regular pipeline of funds from other business investments which can be difficult to unpick if the information shared is vague or incomplete.
Unpick Source of Wealth and preserve client-firm relationships with data
Critically, the ability to join the dots between individuals and their different business dealings is essential. So, using the right data alongside the right data-driven solutions can help avoid the need to scrutinise a client’s Source of Wealth by uncovering ownership and unravelling any complex hierarchies – between companies and people.
Access to such data gives an institution a consistent starting point to carry out due diligence to establish where their money has come from – even reducing the need to request information from clients in the first place.
As the business landscape continues to be tumultuous and unpredictable, preserving client relationships will be fundamental to future success.
How can Dun & Bradstreet Help?
D&B Network Intelligence allows you to establish Source of Wealth by gathering data points to a single person – such as business interest information and financial data points associated with their business interests. Bringing the information together in one place reduces time and allows you to make faster business decisions.
Dun & Bradstreet is one of the few data and analytics providers that currently has this capability. Many Source of Wealth cases can be established through a review of a person’s business interests. Using this as the first step in your due diligence stops the need to ask further intrusive questions.
D&B Network Intelligence leverages the most comprehensive beneficial ownership data coverage, principals and directors, financial statements, along with a global dataset of 500+ million entities powered by Dun & Bradstreet’s Data Cloud.
To understand how your organisation can better establish Source of Wealth, while reducing the detriment to client-firm relationships, click the button below.