Source of Funds is Complicated. How to Make it Simple.
‘How far back should we go? What evidence should we collect? At what point should we be satisfied?’
All the above are questions we see frequently asked by Legal, Accounting and Financial firms when talking about Source of Funds (SoF). They all share one thing in common – there’s no simple answer.
The legal sector is a strong case study for how to try and answer these questions. In the legal sector, the guidance for SoF is set by the Legal Sector Affinity Group (LSAG). The LSAG guidance is the overarching Anti-Money Laundering (AML) guidance for firms supervised by the SRA or CLC for AML and was last year approved by HM Treasury. Within these guidelines are several key points which are critical to doing SoF well:
- Understanding the financial position of the client.
- Taking a risk-based approach.
- Evidence collection.
- File notes.
Simple to list, but complicated to do. And even then, this sometimes may not be enough as the regulation continues to tighten. This complication comes because a true Source of Funds check is so much more than looking at a set of bank statements.
What should a true Source of funds check look like?
Naturally some of this will be dependent on the risk but in principle the check should provide appropriate evidence as to where any funds involved have come from e.g., savings, inheritance, sale of a house, etc. It should provide evidence the client holds those funds and sufficient understanding of the client’s financial position to be able to identify risk early.
There’s a lot of new technology around that would have you think that collecting statements through Open Banking is enough to conduct a SoF check. If only it was that easy.
Understanding the client’s financial position and the ability to identify risk sooner are two key requirements for firms undertaking SoF checks. But how to achieve that? Critical to the solution is having an integrated check that combines fact finds, questionnaires and accurate data, all analysed and presented using smart technology to present the firm doing the check with the information they need to assess risk quickly and effectively. On top of this, there are two other features as part of a check that are now possible:
- Automatically surfacing the ongoing income streams of a client to give clear visibility of their overall financial picture.
- A risk insight system to bring the identification of risk forward in the transaction.
As well as the fundamental questions and analysis, these features will enable firms to make smarter, faster and more accurate risk-based decisions. Critically, they will also help show regulators and insurers how risk is being managed on a case-by-case basis.
Last year, it was estimated that £88bn worth of money is cleaned by criminals annually in the UK. This stuff is important.
So how does Armalytix make the complicated simple to make your life easier?
- Up-front fact finds that help you understand the background and circumstances as to how the purchase will be structured and financed.
- Highlighting of high-risk cases including money from overseas, cash transactions, etc. Giving you the ability to carry out more extensive investigations where enhanced due diligence is appropriate.
- A Legal Eye endorsed SoF questionnaire that has been designed by risk and compliance experts to prove the appropriate supporting evidence.
- The marking-leading analysis to provide a clear audit trail on file. The report also includes the answers to the fact finds and SoF questionnaire.
This has a real impact on people’s lives, from county lines, to trafficking, to crime. Our mission at Armalytix is to create a hugely positive impact on society. With our enhanced digital checks, we believe we can help stem the rise in financial crime, stop the vulnerable being exploited and protect consumers from making poor financial decisions.
Book a Demo
Armalytix enables law firms to create great client experiences with a simple, digital journey integrated effortlessly into your existing workflows.
We’d love to show you Armalytix in more detail and run through how you can use the reports as part of your risk-based approach to identifying, assessing, understanding, and mitigating money laundering threats.
You can book a time here or request a sample report.