By: Atish Home Chowdhury

Finance Article UK: Why Most Source of Funds Checks Fail (And How to Fix Yours)

Finance Article Disclaimer: This blog or article is provided for general informational purposes only and does not constitute legal, regulatory, or professional advice. While accurate to the best of our knowledge at the time of publication, AML regulations, FCA guidance, and enforcement figures can change, and nothing here should be relied on as a substitute for independent advice from a qualified solicitor or compliance professional about your firm’s specific obligations. We accept no liability for any action taken, or not taken, on the basis of this content.

When a client approaches your firm with a transaction to complete, one of your earliest obligations is to understand where their money has come from — not in an informal sense, but in a way that’s documented and defensible.

That’s what a source of funds check requires. It’s a core part of client due diligence under UK anti-money laundering law, and every regulated firm needs to comply with it.

In November 2025, the Solicitors Regulation Authority published a thematic review of source of funds and wealth compliance, drawing on an extensive review of more than 5,800 client files from the 2024–2025 assessment year. The findings were telling: awareness of the requirements is high, but the quality of how checks are actually carried out often isn’t. Fifty firms were referred to the SRA’s AML Investigations Team as a result. The issue, in other words, isn’t ignorance. It’s implementation.

Finance Related Query: What Is a Source of Funds Check?

A source of funds check establishes the origin of the specific money being used in a particular transaction. Take property purchases as an example: you need to understand where the purchase funds actually came from. The fact that the money is sitting in a UK bank account doesn’t mean there’s nothing to question — for any transaction like this, you have to determine how and from where the money arrived.

People often conflate this with source of wealth, which is a related but different concept. Source of wealth looks at how a client built up their overall assets over time, while source of funds is narrower — it’s about the money behind one specific transaction. Both get examined, but in different circumstances, and they shouldn’t be treated as interchangeable. Firms that treat a source of funds declaration as equivalent to source of wealth due diligence are making a documented compliance error.

Source of funds checks are rooted in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) and the Proceeds of Crime Act 2002. The obligation sits across the regulated sector: law firms, accountancy practices, financial services firms, property professionals, and others.

Finance Speaks: Why Source of Funds Checks Matter

Money laundering works by placing criminal funds into legitimate transactions to make them appear lawful. Professional services — legal work, property conveyancing, corporate finance, accountancy — are frequently targeted precisely because they confer a layer of legitimacy.

A source of funds check is one of the tools that lets a firm identify and document whether the money entering a transaction has a plausible, legal origin. If it doesn’t, the firm needs to act, which can include filing a Suspicious Activity Report.

Failing to run adequate checks isn’t simply a procedural lapse. The FCA fined firms more than £176 million across all enforcement actions in 2024, and anti-money laundering failures have increasingly driven the largest of those penalties — Starling Bank alone was fined £28.9 million that year over shortcomings in its financial crime controls. Regulated firms face regulatory enforcement, reputational damage, and in serious cases, criminal liability under the Proceeds of Crime Act.

Where the Process Breaks Down

Despite clear regulatory obligations, source of funds checks frequently fail at the practical level. The SRA’s thematic review identified several recurring weaknesses:

Collecting evidence but not evaluating it. Firms often obtain bank statements, payslips, or sale completion documents but don’t critically assess whether the documents actually answer the question. A statement showing a large inflow isn’t an explanation of where that inflow came from.

Relying on client declarations without corroboration. Asking a client where their funds came from and accepting the answer without supporting documentation or independent verification isn’t enough.

Document quality issues. PDFs emailed by clients can be incomplete, outdated, or in some cases altered. A compliance file built on self-supplied documents that haven’t been independently verified is structurally weak.

Poor audit trails. Even where checks are done competently, inadequate record-keeping means the firm can’t demonstrate what it reviewed, what it concluded, or why. A decision without a documented rationale is hard to defend.

How Open Banking Data Supports Better Reviews

This is where access to verified financial data changes the starting point.

Open Banking API providers, regulated under the UK’s payment services framework, connect directly to UK banks and make real bank transaction data — account details, balances, transaction history, payment activity — available to authorised firms through a structured API. That data comes from the bank itself, not from a PDF a client has prepared and emailed over.

For a source of funds review, that distinction matters for a few reasons. The data is current and accurate, reflecting what’s actually in the account in real time, with no risk of a client supplying a six-month-old or selectively edited statement. It’s also structured and complete: firms can review categorised transaction histories — income, expenses, inflows, outflows — without relying on what a client has chosen to share. And the review itself becomes faster and more defensible, since a firm that can document it reviewed verified, bank-sourced data has a materially stronger audit trail than one built on client-supplied documents alone.

It’s worth being clear about what these tools do and don’t do. They provide access to data. The firm still owns every part of the AML decision — the risk assessment, the professional judgement, the compliance sign-off. Open Banking providers don’t assess, score, rate, or approve clients. They give firms better raw material to work with.

What a Source of Funds Review Should Look Like

• Identify the specific funds being used and ask how they were generated.
• Obtain evidence that corroborates the client’s explanation, rather than simply accepting it.
• Review that evidence critically, including checking for consistency and plausibility.
• Document what was reviewed, what was concluded, and why.
• Escalate or report if the explanation can’t be satisfactorily verified.

In Conclusion

Access to real-time bank data through open banking doesn’t replace a firm’s judgement. It replaces the weakest link in many current processes: unverified, client-supplied documents that have never been independently checked.

Frequently Asked Questions

What is a source of funds check? A source of funds check is a due diligence process required under UK AML law that establishes the specific origin of the money a client is using in a transaction. It applies to regulated firms including law firms, accountants, and property professionals under the Money Laundering Regulations 2017.

What is the difference between source of funds and source of wealth? Source of funds refers to the origin of money used in a particular transaction. Source of wealth refers to how a client built up their overall assets over time. Both are required in certain circumstances and shouldn’t be treated as the same thing.

What evidence is acceptable for a source of funds check? Acceptable evidence depends on the nature of the funds but typically includes bank statements, sale completion documents, payslips, inheritance documents, or loan agreements.

How can open banking help with source of funds checks? Open Banking APIs let regulated firms access verified, bank-sourced transaction data directly, rather than relying solely on client-supplied documents.

Does using open banking data remove the firm’s AML obligations? No. Access to bank data through open banking is a tool that supports the finance review process. The AML obligations — the risk assessment, the professional judgement, the compliance decision — remain entirely with the firm. These providers supply data only; they don’t assess, score, or approve clients.

Disclaimer: This finance article is provided for general informational purposes only and does not constitute legal, regulatory, or professional advice. While accurate to the best of our knowledge at the time of publication, AML regulations, FCA guidance, and enforcement figures can change, and nothing here should be relied on as a substitute for independent advice from a qualified solicitor or compliance professional about your firm’s specific obligations. We accept no liability for any action taken, or not taken, on the basis of this content.