SRA thematic review of source of funds and source of wealth compliance

On 5 November 2025 Solicitors Regulation Authority (SRA) published its thematic review of source of funds and wealth compliance.

When the Enderley team delivers independent AML audits and AML training to law firms, anxieties over source of funds (SOF) and source of wealth (SOW) checks are always apparent. ‘What exactly do we need to do?’, ‘How far back do we need to go?’, ‘Why do we need to do this when the money comes from a UK bank?’ are common questions.  In fact earlier this year we offered guidance about SoF and SoW best practices.

It was refreshing to see that the SRA’s report recognises these concerns, noting in particular:

• a lack of clarity in existing guidance on how and when checks should be carried out and what counts as “where necessary” under MLR2017
• pressure on time and resources, especially smaller firms
• reluctance of clients to disclose financial information due to privacy or cultural concerns
• fee-earner fear of offending long-standing clients

Basis of the SoF/SoW thematic review

The SRA analysed three years of its supervisory data (desk-based reviews and AML inspections) and engaged with 19 firms of various sizes, to assess how well firms are complying with SOF and source of wealth SOW obligations.

Key findings

The review found that whilst awareness of SOF and SOW requirements is generally good and improving, compliance is inconsistent. Many firms do collect SOF evidence, but often fail to properly scrutinise, assess, or document it. Of the 5,873 client files reviewed during 2024–25, 11% contained no SOF check at all, and a further 18% showed inadequate scrutiny of the information provided. The review also identified frequent gaps in recording the rationale behind decisions on whether the evidence of funds was considered sufficient.

Conveyancing remains a particularly high-risk area: the SRA’s MLRO reports show about 73 % of the firm’s Suspicious Activity Reports (SARs) to the National Crime Agency were from conveyancing matters; yet some files in that area lacked any SOF check or scrutiny.

Regulatory guidance for SoF and SoW compliance

The report includes further guidance and template forms:

• A detailed section explaining the difference between SOF and SOW checks and providing guidance on when and how to carry out them out, including for example third party contributions and transactions at nil value.
• Examples of good and poor practice and case studies
• SOF and SOW FAQs
• A template (non-mandatory) SOF and SOW form designed to assist firms in recording their evidence, audit trail and rationale.
• A SOF form for firms to send to clients, with a brief introduction explaining why the firm needs the information

Take-away action points for firms

• Risk Assessment: Revisit your firm-wide AML risk assessment to confirm that SOF and SOW risks are clearly identified and addressed — particularly in higher-risk areas such as property/conveyancing, third-party funding, and overseas transactions.
• CDD Processes: Evaluate whether your client due diligence (CDD) procedures capture not only documentary evidence but also the fee-earner’s professional judgement and rationale. Ensure that the evidence obtained is consistent with your overall understanding of the client and the nature of the matter.
• Audit Trail: Maintain a clear and comprehensive audit trail on each client file, recording what evidence was obtained, what was reviewed, the conclusions reached, and — where checks were not undertaken — the reasons why.
• Ongoing Monitoring: Stay alert to potential red flags, including last-minute changes in funding arrangements, third-party payments, funds originating from unregulated institutions, transactions inconsistent with the client’s profile, or unexpected funds from overseas sources.

Conclusion

The SRA’s recent thematic review highlights that, although firms generally understand their AML obligations, the quality of SOF and SOW checks continues to be a common weakness. The regulator is urging firms to move beyond a tick-box approach and to adopt a more robust process of scrutiny, documentation, and informed decision-making. Strengthening these procedures will not only help firms demonstrate compliance with the Money Laundering Regulations 2017 (MLR 2017) but also reduce the risk of being exploited for financial crime.