AML Call to Action: CLC & SRA’s advice on performing a Strong Source‑of‑Funds Check
Anne Austin
Director
The Council for Licensed Conveyancers (CLC) and the Solicitors Regulation Authority (SRA) have both sounded fresh warnings that some firms are still doing “just enough to scrape by” when verifying the origin of client money.
The CLC’s 27 May 2025 AML alert on “Source of funds and savings” cautioned against practices relying on a simple proof‑of‑funds test, rather than demonstrating where the money was earned or accumulated. Meanwhile, the SRA has issued new practical guidance in the form of “Five steps to a strong source of funds check” (8 May 2025), and updated the Legal Sector Affinity Group (LSAG) guidance approved by HM Treasury on 23 April 2025. In fact, HM Treasury’s outcome on it’s 2024 consultation on the effectiveness of Money Laundering Regulations specifically addresses the legal sector’s need for clarification on Source of Funds.
Source of Funds -v- Source of Wealth – the basics
- Source of funds (SoF) pinpoints the specific money used in a transaction, whether that be salary, a gift, inheritance, investment return, etc.
- Source of wealth (SoW) explains how the client built their overall assets over time and is mandatory for higher risk individuals such as politically-exposed persons (PEPs), their close associates, or those with high‑risk‑country connections
The SRA’s “Five Steps”: What ‘good’ looks like
| Step | What the SRA expects |
1. | Where did the money come from? Can I prove it? | Conduct early, active checks before opening the file. Build extra time into onboarding. |
2. | Do I need to check SoF and SoW? | Understand that the two overlap; you often need a glimpse of SoW to make sense of SoF. Ask: “Given the client’s wealth profile, does this transaction add up?” |
3. | Low-risk or high-risk? | Apply Enhanced Due Diligence (EDD) for PEPs, overseas funds, cash, or high-risk jurisdictions. Be ready to justify your level of enquiry. |
4. | Could I show the SRA what we checked, when and why? | Keep a clear audit trail: bank statements, wills, sale agreements, file notes of judgements made. Tie every document back to what the client told you. |
5. | Do I need to make a report? | Red flags need to be escalated to your MLRO. They may have to file a Suspicious Activity Report with the NCA under PoCA 2002. Non‑reporting when suspicion exists is a regulatory breach! |
(Guidance summary from SRA Compliance Update, 8 May 2025.)
Key questions every fee‑earner should ask (and record the answers!)
- Where exactly did this money originate?
- How and when did the client obtain it?
- Am I reasonably sure it’s not criminal property?
Building the evidence file
- Bank‑account analysis
- Verify the account holder’s name, sort code and account number.
- Check the amount received, currency used, and how long the funds have sat in the account.
- Review at least six months of statements (longer if risk or circumstances dictates).
- Corroborating documents
Can include payslips, dividend vouchers, probate papers, audited company accounts, sale agreements, completion statements, solicitor’s receipts, etc.
- Third‑party funds
Treat the third party just as you would a new client: ID‑verify, risk‑assess and evidence their SoF/SoW.
How far back should you go when conducting a SoF?
Both regulators say: “As far as necessary to build a clear picture.” The SRA stresses that can be six months in a simple salary‑savings case, or several years for complex assets. The CLC goes further, cautioning that a blanket request for 3–6 months’ statements would be insufficient where the funds appear to have been saved over five years.
When evidence is patchy
Clients changing banks, losing records or closing companies are all legitimate reasons for gaps in evidence. But, if after reasonable efforts have been made to produce evidence and gaps remain, firms should
- Re‑evaluate overall risk (PEP status, high‑risk country, adverse media).
- Escalate to EDD: seek independent verification, dig deeper into ownership structures, and reconcile every figure.
- Document why you decided to proceed, pause or refuse.
Source of wealth – the holistic test
You don’t have to account for every penny, but you must articulate how the client legitimately acquired substantial assets. Look for consistency between lifestyle, employment history, investments and the transaction at hand.
Technology to the rescue? Automated ID‑verification software
Modern digital tools can lighten the compliance load by:
- Authenticating ID documents quickly, flagging tampering or duplicates.
- Confirming bank‑account ownership through open‑banking feeds, giving real‑time proof of funds.
- Screening against PEP/sanctions lists continuously, not just at onboarding.
- Providing an immutable audit trail, ready for the SRA, CLC or law‑enforcement review.
Integrating such software lets fee‑earners focus on judgement calls rather than paperwork, and it aligns with the SRA’s encouragement.
Final thoughts
Regulators no longer accept a “tick‑box” mindset. By following the SRA’s five‑step framework, being mindful of the CLC’s latest alert and leveraging smart ID‑verification tools, firms can protect themselves, their clients and the wider economy from financial crime – and sleep easier when the regulator calls!
Sources
https://www.clc-uk.org/aml-alert-source-of-funds-and-savings
https://www.sra.org.uk/solicitors/resources/money-laundering/guidance-support
https://www.sra.org.uk/solicitors/resources/money-laundering/aml-questions-answers