During most Independent AML Audits that I conduct, proof of funds and source of funds are often treated as the same thing. In reality, they are very different. Confusing the two is a common mistake that can expose firms to unnecessary regulatory scrutiny.
As professional standards evolve, the CLC and SRA are making it increasingly clear that simply seeing money sitting in a bank account is not enough. Firms are expected to understand where the money actually came from. To stay compliant, conveyancers need to move beyond the surface and look at the story behind the savings.
One of the most common mistakes is relying on a standard set of bank statements, usually three to six months. While this shows the current balance, it rarely explains how the money was accumulated.
If a client says they saved their deposit over five years but their recent statements show no regular deposits or visible growth, a six month snapshot tells you very little. Regulators generally expect firms to adapt their checks to the explanation the client provides. When the numbers do not match the story, the investigation should not stop there.
This is where firms need to move from simple verification to genuine validation.
Start with a plausibility check. Look not just at the savings but also at the person. Does the amount make sense when compared to their financial situation? A payslip, for example, can help confirm whether the level of savings aligns with the client’s income.
It also helps to ask better questions at the start of the transaction. Instead of simply requesting bank statements, firms should ask how the money was saved, over what period of time, and which accounts were used along the way. This allows the due diligence process to be tailored from the beginning.
Your AML Policy and FWRA should also allow for flexibility. If six months of statements show a stagnant balance but the client is contributing a large deposit, you may need to look further back or request records from other accounts to demonstrate how the funds were built up.
Ironically, the key to efficiency is not doing less work but doing the right work earlier. When firms gather the right information at the outset, they avoid the frustrating back and forth that slows down transactions and frustrates clients.
Regulators are clear on one thing. A bank statement proves a balance, not a source. Firms that focus on verifying the story behind the money are not only meeting regulatory expectations, they are also playing an important role in protecting the property market from financial crime.
The real question is whether your team is trained to recognise the difference between seeing money and understanding where it came from.