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With instant access to UK bank statements, our Source of Funds check quickly collates vital bank information you need to verify the presence and provenance of funds. Your clients can provide bank statements across multiple accounts to offer complete peace of mind that all their financial records are genuine.
Whether the UK-based business you run is a financial institution, an estate agency, an accountancy firm, or any other company covered by the UK’s current Money Laundering Regulations, you need to know that transactions clients have supposedly made with you were genuinely completed by them. Once you have enlisted SmartSearch’s anti-money laundering (AML) compliance software, you will have a streamlined tool with which you will be able to adhere fully — and in a simultaneously time- and cost-effective manner — to all the AML laws and regulations relevant to your business.
SmartSearch offers a one-stop-shop for all your firm’s AML requirements. The user-friendly system enables staff at any level to successfully run AML checks, and we are constantly updating and improving the platform to ensure it remains the leading AML solution on the market.
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The purpose of a Source of Funds check is to verify where the funds being used in a specific matter or transaction originated. A Source of Funds check can prove instrumental in the fight against money laundering by establishing that the above-mentioned funds have been sourced legitimately.
When your business agrees to facilitate a financial transaction initiated by a customer, this customer could have obtained funds for the deal either legally — ie. ‘legitimately’ — or illegally. Examples of sources that would be classed as ‘legitimate’ in this context include:
You don’t have to look far to see how companies have financially suffered as a result of failing to sufficiently guard against the risk of money laundering. However, SoF checking can be a powerful weapon against this threat — and is quicker and easier to utilise than you might have thought.
One reason why is the data standard known as Open Banking. If a customer’s bank participates in Open Banking, regulated third parties — including finance companies like SmartSearch — can directly communicate with that bank and be authorised to access the following account data:
There are various situations where you would have good reason to be concerned about a transaction. These include situations where:
However, you should consider whether any concern you do feel about a transaction is the ultimate concern that:
In the latter instance, obtaining further identity details from the client would not enable you to reduce the risk. What you need instead is supporting evidence of where the funds originated.
You can also add Source of Funds checks to that list. Though it is possible for these checks — and, indeed, any other AML checks — to be undertaken manually, SmartSearch’s daily monitoring service would let you automate the process so that you can stay fully compliant.
SmartSearch can provide your business with the all-encompassing digital compliance solution it needs for AML compliance. The software comes with multiple features for the following types of AML checks:
When you abandon manual AML checks in favour of utilising SmartSearch’s AML software, you can appreciably reduce the chances of human error creeping into your AML compliance measures.
This is largely due to the wide range of online data sources this all-in-one electronic compliance solution refers to when carrying out AML checks.
As SmartSearch uses the Dow Jones Watchlist, which comprises over 1,100 daily updated global databases detailing sanctions and PEPs, you can trust us to help you stay AML compliant even if your business has a large international customer base.
Compared to manual checking, using SmartSearch’s AML software can also give you a better chance of returning a pass for clients. We deliver a 97% match-and-pass rate and clear up 75% of failed cases automatically. We have data supply agreements with the following data providers:
For an in-depth insight into how our AML technology could work for your business, please book a free personalised demo of SmartSearch’s AML compliance software.
We are able to assign each SmartSearch subscriber a Customer Success Managercapable of helping them to mine as much practical benefit as possible from the technology. Those subscribers who need even further AML support can also get in touch with our full client services team.
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However, if the funds are being sent through your business for money laundering or terrorism financing, this money will have been generated in a much more dubious fashion. Here are examples of illicit sources used for garnering ‘dirty’ money before it is ‘cleaned’:
You need to complete a Source of Funds check on every business transaction made between the company itself and a customer or client. Otherwise, you would be violating UK anti-money laundering law.
This AML compliance failure would, in turn, risk you being hit with a financial penalty or even — if the case is particularly serious — criminal prosecution.
Even if your business can — in theory — financially stomach non-compliance, treating AML fines as simply a ‘cost of doing business’ can damage your brand image and so potentially lead you to haemorrhage customers who might have otherwise been inclined to stay loyal to your firm.
In any case, though, routinely conducting Source of Fund checks is also crucial for preventing your company’s users from losing their funds to fraud. For example, these checks can help to ascertain whether printed documents have been stolen and subsequently used in a case of identity fraud.
With each Source of Funds check, how thoroughly will you need to trace that source? Here, you need to factor in the client- and transaction-specific risks. It would be important for you to dedicate more of your resources to the case if, for example, the client:
Failing to take a risk-based approach to Source of Funds checks could lead to a perilous situation where, in a court of law, you are judged not to have fully met your AML compliance obligations.
You should also be wary of confusing a Source of Funds check with a Source of Wealth check. The latter involves discerning how a client acquired their entire body of wealth.
All of this happens without the customer ever needing to provide anyone outside the bank itself with access to account login details. The software and security systems used for Open Banking are also rigorously tested for the client’s further peace of mind.
With Open Banking, you can run an SoF check on an individual’s or company’s bank account while requiring minimal input from the client. Using SmartSearch’s digital compliance software, you can run the SoF check alongside other AML checks on the same client or just as a standalone check.
The SoF checking functionality built into this software can help you to discern the following:
Once the client has given you consent to access their bank account details via Open Banking, you will have this access for 90 days.
The results returned will include details of both the balance and the transaction history for each bank account accessed. You will also have the option of filtering this data as you see fit.
Further down the line with a client, SoF checks could help you to:
For both your business and the client, Open Banking can help to streamline the overall process of an SoF check. For a start, less documentation is required from the customer, who is spared any need to send you bank statements in the post or upload PDFs for you to inspect.
With Open Banking, you can simply confirm the source of funds directly with the bank — and have a look at electronic bank statements while saving your business time and hassle.
Source of Funds checks are aimed at limiting opportunities for aspiring money launderers to get their hands on criminal property — as, without it, money laundering cannot occur.
Though the process of tracing the funding source is even more important to AML compliance than customer verification, the legal framework around SoF checks is still poorly understood. For example, it is often incorrectly assumed that:
The term ‘source of funds’ appears in the following two sections of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017:
— which covers ongoing monitoring and obliges the business to scrutinise transactions and, where necessary, the source of funds “to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, the customer’s business and risk profile”;
— where, when dealing with a Politically Exposed Person (PEP), the business is obliged to “take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or transactions with that person”.
When carrying out Enhanced Due Diligence (EDD) on the client, you should conduct a Source of Wealth check by obtaining evidence from the client or a reliable external source, if not both.
The Proceeds of Crime Act 2002 (POCA) requires you to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) if you have good reason to believe that someone may be in possession of criminal property and using it for money laundering.
It would be wise for you to make sure that after a Source of Funds check has been undertaken for your business, all the following aspects of the check have been properly documented:
However, it is also worth heeding that you are not expected to carry out a complete, police-style forensic investigation with any Source of Funds check you make.
Instead, the legal requirement is simply for you to be satisfied that criminal conduct was not responsible for the money used in the transaction.
Picture a situation where there is a suspicion of money laundering involving your business, and prosecuting authorities visit your premises to ask what anti-money laundering/counter-financing of terrorism steps you took to screen the suspect client.
In this situation, it would be certainly convenient if you are able to show these prosecuting authorities your record of the Source of Funds check and so demonstrate that, on this front, your business has not violated AML compliance law.
In the UK, all registered financial institutions and banks must complete KYC checks on a customer before onboarding them. This requirement is in place because KYC assists businesses in complying with AML regulations enforced by the Financial Action Task Force (FATF).
The acronym KYC stands for Know Your Customer and is used for background checks made to verify the customer’s identity. This verification process uses documents such as:
Though it would suffice for the customer to produce these documents in physical form, the KYC stage can be completed more quickly and reliably when electronic verification methods are used instead — such as with AML software provided by SmartSearch.
Using this software to conduct initial KYC checks, you can screen the customer against lists of:
KYC is a crucial piece of the AML puzzle — as, if your company fails to identify and verify everyone it works with, you could end up unknowingly onboarding a customer with a history of illegal activity in the financial space.
However, in order to remain compliant with the UK’s Money Laundering Regulations, you are legally required to continue monitoring the customer for as long as they maintain a business relationship with you. This is where a pKYC programme can more than prove its worth.
With a traditional KYC programme, you would — after running the initial round of KYC checks — repeat them periodically, such as every year or 18 months, with the exact interval between each series of KYC checks depending on what the company’s own risk assessment has established about the customer.
However, a pKYC system monitors customers continuously, enabling information about each customer to be updated instantly in response to a change in the customer’s status. A pKYC system will use not only the PEP, RCA, and sanctions lists but also data from:
Those internal sources can include information the company has unearthed from carrying out Source of Funds checks — which, as explained above and in the UK’s Money Laundering Regulations, are legally mandatory in particular circumstances.
Implementing a pKYC programme at your business can therefore ease its efforts to meet its AML obligations — especially as the system can simply be left to work of its own accord in the background, freeing up time for members of your team to spend on other work duties.
As we can see, then, while KYC checks and Source of Funds checks can be seen as different types of AML checks, there can also be a certain degree of overlap between the two.
While data you source from SoF checks can be fed back into a pKYC programme to strengthen the accuracy of its results, the programme itself can also inject greater reliability into SoF checks — such as by flagging up possible signs of fraudulent transactions.
The global nature of money laundering and terrorist financing has compelled governments around the world to introduce legislation and legal and regulatory processes aimed at preventing these criminal activities from undermining the international financial system.
However, while effective anti-money laundering/counter financing of terrorism (AML/CFT) legislation will help companies to identify, assess, and understand the risks these twin threats may pose to them, you need to heed that many countries can remain relatively lax in their AML controls.
Paradoxically, though these would count as ‘high-risk’ countries in an AML context, some of them may still offer attractive investment opportunities for your business. You could therefore remain interested in extending your commercial reach to these markets.
Still, if you are seriously considering targeting customers or clients based in any of these high-risk territories, you should be careful to assess the very real risks that your business could find itself embroiled in a money laundering or terrorist financing scandal.
Generally, these are deemed countries that are significantly deficient in their AML/CFT measures and/or high in corruption. Various countries and international bodies hold their own lists of high-risk AML/CFT countries — with the FATF alone compiling several of these lists, including:
High-Risk Jurisdictions Subject to a Call for Action (the FATF’s “blacklist”)
Jurisdictions under Increased Monitoring (the FATF’s “greylist”)
Through working with high-risk countries, the FATF helps them to mitigate their strategic AML/CFT shortcomings. Hence, over time, countries can be removed from or added to “high-risk” lists, or switched between the FATF’s “blacklist” and “greylist”.
Any country that appears on this “greylist” has agreed to work on rectifying its strategic shortcomings. However, though the FATF resists imposing tough sanctions on “greylist” countries, these territories may remain subject to economic sanctions from elsewhere.
In contrast, countries are placed on the “blacklist” if judged to present very high money laundering (ML) or terrorist financing (TF) risks. The FATF advises that, before onboarding a customer based in a “blacklist” country, you apply Enhanced Due Diligence (EDD) measures.
If you run an AML-regulated financial institution, where the customer is based would be far from the only factor determining whether EDD is necessary. SmartSearch’s AML software can screen customers against lists of sanctions and PEPs — and trigger Enhanced Due Diligence on any matches.
Though the UK, US, and European Union have their own lists of AML/CFT high-risk countries, these lists are almost identical to those of the FATF, as they use the same methodology for assessing how individual countries differ in their risk profile.
On 14 November 2022, a statutory instrument updated the list of high-risk third countries specified in Schedule 3ZA of the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (otherwise referred to as the ‘MLRs’).
However, when you use SmartSearch’s digital compliance software for undertaking AML checks, you will not need to maintain and update your own list of high-risk third countries. This is because we routinely keep SmartSearch’s AML solution up to date in line with AML legislative changes.
Hence, this software can help your company to remain compliant with the MLRs’ regulation 33(1)(b), which requires businesses to apply EDD and enhanced ongoing monitoring for financial transactions where the customer or client is established in a high-risk third country.
Enhanced Due Diligence (EDD) requires checks in addition to those undertaken as part of the basic Customer Due Diligence (CDD) process. EDD checks include verifying the source of wealth.
In 2020, the Wolfsberg Group — a non-governmental organisation comprising multiple global banks — published guidance on how to conduct a Source of Wealth analysis. The guidance identified the following three example areas of focus:
Family/generational wealth and personal backgrounds — like family wealth, inheritance, gifts from family members, and retirement benefit scheme payouts;
Income, revenue, and business activities — a category that can cover business ownership, business operations, and sales of products and commercial properties;
Investment activities — including acquiring and selling investments, such as from real estate, royalties, securities, inventions, patents, and franchises.
By investigating a client’s source of wealth, you can potentially help to uncover dubious financial activities that could be concealing criminal activities.
It’s important not to underestimate the immense functionality packed into SmartSearch’s digital compliance AML software, which incorporates all the following checks to the most advanced degree:
- KYC (Know Your Customer)
- AML (Anti-Money Laundering)
- Facial recognition
We have weaved all these features into a cohesive and highly practical whole: a unique and multifaceted electronic AML compliance solution that, in effectiveness and reliability, outclasses everything else on the market.
It all starts with TripleCheck, a three-pronged tool for use in customer identification and verification.
Level 1: Identification and Verification with Sanction and PEP Screening — After entering just the customer’s name and address into TripleCheck, it will take fewer than two seconds for you to complete an extensive AML check that takes into account a wealth of data from the Credit Reference Agency (CRA) and the Dow Jones Watchlist.
Level 2: Facial Recognition, Document Capture, and Liveness Appraisal — Tapping into Optical Character Recognition (OCR) and facial recognition technologies, TripleCheck algorithmically analyses photo identity documents before referring to a customer Selfie Liveness Video (SLV) to establish whether details on the provided document are genuine.
Level 3: Digital Fraud Checks with Data Referencing and Triangulation — At this stage, TripleCheck will provide — through a dashboard — detailed information suitable for you to use in undertaking additional due diligence and investigating events, such as cash transactions, representing an especially high risk of money laundering or terrorism financing.
We are proud to report that, among AML platforms, the SmartSearch offering is unrivalled in its ability to verify individuals and corporate clients based in the UK as well as those elsewhere in the world, with the full sanction and PEP screening and ongoing monitoring included in the package.
You won’t find this level of depth and breadth of functionality in any other AML software available to UK businesses. You can therefore confidently trust SmartSearch with helping you to meet all your KYC and CDD requirements.
We take particular pride in the cost efficiency of our highly advanced SmartSearch software subscription service. We have provided an online contact form for you to use in requesting a personalised demonstration of our acclaimed AML platform.
Once you have taken this opportunity to put the SmartSearch AML software through its paces, we will be able to follow up by providing you with a quote for the subscription service. As we draw up this quote, we will account for your organisation’s precise AML needs.
Your business will be able to get the AML compliance technology it needs without paying over the odds for it — as we can explain further if you get in touch with SmartSearch’s Yorkshire-based team by phone, email, or online contact form.