What is the difference between source of funds and source of wealth, and when do you need to establish each?
A core Risk & Compliance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Source of funds (SoF) is the origin of the specific money used in a particular transaction or account — e.g., this 500k came from the sale of a property, or from salary. Source of wealth (SoW) is the broader origin of a customer's total accumulated assets — how they became wealthy overall (built and sold a business, inheritance, long career, investments). You establish SoF as part of ongoing monitoring and for specific transactions that don't fit the expected profile. You establish SoW as part of enhanced due diligence for higher-risk customers — PEPs, high-net-worth, high-risk jurisdictions — because understanding how someone got rich is essential to judging whether their activity is legitimate. The distinction matters: a plausible SoF for one transaction doesn't validate overall legitimacy if the underlying SoW is unexplained or inconsistent with known income. Both must be evidenced, not just asserted by the customer.
WHAT INTERVIEWERS LISTEN FOR
- ✓SoF = origin of the specific money in a transaction/account
- ✓SoW = origin of the customer's overall accumulated wealth
- ✓SoF for unusual transactions/monitoring; SoW for EDD/high-risk/PEPs
- ✓Both must be evidenced, not merely stated
COMMON MISTAKES
- ✗Confusing SoF with SoW
- ✗Accepting customer assertion without evidence
- ✗Validating a transaction's SoF while ignoring unexplained SoW
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