workflow-kyc-source-of-funds

# KYC — Source of Funds and Source of Wealth ## What this skill covers Structuring and documenting the source-of-funds (SoF) and source-of-wealth (SoW) evidence package for each DD tier. Defines what evidence is required, at what standard, and for which parties. Ensures EDD files achieve the two-source corroboration standard required for FATF compliance and MLRO sign-off. ## Core distinction | Concept | Definition | |---------|------------| | Source of Funds (SoF) | The origin of the **specific transaction or investment** being made. Where did this money come from immediately before it arrived? (e.g., sale of a property, redemption of a prior fund, salary/bonus payment) | | Source of Wealth (SoW) | The origin of the individual's or entity's **total accumulated wealth**. How did they accumulate everything they own over their lifetime? (e.g., entrepreneurship, inheritance, executive career, investment returns) | Both are required for EDD. SoF alone is insufficient for high-risk customers. ## DD tier evidence matrix | Tier | SoF standard | SoW standard | |------|-------------|-------------| | SDD | Self-declared only (no supporting document required) | Not required | | CDD | Declared origin + at least one supporting document (bank statement showing inbound wire, sale contract, salary slip/payroll record, dividend confirmation) | Declared origin sufficient (employment / inheritance / business sale) — no supporting document required | | EDD | Two-source corroboration: (1) declared origin in writing + (2) at least two independent supporting documents | Two-source corroboration: lifetime wealth narrative + at least two independent supporting documents | ## EDD SoW two-source standard — acceptable evidence Each must be from an independent source (not self-prepared by the customer): | SoW claim | Primary document | Corroborating document | |-----------|-----------------|----------------------| | Employment / executive career | Employment contract or letter confirming seniority and remuneration | Tax returns (last 2-3 years) or payroll records | | Business ownership and sale | Sale-of-business agreement (SPA) | Audited accounts of the business at time of sale | | Inheritance | Will, grant of probate, or notarised inheritance document | Estate valuation report or solicitor's confirmation | | Investment returns | Fund or brokerage statement showing exit proceeds | Corresponding entry confirmation or original investment record | | Real estate sale | Conveyancing completion statement | Land registry or title transfer document | | Prior banking wealth | Bank reference letter (from correspondent bank) | Investment portfolio statement | The customer's own declarations, internal documents, or documents prepared specifically for this KYC process do not count as independent corroboration. ## Special cases ### Corporate UBO source of wealth For corporate UBOs (natural persons who are UBOs of a corporate customer): - SoW traces to the **UBO's personal wealth**, not the entity's revenue or assets. - Required: how did this individual accumulate the capital that allowed them to own/control this entity? - Acceptable: salary/bonus history, prior business sale, inherited wealth. - Not acceptable: "wealth = company value" without tracing the individual's personal contribution. ### Trust beneficiaries For trust structures, SoW traces to the **settlor's wealth** — the person who originally contributed assets to the trust: - Required: settlor's SoW at EDD standard where the trust is an EDD trigger. - For discretionary trusts with multiple beneficiaries: screen each beneficiary individually; EDD applies if any beneficiary is a PEP or high-risk. ## Workflow ### Step 1 — Confirm the DD tier Receive the DD tier determination from `workflow-kyc-customer-intake` Step 8. This sets the evidence standard. ### Step 2 — Collect SoF declaration Request the customer's written declaration of the origin of the specific investment or transaction: - What is the nature of the funds? (business income, property sale, redemption of prior investment, inheritance, gift) - When were the funds received and from what source/counterparty? - What account did the funds come from? (provide bank name and account holder confirmation) ### Step 3 — Collect SoF supporting documents Per the tier matrix: - **SDD**: declaration suffices. Proceed. - **CDD**: collect at least one supporting document (bank statement, sale contract, salary slip, redemption confirmation). The document must show the specific funds entering the customer's account. - **EDD**: collect at least two independent supporting documents for the SoF. Both must be from sources independent of the customer. ### Step 4 — Collect SoW declaration and evidence (CDD and EDD) Request the SoW narrative: - A chronological account of wealth accumulation (career history, businesses founded or acquired, major asset sales, inheritance events). - Approximate wealth breakdown (what % from employment, business, investment, inheritance, etc.). For **EDD**: collect at least two independent corroborating documents per the evidence matrix above. ### Step 5 — Assess adequacy and flag gaps Review the evidence package: - Is the declared origin plausible given the customer's stated background? - Do the supporting documents directly corroborate the declared origin? - Are there any unexplained gaps (e.g., large wealth event with no documentary trace)? Gap = a material wealth element that cannot be corroborated by any available document. Flag to MLRO for judgement on whether the gap is explainable or blocks onboarding. ### Step 6 — Produce the SoF/SoW evidence list Compile the evidence register for the KYC file. ## Output format ``` SOURCE OF FUNDS / SOURCE OF WEALTH EVIDENCE REGISTER ------------------------------------------------------ Customer: [name] | DD tier: [SDD / CDD / EDD] SOURCE OF FUNDS Declared origin: [description] Supporting documents: 1. [Document type, issuing party, date, reference] 2. [Document type, issuing party, date, reference] ← EDD only Adequacy: Sufficient / Gap identified SOURCE OF WEALTH (CDD and EDD) Declared narrative: [summary] Corroborating documents: 1. [Document type, issuing party, date, reference] 2. [Document type, issuing party, date, reference] ← EDD — second corroborating doc Two-source standard met: Yes / No — if No, describe gap Adequacy: Sufficient / Gap identified — [describe gap if applicable] MLRO NOTES: [any flags for MLRO judgement] ``` ## Quality gates - SDD: declaration-only is compliant — do not require supporting documents. - CDD: at least one supporting document required — declaration-only is non-compliant. - EDD: two independent supporting documents required for both SoF and SoW — one document is non-compliant. - Customer-prepared documents do not count as independent corroboration. - Corporate UBO SoW traces to the individual, not the entity — entity financials alone are non-compliant. - Trust SoW traces to the settlor — beneficiary documentation alone is non-compliant. - Gaps flagged explicitly to MLRO — not silently accepted or ignored. ## Related skills - `workflow-kyc-customer-intake` — calls this skill in Step 9 after DD tier is determined - `workflow-kyc-pep-screening` — PEP confirmation triggers EDD SoF/SoW standard automatically - `workflow-kyc-monitoring-triggers` — material SoW change (e.g., new wealth event, inheritance) is an event-driven monitoring trigger ## Routing **Primary agent:** `cfa-esg-regulatory-analyst`