How to prove source of funds

09/11/2015
A solicitor's obligation to prove the source of your funds is one of the most critical phases of the conveyancing process. In fact the Law Society states, "In many ways, client identification and verification is secondary in anti-money laundering compliance to understanding the source of funds".

The Money Laundering Regulations 2007 mention the source of funds in two places:

Regulation 8 - Scrutinise transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure the transactions are consistent with the relevant person's knowledge of the customer, his business and risk profile.

Regulation 14 - Take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or occasional transaction.

Proving your source of funds for the purchase or your target property is the most important task in the conveyancing process, without which, your purchase cannot proceed. There are large sums of money changing hands in the conveyancing sector making this an area of law heavily attacked by fraudsters. Of the whole range of legal services, conveyancing is at the top of the pay out list for compensatory claims relating to fraud. According to the Solicitor’s Regulation Authority Annual Report in 2014, out of all claims from the Compensation Fund across all aspects of law, 50.44% were made by clients who suffered from conveyancing fraud and negligence. The Compensation Fund accepted 1,699 claims from conveyancing clients, totalling £12.5 million in pay outs. This has caused an increase in the contributions solicitors make towards the Solicitors Compensation Fund and their own professional indemnity insurance.

A solicitor cannot by law proceed with your purchase without knowing the source of your funds. This is to limit the potential for fraud, protecting the solicitor, the legal sector and most importantly, you the buyer. For sellers who unknowingly receive the proceeds of crime, the risk is also high given that those funds could be seized at any time, leaving them without property and proceeds thereof.

The challenge for you as the buyer, is that solicitors have varying protocols in respect of Anti-Money Laundering Checks regarding proving the source of your funds. Understand that the solicitor has to do these checks in order to receive the money and work with them, providing as much information as possible.

Categories for Proof of Funds


During the conveyancing process, the onus is on the buyer to provide adequate proof of the source of their funds to their solicitor in order to purchase the property from the seller. The different scenarios for proof of funds can be categorised into:

    1. Savings
    2. Release of pension
    3. Sale of shares
    4. Sale of another property
    5. Inheritance
    6. Dividends from a UK company
    7. Gambling winnings
    8. Compensation award
    NB. Gift from parents would also require proof of funds (read our complete article on Gifted Deposits)

    Solicitors have varying policies for proving the source of funds, however the following is a best practice guide for each of the above.

    1. Savings

    Savings are regular small payments from an income such as a salary, pension or an annuity. The best evidence for this will be 6 months' bank statements showing you getting paid from your employer/pension/annuity and the money slowly growing in your bank account.

    If you have multiple bank accounts for your savings then provide 6 months' bank statements for each of the bank accounts.

    2. Release of pension

    A copy of your pension release documentation and a copy of your bank account statement showing the money being received from the pension company.

    3. Sale of shares

    A copy of the share release schedule and a copy of your bank account statement showing the money being received from the company.

    4. Sale of another property

    A copy of the completion statement from your solicitor and a copy of your bank account statement showing the money being received from the solicitor following completion.

    5. Inheritance

    A copy of the letter from the executors stating how much you are being paid as a beneficiary and a copy of your bank account statement showing the money being received from the solicitor/executor's bank account.

    6. Dividends from a UK company

    A copy of your dividend certificate, a copy of the company's accounts and a copy of your bank account statement showing the money being received from the company.

    7. Gambling winnings

    A copy of your receipt proving your winnings and a copy of your bank account statement showing the money being received from the gambling company.

    8. Compensation award

    A copy of your letter confirming your compensation settlement from a solicitor and/or court and a copy of your bank account statement showing the money being received from the third party/court/solicitor.

    If your money has been generated through other means please call our conveyancing specialists on 0333 344 3234 or speak to your solicitor (if you have already instructed them).

    Cash is an absolute NO!

    Most solicitors do not accept cash as it is almost impossible to prove the source of the funds. Those solicitors that do accept cash will limit the amount they will accept to a few hundred pounds. You should never rely on paying cash and only transfer money from your English bank account to your solicitor.

    If you have a large sum of cash and pay it into your bank account to pay to your solicitor then you will still struggle to prove the source of those funds. If the source of the cash isn't any of the examples above, then you should speak to your solicitor and take their advice on what to do.

    Guilty until proven innocent

    When looking to prove the source of your funds it may feel like you are guilty until proven innocent. Sadly this is the case and it is your responsibility to prove this money didn't come from the proceeds of crime.

    You may feel aggrieved that after all of the years spent saving that this is unfair and question why should you have to provide all this information. The answer to this is that with so much fraud within conveyancing it is essential solicitors become even more vigilant, however to do so they should provide you with clear guidance on what information they'll need in order to satisfy themselves of the source of your funds.

    It is important to note that under the Proceeds of Crime Act 2002 (POCA), if the solicitor suspects that you have criminal property, they are required to make a report that they suspect you are engaging in money laundering. If they do not, they are themselves liable for prosecution for failure to report under the POCA.

    Gifting Deposits
     
     
     
     
     
     

    Related Articles

     
    Gifted Deposit Letter
    A gifted deposit letter is required during the conveyancing process to confirm that the money being...
     
    26/08/2015
    Gifted Deposit Receiving Money from Overseas
    Gifted Deposit Receiving Money from Overseas Gifting deposits when buying a home is common...
     
    23/07/2015