Source of funds asks a narrower and often sharper question than source of wealth: not how the wealth arose overall, but where the money that is flowing now comes from. A deposit of several million into a new custody account, a capital increase in a family holding, a large payment from an unknown counterparty — each time it must be clarified from which account, from which deal, with which evidence.
When the question is asked
When the first assets are brought into a new relationship. For transactions that deviate from the known pattern in size, country of origin or counterparty. For payments from third parties outside the documented structure. And for higher-risk relationships, in principle for all material inflows. The risk-based approach sets the threshold.
Which documents suffice
Typically statements from the remitting bank showing that the funds come from an account of the contracting party or a known company. Depending on the case, add a purchase agreement for the sale of a participation, a distribution statement, a loan agreement or an estate division. The document must explain the specific amount, not merely the existence of wealth.
Red flags
Funds moved through several accounts in quick succession before arriving. Payments from counterparties with no recognisable connection. Cash on a scale that does not fit the story. An explanation that changes between two conversations. Such signals require questions; if they remain unresolved, the open question can become a founded suspicion requiring a suspicious activity report.
Documentation
Record which payment was reviewed, which evidence was available, which explanation was given and how plausibility was assessed. Family offices working with several custodian banks should be able to tie the review to the transaction, not only to a general note on the mandate.
Interplay with source of wealth
The two questions test each other. If a deposit fits a known source of wealth, it is easy to evidence. If it fits none, either the picture of the source of wealth is incomplete or the payment needs explaining. In both cases the file must be completed before the funds are used further.