Glossary · compliance and risk
What is source of funds?
Source of funds is the question of where a specific sum of money came from. Not what a company does for a living, which is source of wealth, but the origin of this particular payment.
Why it gets asked, and why the answer is usually easy
Financial institutions have to be able to explain money that passes through them. When something does not match the expected pattern of an account, somebody asks about it, and the question is almost always source of funds rather than an accusation.
In crypto the question has a second half. Blockchain analytics can show the path funds took before they reached you, so a provider may ask about an origin your customer never mentioned and possibly never knew about.
This is the mechanism behind a request for information on a batch of orders. The provider has flagged transactions where the on-chain history warrants an explanation, and the merchant is the only party who knows who the shopper was and what they bought.
The businesses that handle these well are the ones that can retrieve order detail quickly. The ones that struggle are those with no record linking a payment to a customer and a product, which is a bookkeeping problem surfacing as a compliance one.
Compare
Two questions people conflate
Answering the wrong one wastes a round of correspondence.
| Source of funds | Source of wealth | |
|---|---|---|
| Scope | One payment or a set of them | Overall accumulated wealth |
| Typical trigger | An unusual transaction or an on-chain flag | Onboarding, or a large change in activity |
| Good evidence | The order record: what was sold, to whom, when | Financial statements, business history, ownership |
| Who answers | Usually the merchant, about a shopper | Usually the account holder, about themselves |
In a merchant request for information it is almost always the left column, which is why the order export is the useful artefact.
How to be ready for the question
Three habits that turn a stressful request into an afternoon.
Keep the order record retrievable
Hash, timestamp, amount, customer and what they bought, exportable by date range. That is the answer to most requests.
Frequently asked questions
What is the difference between source of funds and source of wealth?
Source of funds is where this money came from. Source of wealth is how the person or business accumulated money generally. The first is about a transaction, the second about a balance sheet.
Why am I being asked about a customer’s payment?
Because you are the only party who knows who they are and what they bought. The provider sees a transaction, you see a sale.
What if I cannot answer?
Say so early rather than late. An honest gap handled promptly is a much smaller problem than a missed deadline.
Does good record keeping actually help?
Yes, more than anything else. A structured export by date range answers most requests without anyone reconstructing a quarter from memory.