On 5th November 2025, the SRA published a thematic review showing that while awareness is generally positive, there was evidence of non-compliance with source of funds and source of wealth checks. The review found that firms often fail to properly scrutinise evidence and record their rationale.
Why Did The SRA Carry Out This Review?
The SRA is ultimately responsible for supervising law firms’ compliance with anti-money laundering requirements. This includes ensuring that firms have the necessary controls to prevent money laundering, assessing their risk management practices, and encouraging the reporting of potential breaches. The review drew on three years of proactive supervision work and engagement with 19 law firms of varying sizes.
Source of funds checks identify the origin of the specific money used in a transaction, whereas source of wealth checks look at how a person or entity has accumulated their overall wealth over time. This is an important distinction covered by the requirements under regulations 33 and 35 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).
Key Findings – Where Firms Are Going Wrong
The review found that compliance with source of funds and source of wealth checks is an ongoing issue. The report found evidence of:
- Insufficient scrutiny of documents as firms often collect, but do not assess, evidence
- Record-keeping issues, missing audit trails and lack of rationale for decisions
- Out of more than 5,800 files reviewed in 2024–2025, 11% lacked source of funds checks, and 18% showed inadequate scrutiny, and
- In 8% of cases, the source of funds recorded in the ledger was not supported by the evidence collected.
The review also identified a clear need for greater clarity on when and how source of funds and source of wealth checks should be carried out. Although the regulations require a risk-based approach, many firms reported that they are uncertain about what constitutes a ‘necessary’ check under MLR 2017. As the thematic review states, “This feedback, also reflected in HM Treasury’s recent consultation response, highlights a broader call from the profession for more illustrative and practical guidance”.
What Is Needed To Strengthen Source Of Funds And Wealth Check Compliance?
When conducting source of funds checks, the report recommends that firms should seek to answer the following questions:
- Where did the money for the transaction come from?
- How did the client acquire the money used in the transaction or business relationship?
- Do the documents provided match the explanation given?
- Does the transaction make sense in the context of the client’s profile?
- Has the firm clearly documented the checks undertaken, or documented why checks were not necessary and why the approach was proportionate to the risk involved?, and
- Is there anything unusual or suspicious about the source or movement of funds?
The SRA makes clear that source of funds checks should not be limited to confirming that funds exist. It says firms should understand where the money came from and obtain documents that establish a reason for the person or entity having the funds or assets in question. They reiterate that it is not enough to assume funds are legitimate because they come from a regulated UK financial institution, because layered or integrated funds may appear legitimate on the surface. Where a third party contributes funds, the SRA states firms should seek to understand the underlying source of funds in the same way as they would for the client.
Audit Trail And Record Keeping
The SRA has made it clear that it expects firms to maintain a clear and documented audit trail on each matter, including a rationale explaining why the approach taken was proportionate to the degree of risk. It states that where source of funds checks are not carried out, the audit trail must include an explanation of why the firm considered the checks unnecessary. It also states that, under Regulation 40(2) MLR 2017, firms must keep records of documents and information obtained to satisfy customer due diligence requirements, including documents collected for source of funds, and that records must be sufficient to enable the transaction to be reconstructed.
Final Words
The SRA’s latest thematic review offers a reminder that strengthening source of funds and wealth checks is not just a regulatory requirement but a critical protection from financial crime. Firms that invest in clearer risk-based processes, better scrutiny of evidence and stronger audit trails will be better placed to meet the SRA’s expectations and reduce the risk of enforcement action.
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