Navigating Compliance: Key Insights from the SRA’s Source of Funds and Wealth Thematic Review
The SRA’s much anticipated thematic review of source of funds and wealth compliance has finally been published, a little later than originally trailed (due, we think, to the bombshell news a couple of weeks ago that the FCA will be taking over AML regulation from the SRA in due course). It is certainly an interesting read and includes some helpful resources for firms, including (non-mandatory) template forms, guidance for clients, case studies and an update to the SRA FAQs on this subject.
The templates include a form to send to clients to start the source of funds (SoF)/ wealth (SoW) enquiries (although a lot of firms are probably already using something similar), together with a helpful note for clients to explain why you need this information (which we can see as also providing a helpful script to staff when questioned about this by clients). Without sounding churlish, it would perhaps have been helpful for the note to provide an explanation about SoW queries, as these are the ones clients find most intrusive!
There is also a template form for firms to use internally to document the enquiries made and the analysis of the information and documentary evidence obtained, which should prove very helpful for firms.
Be aware that there are guidance notes from page 6 onwards to assist you with the form’s completion, but these do not appear to be flagged in the body of the form itself, so do scroll down!
The case studies, whilst obviously not exhaustive, cover various common scenarios and provide helpful insights into the sorts of issues you should be considering in those circumstances, including evidence to obtain, further questions to ask, what to look for when analysing bank statements/ payslips etc, and when you should be seeing red flags. These are a must-read and will be great for training your teams.
There are also the inevitable scary stories of SRA and SDT enforcement where firms haven’t carried out adequate checks or applied sufficient scrutiny to the SoF/ SoW checks. These also provide a really good insight into what bad practice can look like, to help firms re-evaluate their processes (the “Examples of good and poor practice” section will also be invaluable here). One key takeaway from these stories is that if you are being investigated for file failures and are asked to provide further files for review, ensure that you can show you have taken the SRA inspector’s recommendations on board in full – don’t provide another non-compliant file!
In terms of the SRA’s conclusions following their review of the last 3 years of data from their proactive supervision work, engagement with 19 law firms (of all shapes and sizes), and more than 5,800 files reviewed in 2024-2025, here are the headlines:
- Understanding SoF/ SoW is a key control in protecting firms from being used by criminals and preventing those individuals from benefiting from their crimes, and supports a firm’s understanding of the overall risk in a transaction.
- The questions to ask include where the money came from, how the client acquired it, do the documents match the explanation, does it make sense, have you documented what you have done/ your thought process (including if you decide not to carry out the checks) and is there anything suspicious you may need to report?
- Whilst compliance in this space is improving, with fewer firms being referred for investigation, there is still a lot of non-compliance, particularly inadequate evidence and scrutiny of the evidence collected by firms, but also still a complete lack of source of funds checks in 11% of cases, and a disconnect between the information collected and from where the funds actually arrived into the client account.
- The SRA acknowledge the challenges faced by the profession in terms of needing greater clarity in this space, time and resource pressures, client reluctance to provide the information requested and fear of offending long-standing clients. Hopefully this thematic review and supporting documents will go some way to helping with the clarity and client points, but there is also reference to the SRA working with the government and stakeholders to examine existing guidance (using the future tense), so watch this space for further guidance?
- In terms of resource pressures, the SRA does reiterate the advice it has been giving for some time now that the costs of CDD, including source of funds checks, can be passed to clients, as long as they are advised of this in advance (so review your terms of business to ensure this is clear).
Key takeaways
- Don’t just collect documents and file them away – read them…do they make sense/ fit with what you know about your client? Document your thought process.
- Don’t stop simply because you can see the funds are available in a bank account (or make the mistake of thinking funds in a UK bank account are automatically legit – they are NOT!). You need to understand how that money came to be in the bank account.
- Check that when the funds come in, they are coming from the account/ person you were expecting them to. (Working with your accounts team will be essential here).
- Don’t ignore last minute changes to how the transaction is going to be funded – this is a red flag and further investigations will be required.
- Third parties funding transactions (in full or in part) should be identified, verified and their source of funds checked (as you would a client).
- SoF checks will still apply even if the transaction funds are not coming through your client account…you can still commit a Proceeds of Crime Act offence in these circumstances!
- SoW enquiries don’t only have to be considered where mandatory EDD is required (PEPs, High risk third countries, matters identified as high risk)… you may also need to understand how the client has made their money in order to be in a position to receive the funds for the particular transaction. As Ray Blake made clear at the SRA Compliance conference, understanding the client’s route to their current wealth, and not just that it all looks legitimate now, is a vital part of protecting our communities from exploitation by criminals.
- Don’t forget it’s a risk-based regime, and the extent to which firms should obtain, review and evidence SoF/ SoW will be dependent on the risk profile of the client/ matter….but beware…the SRA definitely expects to see evidence of such checks on all conveyancing matters!
- If you can’t complete your CDD measures, including SoF checks, you must not carry on with the transaction.
- And as always….DOCUMENT EVERYTHING (and keep your records for the required time).
SRA | Thematic review of source of funds and wealth compliance | Solicitors Regulation Authority