What Banks Mean by Source of Funds

Anti-money laundering regulations require banks to understand where customer funds originate. This applies worldwide. Banks face significant penalties for accepting funds without adequate verification.

The requirement exists because the financial system is used to launder money from illegal activities. Banks are positioned to detect unusual patterns, so regulators require them to do so.

Being asked isn't personal. Everyone faces these questions for certain transactions. The depth of inquiry depends on amounts, patterns, and risk factors.

Thresholds vary by country and bank. In many jurisdictions, transactions over certain amounts automatically trigger reporting and potential inquiry.

The goal is to create a paper trail connecting funds to a legitimate source. The stronger the documentation, the smoother the process.

For employment income: pay slips, employment contracts, or letters from employers confirming salary and tenure. Tax returns showing declared income work well.

For self-employment: tax filings, client contracts, invoices, and business registration documents. Banks want to see that the income is declared and traceable.

Regular salary from an employer creates natural documentation. Pay slips show amounts and timing. Bank statements show deposits matching those amounts.

Banks may still verify with additional questions—the employer's name, your role, how long you've worked there. This confirms the stated source rather than investigating it.

International employment adds complexity. Income from a foreign employer, especially one unfamiliar to the local bank, may trigger additional verification. Having contracts and tax documentation ready helps.

When there's no employer to verify, banks look for other evidence. Tax filings become essential. They show declared income from an official source.

Invoices and contracts help but may not be sufficient alone. Banks want third-party verification that income is legitimate and declared. Your own records support but don't replace official documentation.

Variable income patterns are normal for self-employed people but may prompt questions. Having documentation that explains irregular deposits prevents misunderstandings.

Selling investments, property, or other assets generates legitimate funds that need documentation. The sale record plus evidence you owned the asset creates the paper trail.

Property sales typically involve lawyers and formal documents. These satisfy verification well. Investment sales from regulated brokers include statements showing the transaction.

Less formal transactions—selling collectibles, vehicles, or other personal property—are harder to document. Having some record of the sale and your ownership helps, even if informal.

Money received from family members or through inheritance is legitimate but requires documentation. Banks want to see that the source was legal, even if you didn't earn it.

Inheritance documentation from estate lawyers or courts works well. It shows the origin of funds and the legal process that transferred them.

Gifts from family may require a letter from the giver explaining the gift. Banks may ask about the giver's source of funds as well, depending on the amount.

Income from cryptocurrency creates documentation challenges. Many banks are still developing policies. Some accept exchange statements readily. Others treat crypto income with extra caution.

The gap between crypto earnings and traditional banking is narrowing but still exists. Having exchange records, transaction histories, and tax filings that include crypto helps.

Other newer income sources—platform work, digital products, online content—face similar challenges. The income is legitimate, but documentation may not fit traditional formats.

Source of funds questions don't end at account opening. Banks periodically review accounts. Significant changes in patterns may trigger new questions.

Keeping documentation for major deposits is wise. You may be asked about a transaction months later during a routine review.

Changes in your income source—new job, starting a business, receiving an inheritance—may warrant proactive notification. Banks appreciate knowing rather than discovering.