"Source of Funds" refers to the origin of the money used in a financial transaction or held in an account. Understanding the source of funds is crucial in financial services and regulatory compliance to ensure that the money involved is not derived from illegal activities such as money laundering, fraud or terrorism financing.

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Determining the source of funds involves several key components. Firstly, identifying where the money originally came from is essential. Financial institutions require documentation to verify the source of funds, such as pay slips, bank statements, tax returns, sale agreements or investment statements. Additionally, understanding the purpose of the transaction is important. This involves knowing why the funds are being used or transferred, which can include activities like buying property, investing in a business or making large purchases.