Source of funds

Why it matters for PSPs and EMIs

For a merchant, source of funds is usually visible in the business itself: payments from its own customers for goods and services. It becomes a question when flows do not match the declared business — funds arriving from unrelated third parties, volumes far above expectations, or a new merchant pre-funding an account from an unexplained source.

What the law says

• Definition in guidance. EBA Guidelines EBA/GL/2021/02 (ML/TF risk factors), definitions in paragraph 12: "the origin of the funds involved in a business relationship or occasional transaction. It includes both the activity that generated the funds used in the business relationship, for example the customer's salary, as well as the means through which the customer's funds were transferred." The AMLR itself does not define the term.

• At onboarding, where necessary. AMLR Art. 25(c): before entering a relationship, the firm obtains, where necessary, information on the source of funds (and, under Art. 25(d), the destination of funds).

• During the relationship. AMLR Art. 20(1)(f) and Art. 26(1): ongoing monitoring checks that transactions are consistent with what the firm knows, including where necessary the source of funds.

• Higher risk. AMLR Art. 34(2): examine the origin and destination of funds in complex, unusually large or unusual transactions. Art. 34(4)(c): additional information on source of funds as an enhanced due diligence measure.

• Politically exposed persons. AMLR Art. 42(1)(b): adequate measures to establish the source of funds (and source of wealth). EBA/GL/2021/02, paragraph 4.50: verify on the basis of reliable and independent data where the risk is particularly high.