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Source of Funds documentation explained

Mason Friis-Burden
Updated

In certain instances, Saxo is required to also collect Source of Funds (SOF) documentation to corroborate the information provided by the client. The type of SOF documentation can vary depending on the source of income. 

 

Income from employment 

If the income derives from employment, generally the SoF documentation that the client can provide is either: 

  • the latest annual tax return (this must be the finalized version from the tax authority. Tax declarations not submitted to the tax authorities are not valid. 
  • Copy of the three most recent salary slips (and bonus payments if applicable), showing the average monthly salary or yearly salary. 
  • Bank statement showing receipt of the three most recent salary payments from the employer. 

If a substantial SOF derives from bonus payments, additionally the client can provide an annual bonus statement issued by the employer.  

Freelancers 

For free-lancer clients (defined as a natural person who earns their income on a per-job basis as an independent contractor or similar), the SoF documentation that the client can provide is either: 

  • Copy of the three most recent invoices from the contracted counterparty. 
  • Contracts with the counterparty and bank statements clearly showing the three most recent payments from the counterparty mentioned in the contract. 

Income from retirement 

If the client holds their pension with a pension provider, then we must collect the following: 

  • Pension statement from the client’s pension provider incl. info about the retirement date and the last employer.  

If the client’s pension stems from a private savings, then we must collect both: 

  • Bank Statement showing the pension amount, 
  • Documentation of the source of income from which the pension savings were accumulated.  

Company sale 

If the client declares their SoF to be from a company sale, we must collect one of the following: 

  • Copy of contract of sale signed by solicitor/lawyer, plus bank statement showing the proceeds. 
  • Signed letter from solicitor/lawyer or regulated accountant incl. specifics of the sale i.e. date, amount, ID of the company. 

Inheritance 

The following document should be the standard document to obtain: 

  • Grant of probate (with a copy of the Will) which must include the value of the estate and relation to the client. 

If it is not common practice in the jurisdiction to have such documentation in the event of an inheritance distribution, we need to collect the closest alternative.  

Gift and donations 

A gift or donation is defined as a voluntary transfer of funds or property without the expectation or realization of a remuneration for the transfer.  

In both cases we must collect all the following: 

  • Declaration from the client explaining date of the gift/donation, amount, name of the grantor, clarification of the client´s relationship with the grantor, the reason for the gift/donation and a detailed explanation on how the grantor acquired their SOW. The declaration must be signed by both the client and the grantor.
  • Bank statement of the client receiving money from the grantor, if available. Otherwise, a plausible explanation as to why not.

Allowance from close family member 

An allowance is defined as a regular granting of funds, typically monthly, to a person with purpose of economically support the person in their expenses and/or leisurely activities.  

In this context a close family member consists of Father, Mother, Spouse, Grandparents, Children and legal guardian. 

If the client declares that their SoF originates from allowances from one or multiple family members, then we must collect the following: 

  • Declaration from the client explaining the frequency of the allowance, amount, name of the grantor, clarification of the client´s relationship with the grantor, the reason for the allowance and a detailed explanation on how the grantor acquired their SOW. The declaration must be signed by both the client and the grantor.
  • Bank statement of the client receiving money from the grantor, if available. Otherwise, a plausible explanation as to why not.

Please note the bank statement period depends on the frequency of the allowance. The client needs to document at least the three most recent allowance payments.  

Loans 

If the client declares their SoF originates from a loan, it is relevant to establish the source of the loan as it will influence the documentation we need to collect.  

If the loan was provided by a financial institution, we only need to collect the loan agreement issued by the loan provider. 

If the loan was provided by a private person or a company, where providing loans is not part of their usual business, we need to collect all the following: 

  • The loan agreement between the loan provider and the loan borrower.  
  • Documentation of the transfer of the loan amount from the specified loan provider, such as a bank statement showing the complete transfer amount. 
  • Declaration from the client explaining the purpose of the loan, and explanation of how the lender accumulated their SOW. If the lender is a company, we should obtain SOW documentation instead.

Savings from fixed-deposits account 

A Fixed-Deposits account is a special type of account in which a person pays a fixed amount into an account with a guaranteed interest rate usually higher than that of a savings account or Current Account. The deposits remain in the account for a stipulated period. During this period, the person holding the account will not be able to withdraw the funds before the due date. Certain providers might allow premature withdrawals, but such exemptions would be stated in the agreement between the provider and the client.  

When the SoF originates from such an account, we must collect all the following:  

  • Savings statement incl. name of bank, ID of the account and the due date. 
  • If the due date has not been reached, the client must document that premature withdrawals are permitted by the account provider. 
  • Evidence of account start (letter from account provider or first statement)  
  • Details of how the savings were accumulated and documentation of their SoF. 

Trading profits 

When the SoF originates from a client’s previous trading activity, we need to collect: 

  • Trading account statement  
  • Portfolio statement 

In addition, we must understand how the client generated the funds which were originally used to trade with. Generally, an explanation from the client will suffice and we do not need to collect additional documentation related to the original source of funds.  

Proceeds from lottery, betting, etc. 

If the client declares that they received their SoF from lottery/betting/etc., then we must collect all the following: 

  • Letter from relevant organization (lottery headquarters, betting shop, casino)  
  • Bank statement showing funds deposited by company name.  
  • Information on the initial Source of Funds used for the betting activity (only applicable in cases where the client is consistently betting large sums of money)  

Dividends 

For income from dividends, we must collect: 

  • Dividend Statement / Dividend receipt 
  • Bank statement clearly showing date of receipt and amount of funds plus name of company paying the dividend.  

If the dividends derive from the client’s own company, we must collect: 

  • Audited Financial Statements, including the information regarding the dividends amount and the shareholders. 
  • Bank statement clearly showing date of receipt and amount of funds plus name of company paying the dividend 

Since not all companies are required to audit their financial statements, as an alternative to audited financial statements we can collect all the following: 

  • Financial statements signed by a director, 
  • Tax submission and tax return documents. 

Sale of real estate/property 

If the client declares that their SoF originate from a sale of real estate, then we must collect one of following:  

  • Signed letter from solicitor/lawyer; or regulated accountant; or  
  • Signed letter from estate agent (if applicable); or 
  • Copy of sale contract  

Rental income from real estate 

If the client declares that their SoF originates from rental income generated by renting out their real estate property, then we must collect all the following: 

  • Copy of the tenancy agreement (It is not necessary to collect a tenancy agreement for each property in rent by the client, the purpose is to establish the legitimacy of the funds and the plausibility). 
  • A Bank Statement showing the latest 3 months of rental income. 

Insurance payments 

In this case we must collect the policy liquidation document from the insurance company to evidence the amount received by the beneficiary. 

Royalties 

Income from royalties is money an individual earns when others use his intellectual property—such as creative works, inventions, or natural resources—and pay you for the right to do so. The intellectual property can be owned by a company or directly by an individual.  

Royalties received by an individual are normally reported on the tax return, so this is the document that we should collect. 

Sale/trade of crypto assets 

Generally, for income from the trade or sale of crypto assets, we need to collect the following documents: 

  • Trading account statement  
  • Portfolio statement 

In addition, we must understand how the client generated the funds which were originally used to trade with. Generally, an explanation from the client will suffice and we do not need to collect additional documentation related to the original source of funds.  

However, in certain scenarios, we need to collect additional information such as: 

  • SOF documentation related to the original source of funds used to purchase crypto assets, 
  • understanding of the client’s crypto trading activity 
  • type of exchange/wallet used 

Therefore, we could ask the clients for additional questions related to their crypto-trading activities. 

 

Purpose and Scope 

Purpose and scope are basic KYC requirements within Danish and EU AML (Anti Money Laundering) regulations to establish the purpose and intended nature of the business relationship. There is a need to ascertain that the nature and purpose of the business relationship is legitimate and to obtain a more complete customer risk profile. 

It refers to a set group of questions addressing why the client wants to start a business relationship with Saxo, the needs of the client and which solution Saxo can offer to better match these needs in alignment with the bank's strategy, the business profile of the client and the overall initial risk profile of the business relationship 

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