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There is a new requirement in the rule to obtain information about the “source of funds” relating to financial transactions. What does this mean and how do I fulfill this obligation?

In addition to the requirement to verify the identity of your client when engaged in or giving instructions in respect of a financial transaction, you are also required to inquire about the expected source of the funds related to the transaction as well as the actual source of funds if the transaction proceeds. The source of funds is the economic activity or action generating the funds (e.g. savings from salary, insurance proceeds, inheritance, bank loan) and may be apparent from the information obtained from the client for the retainer. You are required to record this information. You should also obtain and record the following information regarding the funds:

  • the payer’s full name, occupation and contact information
  • the relationship of the payer to the client (the payer may be the client)
  • the date on which the funds were received from or transferred by the payer
  • the form in which the funds were received or transferred (e.g. bank draft, cheque)
  • the full name and address of all financial institutions or other entities through which the payer processed or transmitted the funds

You should make sufficient inquiries to assess whether there is anything that suggests the information about the source of funds, together with the proposed transaction, is inconsistent with what you know about the client, their occupation, economic profile, activities, and risk profile, and the circumstances of the transaction.

You should also retain any supporting documents that relate to how you determined the source of funds.

This requirement applies to both individual and organizational clients and also relates to the new periodic monitoring and risk assessment requirement.