What is source of funds?

The term 'source of funds' refers to the origin of the money used in a financial transaction. This information is often required for compliance purposes, especially in the context of anti-money laundering (AML) regulations. Understanding the source of funds is critical for institutions to ensure that they are not facilitating illicit activities. In many markets, financial institutions may request documentation, such as bank statements or tax returns, to verify where the funds are coming from. This helps to establish the legitimacy of the money involved in trading activities and can mitigate risks associated with fraud and financial crime.