Have you ever purchased a property before and had to hand over months' worth of bank statements? This can sometimes feel intrusive and a breach of privacy. But why do solicitors and conveyancers and others in the financial system ask you to provide this information? And when does a solicitor check proof of funds?
Solicitors and estate agents follow a high level of due diligence when dealing with their clients when verifying their identity and confirming they are who they say they are. The same checks determine the source of your income or the funds you use to purchase a property.
With organised crime, money laundering costs the UK economy millions each year. Because of this, anti-money laundering checks are carried out to detect and prevent this fraud. But with efforts to elude detection becoming more sophisticated, so are the steps taken to avoid it. Proof of funds forms the backbone of these checks, and not only is it a legal requirement, but it is necessary to prevent money laundering.
You can read more about Anti-Money Laundering checks when buying a house here.
What does Proof of Funds mean? It simply shows that you have the means or provide the "proof of funds" to show that you have the money required to purchase a property. These checks apply not only to those who are buying a property with a mortgage but also to cash buyers.
Solicitors and conveyancers have a legal duty to ensure that the money used in property purchase transactions is legitimate and comes from a legitimate source. Checking the proof of funds falls under anti-money laundering.
The statements you provide will have information on direct debits, transactions and savings accounts in and out of your account. Solicitors will look for any inconsistencies or transactions that stand out; they may ask you further questions. Still, they will ultimately make a judgment if the funds used to purchase the property have come from a legitimate source or not.
For a solicitor to check proof of funds, typically the process can take quite a bit of time; there are expectations on clients to show proof of funds themselves; this can take quite a bit of time as the information provided isn't always the correct information.
Because the highest level of compliance binds solicitors and conveyancers, due diligence will need all information to be accurate and up to date. Here are examples of what is accepted:
There is no limit to what a solicitor or conveyancer will ask for as evidence of someone's funds. As long as what is provided shows a clear enough picture of where the money has come from and that it was acquired by legal means, they will be happy to continue.
It's not often that proof of funds will be rejected; often the case where someone will need to supply more information, but everything is usually okay. There are cases where the proof of funds is rejected; when this happens, it's because there is suspicion of fraud or other financial crimes.
The advancement of technology means there are now quicker, safer and more accurate ways for people to provide proof of funds to their solicitors or conveyancers and other financial institutions. Using something called open banking is as simple as allowing access through your online banking, be it on a smartphone or computer. The statements and information needed is displayed and downloaded for your solicitors and only the information they need.
The whole process can be done in minutes instead of days. It's very secure as the technology follows strict due diligence and is subject to audit, so all your information is always encrypted. But what is open banking?
Open Banking is a term used in the financial service sector to describe using technology through an API. This allows developers to create third-party software, such as apps, to offer financial services to generate transparency for account holders. Usually, by making switching banks very easy and straightforward or accessing all your financial information in one place instead of multiple applications.
But open banking has another purpose: a tool to help fight against money laundering; solicitors and conveyancers are using it as part of their know-your-customer (KYC) and anti-money laundering (AML) policies to identify and verify the course of funds and transaction data from their clients. Because of the level of transparency, hiding illegal activity and ill-gotten gains has become more complex.
If you want to learn more about defence against money laundering, you can read more here.
If you're a solicitor, you need to check proof of funds for certain transactions. So please get in touch if you'd like to see how Validient can help.