Bulletin | January 27, 2022

What is the Difference between SOW and SOF?

Bulletins issued by Overseas Trust and Pension Limited (OTAP) provide insights and commentary on topical industry matters. The bulletin and its contents are not intended as advice nor should they be construed, interpreted or used as such.

For use by Professional Advisers only.

Discover what these widely used acronyms mean for you

There has been a steady increase in criminal activity in respect of cybercrime and money laundering which has resulted in financial institutions being required to put in place more stringent measures to assist in combating crime.

This means that we must pay specific attention to understand and know clients better in order to protect our business of possibly being tainted by the illicit deeds of criminals. Part of our legal obligation is understanding our clients in determining their Source of Wealth (SOW) and Source of Funds (SOF).

These concepts are often misunderstood, and we aim to distinguish between the two in this article. This may prove helpful to you if you are looking to make an additional contribution to your pension or settlement to a trust.

What is Source of Wealth?

SOW is explained in the terms of ‘how did the client generate their wealth over their life to date?’. It is essentially a high-level synopsis that includes employment and/or specific wealth creation events like inheritance, the sale of a business and/or realization of an investment, to name a few.

In certain instances, we may be required to validate what you have told us. For example, if the wealth was generated through the receipt of an inheritance, to support this, we could ask for a certified copy of the will showing the beneficial undertaking.

What is Source of Funds?

SOF is explained in the terms of ‘the activity which generates the funds you are placing with us’. These funds would form part of your actual overall wealth. For example, they could be savings from disposable income from your monthly salary or a portion of inheritance as per the above example.

Again, we may require evidence to support this, which could be a copy of your salary advice or remuneration statement or copy of the will.

What you will pick up from the above is that we need to be able to evidence to our regulators that we understand our clients’ financial backgrounds and by doing this we are helping to reduce the risk of our firm unwittingly facilitating funds from criminal activity which undermines society as a whole.

Periodic Reviews

We have a legal obligation to ensure we hold valid information on file that confirms your address and identity. We undertake these reviews periodically, which for some clients may be more frequent than others, given factors such as the country in which you live or the industry you work in.

When responding to our request for this information you now have the option of using video verification (as noted in the Technology Evolution article) which will reduce time and cost for you and can be done at a convenient time. However, you are welcome to use more traditional methods and provide hard copies if that is your preference.

If you receive a request for updated information, we ask that you please assist us as we have a regulatory obligation to maintain up-to-date and documentary evidence on file for all our client relationships. If we are unable to achieve this, we may be obliged to freeze the assets of a pension plan. This is something we wish to avoid at all costs as it can directly impact the value of your pension and your ability to access benefits from the pension.

Authored by

Candice Price, CPrac (SA) ICCP
Associate Director of Compliance, Overseas Trust and Pension

Overseas Trust and Pension (OTAP) is the brand name of Overseas Trust and Pension Ltd, Overseas Pensions and Benefits Ltd and Overseas Pensions Administration Ltd, (the Companies). They are licensed by the Guernsey Financial Services Commission under the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2020. Overseas Trust and Pension Ltd and Overseas Pensions and Benefits Ltd are registered in Guernsey numbers: 55506 and 39935 respectively. Their registered office is Lefebvre Court, Third Floor, Block B, Lefebvre Street, St Peter Port, Guernsey, GY1 2JP. Overseas Pensions Administration Ltd is registered in Alderney number: 1427 and its registered office is Millennium House, Ollivier Street, St Anne, Alderney, GY9 3TD.

Overseas Trust and Pension Limited is an authorised financial services provider in terms of the South African Financial Advisory and Intermediary Services Act (“FAIS”) and is regulated by the Financial Sector Conduct Authority (“FSCA”) of South Africa. FSP number 47261.

The Companies do not offer financial, investment or tax advice, any information provided should not be considered as such. The Companies accept no legal liability for losses, damages or expenses which you may incur or suffer directly or indirectly by using this information.

We endeavour to make sure the information is accurate and up-to-date however, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information.

We strongly recommend that clients take regulated financial and investment advice relevant to their individual circumstances. It is the responsibility of clients and their advisers to review the advice and investments at least annually. The product terms, risks and charges (including: initial, annual and exit) should be considered, understood and agreed with your Financial/Investment Adviser.

Past performance is not a reliable indicator of future results. Investment values and the income from them can go down as well as up and may be affected by changes in rates of exchange. An investor may not receive back the amount initially invested.

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