South Africa joined several other countries on the so-called ‘grey list’ last year, which is not only detrimental to the country’s financial system’s reputation but also intensifies the required due diligence processes. A cornerstone of effective due diligence is the verification of the source of funds.
As an independent advisory practice, it is our legal responsibility to obtain the correct documentation before we can assist investors. With this article, I will delve into why proof of source of funds (POSF) is essential and how it contributes to preventing financial crimes within the financial services industry.
Understanding proof of source of funds
POSF is the documentation that demonstrates the legitimate origin of funds involved in a financial transaction. It is a crucial component of anti-money laundering (AML) and counter-terrorism financing (CTF) measures. By verifying the source of funds, financial institutions and other regulated entities can mitigate the risk of being involved in illicit activities.
The importance of POSF in due diligence
- Preventing money laundering: Money laundering is the process of disguising the illegal origins of funds to make them appear legitimate. POSF helps to trace the flow of money, making it difficult for criminals to launder their proceeds.
- Countering terrorism financing: Terrorist organisations often rely on financial networks to fund their activities. By verifying the source of funds, financial institutions can help disrupt these networks and prevent the financing of terrorism.
- Protecting reputation: Financial institutions with robust due diligence processes, including POSF verification, are less likely to be associated with financial crimes. This protects their (our) reputation and builds trust with clients and regulators we deal with.
- Compliance with regulations: POSF verification is a mandatory requirement under AML/CTF regulations in many jurisdictions, including South Africa. Failure to comply can result in severe penalties.
South Africa’s greylisting and the emphasis on POSF
South Africa’s grey listing highlights deficiencies in the country’s AML/CTF regime. The Financial Action Task Force (FATF) has identified weaknesses in areas such as targeted financial sanctions, beneficial ownership transparency, and the investigation and prosecution of money laundering and terrorist financing offences.
To address these shortcomings and avoid potential de-listing, South Africa must strengthen its due diligence practices, including verifying the source of funds. This will involve enhanced customer due diligence (CDD), enhanced due diligence (EDD) for high-risk customers, and ongoing account monitoring.
Challenges and best practices
While POSF verification is essential, obtaining sufficient documentation can be challenging in some cases. Financial institutions should implement risk-based approaches and consider factors such as the client’s risk profile, transaction amount, and geographical location.
By prioritising proof of source of funds and implementing robust due diligence processes, South Africa can effectively combat financial crime and improve its standing in the global AML/CTF landscape.
Disclaimer: This article provides general information and does not constitute legal or financial advice. It is essential to consult with legal and financial experts for specific guidance.
Megan joined the Brenthurst Wealth team in March 2026 as an Administrative and Fiduciary Services Assistant at our Val de Vie Office in the Western Cape. Prior to joining Brenthurst, Megan gained three years of experience in the retail sector, where she developed management and client service skills.
I obtained my National Diploma in Financial Information Systems from the Cape Peninsula University of Technology in 1999 and have worked in the wealth management industry since January 2000. Over the years, I have gained extensive experience in various roles, including Portfolio Manager Assistant, Planner Assistant, and Paraplanner.
Esmarelda Isaacs-Andreas joined the Brenthurst Wealth Stellenbosch office in October 2025, taking on the dual role of Receptionist and Fiduciary Administrator.
I obtained my National Diploma in Financial Information Systems from the Cape Peninsula University of Technology in 1999 and have worked in the wealth management industry since January 2000. Over the years, I have gained extensive experience in various roles, including Portfolio Manager Assistant, Planner Assistant, and Paraplanner.
Ashley joined Brenthurst Wealth in January 2025 as Office Administrative Assistant and Receptionist for the Stellenbosch Office.
René Heystek joined Brenthurst Wealth in November 2023, as receptionist and administrative assistant in the newly established George/Garden Route office.
Michelle Heystek has built a career in the financial services over the last two decades, after obtaining her B.Com degree in Financial Management in 2005. Once she joined Brenthurst in 2006, she continued her academic journey, obtaining her Certificate in Wealth Management from INSETA in 2007, followed by a Postgraduate Diploma in Financial Planning from the University of the Free State. In 2008, she earned the Certified Financial Planner (CFP®) designation.
Anelle joined Brenthurst Wealth as a Receptionist and Administrative Assistant to Brian Butchart in the Cape Town office in December 2023. She has a wealth of knowledge from working as a liaison between Financial Advisers and clients at TMA and Absa Investment Management Services (Aims) since 1998. She obtained her B. com degree from the University of Port Elizabeth in 1997.
ADMITTED ATTORNEY | FINANCIAL PLANNER & HEAD OF BRENTHURST FOURWAYS
Sanet was appointed in April 2020, joining our Cape Town team as an Executive Administration Assistant to Renee Eagar. She has been in the financial services industry since 1990. Her previous experience includes positions at Sanlam, BJM and ABSA. She spent her last 12 years working at Alexander Forbes Private Client Wealth as a Senior Wealth Management Assistant. She has received numerous accolades over the years which include but not limited to, Alexander Forbes Client Service Excellence – Silver award in 2014,2015 and 2017. Sanet has also obtained her Certificate in Wealth Management (NQF 5) in 2012 and achieved “Best Student of the Year” from Moonstone.
Maria Smit is a Certified Financial Planner® with over 10 years of experience in the financial planning industry.
