Asking for proof of funds period is insane IMO.
It is insane but it happened many times.
How would the source of income be part of KYC? What does KYC actually mean? Pretty simple, "Know Your Customer" or Client, so the maximum verification level would be address verification. 'Know your customer' doesn't include knowing your customer's income source anyway. Even if you can ask Google, the result isn't included as a source of verification.
When they wrote such terms in ToS, and people agreed with ToS before using their accounts, it's not logical to complain later. I agree with both yahoo62278 and you about Proof of Funds for KYC is insane but it's what it is as written in ToS that can be pulled out and used anytime.
Ever got your exchange account blocked because of casino funds?I remember that Hhampuz posted that his Binance account got issue with given reasons as fund related to gambling sites.