BIS Proposes Blockchain-Based AML Scores for Crypto Addresses

The Bank for International Settlements (BIS) has proposed a new approach to enhance anti-money laundering (AML) measures in the cryptocurrency sector by leveraging blockchain transaction history to assign compliance scores to crypto addresses [1]. According to the BIS bulletin, this framework aims to help institutions, especially those acting as off-ramps—where cryptocurrency is converted into fiat—evaluate the risk associated with specific wallet addresses or transactions [1]. The proposed system would assess how closely a unit of a cryptoasset is connected to past or current illicit activities, based on the transparent and publicly available blockchain record [1].

The AML score, calculated on a 0 to 100 scale, would serve as a tool to determine the cleanliness of a crypto address, with 100 indicating the lowest risk and 0 the highest [1]. This scoring mechanism is intended to support institutions in deciding whether to proceed with a transaction or to block a flagged address. The bulletin emphasizes that this method could overcome the limitations of current AML approaches, which struggle with the decentralized and pseudonymous nature of crypto transactions [1].

The BIS highlights that crypto exchanges, stablecoin issuers, and banks could adopt this framework by setting minimum AML compliance score thresholds for cashing out crypto assets [1]. This would help prevent illicit funds from entering the traditional financial system. Institutions may vary in their tolerance for high-risk addresses based on their business models, jurisdictions, and regulatory environments. For example, a gift card seller might accept a lower AML score than a bank offering crypto investment products [1].

The proposed framework is not a universal compliance index but rather a ranking system, designed to reflect the risk profiles of different market participants. The scoring would be based on factors such as transaction monitoring, know-your-customer (KYC) procedures, and the frequency of audits and reporting activities [1]. Institutions with higher scores could benefit from more favorable regulatory treatment, while those with lower scores may face increased scrutiny or restrictions [1].

This initiative reflects the BIS’s broader effort to modernize AML strategies in line with the evolving crypto landscape. It aligns with existing regulatory expectations but introduces a quantifiable and dynamic method to assess compliance, potentially improving transparency and accountability in the sector [1]. The bulletin does not present speculative forecasts but is grounded in established regulatory principles [1].

By incorporating blockchain-based AML scores into the regulatory framework, the BIS aims to create a more responsive system that can adapt to the fast-paced and decentralized nature of the crypto ecosystem [1]. The proposal could serve as a model for future international regulatory cooperation, particularly as the sector continues to grow and diversify [1].

Source:

[1] BIS Bulletin Proposes Revamping Crypto AML Measures With Compliance Scores (https://news.bitcoin.com/bis-bulletin-proposes-revamping-crypto-aml-measures-with-compliance-scores/)