BIS Proposes Compliance Scores to Combat Illicit Crypto-to-Fiat Conversions

The Bank for International Settlements (BIS) has proposed a framework to enhance anti-money laundering (AML) measures in the cryptocurrency sector, focusing specifically on the conversion of illicit crypto assets into fiat currency [1]. This initiative, outlined in a recent BIS Bulletin, introduces a compliance scoring system designed to assess the risk levels of crypto-to-fiat transactions, also known as off-ramps. Under the proposal, a score would be assigned to crypto holdings based on the likelihood that they are connected to criminal activity, with the score used as a reference at points of interaction with traditional banking systems [1].

The BIS argues that current AML approaches, which often rely on trusted intermediaries, are less effective in the crypto context. Instead, it recommends leveraging public blockchain transaction histories as tools for monitoring compliance. This system would serve as a preventive mechanism against the inflow of illicit funds and would encourage a “duty of care” among crypto market participants [1]. Off-ramp providers would be expected to adhere to these compliance standards, with potential penalties for non-compliance such as fines or restricted access to banking services [1].

Stablecoins have emerged as the primary vehicle for illicit crypto transactions, according to the BIS. The institution cited data from Chainalysis and TRM Labs indicating that as of 2024, stablecoins accounted for approximately 63% of all illicit crypto transactions. This shift from Bitcoin to stablecoins reflects a strategic move by criminals to exploit the perceived anonymity and ease of conversion of stablecoins into fiat [1]. The BIS’s compliance scores would be applied to stablecoins through wallet addresses or unspent transaction outputs (UTXOs), with risk thresholds determining whether an off-ramp request is approved [1].

The framework also places some responsibility on individual crypto holders. While the BIS acknowledges that users might unknowingly hold tainted assets, it suggests that the availability of affordable compliance services could reduce the validity of such claims. In this model, users could face compliance requirements and potentially trade tainted stablecoins at a discount. Compliance scores would be embedded directly into the blockchain, either within the UTXO or wallet itself, ensuring that the risk assessment travels with the token [1].

This initiative aligns with a broader trend of global regulatory convergence in the digital asset space. Regulators are increasingly recognizing the systemic risks posed by crypto and are working to close gaps that have historically allowed illicit actors to exploit the sector. The BIS’s proposal represents a proactive step in this direction, aiming to make the crypto ecosystem more transparent and accountable [1].

The success of the plan will depend on the extent to which it is adopted by national regulators and implemented across crypto platforms. If widely embraced, it could significantly reduce the appeal of crypto for financial crime. However, inconsistent enforcement could lead to fragmented regulatory environments that continue to pose compliance challenges [1].

By introducing this framework, the BIS is signaling a shift in how global financial institutions view cryptocurrency—from an alternative asset to a key component of the financial system that requires the same level of oversight as traditional assets [1]. This development is likely to influence the evolution of regulatory policies across multiple jurisdictions, particularly as crypto becomes more integrated into mainstream finance [1].

Source:

[1] Cointelegraph - https://cointelegraph.com/news/bis-crypto-compliance-scores-aml-offramps

[2] Platinum Crypto Academy - https://www.platinumcryptoacademy.com/