The Bank for International Settlements has floated a compliance score for crypto-to-fiat off-ramps, using transaction history to flag and potentially freeze “tainted” assets.
The Bank for International Settlements (BIS) has proposed a provenance-based risk score system for crypto-to-fiat off-ramps.
In its Wednesday BIS Bulletin, the institution outlined “an approach to anti-money laundering compliance for cryptoassets,” recommending that a compliance score be assigned to crypto holdings before they are exchanged for fiat currency.
“An AML compliance score based on the likelihood that a particular cryptoasset unit or balance is linked with illicit activity may be referenced at points of contact with the banking system,” the document states. The score would then be used to prevent inflows of illicit funds and encourage a “duty of care” among crypto market participants.
The BIS said existing Anti-Money Laundering (AML) approaches relying on trusted intermediaries have “limited effectiveness” in the context of crypto. However, it added that public blockchain transaction histories can provide valuable tools for compliance monitoring.
Stablecoins are the main vehicle for illicit crypto flows
The BIS claims that, since 2022, stablecoins have overtaken Bitcoin (BTC) “as the asset of choice among criminals using crypto.” The document cites reports by crypto forensics firms Chainalysis and TRM Labs showing that as of 2024, stablecoins accounted for approximately 63% of all illicit transactions.
Related: BIS says stablecoins fail as money, calls for strict limits on their role
The BIS’s AML compliance scores would reference Bitcoin unspent transaction outputs (UTXOs) or wallets in the case of stablecoins. There would be risk thresholds that would determine whether to allow or deny off-ramp requests. The institution recommends that crypto off-ramps should be responsible for respecting such a system.
“Imposing a duty of care on these entities would incentivise them to avoid accepting or paying out tainted coins, as failure to comply could result in fines or other penalties.”
Related: EU banking regulator finalizes draft rules for banks holding Bitcoin, Ether
The proposal also notes that individual holders could face compliance requirements. BIS said that while users may have received tainted assets in good faith if compliance information is scarce, “such an argument would be less persuasive if there were widespread and affordable compliance service providers.”
BIS predicts that, in such a system, tainted stablecoins could trade at a discount. Risk scores could also “accompany the token as it moves within the permissionless blockchain — embedding the score into the UTXO or wallet itself.”
According to BIS, this would lead to a duty of care being imposed on users themselves as well, potentially influencing behavior in fully decentralized transactions.
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