- The BIS proposes an AML scoring system for non-custodial wallets.
- Aims to prevent “tainted” tokens converting to fiat.
- Potentially affects BTC, ETH, stablecoins, and more.
The Bank for International Settlements unveiled an AML scoring proposal for non-custodial crypto wallets on October 2023, aiming to combat the conversion of tainted tokens into fiat.
This initiative could impact major cryptocurrencies by tightening off-ramp access, sparking privacy concerns among crypto users and potentially altering market dynamics.
The Bank for International Settlements (BIS) has introduced a proposal for an AML scoring system targeting non-custodial crypto wallets. This initiative focuses on preventing the conversion of “tainted” tokens to fiat, establishing a new compliance requirement. The proposal is detailed in their official bulletin.
This system, by the BIS, aims to classify wallets using their on-chain transaction history. The move involves entities like Chainalysis and TRM Labs, suggesting greater alignment at a regulatory level with existing wallet-scoring technologies.
Financial entities and exchanges might witness changes due to the BIS’s proposal. Exchanges/off-ramps could restrict access based on AML scores, impacting BTC, ETH, and stablecoins as they participate in major value transfers on public chains. The BIS report suggests, “As the full history of transactions on the blockchain is publicly available, it could inform an assessment of how closely a particular unit of a cryptoasset is associated with past or current illicit activity.”
The system might lead to liquidity flow changes, affecting token value segmentation. Staking flows towards addresses with higher scores may increase, while assets with lower scores face potential access limitations in conversions to fiat.
The proposal could affect users and developers. Concern exists about privacy risks and potential false positives impacting legitimate users due to these changes in compliance standards.
Historically, companies like Chainalysis provide wallet risk scoring, but BIS’s proposal marks an organized regulatory effort for global adoption. It specifically targets non-custodial wallets, introducing a duty of care for the end-user. As noted by the BIS, “Users could reasonably be expected to exercise a duty of care in transacting with crypto tokens by checking beforehand if a crypto coin is known to be compromised.”
