- BIS recommends AML scoring for crypto before fiat conversion.
- Aims to curb illicit finance through preemptive risk checks.
- Strategy targets chokepoints in the crypto-to-fiat pipeline.
The Bank for International Settlements (BIS) is stepping up its efforts to combat illicit finance in the cryptocurrency sector. In a recent proposal, BIS suggests that crypto assets should be assigned Anti-Money Laundering (AML) risk scores before they can be converted into fiat currency. This move is designed to act as a gatekeeper against the flow of illegal funds, placing responsibility on the crucial chokepoints where crypto turns into traditional money.
This proposal builds on the increasing global demand for tighter regulations around crypto transactions, particularly at the point where digital assets intersect with the regulated financial system.
Targeting the Crypto-Fiat Conversion Gate
The BIS believes the most effective way to reduce illicit activity in crypto is to focus on the conversion process—the point at which cryptocurrencies are turned into fiat currencies like the US dollar or euro. According to the organization, this chokepoint is where illicit actors are most vulnerable, as they must exit the blockchain environment and enter regulated financial systems.
Assigning risk scores would work similarly to credit scoring, but focused on identifying links to suspicious wallets, sanctioned entities, or high-risk transaction patterns. Exchanges and other crypto service providers would then be required to evaluate these scores before allowing conversions, potentially freezing or flagging high-risk assets.
Aligning With Global Regulatory Trends
This recommendation aligns with the broader global regulatory trend of applying traditional financial safeguards to digital assets. By implementing risk scoring systems, BIS believes financial institutions and crypto platforms can create a pre-screening mechanism that detects red flags before any funds move into the traditional economy.
While critics may argue this could hurt the privacy-centric ethos of crypto, proponents argue it’s a necessary step toward mainstream adoption and long-term legitimacy.
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