The Bank for International Settlements (BIS) is ramping up its efforts to combat illicit finance in the cryptocurrency sector by proposing that crypto assets should be assigned Anti-Money Laundering (AML) risk scores.
Targeting the Crypto-Fiat Conversion Gate
BIS believes that 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. This chokepoint is where illicit actors are most vulnerable as they exit the blockchain environment.
Aligning With Global Regulatory Trends
This recommendation aligns with broader global regulatory trends 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 to detect red flags before any funds move into the traditional economy.
Discussions and Critiques of the BIS Proposal
While critics may argue that this could hurt the privacy-centric ethos of crypto, proponents argue it's a necessary step toward mainstream adoption and long-term legitimacy. The introduction of risk assessments is expected to increase accountability in the cryptocurrency sector.
The BIS proposal for AML risk assessment represents an important step towards enhancing transparency and security in the cryptocurrency sector. It emphasizes the need to protect financial systems from illicit fund flows through a new control mechanism.
