The Bank for International Settlements (BIS) has proposed a groundbreaking system that could change how regulators tackle money laundering risks in cryptocurrency. Instead of forcing traditional “Know Your Customer” checks directly onto blockchain users, the BIS suggests a new method: assigning risk-based scores to crypto wallets.
This comes at a critical time. Stablecoins now account for around 63% of crypto transactions linked to illicit activity, surpassing Bitcoin. Regulators fear that without better safeguards, criminals will continue exploiting permissionless blockchains to move funds across borders undetected.
The BIS solution is to grade wallets by analyzing the source of their funds. Each wallet would be given a score based on how “clean” its transaction history is. A wallet funded mostly from regulated, KYC-compliant addresses would score close to 100. A wallet tied to blacklisted or suspicious addresses would score near zero. Many wallets would fall somewhere in between.
Financial institutions, exchanges, and payment providers could then use these scores to decide whether to allow transactions, especially when crypto is converted into fiat. Countries would also have flexibility to set their own thresholds—deciding, for instance, whether to ban all but fully compliant wallets, or simply block those directly linked to known criminal activity.
The BIS outlined different approaches regulators might take. Strict rules would only allow assets from KYC-verified wallets to enter the financial system. A more lenient policy would just block transactions from blacklisted wallets. Hybrid approaches might require funds to “rest” in whitelisted wallets before being cashed out, or flag transactions that recently interacted with high-risk addresses.
This model shifts the focus from “know your customer” to “know your token.” Instead of tracking personal identities, regulators would judge the riskiness of crypto assets themselves. BIS researchers argue this approach balances anti-money laundering vigilance with the pseudonymous nature of blockchains.
Still, critics warn the system could expand financial surveillance under the guise of compliance. Some fear privacy-focused tokens or decentralized finance platforms might be unfairly penalized. Others highlight the challenges of global adoption: unless countries coordinate, inconsistent scoring models could limit effectiveness.
Despite these concerns, the potential benefits are significant. By stopping tainted funds at off-ramps, regulators could strengthen trust in crypto markets, give banks more confidence to engage with digital assets, and create cleaner fiat gateways.
The BIS proposal, published in August 2025, represents a pragmatic attempt to bridge the gap between decentralization and regulation. Whether it becomes a global standard—or sparks further resistance from the crypto community—remains to be seen.
