Author: BlockSec
When the world's "central bank of central banks" starts talking about crypto regulation
When the Bank for International Settlements (BIS) speaks, the global financial community listens.
As the world's oldest international financial institution, the BIS was founded in 1930. Its membership includes 63 central banks worldwide, representing countries accounting for approximately 95% of global GDP. The BIS has always served as the "central bank of central banks":
"The BIS's mission is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks."—— Bank for International Settlements
The BIS serves as both a collaborative platform for central banks and a research and rule-making center for global financial stability. Therefore, its research and publications often serve as important references for regulatory policies around the world.
In August of this year, BIS published “An approach to anti-money laundering compliance for cryptoassets” in BIS Bulletins No. 111[1]. The timing of the publication of this paper is quite delicate - it is at a critical turning point in global crypto regulation, and regulators in various countries are looking for a balance between effectively preventing risks and not excessively hindering innovation.
This article will help you interpret this report and, combined with the interpretation of the FATF Annual Examination: Global Crypto Regulatory Report Card, objectively evaluate the current status and future direction of crypto regulation.
BIS research and publications: why its voice matters
In the financial governance system, BIS's research and publications often guide global regulatory trends, and it maintains a leading position in innovation in emerging fields.
Its research department not only focuses on monetary policy and financial stability, but also continuously explores new areas, including crypto assets, AI explainability, and climate risk. This venerable institution, located in Basel, Switzerland, maintains close collaboration with global central bank researchers and academia, continuously providing scientific and objective policy advice to global regulators.
Especially in the field of cryptocurrency, BIS has demonstrated advanced leadership: from the study on cross-border crypto asset flows published in 2025 [2] (covering seven years of data from 184 countries), to the systematic analysis of stablecoins, DeFi, and CBDC, it provides regulators with important references for the crypto regulatory policy framework.
At the same time, BIS's short special research bulletins have strong policy guidance because they focus on hot topics and directly address policy issues. For example:
???? 2021 DeFi Risk Research: Cited by multiple central banks as a reference for regulatory frameworks[3]
???? 2023 Crypto Ecosystem Report: Systematically Explains Crypto’s Structural Flaws[4]
The paper on crypto AML was published in this series (No. 111), which shows the importance BIS attaches to this issue.
BlockSec Interpretation: What is BIS’s new approach to compliance?
In its August study, "An Approach to Anti-Money Laundering Compliance for Cryptoassets," the BIS directly addressed the reality that traditional finance's AML/KYC systems face systemic challenges in the crypto world. However, rather than concluding that it was powerless, the BIS proposed an innovative compliance scoring system.
BlockSec Guide ????
This BIS special study represents a fundamental shift in the focus of compliance:
???? Old Model: “Who are you?” (Identity-focused)
???? New Model: “Where does your money come from?” (Behavior-Oriented)
Paradigm Shift: From “Identity Verification” to “Fund Tracing”
Traditional AML relies on Know Your Customer (KYC) by intermediaries like banks. However, on decentralized blockchains, users can bypass intermediaries entirely through self-hosted wallets. BIS's main argument is that every on-chain fund has a traceable provenance, which is a new AML lever.
Core idea: AML compliance scoring system
The most important innovation proposed by BIS is the establishment of an AML Compliance Score mechanism:
Scoring principle:
???? High score (out of 100): Relatively clean funds primarily from “allowed list” wallets
???? Low score (0 points minimum): Tainted funds associated with known illicit wallets on the "deny list"
???? Dynamic Updates: Continuously adjusted based on real-time trading history and risk intelligence
Differences in technical implementation:
???? Stablecoins (Account Model): A transaction network that cannot track specific tokens but can map wallet addresses
???? Bitcoin (UTXO model): The complete history of each satoshi can be traced back to the mining source
Source: An approach to anti-money laundering compliance for cryptoassets
Three implementation intensities:
???? Strict Mode (Allow List): Only accept tokens from addresses that have passed KYC checks, similar to the strict identity verification of traditional banks
???? Medium Mode (Multiple Criteria): Combines multiple criteria (holding time, trading frequency, counterparty history, etc.) for comprehensive evaluation
???? Deny List: Only rejects tokens from known illegal addresses, giving users maximum trading freedom
Responsibility redistribution: from centralization to decentralization
BIS distinguishes between different levels of responsibility:
???? Centralized hubs (fiat currency access points, stablecoin issuers, exchanges): assume the strictest AML/KYC responsibilities.
???? On-chain activities (DeFi protocols, P2P transfers): More reliant on risk monitoring, on-chain traceability, and behavioral profiling.
This design acknowledges the real limitations of the decentralized world while maintaining regulatory control at key points, avoiding a "one-size-fits-all" approach.
Furthermore, the BIS has proposed a controversial concept: the Duty of Care. This means that users also have a responsibility to check the compliance score of their counterparties before trading. While this presents significant challenges in practice, it also reflects the BIS's vision of building a compliance ecosystem where everyone can participate.
Current Regulatory Dilemma: Travel Rule Challenges and the Evolution of Crime
While the BIS's new approach is elegant in theory, understanding its context requires examining the harsh realities facing the current regulatory system. Currently, global crypto regulation relies primarily on the Travel Rule, a core tool that requires VASPs to collect and transmit the identities of senders and receivers when processing transactions exceeding a certain amount. However, this highly anticipated regulatory standard is facing significant challenges.
The current state of travel rule implementation: a huge gap between ideal and reality
According to the FATF's latest annual assessment report, "FATF Annual Test: Global Crypto Regulation," released in June, global implementation of the Travel Rule has been disappointing. Of the 138 jurisdictions assessed, only one (the Bahamas) was rated as fully compliant. 29% were largely compliant, 49% were partially compliant, and 21% remained non-compliant. This data represents little improvement compared to 2024, exposing the systemic failure of traditional regulatory tools in the crypto world.
At the same time, even in the 73% of jurisdictions that have “passed legislation,” the effectiveness of the Travel Rule’s implementation is uneven. The significant differences between countries in threshold standards have become the biggest obstacle: the United States adheres to the $3,000 threshold established in 1996[5], while the European Union will implement a zero threshold policy starting in December 2024[6] (even transfers of 1 euro cent will require the Travel Rule). The result of this fragmented approach is that a cross-border transaction may be “compliant” in the sending country but “illegal” in the receiving country, making the transaction impossible to complete.
Travel Rule faces technical failure
The fundamental reason for the Travel Rule's failure lies in the fundamental conflict between its design assumptions and the realities of blockchain technology. The rule is based on the intermediary model of traditional finance, but in a decentralized environment: self-hosted wallet users can completely bypass VASPs, making their off-chain identities impossible to track and verify. DeFi protocols also lack traditional intermediaries to enforce identity verification requirements. Furthermore, cross-chain transactions, involving multiple blockchain ecosystems, remain murky, leaving regulatory boundaries unclear.
It is this systemic failure at the technical level that provides greater room for criminal activities.
The evolution of crime: a direct consequence of regulatory failure
The difficulties in implementing the Travel Rule have directly led to the rapid evolution and escalation of criminal methods. Far from being effectively curbed by this regulatory tool, criminals have instead found more covert methods to commit crimes:
Stablecoins become the new favorite:
Amid the massive surge in stablecoins, and due to technical loopholes in the implementation of the Travel Rule, stablecoins have replaced Bitcoin as the preferred tool for criminals. Most on-chain illegal activities now involve stablecoin transactions, as they find it easier to circumvent existing regulatory scrutiny through stablecoins.
Evasion measures upgraded:
Faced with the Travel Rule's threshold restrictions, criminals commonly resort to smurfing—splitting large transactions into smaller ones to circumvent them. The $1.46 billion stolen from the Bybit exchange by North Korean hackers in 2025 is a prime example. They cleverly exploited differences in regulatory standards and technical vulnerabilities across countries, bypassing centralized platforms and using DeFi protocols to transfer funds. Ultimately, less than 4% of the funds were successfully recovered.
It can be seen that supervision is "easy to understand but difficult to implement", and the world is still in a bottleneck period of system implementation.
BlockSec Evaluation: The Significance and Policy Value of BIS's New Approach
???? A paradigm shift in global central bank regulatory thinking
This BIS paper should not be judged from the perspective of "whether it provides a perfect solution." It marks the first time that traditional financial regulators have officially acknowledged the disruptive impact of decentralized technology on existing regulatory frameworks.
Over the past decade, regulators have mostly tried to force cryptocurrencies into the traditional financial framework. The BIS's proposal, however, recognizes the irreversibility of decentralized technology and seeks to achieve regulatory goals in a new technological environment.
???? Policy guidance: Providing a new template for global regulation
As the authoritative voice of global central banks, the BIS's recommendations are often deeply referenced and leveraged by regulators worldwide. This paper's theoretical innovations include transforming blockchain transparency into a regulatory advantage, constructing a compliance framework based on behavior rather than identity, and providing differentiated policy implementation paths. These provide regulators with specific technical implementation plans, clarify the responsibilities of different parties, and establish a flexible international coordination mechanism.
BlockSec Conclusion: A Historical Opportunity in Regulatory Evolution
2025 is also known as the "Year One of Stablecoin Regulation." Looking back at the global crypto regulatory journey this year, we can see it's been a process of continuous trial, error, and learning: from East to West, from Hong Kong to Europe and the United States, each region is exploring its own regulatory path.
This paper from BIS may mark the beginning of a new stage in this learning process - no longer a simple "prohibition and permission" but "understanding and adaptation."
In reality, it's common for regulation to lag behind technological innovation. Historically, comprehensive traffic regulations weren't established until the widespread adoption of cars. Cross-border communications regulatory frameworks weren't established until the globalization of telephone technology. The internet, too, evolved from its early "wild growth" to a more standardized development. Cryptocurrencies are undergoing a similar historical process. Every adjustment and adaptation along the way is a necessary step toward the maturity of the entire ecosystem.
The greatest value of the BIS approach lies in providing a collaborative, rather than confrontational, framework for industry and regulators. For the industry, this approach provides a clear compliance path and technical standards, while leaving ample room for technological innovation. For regulators, the new framework strikes a balance between regulatory objectives and technological realities, and establishes a technical foundation for international coordination.
In this era of change, excellent supervision should not be a shackle that restricts innovation, but should guide the industry in a healthier and more sustainable direction.
???? References:
[1]https://www.bis.org/publ/bisbull111.htm
[2]https://www.bis.org/publ/work1265.htm
[3]https://www.bis.org/publ/qtrpdf/r_qt2112b.pdf
[4]https://www.bis.org/publ/othp72.pdf
[5]https://sumsub.com/blog/crypto-travel-rule-us
[6] https://notabene.id/world/eu
