Crypto Compliance Is a Myth. Here’s What Regulators Actually Check
“Crypto compliance” isn’t a recognized legal or supervisory framework. Regulators assess whether a regulated entity meets AML/ATF obligations with evidence, governance, and operational execution.
Why “Crypto Compliance” Became Popular (and Why It’s Misleading)
“Crypto compliance” has entered the mainstream of fintech vocabulary. You’ll find it on vendor websites, in job descriptions, on conference panels, and inside pitch decks. It signals sophistication. It suggests preparedness.
It also plays a role: for many, the term became a convenient shorthand for the intersection of compliance and crypto technology. But convenience comes at a cost.
Despite its popularity, “crypto compliance” is not a defined regulatory term. It is not mentioned in legislation. It does not appear in FATF guidance or national AML laws. Regulators in Canada, the United States, Europe, and Australia do not assess companies against a “crypto compliance framework.”
This doesn’t mean companies using the term are careless. But it does mean they risk being misunderstood by regulators, banks, and clients. In a space where credibility matters, language is not a side issue; it’s central to how obligations are understood and met.
Compliance Obligations Apply to Entities, Not Crypto Assets
The most basic regulatory principle is this: compliance obligations are imposed on legal persons, entities, and individuals, not on technologies or asset classes.
Bitcoin is not a reporting entity. Ethereum is not subject to KYC. Smart contracts are not regulated parties.
But exchanges, custodians, brokers, OTC desks, and wallet providers often are. If they perform functions like custody, transfer, conversion, or issuance, they may fall within the scope of existing AML/ATF laws.
Regulators apply a simple logic: same activity, same risk, same rules. If a crypto business performs an activity that would trigger compliance obligations in the traditional financial system, the same obligations generally apply.
So the question is never, “Is this crypto business crypto compliant?”
It’s “Does this regulated entity meet its AML/ATF obligations under applicable law?”
Why “Crypto Compliance” Can Hurt Your Regulatory and Banking Narrative
The term can be counterproductive in supervisory reviews, banking onboarding, and audit conversations.
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It has no legal standing
You won’t find “crypto compliance” in regulator guidance, AML laws, or recognized supervisory frameworks. When a term has no anchor in law or supervision, it creates interpretation risk.
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It creates ambiguity
Does it mean KYC? Monitoring? Blockchain analytics? Sanctions screening? Policy templates? If the answer is “all of the above,” it’s too broad to be useful and too vague to be defensible.
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It weakens formal communications
When compliance documents or policies refer to “our crypto compliance framework,” reviewers are left asking: under what statute, covering which obligations, tested how, and evidenced where? Is it a control framework or a brand label?
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It raises red flags when evidence is thin
Banks, regulators, and auditors often interpret vague labels as a sign of an immature compliance posture, especially when they aren’t backed by proof of implementation and outcomes.
Example:
Instead of: “Our crypto compliance program handles all risks.”
Say, “Our AML/ATF program addresses onboarding, monitoring, and suspicious transaction reporting obligations under Canadian regulatory requirements.”
What Regulators Actually Assess in Crypto and Virtual Asset Businesses
If “crypto compliance” is a poor proxy, what are regulators and financial institutions actually looking for?
They assess whether your AML/ATF program demonstrates the fundamentals implemented rigorously for your crypto business model:
A documented risk assessment that reflects real exposure |
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Clear onboarding and due diligence processes |
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Monitoring scenarios tied to your business model |
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Investigations with decision logic and reporting rationale |
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Policies that match operations |
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Governance, ownership, and evidence |
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None of this requires a new label. It requires the existing AML/ATF framework to be implemented well for a crypto business model.
Tools Don’t Equal Compliance: Using Blockchain Analytics the Right Way
Some use “crypto compliance” as shorthand for vendor platforms, dashboards, or blockchain analytics. Tools can be helpful, but they are not a program.
Regulators do not evaluate software in isolation. They evaluate whether the organization:
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Knows what risks it faces
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Applies controls with human judgment
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Documents outcomes clearly
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Reviews, escalates, and reports appropriately
Tools support compliance. They do not constitute it.
What to Say Instead of “Crypto Compliance”
You don’t need a new category. You need the right description aligned with how regulators and banks interpret obligations.
Use language such as:
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AML/ATF program for a virtual asset service provider (VASP)
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MSB AML/ATF framework for a crypto exchange operating in Canada
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AML/ATF program tailored to digital asset custody, transfer, and settlement
These terms are specific. They map to obligations. They signal that you understand what you’re subject to and how you’re meeting it.
AMLI Recommendation: To those who wish to engage with compliance service providers, avoid those that offer “crypto compliance” as a product or framework. This language signals a lack of regulatory precision. Reputable firms describe their services in terms of regulatory obligations, risk-based implementation, and activity-specific controls. If a provider cannot explain what “crypto compliance” means in statute, obligation, and scope, keep looking.
The Real Gaps in Blockchain-Related Reporting Entities' AML Programs (and How to Fix Them)
The most persistent weaknesses in AML programs for crypto and blockchain businesses are not about technology, automation, or tooling. They are rooted in foundational design, ownership, and execution.
1. Risk assessments that don’t align with real exposure Programs often rely on templated or generic risk assessments that fail to reflect the actual activities, assets, geographies, and counterparties a business engages with. For example:
- A trading platform with fiat on-ramps but no risk weighting for cash exposure
- A DeFi-facing custodian that doesn't address protocol-specific risk or wallet clustering
- An OTC desk onboarding clients across high-risk jurisdictions with no residual risk logic
If the risk assessment does not map directly to how the business operates, it cannot inform controls effectively. And if it doesn’t drive onboarding, monitoring, and escalation logic, then it’s just decoration.
2. Policies that don’t translate into operational workflows Many programs include language that sounds robust, but lacks operational clarity. For instance:
- “High-risk transactions must be escalated” (by whom, based on what thresholds?)
- “Monitoring rules are reviewed quarterly” (who owns that, and what’s the review process?)
- “Source of funds must be verified” (through what documentation, for which client types?)
When front-line staff can’t execute the policy exactly as written, it becomes a liability.
3. Controls that are not operationalized A control on paper is not a control in practice. Repeating “we have a monitoring tool” or “we conduct due diligence” isn’t meaningful without:
- Audit logs
- Evidence of case handling
- Control ownership
- Documented changes and reviews
Programs with high visibility and low traceability often fail in real assessments.
4. Monitoring systems that lack investigative logic Having an alerting system is not the same as having a monitoring framework. Common gaps include:
- No explanation of how thresholds were set
- No version history for scenario changes
- No training for investigators on how to interpret hits
- Inconsistent closure notes or missing justification for decisions When a reviewer or auditor asks, “Why was this case closed?” the program must show the reasoning.
5. Investigations that lack structure, documentation, or escalation logic Too often, decisions are made in chat messages, not case files. Red flags include:
- Investigations with no narrative
- No rationale for clearing or reporting
- No peer review or QA logs
- No escalation pathway when typologies evolve Regulators are looking for reproducibility: could someone else come to the same conclusion with the same evidence?
6. Programs with no QA, independent review, or documented challenge In the absence of internal challenge, even strong programs drift. Common symptoms:
- No routine sampling of cases for consistency
- No external review or MLRO audit trail
- No documentation of post-review remediation or improvements A mature compliance function tests itself before the regulator or bank needs to.
If You’ve Already Used the Term “Crypto Compliance,” Here’s How to Correct It
If your policies, pitch decks, or product pages include “crypto compliance,” it’s not too late. Start by identifying where the term appears and asking:
- What are we actually describing?
- Is it tied to a defined obligation?
- Can we rewrite it in regulator-aligned language?
What to update first:
- Compliance policies and manuals
- Banking onboarding decks and questionnaires
- Audit responses and evidence packs
- Website copy and product pages
Clients, banks, and regulators will appreciate the clarity because it signals maturity.
FAQs About Crypto Compliance and Regulatory Expectations
Q: Is “crypto compliance” a legal standard?
No. Regulators generally assess AML/ATF compliance against existing laws and obligations that apply to regulated entities and activities, not a separate “crypto compliance” framework.
Q: What do regulators actually review for crypto businesses?
They look for risk-based program fundamentals: a risk assessment, onboarding controls, monitoring tied to typologies, investigations with decision evidence, governance, QA/testing, and clear documentation of outcomes.
Q: Do blockchain analytics tools satisfy AML requirements?
Tools help, but they don’t replace compliance. Supervisors look for controls, human judgment, escalation decisions, reporting logic, and evidence the program is operating effectively.
Q: What should a crypto exchange call its compliance program?
Use requirements-based language aligned to your activity and jurisdiction, e.g., “AML/ATF program for a VASP” or “MSB AML/ATF program (Canada).”
Stop Saying “Crypto Compliance.” Start Proving Compliance.
Using the term “crypto compliance” does not automatically make you non-compliant. But it can obscure what actually matters, and that can weaken credibility in reviews, audits, and banking conversations.
The market is maturing. Regulators are watching. Banks are demanding more. Clients are asking sharper questions. There is no such thing as crypto compliance. There is only compliance defined by law, imposed on entities, and measured through execution and evidence.
Getting support
We help crypto and fintech businesses translate legal obligations into operational programs:
- regulatory remediation services
- compliance leadership support (CAMLO and MLRO)
- enhanced due diligence support
- effectiveness reviews and evidence pack development
Because credibility is built through structure, not slogans.
