Blockchain is no longer a fringe experiment—it’s becoming foundational infrastructure. In early 2024, Tradeweb announced a pilot with a blockchain-based settlement provider, offering same-day clearing of U.S. Treasury trades. This contrasts with the traditional T+2 (two-day) settlement window, reducing counterparty risk and operational friction.
This is not an isolated case. BlackRock launched a tokenized money market fund on Ethereum, offering real-time visibility and programmability. JPMorgan’s Onyx platform has processed over $1 billion daily in intraday repo transactions using tokenized collateral. Euroclear and the DTCC are piloting distributed ledger systems to optimize post-trade settlement.
The Business Case: Speed, Transparency, and Tokenization
Institutions are driven by cost reduction, operational efficiency, and the opportunity to tokenize real-world assets (RWAs). Blockchain provides:
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Settlement speed: On-chain transactions can settle in seconds, not days.
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Transparency: All participants can audit activity in real time.
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Reduced reconciliation: Immutable records reduce back-office disputes.
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Tokenized RWAs: T-bills, real estate, and fund shares can be fractionalized, traded globally, and automated via smart contracts.
This results in lower operational risk, improved liquidity, and new financial products.
Smart Contracts and Governance: The New Risk Frontier
Smart contracts are the automation layer enabling blockchain efficiency. But they introduce new risks, especially for compliance teams:
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Exploits: Poorly written contracts have resulted in billions in lost funds.
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No built-in dispute resolution: Traditional legal recourse is often unclear.
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Governance gaps: Many protocols lack formal decision-making structures.
Institutions entering blockchain must conduct third-party smart contract audits, set up review committees, and consider legal enforceability across jurisdictions.
AML in a Blockchain Context
Blockchain transactions are public, but the users behind them are not. For AML compliance, this creates both challenges and opportunities.
Modern blockchain forensics tools enable:
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Wallet clustering and risk scoring
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Detection of mixer or darknet interactions
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Real-time transaction alerts
However, these tools must be paired with off-chain identity data. Wallet analytics are not a substitute for Know Your Customer (KYC) verification. Instead, they form part of a modern AML toolkit alongside:
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Transaction monitoring
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Sanctions screening
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Source of funds analysis
Startups and institutions alike are investing in wallet risk engines and integrating them into traditional AML systems.
Explore AML Incubator’s Token Due Diligence and EDD Services for more.
Global Regulations Are Still Fragmented
The regulatory landscape is rapidly evolving, but consistency is lacking across jurisdictions:
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Canada: Under FINTRAC and the new Retail Payment Activities Act (RPAA), blockchain services are scrutinized as MSBs and payment service providers.
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European Union: The Markets in Crypto-Assets Regulation (MiCA) covers crypto custody, asset-backed tokens, and licensing.
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United States: A fragmented approach persists, with the SEC, CFTC, FinCEN, and state-level agencies asserting jurisdiction.
Firms operating cross-border must contend with inconsistent definitions, overlapping oversight, and licensing confusion.
Why This Matters for MSBs, VASPs, and FinTech Startups
Large institutions drive the regulatory tone. As banks and asset managers adopt blockchain, they increase the expectations for everyone else:
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Audit trail expectations: Real-time visibility into source and flow of funds.
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Compliance maturity: Higher expectations for internal controls, risk registers, and policy governance.
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Vendor and banking scrutiny: Your partners will demand proof of compliance excellence.
This creates both risk and opportunity. FinTechs that fail to meet institutional compliance norms may be shut out of partnerships or banking access. Those who adapt early gain a competitive edge.
If your firm isn’t ready for that level of scrutiny, our Effectiveness Review or Regulatory Remediation services can help.
What Compliance Teams Should Do Now
This is a pivotal moment for financial compliance teams. Whether you operate a crypto platform, a payment service, or a traditional MSB, consider these steps:
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Conduct a blockchain-specific AML gap analysis
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Update your transaction monitoring system to include wallet risk scoring
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Train your CAMLO or MLRO on DLT-specific risk indicators
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Engage early with regulators in your jurisdiction
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Implement smart contract audit protocols if you issue or custody digital assets
AML Incubator is already supporting firms navigating this transition. Whether you need a virtual CAMLO, help preparing for RPAA registration, or assistance with token due diligence, we are your trusted partner in regulatory excellence.
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