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>>The BIS cautions that self‑custody of cryptocurrencies may create a fresh AML loophole

The BIS cautions that self‑custody of cryptocurrencies may create a fresh AML loophole

crypthub

3/11/2026, 3:12:02 AM

AML Risk and EU Gap

Self‑custodied crypto wallets are fully user‑controlled and lack an identifiable intermediary for due‑diligence or transaction monitoring, giving them a very low detection probability. The EU’s CASP framework tightens AML duties for hosted wallets, but self‑hosted wallets are only examined when a CASP participates and face no €10,000 cash limit. This creates a regulatory blind spot that can attract illicit flows as other channels become more restrictive.

Waterbed Effect

BIS describes a “waterbed effect”: squeezing illicit activity in one payment route pushes it onto another. Because self‑custodied crypto is portable, border‑less and unlimited, it can be more appealing than cash, which is bulky and capped. The shift erodes the overall effectiveness of AML/CFT frameworks unless regulators act.

Conclusion

Uneven regulation may inadvertently steer bad actors toward self‑custodied wallets, widening the compliance gap. BIS warns that without supervisory intervention, AML frameworks could be undermined. At the time of writing the crypto market totalled about $2.37 trillion.