Risk-Based Approach for AML/CFT Audits of Fiat-Backed Stablecoins

Harry Zhou

An increasing number of US financial institutions and technology companies (e.g., Facebook Libra) are considering whether to bank or issue virtual currencies that are price-stable as measured in a sovereign currency. Known as stablecoins, these blockchain-based monetary instruments present a challenge for compliance staff and auditors, because their nascent nature and unique risk profiles often render AML/CFT frameworks, particularly ones that are meant for traditional monetary instruments and non-stablecoin virtual currencies, ineffective.

This whitepaper provides a practical and risk-based framework for auditing the AML/CFT risks of fiat-backed stablecoins and discusses how emerging measures like blockchain analytics can help mitigate their ML/FT risks.

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