Stablecoins, Scrutiny, and the Shape of Compliance

Exciting news!!!

I’m speaking at ACAMS Hong Kong on Stablecoins & Financial Crime.

I’m excited to share that I’ve been invited by the Association of Certified Anti-Money Laundering Specialists (ACAMS) and put forward by my employer, London Stock Exchange Group (LSEG), to speak at the upcoming ACAMS Hong Kong Chapter event on 9 October 2025.

The topic?
Stablecoins and financial crime risk management.

If you’re based in Hong Kong, I’d love to see you there. We’re expecting around 100 practitioners across compliance, crypto, and traditional finance. I’ll be sharing the stage with experts behind the city’s crypto legislation. The event will be one worth attending.

I’ll update this post with a registration link as soon as ACAMS makes it public.

Alright, Alexey. Tell us what’s happening?

Let’s start with the basics. What is a stablecoin? At its core, a stablecoin is a digital token designed to maintain a fixed value, often pegged to a fiat currency like USD. Unlike fiat, though, stablecoins are programmable, settled on-chain, and transferrable 24/7.

Here’s how users get them: a user interfaces with a distributor, who acts on behalf of a stablecoin issuer. When fiat is deposited (say, USD), the issuer mints new tokens and sends them to the user’s wallet. To exit, the tokens are burned, and the fiat is returned.

This mint-burn lifecycle is foundational, and it’s where compliance and risk teams need to pay the most attention.

Benefits and challenges: two sides of the same coin

Stablecoins bring undeniable benefits:
✔ Faster settlement
✔ Programmable money
✔ Borderless inclusion

But they also introduce new challenges, especially in financial crime risk:

• Pseudo-anonymity makes provenance tracing harder (though not impossible)

• Cross-border speed amplifies sanctions and jurisdictional risk

• Fragmented architecture: issuers, distributors, wallets… makes accountability blurrier

The latest Wolfsberg Group Guidance suggests that while traditional AML controls can be adapted, FIs must rethink their application across these new roles and value chains.

What do financial institutions fit in?

FIs may occupy different positions in the stablecoin stack:

• Stablecoin Issuers: minting and redeeming tokens directly

• Distributors: onboarding users, managing wallet flows

• Banking service providers: offering operating, reserve, or settlement accounts

Each of these roles introduces distinct compliance exposures.

For example:

• Reserve account providers must ensure full backing, segregation, and attestations

• Distributors are on the hook for KYC, CDD, sanctions screening, and flow monitoring

• Issuers may need to manage programmable restrictions like freezing/seizing tokens via smart contracts

Some core questions to ask when assessing a stablecoin-related client:

• Who are the end users: retail, institutional, or programmatic?

• How are mint and burn functions controlled?

• Are reserves verifiable, and independently attested?

• Is there smart contract tooling for legal or regulatory enforcement?

• What’s the split between on-chain vs. off-chain monitoring, and who owns which part?

The Wolfsberg paper also encourages a close look at Travel Rule compliance, cross-border data privacy, and the reliance model between service providers and the stablecoin issuer.

On-chain vs Off-chain monitoring

A key area of discussion on the panel will be the expectations around on-chain monitoring, not just of your direct customer, but of ecosystem-level flows, where your stablecoin may appear in secondary markets or DeFi protocols.

• Off-chain, traditional controls still apply: SARs, KYC/CDD, transaction monitoring, etc.

• On-chain, however, new competencies emerge: tracing taint, proximity risk, behavioral heuristics, anomaly detection, and often across wallets you don’t have a direct relationship with.

This raises a broader question…

Is this just correspondent banking, reinvented?

Stablecoins seem disintermediated. But look closer and you’ll find a familiar structure beneath the surface. Reserve banks, operating accounts, fiat redemptions, cross-jurisdictional flows...

Ultimately, stablecoins still rely on institutional gatekeepers, just not always at the first hop. As soon as users want to convert back to fiat, or issuers need to hold reserves or clear payments, the n+1 relationships come under scrutiny, just like in correspondent banking.

So, do stablecoins bypass intermediaries?
At the UX layer, maybe. At the systemic layer, not really.

Parting Thoughts

I’m still piecing together this regulatory puzzle. But one thing’s clear: stablecoins aren’t going away. They’re programmable, composable, and increasingly foundational to global finance.

Our challenge now is to evolve the compliance toolkit, and do it without compromising the principles AML frameworks were built to uphold.

If you’re in Hong Kong on 9 October, come join us at LSEG’s office 18/F, ICBC Tower, 3 Garden Road, Central. Let’s take the discussion from blocks to buildings.

Thanks for reading.
— Alexey