The AML Analyst

June 9th, 2026

On March 11th, 2026, the Financial Services Regulation Committee (FSRC) held a meeting with Sarah Breeden and Sasha Mills, Deputy Governor and Executive Director of Financial Market Infrastructure at the Bank of England (The Bank), as well as Matthias Bauer-Langgartner, Head of Policy, Europe at Chainalysis, to discuss a sterling stablecoin. The proposed regulations for stablecoins make sense; however, it has left us asking questions regarding the KYC framework the FCA is proposing. 

Stablecoins offer a low-volatility crypto that enables fast, almost instant, cross-border payments to occur, encouraging small and medium enterprises to benefit greatly from them. However, this comes with the risk of money laundering and other illicit activity, with Matthias stating that 84% of all illicit activity recorded on the chain was conducted through stablecoins, highlighting the need for strong AML controls. This is where Matthias’ support for blockchain analytics is observed.

During the meeting, the strengths of blockchain analytics in direct AML risks were observable; however, Matthias discussed the opportunity it provides in protecting customers by blocking transactions to known scam clusters. This is a significant development worth highlighting. With the FCA moving towards a more outcomes-based principle, firms are increasingly required to demonstrate how consumers are being protected, not just what controls are in place. Scams are a big factor in the current market, and as highlighted in Nikhil Rathi’s speech to the FCA’s financial crime conference,  it is impossible for the FCA to handle all customer cases, but through this tool, the volume decreases, offering greater resources to regulators to handle high-risk cases.

One of the most important points picked out by Matthias was the opportunity offered by the sterling stablecoin and blockchain analytics to improve the efficiency of supervision. Through off-chain data, regulators would be able to gain a more holistic view of key AML trends across all regulated firms, improving recommendations on AML/CFT systems firm-wide. This is an important aspect that Matthias pointed out. Throughout this blog, the inefficiency of SARs has been a recurring theme, driven by the high volume of reports that Financial Intelligence Units (FIUs) receive.  Using the high level of analytics, FIUs can identify key gaps in the SAR filing system and work with regulated firms to produce more analytical SARs that give investigators a better view of what is happening and allocate resources more efficiently. With regulations still being decided on the sterling stablecoin, the opportunity to make the regulatory framework more interconnected is there, and would provide a safer and more regulated environment. 

During Sarah and Sasha’s meeting, an important question was brought up regarding KYC. The Committee asked how KYC would be conducted on those outside the UK jurisdiction who hold the stablecoin.  To handle this issue, Sarah and Sasha explained that regardless of the jurisdiction, the holder of sterling stablecoins would be subject to the UK KYC framework. This is going to be done through the banning of unhosted wallets, which don’t have an AML and KYC framework. While this can work to some level, it would be interesting to see how the FCA plans on enforcing KYC regulations for those outside the UK jurisdiction. Would this mean restricting payments to anyone who isn’t licensed or verified by the FCA? Thus, defeating the point of cross-border payments, as licensing outside the UK may cause another hassle to global suppliers, who would prefer using traditional payment methods. It will be interesting to see what the Bank of England and the FCA decide to do regarding this.

At the end, this isn’t the full proposal, and more details would need to be ironed out by The Bank before progressing with a sterling stablecoin. However, in my opinion, the KYC extraterritoriality question remains the central issue that needs answering when the full proposal is released.

Do you think the current regulatory environment of stablecoins may be too strict and prevent adoption?

Sources:

Matthias Bauer-Langgartner Meeting: 

https://committees.parliament.uk/oralevidence/17317/pdf/
Sarah Breeden and Sasha Mills Meeting: https://committees.parliament.uk/oralevidence/17316/pdf/