Awarded once after a correct answer.
Combine identity, context and ongoing monitoring
Useful first : Hot, warm and cold wallets
Reading path · 25 / 41 · Intermediate
Anti-money laundering and counter-terrorist financing frameworks seek to prevent misuse of the financial system.
The essentials
Anti-money laundering and counter-terrorist financing frameworks seek to prevent misuse of the financial system. KYC is commonly used for identifying and understanding customers. Customer due diligence extends to verification, beneficial ownership, relationship purpose and ongoing monitoring under the applicable framework.
How it works
Enhanced due diligence addresses higher-risk circumstances with additional measures. It is not simply collecting more documents from everyone. A risk-based approach considers customer, product, geography and delivery channels, with documented decisions and escalation. FATF uses VASP terminology; MiCA uses CASP for its own defined scope.
What to watch
Blockchain analytics can flag patterns or exposure, but an attribution is not necessarily a proven identity or unlawful act. Review data quality, false positives and context. Suspicious-activity reporting and sanctions controls have specific legal requirements that vary by jurisdiction; this conceptual overview is not a reporting decision for an individual case.
Build your analysis
Read the FATF’s 2021 virtual-asset guidance alongside its current Recommendations, amended in June 2026. The 2021 guidance itself warns that it does not incorporate later revisions. FATF standards guide national implementation; the obligations applying to a particular provider come from the relevant legal framework.
Understand the details
Customer identification establishes who the customer is under the applicable process; risk assessment asks how the relationship and activity should be understood. Transaction monitoring adds information over time. None of these is interchangeable with simply observing a wallet address or purchasing a blockchain analytics score.
Boundaries and common mistakes
Analytics labels are evidence to evaluate, not infallible identity findings. Shared services, indirect exposure and incorrect attribution can complicate interpretation. A review needs documented reasoning, appropriate escalation and access controls. The precise obligations and actions follow applicable law and institutional policy, not a universal score threshold.
The mechanism at a glance
- 01Identity and relationship
- 02Observed activity
- 03Contextual review
- 04Documented decision
Read these as connected concepts, not necessarily consecutive steps.
Read the explanation
Customer identification establishes who the customer is under the applicable process; risk assessment asks how the relationship and activity should be understood. Transaction monitoring adds information over time. None of these is interchangeable with simply observing a wallet address or purchasing a blockchain analytics score.
Put the mechanism into context
A previously low-activity account receives an unusual transfer from an address labeled by an analytics provider. List what is known, inferred and missing. Consider customer context and label provenance before reaching a decision.
Apply it in the workshop →What this mechanism does not guarantee
Analytics labels are evidence to evaluate, not infallible identity findings. Shared services, indirect exposure and incorrect attribution can complicate interpretation. A review needs documented reasoning, appropriate escalation and access controls. The precise obligations and actions follow applicable law and institutional policy, not a universal score threshold.
The distinction that changes the analysis
Confirming who opened an account does not explain every later transaction. In a fictional review, compare the activity with the stated purpose and investigate inconsistencies. Keep observations separate from conclusions: an unusual pattern is a question to examine, not automatic proof of wrongdoing.
Explain it yourself
Revisit the case above. Name what is established, what remains to be checked and the evidence needed to conclude. A strong answer addresses both sides of the diagram.
Apply the lesson to a case
A previously low-activity account receives an unusual transfer from an address labeled by an analytics provider. List what is known, inferred and missing. Consider customer context and label provenance before reaching a decision.
It enables a reviewer to assess evidence quality and avoid turning an uncertain label into a proven allegation. Document the observed transaction, source of attribution, relevant context and escalation outcome. Monitoring is a decision process with accountability, not just a color assigned to an address.
Terms in this lesson
- CASP
- Crypto-asset service provider, a defined category under MiCA. Its scope should not be assumed identical to FATF’s VASP category.
Prepare a correction note
Describe the passage and the proposed correction. This creates a local note for you to share; it sends nothing. Do not include personal or confidential information.