Strengthening AML/CFT and Proliferation Financing Frameworks for Stablecoins

Stablecoins are rapidly transforming digital finance by enabling fast, low-cost transactions, cross-border payments, and greater financial inclusion in remittance-dependent Commonwealth economies. However, their pseudonymous nature, integration with decentralised finance, and global accessibility introduce significant vulnerabilities to money laundering, terrorist financing, and proliferation financing. Illicit actors increasingly exploit stablecoins to bypass traditional financial controls, sanctions, and oversight. This chapter evaluates these emerging risks and advances a coherent regulatory response anchored in the Commonwealth Model Law. It recommends risk-based supervision, stronger licensing and enforcement for issuers and intermediaries, Travel Rule compliance, enhanced due diligence, and mandatory transparency in reserves and governance. It also calls for improved data sharing, cyber-resilience standards, and capacity building for smaller jurisdictions. Case studies from across the Commonwealth illustrate both challenges and successful approaches.