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Regulators confront ‘waterbed effect’ as illicit finance shifts

From cash limits to crypto rules and digital currencies, policymakers are trying to close gaps in payment systems.

A new paper looks at how public authorities are working to prevent illicit use of payment instruments and the financial system. (Jakub Żerdzicki/Unsplash)

As financial systems move from cash toward digital payments, regulators are confronting a persistent problem: shutting down illicit finance in one payment channel often pushes it into another, less monitored one.

A policy paper from the Basel, Switzerland-based Bank for International Settlements, often called the central bank for central banks, warns that uneven oversight of digital payments can unintentionally encourage criminals to move funds toward systems that are harder to monitor.

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