Core Focus: The use of programmable controls in CBDC systems for AML/CFT compliance, the need for tiered systems to balance inclusion and monitoring, and the future of financial integrity in the digital age.

In-Depth Notes:
CBDCs offer valuable new opportunities for improved supervision and AML/CFT compliance through programmable controls. The ability to embed compliance rules directly into the digital currency infrastructure could transform how financial integrity is maintained.

Programmable Controls for AML/CFT:
A CBDC could offer valuable new opportunities for improved supervision and AML/CFT compliance . For example, automated suspicious activity report (SAR) filings for certain potentially suspicious activities, such as structuring transactions to avoid reporting requirements, could be built-in and thereby reduce the compliance burden on financial institutions . Controls could be embedded into the design of any tiered system to enable intermediaries to identify instances of structuring designed to avoid compliance thresholds .

Tiered Systems and Financial Inclusion:
Models that allow different levels of identity verification and monitoring could reach wider user bases and do more to promote inclusion than accounts requiring full customer due diligence . However, they would need to be carefully assessed and calibrated to appropriately mitigate the illicit financing risks . This approach reflects the principle of “anonymity for small-value transactions and traceability for high-value ones.”

Data Sharing and Pooling:
A CBDC with a common interface for intermediaries could also provide opportunities for enhanced private sector data sharing and data pooling enabling financial institutions to identify patterns and trends in money laundering and terrorist financing and improve compliance controls . Any data pooling efforts would need to incorporate robust data and privacy protections and could seek to incorporate technological innovations to enable the identification of trends while minimising the sharing of customer data .

Governance Standards:
Standards for governance, such as a requirement to provide explanatory information on programmable controls to customers, would need to be developed . This ensures that users understand how their data is being used and that compliance measures are transparent and accountable.

The Future of Financial Integrity:
The future of financial integrity in the digital age will be shaped by the ability to develop consistent regulatory approaches that are adaptable to future digital innovations and based on a combination of overarching principles (“lex generalis”) and tailored instrument-specific measures (“lex specialis”) . The expansion of options beyond bank deposits and cash calls for a holistic analysis of the effectiveness of AML/CFT regimes across different payment instruments . As the IMF has emphasised, the key is to maintain a risk-based approach that balances the benefits of financial inclusion with the imperative of maintaining financial integrity