Rethinking controls for institutional stablecoin adoption

Standard Chartered’s Minli Ng on building stablecoin controls around use cases, risk context and governance.

The industry has spent years asking: “What transaction monitoring and screening controls should we implement for stablecoins?”

The question should be: “What customer problem are we solving, and what controls are proportionate to that use case?”

As stablecoins move from experimentation to real-world payments, liquidity and treasury workflows, the challenge is determining what trust frameworks are needed to support these use cases at institutional scale. This matters because compliance is increasingly being designed around the technology rather than the economic purpose of the activity. Although regimes differ by jurisdiction, leading regulatory frameworks from the Financial Action Task Force (FATF), Monetary Authority of Singapore (MAS), Hong Kong Monetary Authority (HKMA) and Prudential Regulation Authority (PRA) increasingly combine risk-based financial crime controls with broader expectations for stablecoin issuance and operation. That means understanding the use of the product before determining the controls that govern it.

In short, controls do not define the use case. Use informs risk. Risk informs controls.

Stablecoins sit in two worlds

One of the biggest challenges facing the industry is that stablecoins currently sit in two worlds.They are marketed as digital cash and payment instruments, yet much of today’s activity still resembles asset trading behaviour.

From a compliance perspective, the distinction matters enormously.

A corporate using stablecoins to settle a commodity purchase with a supplier in an emerging market presents a fundamentally different risk profile from a customer actively moving funds between exchanges for investment purposes. A stablecoin used for treasury purposes creates different trust and control requirements from one used for investment activity. Activity linked to investment or digital asset markets may require additional confidence in counterparty transparency, source of funds and settlement arrangements.

The technology may be identical. The customer objective is not. The compliance response should therefore also not be.

Introducing “Use-Based Compliance” – purpose informs controls

A useful principle for the industry is what might be called Use-Based Compliance. The starting point is understanding why the customer is using stablecoins. For example:

• Cross-border B2B payments
• Treasury liquidity movement
• Merchant settlements
• Platform payouts
• Remittances
• Settlement of tokenised assets
• Investment and trading activity
• Wider digital asset market participation

Each use case creates different risks and trust requirements. Each should therefore generate different monitoring scenarios, screening expectations and governance requirements. The mistake is applying the same surveillance framework to every stablecoin transaction irrespective of its underlying economic purpose, the parties involved or the workflows it supports.

Minli also highlighted that it means applying controls that are relevant and proportionate to the activity being undertaken.

Where the operating model and corridor economics support them, the benefits are:

• For FIs: new payment, liquidity, custody and settlement propositions; deeper client relationships; improved relevance in digital ecosystems; and a stronger position as value moves across traditional and on-chain networks.
• For customers: faster availability of funds, extended-hour settlement, greater transaction visibility, more flexible cross-border liquidity and access through a trusted institutional relationship.

Use-Based Compliance starts with understanding the customer’s objective. As the examples below show, different stablecoin-enabled activities require different approaches to risk assessment, monitoring and governance.

Comparison of control considerations for stablecoin-enabled B2B payments and digital asset investment activities.

The stablecoin is just one part of the risk. The customer’s use of the stablecoin – parties, wallet, model, jurisdiction and transaction behaviour – determines the control implications.

Why risk context matters

Too many institutions start by asking what blockchain monitoring tools can detect. This often results in controls being driven by available technology rather than actual financial crime risk. Use-based compliance should sit within a broader adoption assessment covering the token issuer, reserves, redemption rights, wallet and custody model, network, jurisdiction, counterparties and end-to-end operating resilience.

Transaction monitoring should begin with a the more meaningful question: “What abuse typologies are possible within this product and use case?” Only then should banks determine: Monitoring scenarios; Alert thresholds; Screening requirements; Escalation processes; Investigation workflows.

A stablecoin payment carrying genuine commercial value between two known corporate customers should not necessarily be monitored in the same manner as activity involving multiple self-hosted wallets, exchanges and rapid movement of assets across chains. Risk is contextual. Trust requirements and monitoring should be contextual as well.

For FI leaders, this is also a strategic choice. A differentiated control model can expand the range of customers and corridors an institution can support, shorten the path from pilot to production and protect the client relationship as value moves across traditional and tokenised networks. A blanket approach risks either blocking viable business or accepting risk without sufficient context.

Bringing stablecoin-enabled flows into the banking framework

For banks the strategic opportunity is broader than offering a replication of crypto-native activity. It is to support stablecoin-enabled payments, liquidity and settlement through a governed institutional framework.

Banks already bring established capabilities in customer due diligence, payment controls, governance and accountability, risk management, operational resilience and regulatory oversight. The future winners will not be those who build the largest stablecoin capability. They will be those who most effectively combine stablecoin utility with bank-grade trust and control frameworks designed around genuine payment use cases. That genuinely addresses the clients’ needs.

The future is use-led risk management

As stablecoins mature, regulatory expectations are likely to assess both economic activity and design of stablecoin arrangement.

The key question will not be whether a transaction happened on-chain. But what was the transaction trying to achieve?

 

Minli Ng

Executive Director, CFCR, Cash, Transaction Services

Once that answer is understood, the appropriate compliance controls become clearer.

Stablecoins should therefore be viewed first as products serving customer use cases, and only second as pieces of technology. The institutions that succeed will be those that design compliance around customer intent, commercial purpose and real-world risk – rather than allowing surveillance tooling to dictate product design.

Governance is the enabling layer. The various stablecoin use cases now represent genuine institutional opportunity. None of them can be executed at institutional scale without governance frameworks designed specifically for digital settlement and built for the characteristics of the underlying stablecoin use.

Good compliance should work like a seatbelt: embedded from the outset, proportionate to the journey and enabling confident progress. Leading institutions will identify where digital assets create genuine customer value, build effective controls and evidence their scalability. FI leaders should now prioritise use cases, assign executive ownership and test controls in practice.

https://www.sc.com/en/news/corporate-investment-banking/rethinking-controls-for-institutional-stablecoin-adoption