When evaluating prospective clients with crypto assets, financial institutions are often confronted with an abundance of blockchain data. Wallets can contain thousands of transactions, spanning multiple counterparties, protocols, and chains. While this level of transparency is unprecedented, it also creates a practical challenge: how to turn raw on-chain activity into a clear onboarding decision.
In many cases, the issue is not insufficient information, but too much of it — without a structured way to interpret what is relevant for compliance.
Why Existing Approaches Often Fall Short
Most blockchain analytics tools were originally built for investigations, asset recovery, or law enforcement use cases. As a result, they tend to prioritise depth of analysis and exhaustive reconstruction of transaction histories.
While this approach can be appropriate in investigative contexts, it often does not align with financial institutions’ onboarding needs. Compliance teams are typically not looking to understand every transaction in detail. They need to determine whether a client can be onboarded, what level of due diligence is required, and how to document that decision in a defensible way.
Two practical challenges frequently arise.
First, many tools are complex and priced on a per-user basis. This often leads to crypto reviews being concentrated with one or two specialists inside the organisation. As volumes increase, this creates bottlenecks, extends onboarding timelines, and increases the risk of losing clients.
Second, outputs are often expressed as abstract risk scores on a numerical scale. While such scores may indicate relative risk, they frequently provide limited guidance on what to do next — leaving compliance teams uncertain whether a case can proceed, requires further review, or must be escalated.
Designing a Methodology Around Bank Needs
The WalletCheck methodology was designed specifically to address these challenges and reflect how financial institutions actually operate.
At its core, the objective is to provide clear, consistent, and auditable guidance that supports onboarding and ongoing monitoring decisions across teams. There is limited value in providing a complete overview of what happened within a mixer if the mixer usage itself is a clear reason for rejection. In those cases, additional analytical depth adds complexity without improving decision quality.
All WalletCheck risk assessments are based on three analytical pillars:
Multi-hop tracing to provide transparency on wallet activity and flows of funds beyond immediately visible transactions
Entity resolution to identify and classify centralized and decentralized exchanges, bridges, DeFi protocols, as well as suspicious or high-risk counterparties such as mixers or known scam addresses
Sanctions screening to ensure exposure to sanctioned counterparties is detected and can be handled appropriately
These elements provide the factual basis for understanding wallet behaviour. The methodological challenge lies in translating them into operational decisions.
From Risk Assessment to Clear Guidance
To ensure that risk assessments are fit for purpose, WalletCheck applies a traffic light system designed to align with existing compliance workflows and escalation logic.
Rather than producing abstract numerical scores, the methodology groups outcomes into categories that directly map to next steps.
Green: Standard Onboarding
Green cases are those where wallet activity is limited to:
centralized exchange (CEX) activity
wallet-to-wallet transactions without risk flags
no interactions with flagged entities
For these cases, standard onboarding is generally appropriate, subject to the bank’s internal policies and standard KYC procedures.
Amber: Further Due Diligence May Be Required
Amber cases capture activity that is not inherently unacceptable, but introduces additional complexity or potential risk. This includes wallets with:
interactions with decentralized exchanges (DEXs)
usage of DeFi protocols
bridge transactions involving cross-chain transfers
interactions with known scam or crime-related addresses or other potential risk indicators
For amber cases, organisations can define thresholds aligned with internal policies. These thresholds are transparently documented in each analysis, with a full audit trail for any changes. Amber outcomes are designed to signal where enhanced due diligence may be appropriate before a final decision is taken.
Red: Escalation or Rejection Required
Red cases indicate exposure that is generally incompatible with onboarding. This includes:
any interaction with sanctioned entities
any interaction with mixers
Such cases require immediate escalation and rejection and may also require filing a suspicious activity report in line with internal procedures and regulatory requirements.
Core Methodological Principles
Two principles underpin the application of the traffic light system.
First, higher risk always takes precedence. A wallet that shows otherwise benign activity but has exposure to a mixer will always be classified as red.
Second, when evaluating clients with multiple wallets, WalletCheck applies a prudent aggregation approach. The overall client risk is determined by the highest-risk wallet. For example, a client with five green wallets and one amber wallet will be classified as amber.
These principles ensure conservative, consistent outcomes and avoid situations where higher-risk signals are diluted by lower-risk activity elsewhere.
Built for Consistency and Scale
WalletCheck is designed to match the realities of bank compliance teams. By providing clear classifications, tailored next-step guidance, and auditability at every stage, it enables tasks to be distributed across teams while maintaining appropriate oversight.
The result is a structured way forward for every case — without turning routine onboarding into an investigation exercise.
Conclusion
As crypto assets become a standard part of client wealth, financial institutions need methodologies that bridge the gap between on-chain transparency and practical decision-making.
The WalletCheck methodology was built to support this transition: translating complex wallet activity into clear, consistent, and defensible compliance guidance that aligns with existing bank workflows.
If you would like to learn more about the WalletCheck methodology or see how it can support your onboarding and monitoring processes, please reach out at:
