Pseudonymous refers to a system where participants are identified by aliases or identifiers rather than by their real names. In financial services, the term is most often applied to cryptocurrencies, where users transact via wallet addresses rather than personal details.

While pseudonymity provides a layer of privacy, it also makes compliance more difficult. Criminals can exploit pseudonymous transactions to launder money, finance terrorism, or evade sanctions. For this reason, regulators and the Financial Action Task Force (FATF) require that financial institutions managing fiat on/off-ramps implement robust controls such as customer due diligence (CDD), name screening, and transaction monitoring

Definition Of Pseudonymous

Pseudonymous means operating under a substitute identity, where activities can be traced back to a pseudonym (such as a wallet address) but not directly to an individual’s legal identity without additional information.

In AML compliance, pseudonymity is a challenge because:

• Wallet addresses and transaction hashes are not inherently tied to real-world identities.

• Individuals can hold multiple pseudonyms, obscuring the true source or destination of funds.

• Law enforcement often requires blockchain analytics or off-chain information to link pseudonyms to people.

This is distinct from anonymous systems, where no identifiers exist at all.

Why Pseudonymous Transactions Matter In AML

The pseudonymous nature of blockchain transactions complicates monitoring and compliance. Regulators recognise these risks and expect financial institutions to build safeguards.

Customer Identification

Firms must collect and verify real customer data when onboarding individuals who convert between fiat and virtual assets. Solutions like FacctView, Customer Screening ensure accurate identity checks.

Sanctions Screening

Even when transactions originate from pseudonymous wallets, fiat on-ramp payments must be screened against sanctions and regulatory lists. FacctShield, Payment Screening provides real-time controls to prevent sanctioned transactions.

Watchlist Accuracy

Sanctions and politically exposed person (PEP) lists must be harmonised and deduplicated to minimise false positives, supported by FacctList, Watchlist Management.

Monitoring Transaction Behaviour

Behavioural analysis can detect suspicious patterns in fiat payments linked to pseudonymous wallets. FacctGuard, Transaction Monitoring applies configurable rules to highlight anomalies.

Pseudonymity And Facctum Solutions

While Facctum does not screen blockchain transactions directly, its solutions support the fiat layer where pseudonymity intersects with regulated finance:

• FacctView, Customer Screening – ensures pseudonymous wallet holders converting to fiat are linked to verified identities.

• FacctShield, Payment Screening – applies sanctions and regulatory screening to fiat on/off-ramp transactions.

• FacctList, Watchlist Management – ensures accurate watchlist screening even where pseudonymity complicates identity.

• FacctGuard, Transaction Monitoring – analyses suspicious patterns in fiat transactions tied to pseudonymous wallets.

This ensures VASPs and financial institutions meet their AML/CTF obligations despite the challenges posed by pseudonymous systems.

Challenges Of Pseudonymity For Compliance

Managing pseudonymous activity is complex because systems must separate legitimate privacy from suspicious behaviour. The lack of inherent identity in pseudonyms requires institutions to rely heavily on onboarding, monitoring, and external intelligence sources.

Obscured Identities

Pseudonyms prevent straightforward identity checks, requiring reliance on customer onboarding and external analytics.

Multiple Wallets

Individuals can create unlimited pseudonyms, complicating monitoring and detection.

Cross-Border Risk

Wallets can interact globally, making regulatory alignment more difficult.

High False Positives

When pseudonyms are linked to fiat transactions, fuzzy matching often generates excessive alerts if thresholds are not calibrated.

Best Practices For Managing Pseudonymous Risk

To address pseudonymity, institutions must adopt structured compliance practices that combine screening, monitoring, and governance. These ensure pseudonymous customers are brought into transparent, auditable frameworks.

• Enforce Strong CDD: Verify customer identity at fiat onboarding.

• Sanctions Screening: Apply real-time checks with FacctShield, Payment Screening.

• Maintain Watchlist Hygiene: Use FacctList, Watchlist Management to reduce false positives.

• Behavioural Monitoring: Detect unusual activity using FacctGuard, Transaction Monitoring.

• Integrate Audit Trails: Use systems like Alert Adjudication to document decisions.

The Future Of Pseudonymity In Compliance

Pseudonymity will remain a defining feature of virtual assets, but regulators will continue to demand safeguards at fiat gateways:

• Global Standardisation: More jurisdictions will adopt FATF guidance for VASPs and fiat exchanges.

• Explainable AI: Detection systems will need to justify how pseudonymous activity was flagged.

• Integration With Cybersecurity: Fraud and cybercrime monitoring will merge with AML pseudonymity controls.

• DeFi Expansion: As decentralised systems grow, regulators may broaden oversight to pseudonymous finance platforms.

Institutions that strengthen compliance at the fiat layer will be best placed to manage pseudonymous risks.