The Bank for International Settlements (BIS) warns in a new report that self-custody crypto wallets could become a significant weak point in anti-money laundering (AML) enforcement. The report highlights a potential "waterbed effect," where tightening regulations on other payment channels may lead illicit funds to flow into alternative channels. Using the European Union as an example, the study emphasizes that self-custody wallets do not require due diligence from identifiable intermediaries. Due to their digital portability and transaction limits, they are found to be even less detectable than cash. The report suggests that regulatory asymmetry—where custodial wallets are subject to strict AML regulations under the EU's CASP framework, while self-custody wallets are not—may tempt criminals to transfer funds from cash into these wallets.