Tokenization Developer Toolchain: KYC, AML, and Key Ceremonies as Code - 7BlockLabs

title: "Tokenization Developer Toolchain: KYC, AML, and Key Ceremonies as Code" description: "A practical, engineering-first blueprint for building compliant tokenization systems: wiring KYC/KYB, Travel Rule and AML screening into your CI/CD, and turning key ceremonies into auditable infrastructure-as-code."

Executive summary

Tokenization is crossing the enterprise chasm, but production deployments stall on one thing: operationalizing compliance and custody. This post shows how to treat KYC, AML/Travel Rule, and key ceremonies as code—using concrete patterns, checked configs, and versioned runbooks your auditors and SREs can both live with. (franklintempleton.com)

1) The 2025 compliance baseline every tokenization build must encode

EU MiCA is now fully applicable to crypto-asset service providers (CASPs) from December 30, 2024; stablecoin provisions have applied since June 30, 2024. Tie your authorization, record-keeping, and market-abuse controls to these dates in code (e.g., feature flags/gates by jurisdiction). (finance.ec.europa.eu)
The EU Transfer of Funds Regulation (Reg. 2023/1113) makes the Travel Rule mandatory for crypto transfers from December 30, 2024—no “wait and see.” Your pipelines must enrich transfers with originator/beneficiary data and handle exceptions. (eur-lex.europa.eu)
EBA guidance clarifies what info must accompany crypto transfers, how to detect missing data, and what to do with non-compliant transfers—bake those checks into your rules engine. (eba.europa.eu)
FATF’s 2024 targeted update is blunt: Travel Rule implementation remains patchy; enforcement is low in many jurisdictions. Your code should handle counterparty capability discovery, fallbacks (e.g., secure email), and logging for “sunrise issue” exceptions. (fatf-gafi.org)
In the U.S., the Bank Secrecy Act Travel Rule applies ≥$3,000 transfers—include required originator/beneficiary fields and retain logs. FinCEN’s 2023 NPRM on mixers signals more scrutiny on obfuscation; plan for enhanced due diligence triggers. (fincen.gov)

What this means for you: compliance logic cannot live in PDFs and ad-hoc SOPs; it must be versioned, tested, and shipped alongside your token code.

2) Reference toolchain: wiring KYC, AML, and Travel Rule into your CI/CD

A robust tokenization stack today typically includes:

Smart-contract layer: permissioned token standard (ERC‑3643) or security token modules (ERC‑1400 suite) for eligibility gating, partitions/tranches, and controller enforcement. (eips.ethereum.org)
Identity/KYC services: KYB/KYC via an API-first provider (e.g., Trulioo) with reusable workflows per jurisdiction. (developer.trulioo.com)
Travel Rule messaging: TRISA (IVMS101 payloads), with discovery via a VASP directory and protocol interoperability. (trisa.io)
AML/KYT analytics: risk scoring and alerts on inbound/outbound transactions via a KYT API; sanctions screening wired to OFAC and global lists. (kytdoc.kyt-dev.e.chainalysis.com)
Custody and key management: HSM-backed keys (FIPS 140‑3) and/or MPC with audited ceremonies and attestations. (csrc.nist.gov)

Ship them like any other microservice: IaC modules, policy-as-code, integration tests, and observability tied to regulatory SLAs.

3) KYC/KYB as code: policy, proofs, and pipelines

3.1 Encode onboarding policies per jurisdiction

Example: Trulioo-style workflow definitions for U.S. retail vs. EU corporate:

{
  "workflows": [
    {
      "name": "us-retail-kyc-v1",
      "steps": [
        {"service": "PersonMatch", "rules": {"minScore": 0.85}},
        {"service": "IDV", "rules": {"docTypes": ["US_DRIVERS_LICENSE","US_PASSPORT"]}},
        {"service": "Watchlist", "rules": {"lists": ["OFAC_SDN","PEP","AdverseMedia"]}}
      ]
    },
    {
      "name": "eu-corp-kyb-v1",
      "steps": [
        {"service": "BusinessLookup", "rules": {"jurisdictions": ["DE","FR","NL"]}},
        {"service": "UBO", "rules": {"threshold": 25}},
        {"service": "Watchlist", "rules": {"lists": ["EU_FSF","UN","UK_HMT","OFAC_SDN"]}}
      ]
    }
  ]
}

Keep these JSON/YAML workflows in Git; require approvals for changes; attach unit tests that feed anonymized fixtures through the pipeline. (developer.trulioo.com)

3.2 Reusable, privacy-preserving credentials

Adopt W3C Verifiable Credentials with ZK attestations for “age over 18,” “residency permitted,” or “KYC passed,” so users don’t re-upload PII. Two practical stacks:

Polygon ID: issue a VC once, verify selective attributes via ZK proofs on- or off-chain. (coindesk.com)
zkPass: generate ZK proofs from Web2 data (e.g., bank statements) via zkTLS/MPC without APIs to the data source. Good for high-assurance claims while minimizing PII flow. (docs.zkpass.org)

Example: verifier stub that accepts a Polygon ID age-over-18 proof:

// pseudo-code
const req = await fetch("/proof");
const { proof, pubSignals } = await req.json();
const ok = await zkVerifyAge(proof, pubSignals, circuitParams);
if (!ok) throw new Error("Age check failed");
// mint permissioned access NFT or set KYC flag

3.3 Token-level eligibility enforcement

ERC‑3643 couples identities (ONCHAINID) with a token’s compliance contract. Transfers call an on-chain validator that checks: KYC status, jurisdiction rules, lockups, and investor limits—all upgradable via controlled registries. Use it for RWA/security token flows where “only eligible holders” must own the token. (eips.ethereum.org)
ERC‑1400’s partitions (ERC‑1410) let you manage tranches (e.g., Reg D vs. Reg S), link offering docs (ERC‑1643), and, if needed, controller transfers (ERC‑1644). Ideal when regulators expect explicit force-migrate capabilities. (github.com)

4) AML and the Travel Rule as code

4.1 Travel Rule messaging with TRISA + IVMS101

Define IVMS101 payloads for originator/beneficiary data and send them over TRISA before settlement. Keep a VASP directory cache and protocol versioning in code.

Example IVMS101 JSON envelope:

{
  "Originator": {
    "originatorPersons": [{"naturalPerson": {"name": {"nameIdentifiers":[{"primaryIdentifier":"JANE DOE"}]}}}],
    "accountNumber": ["0xabc..."],
    "originator": true
  },
  "Beneficiary": {
    "beneficiaryPersons": [{"naturalPerson": {"name": {"nameIdentifiers":[{"primaryIdentifier":"ALICE SMITH"}]}}}],
    "accountNumber": ["0xdef..."]
  },
  "PayloadMetadata": {"transactionReference": "tx-2025-12-01-001"}
}

TRISA v9 defines peer-to-peer RPCs (Transfer, TransferStream, KeyExchange), encrypted SecureEnvelopes, and explicit non-repudiation timestamps—make these part of your integration tests and retention policies. (trisa.io)
Interop: TRISA uses IVMS101 and works toward TRP/CODE/Sygna interop; keep a translation layer for counterparties on different stacks. (trisa.io)

For EU CASPs, align blocking/repair logic with the EBA guidance (missing/invalid info routines) and log your actions for supervisors. (eba.europa.eu)

4.2 Sanctions and wallet screening

Source lists from OFAC’s Sanctions List Service; pin exact list versions in logs for auditability. Schedule refresh at least hourly. (ofac.treasury.gov)
Screen addresses and flows with a KYT API and pre-withdrawal address checks; block and queue for review on severe alerts. (kytdoc.kyt-dev.e.chainalysis.com)

Minimal “withdrawal pre-screen” pattern (Chainalysis KYT):

# Pre-screen a user’s withdrawal address
curl -H "X-API-KEY: $KYT_KEY" \
  -X POST "https://kyt.chainalysis.com/v1/users/$USER/withdrawaladdresses" \
  -d '{ "asset": "ETH", "address": "0xdef..." }'

Treat sanction/KYT results as signals into your policy engine (e.g., OPA) rather than hard-coded if statements. (kytdoc.kyt-dev.e.chainalysis.com)

4.3 Unhosted wallet verification

Where required (e.g., FINMA), implement self-hosted wallet verification: user signs a challenge with the external wallet before allowing transfers. Track jurisdictional thresholds/nuances in code and feature flags. (docs.sumsub.com)

5) Key ceremonies as code

Stop treating ceremonies as meetings. Make them reproducible, scripted, and attestable.

5.1 Choose primitives with auditable assurances

HSMs: use FIPS 140‑3 validated modules (e.g., AWS KMS certificate #4884; Azure Managed HSM firmware now FIPS 140‑3 Level 3). Store the certificate numbers/dates in config, and assert them in CI checks. (csrc.nist.gov)
Vault + PKCS#11: declare seal settings in code (slot, labels, mechanism) and auto-unseal via HSM or a transit unsealer. Keep an HSM HA topology, not a single appliance. (developer.hashicorp.com)
Attestation: on GCP, verify Cloud HSM attestations and archive the signed statements per environment. (cloud.google.com)

5.2 Terraform your keys and policies

Provision KMS keys with tags, aliases, rotation, grants, and scoped policies. Example:

module "kms_token_issuer" {
  source                 = "terraform-aws-modules/kms/aws"
  aliases                = ["alias/token-issuer-prod"]
  description            = "RWA issuer key"
  enable_key_rotation    = true
  key_usage              = "SIGN_VERIFY"
  customer_master_key_spec = "ECC_SECG_P256K1"
  policy = file("${path.module}/kms-policy.json")
  tags = { system = "tokenization", env = "prod" }
}

Keep “witness” approvals (e.g., CODEOWNERS + GitHub Environments) and emit a signed ceremony log when the plan is applied. (github.com)

5.3 MPC ceremonies with modern TSS

If you opt for MPC wallets, adopt a protocol with protections against known GG18 pitfalls (e.g., incorporate CGGMP‑style proofs). Track library versions and audits.

The 2023 advisory on GG18 implementations (e.g., tss‑lib) shows how weak Paillier modulus checks could leak keys during signing; mitigations include proofs of biprimality and no-small-factors. Make those checks mandatory in your DKG pipelines. (advisories.gitlab.com)
Enterprise stacks like MPC‑CMP (open-sourced implementation) offer one‑round signing and share refresh; if you rely on a vendor, pin releases and require enclave attestations where used. (github.com)

Pseudo “ceremony” outline:

version: 1
ceremony: "mpc-dkg-r1"
participants: ["custody-a","custody-b","custody-c"]
steps:
  - id: preparams
    run: docker run mpc dkg-precompute --curve=secp256k1
    attestation: "sgx: quote required"
  - id: keygen
    run: docker run mpc dkg-keygen --t=2 --n=3 --proofs=cggmp21
  - id: attest
    run: ./collect-attestations.sh
  - id: backup
    run: ./slip39-split.sh --threshold=2 --shares=5
    outputs: ["mnemonic_shares.pdf.gpg"]

5.4 Disaster recovery with SLIP‑39

For break-glass scenarios, SLIP‑39 splits a master secret into mnemonic shares with thresholds; store shares in separate vaults under dual control. Don’t use reference implementations for live secrets; use HSM-grade tools or audited code. (slips.readthedocs.io)

6) Two tokenization reference patterns that deploy today

Pattern A — Permissioned RWA/security tokens on public chains

Contract: ERC‑3643 with ONCHAINID for holder eligibility and a Compliance contract that reads KYC + jurisdiction rules.
Onboarding: KYC/KYB workflow issues a “KYC‑passed” VC; verifier writes a holder status claim on ONCHAINID.
Transfers: Pre‑check sanctions/KYT; if VASP‑to‑VASP, send IVMS101 over TRISA, await ACK/NACK; then on‑chain transfer or pull-based mint/burn.
Custody: Issuer keys in HSM/KMS; investor custody via MPC wallets.
Audit: Store Travel Rule envelopes, sanctions list versions, and contract events in an immutable log.

Why it works: you get permissionless settlement with permissioned ownership. ERC‑3643’s registries let compliance evolve without redeploying tokens. (eips.ethereum.org)

Pattern B — Tokenized fund shares with off-chain transfer agent

Production precedent: Franklin Templeton’s on‑chain money fund issues BENJI tokens, maintains official records via the transfer agent system, enables P2P transfers, and supports USDC rails for funding. Model your data flows similarly if you need transfer‑agent primacy. (franklintempleton.com)

7) Practical implementation details teams miss (and how to fix them)

Sanctions list sourcing: pull directly from OFAC SLS; log the dataset hash/version per decision. Avoid private aggregators as the sole source of truth. (ofac.treasury.gov)
EU “grandfathering” ≠ complacency: MiCA’s transitional windows differ by Member State; pin jurisdictional deadlines in config (e.g., end dates for France/Italy/Netherlands vs. Germany opting out). Your app should block features as transitions expire. (asdlabs.io)
Sunrise handling: build an exception lane when counterparties lack Travel Rule capability—queue with retry, secure out-of-band exchange, and risk-adjusted limits. Document these behaviors in your AML policy and code comments. (eba.europa.eu)
Key policy drift: test KMS policies with unit tests that assert principals, conditions (by tag/alias), and deny-by-default. Export and diff policies at deploy time. (docs.aws.amazon.com)
HSM/PKCS#11 mechanism selection: set it explicitly; otherwise Vault may choose a default you didn’t intend. Trace at startup and archive logs. (support.hashicorp.com)

8) Example “compliance CI” checks to gate deployments

Static checks:
- Contracts import only allowed ERC‑3643/1400 interfaces.
- Travel Rule payload schema = IVMS101 (JSON‑Schema validation).
- KMS key specs and rotation flags match policy; key is FIPS 140‑3 module and region-tagged. (csrc.nist.gov)
Dynamic checks:
- Simulated VASP‑to‑VASP flow with TRISA testnet; assert NACK paths, retries, and ticketing.
- KYT says “SEVERE” for a seeded bad address → pipeline must fail.
Evidence artifacts:
- Signed plan/apply logs for HSM/KMS changes.
- Sanctions dataset fingerprints.
- Protocol versions (TRISA vX, IVMS101 vY).

9) Key ceremony runbook you can paste into your repo

# Key Ceremony (RWA Issuer) – v2025‑12‑01

Participants: Security (2), Platform (2), External Auditor (1)

Controls:
- FIPS 140-3 module only (assert cert IDs)
- Dual control on all PINs/passwords
- Video + hash-anchored transcript

Steps:
1. Prepare
   - terraform plan (KMS) ✓
   - Vault PKCS#11 config reviewed ✓
   - MPC DKG container sigstore-verified ✓
2. Execute
   - Apply KMS module; store plan/apply SHAs
   - Initialize Vault auto-unseal (PKCS#11); store mechanism, slot, labels
   - Run MPC DKG with CGGMP proofs; archive attestation quotes
   - SLIP-39 split of recovery secrets; distribute in 2-of-5 across facilities
3. Verify
   - GCP/AWS/Azure attestation or status exports
   - Dry-run signature on staging; match against policy engine rules
4. Archive
   - Upload artifacts to WORM storage
   - Commit ceremony manifest (this file) with signed tag

(techcommunity.microsoft.com)

10) Measuring success: operational KPIs that matter to regulators and CFOs

Travel Rule match rate, time‑to‑enrich, and exception resolution SLA (per corridor). (eba.europa.eu)
Sanctions/KYT alert precision and median investigation time.
Key-management MTTR (recover from HSM failure or MPC node loss), rotation cadence, and evidentiary completeness (attestation coverage). (cloud.google.com)
Token transfer rejection reasons by policy clause (e.g., KYC expired, residency blocked, cap exceeded) driven by ERC‑3643/1400 checks. (eips.ethereum.org)
Cost per onboarded investor and per compliant transfer (pre- and post-automation).

11) Where this is headed

Institutional tokenization is going live across money funds, Treasuries, and collateral flows; your architecture must interoperate with both on-chain and transfer-agent systems while remaining audit‑ready. The teams that win will ship compliance as code, not as a binder. (coindesk.com)

Appendix: minimal code snippets you can reuse

ERC‑3643 compliance hook (example pseudo‑Solidity):

function _beforeTokenTransfer(address from, address to, uint256 amount) internal override {
  require(identityRegistry.isVerified(to), "Recipient not KYCed");
  require(compliance.canTransfer(from, to, amount), "Compliance blocked");
  super._beforeTokenTransfer(from, to, amount);
}

OFAC list sync with fingerprinting:

curl -s https://ofac.treasury.gov/sanctions-list-service > sdn.zip
unzip -p sdn.zip sdn_advanced.csv | sha256sum > sdn.sha256
git add sdn.sha256 && git commit -m "OFAC SLS update $(date -I)"

Vault HSM (PKCS#11) seal (HCL):

seal "pkcs11" {
  lib            = "/usr/safenet/lunaclient/lib/libCryptoki2_64.so"
  token_label    = "vault"
  key_label      = "AES_ISSUER_2025_12"
  hmac_key_label = "HMAC_ISSUER_2025_12"
  pin            = var.hsm_pin
}

(ofac.treasury.gov)

If you want this implemented end‑to‑end—token standard selection, Travel Rule interop, sanctions/KYT scoring, and key ceremonies—7Block Labs can deliver a production‑grade blueprint with IaC, tests, and an auditor‑ready evidence pack in 6–10 weeks.