Smart wallets make Web3 easier to use, but they also complicate compliance. Traditional crypto wallets already raise questions around ownership, control, custody, and transaction monitoring. Smart wallets add recovery systems, multisig governance, sponsored gas, modules, session keys, and automated execution.

The first question is control. If a wallet uses multisig, who controls the account? Is it the signers, the organization, the protocol, or a combination? For business wallets, this may be manageable through internal policy. For consumer wallets with guardians or recovery services, the answer may be less obvious.

The second question is custody. A smart wallet can be self-custodial, but some recovery or infrastructure designs may introduce third-party roles. If a service can help recover access, sponsor transactions, or influence execution, regulators may ask whether that service has meaningful control.

The third question is KYC. Smart wallets can make onboarding feel like Web2, especially when combined with social login or embedded wallet systems. Easier onboarding may increase adoption, but regulated applications still need to know when identity checks are required.

The fourth question is AML monitoring. Batch transactions, sponsored gas, cross-chain routing, and universal accounts can make transaction paths more complex. This improves user experience, but it can make activity harder to interpret.

The fifth question is permission delegation. Session keys and limited approvals may allow apps, agents, or services to act on behalf of users. Compliance frameworks will need to distinguish between user-directed actions, delegated automation, and third-party-controlled activity.

Smart wallets also raise questions about upgradeability. If wallet logic can change, users and regulators may want to know who can approve upgrades, how changes are disclosed, and whether users can opt out.

None of this means smart wallets are bad for compliance. In fact, they can improve controls. Spending limits, role permissions, audit trails, multisig approvals, and programmable policies may make onchain finance more manageable than simple private-key wallets.

The challenge is that compliance teams must understand smart wallets as programmable account systems, not just addresses. The address alone may no longer tell the full story of control, intent, permission, or risk.