The intergovernmental body – the Financial Action Task Force (FATF), recently gave out an advisory on digital assets. The advisory aims to regulate the fast growing cryptocurrency domain. Digital asset firms can expect a tightening of the laws around anti-money laundering (AML) and combating the financing of terrorism (CFT).
FATF’s latest update resolves the pervasive uncertainty over regulations governing decentralized finance (DeFi) and stablecoins. The update does not define one regulatory approach. Instead it lays out the risks that must be examined by the regulators while watching/supervising the operations of digital assets firms.
The key provisions of the FATF update are as under:
Regulators have been cautioned to guard against blindly accepting any platform being declared as DeFi. FATF believes that there is always some control by someone. DeFi platform are also obliged to follow AML/CFT guidelines. It is likely that with increased oversight the DeFi activities might reduce.
- FATF has mandated that stable coins issues too need to be examined for AML/CFT compliance. This means that the launch of stable coins will now become more difficult.
- The latest guidance from FATF advises regulators to take a risk-based view while dealing with unhosted wallets. The greater scrutiny from the point of view of risk will benefit blockchain analysis entities. The unhosted crypto system is poised for growth.
- The virtual asset service providers (VASP) are now required to maintain and pass data on the senders/recipients. The FATF also lays down the data that the VASPs need to record and pass on. The new guidance will enforce the travel rule within the industry.
- FATF leaves CBDC out of its ambit. Also excluded is the risk that may arise from merchants more widely accepting virtual assets as payments.