The Financial Action Task Force (FATF) has released guidance on virtual assets and virtual asset service providers (VASP). But the inclusion of decentralized finance (DeFi) and non-fungible tokens (NFT) have sparked a fresh debate.
Just a week after the FATF had announced finalizing its crypto guidance, the global anti-money laundering watchdog released an updated version on October 28th. The guidance contains clarifications for platforms that handle virtual assets. The draft called for VASPs (platforms dealing with cryptocurrency) to conform with the standards applied to legacy financial establishments.
Increased Oversight by FATF on Crypto Realm
Companies that offer services related to stablecoins, blockchain-based decentralized finance (DeFi) apps, and facilitate peer-to-peer (p2p) transactions may have to keep a close watch on their customers’ credentials and funds to avert money laundering and terrorism financing. In a nutshell, these platforms are required to adhere to all existing rules and conduct thorough anti-money-laundering (AML) and anti-terrorism-financing checks.
In the case of peer-to-peer transactions, on the other hand, FATF’s guidelines stated that countries might enforce practices such as record-keeping or capping transaction limits to only specific approved addresses. It reads,
“.. countries and VASPs should seek to understand what types of P2P transactions pose a higher or lower risk and understand drivers of P2P transactions and their different risk profiles.”
DeFi under VASP?
It isn’t surprising that FATF’s guidance aims to increase its regulatory oversight and bring the cryptocurrency industry in congruence with traditional finance since it’s been a long time coming. The message is loud and clear. But what irked some community members was when the international body touched on the subject concerning DeFi and NFTs.
According to the published document, the “creators, owners, and operators or any individual who maintain influence in the “DeFi arrangements” may be required to abide by the rules set by the watchdog. On NFTs, the guidance detailed that these tokens are included in the FATF definition of virtual assets (VA). However, regardless of the terminology, FATF rules may still apply to NFTs.
The DeFi community was far from being pleased with the latest guidance. Miller Whitehouse-Levine, the Policy Director of the recently established DeFi Education Fund, criticized FATF’s “clarification on DeFi” in his tweet,
1/ 🚨 Long-ish thread on the crypto + DeFi guidance issued by the Financial Action Task Force.
tl:dr, it’s not great.
My initial read is that the FATF sees a world in which permissionless + decentralized systems are—at best—suppressed.https://t.co/JG2c0O9gvz
— Miller (@millercwl) October 28, 2021