Global Regulators Support Tougher Regulations to Prevent Criminals from Using Crypto

The task force called on governments to broaden regulatory oversight of crypto firms and force more of them to take measures such as checking the identities of their customers and reporting suspicious transactions to regulators.

The FATF guidelines do not have the force of law, and would need to be enforced by national regulators in each country. Nevertheless, the Paris-based group is influential in setting standards for government policies against money laundering and the financing of terrorism, and its guidelines could shape new crypto regulations around the world. More than three dozen countries are members of the FATF, including the US, China and most of Europe.

Representatives of the crypto industry criticized a draft version of the guidelines issued by the FATF in March, saying they would undermine privacy, undermine innovation or not work in the context of blockchain and digital-asset technology.

Decentralized finance, or DeFi for short, is among the goals of the FATF guidelines. DeFi is an umbrella term for various attempts to implement traditional financial activities – such as lending or trading – using software rather than a central intermediary to monitor transactions. According to data provider DeBank, DeFi has grown rapidly since last year, with over $100 billion in assets posted as collateral across various DeFi projects.

The guidelines target decentralized exchanges such as DeFi projects, in which crypto traders can swap assets with each other, usually on an anonymous basis. The task force said that people or companies that own or operate such decentralized platforms may be considered virtual asset service providers or VASPs, a designation that allows them to check the identities of users and take other measures against money laundering. will force.

DeFi developers say that their software runs autonomously on the Internet, governed by decentralized communities of users, and thus should not be subject to regulation, which typically focuses on financial intermediaries. The FATF has cast doubt on such claims in its guidelines. The task force wrote: “It is quite common for DeFi systems to call themselves decentralized when they actually involve a person with control or substantial influence.”

In other parts of the guidelines, the FATF stated that companies behind stablecoins must comply with anti-money laundering regulations. Stablecoins, such as Tether, are digital coins that seek to track the value of a traditional currency such as the dollar.

The task force also extended an existing rule that requires VASPs to track and share information about customers making virtual-currency transfers—for example, if a merchant is transferring bitcoin from one crypto exchange to another. Takes it away. Under the improved version of the rule, firms will have to check that neither the sender nor the recipient of money transfers are subject to sanctions.

In the US, Coinbase Global Inc. And crypto exchanges like Kraken already comply with regulations against money laundering by verifying customer identities and reporting suspicious transactions to the Financial Crimes Enforcement Network, or FinCEN, a unit of the Treasury Department.

But some countries have loose regulatory systems and are home to crypto firms that do not strictly police illegal activities. The FATF could potentially crack down on such countries by adding them to the list of jurisdictions that lack protections against money laundering and terrorism financing. Being included in the so-called gray list of the FATF can hurt a country by reducing foreign investment and making banks reluctant to do business there.