The Financial Action Task Force (FATF) is looking to ramp up the pressure on countries to adopt crypto regulations – and its updated guidance has made mention of non-fungible tokens (NFTs), decentralized finance (DeFi), peer-to-peer (P2P) trading, and stablecoins for the first time.
The FATF published their report Friday on how best to tackle the problem of money laundering and terrorism financing in the crypto sector. The global watchdog has members from around 200 countries and provides guidance to the likes of the US Treasury, which will release its own stablecoin guidance in the coming days.
The stablecoin sector is accused by the FATF of thinking that it does not need to follow many of the existing financial regulations. Therefore, it is looking to impose more rules on the cryptocurrency infrastructure, such as exchanges and custodians.
According to Bloomberg, FATF President Marcus Pleyer stated:
“We expect that the countries will implement this as soon as possible.”
The FATF guidance on stablecoins will mean they will have to adhere to all existing rules. This will mean that they will be obliged to carry out all required anti-money laundering and anti-terrorism checks.
For peer-to-peer transactions, the FATF has recommended that countries impose their own additional requirements, such as enhanced record-keeping and using only approved wallet addresses.
For DeFi, any authority that has control or influence over the operations of a decentralized finance app ‘might’ have to comply with the FATF rules. The FATF guidelines also stated the following:
“It seems quite common for DeFi arrangements to call themselves decentralized when they actually include a person with control or sufficient influence, and jurisdictions should apply the VASP definition without respect to self-description.”
The guidelines further clarify that if a team behind a DeFi dApp “sold or distributed related governance tokens to investors and users,” then it would be responsible for carrying out all anti-money laundering checks.
It further said that if an authority behind the dApp couldn’t be identified, then countries can request that a regulatory authority step in to help control it and mitigate risks.
Here are a few other key points from the updated guidance:
- A section on NFTs is included, but seems somewhat preliminary, with mention that some NFTs may qualify as crypto-assets, but concluded that “countries should […] consider the application of the FATF standards to NFTs on a case-by-case basis.”
- DeFi apps themselves are not VASPs, but “creators, owners, and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements” maybe – and may need to obtain operating permits accordingly.
- On P2P trades, the body noted that such transactions can involve crypto-like “risks,” and must be policed. It wrote: “While the FATF has not observed a distinct trend towards increased usage of P2P transactions so far, there remains the potential risk that more virtual asset transactions will move to P2P space to avoid regulations/supervision as more jurisdictions implement the FATF standards and regulate and supervise VASPs.”
- The FATF does not consider self-regulating industry bodies to be suitable enforcers.
- There is a need for more “sharing and cooperation amongst” national “VASP supervisors.”