It appears as though global financial – Anti-Money Laundering – regulatory body, the Financial Action Task Force (FATF) is eyeing Decentralized Finance (Defi) for regulation. This is according to a draft guidance document, the organization made public in mid-March.
The digital assets industry’s most innovative sectors, Defi and Non-Fungible Tokens (NFT’s,) received a clearer makeover, regarding the regulatory body’s gudence on risk-based approaches to digital currencies (reffered to, in the document, as Virtual Assets,) and digital asset-based currency providers (VASP’s.) Among other areas in the crypto ecosystem to receive clear definitions, are Decentralized Exchanges (DEX’s,) and Stablecoins.
The draft guidance, if passed, will mark the second iteration of the FATF’s preexisting guidance since June 2019, when the organization first altered it’s AML and Countering of the Financing of Terrorism (CFT) policies. In July of 2020, the body declared that it would update the Guidance document on a regular basis.
The FAFT has released the document for public comment before finalizing it. The regulatory body asked the public to review whether, or not, the updated document clearly defines the identifiers of an enterprise operating as a VASP – in terms of context, and parameters – and what would make, said enterprise, subject to VASP dedicated regulations. The anti-financial crimes outfit also asked for input on effective methods to combat money-washing on peer-to-peer networks.Travel, and Stablecoins also formed part of the list of key areas that the updated document had morphed to better accommodate.
Due to the pseudonymous nature of blockchain-based transactions, the NFT and Defi sector – being, fairly, new innovations – are proving a tad trick for the organization to get their heads around, in terms of drafting effective AML laws. The regulatory body is of the opinion that many of it’s policies may not apply to the underlying technology of Defi platforms, Decentralized App (DApp) providers however, may soon be regarded as VASP’s.
Termonionolgy around NFT was rearranged to clarify that the FATF has NFT’s that can be converted for fiat currency squarley in their sights, as a sector requiring some overseeing. “Some non-fungible tokens (NFTs) that may not initially appear to constitute VAs may, in fact, be VAs due to secondary markets that enable the transfer or exchange of value or facilitate money laundering, terrorist financing and proliferation financing,” commented blockchain sleuthing firm Ciphertrace, on the draft Guidance’s clearer definitions around NFT’s.
Updates to the FAFT’s draft Guidance seem to be an indication that the organization intends to allow for the development of the blockchain-based financial industry. The organization has altered much of the document’s wording to clarify terminology that could be misconstrued by digital asset industry players, and perhaps more crisply express the body’s views on cryptoassets.
Finalization of the draft Guidance will, likely, mean that global regulatory bodies will adopt clearer terms and policies for digital asset firms in their respective jurisdictions. More certainty on the regulatory front is said to be a key factor in the continued adoption – by institutional investors – of digital assets.