The Financial Action Task Force (FATF) focused on DeFi-Decentralized Finance and NFTs in its new proposed project, but the new definitions in the guide may still be extremely broad.
The Financial Action Task Force has published a new draft guide that even decentralized funding platforms (DeFis) need to find a way to implement their customer knowledge rules (KYC).
Why is this important?
The FATF was in the headlines two years ago when it proposed and then finalized guidelines calling on states to implement KYC requirements on all cryptographic exchanges.
Countries have begun to implement these recommendations, with South Korea recently enacting new anti-money laundering rules that have closed at least one major cryptocurrency. The draft guidelines, updated this month, massively increase the number of items that may fall within the FATF’s field of vision.
The FATF’s new draft, published March 19, now distinguishes between fungible tokens and non-fungible tokens, adds descriptors for decentralized exchange and decentralized financing (DeFi), and specifies who may be responsible for meeting KYC requirements on DeF platforms. NFTs and DeFs are facing entirely new challenges for the FATF, which in turn is already struggling in a booming cryptocurrency industry to try to attach pseudonyms to money laundering rules to proposed transactions.
In other words, the FATF reacted quickly to the rapid growth of NFTs and DeFs over the past year. The updated guidelines, when finalized, should ask countries to ensure that even DeF platforms have some kind of KYC rules, even if there is no technical party responsible for the active network.
This is called “updated guidance”, but in reality it is the FATF’s understanding of virtual asset service providers. This is the FATF’s move to respond in near real time to some of the technical advances that are now taking over crypt widely.
“The expanded definition of VASP would include” individuals and groups of people “in the cryptographic sector that have no equivalent in the traditional financial sector, said Kristin Smith , executive director of the Blockchain Association, who called the current form of the guide” problematic. “
In particular, developers who create some kind of decentralized platform and have no control can be responsible for KYC’s rules, even if they have no role in launching the platform afterwards.
“They should still be responsible for implementing the fight against money laundering and terrorist financing on things they no longer necessarily belong to,” Smith said. “Regulators hope to create a centralized unit in charge of the anti-money laundering program, which is not compatible with decentralized networks.”
Amy Davine Kim , managing director of the Digital Chamber of Commerce, said much of the new guide applies to regulations that have been in place for years, but the explanations in the document lead to some strange interpretations.
Some of DeF’s tools are still evolving, he said.
In his view, “a principle – based and risk – based approach may be better for a longer – term solution”.
However, the fact that the FATF published draft guidelines so soon after the summer of the DeF and NFT boom shows that they are paying attention to what is happening in the world of digital assets, Redbord said.
“There are a number of people who may not be doing bad things, but for whom privacy is fundamental in their lives and they are moving … with money launderers. There is no way to tell them apart, and that is moving everyone towards an increasingly anonymous crypto, ”said Jones.
There are up to 20 participants in the field. April to comment if they wish to provide feedback on the draft guidelines. The FATF will vote on the adoption of the recommendations (or not) at its June plenary.
The Financial Watchdog Group is updating the guidelines that affect DeF, the NFTs
The Financial Action Task Force (FATF), the global organization for financial supervision, has updated its guidance on cryptographic assets to cover more recent market changes, including the NFT boom and growing interest in decentralized funding. Siân Jones from XReg Consulting talks more about what an updated guide to cryptography means.
An evolving European regulatory framework
Last month, the European Commission proposed changes to the Markets in Crypto-Assets (MiCA ) regulations.
Many of these changes do not affect the encryption space in one way or another – for example, stablecoin is regulated as e-money, which has its own non-MiCA regulatory regime in the European Union. However, some proposals may force cryptographic companies to rethink their strategies.
Cristina Carrascosa , founder and partner of the ATH21 legal boutique, told CoinDesk that the most important change in the cryptographic sector could be a ban on interest-bearing cryptographic assets.
Jackson Mueller , Securrency’s director of policy and government relations, said the proposed changes “really put the ECB (ECB – European Central Bank) at the heart of the development of the European digital asset area”.
“The only other thing that caught my attention was that the amendments to the pilot proposal also included the term ‘settlement coin’, which means a completely new proposal,” he said.
The rule proposed by FinCEN
The counterparty comment period proposed by FinCEN has now expired, with around 7,400 comments / feedback from the public sector portal. The U.S. government has yet to sort out these comments before it can or will decide how it wants to proceed.
As a reminder, this is a proposed rule that (a) require a cryptographic exchange to submit currency transaction reports (CTRs) for aggregate transactions with a value in excess of $ 10,000 per day; and (b) collect data on counterparty or private wallets.
However, if the first part brings the rules on the provision of cryptographic information more closely into line with the rules that banks must follow in the case of fiat transactions, the second part will be much more controversial.
In one, we can be sure that regulations are coming and they cannot be escaped. This is elsewhere in the world as well as in Estonia. In some places, this is a sign of acceptance, but at the same time over-regulation creates a breeding ground for community reluctance. It should be found as a golden mean, but is it among the systems that work today? We’ll see.