FATF’s Released Guidelines Includes Clarifications for DeFi, NFT (Report)

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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,

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