The FATF issued new guidelines governing NFTs and Defi, as well as virtual asset service providers, but several internet users were displeased with the inclusion of Defi and NFTs. Only a week after the FATF announced that the crypto guidance had been finalized, the anti-money laundering regulator revised it with clarifications for platforms that handle virtual assets.
VASPS was supposed to follow the same rules as legacy financial institutions, according to the proposal.
According to reports, companies that provide services such as stablecoins, decentralized finance apps, peer-to-peer transactions, and more may be required to monitor their customers’ credentials and funds in order to avoid money laundering and terrorism financing.
These platforms must follow the rules and conduct AML and anti-terrorism financing checks to boost security and close possible loopholes. The FATF recommendations suggested that countries could impose procedures such as record-keeping or confining transaction limits to specific addresses in the case of peer-to-peer transactions.
A post from the FATF read, “ 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.”
Still, the FATF gives countries a lot of leeway in determining how they wish to deal with DeFi. The FATF guidance notes that countries will have to constantly examine new projects and how they relate to the guidance, a recognition of the fast speed of development in the field. It does warn, however, that many initiatives use the term “decentralized” when there is still a natural or legal person who can be held responsible.
FATF wants more local regulation
In a nutshell, the FATF is requesting that governments identify protocol owners and operators and hold them to the VASP standards. It wrote, “For example, there may be control or sufficient influence over assets or over aspects of the service’s protocol, and the existence of an ongoing business relationship between themselves and users, even if this is exercised through a smart contract or in some cases voting protocols. Countries may wish to consider other factors as well, such as whether any party profits from the service or has the ability to set or change parameters to identify the owner/operator of a DeFi arrangement.”
Since the FATF recommendation has been a long time coming, it’s not surprising that it intends to improve regulatory control and bring the crypto business in line with traditional finance. The message was clear, but when the international body mentioned NFTs and DeFi, it provoked a discussion among some members of the community.
Defi Users Left Enraged
According to the documents published, the creators, owners, and operators who have a say in DeFi contracts may be forced to follow the rules specified by the regulator. NFTs are included in the FATF definition of virtual assets, according to the guidance, but regardless of language, FATF rules could apply to NFTs as well.
The DeFi community was not thrilled with the revised instructions, as Miller Whitehouse-Levine, policy director of the Defi Education Fund, harshly condemned the DeFi clarification in a tweet.