Decentralized finance, or DeFi, continues to generate increasing interest from regulators and has become a part of the most important international rules developed for Virtual Asset Service Providers, or VASPs.
On Thursday, the Financial Action Task Force on Money Laundering, or FATF, released a new update of its 2019 guidance on a risk-based approach to virtual assets and VASPs, with a focus on the DeFi industry.
The new guidance addresses issues identified in the 12-month review of the revised FATF Standards for Virtual Assets and VASPs that require further clarification, and reflects the views of public consultation in March and April 2021.
The authority has provided important additional guidance regarding the DeFi industry despite the fact that DeFi applications are not considered a VASP under the FATF standards, as the standards “do not apply to underlying software or technology.” However, the updated guide states that DeFi developers and maintainers can be considered VASPs:
“Creators, owners, operators, or anyone else who retains sufficient control or influence over DeFi mechanisms, even if such mechanisms appear to be decentralized, may fall within the FATF definition of VASP if they are actively providing or promoting VASP services.”
According to Pelle Bründgaard, CEO of crypto-compliance startup Notabene, the new evidence aims to identify VASPs in the DeFi ecosystem based on member income. “If a company receives a transaction fee or direct revenue from the protocol it controls, it is likely to be classified as VASP. More decentralized protocols may also be fully covered in some cases, but not in all cases,” Brandgaard told Cointelegraph.
In addition to important additional guidance on DeFi, the new FATF guidance also addresses non-financial tokens (NFTs), stating that NFTs are exempt from the definition of virtual assets of the FATF, but will be “subject to FATF standards.” Such kind of financial assets. ”
“Given that the field of victim assistance is rapidly developing, a functional approach is particularly important in the context of NFTs and other similar digital assets. Therefore, countries should consider the possibility of applying FATF standards to NFTs on an individual basis,” the document states.
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The update also encourages global regulators to implement travel, anti-money laundering and terrorist financing rules as soon as possible for financial institutions introduced by the FATF in 2019. “Countries may wish to take a phased approach to enforcing travel rules. At the same time, the document notes that the requirements of The regulations, “but must continue to ensure that alternative measures to VASP are in place” to reduce the money laundering risks associated with cryptocurrency.
“With this updated guidance, the FATF increases urgency, but also recognizes the real challenges that VASP and flight path providers pointed out last year. They are now recommending that regulators be flexible in the early stages of deployment,” Brundgaard said.