FATF Wants To Regulate DeFi Services

The Financial Action Task Force (FATF) released its guidance on how decentralized finance (DeFi) services should be regulated. The FATF is an intergovernmental organization tasked with setting financial regulation standards

What Happened: On Thursday, FATF updated its 2019 guidance for a risk-based approach for virtual assets and virtual asset service providers (VASPs) with a focus on the DeFi Space. The update shows that while DeFi applications are not VASPs, the organization wants to subject them to the rules it had created for VASPs.

The FATF stated that "creators, owners and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements, even if those arrangements seem decentralized, may fall under the FATF definition of a VASP where they are providing or actively facilitating VASP services.”

This statement seemingly suggests completely decentralized systems remain outside the scope of the policy, as only entities "who maintain control or sufficient influence" may fall under the regulator's scrutiny. What constitutes control and influence over a given ecosystem remains to be seen.

The regulator also said that while non-fungible tokens (NFTs) do not fall under its definition of virtual assets they “would be covered by the FATF standards as that type of financial asset.” Still, the FATF admitted that given how rapidly the space is evolving, countries should "consider the application of the FATF standards to NFTs on a case-by-case basis."

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