Global anti-money laundering watchdog Financial Action Task Force (FATF) released 99-page draft guidance that twisted the terminology for DeFi and NFTs. Analysts say, if adopted, the proposed guidance could hamper the burgeoning DeFi and NFT markets. The FATF plans on receiving comments until April 20, 2021, and is particularly looking for feedback from the virtual asset service providers, tech developers, policymakers, academicians, and other regulated entities.
In its new guidance, the FATF classified most of the DeFi platforms as “Virtual Asset Service Providers” (VASPs). This signifies, if adopted in major jurisdictions many DeFi platforms will have to comply with the guidelines under FATF to combat financial crimes.
According to the financial watchdog, stablecoins are virtual assets (VAs) subjected to the FATF Standards, however, central bank digital currencies (CBDCs) are not considered under VAs.
Meanwhile, entities that come under Virtual Asset Service Providers (VASPs) include decentralized exchanges, certain dApp owners and operators, crypto escrow services, and certain NFTs that could facilitate money laundering or terrorism funding activities.
The FATF says that the terminology doesn't apply to the underlying software or technology, but the owners or operators are considered virtual asset service providers (VASPs). Hence, crypto players entities coming under VASPs must meet the same anti-money-laundering requirements as traditional finance.
The 2021 draft guidance on virtual assets (VAs) and VASPs have not been approved by the financial regulator and will make further amendments at its June 2021 meetings.
Analysts say that the new guidance wasn’t formulated keeping in mind the Defi and NFT industries. Hence, if adopted by governments across the world, it could be disastrous for the booming crypto industry.
FATF’s guidance might be in fact inapplicable to DeFi as VASPs in centralized finance have to work with the current financial institutions, have a relationship with a bank for a fiat on-ramp, or needs to custody crypto funds.
DeFi is totally peer-to-peer, there are no counterparties involved here. Hence, the system of centralized finance might not even apply here.