Financial Watchdogs Are Setting Their Eyes On DeFi: Report

Financial watchdogs are setting their eyes on Defi with the FATF working on new guidance that will make changes in terminology which seems to be in the direction of NFTs so let’s read more in our latest cryptocurrency news.

The innovative areas in the crypto space like Defi are on the radar of the financial watchdogs according to the draft guidance that was released by the Financial Action Task Force, the global anti-money laundering body. While clarifying the wording on decentralized exchanges, the mechanisms that power this space and apps are the non-fungible tokens or NFTs that the FATF made a reference to as they are exploding in popularity lately.

NFTs and DEfi bring more challenges to FATF which is now struggling to bring the AML rules onto the pseudonymous transactions in the crypto industry. When it comes to DeFi platforms, the FATF explained that the new standards may not apply to the underlying software or technology but all entities involved with dapps like owners or operators will be considered virtual asset service providers so they will have to meet the AML requirements as traditional finance. As well as adding more clarity in the DeFi space, the FATF guidance is making changes of terminology which seem to be in the direction of NFTs.
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A reference to “assets that are fungible” which has very important implications in light of the NFT craze was replaced by assets that are convertible and interchangeable according to the senior partner at XReg Consulting Sian Jones:

 “NFTs that can be converted or exchanged for fiat currency or other virtual assets were always in scope, and remain so. Some terms that were capable of being construed by stakeholders in ways that FATF had not originally intended have been replaced by language that more closely expresses the FATF’s intentions.”

In a blog post summarizing the key points of the new rules, blockchain analytics platform CipherTrace outlined that only NFTs which are able to facilitate money laundering and terrorist financing will be in the center of attention of the FATF:

 “Some non-fungible tokens (NFTs) that may not initially appear to constitute VAs may in fact be VAs due to secondary markets that enable the transfer or exchange of value or facilitate money laundering, terrorist financing, and proliferation financing.”