Financial Action Task Force (FATF), the global anti-money laundering watchdog has released an updated set of guidelines for the crypto market. The final guidelines make improvements and offer more clarity on the draft guidelines released earlier. The guidelines shed special focus on how regulators should treat new markets such as NFT and Defi.
“Countries should not apply their definition based on the nomenclature or terminology which the entity adopts to describe itself or the technology it employs for its activities…The obligations in the FATF Standards stem from the underlying financial services offered without regard to an entity’s operational model, technological tools, ledger design, or any other operating feature,”
The draft guidelines clarified that NFTs shouldn’t be treated as traditional digital or virtual assets, but if they are traded in a way that adheres to the FATF guidelines then they should be regulated appropriately under the same regulatory umbrella.
“Some NFTs that on their face do not appear to constitute VAs may fall under the VA definition if they are to be used for payment or investment purposes in practice,” said the guidance. “Other NFTs are digital representations of other financial assets already covered by the FATF Standards. Such assets are therefore excluded from the FATF definition of VA, but would be covered by the FATF Standards as that type of financial asset.”
FATF Shed Light on Issues With Defi
The main issue with the final draft guidelines on the crypto market lies with Decentralized Finance (Defi). Most of the guidelines fit perfectly for centralized exchanges and platforms but fail to clarify much on the Defi front. Thus, FATF has found a solution, instead of regulating the protocols, it would hold operators of Dex platforms and Dapss responsible and liable. FATF said,
“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.”
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