Could this Global Financial Watchdog Cripple DeFi?

The Financial Action Task Force, an intergovernmental organization for combating money laundering, has revealed that it has not changed the way it monitors digital assets. The statement came after a report by Al Jazeera claimed that the organization plans to ramp up oversight of crypto companies.

FATF Could Add Countries that Fail to Meet Crypto Guidelines to its “Grey List”

According to a recent report by Al Jazeera, the FATF could add countries that fail to implement anti-money laundering guidelines for digital assets to a “grey list” as part of its plans to tighten scrutiny of virtual assets. The report said that the watchdog is preparing to conduct annual checks to ensure countries are enforcing anti-money laundering on crypto companies.

The yearly reviews would replace evaluations that run on 10-year cycles, the report said, adding that it will give non-compliant countries less time to enact standards set by the intergovernmental organization, consequently raising the risk they are added to a “grey list.”

Citing a source who talked on the condition of anonymity, the Al Jazeera report said that a failure to comply with the rule would not automatically result in a greylisting, but it would affect a country’s overall rating.

However, a FATF spokesperson has allegedly said the organization has not changed the “manner or frequency of its assessments” of virtual assets. “This Recommendation continues to be assessed and rated as part of countries’ mutual evaluation or follow-up reports,” the FATF said.

At the moment, there are 23 countries on FATF’s “grey list,” which includes crypto hubs like Pakistan, the United Arab Emirates, the Philippines, Türkiye, Morocco, and Panama.

DeFi Tries to Comply with Regulators

While accessibility is one of the key characteristics of DeFi, the ecosystem has been seeing increasing instances of denying users access based on their wallets or location. Entrepreneur Brad Mills has recently shared one such instance, noting that 1inch Network’s decentralized application (DApp) restricts access because of the wallet address. He said:

“Some users of DeFi on Ethereum are being denied access to use decentralized exchanges based on things like your location & the contents of your wallet. This is the future of web3, a surveillance panopticon.”

While the DeFi aggregator strives to comply with sanctions and embargo lists, the move contradicts core DeFi values of accessibility and censorship-resistant. “They have rebuilt everything that’s wrong with wall st on a blockchain,” Mills added.

Could FATF Cripple DeFi?

The FATF has long been an advocate of bringing regulatory oversight to crypto. Back in 2020, the watchdog introduced the Travel Rule, formally known as FATF Recommendation #16, which orders virtual asset service providers (VASPs) to share the information of the originators and beneficiaries of crypto transactions that exceed a certain threshold.

Moreover, in its updated guidance for crypto firms released in October 2021, the FATF said VASPs “are subject to the same relevant FATF measures that apply to financial institutions.” However, some crypto companies called the regulation proposals flawed.

It is worth noting that DeFi has also taken a hit amid the recent crypto market crash. The total value locked across DeFi has dropped to around $52 billion, down by around 70% compared to the all-time high of $180 billion recorded in early November 2021, according to DeFi Llama.

This article originally appeared on The Tokenist

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