The Financial Action Task Force (FATF) released its long-awaited guidance on virtual assets, laying out standards that have the potential to reshape the crypto industry in the United States and around the world. The guidance addresses one of the most important challenges for the crypto industry: To convince regulators, legislators and the public that it does not facilitate money laundering.
The guidance is particularly concerned with the parts of the crypto industry that have recently brought about significant regulatory uncertainty including decentralized finance (DeFi), stablecoins and nonfungible tokens (NFTs). The guidance largely follows the emerging approach of U.S. regulators toward DeFi and stablecoins. In a positive note for the industry, the FATF is seemingly less aggressive toward NFTs and arguably calls for a presumption that NFTs are not virtual assets. The guidance, however, opens the door for members to regulate NFTs if they are used for “investment purposes.” We expect this guidance to add fuel to the NFT rally that has been underway for the majority of 2021.
Related: The FATF draft guidance targets DeFi with compliance
Expanding the definition of virtual asset service providers
The FATF is an intergovernmental organization whose mandate is to develop policies to combat money laundering and terrorist financing. While the FATF cannot create binding laws or policies, its guidance exerts a significant influence on counter-terrorist financing and anti-money laundering (AML) laws among its members. The U.S. Department of the Treasury is one of the government agencies that generally follows and implements regulations based on the FATF’s guidance.
The FATF’s much-anticipated guidance takes an “expansive approach” in broadening the definition of virtual asset service providers (VASPs). This new definition includes exchanges between virtual assets and fiat currencies; exchanges between multiple forms of virtual assets; the transfer of digital assets; the safekeeping and administration of virtual…