FATF: DeFi with Identifiable Control Should Fall Under VASP Rules

The Financial Action Task Force (FATF) said in a report released Tuesday that its existing standards already apply to DeFi arrangements when identifiable individuals retain "control or sufficient influence," regardless of how decentralized a project claims to be. FATF said many DeFi projects still show centralized features in practice, citing concentrated governance token holdings, managerial authority, control over upgrades, and fee or reward flows that benefit insiders. The report groups DeFi into three categories: projects with identifiable controllers; projects that are effectively centralized but operated by undisclosed parties; and genuinely leaderless arrangements. Only the third category falls outside FATF's standards. Survey results suggest implementation remains limited. FATF said nearly 93% of jurisdictions that responded have not applied the standards to any DeFi arrangement that qualifies. Of 142 jurisdictions, 26 have assessed risks, four have put licensing rules in place, and only two have registered or licensed related platforms. FATF urged countries to require or encourage DeFi projects to build anti-money laundering controls into smart contracts or user interfaces. For platforms that refuse to cooperate, jurisdictions could ban local operations as a measure of last resort. The report also said DeFi's total value locked reached $86.6 billion this year, up about 85% from 2023.