Financial Action Task Force Introduces New Guidelines for Crypto Service Providers

These days, it looks like decentralized finance is gaining more interest and attention from regulators. Consequently, it’s now a part of various international regulations that are developed for VASPs, better known as virtual asset service providers.

On Thursday, the Financial Action Task Force, announced a new update to their 2019 guidance. It involves a risk-based approach towards virtual assets, and closely focuses on the DeFi industry. The new guidance looks at issues that were identified in the task force’s one-year review of the recently altered FATF standards for virtual assets and their service providers.

As a regulatory authority, they have offered plenty of other important guidance with regard to the DeFi industry. This is although DeFi apps are yet to be considered as virtual asset service providers according to FATF standards. This is because the task force’s standards don’t apply to any underlying technology or software yet. But based on the updated guidance, DeFi maintainers and developers can be seen as virtual asset service providers.

Based on an official statement by the authority, various operators, owners, and creators will fall within the VASP definition. So if someone successfully maintains proper influencer and control in DeFi settings, they are a virtual asset service provider. This will only apply to places where they provide or consistently facilitate VASP services. Most importantly, this will also apply if certain arrangements seem safely decentralized.

According to the CEO of Notabene, a crypto compliance startup, the upcoming regulations are looking to find VASPs. They will look in the DeFi network according to participants’ revenue. So if a business is taking transaction fees or direct revenue based on a protocol they don’t control, they become a VASP. He elaborated that more thoroughly decentralized protocols could fall under some cases as well, but not all of them.

Besides all the extra guidance on decentralized finance, the recent FATF guidelines also talk about NFTs. It elaborates that non-fungible tokens are not included in the FATF definition of virtual assets. However, they will still be covered by latest FATF standards just like the other financial assets in that category.

Considering how the digital asset space is evolving at a rapid pace, this approach is quite relevant. This is in terms of the recent release of NFTs and such digital assets. The document reads that therefore, countries must think about applying the FATF standards non-fungible tokens based on the case. Because situations can vary, it’s important to keep all considerations in mind before making a decision.

The update goes on to demand greater urgency from worldwide regulators to set up the Travel Rule. This is a regulation that was introduced for financial institutions in 2019 by the FATF.