FATF’s New DeFi Test Puts ‘Real Control’ Under Regulatory Spotlight

The Financial Action Task Force (FATF) has introduced a new test that could bring some DeFi protocols under global anti-money laundering and counter-terrorism financing rules.

The approach looks beyond whether a protocol describes itself as decentralized. Instead, regulators can assess who has control or sufficient influence over how a project operates, potentially bringing some DeFi platforms under requirements that apply to virtual asset service providers.

The FATF calls the framework the “control or sufficient influence” test. Regulators can examine governance structures, smart-contract upgrades, treasury assets, fees and administrative permissions. They can also analyze blockchain activity to identify wallets or entities that appear to influence a protocol.

Regulators Focus on Real Control

Protocols with identifiable people or entities exercising significant influence could fall within the FATF framework. Projects that are genuinely decentralized may remain outside those rules, although regulators are still expected to use a risk-based approach to address illicit finance.

Related: Crypto’s Darwin Moment: Why Projects With Users Still Die Without Revenue

The framework also gives regulators a way to look beyond a protocol’s legal structure and assess how decisions are actually made. That could bring some projects under VASP requirements even when they do not operate like traditional companies.

Stablecoins Add Another Layer

Stablecoins are also part of the FATF’s guidance, including those used in DeFi lending and trading. The rules outline ways regulators can deal with stablecoins when they are tied to illicit activity.

Law enforcement agencies and blockchain analytics firms could also play a role. By examining transactions and governance records, they may be able to trace who is making decisions or exercising influence over a DeFi protocol, even when there is no company or identifiable management team running it.

Related: Coinsbuy Suffers $8M Cross-Chain Hack as Stolen Crypto Moves to Monero

(adsbygoogle = window.adsbygoogle || []).push({});