FATF issued updated regulatory guidance on virtual asset service providers (VASPs)

The global Financial Action Task Force (FATF) issued a new update to its 2019 guidance to a risk-based approach for virtual assets and VASPs, including clarifications on DeFi protocols, CBDCs, stablecoins, and NFTs.

FATF includes DeFi in guidance for virtual assets providers

FATF is an independent inter-governmental body developing and promoting global financial regulations. It released its finalized version of the Updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Providers report. The updated guidance significantly changes the earlier March 2021 draft,  paying particular attention to the DeFi industry.

The new guidance addresses issues identified during the FATF’s 12-month review of the revised FATF standards for virtual assets and VASP that require further clarification. The authority has provided substantial additional guidance regarding DeFi, despite the fact that DeFi applications are not considered VASPs by the FATF standard. Because the standards do not apply to underlying software or technology.

“Creators, owners, and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements, even if those arrangements seem decentralized, may fall under the FATF definition of a VASP where they are providing or actively facilitating VASP services”, the updated guidance states that DeFi developers and maintainers can actually be considered as VASPs.

The watchdog clarifies that governments should apply the recommendations based on the basic characteristics of the asset and the service, not the technology it employs, similar to how the U.S. Securities and Exchange Commission (SEC) applies the Howey test to determine whether certain assets are securities or not.

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