FATF Intensifies Scrutiny on Stablecoins and DeFi Amid Rising Illicit Use

Global oversight of cryptocurrencies is intensifying, with the Financial Action Task Force (FATF) focusing on stablecoins and decentralized finance (DeFi) as high-risk areas. While only The Bahamas is fully compliant with FATF’s anti-money laundering standards, numerous countries have made progress in meeting these requirements. The FATF has highlighted the increasing illicit use of stablecoins and DeFi, particularly by actors linked to North Korea.

Despite the heightened scrutiny, enforcement remains weak. Only four jurisdictions have registered DeFi entities, and most have not taken supervisory action. This lack of enforcement underscores the challenges in regulating these emerging financial technologies. The FATF’s reports on stablecoins, DeFi, and offshore platforms, expected next year, are likely to influence the next phase of global crypto regulation.

Regions like Singapore and China Hong Kong are taking swift action to tighten controls. In Singapore, unlicensed exchanges face potential shutdowns, while China Hong Kong has advanced legislation specifically targeting stablecoins. However, the FATF cautions that outright bans on cryptocurrencies often fail to reduce activity and instead erode oversight, emphasizing the need for balanced regulatory approaches.