FATF Warns Governments of Growing Stablecoin Risks in Crypto Industry

The Financial Action Task Force (FATF) has issued a stern warning to governments worldwide, urging them to intensify their enforcement of anti-money laundering standards within the cryptocurrency industry. The global watchdog emphasized that without stronger regulations, the growing use of stablecoins by illicit actors, such as North Korea-linked hackers, poses significant risks to global financial security.

The FATF's report, released from Paris, highlighted that while jurisdictions have made progress since 2024 in implementing anti-money laundering and counter-terrorism financing frameworks for virtual assets and related service providers, critical challenges remain. These challenges include issues around licensing, offshore oversight, and identifying entities involved in virtual asset services. The FATF’s latest targeted update focused on Recommendation 15, which was expanded in 2019 to cover crypto markets. The report underscored that regulatory failures in one jurisdiction can have global consequences due to the inherently borderless nature of virtual assets.

The FATF noted that 99 jurisdictions have either enacted or are preparing legislation aligned with the “Travel Rule,” a key mechanism to ensure transparency in cross-border crypto transfers. The FATF also released a new guide outlining best practices for supervising compliance with the rule. However, the report flags mounting threats associated with the rise of stablecoins, warning that their use by illicit actors, including terror financiers and drug traffickers, has grown significantly. The FATF cautioned that mass stablecoin adoption without coordinated regulation could increase global exposure to illicit finance.

This update follows a series of alarming trends, including North Korea's execution of the largest virtual asset theft in history, stealing $1.46 billion from exchange platform ByBit. Only about 3.8% of the stolen funds has been recovered, highlighting serious gaps in international asset tracing and recovery efforts. Fraud and scams continue to trouble the crypto sector, with industry estimates suggesting that around $51 billion in on-chain transactions last year were linked to such illicit activity. These cases point to increasingly sophisticated tactics by bad actors, putting pressure on governments to enhance cooperation and improve asset seizure mechanisms.

In one example, the UK’s Operation Destabilise demonstrated how coordinated law enforcement can disrupt crypto-fueled criminal networks. The FATF said such efforts must be replicated globally and backed by more robust supervision and enforcement. The watchdog acknowledged support from analytics firms in compiling the update and stressed that nearly 98% of the global virtual asset market is concentrated in jurisdictions within the FATF’s Global Network. Bringing these players into full compliance, it said, will be key to reducing worldwide risk.