US Treasury Urges DeFi to Innovate Compliance Mechanisms

• US Treasury releases assessment on DeFi and finds it lacking in several ways.
• Assistant Treasury Secretary Elizabeth Rosenberg urges the DeFi community to innovate compliance mechanisms.
• US Treasury will assess enhancements to domestic AML/CFT regulatory regime, monitor responsible innovation of AML/CFT and sanctions compliance tools.

US Treasury Evaluation on Decentralized Finance (DeFi)

The United States Treasury conducted a risk assessment of decentralized finance (DeFi) and found the sector lacking in several ways. Assistant Treasury Secretary for Terrorist Financing and Financial Crime Elizabeth Rosenberg reminded an audience at the Atlantic Council think tank that the sector would need more regulation as a result of this evaluation.

Treasury Report Findings

The report released by the Treasury noted that scammers, money launderers and North Korean hackers were benefitting from the lack of Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance in this sector. The report also found that DeFi was not always very decentralized, with persons or firms associated with these services who may already be subject to AML/CFT obligations.

Compliance Innovation Needed

Rosenberg urged private sector players to innovate their compliance mechanisms so as to remain compliant with applicable laws. She noted that there is potential for innovation in AML/CFT and sanctions compliance tools which could help all participants in the digital ecosystem ensure they are following regulations.

FATF meeting Presentation

Rosenberg’s team recently returned from a Financial Action Task Force (FATF) Virtual Assets Contact Group meeting in Tokyo where they presented their findings from their DeFi risk assessment report.

Conclusion

Overall, it is clear that as DeFi continues to grow, so does its need for increased regulation and compliance measures to protect users from fraudsters or money launders looking to take advantage of its lack of oversight. With governments like The United States taking steps towards putting these measures into place, we can expect safer financial services provided through decentralized platforms in the near future!