In November, the Financial Action Task Force (FATF) finalized its digital currency guidelines. It called on governments to hold DeFi operators accountable for any violations of AML regulations, making the legal status and future of DeFi uncertain in the United States.
Sen. Pat Toomey (R-PA) wrote to Treasury Secretary Janet Yellen for clarification on several points. The FATF previously clarified that the guidelines do not recommend software should be regulated but that the focus should be on identifying the individuals behind the projects and holding them to account.
What exactly did Sec. Yellen clarify?
When the FATF presented its finalized regulations last month, it left many with questions about how to interpret them. Essentially, Sec. Yellen has provided answers to some of these questions.
Specifically, she stated that she agrees with the FinCEN statement that reporting burdens would not fall on entities providing ancillary services such as wallet manufacturers, software developers, and miners. In other words, these entities, which do not take custody of users’ funds, will not be subject to Money Service Business registration.
Sec. Yellen also answered several other questions related to digital currencies and the industry in general. Specifically:
- She clarified that the recent President’s Working Group report on stablecoins identified significant gaps in the authority of federal regulators to address the risks they pose. The report also recommended that stablecoin issuers should be regulated as insured depository institutions. This would essentially subject them to the same levels of supervision and regulation as banks.
- She also clarified that the previous Treasury recommendation for Congress to provide greater regulatory harmony between states had been revoked by the White House in February 2021. However, she noted that greater harmonization has been achieved and is progressing due to new regulations from the Conference for State Banking Supervisors (CFBS).
It doesn’t take much to join the dots and realize the direction all of this is taking. The Treasury, FinCEN, the SEC, the FATF, and several other powerful regulators are all working on drafting, passing, and implementing regulations to bring the free-for-all era of the digital currency industry to an end. As SEC chairman Gary Gensler recently said, The Wild West era must end.
Regulations in the U.S. will have an impact around the world
The United States is still the most powerful economic entity on the face of the earth by a long way, and it sets the standard when it comes to financial laws and regulations. As the U.S. goes, much of the rest of the world will go.
This is why it’s crucial for digital currencies and all blockchain projects to comply with existing and new laws and regulations. This includes the AML/KYC regulations, which many of the Bitcoin-anarchists involved with BTC, Monero, and other ‘privacy coins’ loathe.
In time, it’s inevitable that dodgy stablecoin issuers like Tether will be regulated out of existence. Custodial service providers and hosted wallet providers will have to identify their customers and report on their transactions. And any entity issuing tokens will have to abide by securities laws. In other words, most of what we see and know today will fade away, and a new era will begin.
While some will lament this, it means that scalable utility blockchains like BSV can finally reach their potential. As CoinGeek has maintained all along, and as this story further highlights, only the legally compliant will survive in the long run. Decentralization is a mere buzzword, and as the FATF regulations make clear, the individuals behind protocols and projects can and will be held accountable going forward.
Watch: SEC Commissioner Hester Peirce on Bitcoin Association’s Blockchain Policy Matters
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