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US Regulator to Seek Feedback on DeFi’s Impact on Financial Crime

FinCEN is taking a “close look” at money laundering and terror financing laws after soliciting feedback from banking sector players on DeFi’s crime risks.

A financial regulator in the United States is seeking feedback from the banking industry on how decentralized finance (DeFi) may affect the bureau’s efforts to combat financial crime.

The Financial Crimes Enforcement Network (FinCEN) stated that it is “looking carefully” at DeFi, while acting director Himamauli Das stated that the digital asset ecosystem and virtual currencies are a “key priority area” for the agency.

Das delivered prepared remarks at the American Bankers Association’s Financial Crimes Enforcement Conference on December 6.

The acting director also stated that the agency is “taking a close look” at its Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) framework for cryptocurrencies and digital assets to determine whether “additional regulations or guidance are required.”

“We are working with relevant US government stakeholders on this,” Das said. “We welcome dialogue with industry, including the banking community, to better understand your assessment of vulnerabilities and risks.”

The regulator was particularly concerned about DeFi’s “potential to reduce or eliminate the role of financial intermediaries,” which is critical to its AML and CFT efforts.

Das acknowledged that DeFi “will continue to have an impact on the financial services industry,” and that the agency will need to mitigate the “illicit finance and national security risks posed by the misuse of digital assets.”

The evaluation of FinCEN’s AML and CFT frameworks is part of US President Joe Biden’s Executive Order on Ensuring Responsible Development of Digital Assets, which was issued on March 9.

The Executive Order resulted in the United States Treasury Department’s “Action Plan to Address Illicit Financing Risks of Digital Assets.”

The plan recommended increased private sector engagement through “the publication of official documents, discussions, and Treasury programs that enable public-private and private private information sharing,” among other priorities.

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