US regulator to seek feedback on DeFi’s impact on financial crime

A United States financial regulator is looking to gain feedback from the banking industry about how decentralized finance (DeFi) may affect the bureau’s efforts to stop financial crime.

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

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

The acting director added the agency is “taking a close look” at its Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) framework for cryptocurrencies and digital assets to decide if “additional regulations or guidance are necessary.”

“We are engaging with relevant U.S. government stakeholders in this effort,” said Das. “We welcome engagement with industry — including the banking community — to better understand your assessment of the vulnerabilities and risks.”

In particular, the regulator was concerned at DeFi’s “potential to reduce or eliminate the role of financial intermediaries” that are critical to its AML and CFT efforts.

Das said it recognizes DeFi “will continue to impact the financial services industry” and the agency will need to mitigate the “illicit finance and national security risks posed by the misuse of digital assets.”

Related: Terrorists still predominantly use cash over crypto: UN officials

FinCEN’s evaluation of its AML and CFT frameworks is part of the Executive Order on Ensuring Responsible Development of Digital Assets issued by United States President Joe Biden on Mar. 9.

A result of the Executive Order was the U.S. Treasury Department’s “Action Plan to Address Illicit Financing Risks of Digital Assets.”

Among other priority actions, 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.”