FATF Proposes New Rules for Stablecoins and DeFi

What It Means for the Crypto Industry

The Financial Action Task Force (FATF) – the global standard-setter for anti-money laundering (AML) and counter-terrorism financing (CFT) – has announced its intent to develop new regulatory frameworks targeting stablecoins and decentralized finance (DeFi) platforms. These updates follow FATF’s June 2025 Targeted Update, which found that many countries are falling behind on implementing effective oversight in the fast-evolving crypto space.

This article breaks down what the FATF’s plans mean for:

• Crypto businesses and DeFi protocols
• VASPs and their legal advisors
• Global regulators and enforcement agencies
• Retail and institutional users

Why FATF Is Focusing on Stablecoins and DeFi

1. High Risk of Illicit Activity in Stablecoins

Stablecoins like USDT and USDC are widely used for cross-border crypto transactions. FATF noted that most illicit crypto activity now involves stablecoins, due to their ease of use, low volatility, and fast settlement times. These features, while attractive for legitimate use, also make stablecoins a tool of choice for:

• Money laundering
• Terrorism financing
• Sanctions evasion

2. Security Threats from Nation-State Hackers

The FATF cited the Bybit hack earlier this year – allegedly linked to North Korean actors – as a wake-up call. The stolen amount ($1.46 billion) could only be partially recovered. Incidents like this highlight the urgent need for coordinated international regulation.

3. Regulatory Gaps in DeFi Protocols

Many DeFi projects operate without a legal entity, making them difficult to supervise. While FATF has urged countries to treat DeFi platforms as Virtual Asset Service Providers (VASPs), enforcement remains low. This raises concerns about:

• Lack of AML compliance
• No consumer protections
• High risk of fraud and rug pulls

Current Global Compliance: The Numbers

As of June 2025:

• 73% of FATF-assessed countries have adopted the Travel Rule, which requires VASPs to collect and share sender/receiver information.
• Only 40 out of 138 countries are “largely compliant” with FATF’s crypto-related standards.
• 21% of jurisdictions remain non-compliant, and many others show weak enforcement of VASP licensing and AML protocols.
• The Bahamas is currently the only fully compliant country.

FATF’s Upcoming Plans (2025–2026)

FATF has outlined the following roadmap to close regulatory gaps and improve crypto oversight globally:

A. New Guidance on Stablecoins

Expected by late 2025, this guidance will define:

• How to license stablecoin issuers
• AML/CFT requirements for wallet providers
• Monitoring frameworks for cross-border stablecoin flows

B. DeFi Oversight Framework

The FATF is set to publish a 2026 guideline on DeFi, focusing on:

• Identifying responsible parties (developers, operators)
• Enforcing VASP obligations (KYC, reporting, AML checks)
• Regulating automated smart contract services

C. Offshore and Unregistered VASPs

To address regulatory arbitrage, FATF plans to:

• Improve tools for tracking offshore VASPs
• Encourage countries to deny access to non-compliant platforms
• Promote shared global registries and sanctions databases

D. Practical Tools for Supervisors

FATF has already released supervisory tools to help countries enforce:

• The Travel Rule in real-time transactions
• Cross-border cooperation in investigations
• Legal action against non-compliant VASPs

What This Means for Stakeholders

For Crypto Businesses and VASPs:

• Prepare for stricter AML/CFT checks across jurisdictions
• Stablecoin issuers may soon require licensing and operational transparency.
• DeFi teams could be required to register as VASPs – even if protocols are “decentralized.”
• Adopt Travel Rule compliance solutions to avoid enforcement risks.

For Governments and Regulators:

• Shift from just writing laws to active supervision and enforcement.
• Design frameworks that identify liable parties in DeFi ecosystems.
• Implement robust cooperation channels with other jurisdictions to trace illicit funds.

For Legal Advisors and Compliance Officers:

• Monitor FATF updates and prepare clients for evolving compliance burdens.
• Help clients register with appropriate authorities under updated VASP rules.
• Conduct risk assessments on stablecoin usage and DeFi exposure.

For Crypto Users:

• Expect platforms to ask for more KYC information.
• DeFi tools may offer less anonymity in the future.
• Stricter oversight could improve safety  – but may reduce convenience for some users.

FATF’s End Goal: Transparency, Not Total Control

Contrary to public fears, FATF is not pushing for a ban on stablecoins or DeFi. Instead, the goal is transparency, accountability, and responsible innovation.

“The FATF isn’t trying to eliminate stablecoins or DeFi. The aim is to ensure they are not misused by criminals or terrorists.”
– FATF June 2025 Report

When properly regulated, stablecoins can offer real advantages in payments, finance, and blockchain-based innovation. Likewise, DeFi protocols could coexist with compliance frameworks – if designed with accountability in mind.

What’s Next?

Here’s a brief timeline of what to expect:

Timeframe	Expected Action
Oct–Dec 2025	FATF releases guidance on stablecoins and offshore VASPs
Q1 2026	New DeFi regulation framework draft issued
Mid 2026	Updated global compliance report and enforcement trends
Ongoing	Jurisdictions continue Travel Rule adoption and VASP licensing

Final Takeaway on New Stablecoin and Defi Regulations

FATF’s upcoming rules on stablecoins and DeFi mark a turning point for global crypto regulation. The message is clear:

Innovation is welcome – but not at the cost of security, trust, and lawfulness.

For crypto firms, now is the time to align with best practices. For legal teams, it’s an opportunity to help clients grow within a clearer regulatory structure. For users, it’s a move toward a safer, more reliable crypto ecosystem.At Cryptoverse Legal Consultancy, we bridge the gap between crypto innovation and global regulation. Stay compliant. Stay ahead.