US Treasury Warns DeFi to Comply with AML Requirements

• US Treasury warns DeFi must comply with AML rules.
• Ari Redboard highlights critical challenges facing DeFi.
• Industry engagement needed to develop guidance and regulations.

Decentralized Finance (DeFi) has been making waves in the financial world as a revolutionary technology. That allows peer-to-peer value transfer on blockchains without intermediaries. However, concerns have raised about the risks associated with DeFi, including money laundering and terrorism financing.

According to recent reports, the US Treasury Department released a report assessing the risks and opportunities associated with DeFi. While acknowledging the promise of this technology, the report highlights the need for controls to ensure the safety and security of the ecosystem. The report also calls for collaboration between the government. And also the industry to build tools for anti-money laundering (AML), counterterrorism financing (CTF), and digital identity.

Ari Redboard reveals DeFi stumbling blocks

In an interview with Coindesk TV, Ari Redboard highlighted the key challenge facing DeFi is the absence of compliance officers in decentralized systems. Based on Ari, the Vice-chair of CTF, this makes it challenging to implement AML and CTF controls. 

However, the Treasury Department’s report emphasizes that it does not care about whether DeFi is centralized or decentralized but rather the activity taking place on the network. As per the reports, if the activity is financial services, then AML controls are required under the Bank Secrecy Act.

Similarly, in the interview, Ari claimed that over the next year or so, the Treasury Department would engage with the industry. This is to understand what is possible regarding AML controls in the DeFi space.

Looking ahead, the DeFi ecosystem expected to continue growing, with a balance between innovation and safety. The Treasury Department’s report acknowledges the need to work with the industry to build tools for AML and CTF while ensuring privacy and continued growth of the DeFi ecosystem.