FATF Publishes Report on DeFi Regulatory Challenges

The Financial Action Task Force (FATF) published the Report on Regulatory Challenges Related to DeFi on July 21, 2026. The report summarizes the risks surrounding decentralized finance (DeFi), regulatory application, and responses for relevant stakeholders.

The FATF is an international framework established to combat money laundering that later added combating terrorist financing and financing related to the proliferation of weapons of mass destruction to its mandate. Its members comprise 38 countries and regions, including the G7, and 2 international organizations.

The report will give jurisdictions issues to consider when examining the application of FATF standards to DeFi. It will also serve as a reference for financial institutions, VASPs, and other private-sector entities when considering risk management and compliance related to DeFi.

The Financial Services Agency's involvement in international policy development and promoting the implementation of standards in the crypto-asset sector provides an example of Japan's financial administration participating in FATF international cooperation.

The report addresses the identification of ML, TF, and PF risks related to DeFi, clarification of the applicability of FATF standards, and the VASP identification requirements set out in the revised guidance issued in 2021. In particular, it presents criteria for determining whether a person has control or sufficient influence within the DeFi ecosystem.

The Financial Services Agency contributed to compiling the report as co-chair of the Policy Development Group (PDG) and the Virtual Assets Contact Group (VACG). The PDG is responsible for revising FATF standards and developing guidance, while the VACG is responsible for dialogue with the industry, monitoring compliance, and promoting the implementation of crypto-asset-related standards.