FATF Says DeFi Controllers Can't Hide Behind Smart Contracts

Enforcement is sparse. Nearly 93% of surveyed jurisdictions have never applied FATF standards to a qualifying DeFi arrangement. Only 26 of 142 respondents have assessed related risks. Four jurisdictions have licensing rules, and just two have ever registered or licensed a platform. The gap matters because persistent enforcement deficiencies can affect countries' evaluations and increase the risk of grey-list designation, FATF said.

The report recommends embedding sanctions screening and proof-of-KYC checks directly into contracts or interfaces. It also targets stablecoin issuers and front ends around leaderless systems. Platforms that refuse cooperation could face territorial bans, with financial institutions told to stop serving them. The urgency reflects illicit-finance concerns. Two North Korea-linked attacks in April totaled more than $570 million, FATF noted. DeFi value locked reached $86.6 billion, and the largest twelve protocols controlled over 60% of that amount.

FATF also warned about peer-to-peer stablecoin transfers through self-custody wallets. Those transactions bypass regulated intermediaries and can enable sanctions evasion, the watchdog said. It urged countries to close that gap as well.