US Department of the Treasury releases 2023 DeFi Illicit Finance Risk Assessment

The US Department of the Treasury has released the 2023 DeFi Illicit Finance Risk Assessment. This is the firts assessment of DeFi in the world and it considers the risks associated with DeFi services.

The assessment highlights that “illicit actors are exploiting vulnerabilities in the U.S. and foreign AML/CFT regulatory, supervisory, and enforcement regimes as well as the technology underpinning DeFi services”, due in part to “many existing DeFi services covered by the BSA [failing] to comply with AML/CFT obligations”.

The assessment goes on to suggest ” strengthening U.S. AML/CFT supervision and, when relevant, enforcement of virtual asset activities, including DeFi services, to increase compliance by virtual asset firms with BSA obligations” with regulators taking “additional regulatory actions and publish further guidance informed by [industry] engagement”, further “enhancing the U.S. AML/CFT regulatory regime by closing any identified gaps in the BSA to the extent that they allow certain DeFi services to fall outside of the BSA’s definition of financial institution”