FATF introduces new regulatory test for DeFi protocols

The Financial Action Task Force (FATF) has introduced a new framework known as the ‘control or sufficient influence’ test. This approach aims to bring certain decentralized finance (DeFi) protocols under global anti-money laundering and counter-terrorism financing regulations.

Rather than relying on a protocol’s self-description as decentralized, regulators can now assess who exercises actual control or significant influence over operations. This assessment includes examining governance structures, smart-contract upgrades, treasury assets, fees, and administrative permissions. By analyzing blockchain activity, authorities may identify specific wallets or entities that influence a protocol, potentially subjecting them to requirements typically applied to virtual asset service providers (VASPs).

Stablecoins used in DeFi lending and trading are also subject to this guidance. The framework provides methods for regulators and law enforcement to trace decision-making processes and combat illicit activity, even in projects lacking a traditional management team or legal corporate structure.