TradFi Is Getting Easier Access to DeFi. FATF Says Institutions Still Own the Risk

Institutional infrastructure simplifies technical access to DeFi and complicates legal consequences of using it.

FATF's recent report admits that VASPs and DeFi arrangements bring lots of operational benefits including automated settlement, cross-border reach, 24/7 availability and generally higher yields.But none of this moves institutions outside their existing AML/CFT responsibilities.

Brokers, banks and other regulated financial institutions must identify who controls a DeFi protocol before using or integrating it into their systems — regardless of how the arrangement is structured or marketed.

Three Tiers, One Duty

The report sorts DeFi arrangements into three categories: those with identifiable controllers, those that are centralised in practice but whose controllers are hard to pin down, and those that are genuinely decentralised.

The category does not change the obligation but determines the amount of paperwork the companies will have to perform before they enter into business relations with the DeFi entity.

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