Decentralised Finance: The Case for a Holistic Approach to Regulating the Crypto Industry

Abstract

While FATF Recommendation 16 applies to centralised exchanges and wallet providers (custodial exchanges and wallet providers) it does not apply to decentralised platforms for crypto transactions (non-custodial finance). This article considers, first, the potential limitations of the FATF rules with respect to centralised exchanges. It then examines the limitations in the context of decentralised finance. It assesses the benefits, limitations and risks of DeFi and thereafter highlights the policy issues around the regulatory gaps. It concludes with suggestions for a holistic approach to regulating the crypto industry.

Keywords: Decentralised Finance, DeFi, Crypto, FATF, Financial Crime

JEL Classification: K22, O31, O32, O33