The lessons learned from the contagion witnessed following the dramatic FTX downfall have prompted FinCEN to demand the perspective of banking industry players on the decentralized finance (DeFi) vulnerability to crime risks. Essentially, the letter penned to the banking sector’s players seeks feedback on how DeFi can hinder FinCEN’s efforts to eliminate financial crime.
FinCEN’s circular conveyed to the banking industry players reveals that DeFi is under the agency’s watch alongside other virtual currencies. FinCEN’s inquiry comes when US legislators are questioning Securities and Exchange Commission’s (SEC) failure to avert FTX’s downfall despite the regulatory mandate.
FinCEN’s acting director Himamauli Das admitted that virtual currencies are a priority area for the watchdog agency to bring sanity to the digital asset ecosystem. Echoing the FinCEN’s circular content, Das informed the American Bankers Association’s representatives at the December 6 Financial Crimes Conference of that agency’s devotion to combating financial crime. In particular, Das added that FinCEN initiated regular scrutiny of DeFi’s vulnerability as it reviews its framework for combating terrorism financing and money laundering. The acting director admitted the agency’s priority rests upon ascertaining if additional guidance is necessary to secure digital assets and the cryptocurrency ecosystem from financial crimes.
Also read:Collective Engagement of Stakeholders
FinCEN calls upon the collective engagement of other stakeholders, including regulatory authorities and the banking community, to reveal the inherent vulnerabilities of DeFi to crime risks. The acting director confessed FinCEN is concerned with DeFi’s capability of hindering or eliminating input from financial intermediaries.
FinCEN considers financial intermediaries to facilitate anti-money laundering and combating terrorism financing activities. Nevertheless, Das disclosed that DeFi is set to alter the delivery of financial services. Moreover, FinCEN recognizes such potential as warranting the agency’s intervention to avert illicit financing and vulnerability of national security from digital assets misuse.
Mitigating DeFi’s Vulnerability to Illicit Financing
The evaluation referred to in the FinCEN’s circular sent to the banking community seeks compliance with President Joe Biden’s executive order issued on March 9. Das explains that FinCEN’s evaluation aims at facilitating prudent development of the digital assets ecosystem in the US.
Das illustrates the banking community’s response to inquiry on DeFi’s vulnerability as an invaluable input to the action plan initiated by US Treasury to mitigate illicit financing within the digital assets.
The acting director portrayed the FinCEN’s input as critical to the collective priority action initiated by the US Treasury Department to enhance private sector engagement in mitigating illicit financing risks through digital assets.
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