FATF’s crypto checklist hints at the next regulatory crackdown

Cryptocurrency regulations are increasingly aligning with global standards; 73% of eligible jurisdictions have now passed laws to implement the Financial Action Task Force’s (FATF) Travel Rule.

The Travel Rule mandates crypto service providers to collect and share users’ transaction data, similar to traditional finance requirements. On June 26, the FATF released its annual report that outlines how recent regulatory moves by jurisdictions are converging with its global Anti-Money Laundering (AML) framework.

This is a direct result of a years-long campaign by the FATF to bring cryptocurrencies in line with traditional AML and Counter-Terrorist Financing (CFT) standards.

The FATF spotlighted stablecoins and decentralized finance (DeFi) for the second consecutive year, highlighting their rising use in illicit finance, including by North Korean actors. The organization said it plans to release targeted papers on stablecoins, offshore crypto platforms and DeFi by next summer, hinting at where global crypto regulation may head next.

FATF’s AML/CFT priorities are treated as a checklist by regulators to avoid getting isolated. Source: Joshua Chu## How the FATF became the backbone of crypto regulation

The FATF’s Travel Rule was extended to cover cryptocurrencies and exchanges in 2019 as part of the organization’s standards on AML/CFT. It was added to Recommendation 15 (R.15) — one of FATF’s 40 recommendations — as an interpretive note.

Out of 138 jurisdictions, only one has achieved full compliance with R.15 in 2025. Meanwhile, 40 jurisdictions were assessed as “largely compliant,” up from 32 in 2024. Three jurisdictions were removed from the noncompliance category.

The Bahamas is the sole jurisdiction to achieve full R.15 compliance at the time of writing. Source: FATFCompliance means a jurisdiction has enacted laws requiring the licensing or registration of virtual asset service providers (VASPs) — such as cryptocurrency exchanges and trading platforms — or has identified the legal persons conducting VASP-related activities. The licensing requirements across jurisdictions are “very similar,” including in regions vying to be labeled as “crypto hubs,” such as Singapore, Dubai and Hong Kong, Joshua Chu, co-chair of the Hong Kong Web3 Association, told Cointelegraph.

The Monetary Authority of Singapore, the city-state’s central bank, recently issued a warning to crypto exchanges engaging in regulatory arbitrage by avoiding a local license and relying solely on overseas customers. The exchanges were advised to either get licensed or exit by the end of June.

Related: Singapore’s ousted crypto firms may not find shelter elsewhere

The move sparked debate over whether Singapore truly aims to become a powerhouse for digital assets. Some in the industry speculate that Hong Kong could benefit most from its regional rival’s crackdown on unlicensed exchanges.

Chu warned that those looking for greener pastures in competing crypto hubs may end up disappointed, as all are adhering to the same FATF requirements. In fact, Singapore has issued more crypto licenses than Hong Kong.

“Regulators are also deadline fighters. So, they will make last-minute announcements (probably knowing the [FATF] draft of the report by that point) to see how they can improve their position before the formal report comes out,” Chu said.

“As a result, many jurisdictions have accelerated efforts to tighten controls, improve risk assessments and enforce the FATF Travel Rule. The FATF’s June 2025 report reflects this urgency, showing that while progress has been made, significant gaps remain in risk assessment, licensing and enforcement.”

Hong Kong has also been sprinting to roll out additional crypto rules. In May, its upcoming Stablecoin Ordinance passed the Legislative Council. The city then released an updated policy statement in tandem with FATF’s report

The FATF said an increasing number of jurisdictions have now decided how they want to regulate their respective crypto sectors, with 82% of 163 respondents stating they’ve identified their preferred regulatory approach. There are two main directions jurisdictions can take: to permit or to prohibit, with prohibitions ranging from partial to blanket bans.

Prohibition is becoming more common among Middle East and North Africa Financial Action Task Force and Eastern and Southern Africa Anti-Money Laundering Group members. However, the FATF warns that jurisdictions should consider this approach carefully, as full prohibition can be resource-intensive and difficult to enforce.

“When jurisdictions choose to prohibit rather than regulate, they do not eliminate the presence of crypto within their borders. Instead, they relinquish oversight, enforcement leverage and visibility into illicit flows,” Hedi Navazan, chief compliance officer of 1inch Labs and vice chair of the Digital Asset Task Force of the Global Coalition to Fight Financial Crime, told Cointelegraph.

“Let’s be real, crypto is borderless,” she added.

China, an FATF member, has partially prohibited cryptocurrency-related activities, such as transactions and mining. But the decentralized nature of blockchain technology still makes cryptocurrencies largely accessible to the public. Although Beijing has banned Bitcoin (BTC) mining, Chinese mining pools continue to control the majority of the network’s hashrate.

Stablecoins and DeFi under the FATF spotlight

Stablecoins and DeFi got their own sections in FATF’s report for the second consecutive year in the latest update.

Stablecoins, in particular, have been among the biggest stories in crypto in 2025 so far, with major jurisdictions advancing legislative proposals for stablecoin licensing, including the GENIUS Act in the US, which opens doors for tech firms to launch private stablecoins. The European Union has pushed further with Markets in Crypto-Assets (MiCA) Regulation, which sets rules for stablecoin issuers.

Related: Senate passes GENIUS stablecoin bill amid concerns over systemic risk

But stablecoins have also been increasingly tied to illicit activities, including reliance by North Korean actors suspected of financing the state’s weapons program, with industry estimates suggesting 63% of illicit transaction volumes were denominated in stablecoins.

The industry saw $30 trillion in stablecoin volume between May 2024 and 2025. Source: Visa/Allium“Stablecoins, especially USDT on the Tron network, have basically become the go-to tool for illicit actors. From North Korean hackers to scam networks… this isn’t just a niche problem anymore,” said Navazan.

Despite growing regulatory attention, most jurisdictions are still struggling to apply FATF standards to DeFi. According to the FATF’s 2025 report, nearly half of the jurisdictions that have implemented or are working on the Travel Rule say that some DeFi platforms should be licensed as VASPs, but most haven’t identified any such entities in practice.

Only four jurisdictions have formally registered DeFi entities, while just seven have taken supervisory or enforcement action. Source: FATFOut of 47 jurisdictions that claim DeFi can fall under VASP regulation, 75% have yet to find or license a single DeFi platform

Ignoring FATF standards can isolate an economy

The FATF’s influence is embedded within the United Nations framework, with multiple UN Security Council resolutions urging member states to implement FATF standards.

“This means jurisdictions face strong, concrete incentives to align their laws with FATF’s evolving standards, not merely out of goodwill but to avoid severe consequences,” Chu said.

Gray listing serves as a powerful enforcement tool for FATF, as it places a jurisdiction under increased monitoring, resulting in economic and reputational consequences. Budding crypto hub Dubai was formerly on the gray list before the United Arab Emirates was removed in 2024

“While FATF does not make the law, you would be foolish to ignore it. When FATF speaks, regulators around the world listen. That’s how it’s always worked,” said Navazan.

“If your country doesn’t align with those standards, it doesn’t just risk a poor rating — it risks becoming isolated.”

The FATF’s statements, including its annual updates on crypto, offer a preview of where global regulations are headed. With stablecoins and DeFi emerging as key areas of concern in 2025, the FATF’s planned research into these sectors is expected to shape the next wave of compliance measures.

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