Senate proposes AML rules for DeFi services

DeFi-protocols must implement a strict AML-control over their users. This stems from a bipartisan bill proposed by a group of senators.

Its authors were members of the Banking Committee, Senators Jack Reed and Mike Rounds, as well as Mitt Romney and Mark Warner.

The National Crypto Security Enhancement Act is aimed at “fighting the rise in crime associated with the use of digital assets, as well as closing off avenues for AML- and sanctions-evasion measures that are critical to national security.”

The bill would require “anyone who controls” a DeFi protocol or provides access to it [via an interface]. In the absence of such persons, responsibility falls on those who invested at least $25 million in the project’s development.

The designated authorities would be required to verify and collect information about users, maintain AML programs, report suspicious activities to authorities, and block the use of the protocol by sanctioned individuals and organizations.

The bill would establish identity-verification requirements for crypto ATMs.

The measure also envisages expanding the Treasury Department’s powers to combat violators in the industry.

In September 2022, in the White Housetasked with completing by July 2023 an assessment of risks associated with the DeFi sector. SEC and CFTC also recommended paying closer attention to the area.

In March 2023, in the President’s annual Economic Report to Congress, analysts noted serious risks of dapps for investors and the financial system as a whole due to the use of leverage and the performance of supervisory functions without compliance with relevant regulatory acts.

In May, CFTC Chairman Rostin Benham stated, that DEX would be regulated by his agency or the SEC, even if platforms operate autonomously or with minimal human involvement.

In June, SEC Chairman Gary Gensler called the crypto industry a complete fraud, citing the securities market of the 1920s before regulation. He noted that this also applies to providers of DeFi services.