Require DeFi to have the same requirements as traditional finance
A bipartisan group of U.S. senators today introduced a bill that would require decentralized financial (DeFi) services to comply with anti-money laundering (AML) requirements and economic sanctions like traditional financial institutions.
The Crypto-Assets (Cryptocurrency) National Security Enhancement and Enforcement Act (CANSEE Act) also aims to strengthen the Treasury Department’s regulatory authority over DeFi projects.
U.S. Senators Jack Reed (Democrat), Mike Rounds (Republican), Mark Warner (Democrat), and Mitt Romney (Republican) are on the bill.
Lawmakers explain the background to the bill:
DeFi offers anonymity by design. This could allow criminals to circumvent financial institutions’ transaction surveillance and reporting systems for suspected money laundering and financial crime transactions.
He also noted that criminals, drug traffickers, and hostile states such as North Korea tend to use DeFi to launder their ill-gotten gains.
What is DeFi (decentralized finance)?
Refers to financial services or systems that utilize blockchain and are performed in the absence of a central administrator. Abbreviation for “Decentralized Finance.” DeFi financial services include stablecoin issuance, currency lending, and cryptocurrency exchanges. Many platforms use the Ethereum blockchain.
The CANSEE Act applies the same national security laws to DeFi that apply to banks, securities brokers, casinos, centralized cryptocurrency exchanges, and more.
DeFi services will be required to implement anti-money laundering (AML) programs, conduct customer due diligence, and report suspicious transactions to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The CANSEE Act also includes requirements for operators of cryptocurrency ATMs to verify the identity of the other party for each transaction using the ATM. According to lawmakers, there are currently about 30,600 cryptocurrency ATMs across the United States.
Additionally, the bill provides for extending the Treasury’s authority to DeFi. By way of background, the U.S. Treasury Department has the power to impose special anti-money laundering measures on individual financial institutions, but that is currently limited to transactions that take place in the traditional banking system.
Opposition from industry
Some DeFi people also voiced their opposition to the bill. Miller Whitehouse Levine, CEO of the DeFi Education Foundation, said:
The bill would effectively ban DeFi development in the United States.
This approach is an unbalanced response to dealing with DeFi-based illicit activity and risks undermining U.S. law enforcement’s grasp of peer-to-peer cryptocurrency transactions.
Yaya Fanucy of the Crypto Council for Innovation, a cryptocurrency trade group, also questioned the bill’s application of traditional financial company rules to decentralized DeFi protocols and service administrators and developers.
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