Global Watchdog Flags Non-Compliance and Rising Illicit Crypto Use;
The Financial Action Task Force (FATF) has issued a critical FATF crypto regulation warning, urging countries to tighten oversight on digital asset activities.
In its latest report, FATF revealed only 40 out of 135 jurisdictions are fully compliant with its crypto-related standards.
This includes the critical Travel Rule, which mandates crypto firms to collect and share customer details during digital asset transfers.
The rule aims to prevent misuse of cryptocurrencies for illegal purposes such as terrorism financing and money laundering.
According to FATF, nearly $51 billion in crypto assets were linked to illicit activity in 2024 alone.
These transactions often bypass oversight due to weak enforcement of global anti-money laundering (AML) frameworks.
FATF specifically called out the growing misuse of stablecoins in cross-border transfers without sufficient Know Your Customer (KYC) procedures.
The watchdog warned that these stablecoins can facilitate anonymous movement of funds across countries, creating new challenges for regulators.
FATF President T. Raja Kumar emphasized that the pace of enforcement must match the speed of technological innovation in crypto.
He stated that “inaction by regulators is enabling criminals to exploit loopholes in virtual asset systems globally.â€
Call for Stronger Supervision and International Cooperation
FATF urged member countries to implement stricter controls on Virtual Asset Service Providers (VASPs), including exchanges, wallets, and token issuers.
It recommended clear licensing regimes, real-time transaction monitoring, and firm penalties for non-compliance.
The report also called for better international cooperation to avoid regulatory arbitrage, where crypto firms move to weakly regulated jurisdictions.
Countries that fail to improve their oversight risk being placed on FATF’s “grey list,†which could impact international financial relations.
This list currently includes jurisdictions under increased monitoring for financial crime and AML non-compliance.
The FATF’s guidance aligns with growing global efforts to regulate digital assets, including initiatives by the EU, U.S., and India.
The European Union’s MiCA framework, effective since late 2024, already enforces strict reporting and reserve requirements for crypto service providers.
The U.S. recently passed the GENIUS Act, setting federal guardrails around stablecoins, including mandatory disclosures and 1:1 reserve backing.
Meanwhile, India’s Financial Intelligence Unit (FIU) has mandated real-time trade reporting from registered crypto platforms.
Industry Must Prepare for Compliance Surge
Crypto firms now face mounting pressure to upgrade their AML and compliance systems to stay operational in regulated markets.
Non-compliant platforms may soon lose access to banking services, payment processors, or face trading bans in key jurisdictions.
Global fintech companies are also advised to monitor FATF guidance closely, especially if they operate across multiple legal territories.
As crypto adoption grows, the demand for secure, transparent, and regulation-friendly platforms is expected to increase rapidly.
FATF concluded its report by reaffirming its commitment to working with national governments and industry leaders.
It emphasized that “protecting financial systems from abuse is a shared global responsibility.â€
With global compliance still lacking, the latest FATF crypto regulation warning highlights the urgent need for stronger, unified action against illicit crypto risks.