Following a recent announcement, the Commodity Futures Trading Commission (CFTC), the American organisation in charge of regulating futures, swaps, and options, requested that legislators consider methods of identifying the participants in decentralised finance (DeFi).
According to the paper, policymakers should identify and rank the projects that are most important and concentrate on digital identification, know your customer (KYC) and anti-money laundering (AML) regulations as well as DeFi’s privacy calibration.
Because DeFi is a decentralised sector that makes it difficult to attribute responsibility to any one person and because pseudonyms are often used to conceal user identities, regulators are struggling to dispel participants’ notion that the industry is immune to regulatory scrutiny.
“The pseudonymity and disintermediation provided in most DeFi systems presents serious concerns for policymakers focused on ensuring AML and countering financing of terrorism (AML/CFT) regimes are effective and provide appropriate protections and victim recourse for consumers,” the paper stated.
The CFTC won a lawsuit in June of last year, charging that Ooki DAO, a decentralised autonomous organisation (DAO), was offering unregistered commodities. The CFTC and the Securities and Exchange Commission are fighting for control of the cryptocurrency business. By September, the three businesses developing some of the most reputable DeFi protocols were being sued by the CFTC for providing unlawful trading in derivatives. The businesses agreed to resolve the accusations.
One of the five CFTC Commissioners, Christy Goldsmith Romero, stated in a statement that accompanied the study that “a central concern related to DeFi systems is the lack of, and some industry designs to avoid, clear lines of responsibility and accountability.” The paper was issued by the subcommittee of the CFTC’s Technology Advisory Committee, which is sponsored by Goldsmith Romero.
There is “no clear route to ensuring victim recourse, defence against illicit exploitation, or the ability to insert necessary changes and controls during periods of crisis and network stress,” she stated.
In addition, the Financial Crimes Enforcement Network (FinCEN) last week implemented a beneficial ownership reporting system that mandates many U.S.-based companies disclose who directly or indirectly owns or controls them. FinCEN is also investigating methods of identifying individuals involved in decentralised finance.
At a different event, Yellen stated, “We’ve received over 100,000 filings in just one week.”