Despite being a young asset class, the cryptocurrency market has proven its capacity to grow one’s capital and secure future wealth. However, that factor also draws criticism surrounding the market – it’s new; thus, it’s largely unregulated.
And this lack of supervision in a high-stakes, money-driven market breeds criminals. In fact, Chainalysis revealed a known $40.9 billion stolen from the crypto market in 2024.
But the market wouldn’t stop beating despite all these—thus, our call is for a central regulator to ensure proper oversight within the crypto market.
Enters the Financial Action Task Force (FATF), an intergovernmental organization responsible for preventing money laundering and terrorist financing by setting international standards.
Today, the FATF stood up to facilitate intergovernmental crypto regulation as the market remains largely unregulated despite its global adoption.
In this TRU Insight, we’ll define the purpose of the Financial Action Task Force, its effort to ensure fairness in crypto, and what happens to countries that remain non-compliant with the FATF’s recommendation.
What Is the Financial Action Task Force (FATF)?
Established in 1989, the Paris-based Financial Action Task Force is a global action to prevent money laundering and terrorist financing with its set international standards. These standards aimed to regulate financial industries and help authorities to find, freeze, and compensate criminal money.
This intergovernmental organization comprised 39 countries, including the United States, the United Kingdom, Japan, and China.
Note: The FAFT was a 40-member organization with the Russian Federation. However, the FAFT suspended the country’s membership on February 24, 2023, due to its illegal, unprovoked, and unjustified full-scale invasion of Ukraine.
The organization primarily functions to combat money laundering and terrorist financing by facilitating global cooperation, setting up international standards for more than 200 countries, and providing necessary regulatory recommendations to countries with weak regulatory frameworks.
As per the FATF, money laundering is not a victimless crime. All the laundered money is used to fuel serious crimes, including drug dealing, sexual exploitation, and human trafficking – ultimately harming society.
How Does FATF Define Cryptocurrency?
The FATF defined cryptocurrency as a virtual asset. This means they have digital value representation and can be digitally traded, transferred, and used for payment. Ultimately, this scope excludes the potential digital representations of fiat currencies through the Central Bank Digital Currency (CBDG).
Read more: Cryptocurrency Disrupted Finance, Here’s What You Should Do
The Financial Action Task Force acknowledged the benefits of cryptocurrency as an asset class and virtual money that facilitates cheaper and faster cross-border and domestic transactions.
However, the watchdog firmly noted the immense risk and threats surrounding the market, specifically from the volatility, cyberattacks, and scams. Due to its largely unregulated nature, this market is beneficial for criminals who fund terrorists and crimes.
With this in mind, the money laundering and terrorist financing watchdog implemented global standards to help countries regulate the cryptocurrency sector worldwide. As of now, there are over 200 countries that are implementing the FAFT standards for virtual assets.
Here are the standards set by the FATF for virtual assets that countries and virtual asset service providers (VASP) should follow:
| Government | VASP |
|---|---|
| Understand the underlying and interconnected risks of money laundering and terrorist financing | Implement customer due diligence, record keeping, and reporting of suspicious transactions |
| Assess, regulate, and license VASPs that wish to render service in the country | Acquire and hold security transmit originator and beneficiary information when making transfers in compliance with the Travel Rule. |
| Supervise and oversee the financial and operational activity of the sector |
Is the Cryptocurrency Market Regulated?
No, the cryptocurrency market is yet to be fully regulated globally. Only 62 countries consider cryptocurrency as a legitimate financial product backed by comprehensive regulations.
The regulation of crypto is considered dispersed, with countries taking different approaches to the crypto sector.
Safe to say, countries are categorized into four groups per crypto regulation – the fully regulated, partially regulated, unregulated, and crypto-banned countries.
Fully Regulated Sector
Notably, five countries take a solid approach to regulating the cryptocurrency sector within their respective jurisdictions. These countries have strategic legal frameworks and competitive and stringent market environments.
- Japan recognized Bitcoin as a legitimate property (Payment Services Act of 2017)
- Switzerland clearly defined cryptocurrency as an asset under a legal framework.
- Singapore is the second nation to legalize cryptocurrency under the Payment Services Act 2020.
- The United States (US) treated cryptocurrencies as properties as per the Internal Revenue Service (IRS). It has one of the biggest cryptocurrency markets in the world.
- Canada classified cryptocurrency exchanges as Money Services Businesses (MSB)— a business type that must comply with AML and KYC requirements.
Partially Regulated Sector
Many nations, including India, South Africa, and Mexico, have mixed regulations—some crypto activities are allowed, while others (like ICOs or certain DeFi platforms) remain in legal gray areas.
Regulatory frameworks are still evolving to address risks such as fraud, tax evasion, and financial stability concerns.
Banned Sector
A significant portion of the world is yet to consider cryptocurrency as a legitimate financial product due to its risky and threatening nature. Some countries have implemented financial laws that outright ban any form of cryptocurrency transaction within the borders. This includes, but is not limited to, China, Nepal, Egypt, Afghanistan, Bangladesh, and Egypt.
The Chinese government has been known for its hardline stance on crypto, specifically due to the financial risk, energy consumption, and environmental impact. In fact, the Chinese government imposed a complete crypto ban on all things crypto-related in 2021.
Before banning crypto in the country, China was once the largest Bitcoin miner, recording around 65-75% of the global hash rate. Now, China crypto mining operates underground to avoid governmental sanctions.
Despite its hardline stance on crypto, the Chinese government is currently establishing its own CBDC, which will be called the Digital Yuan.
Unregulated Sector
Unlike the countries that banned cryptocurrency, countries with unregulated crypto sectors have a government with no set of laws and regulations to ensure the safety of those who hold crypto.
These countries don’t acknowledge the existence of cryptocurrency at all. With this, issues like fraud, scams, and money laundering roam freely within their jurisdictions.
The Role of FAFT in Crypto Regulation
Considering the decentralized and unregulated nature of the cryptocurrency sector, it has become a safe haven for money launderers and terrorist financers. Thus, the Financial Action Task Force tried to ensure the proper sector regulation of different governments.
Here are the two roles of FAFT in crypto regulation.
VASPs Regulation
The FAFT puts the name of Virtual Asset Service Providers (VASPs), which was adopted by different jurisdictions to define businesses rendering financial services with virtual assets/cryptocurrencies.
This standardized name provides a layer of clarity to the largely unregulated sector as businesses are aware of their obligations and entailed risks. The watchdog also recommended the need for VASPs to implement robust anti-money laundering and counter-terrorism financing (AML/CTF) measures.
Such measures ensure that all sector transactions are monitored and record-kept—a critical means for reporting suspicious transactions.
Travel Rule
True to its promise to combat terrorism financing, the Financial Action Task Force implemented the crypto Travel Rule under the FAFT Recommendation No. 16.
Essentially, the travel rule requires all VASPs to perform enhanced due diligence for customers who wish to transact beyond the defined threshold (USD 1,000). The watchdog recommends that the firm get validated information on the originators and beneficiaries of crypto transactions.
The exchange shall disclose such personally identifiable information (PII) whenever deemed necessary by the government or the FAFT.
FATF Recommends Regulatory Improvements for Countries
Overall, the watchdog has published 40 recommendations for a comprehensive framework for tackling money laundering and terrorism financing.
These recommendations are categorized into seven (7) regulatory areas:
- AML/CFT policies and coordination
- Money laundering and confiscation
- Terrorist financing and financing of proliferation
- Preventive measures
- Transparency and beneficial ownership of legal persons and arrangements
- Powers and responsibilities of competent authorities and other institutional measures
- International cooperation
The Financial Action Task Force calls on all countries to incorporate all recommendations into their financial sector law to ensure strategic measures for combatting money laundering and financing of terrorists.
FATF Increased Monitoring for Non-Compliant Countries
What happens if the country continues its weak regulatory landscape or remains non-compliant? They’ll be under increased Financial Action Task Force monitoring.
The watchdog labels countries with increased monitoring as grey-listed and blacklisted, depending on the severity of regulatory lapses.
Grey Listing
A country that doesn’t entirely meet the FATF’s AML-CTF recommendations but actively tries to comply is defined as a grey-listed country.
The country and the watchdog agreed upon a specific recommendation compliance and resolution timeframe. As of 2025, these are the 25 countries under the grey list category:
| Algeria | Angola | Bulgaria | Burkina Faso |
| Cameroon | Cote d’Ivoire | Croatia | Democratic Republic of Congo |
| Haiti | Kenya | Lao People’s Democratic Republic | Lebanon |
| Mali | Monaco | Mozambique | Namibia |
| Nepal | Nigeria | South Africa | South Sudan |
| Syria | Tanzania | Vietnam | Yemen |
Blacklisting
Blacklisted countries are defined as the jurisdictions subject to a call for action to comply with the FAFT’s recommendations. A blacklisted country was identified as having strategic regulatory deficiencies to combat illicit cash flows.
But unlike in the grey list category, countries on the blacklist are in complete non-compliance with the FATF.
As of 2025, the Democratic People’s Republic of Korea, Iran, and Myanmar are defined by the FATF as high-risk countries.
