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FATF Travel Rule and ‘DeFi’ Platforms


Financial Action Task Force (FATF) is a body responsible for setting up policies to combat money laundering, and terrorist financing worldwide. The body regularly sets out rules regarding cryptocurrencies and blockchain-based assets. The rules set by FATF include: The FATF Travel Rule and Virtual Assets Red Flag Indicators being used for Suspicious Activity Reports (SARS).

What is FATF Travel Rule?

The FATF Travel Rule is a regulation based on the U.S’s Bank Secrecy Act (BSA) which aims to report and record suspicious transactions that exceeds a specific threshold. The FATF Travel Rule requires that each payment order of $3000 or more will require the following details of the transactors: name and address of the originator, amount of the payment order, and date of the payment order. Cryptocurrency exchanges will share this information amongst themselves while processing transactions.

FATF’s Travel Rule Take on DeFi

Since Decentralized Finance Platforms, DeFi, permits users to transfer cryptocurrencies directly through the use of software that eliminates a third party, FATF has instructed National Anti-money Regulators to hold the managers of DeFi exchanges to similar compliance expectations from CEX (Centralized Exchanges) .

In May 2019, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) explained that Decentralized Applications, ‘Dapps’ fall under the same requirements of the Bank Secrecy Act as it applies to centralized exchanges and also noted that the DeFi sector is yet to implement basic Anti Money Laundering (AML) protocols.

On the other hand, in the updated FATF publication, FATF didn’t urge regulations for the software that enables DeFi transactions. According to them, “A DeFi application (i.e., the software program) is not a Virtual Asset Service Provider (VASP) under the FATF standards, However, creators, owners and operators or some other persons who may maintain control or sufficient influence…may fall under the FATF definition of a VASP.

What’s FATF Approach Towards Regulating Stablecoins?

FATF gave approaches towards stablecoin regulations in its updated guidelines. FATF advised National regulators to apply many of the FATF Travel Rule principles to stablecoins. Stablecoins are a form of cryptocurrency with its value based on a commodity, government-issued currency or other cryptocurrency. FATF claims that if a stablecoin has an operator or issuer, then the entity qualifies as VASP as well.

Regulators’ Roles Towards FATF Travel Rule

According to FATF, many platforms claim to be decentralized, but their daily operations are managed by a person or organization. Hence, regulators are advised not to depend on a platform’s own attestations while interpreting and implementing the FATF Travel Rule widely.

Also, FATF advised all countries that are yet to implement and adopt the FATF Travel Rule, to take action as soon as possible. According to them, “Countries may wish to take a staged approach to enforcement of Travel Rule requirements to ensure that their VASPs have enough time to implement the necessary systems”. They suggested that any exchange that succeeds in complying with the Travel Rule could go ahead to restrict transactions between suspicious exchanges up to a particular financial limit or they could alternatively process transactions from exchanges if they can verify the identities of both the originator and the beneficiary.

Inference from the updated FATF Travel Rule

The implication of the updated Travel Rule guide to cover DeFi is that, it adapts its original expectations for centralized cryptocurrency exchanges and extends same principles into new areas of the industry.

FATF warned that failure to have VASP compliant exchanges in any country would pose a tough decision to international countries on dealing with weak or non-existent implementation. FATF also advised Cryptocurrency exchanges to scrutinize unhosted wallets. Group of wallets digital addresses used for storing private keys outside the conventional exchanges with less oversight are called unhosted wallets.

In addition, exchanges might need to limit their transactions with any cryptocurrency platform including Decentralized platforms that are yet to implement FATF recommendations against illicit finance. This will also include exchanges that are yet to implement the Travel Rule or build an overall compliance program.


Cryptocurrency exchanges who are Virtual Asset Providers must develop AML system, conduct due diligence on customers and check transactions for evidence of illegal money.

FATF has advised regulators to use blockchain analytic tools to track transactions involving unhosted wallets or completely shun them out of cryptocurrency companies.

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Chioma Onyekelu is a highly skilled and accomplished professional in the field of cryptocurrency and blockchain technology. She is a Certified Cryptocurrency Investigator and Crypto Compliance Specialist, as well as a Blockchain Forensic Specialist and a teacher. She is also a public speaker and her teachings include consultations and practical solutions for African Start-ups on the best and most cost-effective way to build with compliance in mind. With a wealth of knowledge and experience in these cutting-edge technologies, she is well-equipped to navigate the complex landscape of cryptocurrency-related crimes.

In her current role as a Blockchain Forensic Specialist at A&D Forensics, Chioma is responsible for tracing and investigating cryptocurrency-related crimes, as well as training law enforcement agents and compliance officers on the latest developments and best practices in the field. In addition, she is currently pursuing a Master's degree in Blockchain and Digital Currencies at the University of Nicosia in Cyprus, further solidifying her expertise and understanding of the technology.

Chioma's dedication and passion for the field is evident in her work, and she is committed to staying at the forefront of developments in cryptocurrency and blockchain technology to provide the best possible service to her clients. Her exceptional skills in educating and consulting make her a valuable asset to the industry and an authority in the field of Blockchain and Crypto Compliance.


Adedeji is a Forensic Investigation Practitioner and CertifiedBlockchain/Cryptocurrency Forensic
Investigator (CFE, CCI, CCFI & Reactor Certified) with more than Fifteen years of experience across few banks within the Nigeria Financial Sector and educator in Corporate workplace settings, Deji is uniquely qualified and involved in forensics analysis of Financial Infractions, Cryptocurrency crimes and designing plans that works for Government, Regulators, Law enforcement.

He was appointed by SEC Nigeria as Member Virtual Asset and Fintech Regulatory framework drafting Committee, He is a member of Global Digital Finance’s KYC/AML working group in France and a member of the Industry led Thinktank that worked on and came out with FATF cryptocurrency Travel rule InterMessaging Standard for Virtual Assets (IVMS101) to help combat money laundering and terrorism financing using cryptocurrencies around the globe.

His law enforcement training efforts on new money and cybercrime have seen him train many law enforcement agents in various countries i.e Nigeria Police, Nigeria Army CyberWarfare command, Zambia Financial Intelligence Unit, Zambia Central Bank and more.
He is Chainalysis Sole Africa Investigative Partner helping law enforcement investigate criminal organizations using cryptocurrency to conceal illiccit activities across Africa, he is also a training Partner for Blockchain Intelligence Group based out of Canada.

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