The United States Treasury Department has recently published a report emphasizing the potential security threats arising from the expanding decentralized finance (DeFi) industry.
The report points out the vulnerabilities in DeFi services that are being exploited by malicious actors, including ransomware hackers and North Korean cyber operatives, to launder illegal funds.
Moreover, the report highlights the difficulties in supervising and enforcing obligations related to anti-money laundering and countering terrorist financing due to the often obscure nature of DeFi services' organizational structures.
The assessment reveals that numerous DeFi services do not comply with existing rules. Consequently, the report suggests intensifying supervision and enforcement efforts as well as engaging more with the industry to clarify how current regulations apply to DeFi services.
The report also mentions that if a DeFi service is not classified as a financial institution under the Bank Secrecy Act (BSA), it may create a potential vulnerability as there is a lower chance of implementing anti-money laundering and terrorist financing measures.
Lastly, the assessment urges increased cooperation with international partners to promote the adoption of global anti-money laundering and counter-terrorist financing standards, along with better cybersecurity practices among digital asset firms.