The Financial Action Task Force (FATF), the worldwide benchmark – setter against money laundering and terrorist financing released a crucial update. It denoted an alarm about the marked uptick in illegal activities tied to stablecoins, urging nations and regulators globally to respond swiftly. Though the move has stirred concern in crypto landscapes, industry experts clarify: this isn’t an attack on crypto rather a wake‑up call for stronger oversight.
The Warning: Why Stablecoins are Now Focus
Stablecoins cryptocurrencies pegged to fiat currencies are experiencing runaway adoption due to:
- Peg stability with fiat (like USD),
- Lightning-fast transaction speed,
- Low costs and high liquidity.
FATF flagged the widespread legal adoption of stablecoins as a risk multiplier.
Global Compliance Gaps: FATF’s R‑15 Findings
This new alert forms part of FATF’s sixth targeted review (R‑15) on virtual assets and virtual asset service providers (VASPs). The update shows mixed progress since the 2019 extension of FATF AML/CFT rules to cryptocurrencies.
Out of 138 jurisdictions reviewed by April 2025:
- Only 1 jurisdiction is fully compliant.
- 40 are “largely compliant,” up from 32 in 2024.
- 97 (70%) are still only partially or not compliant.
Loopholes center on licensing VASPs, implementing the Travel Rule, and ongoing supervision.
FATF’s Expectations
The FATF gives crystal clear guidance to both public and private sectors:
For Governments
- Assess new risks posed by stablecoins, DeFi, peer‑to‑peer wallets, and NFTs, then act on them.
- Implement or reinforce the Travel Rule ensuring VASPs collect and exchange user info for cross‑border transfers.
- License or register VASPs, including DeFi platforms and offshore entities.
- Supervise and enforce as laws are not enough. Regulatory oversight must be active.
- Share intelligence internationally to trace cross‑border illicit flows and recover assets.
For Private Sector (VASPs, issuers, compliance tools providers)
- Ensure Travel Rule tools work seamlessly and interchangeably across platforms.
- Apply enhanced due diligence (EDD) for higher‑risk scenarios like unmonitored wallets or transfers linked to terrorist or sanctioned actors.
- Monitor stablecoin flows closely, using real‑time analytics and freezing capability when illegal transactions are flagged.
- Explore cross‑jurisdiction secondary sanctions to hold intermediaries accountable in sanction evasion channels.
Industry Perspective: Not Anti‑Crypto, Just Pro‑Compliance
Executives from Chainalysis and Asset Reality caution against seeing this alert as a crypto crackdown far from it.
Jordan Wain (Chainalysis)
Stablecoins are both mainstream payment tools and main conduits for illegal flows. The FATF’s emphasis is on standardized licensing, real‑time monitoring, and international collaboration, not banning crypto.
Aidan Larkin (Asset Reality)
The FATF has not called for a ban on stablecoins. It is calling for visibility and better enforcement. It is stressed that while on‑chain tracing is pivotal, it alone cannot combat misuse without legal enforcement mechanisms.
Other positives echoed by industry
Traceability is a strength, unlike cash, many stablecoins (e.g. USDT, USDC) are transparent and freezable.
Blockchain analytics firms continue to spotlight DPRK actors, terrorist networks, and similar bad actors misusing stablecoins.
Broader Risks: Hacks, DeFi, P2P & More
Stablecoins are just one part of a larger picture putting forth various converging risk vectors:
DeFi & decentralized protocols
Though hacks dropped from $3.1 billion (2022) to $1.1 billion (2023), vulnerabilities persist, especially through DeFi layering tricks and tactics.
Unhosted wallets & P2P
Privacy tools and self-custody wallets can obscure origin, complicating money-laundering tracebacks.
NFTs
Used in fraud or asset laundering schemes; while less prominent in terrorism financing, they remain on regulators’ radar.
Cyber heists
Notably, the DPRK-linked hack of ByBit in Feb 2025 stole ~$1.46bn only ~3.8% recovered.
Cross-border laundering networks
Criminal rings increasingly swap stablecoins for cash across jurisdictions, increasing the need for global oversight.
Moving Beyond Policy: Enforcement Is Key
What the FATF and industry are pushing for now goes beyond boxes checked on paper.
- Real‑time monitoring systems that trigger automatic alerts or freezes on suspicious transfers.
- Effective supervision regulators must not only legislate but audit, sanction, and punish non-compliance.
- International partnership including extradition, secondary sanctions, and mutual legal assistance.
- Asset recovery frameworks, more must be done to recoup stolen funds from hacks and fraud.
An Era of Crypto Accountability
FATF has signaled continued focus on stablecoins, DeFi, offshore platforms, and P2P. Its upcoming targeted paper is expected by mid‑2026.
The stakes are evident:
- When one jurisdiction sees major gaps, global dangers emerge, digital assets move borderlessly.
- Improving Travel Rule enforcement can close loopholes where stablecoins bounce through unregulated channels or across borders.
In sum, the mass adoption of stablecoins presents both opportunity and risk. Regulators and crypto stakeholders stand at a critical nexus of safeguarding innovation while preventing criminal misuse. This isn’t an existential threat rather a critical juncture.
The FATF’s June 2025 update is a clarion call stating explicitly that stablecoins now pose a major frontier in illegal finance, demanding swift, global alignment on surveillance, standards, and enforcement. This isn’t anti‑crypto rhetoric but it’s a decisive step toward sustainable growth and institutional legitimacy.
As blockchain ecosystems mature, the role of transparency tools, freeze mechanisms, and international collaboration will shape whether stablecoins fulfil their promise or become conduits for criminal enterprise.
To navigate to FATF website, click here.
