FATF Publishes Targeted Update on Virtual Asset Regulation

The Financial Action Task Force (FATF) reported that while 83% of jurisdictions have implemented virtual asset “Travel Rule” legislation, criminal networks continue to exploit regulatory gaps. The international body warned that organized crime groups are increasingly utilizing stablecoins and decentralized finance platforms to launder illicit proceeds and evade global sanctions.

Global Progress and Implementation Gaps in Virtual Asset Regulation

In its seventh targeted update on anti-money laundering and counter-terrorist financing (AML/CFT) measures, the Financial Action Task Force (FATF) noted a measurable uptick in legislative adoption across its member jurisdictions. The report indicates that 83% of surveyed countries have now passed laws implementing the “Travel Rule”—a significant increase from the 73% reported in 2025. An additional 11 jurisdictions are currently in the process of implementation. The report assesses jurisdictions’ compliance with FATF Recommendation 15 (R.15) on virtual assets (VAs) and virtual asset service providers (VASPs).

Despite these legislative gains, the FATF highlights a persistent disconnect between legal frameworks and practical enforcement. Many nations struggle to identify the individuals and entities conducting VASP activities, rendering their oversight largely ineffective. According to the FATF, while jurisdictions—including those with materially important VASP activity—have made progress since 2025 in developing or implementing AML/CFT regulation and taking supervisory and enforcement actions, many have yet to translate these legal frameworks into effective supervision and enforcement in practice.

Evolving Tactics of Organized Crime Groups

The FATF’s update paints a stark picture of a digital financial landscape where criminal actors are moving faster than regulators. Giles Thomson, President of the FATF, underlined that this year’s update makes clear that criminal networks continue to abuse virtual assets for illicit purposes and exploit their borderless nature to commit fraud and scams, evade sanctions, and launder the proceeds of crime by taking advantage of gaps in countries’ frameworks and uneven implementation of FATF Standards across jurisdictions.

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The report specifically calls out the rise of Organised Crime Groups-linked scam centre operations, including the proliferation of “pig-butchering” schemes. These operations are increasingly bolstered by the misuse of artificial intelligence, with the report highlighting that the use of deepfakes, synthetic identities, and AI-enabled recruitment scams is growing at scale.

Stablecoins and DeFi: Emerging Risks to Financial Integrity

One of the most concerning trends identified by the FATF is the shift toward stablecoins as the primary medium for on-chain illicit activity. Since the 2025 Targeted Update, the use of stablecoins by various illicit actors, including terrorist financiers and actors linked to the Democratic People’s Republic of Korea (DPRK), has continued to increase. The FATF revealed an emerging risk in which criminal networks have begun developing proprietary stablecoins designed to resist freezing and asset seizure, illustrating how illicit actors continue to adapt in response to regulatory action.

Furthermore, the FATF noted that jurisdictions continue to report challenges in assessing and mitigating risks associated with decentralised finance (DeFi) platforms. The report warned that these platforms may represent an increasingly significant gap as regulated entities, including financial institutions and VASPs, expand their engagement with DeFi platforms. These vulnerabilities are compounded by the difficulty of mitigating the risk of offshore VASPs, a finding consistent with the FATF’s report on offshore VASPs published earlier this year.

The Call for Urgent Regulatory Synchronization

Giles Thomson emphasized that the uneven implementation of standards across different jurisdictions is providing the weak links that criminals seek to exploit, and he urged governments and the private sector to work together to strengthen preventive measures, close regulatory gaps, and bolster cross-border co-operation.

“Effective implementation of the FATF Standards can no longer be delayed.”

Giles Thomson, President of the FATF

Thomson added that as criminal methods become more sophisticated, safeguards must keep pace with technological change and ever-evolving criminal tactics. The report underscores that the FATF continues to identify risks such as DPRK-related cyber theft, terrorist and proliferation financing, and cross-border money laundering, noting that jurisdictions must act to deny criminals the opportunity to exploit weak links in the global system.

Sources: CMS.law.