According to the Financial Action Task Force, while more countries are creating laws to regulate cryptocurrency, actually enforcing those rules is still a challenge.
A recent report from the global financial watchdog, the FATF, shows that most countries are now requiring virtual asset service providers to follow the “Travel Rule.” Their seventh update on this topic found that 83% of surveyed countries have passed laws to enforce this rule, an increase from 73% in 2025.
On paper, that looks like progress.
The report notes that while many countries have laws requiring information sharing for cryptocurrency transactions (the Travel Rule), only about 40% of those countries are actively enforcing these rules or taking action against those who don’t comply. Essentially, more places *have* the rules on the books, but much fewer are actually making sure they’re followed.
That gap is now the core issue.
TL;DR
- FATF says 83% of surveyed jurisdictions have passed Travel Rule legislation for crypto.
- Only 40% of jurisdictions with those laws have taken supervisory or enforcement actions.
- The report highlights risks tied to scam centers, DPRK cyber theft, DeFi, unhosted wallets, and freeze-resistant stablecoins.
Laws Are Spreading Faster Than Enforcement
The Travel Rule is one of the most important compliance standards in crypto.
New rules require companies that handle digital assets (like cryptocurrency) to gather and share information about the senders and receivers of certain transactions. Basically, regulators want these companies to identify people involved in crypto transfers, particularly when money moves between different regulated services.
For years, the industry argued about whether this could work in crypto.
The Financial Action Task Force (FATF) reports that most countries now have laws in place regarding virtual asset service providers (VASPs). This represents significant progress, as many nations were previously unsure if they even needed to regulate these businesses.
But legislation is only the first step.
Rules aren’t effective unless they’re actively monitored and enforced. Financial institutions like exchanges, brokers, and payment firms require ongoing oversight, regular inspections, clear consequences for violations, and reliable technology. Regulators must have sufficient staff and resources, and international cooperation is essential for everything to work smoothly.
FATF’s numbers show that implementation is still uneven.
Why The Enforcement Gap Matters
Crypto compliance has always had a weakest-link problem.
When one country has strong regulations for cryptocurrency and another doesn’t enforce any, criminals will naturally operate in the country with fewer rules. This puts strain on the entire financial system, as cryptocurrencies can be sent anywhere in the world.
This is particularly important when dealing with scams, money laundering schemes, ransomware attacks, and hacking activities connected to national governments.
The Financial Action Task Force (FATF) has identified several growing threats, including scam centers connected to organized crime, cyber theft originating from North Korea, the use of unregulated digital wallets, and the increasing popularity of decentralized finance (DeFi) and stablecoins that are difficult to freeze or control.
Those categories show how the risk picture is changing.
The problem isn’t just isolated scams or shady online marketplaces anymore. Now, we’re seeing large, organized scams, complex hacking attacks, and new financial services – including digital wallets and stablecoins – that can make it difficult to stop criminals from accessing funds.
That is a much harder environment for regulators.
DeFi Remains The Hardest Fit
DeFi is one of the most uncomfortable parts of the FATF framework.
The Travel Rule relies on having a central point to gather and share information. However, in decentralized finance (DeFi), that central point doesn’t usually exist. Instead, responsibility could fall on various parts of the system, such as the smart contracts themselves, the user interface, those involved in governing the protocol, developers, validators, or the networks that relay information – or a combination of these.
Regulators then face a difficult question: who is responsible?
Depending on how a system is set up, control can shift to different areas and create new challenges. For example, if one team manages the user interface, they could end up controlling how rules are applied. If a community governs the settings, its members might feel pressured. And when users deal directly with the underlying code, it’s much harder to ensure everything is followed.
The Financial Action Task Force (FATF) is urging nations to prevent criminals from exploiting the term “decentralized” to bypass regulations. However, actually overseeing this in practice is proving difficult.
That is why the enforcement gap matters even more in DeFi.
Stablecoins Are Under The Microscope
Stablecoins also stand out in the report’s risk list.
Stablecoins like USDT and USDC are proving to be incredibly useful in the crypto world – they’re a fast way to send money internationally. These digital currencies are now widely used by traders, businesses sending payments, people sending money home, those involved in decentralized finance (DeFi), and unfortunately, sometimes even for illegal activities.
FATF’s concern around freeze-resistant stablecoins is notable because it focuses on control.
Regulators might push stablecoin companies to block transactions linked to illegal activity if they have the power to freeze user accounts. However, if a stablecoin is built so it can’t be frozen or doesn’t have a central authority controlling it, it becomes harder for regulators to enforce these rules.
This brings up challenging issues regarding protecting free speech, keeping users safe, and allowing legal investigations when necessary.
People who use cryptocurrency often prefer options that are difficult to freeze or seize. However, regulators are concerned these same characteristics can be exploited by criminals.
That tension is not going away.
The Next Phase Is Supervision
While 83% of lawmakers are now considering crypto regulations – showing it’s a widely accepted topic – the fact that 40% have actually taken enforcement actions is perhaps even more significant.
That is where the next phase will happen.
As an analyst, I’m seeing a shift in how countries are evaluated regarding financial regulation. It’s no longer enough to simply *have* rules; regulators will increasingly focus on how effectively they oversee firms, enforce those rules with penalties, and collaborate internationally. Specifically, I expect stricter requirements for Travel Rule compliance at exchanges and custodians. We’ll also likely see increased scrutiny of the public-facing side of DeFi platforms, and stablecoin issuers will continue to face significant pressure and oversight.
For the industry, the message is clear enough.
The discussion around cryptocurrency regulation isn’t about *if* it should happen anymore, but rather if current regulations are being applied fairly and effectively to meet international standards.
Traders might not like this outlook, but it’s likely to define how crypto platforms – including exchanges, digital wallets, stablecoins, and decentralized finance applications – function during the next period of market ups and downs.
This article is based on FATF’s Seventh Targeted Update on virtual assets and VASPs.
This article was written by the News Desk and edited by Samuel Rae.
This report is based on information released in disclosures at primary source documentation.
2026-07-24 22:07