Dark Side of Decentralised Finance: A Call for Enhanced AML Regulation Based on Use-Cases of Illicit Activities

Abstract

Purpose – The paper focuses on the need for an enhanced anti-money laundering (AML) regulation for decentralised finance (DeFi) to protect the integrity of global financial systems against illicit activities. Research highlights the requirement for a robust regulatory strategy for the fast-paced DeFi evolvement. Design/methodology/approach – The study employed doctrinal legal research by analysing legislation which involved creating use cases to illustrate different aspects of potential illicit activities via the DeFi ecosystem. Various DeFi applications were assessed for the potential regulatory responses and outcomes. Findings – The paper offers valuable insight into the regulatory challenges presented by DeFi. The study addresses the blind spots leveraged by criminals afforded by the DeFi's decentralised nature. The paper offers a comprehensive examination of DeFi regulatory challenges based on use-case scenarios and provides recommendations for regulators on how to address them effectively. Originality/value – The paper proposes measures for regulatory authorities to minimise money laundering risks through new channels such as decentralised exchanges, non-custodial wallets and cross-chain bridges. The article concludes with the future directions for DeFi regulation and AML compliance.

Publication DOI: https://doi.org/10.1108/FJFRC-04-2023-0065
Divisions: College of Business and Social Sciences > Aston Business School > Operations & Information Management
College of Business and Social Sciences > Aston Business School > Cyber Security Innovation (CSI) Research Centre
Aston University (General)
Funding Information: The European Union’s Horizon 2020 Programme (Grant Agreement 101022004 – TRACE Project)
Additional Information: © Vladlena Benson, Umut Turksen and Bogdan Adamyk. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Uncontrolled Keywords: AML regulation,Blockchain,Cross-chain bridge,Cryptocurrency,Decentralised finance,Non-custodial wallet,Finance,Strategy and Management
Publication ISSN: 1358-1988
Last Modified: 27 Nov 2024 08:19
Date Deposited: 01 Dec 2023 12:40
Full Text Link:
Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
https://www.eme ... -0065/full/html (Publisher URL)
PURE Output Type: Article
Published Date: 2024-01-10
Published Online Date: 2023-12-11
Accepted Date: 2023-10-11
Authors: Benson, Vladlena (ORCID Profile 0000-0001-5940-0525)
Turksen, Umut
Adamyk, Bogdan (ORCID Profile 0000-0001-5136-3854)

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