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IOTA Foundation supports FATF’s proposed AML/CFT revisions, stating the need for proportional regulation.
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The Foundation advocates for simplified compliance measures and decentralized digital identity solutions.
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IOTA urges FATF to collaborate with the Web3 sector and adopt privacy-preserving tools.
The IOTA Foundation has issued a formal response to the Financial Action Task Force’s (FATF) proposed amendments to its anti-money laundering (AML) and combating the financing of terrorism (CFT) standards, advocating for more proportional compliance frameworks and stronger engagement with the Web3 sector.
The FATF’s revisions, released for public consultation, are intended to refine the application of its risk-based approach and support greater financial inclusion, particularly in emerging digital and decentralized ecosystems.
Proportional Measures and Fintech Inclusion
In its response, IOTA proposed a shift in FATF’s language from “commensurate” to “proportionate” as a step forward in clarity and functionality in applying the risk-based approach. The Foundation says that the change has a profound impact on low-risk, small-scale participants such as startups and fintech innovators, who must bear excessively heavy compliance that suppresses innovation and inclusion.
The Foundation also called for simplification of customer due diligence (CDD) measures in low-risk scenarios. IOTA addressed this recommendation with FATF’s own stated goal of aligning regulatory obligations more closely with actual risk exposure—arguing that such flexibility is essential for allowing financial inclusion and reducing barriers for underserved populations.
Notably, IOTA identifies the potential of growing technologies like decentralized digital identity solutions to allow secure, non-face-to-face onboarding processes. These solutions, they argue, strike an appropriate balance between use, privacy, and regulatory compliance—particularly in digital and decentralized financial environments where traditional verification methods are not viable.
Web3 Collaboration and Privacy-First KYC Solutions
IOTA’s response also pressed FATF to more actively engage with the Web3 industry, urging the intergovernmental body to recognize and support decentralized compliance tools such as tokenized Know Your Customer (KYC) credentials and zero-knowledge proof systems.
These models allow for verification of user identity or risk status without disclosing sensitive information, an important requirement in privacy-focused and decentralized protocols. The Foundation asserts that embracing such technologies can improve financial inclusion and regulatory cooperation without sacrificing privacy or affecting innovation negatively.
In its submission, IOTA encouraged FATF to establish formal dialogue channels with Web3 developers and stakeholders. It warned against a one-size-fits-all approach to compliance that overlooks the technical and governance structures that define decentralized systems.
FATF’s ongoing consultation received submissions from financial institutions, regulators, academics, non-profits, and technology providers. IOTA’s contribution is a proof of its active role in establishing responsible global regulatory standards in line with the open, decentralized infrastructure of the future.