By Elizabeth Howcroft

PARIS (Reuters) -The Financial Action Task Force (FATF), a global financial crime watchdog, on Thursday called on countries to take stronger action to combat illicit finance in crypto assets, warning that gaps in regulation could have global repercussions.

The Paris-based watchdog said that while progress has been made since 2024 in regulating virtual assets, many jurisdictions still have work to do to combat risks.

As of April 2025, only 40 of 138 jurisdictions assessed were "largely compliant" with FATF's crypto standards, up from 32 a year earlier.

"With virtual assets inherently borderless, regulatory failures in one jurisdiction can have global consequences," FATF said in a statement.

Illicit crypto wallet addresses may have received up to $51 billion in 2024, according to blockchain analytics firm Chainalysis.

FATF said that countries continue to face difficulties in identifying who is behind virtual asset transactions.

The report is the latest sign of rising concern among financial authorities about crypto-related risks to the financial system.

In April, the EU's securities watchdog warned that the expanding crypto sector could pose risks to broader financial stability, especially as links with traditional markets deepen.

FATF also raised concerns about the use of stablecoins, a type of cryptocurrency pegged to fiat currencies, by "various illicit actors", including North Korea, terrorist financiers and drug traffickers. It said most illicit crypto activity now involves stablecoins.

The FBI has said that North Korea was responsible for the theft of approximately $1.5 billion worth of virtual assets from crypto exchange ByBit in February - the largest ever crypto theft. North Korea routinely denies involvement in cyber hacking or crypto heists.

(Reporting by Elizabeth Howcroft, Editing by Louise Heavens)