BAFIN CALLS FOR EU DEFI REGULATIONS
Birgit Rodolphe, executive director of Germany's Federal Financial Supervisory Authority (BaFin), has called for a new and consistent regulatory framework (DeFi) for the entire European Union.
BaFin is a German financial regulatory body responsible for regulating banks, insurance firms and financial institutions including cryptocurrency companies. BaFin is the issuer of “crypto storage licenses,” a permit required by companies seeking to provide cryptocurrency service within Germany.
In an article on the BaFin website, Rodolphe warned of the dangers to consumers of unregulated DeFi space and called for regulatory considerations common in all EU member states:
“One thing is clear: the clock is ticking. The longer the DeFi market goes unchecked, the greater the risk to consumers, and the greater the risk that critical system-specific offers will manifest themselves. "
He cited the dangers to consumers of "technical problems, robberies, and fraudulent activities" that have seen millions lost and said DeFi is "not democratic and indifferent" as its supporters have said that DeFi products are difficult for many to handle. "He concluded that DeFi principles do not have the freedom to operate illegally because they use new technologies:
"Utopia? Or rather dystopia? Who do I contact if I want to withdraw my crypto loan? What happens if my crypto assets suddenly disappear completely? In any case, there is no deposit protection case in such cases."
He added that borrowing, lending, insurance and other products outside the normal financial system are subject to licensing and surveillance where they are issued, and also asked regulators to set rules that will give DeFi providers legal clarity.
Rodolphe highlighted BaFin's "crypto custody business" license introduced in January 2020 as a "attractive" regulatory law for crypto businesses.
The license allows companies to provide crypto services in Germany. Currently, only four providers are authorized, but many financial institutions have submitted applications. Rodolphe wrote that the governing bodies should be the same in different European countries:
"In fact, these requirements could be matched by the EU as a whole in order to curb diversified markets and improve European innovation."
Germany rose to the top as the most crypto-friendly country in the first half of 2022 due in part to its zero-rate crypto-interest tax policy. A March 2022 report found that about half of Germans are interested in investing in crypto.
Germany also implemented several crypto-related measures for its entire government by 2021, with legislative changes to adopt a blockchain and tighten laws governing crypto businesses. The world's largest bank played a leading role in digital currency monitoring of the European Central Bank (CBDC).
Rodolphe concluded that DeFi's new rules could not be weaker than existing standards for traditional financial products, as it could make DeFi products more attractive to businesses to pursue from a regulatory point of view.