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EU wide Decentralized finance (DeFi) need new regulations suggested by Germany's Federal Financial Supervisory Authority official

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Indrani bose Follow


May, 19 2022

May, 19 2022

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To control the risk of hacks and fraud, the Decentralized finance (DeFi) area for all the European Union (EU) needs new innovative and uniform regulations said a senior German financial regulator, Birgit Rodolphe, who is an executive director at Germany's Federal Financial Supervisory Authority (BaFin).

Birgit Rodolphe, Executive Director for Resolution and Prevention of Money Laundering at German financial regulator BaFin said “If Defi is to be a genuine competitor to traditional financial markets, then this won’t work without specific new regulations,”.

EU regulators were considering on extending the flagship crypto law which is known as MiCA beyond currencies like bitcoin to cover other Web 3 innovations in the financial sector when the comments come.

Germany's BaFin regulates banks, insurance companies, and other financial institutions, including cryptocurrency companies. On the BaFin website, an article was published where Rodolphe warned consumers about the risks of the unregulated DeFi area. He called for standardized regulatory considerations across EU member countries. According to her, an unregulated DeFi market for longer times can lead to greater the risk for consumers. She highlighted technical issues, hacks, and fraudulent activity risks to consumers that cost hundreds of millions. She concluded that DeFi protocols are not at liberty to operate outside of regulations simply because they use new technologies.

She feels such provisions should be consistent throughout EU in order to prevent fragmented market and to strengthen Europe’s collective innovation potential including DeFi applications such as insurance, lending, and securities.

Recently in a CoinCub survey of the world’s most crypto-friendly jurisdictions, Germany has topped, in part due to its favorable tax treatment for the assets.

Markets crypto Assets Regulation (MiCA) was originally proposed by the European Commission to ensure stablecoins. Now, legislators and governments are debating whether it should cover innovations such as DeFi and non-fungible tokens (NFTs). Legislators and governments appear to be moving away from imposing new DeFi regulations for now, instead requesting the Commission to prepare a further report in one or two years.

In January 2020 BaFin's "crypto custody business" license was introduced and BaFin is the issuer of this license. It is a permit required for firms wanting to offer cryptocurrency services within Germany. Although many financial institutions have submitted an application for approval currently only four providers are approved. Different European countries should have the same regulatory frameworks. In order to prevent fragmented markets and to leverage Europe's entire innovation potential, such requirements would ideally be uniform throughout the EU said, Birgit Rodolphe.

In the first quarter of 2022 Germany rose to the top spot as the most crypto-friendly country. This was due to its zero-tax policy on long-term crypto capital gains. As of March 2022 almost half of Germans are interested in investing in crypto.

In 2021 across its government Germany also made many moves related to crypto. The law reforms were made to accept blockchain and tightening of regulations on crypto businesses. In testing a European central bank digital currency (CBDC) the country’s central bank took a major leading role.

According to Rodolphe Considering they could make DeFi products more attractive for businesses to pursue from a regulatory standpoint, the new DeFi regulations cannot be weaker than the ones already in place for traditional financial products.


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Indrani bose

CBW - External Analyst


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