EBA Calls for Regulation of DeFi Loans Amid Consumer Risk Concerns

The European Banking Authority (EBA) has submitted a response to the European Commission regarding the regulation of decentralized finance (DeFi) loans in the EU. The EBA's September 24 response recommends that the Commission conduct a cost-benefit analysis of possible duties for intermediated borrowing and lending, as well as crypto-asset service providers (CASPs) that facilitate access to DeFi lending through interfaces or products.

The regulator expressed concern over consumer risks, including incomplete information about fees, yields, or changes to collateral requirements, leverage that can amplify losses, and risks from commingling, outages, hacks, and poor recordkeeping. The EBA proposed six DeFi lending safeguards for Commission analysis, including suitability tests, leverage caps, and fuller disclosures.

The response also discussed the possibility of CASPs being prohibited from intermediating or facilitating borrowing and lending involving assets that meet MiCA's definition of an asset-referenced or e-money token but have no authorized issuer. The EBA emphasized the need for clear obligations for firms and customers, including checks and disclosures attached to each route.