EU Weighs New Rules for Crypto Firms Facilitating DeFi Loans

The European Banking Authority has submitted its response to the European Commission regarding new rules for crypto firms that connect customers to decentralized finance (DeFi) loans. The EBA's September 24 response asks the Commission to conduct a cost-benefit analysis of possible duties for intermediated borrowing and lending, as well as crypto-asset service providers (CASPs) that give clients access to DeFi lending through interfaces or products.

The regulator cited consumer risks as the reason for its call to examine the issue. The EBA's review maps potential CASP roles in DeFi lending, while direct smart-contract use remains unresolved and no new rule is enacted.

The Commission would need to weigh the scale of these activities, retail participation, and the seriousness of the risks before deciding whether to pursue legislation. Suitability tests could assess whether a customer should take part, while leverage caps and fuller disclosures could address borrowing risks.

The EBA suggested extra warnings that activity through a truly decentralized protocol may lack regulatory safeguards. It also floated certification of lending protocols for resilience to cyberattacks.

The Commission's targeted consultation closes on September 30 at 11:59 p.m. Central European Summer Time, and feedback will inform its report on MiCA's application and crypto-market developments.