BaFin chief executive calls for unified DeFi regulation across the EU

The executive director of the German Federal Financial Supervisory Agency, Birgit Rodolph, called for the creation of universal regulation of the DeFi industry throughout the European Union.

The German Federal Financial Supervisory Authority (BaFin) is responsible for the regulation of banks, insurance companies and financial institutions, including cryptocurrency companies. In particular, BaFin issues licenses to organizations wishing to provide cryptocurrency services in Germany. BaFin CEO Birgit Rodolph warned the public about the risks of decentralized finance (DeFi) as the space is not properly regulated right now. Rodolphe urged EU member states to develop uniform regulatory requirements that would apply to DeFi projects throughout the EU in order to avoid market fragmentation.

According to Rodolphe, the longer the DeFi sector remains unsupervised, the higher the likelihood of fraudulent projects, technical problems and hacker attacks. All this poses great risks for users, and their losses can amount to millions of euros. The DeFi industry is not as democratic and altruistic as its proponents claim, and DeFi products are difficult for many people to understand, a BaFin executive said.

“Now one thing is clear: the clock is ticking. The DeFi market can no longer be left unattended. What is a utopia? Or rather, dystopia? Who should I contact if I want to defer my cryptocurrency loan? What happens if my crypto assets suddenly disappear? A deposit protection fund for such cases does not yet exist,” said Rodolphe.

She added that any products outside the traditional financial system, but related to lending, loans and insurance, should be subject to licensing. This will play into the hands of DeFi providers as well, as it will provide them with legal clarity. Rodolphe added that the new rules for regulating DeFi should not be “softer” than the standards that apply to conventional financial products, so that decentralized finance does not become more attractive to businesses.

Last year, the BaFin license for the provision of services for the storage of crypto assets was received by the Coinbase trading platform. Cryptocurrency exchange Kraken also announced its intention to obtain regulatory permission to work in the EU, and last month one of the largest German banks, Commerzbank, applied to BaFin for a license to work with digital assets.