European Trade Body Urges Inclusion of DeFi in MiCA Regulations

The Association for Financial Markets in Europe (AFME), a trade body representing wholesale market participants in Europe, has called for the inclusion of the decentralized finance (DeFi) sector in the forthcoming markets in crypto assets (MiCA) regulations recently passed by the European Union.

MiCA is considered a comprehensive crypto legislation set to take effect in December 2024. However, the regulations currently exclude certain segments of the crypto ecosystem, including DeFi and non-fungible tokens (NFTs). In a paper addressed to the European Council, AFME highlighted the potential unintended risks to financial stability and broader impacts resulting from the exclusion of DeFi.

The trade body’s paper recommended the development of a taxonomy for DeFi activities and digital assets, employing a risk-based approach. It also suggested the implementation of a consistent regulatory framework for governing the decentralized nature of DeFi, while allowing for varying degrees of centralization.

AFME emphasized that their proposal should be seen as a starting point for discussion and further exploration of the technical aspects and regulatory considerations related to DeFi. They aim to foster an industry-wide dialogue and collaborate with both public and private sectors to develop innovative policy solutions for the DeFi sector.

The MiCA regulations are currently in the consultation phase, with the European Union initiating a three-part consultation process starting in July. The feedback collected during this phase will undergo review and approval by the European Commission, European Parliament, and European Council.

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