Highlighting Germany’s crypto license as an example of attractive regulation, Birgit Rodolphe writes that similar frameworks should be the same throughout the EU to “prevent a fragmented market.”
Birgit Rodolphe, executive director at Germany’s Federal Financial Supervisory Authority (BaFin), has called for innovative and uniform regulation of the decentralized finance (DeFi) space throughout the European Union.
BaFin is Germany’s financial regulatory body responsible for regulating banks, insurance firms and financial institutions including cryptocurrency companies. BaFin is the issuer of “crypto custody licenses,” a permit required for firms wanting to offer cryptocurrency services within Germany.
In an article on BaFin’s website, Rodolphe warned of the risks to consumers of the unregulated DeFi space and called for standardized regulatory considerations across EU member countries:
“One thing is clear: the clock is ticking. The longer the DeFi market goes unregulated, the greater the risk for consumers, and all the greater is the danger that critical offers that have systemic relevance will establish themselves.”
She cited risks to consumers of “technical issues, hacks, and fraudulent activity” that have seen millions lost and claimed that DeFi isn’t as “democratic and altruistic” as its fans say and that DeFi products are “difficult for many to grasp.” She concluded that DeFi protocols aren’t at liberty to operate outside of regulations simply because they use new technologies:
“Utopia? Or rather dystopia? Who do I contact if I want to defer my crypto loan? What happens if my crypto assets suddenly disappear altogether? In any case, there is no deposit protection fund for such cases.”
She added that lending, borrowing, insurance and other products outside of the traditional financial system are subject to licensing and supervision where they’re offered, and called on regulators to set rules which will give DeFi providers legal clarity.
Rodolphe highlighted BaFin’s “crypto custody business” license introduced in January 2020 as a regulatory regime that is “attractive” to crypto businesses.
The license permits companies to offer crypto services in Germany. Currently, only four providers are approved, but many financial institutions have submitted an application. Rodolphe wrote regulatory frameworks should be the same in different European countries:
“Ideally, such requirements would of course be uniform throughout the EU in order to prevent a fragmented market and to leverage Europe’s entire innovation potential.”
( Jesse Coghlan, Cointelegraph, 2022 )