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The European Commission will close its consultation on EU crypto rules on September 30. Banking authorities want it to consider new rules for lending and borrowing through decentralized finance, or DeFi. The deadline applies to feedback on possible changes. It does not introduce new lending requirements.
The European Banking Authority asked the Commission to assess rules for firms that arrange crypto loans. Its September 24 response also covers crypto firms that connect customers to DeFi lending through an app or product. A loan may run through an automated protocol while a company controls the route customers use to reach it.
The EBA set out two possible changes to the Markets in Crypto-Assets Regulation, known as MiCA. One would add crypto lending and borrowing to its list of regulated services. The other would place duties on firms that provide access to DeFi lending. The Commission must assess the size of these activities, retail use and consumer risks before deciding whether to propose legislation.
The EBA proposed examining suitability checks, leverage limits and clearer information about lending terms. It also suggested warnings for customers using protocols described as “truly decentralized.” Another option would assess whether lending protocols could receive certification for their ability to withstand cyberattacks.
The authority identified gaps in information about fees, yields and changes to collateral requirements. It raised concerns about losses linked to leverage, outages, hacks and poor recordkeeping. Borrowers may also take on too much debt where services do not check their ability to repay.
A separate proposal concerns loans involving certain stablecoins without an authorized issuer. The EBA said MiCA could bar crypto firms from arranging or facilitating loans involving those tokens. Its suggestion concerns the firms providing the service. Lawmakers would still need to decide how any new rules treat customers who interact with smart contracts directly.
The European System of Central Banks has submitted its own response to the MiCA review. It wants the EU to regulate crypto staking, lending and borrowing. The central banks also want the existing ban on stablecoin interest to cover indirect rewards offered through related services. Their recommendations require further legislative work before they can become binding.
The two responses leave a practical question for lawmakers. Customers can reach a lending protocol through a company’s app, another interface or a direct smart contract transaction. Any proposal would need to define which firms provide a regulated service and what duties apply to each access route.
The Commission’s targeted consultation closes on September 30 at 11:59 p.m. Central European Summer Time. Feedback will inform its report on MiCA’s application. The Commission says it may submit a legislative proposal with that report if it finds changes warranted.
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