Birgit Rodolphe, CEO of Germany’s Federal Financial Supervisory Authority (BaFin), has called for innovative and uniform regulation of the decentralized finance (DeFi) space across the European Union (EU).

BaFin is Germany’s financial regulatory body responsible for regulating banks, insurance companies, and financial institutions, including cryptocurrency companies. BaFin is the issuer of “cryptocurrency custody licences”, a permit required for companies that want to offer cryptocurrency services within Germany.

In an article on the BaFin website, Rodolphe warned of the risks to consumers of the unregulated DeFi space and called for standardized regulatory considerations across EU member countries.

Birgit Rodolphe, Executive Director of Prosecution and Prevention of Money Laundering at BaFin.

“One thing is clear: time is running out. The longer the DeFi market is unregulated, the greater the risk to consumers, and the greater the danger of critical offerings being established that have systemic relevance.”

He cited the risks to consumers of “technical issues, hacking, and fraudulent activity” that have caused millions to be lost, and stated that DeFi is not as “democratic and altruistic” as its fans say, and that DeFi products are “difficult to understand.” for many”. .” He concluded that DeFi protocols do not have the freedom 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 completely? In any case, there is no deposit protection fund for these cases.”

He added that loans, loans, insurance and other products outside the traditional financial system are subject to licensing and supervision where they are offered, and called on regulators to put in place rules that provide legal clarity to DeFi providers.

Rodolphe highlighted BaFin’s “cryptocurrency custody business” license introduced in January 2020 as a regulatory regime that is “attractive” to crypto businesses.

The license allows companies to offer crypto services in Germany. Currently only four providers are approved, but many financial institutions have applied. Rodolphe wrote that regulatory frameworks should be the same in different European countries:

“Ideally, such requirements would of course be uniform across the EU to avoid a fragmented market and harness the full innovation potential of Europe.”

Related: European Watchdog Lists Crypto Alongside Lawyers and Accountants as an AML Threat

Germany rose to the top spot as the most “crypto-friendly” country in Q1 2022 due in part to its zero-tax policy on long-term crypto capital gains. A report from March 2022 found that almost half of Germans are interested in investing in cryptocurrencies.

Germany also made a lot of crypto-related moves across its government in 2021 with legal reforms to adopt blockchain and tightening regulations on crypto companies. The country’s central bank took a leading role in testing a European central bank digital currency.

Rodolphe concluded that the new DeFi regulations cannot be weaker than the standards that already exist with traditional financial products, as it could make DeFi products more attractive to companies from a regulatory point of view.

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