The European Banking Authority has asked the European Commission to examine new MiCA rules for crypto firms that facilitate access to decentralized finance loans. In a September 24 response, the EBA called for a cost-benefit analysis of potential duties for crypto-asset service providers that give clients access to DeFi lending through interfaces or products.
The EBA's recommendation focuses on companies that supply applications connecting customers to on-chain lending protocols. While the EBA's response does not change any lending rules, it flags consumer risks as the primary motivation for the review.
Proposed Safeguards Under Review
The EBA identified two possible regulatory approaches. The first would add intermediating crypto borrowing and lending to MiCA's list of CASP services. The second would establish requirements for CASPs facilitating access to DeFi lending protocols through interfaces or product offerings.
The EBA proposed six potential safeguards for the Commission to analyze, including:
- Suitability tests to assess whether customers should participate in lending activities
- Leverage caps to limit borrowing risks
- Enhanced disclosures about fees, yields, and collateral requirements
- Extra warnings that decentralized protocols may lack regulatory safeguards
- Certification of lending protocols for resilience to cyberattacks
- Restrictions on CASPs facilitating borrowing and lending with unauthorized asset-referenced or e-money tokens
Consumer Risks Identified
The EBA highlighted potential consumer harms including incomplete information about fees and yields, leverage that can amplify losses, risks from commingling and protocol outages, and the absence of creditworthiness checks.
Timeline and Next Steps
The European Commission's targeted consultation closes on September 30 at 11:59 p.m. Central European Summer Time. Feedback will inform the Commission's report on MiCA's application and crypto-market developments. The Commission may accompany that report with a legislative proposal if warranted.
Future lawmakers would still need to define activities involving DeFi access and decide how to treat direct smart contract interaction. Until regulations are finalized, the EBA's proposals signal a possible access and compliance boundary for firms and customers.
