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Germany’s BaFin Official Calls for “Innovative” EU-wide DeFi Regulation

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

The BaFin is the German financial regulatory body responsible for regulating banks, insurance companies and financial institutions, including cryptocurrency companies. BaFin is the issuer of the “crypto holding license”, a license required for companies wanting to offer cryptocurrency services in Germany.

In an article published on the BaFin website, Rudolph warning on the risks of an unregulated DeFi space for consumers and called for regulatory considerations to be standardized across EU member states:

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 remains unregulated, the greater the risk to consumers, and the greater the risk of establishing critical offerings with systemic relevance.”

He cited the risks to consumers of their “technical issues, hacks, and fraudulent activity.” lost millions and said that DeFi is not as “democratic and altruistic” as its followers say and that DeFi products are “difficult for many to understand”. He concluded that DeFi protocols are not allowed to operate outside the regulations simply because they use new technologies:

” Utopia? Or rather dystopia? Who should I contact if I want to defer my crypto loan? What if my crypto assets suddenly disappear? In any case, there is no deposit protection fund for the cases this.”

He added that loans, loans, insurance and other products outside the traditional financial system are subject to licensing and supervision when offered, and called for regulators to establish rules that provide legal clarity for DeFi providers.

Rodolphe highlighted BaFin’s “cryptocurrency custody business” license, introduced in January 2020as an “attractive” regulatory regime for cryptocurrency businesses.

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

“Ideally, these requirements should be uniform across the EU to avoid a fragmented market and to take advantage of Europe’s full innovation potential.”

Germany came first because the friendliest country with cryptocurrencies in the first quarter of 2022 due in part to its zero tax policy on Long-term cryptocurrency capital gains. A report in March 2022 found that it was almost half of the Germans interested in investing in cryptocurrencies.

Germany too he made many moves related to cryptocurrencies throughout his government in 2021which included legal reforms to embrace blockchain technology and tighter regulations on crypto companies. The country’s central bank has taken a leading role in testing the European Central Bank’s Digital Currency (CBDC).

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

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