The European Commission is set to close its targeted consultation on the Markets in Crypto-Assets Regulation (MiCA) on September 30, with banking regulators urging a closer look at decentralized finance (DeFi) lending and borrowing.
The deadline is for feedback on possible changes to the EU crypto framework. It does not itself impose new lending requirements.
EBA seeks review of DeFi loan access
In a September 24 response, the European Banking Authority (EBA) asked the Commission to assess rules for firms that arrange crypto loans. The scope would also cover crypto companies that connect customers to DeFi lending through an app or product. In some cases, a loan may run through an automated protocol while a company controls the route customers use to reach it.
The EBA outlined two potential changes to MiCA:
- Add crypto lending and borrowing to the list of regulated services.
- Impose duties on firms that provide access to DeFi lending.
Before deciding whether to propose legislation, the Commission would need to assess the size of these activities, their retail use and the consumer risks involved.
Consumer safeguards and risk gaps
The EBA suggested examining suitability checks, leverage limits and clearer information about lending terms. It also floated 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 tied to leverage, outages, hacks and poor recordkeeping. Borrowers may also take on too much debt when services do not check their ability to repay.
Stablecoin-linked loans draw scrutiny
A separate EBA 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. The suggestion focuses on firms providing the service. Lawmakers would still need to decide how any new rules treat customers who interact with smart contracts directly.
Central banks seek broader rules
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.
Access routes complicate the policy question
The responses leave lawmakers with a practical question. 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 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 alongside that report if it finds changes are warranted.
