The Association for European Financial Markets (AFME) has raised concerns about the exclusion of decentralized finance, or DeFi, from the European Union Cryptocurrency Markets (MiCA) regulation. AFME’s latest comment points to the need to create a comprehensive regulatory framework that encompasses both traditional financial services and DeFi.
AFME, a prominent entity in the European financial markets, has expressed concern about leaving decentralized activities outside the regulatory framework. They emphasized that such exclusions could potentially instigate regulatory arbitrage and dilute the effectiveness of any regulatory structures that might emerge.
Risks of Opting Out of MiCA DeFi
The Cryptocurrency Market Regulation (MiCA) recently adopted by the European Union represents an effort to establish a comprehensive regulatory framework for crypto assets. Its goal is to cultivate a more secure and transparent environment for digital financial operations.
However, this legislation, in its current form, is not suited to decentralized finance (DeFi), a fast-growing sector in the digital finance landscape. This exclusion is raising concerns, particularly within the Association for Financial Markets in Europe (AFME).
AFME warns that the current regulatory approach, which ignores the DeFi sector, can unwittingly trigger potential risks. It postulates that such supervision may pose threats to financial stability and give rise to secondary implications. These concerns stem from the absence of regulatory protection to provide certainty in the face of digital financial markets.
To further emphasize his point, AFME clarifies the interaction between DeFi and traditional finance (TradFi). He argues that while the current overlap between DeFi and TradFi is relatively limited, it requires active monitoring and management.
By actively monitoring these developments, AFME believes that potential threats can be more effectively mitigated, thus avoiding potential financial turmoil.