The AFME has raised concerns over the exclusion of Decentralized Finance (DeFi) from the upcoming MiCA, the E.U.’s crypto regulatory framework. The Association for Financial Markets in Europe (AFME), the organization representing the wholesale market of Europe, raised an alarm that the forthcoming regulations do not include a whole sector of the crypto industry – DeFi.
MiCA Circumvents DeFi, AFME Concerned
Per the AFME’s new report, overlooking or ignoring decentralized finance might not be suitable for European Union’s regulatory framework, which is expected to be effective from December 30, 2023. The regulations offer crypto assets investors and businesses legal assurance and do not cover DeFi.
The report notes that the industry is still evolving, and the use cases for the capital market are yet to be fully explored. AFME feels that DeFi, a sector that operates within the regulatory guide rails, could achieve great benefits if included in MiCA. Also, the industry could achieve a higher adoption rate and have increased capital market use cases.
The agency also argues that the exclusion of this sector could have consequences. Mainly because DeFi has the potential to disrupt financial markets. Also, the report titled “Decentralised Finance – Principles for Building a robust digital economy” hints that the exclusion might lead to regulatory arbitrage.
AFME, in its report, says that the exclusion could lead to unintended risks to financial stability. However, the significance of the amalgamation of Decentralized Finance (DeFi) and Traditional Finance (TradFi) is yet to be deemed significant. The scenario should be actively managed and monitored, nonetheless.
The association believes DeFi is a considerable force of innovation in the finance sector. Also, the current development in decentralized finance mainly outsources innovation and research and development labs working for conventional finance systems.
The agency argues about a risk-based approach to dealing with DeFi regulations in the paper. They call this approach a “Level Playing Field,” which shall encompass different levels of centralization. They also suggest that the European Union develop a taxonomy to classify digital assets and DeFi activities. This would greatly help in finding regulatory solutions to address unique DeFi challenges.
Markets in Crypto Assets, How to Get License of Operation?
Chainalysis’ policy head for European Union, Janet Ho, urged firms to adopt the upcoming regulations proactively. On June 9, 2023, the laws were published in the European Union’s Official Journal (OJEU). While a select set of rules were activated on June 29, 2023, the remaining rules shall be executed after December 30, 2024.
To obtain a license of operation under the Market in Crypto Assets, the crypto companies must apply for authorization from the concerned authority in any of the 27 member nations. In 25 working days, these authorities would notify the applicants of missing documents or any such information.
As for the status of the application being selected or rejected, the authorities shall inform them in 60 days. However, it is still around 18 months for the law to effect fully; experts argue that, at that time, companies shall flock to the offices asking for licenses. Hence a proactive approach will be beneficial. Also, at the time, the waiting period could extend by up to months.
Once the license is obtained, the company from any member country could scale its business across European Union. Many countries consider the upcoming regulations a blueprint to create their own. Although it’s not certain yet, authorization from any member country of the European Union could open up the huge market for crypto companies.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/07/09/e-u-s-mica-regulations-debarred-defi-afme-raises-concerns/