The Association of Financial Markets in Europe (AFME), an industry advocacy group that represents wholesale market participants in Europe, has called for the inclusion of the decentralized finance (DeFi) sector in the recent adopted the regulations on markets in crypto-assets (MiCA).
MiCA is seen as the first potential piece of comprehensive crypto legislation and is expected to come into force in December 2024. However, the crypto legislation excludes certain aspects of the crypto ecosystem, including DeFi and non-fungible tokens. AFME, in its document address at the European Council, noted that the exclusion of DeFi could create unintended risks to financial stability and potential repercussions:
“Although, as noted by the Financial Stability Board (FSB), the current overlap of DeFi and traditional finance (TradFi) is not yet significant, this should be actively monitored and managed.”
The paper recommends that the European Union propose a taxonomy for DeFi activities and digital assets with a risk-based approach. In terms of governance of a decentralized ecosystem like DeFi, the trade body suggested a consistent regulatory framework as well as different levels of centralization.
Cointelegraph reached out to AFME for comment on the issue but did not immediately receive a response.
The professional body added that its request should not be seen as a definitive solution but rather a discussion about building “fundamental work to further explore some of the technical issues posed by this new area of digital finance, as well as only to raise certain problems. initial proposals for how DeFi could be approached from a regulatory perspective.
The professional body aims to open an initial discussion within the industry on this topic and achieve innovative policy solutions for DeFi with the public and private sectors.
MiCA is currently in the consultation phase, during which the EU will launch a three-part consultation process starting in July. The measures and suggestions collected during the consultation phase will be submitted for approval to the European Commission, the European Parliament and the European Council.