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Birgit Rodolf, executive director of Germany’s Federal Agency for Financial Supervision, has called for universal regulation of the DeFi industry across the European Union.
The German Federal Financial Supervisory Authority (BaFin) is responsible for regulating banks, insurance companies and financial institutions, including cryptocurrency companies. In particular, BaFin issues licenses to organizations wishing to provide cryptocurrency services in Germany. BaFin Chief Executive Birgit Rodolph has warned the public about the risks of decentralized finance (DeFi) as the space is not properly regulated. Rodolphe called on EU member states to develop common regulatory requirements that would apply to DeFi projects throughout the EU in order to avoid market fragmentation.
According to Rodolphe, the longer the DeFi sector remains unsupervised, the higher the likelihood of fraudulent projects, technical problems and hacker attacks. All this poses great risks for users, and their losses can amount to millions of euros. The DeFi industry is not as democratic and altruistic as its supporters claim, and many people find it difficult to understand DeFi products, said the head of BaFin.
“One thing is clear now: the clock is ticking. The DeFi market can no longer be left unattended. Is this a utopia? Or rather, dystopia? Who should I contact if I want to postpone my cryptocurrency loan? What happens if my crypto assets suddenly disappear? There is no deposit protection fund for such cases yet,” Rodolphe said.
She added that any products outside the traditional financial system but related to lending, loans and insurance should be subject to licensing. This will also play into the hands of DeFi suppliers, as it will provide them with legal clarity. Rodolphe added that the new rules for regulating DeFi should not be “softer” than the standards that apply to conventional financial products, so that decentralized finance does not become more attractive to business.
Last year, the BaFin license to provide services for the storage of crypto assets was received by the Coinbase trading platform. Cryptocurrency exchange Kraken also announced its intention to obtain permission from the regulator to work in EU countries, and last month one of the largest German banks Commerzbank applied to BaFin for a license to work with digital assets.
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