The European Banking Authority has asked the European Commission to examine new rules under the Markets in Crypto Assets Regulation (MiCA) that would govern crypto firms connecting customers to decentralized finance lending protocols.
The EBA issued its response to the Commission on September 24, identifying regulatory gaps in how intermediaries like MetaMask and similar wallet services facilitate access to DeFi lending platforms such as Aave. The request comes as the Commission runs a targeted consultation on MiCA’s application, closing September 30 at 11:59 p.m. CEST.
Two Regulatory Pathways
The EBA outlined two possible approaches for the Commission’s consideration. The first would add intermediating crypto borrowing and lending to MiCA’s existing list of crypto asset service provider (CASP) services. The second would establish specific requirements for CASPs that facilitate access to DeFi lending protocols through interfaces or products.
Consumer protection concerns drove the EBA’s proposal. The regulator identified risks including incomplete information about fees and yields, leverage that can amplify losses, risks from commingling and hacks, absence of creditworthiness checks, and possible over-indebtedness among retail users.
Outstanding Questions
The EBA proposed six DeFi lending safeguards for the Commission to analyze, though these do not yet constitute enacted rules. Potential measures under review include suitability checks, leverage caps, disclosures, warnings, and protocol certification requirements.
A significant gap remains unresolved: the proposal does not address whether consumers using smart contracts directly, without an intermediary interface, would fall under the new framework. This distinction could determine which activities trigger regulatory oversight.
Commission’s Next Steps
The Commission must weigh the scale of DeFi lending intermediation activities, the extent of retail participation, and the materiality of risks before deciding whether to pursue legislation. The regulator may accompany its report on MiCA’s application with a legislative proposal if warranted by its analysis.
The consultation period ending September 30 will inform the Commission’s assessment of whether formal rulemaking is necessary to address the risks the EBA has flagged.
