The Association for Financial Markets in Europe (AFME) published a new whitepaper on Decentralized Finance (DeFi) including principles for building a robust digital economy.
Despite the recent “crypto winter”, frameworks to regulate digital assets continue to emerge around the globe. AFME believes that this is a crucial moment for the financial services industry and regulators to mitigate risks and prevent any unintended gaps in regulatory perimeters that could cause harm to both corporate and retail consumers.
One key area where AFME believes it is important to not leave a gap is DeFi. An exclusion of DeFi from regulatory frameworks could open opportunities for regulatory arbitrage and weaken the application of any new rules and regulations. Many regulators also see this as the next key area to address, and France in particular has been very active (see AFME response to the recent ACPR Discussion Paper).
This area of the market is still rapidly evolving and changing, so AFME aimed to develop a foundational piece of work to further explore some of the technical issues posed by this new area of digital finance, as well as raise some initial proposals on how DeFi could be addressed from a regulatory standpoint. AFME aims to open an initial discussion across industry on this topic through discussion of three principles:
- The importance of developing a foundational taxonomy classification mechanism for DeFi (and DeFi activities) as well as digital assets.
- Further research and global cooperation should be encouraged to determine the appropriate, proportionate, and comprehensive regulatory solutions for the unique challenges posed by DeFi.
- It is crucial to leverage existing processes and frameworks to create a holistic regulatory perimeter.
