France proposes to take responsibility for encrypted trading platforms that provide access to DeFi

French regulatory authorities expect crypto platforms to take responsibility for certain decentralized finance (DeFi) incidents, provided that these platforms have not reviewed the relevant protocols or have ignored known security risks.

French authorities issued a proposal on Wednesday suggesting revisions to the EU's 'Regulations on Markets in Crypto Assets' ( MiCA ). This joint response, submitted to the EU Commission's consultation process, comes from the French Ministry of Finance, the Financial Markets Authority ( AMF ), the central bank, as well as the Prudential Supervision and Resolution Authority ( ACPR ).

French authorities stated: " CASP (cryptocurrency service providers) should be held responsible for certain incidents that affect customers when they actively facilitate access."

MiCA will be completely excluded from encrypted services in a decentralized manner, without the involvement of intermediaries. France's proposal will expand investor protection by imposing new obligations on regulated platforms that connect customers with the DeFi protocol.

The European Commission is reviewing whether MiCA needs to be updated as the crypto market develops. This consultation seeks opinions on activities that fall outside the original scope of application of the law, including DeFi. The responses will be used to draft a report to be submitted to EU legislators, with completion expected by June 30, 2027. The report may include suggestions for legislative amendments.

DeFi Access may come with new obligations

French authorities propose that platforms should review relevant protocols before providing access to DeFi, and continuously monitor for vulnerabilities and suspicious activities. They also support the certification of protocols and smart contracts, as well as holding platforms accountable for certain events.

These requirements will be fully applicable to the important CASP, while for smaller service providers, the obligations will be set in proportion.

Authorities stated that if platforms conduct their own due diligence and provide more comprehensive risk disclosures, they could still connect customers to unauthenticated protocols.

Relevant: The early warnings about Ledger should have led to more action, says Karpel.

The authorities also discussed non-hosted or self-hosted wallets and opposed imposing a one-size-fits-all authentication requirement on developers. They prefer voluntary authentication for more advanced wallets that integrate DeFi services.

France promotes broader MiCA reforms

In addition to DeFi, France also supports the plan to transfer the regulatory authority over "important CASP" from national regulatory agencies to the European Securities and Markets Authority (ESMA).

The authorities also propose to lower the current threshold for identifying important CASP, which is 15 million average daily active users within the EU. They also suggest taking into account managed assets, business risks, and group complexity when deciding which platforms should be subject to ESMA regulation.

Relevant: France promotes stablecoin taxation, focusing on proposals for self-hosted wallets and exit taxes

France also calls for a review of the asset-backed token (ART) categories within MiCA. This category encompasses tokens that maintain their stable value by referencing one or more assets. French authorities pointed out that to date, no ART has obtained authorization from MiCA, and propose to adjust the framework for electronic currency tokens (EMT) to cover multi-currency stablecoins.

Magazine: MiCA is targeting the treasury of DeFi, but regulation will be very difficult.