The European Union has moved closer to tighter oversight of DeFi lending access after the European Banking Authority called for crypto borrowing and lending services to be brought within the scope of the bloc’s Markets in Crypto Assets framework. Summary The EBA wants crypto borrowing and lending brought under MiCA, including services that give customers access to DeFi lending protocols. Proposed measures include suitability tests, leverage limits and extra disclosures for firms providing crypto lending services. EU regulators could consider restrictions involving regulated stablecoins and a certification regime for DeFi lending protocols. The recommendations are part of the European Commission’s ongoing review of MiCA and would require legislative changes before taking effect. According to the European Banking Authority, crypto asset service providers that connect customers to decentralized lending protocols could face new requirements if the European Commission decides to expand MiCA as part of its ongoing review. The EBA wants the Commission to conduct a cost benefit analysis of legislative changes that would add the intermediation of crypto borrowing and lending to the list of services regulated under MiCA. Its recommendations go beyond centralized crypto lenders and consider how regulated firms provide customers with access to DeFi protocols. Possible measures include suitability tests for users, limits on leverage and extra disclosure requirements. The regulator raised the prospect of restrictions involving lending products that use asset referenced tokens or e money tokens requiring authorization under MiCA. A certification regime for DeFi lending protocols could be considered as another option, particularly where regulated crypto firms act as the gateway through which customers access decentralized lending services. DeFi lending access could face MiCA checks Crypto lending activity has been identified in at least 16 EU member states, according to research cited by the EBA. The authority said access to decentralized finance through crypto firms and the growing use of artificial intelligence tools are making the boundary between centralized and decentralized financial services less clear. MiCA currently provides an EU wide framework for crypto asset issuers and crypto asset service providers, but lending and borrowing are not fully covered by its existing service categories. A July policy position from the European Parliament had already put DeFi and lending on the regulatory agenda. Lawmakers asked the Commission to examine whether decentralized finance, staking, crypto lending and borrowing, NFTs and tokenized financial assets require further treatment under MiCA. crypto.news previously reported that the position did not change existing law but set out areas lawmakers wanted examined after MiCA’s rollout. The EBA’s latest recommendations give the Commission a more detailed set of options for lending. Requirements could be placed on crypto firms that intermediate borrowing and lending or provide an interface through which customers reach DeFi protocols. Such rules would depend on legislative changes. The Commission’s MiCA review consultation remains open until Sept. 30 and is intended to help determine whether the framework remains fit for purpose following its initial implementation. Feedback may feed into a report on MiCA’s application and could be followed by a legislative proposal if the Commission considers changes necessary. Stablecoin lending is drawing separate scrutiny Stablecoins form another part of the lending debate. The EBA said policymakers could consider restricting access to borrowing and lending involving asset referenced tokens and e money tokens that require authorization under MiCA. The proposal comes days after European central banks called for MiCA’s restrictions on stablecoin remuneration to cover lending, borrowing and staking arrangements that can generate indirect returns for token holders. Under the proposal described in the stablecoin yield review, the European System of Central Banks argued that crypto platforms could structure products outside services currently covered by MiCA in ways that effectively allow stablecoins to generate returns. The EBA separately said existing MiCA requirements for issuers of asset referenced and e money tokens are broadly appropriate, while recommending changes for third country multi issuer schemes. As of Sept. 1, 39 e money tokens had been issued under MiCA, while no asset referenced tokens had received authorization, according to the authority. Reserve requirements are under review as well. The EBA recommended reconsidering the minimum amount of reserves that issuers must hold as bank deposits while preserving risk management requirements. MiCA review is moving into areas outside the original framework The Commission opened its MiCA review in May to gather feedback on how the regulation is functioning and whether parts of the framework should be changed. The consultation covers crypto issuers, service providers, financial institutions, technology companies, industry groups and public authorities. MiCA entered into application on Dec. 30, 2024, while its provisions covering asset referenced and e money tokens had started applying six months earlier. Transitional arrangements allowed some existing crypto companies to continue operating under national regimes before the bloc moved into full MiCA implementation. Attention has since moved toward activities that were not fully addressed by the original regulation. Lending, borrowing, staking and parts of DeFi have become part of that discussion, while regulators have been examining where decentralized systems should fall within existing financial rules. A June consultation by Malta’s financial regulator proposed a new category for DAOs and other DeFi entities. The Malta Financial Services Authority said many projects described as decentralized may not meet MiCA’s standard for full decentralization where control remains concentrated among identifiable participants. Similar questions have emerged at the EU level over how decentralization should be assessed when protocols rely on interfaces, governance structures or companies that provide users with access. Crypto lenders currently sit outside parts of MiCA The gap can already be seen in the way some companies structure European services. Nexo said in July that custody and brokerage for customers in the European Economic Area were being provided through regulated German partners Tangany and DLT Finance. Its Earn products and crypto backed loans, however, were offered separately and sat outside the MiCA and MiFID authorizations held by those partners. Expanding MiCA’s list of regulated services could change the requirements that apply when a crypto asset service provider intermediates lending or gives users access to a decentralized lending protocol. The EBA has not proposed a final set of rules, and its recommendations form part of the Commission’s consultation process rather than legislation already agreed by EU institutions. Beyond lending, the authority wants clearer rules for crypto asset classification, saying current uncertainty can create costs and delays when firms bring products to market. It recommended clarifying MiCA’s scope and definitions, including its boundary with other EU financial laws. Reporting requirements for token issuers and crypto asset service providers are another area the EBA wants reviewed to support supervision and risk monitoring. The authority’s recommendations will now feed into the Commission’s assessment of MiCA alongside responses from other regulators and market participants. Any decision to add crypto lending or specific requirements for access to DeFi protocols would require the Commission to move from the review process toward legislative changes.
