France Seeks to Hold Crypto Platforms Accountable for DeFi Protocol Access
Under proposed amendments to EU cryptocurrency regulations, French regulators are pushing for crypto platforms to perform due diligence on DeFi protocols and accept responsibility for specific customer losses.
French regulators are seeking to make cryptocurrency exchanges liable for particular decentralized finance (DeFi) related incidents when they neglect to properly assess protocols or disregard recognized security threats.
On Wednesday, French regulatory bodies released proposals aimed at modifying the European Union's Markets in Crypto-Assets Regulation (MiCA). The collaborative submission to a European Commission consultation was presented by France's Treasury, alongside the Financial Markets Authority (AMF), the central bank, and the Prudential Supervision and Resolution Authority (ACPR).
"CASPs [crypto-asset service providers] should be liable for certain incidents affecting clients where they actively facilitated access," French authorities said.
Under MiCA's current framework, crypto services delivered in a completely decentralized fashion without intermediaries fall outside the regulation's reach. France's submission aims to broaden investor protections by placing additional responsibilities on regulated exchanges that provide customers with access to DeFi protocols.
The Commission is currently examining whether MiCA requires modifications as the cryptocurrency market continues to evolve. Its consultation process gathered input on operations beyond the legislation's initial parameters, with DeFi being among them. The collected feedback will shape a report destined for EU lawmakers by June 30, 2027, potentially containing suggestions for legislative amendments.
DeFi access could come with new obligations
The French regulatory bodies put forward a requirement for exchanges to conduct thorough assessments of DeFi protocols prior to providing access and continuously oversee them for security weaknesses and questionable activities. They additionally supported the establishment of certification processes for protocols and smart contracts, together with exchange accountability for specific incidents.
These requirements would be fully implemented for significant CASPs, while obligations would be adjusted proportionally for smaller service providers.
Exchanges would maintain the ability to provide customer access to protocols lacking certification, provided they perform independent due diligence procedures and deliver comprehensive risk disclosure statements, according to the authorities.
Regarding non-custodial or self-custodial wallets, the authorities took a position against imposing universal certification mandates on developers. Instead, they supported optional certification programs for more sophisticated wallets that incorporate DeFi service integration.
France pushes for wider MiCA overhaul
Extending beyond DeFi concerns, France expressed support for initiatives to shift oversight of "significant CASPs" away from national regulatory bodies to the European Securities and Markets Authority (ESMA).
The regulatory bodies additionally recommended reducing MiCA's existing benchmark of 15 million average daily active users in the EU for designating significant CASPs. They further suggested incorporating factors such as custody assets, business risks, and group complexity when determining which exchanges should come under ESMA's supervisory jurisdiction.
France additionally advocated for a reassessment of MiCA's asset-referenced token (ART) classification, which encompasses tokens engineered to preserve a stable value through reference to assets or asset combinations. The authorities highlighted that no ARTs had received authorization under MiCA's current framework and recommended modifying the e-money token (EMT) structure to accommodate multicurrency stablecoins.