The Autorité des Marchés Financiers (AMF) has said that the “same activities, same risks, same regulation” approach should be “unambiguous” when regulating DeFi.
The French market regulator has set out its views on regulating decentralized finance (DeFi) in a discussion paper published on June 19.
However, the watchdog stressed that DeFi carries more risk than the traditional financial sector. Regulators must therefore address risks such as money laundering and terrorist financing, in addition to implementing know-your-customer (KYC) procedures, as the use of pseudonyms is common in DeFi transactions.
In addition, since DeFi activities are often cross-border, the AMF called for global cooperation in regulating the market. The discussion document, which spells out the regulator’s “preliminary thinking” on DeFi regulation, noted:
“Due to the cross-border nature and scope of DeFi activities, the AMF also supports the development of a globally coordinated approach to regulation to ensure a global level playing field, which should aim both at protecting investors and fostering innovation.”
Earlier this year, the Financial Stability Board said it is already working with global standard-setters to determine the path to regulating DeFi. In addition, two working groups of the international securities regulator IOSCO will publish the recommendations on DeFi regulation by the end of 2023.
The AMF said it supports all these initiatives that will enable the emergence of a “balanced regulatory framework”.
Balance between innovation and customer protection
The AMF, which licenses crypto companies in the country, noted the need for a “clear framework with safeguards” for DeFi protocols. Recent market debacles, such as the Terra-Luna crash, have only highlighted the lack of clarity in the space, the regulator noted.
According to the AMF, DeFi should “think legislation in a progressive and proportionate way.” In other words, legislation needs to weigh the potential benefits of DeFi against the risks they pose to users.
The regulator added that the coming years will be critical and doubly challenging for the DeFi sector. On the one hand, the sector must find a transparent and safe way of growth that encourages innovation. On the other hand, the space must provide “sufficient levels of investor protection,” the AMF noted.
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