Malta Seeks Industry Input on DeFi Rules Under MiCA Framework

TLDR

• Malta’s MFSA launched a consultation on how DeFi could fit within the EU’s MiCA framework.
• The regulator is reviewing whether decentralization should be assessed as a spectrum rather than a binary concept.
• MFSA highlighted centralized features in many DeFi projects, including admin keys and governance control.
• The discussion paper seeks feedback on creating a standardized test for MiCA exemptions.
• The regulator is considering whether crypto firms should conduct smart contract audits and risk assessments.

Malta’s financial regulator has launched a public consultation on how decentralized finance services could interact with the European Union’s crypto rules. The Malta Financial Services Authority (MFSA) published a discussion paper that examines whether some DeFi activities may fall within the scope of the Markets in Crypto-Assets (MiCA) framework. The paper focuses on governance structures, accountability mechanisms, and the definition of full decentralization.

MFSA Examines Where DeFi Fits Under MiCA

The MFSA said MiCA excludes crypto services that operate in a “fully decentralised manner without any intermediary.” However, the regulator stated that many DeFi projects still maintain centralized features. These features include administrator keys, governance concentration, protocol upgrade authority, and control over user-facing interfaces.

The discussion paper questions whether decentralization should remain a binary concept. Instead, the regulator asks whether authorities should assess decentralization across a spectrum. The paper also seeks views on whether regulators should adopt a standardized framework for determining when a protocol falls outside MiCA’s scope.

The regulator noted that DeFi remains a grey area under the EU framework. While MiCA provides an exemption for fully decentralized services, it does not clearly define the threshold for qualification. As a result, the MFSA is gathering industry feedback before considering future approaches.

Regulator Seeks Input on Governance and Risk Controls

The consultation also addresses how regulated crypto firms interact with DeFi protocols. The MFSA asks whether licensed firms should conduct smart-contract audits before integrating decentralized services. It also raises questions about governance reviews and risk assessments.

According to the paper, regulators may need clearer standards for evaluating protocol risks. The authority seeks feedback on practical measures that firms can use before offering DeFi-related services. The consultation period remains open until July 10.

The document also outlines several legal structures that DeFi projects could use. These structures include decentralized autonomous organizations, commonly known as DAOs, and segregated cell companies. The regulator presents these models as potential frameworks for governance and operational accountability.

Consultation Covers Automated Oversight Mechanisms

The MFSA also examines the role of guardian agents within decentralized systems. It describes guardian agents as mechanisms that use automation to supervise other autonomous systems. These tools can monitor actions and enforce predefined objectives.

The regulator said these mechanisms may help ensure compliance with established risk tolerances. The paper includes the concept as part of its broader review of governance and accountability structures.

Through the consultation, the MFSA aims to collect views from industry participants and stakeholders. The authority has invited responses on decentralization standards, governance models, and compliance measures. Public submissions will remain open until July 10, according to the discussion paper.

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