Key facts
- Crypto exchanges could face liability for certain DeFi incidents under French proposals.
- Platforms would need to vet DeFi protocols and monitor for vulnerabilities.
- France also backed transferring supervision of significant CASPs to ESMA.
- The proposals aim to extend investor safeguards under the EU's MiCA regulation.
France is proposing that cryptocurrency platforms be held liable for certain decentralized finance (DeFi) incidents if they fail to properly vet protocols or overlook known security risks. The proposals, published Wednesday, are part of a joint response to a European Commission consultation on updating the EU's Markets in Crypto-Assets Regulation (MiCA).
Under the proposed changes, crypto-asset service providers (CASPs) that actively facilitate customer access to DeFi protocols could be held accountable for specific client losses. French authorities suggested requiring platforms to conduct due diligence on DeFi protocols, monitor for vulnerabilities, and provide enhanced risk disclosures. These requirements would be scaled for smaller providers, with options for platforms to connect customers to uncertified protocols if they perform their own due diligence.