French authorities have put forward proposals that would make regulated cryptocurrency platforms responsible for some customer losses linked to decentralized finance protocols accessed through their services. The recommendations form part of a joint response to the European Commission’s consultation on the Markets in Crypto-Assets Regulation.

The submission came from France’s Treasury, the Financial Markets Authority, the Banque de France and the Prudential Supervision and Resolution Authority. It seeks to place new obligations on crypto-asset service providers that facilitate access to DeFi applications, an area currently outside the scope of the existing regulation when services operate without an identifiable intermediary.

Due Diligence and Monitoring Requirements

Under the proposals, platforms would need to evaluate the security of DeFi protocols before making them available to customers. The assessment would cover smart-contract security, operational vulnerabilities and other associated risks. After access is granted, providers would be expected to keep monitoring protocols for weaknesses and suspicious activity.

Authorities also backed certification arrangements for DeFi protocols and smart contracts. Certification would not be compulsory in every case. Platforms could continue offering access to uncertified protocols provided they complete their own checks and supply customers with enhanced risk disclosures.

The full set of requirements would apply to significant crypto-asset service providers, while smaller firms would face proportionate obligations scaled to their size.

Liability would attach in cases where a regulated intermediary had actively connected customers to a protocol and where adequate prior checks could have identified security problems. The proposals do not create automatic compensation for every exploit that occurs on decentralized networks.

Treatment of Self-Custody Wallets

French authorities took a different stance on non-custodial wallets. They opposed compulsory certification requirements for developers whose software simply allows users to hold and manage crypto-assets independently. Voluntary certification would be available for more advanced wallet applications that integrate DeFi services and other financial functions.

This approach aligns with the current exclusion under the regulation of activities carried out in a fully decentralized manner without an intermediary.

Broader Changes to Supervision and Stablecoin Rules

Beyond DeFi, the French submission called for transferring supervisory responsibility for significant crypto-asset service providers from national regulators to the European Securities and Markets Authority. Authorities proposed lowering the existing threshold of 15 million average daily active users in the European Union and incorporating additional criteria such as assets held in custody, business risks and the complexity of corporate groups.

They also questioned the continued usefulness of the asset-referenced token category. No such tokens have received authorization under the regulation so far. Subject to an impact assessment, the authorities favored considering the removal of the category and bringing multicurrency stablecoins under the existing e-money token framework.

The European Commission is due to submit its review report to EU lawmakers by June 30, 2027. The report may be accompanied by legislative proposals addressing activities currently outside the regulation’s scope. The French recommendations remain consultation proposals and would require formal legislative changes before they could take effect.