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U.S. DeFi organization calls on UK FCA to align cryptocurrency regulations with ‘unilateral control’
DeFi Education Fund asserts that developers of non-custodial protocols should not be classified as intermediaries under the proposed cryptocurrency regulations in the U.K.
UK FCA (FCA, modified by CoinDesk)
Key Points:
- The DeFi Education Fund informs the FCA that regulatory requirements should be enforced only when there is “unilateral control” over user assets or transactions.
- The U.S.-based organization contends that developers of non-custodial DeFi should not be regarded as centralized intermediaries.
- DEF cautions that imposing trading platform and prudential standards, along with comprehensive money-laundering regulations, on automated protocols would result in structural incompatibility.
The DeFi Education Fund (DEF) has called on the Financial Conduct Authority of the U.K. to implement a precise, functional definition of “control” as it finalizes its new regulations concerning crypto asset activities.
The advocacy group based in Washington, D.C. argued that regulatory obligations should depend on whether an entity possesses unilateral control over user funds or transactions, rather than solely on whether it has developed or contributed to a decentralized protocol, in a response to a consultation paper from the FCA shared exclusively with CoinDesk.
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“Control should be the decisive factor” for determining regulatory scope, DEF stated, warning that software developers might otherwise be subjected to intermediary-like obligations despite not having custody or transactional power.
The submission addresses a segment of the consultation that examines how decentralized finance (DeFi) structures ought to be treated under the U.K.’s forthcoming crypto regulatory framework. DEF supports the FCA’s control-focused methodology in principle but insists that it must be linked to explicit operational powers, such as the capacity to initiate or obstruct transactions, alter protocol parameters, or exclude users.
DEF is dedicated to educating policymakers and regulators about the advantages of DeFi and has emerged as a notable lobbying entity in the development of crypto regulatory frameworks in Washington in recent years.
The group also contested the FCA’s interpretation of DeFi-related risks, asserting that cybersecurity weaknesses are not exclusive to blockchain systems and that public blockchains provide transparency benefits in the fight against illicit finance.
Implementing prudential, reporting, and platform access standards intended for centralized trading platforms onto non-custodial, automated protocols would be “inappropriate,” DEF remarked.
The FCA is looking to encompass a wide array of crypto activities within its regulatory scope as the U.K. progresses toward a comprehensive digital asset framework.
Read More: UK regulators start major consultation on crypto listings, DeFi, and staking
