The DeFi Education Fund (DEF) has called on the UK’s Financial Conduct Authority to adopt a narrow, functional definition of “control” when finalizing new rules for crypto asset activities.
The Washington, DC-based advocacy group argued that regulatory obligations should depend on whether an entity has unilateral authority over user funds or transactions, not just whether it developed or contributed to a decentralized protocol, in a response to an FCA consultation paper shared exclusively with CoinDesk.
“Control should be the determining factor” for regulatory scope, DEF said, warning that software developers could otherwise be swept into intermediary-like obligations despite a lack of custodial or transactional powers.
The post focuses on one area of the consultation which considers how decentralized finance (DeFi) schemes should be treated under the UK’s new crypto regime. DEF supports the FCA’s control-based approach in principle, but says it must be tied to concrete operational powers, such as the ability to initiate or block transactions, change protocol parameters or exclude users.
DEF is an organization focused on informing policymakers and regulators about the benefits of DeFi and has been one of the prominent lobbying groups on the road to cryptocurrency regulatory frameworks that have been established in Washington in recent years.
The group also challenged the FCA’s framing of DeFi-specific risks, arguing that cybersecurity vulnerabilities are not unique to blockchain systems and that public blockchains offer transparency benefits in the fight against illicit finance.
Applying prudential, reporting and platform access requirements designed for centralized trading platforms to non-custodial-based, automated protocols would be “ill-suited,” DEF said.
The FCA is looking to bring a wide range of crypto activities within its regulatory perimeter as the UK moves towards a comprehensive framework for digital assets.
Read more: UK regulators launch major consultation on crypto listings, DeFi and staking
