The DeFi Education Fund (DEF) has urged the UK’s Financial Conduct Authority to adopt a narrow, functional definition of “control” as it finalizes new rules for crypto asset activities.
The Washington, DC-based advocacy group argued that regulatory obligations should depend on whether an entity has unilateral power over user funds or transactions, not just whether it developed or contributed to a decentralized protocol, in response to an FCA consultation paper shared exclusively with CoinDesk.
“Control should be the determining factor” on the scope of regulation, DEF said, warning that software developers could otherwise be drawn into intermediary-type obligations despite lacking custody or transactional authority.
The submission focuses on an area of the consultation which considers how decentralized finance (DeFi) arrangements 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 linked to concrete operational powers, such as the ability to initiate or block transactions, change protocol settings or exclude users.
DEF is an organization that aims to inform policymakers and regulators about the benefits of DeFi and has been one of the leading lobbying groups on the path to establishing crypto regulatory frameworks in Washington in recent years.
The group also took issue with the FCA’s definition of DeFi-specific risks, arguing that cybersecurity vulnerabilities are not unique to blockchain systems and that public blockchains offer transparency benefits in combating illicit financing.
Applying prudential, reporting and platform access requirements designed for centralized trading platforms to non-custodial automated protocols would be “ill-suited,” DEF said.
The FCA is seeking to bring a wide range of crypto activities within its regulatory scope as the UK moves towards a comprehensive digital assets framework.
Read more: UK regulators launch major consultation on cryptocurrency listings, DeFi and staking
