The DeFi Education Fund (DEF) has urged the UK 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 legal 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 document shared exclusively with CoinDesk.
“Control should be the determining factor” of the scope of regulation, DEF said, warning that software developers could otherwise be dragged into obligations of an intermediary nature despite the absence of guardianship or transaction authority.
The submission focuses on a section of the consultation considering how decentralized finance (DeFi) schemes should be treated under Britain’s emerging crypto regime. DEF supports the FCA’s control-based approach in principle, but says it should be tied to concrete operational powers, such as the ability to initiate or block transactions, change protocol parameters or ban users.
DEF is an organization focused on educating policymakers and regulators about the benefits of DeFi and has been one of the prominent lobbying groups pushing for crypto regulatory frameworks set up 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 combating illicit finance.
Applying prudential, reporting and platform access requirements designed for centralized trading platforms to non-custodial, automated protocols would be “not appropriate”, DEF said.
The FCA is seeking to bring a wide range of crypto activities within its regulatory perimeter as Britain moves towards a comprehensive framework for digital assets.
Read more: UK regulators launch major consultation on crypto listings, DeFi and staking