The DeFi Education Fund (DEF) has urged the UK Financial Conduct Authority to adopt a working and strict definition of “control” as it finalizes new rules for cryptoasset 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 simply whether it developed or contributed to a decentralized protocol, in response to an FCA consultation document shared exclusively with CoinDesk.
“Control should be the determining factor” of regulatory scope, DEF said, warning that otherwise software developers could be dragged into intermediary-style obligations despite lacking custody or transactional authority.
The presentation focuses on an area of the consultation that considers how decentralized finance (DeFi) arrangements should be treated under the UK’s emerging 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, modify 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 most prominent lobbying groups in the path toward establishing crypto regulatory frameworks in Washington in recent years.
The group also questioned the FCA’s framework on 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 automated protocols would be “inappropriate,” DEF said.
The FCA seeks to bring a wide range of crypto activities within its regulatory perimeter as the UK moves towards a comprehensive digital assets framework.
Read more: UK regulators launch major consultation on crypto, DeFi and betting listings
