A United States based decentralized finance advocacy group has called on the United Kingdom’s Financial Conduct Authority to anchor its upcoming crypto regulatory framework to a strict definition of unilateral control. The DeFi Education Fund argues that regulatory obligations should apply only to entities that have direct authority over user funds or transactions, rather than to developers who build or contribute to non custodial blockchain protocols.
In its response to the FCA consultation on future crypto asset rules, the group emphasized that control should be the determining factor in deciding whether an entity falls within the regulatory perimeter. According to the submission, developers of decentralized protocols typically do not hold custody of customer assets, initiate transactions on behalf of users, or possess the ability to unilaterally modify balances. Treating such developers as intermediaries would, in the group’s view, mischaracterize the technical structure of decentralized systems.
The consultation paper considers how decentralized finance arrangements should be integrated into the United Kingdom’s broader digital asset regime. While the FCA has signaled interest in a control based approach, the DeFi Education Fund cautioned that the concept must be tied to concrete operational powers. These would include the ability to block or reverse transactions, alter core protocol parameters, or exclude participants from accessing the system. Without those authorities, the group argues, developers should not face the same prudential, reporting, or anti money laundering obligations imposed on centralized exchanges or custodians.
The advocacy organization also challenged assumptions about risk in decentralized finance. It noted that cybersecurity vulnerabilities are not unique to blockchain based systems and that public distributed ledgers can enhance transparency compared with traditional financial infrastructure. Because blockchain transactions are recorded on open networks, suspicious activity can often be traced more effectively than in opaque financial systems.
Applying trading platform style requirements to automated, non custodial protocols could create structural conflicts, according to the submission. Decentralized protocols often operate through smart contracts that execute predefined logic without discretionary human intervention. Imposing intermediary focused compliance frameworks on such systems may prove technically incompatible, potentially discouraging innovation and development in the sector.
The FCA is working toward a comprehensive digital asset framework that would bring a wide range of crypto activities under formal supervision. As policymakers balance consumer protection with technological progress, the debate over how to define control and responsibility within decentralized ecosystems is likely to shape the final structure of the regime. Market participants and developers are closely monitoring how the regulator interprets operational authority, custody, and accountability in determining which actors must register and comply with full financial services obligations.
