A United States based decentralized finance advocacy organization has urged the UK Financial Conduct Authority to ground its forthcoming crypto framework in a clear definition of unilateral control, arguing that developers of non custodial protocols should not be regulated as traditional financial intermediaries.
In a formal response to the FCA’s consultation on digital asset regulation, the DeFi Education Fund stated that regulatory obligations should apply only when an entity has direct authority over user assets or transactions. According to the group, simply creating or contributing to decentralized software should not trigger the same responsibilities imposed on custodial exchanges or centralized trading platforms.
The organization contends that control should be the decisive factor in determining regulatory scope. In its view, unilateral control involves the practical ability to move customer funds, block or reverse transactions, alter key protocol parameters, or restrict user access. Where such authority does not exist, developers and contributors should not be treated as financial intermediaries.
The FCA is working toward a comprehensive crypto regime that would bring a broad range of digital asset activities within its supervisory perimeter. As part of that effort, regulators are examining how decentralized finance arrangements should be classified, particularly in cases where governance structures and operational responsibilities are distributed across networks.
The DeFi Education Fund warned that applying prudential standards, trading venue requirements, and full anti money laundering obligations designed for centralized institutions to automated, non custodial protocols would be structurally incompatible. Because many decentralized applications operate through self executing smart contracts without direct managerial oversight, the group argues that imposing intermediary style rules could hinder innovation without meaningfully improving consumer protection.
The submission also challenged assumptions about risk in decentralized systems. While acknowledging cybersecurity threats, the group stated that such vulnerabilities are not unique to blockchain based platforms and pointed to the transparency of public ledgers as a tool that can assist with tracing transactions and deterring illicit activity.
The debate reflects broader global tensions as regulators attempt to integrate decentralized technologies into existing financial rulebooks. Jurisdictions including the United States and the European Union have wrestled with how to distinguish between service providers that exercise custody and software developers who deploy open source code.
By advocating for a control centered framework, the DeFi Education Fund is encouraging UK authorities to adopt a functional rather than purely formal approach. The outcome of the FCA’s consultation could shape how decentralized protocols are treated in one of the world’s leading financial markets and influence similar regulatory discussions elsewhere.
