US DeFi Lobby Urges UK FCA to Clarify Rules Distinguishing Developers from Custodians
The DeFi Education Fund (DEF), a US crypto advocacy group, submitted formal comments to the UK Financial Conduct Authority (FCA) urging function-based crypto rules that distinguish entities that exercise unilateral control over user assets from contributors to decentralized protocol development. DEF warned that applying bank-style licensing, custody, onboarding and full AML obligations to software developers and passive DeFi contributors would be a structural mismatch, risk penalizing open-source contributors, raise compliance costs and push talent and projects overseas. The submission, filed amid UK consultations following the Financial Services and Markets Act 2023 and pending amendments to the Economic Crime and Corporate Transparency Bill, recommends defining “control” by concrete powers (for example, the ability to unilaterally initiate or block transactions, change protocol parameters, or exclude users). DEF argues for tailored rules similar to functional approaches used in Switzerland and Singapore and contrasts this with activity-based regimes such as the EU’s MiCA. Legal experts referenced emphasize focusing regulation on actual control and economic function rather than technology. For traders, adoption of DEF’s approach by the FCA could reduce legal uncertainty for DeFi projects, improve business formation and attract investment — potentially supporting market development for DeFi tokens — but final outcomes depend on precise statutory wording and how regulators interpret “control.” Primary keywords: crypto regulation, DeFi, FCA, regulatory clarity. Secondary/semantic keywords: Financial Services and Markets Act, Economic Crime Bill, MiCA, custody, developers, decentralized protocol.
Neutral
The submission itself is a policy advocacy development rather than an immediate market event. If the FCA adopts DEF’s function-based approach, it should reduce legal uncertainty for noncustodial DeFi projects and lower compliance burdens for developers, which is constructive over the medium-to-long term and could support investment into DeFi tokens. However, outcomes depend on final rule language and enforcement practice; overly broad definitions of “control” could still impose custody-like obligations and be harmful. In the short term, the news is unlikely to move prices materially because it does not change status quo or introduce binding rules. Traders should watch for draft regulations, consultation responses from other stakeholders, and specific legal definitions of “control” or “custodial” activity — those will determine whether the market reaction becomes bullish (if DeFi clarity is enacted) or bearish (if rules are restrictive).