UK FCA Seeks Feedback on DeFi Rules and Crypto Regulatory Scope

The UK Financial Conduct Authority (FCA) launched two public consultations, seeking industry feedback on how decentralized finance (DeFi) should be addressed under existing regulatory expectations and which cryptoasset-related activities fall within the scope of UK regulation.

The consultations, GC26/7, covering guidance for decentralized finance, and CP26/36, addressing the boundaries of cryptoasset regulation, are part of the FCA’s preparations for the UK’s new cryptoasset framework, due to take effect on October 25, 2027. Stakeholders have until November 18, 2026, to submit responses to both documents.

FCA Consultation Examines DeFi Compliance and Operational Risks

The first consultation proposes guidance for firms that engage with decentralized finance, enable customers to access DeFi services, or deliver financial products through decentralized protocols. Rather than introducing a separate set of rules, the document explains how existing regulatory expectations could apply when financial activities rely on decentralized technology.

The FCA examines the relevance of operational resilience requirements under SYSC 15A, alongside obligations concerning compliance, internal audit, and financial crime under SYSC 6. It also considers how the UK’s Money Laundering Regulations apply to activities involving DeFi.

According to the regulator, financial firms are increasingly incorporating decentralized protocols into their services. Although these technologies may improve efficiency and encourage innovation, their use does not remove the obligations that regulated firms must meet.

These responsibilities include safeguarding consumers, maintaining market integrity, ensuring operational resilience, and addressing financial crime risks. The proposed guidance offers practical considerations and examples of measures firms could adopt to manage challenges associated with automated processes, open protocols, and fewer intermediaries.

Who Should Respond to the FCA’s DeFi Consultation?

The proposed guidance is primarily aimed at FCA-authorized firms covered by the relevant regulatory requirements. However, the regulator also welcomes input from other authorized businesses, entities operating without authorization that interact with DeFi, industry associations, professional advisers, consumer representatives, policymakers, academics, and other interested parties.

The initiative supports the FCA’s statutory responsibilities to provide an appropriate level of consumer protection, safeguard and strengthen the integrity of the UK financial system, and encourage effective competition for consumers’ benefit.

By clarifying how existing requirements apply to decentralized financial services, the regulator aims to help firms identify their responsibilities while accounting for the distinctive risks that may arise from DeFi arrangements.

Second FCA Consultation Clarifies the Scope of Cryptoasset Regulation

The second consultation, CP26/36, focuses on the boundaries of the UK’s forthcoming cryptoasset regulatory framework. It seeks feedback on draft guidance explaining which activities require regulatory authorization following recent legislative changes.

The proposed Cryptoassets (Miscellaneous Amendments) Regulations 2026 establish exclusions for certain activities that might otherwise fall within the regulated cryptoasset perimeter. These include temporary settlement arrangements, short-term holdings of qualifying UK stablecoins used for payment transactions, arrangements involving assets held to back qualifying UK stablecoins, and specific types of proprietary trading.

The proposed exclusions also address certain technical services that simply provide access to third-party services or decentralized protocols, rather than directly providing the underlying financial service.

For proprietary trading, the exclusions include circumstances in which a person is not providing a service to another party, as well as certain activities undertaken by market makers on qualifying cryptoasset trading platforms.

The draft guidance is intended to help businesses assess whether their activities require FCA authorization and reduce the likelihood of unintentional non-compliance when the new framework takes effect on October 25, 2027.

FCA Addresses Authorization Uncertainty for Cryptoasset Firms

The regulator has acknowledged that the timing of the relevant statutory instrument left a limited number of firms uncertain about their authorization obligations. The uncertainty has been particularly relevant to the proposed exclusion for technical service providers.

To address the issue, the FCA will give firms that have submitted otherwise complete applications additional time to resolve outstanding elements relating to permission to arrange regulated activities.

Businesses affected by this issue that have not yet contacted the regulator are encouraged to use the FCA’s pre-application support service to discuss their circumstances.

The measure is intended to help affected firms navigate the authorization process as the UK moves closer to implementing its new cryptoasset rules.

What the FCA’s Latest Consultations Mean for the UK Crypto Industry

Taken together, the two consultations indicate that the FCA is approaching cryptoasset regulation on two fronts: clarifying how existing obligations apply to firms interacting with DeFi and defining the activities that will fall inside or outside the new regulatory framework. The distinction is important because businesses need to understand not only which permissions they may require, but also how their use of decentralized protocols affects their compliance responsibilities.

The November 18 response deadline gives industry participants an opportunity to raise practical concerns before the framework takes effect in 2027. Clearer guidance could reduce uncertainty for businesses while helping the regulator maintain consumer protection and market integrity. However, the effectiveness of the approach will depend on whether the final guidance draws workable boundaries between regulated financial services, technical infrastructure, and genuinely decentralized activity without creating unnecessary barriers to innovation.