DeFi Fund Urges UK to Narrow Crypto Rule Scope

Edgen Crypto

·Feb 13 2026, 16:26

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Key Takeaways

The U.S.-based DeFi Education Fund (DEF) is pushing the U.K.'s Financial Conduct Authority (FCA) to adopt a precise definition of "control" in its forthcoming crypto regulations. The group argues that rules should only apply to entities with direct, unilateral power over user assets, a move that would significantly shape the regulatory landscape for decentralized finance in the U.K.

"Unilateral Control" as the Standard: The DEF proposes that regulatory obligations should hinge on an entity's unilateral ability to control user funds, not just on their role in developing software.
Protecting Developers: This approach seeks to shield developers of non-custodial protocols from being classified and regulated as traditional financial intermediaries.
UK's Innovation Crossroads: The FCA's final decision could either establish the U.K. as an attractive hub for DeFi innovation or stifle it with compliance burdens designed for centralized systems.

DEF Proposes 'Unilateral Control' as Regulatory Line

The DeFi Education Fund (DEF), a U.S.-based advocacy group, has formally responded to the U.K. Financial Conduct Authority's (FCA) consultation on new crypto rules. In its submission on February 13, the group argued that regulatory scope should be determined by "unilateral control"—the concrete ability of an entity to manage or block user assets without their consent.

DEF contends that merely developing or contributing code to a decentralized protocol does not grant this level of power. Therefore, it argues that software developers should not be subject to the same stringent obligations as centralized intermediaries that hold customer funds. This distinction is crucial for preserving the non-custodial nature of many decentralized finance applications.

UK's DeFi Future Hinges on Regulatory Definitions

As the U.K. government works to establish a comprehensive digital asset framework, the FCA's treatment of DeFi has become a critical focal point for the industry. The DEF warns that applying rules designed for traditional trading platforms—such as specific reporting, prudential, and platform access requirements—to automated, non-custodial protocols is "structurally incompatible" and "ill-suited."

The outcome carries significant weight for the U.K.'s position in the global digital asset economy. Adopting DEF's control-based standard could foster an environment that attracts DeFi developers and innovation. Conversely, a broader interpretation that captures software developers within the regulatory perimeter could impose heavy compliance costs, potentially driving projects and talent away from the U.K. market.