A US DeFi organization is urging the UK's FCA not to treat developers of non-custodial protocols as intermediaries.

The US-based DeFi organization, the DeFi Education Fund (DEF), recommends that the FCA adopt a functional "control" definition when developing new regulations for crypto assets. This would limit regulatory responsibility to entities with unilateral control over user funds or transactions, rather than solely based on their involvement in developing or contributing decentralized protocols. DEF emphasizes that regulation should focus on specific operational capabilities, such as initiating or blocking transactions, modifying protocol parameters, or excluding users; otherwise, software developers may be wrongly burdened with intermediary obligations. DEF also points out that applying the prudential, reporting, and access requirements designed for centralized exchanges to non-custodial automated protocols is inappropriate, stating that decentralized protocols have advantages in transparency and combating illicit financial activities. This recommendation responds to the UK Financial Conduct Authority's (FCA) consultation on how DeFi should be integrated into its digital asset framework. DEF supports the principle of control at its core but emphasizes that it must be linked to actual operational power. (CoinDesk)