The American group DeFi Education Fund has formally requested the Financial Conduct Authority (FCA) that the regulation of decentralized protocols in the UK be based exclusively on unilateral control. During this week, the organization argued before the British body that software developers should not be regulated as if they were traditional financial intermediaries.
This proposal arises following the publication of a consultation document where the regulator seeks to establish a regulatory framework for digital assets. In said report, the advocacy group maintains that legal obligations should only apply when an entity possesses absolute authority over funds or transactions performed by end users within the cryptographic ecosystem.
The concept of unilateral control as the axis of financial regulation
Furthermore, the organization highlights that control must be defined through concrete operational capabilities, such as the power to block transactions or modify parameters. However, the mere fact of contributing to the development of a network should not imply a disproportionate legal responsibility, thus preventing programmers from facing regulatory burdens that belong solely to capital custodians.
On the other hand, the implementation of prudential requirements designed for traditional banking within the blockchain sphere could generate a talent migration. In this way, the DeFi Education Fund warns that demanding detailed reports from open-source codes is a misguided measure, which ignores the transparency advantages inherent to the distributed public ledger today.
The importance of this milestone lies in the need to clearly differentiate between centralized platforms and automated systems operating through smart contracts. While the FCA attempts to protect the consumer, applying anti-money laundering laws to non-custodial protocols would be structurally incompatible, putting technological innovation within British territory at risk in a significant manner.
How will this technical definition affect the future of decentralized finance?
Additionally, the group challenged the perception of specific risks associated with these systems, arguing that cybersecurity vulnerabilities are not exclusive to these networks. Therefore, they suggest that public policies should take advantage of open data traceability, fostering a much more efficient supervision environment and less intrusive for legitimate participants in the technology sector.
By integrating technical data narratively, it is observed that the incompatibility of current standards with automation could fragment the market. Consequently, compliance frameworks designed for trading platforms cannot be directly transferred to decentralized protocols, as they lack a centralized entity responsible for the manual execution of buy or sell orders.
Regarding the implications for the sector, a regulatory framework based on technical functionality would allow for greater legal certainty for investors. Thus, the recognition of unilateral control as a governing criterion would serve to protect users without stifling the disruptive potential represented by these financial tools in the modern and globalized digital economy.
As the United Kingdom moves toward its comprehensive digital framework, the FCA’s response will determine the dynamism of the local sector. Consequently, market players expect the regulator to adopt a pragmatic approach, allowing decentralized systems to operate freely under clear rules that do not hinder the development of next-generation financial infrastructures in Europe.
Finally, the resolution of this legal debate will set a global precedent on how to supervise open finance without compromising its essence. Although technical challenges persist, the focus on unilateral control offers a balanced path, which guarantees the integrity of the financial system while actively promoting the progress of the most advanced and secure technological solutions.
