U.S. DeFi Advocates Ask UK Regulator to Limit Rules to Actors with Direct Control

A U.S. decentralized finance advocacy organization formally responded to the U.K. regulator’s consultation, urging that the definition of regulatory “control” be anchored to demonstrable operational powers rather than authorship, contribution to open-source code, or other abstractions. The group argued obligations such as licensing, reporting and prudential duties should apply only to actors who can initiate, block, alter or exclude transactions, or otherwise exercise direct custody or unilateral change over protocol behavior. Its submission warned that applying intermediary-style duties to developers and non-custodial contributors would misalign rules crafted for centralized platforms with the technical realities of automated, permissionless protocols and could chill routine engineering work. The filing further pushed back on characterizations that treat blockchain cybersecurity risks as categorically distinct from vulnerabilities in other software stacks, noting that transparent ledgers can in some cases improve traceability of illicit flows. The advocates framed the FCA’s perimeter decision as pivotal: a narrowly drawn control test would limit enforcement targets to parties with concrete operational authority, while a broader test might expand supervisory reach to include wide swaths of protocol participants. That latter outcome, they warned, would increase compliance burdens and legal uncertainty for builders, possibly prompting design changes, delayed launches or relocations. The submission did not exist in isolation: it arrives amid heightened U.S. enforcement actions and prosecutions relating to creators of privacy-preserving and non-custodial tools, and ongoing legislative efforts in Washington to create carve-outs for developers who demonstrably lack custody or control. Observers say those transatlantic pressures, combined with domestic frictions—such as rising instances of payment providers blocking or delaying exchange deposits in the U.K.—raise the commercial costs of ambiguity and can shift where teams choose to host or scale products. The group contrasted the uncertain U.S. landscape with Europe's evolving MiCA framework, noting that clearer statutory definitions elsewhere are already affecting product planning and cross‑border choices. For the FCA, the consultation presents a choice between an operationally focused regime that preserves permissionless innovation and a more expansive approach that prioritizes broad consumer protection tools but risks imposing mismatched duties on decentralized systems. The outcome will influence how liability is allocated in decentralized networks, how regulators select enforcement targets, and whether engineering priorities tilt toward regulatory avoidance rather than purely technical optimization. Firms and counsel watching the process say the final language will determine whether routine software development is treated as a regulated activity or remains a core, permissive ingredient of DeFi innovation in the U.K.