FCA Publishes Draft DeFi Guidance, Clarifying When Interfaces Require UK Authorization

ChainCatcher report: On October 21, the UK Financial Conduct Authority (FCA) issued Consultation Paper CP26/36, “Guidance on the Scope of Regulation for Cryptoassets,” outlining how to determine whether activities require authorization when a business model involves a degree of decentralization. The FCA states that the use of software, smart contracts, distributed ledger technology, decentralized governance mechanisms, or other technological arrangements does not, in itself, determine whether regulated activities are present. Automation merely describes how functions are executed and does not determine whether those functions constitute regulated activities. The term “true DeFi” is not a statutory concept under the Regulated Activities Order or the Cryptoassets Regulations; the degree of decentralization exists on a spectrum and does not constitute a standalone or separate regulatory framework. Meanwhile, the FCA also released Consultation Paper GC26/7, which explains how regulated firms should manage DeFi risks, with a focus on operational resilience and financial crime risks, and provides examples of measures firms may consider implementing. Both consultation papers close for feedback on November 18, and the FCA plans to publish final guidance in January 2027. Starting October 25, 2027, the new rules will bring new cryptoasset activities under regulation, and firms wishing to continue such activities must submit authorization applications by February 28, 2027.