The UK’s Financial Conduct Authority (FCA) has launched two consultations aimed at clarifying how decentralized finance (DeFi) will fit into the country’s incoming crypto regime — an important move as the new framework prepares to take effect in October 2027.
What’s happening
- The FCA opened consultations GC26/7 and CP26/36 on October 21 and will accept industry feedback until November 18. It expects to publish final guidance in January 2027.
- The broader cryptoasset framework is scheduled to come into force on October 25, 2027, bringing more crypto activities under FCA supervision.
DeFi under the microscope (GC26/7)
The first consultation, GC26/7, targets how regulated financial services firms should operate when they use or give customers access to decentralized protocols. The FCA emphasizes that reliance on smart contracts and automated processes does not remove firms’ existing legal and compliance responsibilities.
Key compliance areas highlighted:
- Operational resilience under SYSC 15A
- Compliance and financial crime controls under SYSC 6
- Obligations under the UK’s Money Laundering Regulations
The FCA warns that DeFi’s open and interoperable design can raise operational and financial crime risks, especially where traditional intermediaries are absent. The consultation offers examples of risk-management measures firms could adopt but stops short of creating a separate rulebook for decentralized finance. Instead, the guidance explains how existing rules apply where infrastructure and processes differ from conventional finance.
A similar regulatory debate is playing out in France, where authorities have proposed holding crypto platforms responsible for certain security failures linked to DeFi access — demonstrating a broader European focus on platform accountability.
Defining the regulatory perimeter (CP26/36)
The second consultation, CP26/36, clarifies which activities will fall inside or outside the new cryptoasset regime following proposed amendments in the draft Cryptoassets (Miscellaneous Amendments) Regulations 2026. The FCA is outlining several exclusions intended for specific, limited scenarios that involve digital assets but may not require full FCA authorization.
Notable proposed exclusions include:
- Temporary settlement arrangements
- Temporary holding of qualifying UK stablecoins during payment transactions
- Certain arrangements involving assets that back those qualifying stablecoins
- Proprietary trading (where a business trades only for itself)
- Qualifying market-making on regulated cryptoasset trading platforms
- Technical service providers whose role is limited to enabling access to another company’s services or a decentralized protocol
The FCA makes clear that the presence of smart contracts, distributed ledgers or decentralized governance alone won’t determine regulatory status — the deciding factor is the actual service performed and whether an activity falls within the scope of the regulations.
Applications, timing and transitional arrangements
- The FCA began accepting authorization applications from existing UK cryptoasset businesses on September 30, 2026. The application window closes on February 28, 2027.
- Firms that apply within the window may continue providing eligible crypto services while their applications are assessed, even if a decision has not been reached by the effective date. However, application submission is not a guarantee of approval, and prior registration under the Money Laundering Regulations will not automatically transfer to the new regime.
- Businesses that miss the application window face more restrictive transitional arrangements, generally limiting them to servicing existing contracts only while awaiting authorization.
The FCA also acknowledged that the timing of these legislative changes has created uncertainty for some firms. Where businesses are affected by the technical services exclusion, the regulator said it may grant extra time to meet certain application requirements — but only if applicants submit an otherwise complete application within the designated window and can show the uncertainty materially affected their ability to prepare.
Industry reaction
Industry groups welcomed the chance to comment but urged the FCA to keep requirements proportionate for decentralized services. The UK Cryptoasset Business Council pushed for clear regulatory borders and proportionate compliance obligations, warning that overly burdensome rules could encourage crypto firms to relocate operations outside the UK.
Why it matters
These consultations are a critical step in defining how traditional regulatory frameworks map onto novel DeFi architectures. Firms operating at the intersection of legacy financial rules and decentralized technology will be watching closely: the final guidance will influence operational models, compliance planning and whether the UK remains an attractive jurisdiction for crypto innovation as the 2027 regime approaches.
What’s happening
- The FCA opened consultations GC26/7 and CP26/36 on October 21 and will accept industry feedback until November 18. It expects to publish final guidance in January 2027.
- The broader cryptoasset framework is scheduled to come into force on October 25, 2027, bringing more crypto activities under FCA supervision.
DeFi under the microscope (GC26/7)
The first consultation, GC26/7, targets how regulated financial services firms should operate when they use or give customers access to decentralized protocols. The FCA emphasizes that reliance on smart contracts and automated processes does not remove firms’ existing legal and compliance responsibilities.
Key compliance areas highlighted:
- Operational resilience under SYSC 15A
- Compliance and financial crime controls under SYSC 6
- Obligations under the UK’s Money Laundering Regulations
The FCA warns that DeFi’s open and interoperable design can raise operational and financial crime risks, especially where traditional intermediaries are absent. The consultation offers examples of risk-management measures firms could adopt but stops short of creating a separate rulebook for decentralized finance. Instead, the guidance explains how existing rules apply where infrastructure and processes differ from conventional finance.
A similar regulatory debate is playing out in France, where authorities have proposed holding crypto platforms responsible for certain security failures linked to DeFi access — demonstrating a broader European focus on platform accountability.
Defining the regulatory perimeter (CP26/36)
The second consultation, CP26/36, clarifies which activities will fall inside or outside the new cryptoasset regime following proposed amendments in the draft Cryptoassets (Miscellaneous Amendments) Regulations 2026. The FCA is outlining several exclusions intended for specific, limited scenarios that involve digital assets but may not require full FCA authorization.
Notable proposed exclusions include:
- Temporary settlement arrangements
- Temporary holding of qualifying UK stablecoins during payment transactions
- Certain arrangements involving assets that back those qualifying stablecoins
- Proprietary trading (where a business trades only for itself)
- Qualifying market-making on regulated cryptoasset trading platforms
- Technical service providers whose role is limited to enabling access to another company’s services or a decentralized protocol
The FCA makes clear that the presence of smart contracts, distributed ledgers or decentralized governance alone won’t determine regulatory status — the deciding factor is the actual service performed and whether an activity falls within the scope of the regulations.
Applications, timing and transitional arrangements
- The FCA began accepting authorization applications from existing UK cryptoasset businesses on September 30, 2026. The application window closes on February 28, 2027.
- Firms that apply within the window may continue providing eligible crypto services while their applications are assessed, even if a decision has not been reached by the effective date. However, application submission is not a guarantee of approval, and prior registration under the Money Laundering Regulations will not automatically transfer to the new regime.
- Businesses that miss the application window face more restrictive transitional arrangements, generally limiting them to servicing existing contracts only while awaiting authorization.
The FCA also acknowledged that the timing of these legislative changes has created uncertainty for some firms. Where businesses are affected by the technical services exclusion, the regulator said it may grant extra time to meet certain application requirements — but only if applicants submit an otherwise complete application within the designated window and can show the uncertainty materially affected their ability to prepare.
Industry reaction
Industry groups welcomed the chance to comment but urged the FCA to keep requirements proportionate for decentralized services. The UK Cryptoasset Business Council pushed for clear regulatory borders and proportionate compliance obligations, warning that overly burdensome rules could encourage crypto firms to relocate operations outside the UK.
Why it matters
These consultations are a critical step in defining how traditional regulatory frameworks map onto novel DeFi architectures. Firms operating at the intersection of legacy financial rules and decentralized technology will be watching closely: the final guidance will influence operational models, compliance planning and whether the UK remains an attractive jurisdiction for crypto innovation as the 2027 regime approaches.