The Financial Conduct Authority (FCA) said crypto apps could require authorization if software makes decisions about customer transactions. Draft guidance published on Oct. 21 says selecting venues or transaction routes by assessing prices, liquidity, costs or execution speed may constitute arranging crypto deals. Arranging crypto deals requires authorization under the new framework, which takes effect on Oct. 25, 2027. The interpretation could require decentralized finance (DeFi) aggregators and automated trading interface operators to obtain permission or alter how software processes customer trades.
The FCA's consultation seeks to clarify exemptions from the framework, including a technical-services exemption for software that simply connects customers with third-party platforms or decentralized protocols. An interface may qualify if the interface passes along customer instructions without affecting execution. However, software that compares liquidity sources, recommends venues or decides execution methods could undertake activities requiring authorization. DeFi aggregators commonly compare liquidity and prices on decentralized exchanges to find execution routes for customers.
The FCA identified changes to transaction instructions, decisions about execution timing and route selection using counterparty risk or expected trading results as indicators of discretion. Promises to secure the best available execution may attract closer scrutiny because those commitments can indicate that operators judge competing trading options. The FCA warned that automated decisions do not necessarily exempt developers or operators from regulation. Algorithms can implement choices made by providers, including criteria directing customer orders to particular exchanges or liquidity sources. The assessment would examine software design and operation even when transactions proceed without direct human involvement.
However, the interpretation allows scope for applications that follow predetermined, objective routing rules. A provider's discretion is one factor considered alongside the provider's wider role in facilitating transactions. The exemption has additional eligibility conditions, including restrictions concerning authorized firms and payment service providers. The exemption covers qualifying arrangements for technical access, not all software services associated with DeFi.
The proposals also cover decentralized platform operators. The FCA said distributed governance, smart contracts and automation do not automatically remove regulatory duties when identifiable people or businesses control services. The FCA will examine operational duties, decision-making powers and economic interests to determine whether an entity performs regulated activities. These provisions could complicate compliance for DeFi businesses where developers, governance participants and commercial operators share responsibility for trading infrastructure.
The FCA's authorization application window is already open. Existing UK crypto businesses seeking transitional protections must apply between Sept. 30, 2026, and Feb. 28, 2027. The FCA has set Nov. 18 as the deadline for consultation responses. The FCA's website targets January 2027 for final guidance. However, the consultation paper specifies spring 2027, potentially giving affected businesses limited time to establish licensing requirements.
The FCA acknowledged the uncertainty and said additional time may be available to complete arranging-permission details when the proposed technical-services exemption materially affects an application. Businesses must nevertheless file applications that are otherwise complete within the required window. Affected operators can request pre-application assistance from the FCA to assess transaction-routing systems. That assistance can help operators determine whether operating models or authorization applications need changes before the February deadline.
UK FCA Proposes Licensing for Crypto Apps Using Algorithmic Trade Routing
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Summary
The UK's FCA has proposed that crypto apps using algorithmic trade routing may need authorization. The draft, published Oct. 21, says selecting trade venues based on crypto price, liquidity, or speed could require permission by Oct. 25, 2027. The FCA is looking for feedback on exemptions, especially for basic routing services. Apps that compare liquidity or recommend venues might still be regulated. Developers won’t be exempt just because systems are automated. DeFi aggregators and automated trading tools may need to adjust or get licensed. The FCA’s authorization process is open, with responses due by Nov. 18.
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