The UK Financial Conduct Authority (FCA) has proposed new guidance on decentralized finance (DeFi) and the scope of crypto regulation. The proposals published on October 21 intend to help companies understand which regulations will apply as the new UK crypto regulatory system comes into force on October 25, 2027.
The FCA has launched two consultations and invited feedback until November 18, 2026. One deals with the application of existing financial regulations to firms engaging in DeFi, and the other highlights those crypto activities that may fall outside the new regulatory system.
DeFi encompasses financial services that allow users to engage in financial transactions through blockchain technology and software. Such services claim to provide faster and more efficient alternatives. Yet, the FCA notes that companies under its supervision must prioritize the protection of customers’ interests, as well as the management of risks and the integrity of financial markets, despite the use of decentralized technology.
The first consultation covers the application of existing rules on businesses’ operations, internal controls, and financial crime and money laundering. The FCA has proposed practical guidance on how firms could manage risks arising from automated processes and protocols. While the guidance is targeted at FCA-regulated firms, the consultation is open to other businesses, advisers, consumer groups, and researchers.
The second consultation highlights activities that may be excluded from the UK crypto regulatory system. The proposals include certain temporary settlement arrangements, holding qualifying stablecoins for payment purposes on a short-term basis, some activities in relation to stablecoin reserves, and specific forms of trading by companies using their own funds.
The proposals also highlight scenarios where technical service providers may be excluded from certain requirements. This includes firms providing an interface for a user to access a third-party service or decentralized protocol. The consultation aims to help businesses understand whether permission from the FCA is required in order to engage in crypto-related activities.
The regulator acknowledges that some firms have faced uncertainty in relation to authorization requirements, notably in regard to technical service providers. Firms with otherwise complete applications to the FCA may be granted additional time to remediate specific areas of concern in regard to permission for arranging activities. Businesses can contact the FCA through its pre-application support service in relation to such queries.
The consultations follow the FCA’s intention to regulate more crypto businesses. The regulator has started accepting authorization applications from crypto firms on September 30, 2026. Companies that wish to continue operating following the new rules must apply by February 28, 2027. The FCA expects to assess applications received by this date before the new system comes into force.
The regulator hopes that the proposed guidance will offer businesses more clarity and prepare them for the changes. The feedback received during the consultation period will help the FCA shape its approach ahead of the new rules coming into force.
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