UK FCA Launches Twin Consultations on DeFi Rules and Crypto Regulatory Perimeter Ahead of 2027 Regime

The UK Financial Conduct Authority opened two consultations on October 21 to define the boundaries of the country's incoming cryptoasset regulatory regime. The first, consultation paper CP26/36, focuses on exclusions from regulation introduced by recent legislative changes, covering areas such as temporary settlement arrangements, qualifying stablecoin handling in payment processing, certain proprietary trading activities, and technical services that provide access to another provider or a decentralised protocol. The second, guidance consultation GC26/7, addresses how already-authorised firms must manage operational risks, compliance obligations, and financial crime prevention when they interact with decentralised protocols. The FCA described the DeFi guidance as seeking to clarify existing rules rather than establish new policy.

The consultations close on November 18 and arrive just weeks after the FCA opened applications for companies seeking authorisation under the new regime, which is set to take full effect in October 2027. The framework is built around an activity-based perimeter covering services such as trading, custody, stablecoin issuance, and staking, rather than licensing entire firms. The UK Cryptoasset Business Council welcomed the move but urged the FCA to keep expectations proportionate and avoid pushing responsible innovation offshore.

The regime leaves some questions open, particularly around non-custodial and composable systems, where observers expect ongoing classification debates. Systemic risks arising from cross-protocol activity and offshore spillovers are less directly addressed by the current draft.