The United Kingdom's crypto rulebook, set to take effect in October 2027, risks blocking regulated firms from providing access to decentralized finance. Katie Harries, Coinbase's head of policy for Europe, said the FCA's framework could create a structural incompatibility with DeFi protocols that lack a singular entity capable of obtaining authorization.
The Financial Conduct Authority has proposed requiring regulated platforms to execute customer orders exclusively on FCA-authorized venues—a rule designed to block illegal overseas market access. But because decentralized protocols and exchanges operate without a central operator, they cannot obtain FCA authorization under the current framework.
"The UK must decide if DeFi will develop through regulated gateways or remain constrained to a silo," Harries said, adding that the decision carries implications for capital markets, the competitiveness of the City of London, and the UK's capacity to shape future financial infrastructure.
The FCA has not issued DeFi-specific rules. Instead, it applies the same regulatory framework used for fully centralized trading platforms, creating a de facto ban for regulated firms offering DeFi access once the rules take effect.
From October 2027 onward, regulated platforms may no longer provide customers with access to DeFi services unless the FCA modifies its stance. This timeline highlights the urgency for a policy adjustment.
The UK government has publicly committed to leading the world in digital assets. Harries noted this ambition will be difficult to achieve if British firms are cut off from the decentralized infrastructure underpinning digital asset markets.
Other jurisdictions are moving in the opposite direction. The European Securities and Markets Authority has proposed allowing regulated firms to provide DeFi access, arguing it could foster innovation in a transparent, regulated setting. In the United States, the Securities and Exchange Commission granted an "Innovation Exemption" for peer-to-peer trading of tokenized stocks, signaling a willingness to adapt regulatory frameworks for new digital asset structures.
