The UK needs a workable route to regulated DeFi access

Opinion by Katie Harries, head of policy, Europe, Coinbase

The United Kingdom is approaching a choice that could define its financial future: should decentralized finance (DeFi) be allowed to develop through regulated gateways or will it be constrained to a silo?

This is not just relevant to crypto enthusiasts; it goes to the future of capital markets, the competitiveness of the City and the UK’s ability to shape the next generation of financial infrastructure.

DeFi is software that lets people borrow, lend and trade directly with one another without relying on an intermediary like a bank or broker. It works less like a financial institution and more like the internet, promising cheaper, faster financial services that are accessible to everyone, anytime.

While DeFi will always be accessible through open-source or decentralized routes, regulated providers can also offer a route to DeFi, allowing customers to engage with the technology while receiving key information about the services they are accessing and the risks they should be aware of.

However, the Financial Conduct Authority’s (FCA) proposed crypto rules could make this impossible. The FCA will expect regulated platforms to ensure customer orders are only executed on an FCA-authorized venue. While this is designed to prevent overseas firms from illegally accessing the UK market, it also risks blocking off access to DeFi because the decentralized protocols and exchanges where users execute orders do not have a person behind them who could become authorized.