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.

Overview of FCA’s cryptoassets regime policy statements. Source: FCA

No rule explicitly says that firms cannot offer DeFi integrations to their customers; however, the FCA has made clear that it is not seeking to provide rules specific to these products, opting instead to apply the same rules as to fully centralized trading. The effect could be a de facto ban.

From October 2027, regulated platforms may no longer be able to provide customers access to DeFi services unless the FCA changes its approach.

The government has pledged it wants the UK to “lead the world on digital assets.” It will struggle to realize this ambition if British firms are cut off from the decentralized infrastructure digital asset markets are built on.

Related: UK FCA sets crypto authorization guidance ahead of September application window

DeFi is becoming part of the next financial infrastructure

Regulators in other jurisdictions recognize the opportunities and are exploring ways to enable DeFi innovation. In the European Union, the European Securities and Markets Authority has proposed allowing regulated firms to provide access to DeFi, saying it could “allow innovation in decentralized finance in a regulated and transparent environment.”

In September, the United States Securities and Exchange Commission granted an “Innovation Exemption” for the trading of tokenized stocks peer-to-peer, using automated trading systems and liquidity pools.

In short, the US and EU are exploring how traditional finance and DeFi infrastructure can work together. The UK should be exploring the same potential before it closes off this option completely.

Onchain tokenized finance cannot reach its full potential if it is confined to closed and fragmented systems that struggle to interact with the decentralized technology that underpins them.

A de facto ban may push DeFi beyond the regulator’s reach

The UK has set out its first full rulebook for crypto regulation. From Oct. 25, 2027, firms offering crypto services to UK customers will need authorization from the FCA. The FCA is now consulting on guidance on how its rules will apply to firms that provide financial services that use or interact with DeFi.

Potential concerns around DeFi integrations are threefold. First, a customer using a familiar regulated platform may not realize when they have moved into an environment where the usual protections do not apply. Second, certain firms could use DeFi integrations to avoid regulatory obligations. Third, DeFi could bring risks related to financial crime and market resilience.

The UK wants to lead the world on digital assets. Source: Gov.uk

But these risks point to the need for clear information for consumers and responsibilities for firms — not a prohibition.

A de facto ban would produce the opposite of its intended effect. It would not eliminate DeFi. Instead, it would push more activity beyond the FCA’s practical visibility and reduce regulated firms’ ability to shape how customers interact with it.

Regulated platforms can provide a useful point for supervision. They can make clear to customers when they are leaving a regulated environment and require their consent before allowing this. Regulated firms can also curate access to selected protocols, assess operational and governance risks, and report incidents and usage to regulators.

Regulate the gateway, not the technology

The UK already recognizes, in other areas of finance, that regulated institutions can provide access to products or markets that do not carry the same level of oversight.

Many retail trading platforms or so-called “super apps” now offer consumers access to a range of products, from stocks and money market funds to commodities and foreign exchange, with different regulatory protections. The FCA permits this, as long as platforms make clear to consumers which protections apply to different products and services.

This is why DeFi integrations require a better solution. The FCA should protect consumers, but it should not seek to achieve protection with total exclusion.

Responsible integration would give consumers clearer information, give supervisors greater visibility and give UK financial services the chance to compete in the next phase of financial innovation.

Related: ESMA seeks evidence tokenized collateral can be cashed out in crisis

Consumers will use DeFi, so the question is where

DeFi protocols can already be accessed directly without the use of regulated firms. The question is whether consumers will also be able to access DeFi through a regulated gateway, with clear disclosures and guardrails.

The stakes are broader than crypto trading. DeFi underpins the greatest potential cost savings as financial services move onchain, with fewer costly intermediaries and systems that support 24/7 activity across borders. Regulation that provides a clear route to support DeFi is crucial to give firms the confidence to invest in UK innovation in the long term.

If barriers to access are imposed in the UK, tokenized capital markets and financial innovation more broadly could develop in countries that are decisive in supporting DeFi infrastructure.

The UK cannot credibly aspire to lead in digital finance while closing off the decentralized infrastructure on which the future of finance is being built.

About the author: Katie Harries is the head of policy for Europe at Coinbase. Katie leads on international policy, engaging with regulators, governments and industry stakeholders to shape a regulatory environment that fosters growth, competition and responsible oversight for digital assets in the UK and Europe. Prior to joining Coinbase, Katie was a VP at Goldman Sachs. Katie is also heavily involved in the UK Cryptoasset Business Council (UKCBC), the country’s leading crypto trade body.

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