Financial Conduct Authority draft guidance says smart contracts and distributed governance don't decide if a crypto firm needs UK authorization from 2027.
Key Facts
The UK Financial Conduct Authority published draft guidance saying the use of software, smart contracts or distributed governance does not determine whether someone is carrying on a regulated crypto activity that requires authorization.
The consultation also covers new exclusions for technical service providers, stablecoin backing assets, proprietary trading and market making, with feedback due by Nov. 18, 2026.
The UK's new crypto regime takes effect on Oct. 25, 2027, and the FCA plans to publish final guidance in spring 2027.
The UK Financial Conduct Authority has proposed guidance saying that building on smart contracts or decentralized governance will not by itself keep crypto firms, including those in decentralized finance, outside the country's new licensing regime.
"The perimeter is technology neutral," the FCA said in a new consultation paper, adding that neither the new crypto regulations nor later amendments change the perimeter assessment for business models that involve some degree of decentralization.
The use of software, smart contracts, distributed ledger technology or distributed governance "does not determine whether there is a person carrying on a regulated activity for which authorisation is needed," the regulator said.
The FCA's draft guidance on decentralization in consultation paper CP26/36. Source: Financial Conduct Authority
FCA Says Substance, Not Labels, Counts
The analysis "always turns on the facts," and the substance of an arrangement, rather than the terminology used to describe it, is what counts, according to the paper.
Where functions are distributed among several participants, the test of whether an activity is carried on by way of business applies separately to each relevant person. Overseas elements alone do not mean an activity falls outside the UK, the FCA said.
The paper also sets out how the FCA reads a new exclusion from the arranging-deals activity for technical service providers that are not authorized firms or payment service providers and merely give users access to a third party's services or a decentralized protocol, where certain conditions are met. That exclusion "is not a general exclusion for services described as technological, technical, software-based or connected with decentralised finance," the FCA said.
UK Crypto Regime Starts in October 2027
From Oct. 25, 2027, anyone carrying on a regulated crypto activity by way of business in the UK will need FCA authorization unless exempt, the regulator said. Its application window opened on Sept. 30 and closes on Feb. 28, 2027.
The consultation also covers exclusions for stablecoin backing assets, temporary settlement arrangements, proprietary trading and market making on qualified cryptoasset trading platforms. The FCA is taking feedback until Nov. 18 and plans to publish final guidance in spring 2027.
In the US, the Blockchain Association this week sought clearer rules for DeFi in the GENIUS Act rollout, while Wall Street and crypto firms pushed the SEC on its crypto asset rule.
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