The debate over how the UK should regulate crypto is widening to include decentralized finance, with Coinbase arguing that the current approach could effectively lock regulated firms out of DeFi access from late 2027.

Katie Harries, Coinbase’s head of European policy, said the Financial Conduct Authority’s proposed regime would require regulated platforms to ensure customer orders are executed only on FCA-authorized venues. Because decentralized protocols and exchanges generally do not have a legal person that can seek authorization, she said the policy could amount to a de facto ban on regulated access to DeFi.

How the proposed rules create the conflict

The FCA has set out its first full crypto rulebook, under which firms offering crypto services to UK customers will need FCA authorization from Oct. 25, 2027. In Coinbase’s view, the problem is not an explicit prohibition on DeFi integrations, but the way existing requirements would be applied to them.

According to Harries, the regulator is not proposing a separate framework for DeFi-linked products and instead would treat them in the same way as fully centralized trading activity. If customer orders must only be executed on authorized venues, regulated firms may be unable to connect customers to decentralized markets that have no operator capable of becoming FCA-authorized.

Coinbase’s case for regulated gateways

Coinbase argues that this outcome would not remove DeFi from the UK market, because users can already access decentralized protocols directly. Instead, it says the likely result would be to push activity away from regulated firms and beyond the FCA’s practical visibility.

In the company’s view, regulated platforms can act as a controlled entry point. They can tell customers when they are leaving a regulated environment, provide information about risks, obtain consent, limit access to selected protocols, assess risks and report incidents to supervisors. Harries argues those guardrails would offer stronger consumer protection than forcing users to interact with DeFi without regulated intermediaries.

Consumer protection concerns remain central

The concerns identified around DeFi integrations are threefold. Customers using a familiar regulated platform may not realize when they have moved into an environment where ordinary protections no longer apply. Firms could also try to use DeFi connections to sidestep regulatory obligations, while decentralized markets may raise issues related to financial crime and market resilience.

Coinbase does not dispute those risks, but says they call for clear disclosures and defined responsibilities for firms rather than total exclusion. The company’s position is that cutting off regulated access would produce the opposite of the intended effect by reducing oversight where the regulator can still exert influence.

What is at stake for UK digital finance

The argument comes as the UK government has said it wants the country to lead globally in digital assets. Coinbase contends that goal will be harder to achieve if British firms are separated from the decentralized infrastructure on which much of the digital asset market is built.

Harries also pointed to movement elsewhere. In the European Union, ESMA has proposed allowing regulated firms to provide access to DeFi, while in the United States the SEC has granted an Innovation Exemption for certain tokenized trading. Coinbase says the UK should explore a similar route before its rules close off the option entirely.

Next step before the 2027 deadline

The key issue now is whether the FCA keeps its current approach or develops a workable path for regulated firms to offer DeFi access with disclosures and controls. Under the timetable described by Coinbase, the practical effect of the current rules would begin from Oct. 25, 2027.

For Coinbase, the unresolved question is not whether DeFi will exist in the UK, but whether consumers will be able to reach it through supervised gateways. The company says that decision will shape both the regulator’s visibility into the market and the willingness of firms to invest in UK-based digital asset and tokenized finance services over the long term.

Source: cointelegraph.com