- IOTA, Sui, Cardano and the Avalanche Policy Coalition demand in their statement on the FCA consultation CP25/40: Regulation should start where custody or verifiable, one-sided control arises, not with code, nodes or neutral infrastructure.
- The main point of contention is the FCA idea of a “clear controlling person”.
IOTA, together with the Sui Foundation, the Cardano Foundation and the Avalanche Policy Coalition, has a joint one opinion submitted for FCA consultation CP25/40.
The common thread: The FCA should not work with a watering can when it comes to regulation, but should start where someone holds assets or can unilaterally turn the adjusting screws. Not where people “just” write software or operate infrastructure like nodes. IOTA puts this together on X as a guideline for the paper:
“Our point: focus on custody & control, remain proportionate and support non-custodial, decentralized innovation for the UK.”
What IOTA, Sui, Cardano and Avalanche’s representatives demand
The distinction becomes clearest when it comes to staking. According to the IOTA Foundation, there is a fundamental difference whether a provider keeps customer money or whether users keep it themselves and the process takes place on the protocol side. This is how IOTA puts it on X:
“Regulation must clearly distinguish between custodian-based and non-custodial models. Custodial staking (where companies secure assets) = appropriate retail notices, consent + documentation. Non-custodian/protocol staking (no control over user assets/keys) should not fall under the same regime.”
In the letter, all signatories of the letter emphasize: Staking is not “a” model. It ranges from completely custodial to setups where no one but the user sees the keys. This is exactly why, so the argument goes, the FCA needs to make a clear separation, otherwise infrastructure will end up in the same regulatory package as custodians.
The DeFi part is about the FCA term “clear controlling person”. The four organizations are not saying that the term should go away. They want it to be defined in a way that can be determined technically and not by gut feeling. IOTA puts it like this in an X post:
“The FCA concept of a ‘clear controlling person’ needs a technical, objective definition. Duties should scale with custody, discretion and unilateral control – not with code writing, governance participation or neutral infrastructure.”
The logic behind it: DeFi does not work like a classic intermediary. Self-custody and automated execution shift the question of where risk arises and who actually has the power to unilaterally change things. Accordingly, regulation should be based where there is demonstrable control, not where someone builds tools or runs as a validator/infra provider.
IOTA is trying to move the point beyond “industry wants fewer rules”. The framing is consumer protection plus legal certainty: clear boundaries so that rules apply where there are real custody and control risks and not everything is regulated by default. IOTA writes about this on X:
“Smarter scoping = better consumer protection where the risk is real, plus legal certainty that protects non-custodial innovation from being out-regulated.”
In the end, a lot depends on a detailed question: how clearly the FCA defines “control”. This is exactly what decides whether non-custodial staking setups and DeFi infrastructure in the UK pass as neutral or whether they suddenly receive obligations that are actually intended for custodians and intermediaries. This would virtually eliminate DeFi in the UK.
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