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DeFi Education Fund calls on UK FCA to narrow definition of control in crypto regulation

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DeFi Education Fund calls on UK FCA to narrow definition of control in crypto regulation

The DeFi Education Fund (DEF) has urged the U.K.’s Financial Conduct Authority to adopt a narrow, functional definition of “control” as it finalizes new rules for crypto asset activities.

The Washington, D.C.-based advocacy group argued that regulatory obligations should hinge on whether an entity has unilateral authority over user funds or transactions, not merely whether it developed or contributed to a decentralized protocol, in a response to an FCA consultation paper shared exclusively with CoinDesk.

“Control should be the determinative factor” of regulatory scope, DEF said, warning that software developers could otherwise be swept into intermediary-style obligations despite lacking custody or transactional authority.

The submission focuses on an area of the consultation which considers how decentralized finance (DeFi) arrangements should be treated under the U.K.’s emerging crypto regime. DEF supports the FCA’s control-based approach in principle but says it must be tied to concrete operational powers, such as the ability to initiate or block transactions, modify protocol parameters or exclude users.

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DEF is an organization focused on informing policymakers and regulators about the benefits of DeFi and has been one of the prominent lobby groups on the road to crypto regulatory frameworks being established in Washington in recent years.

The group also challenged the FCA’s framing of DeFi-specific risks, arguing that cybersecurity vulnerabilities are not unique to blockchain systems and that public blockchains offer transparency advantages in combating illicit finance.

Applying prudential, reporting and platform access requirements designed for centralized trading platforms to non-custodial, automated protocols would be “ill-suited,” DEF said.

The FCA is seeking to bring a broad range of crypto activities within its regulatory perimeter as the U.K. moves toward a comprehensive digital asset framework.

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Read More: UK regulators start major consultation on crypto listings, DeFi, and staking

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Crypto World

CFTC Chair Says Agency is Ready to Oversee Entire Crypto Market

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CFTC Chair Says Agency is Ready to Oversee Entire Crypto Market

Michael Selig, US President Donald Trump’s nominee leading the Commodity Futures Trading Commission (CFTC), said the agency was prepared to oversee the entire $3 trillion crypto industry, with no timeline for Congress to pass a crucial market structure bill.

In a Wednesday statement about his first 100 days as CFTC chair, Selig said that the commission was “ready to take responsibility” for the crypto market and reiterated his claim that it was the sole regulator to oversee prediction markets.

His comments come as the US Senate considers the CLARITY Act, a crypto market structure bill that has been effectively stalled in committee amid discussions over stablecoin yield and other issues.

“The same regulatory clarity being delivered to the crypto industry is being developed for prediction markets, which can serve as powerful tools for information discovery and are regulated by the CFTC under the Commodity Exchange Act,” said Selig.

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Under Selig, who was confirmed by the Senate in December, the CFTC has adopted many policies signaling that the agency would soften its enforcement and regulation of digital assets compared to previous administrations. In March, the agency announced a memorandum of understanding with the Securities and Exchange Commission (SEC) as part of efforts to coordinate on regulation, including digital assets.

Related: Crypto exchange KuCoin agrees to $500K settlement, ending CFTC case

Although early drafts of the market structure bill suggested the legislation could give the CFTC additional authority to oversee digital assets, the SEC is expected to continue regulating cryptocurrencies it considers to be securities.

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Lawmakers pressing CFTC on insider trading claims over prediction markets

US state authorities and federal lawmakers have been targeting prediction market platforms like Kalshi and Polymarket over alleged violations of gaming laws and claims of politicians using insider information to profit.

While many of the state-level actions continue to be litigated in court, Selig has claimed that the CFTC has “exclusive jurisdiction” over prediction markets and threatened legal action against any challenges to its authority.

In a Tuesday event, CFTC enforcement director David Miller said that the agency’s position was that event contracts on prediction markets were not “gaming” but rather “swaps” that fall under its purview.

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Some lawmakers have also proposed legislation to ban elected officials with insider information from profiting from event contracts after suspicious trades on military actions involving Iran and Venezuela.

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