Key Highlights
- Aave Labs submitted feedback to the FCA, advocating for a clear distinction between DeFi infrastructure and financial intermediaries.
- The protocol argues that open, permissionless systems operate as non-discretionary software rather than intermediary services.
- Aave warned that overly restrictive regulation could hinder the UK’s competitiveness in global digital finance.
DeFi protocol Aave Labs has formally submitted its response to the UK Financial Conduct Authority’s (FCA) consultation on crypto-asset perimeter guidance, urging the regulator to distinguish between non-discretionary DeFi infrastructure and traditional financial intermediaries.
In a detailed X post on Saturday, Linda Jeng, Chief Legal & Policy Officer at Aave Labs, outlined the protocol’s position. Aave operates two FCA-regulated UK entities, Push Labs Ltd. and Push Virtual Assets Ltd., giving it direct experience within the current regulatory framework.
Jeng said on-chain financial systems are being actively developed across the United States, European Union, Asia, and the Middle East. She argued that the UK faces a critical choice: “build a framework that lets it shape that global ecosystem, or build a walled garden cut off from the future of global finance.”
Core arguments of Aave’s submission
Aave’s submission on the FCA’s consultation focuses on three main points. First, it argues that DeFi protocols should be classified as non-discretionary infrastructure rather than financial intermediaries.
“Open, permissionless, and rule-based, they execute identically for all users and do not intermediate,” Jeng wrote. “Treating their developers as financial intermediaries is a fundamental misunderstanding. They are software engineers.”
Second, Aave challenged the FCA’s “added value” concept, stating it lacks any basis in existing legislation. The Regulated Activities Order (RAO) explicitly notes that merely enabling parties to communicate does not constitute “arranging,” yet the “added value” qualification does not appear in the statute.
Third, Aave proposed practical solutions that do not require changes to underlying legislation. The group suggested targeted amendments to the guidance that would maintain the full intermediary perimeter for genuine intermediaries while keeping non-discretionary infrastructure outside it.
This approach, according to Aave, aligns with the Regulated Activities Order, Money Laundering Regulations (MLRs), and HM Treasury’s original intent.
Aave founder and CEO Stani Kulechov also commented on the consultation. “Our team submitted a response to the FCA advocating for the protection of DeFi, with the hope of helping position the UK to embrace DeFi,” he wrote.
Outcome expected to impact UK’s broader ambitions
The submission arrives as the UK seeks to refine its regulatory approach to cryptoassets following the passage of the Financial Services and Markets Act. Industry participants have been closely watching how the FCA defines the boundary between regulated activities and permissionless protocols.
Aave urged the regulator to adopt amendments that preserve the integrity of the regulatory perimeter while avoiding unintended consequences that could isolate the UK from rapidly evolving onchain financial systems worldwide.
The FCA has not publicly commented on individual responses. The final guidance is expected to play a significant role in shaping the UK’s competitiveness in the digital asset sector.
The outcome could influence not only how DeFi operates in the UK but also the country’s broader ambitions in the global financial technology landscape.
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