Opinion by Katie Harries, head of policy, Europe, Coinbase

The United Kingdom is approaching a decision that could help define its financial future: whether decentralized finance (DeFi) should develop through regulated gateways or be confined to a silo.

The issue extends beyond crypto enthusiasts. It concerns the future of capital markets, the competitiveness of the City of London and the UK’s ability to shape the next generation of financial infrastructure.

DeFi is software that allows people to borrow, lend and trade directly with one another without relying on an intermediary such as a bank or broker. It operates less like a financial institution and more like the internet, promising financial services that are cheaper, faster and accessible to everyone at any time.

DeFi will remain accessible through open-source and decentralized routes. Regulated providers can also create a route to DeFi, allowing customers to use the technology while receiving key information about the services they are accessing and the risks involved.

However, the Financial Conduct Authority’s (FCA) proposed crypto rules could make that difficult or impossible. The FCA, the UK’s financial services regulator, is expected to require regulated platforms to ensure that customer orders are executed only on an FCA-authorized venue. The objective is to prevent overseas firms from illegally accessing the UK market. But the requirement could also block access to DeFi, because the decentralized protocols and exchanges where users execute orders do not have a person behind them who could become authorized.

The FCA’s cryptoassets regime policy statements provide an overview of the proposed framework.

No rule explicitly states that firms cannot offer DeFi integrations to customers. However, the FCA has made clear that it is not seeking to create rules specific to these products. Instead, it plans to apply the same rules used for fully centralized trading. The result could be a de facto ban.

From October 2027, regulated platforms may no longer be able to provide customers with access to DeFi services unless the FCA changes its approach.

The government has pledged that it wants the UK to “lead the world on digital assets.” It will struggle to meet that ambition if British firms are cut off from the decentralized infrastructure on which digital asset markets are built. The government’s position was also set out in an Economic Secretary to the Treasury speech for UK Digital Assets Week.

DeFi is becoming part of the next financial infrastructure

Regulators in other jurisdictions recognize the opportunities associated with DeFi and are exploring ways to enable innovation. In the European Union, the European Securities and Markets Authority has proposed allowing regulated firms to provide access to DeFi, saying this could “allow innovation in decentralized finance in a regulated and transparent environment.”

In September, the United States Securities and Exchange Commission granted an “Innovation Exemption” for the peer-to-peer trading of tokenized stocks using automated trading systems and liquidity pools.

In short, the US and EU are examining how traditional finance and DeFi infrastructure can work together. The UK should be exploring the same possibility before closing it off completely.

Onchain tokenized finance — in which traditional assets such as stocks or funds are represented as digital tokens on shared blockchains — cannot reach its full potential if it is confined to closed and fragmented systems that struggle to interact with the decentralized technology underpinning them.

A de facto ban may push DeFi beyond the regulator’s reach

The UK has set out its first full rulebook for crypto regulation. From Oct. 25, 2027, firms offering crypto services to UK customers will need authorization from the FCA. The FCA is now consulting on guidance covering how its rules will apply to firms that provide financial services using or interacting with DeFi. The consultation is available in GC26-7. How the FCA finalizes that guidance will signal whether it intends to leave room for regulated access to DeFi before the October 2027 authorization deadline, or whether the centralized-trading rulebook will apply unchanged.

Potential concerns surrounding DeFi integrations fall into three categories. First, a customer using a familiar regulated platform may not realize when they have entered an environment where the usual protections do not apply. Second, some firms could use DeFi integrations to avoid regulatory obligations. Third, DeFi could introduce risks related to financial crime and market resilience.

The government has said that the UK wants to lead the world on digital assets, as outlined by Gov.uk.

These risks point to the need for clear consumer information and defined responsibilities for firms, not a prohibition.

A de facto ban would produce the opposite of its intended effect. It would not eliminate DeFi. Instead, it would push more activity beyond the FCA’s practical visibility and reduce regulated firms’ ability to shape how customers interact with it.

Regulated platforms can provide a useful point of supervision. They can explain clearly when customers are leaving a regulated environment and require their consent before allowing that transition. Regulated firms can alsoate access to selected protocols, assess operational and governance risks, and report incidents and usage to regulators.

Regulate the gateway, not the technology

The UK already recognizes in other areas of finance that regulated institutions can provide access to products or markets that do not carry the same level of oversight.

Many retail trading platforms and so-called “super apps” now give consumers access to products ranging from stocks and money market funds to commodities and foreign exchange, with different levels of regulatory protection. The FCA permits this provided that platforms clearly explain which protections apply to different products and services.

DeFi integrations therefore require a better solution. The FCA should protect consumers, but it should not seek to achieve that protection through total exclusion.

Responsible integration would give consumers clearer information, provide supervisors with greater visibility and give UK financial services firms an opportunity to compete in the next phase of financial innovation.

DeFi protocols can already be accessed directly without using regulated firms. The question is whether consumers will also be able to access DeFi through a regulated gateway with clear disclosures and guardrails.

The stakes extend beyond crypto trading. DeFi underpins the greatest potential cost savings as financial services move onchain, with fewer costly intermediaries and systems capable of supporting activity around the clock and across borders. Regulation that provides a clear route for supporting DeFi is crucial to giving firms the confidence to invest in UK innovation over the long term.

If barriers to access are imposed in the UK, tokenized capital markets and financial innovation more broadly could develop in countries that are decisive in supporting DeFi infrastructure.

The UK cannot credibly aspire to lead in digital finance while closing off the decentralized infrastructure on which the future of finance is being built.

About the author: Katie Harries is the head of policy for Europe at Coinbase. She leads on international policy, engaging with regulators, governments and industry stakeholders to shape a regulatory environment that fosters growth, competition and responsible oversight for digital assets in the UK and Europe. Before joining Coinbase, Harries was a vice president at Goldman Sachs. She is also heavily involved in the UK Cryptoasset Business Council (UKCBC), the country’s leading crypto trade body.