Timothy Morano
Jul 28, 2025 13:56
The IOTA Foundation, along with INATBA and Cardano Foundation, calls for nuanced UK crypto regulations, emphasizing the need for distinct approaches to custodial and non-custodial services.
The IOTA Foundation, in collaboration with the International Association for Trusted Blockchain Applications (INATBA) and the Cardano Foundation, has urged the UK’s Financial Conduct Authority (FCA) to reconsider its approach to crypto regulation. The joint statement emphasizes the need for a more nuanced regulatory framework that differentiates between custodial and non-custodial services. This call to action highlights concerns over the FCA’s current one-size-fits-all proposals, which could stifle innovation and drive it offshore if not addressed, according to the IOTA Blog.
Concerns Over Current FCA Proposals
The FCA aims to create a “safe, competitive and sustainable” crypto sector in the UK, proposing regulations for trading platforms, intermediaries, lending, borrowing, and decentralized finance (DeFi). However, the IOTA Foundation and its partners are worried about applying identical regulations to both centralized and decentralized platforms, arguing that these entities do not pose the same risks and should be regulated differently.
Centralized custodial services, which hold user funds, are likened to traditional financial services and necessitate oversight. In contrast, non-custodial services allow users to maintain control over their assets and operate through decentralized protocols with built-in safeguards.
Recommendations for Smarter Regulation
The coalition’s recommendations for the FCA include clarifying staking rules, acknowledging DeFi’s unique characteristics, adopting a tiered regulatory approach, and enhancing oversight of credit use rather than outright banning it.
They propose a clear distinction between custodial and non-custodial staking and advocate for a graduated compliance model that scales obligations based on the size, structure, and risk of projects. This approach aims to protect small teams and non-custodial builders from regulatory frameworks designed for larger, centralized entities.
Potential Risks of a Blanket Approach
The IOTA Foundation warns that the FCA’s current proposals could lead to compliance challenges for open-source, permissionless protocols, stifle the development of DeFi infrastructure, and push users towards riskier offshore alternatives. They argue that most consumer harm in the crypto sector has stemmed from centralized custodians with opaque practices, rather than transparent DeFi protocols.
UK’s Opportunity to Lead
The IOTA Foundation and its partners believe that the UK has the opportunity to lead the world in forward-thinking crypto regulation. By fostering collaborative and iterative guidance, the UK can protect consumers while empowering financial innovation. The IOTA Foundation remains committed to supporting the FCA with technical expertise and insights to help shape a world-class regulatory framework.
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