UK's New Crypto Regulations: A 24-Hour Deadline That Could Catch Firms Off Guard

The UK's Financial Conduct Authority has proposed crypto regulations that could broaden the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, outlines technical traps for firms handling clients' crypto assets. A key aspect of the rules is the 24-hour threshold for custody, where any firm or platform holding client assets for more than a day during trade settlement may be classified as a regulated custodian, requiring a full safeguarding license. Validators and node operators must also exercise caution, as they will lose their tech exemption if they provide 'added value' features such as user dashboards or yield tools, and must seek approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with its new perimeter. Notably, the regulator has addressed 'shadow custody' for the first time, clarifying that a crypto service provider is considered a custodian if it can theoretically override a client's authority, even if it guarantees not to exert that power. Stablecoin issuers are also subject to strict requirements, with issuance only permitted if the issuer is established in the UK and manages the entire lifecycle. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules in the summer, followed by the final perimeter guidance in September. The new regulations will require all crypto service providers to transition from the current money-laundering registration system to a stricter approval regime under the Financial Services and Markets Act. Firms have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for approval, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.