UK's New Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has proposed new 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 recently, highlights several technical traps for firms handling clients' crypto assets. Any firm holding client assets for more than 24 hours during trade settlement may be classified as a regulated custodian, requiring a full safeguarding license. Validators and node operators must also exercise caution, as providing 'added value' features such as user dashboards or yield tools may require full approval for arranging staking. The regulator has also addressed the issue of 'shadow custody,' stating that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. Stablecoin issuers are also subject to strict requirements, with issuance only considered legal if the issuer is established in the UK and manages the entire lifecycle. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026, and intends to publish finalized rules this summer. The new regulations will require all entities providing crypto services to transition from the current money-laundering registration system to a stricter approval regime under the UK's Financial Services and Markets Act. Firms that fail to apply for approval during the designated five-month window may face fines, suspensions, and permanent closures.