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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that could broaden the definition of custody, potentially affecting platforms and software providers who do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical complexities that firms handling client crypto assets must be aware of. A key aspect of the rules is the 24-hour threshold for custody, where any firm holding client assets for more than a day during trade settlement may be classified as a regulated custodian, requiring a full safeguarding license. Furthermore, validators and node operators must exercise caution, as providing 'added value' features such as user dashboards or yield tools may necessitate seeking approval for arranging staking. The FCA aims to enhance consumer protections and support fair, transparent markets with these new regulations. Notably, the authority has addressed the issue of 'shadow custody,' clarifying that if a crypto service provider can override a client's authority, it is considered a custodian, regardless of whether it intends to exert that power. For stablecoin issuers, the rules are clear: issuance is only permitted if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules and guidance later this year. 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 have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for the new regime, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.