UK's New Crypto Regulations: A Hidden Pitfall for Unwary Companies

The UK's Financial Conduct Authority has proposed new crypto regulations that could significantly expand the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical traps that firms handling clients' 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. Validators and node operators must also exercise caution, as providing 'added value' features such as user dashboards or yield tools may lead to the loss of their pure tech exemption, necessitating full approval for arranging staking. The regulator has emphasized that its new perimeter is designed to strengthen consumer protections and support fair, transparent, and orderly markets as the sector evolves. Notably, the FCA has addressed the issue of 'shadow custody,' 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. The guidelines also provide clarity on stablecoin issuance, which is only considered legal 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 intends to publish finalized rules in policy statements this summer, followed by the final perimeter guidance in September. The new regulations will require all entities providing crypto services to transition from the current money-laundering registration systems to a more stringent approval regime under the UK's Financial Services and Markets Act. Companies that fail to apply for approval during the five-month window from September 30, 2026, to February 28, 2027, may face fines, suspensions, and permanent closures.