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

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that could significantly expand the definition of custody, potentially impacting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical pitfalls 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 or crypto 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 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 enhance consumer protections and support fair, transparent, and orderly markets as the sector evolves. Notably, the FCA has addressed the issue of 'shadow custody' for the first time, clarifying that crypto service providers allowing theoretical override of a client's authority are considered custodians, even if they guarantee never to exert that power. The document also states that the use of smart contracts, public blockchains, or decentralization elements does not determine the perimeter position or exempt an arrangement from regulation. For stablecoin issuers, the guidelines are clear: issuance is only permissible 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 system to a stricter approval regime under the UK's Financial Services and Markets Act. Firms intending to continue operating under the new regulations face a five-month application window from September 30, 2026, to February 28, 2027, and failure to meet this deadline may result in potential fines, suspensions, or permanent closures. Only those who apply during the application period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.