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 broaden the definition of custody, potentially ensnaring platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical traps for firms handling clients' crypto assets. A key aspect of the rules is the 24-hour threshold for custody, whereby any firm or crypto platform holding client assets for more than a day during trade settlement will likely be classified as a regulated custodian, requiring a full safeguarding license. Validators and node operators must also exercise caution, as they will lose their pure tech exemption if they provide 'added value' features, such as user dashboards or yield tools, and must instead seek full approval for arranging staking. The regulator has stated that its new perimeter provides the tools to strengthen consumer protections and support fair, transparent, and orderly markets as the sector matures. Notably, the FCA has addressed the 'shadow custody' issue, clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees it will never exert that power. For stablecoin issuers, the rules are equally straightforward, requiring issuers to be established in the UK and manage 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 stricter approval regime under the UK's Financial Services and Markets Act. Firms that wish to continue operating under the new regulations will have a five-month application window, from September 30, 2026, to February 28, 2027, and those that apply during this period will be allowed to continue operating while the regulator reviews their applications.