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

The UK's Financial Conduct Authority has introduced new crypto regulations that may expand the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The recently published Cryptoasset Perimeter Guidance outlines several technical traps for firms handling client crypto assets, including a 24-hour threshold for custody. 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. The rules also apply to validators and node operators, who will lose their exemption if they provide 'added value' features such as user dashboards or reward-compounding tools. The FCA has addressed the 'shadow custody' issue, stating that if a crypto service provider can override a client's authority, it is considered a custodian, even if it guarantees it will never exert that power. The regulator has also provided guidance for stablecoin issuers, mandating that they must be established in the UK and manage the entire lifecycle of the stablecoin. The FCA is seeking views on these proposals until June 3, 2026, and intends to publish finalized rules in the 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 more stringent approval regime under the UK's Financial Services and Markets Act. Firms that intend to continue operating under the new regulations must apply for approval within a five-month window, from September 30, 2026, to February 28, 2027, to avoid potential fines and suspensions.