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 may broaden the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, highlights several technical traps for firms handling client crypto assets. 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 FCA aims to strengthen consumer protections and support fair, transparent markets with these new regulations. Notably, the authority 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, regardless of whether it guarantees not to exert that power. The guidance also emphasizes that the use of smart contracts, public blockchains, or decentralization elements does not determine the regulatory perimeter or exempt an arrangement from regulation. For stablecoin issuers, the rules mandate that issuance is only legal if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA has requested feedback on these proposals, with a consultation period closing on June 3, 2026, and intends to publish finalized rules in the summer, followed by the final perimeter guidance in September. The new regulations 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 must apply for approval within a five-month window, from September 30, 2026, to February 28, 2027, to avoid potential fines, suspensions, and permanent closures. Only those who apply during this period will benefit from 'savings provisions' that allow them to continue operating while the regulator reviews their applications.