UK's New Crypto Regulations May Catch Firms Unaware

The UK's Financial Conduct Authority has proposed new crypto regulations that could 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 clients' crypto assets. 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 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 crypto service providers allowing theoretical override of a client's authority are considered custodians, even if they guarantee not to exert that power. The document emphasizes that the use of smart contracts, public blockchains, or decentralization elements does not determine the regulatory perimeter or exempt an arrangement from regulation. Stablecoin issuers are also subject to strict guidelines, with issuance 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 has requested 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 have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for approval, and only those who apply during this period will be allowed to continue operating while the regulator deliberates.