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

The UK's Financial Conduct Authority has proposed new crypto regulations that could significantly expand 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 that firms handling clients' crypto assets need to 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. Furthermore, validators and node operators must exercise caution, as they will lose their exemption if they provide 'added value' features such as user dashboards or yield tools, and must seek approval for arranging staking. The regulator has also addressed the issue of 'shadow custody,' making it clear that if a crypto service provider can override a client's authority, it is considered a custodian, regardless of whether it intends to exert that power. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026, and intends to publish finalized rules later this summer. 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 window to apply for approval, from September 30, 2026, to February 28, 2027, and those who miss this deadline risk facing fines, suspensions, or permanent closure.