New UK Crypto Regulations: A 24-Hour Trap for Unwary Firms

The UK's Financial Conduct Authority has introduced proposed crypto rules that could broaden the definition of custody, potentially capturing platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, 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 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 necessitate seeking full approval for arranging staking. The regulator emphasized that its new perimeter is designed to strengthen consumer protections and support fair, transparent, and orderly markets as the sector evolves. Notably, the FCA has addressed the issue of 'shadow custody,' clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. For stablecoin issuers, the rules are equally straightforward, requiring issuance to be legally conducted only if the issuer is established in the UK and manages 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 intending to continue operating under the new regulations face a five-month application window from September 30, 2026, to February 28, 2027, and failure to meet this deadline may result in fines, suspensions, or permanent closures. Only those who apply during the application period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.