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 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, outlines several technical traps that firms handling client crypto assets must watch out for. According to the rules, any firm or crypto platform holding client assets for more than 24 hours during trade settlement will likely be classified as a regulated custodian, requiring a full safeguarding license. The regulator has also warned validators and node operators that providing 'added value' features, such as user dashboards or yield tools, will exempt them from the pure tech exemption, requiring them to seek full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with these new regulations. Notably, the regulator has addressed the 'shadow custody' issue, clarifying that if a crypto service provider can override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. The rules also mandate that stablecoin issuers must be established in the UK and manage 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 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 stricter approval regime under the UK's Financial Services and Markets Act. Firms that intend to continue operating under the new regulations must apply within a five-month window, from September 30, 2026, to February 28, 2027, to avoid potential fines, suspensions, and closures.