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

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that may broaden the definition of custody, potentially ensnaring platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, includes several technical pitfalls that firms handling clients' crypto assets must watch out for. 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, triggering the need for a full safeguarding license. Validators and node operators must also exercise caution, as they will lose their exemption from regulation if they provide 'added value' features such as user dashboards, yield, or reward-compounding tools, and must instead seek full approval for arranging staking. The FCA's new perimeter is designed to strengthen consumer protections and support fair, transparent, and orderly markets as the sector matures. Notably, the FCA has addressed the issue of 'shadow custody' for the first time, clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees it will never exert that power. The document emphasizes that the use of smart contracts, public blockchains, or decentralized elements does not determine the regulatory perimeter or exempt an arrangement from regulation. For stablecoin issuers, the rules are clear: 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 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 system to a stricter approval regime under the UK's Financial Services and Markets Act. Firms that wish to continue operating under the new regulations have a five-month application window from September 30, 2026, to February 28, 2027, and those that apply during this period will be allowed to continue operating while the regulator reviews their application.