UK's New Crypto Regulations May Catch Firms Off Guard

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 client crypto assets. A key aspect of the rules is the 24-hour threshold for custody, where any firm or platform holding client assets for more than a day during trade settlement may be classified as a regulated custodian, requiring a full safeguarding license. Additionally, validators and node operators must exercise caution, as providing 'added value' features such as user dashboards or yield tools may necessitate seeking approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with these new regulations. Notably, the authority has addressed the 'shadow custody' issue, clarifying that a crypto service provider is considered a custodian if it can theoretically override a client's authority, even if it guarantees not to exert that power. The rules also outline requirements for stablecoin issuers, mandating that they be established in the UK and manage the entire lifecycle of the stablecoin. The FCA is seeking feedback on these proposals until 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 application window, from September 30, 2026, to February 28, 2027, to apply for the new regime, and those who miss this deadline may face fines, suspensions, or permanent closures.