The UK's Financial Conduct Authority has unveiled proposed crypto regulations that could 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, outlines 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 will likely be classified as a regulated custodian, requiring a full safeguarding license. Validators and node operators must also 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 stated that its new perimeter provides the necessary tools 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, making it clear 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 notes that the use of smart contracts, public blockchains, or decentralized elements does not determine the perimeter position or exempt an arrangement from regulation. For stablecoin issuers, the rules are equally clear, requiring issuers to 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 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 have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for approval, and those who miss this deadline risk facing fines, suspensions, and potential closures. Only firms that apply during this period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.