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

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that could broaden the definition of custody, potentially affecting platforms and software providers who do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, outlines several technical pitfalls for firms handling client crypto assets. A key aspect of the rules is the 24-hour threshold for custody, whereby 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 the regulator warns that providing 'added value' features, such as user dashboards or yield tools, could lead to the loss of their tech exemption, necessitating full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent markets with its new perimeter. Notably, the regulator has addressed the issue of 'shadow custody,' 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 FCA has also provided guidance for stablecoin issuers, stating that 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 regulator 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 require all entities providing crypto services to transition from the current money-laundering registration system to a more stringent 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 only those who apply during this period will be able to continue operating while the regulator reviews their application.