UK's New Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced proposed crypto regulations that could significantly expand 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 that firms handling client 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, requiring a full safeguarding license. Validators and node operators must also exercise caution, as providing 'added value' features such as user dashboards or yield tools may lead to the loss of their pure tech exemption, necessitating full 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 issue of 'shadow custody,' clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, regardless of whether it intends to exert that power. The rules also mandate that stablecoin issuers must be established in the UK and manage the entire lifecycle of their offerings. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules later 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 systems 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 regulations, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.