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

The UK's Financial Conduct Authority has introduced proposed 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 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 enhance consumer protections and support fair markets with these new regulations. Notably, the authority has addressed the 'shadow custody' issue, clarifying that crypto service providers allowing theoretical override of client authority are considered custodians, even if they guarantee not to exert that power. Stablecoin issuers are also subject to strict requirements, with issuance only permitted if the issuer is established in the UK and manages the entire lifecycle. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules and guidance later this year. 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 must apply for approval within a five-month window, from September 30, 2026, to February 28, 2027, to avoid potential fines, suspensions, and closures.