UK Crypto Regulations: A 24-Hour Window to Avoid Unforeseen Consequences

The UK's Financial Conduct Authority has unveiled 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, outlines several technical pitfalls 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. Validators and node operators must also exercise caution, as providing 'added value' features such as user dashboards or yield tools may lead to loss of 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 'shadow custody' for the first time, clarifying that crypto service providers allowing theoretical override of client authority are considered custodians, regardless of whether they exert that power. The rules also mandate that stablecoin issuers must be established in the UK and manage the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA has invited views on these proposals until June 3, 2026, and intends to publish finalized rules and perimeter guidance later this year. 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 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 only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.