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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may 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 tech exemption and necessitate seeking 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 a crypto service provider is considered a custodian if it can override a client's authority, even if it guarantees not to exercise that power. For stablecoin issuers, the rules require establishment in the UK and management of the entire lifecycle, from initial offering to redemption and reserve maintenance. 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 crypto service providers 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 the new approvals, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.