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

The UK's Financial Conduct Authority has proposed new crypto rules that could significantly 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 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 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 could lead to the loss of their pure tech exemption, necessitating full approval for arranging staking. The regulator has emphasized that its new perimeter is designed to enhance consumer protections and support fair, transparent, and orderly markets as the sector evolves. Notably, the FCA has addressed the 'shadow custody' issue, 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. For stablecoin issuers, the rules are equally straightforward, requiring issuers to be established in the UK and manage 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 in the 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 system to a stricter approval regime under the UK's Financial Services and Markets Act. Firms intending to continue operating under the new regulations have a five-month application window, from September 30, 2026, to February 28, 2027, and failure to meet this deadline may result in fines, suspensions, or permanent closures.