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

The UK's Financial Conduct Authority has proposed new 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 clients' crypto assets must watch out for. According to the rules, any firm or crypto platform holding client assets for more than 24 hours 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 has emphasized that its new perimeter is designed to strengthen consumer protections and support fair, transparent, and orderly markets as the sector evolves. Notably, the regulator has addressed the issue of 'shadow custody,' making it clear that if a crypto service provider can theoretically override a client's authority, it will be considered a custodian, regardless of whether it guarantees not to exert that power. For stablecoin issuers, the regulations are equally stringent, requiring issuers to 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 in policy statements 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 more stringent approval regime under the UK's Financial Services and Markets Act. Firms that fail to apply during the designated five-month window, from September 30, 2026, to February 28, 2027, risk facing fines, suspensions, and potential closures. Only those who apply during this period will benefit from the 'savings provisions' that allow them to continue operating while the regulator reviews their applications.