UK's New Crypto Regulations: A 24-Hour Threshold 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 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 a loss of exemption and require approval for arranging staking. The FCA's new perimeter aims to enhance consumer protection and support fair, transparent markets as the sector evolves. Notably, the regulator has addressed 'shadow custody' for the first time, stating that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. The guidance also clarifies that the use of smart contracts, public blockchains, or decentralization elements does not determine the regulatory perimeter or exempt an arrangement from regulation. For stablecoin issuers, the rules are clear: issuance is only legal if the issuer is established in the UK and manages 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 only those who apply during this period will benefit from 'savings provisions' allowing them to continue operating while the regulator reviews their application.